There’s been a lot of comment this extraordinary month about whether the American model of capitalism is dead. I don’t think there’s anything red about the opportunities that Wall Street’s implosion will present for those who can provide liquidity. The desperation to replenish balance sheets could be felt in talk doing the rounds last week that a certain local institution, ravenous for new capital, had resorted to issuing paper into its own cash funds.
Far from the brotherhood of socialism, a Darwinian scenario is emerging where such stricken firms will become price-takers from any provider of liquidity left standing – and that means Australia’s superannuation funds. It is a delicious irony that George W. Bush, pin-up boy of the neocons, has been forced to embark on a nationalisation program that will have spent at least US$1 trillion of taxpayer’s money by the time its done, or roughly 20 times Cuba’s GDP. John Q. Citizen from Main Street, USA will take it in the neck from all this, no doubt.
But there are some chief investment officers based on streets with names like Lonsdale, Collins and Macquarie who should be springing into action as soon as the current panic dies down. After all, no-one ever did too badly from following Warren Buffet’s example. His purchase at press time of 9 per cent of Goldman Sachs should be a good indication of the amazing deals out there for those prepared to emerge from the cash shelter. Speaking of Goldman Sachs, one would have to think that its disappearance (along with Morgan Stanley) from the investment banking scene would have to provide more room for Australia’s hedge funds in the market for higher risk products.
Those taking last month’s shorting ban in their stride have possibly got this figured out already. While we’re talking about capitalism and such, one area where market forces could do with a bit more influence is in the salaries paid to the executives of our super funds. As Stephen Shore’s cover story (p16) makes clear, the packages currently on offer might not be enough to always attract the talent that will be needed to extract the opportunities from the torrid environment ahead.