by Rob Kellogg on December 5, 2008
Last week, my colleague John Richardson wrote an article titled “5 Reasons to Save the Big Three.” While I do not necessarily believe that a bailout in some form should be ruled out altogether by lawmakers, I do think there are a number of solid reasons to oppose government intervention at this time. So I thought I would offer a contrasting perspective.
Most Republicans are against any bailout based on their doctrinal “free-market” ideology (yes, the same philosophy that got us into this mess with the deregulation of Wall Street investment banks under Phil Gramm during the Clinton Administration). So we know we shouldn’t be looking to that side of the aisle for the moral high ground in this debate. The Democrats, under the leadership of Pelosi in the House and Reid in the Senate, are in a very precarious spot. On the one hand, the Democrats have been given a clear economic mandate by voters to clean up the mess caused by “eight failed years of Bush economic policies.” On the other, the Democrats have some very powerful interests to consider, namely the UAW and its thousands of blue collar voting members in Michigan and the Midwest. This balancing act has caused most Democrats, including Obama, to lean cautiously in favor of some type of federal intervention.
Following the first round of hearings, House Speaker Pelosi said: “Until they show us the plan, we cannot show them the money.” President-elect Obama also agreed that taxpayers can’t be expected to “pony up more money for an auto industry that has been resistant to change.” This week, the Big 3 are getting their second – and likely final – chance to convince lawmakers.
Bankruptcy or bailout? Here are 5 reasons why Congress should think twice before dolling out the money to the auto industry.
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by Rob Kellogg on October 17, 2008
Editor’s note: This article is the first in a four-part series on the rise of sovereign wealth funds and what they mean for U.S. investors. Part II will appear next Friday on GIW.
Rolling Snake Eyes
For those of you who have played craps, you know that it can be a pretty easy game to win at, even when you really don’t know what you’re doing. When someone is on a hot streak, everyone at the table can partake in the winnings. A m
ain nemesis in the game is rolling the dreaded “snake eyes” (what’s known as a pair of pips among gamblers). Interestingly, and perhaps not coincidentally for our purposes here, the etymology of the reference traces back to 1929 – the onset of the Great Depression.
Several months ago, sovereign wealth funds (SWFs) from Singapore, Kuwait, Saudi Arabia, Abu Dhabi and Korea stepped up to the table to test their luck. These five government-sponsored funds went high stakes with their chips by collectively pouring nearly $60 billion into Citigroup, UBS and Merrill Lynch. These “experts” (bolstered by their outside advisors) were confidant that the sell-off which had rampaged Wall Street beginning in mid-2007 and continuing into early 2008 had reached its end. They thought they were correctly timing their purchase at the bottom of the downturn. No such luck. There was more carnage to come. Snake eyes all around.
Still smarting from their dramatic losses, many of these funds were invited in June to return to Casino High Finance, this time by Lehman Brothers. But unfortunately for Richard Fuld and his band of con artists, the managers at these funds had learned their lesson and declined the invitation to return to Las Vegas for one more roll of the dice. We will never know if that second roll would have brought more misery or good fortune, but something tells me the odds favored the house.
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