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Thread: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

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    Default Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Debt brings down venerable manufacturing firms, right on schedule

    Here's the formula. Take one part debt bubble from 1% interest rates and financial engineering, two parts hubris and self-delusion, add a recession and a credit crunch two years later and what do you get? A wave of bankruptcies and unemployment.

    Crystal, china maker Waterford Wedgwood collapses
    January 5, 2008 (Jane Wardell, AP Business Writer)

    Waterford Wedgwood files for bankruptcy protection after failing to find a buyer

    Wedgwood has been an iconic name in British pottery for 250 years, after its founder Josiah Wedgwood opened the first factory in Stoke-on-Trent, central England, in 1759. It began making bone china in the 19th century.

    Waterford Crystal traces its lineage to a factory opened in Waterford, southeast Ireland in 1783, although that business failed in the 1850s. The brand was revived by Czech immigrant Miroslav Havel in 1947.

    Waterford Wedgwood, which employs around 7,700 worldwide, is the latest in a burgeoning list of iconic British companies to succumb to the global economic slowdown and credit squeeze. Department store veteran Woolworths, the queen's tailor Hardy Amies, tea and coffee merchant Whittard of Chelsea and fellow ceramics stalwart Royal Worcester and Spode have all filed for bankruptcy protection in recent months.

    AntiSpin: Didn't survive the last real Great Depression (see The Real Great Depression) and hasn't survived this one, either, even in its early stages. Why did Waterford go out of business after surviving every downturn since the end of WWII? In a word: debt.
    The company, which has net debts of €449 million, had been unable to raise €150 million of new equity it had sought in August.

    Waterford Wedgwood has been forced to appoint a receiver, which it named as David Carson from Deloitte, the accountancy firm, after it missed a January 2 deadline to meet loan repayments. - Waterford Wedgwood collapses over debt pile, Times Online, Jan. 5, 2009
    How much debt is that?
    The company last month reported pre-tax losses of €63.2m for the six months to October 4, up 13% from the loss of almost €50m a year earlier. Revenue fell by 15% to €207.6m, though the fall was only 6% when currency movements were stripped out. - RTE Business, Waterford Wedgwood runs out of time, Jan. 5 2009
    What is a company with €207.6m in annual revenue doing with €449 million in debt?
    Waterford Wedgwood also announced it had refinanced its debt through a new arrangement with a subsidiary of Wachovia of New York, but offered no details of the terms. - USA Today, Waterford Wedgwood wants to buy Royal Doulton, Oct. 12, 2004
    Without the debt, the company may have survived a 6% drop in revenue. How many more companies levered up during the 2004 to 2006 boom years who without debt might weather the economic storm but instead will go bust in the year ahead as they find themselves unable to make debt payments? Who could have known?
    Add to the two generally acknowledged guarantees in life -- death and taxes -- a third: recessions after a massive speculative bubble has collapsed. And if we get a recession next year, as we've pointed out before, a bunch of uneconomical PE buy-outs will become even more uneconomical. It's not unlike the post tech stock bubble, except rather than the venture capital (VC) money drying up that's needed to keep uneconomical businesses running that were started during the boom, companies will be left trying to make huge principle and interest payments on debt. - iTulip, After the buyout boom: The bust?, Dec. 18, 2006
    The USA's first and oldest outplacement consulting company is Challenger, Gray & Christmas, providing outplacement programs for executives, and middle managers, and key employees. When we interviewed Challenger CEO John Challenger, June 13, 2007 six months after our forecast he told us:
    Janszen: Bond securitization, such as CDOs in the mortgage industry and CLOs in private equity, has for the past few years created new credit to fund commercial real estate growth and private equity deals. Now that the market for these debt products is slowing down, we expect a slow-down in these sectors. For example, the market for mortgage related CDOs declined from $30 billion in April to $2 billion in May. Are you seeing any indication yet of weakness in either commercial real estate market or in industries which have been the target of private equity deals?

    Challenger: No indications yet, but a recession caused by an increase in bankruptcies and layoffs due to corporate over-indebtedness is a plausible scenario.

    Janszen: Overall, what's your prognosis for the US economy over the next year?

