Archive for November, 2008

Big 3 auto Beg For Help.

GM, Ford and Chrysler are currently begging for money from your government.  If you do not want to give, underscore give, them any money, then write, call or email your congressman and senator.

On a very simplistic plane, we have 3 remedies to failure in this country.  Legal remedies which have been in place and served us well for many years.

As an individual you have the right to file for Chapter 13 bankruptcy.  This allows you to negotiate better payment terms with your personal debt holders – credit cards, mortgages, car loans whatever.  The idea is here is time will heal a temporary problem.

As a corporation you have two options.  If you just want to quit, then you can file Chapter 7 and the system will sell all your assets and distribute the sale results among your creditors per their ranking.  The second option is Chapter 11.  This is more of a restructuring.  It again is in the vein of time heals all.  The system will allow you time to renegotiate both amounts and terms with your creditors, labor supply, material suppliers, customers and so on.  After you operate on a stable level, then you can emerge from this type of bankruptcy.  This assumes that you believe that your company just made some mistakes and the overall idea and business model is sound.

Excuse me.  For 40 years the government and the marketplace have wanted a fuel efficient personal vehicle.  For 40 years we have wanted an alternative to the internal combustion engine so that we could escape our dependency on oil or oil related products.  Does no one remember the shortage in the early 70’s.  How about the one in the 80’s.

Recently a representative of the UAW was on TV telling the country that the UAW developed the middle class in this country.  This was said because it looks like the auto companies are going to bankrupt shortly (within weeks or months – not years).  It is assumed that it will be chapter 11.  It is also assumed the first thing to go will be the UAW contract and pension claims.

There are two very significant points to be made here.

First – if you ever did business as a supplier to the big 3 you know that they were arrogant to say the least.  They demanded impossible delivery schedules, lower prices, higher quality components than were reasonable.  The good side was volume.  There is an old joke about ‘making up for losses with volume’.  More and more companies are deciding that the correct volume is ZERO when dealing with the current management and executives of the big 3.

Second.  Simple arithmetic will answer the bail out question.  The market cap ( the total value of all of the shares of all 3 of the big 3) is less than $7 billion at today’s market prices.  Why would you give someone $25 billion when you could buy all 3 companies for $7 billion?  Maybe because you can’t run them efficiently and thereby maintain their market presence and the associated employment.  Do you think you could do any worse?

Why doesn’t the government just buy all 3 companies and give them to ACORN to run.  They seem to be able to get things done and no one dares to bother them.

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Thursday, November 20th, 2008 2008 Presidential Campaign No Comments

Bailout or Rescue?

I am intrigued by the details of this subprime bailout.
The mechanism of the bank foreclosure is critical to understanding what is likely to happen to our $700,000,000,000.

Banks (any financial institution holding the mortgage) incur a large number of negative cash flow items when they move to foreclose on a property:

  • property taxes
  • home insurance
  • hazard insurance
  • grounds maintenance (lawns etc.)
  • home maintenance (cosmetic repairs and functional repairs)
  • lawyers fees to file motion to foreclose and evict
  • removal of items left in the vacated home.
  • utilities (prevent freeze in winter)
  • real estate fees
  • lawyer fees to transfer title etc.

This is a double whammy because in normal times all of these items are zero cash flow items from the bank’s perspective.  They receive positive cash flow from the monthly payments – double trouble.
With the large number of at risk mortgages in any one bank’s portfolio, it was almost impossible for most banks to follow a normal timeline for foreclosure. Not because they were being compassionate, but because they could not afford the costs of executing the foreclosure (listing above).

We were sold the idea of “rescue” versus “bailout”. It was implied that the reason for the bailout was to keep people in their homes. BS.
Did anyone ever mention any limits on the type of home or homeowner that would be eligible for this special treatment? And it was special. The law allows for past forgiveness, payment initiation period, reduced principle and reduced interest rates. Does this mean that someone with a $1,000,000 subprime, no principal, mortgage could have the principal of that mortgage reduced to say $500,000. Could the owner of this home be someone making $250,000 per year? I did not see any limiting conditions, do you?
Could the property involved be a set of 6 townhouses? Maybe the owner did not do the math on the investment properties correctly? Could the Treasury Secretary decide to reduce his principal and interest rate?

Wait, it gets better. To simplify and expedite the bailout, it has been suggested that the Treasury just write a check to the banks. Let them deal with the individual properties. But if this happens, then the banks will just proceed with the foreclosures. Use our money to cover the out of pocket foreclosure expenses. Wait a year or whatever until the housing market rebounds. Then flip the houses for a profit. It is “pay off your friends in the banking industry” time.

