November 25, 2008 12:38PM
Jim Rogers: They Should Have Let Citi Fail
By Alexis Glick
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This morning legendary investor Jim Rogers joined me on Money for Breakfast for an in depth interview. If the name is not familiar, just Google his name and you’ll see countless articles on him. One of his greatest achievements, although he may disagree, was meeting a man named George Soros, where together they founded the Quantum Fund. In the 10 years after it was launched, they famously returned 4200% while the S&P gained 47%. It was the FIRST truly international fund. Since then, a lot has changed. He moved to Singapore in December of last year because as he said, “moving to Asia now is like moving to New York City in 1907.” He’s an exceptionally bright man who has made many people tons of money along the way. He has aquirky sense of humor, an honesty that is refreshing and holds no punches.
This morning I had the opportunity to get his reaction to the breaking news about the Treasury and Federal Reserve’s two new lending and repurchase facilities to the tune of $800 billion dollars. In hindsight, had they known he was on tv, they may have held back the announcement. He is angry, frustrated and feels that we are digging ourselves into a deeper and deeper hole. He urges us to allow banks and other companies to fail.
PLEASE LOOK AT WHAT HE HAS TO SAY. I RECEIVED DOZENS OF EMAILS IN RESPONSE TO HIS VISIT THIS MORNING. HE WAS ONE OF THE TOP GUESTS THAT WE HAVE EVER HAD ON THE SHOW. AT THE BOTTOM IS A ROUNTABLE DISCUSSION WITH JIM ROGERS, JOHN RUTLEDGE, CHAIRMAN OF HIS OWN PRIVATE-EQUITY FIRM, WHO WORKED FOR THE REAGAN ADMISINISTRATION, GARY HAGER, MARK LIEBERMAN AND CHARLES PAYNE. A FASCINATING DISCUSSION ABOUT THE FUTURE OF THE U.S. ECONOMY, ASIA, THE STIMULUS PLANS, THE MISTAKES MADE, WORTHWHILE INVESTMENTS HERE AND ABROAD, LESSONS LEARNED FROM THE DEPRESSION AND THE REAGAN AND CLINTON ERA. WOW!!!!!!!!
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I HAVE AN IDEA!!! THE GOVERNMENT CAN GIVE EVERY TAXPAYER $150,000!! THE ECONOMY WOULD BOOM!! EVERYONE WOULD BY CARS,PAY OFF MORTGAGES AND START NEW BUSINESSES. THATS JUST TO SIMPLE THOUGH, ISN’T IT????
One of the guests (Mark) said the Fed didn’t inflate before the 29 crash. That’s untrue. They inflated like crazy to ease the over production create from WW1. This easy credit from manipulated interest rates caused the boom that lead to the bust. I’m surprised Mr. Rogers didn’t correct him.
It was 850 billion after window dressings and they will continue to shell out the billions and trillions until we are so deeply in debt that the thought of ever repaying it will be laughable.
At that time hyperinflation will be rampant as a result of printing all this new money with no backing that we will actually be begging for a one world economy.
I think this has been the plan all along.
I respect Rogers but he’s wrong. The experiment that is laissez-faire capitalism has failed this republican government and people before and cannot be allowed to do so again.
What I DON’T respect is the mob psychology promoted by the blithering idiots who host and appear frequently on this purported business channel. A client of mine sent me Youtube links today to Peter Schiff’s appearances on Fox. HE WAS FOX’S ONLY REGULAR GUEST TO GET THE MELTDOWN RIGHT…and the thanks he got was rudeness and ridicule from the likes of Fathead Cavuto.
Fox’s coverage of the financial crisis is a good indicator as to why CNBC and Bloomberg will maintain their dominance of business broadcasting.
I have to admit, after watching the videos, Jim Rogers makes it seem like gloom/doom time. While Mr. Rogers has made a lot more money than myself, I’m curious to know why FXI and PGJ are down so much if China is so great. This morning, China had the biggest rate cut ever.
Mr Rogers also states that companies “will keep going to the well”. That’s an assumption that the US Gov will keep bailing them out. While I agree letting companies like GM go bankrupt and ’start over’, I do think (and hope not) the Gov will not bail everyone out. So, Mr Rogers assumption seems to be inaccurate. We didn’t bail out Lehman did we…
Any of you ever grow up on a farm? Do you know what it is to pump water from a well? In order to pump water from a well, you have to prime the pump. You must take some of your reserve water and fill the lines and pump with water to enable the pump to pump.
So, now we have the pump primed and we are ready to go. When you start the pump, all you pump is the water you used as a prime until the pump picks up new water from the well. If this happens, all is back to normal. However, if the well is empty, your prime is consumed by the users and the pump must be primed again.
