Bailout Fallout

One day after the Fannie Mae/Freddie Mac bailout, it’s time for some second-guessing. The Wall Street Journal points out that while short-term financial indicators around the world—ranging from mortgage rates to stock prices—surged on the Treasury’s nationalization of the two mortgage giants, “[m]any in the market warned that it will do little to salve the deeper wounds in the American economy and financial markets.” Simply put, the Journal worries that although the government has plugged a hole in the dike, there is no guarantee that its radical emergency actions will turn the tide of housing woe. The New York Times looks at the role of Treasury Secretary Henry Paulson in driving the biggest government intervention since the Great Depression (at the prodding of foreign governments, notably the Chinese, says the WSJ). “The sentiment was, “You’re in charge, and I hope it works’ ” is how President Bush’s deputy press secretary Tony Fratto characterized the president’s attitude toward Paulson. The NYT observes that Paulson has led Bush “where he instinctively would not ordinarily go: into the realm of government intervention in the markets.” The NYT’s “Dealbook” column gives Paulson little credit, writing that the moment he floated the idea of government intervention, “he virtually guaranteed that that was exactly what would happen,” as other potential saviors saw an easy way to wash their hands of the problem. Whether that’s true or not, Paulson’s actions have presented Congress with a major policy headache and, just as soon as the pols stop squabbling over who created the Fannie/Freddie mess, lawmakers will have to begin reinventing the two companies. Some see the chance to rein in their market exposure by turning them into public utilities or pure government agencies. Others want to use them as a tool to provide more affordable housing, writes the NYT.

There haven’t been too many bumper trading sessions recently, so you can imagine how London brokers felt when a computer glitch took down the London Stock Exchange for seven hours on the day the Fannie/Freddie news sent world markets surging. United Airlines must have wished the blackout had affected the entire financial world after Miami investment advisory firm Income Securities Advisors wrote that the Florida Sun-Sentinel was reporting that United’s parent company, UAL, would be filing bankruptcy. The story was true, if six years too late, having been originally published in 2002. By the time UAL could address the problem, its shares had plummeted to about $3 from more than $12, wiping out more than $1 billion in value.

Even as Google announced plans to partner with NBC Universal to sell advertisements on some of NBC’s cable channels, the WSJ reports that the Justice Department is eyeing a “ possible antitrust challenge” to the company’s growing power in advertising. The government has retained the services of renowned litigator Sanford Litvack, an indication that the “U.S. is preparing to take court action against Google and its search-advertising deal with Yahoo,” writes the paper. But why worry about federal investigations when there is the rest of the world to conquer? The FT reports Google will join forces with HSBC and Cablevision honcho John Malone in a $750 million project to bring satellite Internet access to 3 billion people in Africa and other emerging markets. First step is an order for 16 satellites from a French aerospace group to “connect mobile masts in a swath of countries within five degrees of the equator to fast broadband networks.”

Shell is set to become the first western oil company to sign a deal with the Iraqi government since the 2003 invasion, the FT reports. The Anglo-Dutch oil giant will undertake a joint venture valued at $4 billion with the Iraqi government to tap gas reserves in the Basra region. The news is a lone success for Big Oil in Iraq, given that the Iraqi oil ministry has abandoned a controversial plan to award short-term no-bid technical support contracts to companies like BP, Exxon Mobil, and Shell. Baghdad will now look to forge longer-term contracts that could bring other international oil companies into the bidding.

Finally, with just four months to go until Christmas, Apple is set to unveil a new line of iPods. Steve Jobs must be worried that Microsoft’s new software update for the Zune digital music player is going cut into market share, no?