A November Surprise?

We have less than 40 hours left for an October Surprise, BUT the real surprise, I think, will be a November Surprise.

And what is the November Surprise? The popular vote breakdown when the polls close.

Today, Pollster.com’s analysis of numerous polls has Obama ahead in the national Presidential polls by 6%, but I predict that the final POPULAR VOTE total will be much closer.

There are two reasons for my thinking:

- The level at which the newly registered voters will turn out ON ELECTION DAY will be much lower than projected by many polling models

- There is serious concern amongst some voters about actually voting for America’s first African-American nominee, regardless of what they may have told pollsters or others.

In the first case, I believe that the great mass of the first time voters who pushed Obama across the line in the primaries will NOT turn out ON ELECTION DAY in the numbers now projected in most polling models.

I expect that the percentage of their turnout on election day will be less than one-third of the turnout of the 40+ year old voting groups.

(It is true that numbers of first time voters have voted early.)

The first time voters are less likely to vote early, and — I believe the following are the keys — the first time voters may well come to the polls without government issued IDs or could turn away from the very long lines at the polling stations if they believe that Obama is “far ahead” nationally.

These first time voters get their news largely from the internet, and from each other, and do not have the advantage of having voted in or having followed the vagaries of past elections.

Long term voters are more likely to get their news from traditional outlets, including analysts, have seen past polling and vote swings, and know that every vote DOES count.

A decreased turn out by the first time voters in the key toss up states listed in my October 27 blog could result in those states going to McCain.

On the second matter, I have talked to a fair number of long term voters throughout rural northern New England over the last few days, and I believe that some voters have a very real concern about voting for America’s first African-American Presidential candidate.

These voters are, by in large, those now described as undecided, but I believe some are also projected as voting for Obama base on the analysis that result from sampling.

What I believe we will see is a phenomenon called the “Bradley Effect”.

In 1982, Tom Bradley, the multi-term African American mayor of Los Angles, ran for Governor of California. Although comfortably ahead of his white opponent in the state-wide polls, Bradley lost the election.

Subsequent analysis of the exit polling indicated that a larger percentage of voters who were polled stated they would vote for Bradly than actually did so on election day.

In the 1989 Virginia election for Governor, polls showed African American Douglas Wilder ahead of his white opponent by nine points. On election day, he won by only one percentage point. Analysis of the exit polling indicated the same effect.

In my travels, a fair number of people tell me they were thinking about voting for Obama, but were unsure and would wait until next week.

My bet is that when SOME, but not necessarily all of these voters enter the booth, they may well choose the “devil they know” rather than they one they have heard rumors about.

In states with large Obama polling leads like California, New York, Illinois, New Jersey, Massachusetts, Michigan, Oregon, Washington, etc., the “Bradley Effect” may not matter, but in the six toss up states and in states with large concentrations of still undecided voters, this swing could well matter.

In fact, I believe that Obama’s popular vote percentage totals in these states could go down by as much as 10%.

So the November Surprise is that the national POPULAR VOTE breakdown will be closer than it is now projected to be because of significant under representation on election day by the newly registered voters and because of the Bradley effect.

Of course, we will only know whether either or both occurred when the the exit polls come out after the election.

In the end, however, my prediction is still that Obama will take the electoral vote.

Peter B Hayward

Hunt Like A Man

(Hunt: to chase or search for (game or other wild animals) for the purpose of catching or killing.) from dictionary.reference.com

When did some hunters go wrong?

When they stopped hunting and just sat in pickup trucks or SUVs waiting to shoot out the windows at prey?

Or was it when hunting chairs, or as L L Bean calls them Wilderness Recliners, came with cup holders so hunters could sit comfortably in the sun and enjoy the beverage of their choice while they waited for an animal to wander aimlessly across the hunter’s field of vision?

In Maine, my family goes back to 1820 when Maine broke from Massachusetts. Before 1820, they probably also lived here but undoubtedly didn’t much concern themselves with Massachusetts matters. That was why they moved here.

But I do know one thing: my ancestors hunted like men.

They did not wait for the game to come to them.
They tracked it using their abilities.
They thought like their prey.
They walked like their prey.
They waited when the prey waited, and ran when the prey ran.

