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Could Private Money Fix Wall Street?

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Bulls Don’t Get Bailed Out

 
I’ve been following the wall street freak out since it began, and I’m not totally sure I minded the $700 billion dollar rescue plan devised by Paulson, but it got me to wondering…

Wondering why, if there was an upside to holding the illiquid assets for the feds and the tax payer, why larger private money wasn’t being pooled to do exactly the same thing.

Imagine Mark Cuban, George Soros, Rupert Murdock, Warren Buffet, Bill Gates, and other private financial giants create a new holding company exclusively for these illiquid assets.

The fed could line up the financial scenario in a favorable way for the group of private investors as the carrot. Paulson could head the venture, assemble the board, and resell the assets on the market as a value is established.

I’m just thinking that the speed in which private money can act without the federal red tape would allow the markets to correct themselves, remove the need for further government intervention, and the free market prevails.

Just a thought

Benn Rosales is the Founder and CEO of The American Genius (AG), national news network for tech and entrepreneurs, proudly celebrating 10 years in publishing, recently ranked as the #5 startup in Austin. Before founding AG, he founded one of the first digital media strategy firms in the nation and also acquired several other firms. His resume prior includes roles at Apple and Kroger Foods, specializing in marketing, communications, and technology integration. He is a recipient of the Statesman Texas Social Media Award and is an Inman Innovator Award winner. He has consulted for numerous startups (both early- and late-stage), has built partnerships and bridges between tech recruiters and the best tech talent in the industry, and is well known for organizing the digital community through popular monthly networking events. Benn does not venture into the spotlight often, rather believes his biggest accomplishments are the talent he recruits, develops, and gives all credit to those he's empowered.

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23 Comments

23 Comments

  1. Bloggeries

    September 29, 2008 at 3:18 pm

    Definitely a possibility. Glad to see someone is REALLY thinking out of the box.

  2. BawldGuy

    September 29, 2008 at 3:25 pm

    The ultimate amount needed is, who knows? $100B? $300B? I love the idea of private money, ala Lone Star, (buyers of Merril Lynch’s paper). Your question is THE question.

    Frankly, as long as the gov’t can buy at low, low prices, as a taxpayer, I want those profits. In fact, I want the plan to dedicate by law, all profits to reducing our debt.

    Most of the huge investors and groups, are ready to pounce, as you suggest between the lines. However, they’re also in somewhat of a ‘protect the principal’ mode too.

    I hate the idea of using socialist approach, but is it really socialist when the result is huge ‘market’ profits for the gov’t, while markets healed by action? I hate this, but if private guys don’t step up, (though I’m not buyin’ into the whole ‘we’re gonna die tomorrow’ crisis thinkin’) the gov’t has to get it done.

    You’ve asked the central question, Benn.

  3. Benn Rosales

    September 29, 2008 at 3:29 pm

    Jeff, if our leaders cannot deliver us to the financial promised land, the private guys could solve this problem in the snap of two fingers. Cap needed is closer to 1.2 trillion total, but they could operate on the same 250/250/350 principal as cash is needed- basically the same plan the house voted on today w/o the bs. The Fed could create a line of credit for the private investors, and I bet you money, the “market” will want a piece too… imagine the buy in possibilities.

  4. Jamie Geiger

    September 29, 2008 at 3:36 pm

    Just heard that Warren Buffet is buying……………..

  5. Lani Anglin-Rosales

    September 29, 2008 at 3:45 pm

    I like what Benn said in person just a bit ago:

    “Imagine if private money bought into this… people on the sidelines would say, ‘wait, you’re making money on this? I’ve got $200,000, I’ve got $20,000, or I’ve got $5,000!’ If people smell money not only does it not matter what partisanship happens on the Hill, we take care of business the old fashioned, non-redtape way. It’s brilliant!”

  6. BawldGuy

    September 29, 2008 at 3:52 pm

    Benn — Exactly. Though the actual amount of capital required is a mystery to me at this point, the initial amount should be what you mentioned, give or take.

    Again, they’d have to perceive their principal not in danger. I’m with you on this, as I said earlier.

    How long does it take to make a ton of money when your buy in was 25¢ on the dollar? I could believe a script where many of these loans, especially in a recovering market, would be sold for a profit more than once.

  7. Missy Caulk

    September 29, 2008 at 4:07 pm

    Benn, IMO if the private investors thought they “could” make money they would be buying them or loaning them.

