Clueless In Connecticut

I am a little late with this particular issue. A few weeks ago Clifford Asness from AQR Capital Management had this piece on the state of the markets and the Obama Bank Tax Plan.

Let me state again. I am a former MBS Trader who worked for 3 TARP firms. I started out on the Repo Desk, then moved to the retail flow desk, moving all the way to the mortgage strategy desk. The bulk of my trading experience was pre Glass-Steagall. When Glass-Steagall was repealed, it was the beginning of the end. Bottom Line! The leverage and complexity on Wall Street exploded exponentially. We all knew on the desk that these models only worked because the odds of an exogenous shock was very small. Until then lets go get em. Nothing stopped the structured finance machine. Not the 1994 CMO implosion. Not Argentina defaulting. Not LTCM. Not Russia defaulting. Greed never sleeps. Not on Wall Street. We all knew where the leverage was. It was there right in front of our faces when we walked in first thing in the morning. The Repo Desk! You control the Repo Desk - you control the leverage. The Repo/Short Term lending facility seized up for Bear Stearns and you found out what happened to them. Lehman went out of business because people stopped lending to them on the overnight markets. GE was out of business because they couldn't turn over their Commercial Paper obligations. You don't need a PHD to figure this out. This is why I feel even though the Volcker Plan is a first step, it doesn't come close to fixing what's truly deficient within the structure of the market. Two things need to be structurally fixed. The Repo Market and the shadow banking area. Two places where leverage is at its most dangerous.

http://tradersutra.blogspot.com/2009/07/shadow-banking-for-dummies.html

http://tradersutra.blogspot.com/2009/07/shadow-banking-continued.html

http://tradersutra.blogspot.com/2010/01/shrink-repo-market.html

Changes to these area's require major market structure changes. Changes we will see only when the market goes into a death spiral once again.

If these changes are made. There goes the neighorhood! There goes the $100MM pay days for the likes of Clifford Asness. If these structural changes are made men like Clifford Asness whould have go back to work with discredited washed up has beens like Eugene Fama fightening the uphill fight to protect EMH and free markets. This at the end of the day is what they are trying to protect.

BTW, It would have been a trajedy to give Fama the Nobel Prize last year. It would have only emboldened the EMH nitwits.

http://tradersutra.blogspot.com/2010/01/market-structure-needs-to-change.html

I tell the truth. I made a lot of money in my Wall Street career. I mean a lot of money. I have no axe to grind. I never once used a dollar of insured customer deposits in any of my trades. I never once told any of my counter parties that the bonds they were buying were AAA when in fact they were crap. I always traded against other traders but never in a fraudulent way. I left Wall Street about 9 years ago and never looked back. I was Jim Brown leaving on top. I will not now tow the Wall Street apologist line. I am not looking for a job on Wall Street nor do I care who I offend. Its a total disgrace what Wall Street has become. Wall Street used to be place I once respected. This is no longer true on so many levels. There used to be people who I used to trade with that I greatly respected and admired, but the vast majority of those people are no longer employed on Wall Street, long replaced by low life's and scum bags. Pure and simple.

I am very angry today. I am downright furious to say the least. My apologies for the bad language in this post. I am just so sick and tired of elitists who tell the rest of us whats right and what's wrong. There should be no transparency when one speaks about whats right and whats wrong. This is a universal karmic reality. I understand these are complicated issues with even more complex solutions, but conveniently letting the bad guys off the hook doesn't get us any closer to the resolution that we as tax payers have the right to demand. There has been zero accountability and even less responsibility by our elected leaders. I am not a leftist nor am I a right winger. I didn't vote for Obama either, but blaming Obama is too asinine even to the most well informed. I am just a concerned citizen who just happens to be a former bond trader who wants answers not crap. I know what crap smells like. I can spot it from reading just a few lines. I was a damn good trader who can spot pricing inefficiencies on small screens. So I feel my intelligence is being insulted when I read flat out garbage from first the likes of David Brooks and then Clifford Asness who keep making apologies to the elitists on Wall Street. Firstly, who the hell is David Brooks to preach to us about populism? What a jerk off!

http://www.nytimes.com/2010/01/26/opinion/26brooks.html?em
I am so glad that Matt Taibbi took this elitist know-it-all down about 5 notches.

http://trueslant.com/matttaibbi/2010/01/27/populism-just-like-racism/#post_comments

But back to Mr. Asness who of course is in elitist with a PHD.
http://www.stumblingontruth.com/#

The title of the piece is "Appalled In Greenwich Connecticut", as if anyone in Greenwich has the right to be appalled.

