Disqus - Latest Comments for karls

Re: Common Sense for Uncommon Times

karls — Wed, 08 Oct 2008 01:34:28 -0000

A low-risk way of participating in this current market would be to place the bulk of your money in CD and fixed income while placing a small percentage in long dated options.

This allows one to accommodate for any emergency liquidity needs while being rewarded for any possible upside at limited risk

Re: http://www.avc.com/a_vc/2008/10/free-vs-paid.html

karls — Mon, 06 Oct 2008 13:14:24 -0000

I agree with your observation. That's the same feedback I got from people familiar with enterprise sales. Unless you have deep tentacular connections within the enterprise that you are trying to sell to, it'll be a tough battle. You may end up spending 1 year trying to clinch that one enterprise deal without any headway.

I would argue that freemium would be the optimal business model in this business climate. With enterprise spending expected to go down, it would a harder sell now than before. Rather than twiddling your thumbs awaiting for your enterprise sales breakthrough, it would be better to throw a crippled free version to consumers out there and let them provide valuable feedback to you. And if you managed to get 1% of these consumers to upgrade to premium versions, consider it as a bonus.

Having said that, ad-based businesses will be the most vulnerable in the quarters ahead. Ad spending is always the most expendable expense during downturns.

Re: Where and How am I Investing in Early-Stage Today?

karls — Mon, 06 Oct 2008 04:59:05 -0000

Regarding the point: "Initially sells to the enterprise for branding, credibility, awareness and early revenues"

Would it be realistic for a new startup to clinch these enterprise deals within 6 months? From my conversations with people with past experience in enterprise sales, most gives the impression that enterprise sales is much harder to crack than consumer/small business sales and may take at least 1 year before you get a breakthrough.

Re: Best bailout article yet….REQUIRED READING for Congress & voters!!

karls — Tue, 30 Sep 2008 19:45:40 -0000

The problem with the handsoff approach is that the financial industry, unlike other industries, are tightly coupled. Chrysler can fail without bringing down GM and Ford. But if Citigroup fails, it'll trigger a cascading failure of other banks and financial institutions such as insurers (not just in the US but globally) And the worst case scenario is a total collapse of the banking system worldwide with bank runs all over the world (we've that in the US, UK and Hong Kong this year alone)

A better way would be to do a pseudo-bankruptcy by wiping out the existing bond/equity holders via nationalization and then embarking on an orderly liquidation.

Having said that, I'm against the bailout plan unless they wipe out the band/equity holders in the event of any financial aid from the government.

Re: My Thoughts On "Startup Depression"

karls — Tue, 30 Sep 2008 19:00:49 -0000

I guess we must closet swimmers then :)

We started our financial web startup 1 week before Lehman blew up. What a way to commemorate your entrance.

We're feeling pretty edgy these days but thankfully, funding is still obtainable but hiring is harder than ever with more people seeking the comfort of a paycheck from a Fortune 500 company. People tend to be skeptical of the survivability of startups during downturns.

Re: What is Hank Thinking?

karls — Tue, 30 Sep 2008 10:57:31 -0000

I agree that the government needs to help the banks dispose of the assets but I'm not convinced that the government should be the buyer. Pricing these assets would be very difficult and even if a reverse auction is carried out, the government would tend to pay above market value for the assets, In my opinion, it would be better to let private money buy over these assets (1) and then the government will step in at (2) to recapitalize the institutions.

Re: What is Hank Thinking?

karls — Tue, 30 Sep 2008 00:55:44 -0000

You nailed it with this post Roger.

MTM is a key requirement for a properly functioning market. Suspending it would only result in less transparency and less confidence and we've already seen the consequences of a lack of confidence in the credit markets today.

I was not totally convinced the Paulson plan would work. If the Treasury pays the market value of the securities, it will not be injecting new capital into the banking industry, but merely swapping one form of capital for another. If the Treasury pays above market value (which Bernanke has mentioned that to be their plan), then it would be recapitalizing the banks and enriching their shareholders at the expense of the taxpayers. No wonder it was voted against.

Rather than being the asset buyer, would it be better if the government force the banks to sell their assets at market value to private buyers and then come in to recapitalize the banks thereafter? RIght now, the government is trying to recapitalize the banks indirectly by paying above-market prices instead of a straightfoward capital injection (ala Buffett's investment in Goldman). I just find the latter option much more palatable.

