At the time the U.S. Financial Bail-Out Package was first proposed I commented in a Post on this Blog that ‘no matter how smart people were they could not move at the speed Henry Paulson was moving and adequately consider all of the consequences of their actions’.

Yesterday Paulson confirmed in a number of ways that not only did he and other proponents of the Bail-Out Package not understand all the consequences of their plan as they proposed it, they did not – and still do not – understand the ‘systemic risk’ in the U.S. and world economic structure as it has developed over the past several years.

Paulson is quoted in a MarketWatch article written by Greg Robb and published yesterday afternoon (click here) as saying: “To adequately reform our system, we must make sure we fully understand the nature of the problem, which will not be possible until we are confident it is behind us”. While such a statement from a politican would come as no great surprise, Paulson’s statement may be one of the more oxymoronic ones ever made by someone in Paulson’s position. What he said – assuming he really said such a thing – strikes me as being akin to shouting: “We can’t figure out what caused the serious structural cracks to develop so fast in that huge wall over there so let’s throw as much sh_t against it as we can and hope some of it sticks and stops the wall from falling. Then let’s analyze the components of the sh_t that stuck and see if we have enough of that kind of sh_t left to fill the rest of the cracks and make the wall stable again. Only by determining the kind of sh_t we need by trial and error will we ever figure out why the wall cracked in the first place!” I can then see Paulson, having figured out that brilliant strategy, organizing his band of Merry Men to throw sh_t at the wall as fast as possible. While they are doing that I can see Paulson pacing behind his men like a Napoleon on his horse at the Battle of Waterloo – finally clasping his hand against his head and gasping: “My God, what if we run out of sh_t?”

Once again I turn to the timing of all of this activity as I have done in past Posts. For Paulson to make this and related statements only 7 days after the Presidential election that will result in his replacement again says to me that the U.S. economic problems are so deep and things are moving in a negative direction so quickly, everyone should focus on said timing and ongoing timing of other announcements as a key barometer on the deteriorating U.S. economic condition. As an aside, you may recall Paulson stated several months ago he would be resigning as U.S. Treasury Secretary early in the new year. Could it have been he then saw the economic writing on the wall and was desperately hoping the problems could be deferred and would land in someone else’s lap?

On further non-cheery notes, take careful measure of:

• Circuit City’s Chapter 11 filing in recent days and the reduced Fiscal 2009 (February, 2009 yearend) forecast announced yesterday by Best Buy. The expected deterioration in Best Buy’s profitability is abrupt to say the least, with a 7.6% same store sales drop in October, and a forecast same store sales drop in the four month November – February period of 5% – 15%; and,

• the U.S. Government suggesting possible capital infusions into the U.S. Automobile industry – how would this help much of anything if consumers don’t buy cars.

Again, focus on the results of the Thanksgiving Friday retail sales number as a critically important barometer of the critically important retail holiday season sales.

Stay tuned.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. See Legal Disclaimer.

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• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!

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