Nationalizing Banks, Auto & Insurance: The Government is our New Stock Broker

US Tax Payer’s New Portfolio of Stocks

We the people have a new broker; The US Government. On our behalf the government has what is called in the brokerage world a discretionary account. This means as a broker it has the discretion to invest and lend on our behalf without our input. So what are we investing in?

Let us start with $1 trillion in our brokerage account. The government is lending most of that money to various companies; banks, brokerages, automotive companies and insurance companies like AIG. This is equivalent to having secured interest in the companies and the hope the loans will be paid back with no guarantee. Although secured by the assets of the companies the government is taking into account the risk of the loans and charging a very high interest rate. The higher interest rates are expected because it is equivalent to buying junk bonds. So our portfolio is growing with predominately very high risk assets almost like a venture capital or venture lending company.

In addition, the government is taking large equity stakes and what are called warrants to further risk adjust our investments. Warrants allow the government to buy stock in the future at a set price, typically very low, and when the stock rises it makes money on the difference between that strike price (the negotiated set price) and the stock price when the stock is bought and sold. Actually this occurs as a “cashless” exchange where the government pays a fee to buy and sell the stock simultaneously and just nets out the profits for our portfolio.

Further our broker is buying stock or receiving stock in the companies for making loans or outright purchasing shares of the businesses held in treasury so the companies can unload stock not already floating around in the public market and take the proceeds directly into their businesses. This too is at a negotiated price and typically below market value. This creates what is called an market overhang. Simple way to put it is that the shares now held in our portfolio have been purchased below market value and the market knows this. Knowing the stock is owned at this price and the guarantee of selling the stock when the price goes up shapes what the street value of the stock is and often because the amount of shares owned is so large the value typically goes below the price the government bought it for us.

So what does this mean for our investments. We now hold and are accumulating very risky assets and high interest loans. This combination is exactly how the venture capital industry works. The way money is made is that many of the investments and loans fail. Let us say 8 out of 10. Some ventures capitalist do better than others. The idea is that the 2 successful investments are so successful that the entire portfolio of investments are paid back and a lot of profit is made. An example is we invest $100 million in a variety of private companies say $10 million each. We lose $80 million on the 8 dogs and then we have a Cisco and Apple Computers like hit and we make an astronomical amount of profit. Will this be the case in the portfolio the government has created for us? Very Unlikely!

Here is the bottom line. Our new portfolio that is growing as every loan and investment is made just like the contemplated Citigroup stock purchase. The risk we are taking is so high the returns expected should be commensurate with the risk but won’t be. However, the government is investing our money in a way that can not only return our capital but potentially make a lot of money. I don’t support nationalizing companies and industries, although unfortunately necessary given the catastrophe, but at the end of the day if it all works the risk taken on our behalf by our new broker should pay off to at least return our money at a minimum. When and if the investment pay back our money the companies will then be un-nationalized and return back into the private sector.

This the reality of what our broker is doing on our behalf. Do I think our money is safe. No not by a long shot. Do I think we will get at least our money back – YES. I also expect that we make a hefty profit but the jury is out on our brokers ability to execute that. Let us all pray they are good enough to perform.

POLITICAL ENTERTAINMENT + THE AMERICAN INTELLECTUAL DESERT = YOUR OPINON!

Political Entertainment + The American Intellectual Desert = YOUR OPINION!
Beyond The Planet of The Apes +Land of the Misfit Toys = Political Fantasy Island

Our Public Servants are Living High on the Hog – AGAIN! I wake up every day and find myself looking at the vast American Intellectual Desert while our leaders are showing us reruns of Fantasy Island. Its Political Entertainment Dummy! I watch the media glorify every political action no matter how ridiculous it is. Already we are seeing the most Liberal, Big Spending President in our history. This is just in the first month in office. It’s not just the President either it’s the whole political circus. And why is it a circus and so well publicized? Because you are ignorant, uneducated children that eat it all up. Politicians realize that using massive amounts media allows them to GIVE YOU YOUR OPINION. That’s right – just like consumer products, movie and rock stars, packaging and branding influences our opinion – or why would they ever spend a dime on the media. The key here is to keep you looking in another direction while our government and its leaders make empty promises, sometimes outright lie, perpetrate worse actions than many of the failed economic giants while most people get some popcorn and get ready for the show.

