Tuesday, February 23, 2010

Great Mystery

I must be missing something?

Why oh why are we still fixated and obsessed with the rotten banking and financial sector?

Regulators report 27 percent jump in problem banks
http://www.reuters.com/article/idUSTRE61M3OS20100223

As well as these headlines directly from Dow Jones.

( DJ ) 02/23 10:00 *DJ FDIC: US Banks Saw 4Q Slide In Loan
( DJ ) 02/23 10:00 *DJ FDIC: US Banks' Loan Losses Climbed In 4Q
( DJ ) 02/23 10:00 *DJ FDIC: US Banks' Charge-Off Rate Hits 26-Year High In 4Q
( DJ ) 02/23 10:00 *DJ FDIC: Deposit Insurance Fund Hits -$20.9B In 4Q
( DJ ) 02/23 10:00 *DJ FDIC: `Problem' Bank List Continues Rise In 4Q, Hits 702

This coupled with S&P giving us more horrendous delinquency news in the CMBS space only fortifies my thesis that the lunatics are running the Nut Ward. It is beyond any rational reason to keep owning institutions that are only in the business of borrowing from the fed and lending to treasury. On top of the fact that they should be returning any profits from these activities to shareholders instead of handing out bonus money. An untrained monkey can do what these bankers are doing at the moment. Maybe the only ones buying are truly primates?

Monday, February 22, 2010

CMBS Delinquencies Still Rising

S&P issued its latest quarterly report on US CMBS issues. I am trying to get the link, but so far I have been unable to do so.

S&P expects CMBS delinquencies to reach 7-8% in 2010. The delinquencies were 1.1% at the start of 2009 and ended 2009 with 5.15% worth of delinquencies.

The question to ask is 2010 the peak in delinquencies? S&P believes 2011 will be the peak.

S&P also concludes the following:

In the March 2001 to November 2001 recession, delinquencies peaked at 1.96% in December 2003, which is 25 months after the recession ended.

From July 1990 to March 1991 recession, delinquencies peaked at 7.53%, which is 15 months after the recession ended.

One must conclude that the peaks are expanding. I don't see delinquencies peaking until at least sometime in late 2012, at at least 20%. It all depends on all of those lousy CMBS deals (Lehman & Archstone) that were done in the vintage years of 2006-2008. Delinquencies tend to be highest in years 3-5 in the lifespan of a loan, which means 2006-2008 is primed for delinquencies and outright default. Especially 2006-2007 which make up some 3/5Th's of outstanding CMBS principal.


I am still trying to find out why the banks are still buy's?

Sunday, February 21, 2010

Inequality At 1920 Levels

Its a great time to be a Wealthy Affluent Looter.



I have stated before that societies can't function when 99% of people are disenfranchised. This is because all of the money is controlled by 1% of the population. This is economic self destruction.

The truly difficult questions that must be answered to fix our economy and country are being willfully ignored. Our economy is 2/3 consumer spending, thus we are a consumption economy. When the booze is gone, people leave the bar. Our economy is on death watch. Firstly of the crushing leverage and debt that has been pasted on top of all of that debt mortgage debt, secondly from the massive deleveraging that is being forced on consumers. Our Consumption based economy is running on fumes.

Every day I read more and more of people's utter desperation. This desperation stems from the fact that 99% of society is being systematically taken apart by the powerfully and politically affluent. The wealth of our once great nation has been transferred to Wall Street and the power elite.

As we hear more about the Austin airplane suicide, I am only left to wonder if a new era of desperate violence is upon us. The media will no doubt spin this as an isolated nut job, but of course they are also in on this giant wealth transfer from the beginning.

Friday, February 19, 2010

Deficit Commission Only Means Higher Taxes

Barack Obama's Executive Order To Create A Deficit Commission.

http://www.whitehouse.gov/the-press-office/president-obama-establishes-bipartisan-national-commission-fiscal-responsibility-an

The words Bipartisan and Free Markets should be stricken from the national vocabulary. They don't mean anything. Bipartisan only means that tax payer funds can be evenly distributed to both parties so that an agreement to loot the nation can be achieved. They have come up with just another way for Congress and DC to whitewash the public into thinking that they work for us. Evan Bayh who is a good man quit this past week. He was one of the last good ones working for the country. He knew that its all a scam and he didn't want to be part of it anymore. I am just hoping that he recharges himself and runs for general office in either 2012 or 2016. Again, didn't we all thing Obama was that transformational figure?

Going back to Obama's Executive Order, all it is is a backdoor tax increase on the country. That is the ultimate end game. Its all posturing. Can't these guys do anything face up? Look at it this way. If I were a member of the fiscal commission, what would I try to achieve? To balance and bring the deficit in line. There are two ways to do it. Cut spending or raise taxes. Its quite simple other then raiding or invading Saudi Arabia or Canada to loot their oil, these are your two choices.

Considering that the country is run by the dual hydra of Defense/Big Business, Congress is run by campaign funds, and the Obama Administration is gutless to Business, the only other way is much higher taxes. The Democrats will want to raise taxes to expand an ever expanding social safety net. This will politically insulate the donkey's from the charges that they are tax and spend. We all know they are in the pockets of Wall Street so they will not dare cut spending on Medicare/Medicaid. The GOP will be in favor of tax cuts because they are in the pockets of the Defense Industry and also the Insurance Industry. It will be very convenient for both parties to sharply increase taxes on the electorate.

This is Obama's plan. President Obama can then campaign in the 2012 general election that he did not break his no taxes on the middle class pledge, but rather a independent bipartisan deficit commission group broke it. Blame them! Not Me! President Obama wants to take credit for trying to fix the fiscal situation but duck responsibility for having imposed higher taxes. Guess what? It will work. We need higher taxes across the board in this country. Americans have lived off the hog for too long. I know its not entirely all the taxpayer's fault that deficits and the economy are in horrible shape, but we are the ones that keep electing these guys who sell us down the river. First it was Bush now Obama. If Americans wake up to the fact that living on credit and China is not in their strategic long term benefits, maybe they will start electing people who in fact don't sell them down the river. We allowed Bush/Cheney to sell us the faulty Iraqi War Intel. We allowed Clinton to repeal Glass-Steagall. We allowed Clinton to embolden Rubin and Summers to totally deregulate Commodities from supervision. We allowed Obama to let Wall Street go back to business as usual. We have to stop this. We have to stop watching Lost, American Idol, Tiger Woods on ESPN NEWS, and other moronic shows and get involved at the grassroots. Many people call the Tea Party idiots and the such, but at least they care enough about the long term health of our country.

Gyro's Going From Broke?

Greece is in a race to the bottom.
In one final last ditch effort to raise cash we have this:

Greece's Next Test Is in a Bond Sale
http://online.wsj.com/article/SB10001424052748703315004575072772642726384.html?mod=WSJ_hpp_MIDDLTopStories

This is no different to what Russia did in the hours leading to their default. Don't be surprised to find out that Goldman Sachs will be the book runner.

Why not try to fix a debt and leverage crisis with more debt and leverage?
I will say this. This is just another attempt by Greek officials in cahoots with bankers around the world to raid the coffers of the public.

The best thing for Greece to do for the Greek people is to default on their debts. Greece has some 4.5MM workers supporting some $300B in debts. Its mathematically impossible for them to restructure their finances. They don't have the horses or the juice left. The only thing other then default is to let the leeches at GS come in and fleece what ever is left before a formal default. This sounds to me a lot like the late 90's. Times don't change.

The one thing to watch is the CDS levels after the debt is placed next week. I am sure the CDS will come in the days before and then suddenly jump higher. This will be obviously Goldman and other predator banks just positioning themselves for the eventual collapse.

I personally think Greece is coming to the markets far too quickly. The bankers are running the countries finances. They will no doubt price these bonds friendly to the investor public. But how friendly? Europe in general is on a major debt issue binge. Portugal is also on tap to raid the coffers as well.

All of these public sovereign bond issues is on the backs of yes higher short rates in the US as well as major stresses in European High Yield debt markets.

http://www.telegraph.co.uk/finance/economics/7251901/Credit-markets-flash-hottest-warning-signal-since-crisis.html

UK Gilt market is not exactly a great market at the moment. There is no more support for these Gilts in the absence of QE. If Gilts go down the drain then the German Bund Market is next.

http://www.guardian.co.uk/business/2010/feb/18/bond-vigilantes-uk-budget-deficit

Also there is a massive exodus out of HY funds. Investors are clearly worried about risk and high beta offerings.



These are the headwinds that are in the Gyro's Grill.
We will quickly find out if this in fact the Gyro's last stand.

Clueless As The Day Is Long

These comments from Albert Safdie from Bank Hapoalim makes me want to drown puppies. I am so furious that nothing has really changed with the Financial Services Spin Machine. This morning we have the following comments which are in no doubt in full rinse cycle mode.

