Bankers can’t have it both ways. Either they are going to have to honestly disclose their positions or they are going to face more and more intrusion into their operations.
The honesty factor is a concern if banks continue to publically lie about their balance sheet positions. I have written about this before in my May 5 post “Can the Financial System Still be Trusted”, http://seekingalpha.com/article/203077-can-the-financial-system-still-be-trusted. Others are providing clearer evidence of this behavior. See the Wall Street Journal of May 26, “Banks Trim Debt, Obscuring Risks”, http://online.wsj.com/article/SB20001424052748704792104575264731572977378.html#mod=todays_us_front_section. The Journal followed this with another on May 27, “BofA, Citi Made ‘Repos’ Errors” http://online.wsj.com/article/SB10001424052748704032704575268902274399416.html#mod=todays_us_money_and_investing.
If banks want our trust, they are going to have to be honest with us.
The disclosure factor I am referring to pertains to mark-to-market accounting. The Financial Accounting Standards Board has proposed that commercial banks mark the value of their loan portfolios to “fair value” standards. Banks already use mark-to-market accounting for other assets on their balance sheets, although they basically don’t like this requirement.
The general argument provided by the bankers is that this mark-to-market requirement would require banks to take “big losses” on loans during certain periods of economic distress and this “could” be misleading because the loans “would probably still pay off over time” This analysis is from today’s New York Times: http://www.nytimes.com/2010/05/27/business/27fasb.html?ref=todayspaper.
This argument infuriates me. I have been the President and CEO of two financial institutions and the CFO of a third, all publically traded companies, and if I have heard this argument one time I have heard it a thousand times. And, in most cases, the statement has referred to loans that eventually were written down or written off.
The argument, ironically, is not applied to the loans that do perform! My experience is that the claim is a defensive statement from a loan officer or bank executive that is overly sensitive to the fact that they have not performed and don’t want this fact publically recognized.
I would add two things to this discussion. First, when loans start to go bad, a good management should want to identify the problems as soon as possible so that they can do something about them. Postponing dealing with loans that are experiencing some trouble can only lead to more trouble in the future. Well run institutions are ones that deal with their problems “up front” and do not try and hide them in the hopes that they will go away.
Second, bankers take risks: credit risk, interest rate risk, liquidity risk, leverage risk, and other forms of risk. This is their job. But, there is a cost of taking risk. As we have seen from the recent financial buildup and collapse, during periods of credit inflation, asset bubbles, and other cases of excess, bankers push the edge taking on more credit risk, more interest rate risk, more leverage risk, and so on.
In order to maintain our trust in banks and the banking system we need to know what the banks have done and how their decisions have affected the value of the assets on their balance sheets.
“Critics of applying fair value to loans have said the existing use of fair value has deepened the financial crisis by forcing financial firms to take unjustified losses on assets that shrank in value when market conditions worsened temporarily.” (See http://online.wsj.com/article/SB20001424052748704032704575268962900687370.html#mod=todays_us_money_and_investing.)
Come on, be big boys and girls. You made the decisions! Accept the consequences of those decisions!
In terms of financial reform, I am more in favor of using “early warning” systems like the one recently proposed by Oliver Hart and Luigi Zingales in the journal National Affairs , http://nationalaffairs.com/publications/detail/curbing-risk-on-wall-street, and “To Regulate Finance, Try the Market” in Foreign Policy, http://experts.foreignpolicy.com/blog/5478. But, to go this route, financial institutions should be open to full disclosure and accounting transparency. I will write more on the Hart/Zingales approach in the near future.
I happen to believe that this kind of behavior, the encouragement of openness and transparency, represents good management practices. (See my post “On Audits and Auditors”, http://seekingalpha.com/article/195594-on-audits-and-auditors.) Using a sports analogy again: good teams and good players do not rely on trickery…they just outperform other teams and players that have to use deceit and deception to try and get the upper hand!
Good managers and good managements are not afraid of “the open air”!
The alternative is for there to be more explicit attempts to regulate and control the financial institutions. Going this direction ultimately fails (see my post “The ‘Sound and Fury’ of Banking Reform”, http://seekingalpha.com/article/206341-the-sound-and-fury-of-banking-reform) but it is time consuming, expensive and inconvenient in the process. And, choosing this path leads to ‘cat-and-mouse’ games that do not contribute to increasing the public’s faith and trust in the banking system and the regulators.
This seems to be one of the major problems of modern America. In my memory, there was a time when we could have faith and trust in our business and financial institutions and in our government and in each other. This ‘faith and trust’ is sorely missing now. It would be nice if some leaders appeared that actually tried to restore these characteristics to our national life. I just don’t see any of this kind of leadership on the horizon.
In my mind, banks need to take a leadership position on the “Disclosure” process and assume a stance that is more disciplined than would be imposed by any regulatory standard. In doing this they would take control of the issue.
Or, they must accept the lack of faith and lack of trust that follows a government-led effort to constrain and control them. They cannot fight disclosure and fight greater government oversight at the same time.
Thursday, May 27, 2010
Wednesday, May 26, 2010
Let's Look at the United States rather than Europe for a change
Durable goods orders are up 2.9% in April. New home sales rose last month. More and more statistical releases point to a continuing recovery. More and more it appears as if the Great Recession did end in July 2009 and we are, consequently, in the tenth month of the economic upturn.
However, it still doesn’t quite feel like much of an upturn. But, economic pundits contend that there is very little chance for a “double-dip” recession even with the financial turmoil rocking Europe. One analyst argued that with the European disorder the probability of having a “double-dip” recession has risen, but from about 5% a month earlier to around 20% now. In other words, he believed that it is highly unlikely that we will have a “double-dipper.”
My concern is still focused upon the long-term fact that there is so much un-used capacity in the United States. The efforts to stimulate the economy, as a consequence, represent efforts to put people back into “legacy” jobs (the jobs from which they were released) that will continue to thwart the competitiveness of the United States in world markets and put back to work “out-of-date” plant, machinery, and labor.
If we look at capacity utilization in the United States, we see that we are using more capacity now than we did in July 2009. For April the figure was below 73.7%. However, we are still substantially below the previous peak in capacity utilization, which came in at about 81.5% in 2006. And, the previous peak before that was below the previous high before that, 85% in 1997, which was lower than the previous peak and so forth for the whole post-World War II period.
