Tag Archives: wall street bonuses

Holidays 2009: Distressed Asset Investment Letter

Dear Friends:

With year-end traditionally being a time to slow down and reflect, this post is intended to be a review of the past year, and a prognosis of sorts for what the transactional deal marketplace may show us in 2010.

However, slowing down and reflecting on this year only gives me that post-roller coaster sickness feeling. This was one of the most challenging years in business for most of us. Although it ended up being a positive year from a business standpoint, it required a wholesale reinvention of what we do, as most of our business models were affected by many polar opposite, sometimes unintended and varied influences that converged in a dizzying array of confusion. It was humorous to read that many prognosticators declared that the end of the recession was near, or even that the recession was behind us, because, contrary to the statistical reports showing declines in unemployment figures and upticks in consumer confidence, in reality the fundamental problems that grounded the economy in 2007 are not significantly different from those prevalent now. Other than runaway bank profits and the gilded age of Wall Street bonuses, our world is now as it has been for the past 2 years. We have made forward progress, but what the economic landscape has in store for us in 2010 will prove to be a mixing pot of small explosions that together will concoct a distressed asset stew full of nutritional values that we may only be able to sample if we have the coupons. Well, friends, we are the manufacturer of those coupons.

Let me try and catch you up on all that has happened in this busy year! Continue reading

A year in the life . . .

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It’s been about a year since the meltdown on Wall Street, and it’s good to hear that Ben Bernanke thinks the recession is over. 

I believe that much has been done, and that the steps taken have been positive, but it’s not over by a long shot.  Yes, necessary things have been done to stabilize the economy so that we are now just in a recession as opposed to the “Great Recession”, and it appears that what has been done by governmental design is to shore up, capitalize, and stabilize the banking system.  Although that has left distaste in the mouths of many, it seems to have been a baby and bathwater bailout. 

Nevertheless, let’s not kid ourselves, the fundamentals that led to the “Great Recession” are still with us, and the statistics that are giving us hope are somewhat misleading at the present time.  Continue reading

Government Intervention

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 The economic models of socialism, capitalism, and European-style socialized capitalism are under pressure given today’s economic realities.  In a global economy, where we are all inerconnected and inter-dependent, the reality of which model will be most effective in attending to our issues is murky at best.  John Byrne (Business Week’s publisher) sums it up best, “[t]his is the first financial crisis of the global age. There is no clear map to deal with it”.  When left to its own devices with minimal (or ineffective) governmental regulation it appears that the US capitalistic, free-market model can lead to short-sighted and self-serving decision making, that while fostering ingenuity, rapid development and competition can also lead to gluttony, abuse, and bottom-line fixations that are self destructive.  This over-inflation of the proverbial bubble, which of course will inevitably burst, tends to then eliminate a great amount of the progress and advances made by the capitalistic framework.  On the other hand, there is the socialized capitalism model that comes with increased government intervention, which I see as leading to less innovation, competition and growth, making it a minority shareholder in the global economy and allowing a purely capitalistic society to overtake it, and in doing so drag it into the bursting bubble. 

With our TARP $700 BN bailout fund, the first 1/2 of which went to partially nationalize banks, AIG, and temporarily bailout automakers, we seem to be proceeding full steam down the path of becoming France.  Moreover, Citigroup is essentially in government receivership.  Now, although I agree wholeheartedly with President Obama that the Wall Streeters (from technically bankrupt entities that have been propped up by taxpayer bailout funds) that paid themselves 2008 bonuses while receiving bailout funding are shameful and should be brought to account for their actions, the stance that our President is taking is a clear case of government dictating to private commercial entities how they should operate and compensate their employees, and that is about as close to socialism as we have come.  So what is the best way to go about this?  Is it necessary for the government to intervene to this extent or not?   I guess I am advocating for a managed (or regulated) capitalism as opposed to a socialistic capitalism.

Please comment.

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The time for smoke and mirrors has passed

It was interesting to read yesterday that the top 7 executives at Goldman Sachs are going to forgo their bonuses for 2008, but that move seems like more of an optical illusion to dispel the inevitable picture of bankers as hogs feeding at the trough than helpful in a macro-economic sense. The top 3 of those executives, including CEO Blankenfield, each earned about $65 million last year because Goldman’s 2007 financial year apparently earned the firm its largest profits ever. It’s easy to be a Monday-morning quarterback, but, its hard not to argue that those profits were illusory and ill-gotten gains that leveraged the wider economy into a precipitous fall. Not only should these people forgo their 2008 bonuses, and many more firms should follow Goldman’s lead, because a better illusion, um, solution would be for all those executives (including traders and money managers) at Wall Street firms (not geographically defined) that earned in excess of $1 million in 2007 to give back 60% (or more) of those 2007 earnings to a fund that can dovetail with the government’s efforts, and can be used to aid the funding of TARP (the bailout plan) or certain additional issues now swirling around or expected to descend upon us in the near future, i.e. the automobile industry in Detroit, or the commercial real estate loan workouts that are on our agenda for 2009. It would be difficult to legislate something like this, but use this suggestion as a starting point, or a building block toward conceptualizing a way to make this idea more palatable, and perhaps even beneficial. Perhaps the IRS could issue a Revenue Procedure whereby a fund created in this manner could entitle those returning their 2007 bonuses to the fund to get tax credits against income going forward in predetermined amounts (dollar for dollar, or some alternative formulation). Clearly there would have to be an analysis of whether the money the government would forgo in tax revenue would be offset by the money that the fund could receive, and the economic benefit it could generate.

Essentially, this plan calls for private people to take cash assets held now in banks, assets that the banks are not lending against, and they would be transferring those assets to a giant fund that would re-invest the money into the economy and give those private people a tax credit, as well as a philanthropic or community purpose. Such an endeavor would present an enormous logistical challenge, but that endeavor would require creative consulting, money management and investment advice, as well as other trickle-down benefits for professional service providers, investors, and even, banks. Merely criticising the government, or blaspheming the Wall Street hogs, enjoyable as it is, is not truly productive. President-elect Obama said in his acceptance speech on November 4, 2008, that we should think about cooperation and collaboration, and this could be a good start. As a more than tangential benefit, efforts like this may stimulate areas of the market unrelated to the genesis of these economic issues, such as the rental, or the distressed asset areas that are suffering from capital failures due to the trickle-down effects of the economic storm we are now weathering. Economically, we are facing a shutdown in the availability of capital, as investors and banks are holding a disproportional amount of assets in cash, making little, if any, capital available for loans, lines, and credit facilities.

The only way to really change the game, is to actually get in the game!