The Market Ticker

So here comes Hank Paulson essentially "demanding" that Congress pass the very bill that I have been "on" about, and against, since it first reared its ugly head, and especially the provisions regarding "bailing out" Fannie and Freddie.

Folks, you need to head over to http://financialpetition.org here and now.  Today.  This legislation must be stopped!

Hank is once again claiming that US Economic Fundamentals "are strong" and "the banking system is sound." Uh huh.  I'm the Easter Bunny.  Promise.  I really mean it.

Why does Paulson keep telling us that the banking system is sound?  Over and over again, every time that bastard gets within 200' of a microphone?

Maybe it is because the banking system is on the verge of all-out collapse, and he knows you could blow it over with a feather!

Fanie and Freddie are "vital" to US markets and housing?  They are?  In their bloated, over-levered and IMHO dangerous form? 

The Bush Administration and Congress created this monstrous cock-up through refusing to regulate these firms, allowing them to spend $200 million in lobbying to stifle any sort of meaningful regulation, expanding their balance sheets to an outrageous degree, even after they were both caught up in accounting scandals in the 2003-2004 time frame, and we are now told we must cover it with taxpayer money.

BALONEY.

These firms must not be supported by taxpayer dollars.  Their debt offerings all clearly disclose that they have no federal guarantee. 

These firms have enjoyed the ability to "out-bid" other private mortgage funding and even buy their own securities, layering debt upon debt, as a direct result of the fact that our government has refused to properly regulate these firms leverage ratios and risk exposure.

Over 600 petition signatures have been sent already.  We need to see 60,000 of them, in the next few days, along with the flooding of Congressional switchboards, or this legislation will almost certainly pass.

There is no good outcome that can be obtained from passage of this legislation.  None.  Fannie and Freddie now have bank examiners in their offices.  Will we, the people, get to see the results of those examinations before any bailout is passed?  Of course not.  We probably won't get to look at the results after they are passed either.

Why not?

We're being asked to take the risk on the public balance sheet but we can't see, in advance, what we're being asked to take on?

That's wrong. 

Period.

We cannot continue to play on borrowed time - literally - through creating more and more debt.  Defaults are and will continue to accelerate because we have gone too far, and this debt must be unwound.

Banks are under extraordinary stress. Wachovia reported a nearly NINE BILLION DOLLAR loss this morning.

We still have not seen the banks "come clean." 

The regulators and policymakers have, to this day, failed to force these institutions to tell the truth, and now we are seeing the results.  Instead of forcing deleveraging on the investment and commercial banks since last summer, Hank Paulson and Ben Bernanke continue to speak that "banks and other institutions are well-capitalized", yet they didn't even have IndyMac on the watch list of troubled banks in the days before it failed!

Our government has continued to play "confidence games" with the American People instead of giving us the truth, the whole truth, and nothing but the truth.

The opportunity to stop this bill - potentially, the triggering event for a cascade of unintended side effects that put our financial system and economy at risk - is about to expire.

Act today.

Go to http://financialpetition.org/

Then, after you've signed and confirmed, Call Congress.

And when you're done, head over to http://fedupusa.org and consider showing up in Washington DC on the 31st.

Citizenship in this nation is is not a spectator sport, and our representative government demands participation through peaceful protest and demonstration when the line of reasonable conduct by our officials has been, or is about to be, crossed.

Let's talk "unintended consequences".

This morning, suddenly, at brokerages across the land a whole host of stocks became, magically, impossible to short.

These stocks just happened to coincide with a certain list that The SEC has deemed "unable to be shorted naked."

Let me note that naked shorting has been illegal essentially forever, certainly going to back to The Depression.  It is rarely enforced with any sort of vigor, but it damn well should be, against everyone and anyone who does it.  My view of how to deal with "Failure To Delivers" is that they should be assessed back against the failing party at the next morning's opening print (at T+3), effectively forcibly covering the naked short and skulling the offending party.

This practice is effectively counterfeiting and my argument with it is not, as is commonly presumed, that it drives stock prices down.

It is that the practice can and frequently does lead to the most insane short squeezes ever seen, as the counterfeit shares don't exist and thus when the naked shorts try to cover they've got a tiny little problem with fitting through the door! 