Here is a perfect example of Political Entertainment. Trips to Denver and Phoenix to sign bills for political showmanship wasn’t what we were promised in the election. It costs almost $65k an hour just to run Air Force One. The massive security each time the President goes to a city and all the personnel required on scene and around the country makes for a ridiculous amount of time and money. Every hour the plane is in the air alone costs more than what 90% of Americans make in a year – remember that number during the campaign. Just one simple example. Even in this record setting spending bill members of the Senate and Congress had to be “paid off” for their vote by receiving pork packages of ridiculous proportion for their constituents back home so they can tout it come reelection time – and yes they will use Political Entertainment so you buy it!. They couldn’t even pass one clean straightforward bill without all the people getting their hands in the cookie jar.

The hog is higher than ever now and this spending bill relies on minting money and borrowing – I think our public servants are living in the Land of the Misfit Toys. The balance sheet with almost $2 trillion added in debt in the last year doesn’t even account for Freddie and Fannie contingent liabilities. These are liabilities that the government is on the hook for but not reported on the books. So another $75 billion is being allocated to insure the refinancing package through Freddie and Fannie! $5 trillion of mortgages already backed by the “Full Faith” of our government. Doesn’t that mean less revenue for the already bankrupt Freddie and Fannie? No matter how ridiculous this all is it is too little too late. Political wins and touting success don’t let us know that it will take so long to implement and get going that many will lose their homes anyway. Regardless of what the politicians are telling us.

I cannot believe The American Company is run like the mortgage owners and banks. Borrow, Borrow, Borrow and roll over interest and debt repayments by Borrowing more. Sound familiar! Right the banking meltdown. We are prosecuting the perpetrators across Wall Street requiring massive, very costly investigations. What about the Senate and Congress. Where is their accountability. Why do we allow our CEO and Board stand up in front of us and present business plans that can’t work, don’t work and are divergent of what the shareholders were told. That sound more like Enron Health South and WolrdCom to me. Frankly the government is above the law now isn’t it. We can spend but borrow to spend, keep off balance sheet accounting, pilfer Social Security, Medicare, Medicaid and other programs we pay for but that own almost 50% of our deficit. This means hardly any real money by the way! Robbing Peter to pay Paul – NOT – robbing you and me to pay for $2 billion in a cow flatulence study.

Come on – if you look at the way our company is run wouldn’t you either bankrupt it, fire everyone, send people to jail and so on. Yes there would be shareholder revolt. Well I am a shareholder in the country I pay for it every year with taxes and I pay into the social security system and others just so I can get robbed. What the heck is going on. I know the airwaves and TV have to pull the wool off our eyes because we must be blind – or better yet with blinders on. We only look at what we are being told not what is reality. And if they want your opinion they are HAPPY TO GIVE IT TO YOU!

Hence the politicizing of all these spending – whoops I mean borrowing bills – and using the media to glorify the programs – but in reality – its only geared toward perpetual branding and sales for Americans to gobble up and ask for more.

WHY WE NEED AN OFFICE OF FINANCIAL DEFENSE

The Auto Industry Gets and Oversight Board – Why Doesn’t Congress

Politics found its way into the auto maker industry and has appointed a board so speak to oversee plans and the work out of Detroit. The stimulus plan is a political media bonanza. I say it now again both efforts are inferior ways to get out of the rut. If our best private sector CEOs and company founders were part of a nation board – an Office of Financial Defense they would never approve such plans.