"We have growth without inflation. That's what you're looking for. Banks are not lending, banks are deleveraging, we're going to have much smaller financial institutions going forward. The days of excesses and leverage are over.... Lending is going to be a lot more disciplined and therefore the growth is going to be a lot more restrained. That's why you're seeing the numbers today. There's still big unemployment. We're still looking to see upticks in employment... I expect interest rates will remain low for a long time."

You just can't make up these things. Nothing truly has changed since the economy was on the edge of a cliff. Can someone tell me where the growth is? There is no growth in the US Economy! There was never any real growth throughout the 2000's. It was all Wall Street/Financial Services structured finance growth. The fake growth rates were driven by leverage and borrowing money that would never be repaid. We have even worse fraudulent growth currently. They have printed and printed money, tax breaks and credits up the wazoo, QE, TARP, TLGP, Cash-For-Clunkers, amongst others all in a desperate attempt to keep alive a rotten to the core financial system. What have we gotten for all of the drunken spending that currently equals $23 Trillion? Minimal growth! 3.5%! Even that keeps being nudged down month after month. I forgot, Wall Street is back to paying hundreds of billions in bonus money.

It is downright criminal to state there is growth in this economy. Its just fraud. Its willful disregard for the facts and the truth, all in an attempt to revive a rotten system. Its ludicrous to say that financial firms are deleveraging. The only ones that are deleveraging are consumers, because they are forced to. The banks have never been forced to take proper write downs and take proper marks on their crappy loans. Why would they need to reduce borrowing and debt when the government makes it so easy for them to borrow at zero and invest with Treasury for 4%? Wake up! The days of excess leverage are not over because it never stopped! Wall Street firms have grown obese to the point of exploding. There is zero lending going on to the real economy, while repo markets are back to the same nutty lending behavior of the great moderation. The reason the real economy and employment are struggling is because our nitwit moronic economy is based on credit expansion. The banks do not want to lend because its the prudent thing to do when real unemployment is pushing 17%! Interest rates are going up. Why? Because when the Fed raised short rates, it automatically lets people know that the cost of borrowing is going up.

All I see saw far is every Wall Street Analyst/Strategist letting everyone know that they have everything under control. That the Fed raising rates is very good for the banks and the market. This is just another attempt to keep the morons fully invested so that the banker and traders on Wall Street can hit their bids. This is how a Ponzy System works. You have to keep the uninformed interested so that the informed can get out and leave the masses holding the bag.

I am not shocked to see stock index futures steadily move higher this morning, anything else would shock me. If I came in and noticed that the futures were down 20 handle? I would actually buy knowing fully that the spin machine needs to create a buying crescendo.

This is what our markets have become. Wait! It never changed Dummy! It never will until there is no more market left. Isn't that what happened to housing?

Today is all about putting more lipstick on the pig that is the US Economy. This will continue until there is no more lipstick.

The people on Wall Street and the ones in Government are in a desperate race to the bottom. Americans are going in for the ride.

I have a title for my novel - Mutual & Willful Destruction.

Thursday, February 18, 2010

Quants...

There has been a lot of talk about Quants and financial Modeling.

There is a new book out about the Quants. I just got it in the mail.

http://www.amazon.com/Quants-Whizzes-Conquered-Street-Destroyed/dp/0307453375/ref=sr_1_1?ie=UTF8&s=books&qid=1266539953&sr=8-1

The Economist is running this story today, Its an excellent piece like all the stuff coming out of the Economist.

Number Crunchers Crunched
http://www.economist.com/specialreports/PrinterFriendly.cfm?story_id=15474075

The story had this one breathtaking graphic.



The default probabilities and correlations that were used in pricing the risk in the hundreds of billions of CDO's were so off its tragic. The Gaussian Capula function that was used to price these CDO's are still being used today in other securitized objects.

I have stated before that human behavior can not be modeled even by the smartest of people using the best computers. Its beyond the intellectual capability of man and machine combined.

http://tradersutra.blogspot.com/2009/10/kill-quants-but-dont-forget-congress.html

http://tradersutra.blogspot.com/2009/03/aig-quants.html

The Onion Hits It Again and Bernanke Listens

When the Onion knows more about what's going then the WSJ, CNBC, Bloomberg, and NY Times combined we all are living on "Borrowed" time.

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion
http://www.theonion.com/content/news/u_s_economy_grinds_to_halt_as

Did I mention that the Fed raised the Discount Rate after the close of trading .25bps to .75bps?

Is Bernanke a closet Onion reader?

Goldman, Gyros, Russia, And More Swap Action

All I have heard in the blogospere and news media outlets these past few days is how Goldman Sachs executed swaps for Greece that allowed Greece to understate its debt. This understatement allowed Greece to get EU membership.

Firstly, everyone knew what Greece was up to going back in time. I mean everyone! Its beyond disingenuous for the EU leadership to pull the "Babe In The Woods" defense. These guys all know what swaps and currency deals are. They probably executed them on behalf of clients before they were in the EU. Swaps are a huge business in Europe, not knowing that sovereign governments use them to manage/manipulate debt affairs is ludicrous. Anyone who thinks that this type of currency/swap transaction behavior doesn't take place is clueless. Its like walking into a whorehouse in Las Vegas and being surprised to see whores! The next time you walk into Caesars Palace on the strip and don't notice gambling please let me know? Willful disregard is the same as negligence in my book.

Secondly, Greece is not the only country to get involved in Cross Currency Swap Agreements. Italy had done this in 1996. This is what foreign/sovereign governments do. They finagle their finances. How do you think Greece was able to load up on $300B of debt? How do you think Lehman Brothers built up a $500B balance sheet? Leverage and borrowed money.

Thirdly, the idea that Investment Banks are not complicit in these shenanigans is downright criminal.

Let me just say I am a career Wall Street Trader. From 1991 through 2002 I worked at 3 major huge Investment Banks. I traded US Treasuries, Mortgages, CMO's, and finally Interest Rate products. I know how Wall Street Rolls! I have no axe to grind and I am not looking for a job on Wall Street either.

Let me take you back some 12 years to the Russian Debt Crisis. You know the one that precipitated LTCM to blow up? The one that caused global panic?

I lived through this crisis. I traded during this crisis. It wasn't fun.

The New York Times once had the best financial writers. The piece below was something that I read back in 1998. Its an excellent piece of real financial reporting. I have no clue what has happened to them since.

EASY MONEY: For Russia and Its U.S. Bankers, Match Wasn't Made in Heaven
http://www.nytimes.com/1998/10/18/business/easy-money-special-report-for-russia-its-us-bankers-match-wasn-t-made-heaven.html?pagewanted=all

You got to love the Internet and Google search. With the Internet you can't hide the truth.

"And in June, as Russia lurched toward a financial crisis that set off global shock waves, the House of Unions was rented for a glittering celebration of capitalism, with one of the country's most ardent bankers, Goldman, Sachs & Company, as its host. Goldman flew in former President George Bush, paying him more than $100,000, and entertained Russia's former Prime Minister. But between toasts to United States-Russian ties, the talk was about what really mattered to Goldman and many Wall Street brethren: deals."

"So in the days preceding its elegant soiree, Goldman helped the Government raise money by selling $1.25 billion in bonds. A few weeks later, it arranged a complex deal in which short-term debt was exchanged for long-term debt to give Russia financial breathing room."

Sound Familiar?

"To critics, including Russian officials, analysts and some investment bankers who worked in Russia, Wall Street helped hook Russia on easy money, rarely saying no or advising clients to take it slow. They fed the seemingly insatiable appetite for borrowed money."

Where ever there is debt, you can bet Wall Street is not far behind.

"Bankers helped the Russian Government borrow billions from foreign investors before it could reliably collect taxes to pay them back. Bankers flattered the country's oligarchs, an emerging class of elite businessmen, with generous loans that many commercial banks shunned as too risky. They helped regional governments raise money for farms through ''agro bonds,'' even though the system of money-draining Soviet-style collectives never ended."

The Russian Economy didn't have the basic infrastructure to support banking. This didn't matter to Goldman and others. It was just get the deal done and leave.

"For example, Credit Suisse First Boston, the Swiss-American investment bank, pioneered a way for foreign speculators to buy and sell high-interest Russian government debt. The bank was one of the most active traders in Russia, adding to an already overheated market. It was also one of the biggest sellers of Russian debt derivatives to foreign investors, earning big profits in 1996 and 1997 but losing what analysts expect will amount to $500 million to $2 billion this year because of its heavy exposure in Russia after the country defaulted."


Like I said, when Wall Street sees a sucker; they attack! These investment banks are leeches.

