Mr. B's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/258704/comments http://seekingalpha.com/instablog/377272-nuke-john/9571-the-rambus-convertible-notes-offering?source=feed#comment-559521 559521
The earnings miss was roughly at the bottom of the guidance range provided by management. In addition, the condition of the DRAM market has been known for some time.

What is missing from the price action follows:

(a) Hynix must post a $250 million bond and a $300 million lien on real property by June 29.
(b) The European Union settlement goes into effect in approximately three weeks.
(c) The main portion of the anti-trust trial begins in September with additional anti-trust proceedings in July. At stake is more than $4 billion in damages that are to be trebled under the Cartwright Act. You do the math.
(d) The ITC trial gets underway in August if my memory serves me correctly.
(e) Rambus has the funding to not only manage the upcoming maturity of the existing convertible note, but will have sufficient cash to conclude any additional, desparate legal tactics.

I am not pleased by the dilution nor the timing of the issue, but I understand that this was the right security to issue if Rambus was going to raise capital.

Rambus at less than $15 doesn't make much sense to me.

carpe.diem
I am long Rambus.



]]> Tue, 23 Jun 2009 17:05:05 -0400
The earnings miss was roughly at the bottom of the guidance range provided by management. In addition, the condition of the DRAM market has been known for some time.

What is missing from the price action follows:

(a) Hynix must post a $250 million bond and a $300 million lien on real property by June 29.
(b) The European Union settlement goes into effect in approximately three weeks.
(c) The main portion of the anti-trust trial begins in September with additional anti-trust proceedings in July. At stake is more than $4 billion in damages that are to be trebled under the Cartwright Act. You do the math.
(d) The ITC trial gets underway in August if my memory serves me correctly.
(e) Rambus has the funding to not only manage the upcoming maturity of the existing convertible note, but will have sufficient cash to conclude any additional, desparate legal tactics.

I am not pleased by the dilution nor the timing of the issue, but I understand that this was the right security to issue if Rambus was going to raise capital.

Rambus at less than $15 doesn't make much sense to me.

carpe.diem
I am long Rambus.



]]> http://seekingalpha.com/article/143048-is-rambus-the-next-27-bagger?source=feed#comment-546462 546462
Rambus has continued to innovate throughout ten years of litigation so the long-term future should be bright.

This is the best researched, well written, current article on Rambus.

carpe diem]]> Sun, 14 Jun 2009 20:35:16 -0400
Rambus has continued to innovate throughout ten years of litigation so the long-term future should be bright.

This is the best researched, well written, current article on Rambus.

carpe diem]]> http://seekingalpha.com/article/141862-rambus-the-next-big-litigation-play?source=feed#comment-537031 537031
Did you read the article? If Rambus technology "sucks", why have all of the memory manufacturer's "stolen" it and incorporated the technology into every generation of memory products produced over the past 10 years?

Rambus finally has a chance to get paid.

This is a very good synopsis of reams of information. NJ, thanks very much.

Disclosure: Long RMBS for 10 years

carpediem0496



]]> Mon, 08 Jun 2009 10:16:43 -0400
Did you read the article? If Rambus technology "sucks", why have all of the memory manufacturer's "stolen" it and incorporated the technology into every generation of memory products produced over the past 10 years?

Rambus finally has a chance to get paid.

This is a very good synopsis of reams of information. NJ, thanks very much.

Disclosure: Long RMBS for 10 years

carpediem0496



]]> http://seekingalpha.com/instablog/377272-nuke-john/5126-the-tessera-gold-rush?source=feed#comment-512742 512742
TSRA is well positioned to prosper in a difficult macro-economic environment. With significant cash reserves and no debt, TSRA can pursue payment for past infringement and new licensing agreements without being unduly pressured to settle on less than satisfactory economic terms.

QCOM has already said it will source from Amkor to ensure supply.

In addition, TSRA has other new technologies that will help drive growth. This does not appear to be a one trick pony.

Disclosure: long TSRA (and RMBS)
carpediem0496

]]> Thu, 21 May 2009 10:07:05 -0400
TSRA is well positioned to prosper in a difficult macro-economic environment. With significant cash reserves and no debt, TSRA can pursue payment for past infringement and new licensing agreements without being unduly pressured to settle on less than satisfactory economic terms.

QCOM has already said it will source from Amkor to ensure supply.

In addition, TSRA has other new technologies that will help drive growth. This does not appear to be a one trick pony.

Disclosure: long TSRA (and RMBS)
carpediem0496

]]> http://seekingalpha.com/article/128390-exclusive-big-banks-recent-profitability-due-to-aig-scam?source=feed#comment-445326 445326
The real problem at AIG-FP was the ability to write these "policies" without having to post collateral. A collateral requirement would have prevented this from ever happening. Instead, leverage was infinite. Now everyone gets to pay and the bailout is really for speculators, which could have been banks, hedge funds or other market participants. Add that to the outrage.]]> Mon, 30 Mar 2009 12:42:05 -0400
The real problem at AIG-FP was the ability to write these "policies" without having to post collateral. A collateral requirement would have prevented this from ever happening. Instead, leverage was infinite. Now everyone gets to pay and the bailout is really for speculators, which could have been banks, hedge funds or other market participants. Add that to the outrage.]]> http://seekingalpha.com/article/126755-all-roads-lead-to-rambus?source=feed#comment-432095 432095
While Rambus has been ripped of by the "corporate kleptomaniacs" and the closure of ten years of litigation should lead to billions of dollars in recoveries from what has been stolen, that is only part of the story.

Rambus has continued to innovate through all of this. XDR and MMI are examples of this.

Going forward, I expect Rambus to have a robust business as litigation concludes and as Rambus is recognized for its technological leadership. Rambus could easily have $1 billion plus in revenues in a very short time.

I am long Rambus.]]> Thu, 19 Mar 2009 09:13:58 -0400
While Rambus has been ripped of by the "corporate kleptomaniacs" and the closure of ten years of litigation should lead to billions of dollars in recoveries from what has been stolen, that is only part of the story.

Rambus has continued to innovate through all of this. XDR and MMI are examples of this.

Going forward, I expect Rambus to have a robust business as litigation concludes and as Rambus is recognized for its technological leadership. Rambus could easily have $1 billion plus in revenues in a very short time.

I am long Rambus.]]> http://seekingalpha.com/article/126539-rambus-steams-ahead?source=feed#comment-430336 430336
Pruf does a good job of distilling the current situation into a concise, understandable article.

Only in America can the criminal conduct of the memory cartel be tolerated for so long. Judge Whyte is finally bringing the Hynix litigation to a close after 8 1/2 years. As Nuke John points out above, the Robinson ruling that initially appeared to favor Micron is looking tenuous at best.

