The more Starbucks a country has, the bigger its financial problems

This according to Mr. Daniel Gross, at the website "Slate.com":

The more Starbucks a country has, the bigger its financial problems

"I propose the Starbucks theory of international economics. The higher the concentration of expensive, nautically themed, faux-Italian-branded Frappuccino joints in a country's financial capital, the more likely the country is to have suffered catastrophic financial losses.

It may sound doppio, but work with me. This recent crisis has its roots in the unhappy coupling of a frenzied nationwide real-estate market centered in California, Las Vegas, and Florida, and a nationwide credit mania centered in New York. If you could pick one brand name that personified these twin bubbles, it was Starbucks. The Seattle-based coffee chain followed new housing developments into the suburbs and exurbs, where its outlets became pit stops for real-estate brokers and their clients. It also carpet-bombed the business districts of large cities, especially the financial centers, with nearly 200 in Manhattan alone. Starbucks' frothy treats provided the fuel for the boom, the caffeine that enabled deal jockeys to stay up all hours putting together offering papers for CDOs, and helped mortgage brokers work overtime processing dubious loan documents. Starbucks strategically located many of its outlets on the ground floors of big investment banks. (The one around the corner from the former Bear Stearns headquarters has already closed.)"

Mr. Gross goes on to posit the following:

"My tentative theory: Having a significant Starbucks presence is a pretty significant indicator of the degree of connectedness to the form of highly caffeinated, free-spending capitalism that got us into this mess. It's also a sign of a culture's willingness to abandon traditional norms and ways of doing business (virtually all the countries in which Starbucks has established beachheads have their own venerable coffee-house traditions) in favor of fast-moving American ones. The fact that the company or its local licensee felt there was room for dozens of outlets where consumers would pony up lots of euros, liras, and rials for expensive drinks is also a pretty good indicator that excessive financial optimism had entered the bloodstream. "

A letter to our Senators sent today re: $700B Bailout

This is the text of emails sent today to our US Senators and a version was also sent to our Representative.

"My spouse and I am opposed to the Federal bailout of Wall Street, HR3997 and the Senate version. I believe the plans are seriously flawed.

I have read the House version and first, I do not think taxpayer funds should be allocated for the purpose of purchasing the assets of “any” financial institution, and specifically “foreign authorities and central banks.”

Second, I do not think that funds should be used for the purpose of hiring firms to help manage the assets of companies the government basically nationalizes. This has the potential of providing federal funds to the firms that contributed to, profited from or participated in the failure.

Finally, I think the primary purpose of the plan should be to address the problems of the taxpayers who are being asked to pay for this plan. I do understand there is more than enough blame to go around, and that many people were stupid or at the very least ignorant, and possibly millions participated in some form of fraud. However, this is a reward to the people who promoted and profited from this situation.

We are homeowners who purchased below our means and are practicing a philosophy of living below our means. We are saving for our retirement and have invested in bank funds such as CDs and we also have 401(k), 403(b) and Roth-IRAs which we have used to invest in American companies. We are feeling the pain of the current financial situation and while I am “entitled” to retire with social security benefits, I am in fact working and paying taxes. Frankly, my financial future is in jeopardy.

We are registered voters and my spouse and I will be thinking long and hard about the forthcoming election and we will be voting our conscience in this matter. "

Why the Bailout Proposal Failed

Watch these two videos and you get a clear picture of why the bailout proposal which is officially titled "HR3997 Emergency Economic Stabilization Act of 2008" failed to pass the house on September 29, 2008:

http://www.youtube.com/watch?v=mbD62gNi9WE

http://www.youtube.com/watch?v=S27yitK32ds

I'm not convinced!

The Fed and the Treasury insist that the current solution, that is to say, the bailout that failed, "is the only solution". Furthermore, both Bernake and Paulson have thrown $100s of Billions at this problem. How do we know that the current proposal will work? How do we know that the $700B will be enough? What happens if it isn't?

I am not convinced. Here is the summary of an alternative proposed by Karl Denninger on his website.

http://market-ticker.denninger.net/archives/593-CONGRESS-STOP-AND-THINK!.html

(Also see http://stopthehousingbailout.com/)

"The solution is simple, it is elegant, and it will work.

