Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

Dear American Taxpayer and Voter,

For your own sake, I implore you to get over your anger at Wall Street fat cats – they have already lost more money than you will ever make. Neither you nor your Government gives a hoot about the loss of their personal wealth. Those fat cats have always known that theirs was a high risk career, which meant that in the good times they made scads of money and in the bad times they stood to lose it all. You could say they live by the sword and die by the sword and right now you are witnessing many of them dying by the sword.

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Last Friday, behind closed doors, Treasury Secretary Hank Paulsen and Federal Reserve Chairman, Ben Bernanke, gave Congressional leaders the Armageddon scenario for financial markets and the US economy and provided an emergency solution in the form of Government intervention. Because they are not fools, our Government leaders saw the light and in a televised speech they announced that they would set aside politics and join forces to enact legislation to secure the viability of the financial markets. That was last Friday.

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The uptick rule made sense when it was instituted back in 1938 and 70 years later it still makes sense. Simply stated, the rule required that a short sale be executed only if the latest transaction in the stock was at a price higher than the previous trade, i.e. had been an uptick. The various arguments made for its elimination do not hold water relative to the rationale for its existence – as a check and balance against ‘bear raids’ on stocks. Its elimination was a mistake and the recent rampant and destructive bear raids on more than a handful of financial stocks is evidence of that mistake.

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In the beginning – there were bad lending practices. And they are at the core of this extraordinary mess.

What was at the heart of the bad lending practices? The Federal Government!! Under both the Clinton and Bush administrations, it was government policy to encourage the private sector to ease underwriting standards in order to expand housing ownership in the U.S. The Federal Reserve under Alan Greenspan was an enabler in that development, by employing a monetary policy that kept interest rates exceedingly low, to the benefit of mortgage seekers. So lay blame on the US Government for bad policy.

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