Sunlight is shining on the collusion of the memory manufacturers that drove RDRAM from the marketplace in the anti-trust trial in Judge Kramer's court. Damages of $4 billion are subject to trebling under the Cartwright Act.

Rambus has not only defended itself through this coordinated, litigation to the death strategy pursued by the memory manufacturers, but has some how continued to innovate. XDR is another step forward for Rambus IP.

You may ask why is there so much litigation around Rambus? Simply put, the revolutionary memory technology found in Rambus IP was so superior that it has become unbiquitous. The list of infringing companies is very long. It is time for every company that infringes to settle and get back to the task of making great products.

]]> Wed, 18 Mar 2009 08:57:34 -0400
Pruf does a good job of distilling the current situation into a concise, understandable article.

Only in America can the criminal conduct of the memory cartel be tolerated for so long. Judge Whyte is finally bringing the Hynix litigation to a close after 8 1/2 years. As Nuke John points out above, the Robinson ruling that initially appeared to favor Micron is looking tenuous at best.

Sunlight is shining on the collusion of the memory manufacturers that drove RDRAM from the marketplace in the anti-trust trial in Judge Kramer's court. Damages of $4 billion are subject to trebling under the Cartwright Act.

Rambus has not only defended itself through this coordinated, litigation to the death strategy pursued by the memory manufacturers, but has some how continued to innovate. XDR is another step forward for Rambus IP.

You may ask why is there so much litigation around Rambus? Simply put, the revolutionary memory technology found in Rambus IP was so superior that it has become unbiquitous. The list of infringing companies is very long. It is time for every company that infringes to settle and get back to the task of making great products.

]]> http://seekingalpha.com/article/126171-2009-rambus-year-to-shine?source=feed#comment-428065 428065
I certainly recognize that there are two sides to every story. What I do not see in your comments are any facts that support your argument.

The ALJ for the FTC fully exonerated Rambus (and why the FTC attempted to over rule the ALJ remains unknown). The FTC has now lost despite great and wasteful expense of taxpayer resources.

A jury found for Rambus 37-0 in a patent infringement trail with Hynix. Rambus prevailed in all three phases. Hynix is facing the finalization of the judgment as I write and may have to post a bond as much as $500 million. Of course, all of the other memory manufacturers have infringed as well.

The AT trial that is beginning will expose how RDRAM was driven from the marketplace after collusion by the memory manufacturers who feared becoming fabs for Rambus and Intel. Already damning evidence is being made public in filed motions.

Rambus offered up its revolutionary technology for pennies relative to the benefits derived from its application - hardly a king's ransom.

I could go on. You can check out rambus.org if you are interested in doing due diligence. Primary documentation is posted there.

But it seems to me that you believe the benefits of Rambus IP should be distributed for your use for free (which is an unfortunate sign of our times - why work if someone else will carry the water for you).

Rambus IP is in PCs, TVs, cell phones, digital cameras and set top boxes among other things.

Rambus continues to innovate with XDR as an example.




On Mar 16 01:10 PM Blee wrote:

> I notice that everyone commenting so far seem to have Rambus stock,
> humm; isn't that interesting.
>
> No one involved in this mess is without sin, and Rambus set it's
> sights on big money a long time ago. Why would they destroy documents?
> Because it would hurt them, humm.
>
> Rambus sat on the committee to set standards for the industry and
> wow, they included their own patented device structure, imagine that.
>
>
> They remind me a little of Enron and their little debacle.. Rambus
> should certainly get something out of this mess, but; it could or
> maybe should be jail time or smaller patent fees.
>
> Ultimately it is us, the consumer who will pay for this mess.
>
> Blee]]> Mon, 16 Mar 2009 14:43:02 -0400
I certainly recognize that there are two sides to every story. What I do not see in your comments are any facts that support your argument.

The ALJ for the FTC fully exonerated Rambus (and why the FTC attempted to over rule the ALJ remains unknown). The FTC has now lost despite great and wasteful expense of taxpayer resources.

A jury found for Rambus 37-0 in a patent infringement trail with Hynix. Rambus prevailed in all three phases. Hynix is facing the finalization of the judgment as I write and may have to post a bond as much as $500 million. Of course, all of the other memory manufacturers have infringed as well.

The AT trial that is beginning will expose how RDRAM was driven from the marketplace after collusion by the memory manufacturers who feared becoming fabs for Rambus and Intel. Already damning evidence is being made public in filed motions.

Rambus offered up its revolutionary technology for pennies relative to the benefits derived from its application - hardly a king's ransom.

I could go on. You can check out rambus.org if you are interested in doing due diligence. Primary documentation is posted there.

But it seems to me that you believe the benefits of Rambus IP should be distributed for your use for free (which is an unfortunate sign of our times - why work if someone else will carry the water for you).

Rambus IP is in PCs, TVs, cell phones, digital cameras and set top boxes among other things.

Rambus continues to innovate with XDR as an example.




On Mar 16 01:10 PM Blee wrote:

> I notice that everyone commenting so far seem to have Rambus stock,
> humm; isn't that interesting.
>
> No one involved in this mess is without sin, and Rambus set it's
> sights on big money a long time ago. Why would they destroy documents?
> Because it would hurt them, humm.
>
> Rambus sat on the committee to set standards for the industry and
> wow, they included their own patented device structure, imagine that.
>
>
> They remind me a little of Enron and their little debacle.. Rambus
> should certainly get something out of this mess, but; it could or
> maybe should be jail time or smaller patent fees.
>
> Ultimately it is us, the consumer who will pay for this mess.
>
> Blee]]> http://seekingalpha.com/article/126171-2009-rambus-year-to-shine?source=feed#comment-427661 427661
The problem was the memory manufacturers decided to steal the technology and pursue a litigate to the death strategy. The miscalculation was that Rambus would survive a ten year long assault. If ever there was a time to defend American IP, it is now.

It is difficult to follow a litigation story. It requires time and the vagaries of the judicial systems have been on full display with Rambus. For the most part, it has been a story of justice delayed is justice denied.

However, it seems as if the truth is finally unfolding. The article is a concise, accurate summary of the facts of the Rambus story.

I expect that Rambus shareholders will soon be rewarded. I hope so because I am long.


]]> Mon, 16 Mar 2009 11:26:37 -0400
The problem was the memory manufacturers decided to steal the technology and pursue a litigate to the death strategy. The miscalculation was that Rambus would survive a ten year long assault. If ever there was a time to defend American IP, it is now.

It is difficult to follow a litigation story. It requires time and the vagaries of the judicial systems have been on full display with Rambus. For the most part, it has been a story of justice delayed is justice denied.

However, it seems as if the truth is finally unfolding. The article is a concise, accurate summary of the facts of the Rambus story.

