Just pinged 680News, a Toronto entertainment and sports station that occasionally runs news stories, with a question.

Just a quick question for you about your editorial position: your current headline notes that the TSX has seen a "slight rebound" after a 1200-point drop. That "slight rebound" is currently, as of 4:03 pm, 734 points. That's hardly slight.

Just wondering why you're being misleading on this by referring to a rebound of 700-plus points as "slight."

Certainly Rogers has to understand that once we hit recession or worse, it will be the cable and cell phone accounts that will be first against the wall in many household budgets. So why would you want to egg on economic disaster? I can see why the Toronto Star would want to cheer on a recession — more people will be sleeping on and under newspapers, so they stand to gain from increased sales. But I can't see why Rogers would be rooting for a collapse.

Just wondering.

We're still going to be down 600 points or so at the end of the day, but their headline focuses on the 1200 point drop before noon. The Daily Socialist (Toronto) Star did this last week, too -- 800 point drop was huge news on their weebsite. The following day's 600 point bounce -- eh, not so much. Was an H3 at the bottom of the main page.

Humph.

Yes, I've often wondered if the circulation/advertising departments are walled off from the editorial offices... it's what I mean when I say it isn't an extinction - it's suicide.

I've noticed that various opposition leaders continue to berate Harper for "doing nothing" about the market declines, but at no point do they ever suggest what it is he should "do", other than Dion's idea of having month-long meetings. I suspect that most of these clowns secretly desire to impose more socialism on an already overtaxed economy. Tired and wearied by years of having to cut spending and state interventions in the economy, they are now overjoyed that, at long last, they might get an opportunity to make socialism "work". But there is no way on earth that you are going to "regulate" your way out of this financial mess.

The fact that the market downturn is pushing Harper's polling numbers down speaks volumes to the fact that Canada is philosophically a collectivist nation, full of whiners who see nothing wrong with having a nanny state save them repeatedly from the consequences of the errors of their own judgement.

If you have enough of such measures, however, whether they be subsidies to the auto industry to produce cars no one wants, or loot thrown at "artists" to produce shlock that no one would freely buy, you can get a recession to turn into a full-blown depression, for the simple reason that investors will eventually tire of seeing their money tossed out the window to a host of parasites.

I for one welcome this new breed of highly elastic cats. Small bouncing dead animals.

"If I was interested in 'high risk, high return' I'd be selling crack."

Would that be to the people whom you asked to share needles amongst themselves?

that 'slight' rebound you referred to Lickuffin is more pronounced in the US: DJIA returned to a 300 point loss from 800 at one point.

This is simply the funds and trade houses shaking down governments for more cash. Because the Treasury blinked once, and other governments will follow, the market is working over Main Street to bid up an aggregate bailout number.

They've got everyone by the balls now: they've got you by your tax money.

Gotta agree with Hardboiled on this one.
You do to one and then you gotta do for all. Seems kind of Socialistic to me. Everybody is reduced to the lowest common denominator.
And the taxpayer continues to get screwed......

Dennis,

I agree that the left/separatist opposition parties and their media sycophants have started to falsely conflate Harper with this mess. This is being reflected in the polls.

The good news is that Harper's strongest cards are his decisiveness and economic background. And that the Tory platform is being released late (tomorrow) which allows for flexibility. Playing these cards doesn't have to involve fix-it programs. Simply convey the truth that a strong and capable leader is in charge.

Harper towers over midgets like Dion and Layton. His only mistake would be to undersell himself.

Saskboy, nobody asked the addicts to share their needles amongst themselves. They choose to do that freely, even when clean needles are provided for free. By the way, crack is smoked, not injected.

I think one of the problems is that many in the media are too young to have experienced previous downturns in our economy. Times get tough and then they improve. Times are good and then they get tough. It's a natural cycle and some people are bound to suffer under either scenario. Times have been good for the past decade in Ontario, but we haven't eradicated street dwellers. We've seen no fewer people patronizing food-banks and street gang violence is on the rise.

In some ways the tough times are actually the best of times as it causes people to become more connected to those around them, yet at the same time becoming more self-reliant. There's less money-grubbing or conspicuous consumption for grubbing/consumption's sake and a greater understanding of and compassion for those who are experiencing financial difficulties.

I lived through the NEP in Alberta. I lived in Regina in 1969 - 1970. We had to sell our home in 1970. Those were terrible times for many people but the sense of 'community' that came with them were palpable I believe it contributed to the resiliency displayed by many of those who live on the prairie provinces.

