Yesterday will be remembered for a number of reasons... the numerical point drop in the DOW was a first although as a percentage not among the top 10 worst days for the market. Financial stocks dropped and interest rates rose as bond returns nose dived.

I thought the most important aspect was that members of Congress not only reviewed the aspects of the bill but listened to what their constituents had to say on the matter... namely that they don't want to be on the hook for all the bad decisions made by the financial markets.

That doesn't mean there won't be a bailout/rescue of the financial markets because there will be... however it should mean that the new bill will be better crafted with more protection for the taxpayer. The problem is that just handing a blank check to Wall Street is never a smart idea and in this instance would be throwing good money after bad. I think Paulson should either be fired or not allowed to handle the bailout. I would like to see someone oversee the deal who isn't quite so chummy with the boys on the street.

The lack of liquidity is what is causing most of the problems in the market. My resources* believe it is not a lack of money but rather a fear of correctly assessing risk that is paralyzing the markets. My main concern about the bailout is that while the financial sector is screaming for a handout I didn't see anything that promises that if we help the markets out they will reciprocate by loosening up the credit markets. For the last year the FED has been throwing money into the credit markets with zilch results. Banks have taken the money from the FED and refused to loan it out. Credit has remained very tight.. and I'm not talking about tighter rules/regulations for home loans.

If you own a business you know that in the last year it has been difficult to obtain a short term loan to pay your bills or expand your company. In the last two weeks banks have even stopped lending to each other which is a very bad sign. This is what happened in '79-'81. There was simply no money available for home loans or any other loan. If you were lucky enough to get credit you paid a very hefty price 17.5% for a home loan and a prime rate around 20%. We really don't want to return to the good old days.

Subprime loans have been cast as the bogeyman but it was not so much the failure of the subprime loans themselves as it was what the financial markets did with them that has caused the meltdown. The media makes you think that 90% of the homes in America are facing foreclosure and that's not true. The California real estate market fell partly due to foreclosures in markets where subprime loans made up a majority of the loans and partly because it was time for a market shift.

Real Estate markets in California historically operate on a 10 year cycle. It is a maximum that what goes up must come down... even in Manhattan Beach. What drives people nuts about the Beach Cities is that they rarely drop as much as other markets and consequently remain higher priced even in a down market compared to neighboring areas. It's not that the Beach Cities are immune from market forces they aren't... but as these areas face high demand they maintain overall values better.

I would really like to see Congress lose the political speak and concentrate on crafting a bill that may accomplish the goal of keeping the markets in check. Truthfully, I don't know if it can be done. I do know that giving the markets everything they demand is very bad policy... as is trying to prop up a real estate market that needs to finish the process of getting rid of bad loans and homeowners who should not be homeowners. It will be interesting to see if anyone is smarter this week then they were last week...

* Kim Rupert ...."There's so much liquidity in the system -- unfortunately, the liquidity is not opening up lenders at all," said Kim Rupert, managing director of global fixed income analysis at Action Economics. "It's the epitome of credit turmoil. There's too much fear in the market. Everybody is hoarding their cash, hoarding their reserves, not trading funds with each other."