Kenyan politics are a mess. The political parties are largely linked to tribal groups in the country, and partisanship is vastly fiercer than here. Last year arguments over a disputed election dissolved into violence that convulsed the country for weeks and left a number of people dead.
Eventually a coalition government was formed and the violence burned itself out. But the parties involved in the coalition are still squabbling, and there are fears that the tensions simmering under the surface could break out again.
In response to this situation, a number of women’s groups in Kenya have called for a one week sexual boycott. The idea is that until the men start talking to each other instead of fighting each other, their wives will withhold their favors.
Just thinking about this idea brings a smile to your face. The concept of women using their sexual power to bring the men in their lives to heel seems rife with comic possibilities. Maybe it has already been done. Wasn’t there a movie along those lines…?
Actually, the idea is much older than that. The same concept forms the plot of Lysistrata, an ancient Greek play, written by the playwright Aristophanes in the 411 BCE. In his version, the city-states of Sparta and Athens are at war. The women of both cities cut the men off until they agree to make peace. The play is, of course, a satire. By poking fun at the men and women of Sparta and Athens, Aristophanes points out the absurdity of our behavior in both sexual politics and state politics. At the heart of the story is an incongruous concept: sex makes us crazy, but that craziness can make us behave more sanely with regard to larger conflicts.
Twenty-four hundred years ago Aristophanes looked at people and politics, and came up with an idea that resonates through the ages, right up to the present day.
That is why I am a conservative. The raw material of society is people. The human animal. Our motivations and desires are the same as they were millennia ago. The institutions, mores, and practices that persist over time do so for a reason: they work. Why they work may not be obvious to us, but we hazard the foundations of society when we make ill-considered alterations to institutions that have developed and held up over long periods.
I believe the current mania for “change” is ill-considered. History is littered with the wreckage of attempted utopian schemes. Until you change people, you better be careful when trying to change society. It has been over two millennia, and we are still waiting.
Even with a filibuster proof majority in the Senate, you cannot repeal the Law of Unintended Consequences.
Thursday, April 30, 2009
Tuesday, April 28, 2009
Waterboarding and other unpleasantness
Some thirty years ago, I was a cadet attending ROTC summer training camp in Ft. Benning, Georgia. One day of the training was dedicated to adventure training. Rappeling, zip lines, biting the heads off chickens. That sort of thing.
At one point during the day, a group of cadets sat down with one of the training sergeants, a grizzled old Viet Nam vet. Somehow the discussion turned to the subject of questioning prisoners of war. The sergeant said that during the war, they would take two blindfolded VC up in a helicopter and start questioning them. Then they would tie a rope around one of them and throw him out of the chopper. The other would hear the screams as the man was pushed out, which was enough to get him to start answering questions.
Then the veteran said “If you really want information, you take the 9 volt battery out of the walkie-talkie handset, and press both terminals against the man’s temple. Bzzt! When he gets finished singing God Bless America, he’ll tell you anything you want to know.”
At this point he stopped and looked at the group of college students surrounding him, and saw the absolutely shocked faces. It was silent for a moment. Then, with dead sincerity, the sergeant said “That’s not torture. That’s interrogation.”
With the current media pyrotechnics about the Bush administrations “advanced interrogation” policies, it is worth noting this is not the first time we, as a society, have attempted to define the issue of what constitutes torture, and what is merely tough questioning. I think the question does not lend itself to bright and shining boundaries.
Pulling someone’s fingernails off with pliers? Yes, that’s torture. Sleep deprivation? Maybe. Now we’re in the grey area. Making a suspect wear women’s underwear, or having a woman lead him around with a dog leash? Please, you pay extra for that in Vegas.
But in struggling with these issues as policy is set, I have a suggestion. A modest proposal. Call it a version of sauce for the gander.
Have your attorneys draft memos outlining the limits of what is acceptable. This is just what the Bush administration did. Then take those same attorneys and subject them to the same interrogation techniques they proposed. If they say waterboarding is legal, waterboard ‘em. If they say exposure to cold is legal, stick ‘em in a meat locker. At the end of the process, is they still sign off on the memos, you have your policy.
Think of it as a new version of the Golden Rule. Not, “Do unto others as you would have done to yourself.” Not, “Do unto others as they would do unto you, but do it first.” No, not even the classic, “Whoever has the gold makes the rules.”
This version of the Golden Rule is “Don’t do anything unto others that you wouldn’t be willing to have done to yourself.”
At one point during the day, a group of cadets sat down with one of the training sergeants, a grizzled old Viet Nam vet. Somehow the discussion turned to the subject of questioning prisoners of war. The sergeant said that during the war, they would take two blindfolded VC up in a helicopter and start questioning them. Then they would tie a rope around one of them and throw him out of the chopper. The other would hear the screams as the man was pushed out, which was enough to get him to start answering questions.
Then the veteran said “If you really want information, you take the 9 volt battery out of the walkie-talkie handset, and press both terminals against the man’s temple. Bzzt! When he gets finished singing God Bless America, he’ll tell you anything you want to know.”
At this point he stopped and looked at the group of college students surrounding him, and saw the absolutely shocked faces. It was silent for a moment. Then, with dead sincerity, the sergeant said “That’s not torture. That’s interrogation.”
With the current media pyrotechnics about the Bush administrations “advanced interrogation” policies, it is worth noting this is not the first time we, as a society, have attempted to define the issue of what constitutes torture, and what is merely tough questioning. I think the question does not lend itself to bright and shining boundaries.
Pulling someone’s fingernails off with pliers? Yes, that’s torture. Sleep deprivation? Maybe. Now we’re in the grey area. Making a suspect wear women’s underwear, or having a woman lead him around with a dog leash? Please, you pay extra for that in Vegas.
But in struggling with these issues as policy is set, I have a suggestion. A modest proposal. Call it a version of sauce for the gander.
Have your attorneys draft memos outlining the limits of what is acceptable. This is just what the Bush administration did. Then take those same attorneys and subject them to the same interrogation techniques they proposed. If they say waterboarding is legal, waterboard ‘em. If they say exposure to cold is legal, stick ‘em in a meat locker. At the end of the process, is they still sign off on the memos, you have your policy.
Think of it as a new version of the Golden Rule. Not, “Do unto others as you would have done to yourself.” Not, “Do unto others as they would do unto you, but do it first.” No, not even the classic, “Whoever has the gold makes the rules.”
This version of the Golden Rule is “Don’t do anything unto others that you wouldn’t be willing to have done to yourself.”
Tuesday, April 21, 2009
Green Shoots and Other Images
Last week, Fed Chairman Ben Bernanke said he detected “green shoots” among the economic indicators he tracks. A nice metaphor for seeing signs of recovery from the current economic malaise. Beautifully timed to coincide with the annual rebirth of springtime.
At my company, we are also seeing some “green shoots” of our own. After dropping to a level less than half of what it was a year ago, orders from customers have rebounded somewhat. March financial results put us into the black for the year to date, April’s results will be better still, and the sales forecast for May/June is comfortable, if not stupendous.
It is infinitely less stressful to be focused on how much profit we can make, as opposed to having concerns over whether the month will show a profit or a loss. We have shifted over to the positive problem of “How do we make shipments on time with the resources we have?” as opposed to the negative problem of “Who is the next person to get laid off?” I’ve even had to call a few people back off layoff.
My problem is that I can’t confine myself to the springtime “green shoots” metaphor. I come back to other metaphors. Grimmer metaphors.
“We’re not out of the woods yet.” “The other shoe has yet to drop.” “The light at the end of a tunnel is an oncoming train.” “The economy is executing a head fake. It gets you moving one way, then whammo, it turns and goes the other.” “It’s always darkest just before it really goes pitch black.”
My gut feeling is that we are going to hear more bad news before the economy really recovers. So I am keeping cost controls in place, eliminating unnecessary expenses, and watching every hour of overtime like a hawk. I would say “plan for the worst, and hope for the best,” but I think hope is for suckers.
Some say the glass if half full. Some say the glass is half empty. I say the glass has a crack, and the water is running out.
Maybe that's why I don't get invited out much.
