Financial Analysis of USA, Inc.

[lektrode]

Re: Financial Analysis of USA, Inc.

greetings from the (former) land of lincoln (my oh my how things have 'changed'... ;)

....Then you need to get the borrowers. The more instantaneous the money arrives, the better. Get them on impulse buys. Get them while intoxicated. But make it easy and get them.

hey, its eeeeeeasy, baybee...

gimmee a V,

gimmee an I

gimmee a V

gimmee an A

Bill Black on how deregulation - through legislation, non-enforcement and gutted funding - creates a criminogenic environment where only the crooks survive . . .

We have four dogs that have failed to bark. Conservatives have long claimed to be the party of law and order – where are they.(????) The data are in – the Bush and Obama administrations have been soft on elite white-collar crime (by their largest campaign donors). Libertarians and Tea Party supporters who hate crony capitalism – rise up and demand an end to the elites who grow wealthy by committing fraud with impunity and cost millions of Americans and Europeans their jobs.

And where are President Obama and Attorney General Holder on this issue?

well... what's he expect?

"from 40000feet, nothing looks illegal..."

nice piece - mr bill really nails it and slams em all

settin here at ORD in CHItowne, killin time here on the ole 'time machine' (you know, the one that magically transports you to a place in the future, where - before ya know it - its much later than you think ;)
waitin on 'the bus' (which of course, considering where its comin in from) = late
OH look, there it is... gotta git... back... to....

[c1ue]

Re: Financial Analysis of USA, Inc.

Social lending sounds nice, but at the end of the day it winds up being a tug of war between gangsters and banksters.

As for Lending Club - my view is that this isn't anything to do with a P2P bubble. It is an attempt to disintermediate pawn shops coupled with a back door fleecing of 'investors'.

I'm sure the sales pitch is the disintermediation part, and the profit portion is the fees charged, with investors taking on all the risk.

[lektrode]

Re: Financial Analysis of USA, Inc.

Social lending sounds nice, but at the end of the day it winds up being a tug of war between gangsters and banksters.

As for Lending Club - my view is that this isn't anything to do with a P2P bubble. It is an attempt to disintermediate pawn shops coupled with a back door fleecing of 'investors'.

I'm sure the sales pitch is the disintermediation part, and the profit portion is the fees charged, with investors taking on all the risk.

as usual mr c1ue = nicely put - but.. well... considering they've (the pawnshops) have sucked up most of the loose/scrap gold, they gotta come up with a new gig, somehow, dont they?

[dcarrigg]

Re: Financial Analysis of USA, Inc.

Social lending sounds nice, but at the end of the day it winds up being a tug of war between gangsters and banksters.

As for Lending Club - my view is that this isn't anything to do with a P2P bubble. It is an attempt to disintermediate pawn shops coupled with a back door fleecing of 'investors'.

I'm sure the sales pitch is the disintermediation part, and the profit portion is the fees charged, with investors taking on all the risk.

Yeah, that's kind of where I was before my "revelation" last night. I hope you're right. C1ue, if I could ask you, do you think it's possible to extend the terms of these loans past 5 years, structure them with lower up-front monthly payments, simplify to one-click loan processing and instant ACH transfer, and increase the maximum loan amounts to the six figure range?

Here are a couple of things that got me thinking on the matter:

1) Pawn shops don't have an option for you to roll over your 401(k). They don't offer unsecured loans. And they don't invent a formal rating system. (And the credit rating system didn't start from A-F like a report card and then add G on later).

2) One can already borrow $35,000 for 60 months at a maximum interest rate of 27.99% with an additional 5% origination fee, $15 unsuccessful processing fee, $15 late payment fees, and/or $15 check processing fees (these fees are for not using a credit card to pay back an online loan).

3) Why the large investments by FIRE's finest? Surely there are other easy unsecured loan markets out of which to pull a return. Is it just that all of the easy money is gone and they will risk this now?

4) And look at one of the loans from their latest sales report.

How the hell did someone with a 750-799 credit score rack up 58 total credit lines then jump on a $27,600 unsecured loan at over 20% interest? This is someone with a stated gross income of $8,333 per month. Brookline's pricy, but it ain't that pricy.

The funny thing is that this is within the normal range of the loans in the list. The vast majority are between $5k and $25k. And it looks like normal credit cards waved bye-bye a while back for a lot-of-em.

[EJ]

Re: Financial Analysis of USA, Inc.

I have a printed copy of this book on my desk. It was handed to me by John Doerr in his office in a personal meeting with him in February last year.

