libertybunker.com » Finance

Peter Schiff – Why the Meltdown Should Have Surprised No One

omb — Tue, 16 Jun 2009 05:43:12 +0000

This is a lengthy article from Ludwig Von Mises Institute. It’s actually a transcription of Peter Schiff’s comments at the Austrian Scholars Conference. He covers a number of topics from the bubbles of the 90′s and the housing bubble to what happens next. It’s a sobering discussion and he challenges all conventional notions regarding stocks and real estate investing. Worth the read, and a more than a little scary.
-OMB

Obama’s Revelation! Deficit Spending Is Unsustainable???

omb — Sat, 16 May 2009 17:21:58 +0000

You’re kidding right? Deficit spending is unsustainable? I thought that this deficit spending was the key to reviving economic growth? Isn’t more better? Speaking in New Mexico this week, the dilettante in chief warned us about our deficit spending problem, and the implications for the future.
From Bloomberg…

May 14 (Bloomberg) — President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.
“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Now, its not that I think he’s wrong, there are many Conservatives who’ve been saying this for years. My question is this: why, after proposing a $3.59T budget – including the largest single year deficit of all time by any measure, is he pointing this out? One does not naturally follow the other. I mean, it’s not like he went to the local D.C. hip-hop club on Friday night, and woke up Saturday morning with a $3.59T bar tab credit card receipt for in his pocket. It’s been pretty obvious to everyone – including him. And now, he warns us about spending deficits?
I know his subsequent comments had to do with health care costs, but there’s something else here. Did China convey that they would not be buying any more debt? It’s possible, but I think that its something else. I believe he is laying the predicate for a massive tax increase on ALL Americans – not just those rich bastards. Get ready, this is the same bait and switch that Clinton pulled at the start of his Presidency – promise a middle class tax cut and then raise taxes.
Brilliant!!!
-OMB

Rest Easy, The Best And The Brightest Are At The Helm

omb — Tue, 12 May 2009 02:07:42 +0000

From Business Insider…
Apparently Rick Santelli went off again on CNBC telling the audience to watch this video. Listen to the scope of the numbers here – it’s just amazing that the IG of the Fed is incapable of answering any of the questions! My confidence level is soaring higher with each passing day…
-OMB