And one thing they did NOT do was to place mounds of months old twinkies into 55 gallon drums, haul them into the woods in the spring after the snow melted, and create a junk food dump for bears.

My ancestors did not believe in training bears to come to be shot.

My ancestors, like most Maine hunters, enjoyed the thrill of the tracking and the adrenalin rush of the chase.

Maine Guides go through rigorous training and testing to receive their highly coveted certification. Nearly all serve in the honored, 100 year old tradition of Maine Guides, yet a few, perhaps a small few, find it too arduous to actually guide their instate and out of state charges into an actual hunt.

Instead, these few train the bears with twinkies, or they hire others to do so, and then these few Maine Guides take lucrative checks from their charges for the privilege of leading them to a place where they can sit in their Wilderness Recliners and wait for a bear to come eat a twinkie.

Several years ago, some in Maine tried to ban bear baiting.

This misguided effort was, of course, defeated, and rightly so. A few Maine Guides should have the right, like anyone else to earn a buck by training bears to eat twinkies.

But these few Guides might consider covering that coveted patch on their jacket with cloth when they, themselves, sit on their Wilderness Recliner with their beverage in the cup holder, waiting for the bears to come to the fast food dump so their clients DON’T ACTUALLY have to HUNT.

Peter B Hayward

Landslide or Squeaker?

As I wrote in my October 3rd blog entitled Ignore the National Polls, those polls simply represent a beauty contest, a snap shot of how people would vote nationally.

As I wrote, those polls completely ignore one fact:

“every four years we forget that the President is elected by the Electoral College vote and NOT by the total popular vote.”

What is important is not the popular vote, (Gore won that in 2000 election). What is important now is the Electoral College (EC) standing, and who gets to 270 EC votes.

For example, one national poll shows Obama at 50% and McCain at 47% in the popular vote. If we just translated those percentages into EC votes, Obama would be standing at 269 EC votes, McCain at 253, with 16 votes undecided.

Instead, due to the undemocratic nature of the EC vote, most pollsters have Obama over the required EC number of 270 with his numbers ranging from 273 to 306 with 91 to 61 undecided.

The major states which are under contest are largely those in my October 3rd blog:

FL (27 EC votes), IN (11), OH (20), NV (5), NC (15), MO (11) — total 89

Karl Rove, previously Deputy Chief of Staff and chief political adviser to George W. Bush, predicted last week that the EC vote stood at Obama 306, McCain 171 with 61 undecided. Thus, KarlRove&Co. shares with three other sites the high end of the EC estimated standing for Obama.

KarlRove&Co

Obama = 306
McCain = 171
Toss-ups = 61

Rothenberg Reports

Obama = 306
McCain = 163
Toss-ups = 69

Pollster.com

Obama = 306
McCain = 142
Toss-ups = 90

Realclearpolitics.com

Obama =306
McCain = 157
Toss-ups = 75

Rassmussen

Obama = 286
McCain = 178
Toss-ups = 76

New York Times

Obama = 286
McCain = 163
Toss-ups = 89

CNN

Obama = 277
McCain = 174
Toss-ups = 87

Zogby

Obama = 273
McCain = 174
Toss-ups = 91

And there are always outliers; Electoral-vote.com has the following

Electoral-vote.com

Obama = 375
McCain = 157
Toss-ups = 6

If McCain were assigned all the 89 EC votes listed in the 6 toss up states I have listed above (FL, IN, OH, NV, NC, MO), the results would be

Obama = 286
McCain = 252

Thus, to win the election, besides sweeping all these states, McCain would have to steal 17 votes from Obama’s assumed total, perhaps by winning rust belt Pennsylvania. While Kerry won Pennsylvania in 2004, that state is rife with Reagan Democrats and went for Clinton in the primaries. However, most polling shows Obama with nearly a 10 point lead there.

Alternately, McCain could peel off Colorado and Wisconsin from Obama’s totals, gaining 19 and the presidency. Polling has Obama, however, up 6 in Colorado and 7 in Wisconsin.

For McCain, the biggest problem is that by looking at the pollster.com trend lines for the 6 toss up states I assigned to McCain, Obama is trending upwards in all. Momentum plus staff on the ground is key in most races.

