Thursday, September 25, 2008

Life, Liberty, and the Pursuit of Net Profits

I read an interesting bit on the most recent Japanese financial crisis.

When their companies screwed up, instead of buying a portfolio of loans that might turn out to be worthless, the Japanese version of the Fed bought a portfolio of stock that might turn out to be worthless. See what they did there? Because selling stock is the way (Republicans and businessdrones should probably have learned this in Micro Econ 101, but apparently they were too busy joining a frat, doing kegstands, and crashing daddy's car...) businesses raise capital when they've screwed the pooch and would prefer not to close their doors and sell off their assets.

To make a long story short, the central bank got stock, the companies got their bailout money, and eventually many of them stopped sucking.

Then the government sold the no-longer-quite-so-worthless stocks and (and here's the bit that we may want to pay attention to) turned a profit on saving their economy. See how that works? They employed a pretty complicated economic theory, but I think I can explain it in words of one syllable: They bought low, and they sold high. Even a business major should be able to wrap his pointy little head around that.

Perhaps someone should explain this concept to the Party of HooverTM before they bankrupt our children by scooping up our tax money and making it rain for their country club buddies.

Even better? If the board continues to run their company as ineptly as it was when they got us into this mess (by, say, offering cut-rate adjustable mortgages to goldfish and soft toys), we can do something about it. Because the Fed owns stock in the company, it can vote to can their asses at the next shareholder's meeting. That's a lil performance incentive right there, yeah?

So we've already bailed out AIG. AIG is an insurance company, right? The way I see it, they owe us approximately $85 billion dollars worth of health insurance right about now. $85 billion ain't what it used to be before we let the Republicans run the economy for 8 years, but it still ought to pay a premium or two, right?

If we're laying out the quid, they'd better come up with some quo.

5 comments:

vikkitikkitavi said...

I believe stock or warrants are supposed to be part of the deal, right?

Although it wouldn't surprise me if getting rid of that provision is what the House Republicans are up to, among other things.

deadspot said...

I hope so. It sounded to me like they were just buying the bad loans, but I could easily be wrong.

As much as I've been whinging about this, you might think I'd read the details of the bailout plan carefully, but you'd be mistaken.

gennifer6 said...

To my knowledge, there are no stocks or warrants, though I know an actual plan has been hammered out over the weekend and may be different than the original idea, which was to purchase the bad debt and either resell to individuals as a home or sell them to other investors as a bundled loan package at auction. I wrote a blog earlier with the simplest explanation I could make for the whole mess. I read as many of the details of the bailout deal as I could without boring myself to sleep and that's what I found.

Johnny Yen said...

When I was a grad assistant at our good old alma mater, Eastern Illiinois University, occasionally teaching the required State and Local government class, you could always quickly spot the Business majors:

"Um, will that be on the test?"

deadspot said...

Throw me a link to your blog, Genn. I've run across it before, and I know it's somewhere in Johnny's guide to the blogosphere, but I can never remember the name, and I can't view your profile.

On Monday, I heard that they were talking about adding some sort of equity trade to the bail out where the government would buy bad debt but would get some kind of equity in return.

It all begs the question of why we're bailing out companies instead of people though. If the problem is that people can't pay their loans, and we're going to suck up the value of the loans, why don't we just pay the damn loans?

My other degree was in the college of buisiness. I'm well acquainted with the Lumpkinproletariat. If you've ever been in class with these geniuses, you're not surprised that we're in this mess.