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A few people have asked me my opinion about the various Fed actions, Paulson's GSE bailout, the housing bailout package, and bailouts in general. I think I can voice my opinion in very simplistic terms. It's Wall Street vs. Main Street. Two factions with opposing goals are at odds. Guess whose side your government is on??? The consistent imbibing of the intoxicating elixir of easy credit, excessive liquidity, surging risky asset prices and a preternatural tolerance for uncompensated risk is the result of lax regulation where it really matters. Sarbanes Oxley is not what we needed. We needed a curb on off-balance sheet vehicle abuse. We needed a curb on leverage of institutions that the government considers to be too big to fail. I am all for the free markets, but if the markets are free, I should not have to pay for them. Let whoever is failing fail! If they are truly too big to fail, they should have been regulated from the get go, period.

This brings me to the main topic. The government and the corporate finance crowd are searching for, and trying to manipulate, the stabilization of housing prices. This will drag much of their fat out of the fire. The problem with this mission is that inflated real asset prices, particularly residential housing, is what is hurting much of Main Street - the common man and woman. Real housing prices have outstripped real income by MUTLIPLES, thus home ownership has been pushed significantly out of the reach of many people. In addition, as long as homes are overpriced, they will stay out of the reach of the average man/woman, thus they will not be able to buy it - and common sense dictates that supply will continue to outstrip demand. This pricing is not necessarily transparent to the lay person. For instance, the tightening of credit qualification standards reduces the pool of eligible buyers. The requirement for larger downpayments effectively decreases the affordability of homes as well. As does the soaring commodity prices which increase the burden of heating and cooling homes, the recently past price increases which caused most property taxes to spike, and the cost of construction which increase renovation and repair costs.

So, what happens when the common man wants, or needs, housing prices to come down while Wall Street and corporate America wants, or needs, housing prices to increase or at least stabilize? Well, our government sides with the corporate machine. No, I am not being a socialist. I am as capitalistic as they come, and love money and the pursuit of entrepreneurial dreams. I am also honest and call it as I see it. The housing bills, the various bailouts and access mechanisms to the government's cash flows and balance sheet are not aimed at correcting the market imbalance (read as bringing on a correction). The government tools and programs are aimed at floating companies that I have considered effectively insolvent, or close to it, for over a year now. The tools and programs are aimed at keeping housing prices artificially elevated in order to maintain the values of constructed securities and vehicles based upon, or anchored to, housing prices. They are, in effect, selling out the common man for the common CDO, agency bond, or AAA MBS. In addition, the common man is being forced to pay for the risk assumed by the architects of these devices, despite the fact that the architects of these devices failed to share the rewards of their machinations in times of excess. That's right, you know what I am about to say. Privatizing profits and socializing losses. You've heard it before, and you'll probably hear it again. You know why as well as I do. It's because it is the truth! Let's channel Jack Nicholson in that seminal role in a "A Few Good Men". The TRUTH! The TRUTH! YOU CAN'T HANDLE THE TRUTH!!! I just love that scene.

Okay, I know this can be perceived as an oversimplification, but if you let the weak companies fail that failure would quickly bring about the devaluations that will allow both the common man and the prudent investor to move in and start deploying solid capital that sticks. Not the scary, uneducated hot money that moves in and out of the financials - such as in the last week. The recent bear market rally simply pushed bankrupt companies higher than they were when I originally though they were overpriced. This just exacerbates volatility and allows the shares to fall that much farther and that much harder.