Don't write off bad debts, raise capital !

Our view:

The next time your company bleeds from a bad debt, you need not write it off. As a matter of fact if you have an angel investor you may pick up the phone and ask him over for cofee and for some more funds. Your VC should entertain your plea for scaling up your project and if you have a listed company, you could go to the stock markets and raise fresh capital. Writing off bad debts is passé . You don't even have to asses and quantify the toxic assets or debts and show it in your Balance sheet.

Is it now a commonsense approach to raise fresh capital when you have looming bad debts in years ahead? To ensure that you have enough liquidity to offset not only your current losses but even the losses you make in the next couple of years . This new trend in Financial Engineering heralded by Mr. Kenneth Lewis CEO of BOA and 19 other U.S. Banks under instruction and support from Mr Bernanke of the Federal Reserve & Mr Geithner of the U.S. Treasury could bring about a revolutionary concept in Corporate Accounting and Management. It is a shame that this is happening in a land where innovation, efficiency and enterprise are still highly regarded that help evolve great corporations like Google,Amazon, Fedex, Microsoft and many others.

Dynamic "Banker Leaders" who can muscle through the opposition of faint hearted taxpayers and shell shocked stockholders and run their Corporations, Banks and Insurance Companies with public money are a relatively new phenomenon, and will be glorified for their fearless marauding and path breaking exploits like Alexander, Hannibal, Napoleon and Genghis Khan. If they are vanquished their empires will fall by like Enron & Satyam, but if they are able to lobby enough forces and retain the blessings of the Heads of State they will rule the world, till they can extract every penny from the pockets of the less fortunate, the Taxpayer, the stockholder, the international investor and the creditor.

Like all marauding armies the key to winning the battle is winning the local chieftains who control the Khyber passes. The traders at the stock market, the editors in the media rooms, the economists in the academic institutions, the business men in the corporate world, the IMF and the World Bank, and the key political leaders in the G 20, and also the army within. Some of the veterans of this army are disillusioned, disheartened and confused while waging this unholy war against their own brethren and like Mr Bowsher the Chief of the Office of Finance of the Regional Housing Banks have resigned in protest.

These dynamic "Banker Leaders" and their redoubtable army of the top 25 sub prime-mortgage originators, control most of the check posts through a network of you pat my back I pat yours syndicate. Many have ties to big banks, have profited immensly directly or indirectly from the losses that the tax payers and common stockholders are saddled with today. According to the Centre for Public Integrity a non-profit organization they have spent close to $380m on lobbying and campaign contributions over the past ten years.

The networking of the lobby is so intense and all encompassing that nothing other than its its own girth can cause it to collapse. The people who had earlier manned the peripheral armies at Freddie and Fannie, the regional banks and the Wall Street behemoths are today at the higher decision making levels Fed and the Treasury. It is known that they will use all the tricks of the trade including the ones they may have to invent to keep these Pyramid schemes and Ponzi Banks moving from big to bigger and even bigger. If the first flush of Capital came from the Taxpayer as bailout funds, the second sortie came by printing $ 1 Trillion paper money and the TARP funds, the third will come from the stock markets or from disposal of assets. But how will it keep coming again and again if the Banks don’t make profits.

The key question is not how they will overcome the challenges of capital augmentation in the days to come. The problem is how long and how much will they have to wink at the traditional accounting practices and regulatory norms to keep helping the sub-prime mortgage originators and the defaulting banks buy time. For the endgame will surely be about the capital efficiency and the Return On Investment, when you keep bloating the capital to maintain capital adequacy. What happens to the ROI and the EPS if you keep raising the equity without increase in profits?

Bank lending is falling each quarter despite the artificial liquidity being injected by the bailout money and TARP funds. Banks are tightening lending norms for credit cards and other mortgages and increasing their charges which do not help business volumes.

Where then will the profits come from. Or do these dynamic "Banker Leaders" have yet another innovative business model tucked in, more profitable then the securitized mortgages deal, like a new securitized avatar of a Ponzi scheme in the making to bring in revenues and profits out of thin air.

In this blog from “ecology to economy” we deal with discussion of sustainable practices which we must adopt for climate change as well as other aspects of the economy. We are focusing in this issue on the Stress Tests of US Banks and the real implications it will have on the international economy.
We could be wrong. Tell us if we are & why? We encourage diverse opinion even if it is from commercially interested groups opposed to our thinking