    Challenger: We are at the end of this economic cycle.
    What impact will this have on unemployment? The AP story goes on:
    Much of the business has now shifted offshore, where it employs 5,800 people, including 1,500 people at a plant in Jakarta, Indonesia, which produces most of the company's ceramics. The majority of its crystal production has been handed to Eastern European subcontractors.
    They do not mean that the business has shifted offshore but that the jobs shifted offshore. If "globalization" meant post-industrial, FIRE Economy based countries like the US and the UK outsourcing jobs while keeping the sales, marketing, distribution, and revenue collection at home, what are the implications for the countries to which the jobs were outsourced now that the post FIRE Economy debt deflation is putting these companies out of business?
    The company employs a work force just a third of that size at 1,900 in Britain, including around 600 in Stoke-on-Trent and 800 in Waterford.

    Waterford Mayor Jack Walsh said the closure of the crystal factory would deal a cultural and psychological blow to all of Ireland, noting that the crystal plant was one of the country's top tourist attractions and the product "one of only a handful of iconic Irish brands.'
    Unemployment will rise rapidly in the countries, such as China and Indonesia, where the manufacturing jobs were outsourced to and goods manufacturing is a large part of the jobs base. In the US and the UK, where the manufacturing jobs were outsourced from, job losses will be just as high but in the sales, marketing, and distribution sectors of the economy (see Housing Bubble Correction Update: Here comes the jobs crash). We believe that the collapse of FIRE Economies is putting "globalization" into fast reverse in 2009 (see Pop goes the Globaloney Economy).

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by EJ View Post
    Debt brings down venerable manufacturing firms, right on schedule

    Here's the formula. Take one part debt bubble from 1% interest rates and financial engineering, two parts hubris and self-delusion, add a recession and a credit crunch two years later and what do you get? A wave of bankruptcies and unemployment.

    Crystal, china maker Waterford Wedgwood collapses
    January 5, 2008 (Jane Wardell, AP Business Writer)



    Waterford Wedgwood files for bankruptcy protection after failing to find a buyer

    Wedgwood has been an iconic name in British pottery for 250 years, after its founder Josiah Wedgwood opened the first factory in Stoke-on-Trent, central England, in 1759. It began making bone china in the 19th century...
    My wife has ancestors from the Midlands. About 3 years ago, when we were living in London, we made a trip there with one of her cousins to tend to the graves and do the usual tourist stuff - pottery museum, etc.

    We visited Doulton, Spode and the Leeds Pottery [famous for its creamware]. It was obvious even then that these businesses were in serious trouble, and like much of Britain I got the impression the crumbling industry was surviving on its reputation from the glory days.

    Privately-owned Leeds still made all of its wares in the UK, but it was obvious the cost structure was uncompetitive, and the owners were trying to make a margin by compromising the quality of the product [I am no expert on pottery, but even I could tell]. Spode still made some of its lines in the UK [beautiful high-quality product, but priced accordingly], and Doulton had pretty well dumped everything to Asia. My wife and her cousin have some Doulton figurines made decades ago, and handed down in her family, that are exquisite - the hand painting on the Asian-made Doulton figurines in their shop didn't compare, even to my unpracticed eye.

    I came away from that weekend with one more data-point reinforcing my perception that the entire UK economy was centred around the one-square mile know as the City, and the hedge fund headquarters in Mayfair. And that was when the official statistics showed the UK economy consistently outpacing that of France and Germany.

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    The process of backing away from long term equity investment into UK industry has been going on for many decades. I delivered a 170 page report to the UK government in 1992 detailing the problems I had by then been able to clearly document regarding several attempts at capitalisation, one in conjunction with a major university where the answer came back to a very high level individual brought in to help by a Deputy Lord Lieutenant (Queens representative at the local level), "Research and Development old boy? Bottomless pit, never touch it with a barge pole."

    The UK has been an accident waiting to happen for some time now. But my problem is, do I stay or go? Will the message get through this time, and thus is it at all possible to see a chance to establish something new now, or should I abandon the UK entirely and seek a better location to establish new business. And for that matter, where do we go?

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by Chris Coles View Post
    The UK has been an accident waiting to happen for some time now. But my problem is, do I stay or go? Will the message get through this time, and thus is it at all possible to see a chance to establish something new now, or should I abandon the UK entirely and seek a better location to establish new business. And for that matter, where do we go?
    For what its worth I sold up in Skelmersdale in 1992 and moved down under. Today is beautifully sunny and it is a lovely place to live but the same problem exists here - property is the only game in town. I have now forsaken manufacture and adopted an "if you can't beat them, join them approach". My accountant (a very successful businessman not your usual type at all) said "Richard, it's time to move up the food chain."