"Investors -- including big mutual funds and hedge funds -- also complain that Goldman was so eager to prove its underwriting prowess to the Russian Government that it flooded the international market for Russian bonds in the final weeks before the country defaulted. Moreover, Goldman used a bond deal to pay back one of its own temporary loans. It also used $550 million of its own capital to create momentum for its second big bond deal, but reduced that exposure to Russian bonds shortly after the deal was complete. Those moves raised some concerns among investors, especially because the bonds are now worth much less than they were when they were first sold."

And it will never change....

"I think they are horribly bad at doing due diligence,'' Mr. Hunter said of Goldman and Yukos's other bankers. ''They were moved by greed, frankly. They preferred to hitch their horse to these guys rather than to face the truth."

"Goldman also arranged a $6.4 billion bond swap in July, which allowed investors in Russia's short-term ruble debt to exchange their holdings for longer-term dollar bonds. This offered at least temporary breathing space for the Government."

Any difference to what Goldman has done for Greece?

You want conflict of interest?

"Rival bankers and investors say the bridge loan raises the question of a conflict of interest because Goldman, with nearly 4 percent of its partners' capital tied up in that one loan, was highly motivated to market the June bond deal -- and make sure that it was big enough for Russia to pay Goldman back. Goldman itself at that time was preparing to issue shares to the public, a move that would require the private partnership to open its books to scrutiny for the first time in its 130-year history. A large bridge loan to the Russian Government, unsecured by collateral and made at a time of considerable turmoil in emerging markets worldwide, would have raised a red flag for brokerage firm analysts and credit rating agencies, which view that kind of lending as high risk."

Goldman Sachs has a history of predatory behavior. Its not the first time they have acted in direct disregard for their clients. How in the world do you think an outfit like Goldman Sachs can make the billions it does every year even when the global economies go into the tank? They trade against governments(Greece & Russia), against other companies(AIGFP), and most importantly their own clients. What's next? Goldman making a market in US CDS debt?

Add Denmark As Well

I thought the US was bad, but four northern European countries have sneaked past the US Consumer.



Debt around the world is not all the same. Its apples and oranges. I don't know if the consumer debt in Denmark is secured or not? Also the mortgage debt in America is tax deductible, while many people in the Netherlands and Denmark don't pay down their principal on mortgages. The mortgages are generally interest only.

Student Loan Hell & Jesus Freaks - Perfect Together

The worst type of predatory lending stems from the Student Loan Industry.
This story is quite sad. Its not uncommon, that this is the plight of millions of students across the country. Forget for the moment you actually have a job, what about the millions of students who don't have employment? The jobless rate for new college graduates are the highest in decades. I understand that you don't have to start paying these loans immediately, but sooner or later the debts stack up.

The $555,000 Student-Loan Burden
http://online.wsj.com/article/SB10001424052748703389004575033063806327030.html?mod=wsj_share_twitter

I will for the life of me never understand the Student Loan Industry. I just don't get it. I understand the scam that it is, but don't understand the psychology of students who get brainwashed into higher education. You see it on TV with these ads for online education. People who have Ivy League degrees are sitting at home, what makes you so sure your on-line degree is going to put you in a better situation? Its just another scam by the student loan industry to enslave students from the get go. These people who are diluting themselves getting their degrees online are better off working at Starbucks. It will be less costly long term. Why cant these people learn a trade? Be a plumber or a welder?

Its the same thing with marriage and the idea of God. You have to get married! You have to get an education! You have to own a House! You have to believe in God! Its all crap to control you and enslave you. We have had our brains drilled from the time we are embryo's the same silly rhetoric.

Its this endless talk of fear that puts people in a defensive posture. Fear of not getting the right job. Fear of being alone. Fear of going to hell. This is how society controls you, through fear. This is how they control you to the day you die. They want you to conform to what they think is right.

There are certain types of people who are just not set out to attend college. Just like there are millions who should never get married.

Yesterday was Ash Wednesday. This is the day I can easily spot the Jesus Freaks from a mile away. The guy who thought up the Efficient Market Hypothesis must have been a Jesus Freak because these nitwits are the only ones who think they live in reality.

What are these people going to do when they die and there is in fact no Heaven. I would give about $23 Trillion just to see the look on the faces of these people when they find out that Jesus never existed. That in itself will make the next 50 Years of economical hell worth it.

I can not wait. Bring it on.

Debt Weight

WSJ had this graphic earlier this week.



I noted before in an earlier post about Greece being the start of the problems in Europe.

http://tradersutra.blogspot.com/2010/02/is-greece-really-bear-stearns-of-europe.html

The above graphic clearly points out that similar problems are evident in Portugal, Spain, and Ireland. The CDS market is telling you loudly who (US,UK, & Japan) are in fact Too Big To Fail. The more debt you owe the more systemic your country becomes. One would think that Belgium (EU Headquarters) is next. The debt levels per % of GDP are worse then Ireland, Portugal, and Spain as well as CDS insurance is currently cheaper.

Indications Of Interest

Wall Street Still Doesn't Get It
http://neweconomicperspectives.blogspot.com/2010/02/wall-street-still-doesnt-get-it.html
I believe a "real" revolution must be undertaken at the grassroots level to stop the looting of the world by the bankers. Every single American who has lost his job, his chrome://foxytunes-public/content/signatures/signature-button.pnghouse, his car, etc should come to NYC(somehow & someway)and picket outside JP, GS, MS, CITI, BOFA till the cows come home. Maybe these Tea Party people have something? These citizens should force Obama and Congress's hand. People with jobs should stage a boycott from work. Just stop consuming for 1 day. Stay at home. The apathy that Americans have shown over the last 40 years or so has only emboldened DC to legislate theft. Greed is good, but unregulated and unadulterated greed is not.

Party Gridlock in Washington Feeds New Fear of a Debt Crisis

http://www.nytimes.com/2010/02/17/business/economy/17gridlock.html?hp
I have always admired Mr. Bayh. He is a man of character. If losing Massachusetts was bad, this is worse. Obama better cowboy up and get real reform/regulations on Wall Street. Americans understand that the economy is bad, jobs are difficult to come by, but the way the Administration has handed trillions to the bankers is unacceptable. First thing: Fire Geithner!

Bulk Of Stimulus Spending Yet To Come

http://online.wsj.com/article/SB10001424052748704804204575069772167897834.html?mod=WSJ_hpp_MIDDLTopStories
Obama is just waiting around for the next crisis to write checks from the Stimulus bill to Wall Street. The real bulk has already been earmarked to help the bankers when they create the next crisis. It is totally mind blowing that we are some 12 months into Obama's Presidency and we still don't have a "real" program for struggling homeowners. HAMP is a joke! Its a handout to the mortgage servicers and banks. Without a proper mortgage principal reduction plan we are going nowhere to keep Americans in their homes.

Stimulus Jobs on State’s Bill in Mississippi
http://www.nytimes.com/2010/02/17/business/economy/17mississippi.html?hp
I am on the fence on this one. There definitely will be some fraud here, but jobs need to be desperately created.

Poll: Large majority opposes Supreme Court's decision on campaign financing
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/17/AR2010021701151.html?hpid=topnews
I am not surprised. The Supreme Court has lost its marbles.

Goldman Sachs, Greece Didn’t Disclose Swap Contract
http://www.bloomberg.com/apps/news?pid=20601087&sid=asBNXSLtlN9E&pos=1
I find it disingenuous of Greece to blame GS here. The swaps that GS set up were not illegal. Disclosure is a tricky subject. What's truly perplexing is GS executing the swaps then also setting up CDS insurance on Greek debt to other counter parties. Where have we seen this before? Why will Greece get bailed out? You guessed it! Goldman Sachs exposure.

Obama's Nuclear Boondoggle
http://motherjones.com/blue-marble/2010/02/obama-goes-nuclear
$12B for a single nuclear reactor? Sounds efficient to me. Why are we building nuclear reactors when we already have then embedded in the banks? Is that not what a CDO/CDS/IRS are? Wait a second? At least nuclear power will be regulated. I find it only prophetic that by the time these reactors are finished, there will be no economy or credit system.

It's Greek To Goldman Sachs
http://www.truthdig.com/report/item/its_greek_to_goldman_sachs_20100217/
Its reasonable to assume that GS and French banks are involved in every economic crisis so far. If only AIGFP was around to sell CDS against Greek debt. Lets get something straight. GS didn't cause the Greek debt crisis, the Greeks did that themselves. They just nudged and fudged like they have always done. Just Like CDO's that were packaged together with thousands of garbage loans were sold as AAA investments, these swaps were clearly designed to hide Greek debt. Is it illegal? How can it be illegal when it was never regulated anyway. There in itself is the trillion dollar answer.

Struggling Over a Rule for Brokers
http://www.nytimes.com/2010/02/16/business/16adviser.html?ref=business
I don't know why there is a debate over fiduciary responsibility? The lobbyists and Congressional whores are completely out of control.

