Saturday, March 21, 2009


If there is no such thing as a free lunch how can anyone believe there is such a thing as a free market? The concept of free flowing markets has been conflated, confused, and corrupted with the notion of a market free from regulation. No where else but in the mind set of American financial markets has the concept of less regulation been erroneously equated to more efficient markets. We are now paying the price of that.

There is no sport and even no society where even a single player is free of all rules. For anarchy can be defined as the albescence of all rules. Once fairness and orderliness has been reasonably addressed, only the degree and effectiveness of enforcement determines how well the title may fit of a free and fair market.

More than a decade ago, when President Clinton was granting China MFN (Most Favorite Nations) Trade Status, I was openly critical of that policy. How can USA expect a foreign dictatorship to abide by rules of fair trade? It should be obvious they will use much less restrictive environmental rules, much less restrictive labor practices, and probably more lax trade rule enforcement to unfairly undercut American jobs and industries while increasing their own treasury reserves at our expense? It has been said that we buy poisoned products from China in exchange for worthless U.S. debt.

Truth is U.S. government was not too worried because they had plenty of practice everywhere from Latin America to South East Asia. Getting right wing military dictators to open up their markets to foreign multinationals in exchange for American diplomatic recognition and military support against local “leftist movements” was modus operandi for decades. Because internationally, for even a long time now, our corporations’ best interests has become synonymous with our national security interest. Threfore it was our multinational corporations wanting access to China’s vast markets that pushed hardest for this change. Because a corporation’s first requirement is only to the bottom line, they do not care about providing jobs, saving the environment, protecting its employees from injury, or even fully complying with rules. All those things require a referee to insure the system work free and fair . And for system to be fair and effective those officials must be free of corruption and incompetence.

We are in a situation our Founding Fathers could not foresee, because back then corporations did not have virtually the same legal status that individuals have. Now days, corporations contribute the most to political campaigns and by far buy the most lobbyists. They bought the politicians, got them to re-write the rules and create a new reality to enhance their profitability. This happened from everything from pharmaceuticals to the elderly to oil companies writing energy policy to immunity for telecoms to bonus and bailouts for banks and AIG. Construction companies and military companies are the other biggest winners as the wars were outrageously outsourced and completely cost overrun. Should we expect anything better for allowing oil men to be selected to lead us and then let them lead us into a war of preemption and deception?

Wall Street broke and broke us because the biggest most successful companies would now be able to operate in wild west style markets with little funding for the sheriff and plenty of golden parachutes and revolving doors: to mix many metaphors. Corporate tax loopholes, salaries, and bonuses explode.

The Federal Reserve was the first to evaluate the situation at AIG. Without congressional authorization or consultation they started it was too big to fail and gave them $85 billion to maintain operations. Part of the justification in too big to fail is that there is value in the brand names of these companies. Well that is pretty damaged for Bank of America and completely gone for AIG. Employees have been told not to wear company logos, or travel alone at night. One unit of this triple A rated company found a way to legally bet about $450 billion they did not have. They realized about two years ago that they lost their bets but have stuck us, the U.S.. with the bill. They sold financial insurance but did so in an environment where they did not have to maintain any reserves or even have any real oversight.

Being distracted about bonus schedules only means we are not focusing on the 99% of the money we have given to that company and how we got that way and how we can stop it from continually happening. But it sure is the easiest spot to understand wrong doing and try to hold someone accountable for retained bonus of people that were not retained and led us into disaster.

In the Crash of 1929 the assets in U.S. financial system was about 50 percent of GDP. But now thanks mostly to loosely regulated derivatives that figure is now 150 percent of GDP. In now bankrupt Iceland the figure was 900 percent. It is no wonder the Federal Reserve just decided to create another trillion dollars of debt to try and stabilize our real estate market and by connection the overall economy. Good luck to us all.

Wednesday, March 11, 2009

The Stank of America - Too Bad to Bail!

What I am & What the hell?

I have an outstanding credit history about 30 years long. Some ten years ago, when I was being approved for membership as a commodity floor trader, the person who checks the application for review said that they had never seen a perfect credit rating before me. I replied you mean I am the only fool that pays all their bills on time? For years prior to this bank credit crisis and even since I have been offered extremely low teaser rates on my credit cards. My assets far exceed my debt and I am entrepreneur who is using my personal to fund my new venture that is now operational after three years in development..

When I went on-line to take advantage of one of these offers from Bank of America’s - a 0% offer for six months - to pay down another credit card at a higher rate, they denied it a week later. They cut my existing credit line by 7 thousand dollars on that card and canceled my other credit card with a line of 8 thousand. Adding insult to irony a letter arrives the same day offering a rate of 8.9% on that now cancelled card. The only explanation was “currently owe sufficient amounts on your revolving lines of credit with other creditors.”
Who or What is Really a Risk?

This incredibly incompetent institution acts like it believes it can behave in away that is analogous to a lapse in airport security. They want to kick everybody out and re-screen them for credit worthiness. As far as I can tell this bank is not turning over for prosecution those that committed fraud by lying about their income on their mortgage application. In fact some of those people are actually going to get a bank and government subsidy to lower their mortgage to 31% of whatever income they actually have now. Liars who got “liar loans” may get a pass and a subsidy while someone that acted honorably and responsibly will pay the price with reduced credit and a larger federal deficit.