Ignoring trend however, Obama’s lead in all but Ohio and Nevada is 2%, thus my projected EC vote today is:

Obama = 311
McCain = 227

(Obama: Ohio, Nevada. McCain: Florida, Indiana, North Carolina, Missouri)

But there are eight days left and time for an October surprise.

Peter B Hayward

Dead Cat Bounce

Dead Cat Bounce is the ugly name for a standard stock market action.

When a stock has taken a sharp plunge, buyers will sometimes rush in, often not knowing or caring why the stock took this plunge. These players, as they are called, are hoping to make a quick profit on the buy low, sell on a “little bit higher” strategy.

Other traders whose computers are programmed to catch such up movements in stocks that have taken a plunge may likewise buy in, producing a greater upward jump.

A few hours or a few days later the stock is dumped after the small profit is made.

The bounce in the stock and the return to the “floor” is the dead cat bounce.

On  September 30, the DOW was at 10,850,   Eight trading days later (October 10), it had dropped to 8,451, shedding nearly 2,400 points.

Since that day, the Dow has gyrated wildly, swinging up and down as much as 800 points until yesterday when the DOW closed at 8,519. Yesterday, the DOW had been as low as 8,324.

Even today, from 10:00 to 1:30, the DOW moved from 8,452 to a high 340 points above that, or 8795 and then at 1:00 it was down 400 to about 8,400.

Since October 10, there has been an extended dead cat bounce, or perhaps an extended dead cat dance, as the electrons still left in the market’s nervous system twitched.

There is no absolutely no rational trading in this market, there are no market fundamentals to guide traders, no 200 day lines, no break outs.

There is just panic and selling on one rumor and euphoria and buying on another rumor.

Nothing rational happened between 10:00 this morning to make the DOW gain 340 points in an hour only to then 400 within two and a half hours.

Peter B Hayward

How Fed Up With Maine Taxes?

The signs say Fed Up With Taxes ….

In Massachusetts, there is a referendum on the ballot to repeal the income tax.

No income tax period.

A man from Massachusetts asked me if that is what the sign meant here.

I said sounds like it, doesn’t it, but it is actually about a few cents on a can of soda.

Specifically, it is about overturning a bill to fund Dirigo health insurance funded by a tax of 3 cents on a can of soda, tea, etc, 4 cents extra tax on a can of beer, or about a dime extra tax on a normal size bottle of wine.

You are a big drinker, you say?

By the six back, the new tax on soda, tea, etc. is 24 cents on a six back, and 21 cents on a 2 liter bottle; on beer, the increased tax is 18 cents a six back, and if you are a young Trendy who buys your wine at Whole Foods by the case, you are paying out an extra $1.20 for that right.

For fact checkers, the incredibly boring breakdown of these calculations, the Portland Press Herald the base tax figures came from is at the bottom of this blog entry.

So, who isn’t fed up with taxes?

What don’t you want to pay?

Your property tax — and forgo local schools, roads, fire, police, libraries, etc.

Your income tax — and forgo just about everything else.

How about a referendum to do away with property taxes and just stick it all on the income tax?

This will get those with vacation homes off the hook, like those people from away.

Or how about doing what New Hampshire does, and abolish the income tax and the sales tax, and just make property owners pay the full bill.

Three cents, four cents, a dime, eighteen cents for Joe the Plumber after snaking pipes all day?

The data below comes from the March 17 Portland Press Herald article.

There is a NEW soda, tea, etc. tax of $0.42 per gallon, which works out to $ 0.003 per ounce, or $0.04 on a 12 oz can of soda and $0.24 cents on a six pack of soda. A 2 liter bottle of soda will cost an additional $0.21.
($0.42 per gallon/124 oz = $.0033/ounce)

On beer, there is an increased tax of $0.29 per gallon, so that will add $0.03 to a 12 oz can of beer and $0.18 to a six pack of beer.
($0.29 per gallon/128 ounces =$0.0023/ounce)

On wine, there is an increased tax of 35 cents per gallon, so that will add $0.10 to a 1 liter bottle of wine.
($0.35 per gallon/128 ounces = $0.0027/ounce.)

