Man on Mission Impossible - Henry Paulson stalks Europe for ideas

Henry Paulson the Secretary of State at the US Treasury , Eagle Scout , ex Chairman and CEO of Goldman Sachs has been "doing Europe" . Germany on Tuesday. ...yesterday he was at Chatham House and talking about the current state of chassis in the world. Text here

He kicked off, .. the US economy is going through a rough period. As they have been chalking up an eye watering overeseas and budget deficit ever since George Bush slapped his boots on the desk in the Oval Office, they certainly have been going through a rough period.

Nobody noticed, because that nice avuncular Mr Greenspan kept interest rates down ...reeel low so everyone could share in Democracy's pie and the War on Terror, the War on Iraq, The War on Afghanistan, the War on Drugs, meant that the Federal Government were spilling out funds everywhere.

Everyone, everywhere shared in the bonanza as the Chinese scooped up Treasury Bonds with zilch yield and decling value.

However someone (eventually) noticed that all these borrowings rested on a crock of shit of alphabetic nightmares and persistent lies called quailtly "securitised loans" and fraudulent Balance Sheets . Now nobody has got any money even to make end meet never mind to lend to anybody. Believe me, when you are paying the salary cheques these banks have been paying it's no surprise there is nothing left to lend... hence there are a few folks losing their jobs.(Citigroup losing 13,000 alone this year..er..so far)

Anyway Good 'ol boy Beorge has noticed that his term of Office is ending and it's election time and the natives are getting restless. So the first thing Henry tells us (after telling us things are bad, reeeel bad )is that, hey just around the corner the good times will roll.... well hopefuly until the election is over and Uncle George Sam is, Henry says, " injecting $150 billion into the US economy now when it’s most needed (Election Time). To date, almost 95 million payments totaling over $78 billion have been sent". How ? By that 'ol mainstay of conservative / liberal economic policies a tax dodge.

Hey , Paul tells us, it's working , "Consumer spending data in May show these payments are
helping families weather this period of slow growth and higher food and gas prices."

Now when people tell me in the retail business ..."Last week we had a really good week" I know for certain that they know next week will be a stinker.

Same with Paul , first the good news now the bad news is ..." ... the US economy is facing a trio of headwinds: high energy prices, capital markets turmoil and a continuing housing correction."

Market Stability

This is the new voodoo man, why Alastair Darling announced in his Mansion House speech that it was intended to form a new Financial Stability Committee which would would "guide the Bank's operations in this field".

Paul identifies 3 Tranches (?)

1. ( or if you want the longer version " first and foremost, our number one priority") promoting market stability and limiting the impact on the broader economy as we work through today's institutional and markets stresses. (bit short on the detail there about how you do this..never mind, plod on)

2. Implementing the appropriate policy responses to recent events to address the deficiencies in our markets which the current problems have exposed.(bit short on the detail there, what policies ?, what deficiencies ? what problems exposed?)

3.Improving our overall financial regulatory structure to better prevent and address future turmoil.

All this will of course take time - even more so finding out why the previous "robust" , well engineered, systems and controls, processes, ... didn't work last time.

Then Paul let loose a fascinating and modestly accurate statistical detail , financial institutions worldwide have raised over $338 billion.

Institutions in the US and the U.K. have raised capital equal to 95 and 96 % of their recognized losses..in Europe, the gap is wider; there, institutions have raised only 56 % of their recognized losses so far - led no doubt by the Belgians and the cheese eating surender monkeys.

Just note that word "recognised", does that mean ;

1. That's the losses they have identified and calculated and published.
2. WE know (nudge,nudge , wink, wank.... because that's how bankers talk, like out of the sides of our mouths like Goodfellas - or is it the Mason's ?.), WE know that there is a still a bundle in the cupboard that we will eventually haul out , hopefully when the fucking sun starts shining again and we have some more notional profits to write it off against).

Oh by the way the US$ which was US$1 = 1 Euro on the illegal invasion of Iraq .. well you need US$1.60 today to buy 1 Euro.

Anyway back to Henry - who has NO worries about paying his mortgage, grocery bills or how to fill his gas tank..