At my company, we are also seeing some “green shoots” of our own. After dropping to a level less than half of what it was a year ago, orders from customers have rebounded somewhat. March financial results put us into the black for the year to date, April’s results will be better still, and the sales forecast for May/June is comfortable, if not stupendous.
It is infinitely less stressful to be focused on how much profit we can make, as opposed to having concerns over whether the month will show a profit or a loss. We have shifted over to the positive problem of “How do we make shipments on time with the resources we have?” as opposed to the negative problem of “Who is the next person to get laid off?” I’ve even had to call a few people back off layoff.
My problem is that I can’t confine myself to the springtime “green shoots” metaphor. I come back to other metaphors. Grimmer metaphors.
“We’re not out of the woods yet.” “The other shoe has yet to drop.” “The light at the end of a tunnel is an oncoming train.” “The economy is executing a head fake. It gets you moving one way, then whammo, it turns and goes the other.” “It’s always darkest just before it really goes pitch black.”
My gut feeling is that we are going to hear more bad news before the economy really recovers. So I am keeping cost controls in place, eliminating unnecessary expenses, and watching every hour of overtime like a hawk. I would say “plan for the worst, and hope for the best,” but I think hope is for suckers.
Some say the glass if half full. Some say the glass is half empty. I say the glass has a crack, and the water is running out.
Maybe that's why I don't get invited out much.
Sunday, April 19, 2009
General Growth Shrinks Down to Nothing
General Growth, the second largest shopping mall operator in America, filed for Chapter 11 bankruptcy last week. General Growth had grown through a series of acquisitions over the years. The largest of these was an $11 billion buyout of the Rouse Company in 2004.
GG had paid for these acquisitions through the mechanism of taking on ever increasing loads of debt. At the time of their bankruptcy filing, they had over $27 billion in outstanding loans.
The mall operator was taken down by two interlinked factors related to the recession. First, the current economic downturn has caused a shake out in the retailing industry. Merchants are closing stores, leaving blank fronts inside the malls. Unrented spaces mean that the cash flow available to pay debt is reduced.
The immediate cause of the bankruptcy was the general credit crunch. Banks were simply unwilling to roll over loans that had come due from the real estate operator. Faced with demands for cash, the management of General Growth threw up their hands and declared “Game Over.”
First of all, who lends money to a mall operator named General Growth? The mall industry has been shrinking for years. Malls are based on the concept that you park your car and stroll through the mall to do your shopping. Overweight Americans don’t want to stroll. They want to drive up to one store, get what they want (note the distinction between get what you want and get what you need), and then get back in the car and drive to the next big box retailer. “I had to drive around that parking lot four times before a good parking spot opened up. It’s a good thing gas prices have dropped since last year.”
I’m no retail genius, but even I know that the mall industry has been shrinking. It would be like loaning money to a company called Smoking Crack, Inc. “Sure, that sounds like a great investment!”
But it is even more amazing that the managers of the company bet the stockholder’s money on a strategy that included piling on debt until they were unable to get it refinanced. Without spectacular amounts of leverage, the returns in the mall business might not have been great, but they sure would have been better than being wiped out.
So, another company build on leverage bites the dust. And the trend for 2009 continues…
GG had paid for these acquisitions through the mechanism of taking on ever increasing loads of debt. At the time of their bankruptcy filing, they had over $27 billion in outstanding loans.
The mall operator was taken down by two interlinked factors related to the recession. First, the current economic downturn has caused a shake out in the retailing industry. Merchants are closing stores, leaving blank fronts inside the malls. Unrented spaces mean that the cash flow available to pay debt is reduced.
The immediate cause of the bankruptcy was the general credit crunch. Banks were simply unwilling to roll over loans that had come due from the real estate operator. Faced with demands for cash, the management of General Growth threw up their hands and declared “Game Over.”
First of all, who lends money to a mall operator named General Growth? The mall industry has been shrinking for years. Malls are based on the concept that you park your car and stroll through the mall to do your shopping. Overweight Americans don’t want to stroll. They want to drive up to one store, get what they want (note the distinction between get what you want and get what you need), and then get back in the car and drive to the next big box retailer. “I had to drive around that parking lot four times before a good parking spot opened up. It’s a good thing gas prices have dropped since last year.”
I’m no retail genius, but even I know that the mall industry has been shrinking. It would be like loaning money to a company called Smoking Crack, Inc. “Sure, that sounds like a great investment!”
But it is even more amazing that the managers of the company bet the stockholder’s money on a strategy that included piling on debt until they were unable to get it refinanced. Without spectacular amounts of leverage, the returns in the mall business might not have been great, but they sure would have been better than being wiped out.
So, another company build on leverage bites the dust. And the trend for 2009 continues…
Thursday, April 16, 2009
Tax Season is Over
The ides of April are behind us. The gust of wind that stirred the hair on the back of your neck yesterday was the collective sigh of relief from all the tax filers sending in their tax returns just ahead of the deadline. Following that was a minor breeze coming from the paid tax preparers who are standing down after frantic activity of the last few weeks. Tax season is over.
When I signed on with H & R Block to do taxes last year, I figured that getting customers was the easiest part of the business. After all, the only service with a comparable level of built-in demand is the funeral home industry. Taxes are inevitable for everybody, right?
Well, taxes may be inevitable, but paying someone else to do them for you is not. H & R Block reported that through March 15, the number of returns prepared were down 6.2% versus the same period a year ago. The news was even worse at Jackson Hewitt, the second largest tax preparation chain. They are forecasting a drop of 12% for the number of returns prepared for the 2009 tax season.
USA Today ran a story on this with the headline “Downturn has taxpayers filing solo.” The implication is that the recession has driven more tax filers to using at home software for their taxes to save money.
I think trying to tie this trend to the current recession is a lot of hogwash. More people are filing taxes using home computers because it is cheaper and easier. That is an attractive proposition all the time, whether there is a recession or not.
When I prepare someone’s taxes at an H & R Block office, I have to be paid (not bloody much pay, but money does change hands). Also, rent on the bricks and mortar office continues all year round, even though tax season only lasts three months. HRB maintains the computers the paid preparers work on as well.
With the home software, the cost of producing another copy of the program is a tiny fraction of those costs. If you use the on-line version of the tax software, even those costs are eliminated. It’s no surprise that the price of home preparation kicks the crap out of the price of a paid preparer. And you can do your taxes any time, day or night, in your underwear, should you so desire.
As home computers with high-speed internet connections have become ubiquitous, more and more people are choosing the less expensive, more convenient home tax prep over paid services. The new model of computers and internet is hollowing out the market for tax preparers. This is the same process that killed the travel agent business. With the exception of cruise specialists, there are no more travel agents, and there used to be at least one in every small town.
Is tax preparation going to the same route to extinction?
Probably not. The difference is that not everyone flies on the airlines, but everyone has to file a tax return. They also have to die, but that’s a different story.
Even though tax law is getting more complicated, doing your taxes yourself is getting easier as the software gets better, particularly if your taxes aren’t particularly complicated. This means that for paid tax services, the middle of the market is getting carved out.
Two groups are left over: early season filers and late season filers. The early season filers tend to be lower income. They are either computer illiterate, or they want access to the financial products that tax prep firms can offer (refund anticipation loans). The late season filers will be the people with complicated taxes (farms, partnerships, business owners). The late filers will need more tax expertise and judgement applied than they can get from a computer program.
The total market for tax preparation services will continue to shrink. But even if they close offices, the services will still have to cover a lot of overhead. I will predict that even as the industry shrinks, the prices charged will continue to increase. Of course, raising prices will accelerate customers switching to the do it yourself model.
I may do taxes with H & R Block again next year. But I wouldn’t buy their stock as a long term investment.
When I signed on with H & R Block to do taxes last year, I figured that getting customers was the easiest part of the business. After all, the only service with a comparable level of built-in demand is the funeral home industry. Taxes are inevitable for everybody, right?
Well, taxes may be inevitable, but paying someone else to do them for you is not. H & R Block reported that through March 15, the number of returns prepared were down 6.2% versus the same period a year ago. The news was even worse at Jackson Hewitt, the second largest tax preparation chain. They are forecasting a drop of 12% for the number of returns prepared for the 2009 tax season.
