Tom Friedman should stick to politics. Leave bad financial advise to Ben Stein and Jim Cramer.
His latest missive:
Is China The Next Enron?
http://www.nytimes.com/2010/01/13/opinion/13friedman.html
Mr. Friedman makes an argument that even though Super Short Seller Jim Chanos bet against Enron and won big, he really doesn't know what he is talking about with regards to China.
Mr. Friedman has solid investment rules he never breaks. One of them this gem.
1- "First, a simple rule of investing that has always served me well: Never short a country with $2 trillion in foreign currency reserves."
I don't know where to begin here. Credit bubbles are credit bubbles, and bubbles eventually pop. It did pop in China in 2008. The reason China was able to reignite their economy was their huge stimulus injection they engineered. Of course a big part of that stimulus was foreign currency reserves. The end result? Out of control asset prices that will only lead to another crash. Obviously Mr. Friedman didn't get the memo about the implosion of the U.S. Housing sector. When you have money flushing around it will only engulf into a tsunami of credit. This is the China real estate situation currently. If you thought US and European Banks were out of control, they would be considered girl scouts compared to the Chinese.
http://tradersutra.blogspot.com/2009/11/china-walking-around-like-elephant.html
http://tradersutra.blogspot.com/2009/08/more-on-china-bubble.html
http://tradersutra.blogspot.com/2009/08/more-on-usd-and-china-decoupling.html
I am thinking this type of investment advise has a short shelf life. Did Mr. Friedman live in the 80's? How about Japan? How did that end up?
Countries that undervalue their currencies only do so to grow their trade surpluses, which they use in conjunction with capital flows to inflate asset prices in their own country. They do this with massive credit expansion leading to classic overbuilding of infrastructure. You see. Boom to Bust. Mr. Friedman understands the Boom, but has no clue that it always leads to Bust.
Just because Jude Law is now playing Hamlet doesn't change the ending of the story. Hamlet still dies. If the plot and story lines are the same - the end result is the same regardless of who the actors are.
Mr. Friedman should stick to solving the Arab/Israeli conflict. Something that he has been writing about for 15 years, and leave the bad investment advise to either Ben Stein and/or Jim Cramer.
I have studied Jim Chanos for years. I made money shorting Enron although it was touch and go for a while. Similar patience will be awarded with China.
Wednesday, February 3, 2010
I Don't Like Bernanke Either.....
...Or the Federal Reserve as a matter of fact.
But until someone can give me a better alternative. We are stuck with mediocrity on both counts.
I found the following piece well written and thought out. I also agree with almost everything Mr. Johnson has to say.
http://baselinescenario.com/2010/01/28/a-colossal-failure-of-governance-the-reappointment-of-ben-bernanke/
Where I have a problem is this:
Do we have anybody willing to do this job better then Uncle Ben? Will policy change? Will the new head of the FRB change course and mandate structural changes in monetary policy? Will the new hotshot in charge bring down the leverage in the Repo Market? Mandate proper regulations? Protect the tax payer from future bailouts? The answer here is NO on each and every count. Why go through the exercise of getting rid of a guy just to bring in someone who is going to be a mirror proxy?
We also can't get rid out of the FRB either. We would be the only developed country without a Central Bank. This is unacceptable. We as a country cant give these type's of decisions to Congress. This ultimately would end in tears far worst then what we have already cried over.
We just went through a structural crisis, not a cyclical crisis. A crisis that was 40 years in the making. From Nixon taking us off the Gold Standard all the way through LBO's, Junk Bonds, S&L's, Structured Finance, Securitization, Portfolio Insurance, Black Scholes, Telecom/Internet Bubble, VAR, LTCM, and finally ending with the housing crisis.
Some of these were in fact cyclical crisis', but once you start to put them together what you have is one huge mammoth structural problem. You cant handle a crisis of this magnitude with short term patch work solutions that just kicks the can down the road. It didn't work in Japan and neither will it work here. Getting rid of Bernanke and the FRB is an extremely short term minded exercise that doesn't benefit the country in the long run. We need Bernanke to quickly realize that printing money to give to bankers so they can finance their lifestyles at the behest of tax payers is totally unacceptable. Debasing the Dollar weakens our countries national security. Running up deficits is a national security problem. Hopefully he will come to these assumptions quickly. Getting rid of him and putting someone else in his place just puts us back in the early innings of crisis mode. The new guy will just waste time trying to figure out where Bernanke went wrong. DUH! You don't need to be a genius to figure out whats wrong?
