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  • The Market's Verdict is in – There are indeed winners and losers 0 comments
    Apr 25, 2009 11:40 AM

    Warren, ole buddy, you need to take it like a man.

    For the purposes of this discussion our poster boy is Warren Buffet. Let's pretend that Warren has a net worth of $10 billion. Let's presume that Warren's balance sheet says he's got $1 trillion in Assets and he's got $990 billion in Liabilities. Why hasn't Warren Buffet's money been wiped out? The market's verdict is in -- he should be.

    Yes … yes … there's that little rub called leverage. Funny thing about leverage though … it runs down hill just like other stuff. In other words, the way to dismantle a pyramid scheme is from the top down. We seem to be going bottom up.

    If the FEDury (Federal Reserve Bank, Treasury Department) is going to pick winners and losers for the greater good then isn't the greater good that we enforce moral hazard and let Warren be one of the losers?

    Were Warren to be forced out with a gaping hole in his pocket that doesn't mean that his assets don't continue in existence. The way to close down a bank is how the FDIC does it. You wipe out those who did not make good decisions and try to protect the innocent.

    In the case of widows and orphans and their pension funds, the widows and orphans do need society's self taxation. The pension fund managers, you know those guys walking around like they are the owners, need to recognize their loss first so the rest of us working stiffs can go about cleaning up the mess.

    The market picked the losers. The market – you and I – needs to enforce the market's decision and exact payment.

    Nothing against you Warren.

    Why Warren? Warren Buffet is one of the top five largest recipients of TARP money. Warren shouldn't get TARP money. TARP money needs to go specifically toward maintaining the value of Warren's former assets. In other words Warren doesn't have $10 billion in net worth. It's zero … or it would be were the market's verdict to be exercised.

    If Bank of America ceases to exist, it wouldn't necessarily wipe out Bill Gates. He'd surely take a hickey. But I'm also sure he'd be fine. You probably end up taking a big chunk out of the world's financiers though. But aren't those their signatures' at the bottom of their contracts?

    If CITI falls, it doesn't have to mean that its loans out there have to be called, too. In fact it shouldn't mean that the general economy has to shut down. On the other hand these thousand “surgical cuts” by the FEDury's picking winners and losers is killing the general economy.

    If Goldman Sachs vanishes, jobs at the Tyson chicken plant shouldn't be affected. Goldman's demise shouldn't prevent the donut shop on fifth and main from continuing to make us all fat and keeping their employees employed.

    If Warren or Soros or Lewis or … or … or … can't make a campaign contribution to their favorite politician, that doesn't mean there isn't money out there from other sources – the winners … the ones who didn't participate in this shoot for the moon cabal are still there. Who knows, it might even encourage them to work a little harder to get their constituent's approval. They might even do a better job.

    Net, net, net. The FEDury has an inherent conflict of interest and it has forgotten its fiduciary responsibility to the market – you and I. Bailing out banks is one thing. Bailing out bank owners is another.

    The Devil's in the detail. Think of this as just trickledown economics at work. All the credit and all the blame. All the profits and all the losses.

    Seems only fair to my animal spirit.

    Is this socialism? No ... its capitalism at work!

    Nothing to disclose:  I'm out of the market.  I'm watching from the sidelines throwing tomatoes.



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