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April 12, 2008 – Comments (4)

It was February 1985.  I was 23 and I had just started at a job that I anticipated would be interesting, but problematic.  I was planning on going back school in September so it really didn't matter.  I only planned to be there for about 6 months. 

The guy that ran the travel agency was questionable, but the choices had been an insurance company or a travel company.  At 23 a travel company is a heck of lot more appealing than insurance.  I had no idea the disaster I was walking into.

I had worked in banking and I'd been hired to look after books.  I was young.  I did what I was told, but I quickly realised it was wrong.  Clients who "booked" a vacation had 3 days to make a deposit.  Clients were encouraged to reserve their vacation without a deposit, even when the likelihood of firming that booking was slim.  I was told to record those booking as accounts payable or something like that.  Within a week or two I realised the problem with what I'd been instructed to do and that these transactions weren't for the books until actual deposits were received.  More than half never firmed up their booking.

Meanwhile many condos were being rented monthly by the company and then re-rented out into vacation packages.  There were a couple franchises and there were serious signs the numbers weren't working.  I suppose the commission scheme required a much higher ratio of rentals than what was happening.

As I learned more, it seemed to me that Mr Shady had taken the self-employed investors who owned their fanchise and he took an unsustainable pay cut for himself out of their $50-100k investments and the entire model was insolvent.  It was falling apart.

There were urgent calls from the representative in Hawaii and condo owners weren't getting their rent cheques.  Meanwhile, Mr Shady was trying to broker a quarter million dollar deal with a new investor.  I had been with this company about 3-4 weeks when I realised the dire straights of the company.  

In week 5 the urgency of the calls from Hawaii increased, and Mr Shady was avoiding those calls.  The scramble was on to secure a 1/4 million dollar investment for a company that did not have a viable business model.  I remember Mr Shady taking a couple thousand out of the company in that dire period to put on a carnival party for his kid.  

On Thursday of week 5 the message from Hawaii had only one word in the message titled "Call" -- it was "Urgent!"   It was a stressful period, when the sense of impending doom was building and there was total helplessness.

On Friday showing up for work there was a sign on the door, "This Office is Closed by the authority of..."  Well, I forget who had the authority to close down the business.  We were allowed in for a 10 or 15 minute meeting to tell us we didn't have a job anymore and to get our personal items and the game was over.  It was payday, but there was no pay...

The stuff I'm reading out there this weekend gives me the same feelings of impending doom, an out of control train wreck that you can't do anything about, only this time it is so much bigger...

I saw someone mention that Jefferson Country is approaching bankrupcy, and I see now that Mish has posted an accounting of what is happening there

This is about those derivative things that are my main reason for trying to hide from what's happening.

And I agree with Mish's assessment on the bottom callers: 

On that I say "No Chance". There are $45 trillion credit default swaps, and over $500 trillion total derivatives, so expecting a default on tiny deal of $3.2 billion to mark any sort of bottom is strikingly Pollyannaish.

The scary G7 meeting, the debt growing so much faster than expected, and the dervatives starting to unwind...  

Wall street wants to force municipalities to raise taxes.  They will tell you businesses will move if you raise taxes, but they haven't figured out that people will refuse the taxes and go elsewhere as well... 

 

4 Comments – Post Your Own

#1) On April 12, 2008 at 6:59 PM, lquadland10 (< 20) wrote:

China now taxes the U.S. companies 25% to do buiness there. Can you immage what would happen if the U.S. had a 0% tax for corperations and a $20.00 hour min. wage? All of the world would come to our door step and want in. It would be the boon of a life time. How blind are our leaders. We were the first to lead the  recession and now as you say the G-7 says the world will slow down. It is now clear to me that the next step will be the depression that we will end up in and the lead of a depression world wide. Then the bankers of the world will quietly manipulate the world with well placed wispers and lend money for weponds of war and then we will be lied to by all governments and media and volia world war 3. And so the merry go round goes round and round.  Yes more and more banks will close and does the FIDC insurence that covers the deposits or did the Fed not collect the money during the good times? They didn't collect the money. They can't cover but a part of what is on deposit and that is one of the reasons  the banks don't want to lend to each other. The other reason is they don't have the money to lend because it is all run like Enron.

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#2) On April 12, 2008 at 8:39 PM, abitare (83.45) wrote:

We are aligned. I am looking for some farmland within commute. But land has gone up significantly and corperate buyers grab anything that might be cheap.

Food inflation is coming, might be a good time to stock pile some groceries.  

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#3) On April 13, 2008 at 10:40 AM, nuf2bdangrus (< 20) wrote:

History has shown us that government and industry officials have the worst track record of telling the public what really is occuring, ostensibly, for fear of creating panic.  Therefore, only begrudgingly will the admit the gravity of the crisis, and always admitting what is by this time common public knowledge.  Therefore, one must follow the trend of comments to predict the future, as the Bernake's of the world are probably the last to know what they have always deeply feared.

 

It is really rather simple.  We have created paper prosperity for 20 years on growing debt, a falling dollar, a hollowing economy, deeply flawed education institutions who graduate mediorcrity, growing unfunded future liabilities, loss of border control and thus the creation of a "shadow economy" in which everybody ultimately loses,.  All of these forces now gatehr to create the perfect storm to gather on a nation undersaved, overborroed, underskilled, and undereducated.  The political solution will always look for the easy blame and easy exit, thus socialism will creep into the economic dialogue as capitalism will be blamed for the causes, whn in truth, the core causes, many in number and root, really boil down to a tation that has sought the easy way economically, culturally, and politially,and abandoned principles of indivudual responsibility, absolute morality, personal charity (replacing with forced charity i.e. taxes).  Look at the recent city council meeting of Detroit Mi, to give you an example of how far things have gone.  These ignorant idiots are incontrol of a major city that was once the proud hub of American production, now it is a group of pimp demagogues who are bankrupting a city and an industry.  Until we demand better, this is what we will get.  The question is, will there be enough of us to demand better? 

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#4) On April 13, 2008 at 1:13 PM, abitare (83.45) wrote:

nuf,

Very good post/quote. We are like minded.

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