Wednesday, October 15, 2008

America: Still Hostage to Financial Sector

Those fifty big money men aren't happy, thus credit may not be flowing yet. Their demands keep coming. Wayne Angell, ex-Federal Reserve Governor, suggested Hank Paulson go back and provide some value for shareholders of Fannie Mae and Freddie Mac. He believes taking equity owners down to zero caused the current disinterest in owning financial stock.

Mr. Angell also advised cutting the Fed Funds rate. Whether it goes to 1%, 0.5%, or 0,1% doesn't matter to Wayne. He wants it cut to make dividend paying stocks attractive for purchase. Equity needs to become a place for investor value. Today's record drop of 9.1% of the Dow shows people are concerned about equities.

Carl Icahn offered a few cutting observations. He derided American corporate governance, saying it was virtually nonexistent. He said his money would stay on the sidelines, while the clowns who got us into this mess are around. This provided Carl a pivot, offering the private equity solution to the financial crisis.

New owners need to be able to acquire enough of these firms to control board makeup and provide new, competent management. Mr. Icahn wants restrictions on bank ownership gutted.

Taxpayers are clearing the decks for new owners of financial institutions. Private equity underwriters, from David Rubenstein to Carl Icahn, are ready to ride in and save the day. Sovereign wealth funds may join them on Arabian horses. Only their saddlebags are labelled greed and leverage. Sound familiar?