Posts Tagged ‘Wall Street’

The 401k Problem

April 9, 2009

I read an interesting point in Tom Woods’ book, Meltdown, last night regarding our retirement savings.  His basic premise was that we should not have to worry about 401k’s and other retirement plans.  We should be able to put our cash in a savings account or put our money in gold coins, and be able to rely on that money when we are ready to retire.

However, this is impossible because of our inflationary monitary policy.  You have to invest in the stock market and risky instruments because you have to try and stay ahead of inflation.  You need to build a bigger nest egg because every dollar you save loses tremendous value over time.

The government only helps feed the need to risk our retirement money by giving us a tax break when we invest in a 401k.  If we did not have this incentive, most people would put their money in accounts where they would have more control of their money.

I hate the fact that I need to put money in mutual funds.  The managers of these funds are looking for short term returns, not sustainable gains over 30 years.  I’d rather have an account that had no gains for 29 years and then went up 10 times in one year, rather than riding the rollercoaster of big gains and even bigger losses.

But back to inflation and our need to invest to outpace it.  You would think that in this day and age, prices of everything would be dropping.  We have so much technology in every single sector that we should be able to pay less for everything we buy.  If prices were allowed to fall like they should, we could just sit on our money and not have to worry about higher prices in the future.

Everyone is outraged that Wall Street greed stole their 401ks.  They have the right to be mad, but they should be mad out our inflationary monetary policy and the government’s encouragement to invest in 401ks.  If greed was the problem, we’d have been dust years ago.  The problem is the government’s central economic planning and encouragement for malinvestment.

If You Can’t Dazzle Them With Brilliance…

March 25, 2009

There’s a saying, “If you can’t dazzle them with brilliance, baffle them with bullshit.”

To me, this quote best sums up Treasury Secretary Geithner’s one trillion dollar, toxic asset plan.  I haven’t read one article on the internet on any news site that can spell out the basics.  We know it is going to be a public/private partnership, and that the government is going to insure the assets if they go bust.

I also read things about five funds being established to serve as vehicles for investment.  They would take the private investment and government money to buy toxic assets.  These funds would be led by managers who Geithner selected.  These funds will undoubtedly overpay for the toxic assets, giving the financial firms a reward for their irresponsible behavior.

I don’t know if it is part of this legislation or not, but Geithner also wants the authority to intervene in the business of any non-financial institution.  Supposedly this would have allowed them to stop the AIG bonuses, but it will infringe on the rights of every business in the United States.

Of course, after Geithner announced his plan, the stock market jumped.  This is because his plan allows Wall Street firms to buy toxic assets and then have the government insure all the risk.  There is no downside for the Street.

What you don’t read anywhere, is how this plan is going to screw over the American taxpayer.  Geithner knows that if he can distract us with a small stock market rally, we’ll forget about how horrible this plan is for the country a few years from now when we see how much of that trillion dollars the government has thrown away.

This is the perfect plan for Geithner to help bail out his Wall Street and hedge fund buddies in New York (he was the head of the NY Federal Reserve, which dealt directly wiht Wall Steet), and stick the bill on the taxpayer.  His plan was just smokescreen for a huge transfer of wealth from the taxpayer to a small group of financial institutions.  We need to see through it, and call him on this bullshit.

The “Outrage” Over AIG

March 17, 2009

I find it very amusing that Fed Chairman Bernanke, President Obama and all of these members in Congress are so “outraged” by the AIG bonuses that add up to $170 million.

Aren’t these the same people who said we had to act swiftly and boldly to help avert falling into a financial abyss?  I know that Bush was still President then, but Obama and McCain both favored the massive government intervention.

This is what happens when you just say things like “protect the taxpayer” but you don’t take the time to read the bill to see if those provisions are really in there.

The AIG bailout was one that was not executed by Congress, but it is still their responsibility to ask questions and press the Treasury and Fed on what their plans are.  You can’t just let things happen and then get mad later at the outcome.

