Well, we apologize to "Mister" Geithner (for now...). WSJ reporting CIT is as good as done. All available lines will be drawn by customers. Losses won't be able to be replaced with new capital and the tens of billions of debt repayments due in the next 24 months tell the story.
CIT, we hardly knew you.
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Wednesday, July 15, 2009
Friday, June 05, 2009
The Grand Unified Conspiracy Theory - Part I
We here at TILB have been referring to our Grand Unified Conspiracy Theory for well over a month now. What follows is the first in a two part series on The Grand Unified Conspiracy Theory. Part I outlines The Theory. Part II will show its applicability to nearly every government intervention to date.
As previously discussed on TILB, many of the governmental actions to date have the strange feeling of a coordinated effort to disembowel corporate America while burking free will into its perverted death throes.
Some may say it seems harsh to label this ugly trend a "conspiracy," yet it has many of the classic hallmarks. As Kurt Cobain said, sometime before hollowing out his head, "just because you're paranoid doesn't mean they aren't after you." While conspiratorial path began under President Bush, it has accelerated at a sickening pace under President Obama.
As with all conspiracies, the ability to decipher the actions begins with understanding the end goal.
We believe the goal is simple: control cash flows and direct them as desired to gain political ends. Whether or not it's a full fledged conspiracy, that goal seems obviously applicable and deceitful enough to create discomfort.
Working from the end forward, if we were conspiring to accomplish the aforementioned goal, we would want to do it in the least overt manner possible so as to maintain plausible deniability.
So the Chavez/Venezuela model, despite its appeal to ill-minded politicians, fails the basic sniff test of the average American and would be difficult to employ in The States. While that overt model meets the end goal, it does not fly in America, so we have to look for a path with lower resistance.
What if, rather than simply taking assets from owners against their will, we actually set up a structure that caused those owners to willfully surrender to our control?
That would seem to be the ideal.
As the legendary algebrist Jacobi is famed for saying, the secret to problem solving is to "invert, always invert." So, with our understanding of the end desires and a method that would work in America (get them to willfully give you their assets) well in mind, we can begin to imagine a means of accomplishing the goal:
This is elegant because most people will not be able to understand or simply will not believe the cause and effect.
While it has the exact same end game as simply nationalizing companies against their will (ala Chavez), it accomplishes that outcome in an obfuscated and seemingly voluntary manner.
Some people may say, "hey, TTB, that's ridiculous. Get off the Crazy Train."
In Part II of The Grand Unified Conspiracy Threory, we will address our sanity by walking through virtually every governmental interference in private companies and show its applicability.
---------------------------------------
Let us know what you think? Are we crazy? If so, like a fox, or like a crazy person? If the latter, like John Nash or Kurt Cobain? If Kurt Cobain, like him before or after he off'd himself?
As previously discussed on TILB, many of the governmental actions to date have the strange feeling of a coordinated effort to disembowel corporate America while burking free will into its perverted death throes.
Some may say it seems harsh to label this ugly trend a "conspiracy," yet it has many of the classic hallmarks. As Kurt Cobain said, sometime before hollowing out his head, "just because you're paranoid doesn't mean they aren't after you." While conspiratorial path began under President Bush, it has accelerated at a sickening pace under President Obama.
As with all conspiracies, the ability to decipher the actions begins with understanding the end goal.
We believe the goal is simple: control cash flows and direct them as desired to gain political ends. Whether or not it's a full fledged conspiracy, that goal seems obviously applicable and deceitful enough to create discomfort.
Working from the end forward, if we were conspiring to accomplish the aforementioned goal, we would want to do it in the least overt manner possible so as to maintain plausible deniability.
So the Chavez/Venezuela model, despite its appeal to ill-minded politicians, fails the basic sniff test of the average American and would be difficult to employ in The States. While that overt model meets the end goal, it does not fly in America, so we have to look for a path with lower resistance.
What if, rather than simply taking assets from owners against their will, we actually set up a structure that caused those owners to willfully surrender to our control?
That would seem to be the ideal.