Adding to this concern is the fact that the labor situation remains weak. Unemployment in April stayed just under 10%, but the number I am very concerned about is the total amount of workers that are under-employed. I am concerned, not only with those that are out-of-work, but those that are not fully employed but want to be fully employed, the discouraged who have left the workforce, and the people that have taken lower positions, positions that they can fill but are fully qualified to perform in other more challenging jobs. My estimate of these under-employed persons runs around 25%, about 1 out of every four people who could be considered to be in the labor force.
However, it still doesn’t quite feel like much of an upturn. But, economic pundits contend that there is very little chance for a “double-dip” recession even with the financial turmoil rocking Europe. One analyst argued that with the European disorder the probability of having a “double-dip” recession has risen, but from about 5% a month earlier to around 20% now. In other words, he believed that it is highly unlikely that we will have a “double-dipper.”
My concern is still focused upon the long-term fact that there is so much un-used capacity in the United States. The efforts to stimulate the economy, as a consequence, represent efforts to put people back into “legacy” jobs (the jobs from which they were released) that will continue to thwart the competitiveness of the United States in world markets and put back to work “out-of-date” plant, machinery, and labor.
If we look at capacity utilization in the United States, we see that we are using more capacity now than we did in July 2009. For April the figure was below 73.7%. However, we are still substantially below the previous peak in capacity utilization, which came in at about 81.5% in 2006. And, the previous peak before that was below the previous high before that, 85% in 1997, which was lower than the previous peak and so forth for the whole post-World War II period.
Furthermore, industrial production remains depressed from the level it attained in early 2008 and also in 2000. Both series are making progress, but we are still running way below levels that were previously attained and although the “catch up” seems to be robust, the question remains as to whether or not these measures will exceed earlier highs in the near future.
Adding to this concern is the fact that the labor situation remains weak. Unemployment in April stayed just under 10%, but the number I am very concerned about is the total amount of workers that are under-employed. I am concerned, not only with those that are out-of-work, but those that are not fully employed but want to be fully employed, the discouraged who have left the workforce, and the people that have taken lower positions, positions that they can fill but are fully qualified to perform in other more challenging jobs. My estimate of these under-employed persons runs around 25%, about 1 out of every four people who could be considered to be in the labor force.
The fact that these factors are running so low relative to “capacity” employment raises concerns about the United States achieving its “potential” any time soon. To examine this possibility we look at a comparison between the estimates of the Congressional Budget Office of potential real Gross Domestic Product and the level that real Gross Domestic Product was actually attained. Not only was the United States economy producing at a level of output only 94% of potential, the rates of growth of actual real GDP seem to lie below the rate at which the CBO is estimating that potential real GDP should grow.
The economy of the United States is recovering, but one can understand why many people really do not seem to be experiencing it. Nothing in the previous stimulus plan, or in the one being developed, or in the current stance of monetary policy, gets the United States back on track. Different types of policies are needed to renew the productive capacity of the United States so that the U. S. can become fully competitive again and fully use its resources…both human and physical. Unfortunately no one seems to be working on these kinds of policies because they rely so heavily on the private sector. Also, these policies take too long to achieve results; politicians have a much shorter employment cycle.
Tuesday, May 25, 2010
China is Changing the World
Earlier, on March 25, I raised the question “Why Should China Change?” in my post, “Why Should China Change?” (http://seekingalpha.com/article/193689-why-should-china-change)
The thrust of the post was captured in the following:
“The world has changed and we in the United States have not accepted the fact.
Why should China change direction at this time?
China is growing stronger and stronger. The United States, and most of the rest of the west, is in a weakened state. The United States, and most of the rest of the west, has gone through a very severe financial crisis and the worst recession since the 1930s.”
The United States is still the number one power in the world, both economically and politically, but its relative position has changed. And we continue to see that in our relationship with China (and India and Brazil and Russia).
The current ‘high-level’ meeting in Beijing of representatives from China and the United States highlights the changing relations between the governments of China and the United States. As reported in the New York Times, “the opening session laid bare a recurring theme…the United States came with a long wish list for China…while China mostly wants to be left along…” (http://www.nytimes.com/2010/05/25/world/asia/25diplo.html?ref=business)
China is “turning into an economic superpower” according to the Times article and wants to continue along on its merry way. The United States, other than initiating an all out trade war, seems incapable of slowing down the Chinese economic machine or even getting the attention of the Chinese leaders.
Chinese President Hu Jintao did pledge to continue reform of China’s currency, but then repeated the standard operating response: “China will continue to steadily push forward reform of the renminbi exchange-rate formation mechanism in a self-initiated, controllable and gradual manner.” That is, we will change things when we want to change things and no sooner.
Secretary of the Treasury Geithner graciously replied: “We welcome the fact that China’s leaders have recognized that reform of the exchange rate is an important part of their broader reform agenda.” What else could he say?
The United States, and most of the rest of the west, is in a weakened state. But, this weakened state goes beyond the short-run. The United States is facing longer run, structural problems it must deal with. Economic growth and financial strength are important factors in world economic power. However, when a nation extends itself and stretches itself too far due to over-commitment and over-leverage, thinking it can do too much, it exposes itself to other nations that are not in a similar position.
It is the United States, the number one world power that is asking China to change. China is in a position where it does not feel the need to cave into the American requests. China is strong and disciplined. The United States is strong, but undisciplined. Therein lies the difference.
And, the (supposed) allies of the United States are little or no help. Europe is attempting to resolve the problems it created for itself. As a consequence it is slowly fading into the background. The G-7 group of nations, the United States, Canada, France, Germany, Italy, Japan, and England, is losing relevance in the world. The G-20 includes the seven, but more importantly includes several emerging nations that are more strategic to the future than is the “old boyz club” from Europe.
De-emphasize the G-7 and raise up the G-20!
The ultimate problem of the United States is its lack of discipline. For the past fifty years or so, the United States has lived for “the short-run” because, we have been told, that “in the long-run we are all dead.” The economic policy of the United States has been designed to combat short-run increases in unemployment with a constant pressure to achieve high rates of economic growth. But, this creates an inflationary bias in economic policy. Because of this the United States has seen the purchasing power of its dollar drop 85% from January 1961 until the present time, underemployment has grown to about 20% of the working age population and the capacity utilization of its industrial base has declined to less than 75% at present (but rose to only slightly more than 80% in its most recent cyclical peak).
These are not signs of economic strength. Furthermore, the value of the dollar over the past forty years has dropped by approximately 35%. Huge amounts of United States debt, both public and private, have been financed “off shore”. These developments do not put America in a very strong bargaining position.
