Contrary to other diarists, I do not believe the markets have ceased to function properly. The bailout is happening because our betters are calling in their markers. The big big winners of the current manufactured "market crises" is the Chinese Government, who once again have outfoxed the Americans. The Olympics ended recently and the Paralympics in China ended last week. The US markets go into meltdown this week. The result? All the bad Chinese owned bonds and the bad Chinese owned mortgages get bailed out to the tune of over $2 Trillion US taxpayer dollars in three weeks. WOW!!!! The Chinese really are the greatest capitalists.
The Chinese were quite open that they were not going to consider US financial interests after the Olympics ended.
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No need to peg right away however. First they got all their Fannie and Freddie debt offloaded. We were told exctly what to do.
Kevin Hamlin, Aug. 22 (Bloomberg)
A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank.
``If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' Yu said in e-mailed answers to questions yesterday. ``If it is not the end of the world, it is the end of the current international financial system.''
Ever compliant, the US government capitulated and nationalized the "Evil Twins" 16 days later.
NPR:
All Things Considered, September 7, 2008
The government takeover of Fannie Mae and Freddie Mac is making waves far off American shores. China is watching the events closely because some 10 percent of China's gross domestic product is invested with the troubled mortgage giants.
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Were the Chinese happy?
The rescue won backing from the world's major central banks, including those in Asia where much of the mortgage companies' debt is held.
``This is positive,'' People's Bank of China Governor Zhou Xiaochuan told reporters today in Basel, Switzerland, at a meeting at the Bank for International Settlements.
Yup. It was "positive.' Today, they were promised all the worthless mortgage paper owned by the Chinese government would be paid off by the US taxpayer.
Sept. 19 (Bloomberg)
The U.S. may have to borrow an extra $700 billion to $1 trillion to fund the biggest rescue of the financial system since the Great Depression, according to Barclays Capital Inc.'s Michael Pond.
Federal takeovers of Fannie Mae, Freddie Mac, and American International Group Inc.; the central bank's expansion of lending to financial firms; and a slowing economy will add $455 billion to the Treasury's borrowing.. snip .. Treasury Secretary Henry Paulson's plan to rid banks of ``hundreds of billions'' of troubled assets would bring the amount to $700 billion assuming the plan costs $200 billion.
``We could easily add up to an additional trillion to the outstanding Treasury debt just from the initiatives announced over the past couple of weeks,'' said Pond.
We blinked. We're broke. Game over. Why anyone ever wanted to push China off a losing economic strategy onto a winning one in direct competition with us is beyond me. The Chinese are just better capitalists than we are. They have been for centuries.