I expect that Rambus shareholders will soon be rewarded. I hope so because I am long.


]]> http://seekingalpha.com/article/105061-should-we-really-bail-out-the-big-three-automakers-with-73-20-per-hour-labor?source=feed#comment-304492 304492
The UAW has garnered outsized cash and benefit compensation for its members. UAW leadership also refused to see that productivity and quality are the keys to maintaining that lifestyle. (Insert all of the bad things about unions here.) By failing to police itself, the UAW has failed its members.

Management's list of failures is equally impressive. Let's begin with the post-war era. Deming, the guru of quality and statistical process control, was dismissed when he brought the ideas of continuous improvement, metrics and inventory control to Detroit. The Big Three were selling everything they could make because WWII was over, consumer demand was pent up and the productive capacity of the rest of the world was destroyed by the war.

Deming went to Japan. Ultimately, the Japanese learned to build the highest quality cars for the money in the world. Detroit went on to "sell" cars and the Japanese and Germans "built" cars.

Now, the Big Three produce inferior products that many people do not want to buy. Current and legacy labor costs prohibit competitive pricing given the feature and quality deficiencies of the products.

It's a big, giant mess.

The government will probably cave in because it is afraid of what the impact will be on the Pension Benefit Guaranty Corporation.

The bottom line is that a bailout now will only postpone the inevitable and increase the cost of failure in the future, which will happen because roots causes will not be addressed by a bailout.

Let the Big Three fail. Management and labor will be restrucured along with the companies. The companies will emerge smaller with different cost structures and with some good fortune develop better products. It may be the only way to save Detroit in the long run.

Why should the taxpayers pick up the tab for negligence on both the part of management and labor?

]]> Wed, 12 Nov 2008 16:49:56 -0500
The UAW has garnered outsized cash and benefit compensation for its members. UAW leadership also refused to see that productivity and quality are the keys to maintaining that lifestyle. (Insert all of the bad things about unions here.) By failing to police itself, the UAW has failed its members.

Management's list of failures is equally impressive. Let's begin with the post-war era. Deming, the guru of quality and statistical process control, was dismissed when he brought the ideas of continuous improvement, metrics and inventory control to Detroit. The Big Three were selling everything they could make because WWII was over, consumer demand was pent up and the productive capacity of the rest of the world was destroyed by the war.

Deming went to Japan. Ultimately, the Japanese learned to build the highest quality cars for the money in the world. Detroit went on to "sell" cars and the Japanese and Germans "built" cars.

Now, the Big Three produce inferior products that many people do not want to buy. Current and legacy labor costs prohibit competitive pricing given the feature and quality deficiencies of the products.

It's a big, giant mess.

The government will probably cave in because it is afraid of what the impact will be on the Pension Benefit Guaranty Corporation.

The bottom line is that a bailout now will only postpone the inevitable and increase the cost of failure in the future, which will happen because roots causes will not be addressed by a bailout.

Let the Big Three fail. Management and labor will be restrucured along with the companies. The companies will emerge smaller with different cost structures and with some good fortune develop better products. It may be the only way to save Detroit in the long run.

Why should the taxpayers pick up the tab for negligence on both the part of management and labor?

]]> http://seekingalpha.com/article/104485-the-long-steep-road-ahead-to-capitalism?source=feed#comment-300391 300391
Your words are very true, but lost in the noise and economic illiteracy of the day. All you have to do is sample the likes of bosun.j.

Nevertheless, it is worth making the case for freer markets, especially if one has compassion for the poor.

Can you imagine what school competition could do for inner city children?

Let's not give up on free markets. The alternative is yoke of servitude at the hands of government.

]]> Fri, 07 Nov 2008 16:24:02 -0500
Your words are very true, but lost in the noise and economic illiteracy of the day. All you have to do is sample the likes of bosun.j.

Nevertheless, it is worth making the case for freer markets, especially if one has compassion for the poor.

Can you imagine what school competition could do for inner city children?

Let's not give up on free markets. The alternative is yoke of servitude at the hands of government.

]]> http://seekingalpha.com/article/104676-the-deflation-debate-why-this-time-is-different?source=feed#comment-300294 300294
Inflation subsides in any recession and the question here is how long and deep will this recession be.

China does have about 300 million people with discretionary income. Granted it is a fraction of the total population of 1.1 billion people, but it is still a large number. Everyone should hope they keep spending.

What he does point out is that the US Government is pursuing the economic policies of a banana republic. We have just witnessed the discipline of the market when too much debt relative to income/cash flow occurs.

Ultimately, the hazards of excessive government spending, inflationary monetary policy and the trade deficit will be harshly judged by the global market place. (We will see if the new Obama adminsitration is as naive as I think when it comes to even larger government programs and larger deficits.)

The rally in the dollar is temporary and the trend of US dollar weakness will resume as the current crisis fades. The US Government is debasing the dollar by defict spending to support current consumption (and a new government healthcare program will just compound this massive problem). A huge percentage of the $3.1 TRILLION federal budget is consumption spending.

The only way for the US to recover is to stop asking the government to do everything and insist that government spending (both real and as a percentage of GDP).

The US used to be the world's largest creditor nation. All of that has changed beginning with Johnson's Great Society spending. All that has done is transfer more power and influence to the federal government and it has done nary a thing for the poor it was supposed to help.

Even an economy with an inefficient, corrupt central government like China's can prosper as a creditor nation.


]]> Fri, 07 Nov 2008 14:17:38 -0500
Inflation subsides in any recession and the question here is how long and deep will this recession be.

China does have about 300 million people with discretionary income. Granted it is a fraction of the total population of 1.1 billion people, but it is still a large number. Everyone should hope they keep spending.

What he does point out is that the US Government is pursuing the economic policies of a banana republic. We have just witnessed the discipline of the market when too much debt relative to income/cash flow occurs.

Ultimately, the hazards of excessive government spending, inflationary monetary policy and the trade deficit will be harshly judged by the global market place. (We will see if the new Obama adminsitration is as naive as I think when it comes to even larger government programs and larger deficits.)

The rally in the dollar is temporary and the trend of US dollar weakness will resume as the current crisis fades. The US Government is debasing the dollar by defict spending to support current consumption (and a new government healthcare program will just compound this massive problem). A huge percentage of the $3.1 TRILLION federal budget is consumption spending.

The only way for the US to recover is to stop asking the government to do everything and insist that government spending (both real and as a percentage of GDP).

The US used to be the world's largest creditor nation. All of that has changed beginning with Johnson's Great Society spending. All that has done is transfer more power and influence to the federal government and it has done nary a thing for the poor it was supposed to help.

Even an economy with an inefficient, corrupt central government like China's can prosper as a creditor nation.