China thinks in decades. The United States thinks in terms of the next election. Discipline does matter.
There are still many economists in the United States who argue that the government must spend more and create more debt to get the country going once again. Their fundamentalist view of how the world works blinds them to the fact that it was the loss of fiscal discipline, the exorbitant creation of huge amounts of government debt and the subsequent credit inflation that this encouraged, that put the United States into the position it now finds itself.
More spending and more debt are not going to make the situation any better. I examined this issue in my May 13 post “Government Deficits and Economic Activity”: http://seekingalpha.com/article/204948-government-deficits-and-economic-activity. My basic conclusion was that in the present situation where the Federal Reserve has pumped so much liquidity into the banks that big banks and big companies can play games in world financial markets and cause major problems for areas like the euro-zone. The continued creation of deficits and more government debt is not going to solve this problem for Europe…or the United States.
Until it gets it act under control and in order, the United States will be the one asking China to change the way it does things. China, given the present circumstances, will continue to do things in their own interest and at their own speed. In addition, it is my guess that other, emerging nations will begin to exert themselves in similar ways. And, the United States will not be in a position to resist their efforts.
As I said earlier, “The world has changed and we in the United States have not accepted that fact.”
All we can really control is ourselves and if we fail to do that we give up the chance to influence others.
The thrust of the post was captured in the following:
“The world has changed and we in the United States have not accepted the fact.
Why should China change direction at this time?
China is growing stronger and stronger. The United States, and most of the rest of the west, is in a weakened state. The United States, and most of the rest of the west, has gone through a very severe financial crisis and the worst recession since the 1930s.”
The United States is still the number one power in the world, both economically and politically, but its relative position has changed. And we continue to see that in our relationship with China (and India and Brazil and Russia).
The current ‘high-level’ meeting in Beijing of representatives from China and the United States highlights the changing relations between the governments of China and the United States. As reported in the New York Times, “the opening session laid bare a recurring theme…the United States came with a long wish list for China…while China mostly wants to be left along…” (http://www.nytimes.com/2010/05/25/world/asia/25diplo.html?ref=business)
China is “turning into an economic superpower” according to the Times article and wants to continue along on its merry way. The United States, other than initiating an all out trade war, seems incapable of slowing down the Chinese economic machine or even getting the attention of the Chinese leaders.
Chinese President Hu Jintao did pledge to continue reform of China’s currency, but then repeated the standard operating response: “China will continue to steadily push forward reform of the renminbi exchange-rate formation mechanism in a self-initiated, controllable and gradual manner.” That is, we will change things when we want to change things and no sooner.
Secretary of the Treasury Geithner graciously replied: “We welcome the fact that China’s leaders have recognized that reform of the exchange rate is an important part of their broader reform agenda.” What else could he say?
The United States, and most of the rest of the west, is in a weakened state. But, this weakened state goes beyond the short-run. The United States is facing longer run, structural problems it must deal with. Economic growth and financial strength are important factors in world economic power. However, when a nation extends itself and stretches itself too far due to over-commitment and over-leverage, thinking it can do too much, it exposes itself to other nations that are not in a similar position.
It is the United States, the number one world power that is asking China to change. China is in a position where it does not feel the need to cave into the American requests. China is strong and disciplined. The United States is strong, but undisciplined. Therein lies the difference.
And, the (supposed) allies of the United States are little or no help. Europe is attempting to resolve the problems it created for itself. As a consequence it is slowly fading into the background. The G-7 group of nations, the United States, Canada, France, Germany, Italy, Japan, and England, is losing relevance in the world. The G-20 includes the seven, but more importantly includes several emerging nations that are more strategic to the future than is the “old boyz club” from Europe.
De-emphasize the G-7 and raise up the G-20!
The ultimate problem of the United States is its lack of discipline. For the past fifty years or so, the United States has lived for “the short-run” because, we have been told, that “in the long-run we are all dead.” The economic policy of the United States has been designed to combat short-run increases in unemployment with a constant pressure to achieve high rates of economic growth. But, this creates an inflationary bias in economic policy. Because of this the United States has seen the purchasing power of its dollar drop 85% from January 1961 until the present time, underemployment has grown to about 20% of the working age population and the capacity utilization of its industrial base has declined to less than 75% at present (but rose to only slightly more than 80% in its most recent cyclical peak).
These are not signs of economic strength. Furthermore, the value of the dollar over the past forty years has dropped by approximately 35%. Huge amounts of United States debt, both public and private, have been financed “off shore”. These developments do not put America in a very strong bargaining position.
China thinks in decades. The United States thinks in terms of the next election. Discipline does matter.
There are still many economists in the United States who argue that the government must spend more and create more debt to get the country going once again. Their fundamentalist view of how the world works blinds them to the fact that it was the loss of fiscal discipline, the exorbitant creation of huge amounts of government debt and the subsequent credit inflation that this encouraged, that put the United States into the position it now finds itself.
More spending and more debt are not going to make the situation any better. I examined this issue in my May 13 post “Government Deficits and Economic Activity”: http://seekingalpha.com/article/204948-government-deficits-and-economic-activity. My basic conclusion was that in the present situation where the Federal Reserve has pumped so much liquidity into the banks that big banks and big companies can play games in world financial markets and cause major problems for areas like the euro-zone. The continued creation of deficits and more government debt is not going to solve this problem for Europe…or the United States.
Until it gets it act under control and in order, the United States will be the one asking China to change the way it does things. China, given the present circumstances, will continue to do things in their own interest and at their own speed. In addition, it is my guess that other, emerging nations will begin to exert themselves in similar ways. And, the United States will not be in a position to resist their efforts.
As I said earlier, “The world has changed and we in the United States have not accepted that fact.”
All we can really control is ourselves and if we fail to do that we give up the chance to influence others.
Monday, May 24, 2010
The Focus is on Europe
The recent events in Europe have captured the attention of the world and taken the heat off of China and the value of its currency, the United States and the value of its currency, and financial reform in its various forms.
The focus, in my mind, is going to stay on Europe for a while because that is where the greatest amount of disruption to world financial markets and damage to world economic recovery can take place.
How long will this disruption and damage last?
I continue to recall a piece of advice given several years ago that has never let me down. The advice is this: If you say the problem is ‘out there’, that is the problem! That is, if you blame your problems on everyone else or everything else, your outward facing focus is the problem. Maybe you had better look at what you are doing before you start blaming someone else.
