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Friday, March 20, 2009

For want of a nail

For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.

After throwing literally trillions of dollars at the economy and the stock market, Congress has gone after AIG for $165 million dollars.  While $165 million dollars sounds like a lot of money if you’re the unemployed type who makes death threats on the receptionist at your local AIG affiliate, in the grand scheme of things we’re talking about less than one hundredth of one percent of the money committed to rescue financial institutions.  We’re talking about less than 1 penny out of every hundred dollars.  The effort to retrieve this $165 million dollars has wiped out billions of dollars of financial stock recovery as the market has decided all the TARP recipients will quickly do offerings to raise the capital to pay the loans back immediately, creating further pressure on the financial stocks.

The market remains efficient, despite unprecedented attempts to manipulate it by policymakers and the Federal Reserve.  This morning Leon Cooperman was on CNBC and he made the claim that the Federal Reserve will eventually fix this.  It may take years, said Cooperman, but they will.  I submit that its not the Federal Reserve that fixes it – they CAN’T – all they can do is influence the market, not dictate it.  Time and pain will fix it.  Eventually the market will find a price for even the most profane of assets.  Eventually bad businesses will disappear.

The government is becoming the most frightening and ominous corporate vulture the free market has ever seen and they will drive investment out of America if they continue to play Robin Hood like this.  In trying to micro-manage their financial stock support, they’re killing the stocks.  I don’t know which is a bigger waste of my tax dollars, the financial crisis or the politicians.

Between minutes 3 and 8 here, Michael Steinhardt has a great riff on the unprecedented lack of bankruptcies and debt liquidation in this cycle due to all the government support.  I have to admit, I actually cheered at one point during this.  I am such a geek.

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