What Are They Thinking?

There seem to a number of bone-head calls coming out of different government officials (I know - what is new) but bad times tend to call for them. These are desperate times so officials will be making more bone-head calls and moves in the days ahead.

Bone-Head Move One: Mayor Bloomberg is intending to spend $45 million to encourage the 65,000 who lost their jobs on Wall Street and financial institutions to stick around and do start-ups or be there for the next financial revival. He says, and I quote, “We can be certain that cities around the world will compete for the jobs that the next revival of the financial services industry will bring,” said Mr Bloomberg. “The time to begin winning that competition is right now.” My favorite line from When Harry Met Sally comes to mind - "I'll have what she is having." I really did not know that pot was legalized in NYC.

Seriously, I like Michael Bloomberg and think he has done a decent job for NYC. I lived there for while he was mayor and I liked him. And I truly respect what he achieved as a business person. He took a small amount ($10 million!) that he received in redundancy pay at Salomon Brothers when he was let go in 1981 and made it into billions. Apparently he thinks this can be repeated by some/many of the 65,000 brilliant minds being let go by the financial institutions. Has he done the math to realize that starting with what he had, adjusted for inflation to 1981 terms, the $45 million today will likely be enough to get two businesses off the ground? Go figure.

Now I understand that there is some value in keeping NYC as a major financial center, even when "financial" has become a four-letter word. I also understand that those being let go probably represent some intelligent people who know some important things from a business perspective. Beyond that, this is truly a bone-head move.

First, the intelligent folk on Wall Street developed the stupid instruments that in large part brought our economy to its knees. Do we truly want or need to keep these A-holes around. Yes they are creative but in a bad way. Have they now found religion, I doubt it. They will again look for ways to make the easy quick buck and all others be damned.

Second, these people made grotesque amounts of money by-and-large and even those low on the pay scale made decent money. So the question becomes why are we spending money on these people. Believe me, there are plenty of other out of work people in NYC that need retraining that the money would be well spent on. Spending it on those that likely can afford to retrain themselves seems silly. The idea of a competition for the money has some thought to it, but the dollars seem too small to entice most of the brilliant folks to compete.

Third, and most importantly, his idea that cities around the world will soon compete for jobs the next financial revival will bring is absolutely idiotic. You only need to look at some of our financial companies to understand that the mainstays of their profits for years were built on a false foundation. They are gone and not returning. And many of their sustainable businesses have been cut at the knees. What little they have left that makes money is not going to pay back the hundreds of billions in debt to us taxpayers in our lifetimes. So the thought that there will be some grand "financial revival" anytime soon is foolish or sophistry by Bloomberg. I do not consider him dishonest, however, so I am just thinking he is bone-headed on this move.

Yes, I realize he is looking to create new financial businesses and attract some from Asia that may not be saddled with the problems of the existing institutions. This - if it works - will only provide new, unneeded competition, for existing financial institutions. We have too many already. We need to thin the ranks rather drastically, in my opinion, so I think actively trying to create more similar businesses is a bad idea. I know Bloomberg got his start as a new financial business in down times, but to think his scheme can create 25,000 jobs in NYC seems incredulous at best, especially when he started with $10 million, which seems a good sum to build a business, much more than he is offering. Overall, I think they are flushing money down the drain on people who largely do not need it.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4698452/Mike-Bloomberg-wants-ex-bankers-to-start-up-new-companies.html

http://www.reuters.com/article/deborahCohen/idUSTRE51I3YF20090219

Bone-Head Move Two: China is pushing Citigroup and HSBC to lend more in China. Now I am sure some struggling companies (thousands of them) in China can benefit from getting a needed loan but for the most part this just kicks the can down the road. Moreover, Citigroup was down to a stock price around 5% of its peak price just a few years ago and it is on U.S. government life support so it lending to anyone without stellar credit is not likely at the moment. Join the club China - no one has credit right now, so get used to it. Nice try but not happenin'.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJa5F9H248.g&refer=home

Bone-Head Move Three: This one happened a while back but hit the presses today. Fidelity Investments, in the fourth quarter, doubled - and then some - its investment in Citigroup. Down 63% since then. I guess they were not reading the right blogs.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWxtOEKUAUHQ&refer=home

Bone-Head Move Four: The Geithner Plan

Need I say more!!

Disclosures: None.