Busch: The 4 Act Financial Bailout TV Show
As we watch the TARP support unravel in an ugly way on Capitol Hill, the situation is closely resembling the core structure of every successful television show from "House" to "Baywatch." Let's run through this 4 act comedy/drama.
The show always begins with the introduction of the characters and the presentation of the problem. I'd say this occurred back in July and August of 2007 when we had the Bear Stearns hedge funds collapse, the ratings agencies downgrade, and the credit crunch explode into the financial markets. We got to know quickly Hank Paulson, Ben Bernanke, Chris Coxe, Barney Frank, scores of hedge funds, and the top 5 investment banks.
In this section, we have the characters act to address the problem and almost succeed until an unforeseen development occurs that takes the characters/problem in a completely new direction. To me, this was the massive rate cuts by the Federal Reserve at the beginning of 2008 and the collapse of Bear Stearns with the subsequent takeover by JP Morgan. This sets in motion additional downgrades by the ratings agencies and a credit time bomb begins ticking under the financial table.
Here's where things get out of control, the characters dilemma gets decidedly worse/funnier/desperate and everyone almost dies as the world appears to be close to an end. Fannie/Freddie meltdown&takeover, Lehman goes into bankruptcy, AIG gets a $85 billion loan, the Russian stock market closes, WaMuis on death watch, Primary Reserve Fund breaks the buck, OIS-Libor spreads explode and banks won't lend to each other, and TARP is presented. The characters appear to have an agreement and even the Presidential candidates come together in perfect harmony......only to have it collapse under the weight of a last second disagreement by the party of the current President who's plan is trying to save the financial world. That's irony on steroids.
This is where the characters find a way to work together and find a solution to resolve the problem and save the world/relationship/integrity. Last night, we had the FDIC takeover and turnover WaMu to JP Morgan. Good first step towards the denouement. However, Alabama Republican Senator Richard Shelby and US House of Representatives John Boehner continue to express utter dissatisfaction with the Paulson plan saying very simply, "It's a mistake." The Republican plan that has been offered has already been looked at by Bernanke/Paulson and dismissed. Barney Frank has stated that to look at the alternative plan will take at least a week of debate. And the financial markets react with equities and Yen carry sold hard.
- Congress Under Pressure To Approve Bailout Plan
As Sen. Shelby says, the markets are the best disciplinarian for their actions. He says he's willing to allow the markets to open on Monday without a deal or a plan in place. So just how far will the Republicans allow this financial/political game of chicken go?" Let's see how their constituents react to their IRAs and portfolios sinking while they can't get a car/house loan. I wonder how bad things have to get before they change their perception and tell their Republican Congressmen/women to get a deal done? Unfortunately, we going to have to find out before we can have a conclusion to our show.
At the beginning of the week, I doubted whether a bill would get done this week and that has been the case. I think we'll get something agreed in principle by next Friday.....but it depends on how far stocks sink.