I have found this true in individuals, families, organizations, communities, businesses, and governments.
Right now, Europe is over-run with self-pity blaming speculators and the ‘irrationality’ of markets.
As a consequence, Europe has responded to the difficulties it faces with a grudging move to maintain the liquidity of its financial markets while preserving as much as it can the ‘integrity’ of its economic model. Its leaders are still trying to hold onto their model of the world.
Hence, the blame must be aimed at someone else!
And, that is precisely the problem.
The fundamental problem is that the economic model used by most of Europe is faulty and the current financial problem is one of solvency and not liquidity.
The three primary perpetrators of these fallacies are President Nicolas Sarkozy of France, Jean-Claude Trichet the head of the European Central Bank (French), and Dominique Strauss-Kahn the Managing Director of the International Monetary Fund (also French).
So far, these French leaders have been the winners of the political battles for the heart of the
European Union. So far, international financial markets have given these leaders at least a D- in terms of the plan they have devised to save union.
Where can we find this grade?
The value of the Euro has declined 18% from the middle of December 2009 to this morning.
The German Parliament has voted to support the current ‘bailout’ but throughout Germany discontent is rising concerning the leadership shown by the German Chancellor Angela Merkel. She, more than any other leader within the European Union, seems to be losing her clout.
Chancellor Merkel cannot afford to follow the French leadership.
Germany has established its position within the European Union through its strong economic growth fueled by a very robust export sector. It has also been fiscally prudent and plans to reduce its budget deficit to zero by 2016. The yield on German bonds attests to the belief the international investment community has in the intent and discipline inherent in Germany to sustain these outcomes.
It is these factors, carried over to the whole EU, that have benefitted other nations within the community to the extent that they could live beyond their means and feast off of their association with the Germans.
This, as we have seen, is an unsustainable relationship. Either Germany has to give in and accept fundamental reforms to the European Union that would seriously damage German competitiveness. Or, it has to maintain its discipline and continue to adhere to its fundamental world view.
There is no question as to what I think Germany should do!
Yet, if Germany continues to encourage its competitiveness in European and world markets and maintains its fiscal discipline, others within the European community will either have to emulate them or will have to remove themselves from this union. It seems as if we are at the juncture where there are no other choices. A wishy-washy response at this time will just postpone the outcome.
Of course, the critics of Germany see such a German policy as disastrous. Following the German model of reigning in wages and social benefits and achieving real control over fiscal budgets would result in further dislocation of economic resources in Europe accompanied by social and political upheaval.
The problem is that these other European nations have put themselves into a position where there are no ‘good’ solutions! Years-and-years of profligate living eventually lead to a situation where nothing they can do provides happy answers.
The only thing these loose-living nations can hope for is for time, cause “things will get better in the future!” Yeh, sure!
I don’t know how many times I have heard this response in business and elsewhere. “The market doesn’t understand us!” “All we need is some time and things will work themselves out!” “It’s just that there are some ‘greedy bastards’ out there that want to make money off of our misfortune!”
Europe, your economic model of the world doesn’t work! The only way you are going to really get out of this mess is to change your economic model. Deficits and a lack of social discipline don’t contribute to economic health. But, it is so much easier to blame someone else and following Germany would be a disaster.
There remains a lot to work out in Europe. These issues are not going to go away overnight. How long things remain unsettled there depends upon how quickly people realize that the problems are internal and not a result of “irrational markets” and the greed of speculators. It is very difficult, however, to realize that your model of the world requires modification. Perhaps such change is generational…but, can we wait that long?
The focus, in my mind, is going to stay on Europe for a while because that is where the greatest amount of disruption to world financial markets and damage to world economic recovery can take place.
How long will this disruption and damage last?
I continue to recall a piece of advice given several years ago that has never let me down. The advice is this: If you say the problem is ‘out there’, that is the problem! That is, if you blame your problems on everyone else or everything else, your outward facing focus is the problem. Maybe you had better look at what you are doing before you start blaming someone else.
I have found this true in individuals, families, organizations, communities, businesses, and governments.
Right now, Europe is over-run with self-pity blaming speculators and the ‘irrationality’ of markets.
As a consequence, Europe has responded to the difficulties it faces with a grudging move to maintain the liquidity of its financial markets while preserving as much as it can the ‘integrity’ of its economic model. Its leaders are still trying to hold onto their model of the world.
Hence, the blame must be aimed at someone else!
And, that is precisely the problem.
The fundamental problem is that the economic model used by most of Europe is faulty and the current financial problem is one of solvency and not liquidity.
The three primary perpetrators of these fallacies are President Nicolas Sarkozy of France, Jean-Claude Trichet the head of the European Central Bank (French), and Dominique Strauss-Kahn the Managing Director of the International Monetary Fund (also French).
So far, these French leaders have been the winners of the political battles for the heart of the
European Union. So far, international financial markets have given these leaders at least a D- in terms of the plan they have devised to save union.
Where can we find this grade?
The value of the Euro has declined 18% from the middle of December 2009 to this morning.
The German Parliament has voted to support the current ‘bailout’ but throughout Germany discontent is rising concerning the leadership shown by the German Chancellor Angela Merkel. She, more than any other leader within the European Union, seems to be losing her clout.
Chancellor Merkel cannot afford to follow the French leadership.
Germany has established its position within the European Union through its strong economic growth fueled by a very robust export sector. It has also been fiscally prudent and plans to reduce its budget deficit to zero by 2016. The yield on German bonds attests to the belief the international investment community has in the intent and discipline inherent in Germany to sustain these outcomes.
It is these factors, carried over to the whole EU, that have benefitted other nations within the community to the extent that they could live beyond their means and feast off of their association with the Germans.
This, as we have seen, is an unsustainable relationship. Either Germany has to give in and accept fundamental reforms to the European Union that would seriously damage German competitiveness. Or, it has to maintain its discipline and continue to adhere to its fundamental world view.
There is no question as to what I think Germany should do!
Yet, if Germany continues to encourage its competitiveness in European and world markets and maintains its fiscal discipline, others within the European community will either have to emulate them or will have to remove themselves from this union. It seems as if we are at the juncture where there are no other choices. A wishy-washy response at this time will just postpone the outcome.
Of course, the critics of Germany see such a German policy as disastrous. Following the German model of reigning in wages and social benefits and achieving real control over fiscal budgets would result in further dislocation of economic resources in Europe accompanied by social and political upheaval.
