Starting Out

This is my first blog, so bear with me while I get my feet wet.

Why do I want to write a blog on whats going on? Because I want to learn. Simple but true. I will learn by sharing with you whats on my mind, and you can choose to react, proact, or simply to turn the page and move on. I hope you react by writing back your thoughts and your experiences on the subject.

Two things took over me today. The first is my continued analysis of the financial crisis and the second is the my continued analysis of my relationship. As you might expect, my relationship is much more difficult to understand than the financial crisis of the 21st century. Sad but True.

First lets get the financial crisis analysis out of the way. With the passing of every day, I am more convinced than ever that the problem will only worsen before it gets better. The bottom is still to be seen, and the bankruptcies among large non financial companies are in the making.

We all know how this started, right? Well, maybe some of you out there still do not. The simple matter is that it started in the financial departments of the banks and financial institution. They were sitting around the meeting table thinking of ways to increase the profits of their company and withit their bonuses. And as they like to play around with numbers and simple mathmatical equations, someone started speaking about selling the risk that the bank takes when it gives a mortgage to "Joe the Plumber" (as an example) to another bank. The idea is he created a product to sell. This product is risk of the mortgage. Well, if you have a product, you need to find a customer. So the financial wizards in the financial departments of the financial institutions, started looking at insurance companies and investment banks who like to look smart by investing in things they do not understand or worse, in things they understand and know is a broken product.

Anyway, now we have a product to sell, and a customer who is willing to buy. Well, once the first bank sold the first product and made a profit, news got around the financial market, and the kitchens started cooking similiar products and selling them to each other. Before you know, you had so much of these products changing hands that no one actually knows how many are in the marekt now. Which means they still do not know how much more losses will be coming! Surprised? Do not be. AIG, the largest insurance company in the world, has asked for a SECOND bailout package in less than one month. Total Bill by US TAx Payers for AIG Bailout to Date= $150 Billion.

You might ask, why does the government bail out a private sector company with so much money? And here is the simple truth that is still hidden: AIG, as an insruance company, has insured the above "products" for all the banks and companies who bought and sold them. Since these products have no value anymore ( becuase of the default rate of mortgage holders), AIG has to pay the insurance to the banks and companies who insured their products with AIG.

So, by bailing out AIG, the government is actually bailing out all the banks and the companies who have invested in these "products'.

Total bill todate= AIG is $150 Billlion + TARP $ 700 Billion+ UK $ 2 trillion+ Germany $ 700 Billion+ China $ 500 Billion + France $500 Billiono+Korea $100 Billion. Total until now= $ 4.7 Trillion Dollars was spend just injecting money in the companies that bought the "product".

Now, this must be the most expensive "product" in world! I want to see the man behind this "prodcut" and have a little talk with him. Where is he? I think he is the guy who got $2 million bonus last year and who is now hiding somewhere in his own little beach.

Look at these stories coming out from Blue Chip Companies:

GE thought they have a strong position one day in October, and in less than 7 days they were asking for bailoout cash injection from private investors- Warren Buffet came to the resuce, along with Abu Dhabi Investment Fund. GE could not see seven days ahead!!

I am a financial person. And a damn good one as well, as I am told by the people who worked with me. But I always despised the arrogance of corporate finance bankers and professionals who start their conversation selling me products that they do not understand. Talking about swaps, derivatives, securatization of everything from property to "Air"..yes there was a guy who wanted to securitize fresh air and sell it on the commodities market! Unbelievable! Pure insanity!

You know what is worse, that they sound intelligent and know what they are talking about. And many CEO's fall in the trap and give them money! It seems the ego's of some Top Guys sitting in the corner office will not allow them to say: "I do not understand a word you said, and therefore, get the hell out of my office, thank you very much! " You know, the CEO must be saying, if he is from XYZ bank, and his business card says Senior Managing Director Corporate Banking Division International Department, MBA, CPA, CFA, NCCA (joke), then he must be right and I should shut up and smile back while he explains to me this wonderful "producty" that is magic= it produces profit without any risk:) What a wonderful world he says!

Anyway, so now the banks are bankrupt:) And the companies that actually product "Real Products" like cars and tables and toys do not have cash because the consumer is afraid to buy since he hears that smart people (banks) are going bankrupt and firing people, so he thinks well my turn is coming, so let me keep my cash. He does not buy the new car, the car company sits on inventories of cars that they can not sell. After one or two month of no sales, the car company has no more cash in bank to pay salaries and it starts firing its hard working employees.

Well, these employees go back home, tail between their legs, low morale, no job and start eating their leftover to save money. They decide to stay home and not go to the movies or the mall, so the cenima and the shops in the mall start losing sales, and before you know it, they start firing more people. Ooops, now the car company guy is fired, and the toy shop guy is fired, and the movie popcorn guy is fired! Oops, they can not pay the rent or the mortgage, the landlord kicks them out. But he can not find someone else to rent too, so he loses money. To save, he start cutting on cleaning and maintenance work in the property and its value goes down. He loses all his tenants. And down it goes. The spiral continues.

So, where is the bottom? I do not know. But there is more to come.