It is all over the news paper and tv news channel for the last 24 hours. The law makers in the US has turned down the $700 billion bail out package. There apparently has been the perception that the bail out is for Wall Street. And, Main Street is not going to bail out the overpaid wrong doers. Hmmm ....

It is an unfortunate decision and can have devastating effect on the market. Simply put ... banks take your deposit at a percentage interest and they turn around and lend you deposit to people who borrows at a higher interest rate than what they are paying you, the depositors. Now what happens when your bank lends your money to borrowers who are defaulting and not paying back the debt they owe you? This is a very simple example of what is going on. Essentially, the US government has set very low interest rates for the last ten years and consumers have been borrowing at record pace. More specifically, they have been borrowing to buy real estates. In the US, the interest you pay on your mortgagee is tax deductible making it even more attractive to leverage yourself. It is all good as long as interest rate does not rise.

Than, there is the war. War is a costly exercise especially when the victor do not get the spoils of war as from annexing all the country's asset for themselves. In the old days when Rome attacks and takes over a country they own everything they took over. That helps the war cost as you get something for it. Attacking Iran and than go into a rebuilding mode with no end in sight is a costly affair. The US dollar comes under pressure as we saw the Canadian dollar soar against the US just like other currencies. The US government shore up the US dollar value by increasing interest rate so that their government bonds are attractive to buyers. A demand for US government bonds denominated in US dollars helps maintain a demand for US dollar and helps prop up the US dollar value. Off course, this can not go on forever. But, the real deal here is rising interest rates.

Now, put the top two paragraph together. Lots of home owners leveraged to real estates and sensitive to interest rate increase. US government raises interest rate to crate demand for US dollar. This is the toxic mixture.

The failure of so many financial institutions stems not just from Wall Street greed (there's lots of that) but from past government policies in interest rates and costly foreign policies. In the debate between the two Presidential candidates last week the moderator asked the question on what the new President would do in light of the economic crises, one talked about changing defense contract from cost plus to fixed cost and the other when on about what programs are important moving forward. Not one said anything about getting out of Iraq as a solution. Huh?

The current financial crises is NOW a government problem not a Wall Street problem. The major contributor has been the government. Wall Street just made financial weapons of mass destruction out of materials given to them by the government, which is low interest rate for the last ten years and than rising interest rates to support aggressive foreign policies that is blowing up financial instruments created in the last ten years.

It appears just being a law maker does not mean you know much about economics. The right wing Republicans held true to their belief of letting market forces determine the fate of private enterprises ... a noble position that reflects a poor understanding of the financial infrastructure and the current problem. The problem is systemic as the failure is wide spread. Wachovia is not Lehman or Bear Sterns. Wachovia is a bank and typically heavily regulated and risk adverse. Freddie Mac and Fannie Mae are mortgage lenders promoted by the US government to loosen their lending criteria. Many of these institutions are not driven by bright greedy people on Wall Street. But, they are in deep trouble and now are owned by the US government.

So what is next? It looks like Bush is going to try again and maybe this time some sense would prevail. There is no other choice. In the meantime, I am trolling the market for deals. Two micro cap that I like are Certicom and Points. I did buy some PTS yesterday at $0.59 and I though it was a joke bid until it got filled. Haha. My hold period is one to two years ... not a day trade strategy. Points have not been the same since the botched bought deal that saw millions of shares sitting in the participating brokers' inventory. While these guys are not making money yet they have built the largest loyalty exchange program in the world and it would be hard to compete against for new entrants. I do worry about the new programs where PTS is taking some liability in making a market for trading points.

I have always liked Certicom and have made money on a number of occasion trading in and out. Business will continue and the biggest challenge for Certicom's management is smoothing out the quarterly revenue and be profitable. Their technology will continue to be adopted by all US government suppliers as the NSA has made Certicom ECC one of the cornerstones of US security. There is also the law suit against Sony for patent infringement, which I am betting that Certicom would come out on the winning side. Listen, if the NSA has licensed ECC and you have not and is using it, you are guilty. In wireless security, there is no other solution that works with AES except ECC. Expect growth from wireless, licensing to government suppliers and a growing new patent licensing business. My top pick for myself at these price levels $.125 to $1.50. I do worry about the short term instruments Certicom is holding as they have a lot of cash.

Note: If you need the money you are investing in the next year or two you should not be investing in the stock market. If you cannot afford to loose, than you should not play. Pay off your mortgage first as that is also equity. Investing in the index is always safer than investing in companies. Buyers beware is alway true.