There is a surcharge on paid insurance premiums. This is paid by the insurance company.

Peter B Hayward

A Maine Armchair Philosopher

I Love Water, But …

OK, now that President Bush made the announcement at 8 AM Tuesday that on Saturday I passionately argued he HAD to make before the markets fully opened, I have now SOLVED the commercial paper crisis and I can move on to a much more important world wide concern — bottled water.

**************

I drink water, lots of water.

Eight glasses of water a day? … That’s a child’s play. I drink much more.

People think I have a Poland Spring bottle of water surgically attached to my hand, but the truth is it is the Velcro strip that IS SURGICALLY attached to my hand.

Why Poland Spring?

Well, if they serve it on the Sunday talk shows, and if it is owned by Nestle, which makes my favorite candy bar, then it’s MY water.

For the first part of this decade, carrying a bottle of Poland Spring water meant you were cool, that you probably went to a gym with carpet and a juice bar, you ate tofu stroganoff and you fed your dog organic dog snacks.

However, now there is a rap against bottled water.

First there is THAT bottle.

It is not bio-degradable and will be in the land fill, if your local community STILL has a land fill, when the sun vaporizes in 5 billion years and spreads the plastic molecules into space to become new planets.

1) Use of Poland Spring plastic water bottles creates space pollution and new planets.

Then, as represented by the brave “Horatio at the Bridge” stand by the voters of Kennebunk, there is a fear that, if Poland Spring continues to suck water from Maine’s aquifer, we will all FALL into a gigantic Florida-style SINK HOLE and New Hampshire will have a new coast line.

2) Use of Poland Spring plastic water bottles will lead to new beaches for New Hampshire.

Honestly, none of this concerns me.

I figured that, since I was leaving the massive national debt and cost of Federal entitlements to my grandchildren, I could leave them the sink holes and the plastic in space.

Those grandchildren are pretty darn smart; they will figure out something, or else they will move to Greenland.

However, the last straw was broken when I was walking around Whole Foods waiting for Di to put together her salad to to eat while I had my extra crispy KFC, and I realized the Trendies were shooting harsh glances at my water bottle.

Those Trendies, who carried these very same bottles a few years ago, now think the bottles are dirt, but then, dirt is biodegradable.

So I started on my search for the perfect substitute for my Poland Spring water bottle.

1) The new bottle had to be light.

2) It had to fit into the cup holder of my car.

3) It had to be able to be attached to my hand by Velcro.

Nearly everything I looked at failed my test.

The fat water bottle that the Trendies use at work didn’t fit into the cup holder.

An aluminum or plastic coffee mug did fit, but it was too heavy to carry every day.

I COULD refill a Poland Spring water bottle, but the Trendies at Whole Foods wouldn’t know it was refilled.

I remembered that Egyptian travel bottles had been woven from reeds, and reeds are very light, but it was not reed season, and with the plastic water bottle attached to my hand, I would not have been able to weave the reeds even if I had them.

Di, my good lady wife, as good an urban gatherer as I am an urban hunter, had long been on the lookout for me. She made countless trips to Kittery to look for the perfect bottle in her favorite stores like Jones New York, Anne Klein, and Liz Claiborne.

She spent hours each weekend, untold hours, wearing herself out looking for the perfect bottle in Kittery, but she came back exhausted, with nothing but a carload of bags.

That’s why I love her so much.

And this weekend, she outdid herself.

She burrowed deep into the nooks and crannies of L. L. Bean, handing me each type of bottle she found so I could measure it against the bottom of my Poland Spring bottle for cup holder size comparison.

Nothing fit, and as we were just about to cut our losses and console ourselves with clam chowder and lobster, Di found the PERFECT PLASTIC BOTTLE.

Of course, L. L. Bean, had tucked it away in an odd corner where the young healthy people would NEVER see a bottle in Bean’s that fit in a CAR cup holder — you know the ones who camp outdoors without a tent, pack nothing but wild salmon jerky and freeze dried ice cream and have L. L. Bean outdoor gear for their dogs.

DRUM ROLL … Di had found the CamelBak Better Water Bottle which Bean has for $10.95 in the store and on line. It comes in the same trendy colors that refrigerators now come in. The bottle even has a built in straw, but I will still manage to find a way to spill the water, I’m sure.