I’m more mad at the $170 billion we’ve given to AIG so far to keep it afloat.  They doled out almost $60 billion to all their big bank friends.  Why aren’t we outraged at that?  Why are we so mad about $170 million?  We need to stop focusing at the small stuff and AIG and start focusing on the bigger picture and the horrible job the Fed and Treasury Department are doing.

You’d think if you gave someone $170 billion, you’d keep good tabs on where it is going, right?  Wrong.  YOou would know that they are just handing over billions to their banking friends, right?  Wrong.  You think you’d actually put in provisions to protect the taxpayers and not just say you did, right?  Wrong.

The AIG bonus “outrage” is just a political ploy to make it look like our politicians care about us, and we’re taking the bait.  Instead of focusing on the mismanagement by the government, we’re making those big, bad greedy executives the scapegoat.

Now Congress wants to tax these bonuses to recoup the money.  However, some people got bonuses of $1000.  It’s more than just the top level that relies on bonuses for a big chunk of their salaries.  I don’t think the execs should be getting this money, but a secretary or administrative assistant?  Let’s take their money too.

This whole thing was a mess from the start and now we’re paying the price.  The government told us how we needed to act urgently and this is what happens.  When will we, the people stop buying it and stand up to this nonsense?

Thanks for Pointing out the Obvious Jon Stewart

March 13, 2009

This week Jon Stewart, the host of the Daily Show, has been making headlines for his ridicule and criticism of CNBC.  He even had Jim Cramer on yesterday and showed him clips of how wrong he was.  All Cramer could do was admit he was wrong.

Stewart even said he couldn’t find an analyst that predicted the downturn, but Peter Schiff was on CNBC many times and was dead right.  Stewart was probably too busy laughing like the rest of the people on CNBC to remember.

While Stewart is doing a good job of raising awareness that CNBC journalists, analysts, and companies do not always provide correct information, he is just restating the obvious.  Of course, it’s easy to show how wrong the people on CNBC were in the face of the worst stock market collapse in decades.  He’s just piling on harder than most people.

If Jon Stewart is so smart, where was he during the whole real estate boom?  Where was he telling us all that there was a commodities bubble when a barrel was at $140?  Why wasn’t he telling us that the stock market was going to crash?

If you want some advice from real economists you should visit www.mises.org, lewrockwell.com, campaignforliberty.com, and ronpaul.com.  Instead of some funny-man just criticizing CNBC and offering no solutions, you can learn about our economy, stock markets, and banking system and make decisions for yourself.

Bank Bailout a Failure Already

February 8, 2009

New Treasury Secretary, Tim Geithner, is supposed to announce his new and improved Bank Bailout Plan on Tuesday.  Supposedly, the gist of his plan is to have private investors buy the bad assets from banks, with the US Government setting a floor for the minimum return on investment.

So, basically, the banks will be able to unload their assets on investors.  Then, when the assets prove to be worthless, the Federal Government will backstop the deals.  This results in the losses being shouldered by you and me, the American taxpayer.

First, some comments on the plan in general.  Why will someone buy these assets if the government is already setting a floor price?  Why not just buy them for that floor price amount?

Also, this plan seems to allow the Wall Street firms and big banks to get out of this unharmed.  That makes no sense.  Why do they get to unload all their bad investments, but homeowners across the country are stuck with upside down mortgages?  Wouldn’t this money be better served attacking upside down mortgages?  Those are the root of the problem.  Bailing out the banks is just treating a symptom, but not the real problem.

If you step back though, and look at this from the bigger picture, you realize that this plan is going to fail already.  There should be one goal and one goal only right now:  Liquidate the Bad Debt.  Don’t move it around, don’t artificially set a higher price for it.  Just get rid of it.

If the banks had been required to declare bankruptcy before getting government help (like was done in Sweden), we’d be on our road to recovery by now.  The pain might have been a little worse, but it would have been short lived.

