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The Dow Jones Industrial Averages soared 175 points on the day that the Bush Administration announced its housing bailout plan. Wall Street was wrong. It wasn’t something to cheer about. The major argument against the bailout plan is that it keeps free market forces from clearing out all the toxic sludge built up in our housing and banking system. It is argued that the bailout will certainly prolong the pain and could exacerbate the housing and mortgage mess over the long haul. But it’s all we have. The bailout plan will not help the the sellers of the estimated 2.5 million homes that are not occupied by the owners of the properties – none of which are eligible for the Treasury debt relief plan. Those homes will remain vacant or possibly be sold at much lower prices. The debt relief is aimed at homeowners with FICO credit scores of 660 or below and are still current on their mortgages to “freeze” their interest rate for an additional five years. The outcry is that the investors in these subprime mortgages will suffer the loss of the additional return they were expecting at the time of reset. The problem with this argument is that we can already see that, without the bailout, they would likely get nothing. This argument has its parallel in bankruptcy law. If a debtor is insolvent, it is better to liquidate the remaining assets under Chapter 7. On the other hand, if the debtor is still solvent and able to make payments, a restructuring under Chapter 11 will provide relief to the debtor and often provides a better value to the creditors. The cost of bringing a foreclosed home back into the market is estimate to be in excess of $50,000, along with the lower price it might bring in a constrained buyers’ market. So investors in mortgages would get some relief from this plan as well as stabilize the market for subprime debt. Another argument against the current plan is that it doesn’t help those with higher FICO scores who were suckered into buying a subprime mortgage when they would have been better off owning a house with a conventional mortgage. And those that are insolvent aren’t being helped at all. According to them, the plan does too little rather than too much to extend the coverage and scope of the debt relief. But the alternative of doing nothing is far worse. By easing debt servicing requirements to those who can afford to pay the plan not only reduces the number of homes potentially doomed to foreclosure, but also gives investors some value rather than facing the aftermath of massive defaults. And, so far, it involves no taxpayer money. The days of Bedford Falls where Jimmy Stewart (George Bailey) and the Bailey Brothers Building & Loan offering mortgages to new homeowners is over, if it even existed at all. (Take the time to see “It’s a Wonderful Life.”) Wall Street took the home mortgage business to a new level of speculative lending and dishonest selling that has to end. It’s too bad that it had to sting a lot of innocent folks in the process. Apocalypse now?
Of all the times of the year to have a major market setback, this is not considered to be one of them. The seasonality model which avers that you buy in November and sell in May may not apply this year. Market veteran Harry Schultz isn’t buying it, either. Shultz's latest letter is absolutely apocalyptic, "A financial tsunami is upon us," he says, caused by lax credit and complications introduced by Wall Street's derivatives craze. He may be right.
Treasury Bonds are also taking a hit.
Gold not holding $800.
Say it ain’t so! According to the experts, gold should be rallying at the news of higher inflation. It looks weak to me.
There goes the neighborhood. Japan is declining too.
Before the open, the Bank of Japan revealed the results of its Tankan Survey, which reports on business confidence. The survey reports that business confidence fell for the first time in three quarters.
Are Chinese being driven to drink?
…Or could it be that more Chinese are drinking after the 18% sell-off the Shanghai Composite has seen since mid-October? Oh, those animal spirits
The U.S. Dollar is gaining respect.
Greenspan says, “Housing bubble caused by inflation expectations.”
Expectations of lower gasoline prices?
Prepared for peak heating.
No More Bubbles to Bail out the Housing Bubble By Bill Fleckenstein , a contrarian that thinks as I do. The negatives keep growing, this time unchecked. The stock market, the real estate market and the economy will get in sync on the downside -- it’s just a matter of when. Beam me up, Scotty. There are still no signs of intelligence on Wall Street. Kevin Duffy has a good article, too.
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Today
the Department of Labor announces that the 
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Dec 14 (Reuters) – “
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Investors also found few reasons to buy after the central bank's latest
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“I didn’t do it!” Greenspan has an article in Wednesday’s 
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