Thursday, September 18, 2008

Could The Unthinkable Happen?

What am I referring to when I say the Unthinkable? What I mean is a direct intervention into the stock market by the Federal Government. I am not talking about more bailouts of Financial Companies who overleveraged and forgot how to properly assess risk. I mean our government actually buying stocks to support the market.

Granted it would take a lot more pain and the market would have to shed a few thousand points more to get anyone even close to advocating this, but is it that much more of a philosophical leap to go from bailing out AIG, FNM and FRE and becoming the owner of those companies, to supporting the stock market?

Other governments do this routinely, and Russia yesterday announced it was putting $44 billion USD into its market through three state owned banks.

How could this be accomplished in the U.S? By allowing the Social Security Trust Fund to invest a small percentage of its assets in the domestic stock markets. This might require a statutory change by Congress, but anything is possible in this environment.

I am not sure this would solve our current crisis since it is related more to credit than the stock market, but certainly the 25% fall in the market indexes are a contributing factor that impact confidence and wealth.

Now please don't jump all over me for writing this - I am not supporting the government doing this. I am just wondering out loud what the future might hold as Paulson and Company reach into its bag of tricks and finds that it is running out of magic.

1 comment:

Ron Davison said...

You are right to suggest that things no one would suggest just months ago might be on the table for consideration. At some point, though, even this administration has to realize that having lots of resources is not the same as having unlimited resources.