I'm also not convinced at the Democrats' plan to help out homeowners directly. Should the other fiscally-responsible taxpayers be responsible of bailing out those who went beyond their means? The housing market has not found a footing because it is still overvalued. There was some anecdotal evidence that the housing price has not fallen to the real wage level, so for the government to come in and form an artificial floor would be very unfair to those new homeowner-hopefuls who can't afford the houses at current prices.

The root of this financial crisis was never the falling housing market. It was the insanely high leverage and poor risk management at the banks. If adequate risk control was placed in these banks, they would have been able to withstand the housing market fallout.

Re: Don't Bail out Wall Street; Re-invigorate Main Street

karls — Mon, 29 Sep 2008 02:48:20 -0000

Roger,

I would like to hear your opinion on SEC's proposed right to be able to "suspend mark-to-market accounting for financial institutions when it thinks doing so is in the public interest."

I find it to be extremely troubling. The whole point of the bailout is to pay more than market until there is a functioning market that results in better price discovery (presumably at a valuation above current prices but less than mark to maturity). Suspending market pricing would defeat this goal.

Without mark-to-market, will we be seeing Japan all over again where banks live in denial for years about how deep in losses they are in?

Re: Don't Bail out Wall Street; Re-invigorate Main Street

karls — Sat, 27 Sep 2008 00:30:26 -0000

I would be bold enough to suggest that the Goldman investment is a bet on the staying power of Goldman's blue-chip large-moat banking franchise, rather than a play on the mortgage assets. He would have invested in Goldman at this depressed price even if they had no mortgage assets in their books.

Re: Don't Bail out Wall Street; Re-invigorate Main Street

karls — Fri, 26 Sep 2008 04:57:47 -0000

"He suggested using the money to buy up surplus homes and destroy them to cause prices of existing homes to start going back up."

I would think that the main problem that is worrying Hanky Panky and Ben is not so much of the falling housing market but the frozen credit market. A frozen credit market has severe direct trickle down effects on the economy and that is exactly what the duo is trying to avert. To try to unfreeze the credit market by tackling the housing market would probably take too long since the recovery will take at least 1 year. By then, the economy would probably be in shatters. Also, isn't it such a waste of capital to destroy the surplus homes which do have value?

"to use government money for direct lending to businesses that normally get credit from the banks currently in distress"

That would be a bad mistake in my opinion as that would mean an abandonment of capitalism and the free markets. Centralized state lending has proved to be less effective than free markets in China's experience and I don't think it would wise to revisit this option.

I think Roger's suggestion is very much similar to the Swedish solution (which was very successful). I do believe that Paulson did consider forcing the banks to give up equity in exchange for financial aid but he probably think that the banks will not participate in this program if so. His fear is that the banks will wait until the very last moment like AIG before participating in the program and if that happens, the credit market will remain frozen for a while and then as one bank after another capitulates and seek financial aid from the government, it'll only further strain the credit market by raising fears on who's next to bail.

My suggestion would be for the government to take the option of not participating in the program away from the banks. Let the Feds check the books of every major bank and force those weaker ones to participate in the program. However, I'm not sure if they are legally powered to do so.

Re: Paying for the Bailout: In Defense of the U.S. Taxpayer

karls — Mon, 22 Sep 2008 21:10:20 -0000

Another note:

The valuation process is going to be a thorny issue. The fact is that even at this current environment, there are plenty of private buyers for the bad assets in the banks. However, not much sale transactions are happening because of the valuation mismatch. The banks wants $0.50 on the dollar while the buyer wants $0.10 on the dollar.

If the Fed is going to impose a reverse auction valuation process that will likely yield similar prices as the current private market, the situation will remain deadlocked. The banks would resist selling these assets at market values as that would threaten their solvency.

Hence, the Paulson plan will probably result in the buying of the bad assets at above-market prices, which would give the banks time and opportunities to regroup and recapitalize while the taxpayers take over the risk of further depreciation of these assets.

And that is so wrong on so many levels.

Re: Paying for the Bailout: In Defense of the U.S. Taxpayer

karls — Mon, 22 Sep 2008 20:33:40 -0000

Let's review:

http://dealbook.blogs.nytim...

1. Goldman becomes a bank holding company to take advantage of access to capital and favorable accounting, while subjecting itself to "tighter regulation" from the Fed.

2. The Fed "loosens regulations" governing bank holding companies.

God those guys are good.

Given the public outcry over Paulson's plan (rightly so), I think the time has come for us to save capitalism from the capitalists.

http://faculty.chicagogsb.e...

A more viable option would be that described in Hussman's open letter.