Congress Helps Al-Qaeda

Charts: The S&P 500 closed at 1085. Down 1.2%. The index is sitting just under the 100-day support line. Trading below that line for several days would cause long term technical damage. Since the index is currently trading below the 50-day line short term damage is ongoing. Wall Street is once again hearing a bear’s growl. It is not yet roaring but the growling is much louder. Scary.

Fundamentals: Treasury Sec. Geithner is being grilled over the AIG bailout. Both Republicans and Demos were in full attack mode, a sign that Capitol Hill is serious about gutting America’s financial system and preventing a future Treasury Sec. from doing something like an AIG bailout. A theoretical failure to bailout AIG would have had the same effect on the global economy as the actual failure to bailout Lehman Brothers did, except it would have been a hundred times worse. After Lehman collapsed worldwide economic activity came to a virtual standstill. Shipments of wheat from North Dakota to Europe could not get trade financing. The short, sharp fall in world trade was steeper than anything seen during the Great Depression. It is an understatement of massive proportion to say bailing out AIG was a good idea. What about moral hazard? Failing to bailout Lehman Brothers provided plenty of moral hazard. In other words Paulson, Bernanke, and Geithner have handled the crisis nearly perfectly so far.

Geopolitics: With the blessing of Gen. McChrystal, Afghan President Karzai is set to unveil a plan to entice Taliban fighters and mid-level operatives away from the bad guys by offering jobs. Obviously for this to work Afghanistan’s economy will have to grow at a rapid clip. Polling experts say that 70% of captured Taliban fighters do not fight for theological or ideological reasons, but for meager pay and food. This is the Taliban’s response to Karzai and McChrystal’s plan: “They think the Mujahedeen will be enticed by money… such thoughts are baseless and futile and have no truth.” If the world economy goes into a double-dip recession, then the Taliban is correct, there won’t be any way to entice the bad guys away from their evil employers with a better offer. Therefore, Capitol Hill’s attempt to gut the US financial system is a huge gift to Al-Qaeda and its faithful servant, the Taliban.