    Their is still a huge manfacturing potential left in the UK, even if it only a remnant of former days. I doubt if it is worth investing in though as there are too many resistances to change. My advice is sit tight a while and buy city commercial real estate when prices are devastated. The city will make a comeback when the world economy does. Anyway, if I still lived there that is what I would be looking at.

    Manufacturing needs flexibility - if sales go down 50% you must be able to lay off 50% of your workforce immediately. Failure to do so leads to massive inventory building and the requirement for a massive wad of cash to pay for it, which is of course unlikely to be available. The unfortunate consequence of people friendly labour laws that protect the workers is it destroys the manufacturers. The UK is a horrid mess of endless layers of regulations laid on top of one another. It scares me when I visit. Everything is difficult.

    Just listen to the conversations of the people around you. What are they talking about? Are they talking about real issues or nonsense issues about things that shouldn't be in the first place?

    There is much that I love about the country I grew up in, which is why this issue stirs me so. I leave you with a kiwi joke:

    "How do you know when an airplane from England has landed at Auckland airport?"

    "When it keeps whining after the engines stop."



    The question is why do they whine so?

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by rchdenton View Post
    a lovely place to live but the same problem exists here - property is the only game in town.
    I well remember my accountant, (senior partner top 100 firm), telling me that they had never seen anyone raise significant funds for anything other than a property deal.

    Existing financial institutions are staffed by people that will never change their ways. It often crosses my mind that the only way forward is to create completely new financial institutions that set out, from day one, to invest savings in the productive industrial society. I do not have the financial resources to bring such thinking to fruition without access to royalties owed but unlikely ever to see.

    Sorry about the whining and nice of you to make me laugh while opening my eyes to the noise.....

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by Chris Coles View Post
    I well remember my accountant, (senior partner top 100 firm), telling me that they had never seen anyone raise significant funds for anything other than a property deal.

    Existing financial institutions are staffed by people that will never change their ways. It often crosses my mind that the only way forward is to create completely new financial institutions that set out, from day one, to invest savings in the productive industrial society. I do not have the financial resources to bring such thinking to fruition without access to royalties owed but unlikely ever to see.

    Sorry about the whining and nice of you to make me laugh while opening my eyes to the noise.....
    Thanks Chris,

    I was a bit concerned I might have been a bit too negative about Britain. One of the things I like about this site is it drew my attention to separating my thinking about finance and real estate from production and consumption. There is much more to learn I think.

    There has been a British diaspora (if that's the right word, never used it before) going on for centuries. These are the very issues that have caused it. I find Michael Hudson's insights are very helpful but there is a part of this picture that eludes me.

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by rchdenton View Post
    Today is beautifully sunny and it is a lovely place to live but the same problem exists here - property is the only game in town.
    Property has been the only game in town there for years but I feel the kiwis might move out of their denial stage soon unless there is a massive immigration to save their high property prices. My company specialised in Product development and in the early 90's I tried to raise capital in NZ. Deal was, buy a bond from one of the 2 largest banks, return was inflation plus 3% after tax. If my company failed, you took your bond to the bank and got your initial investment back. Kiwi investors all said no because it was too risky. None of them could explain to me how a Bank guaranteed investment was risky other than to say, we were in product development. However I would have to agree that these days I would not trust a bank guarantee lol.

    Thus I now do a lot of my R&D here in the US and it is tax deductible as against having to be capitalised in NZ.

    Hold the nice sunny days there please. I am due back in a few weeks and it is cold here in Santa Fe, but at least I can go snow skiing lol.

    Cheers

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Thanks Louie,

    Its not just house prices, land prices are massively overvalued too. But hopefully the rest of the world will continue to find our food useful even if they can do without iron ore for a while.

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by rchdenton View Post
    Thanks Louie,

    Its not just house prices, land prices are massively overvalued too. But hopefully the rest of the world will continue to find our food useful even if they can do without iron ore for a while.
    I agree, land is crazy too. It is difficult to get a reasonable return on a dairy farm even with the huge payout last year. And now I understand the payout has dropped about 30% odd from last year.

    Unless other countries introduce tariffs (like the USA with their 100% lamb tariff a few years back, and France with the striking farmers.) then Agriculture should save the day somewhat. The drop in the NZD will also help.

    However NZ is, IMHO, still just a C & C economy (Cows and Construction) Dairy products are our major export, and their stuff up in China with the milk powder scandal may come back and haunt them.

    Construction. Well with many workers moving to Aus because of no work, then that ain't a growth industry. Unfortunately, there is no real industry in NZ to speak of. I guess it will be back to the old bring on the immigrants policy to save the day again, like the 90's and Rah Rah up the Tourism. Unemployment should stay low because of all the kiwis moving to Aus.

