Mozilo Gets Off Easy

Posted on October 19, 2010 by Nirav

Angelo Mozilo, former CEO of CountryWide Financial was fined $67.5 million to settle charges of insider trading and civil fraud. Of this, $45 million or 66% will be paid by Bank of America, who acquired the toxic asset and must now indemnify the former head. As I mentioned back in early 2007, CountryWide insiders were dumping stock as fast as they while simultaneously publicly pumping it. Mozillo made about $134 million from insider trading and then another $100 million on the sale of the company to Bank of America. Having profited over $200 million, being fined a mere $22.5 million doesn’t seem like much of a punishment.

Of course, being a CEO of a major US financial institution seems to provide immunity against any wrongdoing. Now and then, the SEC will prosecute someone to make an example of them, but the most part you can get away with far more than the average white collar criminal.

Meanwhile, Bank of America’s stock has been whacked this year, down 20% year to date. If Bank of America really did buy Countrywide for the tax losses, this investment just got better!

The Economy Smells Like Roses

Posted on April 5, 2010 by Nirav

If you believe the government or the popular press, the economy is out of recession and everything is business as usual again. Last month there was an increase in jobs by 162,000, home sales jumped 8.2%, the Dow is now almost at 11,000 and interest rates are inching upwards in recognition of the economic recovery. It’s all peaches and cream isn’t it!

Unfortunately, I don’t believe the government or the popular press. I like to look at the facts and draw my own conclusions. First of all, the 162,000 new jobs includes 48,000 temporary census jobs. What happens when these jobs go away? And compared to the millions of jobs lost, 162,000 jobs doesn’t feel like anything to celebrate in the first place.

According the Associated press, in February the pending home sales number jumped 8.2%. This is not year-over-year but rather from January to February. Don’t know if anyone remembers but it was awfully cold in January. Historically home sales slow down during winter, especially when you have pretty bad snowstorms. An 8% increase doesn’t sound like newsworthy at all. Additionally, the government has been offering a ton of incentives to home buyers, which is probably just cannibalization of future home buying. From the California Association of Realtors:

Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state home buyer tax credits. To take advantage of both tax credits, a first-time home buyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive. Buyers who are not first-time home buyers may use the same time frames to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.

And why is the DOW on the verge of breaking 11,000? Is it the fact that the government spent around a trillion dollars propping up the economy or could it be that consumer spending is back? May be its consumer spending. After all, the malls seem full around here. But did you hear that 25% of homes in the US are underwater on the mortgage on 14% of all houses are in some state of default? Being in default means that the monthly mortgage payments are not being made. Doing some back of the envelope calculations, TraderMark was able to put a figure on these numbers. By not paying their mortgage, Americans have an extra $160 billion per year to spend on clothes, cars, vacations and other random stuff. To see the numbers, check out this post on the hidden stimulus package. No wonder the retailers have been doing well!

And are the interest rates trending higher because the market expects a recovery? Or is it because it expects inflation? If you look at the number of people clamoring for TIPS (Treasury Inflation Protected Securities), the number is trending higher as well. Seems like people aren’t big believers of the US Government’s ability to curb long term inflation.

So what is it – peaches and cream or doom and gloom? The truth is somewhere in the middle. With the government willing to spend money (it doesn’t have) to keep stimulating the economy, it looks like the economy is recovering pretty well. But it cannot come without consequence. At some point someone will have to pay the price of all these bailouts and packages. It might be us, our children or foreign bond holders, but that day will come. Just make sure you invest accordingly.

Interesting Libertarian Rant Of The Week

Posted on June 28, 2009 by Nirav

This is an interesting rant on the equality of paying taxes by newsletter editor Porter Stansberry:

According to the federales themselves, the top 1% of wage earners in the United States earned more than $388,806 in 2006.

There were 1.65 million citizens in this category. As a group, they paid $488 billion in income taxes. That was 40% of all income taxes. But they only earned 22% of all wages. In short, the marginal tax rates on America’s top earners were almost 100% more than average. OBAMA! will increase the top rate these people pay – because paying 100% more than average just isn’t quite “fair” enough.

We might argue about whether or not we ought to charge some citizens different rates of income tax. But if you’ll take the time to read the U.S. Constitution, it’s clear that progressive taxation is unconstitutional. Just read the 14th Amendment. It says the government “may not deny to any person within its jurisdiction the equal protection of the laws.” That means the law can’t treat one citizen differently from another – white or black, rich or poor.

If our Constitution weren’t merely a dead letter, the equal protection clause – which was designed to prevent black people from being discriminated against by southern states following the Civil War – would now effectively prevent a black president from “spreading the wealth around” as much as he sees fit. History is nothing if not ironic.

Even if you think progressive taxation is a good idea and redistributing income ought to be the government’s prerogative, I can tell you judging from history and the recent experiences of several different countries, when society expects 40% of the tax burden to be carried by only 1% of the population, bad things happen. The masses always demand too many services from the government – because they’re not paying for them. And, eventually, the 1% that’s paying leaves, quits working, or hides their income.

The result is always catastrophic, not only for the state but for the culture. Once people get used to living off the bounty of their neighbors, they’re reluctant to go back to work. And they’re angry about it. There’s not much more dangerous to society than lots of poor, angry, and desperate people who have become addicted to entitlements. Think unionized employees at Chrysler and GM. Welcome to Amerika.

At the present time, America’s income taxes are the most progressive of any major industrialized nation. That’s not a contest we should seek to win.

A lot of so called tax-reforms are anything but. Consider the introduction of the refundable tax credits, which looks like it will push America to follow Europe down the road of socialism!

The sad fact is that America is broke and the money required to pay interest on the money we’ve borrowed has to come from somewhere? Should we continue to “soak the rich”, or should everyone buckle-up and contribute their fair share? Or maybe we should just continue with business as usual and let our kids and grandkids deal with the consequences?

Government Bail-Out Of The Auto Industry – Part 2

Posted on February 17, 2009 by Nirav

About 4 months ago, I protest against the government bail-out of the auto industry. I said they were inefficient operations that were being driven out of business by the Auto Workers Union and they’d be back asking for more money pretty soon.

Well, it looks like the time to ask for more money has arrived! GM just announced it would need another $16.6 Billion if economic conditions continued to worsen, in addition to the $13.4 Billion it has already recieved. Of course economic conditions are going to worsen. GM’s statement that it may achieve profitability in 2 years and might be able to pay off its loans by 2017 sounds completely bogus to me.

GM claims it will be out of money by March. That means it spent the $13.4 Billion it recieved in December in just 3 months, or nearly $4.5 Billion every month! The company claimed that if it had to file Chapter 11, the cost to the government could reach $100 Billion, so in fact, pay them $16.6 Billion is actually a good deal.

When are we going to pull the plug on this loser?

Many people say that the economy can’t withstand the shock from the loss of nearly 1,000,000 jobs that the auto-industry provides. But the US lost nearly 600,000 jobs in January. Why aren’t we bailing out all those people too? Who decides which jobs get preferential treatment and which ones get axed? Does it help if the CEOs have friends in Congress? Or the Federal Reserve? (We know Ben Bernanke bailed out his old friends at Goldman Sachs while letting Lehman fail).

With the government spending all this money on things that don’t affect me, I can only think of one thing.

Where’s my bail out?

Should Congress Bail-Out The Auto Industry?

Posted on November 21, 2008 by Nirav

I got into a lively debate yesterday with a fellow student about the bailout of the auto-industry. He said the social ramifications of letting them fail were too high. The impact on the local communities would be too high and so they should be bailed out by the tax-payers.

I said they were not cost-effective and there wasn’t enough demand for their cars to keep them in business. Even if the government gave them $25 billion, they’d plow through it and be back at the door asking for another handout. The government, too ashamed to admit it had wasted the first $25 billion would probably hand them another $25 billion. (This is called the Concorde effect, after the failed Concorde partnership between England and France which was a financial disaster).

I read some articles with also drew similar conclusions, but with different viewpoints.

In 2006, the average hourly wage of a person with a high school diploma was $13.46 per hour. For those fortunate enough to receive insurance and other forms of compensation, the average was $17.50 per hour in total compensation. These averages encompass all age groups.

However, if you are a Detroit auto worker with a high school diploma, your total compensation comes to: $67.78 (Ford), $70.43 (GM) or $72.59 (Chrysler) per hour.

That’s right, it cost Detroit 4-5 times more to hire unskilled labor! I think it’s the auto unions who are driving the US car manufacturers out of business.

I think its said that someone who spent 4 years in college and graduates with a student loan has to work for about $20-$25/hr while an unskilled worker makes more than that. Even grocery baggers in California supermarkets used to make $27/hr after working there for 7 years because of their union deal! That’s a pretty sweet deal if you can find it.

