No. The title is misleading. It´s not what you are thinking. I am not saying that Paulson should bail out hedge funds. I understand that that would offend you. I am actually saying the opposite. I am recommending that Secretary Paulson invite large hedge funds to coinvest with him in the $700bn package that is the largest bailout in history. Why? First because if he does get some hedge funds to coinvest with him when he buys bad loans the American taxpayer will realize that at least there are some other investors out there who are willing to buy those loans as well. That those $700bn are an investment and not an expenditure per se. That it may actually not be such a bad business for the American taxpayer to buy mortgages at a discount and so much so that hedge funds are willing to go along. That there is value to what the US government is buying. Secondly because hedge funds are already buying up these loans, crowding them out does not make much sense. And thirdly because working with hedge funds may actually reduce the size of the government intervention overall. In a sense Warren Buffet has already started operating in this direction as I am sure Paulson was very happy to see him choose to invest $5bn in Goldman Sachs. What Paulson needs now is cooperation with all financial players. Even hedge funds.

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Marc Arza on September 26, 2008  · 

Martín (excuse me for insisting -spam style-),

This so called “rescue plan” is a major disaster. I can not understand how come we no longer accept that the economy has its cycles and recession is as important as growth for the system to work properly.

We are now paying the price of excessive interest rate reduction after the dotcoms went bust and 9/11 scared the hell out of everybody. Todays situation comes from not accepting a mild recession at the time.

Now, trying to bail out the system with a trillion dollars is absurd. Our system is based in creative destruction and the events in Wall St. these last weeks are creative destruction at its best. Banks will fall, companies will fall but if we do it right and allow for a free flow of capital, others will rise. Will it be easy? Hell, no! Money has been lost, value has gone down the drill, and tough times are coming. But this is what happens after a decade long of overspending beyond our means.

If you are American, call your representatives in Congress and Senate and ask them to stop this disaster. Inflation is coming BIG TIME! Value has been lost and new money will not make for it, it will only reduce the value of already existing money (aka… your savings!).

Marc Arza

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