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.

Thanks for the clip. I just made my first loan (secured by a butter churn! - better collateral than most out there now).

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

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

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

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

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!