Day 1 : Paulson's "trickle up" economics

Comment on the actions of the US administration in the UK press is limited as the announcement came too late. The BBC 4 Financial commentators in the early hours appear to think that this papering over another gaping hole in the global financial system is fine. No mention of the way the market will short Lehman Bros.

Probably the best knee - jerk public reactions come from the reader comments in the New York Times to Paulson's announcement.

The very best first - this from frd-Chicago

"Taxpayers are going to make a killing on this deal."

"This bloated quasi-govt monopoly openly supported and donated to the Republicans and Bush in the elections in order to keep their gilded fiefdom humming along while they abuse, manipulate, profit, and contort economic reality on the backs of the average American. "

"The seeds of this debacle were planted nearly 30 years ago when Ronald Reagen unleashed his reign of voodoo trickle-down economics."

"So a bankrupt government is going to save bankrupt lenders."

"It's taken 7 years and a lot of hard work but it looks like the Bush administration will successfully leave our country in international and domestic ruin by the time they slink from office in in January 2009."

"My question is, what if even the government's billions don't restore confidence?"

"According to Treasury Direct, the National Debt stands at $9.503 trillion today, slightly more than $300 billion below the debt ceiling, and up about $75 billion since June 30. If the government continues to accelerate its borrowing like this, how long will it take before we exhaust the "full faith and credit" of the country and become a nation dependent on the kindness of strangers?"

"If we're going to get into nationalizing huge chunks of private industry, why not nationalize something useful, like the healthcare industry?"

"That this nation, under God, shall have a new birth of freedom; and that government of the money lenders, by the money lenders, for the money lenders, shall not perish from the earth."

"The US economy has not been a truly capitalist system for a very long time. We have actually been a socialist state (managed capitalism in the current jargon) for a very long time. Strip out the military-industrial complex, social security and related programs, government salaries and construction, farm aid, etc. and what would our economy actually look like?"

.... and finally ...

"We have lost the trust of investors around the world and now placed the full faith and trust of our government, out of necessity, to back the mortgage loan market that remains. Our journalists concentrate so eagerly on the families facing foreclosure but ignore the families, around the world, that have lost trust in our mortgage bonds. "

On the Company website , Richard F Syron , Chairman and CEO of Freddie Mac says ...."This affirmation of the important role of the GSEs, and that we should continue to operate as shareholder-owned companies, should go a long way toward reassuring world markets that Freddie Mac and Fannie Mae will continue to support America's homebuyers and renters. I applaud Secretary Paulson and Chairman Bernanke for their leadership and encourage Congress to act quickly to pass the new legislative proposals."

Freddie Mac sells three-month and six-month reference bills every Monday, which will be the time when world opinion crystallises into buying into what is promised a new way of running the business. Bloomberg quotes Wrightson ICAP LLC, a research company that specializes in government finance, in Jersey City, New Jersey. .."``We were glad to read that Treasury officials had been calling around to ensure adequate participation in the auction,'' Wrightson wrote, without attributing the information .. and the BBC talked of arms being twisted up backs.

They also quote Mizuho Asset, with US $37.5 billion funds as part of Japan's second-largest bank, who have no plans to bid at Freddie Mac's auction today.

``We are concerned about the U.S. housing market, so we don't have any agency debt,'' said Hiromasa Nakamura, a senior fund manager at Mizuho. ``It will be a difficult auction.''

Japan's Fukoku Mutual Life Insurance Co. said there's a risk those losses ( above the declared US$400Bn (ish) losses already declared by those exposed to US residential mortgage securities)will spread and recommended investors put their money into government debt, pinpointing Germany or France.

What Lord Patel cannot fully grasp is that Fannie Mae and Freddie Mac between them hold US$5 Trillion load and mortgages and the US Government have now effectively told the bond holders that their bonds are 100% secured. So that effectively increasesUS Government indebtedness from the current US$ 9.5 Trillion (approx) to say US$14.5 Trillion whichever way you slice the deal.