Will We Ever Have Free Markets Again?

Are we supposed to consider it good news that Wells Fargo, Goldman Sachs, JP Morgan Chase, and even Citigroup recently announced profits?  Does this mean everything with the world and financial markets is getting better?  Let’s decide.


The Washington Post (I know, you can’t believe I’m actually referencing this paper) reported that “lending by the nation’s largest banks fell 6 percent in February from the previous month, continuing a downward trend that began in October…”  The banks surveyed received $211 billion in Government funds.  Thanks a billion Hank Paulson – TARP really helped open up credit.  Bank lending remains tighter than a _ _ _ _ _ _ (fill in the blank with whatever word immediately comes to mind).


Banks aren’t lending, foreclosure filings increased 24%, unemployed claims remain greater than 610,000 for last week, and home values are depressed.


General Growth Properties, the second largest U.S. mall owner, filed for bankruptcy protection.  The filing was essentially caused by the fact that they could not refinance maturing debt obligations.  How many more companies will file bankruptcy in the ensuing months because they cannot refinance the hundreds of millions of dollars of maturing debt coming due in this time frame?


And now, Sheila Blair, the Chairman of the FDIC, is contemplating how to figure out how the retail public can buy toxic assets so that the average unaccredited investor isn’t left out of this party.  The Government hasn’t even figured out all of the details of how the Public-Private Investment Program (“PPIP”) will work, and now she wants Joe the Investor to own some toxic assets.  The average investor did so well buying Munder Net Net and following the internet train wreck that you can only imagine how the Government and Wall Street will figure out how to pass the risk of the PPIP on to retail consumers.


A close friend said the world is flat, we have to think differently.  On one hand, I completely agree.  However, if you want free markets, then for goodness sake, let free markets exist and stop pushing policy and trillions of dollars into the system. 


Recently, Chris Isidore of CNNMoney.com wrote about an individual who might lose money if his General Motors’ bonds become worthless.  This retail investor bought the bonds at a steep discount and liked the 8% yield he was going to receive.  The article alluded that it is going to be a shame if he, and other individual bondholders, lose money on GM bonds.  Where is it written that all investment decisions are supposed to be winners.  Can people no longer think logically?


Who even knows if the first quarter profits of the three aforementioned banks are really profits.  Once subjected to GAAP accounting and to year end adjustments and to reserves, profits can easily become losses. 


Stop already with PPIP, TARP, TALF, and more acronyms.  Let companies fail, let bankruptcy courts do what they are supposed to do, and just let free markets get back to being free markets.  I’m willing to take my chances on the outcome of that strategy – are you?


 Have a great weekend.


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