Last fall, Sec Paulson ran into the capital building with three pages of scribble claiming that Armageddon was upon us if Congress didn’t permit a $700B bailout by the weekend. I know that most of Congress doesn’t read their own legislation (they’re either lazy or can’t read, I’m not sure which), but three pages doesn’t seem like a lengthy consumption. So who’s more at fault, Paulson for playing Chicken Little or Congress for believing it?
OK, switch gears… A lender has the prerogative to set whatever terms they want. How many terms could possibly be crammed into three pages? Given that it probably took an entire paragraph to spell out seven hundred billion zero million zero thousand and no cents, I’m guessing there weren’t requirements to receive TARP funds (certainly not a credit check by the looks of things). So now we have Barney Frank, among others, crying that AIG has carried on with business as usual. WHAT DID THEY EXPECT?!
Let us not forget that AIG made over $21B in profits for 2006. Whatever employment deals and bonuses AIG has with their employees obviously works under usual circumstances. OK, fine, we aren’t in usual circumstances, but if the lender isn’t going to specify restrictions what is a company to do but consider paying 0.1% of revenue in bonuses? Reality check… $170M is 1/1000th of AIG’s revenue. Don’t get me wrong, $170M is a large some of cash, and it certainly was poor judgment not to curtail bonuses under such circumstances. But what business does Congress have complaining about AIG operating procedures if they didn’t specify their expectations with the loan? I’m pretty sure AMEX isn’t going to call me if I buy a gold plated hammer for $5,000 whether I can afford it or not as long as I have room on my credit card.
I’m really getting tired of the whining from Congress when they are the ones how lent the money in the first place. If they don’t do their due diligence then shame on them. Of course, that really ends up being shame on us for voting these jokers into office. Keep in mind that Barney Frank is the same guy that needled lenders into loosening credit standards because “everyone deserves” home ownership regardless of their ability to pay the mortgage. Then Paulson and Bush needled FASB into mark to market rules that totally fabricated trillions in write-downs on performing assets. Finally, Pres Obama figures that if the federal checkbook has any checks left there must be cash to cover it. Our US Treasury has borrowed over $3 Trillion so far this year, more than the last 10 years combined.
And our government is now complaining that our biggest lender is wondering if we have our financial house in order. Who can blame China’s Wen for his remarks? For years we’ve been complaining about China’s spending habits and our glass house is looking awfully fragile to be throwing stones. Meanwhile Bernanke is on 60 minutes and Obama is on the Tonight Show. STOP THE WORLD, I WANT OFF!
The recession is a drag but cycles do happen. While we all hold some blame for the original cycle, our government has turned a burning ember into a four alarm fire. And all the fire trucks have pulled up with tanks full of ethanol.
I can’t even start on state financial complaints because I can’t believe what my home state of California is doing. When it sinks in, I’ll comment. I just keep thinking I’m going to wake up from this nightmare.
In the meantime, I’ll keep buying fundamentally sound stock issues that demonstrate good value. I still like Dow Chemical even though the stock is up almost 20% in the last week. Avoid bank deposits if you can. The rates are dismal. For safe cash returns try buying VFIIX to get some federally backed Ginnie Mae’s (GNMA). Brace yourself though, while the markets jumped a bit last week there’s still some dark clouds on the horizon. I’m not a depression doomsayer but we are technically still in a bear market.
Have a nice day…
No comments:
Post a Comment