Financial Bubble: It’s Déjà Vu All Over Again

The “liquidity event” is back. With stock markets around the world rising on a tide of printing-press money, IPOs, mergers and acquisitions are red-hot once again, turning corporate insiders into billionaires overnight. And — no surprise here — the companies that are most closely tied to the funny-money business itself are spawning billionaires the fastest of all – faster, even, than Forbes magazine can make room on its list of 500.  Just one new, hitherto unheard of paper-pusher alone, Swiss commodity-trading firm Glencore, will likely add at least six billionaires to Forbes’ roster when it goes public.  Its CEO, Ivan Glasenberg, who owns 15.8% of the company, could be worth $60 billion after the big day.  Perhaps Facebook founder Mark Zuckerberg went into the wrong business? He’s only worth a measly $12 billion at the moment, and it seems unlikely he’ll surpass Glasenberg, since Facebook, which has yet to develop a solid revenue model,  is expected to fetch only $50 billion when it goes public. In the meantime, poor cousins like General Motors continue to grind out profits the hard way – i.e., by selling their stake in financial subsidiaries that are making money hand-over-fist the new-fashioned way.

Fortunately, however, some of the lucre has begun to trickle down to the little guy. The Ackerman household, for one.  We recently received a letter from Well Fargo bank informing us that they were “very pleased to bring [me] some good news!”  I knew the news was going to be good indeed, since the opening sentence was in boldface – and with that exclamation mark!!  Were they perhaps going to reward me for being a loyal customer for 30 years?  Well, yes. But my heart sank with the next sentence:  “We have lowered your annual percentage rate as noted in the table below.  The lower rate applies to both your existing balance as well as any new transactions.”  Hmmm? So it appears they won’t be sending me anything. But perhaps I’ll still come out of this with a winning deal, I thought. After all, hardly a day goes buy when I don’t receive a solicitation from some bank urging me to borrow money for a year or two at zero interest. Was Wells Fargo prepared to make me an even better offer?  No such luck. As it happened, they had merely lowered my annual percentage rate for purchases and balance transfers to – are you sitting down for this – 20.25%!!   Who said these guys don’t have a heart? This is sharing the wealth in the finest tradition of American capitalism.  Now all I gotta do is find the next Glencore to invest in, so that borrowing $100k at 20% to do it will seem like a stroke of genius.

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  • rob May 14, 2011, 2:08 pm

    Can anyone explain to me who will buy the gov’t bonds once the Federal Reserve stops its QE2 buying program when treasury rates are so low and inflation is supposedly all around?

  • rob krawiecki May 14, 2011, 2:04 pm

    can anyone explain to me why the 10 year interest rate is going lower in a time of supposed inflation?

    second can anyone explain who will purchase the debt of USA if the Federal Reserve stops buying it via its

    • roger erickson May 14, 2011, 4:25 pm

      First, it’s not “debt”. On a fiat currency regime (note, since 1933), there’s no need at all to even issue T-bonds to oneself. That’s obvious. T-bonds are just a bureaucratic habit left over from the gold std days.

      So if the FED quit buying irrelevant fiat bonds? Simplest response, without changing too many regs: Congress could just order Treasury & FED to let Treasury denominate it’s fiat as an overdraft instead of a T-bond. The real effect would be zero, since it’s all fiat. Most lazy investors holding T-bonds would have to find more productive forms of savings accounts.

      It’s truly amazing how long it takes people, and especially policy, to catch on to context change.

      see http://tinyurl.com/y3dkda3

      and this: A sovereign government can “be [tricked] into [pretending to] borrow “money’ instead of creating it”? [Yes. Ours was] http://www.monetary.org/briefusmonetaryhistory.htm

      ditto, by the say for the supposed SS Trust Fund.
      Social Sec, FDIC, DoD, Treasury – they’re all the same thing, and can’t go bust unless we make a DECISION to stop issuing our own fiat currency.

      It’s as if our entire policy apparatus, and banking lobby, still plan as though the earth is flat and the sun circles the earth. You can’t make this stuff up.

  • Chris T. May 9, 2011, 8:50 pm

    Roger Ericson:
    “Any current politician can apparently be bought, with surprisingly small amounts of campaign contributions”

    The modern form of bribery doesn’t work that way anymore:
    The bying is not done BEFORE they are in office with contributions, thats just the downpayment for services to be rendered.
    The payoff follows AFTER services have been rendered, long after, once out of office.

    Each trusts the other:
    the bribee knows if he doesn’t come through, no final payment (95%+ of the bribe), and
    the bribor always pays so as to keep the whole SYSTEM funtioning. Sure he could stiff one specific individual (after all the service was rendered by that one), but then, the next guy, and the one after that, and so on, would catch on, asking for MUCH more than a down-payment.

    Best of all: No criminal activity, because who can prove this long delayed pay-off?

    What are these payoffs?
    $500,000 speaking fees
    $20,000,000 book-signing deals
    multi-million $ consulting fees
    board seats, and so on.

