Bailouts: Unfair to Non-Bailees 13 comments
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If you run a large corporation in trouble, there is a drill that you must follow.
- In measured tones, tell the public that liquidity is no issue, and that you are more than capable of meeting all obligations.
- Scream loud behind closed doors to Congress/regulators, saying that you have been a prudent manager, but the economic environment is beyond belief. You need help and you need it now, and the change in administration might be too late for you.
- Explain how many other jobs would be lost if you disappeared. (A canard, because the company won’t disappear. The equity might be canceled, and some factories closed and jobs lost, but most of the jobs and factories will continue with the bondholders as the new owners.)
- In the crisis atmosphere, judgment will be suspended (as it was before the Iraq war and at the debates over the bailout), and legislators will vote for something that won’t work, but must be done out of the appearance that Congress must be doing something to fix matters. Anything to justify their existence…
- Receive the bailout, and thank them for their wise decision on behalf of the American people.
- When the bailout monies fail, ask for more. (Think of AIG; you might even get really soft terms.)
- Because Congress has bought into the original premise of bailing you out, they will do it again to protect their investment. Regret has set in, and Congress will easily “double down” to throw good money after bad to protect their investment. Remember, Congressmen are facile at speaking to the ignorant populace, but aside from Ron Paul, few have any significant understanding of economics. As my best boss once said, “I wouldn’t trust him to run a hot dog stand.”
As a CEO with a company in trouble, the objective is to get your foot in the bailout door. Once inside, it will be difficult for the government to turn its back on you.
And, that is why Congress should refuse to bail out firms, even those that are too big to fail, unless they are taken through bankruptcy first. Congress invariably throws good money after bad, and we as a nation are the poorer for them doing it. I have no doubt that the automakers will get bailed out, but it is the wrong decision. Better they should go through the bankruptcy process so that they can reconcile their cost structures, than that the US government should subsidize unionized auto workers.
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This article has 13 comments:
Bankruptcy is of course the most efficient and morally laudable solution. Just don't expect to see it applied to money-center banks anytime soon.
Firstly, Goldman Sachs is planning a FDIC-insured euro debt issue. If I am going to be insuring their debt issues, it better be to U.S. interests! Furthermore, the banks are profiting from issuance of FDIC-insured corporate bonds. If I am going to take on the FULL risks of issuing these bonds, I want the FULL profit the interest brings. The banks can keep the origination fees. Goldman is also in the bidding for a stake in a German power grid project worth 1 billion Euros. This is after Goldman got $10 billion of OUR money under the TARP. Is that MY money going for this foreign infrastructure project?
Secondly, Morgan Stanley just spent 200 million Chinese Yuan to buy a 19.9% stake in a Chinese Trust Bank. I want to know, did MY capital injection of $10 billion dollars into Morgan Stanley help pay for this? If this bank is hurting for capital so much that it needs OUR money, why is that money being spent to buy stakes in foreign banks?
Finally, and perhaps most egregiously, Goldman Sachs, Citigroup, and JP Morgan Chase are among banks now profiting from credit-recovery swaps, which are bets on the amount investors may recover from bonds after borrowers go bankrupt. Among the borrowers being bet against is the ailing General Motors.
Why do we as taxpayers dole out TRILLIONS of OUR dollars to these banks just so that they can increase THEIR profit margins? The automotive industry is forced to undergo body cavity searches for a measly $25 billion, and we continue to dole out TRILLIONS to these banks with no strings attached. DISGUSTING!!
John
American Taxpayer
Thank you for your vote.
Love,
Incumbent Congress
AMEN
On Nov 30 08:18 PM John77 wrote:
> As a taxpayer who pays about $300,000 per year to the U.S. Treasury,
> I am furious about the actions of banks that have received MY money.
>
> Firstly, Goldman Sachs is planning a FDIC-insured euro debt issue.
> If I am going to be insuring their debt issues, it better be to U.S.
> interests! Furthermore, the banks are profiting from issuance of
> FDIC-insured corporate bonds. If I am going to take on the FULL risks
> of issuing these bonds, I want the FULL profit the interest brings.
> The banks can keep the origination fees. Goldman is also in the bidding
> for a stake in a German power grid project worth 1 billion Euros.
> This is after Goldman got $10 billion of OUR money under the TARP.
> Is that MY money going for this foreign infrastructure project?