This will be a far greater shock for people in Southern Ontario (where most of the MSM reside) as they have rarely seen the kind of downturn that affected Alberta during the NEP years . . . or, Saskatchewan during that time that came closest to the 'dirty thirties' . . . or Newfoundland during the years of the cod collapse . . . or Nova Scotia after WWII . . . or . . .

The point is that people do survive these things, in spite of government action/inaction. Responding in panic is the worst of the alternatives.

Saskboy is only mad that when he pledged never to return here (several comments ago), nobody noticed.

Bart F., Harper has been in charge for about 3 years, so his economic "background" led us to this point. And his mentor in Washington screwed the States too with a war they couldn't afford.

That was a hint, John.

Now skedaddle.

saskboy,

I didn't know prior to reading your post that Harper was responsible for the sub-prime fiasco in the U.S.

Thanks for the heads up!

"Bloggers may not like to use it, but for some things it's the only game in town."

That extra traffic comes from people like me trying to remember precisely which unmemorable blogger you are.

saskboy

only idiots like U point a finger at Harper and Bush, and screem you did it

even B Clinton says that the dems are to be thanked for this mess

it's the socialists STUPID

This too shall pass. I prefer the ARI's take on the financial crisis: http://www.aynrand.org/site/News2page=NewsArticleid=21365

Only someone with the intelligence of an earthworm would suggest that the Conservative government was responsible for the economic mess the world is now facing. It takes a truly inflated ego to suggest that anything about the Canadian economy is important enough to shake world markets. This was a made in the U.S.A. debacle and it ripping their economy apart as well as that of a number of western European nations who bought into the get-rich-quick scam. Canada will get sideswiped hard by the credit situation as a result of our dependency on exports and resouces but, unless some political party can increase our population fivefold overnight, this is a fact of life.
The Harper government took the most effective action possible last week when they injected 20 billion in liquidity into the Bank of Canada. This means businesses, of all sizes, have short term funding available without resorting to the seized up American market. This solution produces results now, without waiting for the goofy infrastructure funding which the Liberals propose and which takes years to get moving in any substantial way. It is also much quicker than the NDP solution which promises 50 billion in tax clawbacks without mentioning that the 50 billion was spread over 4 years and is not available in one lump sum.

A further comment on the financial mess in world markets.
What is the big panic over the stock market tumble? The stock market is not a reflection of the Canadian economy. It is a casino game based on perceptions of future activity. When things look rosey the major traders bet the farm on rising prices and when they see problems ahead they bail faster tha a one-armed man in a leaky rowboat.
Canada's mortgage default rate is running at less than 1 prcent, right in line with the trend it has been following for the past 9 or 10 years. In 2007 the government acted to ensure that financial institutions did not get caught up in the free-mortgage scam.
There has not been, nor will there be, a bank failure in Canada. There are no long lineups of people looking to withdraw all their funds as there has been in Europe.
Canada is running a surplus, even without taking into account the 4 billion they raked in from the broadcast spectrum auction. Our debt to GDP ratio is the lowest of the G-8 countries which means we don't have to lay out huge, budget-breaking sums in the form of interest payments.
Will we get hit by the tightening of credit, the slowdown in economic activity worldwide, and the loss of export and resource income? You bet! But, as a result of prudent Conservative management of the economy, we will not face the danger of the whole economy collapsing.
Give it a rest folks. We'll have to do some serious belt tightening, but we'll come out O.K.

I've taught economics, from introductory to 4th year, plus courses in international business and globalization. What REALLY scares me is that most of the population knows nothing about economics, and most politicians know even less.

The economic fundamentals are sound (although we are along for the ride as we are an export economy), but what we are suffering from is a case of "exuberant irrationality" - if everyone gets scared of the market and decides to pull out, the massive sell off that results will cause the market to fall.

I lived in Ontario when Bob Rae decided to buck the world recession and save Ontario's economy by cranking up spending - he only made things worse, and I couldn't move out fast enough.

There is very little that government can do, other than assure the population that the world is not ending, make sure that there is liquidity in the system (but, too much will lead to inflation in a few years...), and avoid bone-headed moves like erecting tariff walls to imports/exports (see Smoot-Hawley Tariff Act; see Jack Layton, ...)

