SOS Forests

Stock Markets Rally

Did US stock markets crash today in light of the defeat of the Paulson-Franks $700 billion bailout plan?

No. At close today the Dow Jones average was UP 485 points, the NASDAQ was UP 98.6 points, and the S&P Index was UP 58.3 points!

Other indicators: DJ Wilshire 5000 +15.53,  Russell 2000 +21.86, Philadelphia Semiconductor +13.51, Dow Transports +112.12, Dow Utilities +4.82, NYSE Composite +328.79, AMEX Composite +27.97,and Morningstar Index +3.31.

That’s right, sports fans. No crash and burn. Whadayaknow?

An interesting article from The Institutional Risk Analyst published by Lord, Whalen LLC (LW) is entitled A Workable, Private Bank Assistance Plan or Why President Bush Should Fire Ben Bernanke and Hank Paulson [here].

The article explains why depositors in failed banks are not hurt because banks must buy Deposit Insurance from the FDIC. Stockholders in failed banks may be wiped out, but not the depositors. And at no cost to taxpayers because the FDIC trust fund is supported by insurance premiums that banks must pay and have been paying for decades.

The FDIC will not run out of money. The FDIC noted in an open letter to Bloomberg News posted yesterday:

The fund’s current balance is $45 billion - but that figure is not static. The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income. We will propose raising bank premiums in the coming weeks to ensure that the fund remains strong. And, at the same time, we will propose higher premiums on higher risk activity to create economic incentives for poorly managed banks to change their risk profiles. The fund is 100 percent industry-backed. Our ability to raise premiums essentially means that the capital of the entire banking industry - that’s $1.3 trillion - is available for support.

The FDIC does not and will not run out of money. Like all federal trust funds, the FDIC’s insurance ‘trust fund’ does not exist. The reserves shown in the fund simply evidence the amount of money contributed by the banking industry into the fund. Like all federal trust funds, the cash raised by FDIC insurance premiums goes into the Treasury’s general fund. When the agency needs cash, then the Treasury makes the money available. When the positive balance shown in the FDIC insurance fund is depleted, the FDIC simply runs a negative balance with the Treasury, a loan that the banking industry will repay over time. Indeed, the FDIC is preparing to raise the industry’s insurance premiums to generate even more cash to deal with the rising levels of bank failures. Also, in the remote chance that the FDIC ever reached the statutory borrowing limit from Treasury, the Congress will simply raise the limit.

Rumor has it that at the “bailout summit” hosted by President Bush, Barrack Obama attempted to take over the meeting. While Paulson, Bernanke, Frank, Pelosi, Reid and that guilty crowd sat in silence, Obama had a hissy fit, with John McCain as his target.

It was that meeting, not the Pelosi speech, that turned the Republican House members away from the Paulson-Franks Plan.

And thank goodness they did turn. Instead of a $700 billion give-away to NYC investment banks, the hedgers and margin jockeys will be allowed to fail, sunk by their own hubris.

And there will be no stock market crash, no credit crunch, and no Depression.

There has been, however, grotesque incompetence and dirty dealings by Paulson, Bernanke, Frank, Pelosi, Reid, Obama, Dodd, and that ilk. What is needed is a major investigation ala Watergate into the diversion of $millions from Fannie Mae and Freddie Mac into the pockets of Congresspersons.