PODCAST-TRANSCRIPT-WEEKLY-UPDATE-2009-JUNE-28 (FRANCONOMICS.COM)
Hello. Welcome to the weekly economic podcast from Franconomics.com for the week ending June 28, 2009. I am Sam Mishra, and let’s revitalize our financial brains with a recent quote about banks and bankers which we aired a few weeks ago from Warren Buffet’s 85 year old deputy Charles Munger:
“This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without,” He also said this about banks too big to fail: “If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been -- and as stupid as they’ve been.“
If you have been watching the news, you can see that President Obma is moving quickly on to other issues like health care. We have another series of podcasts planned on this important issue as well, for I know first hand what it means not to have health care --- your family can’t expand for if you get pregnant and then get the insurance, it will become a pre-existing condition and will not be covered; you can’t do any of the extreme sports for if you break your legs, you will have to give it up as in giving up an arm and a leg to get the leg fixed; you can’t afford to fall sick, period. While we cook it up well before serving you the real economics underneath the appalingly faulty health care system, let’s keep our nose to the grindstone, as in analyzing, you got it, the Goldman bonus. How is it affecting your wallet. Well, for starters, they stole $12.9 billion of taxpayer money through AIG, when AIG was bailed out, and the rumor on the street is , AIG ws bailed out to save Goldman, and Goldman was the largest recipient amongst those who received AIG insurance handouts, $12.9 billion is a lot of money. They used that money to pay nice bonus to their executives, and are using the remaining billions as bait to take employees from Citi and other banks you and I now own as majority share-holders. Did you read the news, if you did not, we have a link to it, how Citibank is not going to give bonus, for TARP and other regulations don’t allow that, but it is going to give an increase in base salaries to its employees, for there is competition from the likes of Goldman luring away its best employees if Citi didn’t do that? Before the financial crisis, top traders and investment bankers typically earned $125,000 to $250,000 in annual base salary and another $1 million to $5 million bonus, according to Alan Johnson, managing director of compensation consulting firm Johnson Associates. Please, the fact that one individual could pull in $5 million year, or even, 1 million, year after year, is the reason we have the financial crisis. We at Franconomics.com have been telling you for six months now through these Podcasts that the elitism of the banking system is the problem, and needs an engine overhaul, not an oil change. And unless you regulate Goldman and Goldman Bonus and Goldman profits, firms like Citi will give the excuse that they are getting squeezed and will keep paying its employees more and more, from the money we taxpayers will have to cough up eventually. I say, no bonus to Goldman employees for 2009, and pull back their 2008 bonus by taxing it at 100%; No raises, base, bonus, or whatever, to Citi employees, 15% of America is unemployed.
Now, don’t be alarmed by 15%. Officially, it is less than 10%, but that does not include folks who are not drawing unemployment anymore, but are still unemployed. It does not include the homeless who subsist on 16 drinks a day and if you put them into shelters, the no of drinks comes down by only 5. The official 9.5% does not include those people who are so dejected that they are not even looking for jobs. It does not include people from minorties who are serving jail sentences. It does not include home-makers, who given the freedeom by their husbands, and the opportunity by the administration, and we believe the administration could do that if it stopped pandering to the bankers and started serving the people who voted it to power in the first place… it does not include those house-wives who would like to work. So, add all the above to the official close to 10%, and you have official solid 15% unemployment in the land of opportunities. And the Obama administration, with its Geithners and the Summers, DOES NOT GET IT! Ok, coming back to Citi and its planned salary raises --- Lots of PhDs I meet in Cambridge who would gladly do your job for half the pay, you free-riding bankers, I refuse to part with my tax-dollars so that the bankers wives can go mall shopping in nice limos and the banker children are taught in prep schools how to dupe the next human being and take his sweat and roll it up into dollars and smoke it off as a nice tropical vacation from New York to the Carribean. This has to stop, the Goldman and Morgan Stanley bonus of yester-years should be taxed at 100% and returned to share-holders. And no salary hikes for citi middle manager or top trader. Now Citi is government owned. These traders and managers work for a business that would be insolvent without taxpayer help, to Vkram Pandit and other CIti executives --- stop hiking salaries of your average joe employees at our cost, at the taxpayer cost. If they all want to go to Goldman, so be it. There are enough PhDs walking the streets who will take up those jobs, and I can take up your job if you are tired doing it, Mr. Pandit.
