Credit Market Overview

September 18, 2008

CEC Portfolio Composition

The 40^th President of the United States of America was once quoted as saying: “The nine most terrifying words in the English language are: I’m from the Government and I’m here to help.”

Although we are in the process of electing our 44^th President it would appear those words still reign terror as to date every attempt by the Government to assist the markets through the crisis caused by overzealous participants in the mortgage lending/securitization business has been met with yet another leg down in the stock indexes.

The latest solution put forth in an op/ed piece in the WSJ by none other than the great inflation fighter himself Paul Volcker (fmr. Chairman of the Federal Reserve) along with Nicholas F. Brady (fmr. Sect’y of the Treasury) and Eugene A. Ludwig (fmr. Comptroller of the Currency) would create a Resolution Trust Corp type entity that the Fed would form and the Treasury would capitalize to collect all of the soured wine, read toxic assets, and age it until it can be sold off as high end vinegar. Kind of an “everything old is new again” way to go about solving the problem.

Being in the middle of trying to trade these markets profitably and analyze each of these “cure alls” as they arise I came across an article in the FT yesterday morning the headline of which seems to sum up the situation perfectly. It read: “U.S Treasury recapitalizes Fed”

How ironic and so U.S.A. of us I thought. Given that America has had some of if not the most sophisticated financial markets in the world and that some of our largest banks and investment banks and now insurance companies run themselves as virtual hedge funds it was probably an affront to our leaders when some of our neighbors across the various ponds that surround us began to invest on our shores through vehicles known as Sovereign Wealth Funds.

If big is good and bigger is better and with the talent on board from one of the biggest virtual funds in the world, read Goldman Sachs, why not turn the whole country into a fund.

The $85BN investment in AIG for a roughly 80% stake is a pretty good start and following the RTC structure there would be the same illusion of a “Chinese Wall” already so popular in the financial world. If you’re wondering about the management fees, we’ve already been paying them in form of taxes so if the managers want a raise . . . you get the picture. And talk about lock-ups, you’d have to another country if you decide this investment is not for you.

Sounds like a fool proof plan until you remember those nine terrifying words.

Enjoy the day.

Jim Delaney