See, you can't buy back a share that doesn't exist!

No, this rant is about the impact of making "really illegal" what has always been illegal on the perfectly-level and nomal shorting of stock you really can borrow.

I might not be the brightest bulb in the drawer, but I'm quite sure that Goldman Sachs, which has almost no short interest on the street (that is, about three percent of the float is short) didn't suddenly became impossible to borrow.

Let's talk about the truth, shall we? 

The truth appears to be that there is now an action, taken in concert, by most brokerages to simply refuse to allow short sales on any of these stocks irrespective of whether you can get a borrow on them or not.

Now this clearly was not what The SEC intended.  At least I hope it wasn't what they intended, and that's not because I want to go naked shorting financials.  There are far better stocks out there to short right now, for instance, Apple, which whiffed on forward guidance last night and was immediately punished to the tune of $16/share.

No, I want Christopher Cox to realize that whether he intends to or not he is setting up a potential market CRASH.

Take a look at China's stock market.  It is illegal to short there.  The market has utterly collapsed over the last few months, and it is precisely because of the inability to short that it has happened.

Watch their market some night if you want grins and giggles.  It tends to move in what look suspiciously like a sine wave, up and down.

Why?

Because there are no shorts.

Really.

See, when there are shorts in the market then declines are stabilized, because every share (legitimately) short must be covered at some point, and when it is covered, it must be bought.  This places upward pressure on the price.

But when there are no shorts, then what tends to happen is that when the supply/demand imbalance gets out of hand the bid just "disappears" - that is, there is nobody will to buy at any price, as the buyers are exhausted.

I'm sure you know what the price of something is when nobody wants to buy it, right? 

"What is zero, Alex."

Christopher Cox better be damn careful with what he is doing here.  He may have aimed his "bazooka" at naked shorting, but it appears that the brokerages in this nation have decided that they're not going to risk his ire, and are simply going to mark all these stocks "short restricted."

Now there are a few places that appear to still allow you, as a retail customer, to short these names.  E*Trade looks like it may be one of them.  But I have multiple accounts with a number of different brokerages, and all of of them, all at once, suddenly had every one of these stocks show up on the "restricted" list this morning.

Suspicious?  You're damn right I'm suspicious. 

Does this really matter to me?  No.  As I said, the most interesting stocks for me to consider selling short at this point in time aren't financials.  In my view shorting something that has already declined 75% is a waste of time at best and risks a ruinous short squeeze.

But if we get a crash in the next few months, I want you to remember this Ticker, and make sure you send a copy to Chris, thanking him for the destruction in your wealth and that of every American - because it truly will have been his fault.

Early this morning I began the process of transmitting more than 500 faxes to lawmakers.

Again.

This time, it is for what is almost certainly going to be The Ticker's final petition.

Why final?

Because our government stands on the precipice of taking actions that cannot be reasonably un-done, nor can their damage.

It is, in fact, now up to you.

That's right, you.

Yourself.  Your neighbors.  Your friends.  Your associates.  Your coworkers.

Our government intends to try to "bail out" Fannie and Freddie.  This is, potentially, the taking of five trillion dollars worth of debt onto the US Balance Sheet.

That is equal to the entire public float of the existing debt, and half of all public debt.  It will add to our Federal Liabilities by half, immediately.

Now to be certain, this debt is not worthless.  It is backed by houses, which are declining in value, but they are not worth zero.  At least most of them aren't - some in Florida may be or will be soon, as mold takes over, and in other cities like Cleveland, they are rapidly and literally rotting away or being robbed of everything of value, including the copper pipes and wiring.

We, in this nation, have allowed a tremendous debt bubble to be blown.  Our nation has gone from having 75% of its home "equity" owned free and clear by its citizens to just under 50% - in less than ten years.

We have become a nation of ever-more profligate spenders, and we have now reached the end of the rope. 

Our choices are to start to climb back up, even though doing so will be painful, difficult, and likely leave some of us with terrible rope burns on our hands, or we can let go and see what lies beyond our vision downward.

The choice is ours folks. 

This has not been an accident.  Ben Bernanke and Hank Paulson, as I chronicle in my letter to them along with Congress, have either the worst economic and inflation forecasting record in the history of mankind - very close to 100% wrong - or they have been lying.

