MichaelZZ

The Truth About Goldman and AIG Becomes Clearer

GOLDMAN-SACHS

1. GS was probably most responsible for the run-up of the price of crude to $147 via promotion and manipulation.
2. GS was probably greatly responsible for the mortgage woes (see my thoughts following this short litany).
3. GS appears to have paid off Warren Buffet to obtain his ability to promote (see my thoughts).
4. We, the People, paid GS $13 billion through AIG. Why wasn’t this investigated?
5. GS appears to view itself as the De Beers of the securities markets.
6. Mr. Henry Paulson (Treasury Secretary, Bush Administration and ex-CEO of GS), panicked around the middle of September 2008, and “educated” Congressional leaders that we were in the middle of a financial crises.
Interestingly, after reaching a high of $250.70 on October 31, 2007, GS’s common stock fell to under $86 on September 18, 2008.


Regarding 2, above:
Billions and billions (Carl Sagan) of years ago…, well, maybe 30-40 years ago,
financial institutions would loan funds for the purchase of homes and would
collect the funds over a period of years. The concept of selling those loans
(mortgages) was developed to enable these institutions to recycle the funds for the
purpose creating more loans with the proceeds from selling the mortgages to other
institutions and investors.
Via competition, these institutions began lowering the requirements for purchasers
of residential properties, e.g., whereas the standard down payment was 20%, that
requirement was reduced through competition to 15%, to 10%, and, in some cases,
no down payment was required.
Enter the Goldman-Sachs and its collective “creativity”.
Is it possible (simplistic, but an interesting roadmap):
a. GS went to Countrywide to promote the concept of stimulating the creation of
additional mortgages that GS will package and sell as securities?
b. GS attempts to sell the packaged securities and met with a head-wind insofar as the securities were not rated.
c. GS went to the rating agencies, S&P, Moodys, etc. to obtain a rating, but were told they couldn’t receive a good rating unless the securities were “insured”.
d. GS finds an insurer (a subsidiary of AIG) to obtain “insurance” for the packaged mortgages. GS sells the idea to the insurer that GS is willing to pay a fee as a cost of doing business. Further, it may have been that GS sold the insurer to believe that defaults would be almost non-existent and that the fees were “found money” for the insurer. The insurer bought into this sales pitch based upon greed. Thus, these securities (bonds) were given investment grade ratings by S&P, Moodys, etc., and the result was a flood of sales of these bonds (CDO’s – Collateralized Debt Obligations).
e. GS, knowing that these highly rated CDO’s were risky, and after they sold these CDO’s, went out and purchased CDS’s (Credit-Default Swaps). They no longer had any insurable interest, but still expended funds to purchase these CDS’s. Why? Perhaps they knew that it was only a matter of time before the CDO’s would collapse? Those who purchased the CDO’s were the one’s who should have been advised to purchase the CDS’s. There should be a serious investigation into GS as to why it purchased these CDS’s.
f. After the collapse, the insurer did not have the funds to pay off, thus We, the People, via our President came to its aid by injecting more than a hundred billion dollars into AIG to enable the payments to GS and others.

Regarding 3, above:
In the middle of 2008, Berkshire Hathaway (Warren Buffet) purchased $5 billion
of preferred stock from GS. The dividend rate is 10%!! As a “kicker”, GS granted BRK long-term warrants to purchase 143,000,000 shares of GS @ $135.00 per share. Why would GS have made such an apparently desperate deal with Mr. Buffet?
Shortly thereafter, Mr. Buffet was constantly on CNBC, promoting TARP.

Is this good circumstantial evidence?
What would a rational reader conclude?
Where are our investigative reporters?
What should a citizen/taxpayer conclude?

mz
07/05/09

Why Shorting Financials Is a Logical Response

BANKING “CRISIS”

One cannot resolve a problem unless one understands the problem.

PROBLEM: Financial institutions have reduced their lending.
The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.

After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.

This is the crux of the problem.

The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.

Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.

If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.
Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


BEST PLAN (Recapitalization):
1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
We are experiencing pain regarding this financial phenomenon.

3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
We either believe in capitalism or we don’t.

We will have displayed a pragmatic solution well within the parameters of capitalism.
The U.S. dollar will strengthen.
The next step would be to address the underlying economics with the basic problem being unbridled greed.
We should not have a "shot" stimulant as we did earlier.
We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.

