Jim Grant on the Bad Medicine

From the Washington Post op-ed by James Grant (H/T Maoxian):

Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you.

The unblinkable fact is that Americans own too much house. We overpaid and overborrowed, and many of us are "upside down," as the car dealers say. What to do? Recognize the losses and write them off. What not to do? Inflate the currency and debase accounting standards.

But inflation and debasement are the very policies being put in place.

And that's just the first two paragraphs plus the first sentence of the third. It gets better. Or worse, if you know what I mean. ;-)

The market had a bad day today. Yet it could easily have been worse and was for much of the trading. I'm typing this on Monday night, US Eastern Time. I glanced at TV a little while ago and the screen said Asian markets were down. Does that foretell another bad day for the US markets? Who knows?

Among the numerous things found troubling with the Congress debating the bailout last week was this: Many times I saw Senators and Representatives of both parties talk about what the stock market would or wouldn't do based on whether or not the bailout passed. Considering stock prices while considering legislation strikes me as a foolish move.

Now, the fact that the market hasn't down well since the vote on Friday means nothing. Just as if it skyrocketed would mean nothing. In the short run. Recall Ben Graham's statement that in the short run the market is a voting machine and in the long run it is a weighing machine.

My hunch is that over time the prescription is that of Grant, and not the folks in the US Congress.