How Porsche hacked the financial system and made a killing (2009)
radian.org
radian.org
In its efforts to acquire a majority holding in Volkswagen AG, Porsche built up a large debt burden, aggravated by taxes due on very large paper profits from Volkswagen AG options. By July 2009, Porsche was faced with debts exceeding 10 billion euros. The supervisory board of Porsche finally agreed to a number of arrangements whereby the Qatar Investment Authority would inject a large amount of capital, and Porsche would be merged with Volkswagen Group. On 23 July 2009, Michael Macht was appointed CEO, to replace Wendelin Wiedeking, who is expected to receive a compensation package of 50 million euros.
http://en.wikipedia.org/wiki/Porsche#Corporate_restructuring
I can reasonably see it producing some limited sorts of freedom, but (as an example) how would it produce equal rights for homosexuals?
Now mind, you don't need several of the freedoms people in the civilized world generally like to enjoy for capitalism to exist. Freedom of religion is largely irrelevant to capitalism (so far as the state religion doesn't become a dominate market force...). Basically all you need is some form of property rights, the right to enter and exit markets, and some subset of freedom of expression (basically the right to say "[Product] sucks.")
Sounds like a True Scotsman.
I've heard Hong Kong was or is a pure capitalist society, but I don't know enough about Hong Kong to evaluate that.
Unicorns don't exist either but that doesn't mean that you can go cry logical fallacy if somebody says a horse with a horn pasted to it's head isn't one.
Scotsmem of course do actually exist...
You don't seem to have read my comments for comprehension though, so it's not surprising that you're getting hung up here...
To try and argue it is not "True Capitalism" is just BS, and lets you get out of justifying anything you say. "oh I only meant Pure Capitalism, so whatever you say doesn't apply to that" --- It is complete True Scotsman, regardless how much you don't like it.
Freedoms have very little to do with capitalism. It is about private ownership vs government ownership. The right/privilege of ownership doesn't have to apply to everyone either (and thus isn't really a 'freedom'), it can simply apply to a select few (non-government) and you are still practicing capitalism.
> You don't seem to have read my comments for comprehension though, so it's not surprising that you're getting hung up here...
Would you like me to also point out it's a rhetorical fallacy to attack the person making the argument rather than the the argument.
As I said, not reading for comprehension. If you read my other comments my viewpoint should become adequately clear. When I say capitalism involves an assumption of rights I'm talking about rights that are only applied to the participant parties (like for example, slave owners). For example, without the right to enter and exit a market, what you have cannot be described as capitalism. Any economist will tell you that. These are rights that should never satisfy reasonable people, such as myself and clearly yourself.
when people believe in the notion of a hierarchy, that some people are better, more deserving, more noble, or more worthy than others, neither capitalism nor freedom can exist for long.
when people believe that all men are equals, that we all have hopes and fears, needs and wants, strengths and weaknesses, authoritarian institutions of all forms will crumble.
When people start to believe in others' needs and wants you get all the products of an egalitarian mindset allegedly incompatible with capitalism, like taxes and government borrowing.
believing in others' needs and wants only needs to oppressive governments IF those beliefs come from a place of condescension (i.e. that poor bastard is too dumb to take care of himself, we should try to run his life for him) rather than compassion and understanding (i.e. he doesn't save money because he sees no point in planning for a future he has little hope of enjoying, let's give him the support he needs to function better).
condescension is not egalitarianism.
Free markets are about giving feedback like that. They aren't magical ways of making people never make bad decisions. And neither is your preferred $ECONOMIC_SYSTEM, whatever it may. If it's claiming to be one, it's lying.
The problem is that oversight and accountability is too weak. As CEO he was authorised to take actions which should've set alarm bells ringing with others, without apparent limit, and his contract (much like many others; Fred Goodwin would be a prime UK example) was poorly drafted so as to provide him with limited personal accountability for failure. UBS 'rogue trader' Kweku Adoboli is currently in custody awaiting trial for inflicting a serious loss on his company; Wendling Weideking was paid off handsomely for far worse. Boards need to take their role of executive oversight more seriously.
Are we playing downvote-disagree?