USA Today ran a story on this with the headline “Downturn has taxpayers filing solo.” The implication is that the recession has driven more tax filers to using at home software for their taxes to save money.
I think trying to tie this trend to the current recession is a lot of hogwash. More people are filing taxes using home computers because it is cheaper and easier. That is an attractive proposition all the time, whether there is a recession or not.
When I prepare someone’s taxes at an H & R Block office, I have to be paid (not bloody much pay, but money does change hands). Also, rent on the bricks and mortar office continues all year round, even though tax season only lasts three months. HRB maintains the computers the paid preparers work on as well.
With the home software, the cost of producing another copy of the program is a tiny fraction of those costs. If you use the on-line version of the tax software, even those costs are eliminated. It’s no surprise that the price of home preparation kicks the crap out of the price of a paid preparer. And you can do your taxes any time, day or night, in your underwear, should you so desire.
As home computers with high-speed internet connections have become ubiquitous, more and more people are choosing the less expensive, more convenient home tax prep over paid services. The new model of computers and internet is hollowing out the market for tax preparers. This is the same process that killed the travel agent business. With the exception of cruise specialists, there are no more travel agents, and there used to be at least one in every small town.
Is tax preparation going to the same route to extinction?
Probably not. The difference is that not everyone flies on the airlines, but everyone has to file a tax return. They also have to die, but that’s a different story.
Even though tax law is getting more complicated, doing your taxes yourself is getting easier as the software gets better, particularly if your taxes aren’t particularly complicated. This means that for paid tax services, the middle of the market is getting carved out.
Two groups are left over: early season filers and late season filers. The early season filers tend to be lower income. They are either computer illiterate, or they want access to the financial products that tax prep firms can offer (refund anticipation loans). The late season filers will be the people with complicated taxes (farms, partnerships, business owners). The late filers will need more tax expertise and judgement applied than they can get from a computer program.
The total market for tax preparation services will continue to shrink. But even if they close offices, the services will still have to cover a lot of overhead. I will predict that even as the industry shrinks, the prices charged will continue to increase. Of course, raising prices will accelerate customers switching to the do it yourself model.
I may do taxes with H & R Block again next year. But I wouldn’t buy their stock as a long term investment.
Monday, April 13, 2009
Is it safe to go back in the water?
Last week Wells Fargo announced record earnings for the first quarter of 2009. The stock market soared on the news, and reports started to circulate that the worst was over for this recession.
No so fast!
Wells Fargo’s results were driven by fees from a wave of refinancing. The refi boom came about because the Fed has dropped interest rates to the floor. Mortgage rates have followed. As a result, people who could have been refinancing existing mortgages to take advantage of the lower rates.
Everyone who refinances has to pay fees to the bank for handling the transaction. This is great for the bank, but it is a short term phenomena. Mortgage rates are sitting at about 4.5% right now. They aren’t going to go much lower, if any. We’ve got about one quarter more of refinancing, then everyone who wants to take advantage of the new lower rates will have done so, and the fee income is going to dry up again.
The real issue is whether Wells Fargo has finished writing off all the bad loans in their real estate portfolio. Since real estate prices are continuing to fall, I’m guessing that more bad news is going to come out. After all, WF posted a loss in the 4th quarter of last year almost equal to what they earned this quarter.
We’re not out of the woods yet.
No so fast!
Wells Fargo’s results were driven by fees from a wave of refinancing. The refi boom came about because the Fed has dropped interest rates to the floor. Mortgage rates have followed. As a result, people who could have been refinancing existing mortgages to take advantage of the lower rates.
Everyone who refinances has to pay fees to the bank for handling the transaction. This is great for the bank, but it is a short term phenomena. Mortgage rates are sitting at about 4.5% right now. They aren’t going to go much lower, if any. We’ve got about one quarter more of refinancing, then everyone who wants to take advantage of the new lower rates will have done so, and the fee income is going to dry up again.
The real issue is whether Wells Fargo has finished writing off all the bad loans in their real estate portfolio. Since real estate prices are continuing to fall, I’m guessing that more bad news is going to come out. After all, WF posted a loss in the 4th quarter of last year almost equal to what they earned this quarter.
We’re not out of the woods yet.
Thursday, April 9, 2009
Depression? What Depression?
My latest bedtime reading is a book called The Coming Great Depression by Harry S. Dent. I keep it on my nightstand, and read a few pages every evening before I go to sleep.
The Coming Great Depression? Sweet dreams, buddy!
Dent is primarily a demographer, and he uses demographic trends as a tool for forecasting the economy. His major point is that there is a strong correlation between birthrates and asset prices (stocks and housing), with a forty year time lag. Put another way, if the birthrate goes up this year, in forty years the stock market will go up as well.
The logic behind this observed correlation is simple. People in their late thirties and early forties are at their peak productive years in the workforce. Also, those are the years of peak consumption, as people raise families, move up to bigger houses, spend on their children’s education, etc.
The primary prediction of the book is that the current downturn is only the start of a longer down cycle. The down cycle will play out over the next 10 to 15 years. The bottom of the trough will occur in 2012 or 2013, with the next boom cycle starting in 2022.
After the post WWII baby boom generation, birth rates fell and we had what is called the baby bust generation that followed. What Dent calls the Echo Boom generation was born in the eighties, a time of increasing birth rates. The dearth of baby busters will cause the drop off in the economy, and the Echo Boomers will ignite the next growth cycle as they hit their peak productive and consuming years.
The author throws in a lot of other cycle analysis to support his arguments. He mentions commodity cycles, technology cycles, political cycles and others. The periodicity of these cycles range from 18 to 250 years in length. I’m not sure I buy the additional arguments. I mean, please. A 250 year cycle that he can predict will bottom out in the next ten years? It just sounds like looking for arguments to support a predetermined prediction.
The central demographic argument is compelling, however.
If we are headed into an economic trough that will last 10 to 15 years, than equity investing is a losing game until the next up cycle starts. Better to focus on building up your cash position and acquire high rated bonds.
The good news for me is that if Dent is right, the next upswing in asset prices will occur just as I am getting ready for retirement. A rising market will fund my golden years.
Of course, Dent also wrote a book called Dow 32,000 a few years back, at the height of the tech boom, and we know how that turned out.
I’ll take it all with a grain of salt.
The Coming Great Depression? Sweet dreams, buddy!
Dent is primarily a demographer, and he uses demographic trends as a tool for forecasting the economy. His major point is that there is a strong correlation between birthrates and asset prices (stocks and housing), with a forty year time lag. Put another way, if the birthrate goes up this year, in forty years the stock market will go up as well.
The logic behind this observed correlation is simple. People in their late thirties and early forties are at their peak productive years in the workforce. Also, those are the years of peak consumption, as people raise families, move up to bigger houses, spend on their children’s education, etc.
The primary prediction of the book is that the current downturn is only the start of a longer down cycle. The down cycle will play out over the next 10 to 15 years. The bottom of the trough will occur in 2012 or 2013, with the next boom cycle starting in 2022.
After the post WWII baby boom generation, birth rates fell and we had what is called the baby bust generation that followed. What Dent calls the Echo Boom generation was born in the eighties, a time of increasing birth rates. The dearth of baby busters will cause the drop off in the economy, and the Echo Boomers will ignite the next growth cycle as they hit their peak productive and consuming years.
The author throws in a lot of other cycle analysis to support his arguments. He mentions commodity cycles, technology cycles, political cycles and others. The periodicity of these cycles range from 18 to 250 years in length. I’m not sure I buy the additional arguments. I mean, please. A 250 year cycle that he can predict will bottom out in the next ten years? It just sounds like looking for arguments to support a predetermined prediction.
The central demographic argument is compelling, however.
If we are headed into an economic trough that will last 10 to 15 years, than equity investing is a losing game until the next up cycle starts. Better to focus on building up your cash position and acquire high rated bonds.
The good news for me is that if Dent is right, the next upswing in asset prices will occur just as I am getting ready for retirement. A rising market will fund my golden years.
Of course, Dent also wrote a book called Dow 32,000 a few years back, at the height of the tech boom, and we know how that turned out.
I’ll take it all with a grain of salt.
