Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

Posts Tagged ‘Bankruptcy

Vultures Circling on US Auto Makers

with 14 comments


Ref: 0811-016 of 2008/11/23


Wall Street and Private Equity vultures are at it again. They are aided and abetted by Republican senators and its sponsoring media with well orchestrated campaign to cause the death of the United States’ biggest employer – General Motors, Ford and Chrysler.

The vultures are interested in causing deliberate bankruptcies so that all the equity and options owned by United Auto Workers in their respective companies be turned worthless, the pension fund liabilities avoided partly or altogether, the health and insurance benefits to retirees reduced to zero, termination benefits also reduced substantially for want of funds, and the companies so stripped off its statutory liabilities be bought over in Bankruptcy Court for a song.


The officials from FED, Treasury, Office of the President, and hosts of senators mainly from Republican Party want to rehearse the events of United Airlines, WorldCom, Bethlehem Steel and lately Lehman Brothers, all of whom were allowed to go bankrupt to the detriment of all its workers and employees


Destroy the United Auto Workers…

REASON, all these companies were partly or majority owned by the Employees or Workers, which acted as “eyesore” to the brokers on the Wall Street and predators- Private
Equity firms.


The Courts of United States also favor the predators. They also award the companies to those vultures by refusing to let the company liquidated compulsorily, but handing over to bond or debenture holders by allowing writing off the entire equity of the company, so that the employees are not left with any power without money.


The whole system sucks – from monetary (FED & Treasury) to Political (Senators and Representatives), to Executive (President) to Judiciary arm (Courts) – all are corrupted by the wily suckers on the Wall Street who use its orchestrated media – in print or television. Day in and out, you tune in to CNBC, NBC, Fox News, CNN or CBS or read Wall Street Journal, Barron’s, Business Week, Forbes who all praise such actions in the name of saving the company and enforcing cost savings.

Even today, the questions are asked – why Lehman Brothers were allowed to fail. Why not Merrill Lynch, Bear Stearns, Morgan Stanley, or even Goldman Sachs?


What is so common in rest of four and unique in Lehman Brothers? The answer is LHB was majority owned by employees. The employees or workers are treated like disposable diapers in United States, whatever is the outer façade to describe them.


It happened to United Airlines only in recent past…

Why United Airlines was allowed to fail and thrown into bankruptcy court – because it was majority owned by employees. All of their shareholdings were reduced to ZERO by the bankruptcy court and awarded the company to the debt holders who deliberately bought debts to exercise the control. The life time savings of all employees were lost in a flash like homes destroyed in Californian wild fires.


The debt holders were given the new equity at most favorable terms and reducing all past equities (majority owned by workers or employees) to Zero value. If the company was still worth, the question arises why UA was not placed by the court on auction block with open and transparent public tender or why was it not sold part by part to realize the best value? The stocks owned by employees were reduced to zero and the new stocks awarded to debt holders in exchange of debt soared to as high as $ 49 from just under few cents.


All have been accomplished in the name of free enterprise, freedom, capitalism, efficiency of the capital market, and similar nouns and adjectives. They invent new names, phrases or synonyms from Roget’s Thesaurus.


Wall Street Brokers Cheers and Jeers at the Loss of Other People’s Jobs

Whenever a company merges or taken over by a predator, announcements are made to dismiss the thousands of employees in the name of cost cutting exercise and boosting the profits. Wall Street Brokers from Goldman Sachs, Morgan Stanley, Smith Barney, Merrill Lynch, UBS and all down the line, applaud such moves and start recommending the respective stocks by shooting them up by 10% to 50% in a few days.


While the thousands of laid off employees live sleepless nights, sobbing until dawn how to meet the mortgages or tuition fees of their kids, the irresponsible brokers and investment bankers on the Wall Street go on celebrating in high profile parties hitting wine or champagne glasses with the shouts of “cheers”. They are interviewed on popular channels like CNBC or Bloomberg by Anchors with glee on their faces.


There could not have been better shameless spectacle. Read every take over in the past or mega merger, you will find the same gimmicks all the time.


