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Reply #126: They're not free market partisans. [View All]

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ozymandius Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jan-25-08 05:37 PM
Response to Reply #101
126. They're not free market partisans.
The PPT and their Wall Street minions love controlled economies. Value fluctuations are dangerous for many reasons: two of which are maximum guaranteed compensation and ego. But their solution to stabilize markets are, as Heller puts it, their Achilles heel. These valuations cannot be supported if one applies price-to-earnings ratio principles.

The Fed obviously rushed in to save the market this week because wild commodity valuation is not allowed if one is to maintain market confidence. Psychologically speaking, it's also a "pride of place" kind of thing. But here's the rub.

Stocks were dumped because millions of portfolios, by their rules, could hold not allow stocks that were somehow connected to monoline bond insurance agencies with downgraded credit ratings. For these portfolios, it's gotta have a Triple-A credit rating to qualify for the most conservative portfolios. So portfolio managers are wrestling against the PPT. And then there's another thing.

There are discussions underway to bail out these monoline bond insurers even though these past few months have proven their business model a scatter-brained invention. The business model does not work. So what if these bond insurers fail?

Then it could also doom some banks that, up until now, were thought to be too big to fail. Consider the biggest cap banks. They could fail because their exposure goes beyond one tranch line. Credit crunches, banks' lack of mutual trust and sullied investments among several investment lines portend the very real chance of liabilities outstripping assets. It's no coincidence that Merrill Lynch is laying off over a thousand employees this week while scrambling to raise billions in new capital.

The intervention of Federal agencies to the aid of the nation's biggest investment banks is not an example of a "free market". It is anything but.
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