Hank Paulson is killing the markets with kindness

Posted: September 20th, 2008 | By Ray Hartley | Posted in General
  • 2 Comments
  

THE most powerful man in the world economy right now is Hank Paulson, the US Treasury Secretary. Why? Because he is the man putting together the world’s largest ever rescue package to save the US – and by extension, the global – financial system.
How is he planning to do this. Well, he’s going to throw a lot of money … make that A LOT OF MONEY … at buying up the really ugly stuff on bank balance sheets via a state agency. Some are saying no less than US $500 billion could be spent on this excercise.
Says forbes.com:

The plan is to surgically remove, or purchase with taxpayer money, the illiquid mortgage plaque “clogging” the global financial system, by relieving banks of their toxic assets. The strategy comes with potentially risky side effects to tax-payers and the economy, as regulators rush to act before the restricted flow of capital causes damage that can’t be repaired.

Not surprisingly, investors were excited at the prospect of so much government money flowing onto the balance sheets of private banks. They bought stock, a lot of stock and the Dow index rose by hundreds of points.
The only parrallel for this that I can think of comes from bad parenting: The practise of giving a child throwing a tantrum a treat. The child will be quiet for a while, but it now knows that another tantrum will result in another treat. So its a matter of time before a fresh and larger tantrum will occur.
The markets are supposed to be all about correcting bad behaviour with the loss of value. Take this out of the equation and you have taken the discipline out of the markets.
The price for this down the line will be greater and greater state regulation (see Obama and McCain already trying to out-promise each other that there will be more state control) and weaker markets.
Ultimately, its an assault on the global financial system. An assault by a nanny called Hank Paulson.

Related posts:

  1. Bailout plan rejected: Is this the end of high finance?
  2. Vavi: Don’t blame the markets for the ills of state intervention
  3. Why is the US attacking the markets? Just asking
  4. Welcome to America: Home of state socialism
  5. Another financial rescue package. Ha ha ha

 

Comments

 

Persona

September 20, 2008 at 7:57 pm

Check: Cumulatively, since August of 07, the world central banks have put out roughly $2 trillion and counting if you add up everything they are doing, in essentially bailing out all this bad paper. There is only one problem. There is $1000 Trillion of it out there.
Check: The U.S. may have to borrow an extra $700 billion to $1 trillion to fund the biggest rescue of the financial system since the Great Depression.
Check: Now, I don’t want to scare you, but the entire point here is that the de-leveraging problem is insoluble. The ONLY solution is to wipe out all debts worldwide and start over. And we know that lots of financial interests don’t want that to happen. The end result will be the same, one way is quick and no one actually dies, the other is very slow and mega millions die.
Mark these words well. Check also: Nouriel Roubini

 

Bonginkosi

September 22, 2008 at 7:29 am

If these guys really believed in the free-market, then there really shouldn’t be a problem if the market is trying to find the right price for those now seemingly worthless assets. So what’s with the rescue plan? That is called price support and effectively they are distorting the right price for these assets. That’s how they create inner city slums; they create artificial price control for the those flats.

One of these days, in a decade or so, we will all be living in an economic slum. Is Mr Paulson helping us? I think NOT!!

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