Mr. Rogers is saying, “The well is dry!” The government has added so many users to the well that the well cannot supply enough water for all of the users. You can prime the pump until everyone is out of reserve water but it won’t make a difference. The problem is with the well and the number of users… not at the pump.
A bailout is an attempt by the government to prime the pump of our economy. It is borrowing water from us to prime the pumps. They keep priming and priming because it is the only thing they know how to do. We will see a very temporary spike in water flow as they prime but when the prime has been used, flow will stop again.
The only way to allow the well to replenish itself is by making the users stop leaks, stop the wasteful use of water, or stop using water period via bankruptcy or failure. Until we start looking at the well or drill new wells, we will continue to fail. The well of our economy is manufacturing. The pump of our economy is the banking and financial systems. The user is government and consumer.
Alexis, that interview, and the accompanying roundtable amounted the finest piece of market/economy based jounalism I have been privelaged to watch in years. I am so tired of much of what I see and hear on the business shows on every day. I hear the bulls and bears, both with a clear gambling addiction, talking of ‘tradeable bottoms,’ and recovery being ‘just around the corner.’
Lessons–that is what we need to hear–some people on Wall Street have some common sense! I heartly agree with Jim Rogers and the crystal clarity he brings to the mess we have been getting into for decades. It’s high time some of the reckless policies of risk that have prevaded so long, should be exposed for what they really are, and where they REALLY lead. The longer we put off learning those hard, hard lessons, the more painful they will become when there is no choice left, and we have to take the medicine. The very idea that we should be rewarding foolishness and punishing wisdom reveals the base nature of the worst kind of hedonism that has previailed for much too long. If it weren’t for your comments/blogs, and those of Elizabeth McDonald, I wouldn’t watch Fox Business. Period. Thanks for the great job handling that piece–it isn’t easy to sit beside Mr. Rogers and keep control of the situation! Brava!
Jim wants the economy to fail as much and as bad as Soros does. His associations with that clown should have raised red flags everywhere.
Jim rodgers view of the capitalist market is very accurate. What he says would indeed
be the best FOR THE MARKETS (ALL).
Problem is its a bit of ‘let them eat cake’.
People are not countries — most did not — nor do they have much in the way of
options to make the decisions that would be best. Simply, thye were told if you want
a house, car, or whatever this is what you have to accept.
Simply put capitalism:
1) Does not work well at the individual level — at the group level its differnet.
2) Capitalism by its design/implementation expects/demands ever increasing growth.
Although we have not quite reached the point yet, its not far off where the
limited resources of the world will enforce a change to this concept.
What we need to be doing now is to work out /design a new long term economic system.
Starting with a better definition of ‘money’.
I’m as interested as movers is as to where the Fed and Treasury get the authority to give that kind of taxpayer money away.
Where is the oversight? Why was such a big deal made about TARP going through Congress and yet Citi gets to skirt our elected reps?
Where is the popular outrage? This is taxation without representation. As I remember that started quite a revolution a while back. I wonder what the market is for pitchforks and torches . . .
Jim Rogers is a smart guy. I use to dislike him because I thought he leaned too far left politically, but I see that I was wrong. He understands pure capitalism and that’s what he advocates. Our politicians are DESTROYING this Country. It started a long time ago, but has accelerated tremendously with the Clinton and Bush administrations and it looks like obama will be worse than those two put together. Folks we can’t just set the money printing press on Mach 2 and sing happy songs till we die. The US dollar will be completely demolished in no time and it’s destruction will carry your standard of living along with it. Forget your kids, this destruction is going to happen while you are still alive. Soon the interest on the federal debt will exceed all income tax revenues collected in a year. A loaf of bread will cost $25, a gallon of gas will be $15 and you get the rest of the picture. Commodities are priced in dollars. A demolished dollar is a weak dollar and that means much much higher prices for those using the USD as their currency—you and me. Be warned that this is coming and do what you can to maintain your standard of living because it will be almost impossible.
I have never, ever written a response to this (or any show) until now. I was absolutely blown away when Jim Rogers pushed aside the usual, circular “wall street” gibberish and the P.C. nonsense that has such a grip on so much of the media, and dared to tell the simple truth: That is, none of them (not the lame-duck emperor, nor his men, nor the emperor-elect) are wearing any clothes, or have what is commonly known as a “clue”. Perhaps this “revelation” could only come from someone on the outside looking in, but his straight talk and direct comments were way overdue and incredibly refreshing! Thank you.
The Government produces nothing, all they can do is redistribute the wealth WE THE PEOPLE MAKE.
