Saturday, November 29, 2008
Thursday, November 27, 2008
Are inexpensive goods at Wal-Mart worth this, or is their true cost being shifted towards externalities hidden off the world economy's balance-sheet? We will not be able to secure the future of our Earth habitat as long as economics is reductive, assuming closed systems, and allowing business and industry fail to pay the true costs of their profits.
Wednesday, November 26, 2008
Here's a handy guide explaining such rarefied financial concepts from the NPR's Marketplace.
Monday, November 24, 2008
Well, first I would just submit that there's no such thing as too big to fail, from the perspective of the shareholders. There are shareholders all over America that have failed.Since there’s no such thing as too big to fail, C shareholders were up around 60% today from Friday’s close.
There is a remarkable failure to acknowledge a key element of the task before us, that is, that the financial system HAS to shrink. Its current size is based on an unsustainable level of debt, a big chunk of which will go bust or be renegotiated. Yet rather than trying to figure out what a new, slimmed down version of banking ought to look like, to ascertain which pieces should be preserved and which jettisoned, the authorities are instead reacting in a completely ad hoc fashion, rushing to put out the latest fire. And in the process, they keep trying to validate overly inflated asset values (a measure straight out of the failed Japan playbook) rather than try to ascertain what their real value might be so as to determine how much recapitalization might ultimately be needed (if you doubt me, Exhibit One is the pending Citi bailout, in which lousy assets will be guaranteed at phony values).Everything they do shows that our current set of policymakers are still in deep denial about the massive de-leveraging occurring in our economy. There were far better solutions to the Citi problem than propping up toxic assets that could easily turn out to be worth pennies on the dollar. John Hempton writes:
I suggested that Sheila Bair might seize Citigroup precisely because it is the sort of irrational, arrogant and dumb thing she does....But that didn't happen. Why? These were grown up investors who knowingly took on risk, they are not innocent children. Why are our policymakers leaving holders of Citi securities (both debt and equity) unscathed while the taxpayer is now on the line? What happened to capitalism?
It is open to Sheila Bair (and her fellow regulators) to seize Citigroup (deeming it unsound) and to leave at the holding company – and worth near zero – all the equity, preferred shares and holding company debt obligations. Indeed this is precisely what she did at Washington Mutual. What she did once she might do again.This will in fact result in a full successful resolution of the Citigroup problem at no cost to the government from Citigroup. There is a darn strong case for doing it....
There are 17.5 billion in short term parent company debt and 117.5 billion in parent company debt with more than a year’s maturity. There are a further 27.4 billion in perpetual preferred securities and 28.5 billion in subordinated debentures.
If Sheila Bair confiscates Citigroup and leaves all those liabilities at the holding company then it is economically the equivalent of a 184 billion dollar equity injection into the remaining group. A cancelled liability of course is the equivalent of new (non cash) capital.The new Citigroup should be adequately capitalised – albeit government owned. The FDIC could IPO the new Citigroup once this market mess had died down (and remit most the proceeds to former bond holders). A shrinking Citigroup with an additional 184 billion in capital shouldn’t cost the government anything.
Unfortunately, the device doesn't work below 30% relative humidity so it is little help for the very driest regions of the world. However, it could help ensure the security of drinking water in a country like Australia, which is facing decreased rainfall due to climate change yet enjoys high relative humidity levels in populated coastal areas.
The article also addresses the environmental impact of bottled water:
In the US alone, about 30bn litres of bottled water is consumed every year at a cost of about $11bn (£7.4bn). According to the Earth Policy Institute, about 1.5m barrels of oil - enough to power 100,000 cars for a year - is used just to make the plastic.
Friday, November 21, 2008
Financial institutions are too capital starved to be sticking their necks out now, and private equity firms cannot meet their target returns without leverage, which they cannot get right now. And who pray tell would buy the entire bank? Citi is so large that any acquirer runs the risk of at least a partial reverse takeover. And do not say JP Morgan. That bank is already too large to fail, and merging with Citi would greatly increase systemic risk in the long term.Taxpayers. My prediction is that this situation will be resolved in the coming days with the taxpayer owning the all or most of Citi - probably stuck with the least desirable portions of this turkey. Treasury will improvise a takeover under the vast authority of EESA. Paulson was keeping some powder dry for just this sort of occasion. I think I might end up working over Thanksgiving.