Tuesday, April 28, 2009

Shock and Awe All Right

General Motors

For those that have been watching the GM coma situation the news announced yesterday was, to quote Larry Kudlow, a piece of shock and awe all right.

For those that have been watching this at arms length I thought some of the more important details might be of interest to you. The unsecured bondholders of GM, both public and private, by this I mean, your neighbour your pension plan, most probably that bond fund in your IRA and 401k plan etc., hold $27 billion of GM bonds.

Next up we have the union which holds $20 billion of these same type of unsecured bonds.

The bondholders of that first group, (public and private) are slated to receive 10% of the New GM company and little to no cash. The union is slated to receive $10 billion in cash and 39% of the new GM company.

Regular readers know that I never went to Harvard, or any other 'tuition extorter' of brainwashed parents and students, but I am financially literate enough to know a heist when I see it.

One entity has $7 billion less of an equal position yet is getting a 29% larger stake in the new company in addition to $10 billion in cash. This must be the same kind of math used by the Wall St. MBA's at Lehman, Goldman, Merrill et al., when they pooled garbage mortgages and turned them into gold plated securities via Moodys.

Remember that cartoon where the characters were divying up the loot?
One for you, one for me.
Two for you, one, two for me.
Three for you, one, two, three for me.

Just in case I lost you, the character in the cartoon (re:banker) is giving you 3 pieces while he now has 6 pieces. Damit I knew I should have taken the Wall St. math elective instead of geology for non-geology majors (rocks for jocks).

Either way, this does not compute with my simpleton math so I would welcome any and all Harvard, or any other Ivy league grad for that matter, to enlighten me. I will be open minded and courteous to you and your arguments. I just need help understanding this but please make sure they include some logic.

Oh yeah, I almost forgot to mention that GM is planning to eliminate 21,000 jobs. No that is not a typo. Just keep this in mind the next time CNBC attempts to jam 'green shoots' and 'mustard seeds' down your throat.

Bank of America

Nice to know Joe Kernan is intellectually capable of figuring out that what Ken Lewis did to BOA shareholders is criminal. Or at least he needed to watch Larry Kudlow's show to hear him say it to finally figure it out. Is there an market/financial IQ test required to be an anchor on CNBC or is just a portfolio of glamour shots all that is required? Just wondering.

Stress test leaks are now indicating that Bank of America and Citigroup need to raise more capital. Too funny. I thought they were not going to be allowed to fail. Here is what I do as Ken Lewis CEO of Bank America.

First up, I hole myself up in Panama or Paraguay with ex-military security, most probably right next door to Hank Paulson as they might be able to go dutch on some duplicate security expenses.

Next up, I would tell Bernanke and the sock puppet boy Geithner, to stick their head where the sun doesn't shine telling them "Bank America is the largest deposit institution in the nation and is too big to fail so we are doing nothing".

Then, I would also counsel existing shareholders that they will be diluted into oblivion if this happens and just in case they are somehow misinformed otherwise, I would tell them that if they let this happen, American Idol will be taken off the air.

Then I would start circulating memo's to congressman Ron Paul and NY state Attorney General Andrew Cuomo revealing where all the bodies are buried. This could all become the start of Dog Day Afternoon, part 2, so to speak. Oh yeah, can't forget the sword for seppuku as icing on the cake.

Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:


No comments: