Monday, March 30, 2009

Morgan Stanley says sell US Stocks. I wonder why.

Thirty years with the company. Rick Wagoner knows the business. He's out because Obama wants him out. Then Obama gives a "headless" company two months to "work it out". How much experience in the auto industry does Obama have? Why isn't the head of the UAW canned also? Why isn't the head of Chrysler out? Or AIG? Or Fannie Mae? Or Freddie Mac? I don't know if the President of the United States has EVER fired the head of a major corporation before. Scary stuff.


vwatt said...

And on the other hand, we have this Bush era genius who decided to dump 64 billion into the market to "hep out" his buddies on Wall Street last fall. The sad thing is, if more pensions fail, there is now about 30-40% less cash reserve in the PBGC to cover failed pension plans. The taxpayer will be on the hook to bail out a Federal agency whose job is to bail out other failures. Gosh, maybe we should have listened to Bush and let AIG have the Social Security Trust Fund to invest also. The level of incompetence and corruption in our Federal Gov't. from 2000-2008 is simply breathtaking:

Buy High, Sell Low

The Boston Globe has an important piece out on how the federal Pension Benefit Guaranty Corporation decided to shift its holdings from bonds to equities, just about the time the bottom fell out of the stock market:

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds. ...

No statistics on the fund's subsequent performance were released.

Nonetheless, analysts expressed concern that large portions of the trust fund might have been lost at a time when many private pension plans are suffering major losses. The guarantee fund would be the only way to cover the plans if their companies go into bankruptcy.

The kicker, though, comes from the Bush-era official who oversaw the switchover:

Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that "the new investment policy is not riskier than the old one." ...

Asked whether the strategy was a mistake, given the subsequent declines in stocks and real estate, Millard said, "Ask me in 20 years. The question is whether policymakers will have the fortitude to stick with it."

A finance professor who had previously advised the agency not to make the switch away from bonds compared the move to an insurance company writing policies to cover hurricane damage and then investing the premiums in beachfront property.

Bush was able to do for the PBGC what he tried and failed to do for Social Security.

--David Kurtz

Brodad Unkabuddy said...

The whole thing would never have happened if the US Government initiated and led by Carter, Clinton, Dodd, Pelosi, Reid, and Frank had not forced and encouraged banks and mortgage companies to sell homes to people unqualified to buy them. You are absolutely correct. The "level of incompetence and corruption in our Federal Gov't from 2000-2008" reached it's peak beginning when the Democrats took over Congress in 2006. And now all of sudden super huge deficits and a nose diving stock market are good?

Mike West said...

I tell you one time we should have listened to Bush - When he was warning us about Fannie Mae & Freddie Mac. President Chicken Little has no idea what he's doing.