'Rescue' Is Now Out of Control

For edition of November 13, 2008

by Rick Ackerman

At the rate Goldman Sachs shares have been falling lately, they could reach our $29 “hula target” by Thanksgiving. Barely a week ago, we predicted a plunge to $29 when GS was trading above $90; yesterday the stock hit $64. At the time, we vowed that if the forecast did not pan out, we’d don a grass skirt and dance the hula in Times Square in the middle of Feburary. So far, and unfortunately for Goldman’s shareholders and partners, we haven’t had much cause for worry.

The $29 projection was purely technical, based on Hidden Pivot analysis. But you don’t have to be a chartist to see that Goldman’s survival issues will only grow more challenging. If you merely ponder what the firm was doing to make profits by the tankerful a year ago, you’d have to wonder how they will make their money now; for the firm was operating at the very center of a smoke-and-mirrors business that no longer exists. We don’t doubt Goldman can survive and make a profit. However, in the deleveraged financial environment that now exists, and which will probably continue to exist for at least a generation, we’d be surprised if they can make even a hundredth of what they made in their halycon days as a global wheeler-dealer.

Meanwhile, there can be little doubt that Paulson’s latest ditherings contributed to the whack that financial stocks took yesterday. We should come right out and say it, since the mainstream media probably will not: Paulson, Bernanke and Friends have lost control. Yes, they have. As much should have been obvious to anyone tuned to Paulson’s speech yesterday. Turns out he’s no longer keen on buying up bad mortgages; instead, he now wants to pump credit money into the consumer economy. Just what we need: more consumption with more borrowed dollars. And this time with no housing as collateral. What a complete idiot! Can anyone in America �' other than homebuilders and Kudlow, perhaps -- be fooled into thinking that cajoling consumers into taking on more debt is somehow the answer to our problems?

And how about the banks’ new go-easy policy on mortgage deliquents? That’s about as effective a way as you could devise to bring the housing disaster to a quick and catastrophic end, since it gives the waning majority who are current on their mortgages an incentive to skip a payment or two in order to qualify for whatever aid might be coming down the pike. We won’t even get into the tragicomic drama occurring on the legislative side, as Pelosi et al. duel with a lame-duck President over “saving” the automakers. Would $100 billion more in loans produce, even in ten years, Chevys and Fords that the whole world would want to buy? Maybe. But we surely wouldn’t bet on it, especially since the competition will not exactly be standing still.

The bailout process has become too dispiriting if not to say too horrifying to watch.

The thing has gone out of control, and everyone knows it.