Risk Rap

Rapping About a World at Risk

The Bazooka Shot Heard Round the World

Hank Paulson finally got off his best shot.

But will it stick?

He’s been hunkering down in some fox hole all summer as the economic storm was raging through the global banking and capital markets system. Keeping his head low and his powder dry. Every once and awhile he would lift his head to survey the wreckage in the credit markets. He would enjoy the Beijing Olympics and offer prayers to the Gods of Commerce in the hope that his tax rebate program would provide the stimulus to kick start an economy droning to a halt.

When pressed to comment on the deteriorating balance sheets and financial conditions of his GSE problem children Fannie and Freddie, Paulson with all the sternness of a father committed to the practice of tough love would say, “I have a bazooka in my bag of tricks and if I have too I’ll use it.” Well Paulson fired his bazooka this weekend and it blew Fannie and Freddie into the protective conservancy of the Federal Government. Tough love indeed.

Though the action will wipe out current equity holders of the GSE’s the overall equity markets are responding favorably. This is probably a good time to sell.

Sovereign Wealth Funds, Central Bankers and large institutional holders of debt securities and bonds welcome the action and are signaling that with the Fed’s interventionist policy protecting any downside risk will once again begin to invest in US banks to shore up solvency and maintain liquidity in credit markets.

Investment bankers are lining up lunches with bank CEO’s and private equity firms to stoke the M&A fires and perform a vital national service of rationalizing the US banking system.

Lastly the nationalization of Fannie and Freddie will create lots of grain for the political gristmill for the presidential election.

TBTF, socialism, activist Feds, Wall Street vs. Main Street, big business vs. the little guy are all of the political platitudes and cliches that will be bandied about. Senator Jim Bunning from Tennessee called Bernanke a socialist after the bailout of Bear Stearns. Bunning will be calling the Treasury Department the Polit Bureau West after this move.

This is state capitalism. The United States is moving ever so closer to the economic model of China.

Song: The International

Risk: credit markets, liquidity, housing market, recession

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September 8, 2008 - Posted by | banking, credit crisis, Paulson, soundtrack, Treasury | , , , , , , ,

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