Posts Tagged ‘bailout’

Don’t bailout the Big 3 beggars

November 19, 2008

Let the Big 3 beggars (GM, Ford, and Chrysler) go bankrupt. These companies have been mismanaged for years and can’t compete against foreign manufacturers which make superior products.

The role of the government should not be a panacea for failing big business with one exception: banks. Credit is the life blood of the economy, and the government would stand to lose more by not bailing out the banks because of FDIC insurance.

All hope is not is not lost with corporate bankruptcy for manufacturers. Major companies often survive after filing Chapter 11. It’s the shareholders, pension plan beneficiaries, and creditors who stand to lose the most. Some say the Big 3 won’t survive if the government doesn’t bail them out. I say a bailout would be like keeping someone in comotose on life support knowing the chances of freeing him to a normal life is next to nil.


Revised bailout plan is much better for taxpayers

October 15, 2008

Bankers and their US Treasurer stooge, Paulson, had schemed for taxpayers to bail them out by paying above market prices for their worst “mortgage-back securities (“assets”). Now that the Western European governments had taken the lead in taking equity for recapitalizing their banks, the US government felt more at ease to follow suit with as much as $250 billion. Paulson conceded to the equity stake plan only to get money into the banks faster.

To begin 9 U.S. banks will get a total cash infusion of $125 billion. It’s a good deal for taxpayers. No one pays a lower rate for the cost of capital than the federal government (the US pays low interest rates for issuing Treasuries). Since this will result in positive cash flow, I’d call this an investment for taxpayers. This investment will provide a dividend yield of 5% for the first 5 years and 9% thereafter on Preferred Shares. Banks are projected to be more financially stable in 5 years to buy back the Preferred Shares rather than pay the 9% dividend.

All is not great about the revised plan, however. The Bush Administration still intends to buy $100 billion of those worst mortgage-backed securities. You didn’t think Wall Street wouldn’t get its “cake and eat it too”, did you?

Bailout woes

October 4, 2008
The irony of the bailout is credit will not ease as hoped by the Feds despite its massive credit-backed, cash injection. As long as home prices continue to fall, banks will remain reluctant to loan to anybody with less than stellar credit and income. And guess what? Home prices will keep falling for at least all of calender year 2009.
The bailout is the latest in a long series of M.B.O. (Management by Objectives) measures. Government is run by the tenets of M.B.O.. These objectives are quantifiable in terms of G.D.P., unemployment and homeownership percentage…. M.B.O. came into full force under the Clinton Administration, which saw fit to boost a hollowing industrial economy by stimulating the housing market. Not unreasonable given roughly 8% of all U.S. workers directly or indirectly work in the housing sector (real estate brokers, furniture, mortgage loans, insurance, appliances, homebuilding, repair, etc.). The Clinton Administration started the housing bubble with his its ZERO capital gains tax for up to $250,000 for individuals and $500,000 for couples. As a result, a tremendous amount of money flowed into housing from other investments subject to higher capital gains taxes. A new cottage industry of fixer upperes bloomed. It was the age of “before and after” for homes which figuratively had their own sort of nose jobs and breast implants. As if the capital gains incentives were not enough, Andrew Cuomo, who headed H.U.D. and Fannie Mae and Freddie Mac loosened credit standards to meet the M.B.O. imperative to increase home ownership. On top of that, leave it to the financial engineers of Wall Street to extend the housing bubble to the Nth degree by passing on the risk to unsuspecting investors/pension plans with complex Mortgage Backed Securities which no one can value within any “ball park”.

So here we are today with the U.S. government reassuring us, “Twelve o’clock and all is well!” with its new M.B.O. solution under George W. Bush, a graduate of M.B.A. boot camp and thus an even greater proponent of M.B.O. than Clinton. But all is not well…the Wild Westesque $62 trillion Credit Default Swap Market is still entirely unregulated…the mythical “lender of last resort” U.S. government remains heavily dependent upon foreign investors who will someday sneer at the world’s largest single country economy by deeming it unworthy of credit. In the meantime, America plugs up the holes of a huge dam with the toothpaste of more credit, akin to supplying drugs to a drug addict suffering severe withdrawals. When will it all implode? I wrote in an earlier post that the Mayan catastrophic year of 2012 may mark the year America declares bankruptcy. I sure hope I was wrong. Until then because of the overnight explosion of the Federal deficit, I see little chance of Obama, whom I presume to be a shoe-in to win the Presidential election, to succeed in overhauling healthcare or any of his ambitious plans of change for the betterment of the American people.

(Forward to 12 seconds to hear this apt Gregory Isaacs tune: “Thief a Man”.)

Letter to U.S. Senators regarding Paulson’s bailout plan

September 25, 2008
  • First, Hank Paulson denied there was a huge, financial problem.
  • Then he said it was contained.
  • Now he says we need to act very quickly or suffer enormous consequences.
  • This so-called financial expert is dead wrong again, this time with a plan to benefit careless bankers at the cost of $700 billion to cash-strapped taxpayers.
  • Please do not approve the Paulson bailout plan! We cannot afford it without printing too much money. For a brief history on the dire consequences of printing too much money look at Zimbabwe of today or Germany in the 1920’s.
  • Paulson’s medicine is worse than the disease. Please take time to deliberate on this matter affecting generations of Americans and consider alternative plans, such as following the successful Swedish model explained here.