Politics Payoff – The Hierarchy of America

1. Military Contractors- Ten of Trillions     

2. Wall St. – Trillions     

3a. Automakers – Tens of Billions     

3b. Red Necks with old Chevys – 3 Billion     

4a. Insurance Cos – Hundreds of Billions    pending

4b. Pharma –  Hundreds of Billions   pending

4c.  Doctors – Tens of Billions    pending

4d. Patients – a better feeling   pending

I must be missing some but you get the gist.

Highly Illogical

A)  American’s don’t want a public healthcare plan.

B)  A public health care plan will force out private insurers.

So we don’t want a public option but if it’s offered we’ll all select it??

A)  American’s want their big SUV’s and not fuel-efficient econoboxes.

B)  GM went out of business because it was making cars American’s didn’t want.

So American’s want big SUV’s that GM made but won’t anymore.

A)  Bank of America is Too Big to Fail

B) Bank of America is forced to buy the biggest mortgage lender, Countrywide, and the biggest retail broker, Merrill Lynch.

So stress tests now prove that new bigger Bank of America will no longer fail nor need to be disassembled.

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”  (guess the speaker)

Truth can be Violent, Vulgar and makes good Video

There is never vulgarity in a whole truth, however commonplace. It may be unimportant or painful. It cannot be vulgar. Vulgarity is only in concealment of truth, or in affectation.
John Ruskin

WARNING: While full of truth and sorta funny, the following video does have some offensive language.   Please avoid if you don’t want to here some bad words or the truth about our “Green Shoots”

Ok, a lot of bad words  ;-)

Unions – The New Victims of Bigotry

The question by NY Times reporter Andrew Ross Sorkin at the end of this clip says it all: “”Name a Successful Unionized Company!”

I guess they all forget UPS, GE, all six major movie studios, AT&T, and many many others.   Like most in my generation, his job depends on his being uninformed, or appearing as such, about his area of expertise.

So much for the Times being a Liberal Rag

Here’s the email I sent to the Public Editor of the NY Times, Clark Hoyt:

Dear Mr. Hoyt,

One of your BUSINESS reporters, Andrew Ross Sorkin, while appearing on MSNBC as a New York Times representative, stated that he could not name one successful corporation with unionized employees.

Can your newspaper really be successful if it has reporters who lack such basic knowledge about their area of expertise?  His statement is so egregiously incorrect, I was surprised the unionized employees at the immensely successful General Electric, who were filming his segment on “Morning Joe”, didn’t just turn off the camera’s and lights.

I have yet to hear a correction from either Mr. Sorkin or the New York Times.

Hopefully the correction will be as prominent as Mr Sorkin’s asinine comment.

Sincerely,

Thomas Bergman
tbapple@yahoo.com

The Paradox of Deflation with Inflation

One of the primary economic arguments today is whether we will have deflation caused by the bad economy or inflation caused by the response to the bad economy.

I believe we will see deflation in many assets but inflation in staples like food and water.

It’s my opinion that we will continue to see a huge inflation in Cash prices but offsetting deflation in Credit prices. Think of the CPI as averaging the two product baskets, hence the disinformation of current low inflation being reported.

For example, bread is typically purchased with cash while TV’s are typically purchased with Credit.

We all know the distortions of the current CPI dating back to the Clinton years. To really understand the problem just simplify the basket to two goods; one a necessity and one a luxury.

2006 – Bread – $1 per loaf, 30″ Flat Screen TV – $1000
2009 – Bread – $2 per loaf, 30″ Flat Screen TV – $500

In 2006, $3000 would buy 1000 loaves of Bread and two 30″ Flat Screens

In 2009, $3000 would buy 1000 loaves of Bread and two 30″ Flat Screens

Hence no inflation, as long as you can eat a Flat Screen TV.

If you would like to learn more just Wiki “Gresham’s Law”

Meet the new bank

Same as the old bank

Won’t Get Fooled Again

Mark to Market

The next great mistake in American Accounting History may occur next week.

It’s all about Mark-to-Market which, while as boring as a cow and some gold, also has as much societal importance as the first moment when some genius traded his gold for some cow.

Mark to Market (MTM) is a term used with investments where an owner assigns a daily value to a particular asset or investment. An easy example would be looking at the final price today for say, IBM, and then using that number to value your 1000 shares.

So today, March 20^th , with IBM closing at $92.51 , the MTM value of your 1000 shares would be $92,510. Marking IBM to market is easy because it trades a lot every day. Imagine trying to MTM an item like a baseball card.

Now today we are hearing calls to suspend the requirement that banks MTM their investments in things like mortgage securities and credit default swaps (CDS). We all know what a mortgage is, but valuing the securities can be difficult, especially on a daily basis, and a CDS is even less frequently traded, if at all.

We don’t even need to know what a CDS, all we need to know is that the market is now saying many of them are virtually worthless. Of course the banks, and CNBC, insist that they’ll be more valuable once this storm passes.

Imagine the market today had priced IBM at $5 per share. We can disagree about the appropriateness of that price, but if we mark your 1000 shares to market, accounting rules force you to use this price. Your $92,510 just became $5,000. Add the caveat that you borrowed $90,000 to make the initial purchase and we quickly see how important the term Mark-to-Market really is.

Hence the whole debate about the MTM requirement.

Initially, I opposed suspending MTM because I believed that, similar to a fire sale; the securities these banks hold are indeed permanently damaged, even in some cases actually burned. I had other qualms as well. These same banks demanding accounting relief used these MTM rules to force their own customers and other counter-parties to sell at these supposed fire-sale price, using the ubiquitous margin calls of the last two years.

Then I had an epiphany.

We should suspend MTM, just not for the banks and billionaires.

Is your $600,000 house now supposedly worth $350,000? Do you have loans of $400,000? Don’t worry your little taxpayer head off.

We will suspend MTM for you. Just walk right into your bank and tell them: “I’m not interested in selling my house and my government told me you have to lend me money based on the value I assign.”

Who is a long term investor if not the homeowner? Suspending MTM and assigning “true” values to these assets will not only solve the underwater borrowing, but the tax shortfalls of local governments as well. Hey, homeowners can’t have it all; if you tell the bank your House is worth $600,000, you gotta pay the taxes.

Now, if you are of the not so rare breed that isn’t underwater, at least 80% of the population, then you can tell the bank whatever you want. No mortgage, just tell them your house a piece of s$#t and your taxes might be zero.

Maybe those crazy bankers are right after all about suspending MTM.

Unemployment

High unemployment is not only bad for the newly unemployed. It also forces down salaries for those still working by increasing competition for jobs. Simple supply and demand.

So all those “demanders”, owners and consumers, will now get to pay less for the labor portion of the production equation.

It is important to remember that a large portion of the populace thought the economy leading to the Great Depression era was just great, the gap between rich and poor, like today was approaching a good monarchy. Excepting the anarchy that punctuated the end to their laissez-faire policies, we might have already completely regressed to a serf type employment arrangement.

Informal Survey

Make a list of ten close friends.  No particular order and don’t worry about leaving anyone out.  Take that list and answer the following questions.  Is the friend currently underwater on anything; house, CCs, heathcare costs, student loans, car/boat, or are they or their spouse recently unemployed?  Or have they escaped all those pitfalls but now see less money for retirement or outright postponement?

If this survey had been taken in 2006, most of our lists would contain zero in those situations.

I made my own list and it shows little unemployement but includes a distressed home, mutliple negative overall equity households and a few (but increasing) number of postponed/reduced reterments.

Feel free to post anonymous results below