Friday, September 19, 2008

The U.S. Mortgage Company

Wow, it has already been a historic morning. The Fed, Treasury, and the SEC have all announced major steps aimed at bolstering confidence in the financial system and easing the credit crisis.

Yesterday, there was significant concern about money market funds, heretofore thought to be among the safest investments out there. This morning, the Treasury is bringing back an arcane fund which will provide up to $50 billion to guarantee money market funds. Here is a link to the story: http://biz.yahoo.com/ap/080919/fund_rescue.html

Also, in a move following the FSA in London yesterday, the SEC is temporarily banning short selling on a list of 799 financial stocks. This move to put short sellers in a "time-out" is another emergency move aimed at lessening the financial strains that brought down Bear Stearns, Lehman, AIG, etc. Here is a link to that story: http://www.nytimes.com/2008/09/20/business/20sec.html?_r=1&ref=worldbusiness&oref=slogin

And most importantly, Treasury Secretary Paulson announced their plans this morning to shore up the mortgage crisis by dealing with these "illiquid assets that are choking off the flow of credit" and causing banks not to lend.

The plan will involve forcing Fannie and Freddie to increase their purchases of mortgage-backed securities, as well as the Treasury itself expanding the purchase of these illiquid securities. Paulson said the size would be in the hundreds of billions, and that it had to be sufficiently large enough to make a real difference. Here is more on that story: http://www.bloomberg.com/apps/news?pid=20601087&sid=avRorhlNRkWc&refer=home

Global markets soared on the news. London's FTSE spiked +9.4% and Hong Kong soared +9.6%, for example. The flight to safety in Treasury bonds also eased, with the price of the 10-year bond falling and the yield rising 30 basis points to 3.74%.

Oil is also rising this morning, though not related, and trading near $101. This is giving a big boost to the energy and material stocks. But the financials are taking center stage again this morning, with many stocks up over +20%. The Dow was up 400 earlier, but has given some back. This morning's spike open was surely influenced by options expiration, as those caught short the market scrambled minimize their losses.

Last, let me just reiterate how lucky we are to have Hank Paulson, the former CEO of Goldman Sachs (GS), as the Treasury Secretary during all of this. Can you imagine how bad it might have been if any of the last 2 or 3 jokers were still in that position? I remember one guy (I think O' Neill) crying on national TV. You may or may not agree, but I would say there are few people in the entire country that are as qualified and as smart as Paulson. I don't know how the Administration got him to take that position in the govt., but I am grateful.

2 Comments:

At 11:44 PM, Blogger OT said...

The taxpayers are just delighted to have him also. I was just telling some friends, if there was only a way for taxpayers to help out these unfortunate banks and ease their suffering.

Yaaaaaaaaaaay.

 
At 2:59 PM, Blogger J. Kahn said...

OT,
I think you have to consider the lesser of two evils. No taxpayers want to pay for this, but I think the average citizen might have stood more to lose had nothing been done.

 

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