Thursday, 13 November 2008

Making it up as you go along

That sums up neatly what the US treasury and Federal Reserve have been doing for the past year. Confirmation came yesterday with secretary treasury Paulson's announcement that the original use of bailout funds has now been scrapped in favour of capital injections.

When will the mainstream media get their collective heads out of their arses and figure out what most people with a modicum of common sense have long known? Paulson doesn't have a clue what he is doing. Back in July 2007 I labeled Paulson a comedian for his repeated claims that the subprime problem would be "contained". This story from put his latest moves this way:

But in a striking admission, Paulson said that buying up mortgage assets "is not the most effective way" to use government funding....

...Alex Merk, president of Palo Alto Calif.-based Merk Investments, a mutual-fund firm, said that market participants were frustrated with Paulson's communication skills and changing tactics.

"He's been flip-flopping on every plan and it doesn't look like he has a plan," Merk said in an interview.

Yes Alex, that would be because he doesn't have a plan, he's making it up as he goes along. The proposal to buy toxic assets from banks was not a well thought out idea to begin with, refer to my previous post in September for the reservations I had about the proposal. So what are they going to use the funds for instead?

Some of the money saved from not buying mortgage assets will now be used to shore up the market for credit-card receivables, auto loans and student loans, according to Paulson.

In other words it's just a free for all, bring us your huddled masses and every other piece of toxic crap out there. Not surprisingly the markets pushed the major US indices down more than -5% followed by a -5.4% drop in Australia today. You can't instill confidence in financial markets with a make it up as you go along approach.