Jim Rogers: Let banks fail

Investment expert Jim Rogers talks on Bloomberg television about the US government bailout plan.

Rogers believes that propping up distressed companies is a bad idea, and that similar efforts led to the Great Depression. Money is diverted from proper investments into the potential black hole of broken banks and financial companies. He proposes that companies that have managed their business properly should be allowed to increase market share while the others should be allowed to fail.

The idea that simply pouring money into the problem will solve it is dangerous according to Rogers. He cites historical examples in which massive bank failures were allowed to occur and asserts that the method works in restarting the markets with a cleaner slate. Sometimes the only way to break out of a vicious cycle is to let it run its course.

One matter that is not getting discussed much is the effect that baby-boomers will have on the future of the stock market over the next few decades at least.

The first wave of boomers is becoming eligible for partial Social Security benefits. In the next few years they will qualify for full Social Security. Already many are beginning to pull out of the stock market if they haven't already. Investment advisers generally agree that the markets are no place for retirees.

Many of the lucky ones are also drawing retirement pensions. This might also put some pressure on retirement funds to reduce their exposure in the stock market.

Since the boomers represent a demographic bulge, it will be hard to compensate for their absence in the equity market.

Nouriel Roubini: Hedge fund could vanish Darwin-style

In a speech before hedge fund managers in London today economics professor Nouriel Roubini predicted a run on hedge funds that could result in 30 percent of the hedge fund assets disappearing in a "fairly Darwinian manner."

The impact on the stocks could be so severe that the market would have to be closed for a week or more.

Roubini predicted the current crash in 2006.

He predicts the worse recession in 40 years that will last at least 24 months in the United States. Roubini sees a vicious cycle occurring between the financial sector and the "real economy." Because of the tsunami of mortgage foreclosures, he suggests that the government help homeowners as they did during the Great Depression.

He sees a 40 percent drop in home prices, which would be worse than the Great Depression. And he thinks at least $3 trillion will be needed in bailouts to prevent a systemic banking failure.



Nouriel Roubini on Bloomberg TV

Comment: Beware the swinging stock market

Monday's record climb in the US stock market might have seemed like good news to some that things were starting to turn around for equities.

However, as we saw Wednesday and so far early today, the market is still very volatile.

In fact, the four highest percentage gains for a day in the history of the Dow Jones Industrial Average came during the darkest days of the Great Depression.


Highest Daily Percentage Gains

1933-03-15 -- +15.34
1931-10-06 -- +14.87
1929-10-30 -- +12.34
1932-09-21 -- +11.36


Three of the four highest daily percentage losses also came during the Great Depression.

So generally until things stabilize for a goodly period, it will be difficult to say when the current bottom has been reached.



NYU economics professor Nouriel Roubini discuses what Americans can expect to see over the next few months due to the financial crisis on the Charlie Rose show.

World stocks plunge as contagion spreads

News that the credit crunch is spreading through Europe, it world stock markets hard on Monday.

Trading was stopped on the Russian and Brazilian markets after steep drops. Stocks in Japan, Germany, Britain and Hong Kong plummeted.

In morning trading on Wall Street, the Dow Jones was down 402 points at 11:20 am ET.

Asian stock plunge
WNDU-TV - 1 hour ago

Reporter: AP Asian stock markets plunged Monday as investors shrugged off Washington's passage of a 700 billion dollar bailout plan.
Asia and Europe fall as financial markets weaken CNN
Fear slashes shares and Aussie dollar The Australian

Wall St. stocks surge on bailout expectations

Stocks are surging on Wall St. despite bad employment numbers on hopes that the House will approve a bailout plan today. Markets are also hoping for a cut in interest rates to help jumpstart the economy.

The payroll drop also caused treasury prices to slide downward.

Wall Street Journal

Commentary: Bailout should treat the root cause, not the symptoms
CNN - 2 hours ago
Jackson voted against the bailout plan presented in the House on Monday. For a different view, read this commentary. Rep. Jesse Jackson Jr. says the bailout ...
Bailout package passed in US Senate eTaiwan News
* Focus on US House after Senate passes bailout guardian.co.uk
House Takes Up Sweetened Senate Bailout BillNPR


Live-Blogging the House’s Bailout Debate
New York Times, United States - 1 hour ago
By Catherine Rampell Today the House of Representatives is debating, and potentially voting, on the bailout package it unexpectedly rejected on Monday ...

House set for fresh bail-out vote BBC News
Bail-out bill: Congress sceptics won over ahead of House of ... Telegraph.co.uk

Video: Bush warns bailout must be passed - 29 Sep 08 AlJazeeraEnglish

What if the bailout doesn't stop market meltdown?

Supposedly the idea is that by buying hundreds of billions of dollars of shares in failing financial companies, the U.S. government hopes to halt the down spin on Wall Street.

If we distill the meaning, the hope is mainly to stop the instability in the stock markets. By shoring up the investment companies, the idea is that confidence will be restored and the indexes will stop plunging or swinging wildly. This is an idea that seems to register on Wall Street itself, or at least among the day and swing traders. After news of the bailout, not only did the markets rebound but oil prices dropped sharply.

The drop in oil seemed to indicate that people thought the economy would rebound after the bailout and that demand in oil would go up.

However, long-time observers of stock markets will know that taking any drastic action based on perceived future action of these markets is very risky.

The markets themselves showed uncertainly when Monday stocks went in the opposite direction and oil prices experienced a record rise. And that was just over one weekend! What happens if taxpayers get stuck with half a trillion in toxic assets, but the market does not respond in the manner that the administration hopes it will?

There may be more to this economic crisis than appears on the surface. It may not be long before other companies from different sectors also show signs of failing en masse. Does the government keep borrowing money to bail out these companies also.

Supporters of the bailout claim the action is needed to prevent a "run on the banks" were people rush to withdraw money from retirement accounts and money market funds. The use of the phrase "run on the bank" probably is not being used accidentally. It's something most people understand from watching Hollywood movies.

However, one must ask whether the government's buying of bad stock can in any way stop people from relocating their assets to safer havens. In a free market, one has to consider that investors may not react in the way you are assuming they will.

However, with an election coming up in November, it is certain that Congress and the administration must do something to show that they are on top of the situation. Most experts agree they will pass some type of package. The details though could differ widely. They may decide, for example, to put more money into helping struggling homeowners.

Whatever they do, all eyes will be focused on the stock markets after the legislation goes into action.

StarPhoenix

Congress balks at banks bailout plan
guardian.co.uk, UK - 2 hours ago

But the key problem not addressed by the bailout – a point also made by Krugman – is that some banks remain under-capitalised, ie they don't have enough ...

Bush offers $500 billion bailout Minneapolis Star Tribune
US financial rescue plan could cost one trillion dlrs: senator AFP