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Category Archives: Other People’s Money
The New York Times’ Eric Dash has an excellent story today on the outrageous compensation ratios at the biggest banks and brokerages. $1.50 in employee compensation for every $1.00 of profit, for instance, at Citigroup. At the expense, especially, of shareholders.
Guys and gals — there’s only one answer if you’re mad at these banks. Sell any shares you hold in them. Call your mutual fund company, your 401(k) or pension manager, and urge them to sell. If they won’t, sell your funds and invest in China.
Shareholders are getting the short end of the stick every day, and this is the most egregious example. But hey, it’s your wealth, your retirement. Do what you like.
I hate to sound so cynical — you would be too if you lived through the bursting of the original “tech and internet bubble,” the first of our great asset inflations — but when I hear a Morgan Stanley analyst compare today’s Apple to late 90s AOL and Microsoft, my instinct would be to run in the opposite direction, as quickly as possible. (Such a strategy would have made you a rich and happy camper in the Spring of 2000.)
“Apple changed the view of what you can do with that small phone in your back pocket,” says Katy Huberty, a Morgan Stanley analyst. “Applications make the smartphone trend a revolutionary trend — one we haven’t seen in consumer technology for many years.”
Ms. Huberty likens the advent of the App Store and the iPhone to AOL’s pioneering role in driving broad-based consumer adoption of the Internet in the 1990s. She also draws comparisons to ways in which laptops have upended industry assumptions about consumer preferences and desktop computing. But, she notes, something even more profound may now be afoot.
“The iPhone is something different. It’s changing our behavior,” she says. “The game that Apple is playing is to become the Microsoft of the smartphone market.”
Edit: By the way, who in world has ever carried a cell phone “in their back pocket?”
Great reporting from Sunday’s New York Times. Read the whole story here.
In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, not only from banks but also endowments and pension funds, buyout kings like THL upended the old order on Wall Street. It was, they said, the Golden Age of private equity — nothing less than a new era of capitalism.
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral — just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.
Investors who bought that debt are getting virtually nothing in the new deal.
As we continue to live with the consequences of the anti-public onslaught visited on our society these past decades by the radical reactionaries who have been calling themselves “Republicans” and “conservatives,” towns and cities across the United States have been forced to cancel their 4th of July fireworks — and sometimes their entire 4th of July observations — due to a lack of public funds.
Cancel the 4th of July? Think about it.
Thank your local “conservative” for working so hard all these years to “starve the beast” of government. As the man said, “Wave that flag; wave it wide and high!”
Of course, if you live in a large-enough city, you can still enjoy a fireworks show this July 4th. One brought to you through the “benevolence” of the executive overlords at your local, global corporate entity, like Macy’s in New York, or Target in Detroit. The national fireworks show, on the mall in DC, is itself brought to you as a good deed by a consortium of defense contractors (Base Technologies, Inc.) lobbyists (Tell America; The International Webcasting Association), and the usual corporate citizens, like Boeing and American Airlines. This, in our executive-overlord dystopia, is the way things are supposed to work: our government is supposed to be beholden to the “benevolence” of corporations. Have some municipal initiative? Better get your private funding and the chamber of commerce on board, boys. Anything else would be socialism.
Of course, when your country is up for sale to the highest bidder, attractive properties like the DC Mall, or the West Side of Manhattan garner the most “investor” interest. Meanwhile, hundreds, if not thousands of smaller towns and municipalities have cancelled their 4th of July, including my home town of Yonkers, NY. A cursory Internet search gives you an idea of the scope of this “patriotic” farce; towns cancelling their 4th of July include:
Yonkers, NY; Parma, OH; San Jose, CA; Charlottesville, VA; Hialeah, FL; Mesa, AZ; Colorado Springs, CO; Niceville, FL; Garland, TX; Gwinnett County, GA; Miami-Dade County, FL; Flint, MI; Montebello, CA; Nixa, MO; Bristol NH; York, ME; Methuen, Peabody, Randolph, Abington and Bridgewater, MA; Roseville, CA; Gurney, Elgin, Berwyn, North Riverside and Harvey, IL; Newton, IA; Loxley, AL; Rahway, Milville and Ridgewood Park, NJ. This is a representative sample from 5 minutes on Google News, not an exhaustive list.