Consign the Wall Street Brokers and Investment Bankers to Guantanamo Bay…

It is therefore highly a celebration event that finally the Wall Street brokers saw what they deserved most. Thousands of Wall Street brokers are now being laid off in worst ever crisis which was their own making. They now realize how it feels like losing a job – celebrating with wine glass or with full glass of tears of their loved ones.


There should be no sympathy for all these bankers, Investment bankers and brokers – they should be condemned and consigned to Guantanamo Bay Detention Camp. Osama Bin Laden may have caused pain only once – on 911. But these Wall Street brokers, banks and investment banks are the biggest financial terrorists who cause pains every day to every family in United States.


$ 218 Billions charity by Paulson to AIG to help them pay Goldman Sachs, his former company?

And look at the perfidy of Hank Paulson, Treasury Secretary and Ben Bernanke (FED Chief) who have been pouring the billions, even trillions of dollars, into bankrupt banks and brokers for the losses of their offshore arms who never contributed any taxes or employment to the local American Tax Payers.


They never asked or justified why the off shore obligations of banks have suddenly become the liability of domestic Americans who have nothing to do with independent off shore operations of those defunct companies.


And why does Paulson pays $ 89 billions +$ 129 billions to AIG? Is it because AIG could repay its dues to Goldman Sachs (wild guess is $ 20 billions to $70 billions), a firm of whom he was the President before joining Bush Administration? Yet, the President Bush is so blind and complacent that he can not see the naked truth.


Devils’ Donation to Tax Dodgers and Denial to Domestic Tax Paying Corporations.

They are giving hundreds of billions of dollars to “Asset Void Banks with no possibility of Repayment” for the obligations of their off shore operations, the tax dodgers. Same gang is refusing to pay $25 billions to 3 Auto makers – General Motors, Ford, and Chrysler who have been paying billions of dollars of taxes for over 60 years, who have created over 2 million jobs, who have solid assets, who developed thousands of townships, who became the backbone of the American Industrial expansion.


United Auto Workers may come out in full force to demand full justice and ensure that all the excesses of the past defeating the cause of labor are put to rest. It is now or never for them.


NO, this stubborn Paulson and Bernanke say. And the Republican Senators join them – Do not give them $ 25 billions – they are inefficient. As if AIG, Citigroup, JP Morgan Chase, Bank of America who are recipient of over $300 billions were efficient.


If these 3 auto makers fail, and 3 million affected Americans are laid off, it will cost $12 Billions per month towards “unemployment allowances” that is over $144 Billions annually, if we consider the recent extension granted by the President Bush. Simple arithmetic – lose $ 25 billions now with full guarantee of repayment or lose $144 billion in a year without any possibility of repayment towards the unemployment allowance alone, loss of tax income if they were gainfully employed is not even counted.

What would you do, if you were the President of United States? 


The country is on steep decline. There could be unrest, strong protests, riots, loots, murders, real blood bath on the main streets of United States, if no actions were taken to blunt the attack of the Wall Streeters on the Main Street participants. Can you imagine what happens when 52000 employees of Citi Group and over 2 million direct or indirect employees of 3 Auto makers are suddenly thrown out on the street in just under 7 days? Blue collar workers are normally less tolerant of job losses than white collar employees.


It just defies my common sense – how come these VIPs in the White House are pouring hundreds of billions of dollars into bankrupt off shore operations in the form of 100% unsecured advance while denying relatively small but fully secured $25 billions to America’s biggest industry at home – Auto Makers?


The present administration has gone absolutely mad, just mad.


Kalidas, Hong Kong

Ref: 0811-016 Vultures preying on US Auto Makers


Written by anilselarka

November 24, 2008 at 1:33 am

Retiring President’s Parting Gift to Paulson

with 16 comments

Buy Rotten Eggs for $700 Billion in 36 days

The first mistake the Americans made 8 years ago was when they forgot to get the incoming President’s head examined. There is always an intense debate for the suitability of any candidate for the coveted post of the President. More emphasis is always given how the next Commander-In-Chief would act in case of exigencies. No one asked them of their basic knowledge of economics except how much taxes would he reduce.


Visit any Forex traders or option trader’s website – they give you $ 1 million to play a demo game. Never before any presidential candidate was asked to play such demo game in public debate. Never before any presidential candidate was asked what will you buy if you were given $700 billion of Taxpayer’s money?