But moving on…

All of this brouhaha about bailing out the auto industry and how destructive it will be to the country – sounds a lot like the moans and groans of the steel industry (and steel unions) a few decades ago when the Japanese and Koreans were killing the U.S. companies with low prices for bulk steel. The biggies, like U.S. Steel and Bethlehem, went under.

And you know what? Small, progressive and aggressive steel companies arose in the U.S. – not for the cheapo junk steel, but for the better grades, for alloys and for hi-tech steels. And in a few decades, the industry bounced back better than ever. The U.S. was THE place to buy the good stuff. The Far East was where you bought the cheap bulk stuff. Did it ‘hurt’? Yeah, for a while, but you know, we got over it and came through it all the better. We just forgot what we learned.

How many innovative car companies do you think will start popping up in the U.S. when the dinosaur Big 3, and their fat-assed dinosaur management, are finally gone? I don’t think that innovation is completely dead in the U.S.; it’s just been shut down in favor of huge management bonuses paid for killing industries through blind stodginess. Let’s see, how many U.S. car companies were still trying to crank out SUV guzzlers when gas prices were scaling Everest? Let the dead die so that the living can grow.

Sorry, unions and union members, but the day is over that a dumb back can command a sizeable (read uncompetitive) wage and benefit package just for showing up to do a job that, in many cases, a monkey could be trained to do. Better get some education. The new companies will be high-tech – there will be plenty of jobs for those with a reasonable education and training. Dumb backs will get to clean toilets at a commensurate wage.

Hear that Fed and Treasury and Congress? Don’t waste money trying to resurrect dinosaur corpses. Put the money into opening up investment in new technologies, good products and well-run companies. Put the money toward training a labor force that can be part of competitive industries. And start the ‘do it or fail’ philosophy in the schools. First-grade would be good.

This reminds of an excellent book I read a few years ago called God Wants You to Be Rich: How and Why Everyone Can Enjoy Material and Spiritual Wealth in Our Abundant World. The author states the example of automated farming techniques introduced in the early 1900s, reducing the workforce required for producing food from 30% of the population to the 3% we have today. Did those people starve to death? No, they went on to find other jobs. I think society, (and by society I mean the US taxpayer) is better served by having an overpaid segment of society go find some other work to do.

And lastly, if the economics isn’t enough, lets look at how poorly managed these companies are.

The execs for the Big Three automakers each took private jets to their testimony before Congress yesterday. Average cost for the flight from Detroit to Washington? $20,000… Northwest had flights available that day for $288 coach, $837 first-class.

“It’s almost like seeing a guy show up at the soup kitchen in a high hat and tuxedo,” Rep. Gary Ackerman, a Democrat from New York, said of the dynamic trio. “Couldn’t you have downgraded to first class or something, or jet-pooled or something to get here?”

Maybe they should have driven?

The southern states make cars like Honda, Acura, and Nissan. They don’t have the high labor rates and are actually profitable car companies. Obviously they’re opposed to the bailout because it use’s their tax money to help the competition.

So what do you think of the car industry bailout?

Manipulation In the Financial Markets

Posted on August 28, 2008 by Nirav

In July and August, the USD has actually become stronger against most other currencies, on apparently no news. Gold had also dropped as low as $790/oz from a high of $1030/oz this year, even though there is a shortage of physical gold in the US and the US mint had stopped selling gold coins like the American Gold Eagles. I was wondering if there was some manipulation going on in these markets.

Hedge fund manager John Lee thinks that gold prices are being manipulated in an effort to keep up the dollar afloat.

According to an article on Forbes, the central banks of the US, Europe and Japan planned in mid-March to prop up the US Dollar if it continued to slide.

Officials from the U.S. Treasury Department, Japan’s Finance Ministry and the European Central Bank reportedly drew up a currency contingency plan over the weekend of March 15-16.

The officials did not specify an exchange rate for initiating the dollar rescue plan, but in the event of a free-fall they agreed to aggressively buy the greenback and sell yen and euros.

Japan was to supply yen necessary for the underlying currency swaps. The plan also called for using a previously established swap mechanism between the United States and Europe.

Analysts said even though a rescue never took place, the fact that global monetary officials had agreed on action would be important in the future if the dollar were to tumble again or other exchange rates move very sharply.

Hmmm…who are these analysts and why should we trust what they say?