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Thursday, November 6th, 2008 bad mortgages No Comments

Is This The Change We Were Promised?

President-Elect Obama has made the appointment of his Treasury Secretary his top priority.
Here are some of the names in the hat:

– Warren Buffett – very successful financial trader
– Sheila Barr – chairperson of the Federal Deposit Insurance Corporation. (active in trying to stop home foreclosures by banks)
– Timothy Geithner – New York Federal Reserve President.(involved in rescue of Bear Stearns and AIG, involved in failure to save Lehman Bros.)
– Jon Corzine – New Jersey Governor (former Goldman Sachs CEO, former US Senator)
– Robert Rubin – former Treasury Secretary (has stated he is not interested)
– Lawrence Summers – former Treasury Secretary
-Henry Paulson – current Treasury Secretary (has stated he is not interested)
How many big changes do you see in this list?

With looming additional financial crises and the disposition of the $700,000,000,000 bailout with our money – it is no wonder this is a priority. It is also an opportunity. His choice will be an indication of things to come. The World Economic Summit will be held November 14 and 15 makes this appointment even more pressing.

Indications of the future are great. World Conferences are important. But what is interesting to me is the actual mechanism for the bailout.

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Thursday, November 6th, 2008 2008 Presidential Campaign No Comments

Post Election Priorities

Congratulations to the Obama campaign and all of the hard working party faithful. The 2008 Presidential campaign has demonstrated some truths and some flaws in our electoral system.
I perceive myself as a free market conservative who chooses capitalism over socialism. This is not a whine. I am awed by the dedication and energy generated by the Obama campaign. Although many are going to point to some of the election irregularities, there are always election irregularities – it depends on whose ox is being gored.
Let us concentrate on saving the very basis of our freedom to vote. There are three lessons to be learned from this election. Lessons which will favor neither party in the long term. Lessons which will only make it easier for the people to make rational choices.

The one issue which is disappointing during each election is the groupies or worshippers or brainwashed campaign workers/supporters. Please use more of your IQ points. No one is perfect. Ferguson from late night TV said in a rant recently – never put 100% of your faith in any person, they are human and they will inevitably let you down.

The 3 lessons:

1) Eliminate the grouping of legislation. Riders and amendments which contradict the spirit and subject of original legislation render the final legislation deceptive. We the people need to be able to understand the issue and which way our representatives voted. I am looking for accountability here. After 2, 4 or 6 years, the people should be able to look at a voting record and understand the votes of their representative. No clouding riders or amendments should be allowed. And don’t tell me it will take too long that is just BS.

2) It is disgraceful that general public believe that votes of dead people are counted in our elections. The degree of this fraud is not known because we refuse to implement a voter ID system. We have 2 years before the next federal election. Start now. Free Picture ID. Free transportation. Free help on how to quality. Free whatever. Get it done and get it done now. How can we allow the rest of the world to laugh at us as they tell stories about dead people voting in Chicago or Black Panthers blocking polling stations.
The ID is the first step. The second step in today’s age of technology is video surveillance of the polling station. No votes from a polling station should be counted unless the results are accompanied by a date stamped video of the entrance to and interior of the polling station.

3) This is not sour grapes. The Democrats outspent the Republicans by 3, 4, 5 … 10 times depending on who your believe. Suffice it to say that in the last 2 months Obama outspent McCain at least $300,000,000 to less than $100,000,000. If these numbers had been reversed, then the MSM would have screamed for the whole 60 days that the Republicans were buying the election. If some of the contested states had swung the other way, then perhaps McCain would be President elect, perhaps not – now we will never know.
Again this is not sour grapes. Obama’s campaign was smarter, faster and more incisive in its attack on the key states. It just plain outdid the other side.
My point here is that you cannot have a 5 to 1 spending factor and expect a sensible result – either way.
Write clear limits and rules for election spending. Then enforce them.

-what happens to the money left over from the campaign?
-does anyone really believe that it is necessary to publicize the election results before all polls are closed?
-does anyone think that spending well in excess of $1,000,000,000 on the Presidency is an appropriate use of funds by the Democratic Party? By any party for that matter. But, for how many people would that money – feed or provide tuition or health care etc.?

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Wednesday, November 5th, 2008 2008 Presidential Campaign No Comments

Satire – Diebold lets election results slip early.

Diebold Accidentally Leaks Results Of 2008 Election Early

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Tuesday, November 4th, 2008 2008 Presidential Campaign No Comments