]]> http://seekingalpha.com/article/104456-out-of-the-election-and-into-the-frying-pan?source=feed#comment-299655 299655
Individualism, economic freedom and entrepreneurship made America great. Big government, entitlement and the general ignorance of American history and constitutional government have made America soft.

As people begin to focus on Obama from a policy perspective, which by the way should have been done during the primaries and Presidential campaign, there will likely be many questions - in part because Obama was so vague and often offered conflicting statements. The only point of consistency was his plan to raise taxes and his view that government should be at the center of all things economic.

If he has his way, I expect the Mr. Market to catch a considerable cold.

I do not see Obama as thoughtful at all. I see him as ideological with very liberal tax and spend agenda. For example, he wants to raise taxes on capital because of his arbitrary sense of fairness even though he acknowledged that the empirical evidence did not support his view.

Let's hope he has no honeymoon given that he has had a free pass in the press for the last two years. Just maybe then, Obama will not wreck what is left of the economy.

Let's hope he is pragmatic. I am not holding my breath.]]> Thu, 06 Nov 2008 15:52:48 -0500
Individualism, economic freedom and entrepreneurship made America great. Big government, entitlement and the general ignorance of American history and constitutional government have made America soft.

As people begin to focus on Obama from a policy perspective, which by the way should have been done during the primaries and Presidential campaign, there will likely be many questions - in part because Obama was so vague and often offered conflicting statements. The only point of consistency was his plan to raise taxes and his view that government should be at the center of all things economic.

If he has his way, I expect the Mr. Market to catch a considerable cold.

I do not see Obama as thoughtful at all. I see him as ideological with very liberal tax and spend agenda. For example, he wants to raise taxes on capital because of his arbitrary sense of fairness even though he acknowledged that the empirical evidence did not support his view.

Let's hope he has no honeymoon given that he has had a free pass in the press for the last two years. Just maybe then, Obama will not wreck what is left of the economy.

Let's hope he is pragmatic. I am not holding my breath.]]> http://seekingalpha.com/article/103202-the-shallowest-generation?source=feed#comment-298245 298245
Mr. Quinn is correct that we are up to our eyeballs in do-do. We can debate about the reasons why. Then he turns to Obama as an example of leadership? I'm sorry, but that is moronic.

Obama, who will likely be the next President, is at best an unknown quantity. His solution is to expand government with an additional $1 trillion in new programs. Tell me how this is good for America and how the progressive agenda will lead to the pursuit of life, liberty and happiness?

All Obama will do is finish the bankrupting of America. (BTW, I am no fan of McCain.) Obama is about creating dependency on government so that he and the progressives/liberals can entrench temselves in power. Why is that so hard to see?

Maybe I will discuss my ideas on how to deal with the current mess at another time. Mr. Quinn completely lost me when he held up Obama as some kind of virtuous leader. God help us all if he wins and has a bulletproof Democratic Congress.

]]> Tue, 04 Nov 2008 15:35:56 -0500
Mr. Quinn is correct that we are up to our eyeballs in do-do. We can debate about the reasons why. Then he turns to Obama as an example of leadership? I'm sorry, but that is moronic.

Obama, who will likely be the next President, is at best an unknown quantity. His solution is to expand government with an additional $1 trillion in new programs. Tell me how this is good for America and how the progressive agenda will lead to the pursuit of life, liberty and happiness?

All Obama will do is finish the bankrupting of America. (BTW, I am no fan of McCain.) Obama is about creating dependency on government so that he and the progressives/liberals can entrench temselves in power. Why is that so hard to see?

Maybe I will discuss my ideas on how to deal with the current mess at another time. Mr. Quinn completely lost me when he held up Obama as some kind of virtuous leader. God help us all if he wins and has a bulletproof Democratic Congress.

]]> http://seekingalpha.com/article/100163-final-presidential-debate-the-wurzelbacher-falls?source=feed#comment-283884 283884
He will destroy what is left of America after this financial crisis - which at its root was caused by government interference in free markets via the Community Reinvestment Act and the GSEs.

The majority of people do not know they are on the road to serfdom with Obama.

McCain is highly flawed as well and lacks a certain amount of coherency in his policies.

There was no real discussion of policy in terms of why Obama's socialism will actually work when the world is littered with failed socialistic experiments. Neither was there discussion of why McCain's policies would lead to a quicker recovery.

Almost 100% of the many people I talk to know that the federal government has a $3 TRILLION plus budget. There is too much government spending as it is. Any government that is big enough to give everything to everyone is big enough to take it all away.

Once the fear subsides, I wonder how many people who vote for Obama will regret it.
]]> Thu, 16 Oct 2008 14:16:33 -0400
He will destroy what is left of America after this financial crisis - which at its root was caused by government interference in free markets via the Community Reinvestment Act and the GSEs.

The majority of people do not know they are on the road to serfdom with Obama.

McCain is highly flawed as well and lacks a certain amount of coherency in his policies.

There was no real discussion of policy in terms of why Obama's socialism will actually work when the world is littered with failed socialistic experiments. Neither was there discussion of why McCain's policies would lead to a quicker recovery.

Almost 100% of the many people I talk to know that the federal government has a $3 TRILLION plus budget. There is too much government spending as it is. Any government that is big enough to give everything to everyone is big enough to take it all away.

Once the fear subsides, I wonder how many people who vote for Obama will regret it.
]]> http://seekingalpha.com/article/99504-what-does-warren-buffett-see-in-general-electric?source=feed#comment-283244 283244
The author is short GE. His case is GE operates in many emerging countries and sells to or finances non-investment grade companies. Therefore, GE should not carry an investment grade rating.

This makes no sense. It does not take into account, among other things, which business unit is involved, what product is sold and for what purpose, and the price and terms of the contract. Using this logic, every bank in the US, including JPM, BAC, C and others, should carry non-investment grade ratings.

The financial business unit has many of the risks of a bank. It borrows short and lends long. Liquidity is always a risk in current conditions. Leveraged loan exposure is likely large. Credit quality will decline as recessionary conditions take hold.

None of this means that GE is not sufficiently capitalized to pursue business opportunities nor absorb short-term credit losses in its financial portfolio. As a non-bank, GE can also do things that regulated banks cannot do which may make recoveries better in the long-run.

Buffet got a sweet deal that protects a good portion of his downside. While there may not be an immediate, short-term catalyst to drive the share price higher, GE has tremendous franchise value in all of its businesses.

Maybe the author should cover his short position while he can?

]]> Wed, 15 Oct 2008 17:05:45 -0400
The author is short GE. His case is GE operates in many emerging countries and sells to or finances non-investment grade companies. Therefore, GE should not carry an investment grade rating.

