The United States of America Hedge Fund

Secretary of Treasury Hank Paulson is the former CEO & Chairman of Goldman Sachs (from 1998 to 2006). Goldman Sachs has been the most profitable firm on Wall Street as it managed its' own private hedge fund. In June 2006, Paulson was approved by the Congress as Treasury Secretary. The current economic crisis became very public in September when Lehman Brothers was forced into bankrupcy. Subsequently, the Congress passed a $700 million bailout (the TARP) that was left more or less to the discretion of Secretary Paulson. Secretary Paulson has probably spent half of the money funding various Financial institutions. The typical deal requires the Bank to pay interest of 8% and for the government to receive stock warrants. Paulson & Bernanke have also funded other programs granting liquidity to the markets. The big question is 'will the taxpayer make a profit/loss on these investments'. As I wrote yesterday, five year treasury bonds are yielding 1%. The government is borrowing money at 1% and receiving 8% or more from the various financial institutions. This is profitable.

Random thoughts....What if all of these Banks & Insurance companies write down the
paper losses on all of the mortgage loans so low that they eventually make a profit (in two to five years) as less loans default than expected... This will create an upside explosion in Financials and a huge profit for the government...I think this is more than a 'what-if'.....

Banks and the $700 Billion TARP

The question of the day is how long will the $700 Billion dollars in the TARP (Troubled Asset Relief Program) last? The Federal Reserve approved American Express as a Bank this morning. The government is investing at least $250 Billion to recapitalize U.S. financial institutions. Is it time for major industrial corporations to convert to Banks?
As I walk down NYC streets, I notice an abundance of vacant taxi cabs driving by. I also notice a lack of customers in boutiques and department stores. Can we conceive of Macy’s, Yellow Cab or General Motors as a Bank? In time we may be able to individually convert into Bank holding companies.
It is clear that TARP # 2 will be in place next year when President Obama takes office. We probably will need another $900 Billion to fund TARP #2. The worst Credit Crunch since the Great Depression is here.
Random thoughts… Las Vegas is in the news today. General Growth Properties (the second largest mall operator in this country) may declare bankruptcy next year as it is having trouble refinancing its debt. GGP owns and operates retail shops at the Venetian and Palazzo hotels in Las Vegas. The Las Vegas Sands Corporation which owns the Venetian and Palazzo has lost 94% of its market value this year. They raised $525 million today to avoid bankruptcy…….remember the market can’t go up unless every willing and unwilling seller has sold. We are getting close….