As the legendary algebrist Jacobi is famed for saying, the secret to problem solving is to "invert, always invert." So, with our understanding of the end desires and a method that would work in America (get them to willfully give you their assets) well in mind, we can begin to imagine a means of accomplishing the goal:
1) Identify a big industry that is suffering from weakness, ideally a cyclical or temporary weakness. A lot of debt would be helpful as well. One final condition is key: many industry players need to be suffering from some weakness, not just one particularly poor player;The process of having the government compete with private capital without a classic return-driven framework means that it will pound already weakened competitors into capitulation and these competitors will actually come to the government of their own volition for bailout, helping to further consolidate the government's power and control over cash flows.
2) Identify the weakest sizeable player;
3) Deem that player "too important to fail" due to traits that are easily deliverable by the media and easily consumed by Joe Sixpack (e.g., "huge employer", statements of "systemic importance" such as "its collapse would cause the collapse of others", etc.);
4) Once we reach the brink of that important-but-weak company's collapse, step in as a funding provider of last resort in exchange for dominating control;
5) Prop up the failed company (FailedCo), disallowing its failure in a traditional sense thus preventing its competitors from absorbing the marketshare that would have been forfeit by FailedCo. This marketshare grab would have improved the health of all the remaining players but instead the opposite happens because...
6) ...the government, lacking a natural profit motive and supported by a theoretically infinite funding supply (a printing press and taxing authority), will operate FailedCo without a particularly profit driven motive. These non-economic behaviors harm competitors. Running the business in this manner will be easily justified with statements such as, "we need to ensure that FailedCo continues to operate at scale so that when we sell it back to private hands it generates enough proceeds to payback tax payers" or "we are not in the business of laying people off. We want to maintain the corpus of FailedCo until we find a permanent home for it." Countervailing voices can easily be surpressed with the mantra that they are greedy capitalists trying to benefit from the pain of the Average American.
7) In a world without interference in the markets when FailedCo actually failed, the competitors would have been strengthened in two ways: 1) marketshare grab from the disappearance or absorption of FailedCo; and 2) improved pricing as the surviving companies all endeavor to rebuild their balance sheets. However, in the conspiracy world, these participants continue to weaken as they compete with an overwhelmingly funded, non-economic competitor. This leads to the failure of the next weakest competitor (NextCo);
8) NextCo voluntarily comes to the government for its own bailout.
9) Rinse and repeat.
This is elegant because most people will not be able to understand or simply will not believe the cause and effect.
While it has the exact same end game as simply nationalizing companies against their will (ala Chavez), it accomplishes that outcome in an obfuscated and seemingly voluntary manner.
Some people may say, "hey, TTB, that's ridiculous. Get off the Crazy Train."
In Part II of The Grand Unified Conspiracy Threory, we will address our sanity by walking through virtually every governmental interference in private companies and show its applicability.
---------------------------------------
Let us know what you think? Are we crazy? If so, like a fox, or like a crazy person? If the latter, like John Nash or Kurt Cobain? If Kurt Cobain, like him before or after he off'd himself?
Wednesday, June 03, 2009
PPIP Put On Hold
Shockingly, banks are not lined up to voluntarily sell their "toxic" (i.e., worth something less than par) assets, lest their balance sheets begin to reflect economic truth.
The truth would be unacceptable.
Or, as a friend of TILB so succinctly put it, "Amazing. You give a Trillion dollars to banks and suspend MTM, and they don't want to sell? That's a head scratcher."
Indeed.
That Which is Seen, and That Which is Not Seen:
In addition, if you were a bank why on Earth would you sell when We The People are willing to subsidize your balance sheet via one of the steepest curves in history (on top of wide spreads!)?
In fact, not only have we subsidized your past (balance sheet injections) and obfuscated your current state to your benefit (MTM), we fully intend to subsidize your future (steep curve, zero funding costs, gifted trading profits).
In essence, the government has licensed the banking system a money printing machine. Of course, private industry does not have an actual money printing machine (and if it did, it would still lead to wealth theft from savers). Rather, the money being "printed" by bank profitability is actually the collection of the profitability excretion that results from the forced consumption of a massive ex-lax that was jammed down the throat of the rest of the economic system. To the extent the Fist of Government has granted super-normal future profitability to the banking system, you can rest peacefully at night knowing that other parts of the economy are paying for it - just stay close to the shitter.
