AmEx Said to Request $3.5 Billion in U.S. Aid
online.wsj.com
online.wsj.com
On what moral basis can the same government deny <name-your-company> aid? So why not Circuit City? Why not Mervyns - I was there at a closing-store sale yesterday, the employee's faces told me everything. I am not advocating bailing out any of them, but if AmEx is OK to bail out, why not Mervyns? Is it because the Mervyns employees are a lower breed of human?
It is making my blood boil.
Both Circuit City and Mervyns have been dying for years. Mervyns has been shuttering stores for several years and went through a failed turn-around attempt. Circuit City simply couldn't compete with Best Buy. They didn't have sound businesses.
The big difference between a place like Circuit City and American Express is the amount that would be needed to overcome a blip. Circuit City, if it had a sound business model, might need a loan of a hundred million or so to keep paying salaries and such through a downturn. American Express needs to keep lending money - and all financial firms lend more money than their company is worth. They're intermediaries. So, Circuit City can go to a bank (or several) and get the cash they need if it would save their business. American Express can't. They need cash on a scale that Circuit City doesn't.
I understand why so many are outraged. It looks like a firesale of your tax dollars to a few firms. That isn't the case. If these firms make it (and based on their business models they will), the government will actually make money. Circuit City and Mervyns were just failing firms. Many in the financial sector have sound business models that need some cash for a year or two (in amounts that they can't raise from sources other than the government) because there was a perfect storm of credit conditions.
The fact that Amex can't get private investment says that the smart money thinks that they're a dumb bet. (There tons of money around. Buffet isn't the only one snapping up actual bargains.)
It may be that the Amex biz model works but Amex the company can't do it. In that case, the loan is a dumb idea. Let someone else pay to take a shot at it.
Feel free to invest your money, to get together with others if need be. If you're right, you make out. If you're wrong, I don't lose.
A government loan (by definition on more favorable terms than what they can get in the market) to AmEx is inevitably a subsidy to those high paid employees. Mervyns having to raise funds at 15% or 25% or whatever loan-shark terms they could get - yes, entirely their own fault - means that by extension, their low paid employees have to bear that interest burden on the company.
Why should we the taxpayer subsidize AmEx? Why not let the do the write down of their bad assets? In what sense Mervyn's management mistakes more punishment worthy than AmEx management mistakes?
Here is a modest proposal: any company requesting a government loan should accept civil service pay rules for their employees. Would AmEx employees put up with it? They can get the fuck out of they don't like those terms and find real private sector employment.
On a serious note though, this is the downfall. Once one area gets bailed out, everyone comes with outstretched hands. Will be interesting to see if Bush handles it or holds them off until Obama is in office to let him handle it.
Visa isn't seeking help, does that make sense?
And if AmEx does go bust what's the damage?
AIG and Lehman had all kinds of counter party risk, but who exactly would be hurt by AmEx going belly up?
If you don't pay your Amex bill, i think Amex takes a hit to pay the merchant. If Amex were to implode, those merchants could get fucked.
"We don't take Amex... neither does anyone else."