  8. Dan Connolly

    September 29, 2008 at 4:22 pm

    Well maybe if the private investors were given some tax incentives they would do it! I would rather see the feds waiving taxes for private individuals than spending tax revenues to accomplish the same goals.

  9. Benn Rosales

    September 29, 2008 at 4:30 pm

    Missy, they’re on the sidelines because no one has presented the opportunity- they’re not into bailing out the federal government as a charity, so unfortunately, the government will have to step up and make the pitch.

    @Dan oh yeah, the fed could pave the way for borrowing at impressive levels, and soften the capital gains tax in the future- the question is, how much do you want this liquidity issue resolved and is the federal goverment willing to put its money where its mouth is?… sure they are, this is a 5 minute hash out by phone for Paulson, they all speak the same language and Paulson knows exactly what what these investors want to hear.

    @Jeff funny how no one is pitching it, because, I’m sure the domino of private investors would be off the charts, optimism would be abundant in the market- everyone loves real estate 😉

  10. Corey

    September 29, 2008 at 5:16 pm

    How about seeing if any large insurance firms will insure this bailout money? If not, there is your answer as to whether we as tax payers should be behind any sort of bailout plan. The answer to inflation is not $700+ billion plus in more inflation added to the system.

  11. Bob

    September 29, 2008 at 5:43 pm

    Like AIG?

  12. Bob

    September 29, 2008 at 5:46 pm

    Actually one of the arguments this morning for why the bailout was needed was that private money via sovereign investment funds would swoop in and buy up US assets, so the Feds need to do it so we (the U.S.) reap the profits instead of others.

  13. Louis Cammarosano

    September 29, 2008 at 7:56 pm

    Benn
    Its a good thought, however I believe there is ABSOLUTELY NOTHING stopping private investors from bailing out the banks other then a lack of sheer stupidity on the part of the individuals you mentioned.

    No one in their right mind would pay the type of money that the government was planning on paying for right to own these toxic loans. And certainly if they did the covenants of accountability and oversight would be far tighter than what the government was proposing.

  14. Thomas Johnson

    September 29, 2008 at 9:15 pm

    Looks like this stuff is bid 70 ask 30 and Paulson was going to buy at 55. Why 25 points too much? The private money is there for 20-30. Small problem with those prices. No annual bonuses, and maybe no company to run. The independent review/audit portion of the bill kills it from Paulson’s view. They will be held accountable for OVERPAYING by as much as 50%, and by the way that doesn’t free up any money for lending to main street and commercial paper and payrolls and retirement funds and so on… which is why the left and the right agreed-no deal. Now that everyone knows that the emperor has no clothes, we will have a Happy New Year and they will try a new scheme later this week. I wonder if Nancy Pelosi regrets skipping town this summer for her book tour when Congress could have been doing the people’s business.

  15. Esko

    September 29, 2008 at 10:01 pm

    Benn,

    That would be one way to straighten the mess out. What probably keeps them on the sidelines is that it’s very hard to figure out accurate value for these exotic mortgage bonds. They were chopped up and whatnot in the pooling process and even the issuers appear not to know what exactly they are worth. That’s scary.

  16. Benn Rosales

    September 29, 2008 at 10:23 pm

    Esko, indeed, in a world where the government spends $6 to process $3 you can understand why the amount of cash the government is requesting is high in comparision to what may actually be needed- but yet, the world seems to think the us government can effeciently sort out the paper to reveal a true asset, I’m sure they can, but I have a feeling a private board could do it more effeciently, and at a better cost than than the government.

    I am not sure the private sector has really been given a chance to sort our some realities, but the free market can find a way to sort this out if given the incentive by the federal government.

    I’m not proposing a bank bailout, I’m proposing the largest private land grab in global history.

  17. Mike Langford

    September 29, 2008 at 10:42 pm

    Benn,

    Lani sent me a link to your post as she thought I might enjoy the conversation.

    I think you hit on the reason why such a private money solution is not in the offing in your second sentence. The “upside” of the feds taking the “risk challenged” debt of the books is “less downside”.

    What’s the upside potential in buying distressed debt at 40 cents on the dollar of maturity value? Private investors might double their money over the course of a few years or more but in reality the Gates and Buffetts are much better suited to creating value than rescuing value.

    There’s that and the fact that it would take the entire Forbes 400 and then some to free up enough capital to pull off such a feat of capitalistic heroism.

    Thanks for the opportunity to participate.

    Mike

    P.S. What I think will be real interesting to see is if GAAP takes another look at the mark to market rule that created the urgency to get the stuff off the books.