Michael Zitterman
Sherman Oaks, Ca.
[e-mail]
[e-mail]
818-988-2792

Concept: These institutions should have gone out and should be going out raising equity capital via common and preferred stock.
Taxpayers' Role: The taxpayers (a taxpayers' mutual fund) should offer funds by offering to purchase preferred stock with favorable conversation features, but with a reasonable buy-back, and substantial warrants to purchase common. These parameters should be more costly to the institutions than the "marketplace" to entice the institutions to raise the requisite funds from private sources, rather than the taxpayers, but the taxpayers would be there as a backstop.

Betting on Goldman's Future

BANKING “CRISIS”

One cannot resolve a problem unless one understands the problem.

PROBLEM: Financial institutions have reduced their lending.
The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.

After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.

This is the crux of the problem.

The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.

Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.

If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.
Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


BEST PLAN (Recapitalization):
1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
We are experiencing pain regarding this financial phenomenon.

3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
We either believe in capitalism or we don’t.

We will have displayed a pragmatic solution well within the parameters of capitalism.
The U.S. dollar will strengthen.
The next step would be to address the underlying economics with the basic problem being unbridled greed.
We should not have a "shot" stimulant as we did earlier.
We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.

Michael Zitterman
Sherman Oaks, Ca.
[e-mail]
[e-mail]
818-988-2792

Concept: These institutions should have gone out and should be going out raising equity capital via common and preferred stock.
Taxpayers' Role: The taxpayers (a taxpayers' mutual fund) should offer funds by offering to purchase preferred stock with favorable conversation features, but with a reasonable buy-back, and substantial warrants to purchase common. These parameters should be more costly to the institutions than the "marketplace" to entice the institutions to raise the requisite funds from private sources, rather than the taxpayers, but the taxpayers would be there as a backstop.

Increased Government Investment in Banks?

PARAPHRASING ISAAC: Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.

In this case, the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.

This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.

A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.

THE PARAMETERS OF THE FIRST TRAUNCH/TRANCHE OF THE $125 BILLION SHOULD BE CHANGED:

1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking

2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.

3) The conversion factor should be significant

4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants

5) The "fund" should be given seats on the Boards.

6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year

7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year

8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which will have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.

The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.

CAPITALISM WILL BE ALIVE AND WELL.....................

Increased Government Investment in Banks?

NOTE: Mergers should not affect Equity Capital, thus this is a red herring.

Larry Kudlow, about 10 days ago, interviewed Henry Paulson and asked the remarkably ignorant and inane question as to what the implications would be if these institutions used the funds from the preferreds to pay down debt.

An Accounting 1a student should know that would have no effect upon Equity Capital, i.e., cash and liabilities would be reduced.

Either this was a "set-up" question or Paulson is an example of the blind leading the blind, i.e., he is in over his head, since he made no response to correct Mr. Kudlow's "thinking".

Sad stuff!!!

Rescue Funds Fueling Buyout Deals Instead of Loan Increases

RESTART OUR ECONOMIC ENGINE:

Paraphrasing Isaac: Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.

In this case, the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.

This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.

A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.

THE PARAMETERS OF THE FIRST TRAUNCH/TRANCHE OF $125 BILLION SHOULD BE CHANGED:

1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking

2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.

3) The conversion factor should be significant

4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants

5) The "fund" should be given seats on the Boards.

6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year

7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year

8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which will have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.

The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.

Capitalism will be alive and well.

Michael Z.
[e-mail]

TARP vs. Non-TARP: Investing with Uncle Sam at a 60% Discount

"BAILOUT" PARAMETERS SHOULD BE ADJUSTED:

Paraphrasing Isaac:
Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.

In this case, the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.

This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.

A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.

The parameters of the first traunch/tranche of $125 billion should be changed:

1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking

2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.

3) The conversion factor should be significant

4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants

5) The "fund" should be given seats on the Boards.

6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year

7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year

8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which will have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.

The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.

CAPITALISM WILL BE ALIVE AND WELL.....................

Michael Z.
Sherman Oaks
[e-mail]
310-479-7480 cell phone

As the Sell-Off Continues, Investors Look to the Election

"BAILOUT" PARAMETERS SHOULD BE ADJUSTED:

Paraphrasing Isaac:
Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.

In this case, the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.

This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.

A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.

The parameters of the first traunch/tranche of $125 billion should be changed:

1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking

2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.

3) The conversion factor should be significant

4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants

5) The "fund" should be given seats on the Boards.

6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year

7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year

8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which will have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.

The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.

CAPITALISM WILL BE ALIVE AND WELL.....................

