Even though some people are going to get rich, to state the obvious could end up costing us dearly:
«Our economy and our markets will not recover until the housing market correction is behind us»
Henry Paulson – US Secretary of the Treasury.
This statement was made at the same time as the announcement of the bailout was made public (once again on a Sunday) the strange couple. Or rather, his legal guardianship, politically correct euphemism. This bailout finally puts a face to the amorphous and mysterious monster that is the credit crisis. In one fell swoop, we learn on whom the survival of the financial and mortgage system largely depends, we are able to quantify it and, furthermore, we lay the foundations for a bailout as viable as the US government itself can be.
At whose expense?… the answer is obvious to everyone. The law has never been the same for everyone. Especially for those who are so strong and powerful that their disappearance would shake the very foundations of the System. We are facing the most costly injustice in modern history. But many of us believe that, despite everything, it is the least traumatic solution. Perhaps the only one.
The consequences may be predictable, but that does not mean they are inevitable. Those of us who have experienced the markets and have been in this business for several decades know this only too well. Many analysts will see this state intervention, from the most liberal of states, as heralding a bleak future for the dollar, which will have to be printed in vast quantities. And consequently, a bleak outlook for the equity markets as well. But the benefits of dispelling much of the uncertainty that has accompanied the credit crisis since its inception are inscrutable, as well as the The ways of the Lord, as a preacher might say. That said, Paulson’s pithy remark quoted at the beginning takes on a whole new meaning.
Indeed, right in the middle of European crisis tsunami, watch the light at the end of the tunnel The US dollar could have a very powerful stabilising effect. It could even more than offset any short-term weakness in the dollar, which may gradually fade in the medium to long term, provided that the necessary financial support is provided to the two companies under supervision. The markets may also gain confidence from the fact that we have finalised or even almost finalised the problem of credit crunch.
We’ve identified the criminal by name, he’s been arrested and brought before the judge, who has effectively granted him a reprieve, and we’ll all have to foot the bill for his rehabilitation programme. But the truth is that we all feel safer walking the streets now that the villains Mac & Mae They’re no longer on the loose. They’re now in legal guardianship the most expensive and most benevolent in history. But let’s not condemn them without taking a look in the mirror. As my grandmother used to say: «Opportunity makes the thief», and we made it all too easy for this pair of prodigal «delinquents» in our eagerness inversopata. Let he who is without sin take the first loan or the first «safe investment» at LIBOR + 2.25%.
Perhaps this odd couple with a name like an ice-cream brand ((Freddie & Fannie’s) stifle the growth potential of the world's leading power for many years (The size of the lump does matter). And its currency, which has already taken a beating, could well spring a few surprises. Such an injection of banknotes will have to be accompanied by new paper money, which is likely to be a major driver of inflation. But as M1 is included in M3, we must also bear in mind that this increase in M1 improves the ratio of physical money in circulation to the outstanding credit gap, dispels many doubts and, at the same time, strengthens the system. 
And that is a good thing, especially given the massive global deleveraging that we have been forced into. It is therefore clear that this colossal bailout would shatter any affected currency and cause macroeconomic indicators to plummet and of all kinds, has many unintended consequences. For all these reasons, the reaction—our reaction—to this unprecedented situation strikes me as one of the greatest unknowns in this multi-crisis involving credit, energy and confidence.
The timing of the sacrifices has practically been decided for the odd couple: There will still be slight increases in portfolios linked to mortgage loans until the end of 2009 (which appear to be inevitable), followed by forced reductions of 10% per annum. On paper, a viability plan for two companies that were born and will die unnatural, given that this plan is a bailout paid for by everyone, the only possible happy ending for which can be its abolition. As we have already said, this death cannot be natural because it would take too much with it, and we must save them to later execute them by lethal injection. Without suffering, without screams, without agony, without splatter, minimising collateral damage as much as possible. Aseptically, with a cool head and the lesson learnt. Perhaps its remains, cut up and recycled, will be of use to scavengers who are genuinely committed to the future.
We know who, where, when, how much and how, and all of this points to serious sacrifices and consequences. The greatest in history. But we know so many things that were previously unknown to us that the effect of so much light may dazzle many markets and blind many unwary investors. Let us be more wary than ever of analyses lacking in humility.
The economy probably won’t recover until the housing market correction is behind us, Mr Paulson. But I wouldn’t be so sure that the markets won’t do so in a fragile, premature and—who knows—perhaps short-lived manner. As for currencies? Today more than ever, they are the mother of all speculation, given that their volatility is skyrocketing amid the historic events we are witnessing. Incidentally, between one bailout and the next, the 9/11 and its Bin Laden options, ...the years just fly by. I love this game!
Here is the video that the Chief Risk Officer (CRO) of Freddie Mac and Fannie Mae, Mr Justin Norisk, sent to Mr Henry Paulson this summer: