It's Official Detroit, the Lions have gone 0-16!

A sad day in NFL History has just occurred yesterday as the lowly Lions have gone 0-16. As the pictures reveal the increased calls for a bailout of the Lions is now become common place at their games. This speaks volumes of the general consensus of our nation or better yet our "bailout nation"!

The Wedge Effect blog's new official team/mascot is the Detroit Lions. Like our country I will be pulling for them and am optimistic for the future. However tough times are here now before improvement can be made. It remains to be seen if our government will rebuild like the Lions will inevitably do. If not then this bailing out will continue to have an effect on our long term economic viability. The following posts and this blog I will show how the Wedge Effect is main consequence of the government's actions for not taking monetary & fiscal medicine.

Another Bailout Recipient?

Since the government started with giving out money like candy on Halloween we have seen hands outstretched for TARP money like never before. I guess $700 billion with little to no strings attached will get everyone's attention. Well the docket now stands with recipients & those that want it: Banks, Investment Banks, Insurers, Automakers, the Detroit Lions, and now we can add Commercial Real Estate Developers/Investors. The Wall Street Journal reports, Developers Ask U.S. for Bailout as Massive Debt Looms

"With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance.

They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years -- with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off."

Hmm lets see here Mr. Commercial Real Estate Developer, you over expanded into a peaking property market with a ton of leverage to boot? Okay... And now since credit isn't easy to come by you must ask for a handout from the Federal Government? I wonder why it is going to be difficult to refinance the debt. I am sure it has nothing to do with the fact a normal sane investor wouldn't put their hard earned coin on funding your failed operation. So naturally one must look to the public tax payer to bail them out of this piss-poor investment. Unbelievable folks.

source: wsj.com

Why not the Lions too?

Well I don't think I will have too many problems finding topics to talk about in this blog.

I mean if our auto companies were given $17.4 billion why not throw some TARP coin to the lowly Detroit Lions too. If banks, insurers, credit card companies, investment banks, and car companies get access to money for their "troubled assets" then the Lions should too.

There is quite a valid case for the Lions. They have a number of illiquid assets like Duante Culpepper, the former 1999 No. 1 draft pick for the Vikings at one point was making north of $5mil a year. Now w/ the recent financial crisis the Lions are unable to get fair value for their asset. Another asset that hasn't been performing well is Cory Redding who was valued at $5mil/yr. Since this crisis occured he has seen some impairment with his knee but the lions executives still see the market under valueing him. Some would say that all of the problems have not related to the financial crisis. In fact a lot of critics would blame the lions woes on poor management like the recently fired Matt Millen. Those critics are just being proposterous. What the lions need to do is become a bank holding company where they can get there deserved access to their funds. It is only fair.

/sarcasm off

When will this madness stop???

A Brave New World?

With 2008 coming to close we have seen some unprecedented moves by the Government and it's entities. A lot these moves haven't been seen since the 1930's. One of my main worries that will be documented in this blog is that government intervention and its unintended consequences may result in another depression. However the main subject and the inspiration for this blog is the "Wedge Effect".

First we must understand the economic term Crowding Out. Investopedia has a decent explanation for it and to summarize it is when gov debt "crowds out" individual & corporate debt and increases interest rates for all. However in our new economic times we are seeing what I would like to coin the economic "wedge effect". Where a decrease in the collective risk appetite through fear creates a high demand for "risk free" government or government backed assets (ex. CDs within the FDIC limits). Coupled with an economic slowdown and a healthy dose of deflation the effects can be catastrophic to risky assets. And like a wedge the farther out you go on the risk scale, the higher the interest rates and/or the risk premium required for the asset to be palatable for investors.

My plan will be to fine tune the definition, its effects on our economy, and current events & policy that will shape the future. Hopefully this forward outlook will provide insight to our brave new world and create opportunities for us. Even if the opportunities in of 2008 have been few & far between.