The problem is that these other European nations have put themselves into a position where there are no ‘good’ solutions! Years-and-years of profligate living eventually lead to a situation where nothing they can do provides happy answers.
The only thing these loose-living nations can hope for is for time, cause “things will get better in the future!” Yeh, sure!
I don’t know how many times I have heard this response in business and elsewhere. “The market doesn’t understand us!” “All we need is some time and things will work themselves out!” “It’s just that there are some ‘greedy bastards’ out there that want to make money off of our misfortune!”
Europe, your economic model of the world doesn’t work! The only way you are going to really get out of this mess is to change your economic model. Deficits and a lack of social discipline don’t contribute to economic health. But, it is so much easier to blame someone else and following Germany would be a disaster.
There remains a lot to work out in Europe. These issues are not going to go away overnight. How long things remain unsettled there depends upon how quickly people realize that the problems are internal and not a result of “irrational markets” and the greed of speculators. It is very difficult, however, to realize that your model of the world requires modification. Perhaps such change is generational…but, can we wait that long?
Friday, May 21, 2010
The "Sound and Fury" of Banking Reform
Well, the Senate finally passed a banking reform bill. It is said that President Obama wants to sign the final bill around July 4.
All I can really say about the bill is that it represents a lot of “sound and fury signifying nothing.”
The bill will be costly. The bill will result in a lot of inconvenience.
But, banking and finance will recover and will continue on their merry old way!
The reason that I say this is that finance is just information and with the accelerating pace of information technology in the United States and the world, finance will continue to expand and prosper. The regulators cannot control how information is used or transformed!
History has shown that information spreads and although the pace of its spread can be slowed down, it has never been stopped. Just ask all the religious medievalists in our world today that are fighting a losing battle and are defensively striking out at everyone else.
I have stated some of the reasons for my position in a series of posts beginning January 25, 2010: see “Financial Regulation in the Information Age”; http://seekingalpha.com/article/184153-financial-regulation-in-the-information-age-part-a.
I have also highlighted the place of information in the practice of modern finance in my review of the book “The Quants”: see http://seekingalpha.com/article/188342-model-misbehavior-the-quants-how-a-new-breed-of-math-whizzes-conquered-wall-street-and-nearly-destroyed-it-by-scott-patterson.
Furthermore, attempts to reform and re-regulate the banking system will ultimately do more damage to banks that are not among the 25 largest banks in the country than it will do to those banks that the administration and Congress are really after. And remember, the largest 25 domestically chartered commercial banks in the United States control about two-thirds of the banking assets in the country.
Another factor that I have tried to stress over the past year is that the largest banks have already moved on. The legislation in front of the Congress is aimed at preventing the last financial crisis from occurring again. In my estimation, the largest banks are beyond this feeble effort and are moving into areas we will learn about in the next round of “popular” books explaining what has happened to our financial system.
An example of this was a recent report in the press about how Congress is trying to alter the status of how hedge funds reward their managements so that more of this income is taxable. The response of the industry was to have already hired scores of lawyers to “get around” any legislation about hedge fund fees.
Can you imagine any other kind of response from the financial industry…or, for that matter, any industry?
Reform and re-regulation face a moving target and, consequently, they are aiming their efforts at the past, not the future.
The financial reform package will change the playing field for a limited amount of time. However, in this age of information you can bet that the lag between what “the Feds” do now and how the financial system reacts to these actions will be shorter than ever before.
NOTE: we now have 775 commercial banks on the list of “problem banks” put out by the FDIC, up from 702 banks at the end of 2009. When this latter list was presented, I argued that the FDIC would close between three and four banks a week for the next 12 to 18 months. We have been averaging 3.8 banks closed every week this year through May 14. Using a rough “rule of thumb” my estimate now is that at least four banks will be closed every week through the end of 2011.
I still have grave concerns about the solvency of the 8,000 “smaller banks” in the United States. I define the “smaller banks” as any bank below the top 25 largest banks in the country. These 8,000 “smaller banks” control only one-third of bank assets in the United States. I derive this concern from the actions of the Federal Reserve who continues to subsidize the banking system with extremely low interest rates, and the FDIC. Although the Fed and the FDIC are not “owning up” to this problem, everything they are doing raises questions about how solvent these smaller 8,000 banks really are. I guess the big issue concerns what would happen to the value of bank assets IF interest rates were to rise. Would this result in a “cascade” of “small” bank failures?
All I can really say about the bill is that it represents a lot of “sound and fury signifying nothing.”
The bill will be costly. The bill will result in a lot of inconvenience.
But, banking and finance will recover and will continue on their merry old way!
The reason that I say this is that finance is just information and with the accelerating pace of information technology in the United States and the world, finance will continue to expand and prosper. The regulators cannot control how information is used or transformed!
History has shown that information spreads and although the pace of its spread can be slowed down, it has never been stopped. Just ask all the religious medievalists in our world today that are fighting a losing battle and are defensively striking out at everyone else.
I have stated some of the reasons for my position in a series of posts beginning January 25, 2010: see “Financial Regulation in the Information Age”; http://seekingalpha.com/article/184153-financial-regulation-in-the-information-age-part-a.
I have also highlighted the place of information in the practice of modern finance in my review of the book “The Quants”: see http://seekingalpha.com/article/188342-model-misbehavior-the-quants-how-a-new-breed-of-math-whizzes-conquered-wall-street-and-nearly-destroyed-it-by-scott-patterson.
Furthermore, attempts to reform and re-regulate the banking system will ultimately do more damage to banks that are not among the 25 largest banks in the country than it will do to those banks that the administration and Congress are really after. And remember, the largest 25 domestically chartered commercial banks in the United States control about two-thirds of the banking assets in the country.
Another factor that I have tried to stress over the past year is that the largest banks have already moved on. The legislation in front of the Congress is aimed at preventing the last financial crisis from occurring again. In my estimation, the largest banks are beyond this feeble effort and are moving into areas we will learn about in the next round of “popular” books explaining what has happened to our financial system.
An example of this was a recent report in the press about how Congress is trying to alter the status of how hedge funds reward their managements so that more of this income is taxable. The response of the industry was to have already hired scores of lawyers to “get around” any legislation about hedge fund fees.
Can you imagine any other kind of response from the financial industry…or, for that matter, any industry?
Reform and re-regulation face a moving target and, consequently, they are aiming their efforts at the past, not the future.
The financial reform package will change the playing field for a limited amount of time. However, in this age of information you can bet that the lag between what “the Feds” do now and how the financial system reacts to these actions will be shorter than ever before.