I told him that I'd done a similar analysis five years earlier and with a similar theme and title: USA, Inc. Common Shares: Long or Short? But I came to a very different conclusion.

I blame the public debt problem on the FIRE Economy.

Now the question arises, is VC part of the FIRE Economy?

First, a few facts about VC.

VC is a part of the banking industry.

It's unique role in the banking industry is to finance the losses of early stage companies.

Every other kind of banking enterprise requires profits from the companies they finance.

Unlike private equity firms and other banks, VC provides equity versus debt financing. There is no leverage.

In return for the risks associated with financing a money-losing business most VCs demand a controlling equity interest in the companies they finance. In other words, the term "raising venture capital" is something of a misnomer. As I pointed out in 2006 when moderating a panel of VCs at Standford before several hundred aspiring entrepreneurs, if you are selling control of your business to VCs you are not raising money you are selling your company. Thus "raising VC" really means selling your company to a VC firm. It's an often necessary a deal with the devil. Some VC firms are actually helpful, with partners who know something about building a business and managing the eccentric, creative, and brilliant visionaries who are famously hard to manage but worth it if you are trying to build an Apple or google or eBay.

Back to the question of whether VC is part of the FIRE Economy.

As a banking business by definition, yes, VC is part of the FIRE Economy.

But VC invests primarily in productive enterprises, not real estate or other fixed assets. VC is not in the economic rent business. In that sense VC is the most constructive element of the FIRE economy.

This distinction is important. It is why you never read the term "bankster" or other derogatory terms to refer to bankers in any of my writings.

The problem is not the bankers, it is the FIRE Economy in which they are forced for political reasons to operate.

When I met Janet Yellen last week I didn't meet an evil person, nor Bernanke when I met him in November. Rather I met the leaders of a technocratic elite who serve a political economy that has over the past 30 years been turned into a financial oligarchy, to use Simon Johnson's term.

Back to Mary Meeker's USA, Inc. versus my own.

I once hoped that the VC community might rally in defense of the productive economy once they were clued in to the problem, before the abuses of the special interests of the FIRE Economy takes down the whole shebang. This book confirms that instead the VC community is throwing its weight behind the disinformation campaign to attack the symptoms of the depression not the cause. Rather than identifying the credit bubble as the root of the current crisis and discussing ways to deal with it, the rallying cry of conservatives as represented in this book is to cut the budget, as if the spike in the public debt to GDP ratio since the financial crisis was caused by aliens from outer space. It was, as Yellen told me last week, the inevitable result of private sector debt deflation, itself the inevitable result of the collapse of a 30 year credit bubble.

John Doerr and Mary Meeker are unwittingly helping to propel the US toward a public credit crisis as well as the demise of their own industry.

All of the measures they suggest will only make matters worse. Austerity measures will radicalize the electorate, as in Greece, leading to the election of socialist candidates who will also dodge the credit bubble issue and instead implement redistributive taxation. Budget cuts now will push the economy into recession, worsening the US fiscal position and potentially launching a Ka-Poom cycle if interest rates begin to rise in earnest.

I wound up investing in a company largely funded by Doerr's firm and a friend who runs a major VC firm here in the Boston area. So far the company is doing very well. John's an effective VC and should stick to his knitting.

[Verrocchio]

Re: Financial Analysis of USA, Inc.

I once hoped that the VC community might rally in defense of the productive economy once they were clued in to the problem, before the abuses of the special interests of the FIRE Economy takes down the whole shebang. This book confirms that instead the VC community is throwing its weight behind the disinformation campaign to attack the symptoms of the depression not the cause. Rather than identifying the credit bubble as the root of the current crisis and discussing ways to deal with it, the rallying cry of conservatives as represented in this book is to cut the budget, as if the spike in the public debt to GDP ratio since the financial crisis was caused by aliens from outer space. It was, as Yellen told me last week, the inevitable result of private sector debt deflation, itself the inevitable result of the collapse of a 30 year credit bubble.

John Doerr and Mary Meeker are unwittingly helping to propel the US toward a public credit crisis as well as the demise of their own industry.

All of the measures they suggest will only make matters worse. Austerity measures will radicalize the electorate, as in Greece, leading to the election of socialist candidates who will also dodge the credit bubble issue and instead implement redistributive taxation. Budget cuts now will push the economy into recession, worsening the US fiscal position and potentially launching a Ka-Poom cycle if interest rates begin to rise in earnest.

