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Posts Tagged ‘bailout’

Bailout for Business Bloggers

April 20, 2010 1 comment

Help!

Why are there no atheists in foxholes? For the same reason there are no free-marketers in a recession: in desperate times, we lose nothing (but our consistency) by crying to a higher power for help, whether that higher power be the God we want to protect us from enemy bullets, or the government we want to save us from our own financial irresponsibility.

And that’s one of the many reasons government intervention in a correcting market is an insidious idea: it lets people get away with putting themselves in bad situations. Which means of course, that they’ll go ahead and do it again.

During the mass panic that was late 2008, all manner of business cried unto the government for salvation, like a people unto their God. Free marketers like us warned that giving money to failing industries was a slippery slope to the kind of massive fiscal deficits we’re seeing now. We were ignored.

It took Larry Flynt, radical purveyor of porn, to point out the silliness of using public money to bailout the auto and banking industries. He duly demanded a bailout for the porn industry. And why not?

Today, we see that such facetiousness was not entirely far-fetched, as airlines are now demanding a bailout in recompense for their losses due to the Icelandic smoke belch. If this continues, we might as well shut down all industry and just all collect our living wage directly from the government. But in the meantime, on behalf of business bloggers everywhere, I hereby demand a bailout. And why not?

The Self-healing Mr Market

August 27, 2009 1 comment

wolverineThose who supported the unprecedented market intervention that will be forever remembered as The Great Bailout may soon come to reconsider their positions.

As calm returns to the bourses of the world, and the frenetic panic of six months ago recedes into memory like a fading nightmare, a different terror looms. CNN reminds us that higher taxes must be the consequence of letting governments take good money they didn’t have and throwing it after bad.

Here in the UK, a concerted campaign to boost the taxman’s ravenous coffers is underway. It involves pillaging offshore accounts, raising the VAT rate, increasing income tax, and even topping up the fuel tax. Those who asked the government to intervene in the crisis will slowly realise that the tab is theirs to pay.

But was this intervention necessary? This can never be answered with finality because it is impossible to carry out a controlled experiment. In a crisis, we can’t have two economies: one with a bailout intervention, and the other left to the market, to see which turns out best in the long run.

But sometimes, the market does make it clear that he needs no intervention to heal himself. This refreshingly different article from CNN explains (in sadly excruciating detail) how lending markets self-adjusted both the availability and price of loan credit while the relevant government programs were still finalising their paperwork.

As we strain under the terrible fiscal consequences of The Great Bailout, it’s a salutary lesson to remember.

Categories: The Economy Tags: ,

Putting in the Screws

August 11, 2009 4 comments
Pay your taxes- now!

Tax Time!

Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.”   -Frederic Bastiat

There are no atheists in foxholes, and no free-marketers in a financial crisis. Which is unfortunate

In booming times, people are understandably chary of government interference in their lives. However, amidst a perfect storm of financial misery such as we’ve witnessed over the past year, the robust teat of government nourishment becomes irresistible.

The problem is, the idea of government help is an illusion. When we say ‘the government pays’, we project a paternal omnipotence on it as a source of unlimited resources. In truth, all government does is redistribute our own tax money.

Council housing, we all pay. ‘Free education’, we all pay. The NHS, we all pay. Unemployment benefits, we all pay. This is why, when the government moves to heroically ‘rescue’ the financial system at a cost of trillions, we should resist the urge to outstretch our hungry hands, and instead ask: but who will pay for it?

Because the truth is, we will. The IMF reports that the credit crunch has cost governments (i.e. us) $10 trillion. Of the G20 countries, the UK will suffer the largest resulting budget deficits- 99.7% of GDP by 2014. The government (i.e. we) will owe almost as much money as the entire economy generates.

This explains why the tax authorities are beginning to put in the screws– they need cash from us to settle the bailout bills. They’re also considering cracking down on private landlords who take in lodgers for a bit of spare cash. The squeeze has just begun. Pay we will.

Categories: Public Policy Tags: , ,

Earnings Season: Winners and Losers

July 22, 2009 4 comments
The Korean Won: LG kicks Nokia's whatsit

The Korean Won: LG kicks Nokia's whatsit

Here at Amusis, we make business a spectator sport. We particularly enjoy front row seats during Earnings Season.

This quarter is particularly riveting, due to the sheer volume of red ink on display. All sports fans know that the most satisfying moments involve disaster: the ski jump that send the skier sprawling head-first into a snow bank; the cage fight knockout that results in a particularly gruesome blood spatter.

There is similar joy in witnessing monumental business losses. Former banking titan Morgan Stanley floods Wall Street with blood (or is that red ink?) for the third straight quarter. By contrast, high-scorer Goldman Sachs struts victoriously across the field, throwing bailout money back in the government’s face.

But not only business behemoths suffer disaster. Here in the UK, 52 pubs are closing every week, suggesting the unbelievable possibility that Britons are actually drinking less. But the balance of news was favorable today, as most corporations defended margins against falling revenues by laying-off staff.

