Financial Bailout: More like anti-Depression pill
Financial Bailout: More like Anti-Depression pill??? - 9/24/08 Much has been said about the financial bailout program introduced by the Bush Administration, Treasury Chairman Paulson, and Fed Chairman Ben Bernanke this week.
Commodities reacted as if it was inflationary, with money being thrown at the problem such that any irresponsible businessman simply had to cry wolf to get a federal bailout. But this is not really a federal 'bailout' as it has come to be called. Instead, Pro Ag sees it more as an 'Anti-depression pill' - a government bottom put into financial stocks such that these instruments could only take a large financial firm down so far, and then the government would step in.
Mind you, it is not good for the financial firms to go into gov't receivership - just look at how much worse off investors were who bought Fannie Mae or Freddy Mac stock! The irresponsible ones will be held responsible to the extent they can, and then the gov't steps in! That appears to be a more accurate description of the $700 billion plan, as really it involves an investment of gov't money and in return we do expect to get some (or all plus interest) of our money back!
In all the discussions to date, Bernanke and Paulson are clear that bailing out irresponsible firms is not their goal, but to protect the US economy and other banks from being bankrupted by the marketplace valuation deterioration from every failure. You could call this the 1929 type of 'run on banks', where investors pull out their money from anyone appearing to be at risk. And unless the FED steps in, its likely all banks will be at risk.
To look at the net impact of this financial meltdown on commodities, one has to be aware that this crises is not going to be good for any economy (the US or foreign countries), and therefore the commodity demand outlook could very well shrink considerably due to the financial mess the US (and world) might be in. If we are talking clearly about a recession (which we probably are already in), that isn't bullish commodities or stocks. If we are talking a depression - why then it is clearly bearish both commodities and stocks.
The "bailout plan" is really more of an anti-depression pill for the US economy. To see anything else is not listening to what our Fed Chairman Bernanke and Treasury Sec. Paulson is saying. And it is clear that Congress is not going to take on all the responsibilities of the irresponsible. The bitter pill of failure and financial ruin will first hit stockholders and homeowners before the gov't takes over, and that is probably as it should be. But when it starts to affect other companies/citizens/world economies, that's where it appears the gov't wants to step in. And appropriately so!
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