Friday, April 3, 2009
Crisis? What crisis?
A funny thing happened last week. I bought a car.
A small sport utility, actually. I leased the vehicle three years ago, and since it had low milage, I bought it when the lease expired. Plunked a couple thou down to keep the payment low and signed up for a 24 month payout.
Okay, you're still waiting for the comedy part to kick in, I know.
The funny part was how easy it was to get the loan. I walked into the dealership, signed some papers, and bang-zoom, drove off with the car. They'll send me the first statement at the end of this month.
Hahaha...wait, no that still isn't funny.
All right, so maybe it wasn't funny, at least not in the ha ha sense. More like it was funny in the peculiar sense.
You see, I keep reading about how the credit market is frozen up. I keep reading about how "we need to get the banks out loaning money again." But I didn't have a problem getting a loan. From where I'm standing, there is no problem borrowing money.
In all fairness, the interest rate was higher than I wanted to pay. My last car loan was five years ago, and at that time the best rate was 5%. This loan was at 7 percent. Given that the Fed funds rate is lower than it was five years ago, my new car loan is actually more profitable for the bank than the old loan was.
Also, I have a sterling credit rating, and I put a chunk of money down on the transaction. The odds of this loan going nipples up are vanishingly remote.
So maybe the problem is not that the banks aren't loaning money. Maybe the problem is that the banks aren't loaning money to poor credit risks.
Can you blame them? After all, it was loaning money to people who couldn't afford to pay it back that got the banks in trouble in the first place.
A small sport utility, actually. I leased the vehicle three years ago, and since it had low milage, I bought it when the lease expired. Plunked a couple thou down to keep the payment low and signed up for a 24 month payout.
Okay, you're still waiting for the comedy part to kick in, I know.
The funny part was how easy it was to get the loan. I walked into the dealership, signed some papers, and bang-zoom, drove off with the car. They'll send me the first statement at the end of this month.
Hahaha...wait, no that still isn't funny.
All right, so maybe it wasn't funny, at least not in the ha ha sense. More like it was funny in the peculiar sense.
You see, I keep reading about how the credit market is frozen up. I keep reading about how "we need to get the banks out loaning money again." But I didn't have a problem getting a loan. From where I'm standing, there is no problem borrowing money.
In all fairness, the interest rate was higher than I wanted to pay. My last car loan was five years ago, and at that time the best rate was 5%. This loan was at 7 percent. Given that the Fed funds rate is lower than it was five years ago, my new car loan is actually more profitable for the bank than the old loan was.
Also, I have a sterling credit rating, and I put a chunk of money down on the transaction. The odds of this loan going nipples up are vanishingly remote.
So maybe the problem is not that the banks aren't loaning money. Maybe the problem is that the banks aren't loaning money to poor credit risks.
Can you blame them? After all, it was loaning money to people who couldn't afford to pay it back that got the banks in trouble in the first place.
Tuesday, March 31, 2009
Quiznos Blinks
In the fast food sub sandwich category, the two biggest players are Subway and Quiznos. Due to a huge head start and relentless franchising, Subway is the dominant company in the marketplace. Their advertising has traditionally focused on differentiating their products from other fast food categories such as burgers and fried chicken.
Subway ads typically emphasize the fresh baked bread and the vegetable fixings piled on their sandwiches. They have positioned themselves as a lighter alternative to other fast food restaurants. Their spokesperson, Jared, has built an entire career around a friendly personality and the fact that he lost a lot of weight by eating Subway food.
Quiznos, on the other hand, has played off the category leader Subway. Quiznos ads have pointed out how much more meat is on their subs, and stressed the oven toasting. “If you want a sub,” they seem to say, “shouldn’t it be our sub and not theirs?”
As a consumer of both chain’s sandwiches, I can attest Quiznos does make a superior sub. What the Quiznos ads forget to mention is that it is also a more expensive sub. The price differential for the premium Quiznos product is $2-$3 more than Subway would charge.
Recently, Subway began a promotion centering around the concept of “the $5 foot long.” It started with selected foot long sandwiches being discounted down to a $5 dollar price. The promotion was so successful (aided by an incredibly catchy ad campaign) that the $5 foot long concept has been extended to all of their sandwiches.
The motivating idea behind the campaign is simple: more food for less money. It is the same animating concept behind McDonalds dollar menu.
Now Quiznos is responding with their own foot long product. The ads for the ciabatta bread sub emphasize the fact that it sells for only $4. In fact, the ad ends by repeating the price three times, albeit with a humorous twist. The new Quiznos ads are clearly a reaction to the Subway campaign. The message is “our sub is cheaper than their sub.”
The ads are funny and memorable. They feature the toasting oven as one of the characters in the ad. The oven’s voice is intended to resemble the HAL 9000 computer in 2001: A space Odyssey.
There are two ways to establish the value proposition in the mind of the consumer. One way is to emphasize the superior features or quality of your brand compared to the competition. The other way is to emphasize a lower price.
With their new ads launching this new product, Quiznos has abandoned the superiority strategy of brand building. They are now trying to sell a cheaper sandwich than Subway. Once you start competing solely on price, it is tough to build your brand up as a premium product.
In the long run, this new direction will hurt Quiznos more than the short term market share gain helps them.
Subway ads typically emphasize the fresh baked bread and the vegetable fixings piled on their sandwiches. They have positioned themselves as a lighter alternative to other fast food restaurants. Their spokesperson, Jared, has built an entire career around a friendly personality and the fact that he lost a lot of weight by eating Subway food.
Quiznos, on the other hand, has played off the category leader Subway. Quiznos ads have pointed out how much more meat is on their subs, and stressed the oven toasting. “If you want a sub,” they seem to say, “shouldn’t it be our sub and not theirs?”
As a consumer of both chain’s sandwiches, I can attest Quiznos does make a superior sub. What the Quiznos ads forget to mention is that it is also a more expensive sub. The price differential for the premium Quiznos product is $2-$3 more than Subway would charge.
Recently, Subway began a promotion centering around the concept of “the $5 foot long.” It started with selected foot long sandwiches being discounted down to a $5 dollar price. The promotion was so successful (aided by an incredibly catchy ad campaign) that the $5 foot long concept has been extended to all of their sandwiches.
The motivating idea behind the campaign is simple: more food for less money. It is the same animating concept behind McDonalds dollar menu.
Now Quiznos is responding with their own foot long product. The ads for the ciabatta bread sub emphasize the fact that it sells for only $4. In fact, the ad ends by repeating the price three times, albeit with a humorous twist. The new Quiznos ads are clearly a reaction to the Subway campaign. The message is “our sub is cheaper than their sub.”
The ads are funny and memorable. They feature the toasting oven as one of the characters in the ad. The oven’s voice is intended to resemble the HAL 9000 computer in 2001: A space Odyssey.
There are two ways to establish the value proposition in the mind of the consumer. One way is to emphasize the superior features or quality of your brand compared to the competition. The other way is to emphasize a lower price.
With their new ads launching this new product, Quiznos has abandoned the superiority strategy of brand building. They are now trying to sell a cheaper sandwich than Subway. Once you start competing solely on price, it is tough to build your brand up as a premium product.
In the long run, this new direction will hurt Quiznos more than the short term market share gain helps them.
Tuesday, March 24, 2009
Take this TARP...Part II
Goldman Sachs, the big Wall Street investment bank, recently announced that they were going to try and repay their share of the Federal TARP bailout money ahead of schedule. The previously announced plan was to repay the Treasury by the end of this year. They have now said they could pay back the government as early as the end of April.
I can’t help thinking this is partially due to the furor over the AIG bonuses. Watching the AIG financial traders get used as a metaphorical piñata by the politicians and media has got to be a powerful spur to get out from under the Federal thumb. Who can blame them: would you want to have to answer to Barney Franks?
As in the case of Northern Trust, I think much of the political grandstanding over the AIG bonuses was overwrought and silly. But I also think that the sooner the government gets out of the ownership of financial institutions, the better for the country. So if the posturing and outrage spurs the managers of companies to put their houses in order and regain their independence, in the long run we will be better for it.
It is an ill wind that blows no good.