We, the people, must choose.

You can find the petition at http://financialpetition.org

I urge you to sign it.

I urge you to pass this Ticker around, and to email the PDF to which it links worldwide, to everyone you know.

I urge you to decide, here and now, whether you will pop a Prozac and drink a beer, or whether you will form together with your friends, your neighbors, and your coworkers to put a stop to this while you still have a home and a job.

To call Congress.

To show up in your Congressperson's local offices, and raise hell.

To form impromptu demonstrations in your tows, cities, and states.

To call general strikes.

To descend on the political candidates for President, before their conventions, at their conventions and after their conventions, and demand that they pledge - and act - to stop the madness.

To engage in all forms of peaceful political protest and action, with one focus, one purpose, saying quite clearly:

We will no longer tolerate the intentional acts of a few who screw the 80% of America that gained no benefit from this fraud, but are paying the price.

We will not tolerate $4 gasoline so you can hide bad debt on bank balance sheets. 

We do not believe the FDIC, or anyone else, has a handle on the banks - after all, IndyMac wasn't even on the FDIC's watch list before it blew up.

We are honorable Americans.

We fought wars for our freedoms, sending our sons and daughters off into harm's way to protect our way of life.  You will not rob us of that so a few barons on Wall Street can have a yacht and vacation home in The Hamptons.

We expect you to tell us the truth.

We expect you to act in an honorable fashion.

We know you let this happen, but that's water under the bridge.  Now it is time to put our foot down collectively as Americans and reverse course, while we still can.

We expect you to jail the fraudsters and stop the liars everywhere within our financial system, both on Wall Street and Main Street, no matter how many thousands of dollars they contributed to your political campaigns.

If you cannot, or will not, then you must step aside and let those men and women come to the fore who both can and will, like The Honorable Senator Bunning and Congressman Garrett. 

There are people who speak the truth in DC.

There just aren't enough of them, and it is now our time - and our calling - to change that.

http://financialpetition.org

and

http://fedupusa.org

You can listen to Jim Bunning - who has it right - direct from The Senate

Yesterday afternoon The Bulls were feeling their oats.  Two days, nearly 500 points straight up in The Dow, with commensurate rises in the S&P 500 and Nasdaq.

Then Google, Merrill, Capitol One and Microsoft happened.  Oh, and IBM came along and crushed the ball, but nobody cared - they sold it anyway.

Why?

Well, as I've noted for a while now, Google has a "little" problem.  You can see it on Tickerforum - in the last month or so there have been a lot of "placeholder" advertisements, selling.... Google Adwords.

Why?  Well is this hard to figure out?  People can't keep their advertising budgets up.  They cut back, the system finds nothing to display in the slot, and....

Merrill?  What's there to say here?  The bad news in Merrill isn't that they lost nearly $5/share - a horrific result.  Its how they lost $5/share.

A big part of that is credit provisions for the monoline insurers.

COF?  Consumer credit cards?  What do you think?

Today features OpEx games, and Citibank didn't announce they were going bankrupt at 4:01, losing only $2.2 billion (this is good news?), so the market is going to open higher. 

But let's focus on what JPM said yesterday - prime mortgages are in trouble.

Prime.

Now is "prime" really prime?  That's an open question.  Exactly what sort of "prime" are they talking about?  I don't know and that's a problem up front, but let's not assume that "prime" means really, honestly, 80/20 loans with 36% maximum back-end ratios, because if those loans are in trouble we're headed for a Depression.

Really.

My "best guess", however, is that JPM's definition of "prime" is kinda like Freddie's and Fannie's - that is anything that was sold to a "prime" borrower, or someone with a high credit score who got called "A" paper.

This might not include OptionARMs but it most certainly does include 100% loans on property in bubble areas, those with computer-based (or no) appraisals, and those with only a signature to back up claimed levels of income.

Well yes, those loans are in trouble. 

They should be in trouble as they're not really "A" paper at all!  They violated virtually every standard of safe underwriting and nobody should be surprised that they're going bad.

But this, really, is the 900lb Gorilla in the china shop, and the market totally ignored it - and will, for a little while longer.

Maybe for another month or two.

But eventually, the truth is going to come out, and when it does, things are going to get extremely ugly.

