Preferred Stocks, Credit Crunch, and Illegal Immigrants

By Harry Sit

I’d like to share some comments on a few pieces I read in the news and blogs.

Preferred Stocks = Subordinated Debt (Credit Slips) – Professor Adam Levitin of Georgetown University looked under the surface of our government’s bank recapitalization deals using preferred stocks, following similar moves by the British government and Warren Buffett’s purchases into Goldman Sachs and GE. Although they all involve preferred stocks, not all preferred stocks are created equal. It turned out that the U.S. government’s deals are a lot worse (to the taxpayers) than the UK government’s deals or Warren Buffett’s deals. We are getting from our banks 5% dividend for 5 years, and 9% dividend after 5 years, which we may never see. The UK government is getting 12% dividend from their banks from day 1. They also prohibit the banks from paying dividend on common stocks until the government’s preferred stocks are paid off. Warren Buffet’s deals were 10% dividend, 10% redemption premium and a boat-load of in-the-money warrants from Goldman Sachs and GE. We should’ve given the money to the British government or Warren Buffett and let them structure our deals with the banks.

Tightening of Credit Strikes Nerve Among Consumers (San Francisco Chronicle) – Via MnD on Bogleheads Forum. This is a story by Associated Press. It was run in many newspapers with slight variations. It tells us how people on “Main Street” are affected by the credit crunch. They can’t get as much credit to buy stuff which they don’t have money for. Credit card companies are not approving as many people as before. They are not giving as high a credit line as they did before. People are mad at credit card companies for choking off their lives. The credit card companies just can’t win. When they were mailing out many credit applications, people are mad at them saying they are like drug dealers handing out drugs. Now they are handing out less and people are mad at them again.

Illegal Residents But Responsible Homeowners (Los Angeles Times) – Via Credit Slips. Is it a surprise that illegal immigrants have a much lower mortgage default rate than American citizens? Despite having entered the U.S. illegally, these immigrants work a lot harder than the natives. They don’t take things for granted. They save more. They keep their promises. Look at what our defaulting citizens did to our economy. If only they do the same as our illegal immigrants, our economy will be a lot better shape.

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Posted on October 17, 2008 under News.

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