NOTE: we now have 775 commercial banks on the list of “problem banks” put out by the FDIC, up from 702 banks at the end of 2009. When this latter list was presented, I argued that the FDIC would close between three and four banks a week for the next 12 to 18 months. We have been averaging 3.8 banks closed every week this year through May 14. Using a rough “rule of thumb” my estimate now is that at least four banks will be closed every week through the end of 2011.
I still have grave concerns about the solvency of the 8,000 “smaller banks” in the United States. I define the “smaller banks” as any bank below the top 25 largest banks in the country. These 8,000 “smaller banks” control only one-third of bank assets in the United States. I derive this concern from the actions of the Federal Reserve who continues to subsidize the banking system with extremely low interest rates, and the FDIC. Although the Fed and the FDIC are not “owning up” to this problem, everything they are doing raises questions about how solvent these smaller 8,000 banks really are. I guess the big issue concerns what would happen to the value of bank assets IF interest rates were to rise. Would this result in a “cascade” of “small” bank failures?
Thursday, May 20, 2010
Is Germany resisting the "Race to the Bottom" in Europe?
Germany, and Angela Merkel the German Chancellor, clearly lost the battle over the bailout package and the European Central Bank’s move to buy bonds. (See “Where’s the Leadership in Europe, http://seekingalpha.com/article/204702-where-s-the-leadership-in-europe.)
Is Germany and Merkel now trying to stage a “comeback”?
There are certainly signs that Berlin is attempting to re-asset itself in the moves it made on short selling and other complex bond transactions. Furthermore, Merkel is asserting herself into the financial reform debate. At a meeting of the G-20 Thursday: “German Chancellor Angela Merkel said Thursday she will push her Group of 20 counterparts to accelerate steps to tighten political control over financial markets and add new taxes on banks. Ms. Merkel also said she will push G20 leaders to coordinate their strategies as they look to withdraw stimulus measures enacted during the financial crisis.“ (http://online.wsj.com/article/SB10001424052748703559004575256051573932296.html?mod=WSJ_hps_MIDDLEThirdNews.)
Politically, in the German state itself, Merkel needs to exert herself to defend Germany and Germany’s support of a sound fiscal and monetary stance within the European Union. The political feedback to the Chancellor’s position on the bailout was immediate and dramatic. She and her party lost seats. To maintain her coalition, it seems as if she must place herself in a stronger position.
Within the broader picture, however, someone needs to step up in Europe and show some real courage, something that will not be easy. That leadership has been sorely missing and the decline in the Euro to a four-year low just underscores how the market is ‘grading’ the response of the European Union to their current financial crisis. The immediate reaction to the German actions was disappointment in the response of the rest of the Union. There obviously is no unity within the European community.
Yet, the German movement is not without reason.
Someone has to step up to the plate.
Unfortunately, the European Union has tolerated the lack of discipline and incompetence in its member nations for years. As a consequence, there has been a “race to the bottom”; a movement to the lowest common denominator and the recent financial crisis is the result. And, now all members of the European Union are suffering.
Nature does not allow a vacuum to exist for very long in any human association. If the association allows the undisciplined or incapable to dominate, then the performance of the association comes to reflect this bias. Need I present a sports analogy?
The other alternative is for the members of the association to have standards set by the disciplined and capable where a situation can be achieved in which the rising performance of the community is shared by all.
A successful union has enough benefits for all to share. In an unsuccessful union no one is really happy!
In the European Union it seems as if there is no one else to turn to but the Germans for this leadership. It is certainly not going to come from France. France is the epitome of the acceptance of the mediocre. France’s leadership has guided the European Union into the state it is now in. It is not the future.
Will other nations listen to Germany? Will new leadership be established in the European Union?
I’m not sure that the rest of Europe is ready to get ‘disciplined’. There is a lot of ‘mouthing’ of the need for discipline, but are the nations doing this talking ready to change things for the longer term or will they revert to old habits once the immediate crisis is over? Can governments that really ‘tighten up’ be able to be re-elected in Greece, and Spain, and Portugal, and other places? Will other nations in the European Union really stand for German discipline and leadership?
Watch the hips, not the lips!!!
If the nations in the European Union other than Germany fail to get their acts together, will Germany and the German people be able to drop their standards of performance to the level of the ‘bottom’?
My guess is that the Germans do not want to be mediocre.
Therefore, disunity and disgruntlement will continue to rule in Europe. And, this will not be good for the Euro.
What might change attitudes in Europe?
The answer might be years of falling further behind the United States, China, India, Brazil, Russia, and other emerging nations. The European model, as it now stands, cannot compete in this world of the future. Competition is going to be fierce and nations that thrive on low performance and undisciplined behavior will fall further and further behind. But, this is a message to all nations, including some that are in the list just presented.
Unfortunately, Europe stands in a position to cause a lot of disruption to others. It is still important enough to let its failures cause dislocations in the world economy.
The United States should applaud the behavior of the Europeans. The behavior of the Europeans and the decline in the value of the Euro takes a lot of attention off of the value of the United States dollar and the weakness it has experienced due to the undisciplined behavior of the United States government with respect to its fiscal and monetary policies.
Still, I would like to see Germany and Angela Merkel succeed. I would like to see a strong Europe and a strong Euro. But, maybe I am just being sentimental.
Is Germany and Merkel now trying to stage a “comeback”?
There are certainly signs that Berlin is attempting to re-asset itself in the moves it made on short selling and other complex bond transactions. Furthermore, Merkel is asserting herself into the financial reform debate. At a meeting of the G-20 Thursday: “German Chancellor Angela Merkel said Thursday she will push her Group of 20 counterparts to accelerate steps to tighten political control over financial markets and add new taxes on banks. Ms. Merkel also said she will push G20 leaders to coordinate their strategies as they look to withdraw stimulus measures enacted during the financial crisis.“ (http://online.wsj.com/article/SB10001424052748703559004575256051573932296.html?mod=WSJ_hps_MIDDLEThirdNews.)
Politically, in the German state itself, Merkel needs to exert herself to defend Germany and Germany’s support of a sound fiscal and monetary stance within the European Union. The political feedback to the Chancellor’s position on the bailout was immediate and dramatic. She and her party lost seats. To maintain her coalition, it seems as if she must place herself in a stronger position.
