Tuesday, September 23, 2008

Five Ways The Current Crisis Will Impact You

Sec. Paulson and Mr. Bernanke made their case in Washington today and the response was lukewarm at best. If this bailout gets done it's going to be much more expensive, create another bloated bureaucracy and is unlikely to do anything to stem the tide of falling home prices.

What is the bottom line for you - Mr. & Mrs. Taxpayer?

1) Savings, Smavings - This bailout punishes the smart, prudent, fiscal conservative consumer and rewards the knucklehead that paid 400% too much for their 3 bedroom ranch in Phoenix. The net result is that your hard earned and saved dollars are going to be worth less after this bailout.

2) Inflation - Remember six months ago when all of the talk at the water cooler was about the cost of groceries, gas and everything else skyrocketing? Well, despite the summer pullback in commodity prices most producers have held onto price increases implemented in the spring. The rapid return of oil inflation is going to give producers another excuse to push up prices again, get ready for the $6 12 ounce box of cereal.

3) Government Cutbacks - Cities and states are already starting to pullback their spending initiatives. The Federal Government is like a 400 ft supertanker. it's going to take some time to slow it down and turn it around, but spending is going to be cut despite what the candidates will say on Friday night.

4) Higher Taxes - No self-respecting politician will say they are raising taxes, but be aware that the portion of your gross income finding it's way to the government is going to go up. There is a small chance that this bailout could break-even, but I think it's less than a 20% chance. The more likely scenario is that the write down in assets is going to cost hundreds of billions of dollars financed at increasing interest rates which means your children will be paying for the mistakes of your parents when they overpaid for that condo in Boca in 2006.

5) ????????? - If anything was made clear today during the testimony before Congress it was that lawyers acting like accountants is a bad idea. Some the Senators (on the BANKING Committee no less) barely had any idea what the H%## they were talking about. Perhaps even more terrifying, I'm not sure Sec. Paulson clearly understands the nuts and bolts of the bailout. As another blogger observed today - Paulson and Bernanke have been wrong on EVERYTHING for about 14 months, why should we suddenly assume they know what they are doing now?


The late breaking news of the night is that Warren Buffett is making an investment in Goldman Sachs. The market will likely love this news and will read it as "Buffett to the Rescue" but let me assure you that the terms of this deal are very sweet and they assure Berkshire substantial protection in the event Goldman collapses.

****Update: The press is so predictable. From MSN Money:

Market Dispatches, 6:00 PM ET
Dow off 162; Buffett to the rescue

Warren Buffett's Berkshire Hathaway will invest $5 billion in Wall Street powerhouse Goldman Sachs. The move comes after stocks slump on fears that Congress won't pass a $700 billion proposal to shore up the nation's financial system.*******


Finally, this is perhaps the funniest thing I've ever seen. A sure sign of the cutbacks in our future...........

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