Mr. Asness has made a living going up against the Obama Administration from the Chrysler Bailout to Health Care to finally the Bank Tax. Going back to Chrysler for one moment. This was the best way to handle that issue. We as a nation could not have let the auto companies go out of business. The residual effect of the job losses would have been unacceptable. The bond holders of these entities were playing a game with the administration. They lost! The Obama Administration handled that entire issue as if the tax payer was the boss. If Paulson and his 40 Thieves handled TARP this way, there would be no need for a Bank Tax. The only reason Mr. Asness doesn't like it because the hedge fund crowd got their shit kicked in during the negotiations. They were not bailed out. Obama voted for the original TARP, but must have known that the banks got the keys to the kingdom without any restrictions, this was not going to happen with the auto's. Also the GSE's debt was also guaranteed, this was also a major mistake and a major moral hazard. Obama and the auto task force did bully the HF crowd because they (HF Crowd) have themselves come from a culture of entitlement bailouts. They themselves have for decades used predatory bullying tactics to get what they want in bankruptcy negotiations. They couldn't get Obama and the tax payer to bail them out in bankruptcy. They have this idea that they can buy bonds at way below face value and then demand 100% payout. To which I say "FUCK YOU!" This administration as well as the past moron administration should have taken this stance with the banks. Just because a wrong was committed in TARP doesn't mean we have to follow this nitwit behavior to infinity.

I just finished reading parts of Mr. Asness's drivel. Its your basic apologist view of Wall Street's basic practices. Actually all of Mr. Asness's views are 100% like this. In short he is an elitist Wall Street apologist.

HE starts out with this:

"When a failing government with authoritarian impulses needs help, it’s pretty standard strategy to call down a pogrom against an unpopular class of citizens. The bankers are nothing if not unpopular."

A POGRAM? This is insulting! I am not even Jewish and I am insulted. Right at this moment he has lost all credibility. He must have written this while golfing with David Brooks.

How in the world can Asness call the Obama Administration the most transparent administration ever? Where was he for the last 8 years?

"But most of the banks, and in particular the ones in the headlines for paying large bonuses, have paid back all their TARP loans."
No Mr. Asness! They are not fully out of their governmental responsibility. As I have posted before they may have paid back TARP, but what about the other implicit/explicit government debt programs like TLGP?

http://tradersutra.blogspot.com/2010/01/bank-pay-back-tarp-who-cares.html

When the banks are completely aligned away from the public safety net, they then can make demands. Not a day before or a penny after wards. Everyone knows that every last dime of guaranteed TLGP debt is being used to finance crappy CRE/RMBS debt from collapsing. Shame on Mr. Asness for not knowing this basic fact.

Mr. Asness likes to stomp on FNMA/FHLMC, he does this by completely absolving Wall Street's own lending practices.

More ludicrous drivel:

"According to bailout alarmists nobody would have survived, neither man nor beast, without TARP, so why is this argument unique to the banks, and again why are they paying back everyone’s debt just by virtue of their success?"

The banks were insolvent before TARP and quess what? They are insolvent now. They have just printed bonus money borrowing from the Fed at ZIRP, then lending to the Treasury at 4%. Any idiot can money in this environment. You don't need fancy models or a PHD to do this. Their success is only real to the kindness of the tax payer and Ben Bernanke.

"Again, as in the Chrysler bankruptcy that drove me to a similar missive last year, the government is seeking to write ex post facto rules. It’s entirely possible that if during the dark days of the bailout the government told banks, "we get half your profits for the next two years," the banks would have signed the deal. No one asked. The deal was the deal. There is no crying in baseball."

Bottom line stupid reasoning. If a bad deal was done in 2008 by Paulson, does the tax payer have to take it in the ass till infinity? We are not playing baseball brother! The rich/wealthy/affluent think its a game. The public doesn't buy this.

His idea that any tax will hurt the shareholder is even more moronic. Of course it only hurts the shareholder. That is the way the banks want it. They created the system and culture of bailouts. In Mr. Asness's world banks should not be regulated and should be allowed to what ever shenanigans they want to do, because at the end of the day its the shareholders that get hurt. They must teach a class in Circular Logic somewhere at the University Of Pennsylvania. Did I tell you that Mr. Asness used to work at Goldman and got his PHD from the University Of Chicago? That he was a student of Eugene Fama? The same Eugene Fama who gave us the useless Efficient Market Hypothesis that has been completely discredited.

Mr. Asness was against the bailouts? Is against TBTF, but the simple fact that he has a job today is because of the bailouts and the idea of TBTF has probably made him millions over the years. Its this type of bailout culture from the S&L's, LTCM, and right through the current crisis that has directly made people like Mr. Asness very wealthy. Its the classic I want it both ways because I am an intellectual elitist approach.

