The Big Bailout: Investors Vote No Confidence

Stock indexes are an indicator of investor confidence in the economic future. The Chart tracks the 40% decline in the Nasdaq Index since the beginning of the most massive series of government interventions in the private economy in American history.

Clearly, investors are not confident that Congressmen, Senators, and Treasury officials have the insights to resolve the credit crises any more rapidly or decisively than the market forces they seek to subdue.  There was a brief rally leading up to election day, but the downward spiral resumed the following day.

  1. Government seizes Fannie Mae and Freddie Mac.
  2. John McCain moves ahead in the polls.
  3. Lehman Brothers Bankruptcy.
  4. Government seizes AIG.
  5. Bush Administration announces bailout plan.
  6. Federal Reserve Chairman Brenanke and Treasury Secretary Paulson testify on Capital Hill on bailout.
  7. Barack Obama pulls ahead in the polls.
  8. Barack Obama, John McCain and Congressional leaders meet with President Bush to negotiate terms of the Bailout.  Meeting ends in disagreement.
  9. Washington Mutual becomes largest thrift failure in history.
  10. House votes down first version of bailout legislation.
  11. Senate passes, and President Bush signs revised bailout.
  12. Barack Obama explains to Joe the Plumber that he will hike taxes on small businesses in order to “spread the wealth.”
  13. Joe Biden warns the nation that Barack Obama will face a “generated” foreign crisis during his first six months.
  14. Treasury Dept. announces bailout funds have been invested in bank stocks instead of mortgage backed securities.
  15. Barack Obama elected President.
  16. Chairman Brenanke and Secretary Paulson testify before an angry, Disappointed House Banking Committee.
  17. Auto Executives Come to Washington with tin cups.
  18. Auto Executives go back to Detroit empty handed.
  19. Barack Obama announces his intention to appoint Tim Geithner as Treasury Secretary.

The announcement at 3PM Friday that Tim Geithner would be appointed Treasury Secretary transformed what was shaping up to be another down day on Wall Street into a spectacular, final hour rally.  For the day the Dow was up $494, or 6.5%, and the Nasdaq was up $68, or 5.2%.

Mr Geithner, who is currently President of the New York Federal Reserve Bank has served both Republican and Democrat administrations for almost two decades.  In recent weeks he has worked closely with Secretary Paulson on bailout decisions and thus brings a measure of continuity through the transition to the new administration.

Investors were thrilled to learn that for this post President Elect Obama had decided to go with experience instead of delivering on his campaign promise of “change we can believe in.”

Perhaps President-elect Obama can make the rally last longer.  He can announce that he will permanently cancel his plans, and renege on his campaign promises to:

  • Punish small business with tax increases
  • Hike the capital gains tax on investors who take the risks and make the investments necessary to jump start the economy
  • Implement a crushing new tax on carbon
  • Appoint Supreme Court justices who are hostile to liberty and private enterprise

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