The "best" bets are bets that are on average loss-making but over the short to medium term seem to make a profit (if they weren't on average loss-making, yields would probably be too low). What you do is look until you seem to have a reliable money maker, lever up and bet big. If it all pans out - as it usually does - you pocket a big chunk of the profit. If it fails (which it will once every few years or decades), you get the government to bail you out, or at worst the company goes bust.
Heads you win (most of the time), tails you don't lose much. It's a money-making (or rather, money-diverting) ratchet.
The feedback mechanisms don't work properly, particularly in finance. Humans don't live long enough and don't defer compensation long enough for the averages to work out properly. When a large proportion of the economy is devoted to this stuff (20+% in some countries), it's almost certainly highly inefficient, but the market won't fix it because the market can't fix it: again, the feedback mechanisms aren't strong enough.
It's ridiculous to say that Porsche "hacked the financial system and made a killing" when they essentially bankrupted themselves by doing so.
The funny thing in this whole Story was Ferdinand Piech, he has full control over VW as head of the board and was against this buyout. He also owned half of Porsche, so he was then owner of VW, but was also against it because Wideking would have gotten more power.
Both companies are bound together since the war, this whole action was about power between some industrial families.
They gained money in the bottom line, and some idiots with no insight made a bet against them.
Before this action was the Share of Porsche Holding 32.2% and now it is 50.74%. Look at the market cap and say again this was a failure.
Wouldn't this be a common scenario given the very nature of the risk?
The "person" you borrowed the stock from may well lose out, but we're talking about huge institutional investors that lend stock thousands or millions of times a year, or even day, and the fees more than make up for the few losses they incur.
This is not fundamentally different than any other loan.
It's similar to what happens when you can't pay your mortgage. If you are shorting you'll have to put up some margin( cash or cash equivalents representing some percentage of the dollar amount you shorted.)
if the short starts to move against you, you'll get a margin call and be required to put up more collateral.
Eventually if you can't pay you go bankrupt and your counterparty get's what they can in bankruptcy court.
Not surprisingly this is called counterparty risk and has become a big area of focus for risk managers recently.
Pretty crazy swing there, remind me never to buy stock in either.
Wiedeking left with a 50 million golden parachute so I don't think he's complaining.
Anyone care to explain, preferably in a similarly understandable style as this article?
http://www.spiegel.de/international/business/0,1518,637542,0...
http://www.spiegel.de/international/business/0,1518,637243,0...
http://www.spiegel.de/international/business/0,1518,623423,0...
Same sort of reason why Ford did better than GM or Chrysler in America - Ford had secured lines of credit back in 2006 in either a fit of brilliance or luck, so when credit dried up in 2009 they could still borrow. The others couldn't get loans and had to take drastic action.
http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lef...
that seems perfectly rational to me.
That sounds not very rational to me.
Additionally, you can't just make one law that tells people to "be transparent." The enacted laws have to be specific in order to be meaningful. Because they are specific, people will find ways around them and continue playing the game.
I'll give you just one example. Large traders attempt to conceal their identity. This leads to a lot of gamesmanship, as you point out. If this information were released with every order placed then I would argue a lot of volume would dry up and volatility would decrease.
To play this game both borrowed money, so both parties paid interests... So i guess the banks made money... Fits in with this article http://money.cnn.com/2009/04/13/news/goldman.earnings.report...
If you spend all your time building something no one wants, the world overall is poorer than if you build something amazing and people pay high prices for it.
Coming back to your house... When you commissioned the house you paid for materials, salaries etc... therefore transfer of money.... Next when u bought the land u invested in a certain property for a certain value, the value was destroyed (due to whatever reason tsunami etc) so you lost money but the person who sold it to you gained (aka transfer of money)
Now if you talk about which building is worth building thats a whole new debate... Sorry I didn't explain it before... I was just talking about how banks usually have pretty good ways to make money... They invest in competitors cause no matter who wins... They get the interest...
In the past I've heard the term "Short Squeeze", but did not really pay attention.
This article demonstrates one of the risks of shorting.
"How Porsche hacked the financial system and MADE A KILLING"
"Betting the wrong way, Adolf Merckle TOOK HIS LIFE."
I'm all for dark humor, but isn't it a little sketchy to joke about suicide in your headline? (I'm guessing the headline was intentional, but who knows).