Let me just repeat that: John McCain is an unmitigated disaster.
As the news rolls in of the biggest ever bank failure in the U.S. history, John McCain thinks that the solution to the current financial crisis may lie in suspending the capital gains tax for two years and providing tax incentives to encourage firms that buy up bad debt.
John McCain who until last week was pronouncing that the fundamentals of the economy are strong, is now trying to pull the a huge stunt. The latest agreement between Senate democrats and republicans as well as house democrats, while not ideal, is a huge improvement over the King Henry plan. John McCain's attempt to inject himself into the negotiations over the bailout plan are despicable.
Remember one thing: The Current Paulson plan has NO PROVISION TO HELP HOMEOWNERS UNDER DISTRESS. The plan is to protect the financial institutions that hold toxic securities.
If the ordinary citizens of the United States do not want to be saddled with additional fiscal burden without any guarantee of helping the national economy, then it is important to stop the Paulson plan in its current format.
With the Fed release that in about a week Goldman Sachs and Morgan Stanley will cease to exist in their current status as independent investment banks, one chapter in the history of wall street is over. GS and MS will now become bank holding companies, subject to a greater set of rules that apply to mega banks such as Citigroup and JPMorgan.
The WSJ is reporting that the SEC os considering a temporary ban on short-selling. Apparently, John Mack of Morgan Stanley has called for such a move. The move follows a similar directive in England that has temporarily banned short selling in financial securities. The Big Picture has more. I am not sure if SEC is actually as stupid as to actually ban short-selling even for a short period.
Back in April, David Einhorn said that outlook for Lehman's stock was dim and the likely response from the regulators will be to "send me a subpoena and Send Lehman a Coke".
This evening, NY state Attorny General Andrew Cuomo announced that he has started a "wide-ranging investigation into short selling in the financial market" related to companies such as Lehman, AIG, Morgan Stanley and Goldman Sachs.
This is CRAZY!
How stupid are these people?
Now, I don't know if David Einhorn will actually get a call from Mr. Cuomo or not. He is hardly the only big star who was short Lehman for some time.
My favorite blogger Barry Ritholtz may or may not have been short Lehman, but he sure warned about it back in June when the stock was still trading in the 40s.
Jim Rogers has been short Lehman and other investment banks at least since August of last year!!! In fact, according to this article, he has been short the investment banks since the beginning of 2007. I have been listening to his interviews on Bloomberg for almost as long, and he has stated every time that he has been short every one of them, and if they go up in price, he will short some more.
Here is Rogers quote from October of last year: "Who knows how bad the balance sheets are, They took on gigantic amounts of bad paper."
Jeremy Grantham, who called out the truly first global bubble back in April of 2007 also warned in July of 2008 that "The Fed and the Treasury have moved to bail out large financial corporations under the smoke screen of a liquidity crisis. As is increasingly realized, it was not a liquidity crisis primarily, but a solvency crisis. Marked to market 6 months ago, Bear Stearns and Lehman were bankrupt as are Fannie and Freddie today. The bailouts are really providing what amounts to capital to insolvent firms as opposed to preventing the classic run on a bank as occurred in “It’s a Wonderful Life,” where a bank goes bust through no fault of its own. These bailouts permit a shameful lack of accountability for reckless behavior."
Go back to July 2003, when John Hussman, in his essay Freight Trains and Steep Curves wrote: "The major force shaping economic dynamics over the coming decade is likely to be an unwinding of the extreme leverage that individuals, businesses, and the U.S. itself (via its record current account deficit) have accumulated.
...... Many of these difficulties are well recognized, if not universally feared. What is not so obvious is the extent to which the U.S. economy and financial markets are betting on the continuation of unusually low short-term interest rates and a steep yield curve. This doesn't necessarily resolve into immediate risks, but it could profoundly affect the path that the economy and financial markets take during the next few years, by making the unwinding of debt much more abrupt."
That massive deleveraging of the financial system began ever so slowly last summer and has picked up steam this summer. The reason Lehman went bankrupt was not because some hedgies were shorting the Lehman stock. The reason Lehman went bankrupt was because people who have been doing the financial alchemy forgot that when you are leveraged 33 to 1, a simple 3% decline is your total investments can wipe your assets.
The United States calls itself a capitalist country, but it's regulators clearly don't know ABC of capitalism.