Thursday, September 18, 2008

Best of the Net - Thursday September 18, 2008

Is it Friday yet? That was perhaps the biggest roller coaster ride I have ever witnessed, yet I fear that it won't be the last of it's sort. Why? Because the US Government insists on prolonging this unwinding for decades. They are following Japan's mistakes of the early 90's absolutely verbatim. The most recent action being a government backed effort to create a mortgage investment company that will buy all of the troubled debt securities and a possible outright ban on short selling. The name of the investment company is proposed to be the "Permanent Solution Trust." If that is not Orwellian, I do not know the meaning of the term.

Additionally, if these government hacks think that banning short sales will do anything to curb the slide in stock prices, they are about to find out the hard way what happens when prices fall and there are no buyers (because there are no shorts to cover their trades.) All in all, I am furious. I knew these guys were stupid. But THIS stupid? I've talked about a move toward socialism in the US and around the world for months now. Well this is it. We are here. The very little that remained of 19th century capitalism is effectively gone. Free enterprise has taken a back seat to government price fixing schemes.

In the end, this will all fail. Sure, things may be better a year from now than they otherwise would. But 10 years out, we will still be recovering from this mess. If the free market were left to deal with this and kick those reckless investors and bankers to the curb, a short and swift depression would give way to an eventual recovery. Now the depression could last decades as price discovery is delayed and distorted.

Yves Smith had his take on the proposed 'plans' in this article at the Naked Capitalism blog.

Mike Shedlock was talking about these moves with his article, Peak Insanity. Mike received a very good letter from a concerned reader, "CS" that he posted in this article. I highly suggest everyone read it.

Kevin Depew had an article focusing on money market funds and their potential pitfalls. Anyone holding 'cash' in a money market fund would be well advised to read Money Market Fund Investors Catch the Fear.

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