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Skepticism and critical thinking is not panacea, but can help to understand the world better
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Due to the size financial skeptic dictionary is now converted to a separate page
[Elections are over, but] "the economy continues to campaign for Obama"…
The issue of government controls on compensation for executives of corporations that participate in the bailout had ignited a firestorm, with Americans complaining to their representatives in Congress that these corporate chiefs shouldn't be rewardedhief rabbi of Jerusalem to eat bacon on Yom Kippur. It was the most unthinkable thing they could think of."
Request for Urgent Business Relationship
This letter may come to you as a surprise, please treat it like a blood brother affair. Your address was made available to me by a good friend who works with the
nigerian chamber of commerce and industryIRS.
Dr. Chinaka Steve,Hank Paulson, the principal accountant with the Nigerian National Petroleum Corporation (NNPC)U.S. Treasury Secretary. I am writing on behalf of my colleagues in the NNPCWall Street.
We would like to transfer the sum of
thirty two million$700 Billion (or more). This money is now deposited in the NNPCU.S. treasury account with the Central Bank of Nigeria.
We have been safeguarding this money waiting for conducive time for its transfer.
The current favourable political climate
since the assumption of duty by the new civilian administration presented an opportunity for this money to be transferred out of the countryis, ye gods, about to run out in 45 days! So ACT NOW!
The Code of Conduct Bureau does not allow us to
own and operate foreign accountprint the money, therefore, we needed a foreignpartner that will present himself as the sub-contractor by providing his bank particulars so that the money will be transferred intofrom his personal account.
For your assistance in this business,
your share will be 30% of the total sumwe will stop scaring the living daylights out of you.
If you are willing to assist us in this transaction, please call your Representative in Congress.
DR. CHINAKA STEVE.
Hank PaulsonOriginal letter here
Hat tip to "comrade NSA" in the comments section at the Big Picture for this idea
Barry's got his own version here
SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP
I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.
I AM MINISTER OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US (PLUS OR MINUS 500 BILLION). IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT COULD BE MOST PROFITABLE TO YOU.
I AM WORKING WITH MR. BERNANKE, WINNER OF SOUTH CAROLINA STATE SPELLING BEE IN 1965, AND CURRENT OVERSEER OF THE FEDERAL RESERVES. SO THIS TRANSACTION 100% SAFE.
THIS IS A MATTER OF GREAT URGENCY. WE LIKE BLANK CHECKS. WE NEED FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE BY PAULTARDS AND SKINHEADS. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY SHILL WHO WILL ACT AS 'INDENTURED SERVANT' SO THE FUNDS CAN BE EXPROPRIATED.
PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@PBC.GOV.CN SO THAT WE MAY TRANSFER YOUR 'COMMISSIONING' FOR THIS TRANSACTION. AFTER OUR CHINESE CREDITORS RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.
YOURS FAITHFULLY MINISTER OF TREASURY PAULSON
"Americans can always be counted on to do the right thing... after they have exhausted all other possibilities."
===The Clintons took the furniture from the White House when they were (kind of) voted out .
Now Bush & Co. want to take 700 billion (on top of the 500?? billions they've already squandered). Talk about progress.
But you gotta concede that Paulson is a great salesman, his insistence on being outraged at CEO's pay and Wall Street shady practices is almost touching.
September 23, 2008 | The Big Picture
Today's credit crisis quote comes to us via Theodore Forstmann of of Forstmann Little & Company:>
"Buffett once told me there are three 'I's in every cycle. The 'innovator,' that's the first 'I.' After the innovator comes the 'imitator.' And after the imitator in the cycle comes the idiot."
-Theodore Forstmann, quoting Warren Buffett
The Credit Crisis Is Going to Get Worse
BRIAN M. CARNEY
INTERVIEW JULY 5, 2008
Sep 21, 2008 | Robert Reich's Blog
Never before in the history of American capitalism has so much been asked of so many for (at least in the first instance) so few.
Economists Warn Anti-Bush Merchandise Market Close To Collapse
CommentsGees...for all those politico malcontents:
- "Any man who afflicts the human race with ideas must be prepared to see them misunderstood."
- "Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats."
-H L Mencken-
Btw "The good times of today are the sad thoughts of tomorrow."
Posted by: SR | Sep 22, 2008 7:11:51 PM
This is from the Nation magazine.
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transaction is 100% safe.
This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to firstname.lastname@example.org so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully Minister of Treasury Paulson
Posted by: JL | Sep 22, 2008 8:43:59 PM
As my girlfriend said in High School, "what's the rush?!".
Larry Elliott - get in there!
This was the week the world changed…Ben Bernanke, chairman of the Federal Reserve, and Hank Paulson, the Goldman Sachs tycoon who became US treasury secretary, have done more for socialism in the past seven days than anybody since Marx and Engels.
Rachel Johnson on the consequences for Notting Hill:
As for me, well, for the first time since I moved to W11 in 1978, I feel a batsqueak of schadenfreude about the bonfire of the bankers, but also a surge of something akin to relief that I have neither stocks, shares, a pension, luxury car, nor cash to lose.
All I've got is a mortgage to pay.
Shorts are new evildoers.
- So is the FSA going to prosecute itself for market manipulation? it might actually win a case for once… - Daddy
- Daily Mail is just reporting that under "Hornby's Law" the Police have to notify everyone in the area when a Short Seller moves into town. They have to sign the Short Seller's Register as well. - Throg
- I've got my old teddy bear manacled and locked in the cupboard just in case he starts any bearish activities like selling a stock he hasn't got. - Seaslug
- we are missing a big looming point here. while all the banks fell over like fat labradors running over the wet kitchen floor,
- A bridge loan based on rapidly falling collateral is a bail out. - G Cox
- LIBOR, the price of something which isn't available - Bundesbank
- You British and Americans just don't know how to run an economy. - R Mugabe
- short financials, long island iced tea - hector
Q: What's the difference between Chinese and American banks ?
A: None: they are both propped up by the Chinese renminbi.
A stimulus package to taxpayers in the process of foreclosure is like giving the patient candy while his legs are amputated.
September 19, 2008 | The Big Picture
There's your headlines of the day:
*U.S. TREASURY TO INSURE GOOD WEATHER ALL WEEKEND
*FEDERAL RESERVE TO INSURE PERSONAL HAPPINESS
*U.S. TREASURY TO REPAIR TOM BRADY'S DAMAGED KNEE
*CONGRESS TO GUARANTEE HAPPY DAYS ARE HERE AGAIN
There is a rumor going around that China's factory, working three shifts, may not be able to produce enough American flags in time for the Republican convention.
The plot is already familiar: the Friday night, FDIC prepack, in this case, with Birmingham, Alabama-based Regions bank assuming all $974 million of deposits and $34 million of assets. The New York Times reported that the bank focused on real estate lending and had a "faith based culture". . The results suggest that they might have relied overmuch on divine intervention at the expense of due diligence
New York Magazine
Lately, it seems like everywhere you turn, someone is crowing that they saw the current financial crisis coming. George Soros. John Paulson. Steve Eisman. Armando Falcon. There are so many of them, you wonder who didn't see it coming. The answer is, well, most people. After the jump, have a look back at some of the stocks chosen in the annual investment guides of some leading publications (including, alas, this one) as smart buys in 2008.
Jon Birger, senior writer, Fortune's Investors Guide 2008
What he said then: "Question: What do you call it when an $8 billion asset write-down translates into a $30 billion loss in market cap? Answer: an overreaction … Smart investors should buy [Merrill Lynch] stock before everyone else comes to their senses."
What we know now: Merrill agreed to sell itself Bank of America to avoid a Lehman-like flameout in a deal closing in January. Meanwhile, Merrill's shares plummeted 77 percent.
Elaine Garzarelli, president of Garzarelli Capital, in Business Week's Investment Outlook 2008
What she said then: "Garzarelli is advising investors to buy some of the most beaten-down stocks, including those of giant financial institutions such as Lehman Brothers, Bear Stearns, and Merrill Lynch. What would cause her to turn bearish? Not much. 'Our indicators are extremely bullish.'"
What we know now: As of January 1, none of these firms will still exist. Lehman went bankrupt. JPMorgan and Chase bought Bear Stearns in a fire sale. We all know Merrill's fate.
Sarah Ketterer, CEO of Causeway Capital Management in Fortune's Investors Guide 2008
What she said then: Q: "Sarah, where to you see value?" A: "There are [financial firms] that have been tainted by this huge credit problem … Fannie Mae and Freddie Mac have been pummeled. Our stress-test analysis indicates those stocks are at bargain basement prices."
What we know now: The federal government placed these two lenders under "conservatorship" in September. By then, shares of Fannie and Freddie had lost 90 percent of their value.
Jon Birger, senior writer, in Fortune's Investors Guide 2008
What he said then: "CEO Jeffrey Immelt has been leading a successful makeover at General Electric, though you wouldn't know it from GE's flaccid stock price. Our bet is that in a stormy market investors will gravitate toward the ultimate blue chip."
What we know now: GE's stock price has tumbled 55 percent percent this year and it's on the verge of losing its triple-A credit rating. Analysts are nervous about its financial-services division, which provides about half of GE's earnings.
Archie MacAllaster, chairman of MacAllaster Pitfield MacKay in Barron's 2008 Roundtable
What he said then:"A lot of people think Bank of America will cut its dividend, but I don't think there's a chance in the world. I think they'll raise it this year; they have raised it a little in each of the past 20 to 25 years. My target price for the stock is $55."
What we know now: BofA may not have gone the way of Lehman. But investors who sold when MacAllaster told them to buy were shrewd. The bank's share price now hovers around $14, and it has slashed its dividend in half.
One of our own: James J. Cramer, contributing editor, in his "Future of Business" column in New York Magazine
What he said then: "Goldman Sachs makes more money than every other brokerage firm in New York combined and finishes the year at $300 a share. Not a prediction - an inevitability."
What we know now: In mid-December, Goldman Sachs' share price was $78. The firm also announced a $2.2 billion quarterly loss, its first since going public nine years ago.
Q: If Tchaikovsky wrote a ballet about stock market crash in 2008 what would be the hit music peace
A: Of course, this would be "The dance of black swans"
Hat tip to reader Glen commenting Naked Capitalism blog entry Banking Industry Sinking Faster Than Government Can Bail
Round, like a circle in a spiral
Like a wheel within a wheel
Never ending or beginning
On an ever-spinning whell
... ... ...
Like the circles that you find
In the windmills of your mind.
Sting - Windmills
Here are some of the worst predictions that were made about 2008. Savor them-a crop like this doesn't come along every year.
1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" -Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.
2. AIG (AIG) "could have huge gains in the second quarter." -Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008
AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.
3. "I think this is a case where Freddie Mac (FRE) and Fannie Mae (FNM) are fundamentally sound. They're not in danger of going under…I think they are in good shape going forward." -Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008
Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.
4. "The market is in the process of correcting itself." -President George W. Bush, in a Mar. 14, 2008 speech
For the rest of the year, the market kept correcting…and correcting…and correcting.
5. "No! No! No! Bear Stearns is not in trouble." -Jim Cramer, CNBC commentator, Mar. 11, 2008
Five days later, JPMorgan Chase (JPM) took over Bear Stearns with government help, nearly wiping out shareholders.6. "Existing-Home Sales to Trend Up in 2008" -Headline of a National Association of Realtors press release, Dec. 9, 2007
On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million-down 11% from a year earlier-in the worst housing slump since the Depression.
7. "I think you'll see [oil prices at] $150 a barrel by the end of the year" -T. Boone Pickens, June 20, 2008
Oil was then around $135 a barrel. By late December it was below $40.
8. "I expect there will be some failures. … I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." -Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008
In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup (C) needed an even bigger rescue in November.
9. "In today's regulatory environment, it's virtually impossible to violate rules." -Bernard Madoff, money manager, Oct. 20, 2007
About a year later, Madoff-who once headed the Nasdaq Stock Market-told investigators he had cost his investors $50 billion in an alleged Ponzi scheme.
10. A Bound Man: Why We Are Excited About Obama and Why He Can't Win, the title of a book by conservative commentator Shelby Steele, published on Dec. 4, 2007.
Mr. Steele, meet President-elect Barack Obama.
February 13, 2005 | Big Picture
I came across an economist joke on point with the ideas in this post:
Seven habits that help produce the anything-but-efficient markets that rule the world by Paul Krugman in Fortune.
1. Think short term.
2. Be greedy.
3. Believe in the greater fool
4. Run with the herd.
6. Be trendy
7. Play with other people's money
James Howard Kunstler
Zounds! Public sentiment toward the accelerating economic fiasco has shifted, seemingly overnight, from a mood of nauseated amazement to one of panicked grievance as the United States moves closer to an apparent comprehensive collapse -- and so ill-timed, wouldn't you know it, to coincide with the annual rigors of Santa Claus. The tipping point seems to be the Bernie Madoff $50 billion Ponzi scandal, which represents the grossest failure of authority and hence legitimacy in finance to date in as much as Mr. Madoff was a former chairman of the NASDAQ, for godsake. It's like discovering that Ben Bernanke is running a meth lab inside the Federal Reserve.
As a dog owner, also, I firmly believe that I get a better, more rational, and more self-aware response from my dogs than from this administration.
Obama Approval Poll The Big Picture
"An Obama job approval rating of 79 percent - that's the sort of rating you see when the public rallies around a leader after a national disaster. To many Americans, the Bush administration was a national disaster."
- Bill Schneider, CNN's senior political analyst, on a poll indicating overwhelming approval for Barack Obama.
The Big Picture
This bloody brilliant card is what a hedgie we know is sending out for Christmas:
December 2, 2008 | The American Prospect
Via Mike Scherer, the people on the financial news shows are idiots who are trying to make you poor.... The gig is to make you feel like you can make money, so you keep watching for more awesome, money-making tips. That means they have to explain how you can do things that will make you money. And that means there have to be broad and obvious ways to make money. And more than that, it has to seem like the folks on the teevee know how to make that money. But they don't.
CXO Advisory Group tracked Jim Cramer's picks for awhile and concluded "Based on subsequent stock market performance and our judgments about his forecasts for overall stock market direction, Jim Cramer is right about 46% of the time with his stock market predictions, a little below average." Stunning performance.
Meanwhile, anyone who has ever read Larry Kudlow wonders how he's able to manage a folding chair without assistance, much less other people's money.
Well, hopefully he and the Treasury secretary don't do something stupid like go before the Congress and say "oh my god! the sky is falling - if y'all don't give us $700 billion to throw around by Friday the economy's going to collapse!"
That would really scare ordinary people, cause them to completely stop buying things like cars and such and hoard their cash. Oh wait, that was 2008.
Some measure of normalcy will hold out until late spring or early summer, mostly based on hopes for the Obama Presidency. But by late summer 2009, the aggregate loss of jobs, credit and wealth will cause an economic crisis that makes our current situation look pretty mild. With predictions of up to a million jobs lost each month, there will simply come a point at which the economy as we understand it now cannot function - we will see the modern equivalents of breadlines and stockbrokers selling apples on the streets. (Editor's Note: Given that she nailed most of her 2008 predictions, Sharon Astyk's 2009 prognostications are worth paying attention to. - JSB)
How to solve the moral hazard problem involved in body swapping:
The Bible Meets Science Fiction: A Solution to the Principal-Agent Problem, Suggested by Lawrence H. Officer, JPE Back Cover, vol. 110, no. 1: "Next, you and the Martian Gentleman will both sign a Reciprocal Damage Clause. This states that any damage to your host body, whether by omission or commission, and including Acts of God, will, one, be recompensed at the rate established by interstellar convention, and, two, that such damage will be visited reciprocally upon your own body in accordance with the lex talionis."
"Huh?" Marvin said.
"Eye for eye, tooth for tooth," Mr. Blanders explained. "It's really quite simple enough. Suppose you, in the Martian corpus, break a leg on the last day of Occupancy. You suffer the pain, to be sure, but not the subsequent inconvenience, which you avoid by returning to your own undamaged body. But this is not equitable. Why should you escape the consequences of your own accident? Why should someone else suffer those consequences for you? So, in the interests of justice, interstellar law requires that, upon reoccupying your own body, your own leg be broken in as scientific and painless a manner as possible."
"Even if the first broken leg was an accident?"
"Especially if it were an accident. We have found that the Reciprocal Damage Clause has cut down the number of such accidents quite considerably." [Robert Sheckley, Mindswap (New York: Dell, 1966), p. 17.]
Instead of borrowing somebody's body, Wall Street borrows their money. But when they do the equivalent of breaking your leg - when they damage the deposits they are holding - they don't always suffer any consequences. In fact, many of them get to keep the large bonuses they earned for managing the money so poorly, e.g. see Krugman's latest column. A broken leg clause is a bit on the thuggish side, of course, financial penalties are more acceptable, but this does make clear the need for money managers to "feel your pain" in order to get the incentives correct.
This morning that meant a stream of thoughts triggered by Paul Krugman's most recent op-ed, particularly this:
Most of all, the vast riches being earned - or maybe that should be "earned" - in our bloated financial industry undermined our sense of reality and degraded our judgment.
Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that "the financial system as a whole has become more resilient" - thanks to derivatives, no less? The answer, I believe, is that there's an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they're doing.
However, since Bernanke is only printing money out of thin air to buy financial paper, his action is tantamount to shoplifting. The shoplifter walks away with stolen goods. The shop owner, realizing part of his merchandise has disappeared, has no choice except to hike the price of the remaining goods. Call it inflation.
... ... ...
Like other economies in the past, the US economy will most likely settle in stagflation equilibrium for the future, with no prospects for ending the current fiscal and monetary expansion.
December 18, 2008 | Asia Times Online
Now that the whole horrible truth has come to light, I have no more reason to conceal my true identity. I am Bernard Madoff.
Well, not really. But I wish I were. Few Americans have done more to punish stupidity, pretension and complacency than Madoff, whose apparent US$50 billion swindle calls to mind the caper by Mephistopheles in the second part of Goethe's Faust. The fictional devil persuaded the emperor to issue paper money against buried treasured yet to be discovered.
The Fed should launch a Bottom-Fishers Loan Facility. Administration would be outsourced to firms with retail brokerage operations. Every household would be eligible for a loan of up to $100,000, with investments restricted to US securities, mutual funds, and ETFs (except the "inverse" or short ETFs, and ones that play in currencies or commodities). The exact amount is determined by a score that looks at age, how underwater your investment portfolio is, and your FICO (being older, having significant investment losses, and FICOs that are low but short of simply dreadful are viewed favorably). If the Fed really wanted to encourage this sort of activity, it could also forgive the loans for the borrowers who achieved the top 1% performance among all program participants.
December 19, 2008 | themessthatgreenspanmade.blogspot.comOne man's story about how he avoided the pain and misery associated with the bursting of the housing bubble, from The Onion.
December 20, 2008 | naked capitalism
- "That is more than a bit of revisionist history. If you don't believe in oversight, pray tell how are you going to assess the quality of decisions being made?"
You know Doc, you're over-analyzing again. I see only reflexive responses by the sedate, possibly unconscious Mr. Bush.
I believe you own a dog, and likely (as with most dog owners) you've engaged in long, deliberative criticism and conversation with the beast over its habits.
When it barks, do you attribute the sound to a reasonable, rational response? Or does the dog toss you the same answer every time? Does the dog really care?
- Fraud Guy:
- As a dog owner, also, I firmly believe that I get a better, more rational, and more self-aware response from my dogs than from this administration.
- Excentrik said...
- Perhaps a ten step program for CEOs is in order. Then again, perhaps they have not sunk low enough to think they need help.
I'm thinking Greedaholics Anonymous.
sent by David Zetland
The Bailout Explained
Young Chuck in Montana bought a horse from a farmer for $100.
The farmer agreed to deliver the horse the next day.
The next day he drove up and said, "Sorry son, but I have some bad news, the horse died." Chuck replied, "Well, then just give me my money back."
The farmer said, "Can"t do that. I went and spent it already"
Chuck said, "Ok, then, just bring me the dead horse." The farmer asked, "What ya gonna do with him? Chuck said, "I"m going to raffle him off." The farmer said, "You can"t raffle off a dead horse!" Chuck said, "Sure I can, Watch me.
I just won"t tell any body he's dead." A month later, the farmer met up with Chuck and asked, "What happened with that dead horse?" Chuck said, "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $998."