However, on the historic Sunday, 28th September 2008 to be precise, a bipartisan agreement was arrived at to authorize the President Bush to succumb to the wishes of the Treasury Secretary Hank Paulson to spend $700 Billions of tax payers’ money to buy rotten eggs lying in the vaults of Banks and Brokers in his last 36 days!


When a person is dying, his last wishes are asked for by the relatives circling on him just to listen how much he would get if that fellow dies. When a criminal is condemned to death, his last wishes are asked for before his head is shaven off in preparation for his journey to the death. Hank Paulson did not have to have his head shaven off. His wish was $700 Billions – and America’s most retarded President in the history granted the wish to spend $700 Billion in 36 days! He was joined by the chorus of congressmen/women to tell their Commander in Chief – Yes Sir. The President said – I did not hear you! The congressmen raised their pitch – Yes Sir, Yes Sir, Yes Sir.


Ask any businessmen or any person of ordinary prudence – would he give his departing employee even $700,000 of authority when he has already resigned and counting his last 30 notice days? Of course No, then how come the President of United States hands over blank checkbook to his Treasury Secretary with unchecked power of $700 billion when he is counting his last 36 days?. If something goes wrong later – Mr. Paulson would say” I have right to remain silent.” Look at the bill you have passed in the Congress. – No questions to be asked. Period.


Only a few months ago, the President Bush with great fanfare distributed Tax Rebate checks to American citizens amounting to $106 billions only to withdraw $ 700 billions from their and their future generations’ pocket on today (28 Sept 08) like a conman. During his presidency, over 4000 soldiers lost lives in Iraq, 1000 more in Afghanistan, over a million innocent people died in Iraq, Twin towers of World Trade Centers were destroyed, billions of dollars of budget surplus was converted into whopping deficits, US Dollar dropped by 40%, hurricanes destroyed several cities, wildfires raged in and tons of mud sided in California,  millions lost jobs and homes, oil prices rose from low 30s to high 145, and industries collapsed one by one – from Auto, airlines, healthcare, Medicare, insurance, brokers, investment banks, and banks for only one reason. He was thoroughly incompetent.


Now, let us consign all events until today’s night into history, and focus what will or could happen from now on to the financial markets around the world. Here are the posers and possibilities.






Is it a done deal? Will it become a law?


Preliminary agreement is struck. While leaders have agreed, it is not known whether the rank and file senators will vote for the bill. They have been getting angry response from their constituencies to vote against, There have been street protests in California, Anger is building up which may become violent. US is heading towards unrest and then civil war in a few months.


What will happen to the market?


Paulson wanted to get the bill signed by the President before the world market opens tomorrow. He expects the market to give solid response. However, the market is always an unpredictable beast. World markets do not act on themselves. They wait until the US market opens. Further, the market movement depends on the major brokers. As you are aware, most of the leading Investment banks like Bears Stearns, Lehman Brothers and Merrill Lynch are either in the coffin or ICU. The credit crunch is so much that most of the brokers do not have money to pump into the market and take their proprietary position.


However, Goldman Sach and Morgan Stanley, now being banks, will be given billions of dollars to buy into overseas markets, especially near day close, if the markets do not move up strongly in the morning trades.


Will the bank start lending and reduce the liquidity freeze?


Doubtful. Most banks from Citibank to UBS have raised capital from the market in the form of High coupon (9% to 11%) preference shares in billions of dollars. They will be forced to retire high cost debt, leaving little in their coffer.


Further, more and more debts are being generated in the market due to sub prime default that makes more and more derivatives doubtful. The banks will be forced to pay to the counterparty in respect of future obligations. It can not plead that it does not have money. The creditors may sue the banks to either pay or file bankruptcy. There is no chapter 11 for banks, only Chapter 7 and 13 that compulsorily winds up the company.


The mistrust has been built into the market so much that the counterparty risk has risen to the highest level. Under these circumstances, the interbank transactions will remain low. The collapsing banks in USA, UK, and rumors of failures in centers like Hong Kong, will continue to make the market difficult for lending.


Corporate lending may take a while. The commercial paper market has become like a junk bond market with interest rates running in high single digit to low double digits even for blue chip customers. The real interest rates are perking up.


