Tuesday, October 14, 2008

The Morning After

And no hangover yet. Yesterday was another jaw dropper. The S&P 500 is up 18% since Friday afternoon's lows.

Europe took decisive action over the weekend, the U.S. promised to follow suit and suddenly the prospect of global depression was off the table.

Now the U.S. is going to invest $250 billion in non-voting preferred shares of banks that it wants to survive. Let me stop right there because I have been screaming for quick action and this at least appears to be done.

This doesn't solve the problem about the illiquid debt securities but I expect progress there soon as well.

I wish I had a couple of billion dollars because I would start a new financial services firm with no baggage and a open-ended business plan. Wilbur Ross or Mark Cuban or Tom Weisel were probably doing it yesterday afternoon. There are new, gaping holes in the risk-taking portion of the financial services sector that are going to be filled - or else our economy is screwed long term. A huge component of our economy's ability to generate wealth has been that we have had a superior mechanism for getting money into the hands of people with good ideas. Those ideas then have the possibility of becoming the next Cisco or Google or Amgen. There are fewer financial large firms in that space now, and the ones who are still there have some other very real issues to deal with.

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