The farmer said, "Didn"t anyone complain?" Chuck said, "Just the guy who won. So I gave him his two dollars back."
Chuck grew up and works now for the government. He was the one who figured out how to "bail us out".
The Big Picture
... having Pitt as SEC chief was like putting Osama bin Laden in charge of Homeland Security.
The Big Picture
Bouncing around trading desks:
Credit Suisse Group AG's investment bank has found a new way to reduce the risk of losses from about $5 billion of its most illiquid loans and bonds: using them to pay employees' year-end bonuses.
The bank will use leveraged loans and commercial mortgage- backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages, people familiar with the matter said. The new policy applies only to managing directors and directors, the two most senior ranks at the Zurich-based company, according to a memo sent to employees today.
"While the solution we have come up with may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009," Chief Executive Officer Brady Dougan and Paul Calello, CEO of the investment bank, said in the memo.
The securities will be placed into a so-called Partner Asset Facility, and affected employees at the bank, Switzerland's second biggest, will be given stakes in the facility as part of their pay. Bonuses will take the first hit should the securities decline further in value.
"It's monstrously clever," said Dirk Hoffman-Becking, an analyst at Sanford C. Bernstein Ltd. in London who has a "market perform" rating on Credit Suisse stock. "From a shareholders' perspective it's great because you've got rid of some of the assets and regulators will be pleased because you've organized a risk transfer."
naked capitalism (from readers comments):
... the relationship between government and banking is the closest thing to organized crime taken over society...
"With the right hand out begging for bailout money, the left is hiding it offshore."
US President George W. Bush said in an interview Tuesday he was forced to sacrifice free market principles to save the economy from "collapse." "I've abandoned free-market principles to save the free-market system," Bush told CNN television, saying he had made the decision "to make sure the economy doesn't collapse."
12/16/2008 | calculatedriskblog.com
WaMu is offering $100 when you open a checking account. (hat tip John)
Note: John removed the promo code.
You too can get a piece of the TARP! This is better than a toaster ...
Artur Levitt, Chairman emeritus of the SEC, was "astonished" that his close friend and confidante was the world's greatest con man. Kinda says it all.
A nationwide chain of pawn shops has opened to take advantage of a business opportunity created by this severe recession. They're called Federal Reserve Banks.
December 6, 2008 | by WcP Blog - World Culture Pictorial
CEO -- Chief Embezzlement Officer.
CFO -- Corporate Fraud Officer.
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.
VALUE INVESTING -- The art of buying low and selling lower.
P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
... ... ...
Like the old joke goes, "We're from the government, and we're here to help you", which explicitly means that you will soon suffer, as we learn from Bloomberg.com; "The U.S. may pay a steep price to free itself of its economic and financial travails: bigger government, faster inflation and a poorer country." Gaahhhh!
To relieve the tension, I made up a new joke. A guy walks into a bar and the place is full of beautiful young ladies. They say, "Mogambo! We love you and you make us so hot! Let's celebrate with some of your hot monkey love!" And the guy says to the bartender, "I have some good news and some bad news! The U.S. may pay a steep price to free itself of its economic and financial travails: bigger government, faster inflation and a poorer country."
The bartender says, "My God! That's the price? What's the good news?", and the stranger says, "That IS the good news!"
Nobody sells stocks for less
"There's now speculation in Washington that President Bush is now planning to increase the economic sanctions on Iraq.
And let me tell you if they are half as tough as the economic sanctions Bush has imposed on this country, they are screwed." -Jay Leno
According to Ezra Klein (who is very gentle in his criticisms) Summers wrote the followingAs for [Milton] Friedman -- I'm not so sure he looks bad. What is most screwed up today? GSEs, Citibank, regional banks. What is most regulated? Same list. What is least screwed up? Hedge funds and the like. What is least regulated?Summers didn't mention investment banks or non bank mortgage companies. Many of them are not currently "screwed up" mainly because they no longer exist.I mean he just overlooked the little problems at Lehman Brothers and Countrywide.
The argument about hedge funds is totally invalid. Look, I'm not regulated at all and I'm not bankrupt. Most individuals are in less financial distress than say citibank. The reason isn't that individuals are not subject to regulation -- it is that banks often have enough sense not to loan too much to individuals (notice I am just talking relative -- most people aren't in bankruptcy court and no individual has been bailed out yet).
The government doesn't have to regulate us, because relatively few potential creditors trust us.
long rant after the jump
update: On non bank mortgage companies look at the mortgage lender implodometer
One of my friends proposed the following cartoon to the WSJ but was rejected. I thought it was priceless.
I proposed to have Greenspan, Bernanke and Paulson all dressed in camouflage and hunter's hats, carrying Bazookas walking into an Adirondack style lodge where you can see trophies on the wall...
a Mexican...labeled 'Peso Crises'
a 'Tojo' looking Japanese… labeled 'Lost Decade'
an Indonesian Islander… labeled 'Asian Financial Crises'
a Factory Worker with hard hat… labeled, 'Manufacturing Collapse'
a housewife with a shopping bag… labeled, 'Inflation Kills the Middle Class'
a computer geek… labeled 'Dot.Com Collapse'
a mortgage broker… labeled 'Housing Collapse'
an investment banker labeled…'Wall Street collapse'
an auto worker, labeled…'Main Street Collapse'
and another trophy on the table not yet hung…labeled 'Dollar Collapse.'
Paulson says to Greenspan, "My Alan this is veryy impressive!"
Greenspan replies, "To tell you the truth Hank, I hit them all by accident. I was out interest rate targeting and no-one told me that I had the Bazooka pointed backwards!"
In his spare time, London developer Nick Herrtage plays drums with a pop group called What Next!
Given the rocky nature of the property market, it's a fitting name.
Well, I should have known that this was not her real question, and it wasn't, but "Her Majesty Queen Elizabeth II this month asked a simple but fundamental question posed by many millions of Americans and people around the world. Visiting the London School of Economics, the queen asked why it was, if the looming economic crisis was so large, that no one saw it coming."
If I had been there, you can bet your sweet butt that I would have said, "Hey, Queenie! I saw it coming, and everybody who is even passingly familiar with the Austrian school of economics saw it coming, and everybody with any familiarity with math or history saw it coming, too, and in fact the only people who did NOT see it coming were lowlife poseurs like these London School of Economics halfwits and most university professors of economics around the world, all of whom share an economic theory made of some bizarre mishmash of unbounded equations based on neo-Keynesian gibberish! Hahaha!"
I couldn't help but think about the old California joke about lawyers; in the weeks following the meeting when we have seen precipitate action by all of these bankers as well as their masters in respective governments; the joke was repeated endlessly in my head. So here it is, albeit paraphrasing the question to: "What would you call an accident that makes all G-20 central bankers sink to the bottom of the sea?" Chan Akya: "A good start."
Just to be clear, I do not wish physical ill on any of these befuddled academics stumbling their way around the global economy like a resurrected Titanosaur walking around New York as changes in the magnetic field upset the migratory pattern embedded in its pea-sized brain. Despite not wishing them physical harm, there is a part of me that wants to grab them by the collective scruff of their necks and ask them a simple question: "Are you guys completely out of your minds?"
Some people never learn, that is why we have guillotines..
Congressional motors (CM)
I think we know where the banks are parking all that TARP money
Robert Reich's Blog
On Monday, NBC Universal chief executive Jeff Zucker told weary investors at an industry conference that the network was determined to cut costs. His comments came as the company laid off 500 employees and announced it would move Jay Leno to its 10 pm weekday time slot. This makes sense for NBC: Every hour of scripted programming costs about $5 million -- for fleets of writers, directors, cinematographers, actors, editors, and everyone in between. Leno's compensation is hefty but not nearly $5 million an hour, and his live show costs a fraction of that. (Big-name stars come to hawk their latest films and books for free.)...
- Nicholas said...
- Maybe he is also contributing to less garbage news! Not having a television, it does not matter. But, the less uninformative or incorrectly informative news the better.
...Conventional wisdom is that the bottom is reached when the last bull becomes a bear. In other words, when capitulation is complete. Only then can recovery begin. For those who prefer a more off-beat approach, here are 10 other possible indicators.
- Investment bankers' children stop lying about what Daddy does.
- Chocolate biscuits are again acceptable at directors' meetings.
- Our worst universities are full for MBA courses.
- Roman Abramovich abandons Chelsea.
- The cost of keeping a boy at Eton falls below the average wage.
- A celebrity chef is paid to endorse McDonald's.
- The number of houses being repossessed in a year is greater than the number being built.
- Royal Ascot accepts sponsors for its races.
- A well-known charity goes bust.
- Gordon Brown says: "I've had enough of this".
Dec 9, 2008 | Asia Times
It was the unique genius of Woody Allen that turned Dr David Reuben's daring (for the time, anyway) 1969 question-and-answer book, Everything You Always Wanted to Know About Sex (but were afraid to ask) into a 1972 skit comedy film. To illustrate the book's inquiry "Why do some women have trouble reaching orgasm?", Allen presents the story of a modern Italian couple, Fabrizio (played by Allen) and Gina (played by Allen's real-life former paramour, Louise Lasser).
In response to Fabrizio describing to a worldly friend Gina's aforementioned problem, Fabrizio is advised that perhaps what Gina needs is the spark of danger, of risk, in their lovemaking. The pair start cautiously, making love in a friend's house, but before long they are locked in erotic embrace in a restaurant, even in front of a church. Fabrizio is pleased that he has solved the couple's problem, but he worries. He realizes that it is getting harder and harder, that he is having to subject himself and Gina to more and more risk, in order to create a satisfactory conclusion. What must he do next?
Lately, the US stock market is proving equally as hard to please as Gina. ...Much like Gina, it seems the government is being called to engage in ever-more vigorous and extensive endeavors to stimulate the stock market.
Moody's and Standard & Poor's - the agencies that ... sold their souls to the devil for revenues.
December 2, 2008 | Option ARMageddon
November, 2008 (Bloomberg) -- The Somali pirates, renegade Somalis known for hijacking ships for ransom in the Gulf of Aden, are negotiating a purchase of Citigroup.
The pirates would buy Citigroup with new debt and their existing cash stockpiles, earned from hijacking numerous ships, including most recently a $100 million Saudi Arabian oil tanker. The Somali pirates are offering up to $0.10 per share for Citigroup, pirate spokesman Sugule Ali said earlier today. The negotiations have entered the final stage, Ali said. "You may not like our price, but we are not in the business of paying for things. Be happy we are in the mood to offer the shareholders anything," said Ali.
The pirates will finance part of the purchase by selling new Pirate Ransom Backed Securities. The PRBS's are backed by the cash flows from future ransom payments from hijackings in the Gulf of Aden. Moody's and S&P have already issued a AAA investment grade rating for the PRBS's.
Head pirate, Ubu Kalid Shandu, said "We need a bank so that we have a place to keep all of our ransom money. Thankfully, the dislocations in the capital markets have allowed us to purchase Citigroup at an attractive valuation and to take advantage of TARP capital to grow the business even faster."
Shandu added, "We don't call ourselves pirates. We are coast guards and this will just allow us to guard our coasts better."
December 03, 2008 | http://themessthatgreenspanmade.blogspot.com/
It appears that Monday's stock market decline could have easily been avoided (it looks as though the feud with Kanye West is heating up too).
December 3 2008 | FT.com
The problem with lynch mobs is that they sometimes get the wrong guys. It must have been great fun back in the Old West, stringing up some ornery hombres you suspected of cattle rustling. Until you found out that they had been drunk as skunks in Madame Fifi's saloon on the night in question, and were therefore innocent.
I mention this in reference to ... retail bankers, who are in a position similar to the alleged cow stealers of yore.
From Tom Tolles at the Washington Post:
- esb said...
- FORBES once called itself "The Capitalist Tool" and may still do so.
I submit that the WSJ should begin calling itself "The Sell Side Shill,"
unless BARRONS has already reserved it.
An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. -Laurence J. Peter (1919 - 1988)
Rubin refuses to take an iota of responsibility for the bank's tsuris (and that also comes from the Goldman playbook. The firm always circles the wagons and admits nothing). Get a load of this:Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank's main operations even though he was one of its highest-paid officials.
"Nobody was prepared for this," Mr. Rubin said in an interview. He cited former Federal Reserve Chairman Alan Greenspan as another example of someone whose reputation has been unfairly damaged by the crisis.
You simply cannot make this up. I found a section of this priceless commentary from the Reserve Bank of Zimbabwe via Marc Faber's latest newsletter (hat tip reader Dean), and had to verify it. The original provides an even richer mine of material.
From the Reserve Bank of Zimbabwe (boldface theirs):As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.
That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.
November 28 2008 | ft.com
It no longer makes headlines when bankers turn down this year's bonus or pay rise. But when ex-bankers at UBS – including the former chairman Marcel Ospel and the former chief executive Peter Wuffli – volunteer to pay back some of last year's haul, the world has changed.
One is reminded of shoplifters surrendering their ill-gotten gains to try to win clemency from the judge. But Mr Ospel and Mr Wuffli are accused, not of any crime, but of incompetence. They face only the court of Swiss public opinion. Small wonder that the Swiss former executives have been quicker than the non-Swiss to announce their gestures of atonement.
This cartoon, from Jimmy Margulies of the Record, is probably the most ominous I have seen regarding Legman Brothers collapse:
The Daily Reckoning"You can understand how fraudulent most economic analysis is," Nassim explained, "just by looking the life of the turkey. The animal is fed for 1000 days…and then it is killed. So, if you plotted out the turkey's life on a chart, it would look great for 1,000 days…each day, the food arrived reliably, and each day, the turkey gained weight. The turkeys would look around and say they were enjoying growth and a bull market. Momentum investors would see it as an opportunity. The quants would run linear regressions on the data and prove that the risk was minimal. "
Ben Bernanke would describe the turkey's life - with no setbacks - as the product of a "great moderation." Turkey stockbrokers would assure their clients that nothing had ever gone wrong in the turkey's life. Turkey econometricians and theorists would come up with explanations for why the turkeys' growth would continue forever and they'd pat each other on the back for having finally mastered the "turkey cycle." Turkey politicians would run for re-election on the grounds that they had helped create a better world. And turkey economists would project further weight gains…until the turkey was the size of a hippopotamus
Then, come Thanksgiving, and all of a sudden, something goes wrong. Alas, all the turkeys' theories, models, and conceits were for the birds.
Players can pick up a card that reads: "Go to demonstrate at parliament, stop to buy some eggs to throw, only to realize that prices have gone up so much you can't afford them."
Despite the humor, the game does convey a serious message, argues Mr Antonsson. "Things can't continue like they were."
How can you give cash compensation to an executive, yet claim it is not a salary or bonus? You call it a "retention bonus," No, I am not making this up.
Is it ironic that the revolution of this country was due to taxation without representation and the overextending central bank?
The reason we have deflation is that it is difficult to pump money into an airplane with a hole in its side.
Goldman... Citigroup ... and JPMorgan ..., which helped turn bets on company defaults into a $47 trillion market, are among banks offering wagers on the amount investors may recover from bonds after borrowers go bankrupt.
Credit-recovery swaps are trading on the debt of about 70 companies, including automaker General Motors Corp. and bond- insurer MBIA Inc. That's up from 40 during the summer, according to Mikhail Foux, a strategist at Citigroup in New York.
Also known as recovery locks, the agreements are bought as insurance by sellers of credit-default swaps, such as banks, hedge funds and insurers.
"The market definitely has potential to grow," Foux said.
America's 401K investors are being taken further and further out to sea without a life jacket. And all they will be hearing from the crew when the boat go overboard, are going to be recommendation like "have a nice swim, suckers".
McSweeney's Internet Tendency
"Damn it, Dagny! I need the government to get out of the way and let me do my job!"
She sat across the desk from him. She appeared casual but confident, a slim body with rounded shoulders like an exquisitely engineered truss. How he hated his debased need for her, he who loathed self-sacrifice but would give up everything he valued to get in her pants ... Did she know?
"I heard the thugs in Washington were trying to take your Rearden metal at the point of a gun," she said. "Don't let them, Hank. With your advanced alloy and my high-tech railroad, we'll revitalize our country's failing infrastructure and make big, virtuous profits."
"Oh, no, I got out of that suckers' game. I now run my own hedge-fund firm, Rearden Capital Management."
He stood and adjusted his suit jacket so that his body didn't betray his shameful weakness. He walked toward her and sat informally on the edge of her desk. "Why make a product when you can make dollars? Right this second, I'm earning millions in interest off money I don't even have."
He gestured to his floor-to-ceiling windows, a symbol of his productive ability and goodness.
"There's a whole world out there of byzantine financial products just waiting to be invented, Dagny. Let the leeches run my factories into the ground! I hope they do! I've taken out more insurance on a single Rearden Steel bond than the entire company is even worth! When my old company finally tanks, I'll make a cool $877 million."
Their eyes locked with an intensity she was only beginning to understand. Yes, Hank ... claim me ... If we're to win the battle against the leeches, we must get it on ... right now ... Don't let them torture us for our happiness ... or our billions.
He tore his eyes away.
"I can't. Sex is base and vile!"
"No, it's an expression of our highest values and our admiration for each other's minds."
"Your mind gives me the biggest boner, Dagny Taggart."
He fell upon her like a savage, wielding his mouth like a machete, and in the pleasure she took from him her body became an extension of her quarterly earnings report-proof of her worthiness as a lover. His hard-on was sanction enough.
"Scream your secret passions, Hank Rearden!"
"Oh, yes! Yes!"
"Collateralized debt obligation."
"YES! YES! YES!"
Perhaps the meaning of TARP should be changed from Troubled Asset Relief Program to Troubled American Relief Program because in reality what they are doing now is TWIRP - Troubled Wealthy Investor Relief Program.
I have noticed that many commentators on this site have delusions about understanding the financial world. The reality is that those trained in economics and finance are often the most ignorant of the true nature and scope of their actions.
What is the purpose of money or economic activity? I am suggesting that the true purpose of such concepts and activity is to prevent people from killing each other. The fringe benefits of money and economic activity such as as trade, "progress" and wealth creation are secondary.
However many economists and financial types believe that money is real. Though many of them profess to believing that money is merely a medium of exchange and storage of commercial activity, their actions suggest otherwise. It is curious that kids stop believing in santa claus and the easter bunny as they grow up but start believing in the "realness" of money. Money whether gold based or fiat based is not real. Neither is debt, your favorite economic model or theory. Money is worthless if it cannot create new wealth or keep people from killing each other.
The concept of money, as most people understand it, was created in a feudal and mercantile age when the majority had a subsistence level existence. It is therefore not surprising that it evolved mainly to keep people from killing each other and simultaneously control people (we are just smart apes who seek short term dominance over long term gains).
However the full fruits of industrialization, various historical events and widespread multi-generational acceptance of concepts like fiat currency have made the consumption of the average person the only dominant driver of the economy (consumer economy). While some people express moral misgivings about such a transformation, the reality is that people who advocate a move away from materialism, towards conservatism, fiscal discipline, frugality are the merely the priests of a new religion. They seek to control and dominate the lives of other people just like the 'priests' of every religion from catholicism to environmentalism and "capitalism".
Many educated people harbor subconscious fantasies about a return to a world where their less well educated peers are peons, serfs and slaves. The problem with this approach is quite simple- the level of complexity and hidden supports that keep our society functioning will collapse and we will cease to live in a functional society.
Many educated people also harbor the fantasy that they can return to a medieval age where the level of complexity was "about right" for the "human brain". This belief is mistaken for a few reasons-
a] We have no comprehension about the full capability and potential of the human mind. For most of history we have lived in tribes of less than 200 people, however given the right conditions we have been able to repeatedly form large complex societies. The same minds that are supposed to be capable of only forming medieval societies at best also create complex mathematical models that can ruin the world (as you might have heard recently). While our motivations may be base, our ability to perform complex tricks to obtain those base aims is rather surprising. Complex scams are hardly restricted to the financial sectors- the entire medical industry, construction industry and pretty much any regulated/licensed/ union job is essentially based on a complex scam.
b] Living in medieval society was no picnic. People who visit heritage parks or attend renaissance fairs have a rather incomplete understanding of the hardships in those periods. This situation is not unlike many outdoors enthusiasts who rail against development but who depend on the gear, technology and laws of modern society.
c] Western (white majority) societies are in decline. Throughout history, the intelligentsia of declining societies have always rationalized their downturns as natural, global , inevitable and understandable. The common thread through such declines has always been the belief that "we have reached the peak of human achievement and it is downhill for every human from here on". History suggests otherwise. However this phenomenon has never hit western societies on this scale and scope- until now.
d] Emergent systems guided by chaoas and evolutionary pressures are unlikely to return to their starting point- or even retrace their steps. Much has changed in the 70 odd years since GD1, especially in regards to the permutations and combinations of possiblities.