See, this problem can't be fixed.  Fannie and Freddie can't be bailed out from this mess and neither can anyone else.  This so-called "A" paper isn't, but it was both sold off to investors worldwide as "Grade A" debt and retained by these organizations, including banks and the GSEs, when in fact it is more like a credit card receivable in terms of its credit quality.

That is, in a slowing economic environment it should be treated as threatened because in a recession only the security behind the paper really matters; people lose jobs and walk off from things that are upside down.

It would be nice if this had been recognized by the banks and regulators several years ago and fixed, but it wasn't.  It would have been nice if Bernanke and Paulson, along with the OTS and OCC would have come along last year when I and others pointed out the crap that was going on with "capitalized interest" and investigated, finding that this paper really isn't safe and sound, forcing capital raising and selling of this paper into the market for whatever could be fetched.

See, in a declining value environment he who sells first gets the most, not the other way around.

But that didn't happen either.

Now we're seeing the "meat" of the slowdown in the economy and it is going to get significantly worse.  As it gets worse this "so-called A Paper" will have to be recognized as the trash it is and written back to its underlying credit quality.

That, in turn, is going to constrain the ability to lend and drive up the cost of money, which in turn feeds into economic contraction, which....

That's the "nightmare scenario."

Now the "hyperinflationists" think that Ben will just print up money and drop it from helicopters, whether literally or otherwise.

Well, you've already seen what injecting $250 billion in "excess liquidity" has done to the dollar, to oil, to the price of food.

Now consider this - the losses involved here that have to be "papered over" are, as I've said repeatedly, somewhere between $2.5 and $3 trillion dollars.

Or more importantly, 10x what's already been injected.

Would you like your gasoline to be $15/gallon?  It could easily be, if they were to try to paper over this in that fashion.

Forget it.  Its not going to happen.  Among other things Congress is waking up to the reality of what's going on, and who's responsible.  That path won't be taken, because if it is, government borrowing costs go to the moon and if there is one thing that Congress loves to do, its spend money.

But you can only spend what you can either collect via taxes or borrow from the bond market.

Destroy the bond market via a hyperinflationary bout and the ability to spend disappears.

No, what's coming is deflation folks. 

It is unavoidable.

Now there are many who will cite Bernanke's "seminal paper" in which he says that "The Fed has this device via a printing press with which it can make as many dollars as it wants; ergo, it can always halt a deflation."

That's true as far as the statement goes but misleading, and that this managed to get through Bernanke's Thesis Challenge is an indictment of the committee that performed it. 

Bluntly, they are all mindless boobs who are incapable of thinking in four dimensions.  Yet in fact you must always think in four dimensions, not three, because the fourth dimension is time and time is omnipresent.

The Fed can halt deflation only in the instant case, and in the four dimensions that actually govern reality that fourth dimension, time, derails attempted printing every time.

Why?

Because The Fed cannot control what people will demand in order to loan out their capital.  It can set a target rate and then defend it by either injecting or withdrawing liquidity, but if it tries to set the rate too far under the actual trading rate (that is, the true cost of borrowing is higher than what the fed funds target is set to) the amount of money necessary to defend that too-low rate rises to infinity!

Once The Fed prints the perception is that they will do so again.  As such interest rates in the market rise to the actual monetary inflation rate plus a margin for the risk of The Fed doing it a second time.

See the problem? 

The margin is always positive, otherwise nobody would lend at all! 

Let's do the math.

We start with $100,000 in "total money and credit" in the system, of which some percentage cannot be repaid.  Let's just say all of it can't.  The original market interest rate, in a "stable" (no monetary inflation) regime, is 5%.

The Fed injects $10,000, inflating by 10%.

The market responds by charging 10% plus its margin, or 5%.  That is, the market charges 15.5% (remember, the margin is on the entire amount, including the monetary inflation!)

Well that's actually a net negative, isn't it?  The actual burden to the people in debt increased by a half-percent!  So the bank, not having solved anything, inflates by 20% more!

Ok, the market responds by increasing its interest rate by 20% + its margin on the entire mess, and suddenly you have an interest rate of (15% + 20%), or 36.5%.  Notice that one and one half extra points appeared on the rate because the 5% margin will be charged on the inflated money supply.