Look. There is no silver bullet for our problems. There is no reset button one can press to alleviate the pain. We just need to have the ones in power be forced to change course. Its much easier in my research to force someone who is already part of the problem to change course then someone new. Someone new will always want to do things their own way and will not be for change. The only time I say change in course is good is that the guy you put in does what needs to be done.
We have Ben Bernanke for good or for worse. I have stated that Bernanke should be reappointed just so that he is the one tasked to clean up the mess he created. This is also the reason I voted for George W in 2004. Why should the Democrats try to clean up the mess from W's previous 4 years? There is nothing to be gained politically, politics is the name of the game currently.
In slight defense of Bernanke, I believe him to be a half way decent guy. I at the end of the day have this feeling that he wants to do the right thing, but just cant pull the trigger. This is in stark contrast to Geithner and Summers who are predatory Wall Street Thugs. These sharks have continually thrown the tax payer under the bus and need to be fired at once.
I hope against hope that we see Mr. Bernanke's "Better Angels" now that he has been reappointed.
But until someone can give me a better alternative. We are stuck with mediocrity on both counts.
I found the following piece well written and thought out. I also agree with almost everything Mr. Johnson has to say.
http://baselinescenario.com/2010/01/28/a-colossal-failure-of-governance-the-reappointment-of-ben-bernanke/
Where I have a problem is this:
Do we have anybody willing to do this job better then Uncle Ben? Will policy change? Will the new head of the FRB change course and mandate structural changes in monetary policy? Will the new hotshot in charge bring down the leverage in the Repo Market? Mandate proper regulations? Protect the tax payer from future bailouts? The answer here is NO on each and every count. Why go through the exercise of getting rid of a guy just to bring in someone who is going to be a mirror proxy?
We also can't get rid out of the FRB either. We would be the only developed country without a Central Bank. This is unacceptable. We as a country cant give these type's of decisions to Congress. This ultimately would end in tears far worst then what we have already cried over.
We just went through a structural crisis, not a cyclical crisis. A crisis that was 40 years in the making. From Nixon taking us off the Gold Standard all the way through LBO's, Junk Bonds, S&L's, Structured Finance, Securitization, Portfolio Insurance, Black Scholes, Telecom/Internet Bubble, VAR, LTCM, and finally ending with the housing crisis.
Some of these were in fact cyclical crisis', but once you start to put them together what you have is one huge mammoth structural problem. You cant handle a crisis of this magnitude with short term patch work solutions that just kicks the can down the road. It didn't work in Japan and neither will it work here. Getting rid of Bernanke and the FRB is an extremely short term minded exercise that doesn't benefit the country in the long run. We need Bernanke to quickly realize that printing money to give to bankers so they can finance their lifestyles at the behest of tax payers is totally unacceptable. Debasing the Dollar weakens our countries national security. Running up deficits is a national security problem. Hopefully he will come to these assumptions quickly. Getting rid of him and putting someone else in his place just puts us back in the early innings of crisis mode. The new guy will just waste time trying to figure out where Bernanke went wrong. DUH! You don't need to be a genius to figure out whats wrong?
Look. There is no silver bullet for our problems. There is no reset button one can press to alleviate the pain. We just need to have the ones in power be forced to change course. Its much easier in my research to force someone who is already part of the problem to change course then someone new. Someone new will always want to do things their own way and will not be for change. The only time I say change in course is good is that the guy you put in does what needs to be done.
We have Ben Bernanke for good or for worse. I have stated that Bernanke should be reappointed just so that he is the one tasked to clean up the mess he created. This is also the reason I voted for George W in 2004. Why should the Democrats try to clean up the mess from W's previous 4 years? There is nothing to be gained politically, politics is the name of the game currently.
In slight defense of Bernanke, I believe him to be a half way decent guy. I at the end of the day have this feeling that he wants to do the right thing, but just cant pull the trigger. This is in stark contrast to Geithner and Summers who are predatory Wall Street Thugs. These sharks have continually thrown the tax payer under the bus and need to be fired at once.
I hope against hope that we see Mr. Bernanke's "Better Angels" now that he has been reappointed.
Tuesday, February 2, 2010
WTF Item Of The Day
You cant be serious!
-John McEnroe
"In the upcoming elections, voters will face a choice between Republicans who are standing with Wall Street fat cats, bankers and insurance companies -- or Democrats who are working hard to clean up the mess we inherited by putting the people’s interests ahead of the special interests," Menendez said in a press release last Wednesday."