I believe that the best way forward for us a species is to think about the following concepts.
1] What is money? Why should it retain its value? What is the use of money if it cannot buy you wealth. What use is your 1913 pre-fed dollar if it cannot buy you a circa 2008 - 4 dollar walmart prescription for your kids strepthroat. Do you have any clue about how many kids got rheumatoid arthritis or pneumonia from then untreatable strepthroat. Most people who died in the 1918 flu epidemic died from seconday bacterial pneumonia not the virus.
Gold based or strict credit economies cannot create the infrastructure and technological breakthroughs we are accustomed to. We are quite pathetic at predicting the effects and potential of any any new innovation/ product or service- nothwithstanding the beliefs of of famous and clever white (and asian) men who have proved so wrong about the future of the areas in which they were considered to be experts. Rationing money for innovation would be rather similar to the soviet practise of command economics. In any case it is possible to employ 30-60 people for the total yearly income of an average mid-level investment banker who plays paper games, misjudges opportunities, screws over innovators and also loses your investments.
2] Do banks have any "real" money in a fiat currency based world. Given that the vast majority of banks are either insolvent, propped up zombies or the walking dead- why do we need them (in their current form)?
I believe that banks in a fiat currency world are best operated as utilities, not as the fiefdoms and the extortion rackets they have been to date. The biggest problem with this alternative model is that bankers cannot make obscene amounts of money by shuffling contracts and sucking money from the consumer economy.
I propose that we pay for sending the current crop of bankers on a one way trip to the sun. It would be cheaper to put bankers and their families in launch vehicles directed towards the sun, than bail them out of their fictional mathematical games. The 'Zenit' rocket system can put one kg of stuff in orbit for less than three thousand dollars- You could put a family of bankers in orbit for less than a million. Building the launchers for putting bankers in orbit would create more real jobs than the trillions wasted in the futile efforts to make banks lend to consumers.
3] Large misguided credit expansions, abuses and bankruptcies are inevitable in a species like ours. We like to screw our fellow human for a quick buck. The real question then is how we mitigate the negative effects of such abuses. I believe that any abuses which do not exceed a certain % of GDP should be watched but not intervened in - the dotcom boom created a very good high speed network that we are only now using to it's full potential. The factors that should prompt intervention are high relative size of the bubble to the GDP) and the low potential to create jobs or useful capabilities (housing- we already had a surplus).
I, for once, would welcome a bubble in space exploration, engineering, chemistry, biotechnology or anything else that produces lots of jobs with the small prospect of big unexpected breakthroughs.
4] In a system where the future is unpredictable, can credit be repayed completely or even partially? Given the factors I have listed in 3], periodic widespread debt forgiveness might be necesary to keep the system from collapsing. What do bankers lose anyway? Paper, ink, electrons? They certainly do not lose their previous paychecks, commisions, fees and other assorted loot made from the issuance of bad credit.
Would 1.2 Trillion to repay credit cards + 1 Trillion to repay student loans + 1.5 trillion to pay other personal debt have stimulated economic growth better than pissing the money in a black hole to honor CDS bets (and keep apperances in this nonsensical paper game). Hell, yes!!
5] Maybe we should accept that the two major roles of money are 1] keep people employed / civilized 2] create new wealth through innovation in the non-financial world. It might be time to give up on ideas such as full repayment of debt, money having a constant value and paying sociopaths to manage your wealth. Honestly, how many people who invested in the financial world are gonna make more money (inflation adjusted) than they put in- any guesses on gross percentages.
But first we must put the banksters and their handmaidens into incinerators- heating water in boilers might be the most productive thing they have done in their lives.
Shortly after President-elect Barack Obama is sworn-in to the Chief Executive's office, plans will be announced for the swift closing of Gitmo's sordid chapter in the so-called war on terror. But in a shocking about-face of opinion (to those and readers who think they know me), I will beg to differ with Obama about the imminent policy reversal.
Not, of course, that I think the chapter shouldn't be closed. It should and non-too-soon. But America's little breeze-block, barbed-wired gites-in-the-sun for the morally-compromised and legally-challenged may yet have some legs and alternative uses. I am certain I am not the only one to conjure up alternative uses, but I will nonetheless put them to you. First, Gitmo would be a just place to deliver [many] of the lamest (and I haste to call them "public servants") decision-makers in America's history who've past or presently mal-served the American people. Legal luminaries (ahemmm...) such as Alberto Gonzales, the Dark Lord, Mr Rove, Scooter Libby, as well as Gulf War architects Wolfowitz, Feith, and Perle. Then of course there could be a wing reserved for Delay, Lott and Jack Abramoff, and the original enablers of the Bush-presidency-fiasco, brother Jeb, and Florida's DARling Katherine Harris.
And there is no shortage of solitary cells, suitable for the likes of Mozillo, Cassano, Fuld, in addition to the host of negligent officials at the SEC, Fed, and Treasury (and Congress) who promulgated and defended the lack of public interest as a policy unto itself. Can't you see it: Friday night movies replaying for their edification Michael Douglas' rendition of "Greed is Good". Torture? I do have objection to the physical kind, but see nothing wrong with the loud unceasing piping-in 24-7 of Limbaugh, Savage, Hannity and O'Reilly.
Surely there are others to fill the ranks: the new administration could rendite Gordon Brown and his former cohort enablers who, contrary to current belief, have wrecked the economy of Great Britain on a scale on par with that achieved by the Luftwaffe, by encouraging, permitting, justifying and apologizing for a leverage-binge equivalent to - if not greater than - that of the of the former colonials.
Surely you'll all have a few personal favorites you think worthy of an extended all-expense paid "holiday" in the sun...
Jim Sinclair of jsmineset.com had a link to the essay "Before Saving the US" at ChinaStakes.com, written by a guy named Xiang Songzuo, which starts out, "The nature of the current global financial crisis is the biggest crisis in America's history", which is certainly not news.
Then the article gets right in our American faces and keeps hammering at us: "Statistics show that America's internal and external debt exceeds $60 trillion, over 400% of the country's annual GDP of a bit over $14 trillion. Of that total, family debt (including mortgages), financial and non-financial firms' debt, and municipal and national debt come to about $15 trillion, $17 trillion, $22 trillion, $3.5 trillion, and $11 trillion, respectively, though it is hard to tell how these debts have been split up among foreign governments, financial firms, companies, and individuals."
Naturally, as a proud American, I take the aggressive approach and sneer, saying, "So? Tell us something that we don't know! Hahaha!"
In an apparent response, he goes on, "To relieve the crisis, the US must repay its debts, and to do that it needs to live a more frugal life instead of asking others to continue lending it the money to maintain its over-consumption."
So, still being a smug American, I say, "Says who? You? Hahaha! We're Americans, and we have a fiat currency, and we can just print up all the money to pay you off! And everybody else, too, suckers! How do you like them apples? Hahaha!"
...the "cold turkey" treatment of credit being withdrawn from habitual borrowers, much like taking away drugs from crack addicts.
The great German poet and playwright Bertolt Brecht would have agreed and once said it was "easier to rob by setting up a bank than by holding up (one)."
One recalls Ferdinand I of Austria (1793-1875), deposed for incompetence after the 1848 Revolution, who apocryphally shot an eagle, and said: "It's got to be an eagle, but it's only got one head!" Ferdinand thought the two-headed bird of his family crest was the norm, just as the pink-shirted, suspender-wearing Ivy Leaguers thought that two-digit returns were the norm for their investments.
Reagan restored the equity market to trend by cutting taxes, suppressing inflation and easing some regulations. The private equity sharps were fleas traveling on Reagan's dog. They simply rode the trend with the maximum of leverage.
Now that the stock market has collapsed, the private equity strategies cannot repay their debt, and their returns have evaporated. Note that equity investors spent a decade in the cold, from 1973 to 1983; it may be even worse this time. The maturities on debt issued to finance private equity deals will come due long before the recovery.
Over the long term, we know that the average investment cannot grow faster than the economy, for investments ultimately are valued according to cash flows, and cash flows stem from economic growth. Real American gross domestic product grew by 2% a year on average between 1929 and 2007. Whence came the enormous returns to the Ivy League? Some of them surely came from betting on the right horses, but most came from privileged access to leverage.
One recalls Ferdinand I of Austria (1793-1875), deposed for incompetence after the 1848 Revolution, who apocryphally shot an eagle, and said: "It's got to be an eagle, but it's only got one head!" Ferdinand thought the two-headed bird of his family crest was the norm, just as the pink-shirted, suspender-wearing Ivy Leaguers thought that two-digit returns were the norm for their investments.
November 21 2008 | FT.com
"Capital is money, capital is commodities," some well-stodgy writer called Karl Marx put in this book, called Das Kapital. "It has acquired the occult ability to add value to itself. It brings forth living offspring, or, at the least, lays golden eggs."
Whoever this Marx geezer is – and I can't find his Facebook account anywhere – he sure hasn't been watching telly recently. Capital, so far as I can make out through reading my dad's FT and stuff, has acquired an occult ability to go down the toilet. If capital is laying anything, mate, I can think of a lot choicer terms than "eggs" to describe it.
I haven't actually read Das Kapital. I came across it when my dad took me to Tokyo recently. This Japanese kid showed me a comic (they call it manga over there) that's about to come out. The Japanese are crazy about comics. Even their prime minister reads volumes the size of telephone books.
Anyway, in Tokyo, they'll be queuing up for this Das Kapital manga. That's partly 'cos they'll read anything if it's got speech bubbles. And partly 'cos they were never that fond of capitalism in the first place. My friend told me they really like to make stuff – cars and i-Pods and lacquer bowls and stuff – but they don't like the idea of making money from money. I guess making money from money sort of sums up how capitalism works – or how it was supposed to work anyway.
The Japanese love their manga characters, like Astro Boy and Charisma Man. But I think the publishers of this Marx book have missed a trick. If they wanted to take a crack at capitalism, even I know there are more interesting characters out there. What about Tarp-man, for instance? A banker-turned government man who strings a huge net between the Wall Street skyscrapers to catch his old buddies jumping out the windows. Only he keeps moving the Tarp, so that lots of bankers smash their head on the pavement anyway.
Or Bubble-man, who used to have a top job at the Federal Reserve. Everyone thinks he's really smart at first 'cos he cuts interest rates to almost nothing and they all make tonnes of dosh. But then it all goes wrong and he makes a speech about how, maybe, he had made a mistake, and then they all hate him. Or you could do a guy called Dick-man, a kind of anti-hero who used to run this mega bank. But he refuses to sell it, so it bursts into flames.
Or you could do Flash Gordon. He's a drab kind of bloke who says regulations are bad and that London is great 'cos it doesn't have any. Then, when the golden eggs hit the fan, he takes off his kilt (his usual getup) and turns into a superhero. He explains why he always said everything would go wrong and how he is the only man to fix it. He's pretty cool.
But my favourite of all is Maynard-man. In all the stories, whenever something goes wrong – and something always does go wrong – he swoops in on a helicopter or something and drops money from the sky. That one would be great. Everyone would love that one.
The writer is the FT's Asia edition editor
The American Prospect
This is a gathering of Voodoo priests who realize that their magic rituals don't work but they no of nothing else, so they keep on performing them.
November 22, 2008 | NYT
This is the real "Code Red." As one banker remarked to me: "We finally found the W.M.D." They were buried in our own backyard - subprime mortgages and all the derivatives attached to them.
Alan Greenspan can stop worrying about "irrational exuberance" in the U.S. stock market, 12 years after he warned investors that share prices were rising too fast. The S&P 500 fell below 744.38 today, its closing level on Dec. 5, 1996, the day then-Federal Reserve Chairman Greenspan used the phrase in a speech on "The Challenge of Central Banking in a Democratic Society."
I guess there's not a whole lot of Protection at work in the Plunge Protection Team! Worst annual decline in eight decades? Geez, how incompetent must a secret, market-manipulating organization be before someone gets fired?
It brings to mind that famous passage from "Jaws"….We are going to need a bigger boat.
SPECTRE of Deflation writes:
I'm still waiting for oil to hit their $200 price target. END SARCASM for GS! People actually pay for these clowns twith their money.
SPECTRE of Deflation | 11.21.08 - 9:50 am | #
Comrade Kristina writes:
Does this mean the rally is cancelled?
Comrade Kristina | 11.21.08 - 8:51 am | #
Yancey Ward writes:
Whew, what a relief! Only 9% unemployment. No wonder we are rallying across the world.
Yancey Ward | 11.21.08 - 9:19 am | #
The question is, my crude hairy-eyeball models do not account for acceleration. The Wile E. Coyote effect is poorly understood.
32 feet per second squared ought to be about right...
kurtyboy | 11.21.08 - 9:21 am | #
The [key] question is, is he a good liar?
Q. Is the US banking system insolvent?
A. Hell no
Q. Are you monetizing the debt?
A hell no
Q.Will SS and Medicare payments be sustainable
A Hell Yes fully funded
Q.Will the budget be balanced
Q. Does the US want a strong dollar?
A. Hell Yes
Anonymous said... Was Angelo Mozilo not available or something?
Anonymous said... Maybe the Clinton people will be better with a new boss. Like Michael Dukakis once said "A fish rots from the head first".
Anonymous said... "It is obvious Bill Clinton has gotten a 3rd term."
If it's the third Clinton term then who is going to be the first bimbo?
Rudy Perpich said
Geithner worked for Kissinger & Associates for 3 years after graduation. Then he moved to Treasury under Bush 1. He stayed on at Treasury to work for Rubin. Then to the Federal Reserve under Greenspan.
Of course he did not agree with his bosses, and he has been waiting quietly for a chance to undo the damage they did.
Timothy Geithner, American Hero.
cross-posted from howtheuniversityworks.com
Available from here Hint: drag cursor to 4:40.
I don't know about you, but I'm always looking for help with dislodging the market fetish, whether I'm talking to undergraduates or economists. Some regular Brainstorm contributors have all been expending a ton of energy on recent posts like this one and this one trying to get finance prof "James" to loosen a white-knuckled grip on his Ronald Reagan prayer shawl. Without much success.
So this one's for valiant Brainstorm regular commenters Lucky Jim, drj50, Unemployed Academic, Joe Erwin, George Karnezis, Maria, "me," "k," angry, Annie, Henry C. Frick, Amanda Huggenkiss, David Yamada, and the rest. You know who you are.
Tonight we'll let Colbert take a shot at explaining the relationship between voodoo and the business curriculum.
The relevant portion begins at 4:40; the rest is set-up. Elaborately inserting tongue in cheek, he begins:"We're in a bit of an economic pickle here, but one thing we can't blame is the free market. Systems governed by self interest will always keep us safe - that's why I've never understood traffic lights. Self-interest would obviously keep America's four-way intersections accident-free. And I'm not the only one who thinks the free market is not to blame here. CLIP: BUSH 43…So there's no need to start regulating and turn ourselves into Europe. CLIP: SARKOZY: "The idea that markets are always right is a crazy idea."
With the set-up out of the way, he quotes the DSM IV on diagnosing delusion: "If a belief is accepted by other members of a person's culture or subculture, it is not a delusion."
What this means, Colbert explains:is that our collective cultural belief that the free market will take care of us is not delusional. No, it is actually a religion. … On judgment day, Ronald Reagan will return on a cloud of glory to take us up to money heaven - that's what I think will happen if we just believe in the "free market" hard enough. And I can't possibly be deluding myself - when so many others agree with me.
This cartoon from Eric G. Lewis, a freelance cartoonist living in Orange County, CA. was inspired by Professor Duy's post last night: Fed Watch: Policy Adrift
Reader Bear points us to a great essay by Michael Lewis in Condi Naste Portfolio.com:
...Why bother to overturn your parents' world when you can buy it, slice it up into tranches, and sell off the pieces?
A: It's only logical. there is nobody else to trust now. Are you suggesting we should trust Fed or government ?
For those that miss all the yelling from the talking heads during the political season, the Onion panel debates if the government should stop dumping money into a hole (1 minuted 56 seconds). (hat tip jb)
Trust me, I'm a bank holding company." Darth Paulson
Does this mean that "3.5% annualized decline in GDP for Q4" is the new definition of the "soft landing" we should be hoping for? DCRogers #
Citigroup management message to employees: employment IS your bonus
Whichever ... it seems there are many ways to leave your lender!Just slip out the back, jack
Make a new plan, stan
You don't need to be coy, roy
Just get yourself free
Hop on the bus, gus
You don't need to discuss much
Just drop off the key, lee
And get yourself free
Paul Simon, 50 ways to leave your lover
November 14, 2008 | The Big Picture
Get in line!
Corporate Welfare by R.J. Matson
I bet most of the Republican diehards are on Medicare, or about to go on it.
Payback timereason: He new the big crash was coming and wanted to be in a position to protect his mates.
I'll bet his booking for speeches is full for the next two years. He'll be getting $75K a pop for telling his cronies how he saved their bonuses as their house of cards was falling down about them.
It's payback time!
"Anything Wall Street wants, Wall Street gets."
You know, there is an old proverb that says life's greatest curse can be answered prayers. Be careful what you ask for: you might get it.
His legacy is going to be the "giant sucking sound" of trillions of dollars flowing from the treasury and federal reserve to banks that can't show us where the money has gone.
"The harsh reality of American politics is that, in the House Republican caucus, and in greater Appalachia and the white Deep South, on right-wing talk radio and cable news, there exists the political core for a populist revolt, home-grown terrorism and even fascist takeover. The right-wing is deranged, well-armed and well-primed for violence."
You need to cut down on the caffeine. Wow.
New car - $ 40,000
Doing up your house - $ 100,000
New clothes - $ 15,000
Expensive foreign holidays - $ 25,000
There are some things in life that money can't buy, but personal bankruptcy isn't one of them.
A bank's most previous asset is its reputation
Willem Buiter once said that US regs permitted the Fed to lend against any collateral, including a dead dog. We are getting perilously close to that.
... ... ...
"the brand and the aura of inexorable success"
When Arthur Andersen were our accountants, that was their great kudos too…whatever happened to Arthur Andersen..?
Advice from BBC gardening on looking after your hedge:
Once your hedge is trimmed to the desired shape, water and mulch the plants to keep them in good condition. Occasionally a hedge plant can die or become damaged through disease: if it's not possible to save the plant, wait until autumn and replace it.
November 05, 2008 | The Big Picture
A pretty good Onion headline: Nation Finally Shitty Enough To Make Social Progress:
Although polls going into the final weeks of October showed Sen. Obama in the lead, it remained unclear whether the failing economy, dilapidated housing market, crumbling national infrastructure, health care crisis, energy crisis, and five-year-long disastrous war in Iraq had made the nation crappy enough to rise above 300 years of racial prejudice and make lasting change.
"Today the American people have made their voices heard, and they have said, 'Things are finally as terrible as we're willing to tolerate," said Obama, addressing a crowd of unemployed, uninsured, and debt-ridden supporters. "To elect a black man, in this country, and at this time-these last eight years must have really broken you."
Added Obama, "It's a great day for our nation."
Heh heh . . . That is, unfortunately, only a sleight exaggeration as to the landscape. Of course, for wit, prescience, and humor, nothing beats the Onion's 2001 pre-inauguration headline:
Bush: 'Our Long National Nightmare Of Peace And Prosperity Is Finally Over'
"My fellow Americans," Bush said, "at long last, we have reached the end of the dark period in American history that will come to be known as the Clinton Era, eight long years characterized by unprecedented economic expansion, a sharp decrease in crime, and sustained peace overseas. The time has come to put all of that behind us."
A classic: So witty, so foresighted . . .