Instead, we have spent the last four months throwing almost $2 trillion around, with nothing to show for it.  We might have “staved off a financial collapse,” as the pundits like to say, but who’s to say it’s still not going to happen?  The bad assets are still there, and they are getting worse!  We might have just prolonged it by four months and dug a deeper hole from which we have to get out.

Currently, the actions of the government are making a bad situation worse.  We have attacked this crisis without any sort of plan, and we have changed course too many times.  When will we learn that we are going to have to take our medicine?  Actually, the American public already has.  We are feeling this more than the elite in Washington are!  How bad do you think Geithner is feeling this when he makes enough to owe $34,000 in back taxes?  That’s a lot of people’s yearly salaries!

We have learned to deal with this recession and just want it to be over.  Instead, our leaders are trying to make themselves feel important and are trying to “save us.”  Right now, we don’t need saving.  We need the government to get out of the way and let the banks fail.  After that, the Feds and investors can step in to help rebuild our economy.  Until they let that happen, though, we’re just in for more pain, more recession, and more government failure.

Obama is Smarter Than This

January 29, 2009

Today, the New York State Comptroller announced that Wall Street doled out over $18 billion in bonuses last year, which was the sixth highest amount in history.

While this is a result of greed and a lack of judgement by the Wall Street companies, I can not believe that President Obama had come out and called their actions “shameful.”

You know what think is shameful?  Obama and the Senate passing the TARP plan without any debate or hard questions.  They just let it breeze through, accusing the House of not looking at the bigger picture when they voted against it.

Now they are all up in arms about it?  What did they expect to happen?  They just assumed that there would be some provision that prevented Wall Street from using taxpayer money for bonuses.  While there might have been a clause in there, did they investigate how it would be enforced?

Did anyone really think that the government would be able to control how Wall Street used the money?  I find it hard to take Obama’s criticism seriously when he posed such little resistance to the TARP to begin with.  You made the bed, now sleep in it.

This is yet another example of why government intervention is such a horrible idea.  Their actions are not well thought out and then they complain when their haphazard ideas blow up in their face.  Issues like this make government look inept and incapable of holding Wall Street accountable.

Rather than going for this TARP money back, the government should be investigating all these big banks, hedge funds, and ratings agencies for fraud.  Only if there are real consequences for their actions, will the Wall Street firms actually respect the demands of regulators and the government.

Source:  Businessweek

Obama to the World: Our Dollars are Worthless

January 6, 2009

Someone needs to tell Barack not to tell the world that we are going to be running “trillion dollar deficits for years to come” like he did today.

What kind of message is that sending to the rest of the world?  What kind of message is that sending to American businesses and the rest of the population?

First, how are we going to finance all this spending?  Are we going to keep borrowing money from China and Japan?  What happens when China finally wakes up and realizes that they are getting paid back in dollars that are worth less and less?  The fact that Obama is announcing to the world that we are going to be fiscally irresponsible and are going to keep printing money is going to accelerate the East’s rejection of our dollars.

Second, why would any business spend to hire new employees, give raises and bonuses, or buy new equipment when their leader is telling them that recovery is years away?  Everyone is waiting for government’s next move, hoping it’s the cure all.  News Flash – the government actions are making things worse!  The sooner Obama and the Feds get out of the way and let the markets correct themselves the better.  If we do get out of this by printing money, we will only be setting ourselves up for complete and total collapse a few years down the line.

My industry is tied to real estate development, whether it’s apartments or commercial centers.  Right now, no one wants to lend money because there is too much uncertainty, and because the commercial real estate developers want their own bailout.  There are projects ready to go, that need to start so they are built when the economy recovers, but no one wants to lend money to get them going.  The shoot from the hip fiscal policy of the Federal government is only making the lenders more fearful and more reluctant to lend.