Really Mr. Menendez?
http://www.politico.com/blogs/bensmith/0210/Dem_senators_spent_weekend_with_bank_energy_tobacco_lobbyists.html
"The guest list for the Democratic Senatorial Campaign Committee's "winter retreat" at the Ritz Carlton South Beach Resort doesn't include the price tag for attendance, but the maximum contribution to the committee, typical for such events, is $30,000. There, to participate in "informal conversations" and other meetings Saturday, were senators including DSCC Chairman Robert Menendez; Michigan's Carl Levin and Debbie Stabenow; Bob Casey of Pennsylvania; Claire McCaskill of Missouri; freshmen Kay Hagan of North Carolina and Mark Begich of Alaska; and even left-leaning Bernie Sanders of Vermont."
"Across the table was a who's who of 108 senior Washington lobbyists, including the top lobbying officials for many of the industries Democrats regularly attack: Represented were the American Bankers Association, the tobaco company Altria, the oil company Marathon, several drug manufacturers, the defense contractor Lockheed, and most of the large independent lobbying firms: Ogilvy, BGR, Quinn Gillespie, Heather Podesta, and Tony Podesta."
WTF Indeed!
-John McEnroe
"In the upcoming elections, voters will face a choice between Republicans who are standing with Wall Street fat cats, bankers and insurance companies -- or Democrats who are working hard to clean up the mess we inherited by putting the people’s interests ahead of the special interests," Menendez said in a press release last Wednesday."
Really Mr. Menendez?
http://www.politico.com/blogs/bensmith/0210/Dem_senators_spent_weekend_with_bank_energy_tobacco_lobbyists.html
"The guest list for the Democratic Senatorial Campaign Committee's "winter retreat" at the Ritz Carlton South Beach Resort doesn't include the price tag for attendance, but the maximum contribution to the committee, typical for such events, is $30,000. There, to participate in "informal conversations" and other meetings Saturday, were senators including DSCC Chairman Robert Menendez; Michigan's Carl Levin and Debbie Stabenow; Bob Casey of Pennsylvania; Claire McCaskill of Missouri; freshmen Kay Hagan of North Carolina and Mark Begich of Alaska; and even left-leaning Bernie Sanders of Vermont."
"Across the table was a who's who of 108 senior Washington lobbyists, including the top lobbying officials for many of the industries Democrats regularly attack: Represented were the American Bankers Association, the tobaco company Altria, the oil company Marathon, several drug manufacturers, the defense contractor Lockheed, and most of the large independent lobbying firms: Ogilvy, BGR, Quinn Gillespie, Heather Podesta, and Tony Podesta."
WTF Indeed!
Cruel Twist Of Fate...
Maybe. If we are lucky.
I have written in the past that sovereign debt CDS has grown faster and has eclipsed Emerging Market CDS.
Bloomberg is running this story this morning.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWu6fxqwwg_U&pos=7
"The Markit iTraxx Financial Index of credit-default swaps exceeded the investment-grade Markit iTraxx Europe Index by 9.25 basis points"
How in the world can the banks be expected to be bailed out when governments themselves need to be bailed out first? The banks will have to stand in line ahead of sovereigns to get bailed out it looks like. You cant expect governments to prop up banks when their own finances are in shambles.
So the only way I think Too Big Too Fail gets erased from the lexicon of banking is if a bigger and larger entity needs a bailout first. Maybe the banks will realize that they need to get their ducks in a row and control their excess's when its government that goes to the tax payer first.
I would never have thought I would see the day.
I have written in the past that sovereign debt CDS has grown faster and has eclipsed Emerging Market CDS.
Bloomberg is running this story this morning.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWu6fxqwwg_U&pos=7
"The Markit iTraxx Financial Index of credit-default swaps exceeded the investment-grade Markit iTraxx Europe Index by 9.25 basis points"
How in the world can the banks be expected to be bailed out when governments themselves need to be bailed out first? The banks will have to stand in line ahead of sovereigns to get bailed out it looks like. You cant expect governments to prop up banks when their own finances are in shambles.
So the only way I think Too Big Too Fail gets erased from the lexicon of banking is if a bigger and larger entity needs a bailout first. Maybe the banks will realize that they need to get their ducks in a row and control their excess's when its government that goes to the tax payer first.
I would never have thought I would see the day.
SIGTARP Says......
The SIGTARP document is long. I mean real long.
http://www.sigtarp.gov/reports/congress/2010/January2010_Quarterly_Report_to_Congress.pdf
I told you it was long.
But the gist of the report is that Neal Berofsky doesn't pull any punches and says it like it is. This guy is a lot like Bruce Bartlett in the sense that he doesn't care who he offends and how many bridges he burns to get there. He is looking for the truth not a job once he leaves public office.