Most stock prices and houses are or were overpriced anyways, and the correction, while it won't be pretty, is needed (in my own market, the value of my ,ore than doubled in the last three years, in a local economy that cannot sustain that level of house price without putting people into servitude to a lender).

It's downright depressing to hear, time and again, the persistent idea that this financial crisis is the result of too little regulation.

How on earth do you "regulate" value into something which has no value? The only way to do it is either through massive inflation, which defrauds creditors and can only result in an even bigger bust, or else by confiscating wealth from enterprises which have genuine value and showering it on enterprises which do not. If anyone believes that the latter option is not on the table, they only needed to listen to that neo-Marxist parasite Duceppe at the leaders' debate, who the denizens of the statist paradise of Quebec seem poised to reward with significant electoral gains.

Either way, you will create a depression. Fun, fun.

The current crisis has similar outward manifestations as the great depression, but is, or should be, rather different in its scope, outcome and duration provided economic ignoramuses like Layton or, more worryingly Barak Obama, don't win the day.
Most serious economists would agree that, while the stock market crash of Black Tuesday 1929 could have triggered a recession, it was the actions and existing regulations constraining the US Federal reserve system and the New York Federal reserve in particular which resulted in the contraction of the money supply, combined with the protectionist Smoot-Hawley Act and the collapse of the unfortunately-named Bank of the United States (ergo the run on the banks), which truly cemented the depression. In its totality, the "New Deal", far from alleviating the depression in the long run perpetuated it.
Provided people in power are familiar with their economic history, a similar chain of events should not happen again. Worryingly, as evidenced by their rantings against the NAFTA, loons like Layton and Obama don't seem to have read their history at all.
Likewise, the call for more regulation is worrisome insofar as their seems to be an inability in some segments of the population to distinguish between good regulations and bad ones. It was a series of bad regulations requiring banks and mortgage institutions to offer mortgages to people who were terrible risks and would not otherwise have qualified for small loans, let alone mortgages, which started this bubble growing in the first place.
On the other hand, good regulations, as I've alluded to in previous threads, by improving transparency may prevent unscrupulous lenders from exacerbating a bad situation by preventing them from repackaging high risk discounted debt as low risk debt and selling a pig in a poke, only to go out and pile up more bad risk debt.
Likewise a loosening of the money supply by the US Federal reserves and by the Bank of Canada as needed, may be in order.

[quote]And his mentor in Washington screwed the States too with a war they couldn't afford.[/quote]

No we can afford the war! It’s bailing out the Global economy that is a double bitch. The Loss of Confidence, in the Market, is not been helped by dumping money in the crapper.

When the Dow drops to ~8400 and the Commodities market returns to the Supply & Demand basics this generation of investors will re-enter the Market. If the Market continues to be Corrupt it will have to wait for the next generation of Suckers.

SEC has the Laws; they just don't have the will to stay engaged. They, like our military, depend on the Laws of probability. Prosecute a few and then sit back and wait for positive results. The Smart Thieves just hide out for a while and then go right back to business as usual knowing they are been watched by Computer programs designed by digital idiots to catch digital idiots.

Saskboy sez: "has been in charge for about 3 years"

Better put some more potatoes in the root cellar, Saskboy - because you're sure not going to survive a modern economy by using your wits.

This WHOLE mess is a 'collective' (there, I'll bet you like that word) failure. It's people who have lived beyond their means for not just a year or three, but for a decade or more and it's finally caught up with them.

They were given easy credit and ever increasing limits on their charge cards and they used all of it. They say their house 'increasing in value' and used the equity each time they remorgaged for vacations, toys or at best, expensive remodeling projects that they believed would increase their home value even more - just so they could continue the cycle.

It was like a big ponzi scheme with all those who are now in trouble, buying into.

And who's going to pay for their folly? Why guys like me - people with a fully paid for house, no credit card debt, a car on which I owe nothing and a conservative portfolio of blue chip stocks. Those of us who sweated and saved, who did without for all the years the rest were on a spending binge.

No X-Box in my house, no $250 MP3 players, no boats nor travel trailer. I could have em'. I could pay cash. But I chose not to so that I could have a comfortable, stable retirement with a little travel and simple pleasures.

And now, the socialists are going to whine that "I have so much" and they have so little, that they'll want me taxed and others to lose their jobs so that we can save their sorry a##es.

Do I feel sorry for those hundreds of thousands who got in over their heads on a house they knew they couldn't afford in the first place? No.

And if they didn't know, they were plain stupid and stupidity isn't my responsibility.

