Japan Considering Stock Support
Japan continues to push the envelope of economic policy insanity. It seems they are looking into "supporting" their stock market as it edges near 27-year lows.
Japan finmin says govt considering stocks support
TOKYO, Feb 24 (Reuters) - Japanese Finance Minister Kaoru Yosano said on Tuesday the government was studying measures to support the share market, which is flirting with 27-year lows.
Officials had been ordered to look into support for the stock market, including considering a call from the head of a business lobby group for the government to buy shares, he said.
The Nikkei stock average fell 2.8 percent on Tuesday -- within a couple of hundred points of a 27-year low -- after Wall Street slumped to a 12-year low. [.N]
Japan thinks they can somehow prop up the stock market. I don't even know what to say, this is ridiculous.
End Malinvestment Losses?
Yosano said falling share prices were damaging the economy by cutting the capital base of Japanese banks, which are big holders of stocks, and also hurting other investors."It is not desirable that share prices are falling, causing unnecessary consequences. I discussed with government staff last Friday what we could do generally to deal with share prices. We must think about this, watching market moves," Yosano told a news conference after a cabinet meeting.
This is complete silliness. Yosano is essentially saying "people and companies who made poor investments are losing money, and because of this, we must step in."
Of course it is not desirable that share prices are falling for people who own them. This just happens to be what happens when you make a bad investment, though. There is no way around it. You can't have everyone always making money whenever they buy any stock or invest money in anything. This is what governments seem to believe, and they try to spend their citizens' money to try to make it happen while making everything worse.
Share-buying Body Wont Help Confidence
Yosano said he has instructed government officials to study measures Japan took in the past to support share prices, including a move in 1965 to set up a share-buying body.
It doesn't get anymore crazy than this really. A share-buying body to simply buy stocks on the open market with taxpayers money. This will just throw more confusion into the markets and cause more distortions that will only prolong things from getting to where they need to be. How will they decide which shares to buy? How many shares will they buy? How much will they spend? These questions can't really be answered because there are no answers. They will either pick stocks randomly, they will pick favorites, or they will pick their buddies.
This will not restore any confidence, nor will it be money well spent. Stocks are falling because the values of the companies are falling. The government cannot make the companies worth more than they really are, and thus they will be squandering money as Japan has been doing for almost 2 decades now. When the government starts deciding which companies stocks go up, and which continue to fall, investors will lose all confidence in the markets. As rationality and valuation goes out the window, safer investments will be sought. When will they learn?
US Markets and their Recovery
"The sluggishness of the U.S. stock market is also a big factor," Chief Cabinet Secretary Takeo Kawamura told reporters."I think there is a lot of uncertanties for the outlook (in the economy). It is necessary that the U.S. stock market recovers as soon as possible."
Analysts say further falls in Japanese share prices will hit banks that are already raising capital, in part, to compensate for the falling value of their large stock holdings.
Japan wants to spend money buying stocks in their stock market because of sluggish U.S. stock markets? I don't understand.
As far as it being necessary that the U.S. stock market recover as soon as possible, I agree wholeheartedly. This is why the government needs to get out of the way, and let markets get to where they need to be as quickly as possible so we can start rebuilding the pieces. The sooner this is allowed to happen, the sooner things get better. The government is doing nearly everything it can to slow this process both in Japan and in the U.S.
Banker Buddy Bailout
The Bank of Japan this month unveiled a plan to buy up to 1 trillion yen ($10.6 billion) of shares held by banks, dusting off a scheme from 2002-2004, when it battled a domestic banking crisis.The government is also planning a 20 trillion yen plan to buy shares held by banks, but the plan has not been approved by parliament. Both of these measures are targeted at only shares held by banks rather than wider buying. ($1=94.55 Yen) (Editing by Rodney Joyce)
This sounds much like the plans going on here to bailout banker friends. Japan has been doing this for nearly 3 decades now...will it take us this long to learn that these tactics don't work?
If Japan keeps this up, they will plow right through their 27-year lows and keep on going. So far, it seems the U.S. is doing their best to imitate Japan's "success." Hopefully we can learn something sooner rather than later, but this doesn't look likely so far.
Citigroup Wants More Free Lunch; More to Follow
Citigroup has already had 300 billion in loans guaranteed by the taxpayers of this country. There is no reason for this to have happened as Citi's malinvestments should have resulted in insolvency, bankrupty, and a selling of its assets in pieces to other, more well-managed businesses.
Since we did guarantee the 300 billion, however, Citigroup is already begging for more.
Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.
And what will 40% of Citigroup's common stock be worth? The markets are already starting to realize that Citi is insolvent, and that the company is essentially worthless. Are we going to spend billions and billions more taxpayer dollars to be left holding a worthless empty bag?
Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks.
So many things wrong here. Why would we want federal officials to have a greater influence over just about anything? They have far too much influence in far too many affairs already. They need to be getting uninvolved with these things and get back to protecting the rights of its citizens.
Second, why is Citigroup proposing plans on how our government (and thus the taxpayers) should give them money? Is there any conflict of interest here? I think so.
No indication of support for the plan is great, but why would there not be instant alarms going off screaming "no!" No matter what the plan entails, it should not even be considered. We should not be looking at plans to give companies money for free that the companies themselves have drawn up! This is insanity!
When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.
The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup's share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.
