Wednesday, January 11, 2012

If Bain Capital were a ship, Gordon Gekko would be her Captain, sporting an eye patch, wooden leg and parrot.

Oil refiners have stopped buying oil from Iran, this was the headline today. Well really just on the spot market. Two thirds of the Iranian oil that refiners buy is on long term contract, and they won’t give that up unless forced to by an EU embargo. China continues to buy oil and doesn’t accept anybody else’s opinion on the matter. They have been buying less Iranian oil lately, but this is reportedly because of a pricing dispute. Since 2/3 of Iran’s oil goes to the far east, it sounds like Iran’s only problem is getting full price. The price is going up thanks to the US pressure on countries to not to buy from Iran, so they could end up getting just as much for their oil as now, or more.

Iran’s biggest problem is really the threats made by the US against any foreign bank who does business with Iran’s banks, the banks who do would be prohibited from doing business in the US, and this could make it hard for Iran to get paid for its oil. This could in theory include those huge Chinese banks in lower Manhattan. Obama might as well threaten the king of the moon, China will pay as much attention.

Just the same, the corporate media is squawking about $5 gas by summer because of the shortage of oil that the Iran embargo might cause. They don’t mention that the US’s biggest export is now fuel in the form of gasoline, diesel and jet fuels. The US gets less than 15% of its oil from the middle east, and none from Iran. If we would bring the USN home, that percentage would be even less.

Gold is falling again as investors are looking for cash, mostly USDs. Gold has lost $400/oz since its peak last summer. At the time I was getting all kinds of smart ass blog comments because I was saying gold wasn’t a good investment. (it’s still not)

The company that makes Twinkies is in Chapter 11 Bankruptcy again after only two years. They’re seeking to gut their union contracts; the reasons sited in most of the corporate news reports are high sugar and flour prices, even though these are down currently. Less reported is the fact that they carry massive debts they can no longer service despite interest rates trending near zero. Why, you might ask? To tell you the truth I didn’t bother to research it, rather I’ll make a shrewd bet. I’ll bet the 90 year old company who makes an extremely popular product that has literally an indefinite shelf life is in trouble because it has been looted by corporate raiders.

Over the past thirty years companies like this have been routinely looted by either their management, that simply takes not only all the profits, but all the assets of the company in the form of executive compensation. They are able to do this because the top tier of management is paid not what the company can afford, or what is required to find competent management, but what a compensation board (selected by management) decides other companies are paying. No matter how ridiculous this amount may be.

However, the more likely scenario for the downfall of a mature company that has a lot of assets but doesn’t pay much for dividends (ironically this maybe caused by the previous scenario), is that the stock can be had cheap. A company like Bane Capital will raise money (typically from foreign sources taking advantage of the exchange rate) to buy the controlling interest in the target company. This doesn’t need to be 51%, just more than any other interested party, like say the founders control. Once in control, they will replace the top management, or bribe them to go along with what amounts to grand theft.

The valuable assets of the company are spun off in separate divisions, or simply sold outright to China, and these “profits” captured by the new controlling interest. Once bled dry, the base company is then abandoned, still holding all of the debt, including the debt used to buy the company in the first place. This debt is what they call “corporate junk bonds”, and there are trillions of USDs of this garbage coming due in 2012 (the Mayan accountants foresaw this apocalypse).

Mitt Romney characterizes his activity at Bane as finding “troubled” companies and “restructuring” them. The same way a pirate ship “restructures” a fat merchantman into booty. They weren’t interested in “troubled” companies, they were interested in healthy companies they could loot. The current depression is largely the result of  thirty years of theft like this come home to roost.

These practices were decriminalized by Reagan, so it’s difficult to bring charges against the guilty. In fact they are normally seen as the captains of industry, or the masters of the universe. Really they are Gordon Gekko, of the  eighties movie Wall Street, played by Michael Douglas who famously intoned “greed is good”. In the movies he went to prison, not so much in real life.  In the old days of forgotten history books, these people would swing from the yard arm.  Today any sort of justice seems as made up as a pirate movie. It’s up to us to change that.


Ronmac said...

So with all this trillions in junk bonds coming due in 2012 what are the chances of this stuff being spun onto the public debt sheets?

Pretty good, I bet. That's sure to raise a lot of angry eyebrows in the OWS movement. But wait didn't Obama just sign into law this anti-terrorism bill where US citizens on US soil can be thrown into military detention centers without due process?

And what if these dentention centres were run by a private contractor owned by-let's pick somebody out of the blue- say Goldman Sachs. And it will only be a short hop, skip and a jump before these detention centres will be turned into waterboarding centers.

2013 is shaping up to be a very interesting year.

Dave said...

The Defense Authorization Bill that supposedly allows Americans on US soil to be locked up without due process doesn't actually do that. There are specific exemptions for US citizens and legal aliens. None the less, our allowing armed US troops to operate routinely on our soil isn't a good idea. Do you think rule-of-law would stop a military coup?

My head spins when I think of the mess we're in. As near as I can tell, all of this wealth-pocketing became commonplace when the tax rates that punished such behavior were taken away. Could all the rest of these problems be the result of this wealth shift?

Anonymous said...

Don't forget some of those assets are defered income to workers in the form of defined pension and retirement health care funds. They get gobbled up in those divestures along with the kitchen sink and umbrella stands.

Anonymous said...

It sounds like a 90% tax rate on any form of compensation or interest payment on some asset given to the upper 1% to be taken as compensation in lieu of a monetary or stock transfer is in order. Use the proceeds to fund the pensions.
Let's go back to pre-reagan oversite of the banking industry and corporate activity of all kinds.
It's time to clean the frothy santorum off of the deck of that ship from all the people shittens rod-ney as screwed over at bain (to human existence)