Hard nosed? You bet. I worked my tail off my whole adult life, making simple, common sense decisions that I knew were required to live a dignified retirement.

You gamble, drink, do drugs or buy things you really can't afford - live with it.

some of the posters are absoluately right - most people have very short memories - at 53 I have seen about four downturns and then the market bounces back even more. But it is to the advantages of the Libs and dippers to make people afraid and then they will turn to big brother for comfort. Boy is that a mistake!

One would have to suppose that very troubled times lie ahead. If Obama wins, he will be trying to spend his way out of trouble. If Obama loses, there could be widespread social unrest linking back to the economic crisis.

I think lots of people dabble in high risk investments, they are called 6-49 tickets, etc. This is the classic high-risk, high-yield investment. A lower risk high-yield investment would be a ticket on three sports results that were all near-certain favourites. To illustrate, if you have odds of 1.4 to 1 for a victory for three different teams, you can make about 180% on your investment. Your chances of doing that are about 50% give or take 15. So you'll probably lose money over the long term, but as a one-shot venture, your odds are probably better than the stock market right now.

Betting ties or upsets is more like mining stocks.

What goes up must come down. Eventually. How far down and when and how are questions best answered by those manipulating the markets to effect the political outcome they favour most.
Once this plays out, the markets will immediately get better if they don't rebound before Nov. 4th.
Regardless, they will get better. The buying opportunities are already being utilized by Warren Buffet as we speak.
We must keep taxes low as President Bush has done but the dem congress wishes to lapse. Bigger spending is not the answer. Lower taxes ( government gets out of the way) and a big cutback on government spending and hold tight to the reins. We are facing a Tsunami of political and financial waves. We need a cool, steady hand on the Tiller. Bush will be gone in January. I hope John McCain is in the States to man their ship and that Stephen Harper is here manning ours.
Nothing else will come close in these times.
But, look for the 'economy' especially the financials to improve greatly after the US Election. A great deal of this is to ensure Obama gets elected.
GOD help us all if they succeed.

"Bart F., Harper has been in charge for about 3 years, so his economic "background" led us to this point. And his mentor in Washington screwed the States too with a war they couldn't afford."

While there is no doubt that the Iraq war has been costly to the yanks,Bush had VERY little to do with the current financial mess in the US. In fact it can be laid soley at the feet of the dumocrats (liberals)

This video (http://www.youtube.com/TheMouthPeace) gives a very succinct cronological description of that.

So saskboy, its pretty obvious you don't know what you are talking about. If you want to spew your nonsense at least make sure you have your facts right.

Horny toad

The main purpose of government in a free country, other than war, is to assure contracts. Guy A makes contract with guy B, the government exists to act as the enforcer should A or B breach the deal. That is the purpose for which our government was designed.

I do not pretend to understand the stock market, banks, credit markets, none of it. If I did I'd have been short the financial companies this year and I'd be rich like Warren Buffet.

What I do understand is moral hazard. If the government does not assure the fair and honest enforcement of contracts, if they allow guy A to lie about what he's selling to guy B, then they have failed their central purpose. The crisis we are in right now exists because of pure moral hazard run amok.

The solution to a moral hazard is not to throw money at it. You have to ensure the -morality- of contracts is upheld.

If anyone is interested in a very good summary of what is going on, I would recommend reading The Great Reckoning: Protect Yourself in the Coming Depression by James Dale Davidson, William Rees-Mogg. These are the two gentlemen who made the case for the collapse of communism and rise of Islamic fundamentalism years before any our academics or intellectuals. They suggested that a great deflation or deleveraging of society would take place in the 90's based on some interesting macro-analyses. Although their timing was a bit premature, it looks as if they may unfortunately have been right once again.

My opinion is that society as whole has had a bout of madness -- and the time to pay the piper has arrived.

I also believe the Democrats in US are quite happy about the current situation as they see the ruin of the US economy as the road to greater power for them.

Saskboy, no, that would be people who Kate sweeps up off the street and put in detox and smarten-up programs.

*
"If I was interested in 'high risk, high return'..."

the next time some clueless leftbot starts an
outraged conversation about the conservatives
betraying income trusts... stop them and ask
for a definition of what that is.

i guarantee you, 95% of these gomers wouldn't
know a "p/e ratio" from raccoon shit.