The Big Picture
The highlight of the evening: I met, and got to speak with, former FOMC Chairman, and current Obama economic advisor, Paul Volcker. (Paul Volcker!). Even better, I got to tell him my favorite Bush joke (actually, a quote from Allan Mendelowitz):
"The Bush administration, which took office as social conservatives, is now leaving as conservative socialists."
It really cracked him up!
And I do have a problem with the Washington/Wall St shuffle as done by Greenspan, especially with Greenspan, "The Age of Flatulence: How I turned the dollar from solid to liquid to gas."
"...I am shocked - shocked, there is gambling going on in this establishment...."
"...here are your winnings..."
-- exchange between Humphrey Bogart & Claude Rains in Casablanca
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking.
These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.
All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades.
God bless America.
Sung to the tune of Margaritaville, with apologies to Jimmy Buffett (With extra verses because so many are needed)
Staring at cheese cake
Gotta a new speech to make
All of those bankers covered in sweat.
Shuffling my note cards
Responding to blowhards
Tellin' them, "Really, I have no regrets."
Wishin' today for a bail out bill.
No more banks hurtling toward default.
Some people claim homeowners must be to blame
All I know…
This thing ain't my fault.
The hedge funds got leveraged
While I sipped my beverage.
They bought tons of stuff no one understands.
But it was their duty
To rake in the booty
mansions, torpedoes be damned Hamptons
Wishin' today for a bail out bill.
No more banks hurtling toward default.
Some people claim Congress must be to blame
But I know
It's still not my fault.
Those swaps were all hidden
From my field of vision.
My buddy Phil Gramm said it was all cool.
Regulation was evil
So his bill made them legal.
Now buyers and sellers are feeling like fools.
Wishin' today for a bail out bill.
No more banks hurtling toward default.
Some people claim realtors must be to blame,
But I know,
No way it's my fault.
Mortgage brokers went crazy.
Appraisers got lazy.
Homes "created wealth" and things were just fine
But it really was funny.
They'd loan you the money.
If you picked up a pen and were able to sign.
Wishin' today for a bail out bill.
No more banks hurtling toward default.
Some people claim Fannie must be to blame
But I know,
This can't be my fault
Now Fannie and Freddie
Lobbied hard, lobbied steady.
Executives knew how to play all their cards.
Then company earnings
Crashed and went burning.
They took none of the risk and kept the rewards.
Wishin' today for a bail out bill.
No more banks hurtling toward default.
Some people claim to blame
Now I know,
No way it's my fault.
Before telecom busted
Back when "in dotcom we trusted"
It took me by surprise when that bubble burst.
But I took some action
I cut rates to a fraction
Who knew the next bubble that burst would be worse?
Wishin' today for a bail out bill.
No more banks hurtling toward default.
Some people claim it was me that's to blame
Now I know,
It's Bernanke's fault.
The metaphors were flying at congressional hearing on roots of credit crisis. But one in particular had to sting former Fed Chairman Alan Greenspan.
Rep. John Yarmuth (D., Ky.) referred to Greenspan as one of three "Bill Buckners" - a reference to the infamous Boston Red Sox first baseman whose flubbed handling of an easy grounder cost the Red Sox the 1986 World Series.
Former Treasury Secretary John Snow and SEC chief Christopher Cox, who testified along with Greenspan, also got tagged with the Buckner label. But as an avid baseball fan, that one had to hurt Greenspan. –Brian Blackstone
CommentsDon't fault Greenspan. The media, politicians, educators and the rest of the establishment "experts" who genuflected before him are the real reason our economy is in this mess. They paid attention to this egotistical windbag for so many years and actually believed he knew what he was babbling about. The press never questioned his prognostications. He was truly the Emperor (Economist) Who Wore No Clothes.
What will the post-mortem on Wall Street show? That it was a case of suicide? Murder? Accidental death? Or a rare instance of generalized organ failure?
"Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform.
"That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''
"If they're too big to fail, they're too big ... to exist" [Bernie Sanders]
First there was Compassionate Conservatism, now there's Socialist Conservatism...
Q: Is risk and reward (punishment) still an important concept in market economics? Everybody wants help from the government when their plans go wrong. It's ridiculous.
A: I don't see where this has anything to do with market economics. Does anyone know what the market is anymore? It seems today it is what ever the government says it is.
I do wonder if my recent losses in Las Vegas might be covered by one of these government agencies. Some of the losses ended up on my credit card and the 20% interest is killing me.
Can you leave out the graphs? I can handle the bad news a lot better when you just tell me.
"... this might not be a bad time to start buying stocks."
Umm, with what?
In response to the Credit crisis president Bush is gathering up all the people who did not see what was coming, denied what was happening, and then failed to see the implications of what was indeed happening
Quote of the day (from a trader):
"This is worse than a divorce. I've lost half of my net worth and I still have a wife."
"The government needs to borrow a method that was used in the recent past--a deck of cards with photos of 52 former Masters of the Universe... "
From Gail Collins at the NY Times: Is Anybody Happy?George W. Bush showed up on TV Friday morning to reassure the nation. What could possibly be worse?
Everybody knows that anything our president says is very likely wrong, and certainly won't happen. If he announced: "I'm sending government agents to Spokane to arrest the looters," we would expect that the officials would get lost, nobody would be arrested, and the looters probably never existed in the first place.
So hearts sunk throughout the nation when Bush appeared at a Chamber of Commerce gathering to say that the economy would recover.
"America is the most attractive destination for investors around the globe. America is the home of the most talented and enterprising and creative workers in the world," said the president, who also insisted that "democratic capitalism remains the greatest system ever devised."
Which translates into: all the money is going to Asia, nobody will ever get a job again and Karl Marx was right after all.
Q: With the current market turmoil, what's the easiest way to make a small fortune?
A: Start off with a large one.
Credit defailt swaps are like "buying insurance on the Titanic from someone on the Titanic.''
Mish's Global Economic Trend Analysis
Was Bush's statement today the equivalent of a "Hoover Moment"?
"The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis."
Herbert Hoover, statement to the press, Oct. 25, 1929.
Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List
Click on cartoon for larger image in new window.
Here is a grim take on the markets from from Eric G. Lewis, a freelance cartoonist living in Orange County, CA.
One of the few reasons that the Washington Post should still be in business:
Good rehashing the old theme: the picture of unemployed trader with the subtitle "Will trade for food".
If money isn't loosened up, this sucker could go down.
President George W. Bush, watching nervously as negotiations on the federal bailout plan hit partisan snags after he'd asked for congressional bipartisanship
Winston Churchill, Roosevelt's partner, said: "The United States invariably does the right thing, after having exhausted every other alternative."
Let the whole damned thing fail - I'm long canned goods, bottled water, and bullets.
This is not about being a bullshit or bearshit anymore. This is serious. We still want to play this great stock market game, don't we? We [traders] don't want to end up sharing park benches, do we? yuk! Get the bill approved!
Gotta love Cramer! As long as that asshat is preaching long, I'll stay short!
==="I'm looking for the bailout bill text... and can't seem to find it. Could someone point me in the right direction?"
Nick, you might want to try the Library of Congress and scan under the category of Fiction and/or Fantasy.....
Posted by: Winston Munn | Oct
There is a reason National Parks have "Do not feed the animals" signs up.
The end game of all this becomes clearer by the day. For Paulson, think William Wallace at the end of "Braveheart", but not as clean and at the hands of 2,000 angry taxpayers.
The President who cried wolf.
[It's like gay alcoholic asking] Give me some bucks and I will be straight...
The Big Picture
Wachovia went out with a book value of $75 billion. Citi paid $2 billion. Could it be that asset values are overstated, not understated?
-Michael Rapoport, Dow Jones
Everybody likes the ideological rhetoric of "free markets," but nobody likes the harsh reality of "markets in free fall."
News of the News
"This is absolutely within our ideology," said Treasury Secretary Henry Paulson. "We have a lot of money in those markets ourselves, you know."
"We owe it all to the bedrock of our economy: the ordinary hard-working taxpayer. You resisted the siren call of credit cards, lived within your means to save for a rainy day, never took out an interest-only mortgage, credit score to make Jesus cry. Without taking every penny you saved over the $100,000 guarantee, we'd never have made it. And the best bit is, we know you'll still vote Republican! God bless you all!"The hideously biased liberal mainstream media has continued to help, running a steady stream of pro-spending, pro-creditor news stories supporting a prop under house price speculation.
President Bush has recruited his brother Neil as a consultant, after Neil's expert involvement in the savings and loan collapses of the late 1980s. "I can't believe he got clean away with that one."
Mr Bush stressed his commitment to his core constituency. "The bankers and Wall Street traders. Just because you showed ridiculous incompetence in lending doesn't mean that you, and the hideously exposed like me, don't deserve a second chance. God bless America! And its hard-working backbone! And there's still their pensions for next time!"
Los Angeles Times
Dear United States, Welcome to the Third World!
It's not every day that a superpower makes a bid to transform itself into a Third World nation, and we here at the World Bank and the International Monetary Fund want to be among the first to welcome you to the community of states in desperate need of international economic assistance. As you spiral into a catastrophic financial meltdown, we are delighted to respond to your Treasury Department's request that we undertake a joint stability assessment of your financial sector. In these turbulent times, we can provide services ranging from subsidized loans to expert advisors willing to perform an emergency overhaul of your entire government.
As you know, some outside intervention in your economy is overdue. Last week -- even before Wall Street's latest collapse -- 13 former finance ministers convened at the University of Virginia and agreed that you must fix your "broken financial system." Australia's Peter Costello noted that lately you've been "exporting instability" in world markets, and Yashwant Sinha, former finance minister of India, concluded, "The time has come. The U.S. should accept some monitoring by the IMF."
We hope you won't feel embarrassed as we assess the stability of your economy and suggest needed changes. Remember, many other countries have been in your shoes. We've bailed out the economies of Argentina, Brazil, Indonesia and South Korea. But whether our work is in Sudan, Bangladesh or now the United States, our experts are committed to intervening in national economies with care and sensitivity.
We thus want to acknowledge the progress you have made in your evolution from economic superpower to economic basket case. Normally, such a process might take 100 years or more. With your oscillation between free-market extremism and nationalization of private companies, however, you have successfully achieved, in a few short years, many of the key hallmarks of Third World economies.
Your policies of irresponsible government deregulation in critical sectors allowed you to rapidly develop an energy crisis, a housing crisis, a credit crisis and a financial market crisis, all at once, and accompanied (and partly caused) by impressive levels of corruption and speculation. Meanwhile, those of your political leaders charged with oversight were either napping or in bed with corporate lobbyists.
Take John McCain, your Republican presidential nominee, whose senior staff includes half a dozen prominent former lobbyists. As he recently put it, "I was chairman of the [Senate] Commerce Committee that oversights every part of the economy." No question about it: Your leaders' failure to notice the damage done by irresponsible deregulation was indeed an oversight of epic proportions.
Now you are facing the consequences.
Let the bansters rot in hell ;-)
The press is 6-year-olds playing soccer; nobody has a position, it's just ''Where's the ball? Where's the ball? Sarah Palin has the ball!''...
If there is something quintessentially authentically American about her, I sort of feel like, you know what? You ''good values people'' have had the country for eight years, and done an unbelievably s---ty job. Let's find some bad values people and give them a shot, maybe they'll have a better take on it.
COLBERT: I've got one for you. McCain said, ''The fundamentals of our economy are strong'' and ''Our economy is at risk.'' One was at 9 a.m., the other was 11 a.m. Our joke was ''You can be strong and at risk, too. Like, a muscleman who wouldn't wear a condom. What's the worst that could happen?''
... ... ...
COLBERT: The idea that Lehman Brothers doesn't get any money and AIG does reminds me very much of ''Iran is a mortal enemy because they have not achieved a nuclear weapon. But North Korea is a country we can work with, because they have a nuclear weapon.'' The idea is, Get big or go home. How big can you f--- up? Can you f--- up so bad that you would ruin the world economy? If it's just 15,000 who are out of jobs, no. You have to actually be a global f---up to get any help.
The Big Picture
To: Washington, D.C.
From: Wall Street
Re: Credit Crisis
WOW, WE'VE MADE QUITE A MESS OF THINGS here on Wall Street: Fannie and Freddie in conservatorship, investment banks in the tank, AIG nationalized. Thanks for sending us your new trillion-dollar bailout.
We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.
But here's a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.
Sept 21, 2008 | TIME
You just know the Frogs have only increased their disdain for us, if that is indeed possible. And why shouldn't they? The average American is working two and a half jobs, gets two weeks off and has all the employment security of a one-armed trapeze artist. The Bush Administration has preached the "ownership society" to America: own your house, own your retirement account; you don't need the government in your way. So Americans mortgaged themselves to the hilt to buy overpriced houses they can no longer afford and signed up for 401(k) programs that put money - where, exactly? In the stock market! Where rich Republicans fleeced them.
BNP Paribas Securities Corp.
Bank of America Securities LLC
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
RBS Greenwich Capital
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC.
September 25, 2008 | bigpicture
The Congressional Bailout attitude:
Toss him a few bucks?!?
More like the guy wants to tap the carotid artery in a fashion similar to Dracula!
Quote of the day: Mike Morgan on bad debt contagion in the financials:
"This is a virus, with a 100% kill rate. This is a pandemic, the likes of which we have never seen. This is only something that can be fixed after we kill all the players that carry the virus, because the virus only dies when the host is dead.
The hosts are the sick financial institutions being run by crooked executives, regulated by incompetent regulators, appointed by blissfully ignorant politicians and at the end of the line is a judicial system that is without power to do anything."
The Epicurean Dealmaker
... Dear and Beloved Readers, because over the past five years Goldman Sachs' stock price has ranged from a high of $248 per share to a low of $84, with an average over the period of $146.78. The comparable figures for Morgan Stanley are $74, $18 (today), and $50.48, respectively. Given that investment bankers are usually paid a substantial portion of their mouthwatering annual bonuses in the form of restricted stock, options, SARs, and other stock-related funny money which typically vest in stages over a period of three to five years, this means that GS and MS bankers are looking at the evaporation of somewhere in the neighborhood of one- to two-thirds of their nominal deferred compensation from the last five, highly lucrative years.
I don't care how much cash you have in the bank, that'll leave a mark.
Furthermore, the percentage of funny money in your paycheck usually increases quite substantially the higher up in the organization you go and the more successful you become. Top-earning bankers can get stuffed with 60%, 70%, or sometimes even more company toilet paper in place of officially approved government tender. Therefore, you can just imagine the senior executives and big swinging dicks at these two shops probably feel like they have just undergone (another) bris today without anesthesia.
Most of these will also realize later this afternoon as they pack up to go home that they're going to get another kick in the balls from their adoring spouses when they share the news that little Missy can't have a $500,000 Sweet Sixteen party at the Rainbow Room this year, after all
Phone rings…FT Alphaville: Hello, Murphy
Morgan Stanley PR: Hi, this is XXXXX from MS. Have you seen the information on Bloomberg? Mr Mack did NOT say these things. And I'm just calling to get your post on this taken down, so can you take it down?
FTAV: No. We've noted the Mack denial - published snaps from Reuters. We will link to that and make denial clear. But the post stays up.
MS felt: You can't believe the stuff that's going around. People are just making things up…
FT AV: So what does the NYT say?
MS felt: Oh, that's being dealt with by our NY people. I'm just ringing round getting stuff taken down….
I know it's been a rough few days, and you probably thought I wouldn't get back to you, but I've been busy working on the solution to this whole problem.
It's real simple:
1) You lose your house, your car and your job. Sorry about that, but I applaud your willingness to take one for the Team.
2) Friends of mine help out by buying your house and car for ten cents on the dollar.
3) Patriotic, God-fearing Americans like you help out by buying the house and car loan at face value from some other friends of mine, and then selling it to yet more friends of mine at five cents on the dollar. How, you may ask? Don't worry, I've already taken care of it.
4) When Joe Wong gets tired of buying Treasuries instead of a Mars mission or Africa or something, I raise taxes so high you don't ever have to worry about having to worry about having another car, house or job.
Now, that's what I call a win-win-win situation. Except for you, but we're in a war, remember? And we will be for the next hundred years or so, so get used to it or go to Canada before we have FEMA lock you up somewhere.
Remember, Earl: I'm from the Government. I'm here to help you.
During Greenspan-Bernanke era all that was needed for investment bank was a number and the Fed could provide the zeroes. And what is really funny that this might not be a joke afterall.
Is Financial Innovation just another word for excessive and reckless leverage?
lets be honest.
The real problems are greed, ponzi scammers, to much self interest, too little oversight, obscene and vulgar leverage, pompous asses, whimpy academics, an old fart that ran the Fed for too long , imbecilic homebuyers, hedge funds raiding stocks, overpaid nitwits everywhere, a pumped up standard of living not justified by production...... and thats just the preamble.
"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices." Anonymous said...
"I knew the mob wouldn't go down without a fight." - Batman 2008
Who looses... me and the other chumps trying to build a stash."
It's the same the whole world over:
It's the poor what gets the blame.
It's the rich what gets the pleasure;
Ain't it all a bloomin' shame.
-- Late 19th century (to be sung with an exaggerated Cockney accent)
Posted by: Joshua | Sep 17, 2008 10:44:06 AM
Bill Gross is our version of the Russian oligarch, except his wealth flows from the quasi-nationalization of the insurance and credit industries, whereas the typical Russian oligarch got his from quasi-privatization.
From whichever direction, they both end up in the same place: As partners in crime with the government.
September 17, 2008 | Bigpicture
I got called yesterday from the producers of The Daily Show, who asked for an explanation of this understandable to the "lay person."
Here is what I said to them:
• Lehman Brothers was like the little kid pulling the tail of a dog. You know the kid is going to get hurt eventually, and so no one is surprised when the dog turns around and bites the kid. But the kid only hurts himself, so no one really cares that much.
• Bear Stearns is the little pyro -- the kid who was always playing with matches. He could harm not only himself, but burns his own house down, and indeed, he could have burnt down the entire neighborhood. The Fed stepped in not to protect him, but the rest of the block.
• AIG is the kid who accidentally stumbled into a bio-tech warfare lab . . . finds all these unlabeled vials, and heads out to the playground with a handful of them jammed into his pockets.
Alas, my second shot at The Daily Show, thwarted.
the masters of the universe now are imploding stars collapsing with a bubble of their own making.
Come gather round 'bankers'
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be told to go home
If your job to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like the DOW
For the markets they are a-changin'.
Come hedgefunds and bear traders
Who prophesize and sell short
And keep your eyes wide
The chance won't come again
And don't speak too soon
For the markets still in spin
And there's no tellin' who
That it's namin'
For the markets they are a-changin'.
Come senators, congressmen
Please heed the call
Don't stand in the doorway
Don't block up the hall
For he that gets hurt
Will be he who has stalled
There's financial meltdown outside
And it is ragin'
It'll soon shake your windows
And rattle your walls
For the markets they are a-changin'.
Come Central Bankers
Throughout the land
And don't criticize
What you can't understand
Those derivative books
Are beyond your command
The old road is
Please get out Bernanke and Paulsen
If you must bail them out out
For the markets they are a-changin'.
- Posted by williambanzai7
Economics is a cool science : One equation is all I need: [a] Greed Divided by [b] Fear = Action
I received this automated e-mail today from Institutional Investor, and the headline is indeed 'Lehman is Tops in Fixed Income," referring to II's highly regarded investor research rankings:Lehman Is Tops In Fixed Income
Adding 12 team positions in High Yield sectors, Lehman Brothers finishes with 47, 11 more than second-place JPMorgan, to lead the All-America Fixed-Income Research Team for a ninth straight year.
The Big Picture
The lesson from the Bear Stearns' bailout -- $29 Billion in Federal Reserve bad paper guarantees -- are quite stark:
• Go Big: Don't just risk your company, risk the entire world of Finance. Modest incompetence is insufficient -- if you merely destroy your own company, you won't get rescued. You have to threaten to bring down the entire global financial system. The fear and disruption caused by a Bear collapse is why it was saved. (AIG has the right idea on this)
• If you cant Go Big, Go First: Had Lehman collapsed before Bear, then the same fear and loathing of the impact to the system might have worked to their advantage. But having been through this once before, the sting is somewhat lessened -- especially for a smaller, lets interconnected firm like LEH. (First mover advantage!)
