Class Warfare at the Wall Street Journal

Good grief, the Wall Street Journal is now printing class warfare stories on the front page. In the 19 June 2009 daily edition, below the fold, there is a story titled, "CEOs of Bailed-Out Banks Flew to Resorts on Firms' Jets."

My first response is "who cares?" I sure don't. Corporate jets are whipping boys in the current game of nationalizing industries and taking the country down the road to socialism. There I said it. The current administration and Congress are turning this country into Venezuela! Special Sign Up Bonus: FREE rollover minutes. Order Today!

From the article:

"Disclosure of the flights comes at a t time when the Obama administration is setting limits on how banks that receive federal money may compensate their executives... Aid recipients' use of corporate jets, even for business, has been a sensitive matter since last fall."

Did you get all of that? The Executive Branch is setting limits on the compensation of publicly-traded companies. What? Who is "sensitive" to the matter? President Teleprompter who takes a $27,000 dollar flight to go one a date with his wife? But wait, you say, he is the President, he has to be protected. I agree, he does. But what about the President of a company that employs 250,000 people and generates over $97 billion in revenue? 
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That person would be Ivan G. Seidenberg, CEO of Verizon Communications. According to their most recent proxy statement:

"The Company provides certain aircraft and ground transportation benefits to enhance the safety and security of certain of the named executive officers."

For Bank of America's Ken Lewis, he too is entitled to use the corporate jet for "...primarily for business travel." If you read the proxy statement of any major corporation, they will say roughly the same thing, as well as noting it as an element of compensation. If you were paying an executive $1500 an hour, would you want them standing in the security line at JFK for 45 minutes? I sure wouldn't! Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

The fact of the matter is that most people won't ever fly in a corporate jet or earn what a CEO earns. While it is nice to dream those dreams and work hard to try to fulfill them, it probably won't happen. If you begrudge them, then don't invest in their companies. If you feel locked in because your tax dollars went in the form of a bailout, then vote the bums out! Frankly, I am sick of the whining.

He Who Has the Gold Makes the Rules, Or So He Thinks

As I wrote in my most recent post, "Killing Chrysler," bankruptcy might be the best thing for debt holders. While I generally don't care for bankruptcy, it does happen, and the rights of both parties should be respected by law. However, with President Teleprompter and his union goons in office, what should be and are vary greatly.

The Wall Street Journal reports indirectly, in a piece titled, "Chrysler Pushed Into Fiat's Arms" (May 1, 2009), that TARP-backed banks were pressured to encourage other debt holders to accept the government's deal. People who switched to Allstate saved an average of $396 per year. Quote Now!

What becomes clear, as the story reports:

"The administration had repeatedly said it has no plans to run Chrysler or dictate its business plans. ... The pact allows the government and UAW to reorganize the company's top management."

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Interesting, President Teleprompter wants to reward the UAW goons with control over the third largest automaker, and then tell them what cars to make. Sounds crazy? Also from the article:

"Moreover, the government said it would use the agreement with Fiat and Chrysler to encourage fuel-efficient cars."

Didn't it seem strange to anybody that the President of the United States was announcing the bankruptcy of a publicly traded company? Have you wondered why the federal government is getting its nose and your money into these businesses and not just letting them fail naturally, under existing bankruptcy law?

Clearly, this is about political power, and the socializing of the U.S economy. Consider how President Teleprompter speaks about the debt holders seeking enforcement of their contractual rights and relief from the courts:

They "decided to hold out for the prospect of an unjustified, taxpayer-funded bailout," Mr. Obama charged. Were that not enough demonization, Cogressman for Life, Rep. Dingell (D. MI) calls the debt holders, "...'rogue hedge fund' and 'vultures' and said in a statement that they 'will now be dealt with accordingly in court.'

Wow, name calling, threats of court? This is just business, right? Not really, as this is really just a push to control as much industry as possible. Guess what GM, you're next!

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In less than 100 days, the federal government now owns 85% of one of the world's top insurance companies (AIG), and has its claws in the top banks via TARP. GM is next, and after that, health care. If this isn't stirring just a bit of worry in your mind, it better!!

My sincerest hope is that when the debt holders get to court, they plead their case, and the judge pays the secured debt holders their due. Further, I hope the judge pays each aggrieved party all they are entitled to under the law, and leaves President Teleprompter's dreams of industrial domination in the dirt.

Financial Crisis Primer, Part II

In my previous article, "Financial Crisis Primer," I gave a very brief explanation of why there is a financial crisis in the first place.

What I failed to mention, was a solution. While I would love to take credit, I didn't come up with this, and sadly I don't remember the name of the guest on CNBC who mentioned it.

What the Treasury should do, and it appears as though they will, is ask the banks what they need in terms of recapitalization. For example, Neel Kashkari (Cash-Carry, right? Love it) pictured above, calls Citi and asks how much they need to cover existing losses on mortgages, as well as capital necessary for lending. Citi responds with a number like $15 billion (twice what they got from Abu Dhabi Investment Authority). The government in turn, gets $15 billion in prefered stock, warrants, and other financial instruments of value.

I think this is a good model. It is very similar to what Warren Buffett did with Goldman Sachs. Goldman needed some quick cash and Warren put down a cool $5 billion. In exchange, (from MSNBC):

"(Buffett got)...$5 billion worth of perpetual preferred stock getting a 10% dividend and warrants to buy $5 billion of common stock with a strike price of $115 a share. He'll be able to exercise the warrants at any time over five years."

Imagine if the Treasury could spend $120 billion, $15 billion over 8 banks, and voila, much of the financial crisis is solved. The banks get fresh capital and the US taxpayer gets a profitable investment. Unfortunately for the existing shareholder, the infusion will dillute existing shares. Oh well, caveat emptor.

In the end, I think Bernake and Paulson are trying to shorten the duration of this mess by offering US taxpayer money to purchase the worst of the worst assets as well as providing plenty of cash at the Federal Reserve Discount Window.

Many argue that the government shouldn't be spreading around taxpayer dollars. While I agree in principle, the overall market for money indicates that banks are hoarding cash and investors are fleeing for quality. For the global financial system to function smoothly, capital has to get moving again, and I think that is the plan.