Wednesday, October 29, 2008

K-T Boundary Event for Banks.

The "flailing around" by Congress and certain members of the Executive branch (namely, those who chair the Fed and head the Treasury) is producing some serious dislocation in the banking system. The promise of the TARP plan to inject equity in banks is going to produce winners and losers.

This is a K-T boundary type event for the banking ecosystem, and the corresponding meteorite is a wall of cash funded by the U.S. government. These organisms thought they lived on a different planet effected by things called "market forces". Now, the meteor has struck and they must obey "governmental largess". A very large change in ownership basis.

Proximity (and a good relationship) to governmental officials just became one of THE most significant source of profit and risk to all U.S. Banks for the immediate future.

For better or for worse, this is what government does best: destroy and force the organism to re-organize into different ecosystems. I believe that this, somewhat paradoxically, creates value. Anti-trust measures in the Sherman act are another similar event.

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