Bailout2
I keep reading the arguments. "We need the bailout or else we will see another depression!" "No way should we the people bail out the fat cats on wall street. They took the risks. They should go under and let the new firms who did not take the risks pick up the market share."

I think we are missing the point. Cash will not fix this. Cash may stabilize things for a bit. But the disease is caused by unregulated securities - credit default swaps and the like. When everyone buys the same hedge on the same underlying asset and the underlying asset value is hidden from view or promoted as a "no lose" investment, we are inviting disaster.

We need transparency to rebuild trust. If a hedge is an insurance product, it should be regulated as such with clear capital reserve requirements supported by transparent accounting rules. If a hedge is an option, it is mark to market valued with a description of the underlying basis for the option.

We need clear accounting rules to rebuild trust. Relaxing the mark to market accounting rules for assets that won't sell is going in the wrong direction - away from transparency.

If we the people, are going to burden ourselves with taxes and inflation (and quite possibly a resulting recession) in order to stabilize today's financial markets to prevent a deep dive into an economic depression, then we the people demand a revamping of how these financial markets are regulated to prevent opaque instruments of investment from becoming the "norm" for investing capital.

Everyone is crying for the cash or yelling to keep the cash in the treasury. We should be screaming for, demanding, protesting, voting, and penning for more appropriate financial regulation to protect us from most human tendency to hope for the impossible and believe in the unbelievable.

If we the people behaved in a consistently rational manner regarding investments and returns, state lotteries, Las Vegas, bingo, and the like would not even exist.

Just take a moment to think.

Labels: bailout

- posted by Richard @ 12:21 PM

 
Bailout Fails
Upon reflection, I am glad that our representatives refuse to open the coffers for the Wall Street banking titans. Almost $400 billion has been spent to date in various "bailouts." What is the result? A continued drop in trust in the decision making abilities of the financial professionals controlling trillions of dollars in assets.

The piper is here. It is time, unfortunately, to pay up. I only hope that those of us who did not borrow to excess over the last 8 years are not paying for the sins of those who did. They enjoyed the borrowed wealth while the rest of us just watched them splurge and made more prudent (i.e. boring) financial decisions.

We have created a governing system in order to build a fair playing field for us to compete in. This playing field appears to need repair. That needs to be the topic of legislation to stabilize financial markets. Throwing inflated cash at the problem will not solve the root causes of it.

Imagine, loaning someone money without any verification of income and banking on a 20% increase in the worth of the underlying asset. Whose income increases by 20% a year to allow them to pay 20% more for goods or assets? What percent of the population enjoys such growth in prosperity? How long has such growth ever lasted in the history of mankind?

Then selling the loan as a "security" with no disclosure of the risk of the underlying loan or the probability that the underlying asset would actually increase in value.? What nonsense. I saw this bogus business model 6 years ago and was just amazed that it could continue for so long. Unfortunately, the longer it went on, the greater the pool of accumulated debt. It was no different than printing money willy nilly.

The rules need to be changed. We can't go on lending against bogus assumptions in valuation or value growth. Cash will not rebuild the trust that the markets needs. Letting those who profited from the excessive lending get away without suffering any serious repercussions will simply not stand with the rank and file.

Come on Congress. Don't let the Executive Branch cronies drive this bus. We need trust in the markets. That will only come if the people who made the bad decisions are replaced and if the rules keep others from making the same bad decisions. Power corrupts. Absolute power corrupts absolutely.
- posted by Richard @ 12:02 PM

 
Bailout
Ok guys. The cash infusion seems to be working.

But what are you doing to keep the bank managers from making the same bad leveraged bets again? Isn't that what started this whole financial system meltdown business? Now you have proved correct the core risk management assumption of these bankers - the Feds will backstop our losses and take the major risks for us. We will reap the profits, but our losses will be limited.

