Making the rounds... (courtesy of several websites)
From: Henry Paulson
Date: 9/23/2008
Subject: Supper secret transaction Need you're help
Bright Greetings Dear American:
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of Treasury of the Republic of America. My country has had a crisis that has caused the need for a large transfer of funds of 700 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with renowned Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.
This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we transfer your commission for this transaction. After I receive you're information, I will respond with detailed information about safeguards that will be used to protect the funds.
Wonderful salutations to you cherish friend from Republic of America.
Yours Faithfully Minister of Treasury Paulson
BONUS - Aussie market humour (courtesy of the SMH):
Market humour is doing the rounds while the Prime Minister is at the heart of the market chaos. We can see it now. Imagine Kevin Rudd back in New York at the night club Scores.
Imagine him seated in front of stage where a dancer with her back to him appears not to be wearing a top. Rudd, ever the policy junkie and only too aware of the market turmoil, notices the dancer's flimsy underwear, turns to his financial adviser and says: "I think I'm going to put a ban on shorts."
Wednesday 24 September 2008
Monday 22 September 2008
Wednesday 17 September 2008
And then there were two... or is it one
On Monday, after hearing about Lehman Brothers and Merrill Lynch, I jokingly said to a colleague, "not long now before we only have two banks left: the US Treasury and Goldman Sachs".
Three days later, one of the biggest serendipitous calls of my life may yet come true: bye bye Morgan Stanley.
Three days later, one of the biggest serendipitous calls of my life may yet come true: bye bye Morgan Stanley.
Monday 15 September 2008
Speed dating
Wow.
Like the ugly tag-along to make up numbers in a speed dating session, Leh Man gets a "not compatible" vote from not one, but two well-endowed suitors: the Yankee, Bo America, and that uptight Brit, B. Clay. (I use the term 'well-endowed' loosely... if you're desperate, you can't complain.)
Except Leh wasn't even dumped for the hot one... she got dumped for just the second-ugliest girl in the joint, Merrill. To his credit, B. Clay was smart enough to avoid the beer goggles and walk away after the dating agency declined to give a "100% satisfaction or your money back" guarantee.
How long before the market is reduced to just the US Treasury and Goldman Sachs?
Like the ugly tag-along to make up numbers in a speed dating session, Leh Man gets a "not compatible" vote from not one, but two well-endowed suitors: the Yankee, Bo America, and that uptight Brit, B. Clay. (I use the term 'well-endowed' loosely... if you're desperate, you can't complain.)
Except Leh wasn't even dumped for the hot one... she got dumped for just the second-ugliest girl in the joint, Merrill. To his credit, B. Clay was smart enough to avoid the beer goggles and walk away after the dating agency declined to give a "100% satisfaction or your money back" guarantee.
How long before the market is reduced to just the US Treasury and Goldman Sachs?
Saturday 13 September 2008
Mark To Market Doughnuts
You know that financial writedowns are having real economy effects when you see this...
If you like that, I also have some BBB loans at the same rate...
In other news, self-fulfilling prophecy #2... Lehman Brothers. Hedge Funds 2, Investment Banks 2,598,451 (counting impact of IB-created structured securities).
If you like that, I also have some BBB loans at the same rate...In other news, self-fulfilling prophecy #2... Lehman Brothers. Hedge Funds 2, Investment Banks 2,598,451 (counting impact of IB-created structured securities).
Monday 8 September 2008
FM and FM now BFF with US TSY
Just a short one tonight.
The big news, of course, is that Fannie Mae and Freddie Mac, the two mortgage giants that underpin the US mortgage market, will be placed into conservatorship by the US Government in further attempts to stabilise the housing market and the financial system.
Markets around the world rallied on the news, with financial stocks (unsurprisingly) taking a large slice of the gains. But here's my question (and this is something I'd be happy to have explained to me): given that Fannie Mae and Freddie Mac had been treated like quasi-government agencies to begin with, what actual advantage does placing it into conservatorship actually create? Had this not happened, the US Government would still have had to bail out the twin entities one way or another, to prop up the mortgage market and ensure that the MBSs issued by the banks have a buyer.
One can argue that, by turning the implied government guarantee explicit, declines in mark-to-market valuations of mortgage securities will slow or even reverse - thus providing impetus for market recovery. However, I see this as merely a short-term impact. The root cause, the cycle of housing downturns resulting in defaults and negative equity, has not really been resolved. Let's say this action results in some settling in the market, translating in easing of credit spreads above Treasury rates. This leads to some easing in the debt service costs of home mortgages. This is great news! Unless, of course, you are a subprime borrower - you are still shut out of the market. At its peak, subprime accounted for ~20% of home loans... taking out that much money from the system is not something you recover easily from just by lowering the cost of borrowing by a few part of 1%.
The real positive impact (and it has to benefit SOMEONE, since it's not immediately clear that taxpayers/homeowners will) may actually be that this process essentially turns corporate debt issued by Fannie and Freddie into government debt issued by the US Treasury... which is fantastic if you are a central bank or superannuation fund who invested in Fannie/Freddie bonds. I mean, US Treasury bonds, backed by a government with ballooning deficits and supported by a slowing economy, are the best proxy for risk-free assets, right?
Having said that, the greatest investor of our time disagrees with me, and he's had more time to think it over, so I may just be having a cynical moment.
UPDATE: Link to an article from the legendary Roger Lowenstein. Next up, let's play a game of "What Disaster Will Today's Morally Hazardous Actions Lead To?". At current pace, the next one should only be five years away.
The big news, of course, is that Fannie Mae and Freddie Mac, the two mortgage giants that underpin the US mortgage market, will be placed into conservatorship by the US Government in further attempts to stabilise the housing market and the financial system.
Markets around the world rallied on the news, with financial stocks (unsurprisingly) taking a large slice of the gains. But here's my question (and this is something I'd be happy to have explained to me): given that Fannie Mae and Freddie Mac had been treated like quasi-government agencies to begin with, what actual advantage does placing it into conservatorship actually create? Had this not happened, the US Government would still have had to bail out the twin entities one way or another, to prop up the mortgage market and ensure that the MBSs issued by the banks have a buyer.
One can argue that, by turning the implied government guarantee explicit, declines in mark-to-market valuations of mortgage securities will slow or even reverse - thus providing impetus for market recovery. However, I see this as merely a short-term impact. The root cause, the cycle of housing downturns resulting in defaults and negative equity, has not really been resolved. Let's say this action results in some settling in the market, translating in easing of credit spreads above Treasury rates. This leads to some easing in the debt service costs of home mortgages. This is great news! Unless, of course, you are a subprime borrower - you are still shut out of the market. At its peak, subprime accounted for ~20% of home loans... taking out that much money from the system is not something you recover easily from just by lowering the cost of borrowing by a few part of 1%.
The real positive impact (and it has to benefit SOMEONE, since it's not immediately clear that taxpayers/homeowners will) may actually be that this process essentially turns corporate debt issued by Fannie and Freddie into government debt issued by the US Treasury... which is fantastic if you are a central bank or superannuation fund who invested in Fannie/Freddie bonds. I mean, US Treasury bonds, backed by a government with ballooning deficits and supported by a slowing economy, are the best proxy for risk-free assets, right?
Having said that, the greatest investor of our time disagrees with me, and he's had more time to think it over, so I may just be having a cynical moment.
UPDATE: Link to an article from the legendary Roger Lowenstein. Next up, let's play a game of "What Disaster Will Today's Morally Hazardous Actions Lead To?". At current pace, the next one should only be five years away.
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