What happens to the Equity markets?


They will open high but then retrace after 2 hours, again peaking up near the close due to US funds buying with billions of dollars in blank checks.


The real rally may come only after the reaction of the US market. Tuesday may be stronger than Monday, provided no negative news emerges on deal front.


How  the markets may react?


  • Dollar block country may do best – Hong Kong, Singapore, Taiwan, Korea may choke 3% to 5% gain initially, go down by 3% in correction, to peak up gain near close by another 3% to close at 8% maximum.
  • Japan may gain by 3% to 5%.
  • Sensex may gain 600 points initially, depending on how the Asian markets have reacted, to lose 300 pts, to make up morning losses as soon as London market opens strongly. If London is lower, due to another bank failure, the Sensex may lose steam. US brokers may not be that active in India market. They need more money at home than park them overseas.
  • Dow Jones may chalk up over 400 pts gain because of massive short covering of Index weighted financial shares. If the bill is passed into law on following day in the congress, then all financials will rally.
    • It is possible that the Banks and Brokers may start reporting profits due to write back of excess provisions caused by higher market value manipulations.
    • If in the meanwhile Mark to Market rule is abolished, the bonds may be re valued to par value on HTM or Hold Till Maturity principle. (In this case, ICICI Bank may also benefit in India)
    • Some large hedge funds may fold up due to changing of rule of short selling of shares in the middle of a game. The losses may run into billions of dollars. If they save the banks, the hedge funds get busted. Will Paulson plan save them too?
    • There could be thousand of law suits in UK and USA against authorities from hedge funds, pension funds for losing money due to sudden changing of short selling rules in middle of the game.
  • Bond market may behave differently, Initial rally may fizzle out. The collapse of banking system has just started. British banks, once considered safe may come into more problems. The bank failures are spreading to every where. From USA to across Atlantic – UK, Germany, Belgium (Benelux countries), Hong Kong and more will follow in Asia and Japan. Many have not shown yet where do they stand. Almost all Asian and Japanese banks are saddled with the American CDO, CDS, and Lehman Bonds that run into billions. When Lehman owed over $600 billions, the question arises – to whom? Those who are trying to buy Lehman because by buying them out, the cross entries will be eliminated.
  • The British banks like HSBC may have more losses. If you look at their balance sheets in Yahoo, there are hundreds of billions or even trillions of dollars of transfer between various assets –
    • long term assets were reduced by 800 billions and short term liabilities rose by $1.2 trillions, ($1200 Billions)
    • Long term Investments rose by $ 1 trillions.($1000 Billions)
    • Cash resources depleted by $300 billions.
    • Its capital is just $88 billions against total liabilities of $2.2 trillions or just 3%.
    • In other words, all off balance sheet assets and liabilities of off shore centers have been brought into the main balance sheets. How much of such trillions of dollars is good, we do not know.  See the following link…
    • In short the balance sheet severely deteriorated. This applies to almost all banks who have tied up with USA and who bought US banks or brokers 3 to 5 years ago amid lots of fanfare.
  • The dollar index may gain initially.
  • Commodity price may see fall. Metal stocks may fall worldwide again.
  • Gold too may fall initially by 6% to 8% in 2 or 3 sessions. However, the gold is having lot of real strength. After initial euphoria, it may rise again.
  • Oil Prices may fall due to shorting of futures against buying of $ index. The oil prices are bearing the stamp of Rupert Rubin, ex-Goldman Sach Vice President and former Treasury Secretary and now top executive of Citigroup. With blank checkbook in the hands of Paulson, some billions may be given to old colleague to short the oil and strengthen the dollars
    • It may be noted that recent spike in oil price by $25 in single day was due to short covering of oil contracts ahead of settlement on Nynex. Under the current rules, the settlement is subject to physical delivery. So the short sellers have to either buy back the contracts or deliver millions of barrels of oil physically that they do not have.
    • This scenario may be repeated in November. While buying back the September contracts at huge premium, they shorted the November contracts again in roll over exercise. If the oil prices remain strong, expect another major spike in oil prices in November. Oil is now most manipulated market with the use of derivatives.
    • There are all signs that another Enron is in the making, this time, 20 times larger. Which company is used now, is not known.
  • Interest Rates will go much higher and you should not be surprised, if they get into high double digits in less than 6 months. The lower credit rating of US governments by Fitch and others in oveseas countries (Moodys and S&P will not change their loyalty) may again push up the rates.  If the rates does go to even 12%, the US government will have to service their debt of over $13 trillions @ $ 1.5 trillion per year of repeat expenses.


