I'm a retail stock investor. I bought shares in a company because I thought that the commodities collapse had resulted in severe under valuing. It is in the same boat (down about 65% YOY) as most commodities products producers. However, its stock recently shot up compared to others in its class. Why? Because the President Elect indicated it would get a rescue pacakge. I was lucky. The wheel of fortune spun in my favor. But for every lucky investor with a bailout profit, there is a loser who got screwed because he got none.
By Laura Mandaro, MarketWatch Dec. 5, 2008 SAN FRANCISCO (MarketWatch) -- Borrowing costs leapt this week for a variety of companies that aren't on the receiving end of federal bailouts, adding to a growing divergence in credit markets. . . . Credit-default swap spreads and corporate bond yields, particularly for riskier companies (NB AT&T and DuPont) have ballooned. At the same time, costs to issue debt in a sector that's the target of direct government intervention have fallen.
"Some areas are getting better," said Stephen Gallagher, chief U.S. economist for Societe General's investment bank. "It's very much dependent on government intervention, whether it be from Treasury, Federal Reserve or the FDIC."
I have investments in American manufacturing companies that are down 78% (I rode them to the bottom!) and are getting no bailout. They have laid off thousands of workers. Now their cost of business is higher due to government intervention in the economy. This means that their employees will be laid off longer so that the chosen will not get laid off at all. Through no fault of their own it will take these companies longer to recover profitability. This is the grim reality of economics in America. It's not how hard you work as an employee or the social utility of your product as an employer. It's who in Washington will vote you a bailout. Thumbs up or thumbs down. Just like Caesar.
Now for the moral hazard exercise. Should I keep my money in a company that is losing money when I can invest in one making money by bailout? What should I do? What would you American Caesars do?