Monday, 1 December 2008
Financial skulduggery or just blind panic?
Many of the mortgage backed assets held by banks are seriously undervalued. These assets are held by banks from New York to Vladivostok and Santiago to Bergen. The Puolson plan to buy back these assets at lowest market value is a way of putting cash into the banking sector. The governments of the US and to a lesser extent the UK and other major economies are now taking over the role of the wholesale money market which has effectively collapsed. One consequence is that the US government will be able to buy these assets from banks within the creditor nations (China, Germany and Japan in particular) at very low prices and as those assets self liquidate (as they do as they mature) they will make a significant profit and reduce US indebtedness. Was that the intention all along? I doubt it - for this simple reason: the current US administration have been running around like headless chickens. Panic as they stared into the financial abyss probably canceled out any cunning intent but that doesn't mean they will not regard screwing up their competitor economies as a rather desirable outcome if it should come to pass. Financial capitalism may be effective but it often isn't very nice!