Does Anyone feel like Bailing

[Clodfobble]

When my former employer was having financial issues, the CEO and several other execs invested heavily in the company's stock as a show of confidence. They filed chapter 7 a few months later. (The case is still languishing in the court system over 4 years later--but it doesn't matter because I really don't expect to get the $3000+ they owe me even after all the ducks have been sorted.)

[tw]

Originally Posted by classicman

Whats this all about? Anyone?

I can think of at least three possible interpretations.

First, stock prices looked like they were about to drop below December's new lows. A good time to buy(?) when management must proclaim buying decisions in advance.

Second, more Enron accounting was discovered in Merrill Lynch causing another complete loss of confidence in Bank of America. Either that was also another good reason to buy OR, well read the next paragraph.

Third, Lewis may be in for a proxy fight because of the Enron accounting and BAC now running to government for more welfare. Lewis's job may be on the line.

Well, yes, a vote of confidence may be another reason for the purchase. Or maybe the executives are still in denial as to how much trouble their institutions may be in. Reasons for the purchase could include parts of each above three points. Doubtful we will ever know their thinking. However even Bank of America and Citigroup have been sucked into a swirl around the drain.

Appreciate the problem. American financial institutions were running massive debt to equity ratios based only mythical accounting practices that claimed risk was under control. Europe demonstrates what better banking did. Bank of Scotland is in serious trouble because their ratio was 14:1. Most European banks were 5:1.

Morgan Stanley and others were operating at 30:1.

BTW, did anyone see 60 Minutes that demonstrated how Morgan Stanley, et al could run up the price of oil now that deregulation made it possible to manipulate markets with secret contracts? Enron accounting practices were alive and well for years. Why did Morgan Stanley own more oil than Exxon? Deregulation lobbied for in Congress in 2000 by Enron (that also made the mythical CA energy crisis possible) is still legal. Our banking and investment markets are a mess. Just another example of why finance markets must be so heavily regulated.

Does Lewis of BAC think things can only get better with regulation? Well how many more "Enron accounting" failures are there waiting to be exposed? How many more shoes will fall.

The Detroit auto show demonstrated that Chrysler has zero innovations in the pipeline and little hope of surviving as is. Nardelli is doing to Chrysler what he did to Home Depot. But then maybe we have already discounted the inevitable. Maybe that is but another reason why Lewis believes the bottom has been found.

Suggested are only a few reasons for his decisions. Nobody really knows how many more "Enron accounting" disasters await exposure. It is still a mess. We can only speculate what Lewis is speculating.

[TheMercenary]

Imagine that...

Political Interference Seen in Bank Bailout Decisions
Barney Frank Goes to Bat for Lender, and It Gets an Infusion

Troubled OneUnited Bank in Boston didn't look much like a candidate for aid from the Treasury Department's bank bailout fund last fall.

The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate. Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives' use.

Nonetheless, in December OneUnited got a $12 million injection from the Treasury's Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.

Mr. Frank, by his own account, wrote into the TARP bill a provision specifically aimed at helping this particular home-state bank. And later, he acknowledges, he spoke to regulators urging that OneUnited be considered for a cash injection.

http://online.wsj.com/article/SB1232...cle-outset-box


A nice chart of where the money went:

http://online.wsj.com/public/resourc..._20081027.html

[classicman]

What are you getting out of that Merc? I see nothing surprising there - Bush and the democratic leaders apparently threw the money to their bankin cronies.

[TheMercenary]

I just believe that most people believe that the Dems in Congress have no part of this.

[tw]

Originally Posted by classicman

Bush and the democratic leaders apparently threw the money to their bankin cronies.

Under the excuse of 'systemic' risk, Paulson, et al literally threw money at a problem with no game plan. The theory was that credit markets had rusted frozen. So if we throw enough oil at it, then rust would liquefy? Of course, that did not happen (as best we can tell). They had no plan, no study, no grasp, and a belief that something must be done ad hoc and ASAP.

