_vagrant_joe

The Credit Spreads Blow-Up

while a normal capitalistic system should seem to favor those with strong balance sheets and reasonable or negligible debt, our current system and those of many of our european counterparts seem to be shunning the predictability of capitalism in favor of russia's oligarchical corporatism -where politics and political friends matter almost as much or even more than sound business practices. The only predictability of this system would seem to be disaster -but when, where, and among whom are unknown. When a company such as Citi can take $20B from the US Government, an amount equivalent to their entire market cap, only give up 4.5% of their company (in the form of warrants), and then use that money to buy other companies -the idea of capitalism as the United States' working model is turned on it's head. And this scenario has happened at an alarming rate (even though just 1 instance should be alarming in an of itself). This has an unknown effect on companies that play by the rules. Those playing by the rules might have the most to lose as their balance sheets can just be a good meal to a competitor with more or better-connected lobbyist/bribery-artis... and a blank check from a Chris "countrywide" Dodd, Barney "fannie-man" Frank, Nancy "JPMorganGoldmanSachsC... Pelosi, or Hank "hug-a-bank" Paulson, et. al. If a competitor that is doing worse that you, suddenly is able to use their fragility as a reason to pick up a check larger that the value of their entire company, buy out suppliers/distributors... or whatever with no restrictions, then these scenario's need to be factored into portfolio decisions.