Poor Dude

Citi's TARP Convert and Chrysler's Indiana Bond Holders

The way I view it, Sheila Bair wouldn't now be sucking up to the Citi board and declaring a truce, if she didn't fear for her own job (and freedom?) as a result of the Congressional inquiry into what the Treasury and the Fed told to Ken Lewis in relation to the Merrill acquisition.

Seems to me, some lawyers took it upon themselves to advise several of our high-ranking government officials that there are legal limits to their power (whether they like it or not, and much to the chagrin of some executives at JP Morgan and/or Goldman Sachs).


Your prior play is over. Move on. And hope the net of government scrutiny which will inevitably close upon this rather sordid chapter in our history doesn't catch you as a contributor or a co-conspirator. Our people will want (and get) blood. Just hope that you're not one of those who is bleeding, when all is said and done!

;)

Citi's TARP Convert and Chrysler's Indiana Bond Holders

Forget it. Your cause lost 2 or 3 months ago, and yet no one seems willing to admit it.

Fannie and Freddie represent the value of nearly 2/3rds of the real estate in America. As of 1 April, they get to value their holdings at their true long-term value (rather than at some arbitrary value created by a panicked and frozen market (whether that was conceived and planned by certain people or not)).

But valuing all the real estate in America at between 3 and 10 cents on the dollar? You've got to be kidding me! That would be roughly like valuing it at FAR less than 1/4th the value it reached during the Great Depression! And you'd bet "your" money, or advise others to bet "theirs", on such an outcome? (lol)

There are a lot of things happening in today's world that I don't agree with. With government intrusion into private markets being near the top of that list. But to argue that FNM or FRE or C or BAC are over-valued today is just plain foolhardy at this point. No matter HOW bad our economy gets from here (and yea, even if our government collapses and America splits into 5 or 6 different sovereign nations), then those companies will most assuredly go up in value from here.

The "short Citi" and "short BAC" game ended quite a while ago. If you truly cared about the people who read your posts, you'd now be advising them to buy hand over fist. And the same applies to FNM and FRE. And you'd be betting your own money accordingly.

Do otherwise at your own peril.

:)

Poisoning the Green Shoots

We live in a world where corporations hire lobbyists to convince Congressmen/Congresswomen to pass laws that benefit them over (and at the expense of) their competitors. And where our leaders do so, in exchange for campaign contributions.

Where our tax laws are so convoluted that not even the people who wrote them nor the people who enforce them have even a clue what the law requires (but where our government will come down on you hard in a heartbeat, should you piss off the wrong federal official or serve as a good example of what "not to do" for the rest of our public).

Where nearly every single elected representative feels it is their solemn duty as an elected official to "bring home the bacon" to their district. (Forget what may be in the "nation"'s best interest.)

Where the vast majority of our population feels they are entitled to a good-paying job, or at least a nice roof over their heads, one (or two?" cars), three radios, two cell phones, a surround-sound home theatre system in HD, free food, and the best of medical care at no cost --- even if they choose not to work. And they get it, in the name of "compassion" or "humanity" or "equality" or "progress". Or whatever.

Where corporate executives and high-flying New York bankers get multi-million-dollar salaries each year, year after year after year, regardless of whether the value of their company's stock has gone up by 10 percent or down by 95 percent. And if they do REALLY badly, they'll get fired and drive off in the company car with a mega-millions settlement and a healthy pension for the rest of their life, while the little old ladies and widows and orphans and average working people who lost their life's savings after investing in them don't get even an apology.

Yep, that's the America we live in today.

And just trust me when I tell you that it's not sustainable, because it isn't. At some point, the producers are going to stop producing. And the hurt and the angry and the homeless and the penniless are going to want blood. And they'll get it.

Poisoning the Green Shoots

>>> Debt is an important tool in building our future. If we wait for people to be able to "pay cash" for their houses, cars, college educations, or for gov'ts too pay "up front" for roads and schools, it will be a looooong time before we see any economic expansion. <<<

OK, I do not disagree with this. If you can borrow at 5 percent and produce a return of 10 percent, then it is smart to borrow. (To yours and Mr. Lounsberry's credit.)

But I think it's important to keep investments and returns in perspective. While the underlying principle may be sound in a growing economy (or for a young nation), it is critical to know when you've passed the point of productive borrowing and entered the realm of borrowing for the sake of survival or maintaining the status quo. Once you cross that threshold, there is only a limited opportunity to reverse course and place oneself on a sustainable footing for the future.

And looking at the literally exponential growth of our nation's total debt over the past 20 or 30 years or so, and then factoring in our nation's demographics and life stage (baby boomers just now entering retirement, the development of a truly global economy where our workers must effectively compete with children from third-world countries, etc.), I can't help but reach the conclusion that we have now passed the point of no return. The point where we are no longer growing or earning our way to prosperity, but are instead simply borrowing today's prosperity (or maintenance of our current status quo) from our future. With a net NEGATIVE return to our children, instead of a positive one. And I'm sorry, but that's not productive borrowing.