There are two types of sources for this disinformation campaign:

1. Intentionally deceitful
2. Unwitting messengers

When those in the second category become sufficiently numerous, then the lies magically become truth, something that everyone knows. We are getting closer to that point.

One of the benefits of an iTulip subscription is an improvement of the ability to identify and resist both types of deception.

[c1ue]

Re: Financial Analysis of USA, Inc.

C1ue, if I could ask you, do you think it's possible to extend the terms of these loans past 5 years, structure them with lower up-front monthly payments, simplify to one-click loan processing and instant ACH transfer, and increase the maximum loan amounts to the six figure range?

You can extend the terms of the loans as long as you want, but the magic of compound interest means that few can take out one of these long term loans and ever be able to pay it back.

But this fact really doesn't matter. If Lending Club or whomever marketing arm is merely the 'facilitator' for private lenders to make loans to whomever, then Lending Club ultimately doesn't care. The 'securitization' of crap loans has occurred even before the loan was made, and of course the 'facilitator' already got their cut (and IPO).

Here are a couple of things that got me thinking on the matter:

1) Pawn shops don't have an option for you to roll over your 401(k). They don't offer unsecured loans. And they don't invent a formal rating system. (And the credit rating system didn't start from A-F like a report card and then add G on later).

All true, but to say a pawn shop doesn't rate the security of its loans is incorrect. They assign all their loans to the highest risk grade and use the collateral to compensate. The roll-over of 401K is just a bonus.

2) One can already borrow $35,000 for 60 months at a maximum interest rate of 27.99% with an additional 5% origination fee, $15 unsuccessful processing fee, $15 late payment fees, and/or $15 check processing fees (these fees are for not using a credit card to pay back an online loan).

As noted above - that you can borrow it doesn't mean you can pay it back. And if the loan isn't repaid, then even a 28% interest rate will face difficulty in making up losses.

3) Why the large investments by FIRE's finest? Surely there are other easy unsecured loan markets out of which to pull a return. Is it just that all of the easy money is gone and they will risk this now?

What risk? If they were loaning their own money, then maybe. But I suspect that isn't the case - they're either helping private investors loan money or loaning government money under guarantees.

4) And look at one of the loans from their latest sales report.

All I can say is: control fraud. If incentives to cheat were high with home mortgages, how much more incentive is there to cheat with super-super-super-duper subprime loan shark loans?

[c1ue]

Re: Financial Analysis of USA, Inc.

Back to the question of whether VC is part of the FIRE Economy.

As a banking business by definition, yes, VC is part of the FIRE Economy.

But VC invests primarily in productive enterprises, not real estate or other fixed assets. VC is not in the economic rent business. In that sense VC is the most constructive element of the FIRE economy.

This distinction is important. It is why you never read the term "bankster" or other derogatory terms to refer to bankers in any of my writings.

To be clear, I have never classified all bankers as banksters, nor have I ever lumped VCs as banksters in general either.

Certainly some VCs fall into this category, but in general as you've noted, VCs focus on P/C type activities - though the entire social network category is more than a bit blurry with respect to P/C.

The problem is not the bankers, it is the FIRE Economy in which they are forced for political reasons to operate.

I don't agree with this. If we were operating an economy which had gone on for hundreds of years unchanged, but suddenly some unforeseen event caused the present day problems, then perhaps this is supportable.

To say that banksters (not all bankers) are merely servants of the FIRE economy is to discount the willful and organized activities which yielded such landmark changes as the repeal of Glass-Steagall, of the appointment and multi-decade reign of Greenspan, of the succession of i-bank CEOs as Secretary of the Treasury of the United States, and of the innumerable revolving door activities between the financial companies and the ostensible regulatory agencies tasked with oversight of said financial companies.

The FIRE economy did not arise full blown from the brow of Zeus, so to speak. Even the tactics used aren't new - bankers and their access/control of money have for centuries been an powerful influence to the behavior of sovereign nations.

The difference today is that the rulers of the democratic sovereign nations have far less longevity than their FIRE paymasters.

Whereas the kings and warlords of the past had their own whimsical desires - or if very lucky some statesmanlike goal, the presidents, prime ministers, Congressmen, and parliamentarians of today are faced with the choice of at best a double handful of years of statesmanship or lifelong personal prosperity.

So far it is abundantly clear which choice is being made.

[cbr]

Re: Financial Analysis of USA, Inc.

