In my day job I work for a public sector organisation with its own, limited, taxing powers. Our finance guys bought quite a few CDOs flogged by Lehman Bros that, as the world now knows, turned out not to be quite such a good investment. Our finance guys were no match for those from Lehman Bros.
We’ve been defending ourselves since the bad news broke on the basis that we have only suffered paper losses and that, as we planned to hold our investment to full term, it was not possible to estimate what our loss might be. There is, of course, a subliminal message that maybe things will recover and we won’t have any losses at all.
This is the straw Mr Paulson is offering and we are clutching at it. TARP - ‘Troubled Asset Relief Program’ - promises to delay the pain and allow us all to regather during the breathing space. In that way, it is not dissimilar from inflation. After a prolonged period of price rises, even mediocre investments look like they are in the money.
It’s hard to keep a sense of perspective in these seat-of-the-pants times in the global economy.
The Gordon Gekkos of Wall Street finally go so far over the top that the economy stands on the brink of collapse. We - i.e. the government - can let that happen because there will be too much pain for all of us, so it steps in and buys all the rubbish created by the Gordon Gs.
It is in times like these that I’m tempted to reopen my largely unread copy of Das Kapital and see whether Karl (Marx) had the answers after all. He didn’t, of course. But I almost wish he had, because it is ugly what’s going on at the moment.
Maybe we could instead reintroduce medaevial stocks into which we could put the Investment Bank leaders - the (former) Masters of the Universe - and throw rotten tomatoes at them.
But it is not to be. Rather we have an anonymous system in place in which US taxpayers will foot the bill for profligacy and hubris. ‘Twas ever thus.
Right now I’m wondering how the Chinese big wigs are feeling about the US bail-out of Fanny Mae and Freddie Mac.
The Chinese have a lot riding on the US economy. More than man others, in fact. It is of course a very significant market for so manyof its exports. As any dedicated shopper knows, it’s hard to find stuff in shops that isn’t made in China.
A dear friend of mine recently visited Shanghai on business to see some well-established suppliers. She thought it would be appropriate and pleasing to take small presents to her contacts. She did not wish to take trashy tourist unmemorabilia. But every prospect she looked at turned out to be ‘made in China’ (as was most of the unmemorabilia too).
Equally, China is heavily invested in formally ’safe’ US government and government-back securities. It’s reckoned there’s upwards of a trillion dollars invested by China in the US.
So a weak dollar is not in their interests. It makes there exports more expensive, and it devaluies their investments and holdings.
The Chinese muct therefor be just as macho about the dollar as the US authorities.
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