And finally, why is so much of the blame being placed on the reluctant American Consumer?  Do you think something is wrong when two-thirds of our economy is based on consumer spending?  We don’t make anything, we import everything, and buy things we don’t need on credit.  Sounds like an awesome system.  The American consumer is tapped out and is unwilling to go deeper into debt when they are fearful they are going to lose their job.  Obama blabbing about running trillion dollar debts for years is not helping restore confidence.

We need real leadership right now and a government that is willing to make a stand and stick to it.  If they are going to bailout companies, then they need a real plan.  They can’t have one plan then another and then change that one half way through.  That approach has just made things more messed up.  Unfortunately, Obama and his team seem more than willing to throw money around without a clear plan as well.  We can’t keep running these deficits forever and we shouldn’t announce it to the world.  We need to restore faith in our currency and our economic system, and Obama’s comments are leading more fear and an even longer recession.

So, This is What the SEC Does

November 18, 2008

Today, the SEC announced it was bringing insider trading charges against Mark Cuban.  He sold a large position in Mamma.com (some lousy search engine) with some insider info and saved himself about $750,000 in losses.  The big part of this dispute is that the SEC says he pledged to keep the information confidential and therefore could not act on it.  Cuban says he never said anything about confidentiality, and therefore could trade with the knowledge he had.

Not that it really matters, but the information was that the company was going to do a PIPE the next day.  A PIPE is “Private Investment in Public Entity” which means they sell a number of shares to private investors to raise money.  The disadvantage is that it dilutes the amount of shares outstanding, which in turn makes each share worth less.  So, Cuban sold his shares before the announcement of the PIPE and the subsequent decline.  He sold only a portion of his position and saved himself $750,000 by selling early.

This was all done back in 2004 too!  They spent 4 years researching this?  You have to be kidding me!  What a waste of taxpayer dollars and government resources.

While the entire financial system is crumbling and hundreds of billions of dollars in shareholder equity has been lost and we’re printing trillions of dollars as well, the SEC is investigating a deal by Mark Cuban that equated to less that ONE MILLION dollars?

This is our government in a nutshell.  Instead of going after the CEOs of the financial institutions that wrecked our economy, they go after Mark Cuban for $750,000.  The decisions by the heads of subprime lenders and Wall Street firms that securitized and sold these assets have cost us all billions of dollars.  How can there not be any investigations into these firms?  What a joke!

What about AIG?  They got bailed out to the tune of $85 billion and then sent employees on a luxury retreat that cost over $400,000!  That’s our money!  Cuban’s trade, while it was unethical if not illegal, was his own money and mainly benefitted himself.  AIG was using taxpayer money to pamper themselves.  Where are the fines for this?  Why isn’t anyone in jail yet?

The SEC needs to look at the CEOs and officers of Goldman, Merrill and any other big Wall Street firm.  I can bet that they had “planned” sales that happened to occur right before a drop in stock price.  Just because it’s “planned” doesn’t mean they were not setting up these sales with inside knowledge.

We should all be outraged that during this time of crisis, the SEC is busy investigating Mark Cuban for three quarters of million dollars.  The top 100 employees at any of these investment banks were getting bonuses many times the money Cuban saved himself.  These bonuses were created by financial instruments like mortgage backed securities, that the SEC was supposed to regulate.  Now look who is footing the bill – the average Joe.

If they really want to crack down, they should go back and put every exectutive of an investment bank or subprime lender or AIG in jail right now.  Christopher Cox, the head of the SEC should be forced to resign as well.  He just let all this happen and then has the gall to go after Cuban.  His lack of leadership is criminal in itself.

Of all the “change” Obama wants, the first one he should make is to get the SEC to actually do it’s job and not try to make martyrs out of celebrities.

When a TARP isn’t a TARP

November 12, 2008

Last month, Congress approved the $700 billion, tax-payer financed bailout, known as the Troubled Asset Relief Program, or TARP.  The goal was to buy “toxic” assets from financial institutions to help restore their balance sheets.  We were told that some banks would still fail but this would help clear banks of their “illiquid assets.”