*

Horny toad - "Bush had VERY little to do with the current financial mess in the US. In fact it can be laid soley at the feet of the dumocrats (liberals)"

Read http://www.vdare.com/Sailer/080928_rove.htm

And that is why the republican base had effectively deserted this year, why McCain got the nomination, and why Palin was chosen vp nominee.

Blame aplenty. Bush has his good points, but a small government, strict constitutionalist he is not.

"What is the big panic over the stock market tumble? The stock market is not a reflection of the Canadian economy"
Powell Lucas @6:28

Tell that to MSM...it's all Harper's fault,eh?
CTV just ran some blips of the bushharper.com ad as part of their 'news'.
I remember PMSH's Christmas message to the Canadians...The economy was going to slow down, he warned us.
Anyone have a link to that?

"The action Congress took last week to address our financial crisis was a tourniquet, but not a permanent solution. Today we are seeing the stock market fall, and the credit crisis spread to other parts of the world. Our economy is still hurting – working families are worried about the price of groceries, the price of gas, keeping their jobs and paying their mortgage – further action is needed. We need to restore confidence in our economy and in our government.

"Washington is still on the wrong track and we still need change. The status quo is not on the ballot. We are going to see change in Washington..."

Banks failing in Britain, Holland, and Belgium, mortgage companies failing in Germany, banks and insurance companies failing in the U.S., all five Wall Street investment banks no longer in business or merged into a conventional bank, bad mortgage paper from U.S. subprime causing trouble around the world, property values cratering in California, Spain, and Ireland, stock markets crashing in Asia, budget deficits in the U.S. -- and then there's Canada. Tell me again what Harper's been doing wrong.

Mutual funds are a scam, particularly in Canada with 2% MERs. Buy an index fund, exchange-traded fund or Class B shares in Berkshire Hathaway...

With the economy the way it is, I would suggest you do what Warren Buffet is doing and with available cash, buy.

Key things are this is the biggest drop in the market since 1987 and the market is still higher than it was before that fall in 1987. Yep, if you had bought stuff before the 87 fall and held on to it today you would still be looking at a capital gain on your investment.

No Guff, obviously you know your stuff. I could care less about all these little snot noses whining about the markets, didn't you mommas tell you there would be days like this, they did but you still went out and bought real estate for a dollar down and listened to all the snake oil salesmen and spent borrowed money on boats and trailers, well suck it up little minions of Turdeau. There is no free lunch, live by the charge card and you will have a surprize. He who goes a borrowin will go a sorrowin, Ben Franklin.

Iain .. 1987 crash was reactionary, this is structural and long lasting, 10+ years to go. The economic expansion that has ended started in early eighties. Very few people understand the need for economic winter to clean things up after expansion. It is a part of human nature to not accept that nothing last forever, so many are clinging to hope or blame or both. The only economic difference between capitalism and socialism is that the latter doesn't have a build-in regenerating mechanism and it spirals downward from the start, while the former goes through painful transformations.
Without making any moral arguments, there seems to be a necessity of difficulties in existence, so there is appreciation of the existence itself.
We are facing very difficult times with geopolitical complications of unknown scale, analyzing it from the perspective of "here and now" is futile, yet very few can see the writing on the wall when it comes to the future. If you do, you know - without 2012 prophecies - that wars, famine and general misery is on the way.

What REALLY scares me is that most of the population knows nothing about economics, and most politicians know even less.
Posted by: crotchrocketcowboy at October 6, 2008 6:36 PM

Indeed, crotch. It frustrates me to no end that as the economic turmoil increases, the Tories are going DOWN in the polls. People seem to think they can turn to the demonstrably failed socialist policies of the dippers and libs in troubled economic times.

More frustrating is that they are turning away from an intelligent man educated specifically in economics.

The mind boggles, and I fear for the future of Canada.

A little stock story:

My late great aunt moved to Boston in the 1920's and opened a beauty parlour which gained some patrons from the wealthy families. When she managed to start saving a few dollars she had no idea where to invest but one of her customers did. She invested in a backwoods electrical utility that prospered, survived the great depression as well as WW 2, always paid dividends, and grew and grew.

That is, until the late nineties, when a new up from the ranks CEO and his flunkies fell under the merger mania spell of a major broker/investment bank and the stock ran up to $55 a share even after several splits and then crashed to $3. He was "retired" with full perks and a well connected new team arrived.

Ripoff phase II saw predatory refinancings, no dividends, huge stock options, hedge funds involvement, and eventually a stock recovery to $65 (today's low $28) long after small investors had been starved out.

