Charlie Rose

JohnPeterson  04/06/2009 05:05 PM Report

This is a follow up to point three in the last message I posted. I now realized better how the valuation of the capital stock as a whole works. It's as simple as this: A smaller future income equals a smaller present value of capital. At its peak the expected increase in real incomes may have been 3% for all future years (for example for the entire world, for all capital located in the USA or for all capital traded in the capital markets in the USA), but now it's for example 2%, and if the required return on the capital stock as a whole is 5%, that can explain the entire reduction in the value of capital from its peak. Some combination of those inputs will explain the entire value of the capital stock. And increase in the uncertainty of the future level of incomes (i.e. GDP) will also lead to a reduction in the present value.

Best Regards

Student at NYU Stern

tartufe  02/12/2009 11:08 PM Report

Wall Street as Faber states was complicit in the sub-prime greed. Big banks are duplicit as well and not letting the them fail (particularly Citigroup et al) is guaranteeing the moral hazard and sends the wrong message - both here and abroad. Our predators corrupted the world system - with impunity, thus leaving open that it probably will again, thereby destroying any chance of restoring confidence. Here and abroad.

The big banks and hedge funds are the primary holders and initiators of the gimmicky financial instruments (a la Credit Default Swaps, Securitised Debt etc), and consequently the very ones that created the fiasco and thus should likewise be very ones that suffer its consequences.

The network of the nations (less than mega or big) lesser banks can and should handle letters of credit and commercial paper associated with moving commodities and shipments. The honorable part of banking in short.

Credit card banking on the other hand practiced primarily by the mega-banks (again Citigroup et al) have a history of duplicitous political collusion of lobbying through advantageous and enabling confiscatory legislation: making health and unemployment related bankruptcies more difficult, overriding states usury laws, interest increases for missed payments (anywhere), repeal of Glass-Steagall, on and on. (Think Citigroup’s Sandy Weill, Robert Rubin et al) An oligarchy of vampires. Their laissez faire (true) capitalistic natural demise would be cathartic and a cleansing purge of an egregious culture consumed with an entitlement greed so outsized it capsized the world’s economy.

And ancillary resulting stimulus if their failure would result in their inability to collect on their predatory, confiscatory credit card rate - 30% up to 300+%.

And we’re rewarding them with bailouts, with doubtless ineffectual oversight. The rampant corruption will be monumental, a la Halliburton, Black Water, on and on . . . .

PBS "NOW" cited cities that are suing the big banks and subprime mortgagers. CAUTIONARY ALERT! A FEDERAL LAW WILL SOON BE PASSED MAKING IT ILLEGAL TO SUE FINANCIAL INSTITUTIONS. MAKING THE POLITICAL-FINANCIAL OLIGARCHIC COMPLICITY A COMPLETE AND CLOSED CIRCLE.

Finally, if the cost of the bailout is estimated in trillions to avert trillions of cost to the economy, where’s the advantage? It’s a wash! Other than the elite financial wise-guys that got us here to begin with are bailed out at our and our progeny’s expense - in taxes and banana republic-style inflation.

Democracy for sale is a democracy in peril. Venality and political whoredom has won.

JohnPeterson  01/13/2009 06:54 PM Report

I have three comments to this interview

1. I'm surprised that Mr. Rose would suggest that one economic reason to have a business combination like Citigroup is the diversification reason. After careful consideration most people would probably understand that diversification does not increase the value of a company, because the value is decided by diversified investors. The only possible reason I see for diversification in a merger to have any value is if the present value of financial distress (the potential and unlikely, but still possible, unnecessary cost of business disruption that can occur at any time in the future, in case the company is not all equity financed) stays the same even as the company as a whole now has borrowed more and earned a bigger present value of tax shields. For this to be the case the tax savings from interest payments needs to be bigger for the corporation compared to for the marginal investor. This is not the case in the US or any other economically important place in the world that I'm aware of. So even after considering this effect of diversification it's clear that it has no economic significance. While I mention this I can mention that I discussed this issue with Mr. Damodaran of Stern NYU (the author of something like the fifth best selling, I think, college corporate finance book) and he agreed to rephrase his passage about this in his book to avoid giving students the incorrect impression about this issue. While I mention corporate finance books I can say that it's no secret that Brealey Myers is my favorite book of this type, And I would recommend that Mr. Rose read the chapter about mergers and corporate restructuring in Brealey Myers if he would like to understand this issue better. Then he will understand that the only economic reason for mergers is costs savings from more efficient production. The same thing that enables income per person to increase in a country or in a world. I’m not saying that a merger never occurred for irrational reason. But I am saying that the rational reasons for mergers are so much more common than the irrational reasons that the irrational reason can be called completely unimportant in comparison to the rational ones. And finally, do I think that Citigroup is a good idea? Yes, I think it can be a socially beneficial combination. Also, on average, the more capital that is involved in a decision, the larger portion of rational consideration is behind the decision (I mean the decision to create Citigroup). Therefore the rational person with no knowledge whatsoever about Citigroup or its industry will guess that it was a socially beneficial merger.