So Goldman Sachs got $10billion and immediately rewarded employees with more than $10billion in bonuses. But appreciate the problem. Enron accounting is so widespread that even Merrill Lynch has again discovered more hidden losses - causing Bank of America to again go running for government welfare using claims of 'systemic' risk.

Now is time to learn from what we always knew and what worked. For example, the CA energy crisis demonstrated what happens when markets are liberated from regulation; when most trading occurs outside of open markets and in secret. And so we relived that mistake with gasoline prices and so many other markets.

Long Term Capital Management (LTCM) demonstrated what happens when options are traded secretly. LTCM was a potential $1.2 trillion meltdown. What did we do? We completely ignore the problem and lesson. Do nothing. Same problem exists again on an even larger scale.

The S&L crisis was solved by not protecting corrupt management and stockholders. Instead, responsible banks were loaned money to buy, disassemble, and clean out bad (corrupt) banks. Problem solved. Today, we gave the most corrupt banks money to reward themselves. Even AIG was still paying bonuses.

Learn the lessons of so many mistakes. Clearly a $trillion has been spent .... and still a housing mortgage problem persists without any resolution (as ABC News and Representative Maxine Waters demonstrated with Bank of America). We have seen what not to do. Question remains whether our leaders have finally grasp those lessons.

Even Enron accounting is still industry acceptable. We have not even addressed that obvious problem.

[xoxoxoBruce]

Originally Posted by classicman

What are you getting out of that Merc? I see nothing surprising there - Bush and the democratic leaders apparently threw the money to their bankin cronies.

How do you know, it all happened under a TARP?

[classicman]

Japan's big-works stimulus is lesson for U.S.

HAMADA, Japan: The Hamada Marine Bridge soars majestically over this small fishing harbor, so much larger than the squid boats anchored below that it seems out of place.

And it is not just the bridge. Two decades of generous public works spending have showered this city of 61,000 mostly graying residents with a highway, a two-lane bypass, a university, a prison, a children's art museum, the Sun Village Hamada sports center, a bright red welcome center, a ski resort and an aquarium featuring three ring-blowing Beluga whales.

Nor is this remote port in western Japan unusual. Japan's rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.


Now, as the Obama administration embarks on a similar path, proposing to spend more than $820 billion to stimulate the sagging American economy, many economists are taking a fresh look at Japan's troubled experience. While Japan is not exactly comparable to the United States — especially as a late developer with a history of heavy state investment in infrastructure — economists say it can still offer important lessons about the pitfalls, and chances for success, of a stimulus package in an advanced economy.

Well that really sucks. It is a longish article with some telling historical basis. Perhaps we could learn what NOT to spend money we already don't have on.

[xoxoxoBruce]

There's a difference between building for buildings sake and fixing the shit we've got that's literally falling apart.

[classicman]

Absolutely Bruce, I agree 100%, but finding the bridges, for example, that need the least amount of work and can be repaired in the least amount of time is not a good plan. There are so many that need to be completely replaced and those won't be getting any of this money. Not to mention the infrastructure like the sewers and and water systems in many major cities which would disrupt too much for too long to be properly repaired or upgraded.

[tw]

Originally Posted by classicman

Absolutely Bruce, I agree 100%, but finding the bridges, for example, that need the least amount of work and can be repaired in the least amount of time is not a good plan.

Which means we are right back to the question of which jobs are 'making work' verses those that result in a productive return on investment. Arguing about some unnamed bridge or water project that can resulting quick returns today is nonsense because the bridge is not named and the water main is not cited. Such discussion can only occur at that level - pipe by pipe and bridge by bridge.

A solution starts only when each project is determined individually to have a real ROI. If we wanted short term stimulus, then simply declare war on Korea or build a bridge to nowhere. Both will accomplish same economic stimulus.

