Anyone hoping that the wildly gyrating stock market will stabilize anytime soon and begin its inevitable march back upwards to 14,000 and above may be severely disappointed for the foreseeable future. The most recent bailouts of the banking system and injections of liquidity have thus far failed to calm the markets for any reasonable length of time.



But then again, the economy did not need the $700 $850 billion bailout passed by Congress. The government, working with the banks, used an apparent crisis of confidence in the stock market to take more power for itself, this time to be able to interfere even more with the financial markets. Government always uses such manufactured crises to give itself more power, responding even to problems it caused with former responses to previous government-created crises.

Most of the top bankers knew how the money system worked in the United States and that they would prosper no matter how well or poorly the economy and even their own companies performed. Although much of the profits of the financial investment firms came from the securitization of subprime mortgages, CEOs could not have cared less about the real estate market overall -- they were making good money in an up economy and would make good money if the housing market crashed.

The banks were aware they would win any way the market went. If housing had stayed strong, banks could keep lending money to people who would never pay it back. By then purchasing those loans, slicing them up into bonds, and insuring the mortgage-backed bonds, they could profit by selling toxic loans to unsuspecting foreign pension funds in Norway and hedge funds in New York. As long as the housing market kept rising, high default rates were not a problem even if owners could not stop foreclosure -- banks could always just sell the houses for even more profit.

On the other hand, if the real estate market fell, the banks' stock would fall and a "crisis" would develop naturally. When that point came in late 2007 and early 2008 with the failure of the subprime mortgage industry, Bear Stearns hedge funds, and Bear Stearns itself, the banks partnered once again with government to increase the power of politicians to reward banks for bad behavior, poor lending guidelines, and moral hazard.

With the largest corporate banks partnering with the largest government in history, plans have been proposed to give government more power and the ability to invest in and take over any private company for any reason. The Treasury has plans to use its new authority to inject liquidity into worthless mortgage securities for face value. Such bailouts ensure that corporate CEOs will be able to keep the hundreds of millions of dollars they made during the boom, even as their clients, borrowers, and investors foot the bill for the bailout. Again, the banks and government win.