Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.


“Is there any reason why the American people should be taxed to guarantee the debts of banks, any more than they should be taxed to guarantee the debts of other institutions, including merchants, industries and mills of the country?”
Senator Carter Glass, author of the Banking Act of 1933

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As a Senator, Carter Glass is best remembered for passage of the Glass-Steagall Act of 1933, which was designed to separate the activities of banks and securities firms, as well as to create the Federal Deposit Insurance Corporation (FDIC).

The Act was repealed in 1999, permitting certain financial intuitions to indulge in an overleveraged, interlocking spider web of financial derivatives that eventually toppled the venereal “house of Bear [Stearns],” as well as certain government-sponsored entities (GSEs).

Now, it's threatening other institutions as well: Last week, Wall Street turned its attention to the consternations at Lehman Brothers (LEH). Consequently, the first question I was asked on TV last Friday morning was about what was going to happen to Lehman. My answer went something like this:

"I don’t have a clue! Lehman’s fate lays in the hands of people a lot smarter than me. Still, my sense is that Lehman’s future will be determined by how many CDSs (collateralized debt swaps) it wrote, a topic I discussed in last week’s missive. If a Lehman failure, and subsequent failure of its CDSs, would cause a negative ‘domino effect’ for other financial institutions, then a solution will likely be worked out by the controlling illuminati.”

Shortly after my appearance, “smarter people than me” indeed showed up on the screen: The brilliant Marty Whiteman, of Third Avenue Funds, opined on the more macro concerns sparked by recent events.

The irascible Mr. Whiteman went on to note that Treasury Secretary Henry Paulson’s bailout of financial institutions amounts to “expropriation of shareholder interests, saying, “There is a very terrible problem, and it is called Secretary of Treasury Paulson, who thinks he lives in Russia rather than the United States. Paulson is expropriating the equity interests of these companies without giving any consideration of fair value to stockholders.”