Hoodwink Germany

   Previously I mentioned that it would take a century before German bankers would listen to a wall street proposition. With the announcement that the German Bourse is about to buy the New York Stock Exchange, I guess I was wrong.  My reference was Michael Lewis's "Liars Poker" where he was in London in the 1980's and sold a German investor a bill of goods under the guise of a smart deal.  I can't understand why today's German Banker would countenance another good investment from Wall Street.

   In the meantime getting the conservator of Fannie and Freddie to convert a big percent of their  debt to equity is no hoodwink of our friends in China and elsewhere that are big investors in that debt. The Prospectus clearly stated that the debt was not covered by the full faith and credit of the U.S. Government.  Making this debt to equity conversion will teach future investors not to mistake GSE debt for U.S. GOV debt again and pretty well kill all the MAES, Sally and so on.

   Congress can not mandate that sovereign funds to buy crap. The best insurance is one where the seller has the most to lose if the loan goes bad.  If a bank wants to sell it's portfolio but has to keep the riskiest first 10% tranche, then I believe our Swiss and German friends may consider buying Mortgage Backed Securities from them in the future. I don't believe, on the other hand, that they will will feel secure because of greater government regulatory scrutiny and credit scoring from Moody's and the like.  And I don't believe that without a 10% retention scheme that the private market will be able to bundle mortgages in a similar manner as Fannie and Freddie.

   Finally I get annoyed when there is a call for greater regulation as a solution to a market problem.  Fear of failure is the great regulator.  If Congress would legislate less like a micro manager and more like a commander, for example banks are to be regulated under such and such rules versus no financial institution can be bigger than one percent of the U. S. GDP, the later would give a much a healthier result.