Also, in the TARP plan, Congress basically gave the Treasury Department unlimited power on how to use the $700 billion.  There was supposed to be oversight by Congress and transparency by the Treasury, but this merely leads to some meetings and Q & A sessions between Congress and Treasury chief Henry Paulson.

Today, Paulson presented to Congress his revised TARP plan which isn’t a TARP.  He says the most effective way to spend the taxpayer money is to invest directly in banks by buying stock.  

So, now the program that was lobbied for and sold to Congress and the American public has been switched on the whim of a former Wall Street CEO.  Do you really think his loyalties are to the US public at large?  Or is it to the Wall Street banks?  

We were told that some of the banks would still fail under the TARP program because they would just have too many bad assets.  Did Paulson realize that some of his buddies on Wall Street would go broke with the original TARP program?  Who really benefits from the Treasury buying stakes in Wall Street?  It’s definitely the banks first, then the American population.

This is the exact problem with one person, with unlimited power, without any checks and balances.  There is no control over his actions and what he can and cannot do.  Congress has been handing over more and more power like this to the central government for the last decade.  

Obama or the next President will not suddenly declare the US a dictatorship.  However, the power of Congress and the system of checks and balances written into the Constitution is slowly eroding away.  With every piece of legislation that hands power over to a Federal department, our rights of self governance are taken away.  

We need to stand up and stop the power-grabbing by our Washing politicians.  The Constitution was set up for a small, weak central government and we have strayed so far away from that goal.  It might take years to unwind the huge government programs, but the sooner we start the better our future will be.

The United Socialist States of America

October 2, 2008

This sucks.  Just two days after Congress listened to their constituents and voted against the bailout plan, the Senate has approved an even bigger bailout by tacking on $110 billion in random tax breaks.  This will now be an $810 billion bailout plan!

Now there is all sorts of pressure on Congress to vote to approve the “modified” plan.  All they did was add more to it!  This is supposed to appease the small government  Republicans?

And still, how is throwing $700 billion at this mess, after the government has ALREADY spent $700 billion going to solve the problem?

A big reason for the “crisis” we’re in is people defaulting on their mortgages.  Since they are defaulting, the “toxic mortgage backed assets” have become illiquid and stuck on financial institutions’ balance sheets.

What this bailout will do is get these toxic and worthless assets off of banks’ books and onto the Federal Governments.  People will still keep losing their homes and jobs.  All this will do is help Wall Street return to the usual business while the rest of us suffer.

Also, with the way the Feds will buy these securities, they are going to overpay handsomely for them.  If they paid the true value, they would be able to get these for free, since, they are in all likelihood, worthless.

In the reverse auction system, the Feds will say, “we have $50 billion available, what will you sell us for that amount.”  Banks will try to inflate the value of their holdings and not liquidate all of them.  Then the government will pay much more for them then they’re worth.  This will then allow other banks to mark their securities at that value.  This will give a worthless asset a price, and then set the market artificially high for them!  This makes absolutely NO sense!

If the Feds forced these companies to do a true auction, the value of these securities would be found.  Banks should say, “we have x and y securities, bidding starts at $100 million.”  If someone wants them, they can bid on them, whether it’s the Federal Government, Foreign Governments or private investors.  They will then bid the price up to the true value.  If nobody wants them, they can cut the price until they sell.  There will be a market for these.  It’s just that it’s going to be for pennies on the dollar.

What effect this will have on the banks, I have no idea.  I’m not an economist.  I guess it will cause some to fail, but at least they would have cleaner balance sheets.  Even if they had to take huge losses, other institutions would be able to buy them or loan them money to start back up.

What I do know, is that throwing money at this hasn’t helped yet, and probably won’t work tomorrow, or the next day.

It just sucks that it’s looking more and more like a foregone conclusion.  They were even talking about ways to go around Congress on CNBC the other day.  What a joke!  Let’s just hand over all the power to the Feds and live in a dictatorship!