Big Data for a Small World: SMEIoT
IoT
The world is a great big database and algorithmic wizards and mad data scientists are burning the midnight oil to mine the perplexing infinities of ubiquitous data points. Their goal is to put data to use to facilitate better governance, initiate pinpoint marketing campaigns, pursue revelatory academic research and improve the quality of service public agencies deliver to protect and serve communities. The convergence of Big Data, Cloud Computing and the Internet of Things (IoT) make this possible.
The earth is the mother of all relational databases. It’s six billion inhabitants track many billions of real time digital footprints across the face of the globe each and every day. Some footprints are readily apparent and easy to see. Facebook likes, credit card transactions, name and address lists, urgent Tweets and public records sparkle like alluvial diamonds; all easily plucked by data aggregators and sold to product marketers at astonishing profit margins. Other data points are less apparent, hidden or derived in the incessant hum of the ever listening, ever recording global cybersphere. These are the digital touch points we knowingly and unknowingly create with our interactions with the world wide web and the machines that live there.
It is estimated that there is over 20 billion smart machines that are fully integrated into our lives. These machines stay busy creating digital footprints; adding quantitative context to the quality of the human condition. EZ Passes, RFID tags, cell phone records, location tracking, energy meters, odometers, auto dashboard idiot lights, self diagnostic fault tolerant machines, industrial process controls, seismographic, air and water quality apparatuses and the streaming CBOT digital blips flash the milliseconds of a day in the life of John Q. Public. Most sentient beings pay little notice, failing to consider that someone somewhere is planting the imprints of our daily lives in mammoth disk farms. The webmasters, data engineers and information scientists are collecting, collating, aggregating, scoring and analyzing these rich gardens of data to harvest an accurate psychographic portrait of modernity.
The IoT is the term coined to describe the new digital landscape we inhabit. The ubiquitous nature of the internet, the continued rationalization of the digital economy into the fabric of society and the absolute dependency of daily life upon it, require deep consideration how it impacts civil liberties, governance, cultural vibrancy and economic well being.
The IoT is the next step in the development of the digital economy. By 2025 it is estimated that IoT will drive $6 Trillion in global economic activity. This anoints data and information as the loam of the modern global economy; no less significant than the arrival of discrete manufacturing at the dawn of industrial capitalism.
The time may come when a case may be made that user generated data is a commodity and should be considered a public domain natural resource; but today it is the province of digirati shamans entrusted to interpret the Rosetta Stones, gleaning deep understanding of the current reality while deriving high probability predictive futures. IoT is one of the prevailing drivers of global social development.
SME
There is another critical economic and socio-political driver of the global economy. Small Mid-Sized Enterprises (SME) are the cornerstone of job creation in developed economies. They form the bedrock of subsistence and economic activity in lesser developed countries (LDC). They are the dynamic element of capitalism. SME led by courageous risk takers are the spearhead of capital formation initiatives. Politicians, bureaucrats and business pundits extol their entrepreneurial zeal and hope to channel their youthful energy in service to local and national political aspirations. The establishment of SME is a critical macroeconomic indicator of a country’s economic health and the wellspring of social wealth creation.
The World Bank/ IFC estimates that over 130 million registered SME inhabit the global economy. The definition of an SME varies by country. Generally an SME and MSME (Micro Small Mid Sized Enterprises) are defined by two measures, number of employees or annual sales. Micro enterprises are defined as employing less than 9 employees, small up to 100 employees and medium sized enterprises anywhere from 200 to 500 employees. Defining SMEs by sales scale in a similar fashion.
Every year millions of startup businesses replace the millions that have closed. The world’s largest economy United States boasts over 30 million SME and every year over one million small businesses close. The EU and OECD countries report similar statistics of the preponderance of SME and numbers of business closures.
The SME is a dynamic non homogeneous business segment. It is highly diverse in character, culture and business model heavily colored by local influence and custom. SME is overly sensitive to macroeconomic risk factors and market cyclicality. Risk is magnified in the SME franchise due to high concentration of risk factors. Over reliance on a limited set of key clients or suppliers, product obsolescence, competitive pressures, force majeure events, key employee risk, change management and credit channel dependencies are glaring risk factors magnified by business scale and market geographics.