Michael Z.
Sherman Oaks
[e-mail]

As the Sell-Off Continues, Investors Look to the Election

RESOLUTION FOR DISTRESSED "RESET" MORTGAGES:

Concepts:

1) One size does not fit all, i.e., each situation should be tailored for the borrower.

2) Responsibility should be resolved between the lender and the borrower.

3) No taxpayers’ funds should be involved.

4) A mortgagor must sign a document, subject to perjury, whereby the mortgagor states that he or she was unaware that the interest rate was to be reset. (OPTIONAL)

The mortgagor has the option of the following alternatives:

The mortgagor will be allowed to wind the clock back to the time prior to the purchase with the information that the mortgage will be reset at the end of five years at a rate to be determined and explained that the rate may be significantly higher than the rate offered at the time of purchase.

1) Can agree to the purchase and will remain with the current situation.

2) Can refuse the 5/25 loan as offered and opt for a conventional fixed rate loan at a rate of the then-current rate, e.g., 7.25% and will have all payments adjusted to reflect that loan.

3) Can terminate the potential purchase.

4) Can remain in the property, while making payments equal to 120% of the old payments for the next five years, and, at the beginning of each subsequent 5-year period, the payments will be adjusted by another increment of 20% of the original payment. The lender or agent thereof will be given a lien on the property that will be equal to the accumulation of the difference between the contractual payments and the payments being made. Further, interest will accrue on this differential at the contractual rate.

If the mortgagor opts for option 3), and there is no significant evidence reflecting that the rate reset information was given prior to entering into the mortgage, the mortgagor will vacate the premises and the mortgage will be cancelled, with no further obligation.

Any other encumbrance upon the property will be the responsibility of the mortgagor.

The mortgagor will be given a moving allowance of $5,000 (OPTIONAL).

Further, the mortgagor will be responsible for any damages done to the property.

One of the most critical factors is the business model of a CountryWide negotiating mortgages, and then having them bundled and sold as securities. That "model" stimulated the numbers, since the negotiators were no longer involved with these mortgages.


The logistics of my idea would be to have the funds consisting of two pieces (one, the payment from the mortgagor, and the second, the augmented payment from the "negotiator"... who will hold the 2nd) and the total would be paid to the "security" as a whole payment.

This would place the responsibilities where they should be, on the mortgagor and on a "CountryWide&quot.... i.e., the negotiator.

If these logistics require some tweaking, so be it.

Michael Z.
Sherman Oaks
[e-mail]
310-479-7480 cell

Overall, Fundamentals Are Still Deteriorating

TO: hwood007: Obviously, you would never have thought about buying Bershire BRK.A) aka Warren Buffett (LOL).
Whereas the stock is selling around $110,000 per share, it has NEVER paid a dividend. The market is composed of all information and all types of buyers and sellers. Under what rational theory would you suggest that it is not rational to defer dividends?

Michael Z.

Wall Street Breakfast: Must-Know News

Paraphrasing Isaac: Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.
In this case the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.
This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.
A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.
The parameters of the first traunch of $125 billion should be changed:
1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking
2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.
3) The conversion factor should be significant
4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants
5) The "fund" should be given seats on the Boards.
6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year
7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year
8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.
The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.
Capitalism will be alive and well.

Michael Z.
Sherman Oaks
[e-mail]

Overall, Fundamentals Are Still Deteriorating

Paraphrasing Isaac: Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.
In this case the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.
This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.
A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.
The parameters of the first traunch of $125 billion should be changed:
1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking
2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.
3) The conversion factor should be significant
4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants
5) The "fund" should be given seats on the Boards.
6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year
7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year
8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.
The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.
Capitalism will be alive and well.


Michael Z.
Sherman Oaks
[e-mail]

Wachovia Hints at What's in Store for Wells Fargo

Resolution for Distressed “Reset” Mortgages:

Concepts:
1) One size does not fit all, i.e., each situation should be tailored for the borrower.
2) Responsibility should be resolved between the lender and the borrower.
3) No taxpayers’ funds should be involved.
4) A mortgagor must sign a document, subject to perjury, whereby the mortgagor states
that he or she was unaware that the interest rate was to be reset.

The mortgagor has the option of the following alternatives:
The mortgagor will be allowed to wind the clock back to the time prior to the purchase
with the information that the mortgage will be reset at the end of five years at a rate to
be determined and explained that the rate may be significantly higher than the rate
offered at the time of purchase.
1) Can agree to the purchase and will remain with the current situation.
2) Can refuse the 5/25 loan as offered and opt for a conventional fixed rate loan
at a rate of the then-current rate, e.g., 7.25% and will have all payments adjusted to reflect that loan.
3) Can terminate the potential purchase.
4) Can remain in the property, while making the same payments. The lender or agent thereof will be given a lien on the property that will be equal to the accumulation of the difference between the contractual payments and the payments being made. Further, interest will accrue on this differential at the contractual rate.