Does it mean that USA is on recovery path?


Absolutely not. The manipulative effect does not last longer, especially when the trillion dollar scale is considered. The States and Local government who need over $200 billions to manage their state, may raise their ugly head and demand payment when 3 times more money is given to bankrupt banks. USA is receding into civic unrest and Civil war slowly and surely.


Is there severe discontent among Americans at the current Bail Out plans


Americans are damn angry. They are losing jobs, homes, healthcare, Medicare every thing… They have now converging on the streets with big banners. If the bill is passed into law, they will flare up, and the anger will spread across the nation like a Californian wild fire. Since guns are freely licensed in USA, there is likely to be mayhem and the ordinary civic unrest will escalate into full scale Civil War. They have to ban gun immediately before situation worsens.


This may happen swiftly, even before election. We should be very happy that it does not happen; In fact it should not happen or should not be allowed to happen. For the first time, US Administration will have to use bullets on their own soil to kill the American themselves instead of killing millions of peoples abroad in self engineered war of massive scale.


What should an Investor do now?


This is pet line of CNBC in its advertisement for which they never reply. The present scenario is very unstable, and changes from moment to moment. It is more akin to war. Deal with it as it comes. No planning is going to work, except holding some portion in gold.


Is there any solution to the present mess?


Of course, yes. The trouble right now is that no one knows what has suddenly happened and why so swiftly. Watch for my book “Sub Prime Resolved”: that contains complete solution and also wait for my next article here – How we got here? Legalizing Parallel Economy”


Are we to worry about every thing?


No. The problem will take care of itself. For every problem, there are 10 solutions, One has to find it. I have found them, and sent out a letter to appropriate authorities who received them by FEDEX on 25th August, 2008, but they did not reply. Who is by the way Kalidas? Never heard of him.

Kalidas, Hong Kong

Written by anilselarka

September 29, 2008 at 1:32 pm

Paulson’s Poison Pill – Cost $700 Billions

with 44 comments


Defrauding American Tax payers of $700 Billions in Mouse Trap Plan

Both Mr. Paulson and Mr. Bernanke displayed extreme concern to protect the interests of American Tax payers while seeking $700 Billions from their existing pocket or from their 5 coming generations. One generation may not be able to take so much of load.  The question arises, whether their bail out plan was genuine or was it the proposal from these con-men to manipulate whole financial system and defraud the American Tax Payers? These public servants are supposed to follow the best practices and protect the pockets of the tax payers. Do they? 


If you read what Bernanke said during the Congressional hearing, you will ask “Where is the protection of Tax payers under the $700 billion plans? Mr. Bernanke said he was not in favor of paying the price of “Fire sale”. Mr. Paulson said that he was willing to buy the Bad Debts at substantial discount (about 35%), that is, paying $65 for every $100 face value of the debt and holding them until maturity (HTM or Held Till Maturity). To one question from the Senator, how much the securities are worth now, Mr. Bernanke said only a few cents! Oh my God! Mr. Bernanke is in charge of FED overseeing the dollar that only he can print which bears the imprint “In God We Trust”. In reality, they care the least about the God.


Read them together, the Paulson – Bernanke plan foresees the payment of 65% of face value of $100 for the Bad Debts currently trading at few cents (about 20 cents to 98 cents). What is the Asset backing? Big Zero. Why? Because all derivative papers are secondary mortgage papers or mortgage with second lien that gets paid only after primary lender is paid off. Since the primary lender has foreclosed, seized and sold the mortgaged property, and he retains both the surpluses and deficits under the law, nothing is left for the secondary mortgage holders who have to rely upon the mortgaged property alone. They have no other recourse or option to realize their dues.