Today we are faced not only with investment risks but executives/directors across the board who lack competence and moral character. Some have made the same "mistakes" year in and year out and when finally kicked to the curb have left with a king's ransom in perks and pensions.

My great aunt passed away long before all this disgusting activity came about, thank god.

The former hotshot investment bank found new owners in September. I wouldn't trust any of them.

Utilities are the only sector for the whole length of a recession. Consumer Staples and Health Care in early phase.

no guff @ 7:06

Your comments bring out some of my fears of the future....

I save, I have modest debt( I got a Wii, ipod and a boat....oh well) and I contribute to both my company pension and CPP. As well as other investments.

My brother in law is in deep debt. I use him as an example of typical late 20's early 30's generation.

My fear is someone will come along and decide since I have so much of personal savings, my CPP payouts will be.....I dunno...... garnisheed and sent to more "deserving" people. ie people that did not buy rrsp, pay down debt, invest in anything and carry debt into retirement.

This whole market meltdown makes me glad I own a trade certificate instead of an arts degree and know how to plant a garden and catch a fish(most days)

Only hope Molson can stay profitable to keep brewing

the most pathetic yet flawlessly predictable human reaction to 'hard times' is spikes in church attendance.

personal tragedy? head for the pews!!!

financial catastrophe? head for the pews!!!

high times and green grass? head for the vacation spots!!!

I personally have been less affected by this market correction than by a rock rolling down a hill on Mars.

Phantom:

George H W Bush offered Ken Lay position of Secretary of Commerce:
http://www.answers.com/topic/kenneth-lay
is Lay 'guy A, lying to' the stockholders of Enron 'guy B' ?

Buck up, there, soldiers - packs down, five minutes, smoke if you have them.

All worldly events are cyclic in nature, and to balance the highs, there must inevitably be lows. Refrain from fretting about things you can't control. Plant a vegetable garden on your terrace, get yourself a couple of laying hens, and sit back and contemplate the texture and flow of life's rich tapestry with an untroubled mind.

For those politicians that think government intervention in the markets is going to help (read inject tons of tax dollars) they need to stop channeling Bob Rae. He's the guy that thought government could spend its way out of a recession and Ontario's first and hopefully last NDP premier.

Did I mention he's now on the Dion team?

I blame the voters in the US, personally. No politician can survive a small recession as part of the normal business cycle, so they avoid it as long as possible with financial manipulation, but recessions are inevitable and better taken in small doses.

I don't blame Reagan so much, since he came out of the calamity that Carter and Nixon created with their socialist policies, but Clinton and Bush both manipulated the markets keeping rates artificially low for such a long time that they blew up the bubble til now it is bursting.

On the plus side, there will be plenty of
"McMansions" around empty for the squaters.

Retarded trolls from the prairies aside, it does take a certain level of stupid to look at the world and suggest that Harper is to blame for the entire world's economy dumping on itself.

Look at a very simple illustration: Banks, Brokers, and insurance cos are failing in the US, Germany, France, Iceland, UK, Etc. The idea that Harper could do that kind of damage from CANADA in 3 years puts him in evil villain comic book level of menace. What depth of gutter-level incoherence must you suffer to think anything of the sort?

Want to know how we're doing here in Canada? Just look at the most poignant fact: none of the failed financial institutions - NONE - are Canadian. So who's doing a good job? Canada is.

Why is Canada doing a good job? The Canadian Bank Act which is an almost incomprehensible amalgam of legal jargon weighing as much as a hybrid civil and passed, strengthened and nurtured by Canadian governments BOTH Conservative and Liberal.

This mess is not a partisan thing (at least outside of the US.) The retards who suggest otherwise are exactly that: retards.

That being said, a mess we are in and a mess we must clean. The best person for that job is one who understands the mechanisms involved. That isn't taught to sociologists, socialists or teachers - lib or dip.

So many 'conservatives' in here begging on streetcorners, waiting for Dear Leader and government to pay up and save us all. Pathetic.

To bankers and politicians who insist that the world will come to an end if the US Congress does not approve the proposed US$700 billion bailout package, I wish to say: "It is not the end of the world. It is just the end of you." Sadly, it won't be. America's financier caste will live to fleece another day.

There are no atheists in the trenches, and no free-marketeers in Congress after a nearly 10% fall in stock prices. A chorus of erstwhile conservative voices led by the likes of Newt Gingrich, the Republican firebrand of the 1990s, now argues that the proposed $700 billion bailout package is flawed, but it is better to enact it than to do nothing. This simply is not true.

