Despite Congressional agreement on the so-called stimulus package this week, the stock market selloff has resumed. The decline accelerated this week after Treasury secretary Tim Geithner announced his "plan" to rescue the US financial system.

Why did the stock market decline after the announcement of the rescue packages?
First, the Wall Street reason. The big players on Wall Street were disappointed that their guy - Tim Geithner - did not simply give them billions of dollars with no questions asked, like the Bush administration did.

One sidebar - it was interesting to see the difference between US Bankers and British bankers in their testimony this week. Some British bankers appeared before the House of Commons and actually admitted they made major mistakes and actually apologized to the British people.

The American bankers in their appearance before Congress continued showing their arrogance. No one said they were wrong or that they were sorry. They just said "give us more money!"

The actual real reason that the markets fell is that the Geithner plan was no plan at all. It was merely an outline of possible actions the Obama administration may take.

Why isn't the Obama administration acting with greater haste? Don't they realize the seriousness of the problem? Actually, I think they do.

I think what the Obama administration is trying to do is to gather the courage to actually "bite the bullet" and then to gather the political courage to tell the American people what must be done.

Why the hesitation? Look at the problems they've had trying to get the stimulus bill passed. They had to even pare back the size of the stimulus package.

The stimulus package was "only" about $800 billion and the Bush program (TARP) to fix the financial system was "only" about $700 billion. Add to that the trillion or so that the Federal Reserve has spent trying to prop up the financial markets.

The problem is all the bad "bets", such as derivatives, that Wall Street bankers made which is eating a giant whole through our entire financial system. President Obama is probably going to have to "bite the bullet" and nationalize our major banks, many of which are technically insolvent. Or do something very close to nationalization.

I think what is holding the Obama administration back from doing this so far is the COST. Conservative estimates of the cost of doing this are about $4 trillion! Other estimates are in the range of $10 trillion or even higher! Can you imagine the American people's outrage when they see the cost of this?

There is a danger in all these trillions of dollars having to be spent by the government on a "bailout". Most likely, interest rates will go higher, the US dollar will go lower, inflation will go higher, and the American standard of living will go lower.

You can easily why the Obama administration is hesitant to give the American people such news. If the Obama administration tries to avoid "biting the bullet", like the Bush administration did, the results may still be the same.
Although instead of the pain ending in 2-3 years, it may stretch out for a decade or more as it has in Japan.

As always, please feel free to contact me with comments or questions either directly or through the forum.