2. I’m surprised that they don’t stress the most important (or only important) economic lesson from the Bear Stearns issue. That the operations, the actual day to day business, of these types of financial companies are more affected by financial distress compared to companies in other industries. That’s’ because their equity value and their cost of (prioritized or unprioritized in case of restructuring) debt funding is of a greater importance to its customers and counterparties. In all derivatives transactions and all other transaction that is done every day in the world the probability of default is a factor that decides the price agreement. In these companies the entire operation that employ thousands of people on a normal day can suddenly come to a standstill if there are large variations in the estimate probability of default. That’s for the simple reason that people then require much more time than usual to asses the probability of default. Mr. Weill kind of touch upon that when he mentions the issue of financing the company with fixed income securities whose interest is changed perhaps every week or so rather than once every year or so. And the problem that occurs when this funding require much more time than usual to be sold at a reasonable price. But I would like to have seen them discuss this issue more than they did.

3. The far most important issue they should have discussed is the large change in valuation for assets that has occurred at Citigroup and in the world on average. And not just related to the houses Citigroup finance. But its entire operations (probably). We already know that this is because market participants expect lower returns (both ROIC and RONIC with the terms used by the “McKinsey & Company” book Valuation) in the future. But is it only over the next decade or is it for several decades forward, so long time forward that the expected payments over that period it can be said to encompass more than 90% of the present value of these assets? I.e. what part of the change in valuation comes from expected returns from past capital spending (ROIC) or the returns on future capital spending (RONIC). And is it mostly the returns from financial services that have been reassessed. Or is it the returns from production on average? And is it because the overall incomes are expected to increase slower in the future compared to previous expectations (if that is even a rational reason for present value to vary significantly)? Or is it possible because the expectation about the ratio of labor income to capital income has changed (if that is even a rational reason for present value to vary significantly)? And is it not only just changes in expected payments but also changes in the expected uncertainty premium one those expectations?

Best Regards

Top Student at NYU Stern

Jessica  10/15/2008 07:02 PM Report

Wow Sandy Weill is so full of himself, he is a VERY big reason on why our market is the way it is. All of you think he is a good business man and yes he is but he got what he wanted and now we are all left to deal with the consequence of his actions in the repeals of the Glass-Steagall, I would suggested EVERYONE of you read up on someone before giving them praise.

axel lacau  07/01/2008 03:15 PM Report

Sandy is just a fearless, visionary business man with a big appetite for food and companies, the larger the better.

We have to give him credit as a business man he came from nothing to the top of corporate America. Unfortunately, business at some point can't go on the same hand than good human values and you have to decide which one is your option with all the consequences that may bring to your life.

Take it easy Sandy

plunderer  05/28/2008 08:38 PM Report

Charity begins at home, especially when that's where the pillaging and plundering of job-loss victims and health ravaged bankrupt credit card victims are. The credit card industry creates more grief on shore than a few conscience absolvers can offset making a show of charity off shore. Hypocrisy personified! Dante is salivating!

vincent chimezie  05/28/2008 12:21 PM Report

Dear Mr.Rose,

Your interview with Mr.Weill was such a thriller.Thanks for the soulful enlightenment you give your viewers.

I was deeply impressed by Mr.Weill's philantropy.It is obvious that Sub-Saharan Africa is a scar on the conscience of the world. Its enormous wealth not-withstanding,majority of the people still live in abject poverty.There is a way out of the mess,apart from what international agencies recommend.

I will be very pleased if Mr.Weill's philantropy next time will be for those who need it most.I promise to be of assistance if contacted.

