Monetarist Monkey Business in GSE Conservatorship ~ The Risk Averse Alert

Sunday, September 07, 2008

Monetarist Monkey Business in GSE Conservatorship

Might chaos be the intended objective of today's government seizure of Fannie Mae and Freddie Mac? Pre-market futures, much as anticipated, suggest the answer is yes.

Rather than being a workable reorganization facilitating renewed credit market stability, I rather suspect today's action by Treasury placing the GSEs into conservatorship will prove only a temporary reprieve from growing stress on all financial fronts. Just how temporary may shock many a monetarist monkey who claim this move had to happen. As such, then, I stand by Friday's analysis.

The real question here is how might an already massively overstretched taxpayer pick up the tab and pay for the invariable write-down of mortgage-related securities?

In other words, what really has been accomplished by this action? If a growing number of average Americans cannot even afford to fill their gas tank, how are they going to come up with the added taxable income stream to absorb the added liability Treasury has taken on?

The plain and simple truth is they can't.

Furthermore, what good will increasing GSE capital do when there are no remaining bubbles to inflate with ever-increasing velocity, such as is necessary to maintain the viability of current debt structures? Truth is we probably have reached the limit of social acceptability of any further schemes to inflate some asset class through the addition of even greater loads of leveraged liquidity (which, really, is the most apparent objective of Paulson's plan).

Seems to me, then, the wealthy are more greatly at risk of bearing the larger burden of today's GSE restructuring.

Therefore, might this not sooner lead to an accelerated abandonment of all things dollar ... including stocks ... bonds ... commodities ... real estate ... and God knows what else ... and this before tax liabilities on capital gains invariably rise to maintain the viability of bloated debt structures today's GSE restructuring supposedly aims to defend? This question becomes all the more pressing particularly if today's move fails to incite animal spirits for more than 15 minutes, as quite likely it will.

Lord knows there is a breakdown crisis in the physical economy whose reality has been masked by a decades-long Ponzi scheme. Rather than addressing this, though, monetarist monkeys will do nothing more than act within their dog-eat-dog paradigm.

So, considering the probability the status quo of the past three decades or so is in all likelihood dead, what then does one make of said intentions from policymakers purporting to serve posterity?

Well, at least in the case of Jim Cramer we might conclude his optimism is a function of his being a macro buffoon.

However, in the case of monetarist monkeys with power to pull levers (like Paulson) treasonous probably is a much more apt characterization...

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