Financial stocks, which have been bloodied over the past few weeks, rallied today on the plan announced by Treasury Secretary Henry Paulson for the government to acquire troubled bank assets. The recently announced ban on short-selling helped the shares as well.Goldman Sachs Group Inc. (NYSE: GS), down 40 percent for the year, rose $20 to $128 in mid-morning trading. That's about an 18 percent rise and comes a day after the stock hit a 52-week low. Remember, Goldman recently reported a 70 percent decline in third quarter profits which given the billions of write-offs taken by its competitors is almost miraculous. Maybe Paulson decided the government needed to suck away the bad investments from their balance sheets when he saw pressure building on his old firm.
Today's 25 percent raise in Morgan Stanley (NYSE: MS) may alleviate some of the pressure on the investment bank to find a merger partner to avoid the same fate as Lehman Brothers Holdings Inc. and Merrill Lynch & Co. (NYSE: MER). Shares in the New York-based company rose $5.28 to $27.83. Morgan Stanley reportedly is mulling a tie-up with Wachovia Corp. (NYSE: WB).
Even Washington Mutual Inc. (NYSE: WM), another company that might get a multi-billion buyout, got a boost, soaring 81 cents to $3.80. That's an increase of more than 27 percent. Of course, the 52-week high is $39.25, so any celebration is muted.
The joy from shareholders about the Paulson buyouts is palpable. Taxpayers are more sanguine. The one thing I remember from Economics 101 -- where my professor used to always use marijuana joints in his lectures about supply and demand -- is that every transaction needs a buyer and seller. What makes the government think it will be any more successful in unloading the toxic paper than the private sector? I just don't see who is going to buy the stuff until there is a major turnaround in the housing market which may not happen for years. Even then, turning a profit will be a challenge.
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Reader Comments (Page 1 of 1)
9-19-2008 @ 11:34PM
angela said...
We have seen inconsistency in bailout in the past week. It doesn't seem like the Fed know what they are doing. Stop free market from short selling may have negative impact on the whole system. Adding jawdropping tax tag to the tax payers is not fair. Worst even, Henery Paulson's bailout plan may have his own interests at heart.
9-20-2008 @ 8:23AM
BoboTheClown said...
I'm amazed at all the little Herbert Hoovers. Were any of you paying attention to the market over the past 2 weeks? We were days away from a replay of 1929.
After the shorts took down Fannie, Freddie, Lehman and AIG, they set their sites on Wamu, Wachovia, State Street, Morgan, Goldman, and CEG. Unchecked, they'd have killed most of them by the end of next week. At that point, the FDIC would have been broke, and once that news came out, there'd have been runs on *all* banks just as we had in 29. The consequences would have been the same as 29 - Depression, 25% unemployment, etc, etc.
If this plan helps us avoid that scenario, it will be worth whatever it costs. And IMO the end cost (loss) to the taxpayers will probably be a tiny fraction of what you Hoovers believe.
9-20-2008 @ 7:16PM
Bryant Arms said...
Big business should not be allowed to become too large to fail. A business with that much influence is too big for a free market. It has access to wholesale market manipulation. And it has the privilege of depending on a government safety net if it fails.
The recent economic crisis demonstrates that such businesses will now be rescued at taxpayer’s expense when they suddenly collapse. The CEO of AIG has even demonstrated on national TV that big business leaders expect tax funded rescues. And that diminishes a primary incentive for them to be efficient and prudent. It may even encourage their board members to strategically create a crisis requiring a government bailout rather than suffer losses over time on their own. These business leaders have developed an attitude of entitlement that should inspire corporate welfare reform.
If businesses that are too big to fail are allowed to exist, then they should pay for their own government entitlement programs. This has been the arrangement for the lower classes. That is why social security tax rates in the United States become less for those who become wealthier. Wage earners should not be expected to pay for business welfare too. The influence these businesses have over markets should help them pay for their government programs. And to discourage corporate welfare fraud, those in charge of businesses that either purposely or by neglect cause the government to pay for their rescue should be punished for a kind of embezzlement.
Bryant Arms
9-27-2008 @ 9:47AM
junglejim said...
The companies that feel the government should bail them out should be prepared for the taxpayers to require that all of the executives and directors be prepared to forgo all of their salaries and bonus plus any stock options plus any monies received from exercising and selling any stock within the past three years as a requirement for the bailout. For congress to allow anything less makes them complicit in the scheme to defraud the taxpayers..