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Increased Financial Sector Dilutions



February 08, 2008 – Comments (2)

If you have been following the market that financial institutions need to raise more capital because of losses should be no surprise.  The ease at which the financial institutions have raised cash has completely surprised me, even MBIA getting over subscribed to their $750 million offering this week and raising $1 billion instead, but then the shares were discounted by about 15%.  But they could have discounted them to half and I still wouldn't have touched it.  I am going on memory here, but it seems to me that it was originally 50 million shares being added to 125 million shares, a 28% dilution, and the over subscription means more like a 33-34% dilution.  Doesn't that even just complete throw off your investment?

Naked capitalism is pointing to evidence that this foolish first pool of money is drying up. 

"His latest travels have delivered a surprise: some funds are quietly getting cold feet about the idea of putting more capital directly into western banks, he says.

“There is a backlash building,” he muttered into a crackling cell phone. "

On another point, I believe it was Merryl Lynch that had all if its executive staff working over xmas to raise capital and the amount they raised seemed high at the time compared to what others were raising.  Perhaps they did a better job of figuring out what they actually need.  In view of what is happening with the ability to raise capital for the holes in balance sheets it looks like those who have worked to raise capital early, and come up with better estimates of what they need will do better than those who tried the penny foolish try at limiting dilution to start.

The lack of transparency of financial institutions means that you are truly gambling by investing in them.  You just don't know how much of the subprime and CDO's they will be hit with and you don't have access to the data to make your own estimate.  You also don't know how many ticking time bomb leverage accounts they hold that could put them at further risk.  There are something like 5000 hedge funds and something like 10% of them are at risk for serious unwinding...

On another point, I was trying to figure out what percentage of the population is a part of the workforce and my search efforts weren't getting me far.  There were 302 million in the last census.  Of that children and seniors tend to not be a part of the workforce.  Anyone know these numbers, and perhaps where you can also find the relative percentage over the years?

I was looking at a report that was saying that debt as a percentage of GDP is actually smaller than in few other times, notably after WWII where it was up to 120%.  Well, look at what the economy was, our daily meals weren't a measured part of GDP and they are today.  The economy was very much a single bread winner with stay home moms kind of economy. 

I think when you are comparing this kind of thing and you don't take into consideration that even thought it was higher then, the economy was very different.  I think debt at 70% with most families being double income wage earners and where that GDP is inflated due to lifestyle changes and counts things that never used to be counted (like the cost of eating out rather than eating at home) means that you just can't make these comparisons.  Further, something like 28% of markets were financial institutions, so what percent of GDP does that make up? 

Ultimately, the greater the percentage of the GDP going to financial institutions, the greater the chipping at societal wealth.  They don't produce any material goods, they get their money by taking a cut of your money, plain and simple.  They created a shadow banking system that swelled their paper pushing ranks, and all of these losses are just now showing just how much of other people's wealth they've chipped at.  This simply isn't real GDP even thought it has been showing up in the numbers and has been a large contributor to the increase in GDP over the past 10 years.

2 Comments – Post Your Own

#1) On February 08, 2008 at 10:23 AM, devoish (67.77) wrote:

non-farm payroll is 138.1 million according to the most current report from the

I did not read through to see if that includes the self-employed or part-time.

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#2) On February 09, 2008 at 11:00 AM, dwot (29.01) wrote:

Thanks devoish.  So, that is about 46% of the population.  In my mind I tend to think it is about half the population that is "working."   I like to think of debt numbers as per worker because it is ultimately workers that are paying society bills and essentially carry the debt burden.

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