1. Force all off-balance sheet "assets" back onto the balance sheet, and force the valuation models and identification of individual assets out of Level 3 and into 10Qs and 10Ks. Do it now.
2. Force all OTC derivatives onto a regulated exchange similar to that used by listed options in the equity markets. This permanently defuses the derivatives time bomb. Give market participants 90 days; any that are not listed in 90 days are declared void; let the participants sue each other if they can't prove capital adequacy.
3. Force leverage by all institutions to no more than 12:1. The SEC intentionally dropped broker/dealer leverage limits in 2004; prior to that date 12:1 was the limit. Every firm that has failed had double or more the leverage of that former 12:1 limit. Enact this with a six month time limit and require 1/6th of the excess taken down monthly.

Once 1-3 are put in place then send in the OTS and OCC examiners and look at every financial institution in the United States. All who are insolvent and unable to raise private capital immediately are forced through receivership where the debt is converted to equity and existing equity is wiped out. With the CDS monster caged the systemic risk is removed, the bondholders provide the cushion for recapitalization (as it should be) and the restructured firm emerges with no debt while the former bondholders are now the owners (of the equity) in the resulting firm.

With a clean balance sheet the restructured firms remain in business and open the next morning able to raise and attract capital. "

More on "Change"

Well, we wanted "change" and it seems we are getting it. Just four years ago, Senator Kerry was out there stumping his candidacy and telling us that it "was the worst economy since the great depression". I guess he was a little early, or prescient. But by golly, he was correct. Or maybe if you make sufficient predictions, eventually they will all come true. Eventually, the world will end and if you flip a coin you will eventually get "heads".

NY Mayor Bloomberg was talking to the media and calming the waters. He said that "New York is as well prepared as ever to handle the financial emergency" or words to that effect. He has cause to worry. For every job lost on Wall Street about 2 or 3 dependent jobs are also lost. And as we know from the screaming headlines of the past few years, these were not "ordinary" jobs, as in "median income". These are high rollers, who spend a lot of money on toys, dining out and so on. The State Comptroller's office in New York has been quoted as stating that approximately 5% of the jobs in New York City's jobs are in financial services. However, those jobs account for about 25% of the city's wages. That was $60 billion in 2006.

I haven't heard a word from New York's Senator Clinton on all of this. But it could simply be that the media is so inundated with bad news that they simply won't give her any air time. The Senator has had a field day bashing the "oil companies" because of their excess profits. I have been waiting for her to bash Wall Street for it's inordinate greed, profiteering, etc. Since 2007 Americans have lost $2 trillion dollars as a result of the "sub prime" and "prime" meltdown. That makes a few billion in profits for the oil companies look like chump change.

http://letmethinkaboutthis.blogspot.com/2008/09/some-musings-on-economy.html


Besides, it isn't like I am getting nothing from the refiners. To the contrary, I fill up my gas tank whenever necessary and we as in "we Americans" send about $500 to $700 billion each year to legitimate and despotic governments all over the world, because we can't or won't stop our insatiable desire for oil.

Oh, and let's not forget, this is all a choice. We choose not to drill, we choose to drive SUV's and we choose to drive trillions of miles each year.

Wall Street, the banks and the politicians are in collusion to steal our money. Now we have low interest rates so as to prop up the banks on Wall Street (again) which means retirees are hard pressed to get a decent return on their money in CDs or bank accounts. To get a return, it seems, we are supposed to invest in unsafe, unregulated financial instruments. And who decided that? Thank you all, including Senator Clinton for your silence and lack of action. We know whose pocket you are in!

The End of the "Greed is Good" Mantra

Well, if you believed that "Greed is Good" as in that famous speech in the movie "Wall Street" the current events may give you some pause.

So we have now definitely entered the "panic" phase of the current crisis. It's interesting as I was talking to a relative on Saturday or Sunday and oblivious to the current events on wall street, as the big topic was bailing from the 7 to 12 inches of rain we were receiving. I mentioned the banking panic of 1907 and soothed her with the statement "we have had banking crisis before, and about every 8 years or so we go through a recession" and so why should I think this time will be any different? We will have to "hunker down" but thank God we do have this resilient economy.

I do think we are testing the limits and we'll see how this unfolds. Personally, I have my eye on the longer term, 10 years out.

I do have some personal experience in these matters. I work in support of "heavy industry" and I am fully and painfully aware of the consequences of our mad dash to the "service economy". I have been at the effect of this economy since 1978 as we lurch from boom to bust, following the "greed and fear" cycle. At present, my business has taken a terrible hit, which leads me to extend a "thank you" to all those greedy fools who bought a house and couldn't afford one. But that is the way it is.

The Motley Fool has this nice article entitled "The Biggest Financial Story of the Past 50 Years" which tidily sums it up:

http://www.fool.com/investing/general/2008/09/15/the-biggest-financial-story-of-the-past-50-years.aspx?source=ihptclhpa0000001