Wall Street Insiders Exploit the "Paulson Put"

[World Traveler]

William Greider has been writing insightful books and articles on U.S. economy and trends for years. Another perceptive Voice in the Wilderness like Michael Hudson, Ron Paul, Kevins Phillips, and Dennis Kucinich.

" WILLIAM GREIDER: ...Look, the bailout of Fannie Mae that they're proposing says we'll put $300 billion on the table to buy the shares of stockholders in Fannie Mae and Freddie Mac. And just us saying that should give them a lot of confidence. Well, yeah, wouldn't it if you've just had the federal government promise to buy your shares that you don't want to hold them anymore.

BILL MOYERS: Maybe that's why all the foreign investors rushed in yesterday to buy Fannie Mae and Freddie Mac-

WILLIAM GREIDER: It might have some connection, yes. ...They've got what you might call a no-lose proposition...
And we've got a list now of maybe 30, 40 [financial firms and banks].. that we [government] will be there to save you. I regard that as profoundly dangerous ... because once you cross that line and you have this special club that's privileged, that has benefits from government that nobody else can get, where do you stop it?

I mean, if I were running a big manufacturing company, I would have quickly run out and buy a subsidiary that's a bank ... And I would then try to get myself on that list. Who wouldn't?

What's going on right now ... is these Private Equity firms are trying to buy into the banks and financial firms... That would mean that this private unregulated equity fund would be participating behind the door, so to speak, in the management of our regulated banks. But it would also, in a pinch, if it's big enough, maybe have a tap into that federal guarantee that if you're too big to fail, we'll be there for you. "

And per Greider, even better for Wall Street, the largest banks, and Freddie / Fannie, the government is asking for very little in return for the bailouts...

" WILLIAM GREIDER: ... And there wasn't a day that where they [government] paused to say, "What are we getting in return? ... it's a wildly grotesque transaction where the public guarantees the life of these firms, and there isn't any effort that we know of to say, "And in return, you're going to behave in the following ways ..." And I suppose they would say, "Well, we don't have time to do that. This is a crisis." I don't buy that. I think that's a way to avoid those questions is not even mention them."

And as if right on queue, there's a Barron's on-line interview from late this week recommending shares in banks and financial firms, because they believe they'll do well over next several months.
http://www.mefeedia.com/entry/an-opp...cials/10632799

Link to Greider interview
http://www.pbs.org/moyers/journal/07182008/watch2.html

Background on William Greider:

William Greider has spent forty years examining how powerful institutions affect ordinary people. Once a top editor of THE WASHINGTON POST, a columnist for ROLLING STONE, and now National Affairs Correspondent for THE NATION, he has produced a series of best-selling books: SECRETS OF THE TEMPLE: HOW THE FEDERAL RESERVE RUNS THE COUNTRY, ONE WORLD, READY OR NOT: THE MANIC LOGIC OF GLOBAL CAPITALISM, WHO WILL TELL THE PEOPLE: THE BETRAYAL OF AMERICAN DEMOCRACY, and this one, THE SOUL OF CAPITALISM. He's working on a new book with the title: COME HOME, AMERICA.

[kingcopper]

Re: Wall Street Insiders Exploit the "Paulson Put"

simply mindnumbing how fortunate we are to have "Hank" and "Ben" repairing our economy:mad:

[tombat1913]

Re: Wall Street Insiders Exploit the "Paulson Put"

Considering all of the recent happenings regarding growth of governmental power, and ever widening reach of the Fed I have to wonder what comes next. All of the recent chatter on the main stream channels about speculators and short sellers being responsible for market conditions clearly foreshadowed the recent SEC subpeonas of those "saboteurs" as well as the emergency order curtailing short selling financials.

It's only a short step (emergency order) further to go the way of China and outlaw shortselling all together. I have to wonder, should I sell my short positions and keep my gains now before they're worth nothing at all? Perhaps very soon the talking heads will be spewing rhetoric about oil speculation being the cause of gas prices, oh wait that's already happened. And the precious metal markets can be a real threat to the U.S. dollar, perhaps we need another gold confiscation.

Is anybody else with short positions as concerned as me or am I blowing this out of proportion?

[GRG55]

Re: Wall Street Insiders Exploit the "Paulson Put"

William Greider has been writing insightful books and articles on U.S. economy and trends for years. Another perceptive Voice in the Wilderness like Michael Hudson, Ron Paul, Kevins Phillips, and Dennis Kucinich.

" WILLIAM GREIDER: ...Look, the bailout of Fannie Mae that they're proposing says we'll put $300 billion on the table to buy the shares of stockholders in Fannie Mae and Freddie Mac. And just us saying that should give them a lot of confidence. Well, yeah, wouldn't it if you've just had the federal government promise to buy your shares that you don't want to hold them anymore.