The Big UAW Payoff

Libinator — Sat, 02 May 2009 01:46:15 +0000

Well, in addition to rewriting bankruptcy law, they’re also giving ownership to the UAW/Liberal Democratic Axis. Not just Chrysler, GM too. I e-mailed my cousin who’s a middle level white collar guy at GM and congratulated him on finally getting that Civil Service job. The only difference is that Civil Servants can’t get laid off. My cousin has no similar assurances.
So Obama was screaming about Chrysler’s bondholders not being willing to sacrifice for the good of the UAW and the taxpayer. Sure they were. Know this, they have liens on Chrysler’s assets. In a liquidation of Chrysler they would probably get something in that 60 cents on the dollar range. They were offered 10. They said no. They counter offered to take 60 cents now and shortcut the process. My guess is they would have settled for 40-45 cents. It’s called negotiating. But apparently there is no negotiating with this administration. The taxpayers and UAW, depending on whose analysis you read, are getting something between 60 and 85 cents on the dollar (including new common stock). There hasn’t been much talk about the unsecured trade creditors, who in a normal bankruptcy might end up with 5-10 cents. But it looks like they’re not being asked to take ANY discount. It’s upside down except for one thing – the existing common stockholders are basically being diluted out of existence and the UAW and Federal government are stepping in.
In a business’s capital structure the risk return trade off goes like this. The riskier the position in the capital structure the greater returns demanded by the investor. Starting at the bottom and moving up the right side of the balance sheet, common equity (the stock market) is the riskiest and demands the highest returns. Preferred stock is next followed by subordinated debt (subordinated to the claims of senior debt holders, also known as mezzanine debt), then senior unsecured debt (in this case the bondholders AND the UAW Trust). Then comes unsecured trade debt, which is shorter in duration but still has no claims against assets. Last and least risky, is secured debt which has liens against assets and is usually held by banks (that’s what I do). In the Detroit cases, the Treasury’s loans were put in as senior unsecured debt to effectively allow GM and Chrysler to continue to pay their existing creditors. This is akin to debtor-in-position lending, which is usually part of a prepackaged bankruptcy. DIP financing pays off existing pre-bankruptcy creditors and almost always at a discount (see paragraph 2). DIP lenders then get paid off first and in full when the company emerges from bankruptcy. This is what is happening at Chrysler. The only thing missing from the Treasury loans to GM was the actually bankruptcy filing (so far).
What happened here, and what Levin was talking about, was the government elevated the UAW from a junior unsecured creditor to a level close to par-pasu with its own loans. Why is obvious. UAW good. Private investors bad. But let’s not forget who holds all that public unsecured debt. It’s not ‘greedy Wall Street bankers’ (EEEEKKK!, not them!!. Hide the women and children!) It’s pension plans, 401(k) plans, insurance companies, mutual funds, state and local retirement plans, etc. aka regular people who are not members of the UAW.
Chrysler is a little different, but just as chilling. It is owned by Cerberus, a big private equity firm. Its major bondholders are the banks, insurance companies and hedge funds that financed its leveraged acquisition of the company. (There’s those greedy Wall Street bankers again.) Now that those lenders know that the Federal government is more than willing to come in and unilaterally subjugate their mostly secured claims in favor of unsecured creditors with claims junior to theirs who also happen to be politically favored constituents (i.e. the UAW) how willing are they going to be to do the next transaction? Or the one after that?
The auto companies should have been allowed to go through the normal bankruptcy process. The Obama administration and the UAW know that, but then they would have lost control of the process and could not have taken over these companies themselves. By doing this the UAW and Federal government now have overwhelming majority ownership of the common voting stock of GM and Chrysler. So we now have this scenario. When the UAW contract comes up for renewal, the UAW will be on both sides of the table and they will be negotiating both with and against the Federal Government. It’s the ‘with’ part that should frighten everyone. In places like, oh, China, Russia and Venezuela these are called state run enterprises. By the way, the environmentalists will be there as well. They’ll be telling management what kind of cars to make. If management doesn’t do it the shareholders (see: Federal Government) will change management.
The auto companies have essentially been run for the benefit of the UAW for the past three or four decades, and forced to produce products mandated by Federal environmental regulations. Corporations are supposed to be run for the benefit of the shareholders. Unfortunately, now they’ll have it both ways.
One last point. Don’t listen to the greenheads who point to those evil SUVs as evidence of ‘not enough’ environmental compliance. SUVs and light trucks have been the only profitable products for Detroit for years. There had to be some source of cash flow to fund those uncompetitive union contracts. That’s why there are such high tariffs against FOREIGN SUVs and light trucks and why Detroit was allowed to continue to make them. Now even that’s going to change. The upshot? More protectionism against imports and even higher wages and benefits for the UAW leading to higher prices to the consumer, greater production of environmentally correct cars that most people don’t want and that are unsafe, and an increasingly unprofitable industry that will require massive amounts of government (i.e. taxpayer subsidies).
Wonderful.
The Libinator

A 100 Days In And There’s Nothing New Under The Sun

omb — Fri, 01 May 2009 05:55:54 +0000

Once again, the Ludwig von Mises Institute website has a great article on our current financial woes. The ‘solutions’ that our Dear Leader proposes are the same that not only were employed to the detriment of the American economy by the likes of FDR and Wilson, they were also employed in 1715 France by John Law, under Louis XIV. He did the exact same thing that is being done now (in fact, he pretty much invented it) almost 300 years ago and the results were disastrous.
More than anything, it’s the smug arrogance of Obeyme that I find most troubling. He thinks he knows everything – you can just tell. There’s nothing for him to learn from history because he knows all. He’s destined to repeat the worst mistakes of history and be one of the worst, if not one of the last, Presidents of all time. But I believe that what Obeyme is doing now, with respect to economics, is not a mistake, it’s by design.
I don’t think Obama is stupid, although he’s clearly ignorant on numerous subjects- especially those having to do with science. I’d include the category finance, but I think he’s getting exactly the results he wants- continued economic panic resulting in more and more government intrusion into the private sector. He has to know that what he’s done won’t work and when it doesn’t, he can just blame Bush and the media will carry his water. As the economy collapses, the door will be pushed wide open for government intervention.