I can’t help thinking this is partially due to the furor over the AIG bonuses. Watching the AIG financial traders get used as a metaphorical piñata by the politicians and media has got to be a powerful spur to get out from under the Federal thumb. Who can blame them: would you want to have to answer to Barney Franks?
As in the case of Northern Trust, I think much of the political grandstanding over the AIG bonuses was overwrought and silly. But I also think that the sooner the government gets out of the ownership of financial institutions, the better for the country. So if the posturing and outrage spurs the managers of companies to put their houses in order and regain their independence, in the long run we will be better for it.
It is an ill wind that blows no good.
Monday, March 23, 2009
AIG: Hangin' too good for em! Tax the b***s!
I’m outraged about the AIG bonuses. And right now I’m not talking about how $165 million in retention bonuses was paid out to the traders in the Financial Products unit; the same guys who wrecked the company. I’m still hacked off about that, but right now I’m outraged at the actions of the US Congress in regards to the situation.
In a state of high dudgeon, the House of Representatives passed a special bill last week that imposed a 95% tax on those bonuses. The US is looking at a trillion dollar deficit this year, and Congress is wasting their time going after a small group of traders who are getting retention bonuses when they should not even have been retained. Part of the taxpayer bailout of AIG should have been firing those guys. Instead, they were allowed to stick around until they qualified for bonuses.
The thing is, they were allowed to stick around to the end of the year. They had contracts, and those contracts have to be honored.
Now Congress, after the fact, is trying to get the money back. The US Constitution prohibits something call a Bill of Attainder. A Bill of Attainder is an act of the legislature that targets specific individuals and punishes them without a trial. Confiscatory taxation designed to hit only a small group of people arguably fits that definition.
What should have happened is that at the time of the original bailout, before the Treasury acquired 80% of AIG, all of the employment contracts should have been rendered subject to renegotiation as a precondition to receiving the money. Alas, no one thought of that during the press of events. Too bad, so sad.
Much as it pains my partisan soul, I have to give the Obama administration a pass on this one. By the time Obama was inaugurated in January, the retention bonuses had already been earned.
Instead of grandstanding and hyperventilating about how they are going to get that money back, our elected representatives would more constructively spend their time learning the ins and out of the financial system they are being asked to continue to bail out. Yes the AIG bonuses are outrageous, but in the great scheme of things they are also miniscule.
I would say that Congress has bigger fish to fry, but technically, whales are mammals, not fish.
In a state of high dudgeon, the House of Representatives passed a special bill last week that imposed a 95% tax on those bonuses. The US is looking at a trillion dollar deficit this year, and Congress is wasting their time going after a small group of traders who are getting retention bonuses when they should not even have been retained. Part of the taxpayer bailout of AIG should have been firing those guys. Instead, they were allowed to stick around until they qualified for bonuses.
The thing is, they were allowed to stick around to the end of the year. They had contracts, and those contracts have to be honored.
Now Congress, after the fact, is trying to get the money back. The US Constitution prohibits something call a Bill of Attainder. A Bill of Attainder is an act of the legislature that targets specific individuals and punishes them without a trial. Confiscatory taxation designed to hit only a small group of people arguably fits that definition.
What should have happened is that at the time of the original bailout, before the Treasury acquired 80% of AIG, all of the employment contracts should have been rendered subject to renegotiation as a precondition to receiving the money. Alas, no one thought of that during the press of events. Too bad, so sad.
Much as it pains my partisan soul, I have to give the Obama administration a pass on this one. By the time Obama was inaugurated in January, the retention bonuses had already been earned.
Instead of grandstanding and hyperventilating about how they are going to get that money back, our elected representatives would more constructively spend their time learning the ins and out of the financial system they are being asked to continue to bail out. Yes the AIG bonuses are outrageous, but in the great scheme of things they are also miniscule.
I would say that Congress has bigger fish to fry, but technically, whales are mammals, not fish.
Tuesday, March 17, 2009
BankTracker: How bad is it at my bank?
I have found a new toy. The BankTracker website has been set up to use publicly available data to rate the health of banks. The site takes information that banks are required to report to the FDIC every quarter, and creates a ratio of troubled assets to capital and reserves.
The troubled assets are defined as loans that have not received a payment in 90 days, loans that are no longer accruing interest (usually this means loans that have not received a payment in 60 days), and the category of other real estate, which means property that the bank has already foreclosed on. The foreclosed property is carried on the books as having a value equal to the outstanding balance of the loan at the time of foreclosure.
The troubled assets are then divided by the combination of Tier 1 capital and loss reserves to come up with a ratio. On the BankTracker website, the ratio is expressed as the percentage of troubled loans to capital. For example, if a bank had $100 million in capital and $10 million in troubled loans, the website reports the ratio as 10. If the website reported the ratio as 130, that would mean that troubled loans were equivalent in value to 130% of the banks capital.
So go ahead and look up your bank and see where they stand. I did, and my bank’s ratio was about 30. Their problem loans add up to about 30% of their capital. Not that bad, although the median for all banks was about 10. Still, my bank has enough capital to ride out the current mess, as long as the number of problem loans doesn’t get worse.
Even banks with ratios over 100 can still survive. If a bank has problem loans in excess of the amount of capital they carry, and cannot recover any of the value of those loans, the bank is technically insolvent. But that doesn’t take into account the recovery value of the assets. Take the other owned real estate (foreclosed properties). If the bank sells those properties for 50 cents on the dollar, they only write off half the value of the property.
For all of the problem loans, they will move from non accruing status to 90 days late, into foreclosure. After foreclosure, they will be other owned real estate. Eventually, the foreclosed houses will sell, and whatever fraction of the loan value the bank recovers will be added to capital.
I don’t know what criteria the FDIC uses to determine their problem bank list. But I would guess that anyone with a problem loan to capital ratio exceeding 150% would be an excellent candidate.
The troubled assets are defined as loans that have not received a payment in 90 days, loans that are no longer accruing interest (usually this means loans that have not received a payment in 60 days), and the category of other real estate, which means property that the bank has already foreclosed on. The foreclosed property is carried on the books as having a value equal to the outstanding balance of the loan at the time of foreclosure.
The troubled assets are then divided by the combination of Tier 1 capital and loss reserves to come up with a ratio. On the BankTracker website, the ratio is expressed as the percentage of troubled loans to capital. For example, if a bank had $100 million in capital and $10 million in troubled loans, the website reports the ratio as 10. If the website reported the ratio as 130, that would mean that troubled loans were equivalent in value to 130% of the banks capital.
So go ahead and look up your bank and see where they stand. I did, and my bank’s ratio was about 30. Their problem loans add up to about 30% of their capital. Not that bad, although the median for all banks was about 10. Still, my bank has enough capital to ride out the current mess, as long as the number of problem loans doesn’t get worse.
Even banks with ratios over 100 can still survive. If a bank has problem loans in excess of the amount of capital they carry, and cannot recover any of the value of those loans, the bank is technically insolvent. But that doesn’t take into account the recovery value of the assets. Take the other owned real estate (foreclosed properties). If the bank sells those properties for 50 cents on the dollar, they only write off half the value of the property.
For all of the problem loans, they will move from non accruing status to 90 days late, into foreclosure. After foreclosure, they will be other owned real estate. Eventually, the foreclosed houses will sell, and whatever fraction of the loan value the bank recovers will be added to capital.
I don’t know what criteria the FDIC uses to determine their problem bank list. But I would guess that anyone with a problem loan to capital ratio exceeding 150% would be an excellent candidate.
Sunday, March 15, 2009
"...and negotiating for the company will be Bobo the chimp."
The big international insurance company AIG made the news again this weekend. No, they didn’t require another round of taxpayer funded bailout money. The $170 billion pumped in during the last three rounds seemed to have stabilized the patient for the time being.
The news this weekend was that AIG was going to pay out $450 million in “retention bonuses” to employees throughout the organization. These bonuses were apparently written into the employment contracts for executives at the various business units that make up AIG.
The amazing part about this is that $165 million of the retention bonus pool is allocated to the people at AIG’s financial products unit in London. These were the brainiacs who made all the bad deals that sunk AIG into such dire straits that they needed the $170 billion in the first place. Apparently the lawyers at AIG headquarters reviewed the employment contracts and concluded, “yup, we gotta pay ‘em.”