  18. Paula Henry

    September 29, 2008 at 11:22 pm

    Benn – I absolutely love this idea and laugh at your $6 to process $3. Private money could do this with much less than estimated, do it quicker and yes, everyone does love real estate! So why not?

  19. BawldGuy

    September 30, 2008 at 11:08 am

    I remain convinced most private capital is not jumping in order to preserve capital until they perceive it’s time again to invest for return. Unless the price is 25¢ on the dollar, give or take, they’re not jumpin’ in. Lone Star proved that several weeks ago.

    Of course, ’till the gov’t eliminates itself as a buyer for much more that that 25¢, ain’t nothin’ gonna happen on the private side, ‘cuz the banks ain’t stupid.

  20. Jack Burns

    October 5, 2008 at 6:01 pm

    #10 Corey’s comment on private money in the financial mess. Many insurance companies already have too many questionable mortgages in their portfolios! Watch for the next bailout of this mess to be large insurance companies!
    Jack

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Economic News

How small businesses can keep up with the changing workforce

(ECONOMIC) Trade schools are booming as career outlook grows. College enrollment is down. The workforce is changing. How can small business keep up?

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Trade employees in the workforce

College enrollment has dropped off by three million in the last decade, with a drop-off of one million due in the last several years as a direct side effect of the Covid-19 pandemic. This phenomenon clearly does not bode well for the future of the United States’ economy and workforce, with students who attend low-income schools and come from low-income families being the most affected. These changes are disproportionately affecting students from low-income schools and families, the very people who need higher education the most, and are erasing much of the work done in the last decade to help close the income and race gap between students, colleges, and socioeconomic backgrounds.

Enrollment in trade schools is skyrocketing.

Recently, trade schools have seen a 40% bump in enrollment across the board. Many students are enticed by the fact that trade schools are affordable and offer a quick turnaround, with students paying $16,000 or less for their program, and their training taking a year or less to complete. Beyond that, those who complete trade school is all but guaranteed a job on graduation day. Their earning potential is often two or even three times higher than the initial cost of attending the program. As many have found, the same cannot always be said about those who pursue a college education.

While the average cost of college at an in-state and public institution hovers at around $28,775 per year (according to Forbes) and takes an average of four years to complete means that trade students have a cheaper educational cost, (between $16,000 to $33,000 for the entire program, or about equal to just one year of a public college tuition) can get work in their field more quickly, and can usually make more than their educational costs in their first year on the job. Tradespeople make an average of $54,000 fresh out of trade school, which rivals the role average college student’s first salary of $55,000. It’s no wonder so many people are choosing to forgo a formal education for trade school!

The almost insurmountable cost of college combined with ever-growing inflation and a lengthy list of requirements just to get a post-college job, all for a low salary and with students having hefty loans to pay back, also play a key role in the downturn in the popularity of college.

The implication of fewer college-educated people, however, means that over time, the United States as a whole could face an economic downturn, as it gives rise to many more blue-collar workers. This can irrevocably alter the makeup of the workforce. Despite current unemployment rates being among the lowest they’ve ever been, the American people are already starting to see a shift in the labor market.

Already, we see a strain in the labor market when 25% of skilled workers in the U.S. exited the workforce following the Covid-19 pandemic. The economy has become so highly specialized that if the U.S. were to keep up the trend of losing college-educated workers, there could irreversible damage to the United States’ economy, deepening the ever-growing divide between the middle class and the working class, further reducing the ability to affect the global economy, knocking the United States out of the classification of a “global superpower.” To make matters worse, much of the United States labor pool is outsourced, and we are seeing the rise of artificial intelligence and robotics taking over many jobs, especially minimum wage jobs. While none of these factors alone vastly affect the U.S. labor market, this is only the tip of the iceberg.

So what can employers do when the makeup of the workforce starts to shift?

Employers could shift the focus on the years of experience rather than the type of education the potential employees have, as well as offering more extensive on-the-job training, which is already commonplace in some industries. Even for those with a college education, the requirements for entry-level jobs seldom match the salary, with many employers requiring a four-year degree, two or more years of experience, and fluency in different programs which vary from company to company. Employers, if possible, need to offer higher salaries with fewer requirements, as many young people are finding the pursuit of college, plus the various other requirements just to be considered for a barely above minimum wage job, while they’re drowning in student debt fruitless, so they forgo college altogether.

A post-pandemic society looks vastly different, and employers must adapt to keep up.

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Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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