A CamelBak Better Water Bottle is already attached to my wrist.

BUT I STILL have a problem.

I am accustomed to having a 24 pack of Poland Spring bottles in the trunk. When I finish one bottle, I put that in my recycle bag and just grab a full one.

I agonized over what to do when I emptied my wonderful new bottle — where would I get my constant fix of water — would I be carrying around an empty, but very acceptable bottle?

How I agonized.

Finally, at 2 AM last night, IT came to me.

The SOLUTION.

I headed up the road to Freeport and filled the trunk with 23 more CamelBak Better Water Bottles. I will fill them from my pallet of Poland Spring also in the trunk.

How simple and elegant a solution.

Peter B Hayward

Oh Discrimination So Insidious

This is a true story.

At the age of 57, a good friend of mine decided to change careers and give back something to society.

As a baby boomer, she had studied art history at one of the seven sisters, but in the heady days of the early seventies, no one really needed a degree that was related to his or her career and, upon graduation, she found a job as a runner on Wall Street.

Over time, she moved into insurance, then finance, and finally became qualified as a Certified Financial Planner (CFP). In the early 1990s, she transferred from New York to her firm’s office in Portland, and continued to do well working with those who wanted guidance or more with their estate planning, asset protection, investments, etc.

In 2004, she took early retirement and entered a clinical mental health counseling program with the goal of working with the elderly after she was certified.

A good student, she got As in her classes, she passed the first national test, passed the practicum where she had 8 clients of her own, and, with the end in sight, she worked to line up her 900 hour internship.

Much like a doctor, mental health professionals have to work as interns under qualified professionals in clinics, hospitals, prisons, etc for 900 hours which is the equivalent of 7 ½ months of working 30 hours a week.

The work is nearly always unpaid. As an intern, the student is exposed to a wide range of mental health issues, and is mentored by a practicing clinician. In addition, the student attends University classes during this period.

Taking guidance from her professors and from the school’s internship placement officer, my friend sent letters to or visited 22 clinicians or organizations. In an attempt to secure an internship, she traveled in a circle bounded by Biddeford, Augusta, and Lewiston.

Of the 22, she was invited to an interview by 5.

She was turned down by all, each citing in turn and as if reading from a script that they were looking for someone more “qualified or with more experience”

Oh discrimination so insidious.

All of my friend’s classmates were accepted into internships, and she told me that half of them had the same amount of mental health counseling “qualification or experience” that she had — which was simply having passed all the courses for the degree and the first national exam.

And all those receiving internships were younger. In fact, the next youngest student was 12 years younger, and the youngest had simply graduated from college and gone straight into the counseling program.

She asked me what life experience I thought those 24 year olds could possibly bring to a counseling session.

In one interview, the interviewer asked my friend whether she thought she could empathize with the issues facing late 20 and 30 year olds, even though the interviewer, herself, was older than my friend.

In another interview at a University mental health clinic, my friend was told that “students these days really like to talk to people closer in age to themselves.”

The person stating that, she learned later, was just five years younger than herself.

So, after having paid out $22,000 to the University for her classes, with no internship she withdrew from the program.

Life experience and wisdom just isn’t what it’s cracked up to be, at least not when it comes to clinical mental health counseling.

Peter B Hayward

A Treasure in Freeport Maine

To get away from the insanity in the stock exchanges, my wife and I went to Freeport on Sunday, stopping first at the fantastic bead shop there, Beadin’ Path.

What a totally glorious day for walking and shopping in Freeport: crystal clear blue sky, just the right temperature, the brilliant reds, oranges and yellows of the leaves, and the right sized crowds.

While there, Di, who is a water color artist, and I wandered north on Main Street and found an absolute treasure — and one that art lovers MUST visit.

At 140 Main Street, next to the Catholic Church and across from the Post Office, is FREEPORT SQUARE, an enormous, light and airy gallery with a large representation of Maine artists. The works are nicely displayed, and given the size of the gallery, there is not the crowding of the art found in typical galleries.