This makes no sense. It does not take into account, among other things, which business unit is involved, what product is sold and for what purpose, and the price and terms of the contract. Using this logic, every bank in the US, including JPM, BAC, C and others, should carry non-investment grade ratings.

The financial business unit has many of the risks of a bank. It borrows short and lends long. Liquidity is always a risk in current conditions. Leveraged loan exposure is likely large. Credit quality will decline as recessionary conditions take hold.

None of this means that GE is not sufficiently capitalized to pursue business opportunities nor absorb short-term credit losses in its financial portfolio. As a non-bank, GE can also do things that regulated banks cannot do which may make recoveries better in the long-run.

Buffet got a sweet deal that protects a good portion of his downside. While there may not be an immediate, short-term catalyst to drive the share price higher, GE has tremendous franchise value in all of its businesses.

Maybe the author should cover his short position while he can?

]]> http://seekingalpha.com/article/99998-is-jpmorgan-hiding-losses?source=feed#comment-283166 283166
Mark-to-market has severe short comings in reflecting value.

A bond is ultimately valued by its expected cash flows discounted to its present value.

If there is no market, does that mean there is no value? If your competitor is forced to sell at a discount for whatever reason, does that mean that the security sold and all other similar securities should be valued at the distressed market price?

If your neighbor was forced to sell his home today, what price would you get? Not the best price. Now what if you had to mark your home down because of that sale? Does it reflect reality? No! It reflects ditressed market conditions.

The more illiquid the asset, the more the distortion in value will occur in periods of distress.

In the case of the banks, this non-cash mark down impairs capital. We know what this causes on a systemic basis.

Mark-to-market is a normalized environment may be helpful, but it has only magnified the problems in the current environment.

Valuing a security based upon its expected cash flows is certainly subject to abuse. Someone who wants to cheat will cheat and the rules don't matter anyway.

]]> Wed, 15 Oct 2008 15:31:14 -0400
Mark-to-market has severe short comings in reflecting value.

A bond is ultimately valued by its expected cash flows discounted to its present value.

If there is no market, does that mean there is no value? If your competitor is forced to sell at a discount for whatever reason, does that mean that the security sold and all other similar securities should be valued at the distressed market price?

If your neighbor was forced to sell his home today, what price would you get? Not the best price. Now what if you had to mark your home down because of that sale? Does it reflect reality? No! It reflects ditressed market conditions.

The more illiquid the asset, the more the distortion in value will occur in periods of distress.

In the case of the banks, this non-cash mark down impairs capital. We know what this causes on a systemic basis.

Mark-to-market is a normalized environment may be helpful, but it has only magnified the problems in the current environment.

Valuing a security based upon its expected cash flows is certainly subject to abuse. Someone who wants to cheat will cheat and the rules don't matter anyway.

]]> http://seekingalpha.com/article/98903-have-we-learned-anything-yet?source=feed#comment-276192 276192
The Community Reinvestment Act and GSEs are root causes.

To those of you who say free markets do not work, you are wrong and unwilling to think for yourselves. Please read Hayek.

The quicker we get to less government, the quicker more people will obtain wealth.

I also recognize that people are afraid and want someone - government - to take care of them.

This is what the socialists like Soros and Obama want. You are playing right into their hands. The only problem for you is that you are not among the elite and you are about to don the yoke of servitude. How sad for you and for the rest of us who will dragged under by your foolishness.

]]> Tue, 07 Oct 2008 17:11:00 -0400
The Community Reinvestment Act and GSEs are root causes.

To those of you who say free markets do not work, you are wrong and unwilling to think for yourselves. Please read Hayek.

The quicker we get to less government, the quicker more people will obtain wealth.

I also recognize that people are afraid and want someone - government - to take care of them.

This is what the socialists like Soros and Obama want. You are playing right into their hands. The only problem for you is that you are not among the elite and you are about to don the yoke of servitude. How sad for you and for the rest of us who will dragged under by your foolishness.

]]> http://seekingalpha.com/article/98917-inflation-could-cure-our-economic-ills?source=feed#comment-276143 276143
The problem is that people like you believe the government should be involved in healthcare and even more involved in education. Government does not allocate capital efficiently. It mostly transfers wealth from those who create it to those who do not.

All people are endowed with inalienable rights from our Creator. The equality in that comment does not mean that equality of outcome should be pursued. That is the pursuit of the lowest common denominator. That is the result of socialism (where the elite still gets the best treatment).

Take education, which you site. We have massive bureaucracies on both the federal and state levels in a unionized monopoly. (Why does a monopoly need a union anyway?) We get an inferior product/service at high cost. In NJ, spending in the classroom would increase by more than $1 billion if 65% of each education dollar was spent in the classroom. The money is feeds worthless bureaucrats. Test scores in developed countries show this.

If we truly wanted to help kids, and especially kids from low income families, we would inject competition. Vouchers and charter/magnet schools would work.

Look at socialized medicine systems. Where do people under socialized medical systems go if they can afford it when they need care? The US.

The subprime debacle has government interference in free markets as its root cause. This would not have happened without the Community Reinvestment Act and the GSEs (Fannie and Freddie).

As Ozzy43 notes, the result will be the ultimate destruction of the USD and American capitalism.


]]> Tue, 07 Oct 2008 16:37:14 -0400
The problem is that people like you believe the government should be involved in healthcare and even more involved in education. Government does not allocate capital efficiently. It mostly transfers wealth from those who create it to those who do not.

All people are endowed with inalienable rights from our Creator. The equality in that comment does not mean that equality of outcome should be pursued. That is the pursuit of the lowest common denominator. That is the result of socialism (where the elite still gets the best treatment).

Take education, which you site. We have massive bureaucracies on both the federal and state levels in a unionized monopoly. (Why does a monopoly need a union anyway?) We get an inferior product/service at high cost. In NJ, spending in the classroom would increase by more than $1 billion if 65% of each education dollar was spent in the classroom. The money is feeds worthless bureaucrats. Test scores in developed countries show this.

If we truly wanted to help kids, and especially kids from low income families, we would inject competition. Vouchers and charter/magnet schools would work.

Look at socialized medicine systems. Where do people under socialized medical systems go if they can afford it when they need care? The US.

The subprime debacle has government interference in free markets as its root cause. This would not have happened without the Community Reinvestment Act and the GSEs (Fannie and Freddie).

As Ozzy43 notes, the result will be the ultimate destruction of the USD and American capitalism.


]]> http://seekingalpha.com/article/98816-is-bank-of-america-still-a-safe-long-term-stock?source=feed#comment-276084 276084
BAC had a choice - stay the same or capitalize on market driven opportunities. Lewis and the Board chose to be dynamic and change. BAC is now a global universal bank with the addition of Merrill.