The one thing that is clear in this report is this: Propping up housing prices is the explicit goal of the US Government.
Not convinced?
Still not convinced?
Straight from the report.
"Supporting home prices is an explicit policy goal of the Government. As the White House stated in the announcement of HAMP for example, “President Obama’s programs to prevent foreclosures will help bolster home prices.”
In general, housing obeys the laws of supply and demand: higher demand leads to higher prices. Because increasing access to credit increases the pool of potential home buyers, increasing access to credit boosts home prices. The Federal Reserve can thus boost home prices by either lowering general interest rates or purchasing mortgages and MBS. Both actions, which the Federal Reserve is pursuing, have the effect of lowering interest rates, which increases demand by permitting borrowers to afford a higher home price on a given income.
Similarly, the Administration is boosting home prices by encouraging bank lending (such as through TARP) and by instituting purchase incentives such as the First-Time Homebuyer Tax Credit. All of these actions increase the demand for homes, which increases home prices. In addition to direct Government activity, home prices can be lifted by general expectations among homebuyers of future price increases."
Talk about moral hazard?
http://www.sigtarp.gov/reports/congress/2010/January2010_Quarterly_Report_to_Congress.pdf
I told you it was long.
But the gist of the report is that Neal Berofsky doesn't pull any punches and says it like it is. This guy is a lot like Bruce Bartlett in the sense that he doesn't care who he offends and how many bridges he burns to get there. He is looking for the truth not a job once he leaves public office.
The one thing that is clear in this report is this: Propping up housing prices is the explicit goal of the US Government.
Not convinced?
Still not convinced?
Straight from the report.
"Supporting home prices is an explicit policy goal of the Government. As the White House stated in the announcement of HAMP for example, “President Obama’s programs to prevent foreclosures will help bolster home prices.”
In general, housing obeys the laws of supply and demand: higher demand leads to higher prices. Because increasing access to credit increases the pool of potential home buyers, increasing access to credit boosts home prices. The Federal Reserve can thus boost home prices by either lowering general interest rates or purchasing mortgages and MBS. Both actions, which the Federal Reserve is pursuing, have the effect of lowering interest rates, which increases demand by permitting borrowers to afford a higher home price on a given income.
Similarly, the Administration is boosting home prices by encouraging bank lending (such as through TARP) and by instituting purchase incentives such as the First-Time Homebuyer Tax Credit. All of these actions increase the demand for homes, which increases home prices. In addition to direct Government activity, home prices can be lifted by general expectations among homebuyers of future price increases."
Talk about moral hazard?
Jimmy Hoffa Would Be Very Proud
Somewhere deep below Giants Stadium lies a man who is quite happy that the International Brotherhood Of Teamsters stuck it to Goldman Sachs.
http://www.risk.net/risk-magazine/news/1589502/goldman-halted-market-yrc-creditor-claim
"Goldman Sachs stopped making markets in bonds and credit default swaps (CDSs) on US freight company YRC Trucking for around two weeks from December 16, as part of an effort to stave off a public relations catastrophe. The decision to stop quoting on YRC is understood to have been taken at a very senior level in Goldman, after freight union International Brotherhood of Teamsters (IBT) sent letters to congressmen, senators and state attorneys-general accusing the bank of encouraging investors to torpedo YRC's restructuring - which would have threatened the jobs of around 30,000 IBT members."
The lengths to one would go to fund the Goldman Sachs bonus pool.
"The story made the pages of the tabloid New York Post on January 9, which declared Teamsters boss James P Hoffa had "stared down Goldman Sachs and the big-money crowd on Wall Street and come out a winner."
This is what we need. We need everyday people who have been destroyed or about to be destroyed go and make a stink to their elected officials. People don't change on their own. They need to be cattle prodded.
"But the episode has also sparked concern that failing companies could use political pressure to strong-arm banks and investors into backing restructurings.
YRC is the first case in which allegations of so-called ‘empty creditor' behaviour have gone public, although disquiet has been growing over the past 12 months In theory, an investor that buys bond-plus-CDS packages in a distressed company is incentivised to see the company fail - the CDS would trigger and the investor would get paid at par on bonds bought cheaply - but critics have yet to catch empty creditors in the act."