These guys in London inked deals that went bad to the tune of $60 billion in the last three months of 2008 alone. But they held their heads high and refused to quit, so by making it to the end of the year, they qualify for “retention bonuses.”
Who writes these contracts? This is the worst case of “head I win, tails you lose” I’ve seen all year.
According to news reports, the retention plan was set up early in 2008, before the realization set in about how bad the losses on the credit default swaps engineered at the financial products unit were going to be. AIG wanted to keep a number of executives from leaving, so the plan was set up to pay retention payments to senior people.
Call me crazy, but I’m not sure I’d want to keep the people around who wrecked the company and wiped out the shareholders. And the people who wrecked the company are still on the payroll, because they have a contract. For some reason, their business performance didn’t qualify as grounds for termination.
It kind of makes you wonder what you have to do to be fired for poor performance. Do you think being caught on videotape cutting a deal with Satan to sell him the souls of your customers would do it? Or would that qualify you for an additional bonus payment for “out of the box” thinking?
I wish I could get my hands on one of those contracts and see what it really says.
The news this weekend was that AIG was going to pay out $450 million in “retention bonuses” to employees throughout the organization. These bonuses were apparently written into the employment contracts for executives at the various business units that make up AIG.
The amazing part about this is that $165 million of the retention bonus pool is allocated to the people at AIG’s financial products unit in London. These were the brainiacs who made all the bad deals that sunk AIG into such dire straits that they needed the $170 billion in the first place. Apparently the lawyers at AIG headquarters reviewed the employment contracts and concluded, “yup, we gotta pay ‘em.”
These guys in London inked deals that went bad to the tune of $60 billion in the last three months of 2008 alone. But they held their heads high and refused to quit, so by making it to the end of the year, they qualify for “retention bonuses.”
Who writes these contracts? This is the worst case of “head I win, tails you lose” I’ve seen all year.
According to news reports, the retention plan was set up early in 2008, before the realization set in about how bad the losses on the credit default swaps engineered at the financial products unit were going to be. AIG wanted to keep a number of executives from leaving, so the plan was set up to pay retention payments to senior people.
Call me crazy, but I’m not sure I’d want to keep the people around who wrecked the company and wiped out the shareholders. And the people who wrecked the company are still on the payroll, because they have a contract. For some reason, their business performance didn’t qualify as grounds for termination.
It kind of makes you wonder what you have to do to be fired for poor performance. Do you think being caught on videotape cutting a deal with Satan to sell him the souls of your customers would do it? Or would that qualify you for an additional bonus payment for “out of the box” thinking?
I wish I could get my hands on one of those contracts and see what it really says.
Saturday, March 14, 2009
Orchestra Tuning (Off-topic Post)
I went to a concert by our local symphony orchestra this evening. Before they began playing the first piece on the program, the musicians did what they do at all symphonies, all over the world. They tuned up their instruments.
Is there any more wonderfully expectant sound in the world than a symphony tuning up? It is a sound latent with all the potential that the future holds.
It is the sound of predawn lightening of darkness, just before the sun breaks over the horizon. It is the sound of the first cup of coffee in the morning, before the day's business begins. It is the sound of the mad scramble to get dressed and ready for an evening out, just before you step out the door.
Often times, I enjoy those moments of anticipation when the orchestra tunes up as much as some parts of the actual program. Judging by the videos that others have posted on YouTube, I'm not the only one.
Is there any more wonderfully expectant sound in the world than a symphony tuning up? It is a sound latent with all the potential that the future holds.
It is the sound of predawn lightening of darkness, just before the sun breaks over the horizon. It is the sound of the first cup of coffee in the morning, before the day's business begins. It is the sound of the mad scramble to get dressed and ready for an evening out, just before you step out the door.
Often times, I enjoy those moments of anticipation when the orchestra tunes up as much as some parts of the actual program. Judging by the videos that others have posted on YouTube, I'm not the only one.
Tuesday, March 10, 2009
We Bring Good Things to Light?
GE stock has fallen precipitously in value over the last year. It was trading at a little over $6 per share last week, having come down from a high of $40+ in 2007. This is the same GE that builds both jet engines and refrigerators, light bulbs and MRI scanners. GE even owns NBC and Universal Studios. They are a leader in globalization, noted for having a deep management bench and the ability to develop talent. GE is one of the few American companies with AAA bond rating. The bluest of the blue chips.
And yet, panic selling drove the price down 45% in one month. This, despite the fact that the company was profitable last year. What gives?
The problem is that GE has xx in assets, but has yy in liabilities. If GE has problems paying back those liabilities, that spells real trouble for the stockholders. In corporate finance, the owners of the liabilities (bondholders) always get paid before the owners of the equity (stockholders). The reason the stock price has fallen so far is that the judgement of the market is that GE’s liabilities won’t be paid back.
You may think “What’s the problem? They’ve got a lot more assets than liabilities.” Well, maybe yes, and maybe no.
GE is really two companies. There is General Electric, which is the collection of industrial businesses that makes all the stuff. They have twice as many assets as liabilities. Then there is GE Capital. GE Capital provided half of GE’s profits for 2007. The problems are in GE Capital portfolio. In the 2007 annual report, GE Capital had $646 billion in assets, and $587 billion in liabilities. If the assets are worth only 10% less than what GE said they were worth a year ago, that would be enough of a fall in value to wipe out GE Capital’s equity, forcing the company to put more cash into the business.
GE Capital uses the AAA rating to borrow money cheaply. They then use that money to make loans. A lot of the loans are equipment leases. You want to lease a jet engine or MRI scanner, GE Capital will help you do that. But they make a lot of other types of loans as well. For a financing company, the money borrowed is a liability, and the loans made are the assets.
The market is concerned about writedowns hidden in the loan portfolio. Another way of saying that is that the assets are worth a lot less than what GE has been saying, and GE will have to ‘fess up soon.
I decided to go looking through the annual report to see if I could spot any potential problems. In corporate annual reports, the pesky details that can cause trouble are usually buried in the notes that follow the financial statements at the back of the report. Opening up the report almost at random, I found Note 12: GECS Financing Receivables.
Inside Note 12 was a line item for a division called GE Money, listing Non-US Residential Mortgages: $73.759 billion. So GE owns a mortgage company that is holding almost $74 billion in mortgages. I’m guessing that most of the mortgages are in the UK.
Attached to the line items was a reference to subnote (A). In little, tiny print, subnote (A) included the following statement: “approximately 26% of this portfolio comprised loans with introductory, below market rates that are scheduled to adjust at future dates; with high loan-to-value ratios at inception; whose terms permitted interest-only payments; or whose terms resulted in negative amortization.”
Yikes. Let me translate that for you: “GE holds over $19 billion dollars of toxic subprime mortgages in a collapsing real estate market.” After those UK homeowners stop paying, GE will foreclose, and then sell the houses for half. My back of the envelope calculation is that GE will have to write down that sliver of their portfolio by about $10 billion dollars. The total reserve for losses in their Financing Receivables is only $4.3 billion.
GE recently eliminated 70% of their dividend. This contributed mightily to the free fall in the stock price, but it will free up $9 billion a year in cash to apply to other uses, like writing off foreclosed mortgages. I have a feeling that they are going to need the cash.
The 2008 annual report is due any day now. I can’t wait to read it.
And yet, panic selling drove the price down 45% in one month. This, despite the fact that the company was profitable last year. What gives?
The problem is that GE has xx in assets, but has yy in liabilities. If GE has problems paying back those liabilities, that spells real trouble for the stockholders. In corporate finance, the owners of the liabilities (bondholders) always get paid before the owners of the equity (stockholders). The reason the stock price has fallen so far is that the judgement of the market is that GE’s liabilities won’t be paid back.
You may think “What’s the problem? They’ve got a lot more assets than liabilities.” Well, maybe yes, and maybe no.
