After AIG, Paulson’s Moral Hazard Ends at the Golden Door
After Treasury Secretary Paulson’s insistence that there would be no more “bailouts” for Wall Street, the September 16 announcement that “the Federal Reserve Board with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to American International Group (AIG),” reflects the acceleration of the Harvest Moon panic running like a contagion through Wall Street. The Sun and Saturn in Virgo reflect the fear and pessimism (Saturn) in the speculative markets (Sun). These energies oppose the Moon and Uranus in Pisces. Emotions are running high (Full Moon) from the shocks and surprises (Uranus) of how rapidly the financial system is unraveling. Uranus is known as the “cosmic alarm clock,” serving as a wakeup call for what is not working in the system (Saturn) and needs to be changed. As AIG’s situation demonstrates, if you postpone dealing with the problem by hitting the snooze button, a need for $40 billion in short term financing last weekend ballooned to $85 billion by Tuesday evening.
And these energies are being challenged by Pluto in its last days of lend and spend freely Sagittarius. Pluto rules debt and insurance, and private financial transactions; what is being called the “shadow financial system.” AIG personifies Pluto’s powerful energies as the global insurance giant’s business ran into trouble when AIG had to start collateralizing the credit default swaps (CDS) it sold. CDSs are private, unregulated insurance contracts that AIG and other financial institutions sold in the event the borrower defaults. This derivative product is also used as a hedge against risk and to bet on the health of other companies. Its estimated AIG has written CDSs on $446 billion in credit assets (mortgage securities, corporate loans, and complex structured products). The occult nature (lack of transparency) of these debt instruments (Pluto) t is creating the fear (Saturn) that is sending shockwaves (Uranus in Pisces) through the financial system.
AIG approached Federal Reserve Bank of New York president Timothy Geithner for help in obtaining a bridge loan to meet its capital requirements while AIG raised cash from selling assets, after its plummeting stock price triggered a credit rating downgrade on Monday. Instead of a bridge loan or government warrants at a high rate of interest and/or a loan origination fee of some kind, AIG got a high interest rate loan (around 11.5%) for the Fed to lend up to $85 billion for a 24-month term. AIG also got Paulson’s 79.9% solution. Just like last week’s quasi-government takeover of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), the government took the maximum equity stake possible to “punish” the shareholders without being required to add AIG’s debt to the federal budget. Paulson personally terminated AIG CEO Willumstad who had been on the job for 90 days after the AIG Board reluctantly accepted the government’s offer. Liddy sits on the Board of Goldman Sachs, adding to the long list of current and former alumni Paulson (Goldman’s former CEO) has hired. According to today’s Wall Street Journal, Liddy hopes to announce some asset sales in the next four weeks.
The USA’s Pluto in Capricorn is in the house of banking/the economy in the USA horoscope, reflecting our debt-driven economy. The USA Pluto conjoins the top of the chart for Tuesday’s 9:00 PM Fed announcement, reflecting the heavy hand of government involvement. The government will be taking on tons of debt to help bailout the financials from their toxic waste.
What’s most interesting about this chart is that Mercury exactly opposed Paulson’s Venus in Aries then; others had to convince him to financially assist AIG after he had been emphatic that there would be no more bailouts after Fannie and Freddie. Paulson’s Venus challenges his Mars and Saturn in Cancer. Since Cancer is ruled by the Moon representing “commoners”, Paulson inflicts selective moral hazard on common stock holders by severely diluting shareholder value, while ensuring that the largest and most influential investors remain whole. (Or in the case of the GSEs, profit from the takeover.) With his Sun conjoining Mercury in fiery Aries, Paulson is fast and impatient about getting things done HIS way. His lack of earth energy indicates that for all his big talk about government and taxpayer interests, his plans will end up costing more and take a far greater toll on the economy than necessary.
The 9:00 PM chart also shows more government regulation regarding stock market trading rules and regulations. Exactly two months ago I wrote a post predicting the SEC and Chairman Cox would face criticism and therefore would finally get serious about enforcing their own regulations. Mars in Libra exactly conjoined Christopher Cox’s natal Saturn, reflecting the anger over his lax enforcement, motivating him to go into hyperdrive over curbing abusive trading practices. Republican presidential candidate John McCain declared at a campaign rally yesterday that if he’s elected president, he will fire Cox. Cox responded that he planned to leave the SEC in January anyway.
Pisces rules contagions, and when it became clear that Morgan Stanley (MS) and Goldman Sachs (GS) had no immunity from the virus, it was amazing how quickly Cox and the SEC could suddenly get it together to stop the naked shorts that had now set their sights on plundering their share prices. Earlier this week, Morgan’s share price got chopped in half and Goldman traded below par (below their 1999 IPO). As of 12:01 AM Thursday, shorts had to be fully clothed to trade all stocks. From today until 11:59 PM October 2, the SEC has banned shorting of 799 financial companies. (The SEC can extend the order for up to 30 days.)
Cox wasn’t the only one to come to the aid of the two investment banks. The UK’s Financial Services Authority announced a ban on shorting financial stocks, effective at midnight GMT until January 16, 2009. The three largest U.S. pension funds announced they would not allow their Goldman and Morgan shares to be borrowed by short sellers. And the Attorney Generals of New York, Connecticut and Texas have opened investigations of abusive short selling practices.
It was on September 16 73 years ago that Morgan Stanley opened for business after 1933’s Glass-Steagall Act banned banks from securities underwriting. (The Act was repealed in 1999.) The Harvest Moon opposed the Morgan founding’s Sun (CEO) as Mars in Libra conjoined the firm’s Mercury (communication). This prompted CEO John Mack to announce quarterly earnings one day early and speak out against the shorts attacking the firm’s stock price. The firm’s Mercury conjoins Cox’s Saturn, reflecting Mack’s call to Cox requesting enforcement of the SEC’s rules. Wachovia (WB) is interesting in acquiring Morgan Stanley. Transiting Saturn will conjoin Morgan’s Neptune on September 25, raising the possibility that the firm will be dissolved through acquisition.
Transiting Mars conjoined Goldman Sach’s CEO Lloyd Blankfein’s natal Mercury, prompting him to make the call to Cox. Saturn and Uranus will challenge the area representing investor perception concerning the firm’s standing in the Goldman stock chart during October and November, while Pluto is challenging this same area by progression.* As the swamp begins to get drained, the world will see that Goldman behaved no differently than its competitors, but Goldman has friends in high places.
It was the free marketers who wanted these opaque financial products to be unregulated. And now they want the government to take them off their books.
UPDATE: As I was in the process of posting, Paulson announced he is working to get Congress to pass legislation next week allowing the government “to remove these unregulated assets from the financial system.” When asked by a reporter after his announcement how much this will cost taxpayers, Paulson replied “it will cost hundreds of billions to be big enough to get to the heart of the problem.”
Related Posts: Virgo New Moon Cycle, “Inflationization”
*A predictive method that mathematically calculates the planets forward in time.
USA: July 4, 1776 5:10 PM Philadelphia, Pennsylvania
Hank Paulson: March 28, 1946 time unknown Palm Beach, Florida
Christopher Cox: October 16, 1952 time unknown St. Paul, Minnesota
John Mack: November 17, 1944 time unknown Mooresville, North Carolina
Goldman Sachs: May 4, 1999
Lloyd Blankfein: September 20, 1954 time unknown Bronx, New York
Disclosure: Long FRE