Tag: bailout

Why the US Government should bail out BP

Let me start by saying I was opposed to the bailouts. In particular I think the rescues of both General Motors and several financial institutions were completely unnecessary to the stabilization of the economy. They were purely political maneuvers, and the repercussions have yet to fully materialize.

Nevertheless, the nation is now dealing with a debacle that could very well eclipse the financial crisis. Oil spews from the Gulf of Mexico in incalculable amounts. Neither BP, their supporters, nor independent scientific study can put a precise figure on it. Plumes of crude meander at depths the public will only ever see via National Geographic specials, and samples are now being found hundreds of miles away from the well. How far will the oil be spread another month from now? And where will it land? Nobody knows, and that uncertainty cannot be hedged against.

Aquatic life, gone. Bird life, gone. Beaches ruined. Property values plummet (further). Nobody has even thought about untold brackish and freshwater interiors, many of which support life that migrates from sea to river and back. Mixing and churning. Eventually pouring through faucets.

Matt Simmons of energy investment bank Simmons & Co surmises BP doesn’t have enough cash to clean up the mess, and will soon file for bankruptcy. It’s not an unlikely scenario, and if it comes to fruition I believe the US Government should be ready to step in. The reasoning is simple.

If BP files and creditors scoop up what’s left, they won’t be taking BP’s cleanup obligations with them. In other words, a cleanup might not happen. Assuming that, the government would then take over the effort. Disregarding how well that might go, it means taxpayer dollars and/or additional debt, and there is zero hope of recovering the cost. But if the government were to step in, either providing new equity after Chapter 11 proceedings begin or buying BP debt as it tanks (which it is already doing) and converting thereafter, the new owner stands a chance of recovering their investment somewhere down the road.

Further, the US owning an oil company might not be such a bad thing. The government could use BP (aptly renamed “USP”) to develop model policies and procedures for future operation of all such companies doing business in America. Strategic petroleum reserves could be managed from within, accounting and bureaucracy whittled away. I’m not a foreign policy expert, but I suspect having a hand in BP may have some additional advantages when dealing with entities such as OPEC too.

It’s just a thought, but I am curious how others feel about the concept. In other words, if you’ve got an idea, let’s hear it.

MG signing off (to quit looking at pictures of dying pelicans)

Why don’t Fannie Mae and Freddie Mac set off public bonus rage?

Fannie Mae and Freddie Mac, those institutions of ‘higher standards’, are preparing to pay up to $210 million in retention bonuses:

In a compensation program that has drawn angry protests from politicians, Fannie Mae and Freddie Mac expect to pay about $210 million in retention bonuses to 7,600 employees over 18 months, according to a letter from the mortgage companies’ regulator to Sen. Charles Grassley.

The maximum retention bonus for any individual executive under the plan will total $1.5 million during the 18 months ending in early 2010, according to the letter, which provides previously undisclosed details about the bonuses. The regulator, James Lockhart, director of the Federal Housing Finance Agency, said in a letter to the Iowa Republican senator that about $51 million of the payouts were made in late 2008 and that the rest are to be made this year and early next year…

“It is not realistic to expect that experienced and highly skilled employees will indefinitely continue to work as hard as they have if we do not provide reasonable incentives to perform,” Mr. Lockhart wrote. He argued that the companies need “skilled and experienced staff” to manage safely their more than $5 trillion in debt and guarantees of mortgage securities.

A few weeks ago, the public disclosure of AIG bonuses set off a firestorm – some AIG employees even had their houses vandalized. It would be nice to give credit where credit was due and pat Rep. Barney Frank on the back for denouncing the Fannie/Freddie scheme way back when, but all eyes seemed to be on AIG. They stayed there too, and one has to wonder why. Or at least had to wonder, as this news, including but not limited to the fact that a full 25% of the prospective bonuses have already been paid, was popped on a Friday. By Monday the public will have forgotten all about it, as planned.

Again, where are these specialists going to go otherwise? Same old excuses, and the same old tactics.

“For personal privacy and safety reasons,” Mr. Lockhart said, it wouldn’t be appropriate to release the names of all employees receiving bonuses of $100,000 or more.

Well at least Fannie and Freddie employees’ windows won’t be getting smashed.

Bailout in South Park

From the other South Park I love, bailout education for the masses…

That pretty much cover it.

