So Much For the Bailout Working...
|* At close|
The $700 billion dollar taxpayer-funded bailout was supposed to secure our banking system and stabilize the markets. Knowing that the money was in the offing was going to restore confidence in our broken financial system. Well, if this is confidence, I'd really hate to see panic:
Of course, Democrats are saying that all of this is the fault of the Bush Administration. Republicans are, in turn, doing their best to blame all of this on the Democrats. The truth of the matter is that this continued slide for the Dow seems to prove that the free enterprise system works. Government intervention is not saving our economy, the market hasn't stabilized, and banks are still failing or are on the verge of failure.
The recent freeze-up in the CDS market has hurt many hedge funds, said David Kotok, president of Cumberland Advisors in Vineland, N.J. He said that much of the recent stock selloff has come as hedge funds unwound a popular trading strategy in which they would buy a company's stock and then buy credit-default protection on the same company, since that protection would tend to go up in value as the stock or index went down.
But as CDS paper has become ever more difficult to value -- or fallen in value in cases where a price can be set amid doubts that the sellers of the insurance-like contracts can make good on their commitments -- many funds have been forced to raise cash to meet margin calls. To do that, they sell stock, which is easy to unload on a public exchange compared to opaque, privately negotiated CDS trades.
"As all this is going on, you have average Joe investors who are getting more nervous as they watch on the sidelines, they don't quite understand the trade, and so they just pile on and sell their stock as well," intensifying the market's slide, said Mr. Kotok. "It's just feeding on itself."
The issue that has paralyzed the presidential election is doing so not because the bailout has worked, but because the Ponzi scheme approved by the house is and will continue to be a miserable disaster.