Capital Hungry Pacman Lives! ~ The Risk Averse Alert

Wednesday, December 16, 2009

Capital Hungry Pacman Lives!

The reason TARP loans suddenly are being repaid via a mass wave of secondary offerings coming rapid fire has nothing to do with technically insolvent financial institutions wanting to get out from underneath the government's thumb.

It has nothing to do with contrived issues involving government restrictions on compensation affecting a firm's capacity to retain "talent."

And it absolutely has nothing to do with improving business conditions in the banking industry, making massive equity dilution a palatable price to pay for burying past mistakes, while putting firms in position to profit from new opportunities on the horizon.

You see, here we are at year end and there's still no sign from NASA's Martian rovers of benevolent life on Mars willing to back the U.S. Treasury. If you've been paying attention to events in Europe and the Middle East, then you know concern for sovereign debt solvency is gaining critical mass, as attacks on nation states are increasing rapidly.

Oh, and uh, when did this grave exposure to sovereign debt default suddenly rear its ugly head? Wasn't it the evening of November 25th, 2009 — a Wednesday — the day before Thanksgiving?

Well, Christmas is coming ... and then New Years. Both occur on Fridays this year. That's a pair of long weekends ... giving some prospective, "unforeseen" shock an extra day to be absorbed.

Funny how all of a sudden the call for restoration of Glass-Steagall is coming from both branches of Congress, as well as from both political parties.

On one hand, you might say TARP repayment is an act divorcing hopelessly insolvent banking institutions from the U.S. Treasury, leaving these enterprises twisting in the wind. Then, on the other hand, the call for restoration of Glass-Steagall might be seen a signal saying y'all work out this problem on the mean streets you've created ... hang yourself with the rope you've been given over the years by the Congress, which in fact came at your request ... and if things don't work out, well, it'll just have to be bankruptcy reorganization, come what may.

Maybe this week's White House meeting with banking industry executives involved something more than just calling on banks to increase lending. Maybe there was some frightening "or else" attached to the call — say, something involving the Justice Department.

Whatever. As the past week's massive secondary offerings amply demonstrate, capital hungry Pacman lives!

So, now we are left to wonder what happens when this monster has no means of satisfying his hunger via some magic trick (structured finance) or extortion (such as brought TARP into existence)? Well, what happened last year? Ah yes, the stock market was hit.

Drum roll...

The Senate Banking Committee vote on king dollar wrecker, Ben Bernanke, is tomorrow.

Fast Money
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