The Government Can’t Protect Wall Street Forever
Sep 12th, 2008 | By Andrew Gordon | Category: Stock Market InvestingA massive number of bankruptcies in the financial sector. Hundreds of failed banks. Hundreds of hedge funds will fall. And some of these banks and hedge funds will be among the big boys. These are all very likely future scenarios, says Andrew Gordon. The government can’t protect Wall Street forever…
When the government ’saved’ the market in January with a three-quarters of a point cut in the Fed Funds rate, the subsequent rally ploughed over 1,000 points into the DOW in two weeks…
Then in March the Fed helped smooth the way for a Bear Stearns takeover. The rally was bigger and lasted two months…
Then in mid-July Hank declared that he wouldn’t let Freddie (NYSE:FRE) and Fannie (NYSE:FNM) fail and legislation was passed giving him the “bazooka” he never intended to use (that’s what he said anyhow). A nine-week rally again put over 1,000 points back into the Dow.
You’d think with these 1,000-plus point rallies, the Dow would be moving up. But with each rally the Dow has moved to lower lows and/or lower highs. Every time the government puts its finger in a hole to stop a leak in the dike, it seems another even more damaging leak develops.
How many more bailouts does the government have in its hip pocket? Not many. Perhaps not any.
The U.S. government can’t protect Wall Street forever. It’s already damaged the preferred shares market. Whatever chance, for example, Lehman had of issuing preferred shares to raise fresh capital is now gone.
In saving Freddie and Fannie, did the government kill Lehman? If not, it has certainly made Lehman’s survival more questionable.
This is what happens whenever the government sticks its big nose into the private sector. Unintended consequences ensue. Nothing is fixed. And the next round of the crisis seems more serious.
You don’t have to believe me. Just look at how the market is behaving.
So what is the next round? I can only hazard a guess. But I believe there will be a massive number of bankruptcies in the financial sector. Hundreds of banks could fall. Hundreds of hedge funds will fall. And some of these banks and hedge funds will be among the big boys.
Source: “The Government to the Rescue” Are Words You Never Want to Hear
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Andrew is currently the Editor-in-Chief of two monthly investment research services INCOME and The Wealth Advantage. He has also become a leading expert in utilizing Exchange Traded Funds to profit from rising and falling market sectors.
All this doom and gloom talk about the credit markets. Why then does the financial sector continue to rally?
You say that nothing goes right when the government sticks its nose into private business. I say right on. Lets have the government have no relations at all with wall street. Let it be a free for all and let the gamblers among you take your best shots at trading. Wall Street will be dead and defunct in one week!