    NZ is one of the most highly indebted developed countries in the world, (as say RBNZ) so that isn't a good thing, yet Christmas eve had the highest recorded credit card sales in history. Foreign debt at 130% GDP hmmmm

    So what is going on, are they all still in la la land, or has our new ex Wall Street Prime Minister pulled a rabbit from the hat?? I note that household debt has increased even more in the past year, and NZ has officially been in recession for most of the year. Don't know what it is but NZ seems to keep defying gravity as regards logic and economic sense. lol.

    Ahhhh. I know the answer, I shall return to NZ penniless, rent a house on the beach (cause there will be no work there and Social welfare will pay the rent), then go on the dole (unemployment) and retire my days away watching the sun come up and the tide come in. Do a spot of fishing to catch dinner, dive for my quota of seafood and to hell with economics lmao. Door will be open for all Itulipers, with the key under the mat in case I am out fishing when you arrive.

    You will know I am out fishing because the 45 ft launch will not be moored in the bay.

    Cheers

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by Louie.G View Post
    However NZ is, IMHO, still just a C & C economy (Cows and Construction)...

    Unfortunately, there is no real industry in NZ to speak of.
    Whilst this is largely true we are more diversified than that. Construction is an industry that can get turned off for a while, which is why the govt are keen on road building and such like to keep the productive capacity and to provide employment. 5% of exports in recent months has been oil of all things and 15% of our electricity is exported as aluminium. I live in Nelson so seafood is a big regional export earner, as are forestry and apples from time to time.

    As Wayne Lochore observed, there are worse places to be than a country of 4 million with food for 55, and it is still sunny.

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by rchdenton View Post
    Whilst this is largely true we are more diversified than that. Construction is an industry that can get turned off for a while, which is why the govt are keen on road building and such like to keep the productive capacity and to provide employment. 5% of exports in recent months has been oil of all things and 15% of our electricity is exported as aluminium. I live in Nelson so seafood is a big regional export earner, as are forestry and apples from time to time.

    As Wayne Lochore observed, there are worse places to be than a country of 4 million with food for 55, and it is still sunny.
    Since I discovered New Zealand apples a few years back at a Waitrose store in London, UK, I go out of my way to try to find them. Not only the now ubiquitous Braeburn, but especially the Cox Orange Pippin which one could find in season in the UK, but requires a lot of effort to source here in western Canada.

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by GRG55 View Post
    Since I discovered New Zealand apples a few years back at a Waitrose store in London, UK, I go out of my way to try to find them. Not only the now ubiquitous Braeburn, but especially the Cox Orange Pippin which one could find in season in the UK, but requires a lot of effort to source here in western Canada.

    Couldn't agree more. Cox's orange pippin is the apple that started it all here and for me its flavour has never been surpassed. Sadly the apple industry is dependent on constantly finding new varieties that look good in supermarkets and keep well. To my mind they are hardly worth eating and I have to be very careful what I say when chatting to apple growers here. They have a particularly hard time financially and only the those who are very competent and have very deep pockets survive. Every 10 years or so they make a fortune and then are back in survival mode.

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by Chris Coles View Post
    The process of backing away from long term equity investment into UK industry has been going on for many decades. I delivered a 170 page report to the UK government in 1992 detailing the problems I had by then been able to clearly document regarding several attempts at capitalisation, one in conjunction with a major university where the answer came back to a very high level individual brought in to help by a Deputy Lord Lieutenant (Queens representative at the local level), "Research and Development old boy? Bottomless pit, never touch it with a barge pole."

    The UK has been an accident waiting to happen for some time now. But my problem is, do I stay or go? Will the message get through this time, and thus is it at all possible to see a chance to establish something new now, or should I abandon the UK entirely and seek a better location to establish new business. And for that matter, where do we go?

    Galt's valley?

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    Default Re: Debt brings down venerable manufacturing firms, right on schedule - Eric Janszen

    Quote Originally Posted by jtabeb View Post
    Galt's valley?
    Atlas does not shrug around here and mythical valleys in the minds eye of a far right wing author have no place in the search for a long term business location. But thanks for the thought....

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    Default apropos - a crappy blast from the past I came across again today

    whatever happened to what Ken Fisher was saying in late 2006 / early 2007 ?

    The thesis that debt is good?