So, as a member of the Brahman level of the corporate caste system, why would Bank XYZ sell? What's the downside? Bankruptcy? Ha! As if. Simply play the same game Ford selected and give the dice a roll; worst case scenario, you get bailed out anyway. Best case scenario, you confiscate enough profits from the rest of the economic system that you regain your swagger as a global BSD.
And thus, shockingly, the FDIC expects a supply shortage and Super SIV v5.0 is shelved along with all of its prior incarnations. Not canceled, of course, simply shelved - we must always build in an escape hatch so that we can reactivate the plan without seeming like we keep changing our mind.
In any case, here's the FDIC's release. Basically, the LLP will only function for assets from banks in conservatorship:
The truth would be unacceptable.
Or, as a friend of TILB so succinctly put it, "Amazing. You give a Trillion dollars to banks and suspend MTM, and they don't want to sell? That's a head scratcher."
Indeed.
That Which is Seen, and That Which is Not Seen:
In addition, if you were a bank why on Earth would you sell when We The People are willing to subsidize your balance sheet via one of the steepest curves in history (on top of wide spreads!)?
In fact, not only have we subsidized your past (balance sheet injections) and obfuscated your current state to your benefit (MTM), we fully intend to subsidize your future (steep curve, zero funding costs, gifted trading profits).
In essence, the government has licensed the banking system a money printing machine. Of course, private industry does not have an actual money printing machine (and if it did, it would still lead to wealth theft from savers). Rather, the money being "printed" by bank profitability is actually the collection of the profitability excretion that results from the forced consumption of a massive ex-lax that was jammed down the throat of the rest of the economic system. To the extent the Fist of Government has granted super-normal future profitability to the banking system, you can rest peacefully at night knowing that other parts of the economy are paying for it - just stay close to the shitter.
So, as a member of the Brahman level of the corporate caste system, why would Bank XYZ sell? What's the downside? Bankruptcy? Ha! As if. Simply play the same game Ford selected and give the dice a roll; worst case scenario, you get bailed out anyway. Best case scenario, you confiscate enough profits from the rest of the economic system that you regain your swagger as a global BSD.
And thus, shockingly, the FDIC expects a supply shortage and Super SIV v5.0 is shelved along with all of its prior incarnations. Not canceled, of course, simply shelved - we must always build in an escape hatch so that we can reactivate the plan without seeming like we keep changing our mind.
In any case, here's the FDIC's release. Basically, the LLP will only function for assets from banks in conservatorship:
FDIC Statement on the Status of the Legacy Loans Program
FOR IMMEDIATE RELEASE
June 3, 2009 Media Contact:
Andrew Gray (202-898-7192)
The FDIC today formally announced that development of the Legacy Loans Program (LLP) will continue, but that a previously planned pilot sale of assets by open banks will be postponed. In making the announcement, Chairman Bair stated, "Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system. As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector."
As a next step, the FDIC will test the funding mechanism contemplated by the LLP in a sale of receivership assets this summer. This funding mechanism draws upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage. The FDIC expects to solicit bids for this sale of receivership assets in July.
Chairman Bair added, "The FDIC will continue its work on the LLP and will be prepared to offer it in the future as an important tool to cleanse bank balance sheets and bolster their ability to support the credit needs of the economy."
###
Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 8,246 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.
FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC's Public Information Center (877-275-3342 or 703-562-2200). PR-84-2009
Tuesday, May 12, 2009
The Chrysler Traveshammockery
It's been sold to America that Chrysler is of systemic importance. Countless articles have been written about the 40,000 direct job losses or the nearly 300,000 that would be lost systemwide due to job cuts that would occur as dealers, suppliers and suppliers' suppliers lay people off to adjust for lost business. These "facts" have been used as a justification for the Chrysler bailout; a sort of justification that has been used to mislead the public in virtually every bailout in government history (I make some minor exceptions during September of 2008). This is what is seen - the first order effect.
