Stocks had another tumultuous day, starting up, but the S&P 500, Nasdaq, and the Dow ended more than 1% down.
Concerns over the Treasury Secretary Paulson’s $700 billion bailout bill have mired the market over the past two days, and the uncertainty is going to continue until legislation is passed.
Paulson has requested a program that is “not punitive,” while Congressional leaders are likely going to make it difficult for banks to use the new facility, temporarily penned the Troubled Asset Relief Program (TARP). Paulson is an old Goldman chief executive, and it is unclear where his allegiance is.
One thing that is clear is that the language being used is the same language that was used when the Patriot Act was rushed through Congress. There is an “imminent threat” to the national economy. Legislators “must act now,” and there is “no time for hesitation.”
As a deliberative body, it is the job of Congress to find the best solution, and work through all possible outcomes. While they rarely do this job well, forcing through a bill on the danger of an immediate threat is no way to handle a banking crisis that is over one year old.
Fed Chairman Bernanke and Paulson smelled this one a mile away, when the first Bear Stearns CDOs were written off in July of 2007 â€” 14 months ago. That they have waited until the economy is at the precipice of danger is not the fault of ill-equipped representatives.
Smart money is maintaining liquidity and using any strength as an opportunity to sell potential liabilities. There will probably be an upward surge to Dow 12,000 when Congress passes a law, but it is not likely to last. Buying opportunities are likely in the coming nine months: Dow 9,500 will be back.