Sunday, July 26, 2009

296 trillion in debt controlled almost exclusively by five firms.

Per today comes this sobering statistic:

Members of Congress probing threats to the global financial system —
especially the threat of concentration of risk — will have a lot to ponder
newly mandated disclosures highlighted by a Fitch Ratings report issued
week. While derivatives use among U.S. companies is widespread, an
majority of the exposure is concentrated among financial
according to the rating agency's review of first-quarter
Concentrated, in fact, among a mere handful of
financial-services giants. About 80% of the derivative assets and
carried on the balance sheets of 100 companies reviewed by Fitch
were held by
five banks: JP Morgan Chase, Bank of America, Goldman Sachs,
Citigroup, and
Morgan Stanley. Those five banks also account for more than
96% of the
companies' exposure to credit derivatives.

...For the repot, the rating agency reviewed first-quarter 2009 filings of
the companies, which come from a range of industries and represent almost $6.4
trillion in aggregate outstanding debt. The companies also recorded a
total notional amount of derivative positions of more than $296 trillion.

How does a small group of companies come to issue debt at nearly five times the GDP of the entire world? If anything this should be the final nail in the coffin to the view that markets are self-regulating creatures which will stop before melting down. With five companies being given such power, how can anyone talk about a free market when banks and investment houses are issuing more debt than the world's government?

Tuesday, July 21, 2009

The Carousel of Chicanery Rides On

Today the man whose resume includes such sterling leadership roles as the collapsed shares of Home Depot stock and the complete failure that is Crysler has been hired as a business adviser to the vulture capital group Cerberus. To understand the level of incompetence rewarded, you have to understand that this guy made his two previous employers lose huge amounts of market share and one went bankrupt. In hiring this fellow, Cerberus has done the business equivalent of hiring a pyromaniac to watch over your house while you are on vacation. What compels companies to continually rehire such failures? You would think with 16.9% real unemployment that there would be someone maybe more qualified than a three time loser who got himself huge golden parachutes?

I will go a step further than just complaining and offer my (sarcastic of course) recommendation for the job. I would want someone who can sell anything, has years of experience with a variety of products and has a good television appeal. In short, I want Ron Popeil, the inventor of such contraptions as the Showtime Oven and Hair in a Can Spray. The man alone has created more products than half of the individual companies in the United States. With such experience, he seems a natural businessl eader for a vulture capitalist firm such a Cerberus. He could even go to boardrooms and present charts and say "that's not all, if you do this you also get these results included at no extra charge." It would be pure brilliance, just look at an informercial with the guy to see how he could be a titan of industry.

Tuesday, July 14, 2009

Golden Parachutes Still Manage to Allow A Soft Landing

With massive unemployment, a company that just went into bankruptcy, and plants lcosing left and right, how does GM decide to move forward as a company? By paying its ex-CEO a $10,000,000 retirement, of course. The guy was making millions a year for decades, couldn't he have been expected to save some in a retirement vehicle like the rest of us schmucks? It's very unfortunate as that ten million dollars could have employed over 150 people at 65,000 a year. That could have paid for an entire department to maybe discover why the Aztek was such a horrible idea, or maybe look into ways to not make vehicles which get reasonable gas mileage.

What is missing in all of these stories about the ridiculous pay going to these bigshots is the opportunity cost of the money. By paying out millions while the company is faltering, that money is not going to invest in the technology and manpower needed to produce the new products which will return the company to greatness. Instead, it goes to buy a fifth car and a seventh mansion in Montauk. I guess it does stimulate the polo equipment market as well as the diamond dog collar industry.
Make it go away