• Threaten your counter-parties: Bear Stearns had about 9 trillion in its derivatives book, of which 40% was held by JPMorgan (JPM). Some people have argued that the Bear bailout was actually a preventative rescue of JPMorgan. Its a good strategy if your goal is a bailout -- risk bringing down someone much bigger than yourself.
• Risk an important part of the economy: If your book of derivatives is limited to some obscure and irrelevant portion of the economy, you will not get saved. On the other hand, if Mortgages are important, credit cards and auto loans are too. Securitized widget inventory is not. To use a dirty word, Lehman's exposure is "contained."
• Balance Sheets Matter: Focus on the media, complain about short sellers, obsess about PR. These are the hallmarks of a failing strategy -- and a grand waste of time. Why? Its call insolvency. ALL THAT MATTERS IS THE FIRMS' BALANCE SHEET. Lehman's liabilities exceed its assets, and they are now toast. Merrill Lynch got a lot of the junk off of its books, and got a takeover at 70% premium to its closing price. And Credit Suisse, who dumped much of its bad paper many quarters ago, is in a better tactical position than most of its peers.
• Unintended Consequences lurk everywhere: When the Fed opened up the liquidity spigots via its alphabet soup of lending facilities, the fear was of the inflationary impacts. But the bigger issue should have been Complacency. The Dick Fulds of the world said after Bear, these new facilities "put the liquidity issue to rest." Lehman got complacent once liquidity was no longer an issue -- perhaps they acted to slowly to resolve their insolvency issue in time.
The problem with opportunism is that it often isn't opportunistic.
1. Opportunity to pay premium price for unknown liabilities
2. Great chance to acquire a management team known for spectacular failures
3. Need a dose of OTTI (other than temporarily impaired assets)
4. Looking for team of "creative" accountants
5. Add to complacent board of directors
6. Avoid low-cost, build from within strategy
7. Take on high priced real estate leases from last year's market
8. Don't want to watch hated competitor twist in the wind
9. Thought "wasting assets" had something to do with successful weight loss franchise
10. Didn't have enough troubles of your own
- Merry-will-go-round said...
- Well, I'm so glad that these catastrophes did not occur on September 11. Wonder if Wall Street will erect a memorial to the fallen free market?
"Putting lipstick on a recession makes it look quite attractive."
... ... ...
"an establishmentarian economy. Big Money, Big Auto, Big Ag,"
... ... ..."5. What form of free markets have we evolved into? It is not Capitalism, it is not Socialism, it is not intelligent regulation. WTF is this?!?"
Posted by: brion | Sep 8, 2008 1:55:30 PM
... ... ...
What makes us screaming mad is that Hank Paulson is the biggest Wall Street fox ever allowed in the biggest henhouse (U.S. Treasury).
"The Eiffel Tower is the Empire State Building after taxes."
This is from a 2005 post by Michael Shedlock:
Imputations are a part of GDP that the government decides to estimate value, where no cash actually changed hands. In other words, if I scratch your back and you scratch mine but no one gets paid, then back scratching is undercounted in the GDP. Clearly it would be a travesty of justice if economic activity like that was under reported in the GDP. It goes far beyond that however, into complete fairy tale absurdities. For example: If you own your own house, the government recalculates your income as if you were really renting from yourself and paying yourself rent! In light of some earlier sarcasm you might think I am making this up but rest assured I am not.
Breaking News: Lehman To Be Acquired by Tooth Fairy
The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being transported back to that magical place where Lehman still sells for over $70 per share.
In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehman's level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbell's up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbell's assets other than the Level III capital. If Tinkerbell defaults, Lehman's successor entity will stick its hand down the crocodile's throat and attempt to get it to regurgitate. The firm's historical value-at-risk analysis shows that sticking your hand down a crocodile's throat is completely safe.
Treasury Secretary Hank Paulson issued a statement: "I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over."
Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, "Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately?" The SEC is reportedly planning to set up re-education camps for short-sellers.
- Anonymous said...
- Meanwhile, the Lost Boys (Bush, Cheney, Paulson, Bernanke, S. Bair, Greenspan, L. Yun, L. Kudlow, D. Kneale) are playing in Never-Neverland where you never have to grow up, tell the truth, eat vegetables, it's always a good time to buy, buy, buy, drill, drill, drill in a Goldilocks Economy.
Posted by Barry Ritholtz on Wednesday, August 27, 2008 | 04:30 PM
A post Olympic view:
August 21, 2008 | http://bigpicture.typepad.com/
Question: How many idiots does it take to change a light bulb at IndyMac?
This one is too good to pass up -- be sure you read the punch line after the excerpt via Reuters:
California's attorney general is reviewing a request by former employees of IndyMac Bancorp Inc to investigate whether a New York senator triggered the bank's collapse by releasing confidential information.<
At issue is a much-publicized letter that Chuck Schumer, a Democrat, sent in June to the Federal Deposit Insurance Corp (FDIC) and Office of Thrift Supervision (OTS) questioning the company's ability to survive.<
The FDIC took control of IndyMac on July 11 after depositors withdrew more than $1.3 billion over 11 days. It was the third-largest bank failure in U.S. history. At the time, OTS Director John Reich blamed Schumer's letter for causing the run on the bank.<
In a letter to Attorney General Jerry Brown last week, 51 former IndyMac workers wrote: "From the day (Schumer's) letter was made public on June 26 until the closure of the bank, a run on the bank took place and the failure became inevitable."
Who is behind this "groundswell" of (former) IndyMac workers? It turns out that the employee letter was distributed to the media by CRC Public Relations -- yes, the group whose clients include the National Republican Congressional Committee, National Republican Senatorial Committee and the Republican National Committee.
And, CRC was the PR firm behind the company that published a book questioning 2004 Democratic presidential candidate John Kerry's Vietnam service on a swift boat. Yes, those despicable, embarrassing festering boils on the Americans body politics: Liars, cheats traitors all.
Let's review: It wasn't the conflicts of interest, the outright fraud, or management's rampant criminality that sent Indy Mac belly up. It wasn't losing nearly a billion dollars this year alone. It wasn't the share prices tumbling 87% in 2007, and then losing another 95% this year-to-date. And of course, the loss of ~$30 billion dollars had nothing to do with this.
It was the Senator's letter in June that was the cause of the collapse.
Man, these swift boat guys are a dangerous combination of rabidly partisan, utterly ethicless, economically clueless -- and about as dumb as lawn furniture. They make you proud to be an American.
In that vein, your humble scribe is pleased to offer the "Macro Man Plan to Ensure That People Keep Trading With Institution X". While some of his suggestions may seem outlandish, please bear in mind that his recent modest proposal to reduce the US government funding gap appears to have resonated with the Governor of New York.
At the heart of the Macro Man Plan is that financial institutions adopt the incentive programs offered by other service industries such as retailers and minor league baseball. To encourage ongoing business relationships, banks and agencies (and maybe even the odd hedge fund or two) should offer the following suite of incentives to potential counterparties:
1) Loyalty cards. In a scheme familiar to supermarket shoppers around the world, counterparties would be issued with loyalty cards and accrue bonus points for each transaction that they conduct. Once certain thresholds are reached, these could be redeemed for goods at the bank's affiliate partners, such as Amazon, Tesco, Wal-Mart, etc. In exchange, these latter firms would receive free investment banking advice.
2) Buy one, get one free! Lehman, Merrill, Fannie and Freddie: maybe you could sell more (or, more to the point, any) of your RMBS portfolio if you offered potential counterparties a "buy one, get one free" deal. Think about it......
3) Free oil! For every ticket that generates more than $250k worth of VAR, offer counterparties one free barrel of oil. When your £170,000 sports car only gets 11 mpg, every little helps....
4) A free T-shirt with every ticket! Every time you trade with bank X, they send you a free T-shirt! In fairness, this would really only appeal to very junior traders fresh out of university, but hey; we at Macro Man Industries want to cover every demographic.
5) 1000 free shares of stock with every trade! Every time you trade with Bank X, they'll give you 1000 shares of their stock absolutely free! You win by getting free stock, they win because the infinitesimal revenue that they book from each trade will labeled as "new capital" on the balance sheet, and they can announce to the world that they have raised yet more capital from eager investors. Of course, if the stock price goes down, then you incur a mark-to-market loss. On second thought, maybe they should offer free puts on 1000 shares with every ticket....
James Carville, Clinton strategist, said,I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter, but now I want to come back as the bond market. You can intimidate everybody.
``I'm reminded of the song by Dan Hicks & the Hot Licks,'' Kasriel said. ``How Can I Miss You If You Won't Go Away?''
I guess it's just Freaky Friday on the real estate front.<
Y'all remember Rep. Laura Richardson (D-Deadbeat)? How those meanies at WaMu foreclosed on her poor innocent self, and how she threw her weight around and got the foreclosure rescinded and a loan modification done? <
So far this noble effort to prevent foreclosure and keep the dream of ownership alive is workin' out great. From the LA Times:This week, in the latest chapter in the housing saga, the Code Enforcement Department in Sacramento declared her home a "public nuisance."<Thanks, Brian!
The city has threatened to fine her as much as $5,000 a month if she doesn't fix it up.<
Neighbors in the upper-middle-class neighborhood complain that the sprinklers are never turned on and the grass and plants are dead or dying. The gate is broken, and windows are covered with brown paper.<
"I would call it an eyesore," said Peter Thomsen, a retired bank executive who lives nearby.
ACME Systematic Leveraged Macro Momentum Fund LP
321 Overprice Street
Greenwich, CT 00573
This letter is to inform you that the wheels have come off of the proverbial wagon at ACME Systematic Leveraged Macro Momentum Fund LP, and that the same awesome thematic portfolio that made you feel (in the first half-year) as if you'd become very rich in comparison to those sucking wind on their leveraged MBS portfolios or Japanese Small-Cap Value Funds, has, quite literally, spontaneously combusted in our faces.<
Our long-oil (PBR, SU, SWN), long coal (MEE, BTU), long fertilizer (POT, MOS), and long iron ore (CLF, RIO) positions have been crushed (no pun intended), and though we remain hopeful going forward as the story remains "in tact", our models have forced us to sell some in response to prevailing price action. Our offsetting shorts in selected financials (MS, BLK, GS, and LM) have not fared as we expected, while our core retail and consumer discretionary shorts in AZO & URBN, DECK have quite literally been lodged deeply and inexplicably in an unmentionable orifice. <
If that were all we'd not be too sullen, all things considered, but unfortunately our short US dollar positions (vs. everything), our JPYNZD & CHFAUD carry trades have also not performed to forecasted expectations, and both our our long-only, and zero-exposure long vs. short commodity baskets have imploded with a rapidity that would even frighten Taleb to vows of silence. Oh, and if that weren't enough, our gold and silver longs, too, have gone south as if trying to re-embed themselves in the ground, whilst the short Russell-2000 ETFs we've been using as a hedge have been behaving all-too priapically. These losses of course are not as bad - relatively speaking - as some of our peers (who regretfully are no longer in business) and should of course be viewed in the proper context of our delft avoidance of long exposure in the worst of the RMBS and CMBS sectors, our eschewing of becoming a CDO issuer/manager, and our resolve to avoid anything denominated in Icelandic Kronor. Unfortunately we still have a large (leveraged) position in high-yielding cov-lite loans, US sub-prime credit-card-backed receivables for which we remain unable to obtain sensible bids at levels near to where our auditors and administrators agreed that we should pay our prior year's incentive fees. Only our long Japanese REIT portfolio and our unlisted fund of Spanish Olive Groves have held their ground, though regretfully we refrained from hedging the currency risk, and so these too, are now in the red and eroding rapidly. <
We have no explanation, since our trades are systematically based upon doing what others are doing (only, hopefully, faster... though, in this instance, not fast enough). Nor do we offer you apologies. You [presumably] knew the risks, and felt the glory (if only for a while). We do lament the the now-sky-high high-water mark, and the absence of performance fees (this year). <
Finally, saving the best for last, we will be suspending redemptions as per the Force Majeure clause 6(c)-2 of the Private Placement Information Memorandum of the Fund. We trust you'll agree that only something supernatural could have torpedoed such a finely constructed portfolio put together by the best and the brightest Wall St. has to offer. <
Hugh G. Fallis - Managing Partner
ACME Systematic Leveraged Macro Momentum Fund LP
It is rumored that The Fed is a sect which originated in medieval Bulgaria, where its followers were called bogomils, but when they spread out of the country they were called vulgars (from the ethnonym Bulgars).
August 4, 2008 5:59 PM Juan said... ah yes, and infighting among the vulgars gave rise to sects of wristonites who, equipped with special communicative powers, (and even while drunk) led a complete transformation into the New Financial Era, proudly and fully astride the multiplying estado novos. ne'ertheless old rumours linger in the countryside, where, like duendies, they demand their due.
2007 was the year of subprime. 2008 seems to be the year of everything else<One Size
Pundits worry that Freddie, Fanny, GM, Citibank, and such are teetering on the edge, but are relieved that they are too big to fail and that Uncle Sam will (somehow) save the day. Why isn't the concern that they, and the US, are simply too big to save?
By 2011 the VA be able to accurately track every veteran who died for lack of care while the VA spent $11 billion improving its record keeping.
Economist Paul Krugman says "I don't think there's any fundamental inflation problem, just a one-time hit on food and energy." Just for the record, the hit was by a 32 ton cement mixer falling from a great height.
Indecent Proposal: Interesting that oil at $140 or, more accurately, gasoline at $4, can change core beliefs. In California and Florida, a majority of voters now support drilling off the coast.
Wrong Question: A lot of time and blather is being spent trying to figure out what the car of the future will run on. It would be much better spent if we'd admit there isn't a future car and that our basic assumptions about society and economics need examination.
From the New York Times:"I cannot find a single convincing argument that tells me that astrologers won't do better than economists," Mr. [Nassim Nicholas] Taleb said last week by telephone from Lebanon, where he was mountain hiking.<
"The problem is the arrogance of these economists," he said. "They're making people rely on theories that have not worked, do not work, and are really dangerous."
Answering the FSA Rumor Questionnaire
As promised, NakedShorts' has drafted his response to the UK Fundamentally Supine Authority's recently-circulated:
A Thematic Review of Firm's Policies
Regarding Market Rumours
1) Do you have any internal policies relating to rumours?
þ Yes ¨No
[Please provide a copy of the relevant policies with your response]
a. If yes, please summarise the key aspects including, but not limited to:
i. When the policy was agreed
Edward Lloyd's coffeehouse, Tower Street, circ. 1688. It is possible that the policy was in force before that date but documentary evidence was lost in the Great Fire.
ii. When the policy was last reviewed
iii. Whether you have reviewed your policy in light of recent turbulent conditions
Yes. On or about Mar. 10 2008 when Bear Stearns's stock had fallen more than $100 without our participation; three members of staff - "rogue non-traders" - were terminated immediately. [They were subsequently reinstated after an employment tribunal found that the BSC stock decline was based entirely on its insolvency and, consequently, the employees were wrongly terminated for breach of the Rumour Policy.]
iv. Whether you have issued any specific guidance to staff regarding rumours given the current turbulent conditions in the banking sector.
We reminded our staff of their obligations to comply with the policy; i.e. all rumors, whether fact-based or not, must be immediately reported to the Fund Manager, who will first determine whether or not to establish a position in his personal account. We have also reiterated the instruction that rumours be passed ONLY on "non-recorded" telephone lines ("personal disposable cell phones"). The use of email (including personal accounts), instant messaging, corporate Blackberries and similar devices for this purpose is STRICTLY PROHIBITED. (We read the papers too…can you believe Cioffi and Tannin running that stuff through corporate email accounts? Sheesh).
b. Do you have a policy in relation to talking to the press (inc. Bloomberg, Reuters etc.)?
We talk to the media when it is in our interest, but only having established at least opening positions (long or short) should the interview address specific securities. Other media calls are referred to our media advisor, Saigh Nuffin.
c. Do you have a policy on your own staff starting rumours?
Yes. Our staff clearly understand that, according to the policy, rumours may only be started AFTER we have initiated at least an opening position. The policy also requires that, in certain circumstances, we may advise informally affiliated parties ("The Sith Lord Cabal") before the rumour is released to the wild.
d. How have you communicated your policies to staff?
e. Have you conducted any internal reviews relating to rumours?
See (a. iii) above re: Bear Stearns. We also currently have an active inquiry into why we covered our Lehman (LEH) short at $25.
f. How do you ensure this policy is complied with?
See (a. iii) above. Grabbing three people off the trading floor, and shooting 'em on the spot, is remarkably effective form of "pour encourager les autres," as Jerome Kerviel (RIP) would have it.
2) What is your assessment as to the typical volume of rumours received per day?
[Picking self up from floor, wiping eyes, stifling laughter. Sorry. Removes smirk] From mid-2004 to mid-2007, we were subject to an overwhelming influx of rumours concerning inter alia pending mergers and acquisition agreements (M&A); leveraged buy-outs (LBOs); and similar "pirate equity" transactions. While the vast majority (> 90%) proved false, they certainly juiced the market (see: Merger Monday (RIP)).
More recently, the rumour flow has almost dried up; however the accuracy of those rumours has been such that we now "Early Facts."
Continue reading "They're not rumors. They're Early Facts." "
SEC, FBI respond to Phoney, Fraudy rumors*
Washington DC, July 13 2008 - The chairman of the US Securities and Exchange Commission, Christopher Cox, announced that Division of Enforcement staff, accompanied by Federal Bureau of Investigation agents, today raided the Federal Reserve Board and Freddie Mac, seeking information about the source of a Reuters report Friday afternoon saying Fed chairman Ben Bernanke told Fraudy Mac chief Richard Syron that his company and Phoney Mae could take advantage of the emergency discount window.
The original report, which cited "two sources familiar with the conversation between Bernanke and Syron" caused a dramatic spike in the US stock market, with the Dow Jones Industrial Average climbing more than 200 points between 2:15 pm and 3:04 pm.
The Federal Reserve Board later issued a statement which said that Bernanke and Syron had spoken Thursday, but "there has been no discussion with the GSEs about access to the discount window."
"Market manipulation. . .wild rumors. . .unacceptable. . .immediate investigation. . .resources available. . .completely unacceptable. . .serious fraud on the market. . .cut his nuts off. . .Sorry, Jessie Jackson already used that. . .financial terrorism. . .enhanced coordination of regulatory response. . . irresponsible. . .reckless behavior. . .damaging investor confidence. . .roguish improprieties. . .hung by the neck. . .is that enough?" Cox said.
JP Morgan chairman Jamie Dimon, speaking in his capacity as a Class A director of the Federal Reserve Bank of New York, said that "Where there is smoke, unless it's $29 billion worth I'm blowing up the taxpayer's four-legged beast of burden with floppy ears, there is fire. I think the SEC should investigate it, okay? I think if someone knowingly starts a rumor or passes on a rumor, they should go to jail. By the way, did we cut off Lehman yet?"
The Commission acknowledges the assistance of the Hypocrisy Institute, a Washington DC-based think tank that promotes acting one way when crap stocks go down for good reason, and another when crap stocks go up because conflicted bastards get the ear of some gullible mutt with a pixel machine. The Commission's investigation in this matter is not continuing now the theatrics are out of the way.
* Breaking: Real world trumps satire
US Securities and Exchange press release
Jul. 13 2008
Bernanke tells Freddie discount window open: sources
by Patrick Rucker
Reuters Jul. 12 2008
the mess that greenspan made
Six months ago, when former Countrywide CEO Angelo Mozilo participated in a panel to talk about the future of the nation's troubled housing market, he was labeled a "moron" when he noted that falling home prices are the cause of the current mortgage mess.<
Oh, here it is ... number one ...
Now it looks like "The Bond King" Bill Gross at Pimco is desirous of joining that club if his latest Investment Outlook is any indication:Make no mistake, the current conundrum that must be solved is: how to make the price of 120 million U.S. barns stop going down in price and then to make them go up again.
Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one."
Oil to be USD200 by 30OCT08
USA Inflation to be 7.5% by 30OCT08
Next Rights Issue:
All & Lec ...
Oil to be USD127 by 30SEP08
...16MAY08 losing my touch
2 Banks go bust by 30JUN08
BS down, whose next? ...