>
> Secondly, Morgan Stanley just spent 200 million Chinese Yuan to buy
> a 19.9% stake in a Chinese Trust Bank. I want to know, did MY capital
> injection of $10 billion dollars into Morgan Stanley help pay for
> this? If this bank is hurting for capital so much that it needs OUR
> money, why is that money being spent to buy stakes in foreign banks?
>
> Finally, and perhaps most egregiously, Goldman Sachs, Citigroup,
> and JP Morgan Chase are among banks now profiting from credit-recovery
> swaps, which are bets on the amount investors may recover from bonds
> after borrowers go bankrupt. Among the borrowers being bet against
> is the ailing General Motors.
> Why do we as taxpayers dole out TRILLIONS of OUR dollars to these
> banks just so that they can increase THEIR profit margins? The automotive
> industry is forced to undergo body cavity searches for a measly $25
> billion, and we continue to dole out TRILLIONS to these banks with
> no strings attached. DISGUSTING!!
> John
> American Taxpayer
All a poor soul like myself with only a few grand in savings can do to get back at them and to get some of my stolen tax money back is to just keep short-trading the SOB's on the stock market, taking a few hundred here, a few hundred there for the rest of my life UNTIL THE DAY I DIE. I almost feel like Robin Hood, taking from the rich and giving to the poor.
Won't you join me?
Sometimes, perhaps. Tomorrow might be a good time. But you're making a very fundamental error: a short position in anything that produces dollars is risky and therefore (except for very specific opportunities based on company-specific factors) any short position in common stocks is a short-term trade. You cannot use it to make money over the long term and in most normal markets it is not profitable to hold broad-based short positions at all. More generally, when you are short stocks you are fighting the Fed. Don't do that. If you want to short something, short Treasuries - they have no upside at this point and in any case will not be helped by anything the "authorities" are likely to try. And be sure to keep your collateral in gold, not dollars. Otherwise you are giving the powers that be an easy way to bash your portfolio senseless while doing what they wanted to do anyway. Don't let them.
It sounds like you're angry. I am as well. But I won't be joining you; a sober assessment demands a different strategy. Good luck to you.
On Nov 30 08:18 PM John77 wrote:
> As a taxpayer who pays about $300,000 per year to the U.S. Treasury,
> I am furious about the actions of banks that have received MY money.
>
> Firstly, Goldman Sachs is planning a FDIC-insured euro debt issue.
> If I am going to be insuring their debt issues, it better be to U.S.
> interests! Furthermore, the banks are profiting from issuance of
> FDIC-insured corporate bonds. If I am going to take on the FULL risks
> of issuing these bonds, I want the FULL profit the interest brings.
> The banks can keep the origination fees. Goldman is also in the bidding
> for a stake in a German power grid project worth 1 billion Euros.
> This is after Goldman got $10 billion of OUR money under the TARP.
> Is that MY money going for this foreign infrastructure project?
>
> Secondly, Morgan Stanley just spent 200 million Chinese Yuan to buy
> a 19.9% stake in a Chinese Trust Bank. I want to know, did MY capital
> injection of $10 billion dollars into Morgan Stanley help pay for
> this? If this bank is hurting for capital so much that it needs OUR
> money, why is that money being spent to buy stakes in foreign banks?
>
> Finally, and perhaps most egregiously, Goldman Sachs, Citigroup,
> and JP Morgan Chase are among banks now profiting from credit-recovery
> swaps, which are bets on the amount investors may recover from bonds
> after borrowers go bankrupt. Among the borrowers being bet against
> is the ailing General Motors.
> Why do we as taxpayers dole out TRILLIONS of OUR dollars to these
> banks just so that they can increase THEIR profit margins? The automotive
> industry is forced to undergo body cavity searches for a measly $25
> billion, and we continue to dole out TRILLIONS to these banks with
> no strings attached. DISGUSTING!!
> John
> American Taxpayer
On Nov 30 10:08 PM Jackson Cash wrote:
> Dear John,
> Thank you for your vote.
>
> Love,
> Incumbent Congress
I have a few penny stocks that need about $2M for free.
I would rather see a $100B billion given in $2M chuncks to 50,000 small businesses.
Some of the people who left these comments make me laugh...they say that bailouts are so bad, yet I'm sure many of them voted for bailouts...voted for McCain and his bailouts or voted for Obama and his bailouts or voted for their pro-bailouts Congressman or senator.
No one can accuse me of being a hypocrite, as I voted against bailouts...I did the right thing and voted for an anti-bailout 3rd party candidate and I also voted for my Congresswoman's opponent as she supported these bailouts.