BILL MOYERS: Maybe that's why all the foreign investors rushed in yesterday to buy Fannie Mae and Freddie Mac-

WILLIAM GREIDER: It might have some connection, yes. ...They've got what you might call a no-lose proposition...
And we've got a list now of maybe 30, 40 [financial firms and banks].. that we [government] will be there to save you. I regard that as profoundly dangerous ... because once you cross that line and you have this special club that's privileged, that has benefits from government that nobody else can get, where do you stop it?

I mean, if I were running a big manufacturing company, I would have quickly run out and buy a subsidiary that's a bank ... And I would then try to get myself on that list. Who wouldn't?

What's going on right now ... is these Private Equity firms are trying to buy into the banks and financial firms... That would mean that this private unregulated equity fund would be participating behind the door, so to speak, in the management of our regulated banks. But it would also, in a pinch, if it's big enough, maybe have a tap into that federal guarantee that if you're too big to fail, we'll be there for you. "

And per Greider, even better for Wall Street, the largest banks, and Freddie / Fannie, the government is asking for very little in return for the bailouts...

" WILLIAM GREIDER: ... And there wasn't a day that where they [government] paused to say, "What are we getting in return? ... it's a wildly grotesque transaction where the public guarantees the life of these firms, and there isn't any effort that we know of to say, "And in return, you're going to behave in the following ways ..." And I suppose they would say, "Well, we don't have time to do that. This is a crisis." I don't buy that. I think that's a way to avoid those questions is not even mention them."

And as if right on queue, there's a Barron's on-line interview from late this week recommending shares in banks and financial firms, because they believe they'll do well over next several months.
http://www.mefeedia.com/entry/an-opp...cials/10632799

Link to Greider interview
http://www.pbs.org/moyers/journal/07182008/watch2.html

Background on William Greider:

William Greider has spent forty years examining how powerful institutions affect ordinary people. Once a top editor of THE WASHINGTON POST, a columnist for ROLLING STONE, and now National Affairs Correspondent for THE NATION, he has produced a series of best-selling books: SECRETS OF THE TEMPLE: HOW THE FEDERAL RESERVE RUNS THE COUNTRY, ONE WORLD, READY OR NOT: THE MANIC LOGIC OF GLOBAL CAPITALISM, WHO WILL TELL THE PEOPLE: THE BETRAYAL OF AMERICAN DEMOCRACY, and this one, THE SOUL OF CAPITALISM. He's working on a new book with the title: COME HOME, AMERICA.

I saw this interview on PBS yesterday evening. Worth watching :cool:

[jk]

Re: Wall Street Insiders Exploit the "Paulson Put"

pardon me, but greider must be a moron for thinking the plan would be to buy the already extant shares of current shareholders. the idea is to recapitalize the gse's. that means buying NEW shares, NEWLY ISSUED SHARES, common shares or, perhaps, preferred shares. but not ones that already exist, since buying the shares of current shareholders adds NO capital to the companies.

[GRG55]

Re: Wall Street Insiders Exploit the "Paulson Put"

pardon me, but greider must be a moron for thinking the plan would be to buy the already extant shares of current shareholders. the idea is to recapitalize the gse's. that means buying NEW shares, NEWLY ISSUED SHARES, common shares or, perhaps, preferred shares. but not ones that already exist, since buying the shares of current shareholders adds NO capital to the companies.

But you have to admit that the announcement(s), however misinterpreted by some, succeeded in putting a [temporary] halt to the collapsing share valuation, thus opening the window to a share offering.

Greider's basic point, being articulated by an increasing number of observers no longer restricted to sites like iTulip, is that US markets are being increasingly manipulated, gamed and corrupted by its own Administration. This is not news to anybody here, but I have to admit, as an outside observer of the American condition, I am truly disturbed at the sheer extent of the brazen effort.

Freddie Mac Registers With SEC, Capital Is Sufficient

July 18 (Bloomberg) -- Freddie Mac, the second-largest U.S. mortgage-finance company, registered with the U.S. Securities and Exchange Commission, removing the biggest obstacle to selling common stock and increasing its mortgage holdings.

Freddie Mac intends to proceed with a $5.5 billion capital- raising plan it announced in May that ``will include both common and preferred securities,'' the company said in a statement today. The registration fulfills an agreement made six years ago with lawmakers before the government-chartered company's plans stalled after revealing $5 billion of accounting errors.

``Now they can start the process to do a capital raise a lot quicker than we thought,'' said Paul Miller, an analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia. ``We're still concerned about what the capital structure's going to look like going forward. But this removes a major overhang.''...

...``Becoming an SEC registrant marks an important milestone for the company and demonstrates our commitment to enhanced transparency and financial reporting,'' Chief Executive Officer Richard Syron said in a statement.

Freddie Mac climbed 85 cents, or 10 percent, to $9.18 today in New York Stock Exchange composite trading. Fannie Mae rose $2.47, or 23 percent, to $13.40...

...Fannie Mae and Freddie Mac have already raised $20 billion in the past year to cover losses. Freddie Mac had planned to sell $5.5 billion of stock next month. Because of ``unfriendly'' market conditions, Ofheo isn't pushing Freddie Mac to raise the capital, the UBS analysts said...

