As Ron Paul spoke during the hearings on Wednesday (around 11:40am EST), the NYSE TICK plunged. Stocks hate Ron Paul. Stocks think he is a disaster for the economy.

As a life-long libertarian, I never “got” Ron Paul. I have never been a fan. He seemed to always just be frantically regurgitating libertarian philosophy. Nothing he has ever said has struck me as creative, innovative, or original. I understand that much of his stuff is written by Gary North, and I while I enjoy reading North, if one of his essays has Ron Paul’s name on it, I just won’t read it.

During the hearings I heard Paul say the dumbest thing that I have ever heard: that real estate is only worth what the market will pay for at any moment. While that is technically true, during a credit crisis it is totally false.

Suppose I have a house that has been worth $100,000 more-or-less for several years. Then, when I decide to sell it, I can only find one buyer who has $20,000 in cash – enough for a down payment. However, when he goes to the bank he cannot get a loan because there is a credit crisis going on.

So, according to Ron Paul, my house is now only worth $20,000 and I should quit my bellyaching and sell it for what the market will bear.

This is the point where I punch Ron Paul in the face.

Real estate values may be a function of available financing, but the idea that the credit crisis will never end is simply foolish.

Now imagine that Hank Paulson comes along and offers me $40,000. Well, maybe I would sell since it is double my best offer. Did Paulson waste the taxpayer’s money? Probably not. He probably made a deal that will turn out to be very profitable once the credit panic ends.

And if Paulson goes up-and-down my street buying up all the houses on the cheap, his actions would likely end the credit crisis. So, in other words, a buyer of sufficient size cannot only buy a lot of houses on the cheap, but he has the power to make himself right by ending the crisis.

Note: Yes, I know the situation is more complicated than this, but I had to dumb it down so that Ron Paul could understand it.

McCain Crash Scheduled for Friday
Doesn’t seem like the best campaign strategy to me, but what do I know?

Voters Are Against the Bailout?
Here is one provision I think should be part of the bill: any voter who lied about their income on their mortgage application to buy a house that they could not afford should be sentenced to five years in prison for economic crimes against the nation, and disenfranchised. And for you voters out there ‘disenfranchised’ means that you don’t get to vote any more.

Of course, if I had lied to my bank about my income on a mortgage application to buy a house that I could never hope to pay for and then got a HELOC and spent the money on an expensive car and ran up my credit cards into the stratosphere and THEN I saw my Congressman on TV talking about bailing out my bank, I would be outraged too. I would call my Congressman and urge him to drop a BOMB on my bank instead.

See how that works? If the financial system melts down, there’s a chance that all my debts go away and I get a free house, car, and boat in the deal. Sure, it might be inconvenient for a while living in poverty in a barter economy, but I have a negative net worth, so what do I care? And once the new bank is built in the smoking crater of the old one, I could pop in and see about getting a new credit card…

It’s Still Quarter-End
Since the big funds control the vast majority of trading each day, it is still up to them whether or not the market crashes. They will attempt to hold things together just to minimize the horror on the quarterly statements that they send out next week.

But can they do it? It’s not impossible. The selling on Wednesday was very light, and that indicates that all the longs that were inclined to barf-up in a panic at this level already did so last week.

Of course, if the big funds are flooded with redemptions, then they may have no choice but to dump stock. I wonder if the brilliant American voters are aware that they crashed the futures and are now firing off redemption requests and are accelerating the crash that they have voted for. Seems like something that they would do…

I would also expect an exodus of foreign money. Any foreigner who has money in the USA needs to have his head examined. His home country might not be much better, but gold comes to mind…

If the selling volume is light after the open, then the big funds might be able to thwart the McCain crash. But I wouldn’t bet on it until I see it. The havoc created by Congress this week did set up a good buying opportunity in front of Thursday’s rally. Perhaps a raging market panic would knock some sense into people and a bill could get passed in a hurry. Taking a small long position at the height of the panic might not be a bad play.

Crisis Averted!
When I first heard that John McCain was suspending his campaign because of the financial crisis, I thought: “Wow, this thing is getting out of control if the presidential campaign has to be shut down.” But I had it backwards.

As soon as Congress heard that McCain was coming to town, they immediately freaked out. I didn’t realize this until Barney Frank spoke after President Bush’s speech Wednesday night. Frank was apoplectic that John McCain was on his way to steal his “Savior of the Economy and Bringer of Justice to Evildoing Bankers” mantle.

The presidential campaign is the big show of course, and the cameras will turn toward McCain if he inserts himself into the process. And Obama might not be far behind. So Frank went out of his way to assure us that Congress practically had the bill all done and didn’t need McCain’s help.

When Frank first came on TV, the S&P 500 futures dropped to 1186, but after he spoke, they jumped up to 1199. The market doesn’t know what’s in the bill, but I think it is just happy that Congress is not going to legislate a meltdown.

Can the Market Rally?
Here the factors in favor of a rally Thursday:

1. The market stabilized on Wednesday
2. The Congressional crisis seems to be over
3. The market is oversold
4. It’s quarter-end mark-up

The big funds probably got a lot of redemptions during the plunge last week, so maybe they won’t have enough cash to bid the market up this time. But I’m thinking that it was probably them bidding under the market on Wednesday, and that would explain why stocks were flat while Congress sent credit markets into a panic.

Also, we have three important economic reports in the morning. Not that anybody is still paying attention to the economy, but the reports aren’t likely to be rays of sunshine. And of course, bailouts have lost their power to spark rallies.

Gun to head, I would be long for a potential relief rally, though I wouldn’t over-stay my welcome.

Watch the comments for updates throughout the day.

Fade the Goldman Gap?
The market will probably open Wednesday with a gap-up on the Warren Buffet/Goldman Sachs news. So, let’s go back and look at what happened when Buffet announced his last investment in financial companies.

On August 24th, I wrote Buffet Buys Banks? a couple of days after I saw Warren Buffet tell Becky Quick on CNBC that he had increased his stake in either Wells Fargo or American Express. If you go back and look at a chart of the XLF, that was when it looked like it was rolling over. But the XLF gathered itself and went on to make new highs, fleeting though they may have been. In fact, the XLF is still above that point.

Whether or not Buffet was the cause of the XLF’s revival, he does indeed have a lot of followers, so I wouldn’t automatically scoff at this Goldman news. Also, the market is oversold, so it is likely to produce a lasting bounce. Of course, “lasting” is a term that is open to question in this market.

Clown Collage? How About Clown Congress?
Whether or not the Paulson Plan is pure evil or white light, I think the Senate on Tuesday gave the impression that they were a pack of ignorant, hostile fools who didn’t care if everybody’s bank account was erased. It was like Senator Schumer starting the run on IndyMac times a hundred. That was the scariest thing that has happened in this crisis so far.

Watch the comments for updates throughout the day.

…or should I say, “Tuesday’s Gambling?”

The 200-up/200-down market has now become the 400-up/400-down market.

This is beyond my stress tolerance. But my nervous facial twitch is gone, so maybe I can place a small bet or two soon.

Watch the comments for updates throughout the day.