Freaky Friday Potpourri: Conversation with Mr. Practical
Words of wisdom to help us through this.
"The next time you feel that irresistible urge to get into something because everyone else is, please just stop and think for yourself. Think deductively and put the facts together, as best you can, and draw your own conclusions."
--Mr. Practical, February 15, 2007
Bob Segar once sang that seeing old friends is good for the soul. In today's world, it might just help define your fate.
The construct of the Minyanville is simple. Surround yourself with people you trust who have skill-sets that complement your own and attempt to serve the greater good.
Over the years, our community has evolved into the trusted choice for the financial voice, providing the information you need to know before you know you need it.
It has created a global network of like-minded individuals who believe there's a better way to do business, all you have is your name and your word and you can learn a lot about a person by looking them in the eye.
I was fortunate to be surrounded by people who believed in what we were doing and how we were doing it. While they are too numerous to name, one person in particular stands out. He was there from day one offering steady, guiding wisdom that ushered me through some particularly tough times.
His name is Mr. Practical and Old School Minyans know him well.
On Wednesday night, I connected with Mr. P to get his take on the current state of affairs. It's a complicated world, as we know, and I was anxious to hear his view. I share a portion of our conversation with hopes of provoking thought within the Minyanville community.
Toddo: So, what's the good word?
Mr. Practical: I hope everyone is well, and well aware of what is going on right now in
Toddo: I believe many are, if the emails and feedback are any indication. I'm not interested in looking back as folks need guidance on the road ahead. There are a lot of confused people out there-including our policy makers-as the stakes have never been higher.
Mr. Practical: The government continues to change the rules, as they usually do under times of stress. I'm happy, however, to share my thoughts on where I think we currently stand.
Toddo: Hit me, cookie.
Mr. Practical: Hank Paulson and Ben Bernanke have asked for too much "money" with too little detail. They have also asked for immunity from review. This is very strange. Why not implement their plan with clear guidelines, accountability, and transparency? Nothing really happened from a few weeks ago to create this sense of urgency.
Frankly I think the public is giving much too much trust to a few men who might not really understand what they are doing or worse, have a different agenda than protecting tax-payers.
Perhaps they are trying to protect our Asian lenders instead?
Or perhaps it is because of the Fed's complicity in our current state of affairs and thus their desire to bail out the equities of banks?
Whatever it is, on its face they plan to assume ownership of debt at a price much higher than would clear the market. This is not appropriate. When the government assumes the market is not pricing assets properly and uses taxpayer money to bid them higher, that is socialism, pure and simple.
But their argument to do so is flawed. This is not merely a liquidity issue as they profess: there is not enough capital to support the debt.
That is not a liquidity issue, that is a solvency issue.
To ignore that economic implication is naivety at best: as the government re-prices assets, risk will grow, not be reduced, and growth will slow. So any plan that injects capital into insolvent banks at the very least needs to offer equity to the fund they plan on creating.
I am not advocating what they are doing. I am pointing out the very least that should be done if they are going to go this route: minimal and staggered funding, full transparency and accountability, and dilution of equity from failed institutions.
But their goal-as you've talked about-seems to be to spur stock prices higher through their ban on short selling, which is shameful, and using taxpayer money to transfer profits to financial companies.
That will only protect the wealthy establishment at the expense of the middle class, as any bailout tends to do.
The middle class will pay for this in either higher taxes or a much lower dollar in the future. Their claim that the taxpayers may actually make "money" out of this is ridiculous.
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