Läbustan korra veel. Cramer on kirjutanud väga huvitava loo Treasury ja Fedi koostööst ning annab päris palju mõtteainet seoses tänase sub-prime freeziga. Üle pika aja hea teos:
It was always about being engaged. The Federal Reserve has not been engaged in the mortgage situation. The Treasury has not been engaged in it. They have always felt that the market is the market and the market will solve things. I am used to hearing silly things like that. It's been the litany of every single loser's strategy since the Great Depression, as if the market somehow knows everything and can solve everything. It's like they all believe in Leviathan or in the pre-Industrial Revolution England model. It's like they have never studied history. The reason why we have government besides defense is to promote the general welfare. But you can't promote the general welfare and let business run amok, which is what the mortgage business did, and think that things will work out alright.
For how many years did we hear and read those ads that anyone who had any sophistication knew had to end badly: no money down, no credit rating, no documentation. You heard that stuff, so did I. The government didn't care. Because it didn't care and because it was never engaged we were about to suffer one of the greatest declines in the economy since the great depression -- thanks John Stumpf from Wells Fargo (WFC) for elevating my views beyond gadfly status.
Now, because the cost to Wells Fargo, Countrywide (CFC) , Washington Mutual (WM) and Citigroup (C) is too great to service the bad loans -- and don't for a minute believe it is anything else -- Treasury is engaged. Because Citigroup was insolvent (and so are the mortgage insurers and Washington Mutual without help), the Fed is engaged.
Make no mistake about it, none of these guys is engaged because people were losing homes. They are engaged because, en masse, the borrowers are too big to fail and the lenders have come to the government for help. Don't feel this is wrong. We are a country with a government that does not want bread lines and disorder and massive unemployment and nasty other things you could see coming if this stuff persisted.
So now the Treasury makes it possible to value the mortgage-backed assets without additional defaults accelerating. The defaults will still happen at a more predictable pace. The Fed will now lower rates so the net interest margin will be huge and the banks can absorb the hit. The banks will not have to hire thousands of dead weight, non-revenue producing, repomen. And we will live in slower growth happily ever after, until we work off the unsold inventory as a product of country growth and household formation.
It's the beginning of the end of the crisis. There will be people who balk. There always are, out of greed. But we know from Citadel that this paper is worth 25 cents to the dollar, not more than that, and it probably rallies to 30 cents now with this plan making it possible for banks to sell some of it at hideous losses that will quickly be made up by net interest margin gains.
This is all the stuff of 1990, and it is why the financials bottomed this week except the ones that can't tap capital of which there are always some outliers. We still haven't had a single bank failure or home building failure and you know that is unrealistic. That's why it is the beginning of the end not the end.
But if you stay negative here you will miss a huge rally and you will be furious at yourself and you have made a gigantic amount of money if you are short and you are just plain piggish right now if you don't cover.
One after another I hear people on TV that it is too early to buy the financials or that they know they are going down or that the sector is just plain dangerous. Some stocks in it sure are. But, post-1990 you made out pretty well with the good ones and with the bad ones that could make it. Even post-2001 you made out with the Cornings (GLW) and the Yahoo!s (YHOO) and the Lucents and Nortels although ultimately those last two were done in by other forces.
Now, the whole time, you did better owning Medco Health (MHS) so I am not saying this is the holy grail of where you want to be. I am saying that the systematic hatred of the sector ended this week and there are bargains to pick at just like anything else now that I believe a deal has been made to cap subprime in return for a healthy net interest margin gain from lower Fed funds rates.
Of course, the whole engagement process should have been done months ago but they in government were unengaged and didn't want to listen or act.
Bernanke was more concerned with not bailing out the stock market. He didn't understand that the cost to the system of even attempting to service dead beats let alone allowing a bottom to be put in on toxic paper -- thanks Citadel -- would be prohibitive. If he were an NFL coach we would be trashing him and calling for his firing. But this is "finance" and the vast majority of the people don't even know what a losing season is, although the folks at Merrill (MER) and Bear (BSC) and Citigroup are beginning to find out.
I understand that this government would not be engaged. From the top down there is a level of cluelessness and lack of engagement and sophistication that even the most reactionary, dismantle-the-government types recognize. There has been no engagement because the marching orders up top are "don't engage because I don't even understand but that means it will work out by itself." I find it painful to even watch this administration's directives. They don't want to win because they don't even know how.
But someone from private industry explained this week that the pending insolvency would be real bad for politics and that's something they understand, so they have let Paulson engage.
It's all too little, but not too late IF the Fed cuts because a deal has been put in. With no fed cuts of magnitude, the engagement from Treasury won't work because net interest margin won't spring back and the losses will overwhelm the system.
I am betting that if, to belabor the NFL analogy, the owners went to the commissioner and said "we are all going to be bankrupt if you don't give us the concessions stands and t.v. rights and put a cap on players salaries," you will get results.
And that looks like what happened this week.
Welcome Fed and Treasury. Nice to see that you want to help instead of hinder the process with bizarre and unfathomable indifference.