Now being unable to sustain ourselves in a world where everyone else has the same advantages we once owned (because we chose to export our expertise in exchange for lower costs of labor and a short-term competitive advantage in the free markets), we are now doomed to failure. We have now borrowed more than we can ever POSSIBLY pay back while realizing a positive return on that investment. We are now borrowing simply to maintain our current lifestyle --- not to improve our future. And we are doing so at the expense of our children.

That's what I fear. That we have now entered the long slide to oblivion, and our leaders have neither the understanding nor the will to stop our demise and save us. At this point, it would require hard choices and sacrifices by many. But none are willing to pay the price. And because of that, we will all die together. All holding each other's hands and singing "kumbaya" as we're flushed down the toilet of human history, along with all those who preceeded us with great ideas but lacking the fortitude to make the sacrifices necessary to realize their fruition over the many centuries it requires ....

:(

Poisoning the Green Shoots

>>> Steven,

Your moralizing about debt is neither grounded in economic history or any credible theory of economic growth. Follow the consequences of your own logic. Less government debt means less government spending and less aggregate spending. So it implies a far more severe recession. Now a more severe recession means less tax revenues...

It is naive for you to think that the federal deficit would be smaller under a do nothing scenario.

Keynes wrote that practical men, who think themselves immune from theory, are usually the slaves of some defunct philosopher. Could that apply to you? <<<


That's an argument that the only way to ensure prosperity is to create it by hocking everyone's future productivity in order to enjoy the benefits of that future productivity today. If that's what Keynes espoused, then he is a fool.

Prosperity is created by productive output and economic expansion. Nothing more, and nothing less.

While borrowing may lend the appearance of prosperity at the current moment, it carries with it an iron-clad and unquestionable consequence. It requires you to drain from your future prosperity the means to repay the amount of your debt, plus the interest on those borrowings (since time is money, and no one is willing to lend to you today without an acceptable return on their investment).

To enjoy the benefits of a borrowed dollar today, you must pay back more than a dollar in the future. I don't know if "economic history" or any "credible theory of economic growth" recognizes that fact, but it's still a fact. Hell, it's just plain old common sense. Finance 101, or even simpler.

Any system built upon the premise that it must borrow from the future in order to survive today is a system built upon sand. One built upon the "bubble theory" of economics. And its future is unquestionable. The bubble will eventually burst, and that system will fail.

This much, I agree with:

"practical men, who think themselves immune from theory (or I would say economic reality), are usually the slaves of some defunct philosopher. Could that apply to you? "

Politicians Must Choose: The Market or the Country

>>> Not really, once the company cannot service the debt, the issue of who is "the owner" is a play-by-play situation, because the option to liquidate becomes real. <<<


But only as an option for SECURED debt holders who have legal rights to corporate assets as collateral. No?


But their choice isn't really whether to take title to only the assets against which they have a lien or the corporation as a whole (since they hold no lien on the corporation as a whole). Their only choice is to take the assets against which they have a lien, or to work with the current owners to keep the corporation going --- in the hopes of ultimately being paid as agreed.


I don't see how unsecured creditors even have a say in the situation, unless a liquidation is first forced by the secured creditors. At that point, I'd agree they have a right to recovery before the owners. But until then, they should have no say whatsoever. Unsecured loans are exactly that. Unsecured. With repayment subject to both the capacity and the will of the borrower to repay the loan. And to be sure, no responsible company would shirk that obligation lightly. But in emergencies ....


Somewhere along the way, I think that everybody in our system has become confused about what title to property means (or once meant) in America. Unsecured creditors shouldn't be able to march into bankruptcy court and start claiming title to things they don't own. And the same applies to secured creditors, as far as that goes.

Politicians Must Choose: The Market or the Country

>>> The debt is senior to the equity. In other words, if the company cannot service its debt, the debtholders are the (new)owners. Sort of corporate foreclosure. <<<


I agree with that in a liquidation, but not so long as the corporation continues as a going concern. By my way of thinking, secured debt holders have the option of calling in their collateral or agreeing to restructure their debt if things get bad. But unsecured creditors and debt holders should fall below the owners in any situation other than total liquidation. As long as the company is attempting to make a go of it, the owners are the owners. (Or should be.)

Politicians Must Choose: The Market or the Country

I need someone to explain to me why it's necessary to protect the debt holders, but not the owners of the company. Wouldn't it make more sense to let the owners keep the company and just let the debt holders take a haircut or lose their investment entirely? Couldn't the debt holders, in general, better withstand the losses?

Finally, Some Disclosure from Companies That Received Bailout Funds

It's "Game Over" for western civilization at this point. It's just that most people haven't quite caught onto the concept yet. And don't/won't know how to react in the "New World Order" that nobody quite anticipated.


They'll adjust to reality, given time.


The bosses of publicly-traded corporations are still handing themselves huge bonuses as the companies they lead operate in the red and are on the verge of bankruptcy.


The "lobbyists" are still headed to Washington, with their briefcases full of cash in hand.


The politicians are still handing out money from the public Treasury, left and right (in exchange for the "campaign contributions" from all those lobbyists).


They are all riding it (and us) to the very end.


If you're bored and have time on your hands, read Ayn Rand's "Atlas Shrugged". It explains the whole process, from start to finish. And we are now entering the "end game", where the lights go out and a new civilization gets its foothold.


I give us through 2009, although the end may very well come sooner than that ....


:(