Well Henry wants financial institutions to continue to strengthen balance sheets by raising capital, de-leveraging or reviewing dividend policies - you bet with the Fed in New York and the Bank of England lending money out the Discount window for all sorts of crap as security, just to keep a semblance of a banking market going.... have you seen the mortage closings this month ... and God help the small businessman.

Policy response

The US is well prepared for considering Policy issues ....Henry says. "In the United States, the Treasury Department, the Federal Reserve, the Securities and Exchange Commission and the Commodities Futures Trading Commission worked together through the President's Working Group on Financial Markets, the PWG, " ...the guys who oversaw and masterminded this fucking disaster of zero credit, economic slowdown and the federal de-housing policy ... have already got their handmaidens of Apocalypse hard at work the ..." US regulators, investors, financial institutions and credit ratings
agencies have begun to implement these and other recommendations, which include

1. Stronger mortgage origination oversight (But not why it was so pisspoor before)
2. National licensing standards (But not why they were so pisspoor before) for mortgage brokers, and 3. To improve market infrastructure (But not why they were so pisspoor before)
4. Regulatory oversight (But DEFINITELY not why they were so pisspoor before)
5. Risk management practices (But not why they were so pisspoor before)
6. Steps to address valuation issues (But not why they were so pisspoor before)
7. Policies and practices related to the credit ratings agencies (the new whipping boy)
8. The mortgage securitization chain.... on which it is worth considering what good 'ol boy Greenspan had to say a few years ago at a Fed Bankers conference.

Alan Greenspan
Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C. April 8, 2005

"Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.

.....we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means.

This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers. "

Would a public beheading be good enough to correct those policies of "quite efficiently judg(ing) the risk" ? This was the guy who said at a conference in Abu Dhabi in March this year ...".“For people who say we and the rest of the Central Bank should have raised flags, I say we did,”

But Henry wants to go further ..."to address not only the specific policy issues that gave rise to recent turmoil, but also the outdated nature of the US financial regulatory system. Few, if any, defend our current balkanized system as optimal." ... which is odd because that is precisely what Gordon Brown did 10 years ago in producing his masterful Tri-Partite and useless tri-umvirate of eunuchs , led by blinkered timid men allowed the uncontrolled bankers to ride a coach and horses through regulatory controls for a decade. He (and that smiling but vacuous twat Balls) balkanised the Bank of England, they didn't make it independent.

Even further ..." the G7 tasked the Financial Stability Forum, the FSF, to analyze the underlying causes of the turbulence and offer proposals for change."

"Today's priority is clearly market stability. However, looking beyond the immediate turmoil, we need to design carefully and put in place a stronger capacity for resolution and crisis intervention that reinforces market discipline."

Fine words, sweetly spoken, we could go on but read the text if you really want more.

To be fair to the Feds (that's the FBI not the unelected bankers) they moved fast , as they did with Enron, and hauled off the miscreants from Bear Stearns in public with handcuffs cuffs.. now there's nothing to see, let's move on.. now this carbon market looks really ripe for making a few bucks...how do we trade these allocations ? Well, say we bundle 'em up, a Sri Lankan pig farm (CARBO) with a single Idaho corn refiner (MON) and a wannabe maker of electric batteries (OXIDE) ... bundle it / securitise it / name it ? CARBON MON-OXIDE .... hey isn't that toxic ? Maybe, but what a great name CMO's . ... just think, a simple text fix in the software for the CDO's and away we go ..

Now the First Tier CMO's will be Libor plus, say 120 points ? .. get Owen & Avery , Sidley Austin - what's that hot chick called , she'll fix the detail?

Hands up those who believe that the 8 points above under Policy Response outlined by the poacher turned gamekeeper, drafted from Sacks of Gold to Gubment are going to make the slightest dent on the banks, investment funds, hedge funds, sovereign funds (with increasing and autonomous power), the money laundering drug gangs, the squillionaire silovaki.. no .. hands up, we can't count ... no hands up ...

Damn ..now Gemma says she's had a tough day and wants a gentle rub down with patchouli oil and how about a Manhattan ?