Northern Crock to be sold for 15p
Oil to be USD103 EOM
...peaked too soon
The Big Crash: 17OCT07
...well it's here
SEC to fine Goldman for pricing issues
ML to buy-out BS
JPM got there first
July 18, 2008 | CalculatedRisk
THERE is a story about a science professor giving a public lecture on the solar system. An elderly lady interrupts to claim that, contrary to his assertions about gravity, the world travels through the universe on the back of a giant turtle. "But what supports the turtle?" retorts the professor. "You can't trick me," says the woman. "It's turtles all the way down."
The American financial system has started to look as logical as "turtles all the way down" this week. Only six months ago, politicians were counting on Fannie Mae and Freddie Mac, the country's mortgage giants, to bolster the housing market by buying more mortgages. Now the rescuers themselves have needed rescuing.
Wherefore "Shrillblog" and the Ancient and Hermetic Order of the Shrill?: Because Bush defenders like Mickey Kaus and Andrew Sullivan began saying of critics of Bush--especially of Paul Krugman--that they were "shrill": not that they were wrong, nor that they were mistaken, nor that Bush was telling the truth, but only that they were "shrill". So why not have some fun with and embrace the term? And the ranks of the shrill are now... impressive indeed. Even the truly cowardly are now shrill. Only the truly bought-and-paid-for have not joined those of us who shrilly criticize George W. Bush and his remaining enablers and apologists:
Late September in the Shrillblog:
The Republican Party Drives Matthew Yglesias Shrill!
General Ricardo Sanchez Is SHRILL!
Tom Brokaw and Hank Paulson Drive Matthew Yglesias Shrill!
Why Oh Why Can't We Have a Better Press Corps? (Washington Post Edition)
Liars for Jesus Drive P.Z. Myers Shrill:
Bill Clinton on the Republicans and Moveon
Mark Bauerlein Drives Smurov Shrill!
The Neoconentariat Drives Justin Logan Shrill!
Michael Berube Gets Canonical on Ross Douthat
We Would All Be Better Off If the Washington Post Just Stopped Printing Tomorrow
Paul Krugman: What I Hate About Political Coverage
There is No Non-Shrill Lunch
Gene Healy: Learning to Love the Imperial Presidency
Yves Smith of Naked Capitalism Looks to Be Really Shrill
Washington Post Hack Michael Gerson Drives Publius Shrill!
"The President's Description ... of the Stakes in Iraq was Delusional"
The Texas Execution System Drives Radley Balko into Shrill Unholy Madness!
Matt Welch: Why Do We Have to Stay in Iraq Forever?
Yves from Naked Capitalism has an excellent "rant" from Willem Buiter on this topic.
So I call on Secretary Paulson, Chairman Bernanke and Director Lockhart to drop the market-friendly fig-leaf. Be a socialist and proud of it. Come out of the red closet. The Soviet Union may have collapsed, but the cause of socialism is alive and well in the USA. Granted, the US version of socialism is imperfect thus far. The federal authorities have mainly intervened to socialise the losses in the financial sector while allowing the profits to continue to be drained off into selected private pockets
July 10, 2008 | Bloomberg:
Granddad Benny, is it true that capitalism committed suicide?'
Granddad looked up from the fire he was stoking with bundles of 2006 and 2007 vintage mortgage-backed bonds. ``In a way, Joel, yes. In developed countries, people got too greedy, especially bankers, and everyone borrowed too much. In less developed countries, people racing to improve their living standards reawakened the slumbering inflation monster.''
Joel put down the stick he was using to scratch the dirt. ``Why did the Gigantic Global Bubble Burst of 2008 catch people unawares? Weren't there any warning signs, Granddad?''
.... ... ...
By the flickering firelight, Granddad could see Joel's eyelids beginning to droop.
``That's enough storytelling for one night, Master Bernanke. Go and make yourself warm under the blankets. We'll be safe in this cave until morning, then we'll press on toward the coast.''
First it was the theft of copper wire from construction sites and ripping the plumbing out of foreclosed homes making life unnecessarily difficult for home builders with too few sales and banks with too many properties.<
Then it was vanishing manhole covers and sewer grates posing grave dangers for motorists and pedestrians as the purloined iron was turned in at unquestioning scrap metal dealers, ultimately bound for one part of Asia or another.
Now comes word that rising precious metal prices for platinum and palladium have compelled thieves to remove catalytic converters from parked cars using battery-powered saws, sometimes in broad daylight, in order to get a little extra walking-around money.Marty Boyer's carefully maintained sport utility vehicle growled more like a dragster than a 2001 Honda Passport when he turned the key.<
"The second I turned it over, and it sounded like a tank and a Harley, I knew exactly what had occurred," said Boyer, 33.<
A half-dozen office colleagues had told him about that roar after their own catalytic converters were stolen, a crime that has been rising rapidly across the country from riverside parking lots in Cincinnati to highways along the California coast.
July 8 (Bloomberg) -- CDOs are back.
Collateralized debt obligations that helped drive banks to $400 billion of writedowns and credit losses are finding buyers under a different name: Re-Remics.
Last Wednesday's report on WTOP, the all-news radio station here in Washington, was both startling and priceless. I'm paraphrasing the second part of this quote, but the beginning is exactly what I heard:
"Well-fed policymakers later today will be deciding whether to increase interest rates."
It took me a minute or two to realize that the reporter was really saying:
"Well, Fed policymakers later today will be deciding whether to increase interest rates."
The more I think about it, I'm not sure what was actually being reported. After all, lunch is almost certainly provided at these meetings
"What the banksters said ...
to each other ...
"I'm sick to my stomach."
"It's either a meltdown or the greatest buying opportunity ever. I'm leaning towards the former."
"The sub-prime market looks pretty damn ugly."
"Believe it or not ... I've been able to convince people to add more money."
to clients ...
"We have an awesome opportunity."
"I suggest we speak about adding more to the fund."
"There's no basis for thinking this is one big disaster."
Hat tip to charles hugh smith-Weblog and Essays
Hello and how are you?, hope you are doing fine with your family.
I am happy to inform you about my Success In getting the Funds Transferred to a Federal Reserve Account with the Co-Operation of a New Partner from The Treasury who Is a Billionare International Businessman and an investment magnet.
In fact I must Frankly State here without Missing Words That I Was Blessed to Have Met with Sir Henry Paulson a Man of Very Unquestionable Capability to Deliver. Presently, I am In Washington (America) embarking On an Investment Project with My Own Dear Friends from The Gulf Of Arabia, Just like I Told You Then to believe and finish up with me.
Meanwhile, I Could Not Have Forgotten Your Past Efforts and attempt to assist me in transferring this Fund, Despite all odds and the fact that It Did Not Get To The Desired Conclusion in Congress. However, as I think & believed that your previous good efforts was the Source Of My Inspiration to this Point.
So, Just As My Highly Respectable Mentor Sir Alan Greenspan Would Always Say To Me "One Good Turn Deserves Another" For This Reason, I Do Wish To Give To You The Total Sum Of US$1,850,000,000,000.00 (One Trillion, Eight Hundred And Fifty Million U.S. Dollars ) upon your immediate delivery of Mortgage Assets of Questionable Value. Please Contact My Secretary immediately to receive this deserved share of yours urgently.
Yours Most Very Truly Sincerely,
Benjamin Bernanke, F.S.M.O., D.S.T.,
High Order of the Ivory Tower Realm (with Obfuscation ribbon)
"homallucinations," or the ability to convince oneself that while the price of everyone else's home will fall, your neighborhood is clearly different.
February 25, 2007 parody of Mankiw's Ten Principles of Economics. (Alternative download here (.pdf).) See also The world's first and only stand-up economist
I started doing open-mic nights at Seattle's Comedy Underground in the summer of 2004. You should read this cool kfmonkey blog posting about the connection between stand-up and politics.
My parody of Mankiw's Ten Principles of Economics. (Alternative download here (.pdf).) This article was published in the Annals of Improbable Research. (Harvard professor N. Gregory Mankiw, the chairman of the Council of Economic Advisers in 2003-04(?), is the author of a best-selling economics textbook.) Serious-minded readers can find some of the same ideas in my working papers on economics education; the rest of you might prefer the 2nd order parodies by my grad school buddies Evren Damar and Aaron Finkle.
It's not strictly humor, but my conversation with two Texas economists about their textbook's amazingly lousy treatment of global warming is pretty funny.
The Big Picture
Bouncing around trading desks is this comment on Fifth Third Bancorp (FITB):
"Given its recent performance, the company has announced they are changing its name to "Three Fifths" Bank . . ."
Looking at the chart, perhaps that should even be "Two Fifths" Bancorp !>
This essay on the amount of energy required to burn a pound of human fat drew a wonderful response from knowledgeable correspondent Brian Jewell:I am a retired physiologist, living in Yorkshire in the UK.
I run a course in Human Physiology for our local branch of University of the Third Age (i.e retired people who want to keep on learning) and in the course of searching around on the internet for some figures for human energy consumption, I came across your website.
Your figure for how far a man might cycle on a gallon of fat is different from my estimate, which was about 1100 miles. My calculation was based on the assumption that the energy content of a pound of fat was 4095 kilocalories - i.e. 455 g x 9 kcal per gram.
My figure for kilocalories per pound translates into 36855 kilocalories per gallon (assuming fat has a density of 0.9 kg/l), and if we assume 500 kilocalories per hour for cycling at 15 mph, that would mean about 1100 miles per gallon of fat.
No doubt you've heard of bi-polar disease, depression, anxiety disorder and restless leg syndrome. Maybe you've dodged all those bullets, but before you sigh in relief, answer this simple quiz:
Have you ever felt irritable? Have you ever bought anything which was unnecessary? Have you ever had trouble getting to sleep? <
Sorry, but you suffer from quatro-polar disorder. Yes, you. You're a classic case, and don't try to deny it. The first step to getting well is to admit it: your mood swings not just up and down, but sideways, and in both directions. (Unless you're a right-wing nut or left-wing fanatic, in which case you swing only up and down and left or right, which makes you a hardcore sufferer of the dreaded, incurable tri-polar disorder.) <
Fortunately, there's a cure--one which your overworked doctor can easily be convinced to prescribe, should you rush in and demand Zombiestra (TM). But only do so if you have full drug coverage in your medical plan, or if you're filthy rich. Only then will you be able to afford the wondrous relief to everyday life which is Zombiestra (TM). <
You may have mis-diagnosed yourself, thinking that buying all sorts of worthless junk just made you a normal, healthy American consumer. Wrong! That's a sure sign of quatro-polar disorder. Ditto for being irritable or having trouble sleeping enough. Just because you have a two-hour commute and have to get up at 4 a.m. to beat the traffic, or that thanks to layoffs and rising workloads, you're working 10 hours a day just to keep your job--that's no excuse! You're suffering from quatro-polar syndrome, to be sure. <
Fortunately, there's Zombiestra (TM). (First check with your insurance plan to make sure they cover diseases which are newly "discovered," then hound your overworked doctor for the prescription. Be proactive. Don't take no! It's your right to be over-medicated with drugs which only work 20% of the time.)
... ... ...
Via Yahoo! Finance comes this report by Emily Brandon at U.S. News and World Report asking the question that, unfortunately, most aspiring retirees will probably never get to ask - is a million dollars enough to retire on?
A million dollars used to be a lot of money.
On a slow day in the markets, trader A decided to open bidding on a can of sardines. He offered it at $1. It was snapped up by B at $2, who sold it to C at $3. D jumped in at $4 and E finally prevailed at $5. <
Proud owner E opened the can and found the sardines had gone bad. He went back to A and complained, " You sold rotten sardines! I want my money back."<
Grinning, A said, "Son, those weren't eating sardines. Those were trading sardines."
June 6 (Bloomberg) -- Regular readers know I'm tone deaf when it comes to the nuances of U.S. dollar policy. Whether it's a congenital defect or simply an aversion to the idea that the U.S. has anything resembling a dollar policy, I can't say.
Either way, I have to be bludgeoned over the head before I wake up to the idea that some new twist in dollar policy is afoot.
That's why I'm a little late reporting the news and analyzing the significance of Federal Reserve Chairman Ben Bernanke talking about the dollar in a June 3 speech.
I mean, what's the big deal? The Fed talks about the dollar -- internally -- all the time. In this Age of Transparency (or is it the ``Age of Turbulence?'' I get confused) why not say what's on your mind?
Bernanke's references to the dollar came in the last section of a speech, delivered via satellite, to the International Monetary Conference in Barcelona, Spain. I almost missed them because they came right after the part where the Fed chief said monetary policy is ``well positioned to promote moderate growth and price stability over time,'' which drives me batty. Fed officials really need to stop repeating this nonsense -- that a 2 percent funds rate, well below the rate of inflation, will promote price stability -- before it becomes a mantra.
Which brings us back to Bernanke and the dollar.
What got people so exercised Tuesday was Bernanke's adoption of code words more typical of a Group of Seven communique when these countries want to signal foreign exchange markets to shape up or face possible coordinated intervention.
To wit, Bernanke said, ``In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets.''
This used to be a big deal before Europe scrapped most of its individual currencies and before academics reminded policy makers that sterilized intervention -- where a central bank buys or sells a currency, only to offset the purchases and sales via open market operations -- doesn't do any good.
And that's why, for all the chatter about the Treasury running ``dollar policy,'' the policy is really the Fed's to implement.
Bernanke had more to say on the value of the dollar, which has been falling pretty much since 2002. He said it had implications ``for inflation and inflation expectations'' and therefore for policy.
Finally, he used the terms ``strong and stable dollar,'' which everyone says is significant, so it must be.
This was too much for a slow learner like myself. So I called Lou Crandall, chief economist at Wrightson/ICAP LLC, for a translation.
Crandall explained that the Fed ceded control of the dollar ``message'' (notice that he didn't say ``policy'') to the Treasury in the mid-'90s at the request of then-Treasury Secretary Robert Rubin. Before that time, Fed chairmen Alan Greenspan and Paul Volcker talked openly about the value of the dollar as it related to the conduct of monetary policy.
``That was new,'' Crandall said of the communication consolidation. ``It created a monopoly of commentary on dollar policy.''
Alas, all good monopolies come to an end, at least in economic theory. The time was right for the Fed, which creates reserves that get multiplied into money, to talk turkey on the dollar along with the Treasury, which prints and mints bills and coins at its Bureau of Engraving and Printing and U.S. Mint, respectively.
Prelude to Action?
``Saying the dollar is potentially inflationary isn't a real breakthrough,'' said Paul Kasriel, chief economist at Northern Trust Corp. in Chicago, who, like me, missed the memo on dollar policy. ``The question is, what are you going to do about it?''
It's one thing ``to use open-mouth policy to bring down inflation expectations and bring some expectation of stabilization to the dollar,'' he said. ``But does anyone think the Fed is going to raise rates in the next six months?''
Actually, yes. Federal funds futures contracts, which reflect expectations of the average overnight rate for any given month, are putting the odds of a rate increase by year-end at almost 70 percent.
Not to throw cold water on the idea that dollar-talk policy is having an impact, but the buck looks to have bottomed sometime between Bear Stearns weekend (March 14-17) and late April, when the Fed indicated it was done lowering short-term rates.
Admittedly I'm a slow learner, but even I smell a rat, or a Rubin, if you will.
For all we know, the current Treasury secretary, Hank Paulson, a one-time investment banker in search of market savvy, called up Trader Bob, his former Goldman Sachs colleague, for some advice.
``Hank, I told you to save your breath when the dollar is plummeting,'' Rubin might have said. ``How many times have I told you to `go with' a trend? Choose your timing carefully. When it looks as if the dollar has bottomed of its own accord, as it did in April 1995, start talking it up big. Then you can take credit for the move up.''
Re chaos trades, I'm confused. Haven't the ABX indices and general credit market sentiment improved mainly because no-one will bet against the Fed/other authorities, who will support the banks/associated financial institutions at any cost? So is Lehman now losing money because it bet against the financial system being bailed out? And now it will to be bailed out because of this? My head hurts…somebody make it stop…
June 1, 2008 | NYT NANCY CHEMTOB, a divorce lawyer in Manhattan, has found that her days have become crammed seeing clients, all worried about how an economic downturn will affect their marriages.
They seem to have nothing to fret about: their net worths range from $5 million to $1 billion. A blip in the markets shouldn't send their chateau-size Park Avenue co-ops to foreclosure or exile them to Payless Shoes.
But Ms. Chemtob's clients are concerned all the same, she said, because their incomes have shrunk, say, to $2 million a year from $8 million, and they know that their 2008 bonus checks are likely to be much less impressive.
One of her clients recently confessed that his net worth had decreased to $8 million from more than $20 million, and he thinks that his wife will leave him. He has hidden their fall in fortune by taking on debt to pay for her extravagant clothes and vacations.
"I literally had to sit there and tell him that he had to tell his wife that she had to stop spending," she said. "He was actually scared she would leave him because their financial situation changed so drastically."
The wealthy don't generally speak publicly about their finances, in good times or bad. It's in poor taste, for one, and their employers could fire them for talking even a little. But people who provide services to the wealthy - lawyers, art advisers, personal trainers and hairstylists - say they are getting an earful about their clients' financial anxieties.
Interviews with the people who actually see the bank statements, like divorce lawyers and lenders, say their clients are definitely living on less than they did a year ago, regardless of how expansive the definition of "less" may be. Hairstylists and private jet rental companies say the wealthy are cutting back on luxuries like $350 highlights and $10,000-an-hour jet rentals. Even nutritionists and personal trainers notice a problem. The wealthy are eating more and gaining weight because of the stress.
These financial problems - if rvousness about keeping uychological change," said Chris Del Gatto, chief executive of Circa, which has watched its business jump by 50 percent in the last year as wealthy clients sell their spare diamonds and Rolexes. "The economy is an issue even for people who don't need the money."
THEIR spouses could leave them when they discover that their net worth has collapsed to eight figures from nine. Friends and business associates could avoid them as they pass their lunchtime tables at Barney's or the Four Seasons. And these snubs could trickle down to their children.
"They fear their kids won't get invited to the right birthday parties," said Michele Kleier, an Upper East Side-based real estate broker. "If they have to give up things that are invisible, they're O.K. as long as they don't have give up things visible to the outside world."
So New York's very wealthy are addressing their distress in discreet and often awkward ways. They try to move their $165 sessions with personal trainers to a time slot that they know is already taken. They agree to tour multimillion-dollar apartments and then say the spaces don't match their specifications. They apply for a line of credit before art auctions, supposedly to buy a painting or a sculpture, but use that borrowed money to pay other debts.
"Most people won't go to their banker and say: 'You know I'm in desperate trouble. I need funds,' " said Andy Augenblick, president of Emigrant Bank Fine Art Finance, which allows clients to borrow against art collections worth more than $2 million. Mr. Augenblick said that the number of requests for these types of loans is five times higher than a year ago. He said that while these borrowers claim that they don't need the money, their latest financial statements show that their net worth has withered in the past year.
Other wealthy clients are cutting luxuries that they think their friends and relatives won't notice, according to Mr. Del Gatto of Circa. At Circa's midtown offices, he said, the seven consultation rooms have been busy with customers selling their precious gems. Some older couples, he said, are selling estate jewelry to help support their children who have lost Wall Street jobs. Bankers are paring down their collections of Patek Philippe watches. Wives from Greenwich and Scarsdale are selling 2-carat to 35-carat single-stone diamond rings. One recent client explained to Mr. Del Gatto that she was selling $2 million in diamonds she rarely wore, because her friends wouldn't notice that they were gone.
"She said, 'If I sold my Bentley or my important art, they would notice,' " he said. "That we hear, in differing examples, every day."
Art consultants find that the very wealthy are more receptive to parting with their precious works. Cassie Rosenthal, an owner of the Chelsea gallery Goff & Rosenthal, said that since the subprime crisis hit in the fall, and especially since the new year, some collectors are willing to sell pieces that were off limits in the past. She said that when the deals close quickly, they're happy.
"Most people will just sort of say: 'Will you sell this for me? When you can get me payment?' " Ms. Rosenthal said. "It's more about the urgency of getting paid."
Justin Sullivan, managing director of Regent Jet, which leases private airplanes, said most clients in real estate and on Wall Street are switching to chartered jets over private jets, and cutting their flight budgets by about 25 percent. One New York real estate developer cut his budget to less than $250,000 a year from $1.5 million a year.
"A year ago, he would have only flown Gulfstreams," Mr. Sullivan said. "Now it's moving to the point where he's flying Beech jets and Learjets."
