Tuesday, October 21, 2008

Even more government

More liquidity enhancing market saving schemes
Putting capital into the banks was not the end of it. The Fed today announced it is ready to buy holdings from money market funds, extending liquidity to the sometimes pressured industry. If MMMFs can't sell shares when redemptions come in they are in trouble. The Fed took steps that will help funds with liquidity and in turn support the short term money markets for the instruments that money market funds buy and hold. This is another good safety valve for markets.

More stimulus again
In addition we are revving up for Halloween II err I mean Stimulus Plan II. The first one was such a success we are back in line to formulate another one with the economy in even worse shape.

Still Bernanke supports it and Alice Rivlin thinks we should have really big one.

Something for the neediest?
If the economy is going to slide a cushion for the poorest would be a good idea but we should get used to the idea that these things do not resurrect the economy. They cushion the blow for the recipients and often money goes to the not so needy. Still the die is cast and something will be done. Once again: no panacea.

One idea:
If we are looking to hand out money I suggest doing it via FICA. FICA tells you not income but wages earned. Based on FICA paid you could design payments to low income workers - not tax payers. Many low income workers pay not taxes. Still that would not help the generally not employed but it would help the unemployed as long as they are recently dislocated since they would have paid FICA in the last 12 months or so. The trouble with tax rebates is that some people don't pay taxes. So just make FICA based payouts and get money into the hands of workers, low paid workers.

Ford has a better idea?
But the economy is not doing so well on its own. I don't know if Ford has had many good ideas recently but Kirk Kirkorian had a better idea as he dumped a bloc of Ford shares. He still has a bundle of them though but the signal is clear. Kirk is is giving up since Ford has no plan to get back to profitability on any fixed horizon. Ford did have a good idea but it was not corporate. A few weeks ago Ford Snr. did fire Matt Millen the General Manager of the Detroit Lions and put his football franchise out of part of its misery.

With all this news in tow earnings have been coming out and we do have some seeming winners. But let's remember that earning estimates have been cut. In new estimates, guidance is being cut again. So be careful about crowing that firms are beating their estimates. Beating things is not always good news. In the case of earnings estimates you need to know what you are beating and what it was. You also need to know where your sights are set next. For the most part the answer is that sights have been set lower.

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