Paulson: "Banks Are Sound"

by Larry Levin

Hank Paulson has been on television, in front of Congress, and speaking to reporters with one message: banks are fine. One day he announces that no institutions are too big to fail, and the next he announces a bailout of unimaginable proportions for Fannie Mae & Freddie Mac. While the US dollar was dropping like a stone, Mr. Paulson said his office supported a strong dollar policy, but did nothing about it. It has nearly gotten to the point where perhaps we should make like George Costanza and just do the opposite, at least as far as believing Mr. Paulson's comments are concerned.

Regarding the bailout bill in Congress today, Hank Paulson told reporters "It is a very strong message we are sending to investors around the world and the U.S. that we understand the importance of these organizations to our capital markets and our housing market and these are also the keys to helping us turn the corner here in the housing correction ultimately." Costanza translation: we really don't know what to do, the capital and housing markets are toast, and the housing correction isn't close to turning anything.

The House of Representatives approved the housing bailout bill today 272-152. The Senate will surely approve this pig as well.

With the passage of this bill, Fannie and Freddie have explicit government guarantees to pay back foreign bondholders (read: bail out foreign speculators) with your tax dollars. Now it is crystal clear that we, the people, are the proud owners of the liabilities relating to almost $6-TRILLION of mortgage debt. Break out the champagne!! See those homes getting foreclosed down the street? You are now responsible for paying off the mortgage for those homes, which you never had the privilege of owning and had no say in approving the financing for the clowns who bought them with no money down and credit card debt up to their eyeballs. I'm guessing the Carlton Sheets can't-lose-money-making-machine these people bought failed to mention that housing prices never go straight up in value forever.

The Fed and Congress are trying to have their cake and eat it too: bailouts for all with LOW interest rates. Of course, this is pure silliness and it will not work, but they are going to try it anyway. They want to keep interest rates low for the fraudsters so they can make money on spreads from investments with higher yields in a futile attempt to save their balance sheets. However, low rates are what drive inflation, speculation, and over-leveraged investments while simultaneously pushing money out of equities and treasuries into real assets such as oil. So once again they are saving the banks and destroying the economy. But this time the destruction of the economy and the new banking rules coming down the pike will ultimately destroy the very banks they're trying to save.

What is quite sad is that those of us who have worked hard, lived within our means, and saved money have today been proven conclusively that we were fools all along. We never took up the opportunity to buy multiple homes with no money down, somehow take out additional loans to boot on said homes and then use that money to buy a Mercedes to tool around town in - only to ultimately walk away from it all when the fit hit the shan.

By the way Mr. Paulson, if the banks are sound - why do they need bailouts?

Real Time Trading Signals*for

Trade Date: 7/23/08

E-Mini S&P Trades*
(before fees and commissions):

1) Engf buy @ 9:05am at 1279.00 = +1.50 & +4.50

2) OTF sell @ 11:50am at 1281.75 = +1.25 & +3.75

3) Algorithm trades (2)...combined total...+13.50


E-Mini Russell Trades*
(before fees and commissions):

1) No ER trades filled today.


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