See what happens?  You can't get out of the hole - you inflated the money supply by 35% but borrowing costs went up by 36.5%, so in fact the problem got worse, not better!

As such any attempted "printing" increases borrowing costs by more than the printing "lubricates" the system - you create a positive feedback loop - that is, borrowing costs always must increase by more than the stimulative effect of the "printing".

In other words, you're an idiot if you think you can print out of this.  You can't - and if you try it the spiral tightens inexorably until you destroy yourself.  This is the fundamental principle of compound interest and it applies to every interest-bearing transaction!

Since Bernanke is in fact a banker and he understands compound interest, why would you write such a piece of fiction in the first place?  One has to wonder if he was practicing the fine art of "the jawbone" even while working on his PhD dissertation!

So what does this leave us with as the necessary outcome of a credit bubble?

The bad paper will have to be defaulted, and those who are stuck with it will eat the losses.  Congress (or others) can try to change who eats the loss, but not whether the loss is going to happen.

The mad dash to find dollars to pay off what can be covered will accelerate.

The dollar?  Well, its relative value will depend on how bad everyone else gets nailed by this.  But its absolute value, if you're pricing it in terms of houses, has already appreciated by more than 10% in the last year nationally, and if you're in California or Florida, its more than a 30% appreciation.

In a crunch like this cash is king and hard assets become very cheap in relative terms.

If you're in debt?

You're screwed.

Jim Bunning is the only Senator that I've seen in the Senate's Humphrey-Hawkins testimony who has a clue.

Let's start with THE HONORABLE Senator Bunning's prepared comments yesterday to what used to called "Humphrey-Hawkins", but yesterday was best called "The Grilling of Ben and Hank":

Thank you, Mr. Chairman. I know we have a lot of ground to cover today, but I want to say a few things on the topic of this hearing and of the next.

First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.

Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.

Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.

Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.

And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?

I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop?

Ding!

Folks, did you hear that?  Comprehend it?  Note that Senators have much more than the ability to vote "NAY!" to stop something. They can engage in all sorts of Parliamentary games to delay or outright derail something they don't want to have happen, if they care enough about it, including but not limited to a filibuster - literally stopping all business in The Senate for as long as they can manage to physically stand and speak. 

Perhaps The Honorable Senator Bunning will hold court on his years in professional baseball?  I, for one, would be happy to tune into CSPAN and listen to his chronology of every game he ever played, along with the memorable ones in which he did not.

My friends, we have a constitutionalist in The Senate, and one who recognizes when The Rubicon has been crossed.  Not only that, Senator Bunning is willing to shove Bernanke and Paulson in the river if they try to get off the bridge on the wrong side.

That Paulson, who is a member of the executive branch, or Bernanke, who is an unelected, appointed member of a quasi-federal organization thinks he should be able to rewrite The Constitution is an outrage.

All spending bills must originate in The House. 

Period!

There is no such thing as a "blank check."  In fact, I would argue that such a "blank check" is, were Congress to pass it, explicitly Unconstitutional.

The argument that "if one has a Bazooka in one's pocket one is less likely to need to use it than a water pistol", as put forward by Paulson, is true but not material to the argument.

Not everything the government wishes to do makes sense - or is lawful.

This doesn't mean that The Government should or can simply ignore The Constitution when it happens to get in the way.

The fact of the matter is that the GSEs, as constituted and regulated for the last 20 years, were a bad idea.

They have been able to borrow in the public markets with an "implicit" federal backstop for more than 20 years.  This has destroyed market discipline as their balance sheet expanded - a process that should have slowly choked off liquidity and prevented the expansion of that balance sheet to the degree that it has occurred.  As their leverage grew beyond 20:1 or so it should have become simply impossible for them to continue to getting bigger.

The market failure occurred because of the improper implicit guarantee that should have been withdrawn at that time.

And as Senator Bunning made clear, all attempts to impose a strong regulator on Fannie and Freddie have been met with a fusillade of lobbying money from both firms who have done everything in their power to prevent such an imposition.

Why? 

Well, if you can borrow with the market perceiving less (or no) risk when in fact there is much risk, you make a fortune and the bondholders make more as well (by getting a fatter coupon) than should otherwise be the case.