(h/t Greg Mankiw)

AIG bonus meme roundup (UPDATED)

aig_logoAIG, that (almost) wholly-owned subsidiary hedge fund of the US Government, announced that they were going to pay millions in retention bonuses to employees of their financial products (and other) divisions. This set off a firestorm of protests, meme form which follows…

  • ON ADDING INSULT TO INJURY: Under pressure to disclose AIG published a counterparty list, and the public found out that Goldman Sachs, as well as a number of foreign concerns, took some $45 billion of the roughly $170 billion AIG was given. Folks were not particularly happy about that.
  • ON IT’S AN INHERITED PROBLEM: The bonus issue reaches as far back as early 2008, and was known about for months. The fact remains AIG continued posting big losses and the government kept shoveling money their way. And as recently as March 2nd of this year.
  • ON VOWING TO DO SOMETHING, JUST AFTER THE FACT: You can moan and/or whine all you want – the bonuses have already been paid. You can send out subpoenas too, but that’s mostly for show – there are few legal options available at this stage of the game. So, slip in that you are going to ensure this doesn’t happen during the next round of AIG cash injections. You heard it right…during the next AIG bailout.
  • ON MAKING SURE YOU ALWAYS HAVE A VILLAIN: Easy. There will always be someone around who is coaxed into thinking this is but a battle their hero is fighting. Unfortunately, the real war being waged is between the checkbooks of the citizenry and their bloodlust for granite countertops. The tacticians are only trying to convince the public they can keep the kitchen and continue dining out. While paying for neither.
  • ON TWITTER CAN SOLVE EVERYTHING: Much as Twitter doesn’t make any money (yet), the administration called on one of their founders to provide advice on the financial crisis. Lawmakers jumped on the bandwagon, using the service to discuss the AIG issue out in the open. Bonus issue (and financial crisis) still outstanding.
  • And…

  • ON THE EMPLOYEES ARE THE ONLY ONES WHO KNOW THIS CDS STUFF: You have to pay those bonuses because the folks that created the credit derivatives are the only ones who can unwind the transactions, and if they leave the whole system will come crashing down. My only question here would be: if you don’t pay bonuses to someone who created financial products that nobody wants anymore, what the hell are they going to do if you don’t pay them? Just up and quit?
  • I was once a master of the universe, conjuring financial products only I could understand. Now I work in the Goldman Sachs PR department, twittering about all the money we are lending to family restaurants and small businesses doing home renovation, and moonlighting as an auditor at the Treasury for the pension. All tax free too (or at least until my boss quits). UPDATE: Unless, that is, I do the ‘honorable thing’ at the bequest of my Congressman instead.


    MORE MEME: The top recipient of AIG political contributions in the 2008 election cycle wants to tax the bonuses he ensured in the first place. I’d like to think it doesn’t get any better than this, but I’d probably be wrong by day’s end.

    Oil? Economy? No, it’s Maxine Waters Watch! – 02/13/09 (UPDATED)

    A new low amongst lows, but who gives a crap

    Yesterday the March ’09 contract hit a new low of $33.55, besting the pre-Christmas low of $35.18 for February delivery.

    March '09 Crude Oil

    Few words from the media on this – they are too busy making hay of some easily misinterpreted somewhat odd batshit crazy questions fired at bank CEOs the other day.

    While prices at the pump are a little slow to reflect the ever downward slide, it’s smart to keep in mind that this one component of cost of living touches virtually everything. And it’s my view that this ‘chapter 2’ of the summer rally is the sole reason why Americans don’t quite see the economy falling headfirst into the abyss (at least just yet). If the wholesale printing of monopoly money by ‘our saviors’ forces oil producing countries to turn off the pumps, it’s watch out below.

    Editor’s note: As oil rallied over the summer, Congresswoman Maxine Waters was screaming for the nationalization of energy companies. No word from Ms. Waters on how that move is progressing, but Congress has crammed billions down the throats of more than a few banks that probably didn’t need it, and Ms. Waters is off her lithium once again.

    Would someone please make a run on ‘meet your mate locally’ dating service lawn signs and ‘my kid is an honor roll student’ bumper stickers? Maxine Waters can hold a few quick hearings with those entrepreneurs, and subsequently nationalize those industries. Then, whomever is left in charge at Congressional Kiddie Club while Nancy Pelosi is sitting on the beach with the pope can maybe get a few issues addressed, and we can be on our way to recovery.

    UPDATE: The media finally catches wind of the issue. The fact that gas isn’t plummeting too is pricing disparity between the quotes above and Brent Sea, combined with the fact that refineries have taken a break. But I wouldn’t hold my breath on gas hitting $2.50 – gasoline futures are catching on to the crude mentality.

