2009 - a year for "solutions"

In 2008, I made 10.15% in the stock market. Not by shorting, but by buying and selling at the right time. My best deal involved buying shares of Citigroup before the weekend where they got their second and huge bailout. My entire bet was that the government would not wipe out the common shareholders. Those shareholders should be wiped out as part of any bailout, but with the prevailing lack of common sense and gutlessness, my bet was that this would not happen.

I was correct in my bet. I bought shares on 11/24 and 11/26, and sold them on 11/28. I made 12.8% in 4 days (after all fees) betting that the government would not let people pay for their mistakes. Isn't that a sad commentary on America today?

So I started thinking: why is it that the common shareholders in companies like Citigroup, Ford, GM, AIG etc. etc. are not wiped out as part of any bailout? It is pretty clear to me that they must be wiped out, the management fired and the boards replaced. Otherwise, we get exactly what we have now: corporations working the system.

One of Milton Friedman's arguments against big government was that they tend to ally themselves with big business against the interests of the broad population. We now have big, overbearing government, and therefore the chances of a recovery in 2009 are slim. The politicians, and the interest groups that they report to, appear to be hellbent on trying all the things that won't work. All the things that we have data to show won't work.

Your bank needs a bail-out? Fine, we the government will take it over to prevent a panic, but the shareholders, management and board are gone. And if you don't come to us once your bank starts circling the drain, we will prosecute you under some theory of law. If I in charge, my message to all banks, especially large banks, would be this: be afraid to ask for a bailout. Also be afarid to not ask for one if your bank is failing.

Apart from preventing a run on the banks, losses needs to be realized. The sooner we do that, the sooner we can move on. Leave it be, and it will all take care of itself. If anything, remove obstacles for small business (1-19 employees) - they are the sole source of net new job creation in the US. The data proves it out.