The aversion of Financial Armageddon and the arrival of spring

Over the last few weeks, things have gone from bad to worse in the US economy, and around the world. In the US, the scant details of the bank bailout has badly shaken investors' confidence, especially after Geithner's plan rolled out, but without much details on how the plan will work. The only new thing is the public-private ownership, where private investors fork out money to invest in bad assets, with government's backstop. US stocks got hammered, with the Dow hitting 6440, a new low. Again, financial+insurance stocks bore the worst, with the guillotine finally fell on the pristine AAA rating of GE and Berkshire Harthaway. Rating companies had cut the ratings of both companies, but the implication is enormous because they were known for their stability. GE Finance arm is the culprit here, having made lots of loan investments to homeowners and Eastern Europe.

Around the world, Eastern Europe is in a freefall, with their western brethren reluctant/unable to offer much aid/loan due to their survival is also at stake. Debt for some Latin American nations would soon default. Iceland is still in iceberg condition. World trade is stagnant, except for a glimmer of hope in China where their stimulus money is starting to kick-in. A lot of Asian countries are effectively devaluing their currencies in order to compete. To me, this is not effective at all to help their exports, since world trade is in the doldrums. Japan exports have been heavily hit, especially the automotive industry. For the first time, Toyota is asking its government for a bailout.....

However, with the arrival of spring, things are starting to turn up better in March. The mere mention of regulatory overhaul of the financial system in US by Bernanke sparked a rocket-up movement in the stock market. Congress is also mulling the "uptick rule" and "mark-to-market" accounting practices. These steps would generally help to restore investor confidence, but they are not the solutions to this financial crisis. Moreover, any idea to set the bad assets to any value, other than its real value, would distort the pricing as well as breeds mistrust. No one would buy the assets if they are marked "high". Also, financial institutions balance sheets would suddenly look good and stocks would go up. This is done so that the big banks could escape from being "Nationalized".

My predictions -> Federal Reserve and the government are trying to introduce steps to halt the economy from going to the abyss, however, these are just remedies for the symptoms, and not the cure for the root cause. Time and time again we know these strategies would not work. They are trying their might to stop the inevitable, which is Bank Nationalization. Nationalization is going to be tricky, because the government has to choose which investors to protect, i.e senior bondholders, preferreds, trust preferreds. We know the common shareholders would be Toasted in this scenario! If UncleSam does not protect the bondholders and preferreds, PIMCO and insurance companies would be TOASTED as well. At the same time, the government has to dole out money to fill the gaping hole for Fannie, Freddie, AIG and GM. Ladies and gentlemen, this is really an Economic Pearl Harbor! Money has to be spent to keep the system going, and it has to come from US taxpayers. They are truly Toast.