GE is really two companies. There is General Electric, which is the collection of industrial businesses that makes all the stuff. They have twice as many assets as liabilities. Then there is GE Capital. GE Capital provided half of GE’s profits for 2007. The problems are in GE Capital portfolio. In the 2007 annual report, GE Capital had $646 billion in assets, and $587 billion in liabilities. If the assets are worth only 10% less than what GE said they were worth a year ago, that would be enough of a fall in value to wipe out GE Capital’s equity, forcing the company to put more cash into the business.
GE Capital uses the AAA rating to borrow money cheaply. They then use that money to make loans. A lot of the loans are equipment leases. You want to lease a jet engine or MRI scanner, GE Capital will help you do that. But they make a lot of other types of loans as well. For a financing company, the money borrowed is a liability, and the loans made are the assets.
The market is concerned about writedowns hidden in the loan portfolio. Another way of saying that is that the assets are worth a lot less than what GE has been saying, and GE will have to ‘fess up soon.
I decided to go looking through the annual report to see if I could spot any potential problems. In corporate annual reports, the pesky details that can cause trouble are usually buried in the notes that follow the financial statements at the back of the report. Opening up the report almost at random, I found Note 12: GECS Financing Receivables.
Inside Note 12 was a line item for a division called GE Money, listing Non-US Residential Mortgages: $73.759 billion. So GE owns a mortgage company that is holding almost $74 billion in mortgages. I’m guessing that most of the mortgages are in the UK.
Attached to the line items was a reference to subnote (A). In little, tiny print, subnote (A) included the following statement: “approximately 26% of this portfolio comprised loans with introductory, below market rates that are scheduled to adjust at future dates; with high loan-to-value ratios at inception; whose terms permitted interest-only payments; or whose terms resulted in negative amortization.”
Yikes. Let me translate that for you: “GE holds over $19 billion dollars of toxic subprime mortgages in a collapsing real estate market.” After those UK homeowners stop paying, GE will foreclose, and then sell the houses for half. My back of the envelope calculation is that GE will have to write down that sliver of their portfolio by about $10 billion dollars. The total reserve for losses in their Financing Receivables is only $4.3 billion.
GE recently eliminated 70% of their dividend. This contributed mightily to the free fall in the stock price, but it will free up $9 billion a year in cash to apply to other uses, like writing off foreclosed mortgages. I have a feeling that they are going to need the cash.
The 2008 annual report is due any day now. I can’t wait to read it.
Monday, March 9, 2009
Another Step Closer to the Edge
I have encountered more evidence of the incipient collapse of our civilization. Barbie Totally Stylin’ Tattoos. Yes, our friends at Mattel have come up with a doll that little girls can “customize” by covering the toy in designs using the included “tattoo gun.”
Mothers will be so proud of the creative work of their daughters. It just brings a tear to your eye.
What’s next? “Baby’s First Body Piercing” kits?
Mothers will be so proud of the creative work of their daughters. It just brings a tear to your eye.
What’s next? “Baby’s First Body Piercing” kits?
Thursday, March 5, 2009
Not Long Before the End
The final collapse of Western civilization may be near. There are signs and portents, for those who know how to interpret the omens.
Take, for example, the case of Latreasa Goodman. This is a woman in Florida who went to McDonalds and ordered the 10-piece Chicken McNuggets with fries and a drink. After paying for the items she was informed that they were out of McNuggets. The manager refused to give her a refund, instead offering any other item off the menu. Our gal Latreasa did not want any other item, she wanted her McNuggets, or she wanted her money back.
Faced with this impasse, she had at least three choices on how to handle the situation:
A) Take her fries and drink, losing her $3.49, and drive off, never go back to that McDonalds.
B) Choose another item to go with her fries and drink, drive off, and never go back to that McDonalds.
C) Call 911.
Ms. Goodman picked option C. Three times. The first time she called, the 911 operator actually agreed to dispatch a police officer to the scene, but the police apparently did not show up fast enough to suit Ms. Goodman. Hence calls two and three.
When the police finally showed up, they cited Ms. Goodman for abuse of the 911 emergency system. Her riposte is classic: "This is an emergency. If I would have known they didn't have McNuggets, I wouldn't have given my money, and now she wants to give me a McDouble, but I don't want one. This is an emergency."
I love the way she repeated that it was an emergency, just in case they didn’t understand the first time she said it.
The astonishing thing to me is the sense of entitlement possessed by this woman. The cops spent more money in gas driving out to where she was than the value of the dispute, but she obviously didn’t care about anything else other than getting what she wanted.
One lone nut job does not a trend make, I know, but to me this woman epitomizes the trend toward total reliance upon government for the solutions to all problems. God forbid she solve the problem peacefully on her own.
You can listen to recordings of the 911 calls, and see a previous mug shot of Ms. Goodman here.
Take, for example, the case of Latreasa Goodman. This is a woman in Florida who went to McDonalds and ordered the 10-piece Chicken McNuggets with fries and a drink. After paying for the items she was informed that they were out of McNuggets. The manager refused to give her a refund, instead offering any other item off the menu. Our gal Latreasa did not want any other item, she wanted her McNuggets, or she wanted her money back.
Faced with this impasse, she had at least three choices on how to handle the situation:
A) Take her fries and drink, losing her $3.49, and drive off, never go back to that McDonalds.
B) Choose another item to go with her fries and drink, drive off, and never go back to that McDonalds.
C) Call 911.
Ms. Goodman picked option C. Three times. The first time she called, the 911 operator actually agreed to dispatch a police officer to the scene, but the police apparently did not show up fast enough to suit Ms. Goodman. Hence calls two and three.
When the police finally showed up, they cited Ms. Goodman for abuse of the 911 emergency system. Her riposte is classic: "This is an emergency. If I would have known they didn't have McNuggets, I wouldn't have given my money, and now she wants to give me a McDouble, but I don't want one. This is an emergency."
I love the way she repeated that it was an emergency, just in case they didn’t understand the first time she said it.
The astonishing thing to me is the sense of entitlement possessed by this woman. The cops spent more money in gas driving out to where she was than the value of the dispute, but she obviously didn’t care about anything else other than getting what she wanted.
One lone nut job does not a trend make, I know, but to me this woman epitomizes the trend toward total reliance upon government for the solutions to all problems. God forbid she solve the problem peacefully on her own.
You can listen to recordings of the 911 calls, and see a previous mug shot of Ms. Goodman here.
Monday, March 2, 2009
Northern Trust: "Take this TARP and Shove It..."
Two weekends ago Northern Trust sponsored a PGA tournament in LA. As part of their sponsorship, they flew hundreds of their clients and employees out to California for the event. Northern Trust’s guests were put up in fancy hotels, and treated to several parties, with big name entertainment such as the bands Chicago, Earth Wind, and Fire, and Sheryl Crow.
When news of this sponsorship broke, Congressman Barney Frank fired off an outraged letter, demanding that Northern Trust pay the Treasury back the amount that they spent on this event. His position was that since the bank had not refused Federal TARP money last year, it "demonstrates extraordinary levels of irresponsibility and arrogance" for the bank to spend money marketing to it’s clients in a way that Barney Frank disapproved of.
Last week Northern Trust defended itself by pointing out that it was profitable, and that it was funding a marketing plan out of those profits, not out of the TARP bailout money. They also pointed out that the Federal money was actually a loan, and that they had made the interest payments back to the Treasury on time.
Now the other shoe has dropped. This weekend Northern Trust announced that it would be returning the $1.6 billion given to it by the Treasury as soon as possible. In essence, they have told the Federal government “You can take your unsolicited bailout money, and your unsolicited advice on how we should run our business, and put them both where the sun don’t shine!”
Northern Trust does most of its business with institutions and high net worth individuals (AKA rich folks). Thy put the trust in trust funds. The execs at NT must have figured that if they went with the sackcloth and ashes marketing advocated by the new Puritans in Congress and the media, they stood to lose a lot of business. As long as they had the Federal money on their books, they were going to continue being attacked for following a strategy that has made them one of the banks that don’t need a bailout. So to preserve their successful business model, they decided to return the money.
One question pops up for me. Just how much money do you have to have in a bank to get treated like a Northern Trust client? I keep what I consider a fair chunk of money on deposit at my bank, and I don’t get freebies like getting flown out to a California golf tournament, and being put up at the Ritz Carleton. My bank won’t even give me a coupon for the get away weekend at the local Red Roof Inn.
