The new bank rescue plan landed with a thud on Wall Street. Worried that the revamped financial bailout was far too short on details, especially on how to clean up the books of the banks, investors drove the Dow Jones industrials tumbling more than 380 points. Treasury Secretary Timothy Geithner announced a plan that could send as much as $2 trillion coursing through the banking system and the broader economy and stressed the government would act to stop "catastrophic failure" of financial institutions. But investors fretted that the government was nowhere near untangling the crisis that has paralyzed the financial system and hammered the economy. Wall Street suffered its worst day since Dec. 1. "The good news is they are going to spend a trillion dollars," said James Cox, managing partner at Harris Financial Group. "The bad news is they don't know how." – AP
Dominant Social Theme: Got to get it right. Will he?
Free-Market Analysis: So Tim Geithner announced with great vagueness how he intended to rescue American banks on Tuesday, and Wall Street turned thumbs down. Nearly 400 points down. Great despair. Rending of garments.
But here's the "big idea." Who knows how far down markets would go absent government intervention? In fact, this is probably the dirty little secret about fiat money. Securities markets thrive on it. Without inflation, courtesy of fiat, stock markets around the world would likely tank big time (much more than they already have) – and take with them a considerable chunk of the wealth of various Masters of the Universe.
Of course, it doesn't have to happen that way. Absent fiat-money reflation, absent "globalism," and the "corporatism" that has arrived since Anglo-Saxon law created corporations back in the 1800s, you'd likely have much smaller and less important stock markets and much more small business of the entrepreneurial kind.
Yes, of course, you'd still have stock markets (and mining stocks as well, especially gold and silver juniors) but you would have a lot less centralization of commerce. Basically, you'd have a lot less Wall Street and a lot more Main Street.
We're sure Geithner et. al. will keep tinkering until they come up with a formula that gets at least a bit of a better reception on Wall Street. The market will rise up at least temporarily, and the mainstream media will make a big deal about it. The implication will be that markets have been "rescued." In fact, they will not have been rescued. They will have been re-inflated by a combination of government money and central banking monetization. A true rescue would involve letting the world's many financial marts find their own levels. But that would mean giving up control.