In the United States, during the banking crisis the Federal Reserve was criticized for pursuing policies that favored large banking and capital market participants while largely ignoring SME. To mitigate contagion risk, The Federal Reserve quickly acted to pump liquidity into the banking sector to buttress the capital structure of SIFI (Systemically Important Financial Institutions). It was thought that a collateral benefit would be the stimulation of SME lending. This never occurred as SBA backed loans nosedived. Former Treasury Secretary Timothy Geithner implemented the TARP and TALF programs to further strengthen the capital base of distressed banks as former Fed Chairman Ben Bernanke pursued Quantitative Easing to transfer troubled mortgage backed securities onto Uncle Sams balance sheet to relieve financial institutions of these troubled assets. Some may argue that President Obama’s The American Recovery and Reinvestment Act of 2009 (ARRA) helped the SME sector. The $800 billion stimulus was one third tax cuts, one third cash infusion to local governments and one third capital expenditures aimed at shovel ready infrastructure improvement projects. The scale of the ARRA was miniscule as compared to support rendered to banks and did little to halt the deteriorating macroeconomic conditions of the collapsing housing market, ballooning unemployment and rising energy prices severely stressing SME.
The EU offered no better. As the PIGS (Portugal, Ireland, Greece, Spain) economies collapsed the European Central Bank forced draconian austerity measures on national government expenditures undermining key SME market sensitivities. On both sides of the Atlantic, the perception of a bifurcated central banking policy that favored TBTF Wall Street over the needs of an atomized SME segment flourished. The wedge between the speculative economy of Wall Street and the real economy on Main Street remains a festering wound.
In contrast to the approach of western central bankers, Asian Tigers, particularly Singapore have created a highly supportive environment for the incubation and development of SME. Banks offer comprehensive portfolios of financial products and SME advisory services. Government legislative programs highlight incubation initiatives linked to specific industry sectors. Developed economies have much to learn from these SME friendly market leaders.
The pressing issues concerning net neutrality, ecommerce tax policies, climate change and the recognition of Bitcoin as a valid commercial specie are critical developments that goes to the heart of a healthy global SME community. These emerging market events are benevolent business drivers for SME and concern grows that legislative initiatives are being drafted to codify advantages for politically connected larger enterprises.
Many view this as a manifestation of a broken political system, rife with protections of large well financed politically connected institutions. Undermining these entrenched corporate interests is the ascending digital paradigm promising to dramatically alter business as usual politics. Witness the role of social media in the Arab Spring, Barack Obama’s 2008 election or the decapitalization of the print media industry as clear signals of the the passing away of the old order of things. Social networking technologies and the democratization of information breaks down the ossified monopolies of knowledge access. These archaic ramparts are being gleefully overthrown by open collaborative initiatives levelling the playing field for all market participants.
SMEIoT
This is where SMEIoT neatly converges. To effectively serve an efficient market, transparency and a contextual understanding of its innate dynamics are critical preconditions to market participation. The incubation of SME and the underwriting of capital formation initiatives from a myriad of providers will occur as information standards provide a level of transparency that optimally aligns risk and investment capital. SMEIoT will provide the insights to the sector for SME to grow and prosper while industry service providers engage SME within the context of a cooperative economic non-exploitative relationship.
This series will examine SME and how IoT will serve to transform and incubate the sector. We’ll examine the typology of the SME ecosystem, its risk characteristics and features. We’ll propose a metadata framework to model SME descriptors, attributes, risk factors and a scoring methodology. We’ll propose an SME portal, review the mission of Big Data and its indispensable role to create cooperative economic frameworks within the SME ecosystem. Lastly we’ll review groundbreaking work social scientists, legal scholars and digital frontier activists are proposing to address best governance practices and ethical considerations of Big Data collection, the protection of privacy rights, informed consent, proprietary content and standards of accountability.
SMEIoT coalesces at the intersection of social science, commerce and technology. History has aligned SMEIot building blocks to create the conditions for this exciting convergence. Wide participation of government agencies, academicians, business leaders, scientists and ethicists will be required to make pursuit of this science serve the greatest good.
This is the first in a series of articles on Big Data and SMEIoT . It originally appeared in Daftblogger eJournal. Next piece in series is scheduled to appear on Daftblogger eJournal within the next two weeks.