If the mortgagor opts for option 3), and there is no significant evidence reflecting that the
rate reset information was given prior to entering into the mortgage, the mortgagor will
vacate the premises and the mortgage will be cancelled, with no further obligation.
Any other encumbrance upon the property will be the responsibility of the mortgagor.
Further, the mortgagor will be responsible for any damages done to the property.


One of the most critical factors is the business model of a CountryWide negotiating mortgages, and then having them bundled and sold as securities. That "model" stimulated the numbers, since the negotiators were no longer involved with these mortgages.
The logistics of my idea would be to have the funds consisting of two pieces (one, the payment from the mortgagor, and the second, the augmented payment from the "negotiator", who will hold the 2nd) and the total would be paid to the "security" as a whole payment.
This would place the responsibilities where they should be, on the mortgagor and on a "CountryWide", i.e., the negotiator.
I would have argued this concept during the negotiations between the various AG's and Bank of America regarding the CountryWide resolution. I think the cost would be much less than the eight billion dollar settlement
If these logistics require some tweaking, so be it.

Michael Z.
[e-mail]

Greed Kills and Other Observations

Resolution for Distressed “Reset” Mortgages:

Concepts:
1) One size does not fit all, i.e., each situation should be tailored for the borrower.
2) Responsibility should be resolved between the lender and the borrower.
3) No taxpayers’ funds should be involved.
4) A mortgagor must sign a document, subject to perjury, whereby the mortgagor states
that he or she was unaware that the interest rate was to be reset.

The mortgagor has the option of the following alternatives:
The mortgagor will be allowed to wind the clock back to the time prior to the purchase
with the information that the mortgage will be reset at the end of five years at a rate to
be determined and explained that the rate may be significantly higher than the rate
offered at the time of purchase.
1) Can agree to the purchase and will remain with the current situation.
2) Can refuse the 5/25 loan as offered and opt for a conventional fixed rate loan
at a rate of the then-current rate, e.g., 7.25% and will have all payments adjusted to reflect that loan.
3) Can terminate the potential purchase.
4) Can remain in the property, while making the same payments. The lender or agent thereof will be given a lien on the property that will be equal to the accumulation of the difference between the contractual payments and the payments being made. Further, interest will accrue on this differential at the contractual rate.

If the mortgagor opts for option 3), and there is no significant evidence reflecting that the
rate reset information was given prior to entering into the mortgage, the mortgagor will
vacate the premises and the mortgage will be cancelled, with no further obligation.
Any other encumbrance upon the property will be the responsibility of the mortgagor.
Further, the mortgagor will be responsible for any damages done to the property.


One of the most critical factors is the business model of a CountryWide negotiating mortgages, and then having them bundled and sold as securities. That "model" stimulated the numbers, since the negotiators were no longer involved with these mortgages.
The logistics of my idea would be to have the funds consisting of two pieces (one, the payment from the mortgagor, and the second, the augmented payment from the "negotiator", who will hold the 2nd) and the total would be paid to the "security" as a whole payment.
This would place the responsibilities where they should be, on the mortgagor and on a "CountryWide", i.e., the negotiator.
I would have argued this concept during the negotiations between the various AG's and Bank of America regarding the CountryWide resolution. I think the cost would be much less than the eight billion dollar settlement
If these logistics require some tweaking, so be it.

Michael Z.
[e-mail]

The Great Bank Rush of 2008: What's the Money For?

FINANCIAL “CRISIS”

One cannot resolve a problem unless one understands the problem.

PROBLEM: Financial institutions have reduced their lending.
The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).

Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
The amount they are able to lend is contingent upon the amount of their equity capital (EC), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.
After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.
This is the crux of the problem.

The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.
Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.
If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.

PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.

Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).

Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.

If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.


BEST PLAN:
1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.

2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.

Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.

Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
We are experiencing pain regarding this financial phenomenon.

3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
We either believe in capitalism or we don’t.

We will have displayed a pragmatic solution well within the parameters of capitalism.
The U.S. dollar will strengthen.
The next step would be to address the underlying economics with the basic problem being unbridled greed.
We should not have a "shot" stimulant as we did earlier.
We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.

I will appreciate all comments regarding the foregoing.



Michael Z
Sherman Oaks, Ca.