Greece loses EU voting power in blow to sovereignty
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7252288/Greece-loses-EU-voting-power-in-blow-to-sovereignty.html
Default and bankruptcy are not humiliating to anyone anymore. Its strategic and smart. Greece will pull a fast one on the EU and default on their debts. Its the only way out for the Gyro Makers. They will not sit and watch Germany/France and others ripe apart their country. They will unleash pain in Europe and sit there and just smile.

Bank of England rate setters voted 9-0 to halt quantitative easing

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7255411/Bank-of-England-rate-setters-voted-9-0-to-halt-quantitative-easing.html
The hope was that drunken money printing would go on forever. Its no longer a pure monetary issue regarding inflation. Inflation is what they wanted and what they have at the moment. Its an ethical issue that forces the banks to come clean on their balance sheets.

Dubai World Said to Offer Debt Restructuring in March
http://www.bloomberg.com/apps/news?pid=20601109&sid=aaTMHCg2vKVc&pos=10
Silliness. The banks are in trouble in the desert. Dubai holds the cards. They can come up with any plan to restructure the debt. If they catch flack for it from the banks, they will just play the default card. I would start off offering a price of 50 cents on the dollar.

Walgreen's to buy Duane Reade
http://www.reuters.com/article/idUSTRE61G2IL20100217
DR in NYC is very well run financially from what I hear. Otherwise the stores are dirty and the employees are not helpful. Oak Hill partners were bailed out by WAG, as who wants to own retail in this economy?

UK Unemployment Claims Jump to Highest Level since 1987
http://www.bloomberg.com/apps/news?pid=20601087&sid=aBnXUou9D74c&pos=5
On this bit of good news the FTSE has rallied solidly for 2 days.

Credit markets flash hottest warning signal since crisis
http://www.telegraph.co.uk/finance/economics/7251901/Credit-markets-flash-hottest-warning-signal-since-crisis.html
Again, more good news that have rallied global equities this week.

Morgan Stanley may hand creditors $2.4 billion hotels
http://www.reuters.com/article/idUSTRE61G0UX20100217
Walk away is the new buy and hold.

Our Rising National Debt Matters
http://www.realclearmarkets.com/articles/2010/02/17/our_rising_national_debt_matters_98349.html
Debt has always mattered. What the problem is now is that China and Japan are balking at adding anymore. We sell billions on Military technology to Taiwan and somehow think China is going to shrug it off? The Dual Hydra of Defense/Big Business think they can get away with anything like selling to Taiwan. Maybe China will have the balls to stand up to the U.S. Government? Because obviously no one else does in our country. Ponzy Schemes only end when the perpetrators of the fraud are called out and his held accountable.

Bowles, Simpson to Head Debt Commission
http://online.wsj.com/article/SB10001424052748704804204575069871801865444.html
Stop the looting of America! We need a commission on that. Obama is readying higher taxes across the board starting with the middle class. In this way Obama can campaign in 2012 stating that I didn't raise your taxes, it was a bipartisan commission that did so. Why is this not surprising? First we had backdoor bailouts for outfits like GS, now we will have a backdoor tax increase directed at the nitwits that reliquefied Wall Street. I don't like it but the way the country has been run into the ground, its 100% necessary. Americans have been living in OZ for far to long. Higher taxes will make Americans take hold of the political process.

Shifting Blame

http://alhambrainvestments.com/shifting-blame/
Excellent piece. Greece has been living a lie for decades like Rock Hudson. Like in India, no one pays taxes in Greece. Blaming the speculators is not going to cut it. Isn't that what Lehman and Bear did? Its a game amongst thieves. They are all in it just for a bailout. Whenever you have a boom there is always a bust.

Wednesday, February 17, 2010

Glass-Steagall Was An Early Warning Sign.

When Former Treasury Secretary Larry Summers and former Senator Phil Gramm (R-Texas), among others, pushed through the repeal of the Glass-Steagall Act in 1999, they didn’t give proper thought to the dangers of institutions funding a bankers/traders casino with guaranteed customer deposits. When Bill Clinton signed the new law into effect repealing Glass-Steagall in November 1999, it sowed the seeds for the economic crisis. I don’t believe Clinton in his heart of hearts wanted this law to be repealed; it was just that everyone else in his cabinet did. Robert Rubin, Larry Summers, and other Wall Street heavy’s had this one law that was in the books since 1934 in their cross hairs. Wall Street’s crony capitalism regime for years had been funding political campaigns. That is why crisis after crisis rules and regulations were never enacted. From the S&L’s, Junk Bonds, LTCM, 1994 CMO Implosion amongst others were conveniently dismissed as temporary hiccups. But the one law that had been a noose around the necks of bankers and institutions since the 1930’s needed to be repealed. This law needed to go so that bankers and traders would be free to gamble with insured deposits. Most Wall Street institutions were not partnerships; they were now publicly traded companies. Before Goldman Sachs was a publicly traded company they were a partnership. In a partnership, whatever money that is traded is the partner’s money, so you better be careful in your investing and trading. So you can bet that gambles and leverage was in total control, as you had to justify the risks to the bosses whose money you were taking risks with. But when GS converted to a publicly traded company, the partnership was converted to actual shareholders whose interest no longer depended on taking bets per say, but by how high the stock traded on the exchange on any given day. If you can control the risk and show steady profits, your stock went higher, enriching the former partners. This was the way GS was run. I am sure the timing of the repeal of Glass-Steagall and Goldman’s debut on the exchange was not a coincidence. Goldman went public earlier in 1999. Goldman knew that once they became a publicly traded company they had to open themselves up to everything. Before they were run like a tightly knit group of partners. Who cares if Glass-Steagall is there or not? We are a private partnership, that doesn’t affect us. Once they were a publically traded entity GS needed to expand their horizons. I understand that Goldman didn’t have a commercial bank back in 1999 or took in deposits, but once Glass-Steagall was repealed, the whole idea of Too Big To Fail was born. Before if investment houses gambled with their own money and lost, they would be left to either go bankrupt or find capital from other investment houses. They would have to raise capital from private sources, so they controlled their risk accordingly. They knew they would be ruined if they screwed up. The public would not bail them out and politically there was no will for bailouts in a Glass Steagall world. Remember LTCM was bailed out by other Wall Street Investment Firms with help of course from the Fed. Now with the combination of commercial banks and investment houses, the risks would be too large for the economy to let these entities go bust. They were free to trade and take absurd and out sized risks. This was their line of thinking even back in 1999. The bankers were already setting the stage for what was to come. I personally know this for a fact as I noticed after Glass-Steagall was repealed that risky propositions and trades that used to be frowned on were now green lighted. I have worked for major Wall Street institutions before and after the repeal of Glass-Steagall. The entire mindset and attitudes surrounding risk did a complete 180 degree turn. Wall Street didn’t overnight start to gamble with insured deposits, but the foundation for future government bailouts was planned out. The incentives to take risk were plenty. The math geeks and quants were building more and more complex models that no one understood except the math geeks. Who am I to argue with a PHD from MIT? After all, these guys had Nobel Prizes. LTCM only blew up not because the models were bad, we were told. Of course not! Stuff happens; it was a 10 standard deviation event that occurred. This kind of stuff never happens, this time we have it all figured out. Just believe and trust the math. Math is never wrong. This was the attitude that was forced on us by upper management. They were following theories that had been drilled into other academics minds since the early 70’s. If you didn’t listen to the models and put in your own trades, you better be careful. Don’t lose money on your own. Listen to the geeks. They were never wrong. If the bankers were back in the world of partnerships they would have never let the quant’s take over Wall Street.

What was lost on everyone was that models can’t predict human behavior, no matter how great they are. No matter how complicated they get, this is a universal truth. Humans do stupid things; they are irrational creatures when confronted with the unordinary.

Again, you can’t model human behavior with mathematics. There is no computer model that will ever tell you someone will pay their mortgage, and there never will be. This was the most maddening thing about the Gaussian Capula Function/Model. It was this model that was created by a JP Morgan quant that enabled Trillions of CDO’s to be packaged and sold. This model gave one default figure for an entire tranche of thousands of mortgages. Just think about that for a moment? How in the world can you possibly model default correlations for disparate asset classes? The nerve to think you can eliminate risk this way, but that is what happened. The entire CDO business was about spreading risk away from your firm and unto someone else’s balance sheet. Do I have to add that there was never appropriate data on subprime defaults? That the data that was used was for a given period of low defaults? In some modeling, they didn’t even model this, they just modeled the last 10 years of CDS pricing. Can you actually believe this? They sold trillions of CDO’s packed with subprime and 2nd lien mortgages to investors, paid off the ratings agencies to slap AAA on them. The ratings agencies were getting paid 600K to rate a $500MM CDO, follow the money. All for what? AAA CDO’s were only trading some 25-30BP above Treasuries! The sheer greed is infuriating! Again, all of this was made possible by the Fed keeping rates low. This enabled the dollar to get weaker relative to other foreign currencies. Export driven countries were raking it in selling their goods to over leveraged US consumers. The flow of dollars created current account surpluses for many emerging countries like China. China just recycled their dollars back into our Treasury market, pushing down long term interest rates, which in turn kept mortgage rates very low. All of these exotic and toxic mortgages were modeling low default rates because housing never goes down. Housing had never declined more than 5% since the depression. This is what the models at Lehman, AIG, Merrill, WAMU, Wachovia, and Countrywide were telling them.

