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Stock of Ambac, the municipal bond insurer that backed the ballpark bonds, soared 72% yesterday after New York insurance regulators asked major banks to pump money into the industry. But the banks themselves need capital. So the rumor then escalated to talk of a government bailout. MBIA, another muni bond insurer, saw its stock surge 33%. There was also talk in the Senate of a bailout of bad mortgages. The Dow Jones had a 632 point swing: it was down more than 300 and ended up almost 300. Goodbye, moral hazard. It looks like the federal government and Federal Reserve will try to bail out Wall Street by claiming it is aiding the economy. However, the ploy may not work. Violent swings like today's are signs of a bear market, although stocks are technically not there yet.

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Comments

Anonymous Jan. 23, 2008 @ 4:03 p.m.

What is up with this crazy stock market?

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Don Bauder Jan. 23, 2008 @ 5:36 p.m.

Response to post of 4:03 p.m.: It's not yet technically a bear market, but all the signs are there. For example, violent rallies are common in bear markets. Today's violent rally appeared to be a case in point. When the rumors about the government bailing out the mortgage mess swept the floor, the shorts were forced to cover. When they did so, stocks zoomed. At least, I THINK this was a short-covering rally. There is an old saying that the bear does all it can to lure as many investors as possible into the trap. Now, a bear market isn't animate, of course, but the analogy is apt. Bear markets, with those sudden sharp rallies, keep sucking in investors who think the bottom has been hit. Best, Don Bauder

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Don Bauder Jan. 25, 2008 @ 9:55 p.m.

Response to post of 4:56 p.m.: The scariest thing is the least discussed. It appears that billions of dollars of those miasmically complex derivatives are at risk of systemic failure. This could be an utter catastrophe, although the possibility may be remote now. However, as an excellent story in the New York Times today (Friday) relates, some of the the world's economics experts meeting in Davos, Switzerland, are afraid of this kind of cascade. Best, Don Bauder

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Anonymous Jan. 25, 2008 @ 4:56 p.m.

It appeasr as if there are major sector rotations occuring as if they don't really know what part of the economy may be a safe harbor. The money managers are too drunk on fast money to put enough away in bond markets so they keep chasing the stock bubble. The government now wants to loosen up lending standards again so more borrowers can qualify. It's like the right hand doesn't know what the left is doing policy wise. Now we're heading back to allow people to under-qualify and over-extend again.

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