Like lambs to the slaughter, too numbed by all the horrifying governmental actions of the last year and the reasonable desire to believe in "hope" and "change", we have marched unquestioningly alongside our "leadership". However, common sense tells us that these job losses are an absolute sham. I honestly cannot believe that more folks haven't challenged this idiocy, though perhaps if the treatment of Chrysler's secured lenders is a guide, we are learning that challenging this Administration on the basis of legal rights or common sense put you on a fast train to publicity hell.
At The Investment Linebacker (TILB), we are willing to take the engineer's seat on that train: What is unseen are the jobs created and relative financial strength gained by Chrysler's competitors (esp. GM and Ford) if Chrysler had been allowed to perish naturally - the second order effect.
Chrysler, as an auto company, "creates" virtually no new demand. There are very few buyers that say to themselves, "gosh, I really don't need a new car, but I am so inspired by that Chrysler/Jeep/Dodge that I am going to go buy an extra car." As such, all Chrysler does is fulfill an existing demand for new cars. The evaporation of Chrysler would not at all eliminate that already existing demand nor would that demand lie fallow as some poor consumer demands a product that just cannot seem to be supplied. In fact, some other car company would certainly step into the breach and gladly fill that demand. This means that GM and Ford, two of Chrysler's most direct competitors would have been primary beneficiaries of a Chrysler liquidation. For those that don't know, GM and Chrysler themselves are struggling to remain solvent and would be strengthened by this market share opportunity - as would virtually all of Chrysler's competitors, making the entire industry more sound.
Jobs "lost" to Chrysler would have been jobs "created" (or retained that would otherwise go away) by other, stronger auto OEMs. GM, Ford and others would happily have purchased parts to make those incremental autos from suppliers, thus allowing those suppliers to "create" jobs that offset Chrysler suppliers' "losses". Those suppliers would have purchased inputs, materials, etc., etc. down the OEM foodchain. Back up the chain, GM, Ford and others would happily have employed people to assemble cars, trucks and SUVs for shipment to dealers. GM, Ford and other dealers would happily have sold those incremental cars on to end buyers at competitive prices, providing jobs at dealerships. The "loss" of jobs is quite clearly a sham as systemwide, there would not be jobs lost because there would not be a loss of aggregate demand or supply.
In fact, net, net jobs would have been retained and the employers providing those jobs would have been in a healthier position than they are today.
We can state with some certainty, the Chrysler bailout not only is a travesty to the perception of the soundness of contract law and the separation of private enterprise from unneeded public interference, it also weakens the overall automaker industry at precisely the moment they needed a boost. Conspiracy theorists might believe this is intentional as it increases the likelihood that the Administration (and the UAW) will control other domestic OEMs as well.
Since TILB is already engineering this train ride, we have nothing to lose: we will go ahead and note that in the long run, the OEMs that will suffer the most from this intervention are our higher cost-structure domestic OEMs - GM and Ford (see conspiracy theory above). At a moment when GM and Ford desperately need the breathing room afforded by absorbing some of Chrysler's 10% domestic market share, those already weak legends will in fact now be forced to compete with a government, UAW, and foreign (Fiat) owned competitor. A competitor with a questionable profit motive and a bankruptcy-assisted newly reduced cost structure. If AIG, FNM and FRE are any guide, Chrysler's prices will likely be so competitive that it will have the exact opposite impact on GM and Ford that would have occurred if nature had its way with Chrysler. Rather than gaining strength and breathing room, they will be increasingly impaired and short of financial oxygen. I suspect those two American Icons will find themselves stumbling hope-filled into the warm, loving, waiting, open embrace of the government.
Ironically (or perhaps not), this just finished playing out in the realm of life insurance as the government's ownership of AIG (and lack of profit motive in its insurance pricing) prevented a handful of already staggered competitors from raising prices and taking abandoned share in an effort to heal themselves. As such, they've just been welcomed into We The People's loving TARP program.
This whole affair absolutely and honestly saddens me.
The government's intervention makes a mockery of common sense and America.
It is a traveshammockery, but double the rage and minus the humor.