There is never been a model that figures out the correlation between two asset classes. It’s never been done for a reason. It’s impossible to model and or calculate. Doing so is only trying to fool the fool. It’s pure charlatanism. The computing power today is just not powerful enough to calculate all of the cash flows and the such in these complex derivatives.
The risk will and always be there. You can’t calculate it or hedge it. Risk and reward are beyond the intellectual limits of computers. Just like the idea of God is beyond the intellectual limits of our own minds, but yet we still want a personal relationship with god. Give me a break! How egotistical to think god wants a relationship with you. Going back to the repeal of Glass-Steagall only made Wall Street more beholden to complex modeling; this is because a lot of the models needed excess leverage to work. Excess leverage needs excess cash. Enter customer deposits. Most of these huge Wall Street institutions had trillion dollar balance sheets that were levered some 25-1, if the value of your assets drop just 5%, there goes your equity. But again, housing never goes down. The models have it all covered. Many smart short sellers actually read the CDO prospectus and noticed not only subprime mortgages but 2nd lien mortgages attached to them. A lot of these CDS contracts written against CDO’s only had a 5% trip wire associated with them, meaning the seller only has to post collateral if the CDO goes down in price 5%. Guess who was selling CDS insurance? AIGFP! AIGFP was drinking its own quant cool-aid. They were using AIG’s AAA ratings to underwrite CDO insurance. These guys in a million years never though they would have to pay up for these contracts again because housing never goes down. Put it all together and it’s a low rate induced credit orgy.
The whole plan of repealing Glass Steagall was predicated on knowing that the government would come to the rescue of not only the economy but customer deposits. It was the Wild Wild West all over again. The global casino that was created after Bretton Woods had been eliminated only was further emboldened after Glass Steagall was gone. The Commodities Modernization Act was the final piece of the puzzle. The grand master plan that Wall Street had envisioned since 1929 was put into effect.

The introduction of Glass-Steagall in 1934 had been highly damaging to the economy, because it de capitalized the investment banks, killing off the capital markets for the remainder of the 1930s and playing a major role in prolonging the Great Depression. This is the excuse that the banks use today in not reappointing Glass-Steagall. This was all true. However, by 1999, the investment banks were more than adequately capitalized (provided they followed sound principles of risk management and leverage, which of course they increasingly didn’t). This was the main selling point and rational that Summers, Gramm, and others pointed to, but as we all know, the rationale for allowing commercial banking and investment banking to be combined was shaky at best. It should have caused further doubt that the trigger for killing Glass-Steagall was the acquisition of the investment bank Travelers by Citigroup, which almost went out of business in the early 90’s.
Volcker’s plan to separate prop trading is a huge first step in reigning in bank risk and size. Whoever says that prop trading didn’t cause the crisis is not living in reality. I have trillions in losses that say otherwise. The banks originated toxic loans, packaged these loans but couldn’t sell them. They had to keep those loans on their books. If this is not prop trading I was in the wrong business for 15 years.

Incentives To Loot

As I walk into work today I am firmly in the camp that the SPX would run up to 1100. This is not a stretch for me to say as the futures are printing 1100 when I walked in. Anyway that seems to be a nice round number for the market to gun for. About 10 days ago the SPX was at 1044, so the recent 5% run up in the averages cooled off the bears. The bulls have held most of the cards since last March. Every sharp spike down in the markets have been bought and new highs have been made. We will have to wait and see if this particular decline will just be reversed as well.

Today's news du jour item of the day is New Home Construction.

"Groundbreaking activity for new homes increased 2.8 percent to a seasonally adjusted annual rate of 591,000 units, reversing the prior month's weather-induced drop, a report from the Commerce Department showed on Wednesday. Analysts had expected housing starts to rise to a 580,000-unit pace. December's housing starts were revised upwards to 575,000 units from the previously reported 557,000. Compared to January last year, starts surged 21.1 percent, the largest increase since April 2004."

Of course the market loves this. What's not to like? The gravy train continues. The construction industry loves to build homes because the home builders are incentivized to build and get fronted money from the banks. The banks get the money at near zero interest rates and give it to the home builders. Where do the banks get the money? They borrow it of course from the government and tax payer. So eventually when these home units are not sold because no one can get a mortgage in this country the tax payer is on the hook for these unsold homes. Why don't the banks originate mortgages? Because why loan out funds to over leveraged and unemployed Americans when you can borrow at zero and lend to the idiots at Treasury at 4%? This was the whole plan from the beginning. The Treasury/FED played out this charade perfectly. They told everyone that TARP/TLGP/QE was enacted to get the bank’s lending again, but they really had a secret handshake agreement with the banks specifically not to lend. This was the prudent thing for the banks to do when the economy is losing hundreds of thousands of jobs every month. The banks then stopped lending to everyone in the country. They cut credit lines and closed credit accounts aggressively across the board. All along the Treasury/Fed was outraged! We gave you all of this TARP/TLGP money to lend but you are not lending? Good going guys! You are listening. This whole TARP/TLGP/QE shame was enacted for the banks to rebuild their balance sheets via bulking up their Net Interest Margins. You don't have to be a genius to run a bank. You borrow short to lend long, in the process you capture a yield spread. The only problem is when you start underwriting/originating mortgages to dead people and household pets. So Geithner and Bernanke told the dolts at the banks that they have a great idea. We will lower rates to zero and we will print you guys trillions of dollars. The only thing you nitwits have to do is to plow that money back into the Treasury Market. Presto! Capture an easy 4% yield. You morons can handle that? Oh! In the process we will make Congress pass a law that legitimizes and legalizes accounting fraud. You guys don't have to mark your mortgages/loans to market. You know the mortgage that was underwritten to Maxie the Parrot? Forget it! Extend and Pretend. We are in such a giving mood that we are going to debase and murder the USD by blindly printing it up by the Trillions so we can give it to you in exchange for all of the moronic loans you guys made. This is QE in action. The Trillions that we have drunkenly printed you guys can just keep that as excess reserves as long as you want. You guys need the excess reserves to support your shadow banking/OBS shenanigans. Dot worry about the low rates you guys are currently getting, we have a plan to raise the interest rates on excess reserves, because we are so afraid of inflation and all of that money you guys are lending out. So you guys can gorge on the extra interest and pay yourself billions in tax payer financed bonus money even next year. You imbeciles can handle these simple instructions while we hood wink the country and tax payer?

The following paragraph might seem funny but it’s so depressingly true. Everything that has been done so far by Treasury/Fed is to ensure the same rotten to the core system is re inflated back to business as usual. These bankers brought the entire global financial system to the edge. They knew they would get bailed out. These same bankers are about to blow up the entire continent of Europe. When does it end? When does the looting end? I tell you when. When we stop incentivizing and institutionalizing the looting and raping of common ordinary citizens. The reason there are no more slaves in America, is because there is a law against it. Goodness! They fought a war over it! Do we need to fight another civil war against the banking/lobbying/corporate state?

Tuesday, February 16, 2010

Tax Cuts, Supply Side Silliness, & Static Thinking.

I was at a social gathering over the weekend. I only went this gathering as a friend of mine recently had a baby and was repeatedly asking me to come and see his child.

“You Have To Come And See The Baby!” It was pure Seinfeld.

At this gathering there were many “Wall Street Types”, traders, analysts, and bankers who were very nice and courteous. We chit chatted about many different subjects like the Super Bowl, Olympics, Avatar, and NBA Trades. Soon the topic of conversation moved to the banker bailouts. I alerted to them that I used to work on Wall Street as a bond trader. Surprisingly, just a few of them were surprised that I had taken the stance against Wall Street and the bailouts. Most of them understood the public anger that had erupted over them. One trader alerted to me that without the bailouts, he would have had to file for bankruptcy protection and most probably would have lost his house. Obviously he was in favor of it. Others hated the idea that tax payers were on the hook for Wall Street’s decadence. So far. So good. We are all on the same page.

Until…..