Article...

[World Traveler]

Re: Wall Street Insiders Exploit the "Paulson Put"

Greider is a journalist, not an economist or financier, and he may have been trying to simplify his explanation for the PBS audience, who are generally not financially sophisticated (just my guess!!). I read an 1997 article in Slate by Paul Krugman on Greider's book "One World, Ready or Not" and he skewers him at a theoretical economics level, Greider's writings on globalization.

On the hand, a lot of analysis from various professional economists has later been proven by events to be wrong. So I take no sides, just try to keep an open mind.
http://www.slate.com/id/1916

One of Greider's chief focuses for quite some time has been globalization and its effect on the American manufacturing and the average American worker. Since so few are writing about this in mainstream financial press, his point of view is worth reviewing.

To get a flavor of his viewpoint, exerpts from the article:

"Martin Luther was a rebellious priest challenging the dictates of a corrupt church hierarchy. Ralph Gomory, on the other hand, is a gentle-spoken technologist, trained as a mathematician and largely apolitical. He does not set out to overthrow the establishment but to correct its deeper fallacies. For many years Gomory was a senior vice president at IBM. He helped manage IBM's expanding global presence as jobs and high-tech production were being dispersed around the world.


The experience still haunts him. He decided, in retirement, that he would dig deeper into the contradictions. Now president of the Alfred P. Sloan Foundation, he knew something was missing in the "pure trade theory" taught by economists. If free trade is a win-win proposition, Gomory asked himself, then why did America keep losing?

The explanations he has developed sound like pure heresy to devout free traders. But oddly enough, Gomory's analysis is a good fit with what many ordinary workers and uncredentialed critics (myself included) have been arguing for some years. An important difference is that Gomory's critique is thoroughly grounded in the orthodox terms and logic of conventional economics. That makes it much harder to dismiss. Given his career at IBM, nobody is going to call Ralph Gomory a "protectionist."

He did not nail his "theses" to the door of the Harvard economics department. Instead, he wrote a slender book--Global Trade and Conflicting National Interests--in collaboration with respected economist William Baumol, former president of the American Economic Association...

Gomory's critique has great political potential because it provides what the opponents of corporate-led globalization have generally lacked: a comprehensive intellectual platform for arguing that the US approach to globalization must be transformed to defend the national interest.

At IBM back in the 1980s, Gomory watched in awe as Japan and other Asian nations captured high-tech industrial sectors in which US companies held commanding advantage. IBM invented the disk drive, then dropped out of the disk-drive business, unable to compete profitably. Gomory marveled at Singapore, a tiny city-state, as it lured American manufacturers with low-wage labor, capital subsidies and tax breaks. The US companies turned Singapore into a global center for semiconductor production.

"It was an unforgettable transformation," Gomory remembers. "And it was pretty frightening...

The Gomory-Baumol book describes this as "a divergence of interests" between multinational firms and their home country..."

http://www.thenation.com/doc/20070430/greider

[Milton Kuo]

Re: Wall Street Insiders Exploit the "Paulson Put"

pardon me, but greider must be a moron for thinking the plan would be to buy the already extant shares of current shareholders. the idea is to recapitalize the gse's. that means buying NEW shares, NEWLY ISSUED SHARES, common shares or, perhaps, preferred shares. but not ones that already exist, since buying the shares of current shareholders adds NO capital to the companies.

I guess I'm as stupid as Greider -- the news articles I read left me with the impression that the government would buy existing shares on the open market. The idea did strike me as odd and I couldn't figure out if it was the way the articles were worded or if it was another instance of government incompetence.

Even if the government buys newly-issued shares (common or preferred) thus diluting existing shareholders, I still think the buying of anything other than specially-privileged debt that yields a high return and is first in line to be paid in the event of a wipe-out would be a reckless use of taxpayers' money.

[World Traveler]

Paulson and Dems Spar over "Paulson Plan"

Paulson hits the airwaves Sunday with his sales pitch. Dems refuse to roll over.

"I'm very optimistic that we're going to get what we need from Congress,'' Paulson said on the CBS News Face the Nation ... We're very close to getting reform, he said in a separate interview on CNN's ``Late Edition'' program."

"Paulson is pushing Congress to authorize the Treasury to purchase equity stakes in Fannie Mae and Freddie Mac, which account for about half of the $12 trillion mortgage market, and expand government-backed credit lines to them..."

"House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, last week said he intends to tie the Treasury plan to the federal debt limit, capping the amount of taxpayer funding officials could use to help finance the mortgage firms...

House Democrats plan to include in their bill a measure that would grant almost $4 billion to communities to purchase foreclosed homes, a measure Bush has threatened to veto."

Meanwhile, Paulson makes time to meet with some of his favorite constituents.

"The Treasury secretary is scheduled to spend the next two days in New York for meetings with executives from financial services companies.."

http://www.bloomberg.com/apps/news?p...g9s&refer=home