The Government and Wall Street has been less than forthright in the past. The CEO’s of Fannie Mae and Freddie Mac said a few months ago that they’re in no danger, but Buffett just declared game over for those two.

I’m getting tired of the bankers and government interfering in the natural course of things. They’re bailing out some market participants to the detriment of the taxpayer. People aren’t facing any adverse effects for taking on insane amounts of risks. If it pans out, they give themselves a bonus. If not the US taxpayer bails them out! Effectively, they’re socializing losses while privatizing profits.

Fannie Mae’s CEO claims that they make housing affordable for millions of Americans. However, if they went bankrupt, there would not be money available for huge home loans and home prices would fall. THAT would make home prices more affordable. Yes, it would be difficult for people to get a mortgage to buy a home, but it would encourage regular saving and it would take longer for people to buy their first home. But in the long run, housing would be a lot cheaper with lower payments towards mortgage interest and thus lower effective home costs.

The fact that the two CEOs of Fannie Mae and Freddie Mac took home $32 million last year while saddling the US Taxpayers with $500 Billion in losses means they can’t be trusted. If this isn’t outright theft, then at least it’s either gross misrepresentation, negligence or stupidity and they ought to refund their salaries, if not do serious jail time.

And talking about government manipulation, the Pakistani Government just introduced price controls on the most popular Karachi Stock Exchange Index. They got tired of watching the stock market drift lower every day, so until the officials decide otherwise, the KSE-100 cannot go below yesterday’s two-year low of 9,144!

Cheney Betting Against The Dollar

Posted on April 1, 2008 by Nirav

Not exactly fresh news, but its been reported that Dick Cheney, our beloved vice-president is betting against the US Dollar. He has tens of millions of dollars in foreign government bond and currency funds and international and emerging market stocks. His excuse is that it’s in a blind fund and he doesn’t know what his advisers invest in. That sounds like complete rubbish to me. I can’t imagine someone as intelligent as Dick Cheney not knowing what a huge chunk of his reported $95 million networth is invested in.

I’ve believed for sometime now that the government actually wants a weaker dollar and have been investing accordingly, but having the vice-president profit from it is a bit too unethical. The fact that he’s been profiting from the war in Iraq through no-bid contracts to Halliburton (in which he still retains a large amount of shares) is bad enough. If this had been China, he’d have been executed for bringing dishonor to his country!

Ethics aside, at least he’s good at investing. By being bearish on the dollar and the US economy he joins the ranks of supermodels, billionaire investors and sovereign wealth funds!

But there’s significant conflict of interest. Rather than spending $2 Billion a week in Iraq, if the government was spending that money on infrastructure development we might have a better economy. A stronger economy wouldn’t need this rate cuts and government deficits wouldn’t be in the trillions of dollars. This might have conceivably led to a stronger dollar.

Instead we have a dollar that is the weakest its ever been. For the first time in history, the Swiss frank is stronger than the US dollar. Most foreign currencies have appreciated considerably against the dollar over the past 2 years and I don’t see any signs of this trend reversing.

So are you going to follow the leader and bail on US investments too? Or are you going to stick your guns and weather the storm?

Gold Cracks $1000/Oz: Investing For A Recession

Posted on March 14, 2008 by Nirav

Based on continuing weakness in the dollar, gold briefly breeched the $1000 level yesterday along with oil hitting an all time high of $111 per barrel. I had a really strong suspicion that we’d see $1000 gold by mid-March.

Despite what Bernanke and Paulson said last summer, the housing bubble has spread to other parts of the economy and subprime mess has not been contained. In a last ditch effort to prevent banks from collapsing, the Federal Reserve announced a bailout of Fannie Mae, Freddie Mac and other banks, promising to exchange bogus mortgages for Treasuries during a 28 day window. They named this Term Securities Lending Facility (TSLF) but it’s just a good old bail-out.

Of course, the stock markets loved this move because it means the Fed is going to prevent banks from failing. However, this $200 Billion bail-out doesn’t come without a cost. The Fed is going to have to print an extra $200 Billion to cover this deficit. But it was a clever move, because Bernanke didn’t have to cut interest rates before the 17th of March, when he’s slated to do so anyway. Another move like that might have created a panic in the markets instead!