    Examples:
    Clintons (both), Blair, Guilani, Kissinger, and so on.
    Obama has taken that to a new level, with his prize coming even before the service-
    whether its the books, or the Nobel, all before he did ANYTHING.

    Again to Clintons, Blair, Obama: Look at their net worths:
    What did they ever do constrcutive for the dough, they never really worked a day in their life (and I do include Ms Pseudo-Attorney Hillary in that, just another way to pay the Clinton train during and prior to the offices)
    The teensy governors, senators, presidents, PM salaries? Laugh!

    Why mostly Dems above? Just happenstance and luck of timing. We can include Cheneys, and the whole misbegotten Bush-brood, from Greadgranddaddy to Jeb’s kid in that.

    Any politician who gets caught these days with an Abscam palm-out deserves to be caught for his stupidity in not getting the real game.

    • redwilldanaher May 10, 2011, 4:10 pm

      Thumbs way up Chris!

  • cdm May 9, 2011, 8:31 pm

    why anyone on this post would do business with any of our too big to fail banks is beyond me. we should be leading the way, not standing with the heerd

  • Chris T. May 9, 2011, 8:19 pm

    Rick:
    “After all, hardly a day goes buy when I don’t receive a solicitation from some bank urging me to borrow money for a year or two at zero interest. ”

    You should count yourself lucky for those!
    All I have seen for the last 12+months is 0.99% and up for 6-12 months at most, with the new 4% min. fee without any cap.
    Guess I should check my FICO, or yours is at 850…
    🙂

  • Robert May 9, 2011, 7:49 pm

    Well, look at the bright side, Rick-

    After you tear up the “good news” from WF you can run down the street and enjoy a nice, deflation-adjusted 99 cent double Cheeseburger at McDonalds, which now runs $1.19…

    oh, wait a minute… interest rates going down, prices going up?

  • HRUSTY May 9, 2011, 7:44 pm

    How much is Marc Rich going to make on this deal? Does anybody know?

  • HRUSTY May 9, 2011, 7:36 pm

    The reason for the B instead of the M is that they have adjusted their income for hyperinflation (squared)
    The rest of Americans will left out in the cold, if the SDR catches on so will the rest of the world.
    After Argentina, Greece and Ireland…now the US who’s next?

  • roger erickson May 9, 2011, 7:26 pm

    this makes sense to me – “QE2 has [only] contributed to significant speculation in markets”

    THE FINANCING PYRAMID
    http://pragcap.com/the-financing-pyramid

    just a useless distraction – like casinos

    “the real economy is not theoretically affected, except that it is held hostage to this casino game of rapidly changing prices for basic materials and necessities that businesses and consumers use to make decisions. So the economy is in actuality disrupted by the casino, the casino creates no net wealth, and everyone is worse off as this charade continues.”

    This hasn’t happened since Hoover was in office (except for when Dubya, Clinton, Bush Sr & Reagan were in).
    Surely no one thinks either political party makes any difference. Any current politician can apparently be bought, with surprisingly small amounts of campaign contributions. All we’ve done to replace gold-std fraud is necessarily switch to fiat-fraud. That was a necessary change, & there’s no going back. With scale & pace, we have to change, but we also have to take on more responsibility.

    Do you have faith that your kids & grandkids will become the Even Greater Generation? Better hope so.

  • Marketace May 9, 2011, 6:27 pm

    Congrats Rick on your new low interest rate. Got a note from BofA about ours (perfect credit and balance paid every month) refering to a possible adjustment up to 29.99%. Who do these banksters think they are?

    • cosmo May 9, 2011, 7:03 pm

      You have no leg to stand on calling them Banksters and doing business with them… Why are you feeding the Beast?

      Corporations survive through revenue. Stop doing business with them and they will go away(with any luck)

      I’m with CC. Open an acct at your local bank. They often still have free checking.

      Since I was 6 years old I could never figure out why I would pay someone to keep my money

  • Rich May 9, 2011, 5:55 pm

    Left Wells in the dust after their Bank Manager persuaded locking in overdraft protection quoted at 6% that actually turned out to be 64% APR when the fine print arrived. Wrote Wells CEO and did not even get the courtesy of a reply. He retired a little later with his golden parachute.
    The days of corporate government fascism are over, only they don’t admit it and keep trying to soak Americans with income and inflation taxes when the APT would do much better for everyone.
    In real terms, financial alchemists like Banks, BRK, GE, GM, the markets and economy went nowhere for over a decade, with perhaps another two to come…
    http://en.wikipedia.org/wiki/Automated_payment_transaction_tax

    • roger erickson May 9, 2011, 7:16 pm

      but Buffet says Wells Fargo is one of the best run companies in the USA! 🙂

  • C.C. May 9, 2011, 5:31 pm

    Rick –

    Are not there any local banks in your neck of the woods?
    What with all the graft, I would think it the ‘patriotic’ thing to do and give a local bank a try. I’ve done it with Wells and could not be happier and better satisfied with dumping an over-bloated institution in favor of some Real Service…

    With regard to your piece in general: I was talking to a friend the other day when we found ourselves discussing the economy. She made a mention of what she perceived as a growing gap between wealth and poverty. I found her comments interesting in that I thought I was the only cynic around who ‘knew anything’ about what was really going on out there in the real world.

