Thursday, September 25, 2008

Irrational Exuberance

The euphoria Wall Street displayed upon the announcement by the Bush Administration that the government’s balance sheet would be used to park illiquid securities was spectacular. On Thursday and Friday, the Dow gained approximately 780 points, after losing as much in the beginning of the week on the news Lehman Brothers was insolvent and Morgan Stanley and Goldman Sachs were seeking suitors/mergers.

The rally over the last two trading days of the week can be appropriately characterized as irrational exuberance, a term coined by the chief architect of this credit bubble we are experiencing. To explain this position, it is essential that we ask three questions: 1) What measures are being taken; 2) What are the intended consequences; and 3) How do we protect ourselves from the failure of another rescue effort by a compromised and beleaguered Administration? Let’s address these questions seriatim. Lloyd Wynn breaks it down and provides crucial advice you should heed in today's issue of BlackCommentator.