Auto industry! Lets pour billions into saving the giants and propping them up for a little while when we all know full well people aren’t buying or going to buy cars in a quantity enough to save them. Giving astronomical tax breaks to individuals and small business is such a paltry sum of money it won’t be stimulating anything put the press. Do we all think that a governing board of the United States and Congress would ever run this county’s finances like this? Trust me it would be 360 degrees different and in my opinion the only way we can get this country steered back into the right direction.

We all know it. We all hear it. Congress is just not capable of managing the budget, spending and our money. Lots of smart people there but only a handful really have the business experience to run our national P&L let alone a check book. A Billy G cliché again – If our country was a company, and we are a capitalist nation, our board of directors, management and a host of employees would be fired for sure and some sent to jail for the way our country has been left in ruin. So if we can’t fire them or revolt then why doesn’t someone suggest we put the best team of business professional around Congress and the White House to manage our finances. Let them deal with LAWs, domestic and world issues while leaving better equipped and experiences people manage our money.

Seems like a no brainer – although I never expect Congress to put their own oversight board together when our nation looks much worse than the banking and auto industry crises. Why do We The People allow this country to be managed into bankruptcy. Why do our leaders let our nation become vulnerable to Economic War. And as I said back in July this country needs an equivalent entity to Homeland Defense – even the CIA now agrees with me. With all the chaos and turmoil isn’t it time we figure out how to reign this country in and get America out of hock with the world. If we don’t do something to fix us we can forget about the auto sector or stimulus because it will be the core of capitalism that goes up in flames, literally and figuratively.

Obama is a Great Salesman but do Americans Know What They are Buying?

If they want you opinion they are happy TO GIVE IT TO YOU!

There is no doubt that a stimulus package will be passed. Obama is a great salesman – one the best I have ever seen. But do American’s know what they are buying? I guess if they want our opinion on the package then use the media to give us our opinion. That’s right the most powerful weapon of the 21st century and we all know it dramatically affects our behavior and outcomes – even in elections as we all well know.

We are paying a board of directors, CEO and management and this is the plan they came up with! You have got the be kidding me. The worst thing is we are all shareholders and I know if America was a company our stock price would be in the tank, our balance sheet destroyed and management and the board fired by the shareholders. But we go on – never really having a voice in this mess and certainly don’t have voice in policy and this bailout – as ineffective as I know it will be.

Let me paint a picture. Can you imagine if you were a CEO and you take the stage with a huge audience of shareholders. Start with 25% of all company revenue was simply to pay interest on debt. Worse you ask to borrow more and even worse you plan to cut revenue by another $500 billion or so. America paid and mostly accrued$318 billion last year just in interest on the debt. We only collect $1.2 trillion is tax revenue. So simply put you cut revenue, pile on debt and continue to finance interest on that debt. Cut revenue and increase borrowing? Wasn’t the problem with the banks that they kept buying and selling mortgage debt and paying it forward just like America’s debt. When do you think the house of cards is going to tumble. In our lifetime? In our children’s? You better believe it.


I believe if everyone in the country knew the facts and especially the figures they would be terrified that our country isn’t going to make it. And that is just what they can see on the reported balance sheet. There is a lot more we don’t even see like the $5 trillion committed to back the Fannie Mae and Freddie Mac disasters that isn’t really publicized is it! Adding another $800 billion that won’t really impact the economy short term – and questionable if it will midterm is so irresponsible and out of bounds I can’t believe all these “smart” people in DC can’t figure that out. Here is what we are buying.

Down the rabbit hole. Lawmakers raised the deficit ceiling to $11.3 trillion. Our deficit is already $10.7 trillion. So already we have to yet again raise the ceiling. Here is a real gut wrenching figure; The deficit grows every day at $3.44 billion and accelerating – we all know how savings accumulates exponentially – You get the point. The extra trillion we are about to pile on will increase that number so we are looking at a much higher amount than proposed because America has to finance it or print more money and that WILL come home to roost. Lump in Social Security and Medicare (by the way they own almost half the debt along with some government agencies) and a $40 billion shortfall over the coming years.

