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Richard Berger
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Mr. Berger is the creator and developer of the YDP screening tool. A chart system and its analysis for screening and monitoring dividend income equity investments. The recipient of Seeking Alpha's Outstanding Performance Award (... More
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  • Too Big To Fail 0 comments
    Feb 15, 2013 9:59 PM

    In my recent article on AIG, in addition to examining the fundamentals and value of that company, I discussed the backstop of the United States Government which stepped in to make sure AIG did not fail in 2008. I went on to advance my opinion that having expended the political, moral, and taxpayer capital in excess of $182 billion to keep AIG afloat at that time, the politicians in general and the current administration in particular for its remaining 4 years is not about to let AIG fail even if another crisis should befall the economy.

    I want to take this opportunity in my blog to expand on this idea. Let me advance the thought that this same reasoning applies to each and every one of the other enterprises and to the sovereign governments of The United States and the rest of the world. Under this new paradigm many trillions of dollars around the globe have been committed in the cause of "too big to fail". This includes the investment bankers, General Motors (NYSE:GM), the CDO and CDS securitized debt instruments, UBS, and all the other entities great and small that the world governors have worked so hard to preserve. Too much capital, not just of the cash kind, has been committed to the entire process of public monetization of private debt to turn from that road now. Qualitative Easing - Phase Infinity is the perfect proof of this thesis.

    Thus, I have begun looking at all these corporate beneficiaries (victims?) of the new liquidity paradigm. This includes all those companies that did receive bailouts or assurances of available funds and liquidity in an unlimited flow if needed. However, it also includes vast numbers of companies that did not need nor seek such help in the recent crisis.

    Ford (NYSE:F) is but one example. Company management stood strong and weathered the financial storm without asking for any government assistance. Indeed, they refused it. None the less, should a crisis (large or small) arise under this new paradigm of liquidity at all costs, the politicians and regulators, having argued and acted to preserve the status quo and the jobs and union deals and pension pacts and all those other myriad interconnected packets of patronage and pork, are not about to stand back and consider allowing market place solutions and the operation of traditional bankruptcy law to function.

    We live in the era of intervention now and any threat to the stability of the status quo in labor and finance will be met with an open checkbook overdrawn on the taxpayer account. Failure is not an option in today's world. Printing of fiat currency to drown out the signs of deflation under a mountain of diluted national currency is the policy of the national central banks of the world today. Japan was early to crisis by 2 decades and late to join the path to inflating out of a deflationary economy but even they have now joined the program.

    This new world economic paradigm has yet to sink in. It is a shift of plate tectonic proportions that has yet to be priced into the equities markets. I urge all investors to expand their thinking to take this new environment into account when evaluating value and risk and when seeking out new opportunities. In the coming weeks I will be attempting to do just that in seeking out new situations and avoiding risks.

    Good luck and good investing.

    Disclosure: I am long AIG.

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