Some Tidbits on the crisis

Some observations.... read the previous post about crisis and frustration in general to get better understanding of where I am coming from. 

Man in Charge is Part of creating the crisis: 

Treasury Secretary Hank Paulson who will manage the $700 billion, atleast for next few months, was just about 2 years back CEO of Goldman Sachs and was involved on the corporation side in creating thecrisis. It sounds odd to me that a person with strong connections with people who created this crisis (and was part of them) be given full authority to buy stuff from them and fix it. Rarely has this being mentioned in any media reporting.

Unprecedented executive authority:

In the current bill Paulson's decision are not subject to question by any court of law and he gets overpowering authority to spend $700 billion. He decides how to price the securities he is buying (there is no market which decides on prices for these securities so nobody knows whats the price), who he buys the securities from (there are far more than $700 billion of securities ready to be sold) and other details. He only provides semi-annual reports to Congress and nothing else. Thats tooo much power. How can you trust a guy who was part of creating the crisis be able to make judgements which value things fairly?.

$700 billion number can go far higher:

The wording of the bill is tricky. Its says at any one time government can hold $700 billion of securities. So they can keep buying and selling and in aggregate buy fr more than $700 billion. This doesnt put a lid on the losses. 

Short Sellers: 

Short selling is a term used to describe a transaction when you sell something which you dont own on the hope that you can buy it later at cheaper price. So I dont own any microsoft stock and think that it will go down. I then just sell the stock today and if it goes down in some time buy it at lower price. Many have said that many financial companies like Bear Sterns, Lehman were brought down because many people at the same time short sold the stock and since there was selling by many stock started falling and then this fall became a cycle and eventually the companies collapsed. But traders, hedge funds, economists have always praised short sellers because its a way for markets to tell you in advance that something is wrong with a asset. Its claimed that its part of the "price discovery" process in the markets. Now though suddenly many of the same people have turned against it because it was their own companies which were being short sold - Merill Lynch, Goldman Sachs, Morgan Stanley and lobbied the government to impose a ban on short selling. Why is short selling at fault now when it was not earlier?

Greed: Capitalism is based on self-interest and greed is one of the self interest. According to Adam Smith the magic of capitalism is that everyone acts in their self interest and the system works for everyone. But now suddenly in the crisis "greed" is a bad word. From Mccain to   business channels everybody seems to be greed was reason for the crisis. Why has self-interest turned bad suddenly?. By that definition everyone should be against the markets and capitalism. 

Speed: Its a testament to Governments ability that it responded so quickly to the crisis. Clearly shows if government wants it can act faster than corporations and swiftly. But now Bush government, in same way as it did with Iraq war, is pushing Congress to approve the $700 billion fast. There are no details and Bush wants Congress to act fast - otherwise it says it would be BAD. I dont think that much urgency is needed. A week or so in deliberating the details is fair enough. 

The other motive of Bush is to avoid any other bailouts to homeowners which Democracts are pushing through. Clearly depicting that wall street deserves bailout but homeowners dont. Bush said "to move quickly and to resist the temptation to add provisions that, he said, "would undermine the effectiveness of the plan." Media is blaming politicians (Congress) on acting slowly.... really?. Its as if market asked govt to write a $700 billion check and government should respond otherwise suffer the guilt of killing the market. 

Regulation: 

Goldman Sachs and Morgan Stanley, two of "renowned" investment banks, who until now lobbied hard and succeded to avoid government regulation. Today they both begged to come under government regulation as that would give them better legitimacy and also access to government funds. This is what they have to say "We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources". So they want regulation when it is clearly helpful. 

Job Losses:

Two unrelated events happened on the same day. Lehman Brothers went bankrupt and 25,000 jobs were put in question (though most wont lose jobs). Heweltt Packard (HP) merged with EDS and declared that it would cut 10,000 jobs. The reaction to these news events was quite different. Media was sympathetic to the workers at Lehman with press outside interviewing and feeling sad for these guys, but as far as HP goes it was praised for cost cutting and its share price rose. There was no repeated mention of HP job losses or sympthay shown for them. Why the difference?.