    I would suggest that if the credit spreads foretell of another liquidity crunch coming on, yet stories keep rolling out of people wallowing in their newly found wealth, we’re going to have a social problem on our hands. Of course, I’ve been suggesting this since our debt broke the $5T mark in 1995, but the landscape was no where nearly as clear to see as it is today.

    Back then we still made a few things domestically and the ‘wealth effect’ was spread somewhat more evenly. What some have postulated over the past 3 or 4 years – in that we would soon become a 3rd world country/banana republic is beginning to resonate I believe, because it really is happening right before us.

  • redwilldanaher May 9, 2011, 4:42 pm

    Wall St. 1987 – Hal Holbrook: Lou Mannheim’s “thoughts from antiquity.”

    “Jesus you can’t make a buck in this market, the country’s goin’ to hell faster than when that son of a bitch Roosevelt was in charge. Too much cheap money sloshing around the world. The worst mistake we ever made was letting Nixon get off the gold standard.”

    “Remember there are no shortcuts, son. Quick buck artists come and go with every bull market, but the steady players make it through the bear market.”

    “Stick to the fundamentals. That’s how IBM and Hilton were built. Good things, sometimes, take time.”

    “You can’t get a little bit pregnant.”

    “Kid, you’re on a roll. Enjoy it while it lasts, ’cause it never does.”

    “Man looks into the Abyss, and there’s nothin’ staring back at him. At that moment, man finds his character, and that’s what keeps him out of the Abyss.”

    Nothing will really matter again as long as its so easy for them to add as many zeros to the end of any number they wish.

  • roger erickson May 9, 2011, 2:33 pm

    Does finance capitalism remind you a bit of cargo cult religion?

    CCR: “How come you Europeans have all the cargo?”
    [time to build shrine & pray to the cargo gods?]

    Capitalist Cultists: “How come you bankers have all our fiat currency?”
    [if I see any more shrines to currency, I may puke]

  • Hans from Switzerland May 9, 2011, 2:15 pm

    Rick
    Always a pleasure to read your comments. But this time there was a litte but important mistake: The CEO of Glencore will not be worth USD 60 billion after the IPO. The whole IPO is worth 60 billion. Therefore its stake will be worth ‘only’ 10 billion…

  • Buster May 9, 2011, 10:49 am

    Not often you do a misprint, Rick!
    America doesn’t have a fine capitalist tradition. It’s pure corporate fascism all the way to the bank, thankyou. Do you think these parasites could make such a remarkable dishonest living if supplying the goods and services that society needs at a real market rate was the name of the game?
    No way! It’s far easier just sucking on the money teet at source in return for a bit of lobbying money, as even the money’s free to make in that part of town.
    And therein lies the problem. Yet again it’s all about who controlls the money.

  • John Jay May 9, 2011, 5:05 am

    Well, the interest on some I savings bonds I have just went from 1.74% to 5.62%.
    A fifty pound bag of horse carrots that were $6 not so long ago just went up to $12.
    A Friskies 5 oz can of cat food has gone from $.40 to $.50 at WalMart, and $.60 at the major unionized grocery chains.
    I know the governments view on inflation, but the cat and the horses refuse to eat I Pads.

  • Keith May 9, 2011, 3:43 am

    *Yawn*… when are things in the world going to get exciting again? Oh how I long for 08′ again. At least I was losing money on gold and silver to keep my blood pressure up. I feel like I’m waking up as Bill Murray in the movie ‘Ground Hog Day’.

  • FranSix May 9, 2011, 3:26 am

    You drive a hard bargain, Rick.

  • Cam Fitzgerald May 9, 2011, 3:21 am

    Good topic Rick. Lucky you to get a discount off your 20.5% rate. Wow. Time to start a journal about rough times in the Great Recession maybe. The story is all about greed though.

    The spreads between borrowing costs and lending rates on credit cards has gotten very little attention. It seems incredible that there are not more complaints when some of these companies borrow in the very small single digits yet rent out cash above 20%.

    With fees, fines and penalties added in plus annual charges to hold cards it is easy to see that this racket is one very, very lucrative business right now.

    The credit issuers see it another way though. Default risk is high and so this is all justified. Try explaining that to the person who is paying 30 percent plus on a meager payday loan in order to put food on the table. That same person feels financially enslaved to the lenders of last resort and there are few advocates for these unfortunates.

    What amazes me is that we are now seeing some of the highest charge out rates ever seen at a time when the banks and other credit card issuers have access to the cheapest money in history.

    Lending like this is good business after all.

    • Robert May 14, 2011, 2:48 pm

      Interesting thought Cam, hard to believe how the public can become so acclimatized to accept this spread when it is so dangerous. It’s like taking a job cleaning up the reactor in Japan and being surprised your contaminated.