Rev.Fr.Vincent Chimezie SMMM.

some quid-pro-quo eh?  05/27/2008 01:34 PM Report

For each conscience assuaging philanthropic African benefactee, Mr. Weill should name the proportional number of benefactors. Example, for each African-African recipient he should memorialize the scammed American-Africans and Euro-Americans by citing five to ten by name for each donatee. They after all are the real donors. Mr. Weill is merely the middle-man. The agent provocateur of OPM. He will of course forgo all tax benefits as a charitable contribution to the scene of the origination of his oh so generous and compassionate OPM donation. God bless him. Gotta go. Gettin all choked up.

.  05/27/2008 01:17 AM Report

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Dr. Janet Magnani  05/26/2008 04:05 PM Report

I enjoyed getting to know Mr. Weill. I would like to contact him regarding his philathropic deeds. How can I contact him? Thanks for your show. It is bright light in the television world.

Ricardo Amaral  05/26/2008 03:30 PM Report

I enjoyed the interview with Sandy Weill and a bet he would find mind boggling my next article that is almost ready for publication regarding the investments of sovereign wealth funds and a plan that I have for Brazils economic development. I am studying many options to put the plan into action since I have outstanding family connections in Brazil among the political elite and major bankers. I will try to send a copy of my next article directly to Sandy Weill if I can get hold of his direct email. Here is another article that I wrote on that subject.

The Smartest Thing China Could Do Right Now: Invest US$ 200 Billion in Brazil Part 1 of 4 Written by Ricardo C. Amaral Sunday, 30 September 2007

http://www.brazzil.com/index.php?option=com_content&task=view&id=9977&Itemid=80

The Smartest Thing China Could Do Right Now: Invest US$ 200 Billion in Brazil Part 2 of 4 Written by Ricardo C. Amaral Thursday, 04 October 2007

http://www.brazzil.com/articles-mainmenu-80/184-october-2007/9979.html

The Smartest Thing China Could Do Right Now: Invest US$ 200 Billion in Brazil Part 3 of 4 Written by Ricardo C. Amaral Wednesday, 10 October 2007

http://www.brazzil.com/articles-mainmenu-80/184-october-2007/9983.html

The Smartest Thing China Could Do Right Now: Invest US$ 200 Billion in Brazil Part 4 of 4 Written by Ricardo C. Amaral Tuesday, 16 October 2007

http://www.brazzil.com/articles-mainmenu-80/184-october-2007/9985.html

totally concur  05/26/2008 03:06 PM Report

Citibank et al have been given a license to steal that they have exercised to the utmost. These bandits allegedly decry regulation until they get the type that enables them to bleed the hoards inflicted with human frailties. Exploit them by lowering the minimum payments, giving them undeserved credit limits and promoting unbridled spending and borrowing. Then to assuage their conscience they get all philanthropic with the blood money they've extorted all their professional lives. Totally disingenuous bull shit!!! Dante awaits, I hope.

afterthought  05/23/2008 11:54 PM Report

Look closely! Then ponder. Would you buy a used car from this guy?

Citiuncivil  05/23/2008 11:50 PM Report

Citigroup is a puppy-kicking, scumbag predatory exploiter of humankind. Personally mismanaged my CASH balance account to a costly amount trying to loan me my own money. Blood suckers! Further their financial wise-guys engaged heavily in the egregious greed of entrapping victims in the subprime loan debacle. Made NINJA loans (no income, no job, no assets) solely for the fees, then sold them in the secondary mkt. Arabs bailed them out at 11% on multi-billions. They and their counterparts of venal whores have done near irreparable damage. These wise-guys combined with the M-I complex types and big oil hegemony victimizers have come close to scuttling our system indefinitely. Charity will not offset the predatory thievery these types indulge in all their professional lives. These wise-guys loudly become philanthropical with OPM they mercilessly extracted for decades. Give the extorted money back to their exploited customers - not to Africans.

citi exec  05/23/2008 05:01 PM Report

I remembered he wanted to resign his career with citi quite a while ago? It was a laughing stock among execs in the financial world, because some people knew he was running away from the shit he has created. A shit so huge that citi is what it is today.

Strangely, he stayed on & even published a book to put up a nice front. However, when asked to takeover back from CP, he refused? ...because he didn't want to clean up his own shit?