Why Does Treasury Secretary Paulsen
                 Look So Frightened?

                            by William Schmidt, Ph.D. (Columbia University)
                                                     (C) 2008 All rights reserved.  Reproducing any part of this page without
                                                                       giving full acknowledgement is a copyright infringement.

                                      Will the nationalization of $5.5 trillion dollar worth
                         of home mortgages stop the decline in the stock market
                         and shore up the weakening housing market?  So much
                         liability without safeguards!  Dangerous. Given the spending
                         imprudence of  this Administration, one should be very
                         skeptical.  Economic and financial conditions must be
                         very bad for the Republican Treasury Secretary to take such
                         a gamble. 
                              

                             Most talking-heads saw that something had to be done. 
                         It looks like electioneering to me.  But the policy makers
                         would have been attacked more for doing nothing.   The
                         TigerSoft charts of the SP-500, Home-Building and
                         Finance Stocks should be watched closely now.  The
                         government has made a very big gamble with the money
                         in the US Treasury that, in theory, belongs to all of us.                              

                                                                                      Finance Stocks
                                            Finance Stocks broke their 12 month downtrend today.  They did not
                                         make 2 month highs.  They closed off well their highs.  Blue positive
                                         Accumulation is shown.
   
            
                                                                               

                                                                              Home-Building Stocks

                                          Home-building broke its downtrend line.  But it did not close at it
                                         daily high.  It still shows bearish red Distribution.
             


                                                                                            SP-500

             ...
                 
                                                                        


                                                          What Will It All Cost?

                                      Three hours before the market's opening, the US
                         Treasury Secty was on TV explaining this nationalization
                         of Freddie Mac and Fannie Mae.  The interviewer first asked
                         what it would cost the US Treasury and the tax payer. 
                         Paulsen would not or could not answer this obvious question. 
                         That IS scary. 

                              If housing prices continue to decline, because people
                          are tapped out and unemployment is rising sharply, the
                          US Treasury will be down that percentage times $5.5 trillion. 
                          With an 11 months' housing inventory now existing,
                          and wealth the most concentrated it has been since 1915,
                          except 1928(!), it is very likely that housing prices will fall
                          another 10%, as the Yale economist Schiller predicts.

                           Listen and judge for yourself.

                         The US Government - led by Bush who has never
                         felt a need to ask who will pay for his $3 trillion war
                         in Iraq or the endless use of zero-competition government
                         contracting to his campaign contributors -   will now save
                         the bankers from half their bad mortgage debt,  The US
                         government will, if necessary, buy back upon request one
                         half of all of home mortgages in the US, about $5.5 trillion
                         dollars worth of mortgages.  It will do this as because
                         it now owns Fannie Mae and Fredde Mac, who are expected
                         to stand behind the mortgages they guarantee.  In effect,
                         the American taxpayer will now guarantee all these loans,
                         some $5.5 trillion worth of them.  This takes Fannie Mae
                         and Freddie Mac back to their status before they went private
                         back in the 1960s.

                     If housing prices fall another 10%,  the US taxpayer
                          could easily have to come up with $550 billion.  Another
                          10% as Yale economist Shiller thinks is likely by 2012,
                           the US taxpayer will down $1.1 TRILLION dollars.
                   " An influential economist who long predicted the housing market bubble
                                     cautioned ... that the slump in the U.S. housing market could cause prices
                                     to fall more than they did in the Great Depression and bailouts will be needed
                                     so millions don't lose their homes. Yale University economist Robert Shiller,
                                     pioneer of the widely watched Standard & Poor's/Case-Shiller home price index,
                                     said there's a good chance housing prices will fall further than the 30 percent
                                     drop in the historic depression of the 1930s. Home prices nationwide already
                                     have dropped 15 percent since their peak in 2006, he said.
        http://www.boston.com/news/local/connecticut/articles/2008/04/22/yale_economist_gives_talk_on_economy/                    http://cowles.econ.yale.edu/news/shiller/rjs_06-03-26_prophet.htm                                   

                  CNBC asked Paulsen about this.

                     (CNBC) How much will it cost taxpayers?

                             (Paulsen) "We obviously don"t know that yet".   "Utlimately"
                            It depends on how long before housing prices to
                            stabalize...."It may not take too long."  