The key risk is now execution risk. Management bandwidth is one of primary challenges.

I am not fond of the Countrywide acquisition because BAC clearly overpaid. But BAC will advance its position in the mortgage market on a long term basis. Ultimately, this will be good for the consumer banking franchise especially if BAC can figure out how to turn mortgage only customers into broader consumer banking relationships.

The Merrill acquisition was a once in a lifetime opportunity. BAC now has true investment banking capability. This should drive BAC in the large cap market and enhance capabilities in the mid-cap space. Real value will be added if investment banking services can be expanded for mid and small caps.

There are challenges everywhere, but long-term this should be good for BAC and its shareholders.

The dividend cut and raising equity capital may have happened without the Merrill deal.
]]> Tue, 07 Oct 2008 15:35:45 -0400
BAC had a choice - stay the same or capitalize on market driven opportunities. Lewis and the Board chose to be dynamic and change. BAC is now a global universal bank with the addition of Merrill.

The key risk is now execution risk. Management bandwidth is one of primary challenges.

I am not fond of the Countrywide acquisition because BAC clearly overpaid. But BAC will advance its position in the mortgage market on a long term basis. Ultimately, this will be good for the consumer banking franchise especially if BAC can figure out how to turn mortgage only customers into broader consumer banking relationships.

The Merrill acquisition was a once in a lifetime opportunity. BAC now has true investment banking capability. This should drive BAC in the large cap market and enhance capabilities in the mid-cap space. Real value will be added if investment banking services can be expanded for mid and small caps.

There are challenges everywhere, but long-term this should be good for BAC and its shareholders.

The dividend cut and raising equity capital may have happened without the Merrill deal.
]]> http://seekingalpha.com/article/98533-fannie-and-freddie-did-not-cause-this-crisis?source=feed#comment-275323 275323
It started with the passage of the Community Reinvestment Act in 1977 under Carter. Like many Democratic initiatives, the intent was noble - try to make home ownership more affordable for low income people. By 1994, groups like ACORN were demanding quotas from banks seeking to merge. Clinton pushed through broader CRA mandates and Fannie and Freddie were used as vehicles to accomplish the goals by purchasing subprime loans. That is the root cause and Democrats like Barney Frank and Christopher Dodd stopped all efforts at reform in 2001, 2003 and 2005 and warnings about systemic risk from Greenspan and the Bush Administration. It's all on video tape too. The 2005 bill was co-sponsored by John McCain.

Of course, there was complicity from unsavory mortgage brokers, to the Fed which kept rates to low for too long, to Wall Street that sold what it likley knew was junk paper, the ratings agencies, to hedge funds looking to make a quick buck, to real estate investors including flippers, speculators and home buyers and to the widespread availability of new mortgage products such as interest only, payment option ARMs (e.g. pick your own payment), no doc loans and ARMs with low teaser rates. All of this helped create the perfect storm.

However, none of this would have happened or if it happened it would have been on a much smaller and manageable scale if government interference had not distorted the marketplace with the CRA and Fannie and Freddie.

One of the many problems with the TARP legislation is that the root causes were never addressed. Everyone is afraid of the racism charge. The CRA, while noble, needs to be modified to include sound uinderwriting standards. The GSEs (Fannie and Freddie) need to be cleaned up, slimmed down and sold back to the public with NO implicit or explicit government guarantee.

None of this will happen with Obama as President. It will only get worse.

I could go on, but this summaries the issues. ]]> Mon, 06 Oct 2008 23:35:00 -0400
It started with the passage of the Community Reinvestment Act in 1977 under Carter. Like many Democratic initiatives, the intent was noble - try to make home ownership more affordable for low income people. By 1994, groups like ACORN were demanding quotas from banks seeking to merge. Clinton pushed through broader CRA mandates and Fannie and Freddie were used as vehicles to accomplish the goals by purchasing subprime loans. That is the root cause and Democrats like Barney Frank and Christopher Dodd stopped all efforts at reform in 2001, 2003 and 2005 and warnings about systemic risk from Greenspan and the Bush Administration. It's all on video tape too. The 2005 bill was co-sponsored by John McCain.

Of course, there was complicity from unsavory mortgage brokers, to the Fed which kept rates to low for too long, to Wall Street that sold what it likley knew was junk paper, the ratings agencies, to hedge funds looking to make a quick buck, to real estate investors including flippers, speculators and home buyers and to the widespread availability of new mortgage products such as interest only, payment option ARMs (e.g. pick your own payment), no doc loans and ARMs with low teaser rates. All of this helped create the perfect storm.

However, none of this would have happened or if it happened it would have been on a much smaller and manageable scale if government interference had not distorted the marketplace with the CRA and Fannie and Freddie.

One of the many problems with the TARP legislation is that the root causes were never addressed. Everyone is afraid of the racism charge. The CRA, while noble, needs to be modified to include sound uinderwriting standards. The GSEs (Fannie and Freddie) need to be cleaned up, slimmed down and sold back to the public with NO implicit or explicit government guarantee.

None of this will happen with Obama as President. It will only get worse.

I could go on, but this summaries the issues. ]]> http://seekingalpha.com/article/98479-citi-examines-its-carrots-and-sticks?source=feed#comment-274886 274886


On Oct 05 09:19 AM hunter wrote:

> With either deal Wachovia shareholders are not getting just value
> for what Wachovia is worth. With the rescue package passed and relaxation
> of mark to market accounting rules Wachovia may want to remain independent.
> Wachovia employees should push for them to remain independent. Maybe
> even tkae pay cuts to improve the company.]]> Mon, 06 Oct 2008 13:43:28 -0400


On Oct 05 09:19 AM hunter wrote:

> With either deal Wachovia shareholders are not getting just value
> for what Wachovia is worth. With the rescue package passed and relaxation
> of mark to market accounting rules Wachovia may want to remain independent.
> Wachovia employees should push for them to remain independent. Maybe
> even tkae pay cuts to improve the company.]]> http://seekingalpha.com/article/98420-breaking-news-wells-fargo-buys-wachovia?source=feed#comment-272719 272719
Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

]]> Fri, 03 Oct 2008 12:06:47 -0400
Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

]]> http://seekingalpha.com/article/98427-turnabout-wells-fargo-s-better-deal-for-wachovia?source=feed#comment-272716 272716
Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

]]> Fri, 03 Oct 2008 12:05:18 -0400
Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

]]> http://seekingalpha.com/article/98363-the-biden-palin-panderfest?source=feed#comment-272515 272515
Biden made at least 10 factual errors, which I would call lies. The most flagrant was his claim that Obama did not say he would negotiate directly with Iran. The YouTube video makes that one pretty hard to dismiss.

