Skip to main content

(Prematurely) Grading The Bailout

In the wake of the worst single day performance on the Euro stage in recent memory for the Dollar, you might sit up and take notice. Of course, an injection of $700 billion is going to impact the dollar however you do it, so I say ignore the European foreign exchange nerds all together. Still, some are tempted to read this as a mandate on the bailout and (by extension) those doing the bailing.
I guess we should expect to see certain congressional democrats, fresh from the scrapyard holding shards of their favorite legislative wreck skyward in hopes the heavenly bailout magnet will pick them up, citing with authority the nuances of global foreign exchange to belittle Hank and his brethren in the hopes the might get some scraps that will keep their mouths busy with chewing.
That's not to say we turn our nose up at changes designed to increase transparency, make the bailout financially painful enough to try and encourage firms to use it as a last resort, rather than a wheelbarrow of money for the taking, allow the Treasury to keep warrants in the bailees (not to be confused with the Baileys, Hank, take it easy). But when we start slipping into stimulus programs (which tend to be pretty useless even when you just write checks to taxpayers), price controls on executive pay, and the kitchen sink, well, someone should point to yesterday's market performance and note that, while index futures seem to have the market set for a flat open this morning, the clock is ticking.
All this presupposes that Hank knows what he is doing, and that throwing cash at the problem will fix it. It seems pretty clear that, in order to do any good, the Treasury is going to have to buy assets at significantly overvalued prices. Perhaps, in fact, this is why transparency is still an issue. If, as the UK has been prone to do in similar circumstances, purchases or borrowings are shielded, there isn't any new pricing data to trigger mark-to-market write-downs. Hmmmmm.
Will it help? That, I think, is far from certain. Time will tell. And you can always short the indexes (for now).