Who loses?

You. 

The Taxpayer. 

Why?

Because when the charade falls apart you are then asked (as you're seeing now) to make that backstop explicit.  All manner of whiners from Pension Funds to PIMCO to foreign governments appear and demand that you not let them suffer losses even though they made improper profits as a direct consequence of the scam.

Suddenly, that extra 50 basis points of coupon that has been achieved by the bondholders - some $50 billion dollars every year that has gone to places like investors in Asia and Europe, along with the fat salaries that have gone to Fannie and Freddie's executives along with the gains and dividends of shareholders - comes straight out of your hide in the form of additional Federal Debt.

This is blatant theft and it must not be allowed to happen.

Shelby is 100% full of crap.  He stepped out to pontificate on CNBC about how Treasury should get what it wants, but the fact remains that regulation must come first, and if we are going to backstop these firms, then the people should extract from those people who got the additional "fat" coupon all of that ill-gotten gains.

Since that would be truly outrageous (and impossible) there is only one solution - forget about backstopping the GSEs.

Cut 'em loose.

Let the market enforce the discipline on their borrowing.  They will be flatly unable to continue to borrow at anything close to reasonable interest rates with their leverage and the market will force them to divest their holdings.

If they choke and die trying to get the pig through that python, then so be it. 

If we need this function in the market (and I am not convinced that we do), then create a NEW entity as an agency under Congressional oversight and operation, so the benefits belong to the taxpayer and there is no "excess coupon" that can be stolen from us all.

At the same time if Fannie and Freddie cannot deleverage on their own successfully then place them into conservatorship and runoff.  This puts the firms in a place where, over the duration of their bonds, they wind up their business, pay the coupons and redeem the principle as those bonds come due.  If there is a deficiency, then losses will be taken - as should be the case when you buy debt that goes bad.

As for The Fed having "more control" and "more power", once again Jim Bunning has it right.  The Fed has mismanaged the power they already have, and has been largely responsible for the monetary and market messes of the previous 25 years.

• The Fed is directly (although not solely) responsible for the weak dollar in the United States.  If you want something to be valuable, you don't make lots and lots of excess of that something available.  You reduce availability of something you want to be more expensive, not the other way around.  Paulson and Bernanke both are always careful to say "A strong dollar is in our nation's interest", not "we are promoting a strong dollar" - because they're not.  Bernanke has made lots of extra dollars available and he not only is unrepentant in this regard, he refuses to admit that he has done so - yet The Slosh does not lie.
• The Fed has caused price inflation.  By intentionally fueling "feel good" credit bubbles The Fed and Treasury have created an environment where spending beyond one's means can be conducted, and thus driven up asset prices to match this imaginary "income" that is in fact nothing other than debt.  This can't happen without the explicit support and actions of the monetary authorities.
• The Fed has refused to allow market discipline to put a stop to the stupidity that is necessary to create credit and asset bubbles. As just one of many examples, The Fed stepped in to stop the collapse of Bear Stearns.  Had Bear been allowed to collapse it would have sent a powerful and indelible message to all market participants - if you do business with and intertwine yourself with someone who does imprudent things, you can get killed by being inside the blast radius whether you're one of the imprudent or not.  By bailing out Bear's debt The Fed and Treasury said loud and clear "we will make it ok if you don't use due care in your selection of trading partners and market activities."
• The Fed has refused to use its authority to rein in the act of depository institutions in the making of unsound loans.  It has further refused to rein in institutions who have deployed excessive leverage through gaming the regulatory framework through machinations such as off-balance-sheet "SPEs" and "SIVs", although they are within their right to do so by refusing to lend to institutions who are imprudent.

We had a credit and housing bubble through, in no small part, the direct actions of The Federal Reserve and The Treasury Department.  We had a tech bubble through, in no small part, the actions of The Fed.  And we have $4/gallon gasoline due, in no small part, to the actions of The Fed.

That The Honorable Senator Bunning recognizes this, and is willing to put his foot down to stop it, makes clear that he is one of the very few Statesmen that I have seen in our elected Houses of Congress (the other obvious example being The Honorable Mr. Garrett.)

Senator Bunning, you are A Great American. 

May you find the testicular fortitude to follow through on the promises embedded in your speech.