Monday, October 15, 2007

The Super Bailout Fund

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Let me ask you this.

If you had a company, and you had something to sell... and no one wanted to buy it, what would you do?

Did I mention that the product you want to sell is not even on your balance sheet, it's actually hidden off to the side in an off balance sheet area so it doesn't even really appear to exist. Wait, it doesn't appear to exist until it causes you problems.

But back to our story... what would do you?

Here is an idea - why don't you partner up with a few other fellow companies in your industry, and create a 3rd party entity. You and your friends will shuffle money to fund this 3rd party entity, and than said 3rd party entity will buy the product you cannot sell. So just like that, problem solved! There is a buyer for your product. The buyer is... yourself!

Now I don't know about you, but if a normal business did that, we'd call it a joke. Or worst. (fraud?) But in our financial hallways, we call it innovative and wonderful. In fact our Treasury Cabinet member is the one encouraging it. Folks, this is sad and a shell game at its worst.

In and of itself its pathetic and shows what happens when banks are under capitalized and leveraged out the wazoo (real assets don't cover a fraction of liabilities). But weren't these companies just re-assuring us that "THIS" was the kitchen sink quarter? So if "THIS" was the kitchen sink quarter and EVERYTHING will be great once we get onto the next quarter, why do we need such a contrived vehicle? Hmmm....

Remember Wall Street was cheering 2 weeks ago (to the day) when the large money center banks claimed their large write offs, and "analysts" were telling us, well now we got that out of the way, it's all good from here! Onward and upward! woo hoo.

Perhaps because this is just the first of a few kitchen sink quarters or as I have written in the past "maybe they will call the next bad quarter the bathroom sink quarter". Honestly, this is why its hard to bet against the market (i.e. government). When risk goes haywire, something will be created to bail the top guns out because the top guns are so big and so important, we cannot allow them to suffer real pain. So we will allow them to create their own customer base now. Selling stuff they hide off to the side in a dark closest, to.... themselves. And applaud it.

For those of you around, do you remember the last bout of off balance sheet accounting in 99/00/01? That didn't turn out very well, did it Jeffrey Skilling? Ebbers?

America, gotta love it. Sorry folks, but when Ron Paul starts making more sense than the people in power it has to be troubling.

Excellent article here by CNNMoney.com here describing the situation. I wish someone could explain why 'accounting rules' allow these SIVs to be held off the balance sheet; and why we allow ANYTHING off the balance sheet anymore.

Long UltraShort Financials (SKF) and many more sinks throughout the house

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