Sunday, April 10, 2011

World Slows Down

Since 2008 my world has slowed dramatically. The economy started backing off in '07. Many of the HNW (High Net Worth) people I was meeting to raise capital saw a cold wind coming from Obama-land and started pulling back on their risk tolerance. They expected huge tax increases as he was promising them. They also expected a landslide of new regulations and enforcement.

Nobody saw the Financial accounting standards Board changing the rules and destroying the balance sheets of highly regulated financial institutions. The FASB enacted their Mark-to-Market rule in November '07. Bear-Stearns hit the wall in January. When the FASB finally rolled back the rule in April '09 the economy recovered. They're now talking about re-enacting it again. Personal observation is that nothing will happen for a decade. That change wiped out the value of performing loans that were not in doubt or even due for 10-20 years. The bundled mortgages had a mixture of good and dubious mortgages. The good ones were paying a low rate and the dubious a higher rate. when the rule hit nobody knew what was a good bundle or a bad one. That made it impossible to sell without unbundling. However, the holder didn't have the authority to act.

The result of all the chaos and uncertainty loans were stopped-mostly. Even the most credit worthy were forced to pay high rates. The alternative was a pay-off or default. The system worked because people built equity as the assets appreciated and the debt was reduced. Eventually one would have a paid loan, a free asset that had appreciated above the original purchase price. This is the secret of most family homes and real estate investment wealth.

We need to grow. Funding evaporated for acquisitions. Our equipment was old and we had held off replacing it expecting to merge the business into a new and larger entity. With no funding available for acquisition, we began seeking funding for replacement equipment. Despite the popular Marxist myth, no responsible owner ever compromises safety for profit. Lacking any source -at a reasonable rate- we closed the doors and went home. Only an idiot/fool/desperate person takes a loan at 37.5%... Course, the lenders take a fixed and floating on everything the company and owners own... They know what is happening. It hurt to walk away but the alternative was too ugly.

The economy has not returned. The surge in stock prices shows mostly a draw-down of inventory and extension of existing equipment and work hours for those still employed. The EPA has a new raft of rules and regulations that will soon be enacted. Mostly these will raise the cost of -ll- energy and its usage. The new financial regulations haven't been written, but nobody expects the small and mid-sized to benefit from the weight. Healthcare is a mountain of cost with as yet unknown regulations.

The country is broke. Bush gave a stimulus to keep Nancy happy. Then the TARP bailout. Then the Obama use of TARP to take over the auto industry and pay-off the unions. Then we had the $1 trillion stimulus. Supposedly for "shovel-ready" work. However, there is no such thing where govt money is concerned. Every penny must be watched, accounted for, bid for, granted and then measured as it is spent. The govt keeps adding people. Course, most of these jobs will become SEIU union workers so, It's OK.

I've grown cynical and disillusioned.

I was taking the whole political sphere WAYTOO seriously.

I stepped back.

Re-discovered the stack of books that I had been meaning to read.
Re-discovered music that I had been to busy to hear.

I think it's been good for me.

What next-? I'm not sure.

But that's what being human is all about. Isn't it-?

Don't we all keep coming back to see what happens next-?

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