The owner, Kathleen Meade, has works waiting to be displayed and artists in line, so art lovers making regular visits to Freeport Square will not have that feeling that “I have seen all this before.”

Too often those of us who want to build our collections, or maybe just want to see fresh new work, fail to break out of the mold of the “same old – same old.”

Freeport Square is a wonderful find for us, and I hope will be for you.

And, for party lovers, given the gallery’s size, beautiful hard wood floors and art covered walls, Freeport Square is also a great place to consider for private parties (and then later the group can skip down the street to L. L. Bean for 24 hour shopping.)

Freeport Square
140 Main Street
Freeport, Maine 04032
207-865-1616
www.freeportsquare.com

The hours are listed as Wednesday to Sunday, 10 AM to 8 PM
and Monday and Tuesday by appointment or chance.

Peter B Hayward

The Current Insanity

Anyone reading my blogs on the zigs and zags of the proposed bailout of the credit system will know that I have LITTLE faith in the ability of the Federal government to do the RIGHT thing in a timely fashion.

To me, TIMELY means NOT at the end of the October, but immediately as the British government did last week when it injected 50 Billion Pounds into its credit banking system, which, on a comparable GDP basis, would be equivalent to a $500 Billion injection here.

The Brits didn’t need to meet with the G-7 and the IMF to get their approval as our government seemed to have to do this weekend; the Brits just did it.

Imagine what would have happened if Secretary Paulson had immediately injected the $700 Billion in the fashion I had proposed on September 29 by lending the banks the money, or alternately by purchasing preferred equity, as he now seems to be “dabbling” with.

On the 29th of September the Dow Jones Industrial was at 11,139. At close on Friday it was at 8,568, a loss of 2,571, or 23%.

I don’t read tea leaves, but it’s my bet that with a quick injection on the 29th or 30th, the Dow would be much higher than it is right now, and the PANIC selling by hedge funds, mutual funds, and institutions would not have happened.

What we have right now is panic, stark panic.

People, and not just investors, are terrified.

People are bailing out of the stock market because there was no immediate bailout, and we have, I fear, passed the point where people can believe that any new action by the government WILL return the market to sanity.

People have lost trust in the Federal government because it has appears to have lost its ability to lead.

The hedge funds are causing much of damage in the market. Hedge funds are somewhat like mutual funds, pooling money from RICH customers, many from overseas, and then using that money to buy stocks, some on margin. Buying on margin is what caused the 1929 stock market crash.

Panic from customers of mutual funds is also driving the downward spiral. In September, over $70 Billion was pulled out of mutual funds, and another $50 Billion was pulled out in the eight trading days of this month. The market simply cannot absorb that many shares in an orderly manner.

Finally, there is program selling by stock brokerages and massive selling by institutions such as pension funds, college endowments, insurance companies, etc.

Observe when Friday’s sharp 6% drop occurred — in the first 7 minutes.

That is when the hedge funds came in to cover margin calls, when the program selling kicked in because of the free fall, and when the mutual funds where dumping the stocks because of the customers’ overnight requests.

It is not now a time to worry about how a strong decisive action taken by the Federal government will look to, or be interpreted by partisans on the fringes of either party.

It is time for the politicians, and the Secretary, to rise above politics and save the economy.

Our strong democracy can take bold actions and survive.

By Tuesday morning when the market reopens, investors, hedge funds, institutions, and holders of 401Ks will have had the three day weekend to worry, to listen to the analysts, and to wonder what to do.

Secretary Paulson, reportedly, does not intend to undertake his injection of Billions into the investment banks through the purchase of preferred stock for another two weeks. Apparently he wants to wait for the banks to ask for the money instead of making it appear that the Federal government is taking a unilateral action.

It has been less than two weeks since September 29 and the market has fallen 23%.

Another drop like that will get us down to 6,600, a level last seen in the mid 1990s.
If we don’t have a BOLD and almost SHOCKING announcement from Washington by 9 AM Monday* about an IMMEDIATE $1 to $2 Trillion injection into the credit markets, I suggest you watch the market opening at 9:30 on Monday morning.

The opening drop will be awesome.

We will never see a drop like that again.

(Unless it occurs again on Tuesday because there is no announcement by then.)

********

Now….can an investor recover from his or her losses?

