It would appear that our fine "politicians" have no intention of removing (or even tempering) any part of The Bezzle in our financial system.
As a consequence, the market will do it for us.
The bad news is that we've chained our ship to Europe, and they're in bigger trouble in this regard than we are:
"European banks face a US dollar “funding gap” of almost $2 trillion as a result of aggressive expansion around the world and may have difficulties rolling over debts, according to a report by the Bank for International Settlements. "
Bernanke, without the consent of Congress, has essentially guaranteed this rollover capacity through his provision of what amount to unlimited "swap lines" with the Europeans and others.
What happens if their currency dislocates?
That would be a major problem no?
Nor does The Fed seem to think that it has to comply with the law:
March 5 (Bloomberg) -- The Federal Reserve Board of Governors receives daily reports on loans to banks and securities firms, the institution said in response to a Freedom of Information Act lawsuit filed by Bloomberg News.
The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.
This, after being ordered to disclose the data when they lost their attempt to kill the FOIA suit at the outset.
Congress, of course, could repeal The Federal Reserve Act. What they will do instead is chuckle in the face of lawlessness. Count on it.
If the politicos and bankers think they can do this and the market will just shrug, they're wrong.
Instead the market will simply presume that the value of anything that is not transparently disclosed is zero, and act accordingly. This means that any firm that might have hit Fed Facilities will be presumed to be worth zero until proved otherwise, and of course the way the market will attempt to prove this is by driving their stock price into the pavement - face first.
We've already seen 20% or more losses in pension funds - both public and private. Those losses will exceed 50% within the next six months at the rate we're going, at which point current cash flow will be insufficient to pay benefits; eating the "seed corn" will be the only possible choice, which in turn makes recovery impossible. If you have a pension either now or due to you in the future, write it off, because barring immediate action out of Washington DC to remove The Bezzle, it is gone with certainty.
I'm not quite sure where Obama's administration thinks it's going to collect their proposed "tax increases" from. After all, you only pay taxes on wages and profits, not lack of earnings and losses.
Unemployed, homeless and hungry people don't pay many taxes. They do, however, get rather desperate rather quickly, and that desperation usually is expressed through lawlessness of various sorts, with some of it truly frightening. The political types may want to do a bit of basic math and figure out what they think they will do with a 20% unemployment rate should they come to the (proper) conclusion that Washington DC's intransigence and complicity is, in the majority, responsible for their suffering.
The rally yesterday now appears to be nothing other than a flash in the pan, with the market discounting any potential recovery in the economy and financial system to effective zero. Any firm with material financial exposure (that would be basically all of them) is being taken out and destroyed, one bite at a time.
Absent meaningful change in the near term we are headed straight for a Depression far worse than the 1930s, with the only means available to stop it being an immediate halt to The Bezzle throughout the system, including most especially in Washington DC.
Since I have zero faith that this is going to happen - I suspect that were we to have honest cops and honest process we could probably find at least one out of three people among the 535 in Congress with whom we could charge with a serious financially-related felony - I see no evidence whatsoever that the downward spiral will change at any time in the near future.
Clearly, the rally yesterday is going nowhere, with the futures losing more than three percent off the top, and premarket today trading below the trading range of yesterday's market hours - entirely erasing the rally we had yesterday during trading hours.
We're more than an hour from the open today, with what is almost certain to be a nasty unemployment claims number due in about 30 minutes.
I would love to be constructive, and on a valuation basis there are a lot of screaming buys out in the market right now.
Unfortunately, without a marketplace in which to value them, and without knowing that I can trust a balance sheet, none of these apparent buys are actual buys, because I have no way to determine behind which door there is yet another Bezzle.
I'm not alone in this view, obviously, or the markets would not be continuing to plunge, cutting off credit access to these firms and imperiling millions of additional American jobs.
Such is life; must deal with life as it is, not as we wish it were.
Good luck.
PS: Post-unemployment numbers, which were better than expected, we are now down close to 3% from the close yesterday, and over 4% from the yesterday's high, threatening to break hard downward and perhaps precipitate a 10% or worse crash this morning. Hello Washington! President Obama, would you care to reconsider your "excellent value" call on stocks the other day? Presidential Lie #4,325 perhaps?
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