#smeiot #metasme #sum2llc #sme #office365 #mobileoffice #TARP #capitalformation #IoT #internetofthings #OECD #TBTF #Bitcoin #psychographics #smeportals #bigdata #informedconsent
The Profitability of Patriotism: SME Lending
What a difference a year makes. A year ago the banks came crawling to Washington begging for a massive capital infusion to avoid an Armageddon of the global financial system. They sent out an urgent SOS for a $750 billion life preserver of tax payers money to keep the banking system liquid. Our country’s chief bursar Hank Paulson, designed a craft that would help the banks remain afloat. Into the market maelstrom Mr. Paulson launched the USS TARP as the vehicle to save our distressed ship of state. The TARP would prove itself to be our arc of national economic salvation. The success of the TARP has allowed the banks to generate profits in one of the most prolific turnarounds since Rocky Balboa’s heartbreaking split decision loss to Apollo Creed. Some of the banks have repaid the TARP loans to the Fed. Now as Christmas approaches and this incredible year closes bankers have visions of sugar plum fairies dancing in their heads as they dream about how they will spend this years bonus payments based on record breaking profitability. President Obama wants the banks to show some love and return the favor by sharing more of their balance sheets by lending money to small and mid-size enterprises (SME).
Yesterday President Obama held a banking summit in Washington DC. Mr. Obama wanted to use the occasion to shame the “fat cat bankers” to expand their lending activities to SMEs. A few of the bigger cats were no shows. They got fogged in at Kennedy Airport. They called in to attend the summit by phone. Clearly shame was not the correct motivational devise to encourage the bankers to begin lending to SMEs. Perhaps the President should have appealed to the bankers sense of patriotism; because now is the time that all good bankers must come to the aid of their country. Failing that, perhaps Mr. Obama should make a business case that SME lending is good for profits. A vibrant SME sector is a powerful driver for wealth creation and economic recovery. A beneficial and perhaps unintended consequence of this endeavor is the economic security and political stability of the nation. These are the worthy concerns of all true patriots and form a common ground where bankers and government can engage the issues that undermine our national security.
The President had a full agenda to cover with the bank executives. Executive compensation, residential mortgage defaults, TARP repayment plans, bank capitalization and small business lending were some of the key topics. Mr. Obama was intent on chastising the reprobate bankers about their penny pinching credit policies toward small businesses. Mr. Obama conveyed to bankers that the country was still confronted with major economic problems. Now that the banks capital base has been stabilized with Treasury supplied funding they must get some skin into the game and belly up to the bar by making more loans to SMEs.
According to the FDIC, lending by U.S. banks fell by 2.8 percent in the third quarter. This is the largest drop since 1984 and the fifth consecutive quarter in which banks have reduced lending. The decline in lending is a serious barrier to economic recovery. Banks reduced the amount of money extended to their customers by $210.4 billion between July and September, cutting back in almost every category, from mortgage lending to funding for corporations. The TARP was intended to spur new lending and the FDIC observed that the largest recipients of aid were responsible for a disproportionate share of the decline in lending. FDIC Chairman Sheila C. Bair stated, “We need to see banks making more loans to their business customers.”
The withdrawal of $210 billion in credit from the market is a major impediment for economic growth. The trend to delever credit exposures is a consequence of the credit bubble and is a sign of prudent management of credit risk. But the reduction of lending activity impedes economic activity and poses barriers to SME capital formation. If the third quarter reduction in credit withdrawal were annualized the amount of capital removed from the credit markets is about 7% of GDP. This coupled with the declining business revenues due to recession creates a huge headwind for SMEs. It is believed that 14% of SMEs are in distress and without expanded access to credit, defaults and bankruptcies will continue to rise. Massive business failures by SMEs shrinks market opportunities for banks and threatens their financial health and long term sustainability.
The number one reason why financial institutions turn down a SME for business loans is due to risk assessment. A bank will look at a number of factors to determine how likely a business will or will not be able to return the money it has borrowed.
SME business managers must conduct a thorough risk assessment if it wishes to attract loan capital from banks. Uncovering the risks and opportunities associated with products and markets, business functions, macroeconomic risks and understanding the critical success factors and measurements that create competitive advantage are cornerstones of effective risk management. Bankers need assurances that managers understand the market dynamics and risk factors present in their business and how they will be managed to repay credit providers. Bankers need confidence that managers have identified the key initiatives that maintain profitability. Bankers will gladly extend credit to SMEs that can validate that credit capital is being deployed effectively by astute managers. Bankers will approve loans when they are confident that SME managers are making prudent capital allocation decisions that are based on a diligent risk/reward assessment.
