Banks Safe, Economy Burns
Only haven in what's left of the free market.
Hello from New York, where I slept fitfully last night, trying to reconcile the fact that we're becoming socialists with the reality that socializing is bullish for a trade.
Being long a "systemically important bank" is akin to being one of Orwell's "Animals who are more equal than others." It's like Daddy Warbucks whipping around the munitions players to cash in on World War I. I feel filthy, dirty and otherwise disgusted. But I suppose that's better than feeling short, at least for the moment.
Some very quick thoughts, as I shake what little sleep I got out of my eyes:
- Citigroup (C) is being diluted in some way, on a massive scale and in a manner which, George W. assures me, is "temporary." If I were an actual "owner" of the stock I bought yesterday, that temporary part would concern me. As would my still entirely unclear level of dilution. I'm a trader. Citi is somewhere around $18 pre-market. As Edie Brickell sang, "Philosophy is the smile on a dog."
- I had an atypically difficult time not swearing like a sailor last night, describing and debating the "bailout" idea on the whole. I'm less concerned about the banks. Guaranteeing bank liquidity actually makes the banks worth more (assuming the aforementioned "dilution" isn't too onerous). Giving money to extremely important -- but not quite systemically important -- companies like General Motors (GM) is a slippery slope to markets which don't ever bother to be free.
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- I trust the folks running this plan understand the difference between banks and autos, in terms of "viable" for the former and "obsolete" in the latter. But you can't get elected looking folks in the eye and saying "All 250,000 of you are doing jobs that simply shouldn't exist... Have you considered professions in banking?" It's all about getting elected, which means we're going to bail out everyone eventually.
- Again, I've hit the point hard time and time again, but Warren Buffett gave us our price for Blue Chips, and those prices were steep. You want to make the taxpayers "shareholders" on bailouts? Taxpayers, by definition, own that which the government creates or buys already anyway, but ok. Here's how it needs to work. New money for General Motors, or, say, Whirlpool (WHR) or the New York Times (NYT) should be priced much, much higher than what Buffett paid for blue chips.
Alas, we won't. Those companies can't afford what you would charge them. I wouldn't loan NYT money, but if I did, my opening, and closing, offer would be "35% per year and I own 51% of the shares and control. Take it or get bent." Alas, you couldn't get elected with that plan. If you want votes, you say:
"The free press is the backbone of America and has been since the days before a 14-year-old Benjamin Franklin wrote op-eds in the guise of a sharp old widow named Silence Dogood. As a society we should -- indeed we must -- provide institutions like the New York Times money to make it through this difficult time. We should, can, and must, as American taxpayers and descendants of Franklin and other Founding Fathers, become investors with the Times, on fair terms for a temporary amount of time."
- Like that speech? My job in my nightmares and, presumably, in hell: Writing speeches espousing views I find appalling.
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