The End of the Dot.Gov Bubble
Government responses showing stress.
Reading this morning's litany of troubled emerging-market nations, I was wondering whether 2008 will go down in history as the end of the Dot.Gov Bubble.
Maybe it's me, but somehow all of these countries' troubles bring back memories of failed dot.com companies: great concepts, too much capital and inflated values.
To the news regarding the French government's injection of "capital" into its banks, I would highlight that the instrument of choice was not common stock (the UK choice), not preferred stock with warrants (the US choice) and not even straight preferred (the Dutch choice), but subordinated debt - which until this morning I didn't realize even counted as Tier 1 capital (but does in France).
Furthermore, the French government raised the ceiling on qualifying "hybrid" capital instruments from 25% of total capital to 35%. (Another FYI: Last week the Federal Reserve raised to "unlimited" the amount of US Treasury preferred that counts as Tier 1.)
In less than 10 days "capital" has gone from the real stuff to the fake stuff. Why? Because bank stock dilution puts one country's banks at a competitive disadvantage. And in a world of "one click" money flows, no country wants its banks to be seen as weak.
Please realize that, in my opinion, while all the words read "global Kum-bah-yah" all of these "Can you top this?" actions speak of "Every man for himself."
And from where I stand, none of this is ultimately constructive for the markets.
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