FANZINE

Paulson’s Game

It’s three weeks till the elections, so let’s play ball (no not hardball – sorry Chris Matthews, how about some basketball?). If “change” were akin to jumpshots and slam dunks who will be credited with the most “change” a year from now? Will Barack Obama beat out John McCain with a full court press in the swing states? Or will McCain’s VP choice, Sarah “Barracuda” Palin, smarten up long enough to fool everyone (sorry trying to be objective, but it’s hard). Regardless the outcome, either candidate is going to have to deal with a financial crisis that could be on par with the Great Depression; the current precipitous meltdown has seen most of the large public brokerage firms go under, from Bear Stearns to Lehman Brothers, and many banks as well. Anyone out there banking at Washington Mutual now knows that overnight they suddenly have their money in JP Morgan Chase.

For several weekends in a row, people holding stocks on a Friday might have awoken Monday morning to see their shares nationalized and wiped out, as was the case with investors in Fannie Mae and AIG. Even people simply holding mutual funds have seen a drastic dip in their savings. Before George Bush enters his lame duck months, the ball has been given to Treasury Secretary and Ex-Goldman Sacher Henry “Hank” Paulson. The last two large brokerage firms to survive were Morgan Stanley and Goldman Sachs… hmmm (a tad curious for the conspiracy theorists out there). Still, MS almost was almost wiped out Friday, had it not been for a last minute substitution of capital from Japan’s Mitsubishi-UFJ over the weekend. And even these two companies, which are rallying back on this record day (Stanley closed up 87%), were forced to become banks, i.e. no longer brokerage firms, therefore giving up their 30 to 1 investing leverage in the process).

You may have heard a great deal about the 800 billion dollar bailout package (what was the last figure after all the earmarks went through?). And you may have seen a tall balding man with small glasses and a stammer like Moses, sheepishly making his case before Congress, then listening, it seemed, somewhat painfully as both Houses yammered up big speeches before their constituents (in case anyone was tuning in on C-span) a couple of weeks ago, before ultimately passing an inevitable bill that would pump money back into the financial system, a system brought to its knees by a credit crisis brought on by years of reckless, predatory and unscrupulous subprime lending for house mortgages and other loans. The rally today might be attributed to the fact that Hank Paulson’s Plan (now known as TARP) is being implemented, that liquidity is being injected back into banks. Also the global central banks’ coordinated half basis point rate cut last week is perhaps now creating confidence in investors.

So if this isn’t financial Armageddon, and the rally sustains itself (yeah… er… okay), who’s going to get the credit? Is Paulson stealing the show?

More soon…On Hedge Funds, Short Selling

Art by Danny Jock

*Also for a good summation of the financial crisis, see Fanzine’s friend and attorney Adam David’s Blog.