[Infowarrior] - It's Wall Street's Turn to Bolster Confidence

[Richard Forno]

(I would agree with Steve's sentiment except for the last paragraph -  
yes, the bipartisan 'national leadership' did come, but it was too  
little too late, in my view. Huge rallies like yesterday are to be  
sold into, not bought, for cash is still king in such volatile periods  
of intense uncertainty.....FWIW, despite yesterday's rally, I still  
say we're nowhere near being out of the woods on a variety of economic  
fronts.    ---rf)


It's Wall Street's Turn to Bolster Confidence

By Steven Pearlstein
Tuesday, October 14, 2008; D01

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/13/AR2008101302586_pf.html

Now, what was that about Hank Paulson having blown it?

How he foolishly let Lehman Brothers go under and started a chain  
reaction that quickly turned into a financial meltdown?

How he was so focused on his cockamamie plan to buy up distressed  
mortgages and mortgage-backed securities, instead of injecting capital  
into banks in exchange for shares?

How he and the other finance ministers were so way behind the curve  
this past weekend in failing to come up with a detailed and  
coordinated plan to restore confidence in financial markets?

The truth is we were going to have a serious financial crisis no  
matter what Paulson did or didn't do, thanks to the incredible  
ineptitude of Wall Street and the nation's financial regulators over  
the past few years, whether an insolvent and mismanaged investment  
bank was rescued or not. Lehman was the veritable straw that finally  
broke the back of the financial camel overloaded with debt. If it  
hadn't been Lehman, it would have been something else.

Since Lehman's failure, Paulson has moved faster, more aggressively  
and more deftly than any of his international counterparts in doing  
whatever was necessary to stabilize the financial system. Yesterday,  
he and his collaborators at the Fed and FDIC threw everything they had  
at it -- flooding the banking system with an unlimited supply of  
dollars, expanding deposit insurance, putting a guarantee on new bank  
debt, injecting capital into healthy banks, giving the Japanese the  
assurances they needed to rescue Morgan Stanley, and doing nothing to  
discourage free-spending Democrats from their plans to offer another  
big economic stimulus plan.

The result: the biggest one-day rally on stock markets in 70 years.

I hope you won't think it petty to point out that some of the people  
who this past weekend were complaining that the Treasury secretary was  
being too timid in his response to the financial crisis were some of  
the same people who, three weeks ago, were complaining about his  
audacity in demanding a "$700 billion blank check." I know I speak for  
Gov. Sarah Palin and Joe Six-Packs everywhere in pleading that, for  
Pete's sake, let's cut the guy a little slack.

In putting several trillion dollars in government funds on the line,  
the country has now done just about everything that Wall Street could  
have asked to address the financial crisis. The question now, as John  
Kennedy might have put it, is what Wall Street is ready to do for its  
country. So far, the answer is not much.

After getting their closed-door briefing yesterday from Paulson on the  
government's latest initiatives, Wall Street's finest literally ran  
from the Treasury to their waiting limousines, bypassing a media scrum  
eager to convey any scrap of wisdom or insight.

Court reporters will tell you they can always tell the innocent from  
the guilty on these kinds of perp walks, and the Wall Street crowd  
yesterday looked particularly guilty, unable even to conjure up a  
soothing word to a nation fretting over its shrunken 401(k)s, or a  
simple thank you to taxpayers for having saved their bacon. Their  
silence and invisibility throughout this crisis attests to the moral  
and political bankruptcy of a financial elite that is the perfect  
match for the financial bankruptcy they have now visited upon their  
investors, their creditors and their customers.

After yesterday's "historic" meeting, we are told by industry  
apologists that we are supposed to be grateful to nine leading banks  
for having "volunteered" to accept additional capital from the  
Treasury, along with a government guarantee for newly issued bank  
debt, even if it means having to accept a dilution of existing shares  
and a few harmless restrictions on their operations.

Pardon me if I'm less than blown over by this munificent offer, but it  
hardly seems commensurate either with the severity of the current  
crisis or the depth of the banks' culpability in fomenting it.

If Wall Street were truly serious about convincing Main Street that  
we're all in this together, its top executives would have stepped  
before the cameras yesterday and promised not to cut lines of credits  
to long-standing business customers who have never missed a payment.

They would have committed themselves not to foreclose on any homeowner  
who is willing and able to refinance into a new, government- 
guaranteed, fixed-rate mortgage set at 85 percent of the current value  
of the property.

They would have offered to suspend dividend payments until capital  
levels had been restored to pre-crisis levels.

They would have given us their solemn promise not to advise clients to  
hold on to their own investments while quietly dumping whatever they  
can from their own portfolios and shorting every security in sight.

With the Treasury now desperate for help in managing its new rescue  
efforts, they would have volunteered, at no cost to taxpayers, the  
services of some of those investment bankers and financial wizards who  
now don't have much else to do.

And the maharajas of finance could have set a wonderful example if  
they had all gotten together and agreed to work for a dollar a year  
until the crisis has passed.

There's a word that captures the instinct to take these kind of bold  
moves in the midst of a national crisis -- it's called leadership.  
We've seen quite a bit of it these past few weeks from public  
officials like Hank Paulson, Ben Bernanke, Tim Geithner, Sheila Bair,  
Nancy Pelosi, Barney Frank, John Boehner -- even George Bush. Wall  
Street, by contrast, has served up a nothing sandwich, a lack of  
leadership that's been stunning.