    Links for the Lazy – 1/15/09

    Mixed bag


    • Google starts axing services, but Google Reader is safe for now. There might be something to all that attention data value, but it isn’t going to benefit you anyway. I’d be looking for a substitute reader (preferably desktop) just in case.
    • New Yahoo! CEO Carol Bartz on the [first] dotcom bubble“I’d go to investor conferences—with standing room only at presentations by Used-Fucking-Golfballs.com—and I’d get four shareholders listening to me.” I love it.
    • XRDS-Simple at home – I’ve added Will Norris & Company’s WordPress plug-in to the previous OpenID install. Now I do my OpenID logins here instead of at a third party. As expected, works nicely.
    • Finance

    • Ready to play The Bailout Game? Personally, no. Like Hasbro with Scrabble, Parker Brothers will probably sue the makers for the likeness to Monopoly, and when that doesn’t work out they’ll join the RIAA in suing the players.
    • TED spread shrinks, so the TARP is working – Greg Mankiw concludes as such, although Citigroup and B of A equity investors might want to hold on doubling down right now.
    • Do you know what the multiplier for government spending means for you? You might want to brush up, as with the amount of public cash being dumped into failing institutions to compensate for idiocy, Zimbabwe-style currency destruction could be in your future.
    • Fly Fishing

    • Cuba Releases Hemingway Archives – Fishing Jones has more.
    • Strike indicators find love – Call it a bobber if you like, but I always laugh when high-profile guides talk about how they always see the fish eat the nymph. While using indicators.
    • Winter sucks – But the Frying Pan makes it more than tolerable.


    High finance deserves the middle finger

    The bird is the word…

    • In a ‘who drew up the f-ing covenants’ moment, GM just received bailout money but is [insert still, perpetually, or if you feel like being witty, surprisingly] having problems getting labour costs in line. Bankruptcy filing, a certain middle finger to the public, is still on the table.
    • Long ring fingers as compared to index fingers may point to more success amongst traders. And a longer middle finger on the hands of bank CEOs gets the banks more bailout money too…
    • The same goes for the politicians when it comes to selling more US Treasury securities to unsuspecting investors, before sending out the default notices.
    • As for tech, analysts are giving the middle finger to Sony, and Apple probably isn’t far behind.
    • And on an unrelated note, today in People

    • Paris Hilton’s website is infected with malware. Information Week is actually telling the story instead of the tabloids, so if you’re a ‘Hollywood-type’ you can assume the headline isn’t just some codespeak for Ms. Hilton giving you the middle finger.


    A trio of death knells

    1) Buy and hold as an investment strategy – dead. The bigger question is whether people will still use Warren Buffett as an analogy for success of the concept (for better or worse), or whether people will trade their asses off from here on out and say “works for John Paulson.”

    2) Google – dead. Not sure whether it’s just because Goldman Sachs said it and they’re still standing (unlike most of their peers), or whether the old adage “the bigger they are the harder they fall” is just sticking better than usual nowadays.

    3) Wall Street bonuses – dead. I don’t think they should die (and I’ll have more on that later), but perception is reality and the perception of the taxpaying public is enough is enough.

    The Age of Prosperity Is Over

    From “The Curve” Dude:

    These issues aren’t Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren’t.

    By the way, Mr. Laffer also points out the hilarity of government bailouts, and makes quick work of how intervention flies in the face of demand/supply practice and how it’s going to push the economy further down the rabbit hole.

    Tuesday Tidbits – October 21, 2008

    Global finance sans a single unemployed investment banker

    • Auctions are hot – when the chips are down, the wealthy stock up on jewelry and clothes! We’re in fly reel acquisition mode over here, but only because some manufacturers have turned over their lines – the old but still good gear goes to eBay. I guess everyone has their needs.
    • Jim Cramer is 100% entertainment, which is why his show’s ratings are going through the roof now that the S&P is off 38% over the last twelve months. Nutty Money sells a lot of ads, and your retirement account spirals down the crapper.
    • The government is “rescuing” banks galore under the guise of getting them to lend again. Many community banks are refusing the cash, saying they don’t need it. Maybe they should think again – the big banks taking the free money are using it not to perk up their core business, but instead for acquisitions. Gotta have a warchest, even if it’s compliments of taxpayers.
    • And…

    • The Federal Reserve Board of Governors is taking the rest of the week off. The financial markets have temporarily stabilized (emphasis on temporary), so they’ve gone out partying and chasing MILFs. The bill for their carousing has blown through $3 trillion (emphasis on trillion), it’s just that they won’t see the tally until the next statement arrives.