Now You Tell Me!

First, I'm going to toot my own horn a little.

Every news outlet from MSNBC to FoxNews spent the weekend telling us how the credit crisis was spawned by the New Deal, and exacerbated by everything along the way from the Depository Institutions Deregulation and Monetary Control Act of 1980, to the Tax Reform Act of 1986, to the Community Reinvestment Act and its eventual increased emphasis on making mortgage loans to people who can't afford to pay them back.

In a presentation that I first gave in mid-2007, I traced those very legislative roots. And I used that information to predict the current debacle. I said it would be the worst downturn since the Great Depression. I predicted the S&P 500 would reach as low as 600. And everybody thought I was nuts.

Did you watch the market today?

It will only get worse. The market has not yet priced in the broad realities of a recession: the coming downturn in manufacturing, now that foreign economies' weakness can no longer produce demand for goods denominated in a strengthening (on a relative basis) dollar, or the holiday retail season, which promises to be dismal.

Earnings will suck next year. And speaking of earnings, B of A released their third quarter results today. A week early. Right after the market closed. Those are never harbingers of glad tidings.

True to form, B of A posted net income of 15 cents a share. One-fourth of analysts' expectations. They cut their dividend in half. And they're going to try to raise $10 billion in capital (which, by the way, is why they announced early. They want to get out in front of all the other dismal 3Q08 earnings reports so they can try to raise capital before the market tanks on those reports.)

Tomorrow could be ugly. Thank God I'm short (the market, not in stature).

But hey, I wasn't the only guy who saw this coming. Nouriel Roubini saw it coming. So did a bunch of others. But even we came to the game late.

Know who called this thing first? A dude named Isaiah, who lived nearly 2,800 years ago. He wrote this:

"Woe to you who add house to house and join field to field till no space is left and you live alone in the land. The LORD Almighty has declared in my hearing: 'Surely the great houses will become desolate, the fine mansions left without occupants.'"

(He also said, "Your rulers are rebels, companions of thieves; they all love bribes and chase after gifts.")

Nice segue there, Isaiah.

Speaking of thieves, Hank Paulson is lining up his team of money managers and bond salesmen to execute (pun intended) the bailout. We'll likely see the first round of buying next week. It'll be interesting to see what price they pay for the crap. That will set the tone for whether it's safe for us to keep getting paid in dollars and filing US tax returns.

Hank has also tabbed one of his former underlings at Goldman to head up a new department within Treasury: the Office of Financial Stability. Sorry, but that just cracks me up. It's like installing stabilizers on a cruise ship just before the bow slips below the surface.

And speaking of both thieves and lovers of bribes, former Lehman CEO Dick Fuld was called before Congress today, and accused of being greedy and making a lot of money.

I would have told them where they could put their subpoena. I'd have said, "Sure, I was greedy. I took full advantage of the flawed legislation that you passed in order to line my pockets. You set the rules, and I played by them." Of course, they'd have held me in contempt of Congress. To which I'd have replied, quoting Marty Feldman - "Too late!" I've been in contempt of Congress since it created the S&L crisis, then hired a bunch of guys to do a study to find out what caused it. I'd have worked cheaper, and just hauled a big ol' mirror into the chamber.