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America For Sale

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January 15, 2008 – Comments (3)

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.

3 Comments – Post Your Own

#1) On January 15, 2008 at 10:58 AM, edwjm (99.87) wrote:

I would have titled this "America for Sale - Cheap!!"

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#2) On January 15, 2008 at 4:51 PM, DemonDoug (76.88) wrote:

ed, the problem is that if a company is worth zero, anything you pay for it is too much (I'm looking at YOU Bank of America!)

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#3) On January 15, 2008 at 8:33 PM, abitare (32.06) wrote:

ALCON, 

I thought I was a lone skeptical Bear. But I have found skeptical Bearish peers. I think I am going to get choked up...

5. Michael Douglas, Wall Street (1987): The point is, ladies and gentleman, is that greed - for lack of a better word - is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of its forms - greed for life, for money, for love, knowledge - has marked the upward surge of mankind. And Greed - you mark my words - will not only save Teldar Paper but that other malfunctioning corporation called the USA.

dwot,

I found another good site. I finally broke 4100 points! My solar and shippers sunk. My airline underperforms are killing me. 

http://www.itulip.com/ 

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