The Top 3 Bailout Trades
by Michael Shulman 11/13/08
The word "bailout" may soon surpass porn in the number of searches conducted by Google (GOOG).
That really tells you something about the recession, the ongoing financial crisis and the ability of the government to do something about these two problems.
A Big Bunch of Liars
Things have really heated up in the past few days:
- General Motors (GM) and other car companies finally stopped lying and said they were about to run out of cash and came hat in hand -- an expensive hat -- to Washington for money. No matter -- GM is and will eventually behave as if bankrupt.
- AIG (AIG) finally stopped lying and said the bailout funds were not helping -- even though it had already used more than $10 billion -- and got a new deal (its third) from the Treasury. AIG is effectively bankrupt, and if not for the consequences for the derivatives market, it would have been put into bankruptcy months ago.
- American Express (AXP) stopped lying and said it needed more capital due to credit card problems -- without actually it. The company became a regular bank, which gave it access to TARP money. It did not do this to boost its travel business -- it is really hurting in its core credit card business. In October, not one bond was sold anywhere in the world based on securitized credit card debt, which means Amex has to hold all of its debt going forward.
- Citigroup (C) continued to lie, announcing that it would do its part as a good citizen and work to help struggling homeowners with $20 billion in mortgages held by Citi. It really did this to protect what is left of its balance sheet and generate some goodwill to support its request for more money from Uncle Sam sometime next year.
- Goldman Sachs (GS) continued to lie with its silence -- not squelching rumors it will take its first quarterly loss when it announces earnings in mid-December.
- The Chinese lied saying they were spending almost $600 billion to goose their economy, but almost all of this money was going to be spent anyway. This was a program and a press release designed to mollify their unemployed and boost their stock market, which it will do -- temporarily.
- Fannie Mae's (FNM) lies came uncovered with a write-off of $29 billion, forecasts of much more to come and growing concern that no one wants its corporate debt because it is not backed by Uncle Sam. Its mortgage bonds are guaranteed by you and me.
- My twin teenage sons lied saying they went to bed when they actually stayed up to watch the end of Monday Night Football. At least someone had a good reason to lie.
