Uh oh.
I couldn’t bite my tongue. Last night, I briefly watched (God forbid) a clip on CNN about the Big 3Detroit auto CEO’s who had marched, hat in hand, to capitol hill to lay claim to their piece of the bailout pie. The segment I watched was showing various clips of the senators speaking to these nutty Big 3 CEOs. During the middle of the segment I leapt out of my chair and launched on a tirade that would have been better saved for rallying a bunch of guys to throw tea into Boston Harbor.
Now, the content of CNN segment will soon (if it is not already) be famous. Can you guess what it is? Actually, you can read the whole story here. The gist is this: the Big 3 CEO’s traveled to Washington D.C in private jets to ask for federal bailout money for their companies. Of course, the symbolism of this is that the executives of the auto companies still have their heads in outer space, are out of touch with reality and, therefore, giving their companies money would be putting good money after bad.
This doesn’t seem like such an illogical conclusion, does it? Oh, the hipocracy of it all!
Wait for it…YES, ELIZABETH, THIS IS THE BIG ONE!!
Now, Politicians completely divorced from reality is not something new. But, in this case, they may be even more “Cuckhoo for Cocoa Puffs” than the Big 3 CEO’s.
How about the fact that we, as American taxpayers essentially gave the pols in Washington a multi-trillion dollar checkbook that they have effectively messed up beyond belief and comprehension (can anyone figure out the tax code or the medicare thing?) The senators on the panel yesterday essentially screamed and railed against the audacity of the CEO’s to arrive on private jets and ask for federal bailout money for their companies.
Uh, excuse me Senators, but how well do you travel? How many perks do you enjoy on the taxpayer dollar? How much are you feeling the recent economic downturn your constituents are dealing with?
My guess is, Senators, that you travel well. Since the median net worth of a U.S. Senator is $1.7 million (read more here at OpenSecrets.org, I am guessing that you aren’t feeling the ‘recession’ as much as your constituents. I have to hand it to you, though, Senators, for it was a fine performance for the cameras. You are “fighting for responsibility” and don’t want “these auto companies to come back here in 6 months again asking for more money so you can just fly your private jet home to your palace of gold!”
Never mind, Senators, the $700 or so billion that will need to be printed like monopoly money to “fix” the financial system that teetered on the brink a few short weeks ago. I think there is enough pork in that bill to cost you the vote of the animal rights lobby.
Senators, you act like the trade and budget decisions you have collectively made have had no impact on U.S. industry or jobs. Yes, I guess you are free to choose when to use “fuzzy logic” and when no to. Just as long as it fits.
Let me make sure I understand you, Senators: it is OK to have an insane farm subsidy program for decades and light fire under Government Sponsored Entities Fannie Mae and Freddie Mac to fuel a housing boom (and, by the way none of these industries have rich CEOs that travel on their own planes- wink). But, these auto companies, hey “we’ve got to be responsible here.” Uh-huh.
So, who wins in all of this you might be asking? Many things are zero sum - somebody wins, somebody loses, so…drumroll please….
And the award for the biggest sucker holding the bag goes to…The American Taxpayer!
Tell them what they’ve won, Johhny!
We’ll Ted, The American Taxpayer has won an all expenses paid trip into the bondage of debt for the better part of eternity! **Applause** That’s right. Not only will working men and women be in indentured servitude for their existence on earth, but future generations will also be eligible for the same lifetime benefit! It’s a total prize package value of over $100,000,000,000,000.00!!! **Applause**
A lovely, emotion-charged post, Adam. The whole spectacle was absolutely pathetic if anybody asks me (and, of course, nobody does).
The whole bailout has created a gigantic moral hazard of “too big to fail” and a subversion to free markets.
The most disgusting part of all is that the free market is taking the rap for the current crises when, in fact, the cause and catalyst were Government policies (i.e., meddling) and that holiest of all institutions, the Federal Reserve.
We’re both Free Market types, of that I can tell. I just might be a bit more extreme than you. Regardless of any differences we have, we’re certainly a minority in this state, and, sadly, the nation going forward as everyone looks to the Government to somehow “create” jobs and “fix” things.
Half of me finds comic relief and the other half enraged, when I heard about these dimwits in Congress asking for a “viable” business plan from the big 3 if they are to be lent money, as if a bunch of Congressmen and women can even begin to judge what is a viable business model for the auto-industry.
But I digress…
Money will be made and it’s high time to make it.
Dan
Dan,
Great comment. Particularly your point about the pols being able to discern a business model materially different from a money printing press. Keep your eyes peeled for Prez Elect Obama’s “New-New Deal” a la FDR. The Dems finally have a chance to emulate the patriarch of their party! (not that the Republican’s haven’t had their shot at a second incarnation of the Reagan administration).
Adam,
Assuming this link still works when you see this, thought you might enjoy this segment:
http://finance.yahoo.com/tech-ticker/article/134633/%27Crisis-Only-Just-Beginning%27-Right-About-the-Crash-Peter-Schiff-Sees-More-Pain-Ahead?tickers=%5Edji,%5Egspc,%5Eixic,SPY,DIA,QQQQ,GLD
Now, onto just a couple of comments.
The most charitable assessemnts I’ve seen so far about Obama are that he said when he needed to say to get elected but that cooler heads will prevail when he’s in office (otherwise he will be a one term President). In other words, will he Govern from the far left or from the Middle? Who knows.
However, I did find it slightly interesting that his newly forming administration stated yesterday that they may be postponing Obama’s campaign pitch that he would repeal Bush’s tax cuts “for the wealthy.”
Hmmm…maybe some of his true colors are starting to show.
Regardless, today it’s more of the same. Huge bailout for Citi Bank.
If America keeps going like this, there’s only one of two conclusions: another Great Depression or a replay of what Japan went through in the 90’s when they tried to prop up everything from failing “Zombie Banks,” “Zombie Companies,” “The Lost Decade.”
Unfortunately for America, we don’t have any real savings whereas the Japanese did in the 90’s.
Days like this are nothing short of annoying mixed in with amusement. The rally in the market is huge based on sentiment but it’s the worst thing possibele longer term for the US economy.
This bear market isn’t close to being over….especially with the way the Government keeps meddling and trying to prop up every failing enterprise.
If you’re right and that Obama does prove to govern from the far left A LA FDR, then we are certainly headed for another Great Depression.
However, plenty of people got rich in the Depression too. Like you once said in one of the videos for “Millions Over Morning Coffee.” Granholm’s policies may not be good for the state, but you may like them from a selfish standpoint as you get to scoup up real estate for pennies.
Dan
Dan,
Man, I thank you for your well-thought response! Japan did “lead the way” with ultra low interest rates and trying to plug every hole in the dike - to the end result of a perennially shaky economy.
The news segment with Peter Schiff was pretty salient - and sobering. Thanks for that link.
It will be interesting to see how things pan out. I really think America is going through a ‘morphing’ machine right now. When it emerges, it will be a vastly different country from what it has been in the past. A ‘genetic mutation’ if you will.
Capital will always go where it is welcome and well-allocated. Therefore, I feel that we could not be in more favorable positions as entrepreneurs right now.
Perhaps we should start a bank!
Adam,
You’re right. There’s a saying “capital is a coward.” The flip side of that is exactly what you said “Capital will always go where it is welcome and well-allocated.”
As for starting a bank, the competition, to be sure, is hurting badly so in that sense there’s an opening. But I wouldn’t want to start one, and I’ll tell you why: precisely because of the bail-outs!
There are still banks, as you know, who have survived this crises intact because they kept their heads when everyone else was losing theirs.
If the markets were allowed to work, a lot of these financial institutions would go belly up and the competent players would get to snap up these distressed assets and become stronger for it. That’s what’s supposed to happen in a free market, after all.
That’s what you’re doing in real estate now.
Instead, what is happening? The banks who followed more sound business practices and limited their risk are seeing THEIR MONEY (along with all of ours) used to prop up banks who screwed up royally.
Put it this way, you’re a real estate investor. Let’s say there’s a guy named Johnny Appleseed in Michigan who got into real estate investing a few years ago when you did. Let’s say Johnny leveraged himself to the hilt and bought 30 properties. Times were good. The real estate was appreciating.
