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The Mother of All Bailouts

Written By Brian Hicks

Posted September 19, 2008

galley slave

What I can say, other than the obvious.

This week has been by far the craziest week I have ever seen in the markets.

I mean think about it, just 7 days ago Hank Paulson was busy drawing lines in the sand, and today we wake up to idea that Uncle Sam will be backstopping everything.-and I do mean everything.

That’s radical change in the game that calls into question how free the free markets really are. Because as it turns out, Freddie and Fannie weren’t the only government sponsored entities (GSA’s). The entire financial sector was backed up too.  They just didn’t bother tell us.

So today you can probably add another $1 trillion onto the backs of prudent to bailout the reckless.  That’s not exactly what Adam Smith had in mind.

So get back to work Mr. and Mrs. Taxpayer.  It’s time to socialize the losses and you are the bagholder.

Wall Street has now picked your pockets a second time. First, with the housing bubble they trapped you in and now with the bailout of its aftermath.

Neat trick huh?

But at least you can take solace in this: They did it for your own good.  I guess that’s why they call the these folks the “masters of the universe”

The game was rigged and Main Street didn’t stand a chance.

This one will be the mother of all bailouts, I can assure you.

Here are the sketchy details…..

From AP by Jeannine Aversa and Julie Hirschfeld Davis entitled: Gov’t rushing to finish huge financial rescue plan

“The Bush administration sketched out a multi-faceted effort on Friday to confront the worst U.S. financial crisis in decades, outlining a program that could cost taxpayers hundreds of billions of dollars to buy up bad mortgages and other toxic debt. Relief washed over Wall Street with a surge of buying.

President Bush, flanked by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, acknowledged that the program will put a “significant amount of taxpayers’ money on the line.”

The administration is asking Congress to give it sweeping new powers to execute the plan. Paulson said it “needs to be big enough to make a real difference and get to the heart of the problem.”

Paulson gave few details but said he would work through the weekend with leaders of Congress from both parties to flesh out the program, the biggest proposed government intervention in financial markets since the Great Depression. Members of the Senate Banking Committee said they had yet to receive details of the proposal, but were ready to move quickly when they do.

Before the markets opened Friday, the government announced plans to temporarily insure money-market deposits and to block short-selling in financial securities. Short selling is a trading method that bets the stocks will go down.

Speaking to reporters at the Treasury Department, Paulson said that the new troubled-asset relief program that he wants Congress to enact must be large enough to have the necessary impact while protecting taxpayers as much as possible.

“I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion,” Paulson said in a prepared statement.

“The financial security of all Americans … depends on our ability to restore our financial institutions to a sound footing,” he said.”

So there you have it. They had to destroy the village in order to save it.

By the way, everything they did this week will have some pretty big unintended consequences. After all, isn’t that the government’s specialty?

Either way, you better keep rowing.