Geithner, Member and Overseer of Finance Club

Geithner, Member and Overseer of Finance Club

Wow what a long article! I could barely go past page 1...but there are 7 pages!!! Full article at link below:

All about our Treasury Secretary and the most part of his world-- connections with WallStreet.

Crash of 1929: 25 Years for the market to Bounce Back? Try 4½

HISTORICAL stock charts seem to show that it took more than 25 years for the market to recover from the 1929 crash — a dismal statistic that has been brought to investors’ attention many times in the current downturn. As per article in NY Times, it took only around four and a half years.

Here is the link to the full article on New York Times. 25 Years to Bounce Back? Try 4½

will do even better once market-to-market accounting takes effect।

And that has some investors hoping that financial earnings, which have been better-than-expected so far, will do even better once market-to-market accounting takes effect।

For full article on CNBC.com, click here.

Another problem with Derivatives: It can kill an innocent company too

In the previous post, we talked about AIG and how their pursuit for smaller profit (CDS- credit Default Swap) got them into troubles. (Sorry, the AIG did not get into troubles; we all got into troubles as our Government had to bail them out with our money). That was the result of derivative contracts which shifted risks from risk-averse to risk seekers like AIG for a small amount.

Now what I am going to tell you is the effect of derivatives on innocent players. Yesterday two companies declared bankruptcies- AbitibiBowater, a newsprint producer, and General Growth Properties, a mall owner. Usually when companies (bond issuers) are in trouble, they renegotiate their debt terms with their lenders. Lenders also respond. Instead of losing all money, they let go some of it and often the company restructures and this little or big sacrifice by bond holders/lenders helps the company, its employees, suppliers, stock holders, customers etc. Many bankruptcies are avoided this way and such companies get another chance.
Now welcome to the new world of derivatives and CDS! The lender has bought 'bond insurace' from companies like AIG so they care less if the company survives or goes under. They have the insurance to get full value back!!! I read somewhere that for these two companies- AbitibiBowater and General Growth Properties- they were pushed in bankruptcy because some of the their biggest lenders were less interested in these companies' future because they had the insurance. So for them, the best thing was to care less and get full value from their CDS partners (bond insurers). So the lenders just did not respond to SOS by these two companies and their reluctance in my opinion played a key role in pushing them into bankruptcies. In normal world- world withour derivatives, they may have survived, or maybe not, who knows.
This is just one perspective on how the rules of the game are shifting now.

One problem of Derivatives- It can bankrupt a solid company

Derivatives- we all used to love them as the financial invention and they sounded like all win-win until the sub-prime mess came up.
I am sure you know what happened with AIG. Here is my explanation of AIG mess-up for a common man. AIG's businesses are strong. However like many insurance companies, they found an easy avenue for 'Free' money I guess 10 years back. This money was there in 'insuring bonds' of other companies and mortgages. (Fancy word for this is: CDS Credit Default Swap. Technical Defination of CDS: A credit default swap (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults)
Like any auto insurance or a home insurance, which pays you money in case of an accident or a loss to you, 'bond insurance' pays the bondholders if something goes wrong with the bond-prices or the bond-issuing company (watch the words- bond-issuing company, say Abitibi or General Growth Properties, vs bond-insuring company- AIG). Let us say you are holding these bonds but you are scared that Abitibi might go bankrupt or its bond-prices may plummet, so to protect yourself, you can go to AIG which will write you an insurance policy to protect you. Innovative, right? In return of this protection, you will pay 'insurance premium' of say 1% per year. In normal world, based on historical data, AIG and others expected the defaults to be on average say 0.70% (I am just throwing up this number) so for them, there is .30% of total premiums to keep as profit every year, or as long as the party is going well LOL.
Sailing is smooth as long as weather is fine., but when it got stormy, many ships started sinking. The bond prices started going down and AIG had problems keeping their promises. For say 30 cents profit, they were taking risk for as much as 100 dollars!!! They needed billions to pay to their Bond Insurance policy holders!!! This is what caused them to run out of money. For gain of few pennies, they risked thousands!! As long as things were normal, they enjoyed the profit. Then things got bad and you and me got stuck with their losses (I mean US Government)

I am getting on a sidetrack. (also running out of time..Got to go out and do jogging so will come back to this one later on.)

Recycling vs. Interest Earnings: What Makes More Green Cents?

Recycling vs. Interest Earnings: What Makes More Green Cents?

Is the money you would earn recycling higher than that on a savings account? With the national average annual percentage yield lingering at a dire 0.34%, if you let $10,000 sit in an interest checking account, it would make the same amount as if you recycled 2 cans or bottles a day.

Full story at this link

(Source: http://informa-blog-of-interest.blogspot.com/2009/03/recycling-vs-interest-earnings-what.html)

Barclays Maroons Secret of Stable Banking in Suburb

Barclays Maroons Secret of Stable Banking in Suburb
“The historic switch in focus to the income statement from the balance sheet helped hide the asset bubble and bust,” said Neil Dwane, who helps oversee $83 billion as chief investment officer for Europe at Allianz Global Investors’ RCM unit in London. “We must refocus attention on the balance sheet.”
The credit crisis is proving a painful reminder of why it’s important to constrain assets and liabilities. Profit at London- based Barclays more than tripled to 4.38 billion pounds ($6.45 billion) in the 10 years through 2008, while its balance sheet swelled more than ninefold to 2.05 trillion pounds, exceeding the size of the U.K. economy.

Full article at: Barclays Maroons Secret of Stable Banking in Suburb

Study finds lobbying in Washington extremely profitable

Data prepared by University of Kansas professors show that hundreds of millions of dollars spent by major corporations lobbying for a 2004 change in tax law generated a return on investment of 22,000%. The study focused on 93 companies that spent as much as $282.7 million in 2003 and 2004 to persuade lawmakers to enact a one-year tax holiday on overseas profit. In return, the companies got about $62.5 billion in tax savings, the study found. The New York Times/The Associated Press (09 Apr.)

Full article at :Study finds lobbying in Washington extremely profitable