If something cannot go on forever, it will stop.

      -- Herb Stein, from sometime in the 1980s

The above remains one of my all-time favorite quotes about financial markets, and it feels more true and important today than ever as the age of absurdly cheap credit ends.

From comments by Barney Frank tonight, a deal has been reached by House and Senate Democrats to create legislation to pass the U.S. Treasury financial market rescue plan. Here is the money quote (literally):

There is conceptual agreement, including I think with Treasury -- people understand it's not going to be a straight $700 billion.

[via Bloomberg]

While the market may end up impressed, depending on the final wording, there are at least two worrisome things in Frank's statement (or three if you hate the whole idea of a rescue plan).

1. Frank says "I think" with respect to Treasury understanding that it's not going to be the amount of money it asked for. That "I think" rankles, because it suggests that Frank et al., think Treasury was high-balling Congress with respect to the amount of money it contemplates requiring. Granted, the $700-billion didn't come from a series of Fast Fourier Transforms, but any number materially below $700-billion is going to be taken poorly by the markets. (And no, I'm not arguing that $700-billion is some Platonic correct figure, merely that expectations are expectations, and pretending they don't exist is stupid.)
2. Tranching out the money -- committing to $700-billion, but doling out the money to Treasury in dribs and drabs -- is dodgey, depending on the number and the size of the tranches. Too many and you end up with what the private investing business calls "Newfie funding". It is when you fund something partway to the goal, then have to fund it again when the first money predictably runs out, and then again and again and again -- usually to the point that the company in question spends most of its time begging for money rather than doing business. It is common among dumb and unprofessional investors who don't trust their own instincts, and who don't understand that some things just take as much money as they take.

I expect oodles more detail in the morning.

This only fills in the anecdote blanks for anyone paying attention, but there is a looooong new two-part Bloomberg series out castigating the credit rating agencies. It's worth reading, however, and you can think of it as a complement to my own piece ("The Blame Game (II): Credit Rating Agencies are Rug Pee-ers") from a week ago.

My only question: I have been criticizing credit ratings agencies for years, to no avail. Where was Bloomberg with this sort of journalistic detail five years ago when a piece like this with Bloomberg-ian distribution could have really mattered? As Mike Milken says, you get full points for telling me before it happened, not afterward.

Anyway, here is a numbing quote from an S&P whistle-blower quoted in the piece:

We knew the delinquencies were bad. The fact was, if we could have hired a supreme being to tell us exactly what the loss was on a loan, they wouldn't have hired him because the Street wasn't going to pay us extra money to know that.

How lovely. More here.

Kilgore: Someday this war is gonna end.

      -- Apocalypse Now (1979)

Marc "Gloom, Boom, & Doom" Faber wins the prize for big, hairy audacious market goal post-Paulson plan acceptance. He says we could see 1,350 on the S&P 500 over the next little while, which would take us about 14 percent above current levels. Mind you, Marc then thinks the wheels come off equities as earnings disappoint on continuing consumer weakness into 2009.

I'm more or less with Marc on this, as I've said here before. Without a credit apocalypse now,  I still think we have a nasty spell coming later this year, or in early 2009, as poor earnings and an over-valued S&P 500 run smack into one another, and as the U.S. merrily exports economic weakness. All of this makes credit markets looks more interesting to me (post Paulson), where commercial paper could see some big moves as issues falls back from the precipice.

More here.

Some quick links to things other may found interesting:

• Michael Lewis says we need to save Goldman Sachs' bonuses to save the world (Bloomberg)
• Let's ease off hiring Goldman Sachs people for so many senior governmental positions (FT)
• Roubini conference call from yesterday: "Worst is yet to come" (RGE)
• Over-zealous analysts are miscalculating the value of Buffett's Goldman warrants (Andrew Clavell)
• Orzag at CBO has made a giant blank into which to insert a large number for Paulson plan (Congressional Budget Office)
• Barry Ritholtz offers a million-dollar ten-year bet to all comers that the Paulson plan loses "ginormous" amounts of money (Big Picture)
• The Paulson plan will make "trillions" for taxpayers (Andy Kessler)
• Black swan rhapsody, to be sung to the tune of Bohemian Rhapsody (Monster Finance)

As an aside on my friend Barry's bet, I think it's a cute idea, but he has a monster out in there. Barry's offering his bet on "the current plan", but it is almost certain to change in large and small ways over time, as does any realistic plan in our world of humans. Matter of fact, even if you liked the current Paulson plan, if you were told it was not going to change materially over the duration of the implementation you should always take a bet like this.

As much I'm happy to criticize the deranged U.S. for this ongoing credit market fiasco, the following quote from a German finance minister Peer Steinbrueck frankly pisses me off:

He championed the German banking system over its U.S. counterpart, dismissing the "Anglo-Saxon'' model as having "an exaggerated fixation on returns.''

[via Bloomberg]

Right, as opposed to the Teutonic banking system's fixation on what, nice drapes? Maybe he hasn't been paying attention, but his lovely German banking system arguably been hit harder than any other European country's banks with respect to subprime, Lehman exposure, etc. If that wasn't driven by an exaggerated fixation on returns, what was it?

More reading:

• German State-Owned Banks on Verge of Collapse (Spiegel)
• Will Bigger But Fewer Mean Better ? (Spiegel)