This week has been one of the most tumultuous in years for Wall Street. Here’s a recap of everything that has happened:
- The Dow Jones lost over 900 points from Monday through mid-day Thursday and gained it all back (it finished 34 points down on the week) by the end of the day Friday
- The government bought an insurance company
- The government started insuring investments (backing Money Market Funds)
- Gold had its best day in history (Wednesday) and worst day in history (Friday)
- Oil traded at $90 per barrel before creeping back up over $100
- The government suspended short selling stocks
- But this party ain’t over yet. Congress will craft legislation this weekend to offer a general bailout to Wall Street, buying up bad mortgagesââ?¬â??”illiquid assets”ââ?¬â??to free up capital for struggling financial firms. This government action will cost in the $100s of billions according to Secretary Paulson, and perhaps up to $1 trillion taxpayer dollars. Considering the other bailouts and loans handed out that would push government spending on this financial crisis near the $2 trillion mark. With Washington Mutual and Morgan Stanley on the bubble going into this weekend, much like Lehman Bros. and Merrill Lynch were last week around this time, Paulson believes we have no choice but to continue the bailouts. Here’s a rundown of recent government intervention:
- Bear Stearns: bailout costing $3.2 billion
- Fannie Mae & Freddie Mac: takeover costing upwards of $500 billion in debt losses plus operations costs
- AIG: acquisition loan costing $85 billion
- Money Market Funds: insurance money risking $50 billion
- Banking system: reserve fund release of $70 billion from the Fed
- That alone is over $700 billion spent or at risk, not counting operations costs for the FMs, lost interest, or loan insurance costs. And the government is left owning an insurance company and two mortgage companies. Meanwhile, financial firms may still failââ?¬â??even with the big bailout planned for next week. Its all is about adding confidence to the market, so that investors don’t lose their shirts… and the American taxpayer is shouldering the burden.