In the event of bank failures, the government will not "do nothing". Two of America's largest banks, Washington Mutual of Seattle, Washington, and Wachovia Bank of Charlotte, North Carolina, were forcibly merged or taken over by regulators during the past several days, without a ripple of disruption to depositors or borrowers.

When a bank runs into trouble, the American government takes it over via the Federal Deposit Insurance Corporation, an entity created during the Great Depression. Why doesn't Congress vote authority for the FDIC to add capital to stricken banks in order to continue their lending operations - after the existing shareholders have been wiped out?

The trouble is that the banking system is insolvent; that is, it lacks sufficient capital to hold its existing portfolio of assets, let alone to make new loans. Its capital is dissolving as loan losses mount. Banks have written off nearly $600 billion of mortgages or securities backed by mortgages during the past year. Against this, they have raised $350 billion in new capital from investors. But investors believe that losses will continue to rise in the mortgage market - and that is before other asset classes begin to decay, including credit cards, and corporate loans.

The banks need capital. The private market has had a very bad experience giving them capital. Distressed investors, such as the Texas Pacific Group, which invested in the defunct Washington Mutual, or the JC Flowers Group, which unwisely poured money into Hypo Real Estate, have lost money. Sovereign wealth funds have lost even more. It is getting harder and harder to persuade private investors to put more money into banks, given their string of losses.

The US government has no mechanism for giving capital to the banks. It hasn't done anything like that since the early 19th century. What Treasury Secretary Henry Paulson has proposed is a backdoor way to put capital into banks, by purchasing securities from them at higher-than-market prices, as I observed last week (see E Pluribus Hokum, Asia Times Online, September 23, 2008). Federal Reserve chairman Ben Bernanke quaintly called the higher price the government is to pay a "hold to maturity price", as opposed to the "fire sale price" now available in the market place.

Which institutions would get the capital injection, and at what price? In effect the Treasury would be dispensing capital gains to institutions it liked, but not to institutions it did not like (such as the unfortunate Washington Mutual). Shareholders in favored institutions would receive an enormous benefit, which is why some amended versions of the bill propose to allow the government to claw back some of the capital gains through the right to buy company stock.

Why anyone believes that the Treasury plan will prevent widespread economic misery is unclear. Assuming that the Treasury overpays for the so-called "troubled assets" it purchases from banks, it cannot overpay by too much. Let us suppose that it overpays by 20%. In this case, it would effectively give the banks a $140 billion boost. That is a small fraction of what they have written off already, and an even smaller fraction of what they must write off as American wealth continues to shrink. It will help the shareholders of a few big institutions, and that is about it.

The banks need a good trillion dollars or so of new capital. The Paulson plan, unfair and indirect as it might be, cannot provide more than a small fraction of that amount. But there is wealth aplenty in the world eager to find a permanent home in the United States, in the sovereign wealth funds and in private equity funds around the world.

If American banks are permitted to fail, and their operations maintained intact by the FDIC, new investors can restart operations with a clean slate.

What is so awful about wiping out the home price bubble of the past 10 years? Suppose home prices were to plunge by half (which is where homes in foreclosure clear the market in California or Florida)? Young people would find it easier to start families and old people would work longer before retiring.

Nonetheless, the bailout package will pass in some form. America's intellectual class, right, left and indifferent, is too dependent on the begging-bowl proferred to the financier class to conceive of its existence after the prospective demise of its patrons. Republican congressmen whose constituents fervently oppose the bailout quake in terror at the prospect of absorbing blame for a new depression. If the depression comes despite the bailout, of course, they will have even more explaining to do, but that is a different story.

Ultimately, it is the Americans who lack the guts to oppose it. As I argued on September 23, they are like gamblers who pass a tax to bail out the town casino, after unpaid gambling debts threaten to sink it. Americans will not easily give up the illusion that ever-expanding wealth is their birthright.

As I reported on September 29, America's wealth was about three times family income in 1962, and over 10 times family income in 2004 (see US wealth in shrink mode). Leverage applied to housing created an illusion of wealth on top of a stagnant base of income. Take away the banks, and the wealth illusion will die forever. Americans will actually have to save, rather than speculate in the property market.

The bailout will pass in some form. But the next time you see a talking head on television telling you that the bailout is imperfect, but that it is the only choice, remember: it just ain't so.

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