Sum2 offers products that combine qualitative risk assessment applications with Z-Score quantitative metrics to assess the risk profile and financial health of SMEs. The Profit|Optimizer calibrates qualitative and quantitative risk scoring tools; placing a powerful business management tool into the hands of SME managers. SME managers can demonstrate to bankers that their requests for credit capital is based on a thorough risk assessment and opportunity discovery exercise and will be effective stewards of loan capital.
On a macro level SME managers must vastly improve their risk management and corporate governance cultures to attract the credit capital of banks. Using programs like the Profit|Optimizer, SME’s can position themselves to participate in credit markets with the full faith of friendly bankers. SME lending is a critical pillar to a sustained economic recovery and stability of our banking system. Now is the time for all bankers to come to the aid of their country by opening up credit channels to SMEs to restore economic growth and the wealth of our nation.
You Tube Music Video: Bruce Springsteen, Seeger Sessions, Pay Me My Money Down
Risk: banking, credit, SME
The Cost of Banking Goes Up
The severity of the banking crisis is evident in the 95 banks the FDIC has closed during 2009. The inordinate amount of bank failures has placed a significant strain on the FDIC insurance fund. The FDIC insurance fund protects bank customers from losing their deposits when the FDIC closes an insolvent bank.
The depletion of the FDIC Insurance fund is accelerating at an alarming rate. At the close of the first quarter, the FDIC bank rescue fund had a balance of $13 billion. Since that time three major bank failures, BankUnited Financial Corp, Colonial BancGroup and Guaranty Financial Group depleted the fund by almost $11 billion. In addition to these three large failures over 50 banks have been closed during the past six months. Total assets in the fund are at its lowest level since the close of the S&L Crisis in 1992. Bank analysts research suggests that FDIC may require $100 billion from the insurance fund to cover the expense of an additional 150 to 200 bank failures they estimate will occur through 2013. This will require massive capital infusions into the FDIC insurance fund. The FDIC’s goal of maintaining confidence in functioning credit markets and a sound banking system may yet face its sternest test.
FDIC Chairwoman Sheila Bair is considering a number of options to recapitalize the fund. The US Treasury has a $100 billion line of credit available to the fund. Ms. Bair is also considering a special assessment on bank capital and may ask banks to prepay FDIC premiums through 2012. The prepay option would raise about $45 billion. The FDIC is also exploring capital infusions from foreign banking institutions, Sovereign Wealth Funds and traditional private equity channels.
Requiring banks to prepay its FDIC insurance premiums will drain economic capital from the industry. The removal of $45 billion dollars may not seem like a large amount but it is a considerable amount of capital that banks will need to withdraw from the credit markets with the prepay option. Think of the impact a targeted lending program of $45 billion to SME’s could achieve to incubate and restore economic growth. Sum2 advocates the establishment of an SME Development Bank to encourage capital formation for SMEs to achieve economic growth.
Adding stress to the industry, banks remain obligated to repay TARP funds they received when the program was enacted last year. To date only a fraction of TARP funds have been repaid. Banks also remain under enormous pressure to curtail overdraft, late payment fees and reduce usurious credit card interest rates. All these factors will place added pressures on banks financial performance. Though historic low interest rates and cost of capital will help to buttress bank profitability, high write offs for bad debt, lower fee income and decreased loan origination will test the patience of bank shareholders. Management will surely respond with a new pallet of transaction and penalty fees to maintain a positive P&L statement. Its like a double taxation for citizens. Consumers saddled with additional tax liabilities to maintain a solvent banking system will also face higher fees charged y their banks so they can repay the loans extended by the US Treasury to assure a well functioning financial system for the benefit of the republic’s citizenry.
You Tube Music Video: The 5th Dimension, Up Up and Away
Risk: bank failures, regulatory, profitability, political, recession, economic recovery, SME
A Taxing Situation
President Obama announced his intention to curb the use of offshore tax havens for multinational corporations. The Treasury Department is looking to raise tax revenues and believes that by closing the use of offshore tax shelters it will be able to raise over $200 bn over the next ten years. According to the New York Times, firms like Citibank, Morgan Stanley, GE and Proctor and Gamble utilize hundreds of these type structures to shelter revenue from being taxed by the IRS. It has effectively driven down the tax rates these companies pay and has been a key driver in maintaining corporate profitability.
