Crash Warning

After repeatedly saying there was no timeline to tap the second half of TARP Bush has requested it and apparently intends to blow it before he leaves office. While it would appear that there isn’t time to tap it before he leaves office he has an ace up his sleeve just like when TARP was initially proposed.

Recall that on September 19th when Paulson proposed TARP the SEC banned short selling at Paulson’s insistence leading to a squeeze on shorts. They had to buy back the shorted securities regardless of whether or not it made sense to do so, predictably the markets spiked but this wasn’t explained in the news which attributed it to Paulson’s plan. Then over the next few days as congress dithered over Paulson’s ridiculous three page request for 700 billion, short sellers had exited their positions and the markets resumed their downward slide which was blamed on congresses inaction.

It appears that the current charge will be lead by Citigroup, J. P. Morgan and Bank of America. Citi has had repeated bailouts, is seeking to sell any assets it can and has now moved it’s earnings report from January 22 to Friday morning. J. P. Morgan has also moved up its earnings report and eager to get in on the act BOA has requested more money because of losses at Merrill Lynch and Countrywide which BOA just acquired in a merger sponsored by the Federal Reserve to prevent them from going bankrupt.

While I have no ideal what will happen tomorrow but I have an inkling how the markets will behave after the earnings reports Friday morning and I reckon more banks will pile on; after all, their giving away free money.