Whither USA? |
| Posted by Administrator (admin) on Feb 13 2009 at 6:35 AM |
US Treasury Secretary Tim Geithner failed to deliver any hard details on
what the Obama administration plans to do about the banking system. This
is shocking to GREED & fear because it is such an obvious public
relations disaster. The American policy making establishment is now
looking ever more Japanese in its continuing failure to face up to the
painful consequences of what is a massive systemic crisis.
In GREED & fear's view the Obama administration's effort to get the
securitisation game going again, with policies based on backstops,
guarantees and non-recourse loans to hedge funds and the like to buy
asset-backed securities, is doomed to fail. What needs to be done is to
get rid of the zombie banks, whatever the cost to bank shareholders and
bank bondholders.
The Obama administration's response so far to the financial crisis
increases the risk of a further dramatic equity market selloff in the US
which the rest of the world risks being correlated to. The reason the US
stock market remains so vulnerable if investors give up hope of the
policy response is the continuing overwhelming evidence that America is
in the midst of a classic debt deflationary bust.
Las Vegas, one of the first cities to see the impact of the downside in
terms of the housing boom going bust, also stands to be a major victim
of the current crisis. This is not only because of the collapse in
discretionary consumption. But it is also because of the unfortunate
image Las Vegas represents in these self-consciousnessly more
parsimonious times.
In GREED & fear's view the securitisation market will sooner or later be
legislated out of existence as politicians finally wake up to the
disastrous consequences for Main Street of securitisation gone wrong -
even if Geithner is still trying to jump start the activity that is one
of the major contributors to the scale of the current financial crisis.
Trying to offer private investors non-recourse taxpayer-financed
financing to buy asset-backed securities is not in keeping with the
times. It is likely to prompt a hostile response from Joe Sixpack.
Nationalisation of the bust banks and separation of good assets from bad
assets is the only honest way forward, politically, for dealing with the
current escalating mess in the American financial system.
The present debt-deflation bust has quite scary social implications for
the US, most particularly given the lack of European style welfare
states and Asian style family support systems. For now the popular
psychology is still hoping for a rebound in activity. But if the
situation is still deteriorating by the end of this year the mood will
have turned far uglier.
GREED & fear continues to recommend, in the continuing absence of a
coherent policy response to the banking crisis, that investors in Asian
equities continue to hedge their positions by remaining short Western
financial stocks. GREED & fear also still feels most comfortable in the
context of an Asian Pacific equity portfolio remaining zero weighted in
Australian financials.
The alchemy that went into the creation of CDOs marked the ultimate
excess of the securitisation boom run amok. The fundamental issue with
securitisation, namely that it separates the original lender from the
borrower, is a problem that is hard to overcome. GREED & fear still
believes that the ultimate end game will be some modern version of the
Glass-Steagall Act.
Korea's weighting in GREED & fear's Asia ex-Japan relative-return
portfolio has been increased during the past week by 2ppts with the
money taken from India and Taiwan. Likewise, Korea's weighting in the
Asia Pacific ex-Japan relative-return portfolio has also been raised by
2ppts with the money taken from Australia and India.