This move should come as a surprise to no one. The Treasury Department needs to find sources of tax revenues to cover the massive spending programs necessitated by the credit crisis and the global economic meltdown. The TARP program designed to revitalize banks has expenditures that amounted to $700 bn. Amounts pledged for economic recovery through EESA, PPIP and ARRA will push Treasury Department expenditures targeting economic stimulus projects and programs to approximately $2 tn. These amounts are over and above routine federal budget expenditures that is running significant deficits as well.
The planned move by the Treasury Department to rewrite the tax code may be an intentional effort to close budget deficits but it also represents a significant rise in tax audit risk. For the past two years the IRS has been developing a practice strategy and organizational assets to more effectively enforce existing tax laws. Private sector expertise, practices and resource has significantly out gunned the IRS’s ability to detect and develop a regulatory comprehension of the tax implications of the sophisticated multidomiciled structured transactions flowing through highly stratified and dispersed corporate structures. The IRS is looking to level the playing field by adding to its arsenal of resources required to engage the high powered legal and accounting expertise that corporate entities employ.
The IRS has hired hundreds of new agents and has developed risk based audit assessment guidelines for field agents when examining corporations with sophisticated structures and business models. As such investment partnerships, global multinational corporations and companies utilizing offshore structures can expect to receive more attention from IRS examiners.
The IRS had developed Industry Focus Issues (IFI) to be used as an examination framework to guide audit engagements for sophisticated investment partnerships and Large and Mid-size Businesses (LSMB). The IFI for LSMB has developed three tiers of examination risk. Each tier has comprises about 12 examination issues that will help examiners focus attention of audit resource on areas the agency considers as high probability for non-compliance. Clearly the audit risk factors risk
To respond to this challenge, Sum2 developed an audit risk assessment program to assist CFO’s, tax managers, accountants and attorneys conduct a through IFI risk assessment. The IRS Audit Risk Program (IARP) is a mitigation and management tool designed to temper the threat of tax audit risk. A recent survey commissioned by Sum2 to measure industry awareness of IFI risk awareness indicated extremely low awareness of tax audit risk factors.
Sum2’s IARP helps corporate management and tax planners score exposure to each IFI risk factor. It allows risk managers to score the severity of each exposure, mitigation capabilities, mitigation initiatives required to address risk factor, responsible parties and mitigation expenses. The IARP allows corporate boards and company management to make informed decisions on tax exposure risk, audit remediation strategies, arbitration preparation and tax controversy defense preparation.
The IARP links to all pertinent IRS documentation and information on each tax statute and IFI audit tier. The IARP links to pertinent forms and allows for easy information retrieval and search capabilities of the vast IRS document libraries. The IARP also has links to FASB to have instant access to latest information on accounting and valuation treatments for structured instruments.
The IARP is the newest risk application in the Profit|Optimizer product series. The Profit|Optimizer is a enterprise risk management tool used by SME’s and industry service providers.
The IARP is available in two versions.
The IRS Audit Risk Program for investment partnerships (IARP)
Buy it on Amazon here: IARP
The Corporate Audit Risk Program (CARP)
Buy it on Amazon here: CARP
Sum2’s Audit Risk Survey results are here: IFI Audit Risk Survey
You Tube Video: Chairman of the Board, Pay to the Piper
Level Three Sinks Lower at GS
Interesting piece at CFO magazine concerning fair value deterioration of Level Three Assets at Goldman Sachs during the month of August. Goldman Sachs reports that valuation of Level Three Assets dropped by 13%. It would be interesting to understand the impact of this collateral erosion had on GS’s largest counter-party AIG?
Was this the trigger that precursors the radical interventionist moves by the Treasury to purchase a controlling stake in AIG?
This insight will become most constructive as the Treasury begins its purchase program of toxic level three assets. Hammering Hank has hired Neel Kashkari one of his mentees from GS to head up the repurchase program. Mr. Kashkari is said to be a quantitative wiz kid and a real life rocket scientist to buy Level Three Assets from GS and other banks and create and manage a portfolio of toxic assets on behalf of the American taxpayers.
You Tube Video: Goof Troop Level Three
Risk: collateral valuation, counter-party default,
Bollywood Blockbuster: Wach & Wells
What may be a surprise to Citi’s CEO Vikram Pandit, his new bride Wach has left the nest and is now snuggled safely in the loving arms of its free market hero the west coast banking giant Wells. Apparently Citi’s arranged marriage with Wach was never consummated and looks like it’s heading for an annulment.