So Johnny, greedy soul that he is, and someone who doesn’t understand risk management, keeps refinancing the properties to higher LTV’s so he can then use that tax free money to buy more and more real estate thinking in another 2-3 years he’s gonna be gonzo wealthy. More upside, more downside potential.
Then the market falls out. People like you are fine because you were more conservative and didn’t leverage to the hilt. You kept a lot of equity in your properties so they’re still cash flowing and you still have equity in most of them despite the bad market.
But poor Johnny is now upside down on 30 homes, can’t afford the payments, and they’re all going into foreclosure.
Then Uncle Sam comes to the rescue and says don’t worry, Johnny, we’re going to take Adam’s money (and a lot of other tax payers money like Danny boy there) and give it to you to bail you out of your bad bets.
that Johnny is incompetent we know. He made major bets and lost. He didn’t control his risk.
Regardless of this fact, if the Government is going to continue to bail him out for his bad moves WITH YOUR MONEY…do you really want to compete with him?
Maybe.
But I wouldn’t.
I imagine many of these banks who played their hand right were WAITING for this moment so they could snap up their competitor’s assets for a song when the bottom fell out. But instead the referee (i.e., good ole Pols as you call them) are going to let the jackasses play another round of cards with your money and mine AGAINST us.
So, in conclusion, I think it’s difficult to bet against people who get to screw up and get bailed out with your own money. If they were allowed to fail, I’d be right behind you and say “Let’s start a bank!”
In any event, I think there is huge money to be made going forward: commodities, and longer term bets, real estate.
I hope 5 - 10 years from now I still know you and that you’re a multimillionare for your efforts.
Dan
For you Adam.
If Obama has been reading this crap, we’re in trouble. Best thing he could do is let the market do its work but like FDR, he has to appear like he’s doing something…..so another Great Depression? You decide. This author is a jackass (he thinks letting things fail is the worst possible solution)…and Obama is learning from a jackass.
http://finance.yahoo.com/tech-ticker/article/135858/FDR-and-Obama-Part-1-The-First-100-Days?tickers=%5Egspc,%5Edji
Happy Thanksgiving.
Dan
Dan,
Hope you had a good Thanksgiving. I hope that PE Obama is using this as a pandering technique. Time can only tell. My hope is for rational thought to return to the higher offices of our country.
Adam
I was looking for blog ideas to add to my site and I found your site. I like what you have done and will be sure to check back for updates.
Hey Adam,
Hope this video plays for you. It’s a video about a bank doing 95% of its loans (a small bank that did 100 million in loans) to the Amish and never had one loan go bad.
Doesn’t surprise me at all, actually, but if you want to start a bank, make loans to the Amish and you’ll clean up!
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=11076683&ch=4226720&src=news
Dan
Excellent content here and a nice writing style too - keep up the great work!
Dan,
Thanks for the clip. I just made my first loan (secured by a butter churn! - better collateral than most out there now).
Adam,
Not to beat a dead horse, but thought you might find this little commentary of interest.
This harkens back to our little discussion about starting a bank…and how it would be something I personally would be inclined to avoid due to the ongoing socialist bailout that is taking assets from the competent and giving them to the incompetent…leading to the creation of “zombie companies.”
One of my passions for years is actively studying & trading the financial markets. I have a subscription to realmoney.com and one of the commentators wrote this little quip this morning. Thought I’d share.
(Merry X-Mas, by the wat).
Commentary:
I am increasingly annoyed with the “vampire banks” that we are creating. I have a good friend who put together a first-class team of banking professionals to raise some seed capital to start a bank. Simple concept: a new, non-guilty lending institution with a seasoned and great management team.
They were nearly to the finish line when key investors balked over one very good concern: bailout activity is transitioning banks that should be dead into the undead…and these effectively heavily subsidized undead would suck life out of any new venture. The idea ended there.
This is a huge problem for any sort of recovery. I am just stunned at the inherent stupidity of what has occurred. To our readers, a warm and happy holidays. To the bailout artists: please find new employment.
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