    That "a few" Americans would be hurt by excessive debt, but that most Americans did not have enough debt, that more people should leverage up - take debt out on their houses and invest it.

    http://www.amazon.com/Bloomberg-disc...sin=047007499X

    http://theaustrianaccountant.blogspo...oves-debt.html

    Unfortunately a quick search didn't turn up the article being described in this last link.

    believe it or not, this thinking is STILL (!!!!!) out there.

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    Default Re: apropos - a crappy blast from the past I came across again today

    Quote Originally Posted by Spartacus View Post
    whatever happened to what Ken Fisher was saying in late 2006 / early 2007 ?

    The thesis that debt is good?

    That "a few" Americans would be hurt by excessive debt, but that most Americans did not have enough debt, that more people should leverage up - take debt out on their houses and invest it.

    http://www.amazon.com/Bloomberg-disc...sin=047007499X

    http://theaustrianaccountant.blogspo...oves-debt.html

    Unfortunately a quick search didn't turn up the article being described in this last link.

    believe it or not, this thinking is STILL (!!!!!) out there.
    We hear it everyday if we're not careful- a strict diet of no main stream media exposure, without exception :cool:

    We just need to get housing values rising again...

    0% financing right now at your GMC dealership....

    He's off his diet again....

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    Default Re: apropos - a crappy blast from the past I came across again today

    Is Ken Fisher the guy that inspired ad wizards to create the "Do you want to get away?" commercials for Southwest Airlines?

    Learning To Love Debt

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    Default Re: apropos - a crappy blast from the past I came across again today

    Quote Originally Posted by Spartacus View Post
    whatever happened to what Ken Fisher was saying in late 2006 / early 2007 ?

    The thesis that debt is good?

    That "a few" Americans would be hurt by excessive debt, but that most Americans did not have enough debt, that more people should leverage up - take debt out on their houses and invest it.

    Quite agree, debt is most excellent stuff, I thoroughly recommend it.

    Let me explain. A sword is a tool. So is a circular saw. Used well they are most useful. Used badly they will kill you.

    Debt is a tool. Trouble is most of us have difficulty knowing when and how to use it.

    Easy to see in retrospect that during an inflationary 70s style housing boom those with the most debt win. Maybe that's why it was the baby boom generation who went so strongly into housing.

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    Default Re: apropos - a crappy blast from the past I came across again today

    Quote Originally Posted by rchdenton View Post
    Quite agree, debt is most excellent stuff, I thoroughly recommend it.

    Let me explain. A sword is a tool. So is a circular saw. Used well they are most useful. Used badly they will kill you.

    Debt is a tool. Trouble is most of us have difficulty knowing when and how to use it.

    Easy to see in retrospect that during an inflationary 70s style housing boom those with the most debt win. Maybe that's why it was the baby boom generation who went so strongly into housing.
    We follow a simple principle of debt use here.

    Use debt to finance appreciating assets, like rent producing real estate.

    Avoid using debt to purchase depreciating assets like autos and consumer electronics.
    Ed.

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    Default Re: apropos - a crappy blast from the past I came across again today

    Quote Originally Posted by FRED View Post
    We follow a simple principle of debt use here.

    Use debt to finance appreciating assets, like rent producing real estate.
    Thanks Fred, my take is in a little while I will be able to tell the cream from the dross. The cream will have paying tenants, the dross will not. The return will be good. It is not easy sitting on my hands in the meantime.

    I do have a question though.

    I used to believe in manufacturing. That it was a "good thing", that it provided jobs, which led to a productive society. I now feel that was partly due to my upbringing in socialist Britain. Socialists and communists all blather on about industry and manufacturing and rights on so on (they are childlike in their lack of experience).

    The trouble is the jobs created are pretty unfulfilling. They are repetitive and de-skilled. People's thought turn to rights not usefulness. In short we treat grown ups as children and they behave accordingly.

    In my wilder moments I have declared that employment is for kids. My friends do not like this as they think it arrogance on my part. They are of course correct, but there is something in the argument nonetheless.

    So, as I mention above, I have forsaken manufacturing, at least for the time being. My friend (the accountant mentioned above) has introduced me to the obscure pleasures of commercial real estate. The tenants are hard working independent business people for the most part. New Zealand is blessed with a lot of hard working small business people.

    My question is this, is there a food chain?

    As a manufacturer or farmer you feel that everyone feeds off you, that you support everyone else. Is that in fact so? If there is a food chain, how does it work? Who is at the top? Is it The Banker, ie the bank owner. Who is it? How do I become one? Should they be at the top? Should I become one?

    These and other questions pussle me exceedingly.

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