Well, the USA, Inc. mission statement looks pretty clear to me:

1) subsidize overpaid government workers (now over 20% of the workforce) to leach on the real economy and wear down the resistance of the productive population (now less than 25% of the population by most standards - without even taking the FIRE employment out of the numbers!)

2) subsidize the uneducated and unproductive social services leaches who occasionally vote for the sham democracy (now nearly 40% of the population)

3) enforce regulation on the entire wage earning population, designed to push wealth into the ever shrinking renter/government classes (e.g. health insurance and FIRE economy)

4) protect the international-capital-returns-earning-wealth-class from taxation or accurate perception/action by the productive class

5) engage in poorly managed and largely irrelevant but expensive foreign interventions designed to protect No. 4 - the main result of which is to train the US military in counter insurgency techniques helpful to ensure continuation of No. 4.

6) completely ignore all of the foundations for US National success, as well as all proper high priority functions of the US government, including education; economic infrastructure; military and civilian dominance of air, space, sea, energy, and high technology; and ensuring the continued empowerment, expansion, and reward of the class of educated, productive citizens with solid ethics.

I have to say I have never seen an organization more efficiently accomplishing it's mission statement.

[Thailandnotes]

Re: Financial Analysis of USA, Inc.

John Doerr and Mary Meeker are unwittingly helping to propel the US toward a public credit crisis as well as the demise of their own industry.

Volker…

“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth.”

Although P2P lenders make news by lowering rates for so-called AA borrowers, you can never find data on who is really doing the borrowing…I suspect its people near the middle of this list… http://www.prosper.com/help/borrowin...#interestRates

Despite its send up in the media, Mary Meeker’s USA Inc, was highly discredited by people who took the time to wade through it. As others mentioned at the beginning of this thread, she barely touched on military spending, even though military & security is 55 % of the pie.

Now, she is fully discredited. There are dozen of articles defending Lending Club from people labeling it scammy, but let’s face it, if a borrower poses so much risk that the rate has to be 33 %, it is a scam and should be illegal.

Let’s financialize everything. Maybe that’s what the E in FIRE should stand for…everything.

[don]

Re: Financial Analysis of USA, Inc.

Originally Posted by EJ The problem is not the bankers, it is the FIRE Economy in which they are forced for political reasons to operate.

I don't agree with this. If we were operating an economy which had gone on for hundreds of years unchanged, but suddenly some unforeseen event caused the present day problems, then perhaps this is supportable.

To say that banksters (not all bankers) are merely servants of the FIRE economy is to discount the willful and organized activities which yielded such landmark changes as the repeal of Glass-Steagall, of the appointment and multi-decade reign of Greenspan, of the succession of i-bank CEOs as Secretary of the Treasury of the United States, and of the innumerable revolving door activities between the financial companies and the ostensible regulatory agencies tasked with oversight of said financial companies.

The FIRE economy did not arise full blown from the brow of Zeus, so to speak. Even the tactics used aren't new - bankers and their access/control of money have for centuries been an powerful influence to the behavior of sovereign nations.

+1 (for political reason?)

[thriftyandboringinohio]

Re: Financial Analysis of USA, Inc.

...The difference today is that the rulers of the democratic sovereign nations have far less longevity than their FIRE paymasters...

That's why you see me argue against term limits for legislators at the state and federal levels.

[EJ]

Re: Financial Analysis of USA, Inc.

I don't agree with this. If we were operating an economy which had gone on for hundreds of years unchanged, but suddenly some unforeseen event caused the present day problems, then perhaps this is supportable.

To say that banksters (not all bankers) are merely servants of the FIRE economy is to discount the willful and organized activities which yielded such landmark changes as the repeal of Glass-Steagall, of the appointment and multi-decade reign of Greenspan, of the succession of i-bank CEOs as Secretary of the Treasury of the United States, and of the innumerable revolving door activities between the financial companies and the ostensible regulatory agencies tasked with oversight of said financial companies.

The FIRE economy did not arise full blown from the brow of Zeus, so to speak. Even the tactics used aren't new - bankers and their access/control of money have for centuries been an powerful influence to the behavior of sovereign nations.

The difference today is that the rulers of the democratic sovereign nations have far less longevity than their FIRE paymasters.

Whereas the kings and warlords of the past had their own whimsical desires - or if very lucky some statesmanlike goal, the presidents, prime ministers, Congressmen, and parliamentarians of today are faced with the choice of at best a double handful of years of statesmanship or lifelong personal prosperity.

So far it is abundantly clear which choice is being made.