Plymouth, Massachusetts — you know, as in “Plymouth Rock” — cancelled its 4th of July parade and celebrations altogether; after many years of being funded by private citizen donations, this year the contributions just dried up.
As for me — I’ll be out riding my bike this weekend as usual. And despite my memories of wonderment at the little fireworks show that used to be staged at Ft. Totten in Bayside, NY when I was a kid, as I enjoy the unusual quiet this weekend, I’ll know who to thank.
Our large financial institutions simply refuse to learn the lesson that large, M&A-driven investment shops, and retail investment firms, cannot comfortably coexist. There are simply too many inherent conflicts of interest, and most so-called “firewalls” are observed mostly in the breach. Deregulation, and most important, Graham-Leach-Bliley, removed the last remnant of common sense in this arena: you just can’t mix oil and water.
Nevertheless, the brilliant minds that brought you “Morgan Stanley Dean Witter” — a merger that cost billions, that cost untold millions to “brand,” and then just a few years later cost shareholders untold millions more to “un-brand” — now bring you “Morgan Stanley Smith Barney“.
Gee, and to think, they could call it “Morgan Stanley Dean Witter Smith Barney & Co.” Hey, why didn’t I think of that?
My dearest brother sent me a link to yesterday’s New York Times story detailing how hedge fund investors are circling the country’s small banks like raptors after particularly tasty chipmunks.
Published: May 5, 2009
CAINSVILLE, Mo. — No one seems to want to own a business in this dusty, windswept corner of rural America, population 370, with its crumbling sidewalks and boarded-up storefronts.
First National, with its boarded-up second story and $17 million in assets, is worth about a third of what its owner, a New York investor, paid for an Upper East Side town house in 2006. It is an unlikely launching pad for a new American banking empire. Except, that is, for J. Christopher Flowers, a media-shy New York billionaire who last year bought the First National Bank of Cainesville, one of the United States’ smallest national banks.
With that charter in hand, Mr. Flowers plans to take over a handful of large struggling banks, casualties of the economic crisis. In some cases, he hopes, the federal government will help.
Mr. Flowers, a private equity manager, has no particular love for rural Missouri; in fact, he has never set foot in Cainsville. Rather, he wants to use the national bank charter he picked up in this farm town to go on a nationwide buying spree.
My brother’s comment was telling:
Hello sucker— how the vulture capitalists will pick your pocket with the help of their lobby and the same connivers in the congress!!
And it’s hard to argue that he’s not right. Parties that hold “toxic assets” are going to unload them to other parties who also hold “toxic assets,” who in turn will unload their “toxic assets” to other parties who also hold “toxic assets” in a scheme to make would-be M.C. Escher’s the world over jealous. And all with underwriting from the government and the Fed.
But, as hard as it is to believe, there is method in the madness. And that method derives from the timeless logic and priceless American wisdom of Willie Sutton.
Sutton, as we’ll all remember, was among the public enemies number 1 of his day (almost as fatal as being “Al Qaeda’s No. 2” today I suppose) who, when asked why he robbed banks, famously replied, “because that’s where the money is.”
Which brings us back to the question, why are “vulture capitalists” (and their firms) being allowed to “pick our pockets [again]?” The obvious answer to which is “’cause that’s where the money is.” Having recently put my wallet through the washer, I can say beyond a shadow of a doubt that passing “distressed assets” from dirty hand to dirty hand is an act any money launderer can be proud of. But, given the way the world works, this miracle of accounting legerdemain (or should that be “ledger-demain“?) will probably have the desired effect, over the long run, of rinsing away the sins of the B- tranche, and restoring the appearance, if not the actual fact, of health to the financial sector.
And since this is a game that requires an enormous amount of money to play, why waste our time being aggrieved that the same Masters of the Universe who drove the bus off the cliff own the tow truck that’s come to drag us out? It’s American as Willie Sutton. Or in the words of the immortal poet, Roger Daltry: “Meet the new boss [baby]; same as the old boss.“