Bloomberg reported today that OPEC is going to make about $927 Billion dollars from the sale of oil this year. That’s almost $1 Trillion dollars! Worldwide, sovereign wealth funds (SWF) are thought to be worth about $2.8 Trillion. Considering that the combined wealth of global nationalized assets is about $12 Trillion, that’s really impressive. It probably means that SWFs and OPEC will start buying up pieces of America, since they really can’t do much else with all those US Dollars. Of course, they could buy Treasuries, but it seems like everyone’s now realizing that they’re useless as the dollar keeps on devaluing. Meanwhile, the US government is helpless against stopping the sale of US assets. Our own SWF is negative $9 Trillion, so we have some catching up to do before we can actually buy anything. I think the government’s best bet is to make all those Trillion worthless by printing more and more dollars. Bernanke knows this and so far he’s doing a bang up job. Of course, this leads to severe inflation, but don’t say I didn’t warn you.

Considering how wrong our economic advisers have been so far, I think it’s safe to assume the 0.3% GDP growth that’s forecast for the year is a tad optimistic. While everyone’s still denying it, I think we’re already in a recession and along with inflation, that amounts to a 70s style stagflation scenario.

Considering that consumer spending has slowed down and is likely to continue, US companies are going to go through some tough times. How do you protect your stock investments then? You can’t sell them and move to cash, because the US dollar is sliding too. Coupled with inflation, your wealth is going to slowly (or maybe not so slowly) erode over the next several years.

Here are some investment ideas:

1. Diversify into foreign currencies: I like Australian Dollars, Swiss francs, Japanese Yen. Jim Rogers likes Chinese Remnimbi and Warren Buffett like the Brazilian Real. Take your pick.

2. Buy US giants with international exposure: Consumer staples have historically done very well over the past 60 years, regardless of the economic scenario. I like stocks with a decent dividend yield like Pfeizer (PFE), Johnson and Johnson (JNJ), Merck (MRK), Unilever (UNL), Proctor & Gamble (PG), Kraft Foods (KFT) and Anheuser-Busch (BUD).

3. Invest in agriculture: Bush’s moronic plan to reduce our reliance on foreign oil by substituting ethanol has only resulted in a surge corn prices. The economic growth in countries like China, India, Russia and Brazil is increasing the size of the world’s middle class. These people will be improving their diet and adding more meat and veggies. They’ll also be drinking more milk. There’s already surge in global prices of all of these soft commodities. There are quite a few ETFs that will help you profit from these trends, like PowerShares Agriculture (DBA) which consists of 30% soy, 28% wheat, 23% corn, 16% sugar, Van Eck Agribusiness (MOO) [8% Monsanto, 8% Mosaic, 8% Komatsu, 8% Potash Corp] and PowerShares Commodity (DBC) [33% crude oil, 20% heating oil, 14% wheat, 11% aluminum, 10% corn, 10% gold].

Along with this, a demand for fertilizer will result in compannies like Potash Corp (POT) doing very well. If you’d like to invest in milk, American Dairy (ADY) and Dairy Crest (DCG) are too suggestions, but I haven’t done much research on them.

4. Buy Gold: I don’t think it’s too late to start investing in gold. You can buy gold coins and bars, the gold ETF (GLD) or mining stocks (GDX).

5. Invest in Metals: The global boom is creating a huge increase in the demand for metals like copper, iron, aluminum, zinc, etc. Mining stocks like BHP and RIO have done very well. Indian company, Sterlite (STL) also looks like it has good long term prospects.

6. Invest in Infrastructure: Not only is America’s infrastructure collapsing, but global growth makes betting on infrastructure a safe bet. I like Brookfield Infrastructure Partners (BIP).

7. Invest in Oil and Gas: Major oil companies like Exxon-Mobile(XOM) have served its investors well for decades. I’ve also invested in direct oil drilling programs, which go out and drill wells with your money and give you a share of the proceeds. I also like Canadian Royalty Trusts that invest in oil fields. There a few new ETFs that buy heating oil and gasoline futures. I’d stay away from these as their performance is as yet unknown and they might be subject to backwardation and contango.

8. Invest in Water: Water pipes all over the US are breaking. Built after WWII, these pipes had a lifespan off about 50 years. As the nation replaces these pipes over the next several years, cast-iron pipe companies are set to make a killing. Check out NorthWest Pipe (NWPX) and the water ETF (PHO).

I don’t know about the rest of US, but Nevada and Southern California are going to face a huge water shortage in the next decade. Most of the water comes from Lake Mead and the tremendous population growth in Las Vegas and Henderson has tapped the limits on the lake’s capacity. Check out this photo:

Dont’ you think a company that owned the water rights in Nevada and California would make a decent amount of cash over the next few years.

