A Paulson Fan's View of the U.S. Mortgage Company

Wow, it has already been a historic day. 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.

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.

And most importantly, Treasury Secretary Paulson announced 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 (FNM) and Freddie (FRE) 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.

Global markets soared on the news. London's FTSE spiked +9.4% at one point 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, 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 government., but I am grateful.

Comments

[venividivici:]

What you seem to be conveniently overlooking is that Hank is the former head of Goldman Sucks and hence one of those masters of the universe who created this abomination. How much did he make, tax free I believe, was it $600 million? Hank like a lot of the other genius bankers and merchant bankers got into his gold plated luxury lifeboat stuffed with money and sailed away from the SS Ttianic before it even hit the iceberg. Good on you Hank!!!

2008 Sep 20 01:25 AM

[Scared Stiff:]

"This morning's spike open was surely influenced by options expiration, as those caught short the market scrambled minimize their losses."

Anybody who was on the short side and managed to lose money this week deserves to lose everything.

2008 Sep 20 09:03 AM

[Fighting Yoda:]

If Paulson is so smart - why is he wrong every step of the way. At the onset of the financial crisis last year he is first one to come to come up - this is not a crisis at all. Then subprime only, small crisis, crisis contained, worst is behind us. Give me a bazooka - trust me I will not use it. Now (after Fannie/Freddie bail out) - he needs a nuclear tipped missile.

He is destroying capitalism (as we knew it or imagined it to be) - just to protect Goldman. When Goldman went down to 87 - he knew he has lot friends to protect.

Wall street is just a den of thieves - old boys network - fat bonuses and Hampton homes.

Rebel against it - call your congressman.

2008 Sep 20 05:44 PM

[you_can_cal...:]

Wow, there are a lot of folks here who really have no idea how bad this thing could have been. Do you really think this is just about bailing out the old boy network? Folks, the entire financial network was sitting on quicksand. Paulson put a foundation under it, and yes, we're paying the upfront costs.

On the upside, we, the taxpayers, actually stand to make out pretty well. First of all, Wall Street probably won't melt down now, and you guys won't lose your jobs. Most of you are in "unrelated" professions, but following that melt down, you'd probably still be hurting ...bad. No credit, no loans. No loans, no businesses. No businesses, no employees. No employees, no customers. No customers, no jobs, etc.... There's some hyperbole here, I know, but not much. This thing was a big shit sandwich, and we all would have had to take a bite.

Second, these "bailouts" were more akin to vulture capital. AIG, for example, basically just needed a bridge loan so they could make some short term payments. After that, they'd be able to sell some assets to pay off their bad bets. The short term money crunch threatened to destroy them. So Paulson, like any good Wall Street shark, gutted them. "Here's a relatively small loan at a very high interest rate, plus, oh yeah, 80% of everything you own." They were dying, so he robbed AND raped them, and they had to thank him for it. ...And you're complaining. Jesus.

The key to this whole thing was time. Someone with skads of cash (like the U.S. government) and no time pressure stood to make tons, and Paulson recognized it. Make this guy king. At this rate he wouldn't need taxes in five years, and in ten the government would be paying you dividends.

He saved our asses. Get the man a medal.

2008 Sep 21 08:21 AM