Risk Rap

Rapping About a World at Risk

Whats Good for GM

I always thought the quote “Whats good for General Motors is good for America.” was a vile admission that the rights and interests of individual citizens was subservient to the vested interests of corporations. I always thought this was uttered by Calvin Coolidge or Herbert Hoover, the historical poster boys of an out of touch presidency intellectually immune and emotionally removed from the pain and troubles of the working class. Happily ignorant or seemingly unconcerned of a country slipping into a paralyzing depression while they whistled past the grave yard.

More recently the voices of average citizens have again been raised to decry the power and privilege of special corporate interests. They buy access and favor through the deft abilities of well compensated lobbyists and generous financial contributions by the monied interests to encourage politicians to adopt their world view. America’s economic and political history is a sometimes sordid, sometimes splendid tale of the restive relationship of labor and capital and how their respective political interests are made manifest in our laws, policies and programs that emanate from Capitol Hill.

Since at least the beginning of this year we have been barraged with prognostications of a catastrophic economic collapse. The Federal Reserve and Treasury Department have moved with dispatch to bolster bank capital to assure that liquidity and confidence in the banking system is protected. The EESA and TARP responded to the capital formation needs of banks. Most legislators supported EESA even though it only had tepid support by taxpayers. But the deal went through because we were told that if we failed to pass the bailout legislation for banks our nation would be swallowed by an economic black hole. Paulson’s defense of the TARP and its strategic transformation will be covered in subsequent posts but this authors skepticism of the TARP and Paulson’s intention is on record. The TARP and EESA are temporary short term liquidity fixes to frozen credit and capital markets. Supporting and protecting manufacturing is how the US will transition its bankrupt merchant capitalism to an economy based on the manufacture of value capable of long term sustainable growth.

So today we go on record in support of a Federally mandated capital infusion and formation initiative for the automotive industry. As we have previously stated the dismantling of our countries manufacturing infrastructure lies at the root of our current economic dilemma. We advocate acceptance of The Hamilton Plan to address economic recovery and long term sustainability of the US economy. Manufacturing is the bedrock of recovery and the Federal Government needs to encourage the formation of capital clusters of all stakeholders to incubate support structures that will accelerate the recovery of manufactures. The support program is not about writing a blank check to an industry that is badly managed. The automotive recovery plan needs to recognize, aggregate and focus all forms of capital to address this rapid deterioration of our ability to create value through manufactures.

The Hamilton Plan advocates that the Treasury Department form an SME Development Bank to encourage manage and administer the capital formation required to address a GM turnaround. The recovery proscription will need capital, cooperation and political will from all parties. Those include, government, business, labor, social service and academic institutions. The need to support manufacturing is paramount if we hope to recover from structural economic malaise. The failure of GM would have a profound impact on the fiscal, physical and psychological health of the US economy and its citizens. In this instance what is good for GM is not only good for America but it is vital for its survival.

We will offer a more detailed outline in future posts.

You Tube Music Video: James Cotton, Rocket 88

Risk: manufacturing, recession, unemployment, sustainability

November 13, 2008 Posted by | blues, Bush, manufacturing, recession, TARP, unions | , , , , , , , , | Leave a comment

All Blues

For the Republican Party and their supporters we offer the hand of hope

that can heal our nations wounds and unite us to set our country on a course

to undertake the work to rebuild and reconstitute our beloved republic.


“With Malice toward none,

with charity for all,

with firmness in the right,

as God gives us to see the right,

let us strive on to finish the work we are in,

to bind up the nation’s wounds.

Abraham Lincoln

Blues heals the soul and helps to over come life’s difficulties.

You Tube Video:

Miles Davis: All Blues

Robert Johnson: Hell Hound on My Trail

John Lee Hooker & Carlos Santana: The Healer

Horace Silver Cover: Peace

Bruce Springsteen: Oh Mary Don’t You Weep

Piano cover: Peace

Risk: Disunity

November 6, 2008 Posted by | blues, democracy, elections, McCain, Obama | , , , , , , , , , , | Leave a comment

401K Blues

I just received my 401K statement that I never moved from a former employers plan. I was shocked that it retained as much value as it did. It only went down by about 11%. Unfortunately the statement ending period was 9/31/08, just prior to the heavy market carnage that has occurred over the past few weeks.

I’m certain my 401K is continuing to take major hits. Next time I receive my IRA and 401K statement I’ll be horrified to learn that the date of my retirement just got pushed back in a major way and that my personal net worth in terms of financial assets has dwindled somewhat.

The fact that I am not alone in this financial system calamity doesn’t make it any easier. But I try to remember that this number is only a digital representation of my financial assets. I have to remember that my self worth can never be devalued because of my investment portfolio. I have to remember that I am a unique asset and that I can never put a price on my self worth and integrity.

I ask everyone to remember to always continue to invest in yourself by being of service to others and enlist your talents to serve causes greater then yourself. Remember to have faith and that we are all children of a God who loves us and will ultimately see to our needs.