How Paypal Condones Fraudulent Sellers

Posted on February 25, 2008 by Nirav

Recently someone of Digital Point Forums was selling the code for a video blog. I thought I’d give it a shot. I sent him the money via Paypal and he sent me a link to download the code.

Unfortunately, the code was incomplete and didn’t work at all. I sent him several emails asking him to fix the code. At his request, I even set him up with an FTP username-password so he could copy the code over himself. Apparently I’m not bright enough to unzip a file and upload it to my own server!

He never uploaded any code and he stopped responding to my emails.

Anyway, after more than a week I got tired and contacted Paypal. I opened a dispute and they sent the seller an email which he ignored. After 2 days I escalated the dispute to a claim.

But Paypal denied the claim! Here’s their canned response:

You have chosen to escalate your dispute to a PayPal claim. By ending communication with the seller, you are asking PayPal to investigate the case and decide the outcome. As part of our investigation, PayPal reviewed any communication you may have had in the Resolution Center.

Our investigation into your claim is complete. As stated in our User Agreement, the claims process only applies to the shipment of goods. It does not apply to complaints about the attributes or quality of goods received. Therefore, we are unable to reverse this transaction or issue a refund.

———————————–
Transaction Details
———————————–

Transaction Date: Feb 14, 2008
Transaction Amount: -$11.00 USD
Your Transaction ID: XXXXXXXXXXXXX
Seller’s Transaction ID: XXXXXXXXXXXXX
Case Number: XXXXXXXXXXXXX
Seller’s Name: syed sinofer
Seller’s Email: silas_in2006@yahoo.com

Luckily it wasn’t a large amount, but it still left me pretty pissed. I suspect that the seller had bought a piece of software that generates a video blog and was just zipping up the resultant code and illegally reselling it. By its inaction, Paypal is condoning these fraudulent sales. Basically you can sell anyone complete crap and Paypal won’t do a damn thing! So long as you actually send the buyer something, you’re safe to continue scamming people!

Until today I was under the impression that Paypal would protect me against fraudulent sellers. Doesn’t seem like this is the case.

Friday’s Rant: Its the Government, Stupid!

Posted on February 1, 2008 by Nirav

In the past week or so, the Federal Reserve has lowered the interest rates 1.25%. Today they’ve announced that they’re going to lend out $60 Billion to cash-strapped banks to prevent a credit crunch and to maintain liquidity in the economy.

By lending out money below the real rate of inflation, the bank is essentially handing out free money. Basically, Ben Bernanke is giving away a truckload of money to anyone who asks for it!

My guess is he’s going to keep lowering the interest rates for the remainder of 2008 until we’re at a 1% Federal Funds rate.

Since the US consumer can no longer refinance his house to fulfill his appetitive for consumption, Bernanke’s hoping that low interest rate consumer loans will continue to fuel consumption. After all, we’re a consumption based economy (as opposed to other countries, who actually make goods). Evidence of this is provided by the Economic Stimulus package worth $150 Billion. Since our economy is $15 Trillion, I guess $150 Billion will make 1-2 months look good, long enough for President Bush to claim that the economy has turned around as he gracefully exits office.

By lowering the interest rates after the dot-com bust in order to prevent a major recession, Greenspan caused the housing bubble. And now, Bernanke in trying to prevent the recession that should’ve occurred in a few years ago, is probably going to create a credit card/personal loan bubble.

I’m sure Wall Street will come up with a novel way to bundle $100 million portfolios of unsecured personal loans and palm them off to some unsuspecting foreign country. Of course, they’ll make a quick buck without assuming any risk, but more importantly, they’ll provide a risk-adjusted yield for their clients and provide necessary liquidity for the banks. Standard & Poors will issue AAA credit ratings to products they can barely understand. As usual, Goldman Sachs will start shorting the very products its selling to its clients and make even more money!

Meanwhile, the government has dis-incentivized savings, which it doesn’t believe in anyway. Why else would we have a budget that’s only $400 Billion in deficit (excluding the cost of the Iraqi War and future debt obligations)?

The government is funding its growth (yes, the government never has a recession – its always growing) through the sale of US Treasury bills and has no intention of ever becoming debt-free. As the world’s largest debtor nation, we don’t even have a plan towards economic recovery or paying off our debts.

I think the government and Federal Reserve are leading the US down the path of bankruptcy. Of course by the time we all realize it, it’ll be too late.

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