We have heard time and time again from business leaders, government officials, economists, pundits, and on and on tell everyone who’ll listen that government intervention into the private system was ” the only way to avert disaster.” Some chase down every microphone or television camera to scream the virtues of their decisions. They mouth platitudes and pat themselves on the back, all the while the consequences of their meddling are coming to bear for anyone who truly wants to see.
I have written in past columns along with others that the so-called “Yellow Brick Road” to recovery is not gold at all. It’s more like some phony imitation prop on a third-rate Off Broadway production. True theater goers (business leaders) can’t help noticing that every time the actors step on the “Yellow Brick Road”…it creeks from being made of plywood and gold paint. While everyone may seemingly be enjoying the show, some theater patrons are overlooking the serious flaws and enjoying the moment….But experienced patrons will not pay “On Broadway” prices for anything that’s not up to the caliber demanded at that level…period!
Investment capital, real money, real businesses, all have real rules and expectations. When Uncle Sam became involved in the private sector with all of its alphabet soup programs e.g.; TARP, TALF, SMAF, RALF, ( yes some pun intended.) I stated that if you’re in business of any size…How do you know what the rules will be going forward? Who will be your competition? Will they have the same accounting standards as you? Will your product still be legal…1 year, 5 years, 10 years from now? If you own or start the business…Is your salary going to be capped if you employ more than 1 worker? How can one answer these questions based on history?….All these questions are prominent in a new era of business rules, and a new government philosophy of what it believes your business responsibilities should be regardless of what you think. Another big question that seemingly no one is thinking about…Will businesses, and or talent that have the ability to move out of the US and avoid these trappings move?…Or will they just sell, close, retire or something else. And are any of them your customers, employees, bankers, or suppliers? All very visceral questions, all very serious, all very real in today’s “New World of Business.”
Ok your saying to yourself….Give me an example ….You can always find answers if you look…That’s what business leaders do right?…That’s why we get paid the big bucks, because we can forecast, and deal with changes, that’s where opportunities are. Right?
Well, you would be correct 24 months ago, but today, it’s a very different landscape. I’ll give one example and you be the judge. Let’s say hypothetically you need the answer to this question because you have to invest real money in a project that demands you knowing the answer. Your personal, and or business fortune would depend on your decision. Then after contemplating you must be truthful in stating …“You know the answer…not assume…you know! But if you’re like me…You’ll find that very hard to do.
So here’s the question…JP Morgan Chase is lending the State of California…1.5 Billion Dollars today so it can end the states IOU program early. That means that the State can continue paying who ever, or what ever person or business that it owes in real dollars once again. OK, good for that, but what if your competitor was one having to accept the IOU’s….Your competition just caught a life line Per Se. Good for them, not so good for you, especially if you just invested considerable capital for the additional business you thought you could gain from a beleaguered competitor. But why would JP Morgan do that?…Wasn’t the bank having the problem accepting the IOU’s…. Bank of America? BofA had stated it was no longer going to accept them as cash for payments on their loans. That would have put a world of hurt on BofA in more ways than one, both financially, and publicly. Why would a competitor bank step in and seemingly stop the bleeding of a rival? Also it does this at a time that saves the State of California from issuing more IOU’s…early!…before it had needed to. And last but not least..Why would JP Morgan want the prospects of loaning money to a borrower who has shown that it can’t repay the loans (it already has) in the traditional sense therefore opening its shareholders to possible catastrophic losses?
Hmmmmm….State Government needs money, one of the banks it deals with is already in a financial hurt, news about other things are dominating the headlines, and it’s summer so most of the scrutiny is gone. What’s one to do?….Maybe..just maybe….They get the Healthy bank to loan the State the money, They own the banks through TARP…so they can give a wink and a nod to the healthy bank that the loan is good. Saves the State, Saves the face of one bank, makes the other bank look like a hero. They’ll be very little press coverage if any.(Bloomberg was the only one I seen report it.) and Congress along with others needn’t be involved because it can be done by fiat, and no ones the wiser. Sounds like they have a plan! OK, now your turn, where to invest next, or should I say, what’s your next business plan?
Like I said before, things just don’t seem as straight lined as they once were, but hey, we’re only talking your money, and your future as a CEO. Welcome to Business 101.2a I guess.