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Friday, November 21, 2008

Force the unwinding!!!

It appears as if the US financial market, can't get the unwinding done on their own in regards to the sub-prime related debt. So, the US Govt should force the unwinding of those credit default swaps CDS on Wall Street. Its the only way to get out of this mess in the short and long term. Make it into a legislative issue moving forward and a part of the new financial services regulation package to come. I can see this issue, lack of investor confidence, going on unnecessarily, for a long time to come, if the US Government does not get in their and make it mandatory that these debt's are unwound, like, today!

I say this, in response to the new financial crisis, and that is, the crisis of deflationary pressure on stocks. Apparently, people are forcing stocks to the bottom and causing a lowering of prices, across the board, well below the accepted market 'price' value. This is, yet again, another sign of the lack of confidence in the market regulators and the market itself--the latter is understandable; why would you trust those legitimate crooks? I imagine!

However, this is something that- while it is painful to the investor to see- brings joy to my eye. For one, regular consumers like me, like to go the pump and see gasoline prices go down and down. That's good news. Why would I be upset about that? A $20 can get me around for a week, now. Happy days indeed. In addition, I am glad to see these guys, run around like chickens with their head's lopped off, for a situation that they and their friends, got them into. Now, they want us, you and me, to get them out of it. Not so fast, says Hank Paulson--a surprising hold on to your horses, from him, indeed!

In the latest shock wave, sent through the financial system, Treasury Sec. Paulson said that he would not use the other half of the $700 billion bail-out package to banks, to buy bad mortgage debt. I don't blame him and Paulson, has done something that no one seemed liked they wanted to do, on both sides of the US aisle--stop handing out free money for bad practices. It was bad enough people lost their homes on adjustable mortgage rate (ARM's) loans. It was bad enough that the banks hoodwinked those people into those ARM's. It was bad enough that their was a third and fourth party trading, all over the world, for CDS related sub-prime debt. It was bad and embarrassing enough that Paulson went to congress on the first instance, with a three page letter asking for $700 billion. Now, you want to make the matters worse, by not addressing the problem and bailing folks out on Wall Street, carte-blanche?

If you must bail them out, then, I can appreciate why folks would want a bail-out for home-owners on the brink of losing their homes. After all, fair is fair!

But, in the meantime, while it appears as if Wall Street is not going to get their outlandish wish, in that they want the US Govt, with tax-payer money, to buy up all of their sub-prime related debt, is that now, the US Govt, has to force the unwinding of these trades on Wall Street firms. UBS, post Wuffli, did it as a sign of up-front fairness and for the long term longevity of the firm--that's the social approach Europeans take to their business, you see. But, the US market, is so filled with opportunists and 'capitalists' that you would have to force them to do just that--unwind these toxic-debts.

The fact of the matter is, and I think Paulson knows this and the market knows this as well, is that these guys, because the toxic soup of sub-prime debt is so murky and convoluted, that no one would even dare to find out exactly how much money was lost and where. And, even if they wanted to, it would be so much after the fact that no one would really care--or build a good case to say otherwise than it was just a 'bad investment'.

I can almost certainly guarantee you that there is rank theft, going on in the market at this time in regards to companies taking advantage of the unawares of the US Govt and their investors, due to the abyss of sub-prime related activities and exposure. This would make for interesting millionaires, within the next 5 years or so.

I say again, unwind those CDS and sup-prime related trades. And, if companies don't do this for the betterment of the market, then the US Govt has to force it.

Youri
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