Within the broader picture, however, someone needs to step up in Europe and show some real courage, something that will not be easy. That leadership has been sorely missing and the decline in the Euro to a four-year low just underscores how the market is ‘grading’ the response of the European Union to their current financial crisis. The immediate reaction to the German actions was disappointment in the response of the rest of the Union. There obviously is no unity within the European community.
Yet, the German movement is not without reason.
Someone has to step up to the plate.
Unfortunately, the European Union has tolerated the lack of discipline and incompetence in its member nations for years. As a consequence, there has been a “race to the bottom”; a movement to the lowest common denominator and the recent financial crisis is the result. And, now all members of the European Union are suffering.
Nature does not allow a vacuum to exist for very long in any human association. If the association allows the undisciplined or incapable to dominate, then the performance of the association comes to reflect this bias. Need I present a sports analogy?
The other alternative is for the members of the association to have standards set by the disciplined and capable where a situation can be achieved in which the rising performance of the community is shared by all.
A successful union has enough benefits for all to share. In an unsuccessful union no one is really happy!
In the European Union it seems as if there is no one else to turn to but the Germans for this leadership. It is certainly not going to come from France. France is the epitome of the acceptance of the mediocre. France’s leadership has guided the European Union into the state it is now in. It is not the future.
Will other nations listen to Germany? Will new leadership be established in the European Union?
I’m not sure that the rest of Europe is ready to get ‘disciplined’. There is a lot of ‘mouthing’ of the need for discipline, but are the nations doing this talking ready to change things for the longer term or will they revert to old habits once the immediate crisis is over? Can governments that really ‘tighten up’ be able to be re-elected in Greece, and Spain, and Portugal, and other places? Will other nations in the European Union really stand for German discipline and leadership?
Watch the hips, not the lips!!!
If the nations in the European Union other than Germany fail to get their acts together, will Germany and the German people be able to drop their standards of performance to the level of the ‘bottom’?
My guess is that the Germans do not want to be mediocre.
Therefore, disunity and disgruntlement will continue to rule in Europe. And, this will not be good for the Euro.
What might change attitudes in Europe?
The answer might be years of falling further behind the United States, China, India, Brazil, Russia, and other emerging nations. The European model, as it now stands, cannot compete in this world of the future. Competition is going to be fierce and nations that thrive on low performance and undisciplined behavior will fall further and further behind. But, this is a message to all nations, including some that are in the list just presented.
Unfortunately, Europe stands in a position to cause a lot of disruption to others. It is still important enough to let its failures cause dislocations in the world economy.
The United States should applaud the behavior of the Europeans. The behavior of the Europeans and the decline in the value of the Euro takes a lot of attention off of the value of the United States dollar and the weakness it has experienced due to the undisciplined behavior of the United States government with respect to its fiscal and monetary policies.
Still, I would like to see Germany and Angela Merkel succeed. I would like to see a strong Europe and a strong Euro. But, maybe I am just being sentimental.
Sunday, May 16, 2010
How Can The Economy Grow Without Bank Loans?
The economy seems to be picking up steam, yet bank lending does not seem to be keeping pace. Also, money stock growth does not give off positive signals in terms of how people are allocating their short-term assets in the banking system.
The question is: can the economy continue to pick up if people are staying very conservative in terms of their asset allocation in the banking system and the banks, themselves, continue to stay out of the lending market?
Overall, the total assets in the banking system (according to the H.8 release from the Federal Reserve System) have only grown modestly in recent months, up 1.3% from March to April at all commercial banks in the United States, with large banks (the twenty-five largest banks in the United States) showing a 2.1% rise and all other banks increasing at a 1.0% rate.
Over the past year Total Assets at all commercial banks are down by -1.5%, decreasing by 0.8% in the largest banks and rising 1.0% in the larger banks.
The problem with this is that the rise in the last month is due to a reporting change in the banking system and is not the result of real growth. On March 31, banks were required to bring a substantial amount of securitized loans onto their balance sheets from being accounted for as memoranda items.
The vast majority of this movement was connected with consumer loans. Thus we see that from March to April consumer loans at all banks rose by slightly more than 31%. The largest banks saw the greatest change, rising over 35%, while the smaller banks consumer loan accounts rose by slightly more than 17%.
The thing is, consumer loans are not increasing. The increase is coming solely fromt the change in the accounting for these securitized consumer loans.
All other loan classifications rose by much smaller amounts over the past month but actually declined over longer periods of time.
For example Commercial and Industrial loans, business loans, at all commercial banks rose by only 0.6% from March to April. They are actually lower over the past three months, down 4.0% and down 18.0% year-over-year.
Commercial banks are just not lending to businesses! And, this is across the board, in both the biggest 25 banks in the country and all the rest. Over the past year Commercial and Industrial Loans at large commercial banks dropped by over 19% while this same category of loans at small banks dropped by almost 9.0%
Real Estate loans have not fared any better. Up only modestly in the past month, these loans have declined for the past three months, the past six months and the last 12 month. Again, Real Estate loans at the biggest 25 banks have declined by slightly more than 2.0%, year-over-year, and they have declined by a little more than 4.0% at the smaller banks.
Shall we take these modest increases as a positive start to the increase in bank loans? Well, one month does not make a trend. We need to keep watching the banks to see if loan volume is increasing giving us some feel that not only loan demand is rising, but that the banks are actually lending again.
Cash assets at all banks declined over the past month. Whether this was a response to the Treasury’s use of their Supplemental Financing Account at the Federal Reserve (See my posts: “Federal Reserve Exit Watch Part 10”, http://seekingalpha.com/article/202476-federal-reserve-exit-watch-part-10; and “The Fed’s New Exit Strategy?”, http://seekingalpha.com/article/199444-the-fed-s-new-exit-strategy.) or the portfolio behavior of the banks themselves, there was a fairly sizeable drop in cash asset at all commercial banks.
Still over the past three months cash asset rose at both the biggest banks and the smaller ones. Again, the direction the banking system is taking with respect to excess reserves is still unclear. All one can say is that they have declined recently.
The banking system is still facing the fact that people are continuing to move their assets into the banking system and primarily into transactions accounts. This is seen by the fact that the M1 measure of the money stock has risen by almost 7.0%, year-over-year in April while the M2 money stock measure has risen by only about 2.0%. Thus, since there is almost no growth in the M2 measure of the money stock, there must be a substantial amount of shift between the non-M1 portion of M2 to the M1 measure.
In fact the total non-M1 M2 has risen by only 0.4% from April 2009 to April 2010.