I don't know any governor who became President (e.g. Carter, Regan, Clinton, Bush) that had significant foreign policy experience. Palin is the VP candidate. Her executive experience is greater than Obama and Biden combined.

You would obviously rather embrace socialism and the nanny state than personal freedom and responsibility.

Please don't let the facts in the electoral seanson confuse you or get in the way.

]]> Fri, 03 Oct 2008 09:26:48 -0400
Biden made at least 10 factual errors, which I would call lies. The most flagrant was his claim that Obama did not say he would negotiate directly with Iran. The YouTube video makes that one pretty hard to dismiss.

I don't know any governor who became President (e.g. Carter, Regan, Clinton, Bush) that had significant foreign policy experience. Palin is the VP candidate. Her executive experience is greater than Obama and Biden combined.

You would obviously rather embrace socialism and the nanny state than personal freedom and responsibility.

Please don't let the facts in the electoral seanson confuse you or get in the way.

]]> http://seekingalpha.com/article/98271-the-u-s-shouldn-t-pay-ransom-to-wall-street?source=feed#comment-271712 271712
The bill does not address the root causes of the problem. Government has fundamentally contributed to this mess with the Community Reinvestment Act and the GSEs (Fannie and Freddie). The CRA needs to be repealed or modified so that traditional lending standards can be applied to all extensions of credit, including low and moderate income borrowers. The GSEs need to be downsized and their function needs to be placed entirely in the private sector without a government guarantee.

What you miss is that the source of this problem is government.

What Wall Street did is try to efficiently allocate capital. Is Wall Street complicit? Yes! So was Greenspan and the Fed (e.g. keeping rates to low for too long, Greenspan encouraging people to use ARMs, etc.), mortgage brokers and hedge funds.

Turning the US Treasury into a distressed debt hedge fund is a bad idea. The US Treasury does not have the skills to manage these assets. Outside managers should be retained to manage the assets. PIMCO said it would do it for free, simply covering their costs. 100% of the profits, if any, must be returned to the US Treasury.

This plan does nothing to ensure that banks will resume lending. My view is that credit has permanently contracted in part because of tighter lending standards and in part because consolidation among banks reduces capacity. The cost of credit will be higher for the foreseeable future. This will impact valuations and demand for many assets across the entire spectrum.

The bailout will not save us from a recession. No economy has ever expanded during a period of contracting credit.

We can argue about more or better regulation. But this would not have happened at all, or if it did it would have been systemic, if government had not forced banks into the subprime market via CRA with the help of the GSEs.

You may not like it, but Bush, a number of Republicans (including McCain) and ultimately Greenspan warned and tried to address the risk posed by subprime loans and the GSEs. The effort was stopped by the Democrats. And, yes, Obama helped train folks at ACORN in Chicago on tactics to force banks to increase loans to unqualified borrowers. If Obama is elected, he will continue to take America down the path of socialism much to my chagrin.

]]> Thu, 02 Oct 2008 12:38:58 -0400
The bill does not address the root causes of the problem. Government has fundamentally contributed to this mess with the Community Reinvestment Act and the GSEs (Fannie and Freddie). The CRA needs to be repealed or modified so that traditional lending standards can be applied to all extensions of credit, including low and moderate income borrowers. The GSEs need to be downsized and their function needs to be placed entirely in the private sector without a government guarantee.

What you miss is that the source of this problem is government.

What Wall Street did is try to efficiently allocate capital. Is Wall Street complicit? Yes! So was Greenspan and the Fed (e.g. keeping rates to low for too long, Greenspan encouraging people to use ARMs, etc.), mortgage brokers and hedge funds.

Turning the US Treasury into a distressed debt hedge fund is a bad idea. The US Treasury does not have the skills to manage these assets. Outside managers should be retained to manage the assets. PIMCO said it would do it for free, simply covering their costs. 100% of the profits, if any, must be returned to the US Treasury.

This plan does nothing to ensure that banks will resume lending. My view is that credit has permanently contracted in part because of tighter lending standards and in part because consolidation among banks reduces capacity. The cost of credit will be higher for the foreseeable future. This will impact valuations and demand for many assets across the entire spectrum.

The bailout will not save us from a recession. No economy has ever expanded during a period of contracting credit.

We can argue about more or better regulation. But this would not have happened at all, or if it did it would have been systemic, if government had not forced banks into the subprime market via CRA with the help of the GSEs.

You may not like it, but Bush, a number of Republicans (including McCain) and ultimately Greenspan warned and tried to address the risk posed by subprime loans and the GSEs. The effort was stopped by the Democrats. And, yes, Obama helped train folks at ACORN in Chicago on tactics to force banks to increase loans to unqualified borrowers. If Obama is elected, he will continue to take America down the path of socialism much to my chagrin.

]]> http://seekingalpha.com/article/98091-the-u-s-economy-after-the-bailout?source=feed#comment-271676 271676
The bill does not address the root causes of the problem. Government has fundamentally contributed to this mess with the Community Reinvestment Act and the GSEs (Fannie and Freddie). The CRA needs to be repealed or modified so that traditional lending standards can be applied to all extensions of credit, including low and moderate income borrowers. The GSEs need to be downsized and their function needs to be placed entirely in the private sector without a government guarantee.

Turning the US Treasury into a distressed debt hedge fund is a bad idea. The US Treasury does not have the skills to manage these assets. Outside managers should be retained to manage the assets. PIMCO said it would do it for free, simply covering their costs. 100% of the profits must be returned to the US Treasury.

The price discovery process for the purchase of assets must be thoroughly vetted and be made available to taxpayers. And, yes, if done correctly, there could be a meaningful profit for the UST. (My confidence level here is not high.)

Transparency with the flow of funds, including purchases, sales, expenses and gains and losses, must be made available to taxpayers. In other words, follow the money. Sunlight is the only way of keeping behavior on responsible terms.

Regarding housing prices, the demand curve shifted to the right because people used new mortgage products to buy more house then they could afford and because loans were made to unqualified, low income borrowers under CRA mandates and GSE assistance. Now demand, supply and home prices are returning to a normalized level and this will take time. This bill will not stabilize home prices nor stop foreclosures.

Mark-to-market accounting needs to be changed to valuation based upon expected cash flows. This is being addressed in some fashion. Mark-to-market accounting has contributed to volatility in the prices of illiquid assets, misrepresented the prices of securities and adversely impacted the capital ratios of banks thereby contributing to the contraction of credit.

While I object, this bill is loaded with pork. The idiots in Congress cannot grasp moral hazard issues. No one would lend the Big Three auto makers money, but Congress gave them $25 billion. Can you say corporate "subprime" loans? Have we learned anything? I don't think so. (As an aside, the ACORN provision in a draft of the defeated bill was a complete affront to any thinking person.)