Or how about the Sheryl Crow concert? Shoot, I’d be happy with a Sheryl Crow CD! No, the only freebie I’ve gotten from my bank was a pad of Post-it notes, and I had to distract the banker to get those (“Look, it’s Hailey’s comet!” Point with the left hand, snatch with the right).
When I grow up, I want to be a Northern Trust client.
When news of this sponsorship broke, Congressman Barney Frank fired off an outraged letter, demanding that Northern Trust pay the Treasury back the amount that they spent on this event. His position was that since the bank had not refused Federal TARP money last year, it "demonstrates extraordinary levels of irresponsibility and arrogance" for the bank to spend money marketing to it’s clients in a way that Barney Frank disapproved of.
Last week Northern Trust defended itself by pointing out that it was profitable, and that it was funding a marketing plan out of those profits, not out of the TARP bailout money. They also pointed out that the Federal money was actually a loan, and that they had made the interest payments back to the Treasury on time.
Now the other shoe has dropped. This weekend Northern Trust announced that it would be returning the $1.6 billion given to it by the Treasury as soon as possible. In essence, they have told the Federal government “You can take your unsolicited bailout money, and your unsolicited advice on how we should run our business, and put them both where the sun don’t shine!”
Northern Trust does most of its business with institutions and high net worth individuals (AKA rich folks). Thy put the trust in trust funds. The execs at NT must have figured that if they went with the sackcloth and ashes marketing advocated by the new Puritans in Congress and the media, they stood to lose a lot of business. As long as they had the Federal money on their books, they were going to continue being attacked for following a strategy that has made them one of the banks that don’t need a bailout. So to preserve their successful business model, they decided to return the money.
One question pops up for me. Just how much money do you have to have in a bank to get treated like a Northern Trust client? I keep what I consider a fair chunk of money on deposit at my bank, and I don’t get freebies like getting flown out to a California golf tournament, and being put up at the Ritz Carleton. My bank won’t even give me a coupon for the get away weekend at the local Red Roof Inn.
Or how about the Sheryl Crow concert? Shoot, I’d be happy with a Sheryl Crow CD! No, the only freebie I’ve gotten from my bank was a pad of Post-it notes, and I had to distract the banker to get those (“Look, it’s Hailey’s comet!” Point with the left hand, snatch with the right).
When I grow up, I want to be a Northern Trust client.
Thursday, February 26, 2009
Northern Trust: "I'm shocked, shocked to discover..."
There has been another dust up this week regarding a bank that received Federal money not spending their resources as the legislators would wish. Northern Trust Bank, a Chicago based institution, sponsored a golf tournament in Los Angeles last weekend. As part of their sponsorship, they paid for employees and clients (mostly clients) to fly in for the event. The bank paid for the guests to stay in expensive hotels, and sponsored lavish parties, headlined by the artists Chicago, Earth,Wind & Fire, and Sheryl Crow. Suffice it to say that big bucks were spent, and a good time was had by all.
Since Northern Trust was the recipient of $1.6 billion from last year’s Federal bailout package, outraged howls from Congress ensued when details about the swanky soirees hit the media. Representative Barney Franks, chairman of the House Banking Committee, fired off a letter to Northern Trust, castigating the bank for their “arrogance and irresponsibility” and demanding Northern Trust return to the Treasury a sum equal to what was spent on the event. The letter was cosigned by seventeen other Democratic congressmen.
This is the kind of political grandstanding that explains why politicians should not be in charge of the banking system in this country. Among all the screams of “an outrage, simply an outrage,” and “have they no shame,” several facts about the issue have been drowned out.
First, Northern Trust signed the five year sponsorship contract for this golf tournament in 2007, before the whole banking mess started. Furthermore, blocks of hotel rooms, caterers and bands for events like this are usually booked six months or more in advance, with sizable deposits paid. In other words, these expenses were committed to long before any of the Federal bailout package was even thought of, let alone handed out. What was Northern Trust supposed to do, break the contracts and lose all the prepaid expenses?
Even more important, keep in mind that Northern Trust did not ask for money from the Treasury. Northern Trust is a profitable bank. Even after all the prepaid expenses for the golf event, they earned over $600 million in 2008. They accepted the money from the Treasury’s Troubled Asset Relief Program (TARP) because they were asked to take the money.
The Treasury Department wanted all of the twenty largest financial institutions in the country to take money from the bailout fund. The idea was that if only banks in trouble got bailout funds, it would be a red flag to investors and depositors. The Treasury didn’t want to start a run on the very banks that most needed their help. So banks that did not need a capital infusion were arm-twisted into taking the money, right along with the banks that were on the edge of insolvency. In Northern Trust’s case, the TARP money came in the form of a loan, and they are paying almost $80 million a year back to the Treasury.
I borrowed money from a bank to buy my home. I make my mortgage payments on time, and have never been late. As long as I keep making those payments, I don’t think the bank has a right to tell me I can’t serve steak if I have a barbeque in my backyard. The same principle applies here. Congress (or more to the point, individual representatives) doesn’t have the right to tell profitable businesses how they should operate.
And here’s my final point on the Northern Trust story for today: when Northern Trust throws a big party in LA, doesn’t that stimulate the economy? If you are a hotel maid, or a catering server, or even a roadie for Sheryl Crow, aren’t you benefiting from these parties? Those people have jobs, and are probably grateful to be working in today’s economy.
The US government is about to start spending almost $800 billion on a stimulus package to put people to work. Maybe Congressman Franks should not be in such a big hurry to stop private institutions from doing the same thing.
Since Northern Trust was the recipient of $1.6 billion from last year’s Federal bailout package, outraged howls from Congress ensued when details about the swanky soirees hit the media. Representative Barney Franks, chairman of the House Banking Committee, fired off a letter to Northern Trust, castigating the bank for their “arrogance and irresponsibility” and demanding Northern Trust return to the Treasury a sum equal to what was spent on the event. The letter was cosigned by seventeen other Democratic congressmen.
This is the kind of political grandstanding that explains why politicians should not be in charge of the banking system in this country. Among all the screams of “an outrage, simply an outrage,” and “have they no shame,” several facts about the issue have been drowned out.
First, Northern Trust signed the five year sponsorship contract for this golf tournament in 2007, before the whole banking mess started. Furthermore, blocks of hotel rooms, caterers and bands for events like this are usually booked six months or more in advance, with sizable deposits paid. In other words, these expenses were committed to long before any of the Federal bailout package was even thought of, let alone handed out. What was Northern Trust supposed to do, break the contracts and lose all the prepaid expenses?
Even more important, keep in mind that Northern Trust did not ask for money from the Treasury. Northern Trust is a profitable bank. Even after all the prepaid expenses for the golf event, they earned over $600 million in 2008. They accepted the money from the Treasury’s Troubled Asset Relief Program (TARP) because they were asked to take the money.
The Treasury Department wanted all of the twenty largest financial institutions in the country to take money from the bailout fund. The idea was that if only banks in trouble got bailout funds, it would be a red flag to investors and depositors. The Treasury didn’t want to start a run on the very banks that most needed their help. So banks that did not need a capital infusion were arm-twisted into taking the money, right along with the banks that were on the edge of insolvency. In Northern Trust’s case, the TARP money came in the form of a loan, and they are paying almost $80 million a year back to the Treasury.
I borrowed money from a bank to buy my home. I make my mortgage payments on time, and have never been late. As long as I keep making those payments, I don’t think the bank has a right to tell me I can’t serve steak if I have a barbeque in my backyard. The same principle applies here. Congress (or more to the point, individual representatives) doesn’t have the right to tell profitable businesses how they should operate.
And here’s my final point on the Northern Trust story for today: when Northern Trust throws a big party in LA, doesn’t that stimulate the economy? If you are a hotel maid, or a catering server, or even a roadie for Sheryl Crow, aren’t you benefiting from these parties? Those people have jobs, and are probably grateful to be working in today’s economy.
The US government is about to start spending almost $800 billion on a stimulus package to put people to work. Maybe Congressman Franks should not be in such a big hurry to stop private institutions from doing the same thing.
Monday, February 23, 2009
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