Current Blog Entries by Larry Fry, CCP, MBA

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Posts Tagged ‘Financing

Wall Street Bankers’ Bonus Abuse Issue!

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The notion that Wall Street keeps its gravy train rolling by lining the pockets of our top-tier politicians with money and other influence-peddling gifts in order to condone the financiers’ actions is quite disturbing. In fact, the financiers’ claims per the paramount importance of their work as an excuse to enable them to get away with whatever they deem appropriate for themselves (e.g., awarding of excessive tax-payer financed bonuses, etc.) is very disturbing as it smacks of greed and self-centered conceit.  But the biggest rub is that these absurd bonuses were largely financed via the billions of dollars in taxpayer-financed funds from the Troubled Asset Relief Program (TARP) and trillions in loans from both the Federal Reserve and the FDIC.  These sources of aid money were designed to help the Wall Street financial institutions deemed too big to fail to survive their own terrible misdeeds, not to excessively reward their executives for jobs NOT well-done.  This has got to be perhaps the biggest misappropriation of our hard-earned tax money that has ever transpired in the history of this country. 

Finally, as long as big money talks and remains the primary influence driver in the current socio-political (or cultural) climates across the globe, then people in power will apparently continue to walk in the direction deemed appropriate  by the big money purveyors (e.g., Goldman Sachs, George Soros, et al.).  The condoning by governments of  their large scale market manulation shenanigans for their personal gain at the expense of the taxpayers of the world speaks for itself.  And their latest ploy of shorting the Euro while playing credit default swaps (CDOs) shows that there’s no shame on their part.  Finally, even President Obama is softening up his tone towards the big banking entities and their actions. And speaking of being “too big to fail’, perhaps the US socio-economic system and federal government is falling under this same exact definition.  This splitting up (i.e., per the splitting up of  giant oil corporation Standard Oil over 100 years ago) is becoming a more realistic option over time in terms of gaining more value and growth opportunities from the resulting smaller entities that would result.

Written by Larry Fry, CCP, MBA

March 2, 2010 at 11:55 pm

Massive Government Control of Free Markets Debate!

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Quote of the Day  –
“The case for free markets never was that markets are perfect … [but] that government control of markets, especially asset markets, has always been much worse.”

University of Chicago professor John Cochrane, per criticism from Paul Krugman, New York Times columnist and proponent of massive government intervention policies (click on URL below for his full rebuttal).

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.htm

Written by Larry Fry, CCP, MBA

January 31, 2010 at 2:50 pm

The Proposed Financial-Transaction Tax Bill Issue!

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There is a financial-transaction tax bill being proposed by the U.S. Congress that intends to levy a 0.25% tax on all equity trading transactions.  The passing of this bill would severely marginalize the financial trading industry, making our financial markets even less efficient than they have already become.  The end result would be the loss of untold numbers of jobs, and financial markets would become even more susceptible to crashes due to the resulting lack of  liquidity. Obviously the passing of this absurd bill would negatively impact the financial trading (and related) industries; but it would also severely curtail a critical market capitalization vehicle used by small to medium sized companies, thus rendering them less able to compete and grow.  And with banks and other financial service entities either unable or unwilling to capitalize small to medium sized businesses these days (but able and willing to pay out absurd bonuses to undeserving executives), taxing financial trade transactions would only serve to make the current economic downturn more pronounced, possibly leading to even more disastrous consequences down the road. The resulting dissipation of market liquidity, trading volumes, and market price discovery, along with widened bid/ask price spreads, would destroy the positive aspects afforded by arbitrage and speculative trading.  Along with the addition of other possible government regulatory actions, this problem would then be further exacerbated by the resulting mass migration of American based trading volumes over to foreign (i.e., non-taxable) exchanges.