The idea that taxes are bad should be stricken from the lexicon of American thinking. Bush had the idea that if the problem can't be fixed with tax cuts I am all out of suggestions. Supply side economics failed. Trickle down economics directly tricked into Mr. Asness's bank account. There is no free market because the market was never free. Global credit markets have been controlled by the Wall Street/Hedge Fund/Banking Industry cabal since time began. Its this same cabal that has financed and made people like Mr. Asness greatly wealthy.

He talks like he hates bailouts but he greatly benefited from them. He says TBTF is not good, but he has benefited again greatly because of them.

"Bankers (and by this I mean Wall Street in general) are certainly guilty of acting irresponsibly and aiding and abetting the bubble, but assigning them sole blame is ridiculous."

Note to Mr. Asness: It was predominately a Wall Street issue that caused the crisis. Has Mr. Asness read about Goldman and naked CDS buying? Has Mr. Asness ever heard of ABS CDO's? How about synthetic CDO's? How about whole loan funding that was 100% financed with borrowed leveraged money? How about Pay Option Mortgages? Negative AM Mortgages? The GSE's didn't create these. Wall Street did. Government had a hand in encouraging lending but it was Wall Street and their network that made it into an art form. Does this guy actually read the papers? Read the hundreds of books about the economic meltdown? Sub Prime has been around for decades. The defaults were higher then prime but where was the catastrophe in the 70's? in the 80's, in the 90's? The GSE's stopped mortgage lending in a big way in 2003 because they were going through their own audits. Who picked up the slack Mr. Asness? That's right! It was Wall Street! They were the ones who made sub prime into the cesspool that it became. It was a classic Wall Street edict through out their network to underwrite mortgages regardless of the quality. It was this the idea of Network Finance that directly led to horrible underwriting standards. Lending standards went into the toilet because Wall Street didn't care. As soon as the loan was underwritten, it was packaged and fraudulently sold to investors as AAA investments. After there was no more bad loans to make, no more borrowers to underwrite bad loans to, Goldman Sachs and others started to create synthetic CDO's, super senior classes, and finally mezzanine levels of financing. Goldman even had the cojones to buy CDS insurance on crap CDO's and synthetics CDO's that they directly underwrote. They even went so far to buy naked CDS insurance on shoddy sup prime paper. They then leaned on the ABX Index, causing pressure to the underlying collateral, thus triggering ratings downgrades. Does Mr. Asness know about this? Does he have selective memory? Does he even have the vaguest clue what he is talking about? Blaming this crisis on anything else is borderline criminal and unacceptable.

"Well I think the answer is obvious. If you fix too-big-to-fail you fix almost everything. You need light regulation as fraud is still illegal and banks bear their own downsides. Risk is run much tighter by financial institutions who know that nobody has their backs. All is well and we can keep on rockin-in-the-free-market (can one legally paraphrase Neil Young while supporting Capitalism?)."

First of all, I applaud Mr. Asness for the fact that he believes fraud is illegal. He wants to fix the banks? How? By just letting them loot the tax payer to infinity? No regulations. No restrictions. Just the same ludicrous out of control behavior that has taken place the last 30 years. This is his solution. Light Regulation? We have had that for 30 years chief! Look what happened! The simple fact that Wall Street will do a better job of self regulation will tell you all about Mr. Asness and his University Of Chicago brethren. Earth to Asness! Greenspan was wrong! Milton Friedman was wrong. You cant leave the keys to the kingdom in the hands of predatory thieves. He also states that any regulation would have failed. Wrong! He also says that fixed income markets were more regulated then equities. You kidding me? How about the shadow banking market? OTC Swaps Market? CDS Market? How about them?

I couldn't even read the rest of his crap. I only finished half way and tossed the rest into the toilet. That's right. Where it belongs.

I will leave you with these final absolute gems: How does one even begin to respond to this shit?

"We hear a ton about bankers’ bonuses. In no way did the large bonuses, or “asymmetric risk and reward” of bonuses, cause the real estate bubble, still the major cause of our pain."

I am shaking my head. Why do people wake up and go to work on Wall Street? Why do real estate agents actually go to work in the first place. Wall Street is dominated by the greed culture financed by investment banking fees. Not being aware of this simple fact is mind numbing.

Mr. Asness has become incredibly wealthy because of Wall Street's predatory greed culture, he wants to ensure his kids and grand kids also benefit from the same culture, that's why he wants loose regulation, that's why he is against Obama's Bank Tax. Finally that's why he conveniently scapegoats Wall Street's role in the crisis.

"Derivatives also didn’t cause the real estate bubble."

Simple unbelievable! This guy is completely clueless. The simple fact that AIG was insuring CDO's with derivatives financed the US Housing Bubble. Anyone who can't see that after all that has happened is just not living in reality.

Mr. Asness probably is a nice guy, that doesn't mean he isn't full of shit.