America For Sale
What happens in the after math of an economy that allows financial profits to rise from something like 12% to 28%?
You have to question where does the massive increase in profits come from. And now it seems we know. It comes from credit ponzi schemes.
I suspect no economist out there has factor in the effects of the aftermath of how the financial institution must now fix their balance sheets.
Take Citibank, for example, how much foreign capital will they end up having to raise? They just raised $7.5 billion in the fall and now another $14.5 billion. This same article talks about Merrill having to raise $6.6 billion after raising $7.5 billion in the fall. E-trade raised billions from Singapore. Everywhere the financial sector is raising capital from foreign investors, and they are cutting dividends.
The capital they are raising is coming at massive premiums, I think 11% in the fall for Citibank, 14% for MBIA...
Analysts have repeatedly proven themselves an inability to think out of the box and look at the bigger picture of what has to come. This is money that leaves the country at a rate that is economic rape. It isn't just the raising of the capital, but the massive "preferred" finanical income that now leaves the country.
I wouldn't be investing in a US bank without some assurances that my good money isn't destroyed with the sour money that is already there. And this is what these equity deals do. They get convertible bonds that put them in the front of the line for getting paid. It puts them in the front of the line should a bank fail.
But, what I suspect is no financial model has in its projections is the effect of having dividends that used to be paid to Americans now being paid to foreigners. This is a passive stream of money that now forever leave America and has zero opportunity to stimulate the American economy.
Long term, the effect is probably enormous.