F(orget)A(bout)R(eceiving)C(ompensation)E(ver)

Or FARCE as the TARP plan was to be originally called. Congress thought that TARP sounded a little better, even though it never had any intention of following through with buying out the troubled assets. At least it only took a few months more for Paulson to be exposed as a total fraud and to lose all credibility in a single afternoon.

Speaking of farces, let's talk about dying industries and the money we should not spend to keep them afloat. I recently wrote that I was torn about the Big 3 bailout that will inevitably be approved next week at a great cost to us all. The American car industry is dead. GM is losing an estimated $52k every minute. We have not been competitive on price or quality in 2 decades. There is no demand for these products and trucks are literally selling for half of what they did 4 years ago. Who is going to buy?

And I make the same argument for the homebuilding industry. If I hear one more analyst say "we need to fix the root cause, housing," I might go insane. How can we put a floor on prices when nobody has the money to buy a home, mortgages are getting more expensive, and inventory increases daily while prices go down daily? Let's look at homebuilders. All, yes all, have negative earnings. They all have a product that costs more to produce than millions of competitive products on the market that have a decreasing daily price. If the only way they can make money is to sell new homes, why are their stocks trading above pennies? And don't give me land as an asset. That should be valued right up there with MBS at present time.

Retailers have it only a little better. While they may still have some products people want, they have to slash prices on inventory they paid loads for 6 months ago to entice buyers, and now nobody has the credit to pay. Not being able to finance a 42" TV means no sale, and as we've seen from dire reports this week from Best Buy, J.C. Penney, and Nordstrom, it's only going to get much worse.

A final note about hedge funds. These over-leveraged beasts are dying a quick death, maybe never to return. One fund company admitted this week that its 2 primary funds had lost 77% and 83 % respectively this year. Traditionally, this company had boasted 38% annual returns. So in one year, they wiped out 5 years of gains. That's the kind of fire they played with, but not with their money, yours. George Soros appeared before Congress this week and warned of a possible Depression, not recession. And John Pauslon (not Hanky), the guy who made billions betting against MBS the last 2 years, presented a simple strategy that his firm has employed without risking all of his shareholders' money. He notes that most of the time, his funds are not leveraged at all, and at most his firm has held 33% borrowed equity. Furthermore, there are agreements with his clients that he makes no money in a down year and even clawback clauses to give money back for poor performance.

Anybody on the hill listening? Or can we count you to quack the market to 7K before Obama takes over? I hope so. This weekend is the last chance for the 45 day redemption period....watch out.

http://msnbcmedia.msn.com/i/CNBC/Sections/News_And_Analysis/_News/__EDIT%20Englewood%20Cliffs/Paulson.pdf

http://finance.comcast.net/www/news.html?x=http://76.96.38.13/data/news/2008/11/14/1115054.xml