Too big to fail

To virtually no one’s surprise, the Fed and the Treasury aren’t going to let capitalism take its course with Freddie and Fannie. This should remove any last vestiges of doubt from those of you who still believe that the USA is a capitalist society. Or, for that matter, a free market one:

The US Government took dramatic steps to prop up America’s financial system last night, announcing that it was prepared to pump billions of dollars into the country’s mortgage market in a desperate measure to prevent the economy going into a tailspin. In a late-night announcement designed to calm increasing panic on Wall Street before today’s market opening, the US Treasury Department and the Federal Reserve issued a joint statement in which they pledged to spend billions of dollars of taxpayers’ money to bail out the two American mortgage giants that collectively underpin the entire housing market “if needed”.

And no, it’s not going to work. The housing crash has barely begun. But don’t think everything is going to head south in a hurry, as the more the government draws it out by fighting the market forces, the longer it’s going to take. Use the inevitable 400-point rally days as exit opportunities and keep in mind that giant one- and two-day rallies are the hallmark of a bear market, not the return of a bull.