The Moral Hazard Denoument

Two days ago I raised the question of whether US Secretary Paulson and the Treasury would be able to stop Wall Streets run on the Moral Hazard Insurance Company – that is as Paul Krugman of the New York Time’s calls it: “[Federal] officials are worried that their rescue efforts will encourage even more risky behavior in the future [by Wall Street]. After all, it€™s starting to look as if the rule is heads you win, tails the taxpayers lose.

After the weekend debacle of Lehman going broke, Merrill Lynch lynched into a shotgun wedding with Bank of America and AIG plus Washington Mutual tottering at the brink, the score appears to be 1 to 1. Paulson has apparently closed the Moral Hazard Insurance window for the time being; but the US Investment Banks, Hedge Funds, and Private Equity  firms are into Afghanistan tokenism – pledging minimally and intending to do less in the face of potentially huge $100s of billions of exposure risk.  Instead,  many are scheming on how to profit handsomely from the bankruptcies and the churn available from Lehman-like failure chum. True to their Greedy Guts roots. But willing to risk even greater financial turmoil. But now that the Moral Hazard Credit line appears to closed …. this story is not over. Read the commentary here:
Paul Krugman NYTimes – defines the seriousness of the problem
The Economist – agrees substantially
Business Week – calls it Wall Street’s Perfect Storm
Barrons Analysts
– are all over the map on this day
Bloomberg – see the inevitable decline in financial, economic and political power for the US
Forbes – commends Paulson’s line in the sand
and the Wall Street Journal is equivalent to mum.
But the Fat Lady has yet to add her 5th high note to the proceedings and I suspect AIG, Washington Mutual and a few others will get to test whether the Moral Hazard Insurance window is really closed. Meanwhile,the Greedy Guts of Wall Street have managed to outdo Still President Bush. It took him 6-7 years to ruin the American Political brand on the World Stage and the Republican brand domestically; the Greedy Guts of Wall Street have managed to do the same for the US World Financial brand in just over a year.  Send a fifth of screech to your favorite Wall Street Gutter dweller.

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