Yes, certainly.

Can and should an individual make purchases in this market?

Yes, certainly.

I will discuss these matters on Tuesday at noon.

Peter Hayward

*An earlier version of this blog misstated the day on which the NYSE and NASDAQ will open. Although Monday is a Federal Holiday, those markets are open that day. The Bond Market is not open.

Bailout the Bailout

Nine days ago, on September 29, I explained in my blog post here, why the original Paulson plan was wrong and what the bailout SHOULD look like.

1) I noted that the White House and the Congress needed to think outside the box in rewriting Secretary Paulson’s misguided proposal, because Paulson’s imperial proposal simply removed from the investment banks’ books billions of dollars worth of mortgage derivatives for which a market value could not established.

2) I explained how most of the mortgages in the derivatives were actually good, and that the derivatives did have value. That value was difficult to determine at this moment in this crisis, but that it could be determined if the derivatives were held to maturity.

In that post I wrote:

“My solution: the Federal government should authorize the Federal Bank to LEND up to $700 billion to those banks IN THE US holding these derivatives at a to-be-decided interest rate that is slightly higher than the normal rate. Banks would use the mortgage derivatives as collateral for this loan but would be required to hold these derivatives to maturity.”

Two days after I wrote this, ex Secretary of the Treasury Paul H O’Neil
spoke publicly for the first time on the bailout, calling it “crazy” and called for approximately the same solution I did — (quoting from the Denver Post’s interview with O’Neil): ” To replenish capital in banks, the government should make 20-year loans to institutions and charge 2 percentage points above the government’s borrowing rate”.

If the bailout had been structured as I proposed, as an immediate loan, the banks would have that $700 billion THE DAY AFTER THE BAILOUT WAS SIGNED, not by the end of October as Secretary Paulson now plans.

Credit would have started flowing again, and confidence would have returned to the entire economy, and not just the markets.

The failure to resuscitate the economy immediately by directly injecting the $700 billion into the economy means credit markets in the US are NOW illiquid with no or very little money being lent at the highest levels — the levels that make the economy work.

For example, companies cannot get short term loans to tide them over until their customers pay at the end of the month; this usually means the company may not make payroll or pay its own creditors.

States often take short term loans to cover government costs while waiting for tax revenues to come in.

The Los Angeles Times has reported that California may need an $7 Billion emergency loan from the Federal government to carry on normal governmental activities this month that it would otherwise fund by short term borrowing until tax revenues came in.

Municipalities, states and companies cannot issue long term bonds for projects because the interest rates now being quoted for those bonds are, in some cases, triple what they were three weeks ago.

As a result of this credit freeze, the US stock market has dropped to levels not seen since the beginning of the decade, wiping out Billions of dollars of paper value.

And this lack of liquidity has become a world wide problem: Japan’s stock index fell 9% yesterday, its biggest drop in 20 years, and the markets in London, France and Germany have fallen since Friday by 12%, 14% and 14%.

Today the Federal Reserve Bank announced a 0.5% cut in the Federal Funds rate to 1.5%, coordinating this cut with similar 0.5% cuts by the European Central Bank, and the central banks of China, Great Britain, Canada, Sweden, Switzerland and Saudi Arabia.

As of 1 PM today, the stock markets of London, Paris and Frankfurt showed little confidence in these rate cuts, with all three down nearly 6%. The Russian exchange was closed until Friday after a 14% drop in the first half hour. The Dow was flat, less than 1/10 of 1 % from its opening.

So now what?

The Congress needs to return to Washington tomorrow and do a BAILOUT OF THE BAILOUT, unanimously passing legislation to inject between $700 Billion and $1 Trillion IMMEDIATELY into the credit markets.

We need a Congress of national unity and a nation-wide awareness of what lies ahead if this is not done.

America should NEVER AGAIN be held hostage by politics as it was between the first and second versions of the bailout. The economy should not be governed by the political whims of a few.

If this is not done, our economy will NOT wait until the end of the month for the Government to inject money through buying the derivatives.

By then, our nation and the global economy WILL, not may, be in a depression deeper than that of the 1930s, and once there, it could take years for us to crawl out.

Peter B Hayward