Liquidationists vs. Bail-Outs

I tend toward the view financial excesses need to be liquidated. But Ambrose Evans-Pritchard serves up a counter argument in the Daily Telegraph:

This is probably the start of a massive taxpayers' rescue of the banking system. It stinks. But imagine if Mr Bernanke had listened to such advice as Bear Stearns faced collapse.

It is America's fifth biggest investment bank. It has $13,400 billion of derivative positions, and has underwritten $491 billion in options contracts. Topple this domino at your peril. It risks a chain of cross-defaults through the entire "shadow banking system", that vast untested nexus of paper commitments.

Bear Stearns had a liquidity cushion of $17 billion early last week. It vanished in two days. This was a run on a bank by New York insiders. It would not have stopped there. If the Fed had not taken emergency action on Sunday night, wolf packs would have fallen on Lehman Brothers (even bigger) with equal ferocity this week. The crisis threatened to snowball out of control.

You know I'm not a top-down guy. I'm just an individual investor trying to pick stocks trading at less than they're worth.

And a key part of that process is reading, reading, reading as much as I can. Including lots of stuff that has no direct impact on which stocks I ultimately buy.