Cry me a river. Is this not what the banks do? The IBT just did to the banks that the banks did to the economy. The IBT made Goldman Sachs do their bidding, similar to the way Goldman made AIG, then the NY Fed, then subsequently the US Taxpayer play by their rules
"And then we knew there were newer investors trying to profit on a default, as half a dozen anonymous tips came in telling us entities were making markets in CDS packages on YRC," says Iain Gold, director of strategic research at IBT in Washington, DC. "We made it clear we would hold people accountable and they should factor into their decision process they could put 30,000 people out of work if the exchange failed."
I am not completely condoning the actions of the IBT with their defense. But it did potentially save 30,000 jobs.
Goldman got played a like a fine Stradivarius.
Bravo to the IBT!
http://www.risk.net/risk-magazine/news/1589502/goldman-halted-market-yrc-creditor-claim
"Goldman Sachs stopped making markets in bonds and credit default swaps (CDSs) on US freight company YRC Trucking for around two weeks from December 16, as part of an effort to stave off a public relations catastrophe. The decision to stop quoting on YRC is understood to have been taken at a very senior level in Goldman, after freight union International Brotherhood of Teamsters (IBT) sent letters to congressmen, senators and state attorneys-general accusing the bank of encouraging investors to torpedo YRC's restructuring - which would have threatened the jobs of around 30,000 IBT members."
The lengths to one would go to fund the Goldman Sachs bonus pool.
"The story made the pages of the tabloid New York Post on January 9, which declared Teamsters boss James P Hoffa had "stared down Goldman Sachs and the big-money crowd on Wall Street and come out a winner."
This is what we need. We need everyday people who have been destroyed or about to be destroyed go and make a stink to their elected officials. People don't change on their own. They need to be cattle prodded.
"But the episode has also sparked concern that failing companies could use political pressure to strong-arm banks and investors into backing restructurings.
YRC is the first case in which allegations of so-called ‘empty creditor' behaviour have gone public, although disquiet has been growing over the past 12 months In theory, an investor that buys bond-plus-CDS packages in a distressed company is incentivised to see the company fail - the CDS would trigger and the investor would get paid at par on bonds bought cheaply - but critics have yet to catch empty creditors in the act."
Cry me a river. Is this not what the banks do? The IBT just did to the banks that the banks did to the economy. The IBT made Goldman Sachs do their bidding, similar to the way Goldman made AIG, then the NY Fed, then subsequently the US Taxpayer play by their rules
"And then we knew there were newer investors trying to profit on a default, as half a dozen anonymous tips came in telling us entities were making markets in CDS packages on YRC," says Iain Gold, director of strategic research at IBT in Washington, DC. "We made it clear we would hold people accountable and they should factor into their decision process they could put 30,000 people out of work if the exchange failed."
I am not completely condoning the actions of the IBT with their defense. But it did potentially save 30,000 jobs.
Goldman got played a like a fine Stradivarius.
Bravo to the IBT!
Pawlenty Is Clueless
Another GOP Hack with a phony self serving op-ed piece.
http://www.politico.com/news/stories/0110/32282.html
If this is the best the GOP can muster up in 2012 then Obama just has to show up.
Pawlenty comes out swinging saying that the federal budget is "the largest Ponzi scheme our country has ever seen." The Minnesota Republican is insisting that U.S. policymakers cut spending in order to shore up the countries finances. What a joke! Where was this guy in 2008 when TARP was being pushed unto taxpayers? Where was he on the deficit in Bush's 8 years?
Pawlenty and his GOP hatchet squad complain about the deficit while simply and coolly ignore everything that the GOP party did to create it:
-Medicare Part D
-Two Wars that are to this day unfunded
-TARP
-PORK up the Wazoo.
-Tax Cuts
-Deregulation
I don't even think Pawlenty knows what a "Ponzi Scheme" really is. I must have read this op-ed piece 3 times to find out how he is going to cut spending? He doesn't actually mention anything, he wants the government to cut spending, but doesn't say where, or why, or when, or how, or what the economic consequences might be.
The only reference to anything worthwhile is this:
"Congress should reject federal legislation that places additional burdens on growth, such as the proposed health care overhaul, cap-and-trade bill, labor union card check and tax increases."
Same old GOP Hack Therapy. Reject old ideas without pointing to anything substantial, and don't offer any ideas.
The strange thing here is that even the CBO states that health care reform would actually be deficit reducing. Whats not to like here? I have my issues with Cap & Trade as well, but many independent think tanks also believe that this program would also reduce the deficit. All of these reform programs would in fact reduce the deficit, is this not what Pawlenty wants?
Of course it is. In America the GOP knows that to achieve power so they can loot the country they need to conquer and divide. This type of missive is just to rile up the Tea Party crowd who watch Fox News. Any talk of reducing the deficit that doesn't include tax increases along with spending cuts is flat out phony.
