It was neither a surprise nor a disappointment that the stock market fell yesterday as it reacted to Treasury Secretary Geithner's latest bailout announcement. Stock prices reflect the value of expected future profits -- cash flows after all vendors and creditors have been repaid. If the government had stepped in with (yet) another (even more absurdly generous) plan to relieve shareholders of their obligations to those creditors at taxpayer expense, then naturally stock prices would rally. So we an at least be thankful that we didn't see that.
For a more colorful take on these ideas, here is Steven Pearlstein in The Washington Post:
Not enough clarity, they complained. Still no light at the end of the tunnel, bemoaned others. Like spoiled, petulant children, they demonstrated their dissatisfaction by driving stock prices down another 5 percent.
By now, I hope you've learned enough not to be taken in by the self-serving floor patter. These guys won't be happy until the government agrees to relieve them of every last one of their lousy loans and investments at inflated prices, recapitalize every major bank and brokerage and insurance company on sweetheart terms and restore them to the glory days, so they can once again earn inflated profits and obscene pay packages by screwing over their customers and their shareholders.
For the Wall Street wise guys, bailout politics is just another game to be played, another market to be manipulated, another set of risks to be arbitraged.
Read the whole thing.