The TEMPORARY increase in FDIC coverage should help stop the "run-on-the-bank" driven failure (although the threshold of $250,000 is too low to address institutional money which moves faster than retail deposits), save the FDIC from needless bank failures and allow for a more orderly price discovery process on impaired assets.

The plan does not ensure that banks will resume lending. This cannot be legislated nor should it be. But this is a major assumption and risk in the proposed plan. My view is that credit has permanently contracted in part because of tighter lending standards and in part because consolidation among banks reduces capacity (e.g. Citi lends $50 million and Wachovia lends $50 million, but after the merger the new Citi will only lend $65 million). The cost of credit will be higher for the foreseeable future. This will impact valuations and demand across the entire spectrum.

The bill will not save us from a recession and there are many other excesses that will need to be worked off. No economy has ever expanded during a period of contracting credit.


]]> Thu, 02 Oct 2008 12:20:18 -0400
The bill does not address the root causes of the problem. Government has fundamentally contributed to this mess with the Community Reinvestment Act and the GSEs (Fannie and Freddie). The CRA needs to be repealed or modified so that traditional lending standards can be applied to all extensions of credit, including low and moderate income borrowers. The GSEs need to be downsized and their function needs to be placed entirely in the private sector without a government guarantee.

Turning the US Treasury into a distressed debt hedge fund is a bad idea. The US Treasury does not have the skills to manage these assets. Outside managers should be retained to manage the assets. PIMCO said it would do it for free, simply covering their costs. 100% of the profits must be returned to the US Treasury.

The price discovery process for the purchase of assets must be thoroughly vetted and be made available to taxpayers. And, yes, if done correctly, there could be a meaningful profit for the UST. (My confidence level here is not high.)

Transparency with the flow of funds, including purchases, sales, expenses and gains and losses, must be made available to taxpayers. In other words, follow the money. Sunlight is the only way of keeping behavior on responsible terms.

Regarding housing prices, the demand curve shifted to the right because people used new mortgage products to buy more house then they could afford and because loans were made to unqualified, low income borrowers under CRA mandates and GSE assistance. Now demand, supply and home prices are returning to a normalized level and this will take time. This bill will not stabilize home prices nor stop foreclosures.

Mark-to-market accounting needs to be changed to valuation based upon expected cash flows. This is being addressed in some fashion. Mark-to-market accounting has contributed to volatility in the prices of illiquid assets, misrepresented the prices of securities and adversely impacted the capital ratios of banks thereby contributing to the contraction of credit.

While I object, this bill is loaded with pork. The idiots in Congress cannot grasp moral hazard issues. No one would lend the Big Three auto makers money, but Congress gave them $25 billion. Can you say corporate "subprime" loans? Have we learned anything? I don't think so. (As an aside, the ACORN provision in a draft of the defeated bill was a complete affront to any thinking person.)

The TEMPORARY increase in FDIC coverage should help stop the "run-on-the-bank" driven failure (although the threshold of $250,000 is too low to address institutional money which moves faster than retail deposits), save the FDIC from needless bank failures and allow for a more orderly price discovery process on impaired assets.

The plan does not ensure that banks will resume lending. This cannot be legislated nor should it be. But this is a major assumption and risk in the proposed plan. My view is that credit has permanently contracted in part because of tighter lending standards and in part because consolidation among banks reduces capacity (e.g. Citi lends $50 million and Wachovia lends $50 million, but after the merger the new Citi will only lend $65 million). The cost of credit will be higher for the foreseeable future. This will impact valuations and demand across the entire spectrum.

The bill will not save us from a recession and there are many other excesses that will need to be worked off. No economy has ever expanded during a period of contracting credit.


]]> http://seekingalpha.com/article/94349-is-wachovia-the-worst-run-bank-in-america?source=feed#comment-249779 249779
It is also a reminder that the financial hangover that burdens the financial system and the macro-economy is not over.

When in crisis, financial companies shrink to produce cash. There has never been a robust economy in the face of a contraction in credit.

The deleveraging going on in world markets is a vicious cycle. In simple terms, the contraction of contracts forces the sale of assets at discounted prices. Lower priced assets in turn cause a further contraction in credit. Asset prices need to stabilize to stop this cycle or the risk is deflation. Right now people are not placing capital at risk. (Thus no additional investment in Lehman, Wachovia, Wamu and so on.) This is what Bill Gross at PIMCO means by a financial tsunami. Think of the lost decade in Japan.

By the way, I am more with Jimmy Rodgers on the bail out of Fannie and Freddie than I am with Paulson. This is a bail out of the banks and Wall Street and not Main Street. America has courts. The UST should have purchased shares versus placing FNM and FRE into conservatorship.

As an aside, please don't blame the Bush administration for the problem. If you have to blame government, then blame the Clinton administration who said every American should own a home even if they can't afford it and blame Alan Greenspan who kept rates too low for too long. Of course, there are culprits on Wall Street and in hedge funds as well.

And to put it plainly, McCain would be better than Obama in managing the crisis because he has more faith in capitalism and markets than Obama who sees the government as the solution to all problems. The market will solve this problem faster than the government can think much less move.

Fannie and Freddie are the problems they are in part because they are big, dumb GSEs. Fannie was created under FDR.

]]> Tue, 09 Sep 2008 17:34:28 -0400
It is also a reminder that the financial hangover that burdens the financial system and the macro-economy is not over.

When in crisis, financial companies shrink to produce cash. There has never been a robust economy in the face of a contraction in credit.

The deleveraging going on in world markets is a vicious cycle. In simple terms, the contraction of contracts forces the sale of assets at discounted prices. Lower priced assets in turn cause a further contraction in credit. Asset prices need to stabilize to stop this cycle or the risk is deflation. Right now people are not placing capital at risk. (Thus no additional investment in Lehman, Wachovia, Wamu and so on.) This is what Bill Gross at PIMCO means by a financial tsunami. Think of the lost decade in Japan.

By the way, I am more with Jimmy Rodgers on the bail out of Fannie and Freddie than I am with Paulson. This is a bail out of the banks and Wall Street and not Main Street. America has courts. The UST should have purchased shares versus placing FNM and FRE into conservatorship.

As an aside, please don't blame the Bush administration for the problem. If you have to blame government, then blame the Clinton administration who said every American should own a home even if they can't afford it and blame Alan Greenspan who kept rates too low for too long. Of course, there are culprits on Wall Street and in hedge funds as well.

And to put it plainly, McCain would be better than Obama in managing the crisis because he has more faith in capitalism and markets than Obama who sees the government as the solution to all problems. The market will solve this problem faster than the government can think much less move.

Fannie and Freddie are the problems they are in part because they are big, dumb GSEs. Fannie was created under FDR.

]]>