Support-Hosed

That's me. That's you. That's us.

Why is the US government - under a Republican administration, no less - throwing so many resources at trying to prop up markets?

President Bush speaks Monday before the market opens. Coincidence? Bernanke speaks later in the day. Paulson's up on Tuesday.

Aren't stock investors supposed to be at risk of losing money?

Same with houses. What goes up too much, must come down. And yet plans still abound to bail out irresponsible people who bought more house than they could afford on terms they couldn't repay. (Yes, yes, along with the poor few who were pushed by realtors and duped by lenders, but trust me, they're the minority. Just as there are no atheists in a foxhole, everyone's a victim in a crisis, especially when the handouts start flowing.)

Yet fresh plans abound to bail out homeowners. Why? "We've got to stop home prices from falling further!" Am I the only one who recognizes the lunacy in that? "We've got to stop rocks from falling after we throw them in the air! We've got to stop fires from burning our forests!" Some things, you can't stop.

Nor should you. If home prices have risen too much, they need to correct. Why? Because if you prop them up, the ultimate correction will be even more painful.

Want a parallel? We had a nice, sustainable long-term growth trend going in stocks in the '80s and early '90s. Then, things got bubble. Alan Greenspan warned of "irrational exuberance."

Then he lost all rationality. He made money dirt-cheap in the middle of that irrational exuberance. Why?

Because a big hedge fund was about to fail. One fund. But the hue and cry from big institutional investors - many of them foreign banks - pressured Mr. Bubble to save the day. So he did. And thereby spawned the dot-com bubble.

That bubble burst in 2000. Mr. Bubble then kept interest rates too low, too long, inflating another asset bubble. Stocks never had a chance to fully retreat to their long-term sustainable growth trend, so we propped 'em up again. Happy times. The Dow hit a new record high of over 14,000 last October.

As Oliver Hardy used to say to Stanley Laurel, "Now look what you've done!"

So they want to do it again. Unbelievable. Those who fail to learn from their past mistakes are doomed to repeat them, as Santayana said.

As for housing, the latest goofy plan comes from FDIC Chair Sheila Bair. Acknowledging that Paulson's Homeowner Hope plan, hatched in July, was "too little, too late," she wants to hatch another one.

Did anybody else get the irony in that? If the plan in July was "too late," isn't it even later now? Or is my calendar off? Do you have to wind calendars for them to work? I'm a bit confounded.

Her plan is based on the "success" the FDIC has had in re-structuring delinquent mortgages on the books of its recent acquisition, IndyMac. Let's examine that success.

Since taking over IndyMac - also in July - the feds have examined its books and found that 60,000 of its mortgages are at least 60 days past due.

That's 60,000 loans, people - at one institution. Just one.

They also found that two-thirds of them qualify for Bair's re-structuring experiment. That's 40,000 loans, unless my calculator's on the fritz along with my calendar.

As an aside, though, that's 20,000 that can't be restructured - at one institution. Just one.

So 40,000 loans can be worked out. So the feds have send more than 15,000 loan modification notices out, and have called "thousands more," offering better terms. And how many of those borrowers have hit the bid?

Three thousand five hundred.

Let's recap this model of success: since July, the FDIC has mailed more than 15,000 letters (you and I bought the stamps, by the way) to deadbeat borrowers. (Again, yes, some of them truly fell on hard times. But the majority just bought more house than they could afford, on terms they couldn't repay, and/or didn't have any savings in the event they lost their job, and/or had too much credit card and auto loan debt, and/or simply didn't want to meet their mortgage obligation anymore if the value of their house wasn't going up by double digits every year.)

But I digress. They mailed these letters, and made "thousands" more phone calls, which should have gotten them to at least half the eligible borrowers. Of that, they've managed to restructure about 17% of those they've communicated with. Or about 5% of the total.

At one institution.

Meanwhile, mortgage foreclosures in the third quarter shot up 71% year-over-year in the third quarter.

So tell me again how efficiently the feds are going to be able to replicate this smashing success nationwide - especially when they've already been trying for the same span of time Ms. Bair's had the keys to IndyMac?

By the end of this year, banks will own a third of all US real estate for sale. REO sales are the only sales taking place these days, because the prices are at bargain-basement levels. That's driving down the price of every home in every neighborhood where there's a bank-owned home for sale. Do you think that additional growth of REO won't drive home prices down more? And do you think bank failures won't continue to mount as the real estate losses tally up?

Of course they will, on both counts. And it's the natural order of things when we've built more homes than people need, and leveraged the system to the hilt, top to bottom.

But they want to prop prices up, on both houses and stocks.

I don't want to be here when the next bubble bursts. No economy can withstand three huge back-to-back asset bubbles in such a short span of time. And I don't want to witness the collapse.

Thankfully, I won't have to. They will fail. Washington can no more stop this thing than you or I could stop a runaway train by standing in front of it.

But they can sure make it worse.