Dow down 600 points...think its gonna get worse...

[RiversideGator]

Dear Congressman,

I oppose the Paulson plan and believe you should consider an alternative plan detailed below. This plan addresses not just the banking crisis but the economic slowdown as well.

The problem the US faces is a shortage of capital. The Paulson plan attempts to address that by having the US taxpayer provide that capital through the Treasury Department. This plan will benefit poorly run institutions that are at the root of the housing problem. These poorly run institutions should not be bailed out of their bad decisions.

A recession is likely if not already underway and for any plan to work, it must address this basic issue. Since the issue is really a shortage of capital, there are a number of steps we can take that reduces the percentage of that capital that must be provided by the taxpayer.

1.   Fannie Mae and Freddie Mac should be nationalized and used to coordinate any use of taxpayer funds. These institutions are a big part of the problem but we will not solve that problem by creating another parallel bureaucracy. Hiring outside asset managers to run a new system doesn’t make sense when we already have the infrastructure in place at Fannie/Freddie.
2.   To support the recapitalization of the banking industry, all ownership restrictions on US banks should be lifted immediately. If Wal Mart wants to buy a bank, we should allow it. If private equity funds or Sovereign Wealth funds want to buy a stake, we should allow it.
3.   To address the recession, take the following actions:
a.   Pass Rep. Ted Poe’s H.R. 6690 defining the dollar as 1/500th of an ounce of gold. This would have an immediate and electrifying effect on global capital markets.  Overnight you would see long term interest rates come down, commodity prices (including oil) drop dramatically, and a rush to dollar-denominated assets.  U.S. funding costs would come down, and equity markets would rally.  Banks would find it easier to recapitalize.
b.   Corporate and capital gains tax cuts could be instituted, and the Bush tax cuts made permanent.   This would again rally our equity and bond markets, draw more capital into the U.S., and hasten recovery.
c.   As much as possible, domestic discretionary spending should be cut, helping to lower interest rates, increase productivity, and lower inflation.

These three items would attract capital to the US. That is the key problem we have right now â€" a shortage of capital and these three items will address that.

4.   Take other actions to reduce the stress in the banking system. The goal should be to attract capital to these institutions and shore up their remaining capital. Here are several additional steps that can be taken:
a.   Repeal Sarbanes-Oxley â€" this law has driven capital away from the US by making the cost of doing business here versus other locales prohibitive.
b.   Allow banks forbearance in complying with FASB 157 and mark to market accounting rules.
c.   Banks should be required to eliminate their dividends. The top 20 banks pay over $400 billion in dividends annually. If Paulson is correct and the need is $700 billion, taking this step will provide a majority of the funds required.
d.   Banks which cannot raise private capital can be recapitalized by the government buying preferred stock in the companies. Any company that takes this option should be required to cut the pay of its executives or fire them if necessary. Goldman Sachs was able to raise capital by selling preferred stock to Warren Buffet. The US taxpayer should get similar terms if we are to provide capital to failing banks.

If it is still believed necessary, the Treasury can still have a bad asset purchase program, but this should be run through Fannie/Freddie and they should only pay current market prices for these assets. The size of this asset purchase program should be much less than the currently requested $700 billion.

Whatever is done, please remember that the need is for more capital. That capital does not have to be provided by taxpayers. If you use free market principles, private actors will step up and provide the needed capital.

Do the right thing. Protect the US taxpayer and help our economy recover.

Sincerely,

Finally some good ideas.  Good work, midway.   

[Doctor_K]

I'll agree.  Wouldn't pegging the dollar to $500/oz of gold essentially re-establish the gold standard?  Can't go wrong with that.  Very Ron Paul-ian.

[whitey]

Now is not the time to peg anything to an ounce of gold.  Gold is in a bubble just like every other commodity was and it will fall significantly in the next few months.

[RiversideGator]

For the record, I do not agree with the gold standard either.  This is one of the things which helped to cause financial troubles in the past.  It does not need to be resurrected.