Some wealthy New Yorkers are even cutting back on relatively smaller things. At J Sisters, a midtown Manhattan salon where celebrities like Naomi Campbell and Gwyneth Paltrow mingle with Wall Street clients, stylists and colorists say they hear about money worries all day. On a spring afternoon, a half-dozen hairstylists to the very wealthy talked about how customers are stretching their $350 highlights and $150 haircuts to every eight weeks instead of six weeks. Some women are cutting out highlights entirely, saying they would "rather be brunettes."
Jean-François Pilon, a stylist at J Sisters, has seen many women come less frequently and tip less generously. During the subprime crisis last summer, and the collapse of Bear Stearns last March, he said, many clients tried to stretch out their visits. He interprets these changes in behavior as signs that they need to watch their spending.
"You pick up on it very quickly," he said. "People don't beg."
The drop in wealth has also exposed other personal problems, like bad marriages. Money - which bought jewelry or extravagant vacations - helped smooth over many of these difficulties, said Kenneth Mueller, a psychotherapist in the East Village who works with many Wall Street bankers and real estate developers. Now, he said, his clients "catastrophize" smaller bonuses or shriveling stock portfolios. "You have to remind them that there's something that has always been there," he said. "All the money helped mask the anxiety."
The very wealthy can't hide anything from their nutritionists and personal trainers, because they see the weight gain. Heather Bauer, a dietitian who works with many Wall Street executives who pay $600 to $800 a month for her services, says her clients have been eating and drinking more in the last six months. She sees results of this indulging each time they step on a scale, and in their journals that record what they've eaten.
ONE Wall Street executive, Ms. Bauer said, snacks on nuts in her office all day to manage the stress of potentially losing her position, while another confesses to inhaling four bowls of cereal at 10 p.m. Even their sex lives are suffering, Ms. Bauer said, because of the stress or because the weight gain makes them feel unattractive.
Her clients blame the economy for their out-of-control waistlines.
"The number one concern that they have is the state of the financial market," she said. "There definitely is a correlation between the stock market and weight gain."
Clay Burwell, a personal trainer to many Wall Street executives, said that his clients were also feeling the toll. A year of eating more, drinking more and working longer hours has started to hurt their health.
"They come into the gym with a dark storm cloud over their head," he said. "They look like hell."
A risk manager, walking down a country lane encounters a shepherd standing near a field of sheep. "If I can accurately predict the number of sheep in this field, would you let me have one?" asks the risk manager.
"Certainly," replies the shepherd, having just counted them himself. The risk manager gets out his slide rule, calculates the area of pasture needed to sustain one sheep, estimates the area of the field and comes up with the figure 423.
"That's absolutely correct," says the shepherd, and the risk manager stoops to claim his prize. "But," adds the shepherd, "You must give me the chance to get even. If I can accurately guess your profession, we'll call it quits." The risk manager agrees.
"You're a risk manager for a major investment bank," says the shepherd.
"That's right," says the bemused manager, "But how did you know?"
The shepherd replies: "Give me back my dog and I'll tell you."
David Wilson reports:
"In the last seven days Origami Bank has folded, Sumo Bank has gone belly up and Bonsai Bank plans to cutback some of its branches. Yesterday it was announced that Karaoke Bank is up for sale and is likely to go for a song. Today shares in Kamikaze Bank were suspended after they nose-dived and 500 back-office staff at Karate Bank got the chop. Analysts report that there is something fishy going on at Sushi Bank and staff fear they may get a raw deal."
With apologies to The Band]
Jimmy Cayne is the name and I served on the Gravy train
'Til Dimon's cavalry came and blew out Joe Lewis again
Hank Paulson was on the phone, we were just barely alive
March 16 was when Bear Stearns fell
It's a time I remember oh so well.
"The economy is fundamentally sound," or "The worst is behind us," or "We've hit the bottom, and it's uphill from now on": Head for the hills.
... ... ...
Ninja Loan: This has nothing to do with black-clad fighters of fourteenth-century Japan. They were sometimes rash but never as idiotically greedy as the modern mortgage brokers who made such loans, meaning mortgages given to people with no income, no job and no assets.
Jeff in Cleveland wrote:
"CPI up only .2 percent in April.
At what point does the government start making these announcements followed immediately by a drummer in the background doing a rim shot? "
Ken: thanks for the laugh… HA HA!
Thanks to the Economist
March 04, 2008 | Cassandra Does Tokyo
(Fade in to telephone ringing.....)<
EARTH: Hello? Futures Exchanges?
This is Planet Earth calling. <
FUTURES EXCHANGE(S): (in Nasal BQ Accent) Yea? Waddda youze want? <
EARTH: Ummmm if you look out the window, we seem to be encoutnering a bit of turbulence. Or is Turbolence. Oh well, never mind spelling or semantics, things are turbo-ing and we here on Planet Earth are becoming concerned that someone will get hurt. Errrr, yes, hurt rather badly. <
FUTURES EXCHANGE(S): Whoozit you sez you were again? <
EARTH: Errr Planet Earth. Terra Firma. Gaia. The Big Blue Marble.<
FUTURES EXCHANGE(S): Did Vinny put yooze up to this? <
EARTH: Ahem No. We're calling in respect of The Public Interest. <
FUTURES EXCHANGE(S): Waddaya want again.<
EARTH: Well we were thinking you should be thinking about raising margin requirements for speculators. Significantly. And increasing the penalties for mis-categorization as a Hedger to "Death". <
FUTURES EXCHANGE(S): Vinny DID put ya up ta this!! Yooze are trying to mussel in my rackit arentcha??<
EARTH: No. Now please I implore you. Things are really getting out of hand. Traders are embarking upon positions on the basis of the thin-ness of trade and the fact that you're the ONLY leverage in town. This is a recipe for disaster....<
FUTURES EXCHANGE(S): Are you CRAZY? I'ze live for days like these. THIS is what its all about. But you looks like a nice boy, prolly got some wop blood in ya so I tell ya what: "I'll do you a favor and swop the caffinated jo' for decaf. THAT should cool things off a bit. <
EARTH: Ummmm errrr. yes thanks. Now about those margin requirements....
Trust in Central Banks Passes Point of No Return: Mark Gilbert
Commentary by Mark Gilbert
April 24 (Bloomberg) -- Here's the plan. Hokey-Cokey Bank bundles together its tainted 2007 mortgages and bakes an asset- backed bond. It hands that bond to the Bank of England in return for a bag of freshly minted U.K. government gilts. It then uses those shiny new gilts as collateral to borrow much-needed money.
What would you, as the treasurer of Hokey-Cokey Bank, do with that cash? Would you:
(A) lend it to eager first-time buyers Bob and Sue to purchase that apartment they want, even though every bone in your body tells you property prices are headed down, down, down?
(B) hand it to Tom, who also wants the apartment, except that he plans to rent it to Bob and Sue for less than he'll have to pay every month on the mortgage?
(C) scurry to the Hokey-Cokey vault as fast as your little legs will carry you, toss in the cash, lock the door, and tell your chief executive the liquidity problem is resolved and he won't have to beg the shareholders for fresh capital after all.
Hello? Am I missing something here?
Calculated RiskOur Brian forwarded this email to me yesterday, and I haven't stopped chuckling yet. It's very well done and certainly appears to be a legitimate "memorandum" from Accredited. Apparently no one has yet managed to get it posted on Accredited's website, which would formalize the joke nicely, but that's no reason not to share it:April 18, 2008 - San Diego , CA <
Accredited Home Lenders is pleased to announce the promotion of Miss Helen Busta to the newly created position of Chief Advisor of Things Both Relevant and Interesting in the Non-Conforming Loan Market.<
The position was created to help set the record straight in a market that's been turned upside down. Miss Busta will apply her vast knowledge and years of industry experience to bust the subprime myths that are so prevalent today.<
As a young woman, Miss Busta arrived in San Diego from the Midwest and took a job in the mortgage industry as a temp. She was soon hired by Accredited to help out in the company's first office above an auto repair shop. Miss Busta earned her B.A. in History from San Diego State University while working full-time at Accredited. <
Her duties will include advising Accredited staff and helping brokers build their non-conforming business. Miss Busta will soon launch her own Web site, where she will answer any and all questions regarding the mortgage industry. Her long-standing service to Accredited and wealth of knowledge from 20 years in home lending have made Miss Busta a solid performer in any type of economic climate.<
Please extend your congratulations to Miss Helen Busta on her significant achievement.
My thought for the day: The credit crisis is like an onion: every time you peel back another layer, you want to cry.
... ... ..
Why would banks buy insurance on AAA securities, especially from ACA, which had only an A rating? That would be akin to homeowners at the top of the hill purchasing flood insurance from a company at the side of a river. If a flood did happen, the insurer wouldn't be around to pay any claims
There is more than a 50 percent chance the United States could go into recession, former Federal Reserve chairman Alan Greenspan told El Pais newspaper in an interview published on Sunday.
... ... ...Greenspan, the U.S. Fed chairman from 1987 to 2006, endorsed the Republican presidential candidate John McCain in the interview.
"I'm Republican and I support John McCain, who I know very well and who I respect a lot," he said.
When the monkey steals the keys to all the cages in the zoo, you're going to have a problem. In our great nation, there are a limited number of potential institutions which could exercise authority over those
"monkeys" which have destabilized the financial system, and from the perspective of competence, independence and the possession of a clear understanding of the inter-market linkages, the list is as ugly as it is short.
- The President
- The Courts
- The Treasury
- The Fed
- An agency yet to be named
The big problem is that the "monkeys" will ALWAYS be smarter than 1-4, and ALMOST ALWAYS smarter than 5-6. They will also always be wealthier, and hence more influential, than 1-6, and will find ways to neuter rules they consider onerous, with a packed Supreme court on their side, should congress or the president fail to support them. In the end, there is only one regulator who can clean up the AUGEAN STABLE. His name is Mr. Market.
"Poor guy. Is he really the last person they told?"
"Everybody and your mother knows it's a recession, except for President Bush and Bernanke," said Lakshman Achuthan, managing director of ECRI. "They know in private, but it's their role to be cheerleaders for the economy."
Good evening, ladies and gentlemen. I am not an expert or a scholar or an activist. I am more of an eye-witness. I watched the Soviet Union collapse, and I have tried to put my observations into a concise message. I will leave it up to you to decide just how urgent a message it is.
My talk tonight is about the lack of collapse-preparedness here in the United States. I will compare it with the situation in the Soviet Union, prior to its collapse. The rhetorical device I am going to use is the "Collapse Gap" – to go along with the Nuclear Gap, and the Space Gap, and various other superpower gaps that were fashionable during the Cold War.
After the accounting scandals of 2002, where Skilling and other Harvard MBAs played high-profile roles, the school studied what it could do to improve the conduct of its graduates. It concluded that students' ethical compasses were set before they got there, which one could view either as accurate or a way of punting.
With apologies to Don McLean.<
The Day the Subprime Died<
A long, long time ago...
I can still remember
How that yield spread made me smile.
And I knew if I had my chance
Those mohos I could finance
And I could pay my bills for a while.<
But February made me shiver
With every good faith I'd deliver.
Bad news on my e-mail
I just lost one more sale.<
I can't remember if I cried
When I saw the Fremont slide
But something touched me deep inside
The day the Subprime died.<
So bye-bye, B\C money supply.
Sent my package to four lenders
But they all asked me why.
And good old boys were on a crack induced high
Singin', "This'll be the day the loans die,
This'll be the day the loans die."<
Did you write some B\C loans,
Did you blow bucks on the iPhone?,
Did that nut Cramer tell you so?
Do you believe in rate control,
Can FHA save your borrower's soul,
Why is underwriting today so damn slow? <
Well, I know you'll have to cut those fees
And you're wondering who has moved your cheese.
Bernarke's on the news.
You can't afford the MBA dues.<
I was a semi-rich middle-aged broncin' buck
With a master plan and a lot of pluck,
But I knew I was out of luck
The day the Subprime died.<
So bye-bye, B\C money supply.
Sent my package to four lenders
But they all asked me why.
And good old boys were on a crack induced high
Singin', "This'll be the day the loans die."<
Copyright © 2007 Bad Grapes Inc. (ASCAP)
International Copyright Secured. All Rights Reserved.<
by Cedonullandvoid August 12, 2007
Source: Jan-Martin Feddersen, Immobilienblasen who writes:I think it is a good start to kick off the "Fools Day" with news from the the greatest fool UBS.(hat tip Dwight) Here is the actually UBS logo.
This one is by OldVet...<
There I was holding my head and moaning and crying about how the banking system and the financial system were on the verge of collapse. I saw the forced marriage, or ménage-a-deux, between JP Morgan and Bear Stearns. <
But the Fed was involved, which couldn't be good. Oh God, please help us.<
Then I realized it was really a ménage-a-trois, what with the head of JP Morgan being on the board of directors of the New York Fed. It was a family affair. The family was taking care of its own. Brilliant. I'm now free of stress and ready to get back to the trough! Get out your wallets, oinkers.
In Orwell's Animal Farm all animals are equal - except that some are more equal than others. All in the spirit of law, order and the proper functioning of society, of course. Fittingly, the animals that have chosen this role by themselves and for themselves, are the pigs.<
Cut to US financial markets today. After years of swinish behavior more reminiscent of Animal House than anything else, the pigs are threatening to destroy the entire farm. As if it wasn't enough that they devoured all the "free market" food available and inundated the world with their excreta, they now wish to be put on the public trough. Truly, some businessmen believe they are more equal than others.<
But do not blame the pigs; they are expected to act as swine nature dictates. The fault lies entirely with the farmers, those authorities entrusted by the people to oversee the farm because they supposedly knew better. While the pigs were rampaging and tearing the place apart, they were assuring us all that farms function best when animals are free to do as they please, guided solely by invisible hooves. No regulation, no oversight, no common sense. Oh yes, and pigs fly..
The Mess That Greenspan Made
According to this report in the Associated Press, the Federal Reserve is now bolstering confidence in the mortgage lending market by proposing sweeping new rules:
It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value. The proposal would curtail misleading ads for many types of mortgages and bolster financial disclosures to borrowers.<Come on AP, is this really you or were you invaded by writers from The Onion?
"Substantial anecdotal evidence indicates that failing to verify (a borrower's) income invited fraud," said (Fed Governor Randall) Kroszner, who has been the Fed's point person on the consumer protection provisions.
Subprime RhapsodyIs this the real price?
Is this just fantasy?
No escape from reality
Open your eyes
And look at your buys and see.
I'm now a poor boy
Because I bought it high, watched it blow, Rating high, value low,
Any way the Fed goes
Doesn't really matter to me,<
Mama - just killed my fund
Quoted CDO's instead
Pulled the trigger, now it's dead
Mama - I had just begun
These CDO's have blown it all away<
.....You get the idea......
In the top-middle part of the cover of the current issue of Time you'll find the question, "The Blame-O-Meter: Who screwed up the economy?" Inside you'll find this story by Justin Fox with the following graphic which, unfortunately, is not available online:
To be fair, part of the graphic extends to the right (not shown above) where blame for "Wall Street Wizards" comes in somewhere between former Fed Chief Alan Greenspan and President George Bush.<
Casting further doubt on the impartiality of this otherwise fine article (i.e., does the President really deserve the most blame?) is that the least amount of blame (two ticks into the "Blameless" region of the Blame-O-Meter) is laid at the feet of "Home Buyers".<
For those of you keeping track at home, yes, this qualifies as a "Greenspan Mess" sighting. Remember the rule - "Greenspan" and "mess" within one paragraph or 100 words of each other either vertically, horizontally, OR diagonally.
OUBLE = HALF
KNOW = GUESS
IT = LOSS
T = DARK
FLAT = GLOSS
LUCK = LACK
GROSS = NET
SOAR = FALL
EVE = DAWN
LIFT = DROP
FIND = LOSE
UP = DOWN
PRO = CON
RISE = SET
ON = OFF
IN = OUT
Mar 24, 2008 | Yahoo! News
No! No! No! No! No!
Yahoo! News Many in the community knew that the retired fire chief was really an arsonist, but now the lady running for mayor wants to bring him back to help put out the fires that still burn.
The top 16 big, fat lies de nos jours
1. Derivatives reduce volatility
2. The BRIC economies are decoupling
3. Inflation is 2 per cent
4. Greenspan was a maestro
5. The Chinese won't let their market fall in Olympics year
6. (Junichiro) Koizumi reformed Japan
7. The Americans are devoted to free market solutions
8. The Swiss are prudent
9. The French are brilliant derivatives traders
10. The UK is suffering a housing shortage
11. Private equity funds add value to the companies they buy
12. The cap rate for real estate should be the government bond yield
13. Alastair Darling is in charge of the situation
14. Ben Bernanke is in charge of the situation 1
5. The G8 is in charge of the situation
16. Anyone is in charge of the situation
- Here are some alternative porkies :
1 Gordon Brown has run the economy prudently.
2 The credit crunch was caused by sub-prime lending in America.
3 The credit crunch will not spread to the real economy.
4 The banking system has been lending responsibly.
5 The authorities have been watchful, understand the problems and will continue to take prompt, appropriate and timely action.
6 World asset values will not fall significantly.
7 The world banking system will be able to adjust to the reduced asset values that world debt is secured against.
8 This is a temporary adjustment, before normality resumes.
9 America's position in the world will not be affected.
10 China will co-operate to maintain the status quo so that Western profligacy can continue.
11 Economic power, then political power and then military supremacy will remain in the West.
12 The Western way of life is not under threat and Western capitalism, democracy and aspirations will spread throughout the Middle East, China, Russia, Africa, South America, etc.
13 All these fundamental truths are understood by George Bush. People who think differently do not have George's depth of understanding.
14 The greatest philosophical truths emanate from Texas.
From Reuters comes this story (hat tip MM) about a crazy new idea that's now sweeping across the country - living with your means. The next thing you know, people will actually begin to save money.
Alan Greenspan's Wikipedia entry in 2020:
"Former US Federal Reserve chairman chiefly known for implementing the disastrous policies leading up to the 2008-?? recession that proved to be the death knell of neo-liberalism. Also known as Rasputin of US finance.
Greenspan's legacy, like that of the last president he served, was written in the ashes of the unprecedented financial destruction that's been brought about by his policy failures."
Lehman, it was nice knowing you.
After yet another textbook-rewriting proposal from the Federal Reserve Tuesday, what will it think of next to thaw the credit markets? An exchange between a journalist and a Fed watcher:
Journalist: I keep expecting to get hit by a kitchen sink flying out of the Fed.
Fed watcher: Hold onto that sink. You'll be able to repo it at the discount window.
The Name of the Game is Pretending
- The rating agencies pretend the monolines deserve an AAA rating.
- The Bush administration pretends we are not in recession.
- The Fed pretends we are not in recession.
- The Fed pretends the TAF is temporary.
- The Fed pretends it knows what the collateral it is accepting is worth.
- The Fed pretends it is in control.
January 25, 2006 | CrossingWallStreet.com
Portsmouth Herald News:Academician has big shoes to fill as Fed Reserve head
San Diego Union Tribune:Big shoes to fill
U.S. News and World Report:Following the legend of Greenspan, Bernanke certainly has big shoes to fill.
St. Petersburg Times:One focus is the transition at the Federal Reserve Board, where Alan Greenspan is on his way out as chairman and Ben Bernanke is stepping into those extra-large shoes.
Black Enterprise:Big Shoes to Fill
The Daily YomiuriIt will not be easy for Bernanke, who is tasked with overcoming domestic and external problems that could short-circuit the currently sound U.S. economy and to fill the big shoes of Greenspan, who has won international recognition for his economic policies.
NPR:In terms of his role as a political player, analysts agree he has some big shoes to fill.
Investors Business DailyBernanke knows he has big shoes to fill.
Smart Money:You'd think Alan Greenspan shows up to work in a clown costume with all the talk about the next Federal Reserve chairman having big shoes to fill.
Here is partial excerpt from a great Saturday Night Live piece in the late '70s, with Dan Aykroyd impersonating Jimmy Carter:Inflation is our friend. For example, consider this: in the year 2000, if current trends continue, the average blue-collar annual wage in this country will be $568,000. Think what this inflated world of the future will mean - most Americans will be millionaires.
