23 May 2009

Tiny Tim's Two Month Millionaires: evil is as evil does

Guess what happened when none of us (humble self ignominiously included) weren't looking? Tiny Timmy Geithner took that TARP money and created some (I don't know how many, only that I am not among them) millionaires. I am pretty certain that there aren't many NEW millionaires in the flock, just ones with new millions.

How did this happen, you ask? Well, I have the answer.

To recap. The banks were outed as 2008 proceeded, some going under, others graced with billions in taxpayer dollars. As the banks sank, they took more and more of the rest of the economy with them. In the financial markets, billions of dollars were withdrawn from stocks, plunging the DOW from 14,000 to 6,500. March 9 was the bottom.

From then to May 9, if one had $100,000 lying around dormant, one could become a millionaire. Just two months. Numbers of stocks rose 10 times or more in those two months. The ones I've found were in the self same financial services industry; not all though, Palm (of the Pilot, etc.) went up 9 times. The reason, I am convinced, is that the plunge was not justified on real economic terms. That is the crime. Little of this had to happen. Had the MegaBanks been treated just as RegularBanks are by the FDIC, there would not likely have been any contagion into the real economy. And no opportunity for those savvy enough to realize that the plunge was only temporary and artificial to get 10 times their money in two months.

Here is one example. The insurance company Conseco was at $.26 in March (the graph isn't clear enough to see which day it hit bottom, but it was about the 9th). About 9 May, it was at $3.90. More than 10 times, and you had a couple of weeks either side of 9 March to have bought at $.39.

Only folks who could toss away $100,000, or knew that the plunge was fake, actually pulled it off. And, you would have to sell off the stock, which would be about 500,000 shares, without blowing out the price. It would require some sophistication in trading to do that.

Was this a direct gift from Tiny Tim? Basically, yes. While the insurance companies are culpable, to a lesser extent than the banks and we await the commercial real estate shoe to drop, it is true that the prices spiked right after it was announced that some would be getting TARP funds. Conseco wasn't one of them, in fact. It looks like their plunge was collateral damage; their rise inevitable, once TARP and such got rolling.

Thanks Tim, from all of us who aren't new millionaires.

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