                             (CNBC) But, there must be some analysis of the amount it
                             will cost.  "$10s billion? $100s of billion?  How much
                              are you prepared to pay?"

                        (Paulsen) "Ah. I don't. Ah (stammer) There is no 
                              specific analysis. This was not...(stammer) This was....
                              (stammer)   We didn't sit there and figure this with a
                              calculator.    This was about our financial markets.
                              This was about confidence in our financial markets. 
                              Confidence in our economy and the availability of
                              mortgage financing."

                     (CNBC) Did Foregn central banks threaten to stop buying
                              US debt? 
                              (Paulsen) Yeah. Ah (Stammer) I ... (Stammer) Nothing like
                              that. (Stammer) Some had stopped buying.  There
                              was some selling.  What is... This was just obvious.
                              There was grave concern...Not the major driver.
                              There was concern.  Housing is at heart of the
                              problems.   These companies are so big and
                              ubiquitous.

                                  Compare Paulsen's befuddled answer here with his befuddled answer back in April when
                             asked what would have happened if he had not provided JPMorgan $30 billion
                             to buy out Bear Stearns.     
                               (Paulson:) “I’m not going to speculate and go through hypotheticals. What
                               I am going to say is we always when you go through a period like this that
                               policy makers need to balance various consequences and the right decision
                               here I’m convinced was the decision that the Fed made which was to ah to to
                               do things, to work with market participants to minimize the disruptions”

                                 The fact is that these “hypotheticals” were the heart of the problem.  He refused to
                                 comment on the central problems in the matter. As someone properly said in the
                                 New York Times, "Just once, I’d like a reporter when faced with the “we don’t speculate
                                 on hypotheticals” phrasing ask… “You say you won’t speculate on the hypothetical
                                 consequences of your actions. Is that because you haven’t thought through the
                                 consequences of your actions? Or is it because the consequences are likely to be so
                                 bad that you don’t want to get blamed when what you expect to happen, does happen?”

           
                             Not that the Democrats can be trusted.  Three months ago,
               Dem. Senator Dodd said there was no problem at Freddie Mac
               and Fannie Mae.  They had ample resources.  He also knew these
               two companies do their best to avoid timely reporting of their
               foreclosures, sometimes waiting two years.  He knew these              
               companies cooked their books and that they had run afoul of
               regulators a few years ago and their CEOs had to be fired.  

               Paulsen says the "The Housing Down-Turn is at
                the heart of the problems of our economy."  Should
                we trust those in the Administration and at the
                Federal Reserve that caused the housing
                bubble to fix it?  These are the same ones who
                allowed banks to get into non-banking businesses
                and package mortgage loans so there could be no
                transparency or accountability?  The FED who
                allowed housing to be bought zero-down and
                on a "stated income" basis?   

                 Should we now trust Paulsen?
                            Back in April 2007,  he declared that the housing crisis
                      had reached  "bottom" and that the subprime problem
                      was largely contained. He was wrong.  A year later, he refused
                      to let the chips fall where they may with Bear Stearns.  $30 billion
                      of taxpayer money was given to JPMorgan as a prod to buy
                      out Bear Stearns. It stemmed the tide for 2 months. 
                      Key Banks, he mused, were too big to be allowed
                      fail.   No matter that giving them this kind of support
                      would encourage them to take more imprudent
                      risks and more dangerous loans to one another.
                      Paulsen sees his job to be saving the stock market, at
                      all costs.  For Main Street this looks a lot like socialism for
                      the rich.

                                Banks like Bank of America and Wells Fargo are the
                      biggest beneficiaries.  Suddenly the home loans that used
                      Fannie Mae and Freddie Mac are safe and risk-free!   It is said that
                      Bank of America wrote a draft that became the new Housing
                      Bill.   Their stock shows how much political clout they have.
                         See - http://www.tigersoftware.com/TigerBlogs/5-7-08/index.html
                         http://www.tigersoftware.com/TigerBlogs/July-27-2008/index.html  

       
                                                   
                                     QUESTIONS...