Everyone will feel like a bigshot. Wouldn't you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would! But what about people on fixed incomes? They have always been the true victims of inflation. That's why I will present to Congress the "Inflation Maintenance Program", whereby the U.S. Treasury will make up any inflation-caused losses to direct tax rebates to the public in cash.
Then you may say, "Won't that cost a lot of money? Won't that increase the deficit?" Sure it will! But so what? We'll just print more money! We have the papers, we have the mints.
"Mankiw's 10 principles of economics, translated for the uninitiated", by Yoram Bauman, www.standupeconomist.com . Presented at the AAAS humor session, February 16, 2007.
The latest foreclosure moratorium plan, announced earlier today, is all well and good for delaying the inevitable - a major repricing of anything and everything that has to do with real estate and mortgages now that everyone has regained their senses - but it does little to get at the heart of the current problem.<
Paraphrasing Countrywide CEO Angelo Mozilo, if banks and the government really want to fix the current mess, they should get at the heart of the problem - price declines, not foreclosures.<
As the Orange One pointed out some time ago (see Angelo Mozilo is a moron), as long as home prices continue to go down, foreclosures will continue to rise.<
The obvious solution? Stop home prices from declining. By decree.
This utterly hysterical Powerpoint has been circulating round Wall Street trading desks for a few days now. I embedded it into Google apps and posted it on line -- boom! Instant viral video. Now everyone can enjoy the warped sense of humor that accompanies losing $100s of billions of dollars. (MS Office not required)...
You've had a bad week. The new bumper on your car is going to cost $3,000. Your tooth implants will send your dentist to Aruba. Your pen pal in Nigeria didn't transfer $25 million to your bank account.
How could things get worse?
Oh, yeah. You own a junk-bond fund.
In the United States, many prominent economists, including Clinton-era Treasury secretary Laurence Summers, are proclaiming that the US economy desperately needs this assistance. In a January 6 opinion piece in the Financial Times, he laid out his argument as to why the US economy was in desperate need of aid.Fiscal stimulus is appropriate as insurance because it is the fastest and most reliable way of encouraging short-run economic growth at a time when a serious recession downturn would pressure American families, exacerbate financial strains, raise protectionist pressures and hurt the global economy.Like a drunk in a bar ordering another round because he's heard that, since a glass of red wine a day has some purported health benefits, it's logical to assume that a whole bottle of 120-proof Scotch must have even more, the Congress heard this wisdom, raised a glass to the fine Dr Summers, toasting, "I'll drink to that".
"monetarists, economists whose ideology revolves around a hatred of wage inflation for the bottom 95% and taxes for the top 5% while never meeting an asset price inflation it didn't like."
The Big Picture reported that the WSJ's Marketbeat was just as amused:
Glenn Hubbard: King of Pain
Today's best four minutes of the day: an uproarious parody of the Police's "Every Breath You Take" by students at Columbia Business School, which purports to show the school's dean, Glenn Hubbard -- and, no, that is not Mr. Hubbard, the school confirms, but a look-alike student -- taking Fed Chairman Ben Bernanke to task for monetary policy mistakes (in a fit of jealousy over not getting the position). It's hard to resist the charm of any attempt to poke at the Fed, especially one that includes the couplet "Hope your models break/bet that beard is fake." The real Mr. Hubbard was traveling and could not be reached for comment.
April 26, 2006 [George W. Bush:] "Ben Bernanke is the right man to build on the record that Alan Greenspan has established. I will urge the Senate the act promptly to confirm Ben Bernanke as the fourteenth Chairman of the Federal Reserve."
Every breath you take
Every change of rate
Jobs you don't create
While we still stagflate
I'll be watching you\
Every single day
Bernanke takes my pay
When growth goes away
Inflation will stay
I'll be watching you
Oh can't you see?
The Fed's where I should be
How my poor heart aches
With each of your mistakes
First you move your lips
Hike a few more BPS
When demand then dips
And the yield curve flips
I'll be watching you
Since you came supply's lost without a trace
I dream at night that I punch you in the face
Your interest policies I cannot embrace
I feel so wronged and I long for Greenspan's place
I keep cryin': Benny! Benny! Please...
Oh can't you see?
The Fed Chair should be me
How my poor heart aches
When prices escalate
Every move you make
Every oath you take
Hope your models break
Bet that beard is fake
I'll be watching you
CBS is great
Wouldn't change my fate
But we'll be watching you
We'll be watching you
The Epicurean Dealmaker
Recent readers of these pages will be aware that I have been engaged in an ongoing dialogue of sorts with several market commentators concerning the vexed and contentious issue of banker pay, especially as it relates to the ongoing crisis in financial markets. While tempers may have flared, I do hope that we can quickly move beyond casting aspersionsASPERSE, v.t. Maliciously to ascribe to another vicious actions which one has not had the temptation and opportunity to commit.
at each other and mutual backbitingBACKBITE, v.t. To speak of a man as you find him when he can't find you.
about real or supposed injusticesINJUSTICE, n. A burden which of all those that we load upon others and carry ourselves is lightest in the hands and heaviest upon the back.
alleged by one and sundry to have been committed by our fellow participants in the financial economy. For the stakes are high for all of us, not just commercial and investment bankers, to prevent a more permanent and damaging disruption to the economy and the financial markets by precipitate and ill-conceived action in any one area, including that of compensation to investment banking employees and other financial middlemen.<
While I fear it may be too late to keep this dispute out of the world ofPOLITICS, n. A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.
and the interfering hands of that most fearful and meddlesome creature, thePOLITICIAN, n. An eel in the fundamental mud upon which the superstructure of organized society is reared. When we wriggles he mistakes the agitation of his tail for the trembling of the edifice. As compared with the statesman, he suffers the disadvantage of being alive.
I believe I echo the sentiments of many when I say I would prefer a thorough airing of the situation in public to the resolution of our various grievances throughLITIGATION, n. A machine which you go into as a pig and come out of as a sausage.
So, while I remain resolutely convinced that banker pay is far more symptomatic than causal for the bulk of the current problems under which we all suffer, I do wish toAPOLOGIZE, v.i. To lay the foundation for a future offence.
to my various interlocutors for anyINJURY, n. An offense next in degree of enormity to a slight.
I may have caused them with my intemperate language and scathing sarcasm.<
After all, I believe a fine Hegelian conflict of thesis and antithesis to be the most effective way for all of us to discover theTRUTH, n. An ingenious compound of desirability and appearance. Discovery of truth is the sole purpose of philosophy, which is the most ancient occupation of the human mind and has a fair prospect of existing with increasing activity to the end of time.
about this issue, and I also believe it will help us move past this valley of despond on to a bright and shiningFUTURE, n. That period of time in which our affairs prosper, our friends are true and our happiness is assured.
* * *
I thank you for your attention, Fellow Citizens, and I look forward to your vote in the coming primary election.
FAST WEALTH AND BITTER BREAD
The oil prices start to soar
While Real Estate has hit the floor,
The Stock Market is jittery,
The future prospects bitterly
Surveyed on Wall Street and Main Street,
As all alike know they must eat
Their bitter bread, their bitter bread,
Who let fast wealth get to their head.
So China props the dollar up,
But will not fill your beggar´s cup
When she determines not to prop you--
So will not common sense then stop you
From your spendthrift indulgences?
No priest nor prophet comes to bless
Your bitter bread, your bitter bread,
Who let fast wealth go to your head.
It was a fond, elusive dream,
Illusory as it would seem,
But, though superb ambitions went
Before, it was all fraudulent,
This hope, sans rolling up one´s sleeves
To profit--them delusion leaves
But bitter bread, such bitter bread,
Who let fast wealth fill all their head.
The following is an extract from "Traders, Guns & Money: Knowns & Unknowns in the Dazzling World of Derivatives"J (2006; Pearson Education) © 2006 Satyajit Das
(Rogue) Trader. (The "rogue" term is generally not to be used explicitly especially with senior management, directors, shareholders and clients for fear of misunderstanding.)
The position reports along "functional' and "geographic" lines to the Head of Trading and Head of the Region. (Nobody, really. A multi-dimensional matrix structure is currently in operation so that everybody reports to several people allowing a total absence of accountability.)
Optional. (Some candidates may have a preference for working in head office where total confusion and chaos reigns facilitating successful rogue trading. Other candidates may prefer a remote location where benign neglect and absence of supervision may provide rogue trading opportunities.)
A leading edge investment bank with a global brand, presence in key financial markets, superb product range and unparalleled client list.
(Our PR firm told us this.)
A global trading team trading in a wide variety of cash and synthetic instruments, including a number of "proprietary" structures.
(You can lose money pretty much any way you like. There are some trades that even we don't understand but the models say we are making money).
Supported by a world class risk management team (they are readily identifiable by their guide dogs) and operational staff and systems (they have been specially chosen for their total ignorance.)
Excellent career prospects (We have sinecures for everybody who has failed to perform.)
Trading with the bank's capital to achieve targeted risk adjusted returns on capital under the bank's unique Economic Capital Allocation system. (If you are half as smart as you think you are then you will be able to game the system from day 1. Everybody else has.)
Developing innovative trading strategies. (You need to be able to come up with hare brained trading schemes based on the relationship between the El Nino cycle and market prices.)
Closely managing trading positions. (You need to be able increase your bet when your position shows losses until you bankrupt the firm.)
Develop proper models and valuation procedures (You need to ensure that all pricing models are impossible to understand and give the valuations that you want by simple unverifiable changes in model inputs.)
Risk management of positions (You will need to fudge all the Greek risk measures. We suggest you start to report risk data in an ancient Nubian dialect that is purely oral. You will ensure that your risk always appears miniscule irrespective of market conditions. People have a tendency to panic otherwise.)
Monitoring (You will need to be able to disguise breaches by not booking the trades or taking advantage of systems deficiencies.)
Control losses and volatility of earnings (You must disguise losses either by recording them as amounts owed to you (the Leeson gambit), undertaking off-market trades such as deep in-the-money options (the Rusnak variation) or incorrect valuations (Rogue Trading 101).)
You need to be able to take the trading function to a new plane. (You need to show larger losses than the last rogue trader the firm employed.)
Detailed knowledge of financial markets and trading techniques.
(You should wax lyrically about obscure markets (the Zambian Kwatcho and Islamic finance techniques) and complex mathematics (field theory; neural networks; fractals; Frank copula models). Everybody will think you are a genius or a fool but will be unsure of which.)
Detailed knowledge of derivatives, including exotic and non-standard structures. (Everybody knows that derivatives allow highly leveraged positions that are impossible to understand or value accurately.)
No minimum formal educational qualifications or direct previous experience in a similar role is necessary. (Nobody believes your CV. It is merely a statement of your aspirations. Nobody will believe you if you said that you had rogue trading experience.)<
Ability to communicate and work closely with senior management (You will need to make sure that you generate enough "phantom" profits to make sure their bonus expectations are met.)
Ability to work closely with operational staff (You must bully them or cajole them into concealing limit breaches and losses.)
Strong leadership qualities (You will claim all profits are the result of your perspicacious skills. All losses will either disappear or if found will be hedge losses offset against gains in other positions.)
Preferred age – under 30 years. (Have you ever heard of an old rogue trader? There is an exception for Japanese rogue traders who are generally older.)
Strong personal qualities. (You will have "attitude". A year round sun tan and a wisp of beard underneath your chin is good. You will treat everybody around you as idiots incapable of understanding the complex nature of your trading strategies.)
Highly motivated. (You will need to be able to hide losses and limit breaches. The Japanese rogue traders never took holidays.)
Negotiable including a strong performance linked component. (You don't need to be paid as it is assumed that you will defalcate ample amounts.)
Social Responsibility Statement
We are proud to be an equal opportunity employer. (We do not discriminate on any basis. How else can you explain the calibre of Directors and Senior Management not to mention risk managers and auditors that we have?)
Note: The idea is based on a column published by Trevor Sykes (writing as Pierpoint) of the Australian Financial Review [see "Indispensable Guide For Rogue Traders" (30 January 2004) Australian Financial Review] However, the text is different.
August 08, 2007
The Shareholder Letter You Should, But Won't, Be Reading Next Spring
Well, it seemed like a good idea at the time.
I am referring to your board's decision to approve a massive share buyback and huge special dividend last summer, when the buzzwords going around Wall Street were "returning value to shareholders."
Why we did it was this: a smart banker from Goldman Lehman Lynch & Sachs came in, all gussied up and looking sharp, and made a terrific PowerPoint presentation to the board with multi-colored slides that showed how paying a special $10 a share dividend, plus buying back a bunch of our stock at the 52-week high, would "return value to our shareholders."
We should have thrown the fellow out the window, along with his PowerPoint slides, but what happened was, my fellow board members and I were so busy deleting emails from our Blackberries that we just didn't notice the last slide showing (in very tiny numbers) the "Trump-style" debt we would be incurring to do so.
We also missed the footnote showing the fees that would go to Goldman Stanley Lynch & Sachs for the courtesy of their showing us how to wreck our balance sheet.
Those fees, I am embarrassed to say, amounted to more money than we made the quarter before we "returned value to shareholders."
But the fact is, we'd been getting so much pressure over the last few years from the hedge fund fellows who own our stock for ten minutes tops, not to mention the so-called "analysts" on Wall Street (around here we call them "Barking Seals"), to do something with the cash...well, the truth is we just couldn't stand answering our phones any more.
So, in order to finally start getting things done instead of spending all day explaining to these hedge fund fellows and the Barking Seals on Wall Street why we weren't "returning value to shareholders," we decided to do the big buyback and the big dividend.
And for a few weeks there, it was pretty nice.
The stock jumped, the phones stopped ringing, and the Barking Seals started congratulating us on the conference calls instead of asking us when we were going to get rid of our cash.
Unfortunately, not only did getting rid of our cash and taking on a huge debt load NOT "return value" to you, our shareholders, it actually crippled the company for years to come.
For starters, as you know, the aftermath of last summer's sub-prime debt crisis is forcing perfectly fine companies to liquidate businesses at fire-sale prices…but we can't take advantage of those prices, because we have no cash. And thanks to the debt we incurred "returning value to shareholders," the banks won't loan us another dime.
Secondly, as you also know, we've had to lay off hundreds of loyal, hard working employees to pay the interest expense and principal on all that debt, because unlike Donald Trump, we actually feel like we ought to repay our debts.
Furthermore, as you probably don't know, we've also scaled back some interesting research projects that had great long-term potential for the company, but were deemed too expensive to continue in light of the fact that we have no cash.
Now, I'd feel a heck of a lot worse about all this if we were the only company suckered into buying our stock at a record high price and paying a big fat dividend on top of it.
But I'm happy to report there were others who also did the same stupid thing.
For example, Cracker Barrel, the restaurant chain that depends on people having enough money for gas to get to its stores along Interstates across America, spent 46 bucks a share for 5.4 million shares of its stock early last year to "return value to shareholders."
Cracker Barrel's stock now trades at $39.
And Scott's Miracle-Gro, whose business is so seasonal it loses money two quarters out of four, put over a billion dollars of debt on its books with the kind of special dividend and share buyback we did.
Health Management Associates-a healthcare chain that can't collect money from about a quarter of the patients it handles-paid shareholders ten bucks a share in a special dividend to "return value to shareholders" and then missed its very next earnings report because of all those unpaid bills and all that new interest expense it was paying.
Oh, and Dean Foods, a commodity dairy processor with 2% profit margins, returned all sorts of value to shareholders early last year-almost $2 billion worth-just before its business went to hell in a hand basket when raw milk prices soared.
So, you see, everybody was doing it.
And boy, do I wish we hadn't.
I Am Not Making This Up
There's a guy who lives in Ohio. One morning, he hears a voice in his head. The voice says,
"Quit your job, sell your house, take all your money, and go to Las Vegas."
He ignores the voice.
Later in the day, he hears the voice again.
"Quit your job, sell your house, take all your money, and go to Las Vegas."
Again, he ignores the voice.
Soon he hears the voice every minute of the day.
"Quit your job, sell your house, take all your money, and go to Las Vegas."
He can't take it anymore. He believes the voice.
He quits his job, sells his house, takes all his money, and flies to Las Vegas.
As soon as he steps off the plane, the voice says, "Go to the roulette."
He goes to roulette table.
The voice says, "Put all your money on black"
He puts up his all money on black.The game ends with red winning.
The voice says, "Fuck."
Jan. 18 | Bloomberg
Mr. Alan Greenspan Greenspan Associates
1133 Connecticut Avenue NW Washington, DC 20500
Dear Mr. Greenspan:
I was somewhat surprised to read that you had been hired as an adviser to John Paulson, the hedge fund manager who made a killing last year betting against the mess you made. The irony is really rich: Paying someone whose policy mistakes and missteps were the source of your success! I'm sure it will be a productive working relationship for everyone involved.
What got my wheels turning, though, was re-reading your comments about your ``Rule of One,'' as I call it. You have said that you would consult with only one client in each industry.
So far, your roster includes one bank (Deutsche Bank AG), one bond-fund manager (Pimco), and now one hedge fund. I'm sure there's some overlap in what these firms do, but my intent here isn't to quibble about details.
If I understand you correctly -- you speak much more clearly than you did when you were Fed chairman, now that you're getting paid a bundle per word -- you still have an opening for a media company. So I'd like to propose what I think could be a mutually beneficial relationship between you and, yes, me.
The benefits to you should be immediately apparent.
1. Buying Access
With each announcement of your exclusive consulting relationship with a client, the chatter is that these firms are buying ``access'': access to your institutional knowledge of the Fed; access to your Rolodex; access to any inside information you might get from policy makers in the U.S. and overseas.
The way I see it, it wouldn't be a bad idea for you to buy access -- from me. Lots of politicians see my column; maybe even a few who are running for president. I might be able to put in a good word for you that would give you a shot at Treasury secretary, an opportunity lost when Jimmy Carter defeated Jerry Ford in 1976.
Running the mint isn't nearly as glamorous as controlling the printing press, but at least it keeps you in the public eye (not that you ever left it).
2. Keep Your Friends Close, And Your Enemies Closer
Let's face it: No one has been a bigger thorn in your side than yours truly. I started my journalism career a few months before you landed at the Fed, and we've been joined at the hip ever since.
If I were on your payroll, you can be pretty sure I'd be talking you up rather than putting you down. I mean, it wasn't until Bill Gross hired you that he stopped trashing you. And you didn't even have to pay him to change his tune!
If you put me on retainer, you'll be surprised how easily I can be persuaded to see economic history in a different light.
Remember how you denied there could be a housing bubble, only belatedly acknowledging some ``froth'' in certain local markets? I've already forgotten you said that, along with your lament on how homeowners would have done better with adjustable- rate mortgages.
Or how about that ridiculously low federal funds rate that overstayed its usefulness for years, not months? I think I could make an argument, based on a ``risk-management'' approach, that it was necessary to ward off deflation.
In other words, Mr. Greenspan, money talks -- or in this case, money would encourage me to talk less, if you know what I mean.
3. Playing Cyrano to Your Christian
Just as Christian de Neuvillette used Cyrano de Bergerac's words to woo Roxane, you, sir, could use a bit more dash when it comes to preserving or, at this point, resuscitating your legacy.
No one ever accused me of being dull or uninspired. And I've always had a hankering to play Cyrano, sucker that I am for that swashbuckling, romantic stuff.
``I draw my sword and raise it high.'' ``Let me choose my rhymes.'' ``Then, as I end the refrain, thrust home!'' Oh, it will be grand. Together we can win their hearts!
4. A Better Crystal Ball
This may be a sore subject with you, but your forecasting acumen hasn't been the best. Your visibility on bubbles has been close to zero. You were late to see recession in both 1990 and 2001. Your rationalizations for your forecasts have been pretty lame as well.
Money manager Bill Fleckenstein sets your record straight in a just-published book, which isn't likely to be a coffee-table fixture in your household.
If you saddle up with me, you can get rid of all those arcane manufacturing ratios and obscure indicators you used to pull out of a hat to justify a policy action. You can do better watching two rates -- the overnight rate that the Fed sets and the long-term rate determined by the market -- than you can with the 18,500 indicators you reportedly track in the bathtub.
I'd like to thank you in advance for considering my offer. I'm ready to proceed with negotiations as soon as I hear back from you.
Very truly yours,
Caroline A. Baum
The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D
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