As I have argued many times before, this is very conservative money management on the part of asset holders. People are putting their funds into transactions accounts so that they have them for spending. They are removing funds from non-transaction accounts which are less liquid and, with interest rates so low, not worth the effort of keeping their funds in these accounts.
This movement is also picked up in the decline in Retail Money Funds which have dropped almost 28%, year-over-year, and Institutional Money Funds which have dropped about 23%, year-over-year. These declines have continued at rapid paces for the last three months and the last month as well!
The efforts of the Federal Reserve are not being translated into bank loans or money stock growth. Monetary policy is not being translated into assets that support economic growth!
People and businesses are still in a defensive mode with respect to their asset management!
The Great Recession is over and the recovery has begun. Yet, the statistics coming from the banking system do not promote a lot of optimism. This is consistent, I believe, with consumers that are still reeling from being unemployed and losing their homes and with a banking system that is not out-of-the woods in terms of solvency issues (except for the largest 25 banks, of course.)
Strong recoveries are usually connected with strong growth in bank loans and the various measures of the money stock. Especially important is an increase in commercial and industrial loans…business loans. This is not happening.
From all we see the large banks are making a “killing” being subsidized with extraordinarily low interest costs. We learned last week that many large manufacturing and industrial business firms are sitting on huge amounts cash and other assets ready to “make a killing” when things do start to pick up. The big guys are in great shape!
If anything the financial collapse, the Great Recession, and government policy have done for big business what they could not have done for themselves. The transfer of wealth in America is going to be huge in the next five years or so thanks to Bush 43 and Obama 1. Greater wealth inequality…here we come!
The question is: can the economy continue to pick up if people are staying very conservative in terms of their asset allocation in the banking system and the banks, themselves, continue to stay out of the lending market?
Overall, the total assets in the banking system (according to the H.8 release from the Federal Reserve System) have only grown modestly in recent months, up 1.3% from March to April at all commercial banks in the United States, with large banks (the twenty-five largest banks in the United States) showing a 2.1% rise and all other banks increasing at a 1.0% rate.
Over the past year Total Assets at all commercial banks are down by -1.5%, decreasing by 0.8% in the largest banks and rising 1.0% in the larger banks.
The problem with this is that the rise in the last month is due to a reporting change in the banking system and is not the result of real growth. On March 31, banks were required to bring a substantial amount of securitized loans onto their balance sheets from being accounted for as memoranda items.
The vast majority of this movement was connected with consumer loans. Thus we see that from March to April consumer loans at all banks rose by slightly more than 31%. The largest banks saw the greatest change, rising over 35%, while the smaller banks consumer loan accounts rose by slightly more than 17%.
The thing is, consumer loans are not increasing. The increase is coming solely fromt the change in the accounting for these securitized consumer loans.
All other loan classifications rose by much smaller amounts over the past month but actually declined over longer periods of time.
For example Commercial and Industrial loans, business loans, at all commercial banks rose by only 0.6% from March to April. They are actually lower over the past three months, down 4.0% and down 18.0% year-over-year.
Commercial banks are just not lending to businesses! And, this is across the board, in both the biggest 25 banks in the country and all the rest. Over the past year Commercial and Industrial Loans at large commercial banks dropped by over 19% while this same category of loans at small banks dropped by almost 9.0%
Real Estate loans have not fared any better. Up only modestly in the past month, these loans have declined for the past three months, the past six months and the last 12 month. Again, Real Estate loans at the biggest 25 banks have declined by slightly more than 2.0%, year-over-year, and they have declined by a little more than 4.0% at the smaller banks.
Shall we take these modest increases as a positive start to the increase in bank loans? Well, one month does not make a trend. We need to keep watching the banks to see if loan volume is increasing giving us some feel that not only loan demand is rising, but that the banks are actually lending again.
Cash assets at all banks declined over the past month. Whether this was a response to the Treasury’s use of their Supplemental Financing Account at the Federal Reserve (See my posts: “Federal Reserve Exit Watch Part 10”, http://seekingalpha.com/article/202476-federal-reserve-exit-watch-part-10; and “The Fed’s New Exit Strategy?”, http://seekingalpha.com/article/199444-the-fed-s-new-exit-strategy.) or the portfolio behavior of the banks themselves, there was a fairly sizeable drop in cash asset at all commercial banks.
Still over the past three months cash asset rose at both the biggest banks and the smaller ones. Again, the direction the banking system is taking with respect to excess reserves is still unclear. All one can say is that they have declined recently.
The banking system is still facing the fact that people are continuing to move their assets into the banking system and primarily into transactions accounts. This is seen by the fact that the M1 measure of the money stock has risen by almost 7.0%, year-over-year in April while the M2 money stock measure has risen by only about 2.0%. Thus, since there is almost no growth in the M2 measure of the money stock, there must be a substantial amount of shift between the non-M1 portion of M2 to the M1 measure.
In fact the total non-M1 M2 has risen by only 0.4% from April 2009 to April 2010.
As I have argued many times before, this is very conservative money management on the part of asset holders. People are putting their funds into transactions accounts so that they have them for spending. They are removing funds from non-transaction accounts which are less liquid and, with interest rates so low, not worth the effort of keeping their funds in these accounts.
This movement is also picked up in the decline in Retail Money Funds which have dropped almost 28%, year-over-year, and Institutional Money Funds which have dropped about 23%, year-over-year. These declines have continued at rapid paces for the last three months and the last month as well!
The efforts of the Federal Reserve are not being translated into bank loans or money stock growth. Monetary policy is not being translated into assets that support economic growth!
People and businesses are still in a defensive mode with respect to their asset management!
The Great Recession is over and the recovery has begun. Yet, the statistics coming from the banking system do not promote a lot of optimism. This is consistent, I believe, with consumers that are still reeling from being unemployed and losing their homes and with a banking system that is not out-of-the woods in terms of solvency issues (except for the largest 25 banks, of course.)
Strong recoveries are usually connected with strong growth in bank loans and the various measures of the money stock. Especially important is an increase in commercial and industrial loans…business loans. This is not happening.
From all we see the large banks are making a “killing” being subsidized with extraordinarily low interest costs. We learned last week that many large manufacturing and industrial business firms are sitting on huge amounts cash and other assets ready to “make a killing” when things do start to pick up. The big guys are in great shape!
If anything the financial collapse, the Great Recession, and government policy have done for big business what they could not have done for themselves. The transfer of wealth in America is going to be huge in the next five years or so thanks to Bush 43 and Obama 1. Greater wealth inequality…here we come!
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