The one thing that really irks me about the proposed financial-transaction tax bill is that it is being framed as a so-called “sin” tax by its partisan proponents in order to appeal to the current populist mindset that the financial industry as a whole is guilty for the current state of the economy (i.e., high unemployment levels, etc.). Basically, the transgressions of a few that were enabled by the lack of understanding by government officials and regulators per the complex financial-engineering instruments being utilized are the primary culprits here. The imposing of a financial-transaction “sin” tax by the government is not a good substitute for developing an understanding of the new financial order and obtaining the level of competency necessary to effectively regulate the industry, thus establishing a stable (level) playing field for the economy as a whole.  So in my mind, this proposed financial-transaction “sin” tax is nothing more than an attempt to sweep a certain portion of the blame (or responsibility) for the current state of the economy under someone else’s rug.  In addition, the potentially negative impact of this “sin” tax would be exacerbated by the resulting changes in premium requirements by investors across the board due to the tax costs being passed on to them.  The potential drain on market liquidity and the resulting decrease in the capital available for struggling small-to-medium sized businesses would be hard to justify, especially for reasons of partisan politics.  So this proposed tax is not a viable solution or option in my mind, as it conceivably could lead to even more problems down the road as the state of our economy continues to evolve (or unwind). 

Finally, perhaps the biggest question in my mind is why do some of our elected government officials seem “hell bent” at times to make things worse for us rather than better (i.e., at both the micro and macro levels) in order to pursue partison based agendas?  This potentially dangerous bill needs to be dismissed (or vetoed) ASAP before it has a chance to cause serious long-term damage to our still frail (and unwinding) economy.  Click on the URL below to sign the revised “Financial-Transaction Tax is Detrimental to Many Industries” petition and have it forwarded to your representatives:

http://www.rallycongress.com/greentradertax-traders-association1/2720/a-financial-transaction-tax-is-detrimental-to-many-industries’

Need for Massive Government Intervention Policies?

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At a sporting event, having no officiating at all would result in a very chaotic situation, whereas having  too much officiating would result in a game that might as well not be played.  Extending this analogy to the regulation of the American economy and securities industry, we  will always need a certain amount of “officiating” in order to maintain a level (and efficient) playing field for all players and to keep things from getting chaotic.  But a “massive” amount of officiating on a permanent basis (per Paul Krugman’s latest mantra) can result in the total fettering of the financial systems and the capital markets that they propagate, possibly resulting in societal chaos. The governmental approaches of the late1920s through the entire 1930’s should serve as a good case study (in general) of what works and what does not work in terms of particular actions taken and not taken (Ben Bernanke’s expertise), while keeping in mind that the playing field is now a lot bigger, faster, and more complicated (which again reinforces the need for some officiating, but not “massive” officiating). The premise here is that we want to continue to propitiate the competitive creativiity within the American financial industry, but we also need to define and enforce certain reasonable boundaries at the same time in order to keep the markets as efficient and seemless as possible.  Overall, my basic premise is that “enough” regulation needs to be in place in order to keep the speculation side of the coin from overwhelming (i.e., destroying) the risk management side of the coin, but not to the point where the markets become grossly inefficient due to a paucity of speculation.  So Paul Krugman’s “throwing out the baby with the bath water” mantra is not a good policy mandate in my book.

Quote: “The case for free markets never was that markets are perfect … [but] that government control of markets, especially asset markets, has always been much worse”. 

University of Chicago professor John Cochrane, in response to criticisms from Paul Krugman, New York Times columnist and proponent of massive government intervention policies (click on link to peruse “How did Paul Krugman get it so Wrong?”). 

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.doc

Written by Larry Fry, CCP, MBA

November 25, 2009 at 1:25 pm

Financing Models: Original Viablility Needs to be Recaptured

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One of the biggest problems with today’s financing models for capitalizing small and large businesses (as well as consumers) alike is that the  expectation to pay back debt seems to escape a large percentage of the eager borrowers (and some lenders).  Furthermore, even the Federal government and banks seem to be treating the dollar like it’s “Monopoly Money” these days, with all of the excessive bailouts using “Fiat” money as the source.  And with the securitization of subprime loans and other instruments that have been used  by lenders lately to handle shaky loans, there seems to be less concern about debt repayment by the lenders and more concern about passing it on in securitized forms to unsuspecting others to glean additional profits.  But at a macro level, the financing models can become viable again as long as entrepreneurs, consumers, and other borrowers keep in mind that they (as borrowers) are still expected to pay loans back and that the final lenders still expect the original borrowers to repay the loans back at some point in time; and, most pointedly, declaring bankruptcy should NOT  be viewed as a viable (or desirable) instrument for handling risk by anyone.

Note:  This writeup was originally written as my comments per fellow LinkedIn member Ren Carlton’s recent blog article “Financing- Is it Really Worth It?”  (see  http://www.businessrealityblog.blogspot.com/ ).

Written by Larry Fry, CCP, MBA

June 13, 2009 at 3:45 pm