I am especially furious by the fact that I never opened up any credit card accounts with this “Bank of America”. They acquired one of my accounts when they paid 35 billion dollars for MBNA in 2005 - a company that specialized in credit cards for people with great credit scores. And second account they got when they acquired Fleet Bank for 47 billion dollars back in 2003.

In less than six years, Bank America spends 82 billion for those two intuitions plus another 50 billion more for the toxic asset laden Merrill Lynch last fall. Then they turn around and almost immediately need 45 billion in emergency funding from Treasury and God know what from the Fed to remain solvent and to allegedly keep credit flowing. I consider it incredible that they have the nerve to imply that I don’t have the fiscal responsibility to manage my own pre-existing credit line. But if I ever do get in trouble and have to decide who is not going to get their money back at least I now have an obvious choice.
Call for a Fall!
In a legal sense, I am injured, for this so called bank hurts my credit rating by cutting the amount of credit I already had available. This is because they are directly raising the percentage of debt relative to my credit line. They offer the possibility to reinstate some or all of the credit line but only if I give them the what information is needed to open up any new account any where else. Therefore what they are really saying is, “no more of your available credit. So would you like to apply for some more credit” Well certainly not with them.

Can anybody say class action suit? If you search that topic with Bank America in Google you will see an array of lawsuits that clearly display the character of this company. There is an axiom from the restaurant business that applies here: a happy customer tells three friends an unhappy customer tells twenty. I have submitted this story to ABC and complained to my congressman and senator.

I intend to move my bank accounts over to another less irresponsible institution and I strongly encourage others to do the same. Too big too fail? Not if we make it so. If government won’t or can’t make them do the right thing from a consumer stand point the counter argument should be…. TOO BAD TO BAIL!

Tuesday, March 3, 2009

Nationalized Firms & Socialst Govenment

Privatized Profits & Socialized Losses

Government has changed the tax payer investment in Citibank from 5% preferred stock into plain common stock that is paying a dividend about half that rate. We have now invested at least 45 billion in exchange for a third of a company that the market currently values at 6.5 billon dollars. I was the first to comment last September that from a corporate governance stand point, the ultimate success is to be labeled “too big to fail”. They need to make a new version of the game Monopoly to reflect the new reality of these global behemoths.

Senator Bernie Sander (I - VT) said that as far as he is concerned, “too big to fail is too big to exist”. And a congressman on banking committee asked the Fed Chairman an interesting question, “at what point does too big to fail become too big to save?” His answer was that no one has been able to devise a way of saving the banking system without saving the banks. There was also a reference to brand name value of these franchisees that could be destroyed. But I don’t think these brand names are worth much at the moment. The real answer came next day to Senate Finance committee when Fed head said there is no authority or mechanism to shut down a global institution like Citibank or AIG. But allegedly it was not our own financial experts or government that decided to save those firms last fall. They were preparing to do just that. But pressure put on the treasury from foreign capitals from London to Hong Kong convinced them that this would lead to a global financial collapse.

Black Hole

Lets not even get into Fanny or Freddie for now. But that 45 billion to Citi maybe even higher because the Federal Reserve has loaned out some two trillion dollars to troubled financial companies. And the Fed will not to disclose who got this money let alone how much under the guise that no one would borrow from them if were to be public. As if a multinational conglomerate is going to decide they are going to be shy about borrowing money in a crisis. So what is Bernake saying, instead they might borrow from someone else at a secret higher rate? They are not allowed if they are public company. To me the real message here seems to me to be that if the full truth were really known the financial system might just collapse completely instantly.

GAO report says we over paid for what we got with our first capital injection. That was obvious as Warren Buffet got much better rate of return from Goldman Sachs then US Government. And now we have converted to an even worse deal for the taxpayer meaning a better deal for Citibank.. But it is with the caveat or the guise that this will stabilize the institution for a possible worst case scenario.

Experts, Feelings, & Inflation

So far the entire crisis has exceeded worst case projections from 90% of the experts. Reminds me of the global warming projections and realities. Radio talked show host Lionel pointed out that having views on economics is not like having an opinion on the abortion issue. This is not about values and faith but about science and reason. Sure economists can differ but they are all operating on an education of accepted theories. No reputable economist is currently worried about inflation in the next few years and almost all would say that any inflation but stagflation would be an improvement over current crisis.

Whole Lot of Stimulus

There will be a highway bill, an energy bill, an education bill, a series of health care bills, all adding to the legs of the financial rescue package. Much more money for States, the unemployed, and corporations. There will be huge outsourcing to private sector and their will be jobs. Will it be enough? Will it be in time? Will it be the right thing to do? Will we get our house in order to prevent our demise? If you the face of Japanese finance minister at recent emergency economic summit you might be very scared.. Stay tuned with me.

A crisis of confidence has been greatly exacerbated by cast of characters that even Hollywood would not think plausible. A crook named Madoff made off with billions of money from the wealthy and charities. The head of the SEC had multiple opportunities to stop that scam was a dick named Cox. I am appalled that Paulson was the person put in charge of saving the banks having made a half billion dollars and a lot of friends running one of them. Oh Henry gave money to biggest failing banks and nothing for the banks that behaved responsible. Talk about competitive disadvantage. And finally it was downright scary that the guy he chose to carry out this cash infusion was named Kashkari. Is there a Shakespeare here? I smell a tragedy.