If you watched TV last night the sale wasn’t just the Stimulus Package it was an opinion making pitch to America.

Monday Morning Quarterback - IT"S THE CONSUMER DUMMY

Consumer Free Fall: Consumption Economy Cannot Recover Without Consumer Spending

Its Monday and this time I am a Monday Morning Quarterback. 12 months and counting I have said it’s the consumer that drives our economy. My warnings have fallen on many ears but a lot of deaf ones too. I can’t believe so many eyes are closed to the fact that every single business will strongly feel the impact of the consistent decline of consumer consumption. Expect more layoffs, unemployment, under employment and hobbling and what do you get – a disaster of biblical proportion. 6 months and falling! When are we going to wake up these people in DC. Check out some NO COST solutions below. Or PLEASE download IOUSA NOT! USA owes us. Free at www.billyg.net

Solutions:

1. Change credit agency rules of reporting associated with the past year and next few years. If people have bankrupted or have many lates on their credit – this should weigh much less on their scores. WHY? Because we have to get the economy moving and these people in the near term future back into the consumption economy. They can’t for many years with bad credit.
2. Allow a onetime refinancing of all debt – rich or poor. This would help stop the toxic loan bleeding. If the government is going to own all this debt anyway – why not help reduce the burden on consumers at the same time and try to make it possible to repay their debts.
3. READ IOUSA Above – eradicate the deficit – the 10% plan I have been talking about for a year too. Require by law for the next 10 years - all institutions in America that have investments to increase their allocation to invest 10% of their portfolio in a deficit fund – used only to buy back our debt and currency. A great investment – the markets would sky rocket (“Liberation Day”). 1st year we would retire most of it.
4. Economy bonds – exchange tax revenue for bonds – govt can still use the money – consumers don’t get a paltry check – we start to shift towards being a savings nation again – CRITICAL.
5. Office of Financial Homeland Defense. We need a US CEO and Board. Imagine if we had our best financial minds overseeing this Capitalist Nation. We would reign in these politicians. I BET 100% they would never ever give up their ability to spend money – THIS IS THE ONLY POWER THEY REALLY HAVE. MAKE THEM MAKE LAWS NOT BANKRUPT US.
I can provide a lot more – Oh by the way did I say spend any money?

Here are the facts. All the bailouts the US can muster won’t help until the consumer issue is addressed in force. Worse is borrowing money and printing currency 24-7. Davos proved my long standing point that the confidence in America’s “Full Faith” to back the dollar and sell treasuries is waning. Just like the banks were “paying it forward” and confidence was lost in real estate securities that caused the collapse - the US is losing the world’s confidence - the first signs of the capitalist nation crumbling. China and Russia are sold bold these days because they know we are lying on the beach with our arms and legs blown off.

300 short years into this business model and our leaders have bankrupted out nation. Do we think that all this is going to stop the imminent catastrophe our nation is in. Do politicians even look at a 100 year plan – if they did – they would all realize that our nation just doesn’t work – not because of Freedom and Capitalism but a direct responsibility on the lawmakers. And here we stand today on the verge of the largest increase in deficit spending in history and still the only answer out of Washington is to loan and spend money and socialize many institutions.

Here is a perfect example. You are bankrupt (7 million or so) + many before. You are unemployed. You will be unemployed. You have no cash to spend and no credit. You have been late on bills and your credit limits have declined every time you pay a bill. WHO IS GOING TO BUY CARS? WHO IS GOING TO TAKE A VACATION? WHO IS GOING OUT TO EAT ALL THE TIME? WHO IS BUTTERING THE BREAD!

The consumer – you and me! Until this is fixed I swear to you our economy will be devastated more and for many years to come. Just look at all those consumers crushed by the economy. They won’t be around for 5 to 10 years. They can’t be. The struggling families won’t be. You get the point.