The talk moved to TAXES! I met one particular individual who was a right wing anti tax, anti regulation, anti government Republican. He was intelligent and articulate in his speech, but he hardly made any sense. I will call him Rich for arguments sake. Rich and I had an hour long civil argument over economics and tax policy. What I found out was that Rich was an Ivy League graduate who worked for a very prominent I-Bank on Wall Street. So automatically I am left to believe that the rules just simply don’t apply to him like the rest of us minions. Rich went on for what seemed like hours over supply side economics, trickle down theory, EMH, tax policy, and deregulation. At the end of his ranting, I was able to decipher the following:

Rich is what I consider an articulate ignoramus with no ability to weigh reality vs. theory, a guy who is so ignorant regarding the actual workings of the economy that it should scare all of us. The simple fact that he works on Wall Street didn't stun me. I mean I understand the culture on Wall Street, but for a person not to understand the basic workings of economics and finance just made me realize that the entire country has been brainwashed into thinking along the lines of right wing think tanks. This man and millions more like him vote and actually believe they are informed and well read. But in reality these types of ideologues are static thinkers, unable to adjust to the reality of a dynamic world. This is really the problem within society in general. We look at certain people and say that they are intelligent, well read, an all out intellectual; the simple fact that they read hundreds of books and get advanced degrees doesn’t anoint you an intellectual. Their thinking is based off of snapshots in time. They build a theory off of this snapshot that has already happened and then they have the gall to predict the future based off of it. Regardless of what the future brings and delivers to us they still stick to the same old ludicrous ideological underpinnings, regardless of the facts and results. This is the definition of an ideologue in my opinion. This is also the main difference between a good trader and a bad one. A good trader makes an educated guess based on empirical evidence, but once he executes the trade he is automatically wrong. What does he do? Wait till the trade gets right? Or cut his losses? Most good traders will tuck in their ego and cut losses, in many cases, they completely reverse course. Doing a Costanza! Most of my best trades were of this variety. The ability to dynamically change your thinking process and to make quick informed trading decisions is at the heart of what a good trader does. A great trader does this very quickly and defiantly. Sticking to the same old script/story/theory that has been wrong for years just exemplifies you as an ignoramus. Doing so after you know it’s wrong in practical situations is moronic. Many people know the limitations of Black Scholes, but they use it anyway. Did portfolio insurance help investors in the 1987 crash? Did VaR assist LTCM? Did all of the complex derivative modeling save AIG? Did the Gaussian Capula function/equation work for all of those CDO issuers and investors? Absolutely not! Many people knew the limitations of these models and functions, but they used them anyway because supposed smart intellectual people created them. They were being ignorant. What’s truly moronic is that those same models that failed us are still being used today. Totally moronic behavior. So it’s not a surprise that my Wall Street friend kept to his guns about supply side/trickle down economics. We all know supply side economics has failed in theory as well as in practice. Just look at the income disparity and inequality?

Let’s take a look at the argument that….

Supply side tax cuts to the wealthy will grow the economy.

Nice theory, maybe it even had some truth 30-40 years ago in an era that, ironically, had the very regulations that the free market proponents have since dismantled. But here is the reality of tax cuts to the rich. This is what happened. The wealthy in this country are different then us. They eat, sleep, walk, talk, shower, most importantly invest differently them us. In fact they have more money than us because of the way they invest. The wealthy do not manage their money themselves, they give it all to investment banks and hedge funds that invest in the USA and abroad. The world of the super wealthy is tiny; competition is fierce so these hedge funds and I-Banks stand around in a circle shooting at each other for dominance on a day to day basis. The average person can’t invest in a hedge fund or get personal attention from his broker at Merrill Lynch. It doesn’t work this way. I used to work at a hedge fund so I know the clientele. These are the guys who took Crude to $150, all the while screaming that it was all supply/demand that was pushing Crude higher. Did I happen to mention that the supply of crude was increasing and demand dropping for the better half of the last decade? Hedge fund assets have exploded over the last 30 years before this past recession. Where did the money come from? You got it, the super wealthy. How were they able to invest? You got it, lower taxes on income and capital gains. Where is it good for the economy that gas is $4? Where is it good that a loaf of bread is $6? The tremendous flow of money inflated every single asset class to unsustainable levels. This killed the average person while the wealthy were cashing out. Coupled with central bankers always lowering rates when ever spreads widened out preserved the wealthy status quo. Long term interest rates dipped to again unsustainable levels to such an extent that the whole system was flooded with a Tsunami of credit. Again. Where did all of this money come from? The wealthy as well as the conduit for the wealthy - the central banks! These same hedge funds invest in China, India, The Middle East, Latin America, etc. Creating bubbles in those countries. Does this create and protect jobs in the USA? It’s these same Hedge funds and I-Banks that naked short sold sick banks and institutions and bought/sold CDS on companies, forcing them into a position where they would need to be bailed out by the tax payer. Is this good for the economy? They trade global currencies, gambling with the economic relationships between nations. Is this good? It’s these same hedge funds and I-Banks that created the lend to securitize mortgage model that pummeled loan standards and created a giant housing bubble. Was this good for our economy? They trade sometimes on a very short term basis, by the billions, creating massive volatility and a stock market that is often times disconnected from fundamentals and reality. Is that good for the economy? The apologists say it’s the free market! It’s Capitalism! This is what we do! The market is far from free and capitalism has failed! That’s the reality, but some still cling to the idea of Free Markets/Capitalism because that’s all they have left to justify their rape of ordinary citizens. This is no different than Warlords justifying ethnic cleansing. No different than Mullahs/Clerics justifying what they do to women in Islamic societies. All of this was made possible because of lax rules and regulations and a tax policy that made issuing debt more credible and profitable. All in the name of Free Market Capitalism. I am all in favor of Capitalism that is why I cheered when Lehman went into the toilet. Dick Fuld screwed up and everyone had to pay. It was horrible but that’s the way the cookie crumbles. What happened at AIG was a complete disgrace. Anyone who says Lehman should have been saved is completely clueless. If Lehman would have been bailed out, Dick Fuld today would be releasing billions in bonus money backed by the tax payer to the same assholes who screwed the company up. No thanks! We have witnessed enough atrocities so far.
In short, tax cuts to the wealthy have resulted in an acceleration of the gutting and raping of the USA economic infrastructure. In a world of 6 billion plus people what we've done through our tax code is set up a system where a few thousand families, maybe even a few hundred of the new gilded age were given crack cocaine on a global scale. Conservatives, blinded by their ideology, used the tax code and banking deregulations to turn the world’s economic infrastructure into a gambling casino on the borrowed money of the US taxpayer. Just look at the debt we have built up? These lunatics on the right who carry water and bread for the wealthy misunderstand even the most basics of economics. A democracy cannot survive long term if 99% of the people are disenfranchised. What we have seen so far is the wealthy just want to go back to the same broken system that has failed 99% of society previously. This isn't about some capitalistic notion of fairness. It's the reality of human nature and the frailties of humans. Whenever good enough is replaced with naked greed the system will fail. The super wealthy have so much money that there is simply no place to put it to work without disrupting markets, even on a global scale. This is not the path to a stable economy. There is absolutely zero rational (economic or otherwise) to take Ariba to $500 a share or Crude to 150. When gas costs 25-50 cents a gallon to make, there is simply no way we should pay $4 for it in a world of no shortages unless the speculators who work at hedge funds/I-Banks are gaming the system because they are funded up the wazoo by the wealthy. The idiots in society who keep electing the same crooks are left to no other device other then grin and bear it. There is no reason that a government for the people can market gas for a buck. Eugene Fama the father of the Efficient Market Hypothesis should be shot because the market was never efficient. Especially considering that The market is actually very inefficient if one considers all the other legitimate concerns of the human race.

The liberalization of technology and infrastructure without any barriers to global international investing opened the door so that all these hedge funds & investment banks could operate in purely their own interests in a world without borders and or rules. There has not been one job created by supply side economics, regardless of what the conservatives want you to believe. Instead, they've taken the inventions, wealth & power of the American middle class & spread it all over the globe unevenly. So now, in order to prevent a global economic jihad against the US, us taxpayers are going to subsidize the irresponsible & greedy who will still be allowed to keep their billions, their jobs, their Ferrari’s, their yachts, and their mansions. We are in effect going to pay off the rest of the world, who trusted and invested in our economic products, because of the irresponsible CEO's & conservatives like Phil Graham, Grover Norquist, and Dick Cheney, who decided to play with the stability of the world for their free market experiment. I can’t blame all of it on the conservatives, people like Larry Summers and Robert Rubin have also pulled the wool the taxpayer as well.

What’s worse is this. These super wealthy, who live in no single country and have zero patriotism except for the might dollar will move & take their fortunes to China, Europe, India to wherever while the rest of us pay the bill in a country that has been stripped of its economic, financial and social infrastructure.

This is what supply side economics and tax cuts have done to our country.

Lipstick On A Pig

Businessweek has these interesting facts.