This one’s got all the drama of a Big Bollywood blockbuster. The young and troubled Wach is forced by her desperate father FedSec to submit to a loveless arranged marriage to Citi. FedSec has offered a worthless and mysterious dowry it calls EESA whose origins, authenticity and value is highly questionable.
Citi is one of the last vestiges of the crumbling rule of a decrepit Credit Markit Raj. The New York based Citi whose Brahmin’s family lineage is long past its prime is now desperate for the favors of FedSec’s EESA dowry. Citi believes that EESA can prop up the Credit Markit Raj and prolong its position of power and privilege.
Wells the fine looking paramour from California is rumored to have slain gigantic sub-prime mortgage monsters spawned by the evil excesses of Credit Markit Raj. Wells has recovered nicely from its battles and purportedly has a quality balance sheet and size that is preferred by Wach. Apparently size does matter and Wach may have found the true love with Wells it will never have with Citi.
Wells issued $20B in new securities as an example of it’s free market might and demonstration of love for Wach. Wach’s self-esteem has suffered throughout this entire drama. Wach was troubled by the public perception of her intrinsic worth. This past Monday when FedSec announced the arranged marriage to Citi, the marketplace said her value was the equivalent of $.75 per share. But Wells value and sense of self worth rose with Wells attention. As of this morning Well’s affection has raised Wach’s value to over $6.00 per share.
Wells capture of Wach’s affection may threaten FedSec’s mastery and attempted control of the Credit Markit Raj with the offering of the EESA dowry. Ultimately the riches promised by the EESA dowry may not materialize. A governing group of petite demigods called SENCONS may confiscate the dowry and abscond back to their ivory tower hideout.
Lawsuits and high highfalutin philosophizing by the SENCONS about an activist FedSec and letting free markets prevail assures that theater goers will enjoy many sequels of the Wach & Wells story of true love and capital market freedom. Stay tuned.
You tube music video: Bollywood Mix
Risk: EESA
Conference Call with Hank
National Federation of Independent Business (NFIB) members had an opportunity to participate in a conference call with Secretary of the Treasury Henry Paulson. Mr. Paulson was keen to solicit the support of NFIB members for the passage of the Emergency Economic Stabilization Act, (EESA).
NFIB members are small business owners who are generally very conservative, free market advocates who vigorously support tax relief, oppose regulatory oversight and large governmental spending programs. NFIB member firms are the entrepreneurs, shopkeepers, service providers and small business risk takers who populate the small stores and office space on Main Street USA.
Small business owners are a politically vocal and influential constituency whose support proponents need to gain passage of EESA. Last night EESA passed the Senate. It will now return to the House of Representatives for a vote. Secretary Paulson asked NFIB members to contact congressmen, senators and media to urge support of EESA passage.
Key points raised were as follows:
FDIC deposit insurance limit was raised to $250,000
EESA Bill included riders with tax cuts and other rebate incentives
EESA has a recoupment provision “put” that allows Treasury to sell assets back to banks at a previously agreed upon price
Failure of EESA will curtail community bank lending activity to small businesses
Large businesses and municipalities dependent on credit markets for short term funding will scale back purchases with small businesses
Current Treasury tools are not sufficient to deal with problem
EESA funding (Federal Budget program cuts) will need to be addressed in next budget cycle
Regulatory frameworks of financial services industry need to be streamlined, strengthened and reformed
Mark to Market of toxic bank assets will help to temporarily address bank solvency and capitalization ratios
Music Video: Blondie, Hangin on the Telephone
Risk: bank solvency, credit, interest rates, recession
The Bazooka Shot Heard Round the World
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
How Many Zeros Are In $53 Trillion?
Paul O’Neill just finished jabbering away on Bloomberg TV. Great stuff.
O’Neill declared the death of the private equity industry, opined on the evils of Sovereign Wealth Funds, stressed the need for banks to be better capitalized and raised a warning flag about the $53 trillion in unfunded liabilities lurking in the future federal government spending commitments.
I believe he also said “that government is broken.”
Was this guy actually the Treasury Secretary in W’s administration?
From his perspective it appears that Paulson is just rearranging the chairs on the deck of the Titanic.
Risk: Political, Banking, Deficit Spending
You Tube Video: Tennessee Earnie Ford, 16 Tonnes
