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Government should buy struggling financial institutions April 20, 2009

Posted by Bipin Agarwal in Global Economy, Politics and economy, Recession.
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April 24, 2009

Stress test framework has been issued. It seems like a reasonable framework.

This is what a risk management part of organization of these financial institutions was supposed to do, what happened? What were CEO, CFO, high paid management, and Board doing? CEO of Bank of America has demonstrated that CEO can not be trusted to take care of shareholders.  Board members are typically recruited by the CEO, you can not expect them to behave any different.

Come May 4th, final report will be out.  At this time, government,  not the financial institutions should decide the capital raising approach if these financial institutions do not have adequate at risk capital. Why would private investors invest in the common equity of failing financial institutions? As I have suggested earlier, get rid of the dead wood and move on. Press, politician will make lot of noise to protect their owners.

US government, please focus on the real banks, and not your vote bank.

God bless America

Bipin Agarwal

April 20, 2009

First quarter 2009  results for all major US financial institutions are out.  As a follow up to my blog on March 4, 2009 I wanted to reiterate my conclusion.

I had suggested earlier that Government should acquire these major financial institutions at the market value and get over this market gyrations every day based on the prediction of the analyst or economist who in any case have no clue of what is going to happen.

From market point of view, CITI and BOA are the two wild cards related to so called stress test. Government is not helping by not being upfront. It seems like there is a fight going on between industry, government and some vested interest. Some would like CITI to be nationalized, CITI may be saying if you do that to us, we will take BOA down with us.  Please get over it. Take care of the country first. This is not the time for personal agenda.

The latest estimate from IMF is that there will be total loss of 4.1 trillion as a result of the credit crisis, few weeks back IMF estimated that US financial institution will loose $2.7 trillion from the credit crisis. This estimate for the United States was nearly double the IMF’s projection from just six months ago. I would make a humble request that entire IMF management should resign for their incompetence.

I read yesterday that Dr. Doom (NYU prof. Nouriel Roubini) is predicting another 400 billion in losses for US. I have to be honest and respectful, Dr. Doom has no clue. He is always shifting the goal post.

I saw another comment from the  Nobel Prize winner, that makes lot of sense and is consistent with my view. “We have little to lose, and much to gain, by breaking up these behemoths, which are not just too big to fail, but also too big to save and too big to manage,” said 2001 Nobel Prize recipient and Columbia University professor Joseph Stiglitz, one of the witnesses testifying before the Joint Economic Committee of the U.S. Congress Tuesday morning.

Simple proposal for Banking industry – Solution I have proposed is not complicated. US government, please acquire BOA, CITI, WFC and several other regional banks. clean up the balance sheet. create a regulated banking utility (regional) to handle basic banking function. Take all the loan portfolio, create six businesses out of it, that will be initially majority owned by government and can be then sold off over time.  Politicians (both party) will create lot of noise, who cares? Trust me, they will be relived at the end and can go back to their voters saying the Problem Fixed.

Stay tuned.

March 4, 2009

Everyday sames news get repeated on the TV about economy, recession, CDO, credit loss, and market keeps swinging.  Now that government is conducting the stress test, they will know the real health of the big 19 financial institutions.  The institutions that do not pass the test, government should acquire them (buy them at the market value) or let them fail right away without any further support.

In addition to cleaning up the US financial institution, US need to put pressure on other countries not to be the safe haven. This will help world economy.

Acquire the banks not nationalize them

Shareholders have paid dearly for the mistakes made by the corporate executives, consumer, and government. it is time to bring some sanity to this mess and move on.

US can acquire some of the large financial institutions like CITI, and Bank of America at the current market value. It will create lot of confidence in the market and get rid of everyday bad news. US should buy rest of the AIG as well and be done.

Put pressure to eliminate Safe haven

Another area where US can force and help clean up the financial world is to force the disclosure in offshore tax haven world. Why it is legal to move your money (legal or illegal source) into a different county? Switzerland, Panama, lot of other countries are involved. Rather then focusing on Iran nuclear ambition,  US along with UN should focus on this issue.

There are significant benefit to both US and developing countries if black money can be reduced. It is possible to introduce legislation in all the countries to give people one time opportunity to declare all illegal asset, pay 50% tax and they become legal. After a cooling period of one year, any illegal money will be subjected to full seizure and jail term.  We will see right away that money will flow back to the countries from safe haven countries and US will benefit a lot because of the perceived transparency of the market and fundamentals of the country.

Conclusion

It is time for all the political parties to come together and focus on the country for a change. You all will get the credit for making it happen. Democrat and Republic alike are doing more damage to the confidence of the people then any other known issue.

Alan Greenspan, Bill Gross, Warren Buffet are all stock picker or losers. Alan Greenspan could not figure out how to run FED, when he was in-charge (I do not know what music was he listening). Warren Buffet got lucky with two stocks (McDonald and Coke), Bill Gross has lost more money for the investors then he will admit.  Economic policy of country should not be decided based on what these people are saying. FED, Treasury, and Economic council has the people to make it happen.

God bless America.

If you have a question, about Global economy, Real Estate, and Politics correlation, feel free to ask

http://www.redhawkinvestments.com

Bipin Agarwal

bipin.agarwal@redhawkinvestments.com

https://twentyminutelifestyle.wordpress.com/about

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Comments»

1. Christian Debt Relief - March 10, 2009

How are we going to pay for it? Who is going to run it? If they mess up who gets sued? The government?

Bipin Agarwal - March 11, 2009

Chrristian Debt Relief

Thank for your comment. It is great question.

Private companies have not demonstrated great talent in managing our financial institutions.

One approach being discussed and makes sense is that basic financial function of maintaining a checking/saving account and CD should be a utility regulated by government like energy or phone, etc. All other capital market activity should be in private market with appropriate regulation in place.

Once government acquires these banks, they can separate out the basic banking and spin it into a regulated utility type of institution. Investment management, etc, can be spin off into pure private institute with regulations to control the leverage, etc. We should ban all these gambling in the form of shorts, futures, options without any exposure to underlined security.

Thank you

Bipin Agarwal

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3. Invoimb - April 11, 2009

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