The government wants to have a huge ownership stake in a company whos stockprice has fallen to an 18-year low and is still begging for more money. They obviously have big problems, and its quite clear that they are insolvent. Our government has big enough problems with its deficit and budget, we don't need to be taking controlling shares in insolvent companies. This helps no one but the wealthy and greedy bankers who helped run these companies into the ground with poor business decisions and repetetive malinvestment.
Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.
The move wouldn't cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements.
Bank of America Corp. said Sunday that it isn't discussing a larger ownership stake for the government. "There are no talks right now over that issue," said Bank of America spokesman Robert Stickler. "We see no reason to do that. We believe the goal of public policy should be to attract private capital into the bank, not to discourage it."
Believe me, this plan will cost the taxpayers additional money. There is no free lunch. And Bank of America may be staying out of the mess now to clear the waters for Citigroup first, but I would not be at all surprised to find Bank of America lining up next for a handout.
Citigroup's low share price already reflects, at least in part, a fear among shareholders that their stakes might be further diluted. A government move to take a big stake could backfire, potentially spurring investors to flee other banks, even healthier ones.
I think Citi's low share price reflects the fact that many people deem Citigroup to be essentially insolvent -- worthless. And if a government move spurs investors to "flee other banks, even healthier ones," these moves are probably justified anyway. A bank healthier than Citigroup still might be insolvent, or very close too it. The word "healthy" does not mean much for a bank these days, at least in my opinion.
The White House has knocked down recent speculation that the government is preparing to nationalize several large U.S. banks.
The U.S.'s intentions with Citigroup remain unclear. For instance, it's not yet known whether the government would seek a stronger hand in the New York company's management or day-to-day operations.
Why are we talking about the U.S.'s intentions? Citigroup is proposing the plan. Why should we even consider it? We have no obligation to listen to a company whine about it's problems because of poor business decisions that it made. Why should our politicians even waste their valuable time? The intentions should be what is best for the American people, and that is to give Citi group no money, and even to take back the 300 billion in guarantees that we have already given up.
Details of the rescue remain in flux. Key questions, such as the price at which the government will convert its preferred stock into common shares, haven't been resolved.
It blows my mind that these things are even beeing discussed and/or considered. Above the article said that this would not cost the taxpayers anymore money (I mentioned that it would), and now it is discussing the "price" at which the government will convert its preferred stock into common shares. This sounds like a cost to me, and I'm not sure where else the money would come from but from the taxpayers.
The price should have been resolved instantly, and that price should have been 0.
I just have to say it again. Citigroup is proposing a plan to the government that Citigroup wrote. Citigroup is asking for more free lunch, and if they succeeed, there is no doubt that more banks will follow suit. Why are we even listening to these pathetic requests? Why should the government have any intention of considering a plan written by a company to give that company free money simply because they made poor businesse decisions, poor investments, and are now facing bankruptcy?
We need to realize that this is how things work. Poor decisions and poor investments lead to poor results, and possibly even going out of business. This has worked for hundreds and hundreds of years and has helped economies thriv
e.
Citigroup wants more free lunch, and it looks like we might give it to them. But rest-assured, the lunch will only be free for citigroup, not you and I.
Dubai Feeling Hurt Too
Bloomberg is reporting that the U.A.E is buying Dubai debt to help them out. This is essentially bailing out Dubai.
U.A.E. Central Bank Steps In to Support Dubai Debt, Spending
Feb. 23 (Bloomberg) -- The United Arab Emirates’ central bank stepped in to support Dubai after concern increased the emirate will struggle to repay its debt as global financial turmoil pushed up credit costs and burst a real-estate bubble.The central bank bought half of an unsecured, $20 billion, 5-year notes issue at an annual interest rate of 4 percent, Dubai’s Department of Finance said in an e-mailed statement yesterday.
Home to the world’s tallest building, most expensive hotel suite and largest manmade islands, Dubai borrowed $80 billion to turn itself into a regional financial and tourism hub. Moody’s Investors Service said in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody’s said.
It looks like Dubai has been overspending itself as well, and now they need a 20 billion dollar bailout. I wouldn't be surprised if there is more to come, however. They have really been trying to spend as much as possible to build up a global tourist attraction -- and tourism might be slowing down for the forseeable future, especially for expensive getaways such as Dubai.
The cost to protect Dubai debt against default jumped to 976 basis points, the highest this year, on Feb. 17, according to traders of credit-default swaps. Investors sold bonds linked to Dubai World companies on concerns that Abu Dhabi wouldn’t aid Dubai-based banks and companies.
Real-Estate Slump
“Credit-default swap prices offered for Dubai Inc. companies suggest that the free market wouldn’t have a comparable appetite for Dubai government bonds at the proposed pricing,” said Eckart Woertz, economist at the Gulf Research Center.
My translation of this is that the central bank is greatly overpaying for this debt. If the free market wouldn't "have a comparable appetite for Dubai government bonds at the proposed pricing," this generally means they are not profitable (or someone would buy them). This means that the price needs to fall. The central bank is doing what they do best, however, and squandering money at the expense of the U.A.E constituents.
The policy insanity is spreading to the U.A.E as well, I'm beginning to wonder if any corner of the world can avoid ridiculous policies that only hurt the situation at the expense of (mostly) the poor and middle class.