Like lambs to the slaughter, too numbed by all the horrifying governmental actions of the last year and the reasonable desire to believe in "hope" and "change", we have marched unquestioningly alongside our "leadership". However, common sense tells us that these job losses are an absolute sham. I honestly cannot believe that more folks haven't challenged this idiocy, though perhaps if the treatment of Chrysler's secured lenders is a guide, we are learning that challenging this Administration on the basis of legal rights or common sense put you on a fast train to publicity hell.
At The Investment Linebacker (TILB), we are willing to take the engineer's seat on that train: What is unseen are the jobs created and relative financial strength gained by Chrysler's competitors (esp. GM and Ford) if Chrysler had been allowed to perish naturally - the second order effect.
Chrysler, as an auto company, "creates" virtually no new demand. There are very few buyers that say to themselves, "gosh, I really don't need a new car, but I am so inspired by that Chrysler/Jeep/Dodge that I am going to go buy an extra car." As such, all Chrysler does is fulfill an existing demand for new cars. The evaporation of Chrysler would not at all eliminate that already existing demand nor would that demand lie fallow as some poor consumer demands a product that just cannot seem to be supplied. In fact, some other car company would certainly step into the breach and gladly fill that demand. This means that GM and Ford, two of Chrysler's most direct competitors would have been primary beneficiaries of a Chrysler liquidation. For those that don't know, GM and Chrysler themselves are struggling to remain solvent and would be strengthened by this market share opportunity - as would virtually all of Chrysler's competitors, making the entire industry more sound.
Jobs "lost" to Chrysler would have been jobs "created" (or retained that would otherwise go away) by other, stronger auto OEMs. GM, Ford and others would happily have purchased parts to make those incremental autos from suppliers, thus allowing those suppliers to "create" jobs that offset Chrysler suppliers' "losses". Those suppliers would have purchased inputs, materials, etc., etc. down the OEM foodchain. Back up the chain, GM, Ford and others would happily have employed people to assemble cars, trucks and SUVs for shipment to dealers. GM, Ford and other dealers would happily have sold those incremental cars on to end buyers at competitive prices, providing jobs at dealerships. The "loss" of jobs is quite clearly a sham as systemwide, there would not be jobs lost because there would not be a loss of aggregate demand or supply.
In fact, net, net jobs would have been retained and the employers providing those jobs would have been in a healthier position than they are today.
We can state with some certainty, the Chrysler bailout not only is a travesty to the perception of the soundness of contract law and the separation of private enterprise from unneeded public interference, it also weakens the overall automaker industry at precisely the moment they needed a boost. Conspiracy theorists might believe this is intentional as it increases the likelihood that the Administration (and the UAW) will control other domestic OEMs as well.
Since TILB is already engineering this train ride, we have nothing to lose: we will go ahead and note that in the long run, the OEMs that will suffer the most from this intervention are our higher cost-structure domestic OEMs - GM and Ford (see conspiracy theory above). At a moment when GM and Ford desperately need the breathing room afforded by absorbing some of Chrysler's 10% domestic market share, those already weak legends will in fact now be forced to compete with a government, UAW, and foreign (Fiat) owned competitor. A competitor with a questionable profit motive and a bankruptcy-assisted newly reduced cost structure. If AIG, FNM and FRE are any guide, Chrysler's prices will likely be so competitive that it will have the exact opposite impact on GM and Ford that would have occurred if nature had its way with Chrysler. Rather than gaining strength and breathing room, they will be increasingly impaired and short of financial oxygen. I suspect those two American Icons will find themselves stumbling hope-filled into the warm, loving, waiting, open embrace of the government.
Ironically (or perhaps not), this just finished playing out in the realm of life insurance as the government's ownership of AIG (and lack of profit motive in its insurance pricing) prevented a handful of already staggered competitors from raising prices and taking abandoned share in an effort to heal themselves. As such, they've just been welcomed into We The People's loving TARP program.
This whole affair absolutely and honestly saddens me.
The government's intervention makes a mockery of common sense and America.
It is a traveshammockery, but double the rage and minus the humor.
Subscribe to:
Posts (Atom)