Amongst other news, what made the rounds were how the emerging economies of China, India, and Brazil would eventually pull everyone else out. Please, unless the banks stop the chokehold they have on the current administration, nothing is going to really change. The working poor will get poorer, and the rich reckless bankers will keep wrecking the world economy. Also, these newspapers and mainstream media write so poorly. We have a link to one such news item, which says that the BRIC economies will pull us out of this mess, but they can’t do all the work, we will have to do some. Then down below, the article focuses on how Chinese and Indian economies are decoupled from the West, and how they will grow at 5% and 7% rate this year, while US goes down by 3% and Europe by 4.5%. If these economies are decoupled, how will they lead us to growth? Please. It is true that these economies have never been dependent on a macro level with us, sure there are news I keep hearing how an Indian husband wife duo in their 20s committed suicide because both lost jobs, and cant find new ones, thanks to the IT sector in India not going up. And in this case, it is because the IT sector, albeit a miniscule portion of India’s economy, and an even smaller fraction when it comes to India’s billion plus population, it is because the IT sector depends on exports, both software and manpower exports, which is hurting because of the shrinking US economy, especially banks. Well, in our opinion, Indian firms will do well if they did not depend so much on US banks for their IT exports, these banks are going to shrink further, before they stabilize, and ultimately recover.
So, let’s not depend upon India and China to pull us out from this mess. We professed in the last podcast though, that is one Global Economy,ofr if the Chinese dump the US treasuries, as in the 10 and 30 year bonds, it will jack up interest rates here. So, let’s get into China a little bit more. Actually, even though Geithner loves going there, and even though I have friends who teach there for they are well qualified, in one case an Ex-Marine, with a masters from a good school, but he wants to come back here, except that he has a problem. There are no jobs here. OK, China is the Tiennaman Square massacre headquarters, and who knows when there will an Iran like situation there, only hundred times more magnified, because even though the rank and file Chinese has digested the brutal Tienaman Square killings, the pain lingers on, and China is a political ticking time bomb. India has no such problems, but unlike the Chinese, they like to sleep. That is why China grows at 7% as opposed to India’s 5%, for the CHINESE DON’T SLEEP. So, how will all this zooming into the third world actually going to benefit you, if you are a serious listener to the FRANCONOMICS podcasts, which have a cingular focus on showing how the bankers and their political cohorts are looting your money and my money systematically, through the tax dollars going into TARP and pPiP, and also indirectly through the Federal Reserve as in Dr. Ben not only showing his power by forcing the Merill and BOA M&A as in mergers and cquisitions, and we would like get into that a little towards the end of the podcast. So, coming back to these fragile and nascent stock markets as in India and China, how should you invest, and how much. I would not throw a lot of my portfolio into that, and in some future podcast, I hope we will be able to get into portfolio theory a little more in-depth. But let’s say you decide to put in 10% of your portfolio into India and China. Let’s say you did the folly already, when everything was peaking, Dow, Sanghai SSE, Hong Kong Hang Seng, and India Sensex. Dow is 40% down from its peak. You would be losing 41% in Dow Jones, 30% in India Sensex, 52% in Sanghai SSE, and 42% in HongKong Hang Seng. So, everything is coupled, as you can see. In fact, let me give you a Finance Theory. These nascent markets have a higher beta, or a higher correlation than 1, compared to the Dow Jones. But unless the bankers and the politicians clean up their acts, there might be eventually some decoupling. For remember Japan, and its lost decade? We will do a post-mortem of Japan’s Nikkei in a future podcast, and how Japan has never recovered from its banking crisis…
Amongst other news close to home, it looks as if Dr. Ben got a beating, but came out of the Congressional Hearing intact. Well, while we appreciate the fact that Dr. Ben & company thrashed the bankers in Bank of America, what is pathetic is the fact that the Investment Bankers in Merrill Lynch got propped up by the Feds at the cost of the Bank of America executives. Everyone know that the current crisis is the result of trading excesses by the investment banks, Merrill Luynch, Goldman Sachs, bear Stearns, etc. etc. So, Merill should have been allowed to pay the thousand dollar per hour attorney fees to bankruptcy attorneys and allowed to go bankrupt, just as GM was allowed to. Why was Dr. Ben messing with corporate politics and showing his powers? If he is such a good student of great depression, where does this propensity to save Wall Street Bankers at the cost of Main Street come from. Surely, Dr. Ben gets it that this is not like the great depression. Because if it was, Goldman executives won’t be boasting that they would get the same bonus in 2009, as they in 2008. No siree, it is not like the Great Depression. So, let’s favor the banks. But on the other hand, how dare these bank executives think that they will not be questioned? Or forced a little? For years, they have been pocketing millions in salaries, and now if they are nudged a little, they complain? Boy, if they gave me 1 million a year for a couple of years, I will buy that house on the hill paying cash, and then I can take a beating for ever at the hands of Ben or the compensation czar or what have you. So, in the ultimate analysis here, it is good that the Feds beat up the bankers. It fees good suddenly, even though we know the reason toxic waste is being loaded up on the Fed’s balance sheet as legacy asset that needs to be taken care of. Hmm, the chokehold of the banker over the politician continues. Man, we need that campaign finance reform…
Ok, in the interest of time, let’s stop here. Tune in again for our next weekly podcast, and until then, stay well, take care of yourselves, your families, and oh yes, treat the homeless with the kindness they deserve as fellow human beings.
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