The question arises, why Bernanke and Paulson are bent upon paying $65 when the security backing is ZERO and current market is just 20 cents. That is, they are willing to pay the premium of 320 times or 32,000% more than the market value. As public servants, they have fundamental responsibility to look after the interests of the American Tax Payers (ATP), and buy the assets at the best bargain price or at least current prevailing price. Anything contrary to this dictate, amount to betrayal of and defrauding the tax payers to the extent of $700 billion dollars” 

Holding Till Maturity
…A great deception
Mr. Paulson said that he (treasury) would hold the securities until maturity to realize the full value. There is no market for those securities at the moment, he said… Since the Treasury will have no tangible security under the secondary mortgage paper and it can not sue the borrowers due to non recourse nature of the mortgage, the possible value realization is ZERO, whether he hold them for one year, 10 years, 30 years or 100 years. That is, the entire amount of $700 billions will turn to ZERO almost instantly when distributed or used to buy the bad debts


Why do Paulson/Bernanke duo want passage of bill before September, 2008 end?

Mr. Paulson and Bernanke also want clean passage of bill before this weekend, that is, before the September end. Also, significant is the ending of ban on short selling of financial shares 2 days later or October 2, 2008. Again read them together. What Mr. Paulson and Bernanke seek to achieve by hustling agreement before September end? Here is the possible explanation.


Manipulating the Market Price of worthless Derivatives

September is the end of the quarter or Q3. The quarterly result or Q3 for the period ended September 2008 will arrive in the market in second or third week of October. If the bad debts are bought before September quarter, new market price will be established @ $65 against just 20 cents at present. Under the MTM or Mark to Market rule, the securities are marked to market price for valuation purpose. By paying the price of $65 against just 20 cents, almost all banks will be valuing their portfolio at newly established market price – $65 against 20 cents.


This is nothing but the manipulation of the market price by artificial means. All banks, investment banks, and brokers will be re-valuing their portfolio based on concocted market price under MTM rules, and they will start reporting bogus profits by reversing the excess provision in the past and providing less for the future. If this was to be pursued, why did not he propose it before Bear Stearns, Lehman Brothers and Merril Lynch came into serious trouble? They could have been saved and prevented the domino effect in the world financial markets. Thousands of investors could have saved billions of dollars of losses, and the present scenario would not have arisen.

What happens if the $700 billion proposal is passed before September end?
If the budget is passed before September quarter, there will be huge rally in financial shares. When the short selling ban on 799 financial shares is lifted by SEC on October 2, there will be fierce short covering rally that may see the financial shares choking up 20% to 60% gain in single session. When the reporting season starts in mid October, all bank shares will show tremendous improvement in their profit and balance sheet due to use of concocted market price that will fuel further rally.

Looks Banks and brokers will be saved…But who will be the losers? – Tax Payers. How?
If some one gains, some other loses. Who will be the loser? Of course, American Tax Payers who’s $700 Billions will be gone forever. Their bonds have neither tangible security nor any other recourse to pursue the defaulting borrowers. The next 5 American generations will never pardon the President Bush, Mr. Paulson, the Treasury Secretary , Mr. Bernanke, FED chief and Mr. Cox, the SEC Chief for criminal waste of $700 billions, misrepresentation and fraud for which they will never be tried – for ever.


What should be the correct approach?
Instead of manipulating and falsifying the entire debt market, and losing Tax payers’ $700 billions in a flash, it is time to let the bankrupt banks to really go bankrupt and not spend even a single good dollar after every bad dollar. The nation will be better off in granting $300 billions to remaining good small regional banks to ease the credit crunch which will be more satisfying than distributing largesse to bankrupt banks, investment banks and brokers.


If the banks and brokers were to be saved from complete disaster in the interest of the economy, the accounting rule should have been amended to permit these culprits to consolidate their debts in some warehouse similar to RTC, without any sort of federal guarantee to save the taxpayers, and be allowed to be written of in 10 years @ 10% of such losses.

What is true Capitalism?
In true practice of capitalism, the efficieny is rewarded, and inefficieny penalized. The present practice of Paulson and Bernanke mocks fun at capitalism. The present plan is not a “bail out” but mouse trapping the Americans.


Lady Liberty may be crying in the middle of the sea, lamenting “What happened to my America” 


Kalidas, Hong Kong

September 26,2008

Written by anilselarka

September 26, 2008 at 3:47 pm