We never have, and never will, spend our way to prosperity. What needs to be done, to get the economy back on track, is to LOWER TAXES. All I hear from these loons in Washington is spend, spend, spend! Even a dummy like me could solve the economic crisis: lower the capital gains tax to ZERO, lower the dividend tax to ZERO, lower the corporate tax to 12 percent, and lower the income tax to 12 percent. Next, grab the fire extinguishers, because the economy will catch on fire practically over night. The only thing stopping us is the power hungry politicians who want to control every aspect of our lives. As Ronald Reagan once said, “a government big enough to give you everything you want, is a government big enough to take everything you’ve got.” But, then, what do I know?
Jim is right on target. All we are doing is compounding the problems and encouraging more failures. The root cuase has still not been addressed and we will not recover until we adress the real estate market. Notice I did not say housing market. Instead of giving money to banks.
What we need to do is require banks first to workout loans with borrowers by lowering rates and extending terms. Providing liquidity will only serve to create more foreclosures faster.
The second thing we must do is replace our current tax system with the fair tax.
These two initiatives alone will solve the crisis overnight.
It is completely ARROGANT to think you can fix the problem.
That is the problem.. Meddling and “fixing”…
It has been going on for 40 years.
We haven’t had a capitalistic country really in 25 years..
LET THEM FAIL…
The interviewer kept giving all these emotional arguments against Jim Rogers Common Sense..
Bailing out Companies is Corporatism, Facism, Socialism, But it is not Capitalism.
This bailoiut will NEVER work, they NEVER have worked.
Houses and Cars are just too Expensive and the prices need to come down. End of story. GM will never be able to compete. Because they build overpriced junk that wears out as soon as it is paid for. Leaving you in perpetual debt slavery.
“After watching the interview, I was disappointed in Jim Rogers comments. The US is the country he grew up and reaped a great wealth; but now, he has moved to Asia to be closer to the so called action. ” - Jack Frayer
Although he is not living in America he has been putting alot of American media coverage out there on shows like this one. He has been arguing the same point and has woken alot of people up to what our government is doing.
Besides, we have Ron Paul.
This is a stock that lost 90% of its value in one year. When a company is worth the famous term, “10 cents to the dollar” there must be a fundamental reason it’s down. The business is in big trouble.
So now, the U.S. Government gives it a tremendous taxpayer bailout. No asking Congress. Paulson just does it.
There is no bailout offered for the U.S. Automakers, but Citibank was called “too big to fail”. So the Treasury comes in and hail mary’s them today. This does only two things to an unsustainable company. It prolongs its death, and it weakens the value of the U.S. Dollar.
My question is this - if the bank is going downhill fast, losing 9/10ths of its value in one year - why does a massive taxpayer bailout buoy the stocks? Because the U.S. will not allow it to fail?
The past couple of days, the fools rushed in. The question I always ask when watching trends - the most important question in the world to ask when making any decision on the future of a trend is - “is it sustainable?”
Citibank got ’saved’ by your U.S. taxpayer dollars. Does that mean it is not hopelessly overleveraged in a declining asset base? Does it mean that there’s good prospects for profits soon? Does it even mean that Citi is a cheap buy at under $5 - a price that is so low that Mutual Funds cannot invest in it?
When Lehman collapsed - I said to my friends that this was the financial 9/11. Before this collapse, the world was innocent and free. It was optimistic, hopeful with everybody planning for a secure future. Now with pension funds, 401k’s and Real Estate values wiped out - this will affect so many way more than the enhanced screening at airport checkpoints. Or the loss of personal liberties with the Patriot Act.
The collapse of Lehman triggered a tidal wave of collapsing values. I overheard two women talking a couple of weeks ago in a conference room. They were comforting themselves that these markets will “come back”. Yes they will.
But not in our lifetimes. The U.S. Economy hasn’t nearly seen bottom, and it will not right itself for 45 to 90 years, as I’ve said before. There are four million new default mortgages that have yet to be foreclosed upon, only 2 million so far foreclosed, and a massive wave of mortgage resets will occur in the first quarter of ‘09. If you think I am being dramatic, I’m not.
Consider this: Japan’s Nikkei 225 index was at 40,000 at its peak in 1990. It then crashed and hasn’t recovered in 18 years - and shows no sign that it ever EVER will. And guess what - the people who bought into the Nikkei’s stocks when they bought at 40,000 were convinced that it was moving even higher still! Or they wouldn’t have bought in.
Once people realize that things are not going up - perhaps in their lifetime, the perceived values plummet. There’s that sigh of resignation, and values settle into the silt.
In an unsustainable trend the only thing that can keep values up is the widespread belief that things are going up. Take these two legs away, and the market collapses.
Alexis,
To answer your question put to Jim concerning what happens when all these banks fail, home prices decline, Big 3 US automakers go bankrupt and reorganize.
