Thursday, November 13, 2008

Hang in there and you'll know

Hank Paulson is not having it easy at all.

When the Congress passed his $700 billion bailout package, the world heaved a sigh of relief. The whole world expected it to contain in its point of origin – that is the US – itself. But it was not to be. What had begun as a mortgage crisis, loomed into a financial crisis and is now threatening to be a global economic crisis.

So what does Paulson do? He goes back to the drawing board, buries his original plan and is redrawing it. Now he doesn’t intend to buy the toxic assets but prefers to recapitalize banks and non-bank financial institutions such as financing arms of America's big car companies(though not, for now, the carmakers themselves). He also disclosed that the Treasury and the Federal Reserve are exploring the creation of a “liquidity facility” to buy top-rated securities backed by credit-card, car and student loans, and perhaps mortgages. Banks used to bundle many such loans into asset-backed securities which they then sell in the capital markets. But that market has all but disappeared. Looks like he hopes private investors to come back and recreate that market.

In the end, it is clear nobody has a clue. Financial anarchy always favor the influential and connected. What I can say for sure is that average Joe is not going to get any better. Just that if you hang in till the end, you’ll know who is going to get off with the loot!

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