Pee-Wee To the Rescue

Naked Capitalism reports nicely on Hank Paulson's so-called Master Liquidity Enhancement Conduit (MLEC), better known in the trade as the "Let's Take Risk Without Taking Risk And Socialize It, L.P."

But just as quickly as Mr Paulson has finalized details on this wonderful and long-overdue invention, "Friends of The Street" (a not-for-[too obscene] profit, charitable lobbying organization, and Luncheon Club) are already one step ahead of the GS Manchurian Candidate in the Treasury. They have already proposed and structured a "Master Liquidity Enhancement Conduit of Master Liquidity Enhancement Conduits", better as a "MLEC-'O-MLEC" (which interestingly was alluded to during the S&L crisis by, of all people, the paedophile Pee-Wee Herman, as one of his signature inanities - "mlec-o-mlec-o-hi-mlec'-o-hidey-ho!!"). The significance of the MLEC and MLEC-'O'MLEC should not be lost on observers: To hoover-up any security that might expose the large, leveraged holders of risk to price fluctuations in their risk books at anything other than an officially sanctioned, tubereuse-smelling level, that insures no (unauthorized) assset impairment, capital loss, and thus no diminishment of potential bonus dosh. They are attempting to - in effect - brute-force away any and all non-officially sanctioned vagaries of the credit cycle, for any threat to The Street's wealth just cannot be countenanced. After all, what's good for The Street is good for America, right?

Embarking on a related tangent, this reminds me of the legendary Hank Greenberg's iron-fisted attempts to control and forestall any selling of AIG stock by any executive or employee at any price. If by some sad twist of fate you sold a 1,000 shares of your AIG stock to pay for your uninsured mother-in-law's prosthetic hip, you would (so the legend goes) be hailed to his office and grilled, lambasted, and humiliated about your petty sale. How did he know?? Who told him? Everyone was fearful, for if you sold, then come Xmas time it be "NO SOUP FOR YOU, JERRY!!", or worse, a transfer to the corporate travel office or perhaps even a pink slip. And until Spitzer torpedoed this operation in intimidation and maniacal control of stock, the shares of AIG traded at a large premium to every other like-for-like insurance stock in the USA and world, including the other insurance magicians, Markel, and Berkshire. Such is the power of controlling the float and the marginal sales of securities that dictate the prevailing market-price, and thus mark-to-market for all Shareholders. And this wasn't simply vanity: AIG was acquisitive and used this inflated scrip their advantage, time-and-time again. Is the MLECs relationship to The Street any different? Isn't the street hope to using the same smoke-and-mirrors parlour-trick to insure the advantages conferred upon them as a result of robust valuations of dubious assets continues apace?

All which raises question: who will be the MLEC's gatekeepr? Will it be a GS assignee, or small coterie such as prefvailed in the LTCM unwind? Does this mean, might this mean, the Bear or one outside the Circle of Trust can't pick off GS's mortgage or asset -backed desk in a fair-trade, or else Friends of GS will not step up and relieve The Bear of the Bear's dubiously marked-paper? So many questions, so little space and time. And though Pee-Wee invented the MLEC-'O-MLEC, it is worth contemplating the ignominious fate of Mr Herman, seen right, without his tennis shoes, flexible-flyer bicycle, Conky, or his characteristic grin.