Ok. We the voters will let you spend our grandchildren's wealth to prevent a complete financial meltdown. But, you absolutely must not let it happen again. Managers entrusted with the funds of others must not have incentives to take excessive and improper risks with those funds. Come on guys. Legislate this one right. Our grandchildren deserve it.
- posted by Richard @ 1:03 PM

 
Sarah Palin
Oh my God. How brilliant! Irrespective of qualifications, style, experience, knowledge, etc. selecting Sarah Palin is the most brilliant campaign move I have ever seen. Look at the sheer volume of free publicity and buzz. The endless Palin debates focus the national attention on the R's in ways that the D's just are not achieving with their endless policy wonktalk. The masses will vote with their hearts. This Palin buzz will draw them.
- posted by Richard @ 11:25 PM

 
Carbon Footprinting
Carbon footprinting. What is my operation's impact? What does it mean to me, my customers, my investors? How much of this stuff am I really responsible for? How will the changing public and regulatory attitudes change my operational requirements, my costs, my access to markets, my brand identity and the perception of my behavior with my customers?

All great questions.

But, I will contend that it is pretty simple.

Carbon emissions = energy consumption.

Period.

Using lots of energy always has had issues - cost, figuring out how to get an adequate share of a limited resource in a political and social equity context, working with utilities, governments, etc. to maintain dependable supplies, hedging costs with futures, etc.

But now, carbon emissions are very likely to add costs to energy consumption. The same energy access and acquisition issues will remain. But, add to that, costs and scrutiny over the carbon dioxide emissions that occur due to the energy consumption of your enterprise. KaChing!

But, there is more than cost to this equation. Carbon dioxide is now a POLLUTANT. Putting the stuff out or causing your power utility to put it out is BAD and makes you a POLLUTER. O-Oh!

So this changes the strategic branding equation a bit here. Cutting energy consumption will not only save money and lower political risks, it will now make you LESS of a POLLUTER. In fact, shifting to non-fossil energy makes you a net GOOD GUY! Ah-Ha!

How much is that worth? Can you charge a carbon reduction premium to some of your demographics? I think perhaps so. Can you leverage political good will for access to regional markets or production opportunities? I think perhaps so. Hard to strictly quantify these benefits. Not to mention, energy costs are just going through the roof these days, particularly when you add to that the cost for the right to emit carbon dioxide soon to come...

Now everyone seems to be blogging and reporting and discussing just how to do carbon footprinting. What carbon is mine, what is my supplier's, what is my energy utility's, etc.? Which government is setting what rules? What rules will apply to my global operations? Such devilry in these details. But, do they really matter to your strategy? Yes, how you carve up the carbon emission costs can impact the pro formas.

But, so much value is difficult to quantify anyway. Perhaps, if you are an energy intensive industry, it just makes a lot of sense to take a look at investing in energy reduction and carbon reduction so that you can promote those activities to gain market share, pricing power, etc.

But, do more than PR on this. Do some real shifts in energy efficiency, energy procurement, product development from an energy consumption perspective, etc. Because, when the governments do get around to working out carbon footprinting and accounting details, these things will really matter.

Labels: carbon, carbon dioxide, carbon footprinting, climate change, energy, environment, environmentalism, global warming, greenhouse, greenhouse gases, planet.

- posted by Richard @ 10:51 AM

 
It's the Economy?
Ok. There has been so much punditry on the economy lately. The Dow is wildly fluctuating between 12K and 13K. Housing prices in all U.S. markets and many non-U.S. markets are dropping. Liquidity has evaporated. Investors are shying away from many bonds and stock markets. Factory orders are dropping. We might be in a recession in the U.S. etc. etc. etc.

The consumer bottom line:

Median wages have not increased.

Debt financing of current expenses has increased.

It is time to pay up.

There is no additional cash from wages to pay with.


The firm's bottom line:

A lot of capital, since 9/11/01, has been invested in buying out investors instead of developing new technology or innovation.

Growth has been largely based on productivity gains from implementing technology developed in the 1990s - namely IT that allowed reducing administrative overheads, reaching less expensive labor markets, lowering inventory requirements, and increasing lean-ness and flexibility of manufacturing operations. Growth, in general, has not been based on meeting unmet consumer needs with technological innovation.

It is time to focus on innovation (in fact it is a little late).

But, the capital needed to invest in innovation was given back to investors (stock buybacks, etc.).

Investors (i.e. consumers) are out of cash and debt-strapped. There primary assets - their houses - are dropping in value. Their wages are not growing greater than the CPI (in fact lower).

Debt markets are low on cash with defaults increasing and investors shying away.


Hmmmmmmmmmmm.

Sound a bit like Japan in the early 1990s?

Probably not entirely the same. U.S. institutions tend to be a bit less well protected. But, let's expect a pretty rough ride for the next few years.
- posted by Richard @ 6:43 AM