Greg's Note: Bailouts? Bah! Vive la Bankruptcy! Liquidation of debt needs to occur; that's why there are bankruptcy laws in the Constitution. Byron King makes the point below. Send all questions and comments to greg@whiskeyandgunpowder.com. Whiskey & Gunpowder
I was looking through my pocket-copy of the U.S. Constitution for the "Bailout Clause." I must have missed it. If any readers out there can find the Bailout Clause, please send me a note and let me know where it is. There is, however, a "Bankruptcy Clause" in the U.S. Constitution (Article I, Section 8, Clause 4). I've written before about bankruptcy in Whiskey & Gunpowder. See "National Bankruptcy," and "A Suggestion of Bankruptcy," Part I and Part II. ~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~ Unbelievable Profits — No Matter What the Market Does Are you aware that there is a group of people that are happy that the financial markets are going crazy? This group is made up of people you've never heard of. They don't care whether the stock market goes up or down because they make either way...a lot of money. One man knows how to make fortunes when stocks go up...and rake in unbelievable profits when stocks go down. He's been playing by a whole different set of rules than the regular investors. After making so much money for so long, he decided it was time to change sides. Now, he's going to reveal the information that has made him so much money. Get your free report on how to get rich no matter what the market does. The key point is that the framers of the U.S. Constitution specifically anticipated that the nation would encounter economic troubles from time to time. So they gave Congress the power to enact bankruptcy laws, as opposed to "bailout" laws. And throughout U.S. history, the various economic "Panics" — which occurred every couple of decades — always led to one direction or another in the evolution of state and federal bankruptcy laws. Hey, bankruptcy works. (Full disclosure — I used to practice bankruptcy law.) At some times in U.S. history, the bankruptcy laws favored the creditor class. During other times, the bankruptcy laws favored debtors. The point is that the economic hardships were eventually manifested in bankruptcy proceedings. Just as all rivers flow to the sea, bad debt must find its way to discharge. So bankruptcy court was where judges and attorneys and other financial experts (like accountants and actuaries) could deal with each case on the merits. The problems could come to some sort of resolution. Some people came out OK. Other people lost everything. But capital flowed from weak hands to strong hands, and the economy moved along. Why Not Bankruptcy Process? But not today. Indeed, according to the New York Times many law firms — including firms that focus on bankruptcy work — are actually scaling back and laying off staff. Why is that? Why are the politicians so eager to avoid seeing companies go into bankruptcy? The government is trying to solve the problems of gargantuan levels of debt — along with chronic insolvency and illiquidity within the economy — without resorting to the constitutional-based legal mechanisms and tools that have served the nation well for over 200 years. ~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~ The End of Cheap Oil You wouldn't think so. After all, oil prices have plummeted… But the fundamentals are clear as day. Oil is destined to get a lot more expensive. It's going to change life in the U.S. and the world…forever…but you can protect yourself and prosper… Click here to take advantage of oil's temporarily lower prices. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Consider the problems of derivatives. Few understand them. Many so-called derivative "contracts" are little more than mathematical formulae based on a series of futuristic occurrences that are entirely speculative. Their initial value in the best of times was entirely somebody's guess. So is it any surprise that it is all but impossible to place a value on such things during the throes of a recession? Yet derivatives are some of the "troubled assets" that the Treasury is attempting to bail out. This is ridiculous! Why is the Treasury allowing even one dollar of taxpayer money to get near a derivative? Why not use the bankruptcy process in this kind of situation? The companies that hold unsalable derivatives should have to go into a Chapter 11 proceeding and let a bankruptcy court sort it out. If the derivatives have value, let someone say so — under oath — in front of a federal judge. If the derivatives are worthless, let the judges do what we pay them to do — void the instruments and allocate the losses. Sure, bankruptcy cases take time to roll through the courts. But could Chapter 11 bankruptcy be any worse than the current drip-drip-drip, hemorrhage of funds into the black hole of the likes of AIG? And at least some bankruptcy judge might just put a stop to the AIG exploits of taking nice vacations to exotic resort locales. Or what about the U.S. automobile industry? Now the domestic carmakers want some of that TARP money too. Or else what? They'll have to file for Chapter 11? Yeah? And then? Well on the day that the automakers file for bankruptcy, the automobile factories will still be there. The patents and designs aren't going anywhere. The workers and design teams will stick around for a while — it's not like there are a whole lot of other jobs out there, except maybe raking leaves in leafy suburbs. It seems to me that General Motors, Ford or Chrysler — without the legacy costs of pensions and health care and featherbed contracts for non-working union members — would actually be a decent investment for a Debtor-in-Possession (DIP) form of financing. Any DIP-lender worth its salt would certainly go into the management suites to take names, kick ass and get rid of the deadwood. And over the long term, if U.S. automakers actually paid more for steel than they have to pay for retiree health care, then we might actually see a revival of that industry. ~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~ Crashing Stocks Are Creating Fortunes If you think that steep declines in stock prices only mean wealth destruction, think again… You can reliably use this approach to make big "wealth recovering" plays against today's crushing waves of collapsing shares. Find out how to anticipate which companies are going to fall the most…and how to profit…by clicking here. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Meanwhile, We're Losing Time Meanwhile, we are losing time. "Ask me for anything," said Napoleon to his lieutenant. "Anything but time." What Napoleon was saying to his subordinate was that in the context of war, there are always setbacks. Terrain, for example, is sometimes captured and lost to the enemy. But lost terrain can be regained. And troops are lost in combat, but the armed forces can be rebuilt and reconstituted from the strategic reserve. Lost time, however? Once it has passed, time is gone forever. You will never get it back, and no general — however great — can win it back on any field of battle. It is the same thing with the declining U.S. and world economy. The world's central bankers and treasury ministers dither, and squander capital into bottomless pits of a deflationary recession. But the great villain in all of this is debt, pure and simple. And much debt is just a collection of bizarre debt instruments, exotic forms of speculative contracts, and obligations so massive that they will never be repaid. So why prolong the agony? Liquidate it now. Let the bankruptcy courts do what the framers intended. That's all for now. Until we meet again… Greg's Endnote: Ah, there's Byron going on about the Constitution again…as if anyone pays attention to that ol' thing. In these heady days of government bailouts and money creation, bringing up the Constitution is like quoting scripture at a bacchanal. Would anyone be willing to take odds that Congress and our next President will continue to pretend the Constitution doesn't really exist? Here's what we might tell our new President if we had the chance. You may want to check it out just in case you have some doubts about government's ability to fix the problems they created in the first place. |
Whiskey & Gunpowder Special Reports New "Backlash" Set to Rocket Oil Past $150...and Send Gas Soaring to Over $6 per Gallon The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market If someone forwarded you this copy, please look here to start your own subscription. Wanna let us know what you thought of today's issue? Now you can... click on this link. Whiskey & Gunpowder is a free e-mail service brought to you by a team of rebellious brigands. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Whiskey & Gunpowder without interruption. Are you having trouble receiving your Whiskey & Gunpowder? You can ensure its arrival in your mailbox here. Please note: we sent this e-mail to finan4@finanmart.com because you subscribed to this service. To end your Whiskey & Gunpowder e-mail subscription, click here. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2008 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. |
