|EXCLUDING THE BANKS and utilities, corporate cash in the US is at an
all-time high. The housing and auto industries and heavily indebted
companies are in trouble, but major corporations across all the other
sectors are well equipped to deal with the credit squeeze. The big hedge
funds, commercial banks, and sovereign wealth funds are also sitting on
mountains of cash.
The credit markets have seized up, and the official concern bordering on
panic about a global financial death spiral does seem geniuine enough. But
there is enough private sector domestic and international capital sitting on
the sidelines to recapitalize the banks.
However, I think there is, in effect, a capital strike going on designed to
force a public rescue of the banks and a subsequent sorting out and fire
sale of their (notionally) distressed assets. The entity being created by
Treasury with congressional approval will make a market in these assets by
buying high and reselling low. The private sector, including many of the
banks which were holding these illiquid securities, will then sweep in to
buy back the marked down assets and watch them appreciate as the financial
Warren Buffett's comment that he was buying into Goldman Sachs in
anticipation of the bailout was revealing.
At least this is how it seems to me. I don't believe in conspiracies, but
politics, war, and business do have a lot in common with poker and chess.