States That Can't Pay for Themselves
http://finance.yahoo.com/loans/article/105909/States-That-Can%27t-Pay-for-Themselves

California
Budget gap (as a % of the total budget): 22%
Gap: $22.2 billion

New York
Budget gap (as a % of the total budget): 9.8%
Gap: $5.5 billion

Florida
Budget gap (as a % of the total budget): 19.9%
Gap: $5.1 billion

New Jersey
Budget gap (as a % of the total budget): 7.7%
Gap: $2.5 billion
NJ Governor just announced major spending freezes

Arizona
Budget gap (as a % of the total budget): 19.9%
Gap: $2 billion

Nevada
Budget gap (as a % of the total budget): 16%
Gap: $1.2 billion

California by itself is the 8th largest economy in the world matching roughly the entire GDP output of France.

From the CIA FactBook

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html

Greece is the 34Th largest economy
Italy is 11
Spain is 13
Portugal is 50
Ireland is 56

Additionally...

43 states in financial trouble

http://money.cnn.com/2008/12/10/news/economy/state_budgets/index.htm

By itself Greece shouldn't be a problem, but it is because banks have become interconnected. There is a high correlation with respect to one country defaulting when there shouldn't be. French and German Banks own a huge part of Greece's $300B in debt which in turn makes those banks as well as countries unstable. This is how banks posture for bailouts. You can be certain that research reports from German/French banks will harp on the interconnectedness's of Greece's sovereign debt problems. These banks are also huge in the sovereign CDS market for their neighboring countries.

Monday, February 15, 2010

Classic IndyMac Interview

Some Stuff In Life You Cant Make Up.
You Just Have To Watch And Listen.



You just got to love some of these quotes:

“only a quarter in option arms”
“the borrowers have very strong credit”
“borrowers know what they are getting into”
“half of our business is owners accessing the equity in their homes”

For all of you housing bulls out there. I leave you with this:

Indications Of Interest

Good Stuff To Read

Credit Suisse Declares the U.S. a Riskier Investment Than Indonesia
http://washingtonindependent.com/76529/credit-suisse-declares-the-u-s-a-riskier-investment-than-indonesia
This is too much. Either CS is long CDS on US Debt or selling CDS on Indonesia? What is it? Also, lets just count the Nuclear Weapons? Shall We?

Handy sovereign risk table

http://ftalphaville.ft.com/blog/2010/02/10/146606/handy-sovereign-risk-table/
More Credit Suisse Conspiracies.

Wall Street's Race to the Bottom
http://online.wsj.com/article/SB20001424052748703630404575053514188773400.html
I like Elizabeth Warren. She is on the side of the good guys, but she is wrong when she says that for 50 years we avoided blow ups. We have had many blow ups, granted not as severe as the most recent recession, but nonetheless we have had issues because policy makers have sold out the public for the benefit of big business. There is no free market and capitalism is dead.

Not so risk-free
http://www.economist.com/businessfinance/displaystory.cfm?story_id=15498265
There is no risk free trade. Its basic arithmetic. Why do you think Geithner wants to extend the duration of US Debt? Extend and Pretend Baby!

The Fed's Exit Strategy - Mark Thoma
http://moneywatch.bnet.com/economic-news/blog/maximum-utility/the-feds-exit-strategy/455/
Excellent! You can always learn something from Mr. Thoma.

Chris Hedges on the Corporatocracy
http://www.truthdig.com/avbooth/item/chris_hedges_on_the_corporatocracy_20100214/
"Democracy in America is a useful fiction and a myth." Well Said! "Obama is a Brand!" Even Better Said! Corporations, lobbyists, and Congress have used fear to make Democracy inoperable. I posted about the Permanent War Economy merged into the Perennial Corporate State yesterday, Mr. Hedges talks more about this in this piece.

Bank America Forecloses on Home that was already paid in Cash

http://www.tampabay.com/news/business/realestate/bank-of-america-forecloses-on-house-that-couple-had-paid-cash-for/1072632
These things happen when you have incompetent people working at banks, let alone the morons who are running the banks.

NJ GOV Freezes Spending
http://wcbstv.com/local/governor.christie.freezes.2.1487727.html
And to think I thought my Property Taxes were going down. Starve the beast!

‘Volcker rule’ gives Goldman stark choice
http://www.ft.com/cms/s/0/121fe9d0-1753-11df-94f6-00144feab49a.html
Its a disgrace that Goldman is a bank. The simple fact that they converted to BHC tells you they were in the same position as Lehman and Bear. That's why they were saved by Geithner and Paulson.

Georgia Gives Banks More Rope
http://online.wsj.com/article/SB20001424052748704337004575059823971151054.html
You only need more rope in the event you want to hang yourself. It just deepens the crisis as extend and pretend is now officially a law in Georgia. This is all we need. Banks to be highly concentrated to a single borrower. How is this a good idea? Because the tax payers of Georgia are on the hook if the banks default. Now you know why business like it so much.

Cost of Insuring Dubai's Debt Jumps
http://online.wsj.com/article/SB10001424052748703525704575061303885133636.html
Not a surprising story. Dubai 5YR CDS at 632BP. The impending implosion in European debt markets only means that Dubai won't have to pay those debts either.

How Christian Were the Founders?
http://www.nytimes.com/2010/02/14/magazine/14texbooks-t.html?em=&adxnnl=1&adxnnlx=1265937003-BOUagCBag382YrLNgCumsQ&pagewanted=all
If you have a few hours to kill.

Collapse of the euro is 'inevitable'
http://www.dailymail.co.uk/news/worldnews/article-1250433/Greece-debt-bailout-EU-leaders-split-euro-crisis.html
Putting band aids on cancer is not policy. Albert Edwards from SocGen has written in the past about how Central Bankers have murdered the public to the enjoyment of the Wealthy. I am shocked that people still think the the UK should join the EU.

For Some Firms, a Case of 'Quadrophobia'
http://online.wsj.com/article/SB10001424052748704479704575061481908470618.html
More stupid accounting tricks to pump up quarterly numbers that make CEO's Rock Stars.

The gods strike back
http://www.economist.com/specialreports/displaystory.cfm?story_id=15474137
You got to love Black Swans!

Wall Street Helped Greece to Mask Debt
http://www.nytimes.com/2010/02/14/business/global/14debt.html?hp=&adxnnl=1&adxnnlx=1266253215-BLchs6vklzIKMYAwYoaORA
Follow the money. Goldman is never too far when these type of shenanigans are taking place. Bankers want to convince politicians that extending problems into the future is very beneficial for the present. Let me say that bankers didn't enable Greece's problems, but they did enable them to mask the extent of the problems.

Greece Turns on EU Critics
http://www.ft.com/cms/s/0/3cfeab9e-1813-11df-91d2-00144feab49a.html?nclick_check=1
Just like a switchblade, Greece will also turn on the entire EU.

'A Churchillian Defense of the Markets'
http://online.wsj.com/article/SB20001424052748703525704575061412951235830.html
36MM people around the globe have lost their jobs in the current downturn. Mr. Green from HSBC talks a good game but we tax payers need results, reform, and regulations. Where are they?

The New Deal in Reverse
http://motherjones.com/politics/2010/02/new-deal-reverse
The headline says it all.

Sunday, February 14, 2010

Layoffs And Unemployment - What's The Solution?

The following two articles on the state of employment and layoffs are very informative and need to be read and understood. I think they do a great job of explaining the physiological ramifications of layoffs and unemployment, but both articles don't offer a clear way of trying to explain what needs to be done to fix societies problems. We all know why there are layoffs and why employment is in the tank. DUH! Its the economy stupid! What's the plan to rectify the situation? How do we stop layoffs and get the economy adding jobs? These are complicated questions and maybe the authors aren't authorities on economics or world finance, but by just talking and writing how depressed people are doesn't get us the solutions to what truly ails us. It gives us what happens after layoffs and unemployment hits the economy, and how the world is going to look like 10-15 years from now. But by not properly diagnosing the reason we have layoffs and lost jobs, it underscores and underestimates(If that's possible)how potentially more depressing life is going to be not 10-15 years, but 5 years from now. We need to ask and analyze the tough questions and issues that are staring us straight in the grill every day. How did we get here? Why did we get here? When are we going to make tough sacrifices? What are the real world solutions? These questions are not asked so nothing is answered except reverberating millions of people's painful stories.

The Case Against Layoffs:
http://www.newsweek.com/id/233131

This next article I included in my Indications Of Interest (Links). Its a long and depressing read.

How A New Jobless Era Will Transform America
http://www.theatlantic.com/doc/201003/jobless-america-future

So what's the solution? What's the answer to our problems?