First of all, the market is saying “the emperor has no clothes.” It is trying to correct an out-of-balance problem. If the gov’t stays out of the US economy, it would get bad, quickly. But, then the market would quickly finish its correction, and people would be re-employed in newly emerging areas. Depressive/recessive price declines sow the seeds of their own undoing. Eventually prices get to a point low enough where consumers begin buying with current earnings, not borrowings. In the meantime, wages will probably decrease, unemployment will increase until the free market adjusts out the malinvested capital made by previous people/companies, etc and reallocates it to more profitable areas in the economy. The more the gov’t intrudes into the economy though, the longer it will take for this process to work. And contrary to conventional wisdom, there is no “soft” landing for the economy, only prolonged misery caused by the politicians.
Gov’t produces nothing of value, no goods, no cars, no homes, no medical care, no jobs (except gov’t fiat jobs). So how can they fix any of this? The money they use to bail someone out is first taken from everyone else not in on bailout scheme. It does this through current and future taxation. It also does this through printing up more fake money, which is indirect taxation. All the new fake money makes your money worth less than it was before through inflation. And if you think that inflation isn’t today’s problem, you are misinformed. We’ve had horrible price inflation over the past few years in energy, metals, housing and food. If those prices are sustained or reachieved by printing up new money, it will simply crash again. And each time it crashes again, more new money will be printed until it gets to a point of hyper-inflation. This will all be done to supposedly protect prices from going down.
Price deflation after a period of unsustainable artificial inflation is good, not bad. Price deflation resulting from the Fed or any gov’t artificially constricting the money supply would be bad, but this is not the current situation. The current inflated money bubble was in bad loans, on bank balance sheets, excessive home prices which were used to acquire more loans, and placed in investment portfolios. That’s why when all these bad loans and losses started occurring, the money supply started shrinking. The immediate result was declining prices in the previously over-inflated areas of energy, metals, housing and food. The Fed is trying to re-inflate the bubble by getting directly involved, which will be bad medium to long term. I don’t think we’re close to hyper-inflation now, but if we continue on this path we’ve embarked, we will see the day.
Why would rewarding the poor use of capital with even more capital ever be good for the economy, especially if we first have to take the capital away from the people/companies who were using it more efficiently? Gov’t has no capital surplus sitting around somewhere that it can dip into and give back to us to stimulate the economy. Gov’t isn’t a savings bank. In fact, gov’t is in a huge hole, and trying to dig it deeper.
You wanted a solution. Here it is. Gov’t should slash spending 10%, cut taxes 3% across the board. Keep doing this until a balanced federal budget is achieved. Then, cut the gov’t spending further still until a surplus is available to start paying down the national debt. As debt paydown occurs, cut more gov’t spending to help transition over 25-40 years the defined benefit social security and medicare programs to defined contribution social security and medicare. Enshrine in law a mechanism to stop the gov’t and the Fed from artificially tampering with the money supply and going back to a limited gov’t position. If you want the gov’t to independently referee the US economy, then the gov’t has to stop being an active player.
If the government would back me with a 3% fixed 40 year loans .. I would buy two homes that have been sitting on bank books for ages (months ..). Just wanting to do my share to help out stagnated housing market ..
Should of, could of, and what if, are history. They need about 700 billion more; are they going to get that is the question?
Alexis,
Well done. Both the interview and round table were superb. Too bad the control booth couldn’t let that go for awhile (I know you have to pay the bills). It was riveting and you need to bring that group back until the message gets through to people that we are headed down the wrong path.
What he said was both scary and heartening. At last sane people are standing up and saying enough is enough. I fear for my grandchildren because of the debt we’re loading up on them.
After watching the interview, I was disappointed in Jim Rogers comments. The US is the country he grew up and reaped a great wealth; but now, he has moved to Asia to be closer to the so called action. Rather than help and turn around the economy of his homeland, he has decided to raise and support his family in a foreign country. It looks as though he has lost confidence in our economy and future. We really needed him to find or facilitate good investments here and not just abroad. Perhaps, this is the result of the values he learned at Yale or Oxford. That is, chase the low hanging fruit and move on when no longer available.
Contrary to Jim Rogers statements on capitalism, the economy in Asia is much more controlled than the US at the very highest levels. Government investments into companies are commonplace and highly supportive or their industries in times of economic stress. Obviously, the US needs a little help in knowing how to do this as well as Asia.
His comments on the Bank bailout affair need no comment. I only hope the current management team smartens up.
Who is giving the ok to make these loans?
I would love to be able to listen and understand what Mister Rodgers is saying, but it is impossible. Your video viewer does not buffer properly. The content comes across in three and four second bursts. If you would make a change to it so that my browser could buffer say, thirty seconds of content at a minimum, it would help enormously.