A financial bailout is not the government’s first choice for reviving an unresponsive economy, for the same reason an emergency medical technician puts off jabbing an adrenaline shot into someone’s stopped heart as a last resort.
It gets the job done, but NOT without some serious consequences.
Yet when times turn drastic, the powers that be don’t hesitate to apply drastic measures, as the events of Sunday, September 7 make plain. On that day, the U.S. Treasury Secretary was “forced to pull the trigger on his bailout bazooka.” (Business Week)
In short: Uncle Sam foot the $200 Billion bill for indebted mortgage giants Fannie Mae and Freddie Mac in the biggest financial bailout of all time. And, according to the experts, the negative consequences of the "rescue" -- i.e. billions of dollars in taxes and fierce backlash for rescuing the fat cats of Wall Street -- are worth it to bring the U.S. economy back to life.
On this, the following news items say plenty:
· “World Stocks Soar On US Mortgage Bailout… The takeover of Fannie and Freddie may be a sign that the market has bottomed. It’s hard not to be encouraged by the end of the Fannie-Freddie Death Watch.” (CNN Money)
· “It was a good step in the right direction and the stock market reacted positively. We are closer to seeing the end of the credit crisis.” (Bloomberg)
Forget faith. Forget unheard-of dollar amounts. Forget the Fed’s promise not to let the mortgage giants fail. The truth is: In forty years of economic history, there has been ONE single requirement for a financial bailout to pull off a meaningful recovery: A bull market in stocks.
But don’t take my word for it. The undeniable proof is in the September 2008 Elliott Wave Financial Forecast’s close-up of major government bailouts versus the “Real” Dow (i.e. measured in terms of gold ounces) since 1966. (Reprinted below)
One look at this spellbinding picture and the there’s no going back: During the sustained bear market of 1966-1982, bailouts that coincided with apparent stock market lows were always ultimately followed by lower lows.
Conversely, each government-backed rescue from 1982 to the 1999 peak overlapped with higher stock market highs, reflecting the raging bull market. Since then, the Dow/Gold Index has plummeted 67% into official bear market territory. And every accompanying bailout has failed to stem the downward tide.
In the last 18 months alone, the inability of government injections to revive the U.S. economy has been extreme. Here, the September 2008 Elliott Wave Financial Forecast goes down the list:
- June 2007: Bear Stearns’ $3.2 billion bailout to one of its struggling subprime linked hedge funds.
- August 2007: Goldman Sachs’ $3 billion bailout of its quantitative fund
- November 2007: Nations three largest banks propose a $80 billion structured-investment vehicle (SIV) fund to breathe new life into the market for short-term debt.
- December 2007: Citigroup Inc.’s $58 billion SIV bailout. And, the Fed creates the $20 billion Term Auction Facility
- January 2008: Bush signs $100 billion “Economic Stimulus” bill
- March 2008: Fed-engineered $29 billion buyout of Bear Stearns, via JP Morgan
- September 2007 to September 2008: Seven rate cuts (325 basis points) by the Federal Reserve brings lending rates to a multi-year low of 2%.
- September 7, 2008: U.S. Treasury’s $200 billion bailout of Fannie Mae and Freddie Mac.