Posts Tagged ‘debt’

Bondholders Are Not Villians

May 27, 2009

I’m tired of hearing about the evil bondholders that are preventing GM from avoiding bankruptcy.  Why not call them what they really are?  They are the creditors to GM.  They lent GM money, and now are being villified for wanting to collect as much of that money as possible.

The Obama administration’s “offer” is for the bondholders to trade their $27 billion in debt for 10% of the failing company.  If they go to bankruptcy, the bondholders might get wiped out completely, but in a real bankruptcy, the bondholders usually get paid back first.  The problem is that this is not an ordinary bankruptcy.  It is rigged to give the government and the unions all the power.  The creditors and stockholders are the ones getting screwed.

Also, the “offer” gives the US and Canadian governments a 69% stake in the company.  So the primary debt holders get 10%, but the government gets 69%?  Who in their right mind would accept this rotten deal?

We all know the problem with GM is that their labor costs are too high.  Rather than actually trying to fix the problem, the government is handing the keys to the car over to the unions.  Since they are in a partnership with Uncle Sam, we now will be bailing them out forever.  The current model is unsustainable, but rather than actually fixing the problem we are setting up for permanent transfer of wealth from our pockets to the unions.

So, instead of just saying “it’s the evil bondholders’ fault,” we need to look at the actual offer and realize the only winners are Obama and the UAW, and the losers are every tax paying citizen of the country.

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Obama’s Double Talk on Economy

March 14, 2009

When President Obama reassured China and the world that their investments in US bonds and the dollar were safe, he made the following quote:

“And that is not just in U.S.-issued treasury notes, but also in the private sector and the commerce and the industry that has made this the most dynamic economy in the world.”

If our economy is so great and dynamic, why did he just go about ripping it when he was pressing for his stimulus package?  Didn’t he say it was unsustainable and that we needed new clean energy jobs to take us into the 21st Century?  The double-talk from Obama is starting to get ridiculous.  With Bush, at least we knew where he stood.  Obama is a much smarter man, but he seems to be trying to please too many people.

Also, just to clarify things, our economy is not in great shape.  When almost 60% of our GDP has been fueled by spending, I don’t see how we’re in great shape.  This year, in order to make up for the lack of consumer spending, almost half of our GDP is predicted to come from government spending.  Also, we’ve had almost zero savings for the last decade, we have no manufacturing base, and we are up to our eyeballs in debt.  To me, that is anything but a dynamic economy.

We can fix the economy, but no one wants to re-route the ship.  Instead, we’re burning through trillions of dollars trying to keep it down the same path to oblivion.  We need savings and investment from the private sector to provide capital, and we need to start producing goods and services in the US.  We have the best and most skilled workers in the world.  We also have some of the best creative minds.  What we need is more competition to lead to better innovation and new products and skills to turn us around.  We need to strip away layers of government interference that burden businesses and hinder their ability to compete in the global market.

Obama really pushed hard for his stimulus package, telling us how bad of shape our economy was in.  Now that his stimulus isn’t really working, he’s pushing hard to tell everyone how great our economy is.  He needs to decide where he stands on all of this and provide a consistent message to the world.  We need a strong dollar, and we need to start producing and stop spending.  It can be done, but our leader has to come to this realization as well, and not believe the words coming out of his own mouth.


More Government Equals More Recession

February 22, 2009

The latest headlines have the government taking a larger stake in Citi, upping it’s share to 40%.  This is just going to stretch out the recession we’re in even longer.  If they are going to take a stake in the failing bank, the Feds need to stop taking baby steps and flat out nationalize already.

Of course, letting the banks fail and letting the free markets work is out of the question now.  The reason is that government intervention has eliminated failure as an option.  It’s a tangled mess that all went back to the original TARP plan, that in hindsight, looks like what we needed.

The entire problem with the system right now is that there is too much bad debt and malinvestment.  The original goal of the TARP was to eliminate this debt.  Instead, though, the Feds realized that if they actually determined the market value for these securities, a lot of banks would fail.  They then modified the TARP to give money directly to the banks, so they could offset their bad assets.  This failed because the assets were basically worthless and no amount of money could offset the malinvestment.

So, here we are, with the banks still in the same predicament, and the taxpayers on the hook for $300-$700 billion.  We don’t the exact number because the government lost count somewhere along the way.  Remember, as protection for the taxpayers, we got shares in the banks.  So if they fail or get nationalized, we lose all our money.  Everyone else gets away for free while the taxpayers are left holding the bag.

Everyone talks about how bad the failures of Bear Stearns, Lehman Brothers, and Washington Mutual were.  Honestly, though, they weren’t that bad compared to the Great Depression II Obama is trying to create.  Shareholders lost everything, the bond holders got 20 cents on the dollar and a lot of people got screwed, but the failure was pretty orderly.  The bankruptcy system and the method of failure works.  Sure, it’s painful, but at least we know what we’re getting and we can move on.

We’re in a situation now where no one wants to let the banks fail, and we will bankrupt the nation and the taxpayers in order to make it work.  We’ve already been screwed over enough, and a couple more months of pain from the failure of a few more banks isn’t going to kill us.  Just get it over with so we can move on.  Don’t keep stringing this charade out.

The more the government gets involved, the bigger the conflict of interest and the bigger the problem gets.  We need the liquidate the bad debt.  Plain and simple.  We need failure and we need the free markets to work.  Why are we going to prop up these banks that made the terrible decisions that got us here?  It’s absolute nonsense.

Uh-Oh… China Doesn’t Want Dollars

January 7, 2009

Man, Peter Schiff is a prophet.  He knew our economy was a debt filled bubble and called this recession perfectly.  Now, his prediction that China would stop funding our spending and buying our debt is coming true!

This report comes on the heels of Obama deciding to tell the whole world that we’ll be “running a trillion dollar deficit for yeasr to come!”

Tell me, Mr. President, how are we going to fund these massive spending projects if no one wants to buy our debt?  We are a debtor nation and we fuel our economy by borrowing from other countries, mainly China.  In order to borrow money, someone has to be willing to lend.  What happens when they cut us off?

This is happening in our economy right now.  No one wants to lend money.  Our banks are too busy taking care of themselves.  Well, China is doing the same thing, spending their money at home, rather than lending it to us.

We need to wake up!  We can’t keep borrowing money forever and we can’t keep growing our Federal Government.  If there was ever a time for less spending by the Feds, this is it.  Instead, they are spending at an alarming rate.

We must focus on developing industries that can export goods to China and other countries.  We need new players in old industries that can compete in a global market.  Maybe the Big Three failing would allow for new car companies to take their place that can create a car the whole world wants.

The point is that we can’t keep this economy that only spends and doesn’t produce.  We need to throw it out and start over or at least get it headed in the right direction.  Right now, almost all of our leaders are calling for more spending and more debt.  Well, if no one wants to lend us money, what happens?  All the fundamentals are wrong, and we need real answers to our economic problems, not more and more of the same.