There's celebrations occuring with respect to the government "saving" the economy with multiple bailouts. However, this leads to its own problems, namely: 1. Demand has certainly died-off, but supply isn't allowed to follow suit. In banking for instance, since Citi and GMAC are still around, margins will remain tight and overly competitive for what few borrowers there are, and what few creditors (savings) there are. Reducing competition by bankruptcy is good for the economy and good for America, but niether administrations allowed this to happen. So intense competition with government zombie companies such as C and GM will continue, and this will make it difficult for financial companies to dig out of the hole. 2. The Obama administration is attempting to destroy the secured lending market with their interference in Chrysler bankruptcy. If they succeed in defeating the secured creditors and handing free money to the unsecured pensioners, we will have rewritten bankruptcy history into a new wild wild political west where no one has any clue if they will be on the right political side when buying a debt security, or lending. This puts a very scary chill into the fixed income business, which is particularly not good for insurance companies. You just can't save everyone. Obama would like to figure out a way to make hedge funds pay for the mistakes of banks, insurance companies, car companies, and industrials, but hedge funds move too quickly based on policy changes. Insurance companies, however, don't move so quickly. They are reliant on old rules for the fixed income industry. Stock may run with MET after the stress test revealed, but eventually in 2009 the true colors of the financial industry will show, which is weakness.
$15.565 (05/07/09)