Pawlenty is transparently as phony as they come. Its beyond me that the Republican Party actually believes this kind of non sense.
http://www.politico.com/news/stories/0110/32282.html
If this is the best the GOP can muster up in 2012 then Obama just has to show up.
Pawlenty comes out swinging saying that the federal budget is "the largest Ponzi scheme our country has ever seen." The Minnesota Republican is insisting that U.S. policymakers cut spending in order to shore up the countries finances. What a joke! Where was this guy in 2008 when TARP was being pushed unto taxpayers? Where was he on the deficit in Bush's 8 years?
Pawlenty and his GOP hatchet squad complain about the deficit while simply and coolly ignore everything that the GOP party did to create it:
-Medicare Part D
-Two Wars that are to this day unfunded
-TARP
-PORK up the Wazoo.
-Tax Cuts
-Deregulation
I don't even think Pawlenty knows what a "Ponzi Scheme" really is. I must have read this op-ed piece 3 times to find out how he is going to cut spending? He doesn't actually mention anything, he wants the government to cut spending, but doesn't say where, or why, or when, or how, or what the economic consequences might be.
The only reference to anything worthwhile is this:
"Congress should reject federal legislation that places additional burdens on growth, such as the proposed health care overhaul, cap-and-trade bill, labor union card check and tax increases."
Same old GOP Hack Therapy. Reject old ideas without pointing to anything substantial, and don't offer any ideas.
The strange thing here is that even the CBO states that health care reform would actually be deficit reducing. Whats not to like here? I have my issues with Cap & Trade as well, but many independent think tanks also believe that this program would also reduce the deficit. All of these reform programs would in fact reduce the deficit, is this not what Pawlenty wants?
Of course it is. In America the GOP knows that to achieve power so they can loot the country they need to conquer and divide. This type of missive is just to rile up the Tea Party crowd who watch Fox News. Any talk of reducing the deficit that doesn't include tax increases along with spending cuts is flat out phony.
Pawlenty is transparently as phony as they come. Its beyond me that the Republican Party actually believes this kind of non sense.
Here Comes Volcker
Yesterday was all about Paul Volcker's Opinion piece in the NY Times.
http://www.nytimes.com/2010/01/31/opinion/31volcker.html?em
Many witty bloggers were disappointed in that even though his op-ed piece was long it was also short on specifics. It just rehashed what he thought of bankers and their pursuits without actually giving us a plan to figure out how to prevent excess and systemic risk.
But he does explain himself when it comes to bankers conflict of interest. That these interest need to be stemmed. Regulation has to be smart not wide spread. Smart regulation needs to be implemented that disincentivize banks from engaging in activities that increase systemic risks and harms the economy. What needs to be done is regulation has to be made on a global basis, so that everyone is on the same page on the same side of the table.
But what Volcker doesn't explain or get to the heart of is that any type of reform not only needs to be global but must change the market structure itself.
http://tradersutra.blogspot.com/2010/01/market-structure-needs-to-change.html
He fails to mention that banks control the credit system. In a network finance world, the banks control the network. They control the infrastructure to which not only the payment system runs but also the credit system, and its the credit system that is essential to a working economy. He is completely ignoring the global banking phenomena. He doesn't explain how we are going to erase the public safety net to which these institutions currently enjoy. For that we need to change the market structure. He talks about reforming banks trading operations but doesn't mention banks OTC Trading operations. For that to happen, the market structure needs to change.
All of the things that Volcker talks about are important and viable, the problem lies in the things he doesn't talk about. Sadly the things he does have an opinion on which makes perfect sense are not politically viable anyway. This is why Financial Reform has been gutted.
Something is missing here. Volcker's tone from the beginning has been of disdain for bankers/traders and their sordid practices that led to the crisis. He has spoken about financial innovation and the dangers of structured products. But he doesn't and hasn't gone far enough.
Why not come out and just say the following:
-Securitization needs to change. Wall Street should have skin in the game. They should be forced to buy and keep on their balance sheet at least 10% of the deals they underwrite.
http://tradersutra.blogspot.com/2009/06/obama-financial-regulatory-plan.html
-A real viable Consumer Protection Agency should be set up with plain vanilla mortgage choices. Everyone should know their options and worst case scenario's before they sign on the bottom line.
-Loan Standards should be strengthened to the point that getting a mortgage should be a lengthy process. This protects both lender and borrower.
-Subprime mortgages should be banned. If you can't conform to Fannie/Freddie/GNMA. go rent till you can.
