Check, Please!

As in, "checks and balances." Remember those? What happened to them? Did I go Rip van Winkle there, and miss the re-write of the Constitution?

Fed Chairman Ben Bernanke announced this week that the Fed will spend $600 billion to buy crap investments from money market mutual funds. This is outside of the $700 billion TARP.

On whose authority?

The Fed is broke - it's borrowing money in the markets, by having Treasury issue bonds, which they're doing at a gluttonous pace. So where will the money come from?

You know where.

The FDIC (which is also near-broke) already turned money market funds into bank accounts, by covering them with deposit insurance. Never mind the fact that money market funds aren't banks, which are the purview of the FDIC. And never mind the moral hazard of rewarding people who sought the higher yield of a money fund relative to a bank account, perfectly willing to live with the risk of placing their money uninsured.

Until, of course, they actually start losing it.

Banks are also the purview of the Fed. Not mutual funds. What's next, equity mutual funds? Hey, why not?

But what I really want to know is, where does Ben Bernanke get the authority to spend 600,000,000,000 taxpayer dollars? And why is no one outraged about this, besides me?

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Meanwhile, on a related note, Hank Paulson has now announced that he'll use the TARP to buy into insurance companies too. What's next? This guy really does look like a buffoon these days - running around like a chicken with its head cut off. He has no earthly clue what he's doing, or what he'll do next. Might as well make some popcorn and just sit back and watch the show.

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I was watching Bubblevision a few days ago, and Mark Haines was interviewing Mohamed El-Erian, the co-CEO of PIMCO, which is the largest bond-fund manager in the world. El-Erian is a smart dude, by the way. Haines asked him how the recent equity market carnage was going to impact the psyche of the average American.

El-Erian (I'm paraphrasing here): "Well, they're going to open their 401(k) statement, and they're going to decide to cut back, and consume less. And for the next five years or so, we're going to move to a more savings-based economy."

Haines (looking aghast): "If we move to a savings-based economy, what kind of economy do we have?"

A healthy one. The kind that, in 1982 when the savings rate was about 10%, spawned a nice, long, sustainable period of economic and stock market growth, with nary a bubble. Guys like Haines are part of the problem.

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Did anyone else watch The Blame Game this week? You know, that entertaining game show on C-SPAN where our elected leaders waste more of our money by calling the "culprits" on the carpet and asking them inane questions, trying to obfuscate the fact that it is actually Congress itself that is to blame for most crises?

Now, I'm not saying that Alan "Mr. Bubble" Greenspan has no culpability in this mess, though his sin was not in opposing regulation so much as it was in encouraging speculative risk-taking by keeping money artificially cheap too long. The Godfather of Leverage should learn what a friend and I were discussing today at lunch: if you fill the ocean with chum, the sharks will feed. The sharks are doing nothing wrong in this instance; they are merely doing what sharks do. They do not need behavior-modifying regulation. They need their food source restricted. Stop dumping the chum, and they'll stop feeding on it.

And I'm not saying the SEC hasn't been asleep at the switch, nor the ratings agencies. I don't know why they picked on John Snow. For one thing, his successor bears far more guilt than he does, but of course Paulson, along with Bernanke, is the darling of our socialist government right now. So let's go after their predecessors. The other reason they shouldn't have picked on Snow is that, with a big smile on his face, he called them out, noting that he came before them pleading for curbs on Fannie and Freddie in 2003 and again in 2005, only to have them reject his pleas.

Rep. Frank Mica of Florida correctly pointed out that the blame lies with those who accepted sweetheart loans from Countrywide in favor of blocking regulation and pushing reckless lending, like Senate Banking Committee Chair Christopher Dodd did. Or those who took record amounts of money from Fannie Mae, like Senator Obama did. On that latter point, Mica complained that the final hearing on this matter isn't scheduled until November 20 - after the election.

But Committee Chairman Waxman called Mica's comments "political," and said that now is not the time to get political. Like all of this isn't political to begin with. Sadly, you won't see Mica's comments on the evening recaps. And nobody but my wife and I were probably watching the full hearings.

The same thing happened after the S&L crisis: Congress commissioned a study and grilled everybody in the industry, seeking to know what caused the crisis. I've said this before, but I'd just haul in a big mirror and hold it up in front of 'em.

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I've said for the better part of a year now that the stock market has been ignoring what the bond market's been telling it. Today, the US stock market is ignoring what the rest of the world is telling it. Asia sold off to the tune of 8-9% overnight. Europe, about 5%, after the UK reported its first GDP contraction in 16 years. US stock futures were halted limit down in overnight trading. The Dow plunged nearly 500 points just after the opening bell.

Right now, it's off a mere 2.15%, and may just rally to a gain on the day.

But is the US market overdone? Hardly. A money manager from Blackrock was on Bubblevision this morning, saying, "The US economy just fell off a cliff in October."

Dude. GDP growth was negative in the fourth quarter of last year. It was only positive in the first quarter of this year due to an inventory build-up. It was only positive in the third due to a) the mailing of tax rebate checks, which were spent on gas, and b) strong exports thanks to a weak US dollar, a trade that has played itself out. This wasn't a sudden "fall off a cliff." It's been a slow, steady slide. You equity guys just never priced it in until now.

Well, next week we'll see third quarter GDP, and it'll be at least as weak as the UK's - maybe worse. Maybe then we'll see the gut-check that is due this market. Oversold? Methinks not, since the multiples don't yet reflect the coming slashed earnings guidance from US companies for 2009 and beyond. And actual earnings will likely miss guidance. (Misguidance - I made a funny!)

The Nikkei is down 56% from its peak, and Japan isn't even in recession yet. Trust me - we have further to fall.

Oh, and about Warren Buffett's recent exhortation to buy stocks, as he proclaimed he was doing? A real patriot, huh? And shouldn't we all throw our money behind an investor as savvy as the Oracle from Omaha?

Folks, understand this: no, Warren's not stupid. He's smart like a fox. And he recently took big stakes in Goldman Sachs and GE. Both of which are since on the bankruptcy bubble. Warren wants you to throw your money in, too, in hopes the momentum will prop the market up and salvage his big bets. In other words, he's joining Bush, Bernanke and Paulson in trying to jawbone stocks higher.

Don't drink the kool-aid.

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My one-liner of the day: if ratings agencies rated wine, vinegar would be a 98.

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I read a comment from a guy today who was talking about the priced-in likelihood that the Fed will cut the funds rate by half to three-quarters of a point next week. He said, "Their only option is to inflate our way out of this mess."

Tell me again how that works? I honestly don't know where they find these "experts."

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I have a new idea for presidential debates. It comes from my undergrad days, when I majored in psychology.

Hook 'em up to an electric shock-delivering device. Every time they go beyond the time limit with an answer, or answer something other than the question that was posed, zap 'em.

Hard.

For every time they do it, increase the voltage.

Ultimate solution: electrocute all the politicians before they can get into office.

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I leave you with this analogy, inspired by Dr. Greenspan, who referred to the credit crisis as a "tsunami."

It is indeed that. And Paulson, Bernanke, and Congress are standing on the beach, training huge, powerful fire-hoses at the coming mega-wave. They believe throwing all the water possible at the coming tsunami, they can turn it back.

Of course, they will be swamped. But by adding considerably to the water volume, they ensure that the wave will reach much further inland, and do much greater damage, than it otherwise would have.