Boeing for example, reported profits up by 17%, and Wells Fargo showed that not all banks are in the business of losing money. But the most delightful smack-downs were in Technology, where Apple demonstrated why high margin products targeted at price-insensitive buyers is a winning formula.

LG similarly demonstrated the power of branding. Its sexy smart-phones with names like Prada, Chocolate and Cookie took a big bite out of Nokia’s boring lineup of grandma phones. Who said business was dull?

Viagra and the Stimulus

July 13, 2009 1 comment

viagraEconomic policy today is the arena for a mighty clash between competing ideologies.

The first ideology is that the economy is like a single-cell bacterium. It occasionally misadventures into hostile places; however, pricked by discomfort, it corrects its course and returns by itself to a happy state.

The other is that an economy is like a dead rock. Purely by accident, it finds itself in the wrong place, like say someone’s kidney. It can then only be salvaged by the energetic intervention of public officials seeking glory and greatness.

We subscribe to the former creed, but our ideology unfortunately leaves micromanaging officials with nothing to do. Not that the hundreds of billions in stimulus funds and quantitative easing they’ve thrown at the recession have helped. Apparently, the economy was not informed that by now, it should be recovering swiftly.

Unwilling to admit that intervention is pointless, some argue that it wasn’t enough in the first place. Warren Buffet likens the stimulus so far to half a pill of Viagra, and wants the full dose. Considering his nervousness about his investment portfolio (and being 78 years old), it is normal that he wouldn’t mind bankrupting the next generation to boost his stock price. After all, he won’t be around to pay the bill.

President Obama likewise is on the defensive: his spiel is, the stimulus will work -some day. Which is rather like a doctor prescribing impotent medication, then taking credit when nature eventually cures the patient. Here, the despairing Bank of England has finally thrown in the towel and stopped printing money. Basically, the UK’s fiscal credit card is totally maxed out.

Too Big to Fail? We Don't Think So

July 7, 2009 Leave a comment
The Great Leaky Bucket Bailout

The Great Leaky Bucket Bailout

Once Upon a Time, there was a bank called Northern Rock. It was built on sand. A wave of cheap money created by incompetent Central Bankers battered Northern Rock into bankruptcy.

A lone hero stood at a mighty crossroads. British Prime Minister Gordon Brown faced a momentous choice: let the market work and watch the bank spiral into nothingness, or bailout the dying beast and change the course of capitalism forever.

Once the voters started queueing up to withdraw their savings from Northern Rock, the decision was made: to hell with free markets, Grandma is losing her savings! Despite the warnings of a wise minority that opposed the bailout, the rest is history. The bailout of Northern Rock began the largest market intervention since Mao’s Great Leap Forward.

Since then, trillions of dollars in US and UK debt has been assumed by their governments to bailout banks, auto companies and all manner of enterprise. It was of course futile: the recession happened anyway, and all we’ve ended up with is a mountain of public debt that will loom for all eternity.

Supporters say the crisis would have been worse without the bailouts. But we’ve never seen a single clear explanation of why exactly letting a bank fail would be so catastrophic. It’s one of those things oft-repeated but never proved. In 2009 alone, 52 US banks have failed in addition to 25 last year. Somehow, the world failed to end.

When banks fail, money comes in from debtors, and money goes out to creditors. There is pain and loss, but nothing like a meteorite wiping out the dinosaurs. Keeping bad banks alive merely encourages greater risk in future and prevents the market from cleaning house.

Paying in Pain

July 2, 2009 Leave a comment
It just ain't working, darling

It just ain't working, darling

It just isn’t pretty. However much lipstick you put on a pig, it just can’t be pretty enough to smooch. And neither can the economy’s current outlook.

We reluctantly bear the mantle of economic Cassandras. We want the recession to end as much as anyone. But the excesses that built up during the years of frantic over-borrowing must first be purged from the distended belly of the beast.

As we predicted yesterday, US unemployment has continued to rise, to an excruciating 9.5%. With such an abundance of people desperate for work, wages have fallen.

On the news, US stock markets swoon in surrender, and the UK markets weakly buckle at the knees. 7 more US banks stumble and die, and the typhoon of misery is made a perfect storm as oil prices plummet on expectations of low demand.

Men in power are struck by their powerlessness in staying the market’s ruthless correction. President Obama commiserates grimly on the ill news, while his administration continues to pour his peoples’ money into the black hole of toxic bank securities. Equally desperate, European Central Bank Governor JC Trichet virtually begs banks to unleash the flood of easy money to prime the pump.

They might as well be pushing on a string. Mr Market will take his time adjusting to his new reality, and the norm of the interim will be pain. Over the next few weeks, stock market participants will wait eagerly for quarterly earnings reports, hungry for some faint vestige of hope. They will largely be disappointed.