Wal-Mart, are they just a scam? (heister)

I have been interested in how Wal-Mart makes money, so I have been looking into the company. I have come to the conclusion that it is nothing more than a scam. Wal-Mart isn't a real independent company considering their payroll cost relies almost exclusively on government contracts. Their workers are subsidized by welfare, as you couldn't pay them that low otherwise. But they are paid so low that welfare picks up the rest of the tab. So, Wal-Mart is exploiting a huge loophole. Not really that big of a deal but it not a real market company.

Wall Street Welfare Queens

Who's in the mood for a little thought exercise today? Because I came across this Bloomberg piece that claims Wall Street banks get an $83 billion annual taxpayer subsidy and, when you look at it the way they do, it's hard to disagree. The piece further states that the 10 largest banks in America wouldn't even break even without it, so essentially all the comp from bottom to top is a taxpayer handout.

There are a couple of things you have to accept for this to make sense. First, you must acknowledge that Too Big To Fail is enshrined in our policy now, thereby eliminating the vast majority of risk to bank bondholders. Obviously, with minimal risk comes a decreased borrowing cost (or government subsidy, if you will) which the IMF has pegged at 80 basis points.

When that discount is applied to the total liabilities of the 10 largest American banks, it results in an $83 billion taxpayer subsidy (because the banks' safety net is the implied backstopping by US taxpayers). Put another way, without this subsidy America's top banks would barely break even, and some would even lose money.

Governments and Value II: Subsidies and Value

In my last post, I looked at the negative effects on equity value of the threat of government expropriation (nationalization). In this one, I want to focus on the more benign (and perhaps positive) impact that governments can have the values of some companies, through subsidies in one of many forms: providing or facilitating below-market rate financing, special tax benefits, revenues or price supports and even forcing competitors to provide direct benefits to a subsidized entity.

Note that my intent in this post is not to examine the wisdom of these subsidies and whether governments should be tilting the playing field. While I do have strong views on the topic (and you can guess what they are from the subtext), I want to focus on the mechanics of how best to value businesses that benefit from these subsidies. This post was, in part, triggered by the recent news story on First Solar, where the company announced its intent to both scale back its operations and return a $30 million subsidy it had received from the German government.

Ethanol: Where do you stand?

I love Brazil. I hate tree huggers . But being that it is the season of caring and sharing, I am willing to make an exception if for one day, only.

In light of today's news that U.S. car makers and engine manufacturers are challenging the E.P.A's recent decision to increase ethanol content of gasoline sold in the U.S. to 15%, I am feeling a bit nostalgic.

Here Comes Another Flashback...

The Price of Subsidies

How much do subsidies actually cost? What is the intrinsic, inherent, implicit, etc...value of having them around? A while back I hit on a subject which has always fascinated me.

Cotton markets are both hugely important and hugely ignored in our agricultural market cornucopia. In spite of the rightful attention to gold, silver, wheat and sugar price spikes in recent months. It is cotton that has made me think hardest.

The following story is a must read for anyone interested in the true inner workings of markets. A peek behind the stage curtain, if you will...

Wind Power and Renewables Under Fire over Corruption and Shortcuts

Wind energy business comes under fire over subsidies and corruption. We also look at the Obama administration’s geothermal program, climategate and renewable energy issues.
Full article at: Renewable Energy