First of all we have to figure out how we got here? We got here because our economy and nation are on a dangerous path towards insolvency. Forget the banks, they are already insolvent. Its really our government that we all should be worried about. Every part of our economy is on a fiscally unsustainable path:

1-Health Care
2-Defense Industry
3-Wall Street and Banking
4-Social Security
5-Consumer Spending & Revolving Credit
6-Housing
7-Taxes
8-National Debt

I can add roughly 10 other items here that are equally in horrible shape, but it goes without saying that the extend and pretend policies of our government have completely ruined our once great nation. Its not the question of too much spending, but where its actually going that is absolutely ludicrous. Why do keep fighting two wars you ask? Well because there is a defense industry that needs wars to survive. Its a bloated bureaucracy that's been raping the American public for 30 years. The industrial military complex has gutted America. The GOP/Right have brainwashed America into thinking we need a $700B Defense/Military Budget to keep America safe. This is flat out treason by our elected officials. Boeing, Lockheed Martin, Litton, Northrup, and other military contractors have gotten enormously wealthy and powerful from just preying on the weakness and fears of the tax payer. It's these fears that the defense lobbyists build on to get what they need from Congress. Congress then uses this in a two prong way. First, we need to protect Americans, and secondly we need to protect American jobs. They use national security and jobs as a springboard for campaign contributions and to pull the wool over America. There have been many articles written that say that a military/defense spending actually costs the economy jobs and screws the economy long term without even protecting America.

What we have in our country is the permanent War Economy that is merged into the perennial Corporate State.

Our Wars Are Killing Us.
http://www.commondreams.org/view/2010/01/27-3

The Obscenity Of US Military Spending
http://tpmcafe.talkingpointsmemo.com/talk/blogs/o/l/oleeb/2010/02/the-obscenity-of-us-military-s.php?ref=reccafe

Military Spending is Increasing Unemployment
http://www.georgewashington2.blogspot.com/2009/11/military-spending-is-increasing.html

Like everything else in our country our elected leaders have it ass backwards! Obama comes out with his budget and the places where he needs to slash and burn aggressively he increases spending. Look at the military budget? Increase! Look at Medicare/Medicaid? Increase! All of these bloated programs that have made business's and citizens billionaires at tax payer expense get increased federal assistance. While these blood suckers get rich, the rest of us have to "freeze" or cut back. Obama's budget is such a joke that its hard to believe this is the same guy who got elected in November 2008.

Bruce Bartlett has a great article on the Obama Budget.

Why Obama's Budget Was DOA This Week
http://www.capitalgainsandgames.com/blog/bruce-bartlett/1473/why-obamas-budget-was-doa-week

Defense Spending along with other entitlement programs have destabilized and bleed our economy to the point that mass layoffs and unemployment are generational problems. What is Obama's plan? Lets keep fighting in Iraq and Afghanistan! Lets not explain Health care to the masses so they understand the enormous drain that it is on our economy and country! The simple fact that Obama let Geithner/Summers/Bernanke/Congress muck up financial reform and let Wall Street become another casino is truth that Americans didn't believe in Health care reform, regardless of it actually reducing the deficit or not. The way Obama let Wall Street go back to doing business as usual with speculative trading and absurd bonus payments only outraged the electorate more. Obama had a chance to get real reform and regulations. He delayed and failed. He did the right thing with the auto companies. Why didn't he do the same with the banks? He was simply following the money. He had no stomach to deal with the traitors in his own party that were already in the pockets of Goldman Sachs and JP Morgan. The same ones who had ruined the economy were now running up commodity prices again and paying out huge salaries as the vast amount of Americans were still feeling the pain. Obama lost the center of the country when he allowed Geithner to rape the tax payer so that Goldman officers in and out of government can re load their bank accounts.

We have to figure out a way to make our economy less susceptible to these boom/bust cycles. In great economic times every one is having such a good time spending money that they don't have. When times get tough they cut back. We have to figure out a way to get out of this cycle of debt. Americans are already in a severe deleveraging cycle, who are worried about retirement. They are furiously paying back debt and in some cases just outright defaulting on them. To bad our government just wants to reset the same old broken clock. They are sinking further into debt just hoping against time and good reason that the old guard that performed so well in good times can be restored. This is unacceptable!

Why do we have layoffs and unemployment? Read above! Its the economic boom/bust cycle. A cycle that is financed with money we don't have. The entire world much less or own economy is dominated by the 2 C's. Credit and Crude. We don't have any policy accept business as usual to get out from underneath both of them. Why? Big Business! We have sold out American Tax Payers so that Big Business can dominate. I understand that big business employs millions of Americans, I am not stupid, we do need US companies to be strong, but to what extent? Why have we destabilized our own economy to get there? Why have we allowed big business to run not only foreign policy, but monetary and fiscal policy as well? In fact, big business runs every policy in our country.

Ever since Nixon got us off the gold standard, we have had exploding deficits and debt. When Bretton Woods died the dawn of International Casino Finance/Banking was born. The death of Bretton Woods was a central bankers wet dream. They no longer had to align gold reserves to money supply. They were free to print. Print money and issue debt to finance big business's take over of the world. Ever since the entire world was in this cycle of debt that only brings the classic boom/bust economic cycle to the masses. This is why we have layoffs. Classic overbuilding followed by a painful bust. Jobs are created then severely cut. Sooner or later we were bound for a serious bust. Let me tell you we have not seen the worst bust as of yet, that is because central bankers and policy makers around the world keep spinning debt and printing money to refinance and reload the global casino. What we are headed is a massive debt deflation that will make the events of 2008 look like cub scout jamboree. These guys are in a desperate attempt to revive old bubbles and bad practices. Its a classic race to the bottom.

Second reason we have layoffs is that Wall Street likes them. We hear all of the time from Wall Street analysts that companies need to downsize and cut overhead. You don't think CEO's listen to this? CEO's are in profit mode 24/7 and they know what analysts and money managers want. Its a classic circle jerk between Wall Street's interests and Corporate America. All of the parties involved know what buttons need to be pushed. Ludicrously, this is the business that everyone is trying to save and the tax payer is financing it.

We must drastically cut the defense/military budget. Get the heck out of Afghanistan and Iraq as soon as possible and never mess with the Islamic World ever again. If the Muslims want to pray to Allah 50X a day and have their women wear veils so be it. If they want to live in the 7Th century, so be it. The Muslim World has been fighting with each other since Mohammad died some 1378 years ago! Why are we in the middle of these lunatic actions? These two wars have killed America's resolve and soul while only making Defense Contractors and Black Water better off. Get the heck out of Afghanistan and Iraq!

We must drastically raise taxes! God Damn It! I said it! We all have to pay for the damage that has been done. The stupidity of two wars and the trillions of corporate giveaways is the taxpayer's responsibility because we stupidly believed in our elected officials. Shame on us! There is no way around it. No feasible deficit/debt reduction plan is reasonable or should be taken seriously without higher taxes. Any plan that omits higher taxes is just a scam. Maybe, just maybe we all get pissed off enough paying more taxes this time around we won't be suckered by our elected officials into needless wars and bailouts. This type of beneficial outrage is what is needed.

We cant get out from underneath the credit problems overnight, but we can start somewhere, and making the banks take their medicine is a step. We need to get the bad debt and loans out of the system. Japan didn't do this and twenty years later they are wondering around in a deflationary trance.

http://tradersutra.blogspot.com/2009/06/why-we-look-lot-like-japan-in-90s.html

http://tradersutra.blogspot.com/2009/11/is-japan-really-in-trouble.html

http://tradersutra.blogspot.com/2009/07/japan-redux-if-we-are-lucky.html

Making the banks accountable is the first step. Secondly, after our next meltdown, we have to get serious about financial reform. We have to close the casino that was opened 40 years ago. You want to gamble? Go visit Vegas, Atlantic City, or Macao stay away from our deposits!

We have to strengthen our dollar and the only way to do that is incredibly a strong dollar policy. We cant keep having a Zero Interest Rate Policy. This is why we have asset bubbles that keep boom/bust cycles alive. Why are we breaking the Chinese chops about the way they handle their currency, when we have been wrecking ours for the better part of 100 years?

I am not saying that doing all of these things is automatically going to bring back jobs to our shores and create millions of jobs overnight. Most of our markets are in a secular downturn. There is no silver bullet or easy way out. Some jobs are never coming back because they depended on the fake structured finance economy of the last decade for survival. We are in a deep world of pain because of bad mismanagement of our national finances by technocrats who gave away the farm. Its not happening overnight or even in the short term. If we realize the reasons why we are in the abyss, maybe we can figure out how to get out? The layoffs will come, unemployment will grow because policy makers have not figured it out.

I know many will say these solutions are not implementable. Its not happening. Its not realistic. Bullshit! These are the type of attitudes and rhetoric that has poisoned our political and economic process, only once we start to make these terribly painful choices will we be able to rebuild America the right way.

I don't have all of the answers and solutions, after all I am still relatively young, but my experience tells me that what ever we are doing is just a failed attempt to get out of a bust situation back into a boom situation really quickly so that the same old bad policies and practices can just resume like nothing happened. This may or may not work, but much sooner rather then later its all going down the drain and there will be nothing that our elected officials and society can do except start counting the dead bodies on Wall Street, K-Street, and Main Street.