I'm listening to Paulson right now, and the biggest problem for Pres-elect Obama will be to fight for control of this country from the newly emerging oligarchy on Wall street.
As of 2 years ago, British insurance companies were unwilling to insure assets in large American investment banks because as they said, [paraphrase] "We are unable to understand their accounting practices."
In those days, it was in the banks interests to look like they had liquidity. Now, it is not in their interest. They are ransacking the federal government with the intent of consolidating their holdings. There was a piece in the NYT about a week ago where a JPMorgan VP was heard on a conference call saying that the money that they will accept from the feds would be used to acquire other banks, not so they will start lending to people or small businesses. Here a link to that piece
Paulson now says he wont even buy up the bad debt, as that would give the treasury some assets - something to hold on to. Instead all bank-like entities (amex now invited) should just show up and say, "Give us money or we wont lend money or, we will fail or, we wont tell you what we'll do - and, by the way, we don't have to give you anything in return - not even bad debt."
As long as this poker game continues (and that is exactly what I believe it is) the market will not go up - not because it may not have hit bottom and potentially be a reasonable long term investment but because if financial institutions and insurance companies start buying stock, they will marginalize their threat.
I'm reminded of Naomi Klein's book.
The threat to congress and the president is, "If you don't give us money there will be massive unemployment, depression and poverty and you will be thrown out of office."
In Klein's book, in times of crisis, the IMF and World bank would go into countries and tell government officials the only way to recover would be to sell off the countries assets to private groups depleting countries of their revenue sources. The part of the book on South Africa at the end of apartide, is particularly germane right now, as it talks about the apartide government handing over governing power but retaining control over the central bank thus making the government impotent to implement reform.
Here, now, the banks are threatening the government to give up it's cash making it less able to function on behalf of the population. Either way, we end up with a smaller government less able to fulfill any social obligations to its people.
The goal of this conservative, ideologic group has always been small government with the private sector running social services (like social security.) In depleting the cash holdings of the government (and putting it in severe debt) Paulson is fulfilling Milton Friedman's dream (they are just going at it in an unusual way.) The timing of all this warrants everyone wearing a tin foil hat.
The 140 billion dollar sly gift to the banking industry that the President signed off on during the bailout debate without telling anyone (the one that Rachel Maddow was ranting about the other day) showed their hand.
They are trying to deplete the government assets to force Obama to fail. As banks consolidate there is less competition between them. These new emerging super-banks can dump stock and do things to the market that can easily cause congress to panic. Panic used to be the enemy of banks. Today it is their friend. Panic causes governments to throw money at problems and take extreme actions.
I haven't given up hope, but these people are making a real and rapid play for absolute control over the federal government.
If you think I'm paranoid, please see the title.