[Doctor_K]

Dollar up near a 12-month high against the Euro; hovering near 4-year high against the British Pound.
http://finance.yahoo.com/currency/convert?amt=1&from=EUR&to=USD&submit=Convert
http://finance.yahoo.com/currency/convert?from=GBP&to=USD&amt=1&t=5y

[BridgeTroll]

So... people are choosing the dollar over the Euro in uncertain economic times???

[Doctor_K]

At least at the moment, yes - looks like.  The Yen too.  Dollar vs Yen is still near all-time lows, but Yen-to-Euro is strongest its been in a year, and Yen-to-Pound is near a 4-year high, in favor of the Yen.

I think those probably have a lot to do with the European version of the American Meltdown.  I think I read yesterday that Eurozone uneomployment is at or past 7.5%, etc.  Lots of problems there as well.  The ECB held rates steady at 4.25%, so that'll help sustain the Euro for a while longer against other currencies.

Also of note, Gold today is (as of this morning) hovering around the $850 mark, and Platinum is still ~$1,040, still well off its highs of earlier this year.  If the dollar is weak, then at least platinum should be way higher.  I'm no expert and don't claim to be, but that's what's happened in the past.  Silver's still hanging out around the $12 level.

Either the dollar isn't as fundamentally weak as most think, or there's something screwy with the commodities markets.  I confess I don't know which.

[whitey]

So... people are choosing the dollar over the Euro in uncertain economic times???

They are choosing the dollar because we are further ahead in the recovery process.  People are just now starting to realize how screwed Europe is in regards to housing/credit.  Europe will have to start to lower interest rates (they did not today), which will in turn lower the price of the Euro and by default, raise the price of the dollar.

Everything is connected

[whitey]

Either the dollar isn't as fundamentally weak as most think, or there's something screwy with the commodities markets.  I confess I don't know which.

The dollar was at historic lows earlier this year, its no surprise that it is higher now.

There is nothing screwy with commodities, they were in a bubble, that bubble is popping now.  Agriculture stocks have been getting absolutely crushed this week, metals will be the last bubble to pop.  Take a look at just about any stock or commodity over the last two years, you can see the meteoric rise and then a thud.

For the record, gold is NOT immune to the bubble cycle.

[Doctor_K]

Certainly looks that way, whitey.  Platinum tanking below the $1,000 mark today.  w0w.

So the dollar is currently in a recovery upswing then?  Good to know.

[RiversideGator]

Still sticking with your Dow 6000 prediction?

[RiversideGator]

It will be merely a "hypothesis" if the Dow doesnt hit 6000 but if it does you will claim it was a prediction.   

[Doctor_K]

In other news, the Yen continues to gain against just about all major currencies, while the Dollar has stabilized for now against the Euro, Cana-dollar and Pound. 

As of 3:45, the DJIA is down 17-and-change after being down by around 200 (ballpark) earlier today.  Wild swings all day - nothing new.

Gold is back above $900/oz (interesting).

Oil is under $90/bbl still.  And gas futures are right at $2.00/gal.  Lowest that's been in a while, I think.

http://money.cnn.com/data/commodities/index.html
http://money.cnn.com/data/currencies/index.html

[whitey]

Its still a hypothesis, but yes.   Seems a lot more realistic now doesnt it?

The optimists think it will contract to about 8500, and the pragmatists are preparing for 6000.

There are truly grimmer assessments out there, but I feel safe with what I think is the worst case scenario.

I am going to say we see 10,000 before we see 8,500, those are equidistance from each other as of the close today (9,250 ish).

Panic buying/selling is rarely the correct move, I have been loading up on stocks and selling gold short all week.  I think when we do break the downward momentum (cracks showing today), we will see a violent move higher.  This is how Wall Street has worked for decades, buy your stocks low and sell them back to you when the price is higher.

[Driven1]

i read an analyst today saying that this last week or so has been smaller investors who have been getting their quarterly statements (arriving end of Sept, beginning of Oct) and liquidating.  that is usually a good sign.  but who knows - now, i actually think that 8,500 is more likely than 10,000 here in the near future.