                      Will mortgage rates go down if profit is
                       not a consideration?  Will these loans be more
                       available?   Will loan savings to banks be passed
                       along to home buyers?  Will the new US-FNM-FRE
                       help the depressed housing markets?  Without
                       a better job market, who will be able to buy a house?
                       Will the terms of mortgages be changed ot help
                       temporarily distressed homeowners?  Will it only be
                       the rich who want to rent it out?  Will it be consortiums
                       of home-buying investors?  Will only insiders benefit? 
                       The devil will be in the details. 

                            And most important... With this bailout, will not
                       each industry demand equal treatment?   


                      After This Rally, Things Can Get Much Worse

                     Will it now be much harder, to bail out a General
                                Motors or a Lehman Brothers?  We're going to find out.
                                Below is the chart for LEH.  It is on a Sell, shows
                                heavy (red) distriubution and a falling Closing Power.
                                Professionals do not trust it.
          
         
                                   On 9/9/2008 Lehman fell 40% in one day.  Its talks with a Korean bank
                             to raise capital has fallen through.  This is the fourth largest investment bank.
                             This wipes out $4 billion of market value. 
                              


                        ====================== GM =====================================
                                     GM is on the edge of making a serious break below its support line.
                       The Public, as measured by TigerSoft's rising Opening Power is bearish.  Professionals
                       are bearish, as seen in the declining Closing Power.  Usually professionals prove
                       to be right.  The steady red Distribution in Tiger's Accumulation Index is also
                       a big warning.  I fear what would happen if GM should fail.  Democrats in the US
                       House of Representatives are discussing an emmergency $25 billion government
                       backed loan to automakers to make more efficient cars.



                         
                               Now McCain is now ahead in the poles.  Obama has no backbone.
                             His supporters are having doubts, big ones.  If McCain wins
                             in November, there will probably be political grid-lock. There will be
                             little change in the policies that brought us into this mess. 
                             Phil ("You're all a bunch of whiners!" ) Graham is McCain's closest
                             financial advisor.  He brought us unregulated energy speculation.
                             See http://www.tigersoftware.com/TigerBlogs/July-16-2008/index.html
                                     http://www.tigersoftware.com/TigerBlogs/July-12-2008/index.html

                                     I fear for us.  McCain has admitted he does not understand
                             the economy.    ‘The Issue Of Economics Is Not Something I’ve
                            Understood As Well As I Should’ but, “I’ve got Greenspan’s book,”
                             he assured the audience.   Early in 2008, McCain said:
                            “I don’t believe we’re headed into a recession,” he said,
                            “I believe the fundamentals of this economy are strong."
                            (Source: http://thinkprogress.org/2008/01/18/mccain-economy/  
                             and http://www.boston.com/news/nation/articles/2008/01/26/mccain_tested_on_economy/

                                    "A nation of whiners".   That's what McCain's ex-chief economic
                             advisor called the millions of unemployed, underpaid,
                             and home-owners about to lose their mortgage. 

                                                                         So out of touch!                                 

                                      McCain, with his 7 houses, will not allow his rich buds to be taxed. 
                             50% of the increase in the US budget deficit under Bush owes to his
                             tax cuts for the rich.   35%of the increase int he US Debt owes to Bush's
                             war in Iraq.  See Jared Bernstein: Why McCain's Wealth Matters and
                              Video I saw recently.  Jared Bernstein - CRUNCH - Why Do I Feel So Squeezed?

                                      McCain will not cut back his beloved military.  He may even start
                            a war with Iran.  ("Bomb, bomb, bom, bom, bom").  WIth McCain
                             there will be no big public works program paid for by ending the
                             war and taxing the rich.  Without that, the economy will continue to worsen. 
                             There will be no trickle down.  Unemployment will worsen.  The jobless
                              will just have to wait and wait!  Cities and states will run out of money.
                              A recession deeper than 1973-1974 becomes a grim possibility.
                              Batten down the hatches.  Gold will probably rise as the dollar declines.
                              Typically news like this delays the eventual decline, rather than preventing
                               it.   All Paulsen wants to do is delay the big decline until after the
                               November Presidential Election.  .

                                                     Compare the Market Now with 1971

                    after Nixon announced his new Economic Policy To Control Prices.  
                    After a rally, we should expect more new lows.  Perhaps, October will
                    produce a selling climax.  It has that reputation.  In 1971 the decline
                    continued until November.

                          Peerless Chart of 1971  Peerless Stock Market Timing: 1915-2008