Archive for November, 2008

Citigroup Welfare

Tuesday, November 25th, 2008

Citigroup is again taking billions of your money. This week’s new bailout
of Citigroup is $20 billion. The company had already received $25 billion. That’s now $45 BILLION to “help” Citigroup.

Citigroup’s website says: “Citi is today’s pre-eminent financial services
company, with some 200 million customer accounts in more than 100
countries.” Think about it. Citigroup owns banks and operations in 100
foreign countries. If Citigroup needs money, let Citigroup start selling one company in each of those 100 countries. That’s the first way that a global giant can raise money.

Second, a year ago the annual report said Citigroup raised $30 billion in
short order as long-term investors provided new financing. At some price, capital is available to Citigroup even today. Stocks and bond sales could raise the money.

So what’s going on? Why is the U.S. Congress spending YOUR money to rush to “save” this bank? Why wouldn’t Secretary Paulson simply tell Citigroup that there is no bailout until Citigroup takes one of the two steps above. To repeat: 1) Sell valuable assets, and/or 2) issue stocks and bonds at the market price.

You might object that “it’s more complicated” or that “there’s an emergency.” However, every time a share of Citigroup is sold on the
Exchange, that means there is a buyer. That is true. You just can’t
have a seller without a buyer, right?

James Surowiecki in the New Yorker discusses the current stock price
of Citigroup. He just wrote, “In other words, at the moment, you could buy all of Citigroup for only a little more than what it clears in free cash
every year. . . . And if I’m able to buy the whole company for two times
free cash, does it really matter if I have to write down the value of some of its assets, since I’m essentially getting them for free.” I say
that the situation is such that Treasury Secretary Paulson just might
want to buy all of Citigroup rather than handing out corporate welfare.

That’s how nutty this bailout has become. Absolutely NO discussion
is occurring that says the capital marketplace of capitalism can function.
Like Citigroup selling its companies, GM can sell Chevrolet. Ford can
sell Mercury. And that’s the way capitalism works.


References:

The New Yorker, November 21, 2008:

The Citigroup Perplex by James Surowiecki.

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Posted in Finance Bailout | 3 Comments »

Keynes: Save to Spend

Monday, November 24th, 2008

When the spigot of bailout money opens, few in Congress point where this money is coming from. Everyone knows it’s borrowed. However, virtually no one whomsoever brings up the subject of paying off the debt they’re creating.

The famous economist John Maynard Keynes proposed a scheme whereby government would “stimulate” the economy with deficit spending in bad times. Such money would have to come from borrowing money or tapping rainy-day reserves. His counter-balance is to raise taxes in the good times to pay off the government loans and/or rebuild the rainy-day fund. When the government wants to spend money, the members of Congress all become Keynesians. BUT . . . the Keynes theory of raising taxes to pay off the debt has always been totally and completely ignored.

The total U.S. federal debt has passed the $10 trillion mark. That’s
$33,000 per resident. Allocated just to the people who work, that’s closer to $60,000 per worker.

The latest “stimulus” proposal is to give billions and billions to General Motors. Speaker Pelosi said GM would have to show what it would do with that money. She said, “Until they show us a plan, we can’t show them the money.”

To Speaker of the House Pelosi, and all the rest of the members of
Congress, I say, “Show the American people the plan to borrow that money today and pay off the loan in the future.”

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Posted in Finance Bailout | 1 Comment »

GM Don’t Know Much.

Sunday, November 16th, 2008

General Motors is in some kind of deep trouble. Going broke, we read. So, what do they do? GM wants money from the government. And, the government seems ready to give it to them. What’s wrong with this picture?

The picture is backwards and upside down. The first place American corporations go to raise money is the capital marketplace. They sell stocks or bonds, or sometimes both. They can offer it directly or hire a brokerage firm as their agent.

The marketplace determines the pricing. GM and its existing stockholders may not like the price, but that’s the system. So, why haven’t the Board of Directors and the management team known what they’re supposed to do?

Think about it. And, while you do, think about the fact that the press doesn’t even mention that GM and others have that traditional option to raise capital using capitalism. Just think about it.

Posted in Auto Bailout | 1 Comment »

Don’t Ask. Don’t Tell.