-Break up the Ratings Agencies. Throw them in the garbage. The investors/institutions/pension plans/mutual funds that actually buy these securities should finance a new ratings agency model. The days of the thief telling the judge to set the ratings should be long over.
-The Repo Market needs to be reformed. I have said that the trick in controlling leverage is controlling the Repo Market. Only the best types of collateral should be used to finance positions. Also Treasuries should not be exempt from the Presidents Bank Tax.
-Ban Naked CDS Selling. This is completely ludicrous and I cant to this day believe this was allowed to go on.
-CDS counter parties should be properly capitalized. They should be as reserved as the insurance companies.
-CDS should be traded on a exchange. This would level the playing field and narrow bid/ask spreads. When the banks figure out that margins are compressing, they will think twice before they start gambling.
All of this is predicated on a changing market structure.
Banking along with investment management and trading has evolved to the point that they are singular in nature. Gathering deposits and then lending against them has become dangerous to the point that they have to be backstopped by the tax payer. There is unfortunately no way back from this. The only thing we can think of is short term plug in ideas that temporarily stem the tide till the next crisis. To truly change the market structure we need 20-30 years of solid ideas and execution. But long term we are all dead and in the interim we need a solution. The solution is of course empty promises, gutted financial reform and back to business as usual.
In the end, the banks have gotten so powerful politically that even someone of Volcker's stature cant really change the industry. That is because maybe Mr. Volcker himself doesn't understand the magnitude of the structural changes that need to be made.
We may just need another crisis to occur.
http://www.nytimes.com/2010/01/31/opinion/31volcker.html?em
Many witty bloggers were disappointed in that even though his op-ed piece was long it was also short on specifics. It just rehashed what he thought of bankers and their pursuits without actually giving us a plan to figure out how to prevent excess and systemic risk.
But he does explain himself when it comes to bankers conflict of interest. That these interest need to be stemmed. Regulation has to be smart not wide spread. Smart regulation needs to be implemented that disincentivize banks from engaging in activities that increase systemic risks and harms the economy. What needs to be done is regulation has to be made on a global basis, so that everyone is on the same page on the same side of the table.
But what Volcker doesn't explain or get to the heart of is that any type of reform not only needs to be global but must change the market structure itself.
http://tradersutra.blogspot.com/2010/01/market-structure-needs-to-change.html
He fails to mention that banks control the credit system. In a network finance world, the banks control the network. They control the infrastructure to which not only the payment system runs but also the credit system, and its the credit system that is essential to a working economy. He is completely ignoring the global banking phenomena. He doesn't explain how we are going to erase the public safety net to which these institutions currently enjoy. For that we need to change the market structure. He talks about reforming banks trading operations but doesn't mention banks OTC Trading operations. For that to happen, the market structure needs to change.
All of the things that Volcker talks about are important and viable, the problem lies in the things he doesn't talk about. Sadly the things he does have an opinion on which makes perfect sense are not politically viable anyway. This is why Financial Reform has been gutted.
Something is missing here. Volcker's tone from the beginning has been of disdain for bankers/traders and their sordid practices that led to the crisis. He has spoken about financial innovation and the dangers of structured products. But he doesn't and hasn't gone far enough.
Why not come out and just say the following:
-Securitization needs to change. Wall Street should have skin in the game. They should be forced to buy and keep on their balance sheet at least 10% of the deals they underwrite.
http://tradersutra.blogspot.com/2009/06/obama-financial-regulatory-plan.html
-A real viable Consumer Protection Agency should be set up with plain vanilla mortgage choices. Everyone should know their options and worst case scenario's before they sign on the bottom line.
-Loan Standards should be strengthened to the point that getting a mortgage should be a lengthy process. This protects both lender and borrower.
-Subprime mortgages should be banned. If you can't conform to Fannie/Freddie/GNMA. go rent till you can.
-Break up the Ratings Agencies. Throw them in the garbage. The investors/institutions/pension plans/mutual funds that actually buy these securities should finance a new ratings agency model. The days of the thief telling the judge to set the ratings should be long over.
-The Repo Market needs to be reformed. I have said that the trick in controlling leverage is controlling the Repo Market. Only the best types of collateral should be used to finance positions. Also Treasuries should not be exempt from the Presidents Bank Tax.
-Ban Naked CDS Selling. This is completely ludicrous and I cant to this day believe this was allowed to go on.
-CDS counter parties should be properly capitalized. They should be as reserved as the insurance companies.
-CDS should be traded on a exchange. This would level the playing field and narrow bid/ask spreads. When the banks figure out that margins are compressing, they will think twice before they start gambling.