It's tempting to over-simplify the process of the development of the FIRE Economy, but the FIRE Economy resulted from a mix of intended and unintended consequences of Volcker Fed's policies to end The Great Inflation of the 1970s.

As I explain in my book, falling interest rates from double digits starting in 1983 created the greatest economic boom in history. Low interest rates are not stimulative but rather falling interest rates are stimulative because they permit the reduction of interest payments and free up cash flow for consumption in the way that refinancing a home mortgage to a lower rate frees up household cash flow. The entire economy, across both the private and public sector, was refinanced over and over again for 20 years.

While the wholesale cost of credit fell, the retail price remained "sticky." The entire economy reorganized around the highly profitable "fat spread" between the wholesale and retail cost of money.

How were entrepreneurs to respond to this reordering of the economy?

Productive firms became financialized. Ford and GM went from auto companies that lent money to banks that made cars, in the words of a Ford Motor Credit executive I spoke with in 2005.

Falling interest rates also fueled the greatest bond bull market and credit bubble in history. As financial firms came to dominate the economy, they also started to dominate the political process. FIRE industries successfully lobbied for a wide range of government subsidies and deregulation.

It was as radical a transformation of the economy as occurred after the end of WWII.

Now, you can blame the participants, but then we all participated to one degree or another. For example, anyone who purchased a home before 2006 enjoyed the largess of the FIRE Economy. For those of us who came of age in the early 1980s, our entire adult lives have been shaped by this event.

As far as villains go, I place the blame squarely at the feet of Paul Volcker and Allan Greenspan, Volcker for laying the economic and ideological foundation, and Greenspan for building the credit bubble on it. In fact, in my view we are in what I now call the Volcker-Greenspan Depression. It will end eventually with a sudden reversal of 30 years of credit excess.

[c1ue]

Re: Financial Analysis of USA, Inc.

It's tempting to over-simplify the process of the development of the FIRE Economy, but the FIRE Economy resulted from a mix of intended and unintended consequences of Volcker Fed's policies to end The Great Inflation of the 1970s.

I think this is a fair statement.

The problem I have with it is the assignation of blame to Volcker when Volcker's actions were specifically to compensate for the excesses of the Kennedy/Johnson adventures. Is then Volcker to blame?

Thus while I understand your point that the economic climate engendered by the high to low interest rate switchover created by Volcker, then promulgated by Greenspan, mis-incentivized entrepreneurs, at the same time this environment is not unique either.

Iif falling interest rates are what created the conditions for financialization - the same situation existed under Arthur Burns chairmanship of the Federal Reserve from 1974 to 1978.

The only difference in mis-incentivization then is one of duration.

Equally I would note that while I was too young for direct experience, I have many doubts as to whether too many people in the 1978 to 1984 period were really basing their entrepreneurial activities on a 3 decade long cycle of falling interest rates.

As for perverse incentives being a root cause: The recent real estate bubble saw massive fraud on an epic scale - from top to bottom. This wasn't a case of legal but perverse incentives - but rather a deliberate flouting of the laws and practices governing securitization, loan origination, credit evaluation, and other aspects of the entire mortgage ecosystem.

Thus in my view, the belief that our present situation is an unfortunate outcome from a series of Volcker/Greenspan policy errors is to whitewash the participation - in many cases deliberate and additive - of many who specifically sought financialization of the US economy as an outcome.

For that matter, Volcker and Greenspan were appointees - neither was particularly well thought of in academic circles nor particularly well connected politically.

Lastly I would note that GM and Ford were American car companies. American car companies had been suffering market share losses for decades; it is in no way unusual for such entities to undertake transformative and risky shifts in order to survive, much less grow. Vendor financing is not in any way unusual for durable goods vendors though certainly the extent of GM's activities were unusual.

But be that as it may - to a significant extent, the origins of the past are irrelevant.

The question is what the solution will be, as well as what will actually happen.

If in fact Janet Yellen, or the next President, or whomever will fact embark on a course which will reverse the past multiple decades of behavior, that would be great.

If, on the other hand, the same forces - impartial or otherwise - which shaped the past multiple decades continue on to shape the near future, I greatly doubt the outcome will be positive.

[lektrode]

Re: Financial Analysis of USA, Inc.

That's why you see me argue against term limits for legislators at the state and federal levels.

could you expand on that a bit, T&B?
IMHO, lack of term limits is precisely why we see little in the way of action on anything (that isnt giving away the treasury, to one special interest or another (pick a complex: mil/industrial, edu/industrial or welfare/industrial)