Sunday, November 9th, 2008

Congress put up about $250 Billion in the first round of bailout money for the banks and Wall Street. The purpose is to “re-capitalize” these institutions. The money was supposed to be added to reserves, inspire confidence in bank depositors, and open the spigots for normal commercial lending to resume. The furor about the “bailout” is fresh in our minds. Well, well. Now we get another story.

The Guardian in the United Kingdom recently reported how a boatload of bailout money can be spent. The American banks have plans to take $70 Billion and hand it out as bonuses. This money belongs to the American taxpayer. That amount of money is $1 Million per person for 70,000 people. Or, it would be $100,000 each for 700,000 people. Either way, would you like to receive such a bonus? I would.

In Germany, banks accepting funds from their government agreed to eliminate bonuses and dividends. If the purpose of a “bailout” is to build capital, then it makes no sense to receive money from the government at the front door while shoveling it out the back door.

But . . . sense has been too much to ask. The Congress held no hearings and asked no questions. Treasury Secretary Paulson is acting
like a czar rather than a public servant entrusted with your money. They didn’t ask, and Paulson didn’t tell. When will the madness end? Enough said.

References:

U.K. Guardian, October 21, 2008:
Call for inquiry into Wall Street bank bonuses.

Posted in Finance Bailout | 1 Comment »

Voters Get No Respect

Tuesday, November 4th, 2008

Today is Election Day in America. With early voting, the election
process is easy to watch. The media have been pointing out
the record registrations and a record early turn-out. The voter participation is in itself exciting. It is the face of democracy.

BUT . . . BUT . . . the pictures and stories are telling us that the mechanics of the process are simply bad at best, and at worst, look like America is still in a horse-and-buggy era. Why? Government just doesn’t have much respect for human beings. The officials in charge of funding and running elections seem stuck in a backwater. The news media aren’t pointing out the obvious.

Look at the lines. A friend in Florida waited 4.5 hours outside to vote early in October in Broward County. The Florida sun is high and hot. That’s just cruel to a human being. Was it the limited number of touch-screen machines? No, they’ve dumped them. He indicated 25 people were voting simultaneously with pencil and paper. If 25 can vote, why not 100? The bottleneck occurs when a voter presents identification and gets the ballot.

Look at another county in the Midwest that has a million residents. Early voting on paper ballots goes on for a month. BUT . . . the county
only has 3 places for early voting. The lines of people waiting outside
were very long. It is chilly, even if it’s not raining or snowing. Waiting for an hour or two outside is cruel treatment. Why? Too few people
were there to admit the voters. And, if they’d had more election officials, the problem was that the room itself was a bottleneck. Way too small. It’s just sad, and well, cruel.

Getting rid of the electronic voting machines has been a major goal of
this blogger for years. However slowly, government is waking up and slowly eliminating them. For an in-depth discussion, see Paper Ballot
Voting. Those machines, even if you trust them, are also a most serious bottleneck to you the voter.

Here’s the absolute worst story from Ohio. You may remember this one from a recent election. Citizens got in line around the time the polls closed. They waited about 8 hours before getting to vote. That meant they waited till around 2:00 in the morning before voting. What kind of democracy is that? Are our elected officials asleep at the wheel?

This analysis is not rocket science. You just have to step
back, note the problems everywhere, and ask, “Why am I treated
this way?” Nor does the solution require more than common sense.

Simple Solutions

  • Utilize your local school gymnasiums.
  • Double the number of election staff.
  • Enable 100 citizens to vote simultaneously.
  • Switch to pencil and paper ballots everywhere.

Wouldn’t it be wonderful if you could vote inside without
having to face the weather? How about a “take a number” system
to enable you to leave a line and go to the rest room?
One just has to ask how senior citizens and handicapped people
dare go to most polling places. Then, there are the parents,
mostly mothers, with children. From what I can tell, the
government officials are out of touch and short on respect.

You can decide to demand some respect as a citizen and voter.
If you do, let your candidates and elected officials know.
Maybe this phrase will get their attention: “I’m mad as hell
and not going to take it any more.”

And, above all, be brave and vote.

Posted in Voting Solutions | 1 Comment »