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Warren Graham's Legal Blog: November 2007

Warren Graham's Legal Blog

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Location: New York, New York, United States

I am a practicing lawyer who lives and works in Manhattan, and specializes in Bankruptcy, Corporate Restructuring and Creditors' Rights, Commercial Litigation and Real Estate Law. I grew up in the New York City Area, and am a graduate of the University at Buffalo (B.A. 1976) and Fordham University School of Law (J.D. 1980). I have a wide variety of interests, but am particularly interested in history, politics, economics/finance and religious affairs, and am a frequent writer on a variety of those topics, and others. On a personal note, I'm a 54 year old man, married for 27 years, with two daughters, ages 24 and 20, respectively. Legal topics of interest may be found on my blogsite, http://warrenrgrahamlegal.blogspot.com, while non-legal commentary may be found at http://warrenrgraham.blogspot.com. The content of these sites will be centralized and easily accessed locations for both legal and non-legal analysis and commentary, as well as a description of my legal practice for clients and potential clients. Keep checking back, as I expect the content to change and grow regularly.

Tuesday, November 27, 2007

Our Loss is Abu Dhabi's Gain

The Stock Market rallied strongly today. The Dow finished up about 215 points, on the heels of a very poor showing during the prior session. What accounts for this burst of optimism? A strengthening dollar? Rampant Holiday Season consumer spending? A revived housing market? Increased corporate profits? An end to the credit crunch? If you guessed any of those, you are dead wrong.

No, my friends, the exuberance exhibited on Wall Street today was occasioned by the formal announcement that we are selling our assets to the Arabs. That’s right. And it bears repetition: We’re selling our assets to the Arabs! And what’s more, Wall Street is excited, because it’s likely that, if we’re lucky, we’ll soon be selling more to them.

This morning, it was announced that an equity fund domiciled in Abu Dhabi, which apparently controls somewhere between several Hundred Billion and One Trillion dollars (apparently, when the numbers reach this magnitude, a few Hundred Billion more or less can be rounded off to the nearest Trillion), has made a $7 Billion investment in Citigroup, which will yield 11% over the next few years, and will then be convertible to stock. The source of the “up to a Trillion” fund is, of course, ourselves, and represents years of transferring our national treasure to the various and sundry royal families of the Middle East, in exchange for the privilege of driving our gas-guzzling monster vehicles. So now, the funds are coming back to this side of the Atlantic, except in the form of foreign ownership of our banks and financial institutions.

This, my friends, is what they really mean by “A Global Economy.”

Our government’s debt instruments are owned by the Chinese, and our real estate by international consortiums (or is it consortia?) of Europeans and Asians. Our labor force has been exported to India (have you called Microsoft Tech Support recently?) and now, we are only too happy to sell off our much-weakened financial institutions to the Leaping Lords of the Levant, who are only too happy to lend us back our (much lower-valued) dollars for a whopping 11% guaranteed return. Indeed, why wouldn’t they?

I don’t know about you, but I am finding it hard to feel exuberant about this state of affairs. By most accounts the economy is on a downward trajectory, and while the pundits can argue daily, as they do, about whether we are going to have a recession or merely a slowdown, it is clear that something is not right about the economic trend here. Larry Kudlow can continue to “believe in a strong America” (God, what a fatuous gasbag!), and the other CNBC chatterers (who, not coincidentally, are in the business of selling securities) can tell us how a collapsing dollar is really good for us, because it enhances exports, but John Q. Public knows better. That’s why the retail industry is quaking and shivering in its fine (unsold) leather boots and cashmere scarves.

The bull market case for today is that if Abu Dhabi is prepared to commit Billions to Citigroup, the situation cannot be so bad. After all, such an investment brings the Citigroup capital reserve requirements back up to snuff, notwithstanding its exposure in the subprime space.

The rationale, therefore, is that the Arabs know something we don’t: that this is merely a short-term blip in the running of the bulls on Wall Street, and that everything is really OK. But does this analysis bear even superficial scrutiny? Nobody really thinks that Citigroup is going under. In the final analysis, the U.S. Government could simply not allow that to happen. So what really is going on is that an Arab investment consortium is making an investment, yielding a fat and juicy 11% return, effectively guaranteed by the Full Faith and Credit of the United States of America. You don’t need to be T. Boone Pickens to spot a bargain like that. All you need is to be flush with Petrodollars.

We all know, in our hearts, that our beloved America has been for sale for quite some time now. The danger to all of us is that this time, it is now ON sale.

Warren R. Graham
Copyright 2007

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