Markets Rebounding, But For How Long?

So we're back to discussing the financial crisis today. I have returned to the office after a short Thanksgiving holiday (in Canada its earlier), and it seems that the stock market is having an identity crisis today.

Although the good news of all the cash injections and bailouts being offered to the banks seems to be sinking well with the markets, they still seem to be having some digestive difficulties with all of these governmental plans. Also, I don't see anyone in the press stopping to ask the obvious question: Where is all this money coming from?

It would apprear that the authorities (both governmental and economic) would have us believe that throwing money at the problem will result in a shoring up of market confidence. But is this really a long-term solution? Will giving more power and money to the banks really solve the problem?

Another interesting question to think about it why the US government (and many others around the world) are now speaking about buying equity in "healthy" banks. If the banks are "healthy" as they say, wouldn't it make more sense to buy equity positions in not-"healthy" banks, so as to avoid further bank collapses?

There is something fishy going on here. First with Henry Paulson, Gavyn Davies and now Neel Kashkari (the newly appointed head of TARP) all being former Golden Sachs heavyweights. Also, look at the nine banks the government will mostly invest in: Citigroup, Wells Fargo, JP Morgan Chase, Bank of America/Merrill Lynch, Morgan Stanley, Goldman Sachs (of course), New York Mellon Corp and State Street Corp. (The other smaller banks will get peanuts)

Then lets look at who was just chosen to administer the $700B U.S. Treasury plan: NY Mellon Corp. Coincidentally, they are also about to receive $3B as an 'equity' investment from the government. What a stroke of luck...

Third, look who was chosen to bail the banks out. Just look at Paulsons face. Does this look like someone who is looking after your interests?

To conclude, there is something more going on here than meets the eye. I will be putting together some posts on these nine banks in the coming weeks in the hopes of clearing up some of the inevitable confusion surrounding the free lunch the banks are about to get...

In the meantime, this website gives you a nice overview of how the US government spends its tax dollars: http://www.federalbudget.com/

Notice the interest payments for 2006 were $405 billion. Compare that to the TOTAL amount spent on education and transportation combined: $117 billion. And this was in 2006!


More readings for the day:

Bloomberg - Paulson Plans to Invest in Thousands of U.S. Banks
(Ironically, the name of this article changed between earlier this afternoon and now. Basically this article discusses the equity injections into the banking system by the US Treasury)

Bloomberg - BNY Mellon Chosen to Administer U.S. Treasury Plan
(This article discusses the appointment of BNY Mellon as the Treasuries Treasurer...Ironic...)

Reuters - Buy Out Bosses Meet in Dubai
(Now what in the world could these guys be doing right now?)

Reuters - Even as Markets Rally, Executive Fear Bear Trap
(Finally, a decent article on the financial crisis)

International Herald Tribune - U.S. Investing $250B in banks
(Good article with a few additional details)

International Herald Tribune - After Early Rally, Wall Street Loses Steam
(Loses steam today, and by tomorrow or Thursday, we should be sliding again. There aren't enough pro-banking laws that were passed yet...)

BBC - Timeline of Global Credit Crunch
(Good stuff from the BBC, showing a timeline of events dating back to April 2007)