Individual or corporation, big or small, money making or being prosecuted by the federal government, we all make some financial missteps every once and a while. From the funny, scary and allegedly criminal, here are the financial blunders from across the world from the first week of February.
Standard or Poor?
One of the biggest stories of the week is the civil suit filed against the world’s largest credit rating agency, Standard and Poor’s. The US Department of Justice filed the suit on Tuesday, claiming S&P inflated credit ratings for subprime mortgage-backed securities to AAA status with no merit behind it, leading many investors to lose a large chunk of their assets. It’s a hefty claim, because it implies that S&P was a key player in the fall of the housing market in 2008, and subsequently were a big part of the recession. Since Tuesday, sixteen states and the District of Columbia have joined the suit, and the government is seeking $5 billion in damages done.
S&P’s defense is pretty simple: they deny any wrong doings, and claim they were just as in the dark as everyone else was leading up to the recession. That’s probably the response everyone expected them to say, and S&P has the benefit of playing naïve leading up to the recession. However, like any rating agency, their business comes from the same people they are rating, so it the motivation for the crime is the easiest part of the case to explain.
No matter how the case turns out, it’s not going to be pretty at all. NPR reported the government was originally asking for $8 billion in the civil suit which, if granted, would practically ruin S&P. Even if the government is awarded the $5 billion in damages requested it would certainly shoot the company in the foot, or if S&P is found innocent it will be a lot of time and money wasted by the Department of Justice trying to prove it.
Billionaires on the Run
Billionaires, like Warren Buffet in particular, are getting out of stocks reliant on consumer purchasing habits at an alarming rate. As Moneynews.com reports, Buffet’s holding company, Berkshire Hathaway, has sold all of their shares in Intel, sold 19 million Johnson & Johnson shares, and lowered their stake in “consumer product stocks” by 21%. He isn’t the only one either: billionaire George Soros sold over a million banking shares between his stakes in JPMorgan Chase, Citigroup, and Goldman Sachs. John Paulson, you guessed it—a billionaire if you didn’t know, also dropped shares in JPMorgan Chase—14 million of them. He also dropped all shares he had in Sara Lee and Family Dollar.
So what gives? Why are all of these big players fleeing like a 50’s housewife near a mouse? Well-noted economist Robert Wiedemer recently gave an interview stating he believes, through a chain of events, billionaires like Buffet are dumping their investments because the stock market could easily collapse in the next few years. His theory, that he believes these billionaires are privy to, is that once the extra money the Federal Reserve has printed hits the economy, inflation will increase, treasury bonds will drop in value, and interest rates will rise causing the housing market to fall apart again. This and other factors, Wiedemer claims, will lead to a crash in the stock market.
Now it’s vital to mention here that his is all speculation, so don’t go freaking out and severing all ties to the stock market because of this. It is still very much a theory, but people are taking this with weight because Wiedemer and his team called out the fall of the housing market in the states and consumer spending habits well before it happened. We’ll have to wait and see if Wiedemer is right on his later prediction, and we all hope he is severely wrong, but it is still alarming to see these prominent investors flee so quickly. Hopefully they’re the ones who’ve committed the blunder and not the rest of us.
Take a Few Deep Breath$
Remember that scene in Mel Brooks’ Spaceballs where Mel Brooks cracks open a can of air and huffs it because his planet is slowly running out of oxygen? Well, it’s happening. Not the planet running out of oxygen, but someone is actually charging for cans of air. Chenn Guangbio, known for being an outlandish millionaire and philanthropist in China, is apparently making lots of money selling canned air.
Now if this sounds ridiculous, consider how terrible pollution is in China. When Beijing hosted the Olympics in 2008, Chinese military fired tank and anti-air rounds into the sky in an effort to clear up smog, and it’s only gotten worse. Especially in the past few weeks, many cities in China have been forced to stay inside or wear surgical masks to avoid catching one of many respiratory diseases caused by the thick pollution. Sniffing down a clean can of air during the morning commute makes a bit more sense now.
Selling for 80 cents a can US, and with a plethora of air “flavors” like “post-industrial Taiwan,” over 8 million cans have been sold, turning what could have very well been a jokey marketing technique into a successful business venture. I’m not sure where this falls in the “financial blunder” spectrum, because it’s helping the people and making a ton of money for the creator, but I’ll justify it by saying it’s everyone else’s blunder by not capitalize on selling one of the most abundant substances on the planet.
That’s the most significant and/or weird financial stories I could find for this week, is there anything I may have missed you’ve heard of?