Here are the facts:
The Government has vowed to bail out any financial institution that is "too big too fail". Many Financial Institutions of all shapes and sizes are in serious trouble. The numbers they are trying to run are crippled. Global equities markets have been on a percipitious decline for the last 10 months. Credit is becoming harder and harder to come by. Banks are no longer lending each other money with open arms. Extension of Credit and the ability to pay back a loan is key to our economy functioning. Housing prices have been falling, due to the massive over building and speculation due to very low interest rates and cheap money for years and years. The Government can literally cover the 1 trillion dollar tab of all of the bad mortgage paper.
Here is what I think will happen......
The Gov will put all of the garbage loans into one company and funds its money losing operations attempting to help stabilize the mortgage finance and credit markets.
Will this Help the Markets? Sure. The Government is going the distance and is committed to solving the problems. They are doing what they can to prevent a total immediate collapse.
However, the process for stocks to be richly valued as an asset class again is going to take some time. As Traders we must recognize when any financial instrument is attracting more excited and emotional Sellers than Buyers, or vice versa.
The Government is here to do the ugly job of assisting the market, how ever they can. If it happens to burden tax payers to fend off a "systematic collapse", then that is just the price we must pay. We Don't have a Choice.
Free Markets are not Free. The Rewards are Privatized and the Risks are Socialized. This is how it is, and we can't do much about.
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