Bush was a far better extemporaneous speaker than Obama. Bush knew his material, Obama continuously proves that he doesn’t. This could be because Obeyme has spent the better part of his first 100 days, when not abusing his Air Force One priveleges, with his mug in front of a camera. He’s probably given 10 times the speeches that either Bush or Clinton gave in the same period of their respective administrations. It used to be that when the President said something publicly it meant something and one would listen. Anymore, everyday is just another Obama speech echoing that which the tele-prompter tells him to say.
I remember having a discussion via e-mail with some colleagues whom, after the election, were adamant that I was being over the top on the fact that Obama was a communist and that pushing the country in that direction was his ultimate goal. Look at what has happened in just 100 days! We are well on the way to having nationalized banks, auto companies, forced youth volunteerism (indoctrination), and a debt burden that will bankrupt this nation within the next 10 years. I’m fully vindicated on my beliefs and to them I ask what have you done to your country?
Know this, your money is about to become worthless – I’m guessing the inflation hits us HARD after the 2010 elections. That’s the end game. That’s how they intend to break our national sovereignty and take our liberty. They’re doing it right now. Watch!!!
-OMB

Defensive Barney Frank taken on by Harvard Student

Prudently Jealous — Thu, 09 Apr 2009 05:26:21 +0000

How dare this young Harvard man ask Barney Frank the question no one else would! Good for him! Things got uncomfortable for Frank and it is about time! Listen to how the audience laughs when Frank belittles this man for asking a question. Bravo to this student for keeping his cool and also cheers to the young woman who tells Frank to stop labeling and answer the question!

Southpark On Financial Crisis

omb — Wed, 01 Apr 2009 03:16:48 +0000

If you have a few minutes this is pretty funny…OMB

Obama’s Attack on the Middle Class

omb — Wed, 01 Apr 2009 02:55:02 +0000

A good article on lewrockwell.com by Paul Craig Roberts. Here’s an excerpt…

What the Obama administration is really doing is taxing ordinary people in order to bail out the super rich. The 95% of Americans who get the tax cut will find that it is offset many times by the depreciation in the dollar and the raging inflation that will result from monetizing the multi-trillion dollar budget deficits made necessary by the bailouts of the banksters.

His point is pretty clear, be sure to read through to the end.

Bonus! Here’s another excellent article by Bob Murphy on Fed induced boom and bust cycle on lewrockwell.com. Maybe you should just read Lew Rockwell instead of the Liberty Bunker you say? That would be incredibly foolish, as Lew Rockwell doesn’t post pictures of Bikini clad hotties.

-OMB

Inflationary Depression Ahead

omb — Sun, 29 Mar 2009 17:29:02 +0000

From Peter Schiff on MSNBC. Worth checking out. (found on Earthfrisk blog)

Also, here’s another recent Peter Schiff video with Judge Napolitano…

Straight Talk – Daniel Hannan, MEPMust See Update Below

omb — Wed, 25 Mar 2009 23:35:21 +0000

Saw this on American thinker. Listen how Daniel Hannan takes Prime Minister Gordon Browne to task before the EU General Assembly, for the folly of deficit spending as stimulus. He should run for Congress in the U.S., I’d vote for him. I saw the same video over on Atlas Shrugged with the comment that ‘since it’s no longer a requirement that a President be a Natural born citizen, he should run for President’. Ok, I’ll buy that – he has my vote for President, too.

Now contrast this performance with that of one of America’s finest Congressional representatives; U.S. Rep. Corrine Brown, (D-Fl). Thank God that we have such competent representation working on our current financial ‘crisis’ and spending trillions in the process. Video and text translation provided by Iowahawk

***Video is fixed***

Wow! If you weren’t confident in our Congress before, this should have alleviated all of your fears. All I can say is that at least for these 3 minutes or so, they weren’t raising my taxes. Perhaps all members should be required to do the same for all high school teams as well as college – in fact, they should probably read into the Congressional record, the names of all high school and college athletes – and non-athletes for inclusiveness.
-OMB

translation by Iowahawk