All of this is predicated on a changing market structure.
Banking along with investment management and trading has evolved to the point that they are singular in nature. Gathering deposits and then lending against them has become dangerous to the point that they have to be backstopped by the tax payer. There is unfortunately no way back from this. The only thing we can think of is short term plug in ideas that temporarily stem the tide till the next crisis. To truly change the market structure we need 20-30 years of solid ideas and execution. But long term we are all dead and in the interim we need a solution. The solution is of course empty promises, gutted financial reform and back to business as usual.
In the end, the banks have gotten so powerful politically that even someone of Volcker's stature cant really change the industry. That is because maybe Mr. Volcker himself doesn't understand the magnitude of the structural changes that need to be made.
We may just need another crisis to occur.
Monday, February 1, 2010
Deficits? Lets Start With Defense Cuts
I really can't say I disagree with anything in this article.
http://washingtonindependent.com/74974/defense-analysts-blast-military-exemption-to-spending-freeze
The Republicans are so disingenuous when it comes to deficits. If they were really serious, then why not a constitutional amendment allowing for a balanced budget? Of course not, where would all of the Pork flow through? They have held the country hostage for decades by stating that if you are in favor of defense cuts you are against defending America. All the while the money flows to secret bank accounts outside the country.
How in the world Obama has omitted cuts in defense spending is beyond me. It just further illustrates how captured he is to the politics of DC. Democrats are so scared of being labeled soft on defense ahead of mid term elections.
"The freeze will also exclude spending on entitlement programs like Medicare, Medicaid and Social Security. As a result, administration officials anticipate the spending freeze will save $250 billion over 10 years — a little more than a third of last year’s defense budget alone."
"Its absolutely ridiculous to think that we’re going to cut things like education and spend money on nuclear weapons and programs that don’t work, are faulty, have been faulty for years and continue to waste money."
I couldn't have said it better myself.
http://washingtonindependent.com/74974/defense-analysts-blast-military-exemption-to-spending-freeze
The Republicans are so disingenuous when it comes to deficits. If they were really serious, then why not a constitutional amendment allowing for a balanced budget? Of course not, where would all of the Pork flow through? They have held the country hostage for decades by stating that if you are in favor of defense cuts you are against defending America. All the while the money flows to secret bank accounts outside the country.
How in the world Obama has omitted cuts in defense spending is beyond me. It just further illustrates how captured he is to the politics of DC. Democrats are so scared of being labeled soft on defense ahead of mid term elections.
"The freeze will also exclude spending on entitlement programs like Medicare, Medicaid and Social Security. As a result, administration officials anticipate the spending freeze will save $250 billion over 10 years — a little more than a third of last year’s defense budget alone."
"Its absolutely ridiculous to think that we’re going to cut things like education and spend money on nuclear weapons and programs that don’t work, are faulty, have been faulty for years and continue to waste money."
I couldn't have said it better myself.
Support Broken...But Look For A Bounce
The SP 500 closed Friday at 1073.87. That is below the support levels of 1085. Some say its 1085, some say 1083, and others seem to think 1080. Support levels are very subjective and they can be tricky, but anyway you look at it the Market is broken. The next support level to look at is in the 1030-1040 area. This is some 400 Dow points away. I still believe the Dow will test 9000 before we an intermediate term bottom.
But markets don't go down in a straight line unless we are in the midst of a 10 Sigma Event. According to the market playbook, once support is broken a feverish yet feeble attempt to rally will only reach the prior support levels. This is because support once broken becomes resistance. So I expect a market rally for today right back up to 1085 or so on the SPX. Once we get there I am sure will sell off and head back down to the next support level.
The market is so random that short term predictions make you look like a fool. I just spoke to a buddy of mine who is quite bullish here currently. He thinks technical analysis is all smoke and mirrors with a little voodoo sprinkled in. I did ask him then if technicals are voodoo? What are the fundamentals?
He hung up.
But markets don't go down in a straight line unless we are in the midst of a 10 Sigma Event. According to the market playbook, once support is broken a feverish yet feeble attempt to rally will only reach the prior support levels. This is because support once broken becomes resistance. So I expect a market rally for today right back up to 1085 or so on the SPX. Once we get there I am sure will sell off and head back down to the next support level.
The market is so random that short term predictions make you look like a fool. I just spoke to a buddy of mine who is quite bullish here currently. He thinks technical analysis is all smoke and mirrors with a little voodoo sprinkled in. I did ask him then if technicals are voodoo? What are the fundamentals?
He hung up.
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