Any real solution cannot show productive economic results for four years. This recession is created by decisions four and more years ago. Anything that might show results this year only works by mortgaging part of a recovery four and more years later. And so arguments are circular because nobody is citing a solution bridge by bridge and water main by water main. Only useful economic stimulus plan discusses solutions at that level.

[classicman]

Originally Posted by tw

Which means we are right back to the question of which jobs are 'making work' verses those that result in a productive return on investment.
A solution starts only when each project is determined individually to have a real ROI. Only useful economic stimulus plan discusses solutions at that level.

And? Do you have some insight into this? Is there a plan that is doing this? I agree with your point, but this isn't an exact science, is it?

[tw]

Originally Posted by classicman

Is there a plan that is doing this? I agree with your point, but this isn't an exact science, is it?

No, it is not an exact science because the metrics used to measure are so poor - ie spread sheets. How do you identify something that is innovative? No spread sheet can ever measure an innovation. Accounting has not a clue; can only see symptoms. Finance is too far removed to actually see things that create real ROI.

Yes, it is not an exact science because the metrics are not really measuring productive economic activity - only measure economic activity.

When was the need for a Golden Gate bridge proven? When the traffic was more than willing to pay those tolls. Long after it was finished. Previously, the need was only speculation. Another example of the deficiency in those finance metric.

How do we indentify a productive and therefore real stimulus project? We must do it bridge by bridge and sewer by sewer - using metrics that are not very good. But even worse, Congressmen are trying to make these determinations school by school. Well, they are not. Too much information and not enough congressman. They are throwing money blindly in different directions hoping that some money hits a needed bridge, water pipe, sewer, and school. That was also called the great leap forward, a five year plan, or central planning.

It is not an exact science. Only people who can really identify a best projects are little people who devise those projects and then get capital to make those projects work. Best bankers are those who also worked previously in a construction business, engineering firm, or trucking. Only they can best loan money to upstarts with new ideas or good plans. No wonder bankers like John Doer are so innovative. No wonder the big banks must make money using money games - they cannot see innovation.

Unfortunately accountants and finance people without real world experience created this problem. Polticians are not better at channeling capital where it may be most productive. But when so many bankers act as MBAs - well even the spread sheets now cannot be trusted. Just another reason why government is throwing more money at the economy. The only people who really know best - who best understand the metrics - are the innovators who come from where the work gets done. But even they cannot get money due to so many banks who think their purpose is profits rather than serving the innovators. So government is throwing money hoping to hit innovators with cash.

Far from an exact science. But then it also explains why communism does not work.

[xoxoxoBruce]

Simplified by clusterstock

You have two cows.

John Paulson borrows one cow so he can sell it for $100. He gives you $10 as collateral.

You buy your neighbors cow for $100, which you finance by taking out a $90 loan from the bank and use John's $10 to make up the rest.

You brag to everyone about your financial health. You have assets--two cows you own, plus one Paulson owes you--worth $300, and liabilities of just $100.

A third of the country goes vegetarian.

You thought your two cows were worth $200 and now they are worth $140.

You express confidence in your financial health. Your assets are now worth only $200--your two cows plus the one John owes you--but your liabilities are still only $100. If necessary, you could sell the assets at this distressed price and pay off all your loans.

You hold onto your cows because you are sure the market is "dislocated." Some day someone will want to eat beef again.

The rest of the country goes vegetarian. Your two cows are now worth $2 each to guys who want to make dog food.

John Paulson buys a cow in the market for $2 and he gives it to you as repayment of the loan. You now have three cows worth six bucks.

John wants his $10 back.

The bank calls. It wants its $90 back.

You call the Federal Reserve and ask for a bailout.

[Trilby]

I know you all know that Wells Fargo bought Wachovia with bail out money.


Even though they say they didn't, you SO know they did.

jerks.

Some of these people are going to have to re-incarnate many, many times to pay for their sins; and they WON'T be coming back as rich WASPS, either. They'll be poor black children.