Where your treasure is there you will find your heart.

Have a blessed weekend beloved.

Peace and prayers,

Riskrapper

Music Video: Bertha Chippie Hill Weary Money Blues

Risk: financial security, retirement, social security, market risk

October 24, 2008 Posted by | blues, investments, psychology | , , , | Leave a comment

Second Time the Charm for EESA

USS Constitution

EESA went to the house for a second time. It has passed and will now be signed into law. The Emergency Economic Stabilization Act is loaded with earmarks and special provisions so that congressmen can go home to their districts and brag about bringing home the bacon. It is an unpopular bill. To quote W “I appreciate their leadership.”

I suspect that some congressmen may be dismayed that they received too little for their vote. I wonder what future generations will feel about the value they receive from the passage of this bill? In times of national crisis the price of a senators integrity rises or falls in proportion to its severity. Lets see how the USS EESA performs. Lets see if it raises the our nation from the depths of a looming recession.

We are in this thing together. Everyone has just been impressed as a crewmen on this national ark of economic salvation. I just hope no mutinies occur as we journey through rough seas that are sure to come.

See Risk Rap post: Our Ship of State

I hope that the big suspendered bankers aren’t snickering about the fast one they just pulled. I have visions of them snapping towels at each other in the locker room at some fancy country clubs after a day of hard golf. They’re joking about the fast one Paulson pulled over the country, pulling their cookies out of the fire and keeping the good times rolling.

I hope not. I pray for success, peace and prosperity for everyone.

God Speed.

Music Video: BB King, Bobby Blue Bland, Let The Good Times Roll

Risk: depression, credit market stabilization,

October 3, 2008 Posted by | banking, blues, credit crisis, economics, EESA, TARP | , , , , , , , | Leave a comment

Job Loss Up / Economy Down

The erosion of jobs continues as the economic malaise seemingly deepens in the United States.

Today the Labor Department issued its employment report for August and it points to a weakening economy and an unemployment rate at a 5 year high.

We cannot detect any sector recovery drivers in the US economy. Global drivers are also slowing down as demand from the worlds largest market continues to abate.

One silver lining of the global economic downturn is the slowing of inflationary pressures. This might provide the impetus for the Treasury to send out another round of tax rebate checks. Don’t count on it though.

Hedge funds are deleveraging market positions and raising cash. This may impact market liquidity and contribute to extended market softness.

Yesterday on CNBC Bill Gross, CEO of PIMCO indicated that banks need additional $400 B infusion by the Fed to maintain sufficient capital levels to assure credit availability and market liquidity. Hedge funds and SWF’s are waiting for this demonstrated commitment by the Fed before they can feel confident about a strengthening economy and a more favorable investment environment.

The Hamilton Plan outlines a program to reignite economic growth for a moribund economy.

Music: Stevie Ray Vaughan and Jeff Beck: I’m Goin Down

Risk: recession, banking, unemployment, credit crisis, banking

September 5, 2008 Posted by | blues, Hamilton Plan, recession, unemployment | , , , , , , , , | Leave a comment

Corporate Credit Markets Redux

This morning I attended a Standard and Poors presentation on Emerging Issues in Fixed Income Market. It was extremely well done. The presenters offered some interesting data and insights concerning the health of the corporate bond markets.

Key Takeaways:

  • Tighter lending conditions spell heightened risk of defaults
  • Two-Thirds (66%) of Non-Financial US Corporate Bonds are Speculative Grade
  • A spike in lower grade new issues from 2004 through 2007 will feed default supply
  • Consumer Discretionary Market Sector is weakest (media/entertainment, consumer products, retail)
  • Corporate defaults will escalate in late 2008 through 2009 and will trough in 2010.
  • This year’s baseline default rate forecast is 4.7%, with a high of 8.5% and a low of 3.7%

What interests me is the degree to which these prognostications may reflect similar default and business distress rates in the small and mid-size business market (SMB). My initial guess is that SMB’s will not experience a similar level of default. I don’t believe that SMB’s are as leveraged as public companies. But credit risk remains a pressing problem for SMB’s and the dramatic curtailment of bank lending heightens default risk.

SMB’s that sell to public companies should take time to study the financial condition of these corporate accounts. Defaults are painful for investors and creditors. Having a large unmet receivable exposure can seriously damage the financial health of an SMB.

I do believe that the forecast for the consumer discretionary sector is very relevant for SMB’s. SMB’s in this sector will not escape the pressures of the economic downturn. High fuel costs, consumer spending capability and inflation will dramatically hurt this sector and may result in increased defaults as the economic slowdown takes hold.

We highly recommend that SMB’s purchase the Profit|Optimizer to mitigate the effects of these risks.

You Tube Video: Louis Jordan, Let the Good Times Roll

Risk: Credit Risk, Corporate Defaults, Consumer Product Market, Small Mid-Size Businesses

May 2, 2008 Posted by | banking, blues, credit crisis, recession, SME, Sum2 | , , , , , , , , | Leave a comment