A Rifle Shot or a Shotgun Blast?

At the end of the meeting between Hank Paulson and Congress, all parties talked about the bipartisan job ahead to pass a financial rescue package. Pelosi talked about a bicameral solution because children's textbooks around the country use that word to describe a country that has a two house legislature. It is always interesting to hear code words.

Hank Paulson was careful to talk about a concentrated effort to solve a specific problem. It is clear that he would like for the congress to pass a rifle shot bill to fix the imploding mortgage market and the democratic leadership would like a shot gun blast to attack all sorts of problems. When facing a bear, it is best to shot it with a deadly rifle.



Pelosi issued a statement minutes before the meeting saying that she is prepared to keep the house in session past the September 26 adjournment date if necessary to pass a second financial rescue package. This package would include porky pigs dressed up in help for the poor clothing. The Speaker and her friends will repeat the words over and over that main street needs help just as badly as wall street.

Pelosi calls for five provisions, assistance with home heating, food stamps, extended unemployment benefits, Medicaid payments to states and money for infrastructure. The administration and republican representatives will repeat the mantra that saving the financial system will save the peoples savings and retirement funds.

The bickering has already started.

The congress has planned to adjourn on September 26, but Harry Reid still has a long list of bills to be passed. He has suggested that a lame duck session might be needed starting on October 1. The congress is not likely to meet during Rosh Hashanah, which includes September 29 and 30. Will republicans stick to their guns and resist big government spending? With the crisis at hand, the pressure is on to cave. When push comes to shove, it is likely that the congress will vote for the big spending compromise package.

The market soared today on the rumor that Paulson would propose a plan. Taxpayers and feel the roto-rooter coming. As we all know, our gasoline taxes are supposed to build roads and bridges, the congress continues to take these funds to subsidize bus systems, train systems, bicycle trails and parks. All of these are worthy of certain levels of spending but the money should not come out of the highway trust fund and supplemental spending for bridges should not be needed.

SANCTION ROUND NUMBER 4?

China and Russia have shown great concern about this weeks IAEA report on Iran. Documents show that Iran has been trying to build nuclear missiles. Tomorrow, the 5+1 Group will meet again to discuss sanctions. The recent bounce in the price of oil was not about Hurricane Ike; it was about the increased risk of conflict. Same with the run up in Gold.

Condi Rice blasted away at Russia yesterday. She made it clear that Europe and the US are committed to the freedom of Georgia. She let Russia know that Russia will not be accepted into the WTO unless it stands down. The timing of the blasting was just before the meeting on sanctions. The US will continue to meet with Russia on issues such as Iran. It continues to be in all nations best interest for Iran to agree not to produce nuclear weapons. Because Iran is near both Russia and China, they have more to lose than does Europe or the USA.

Again, the timing of these meetings just when the congress must act on "drill, drill, drill" is no coincidence. The timing of the financial crisis is no coincidence. Just as the major decisions about Viet Nam were made during the recession of 1973-74, the timing of every thing from the invasion of Georgia to the possibility of strict sanctions has been carefully decided.


A BIG WEEK OR TWO?


The flood of liquidity being provided by central bankers should be enough to keep the wolves away until two or three deals can be completed. It is possible that a general agreement was reached between the administration and the congressional leadership before tonight's meeting was scheduled. You may recall that the prior financial rescue package was stalled until Paulson announced the need to include provisions about the GSEs. The fight for the next few days is probable about who gets the most spoils from the pork provisions.

In any event, stocks are very cheap and conditions are ripe for a major turn. It is true that housing starts are down to 1982 levels. It is even true that the number of housing starts per 1,000 families is at levels not seen since WWII. The doomers use these statistics to support statements such as "this is the worst financial crisis since the great depression". Smart investors will note that when housing starts were this low in 1982, mortgage rates fell and stocks took off.