Posted on February 9, 2013
Authored by John Mason
Things are changing in the financial markets. Financial institutions are starting to make money again in mortgages. Money market funds are “flush with cash.” Collateralized Debt Obligations (CDOs) and Collateralized Loan Obligations (CLOs) are staging a comeback.
And, now there is the $24 billion deal by Michael Dell to take his company private. The interpretation of this transaction that I am most interested in is the one being mentioned in almost all the stories coming out in the press: “This is the largest corporate privatization since the financial crisis and the largest tech buyout ever.”
I am not interested so much in whether or not Dell, Inc. (DELL) is eventually saved. What I am interested in is what is happening in finance. It appears as if money is being mobilized again.
Goodness knows, the Federal Reserve has done just about everything it can to push money out into the economy. Comedians have gotten serious about QE1 and QE2 and QE3 … and QEfinity!
It has only been in the past six months or so that there has been any evidence of funds creeping out of the commercial banking system into other parts of the economy. But now, evidence seems to be growing of money flowing into other parts of the economy. This latest transaction, the creation of a large buyout deal, with the growing possibility that others are thinking about more deals, or even mergers and acquisitions, is very encouraging.
Over the past couple of years, myself and others have wondered about all the cash being built up in the coffers of large corporations. It seemed as if these large organizations were piling up cash hoards in preparation for moving in on less well-off institutions and making deals while the getting was good and while interest … read the rest
Categories: Bank Credit, Bank Loans, Banks, Bonds, Business Acquisition, Business Sale, Commercial Loans, Community Banks, Derivatives, Economic Growth, Economic Stimulus, Economics, Euro, Federal Reserve, Fiancial Regulation, Inequality, Inflation, M&A, M3, Mergers, Mergers and Acquisitions, Monetary Policy, Monetary Stimulus, Private Equity, Shadow Banking
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Posted on September 25, 2012
“Republicans are heartless monsters who have no compassion for the victims of a financial crash they caused by manipulating Wall Street.”
“Democrats are committed to destroy the American system by redistributing the hard-earned products and services of America’s businesses to shiftless moochers.”
Wow, are we making progress in the current political debate!
Cyclical or Structural?
For economists the discussion revolves around a more civil discourse on whether the current high level of unemployment results from a severe cyclical downturn or from a structural change in the American economy. The Federal Reserve has forcefully adopted the cyclical downturn mantra, committing $500 billion per year to the assumption that, with more financial stimulus, the jobs will come back.
Buffalo Springfield’s insight from the 1960s is still valid:
I think it’s time we stop, hey, what’s that sound?
Everybody look what’s going down
What a field day for the heat
A thousand people in the street
Singing songs and carrying signs
Mostly say, hooray for our side
A Big Bet With Millions of Human Poker Chips
We are in the process of making an enormous bet with the American economy. The risks are not trivial: inflation, deflation, financial and social collapse are just a few. Yet what if this bet is being made based upon a misunderstanding of the problem with which we are faced.
Steven Hansen recently produced a rather depressing chart showing that, despite a period of steady economic recovery, civilian employment in relation to population flatlined beginning in late 2009, after a very sharp drop from 63% to 58% during the financial crisis.
The Robot … read the rest
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Posted on January 26, 2012
Categories: Alternative Financing, Asset Based Loans, Bailouts, Bank Credit, Bank Loans, Banks, Business Acquisition, Business Sale, Commercial Loans, Economic Growth, Economic Stimulus, Economics, Federal Reserve, Globalization, Inequality, Inflation, Innovation, Investment Banking, M&A, Mergers, Mergers and Acquisitions, Taxes, Tranche B Financing, Uncategorized
Tags: Tags: Bank Lending, Bank Loans, Banks, Business Acquisition, Business Financing, Business Owners, Business Ownership Transition, Business Sale, Economics, Federal Reserve, Inflation, Mezzanine Debt, Money Supply, Private Equity, QE2, QE3, Quantitative Easing, Senior Debt, Shadow Banking System, Small business, Taxes
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Posted on January 23, 2012
Newt Gingrich and Bill Clinton are quick to remind us that twenty years ago they lifted America from the depths of recession, initiating an unprecedented period of prosperity, jobs growth and balanced budgets. Sounds nice, but what if the America of today bears a closer relationship to 1972 than 1992?
In January 1972 America was a bit over a year past the recession of 1969-1970. We had spent much of the prior decade mired in increasingly unpopular wars that had placed a huge drain on the nation’s financial resources and we were headed toward a messy exit from our Asian adventure. The Democratic Party was so ideologically divided that it was preparing to nominate George McGovern as its presidential candidate and thus give a resounding second term victory to Richard Nixon. After hitting an all time high of just under 1000 in 1968, the Dow Jones Industrials had experienced a sharp drop during 1969-1970 recession, but had since rallied back to near its highs and was poised to continue to rise into the election season.
Source: Capital IQ
On the monetary front the U. S. had been engaged in a period of what we would now call quantitative easing, funding debts incurred in the Vietnam War through the printing of new money. M2 had grown 12% in 1971 and was poised to grow another 12% in 1972. As a result the U. S. was running a then unheard of balance of payments deficit and had been forced off the gold standard in August of 1971.
Subsequent events certainly did not turn out well for the U. S. While inflation remained comparatively mild in 1972 at 3.7% for the year, the rate of price growth jumped to 6% by the end of 1973 and 11% in 1974. The ensuing recession of 1973-1975 was comparable in … read the rest
Categories: Business Acquisition, Business Sale, Economic Growth, Economic Stimulus, Economics, Federal Reserve, Globalization, Inequality, Inflation, M&A, Mergers, Mergers and Acquisitions, Uncategorized
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Posted on December 19, 2011
America is stumbling toward one of the most important decisions it has made in decades: how to bring our financial accounts back to a sustainable balance. Due to a lack of perspective on tax policy over time, the political decision makers and the media have accepted misleading data with regard to an assumed increase in inequality of income as the primary framework for the debate.
With tax receipts at historic lows and expenditures heading for the stratosphere, no rational observer doubts that this decision will entail a combination of both spending cuts and tax hikes. Republican rhetoric aside, the real question on the tax side of the debate is how these tax increases will be structured. I am increasingly concerned that Congress will make a huge mistake that will penalize the mid-sized businesses, i.e. growing companies with 50 to 500 employees, that serve as the backbone of American productivity and that are the only hope for domestic jobs growth.
Let’s start with a bit of history from my personal experience, first as a business and tax lawyer and for twenty-eight years as an investment banker serving entrepreneurial businesses in M&A and arranging business financings. When I started in practice, essentially all substantial businesses with which we worked were structured as C Corporations. A typical client might be a manufacturer with 100 plus employees, revenue of $10 million plus and pre-tax profits of $1-2 million. The owner often took a surprisingly small salary, say $100-125,000, paid a small amount of personal expenses from the business and retained the rest of the company’s profits in the corporation.
As a result of changes in federal tax law and the parallel development of Limited Liability Corporations (LLCs), a major shift from C-Corporations to pass-through entities began in the middle 1980s. To demonstrate how dramatic this shift has been, … read the rest