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Musings about the what happened behind the scenes

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News - Hugh's Views

Written by Hugh McManus

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So recently Paulson assembled members of the Congress and gave them a stern warning.  I wonder what he told them.  I don't think that there's any way that the taxpayers can avoid being at risk on this one. We're not going to know what really happened for a year or two, but I suspect that Morgan Stanley and Goldman Sachs didn't have a choice--a realistic choice.  I bet what they did wasn't wholly voluntary.  The Wall Street Journal reported today that they've been in discussions for months.  Now that I think of it, once the discount window was made available, the die was cast. In my opinion, the story behind the story in this who investment bank fiasco is that we're going to see the rise (further rise) of hedge and private equity funds.  They'll grow and become an ever increasing part of the financial segment, taking the place of the investment banks in the risky markets.  I suspect in the next few weeks people will figure that one out, realizing that the game has changed, only the chess pieces look different! I know that some are saying that the headlines recently have been alarmist.  I am on the other side of this media issue.  I am truly shocked that no one connected the dots before things started to grind to a halt.  It was pretty clear that something serious was happening when Merrill Lynch so unceremoniously disappeared and Lehman collapsed: the media, including CNBC, was missing the story.  I have thought for months that Bernanke and Paulson were missing it too, but I hope they knew and couldn't say anything: their words resonate, mine don't. I agree that companies are in good shape.  My concern was that, once the credit issue started to hit, the entire financial system could suddenly grind to a halt; the potential was there for something like 1929 where consumers like you and me were suddenly confronted with a financial catastrophe.  Confidence in the markets would sag, just like they did 79 years ago.  It's likely fortuitous that Bernanke is a student of the events of 1929 and probably realized the impact of expectations.  The real surprise to me in this mess isn't that banks collapsed and that risk was concentrated and not distributed, nope, the real surprise is the Joe and Jane Public didn't panic.  We dodged a bullet; maybe people don't just don't realize what happened last week.  That in itself is a vote of confidence in the government--who says the US doesn't have socialist leanings! I certainly agree that a shift from consumption to savings is needed.  In fact, it's what's needed for the bailout; the other option is taxation, overseas borrowing or a combination of both.  I don't think that the government will have any problem in borrowing more money.  As a percentage of GDP, the US can borrow a few more trillion without a major issue.  In fact, it's interesting that on Wednesday night, when I was sweating, I saw a flight from money market funds to short term Treasury bills.  Had that continued, we were in deep, deep trouble.  Fortunately, the Fed/Treasury stepped in.  People overseas will continue to buy US debt; I don't expect there to be a problem there. The hope by many is that the ban on short selling will give some relief.  I agree that the ban on short selling will give temporary relief.  I think it's an unforgiveable intrusion into the pricing mechanism.  I think they'd be better off chasing down people who short for predatory reasons.  The wholesale ban of short selling simply makes no sense. Some say that it's time to get into the market.  I agree that we're close to a time to buy; we're certainly a lot closer than a week ago.  There are basically two outcomes: either the US Government fix will work or it won't.  If it works, we're near a bottom.  If it doesn't we're near a much, much deeper and never-before-seen market bottom.  Either way, we're getting close to a time to buy. < Prev   Next >