This nice review of how much the US Government has pledged thus far to "bail out" the US (global) financial system.
I am at a loss for words. Nice round up. As I have said before, we are looking at needing a wheel barrel full of dollars to buy groceries in the near future. Any idiot who buys US Government Debt will understand how much debt the Fed and other agencies referenced in this article have taken on and they will stop buying any more and begin dumping what they have.
This will happen just when you think the "crises" is over. In reality, the "crises" will look over because the US Gov will have taken all the risk and for a Short while one will think the party is back on. Then all hell will break loose.
If you know anything about how to protect yourself from a dollar that is worth 10% of what it is now, do it today.
Let me know also cause I have no idea.
Monday, November 24, 2008
Saturday, November 15, 2008
Bail out Auto Industry?
I was inspired to write a commentary on the Auto Industry after reading this post by John Dvorak on Marketwatch.com. In his article he makes a couple arguements that are dead wrong and likely assumptions that will contribute to Congress bailing these worthless institutions out. Below is my letter to Mr. Dvorak. Please feel free to read his article first.
Dear Mr. Dvorak,
I read your article entitled “Could Steve Jobs Save GM?” and was struck by one of your arguments that Mr. Jobs comes from an industry accustomed to constantly declining prices. You state:
You also imply the auto industry business model is not manageable the way the tech industry is. You say
I would like to argue both of your points are dead wrong. In fact I am absolutely sure the auto industry faced and still faces the same dynamics of the tech industry and has for a couple of decades now and this is in fact a key reason for Detroit’s demise. They never reconfigured their business model to this reality. Instead they looked for a way to sustain their worn out mid 20th century business model even after investing in the 1980’s to re-tool themselves to better compete with what then was a virtual onslaught of automobiles from Japan that Americans were confounded by. American consumers were astounded by the idea you could buy an automobile and own it for 5 years only needing to change tires, oil and gas. Detroit had never made such an automobile and had no intention of doing so until they had no choice.
Well part of the reality of a well-made automobile that was fuel efficient to boot, was the manufacturing process and technology used to make such a car a reality. Yes, Technology, robotics, automation, precision and ultimately declining prices of microprocessors to the extent where all things are controlled electronically from a central processor / circuit board is a reality now. All of these things became less and less expensive. Outside of the cost of raw aluminum, steal and plastics (which admittedly have risen in recent years to artificially high levels, although this is not sited as a primary reason for the collapse of the US auto makers), every factor of input used in manufacturing automobiles and every part of making the actual automobile got more technically advanced and cheaper to produce.
In addition to these realities, it became measurably easier to create a product to enter the market. Look at the Hyundai example. I was a consumer in college of a 1988 Hyundai automobile. I was amazed by the fact that the engine, transmission, parts; chassis were all a kind of stew of parts by different suppliers. I don’t have an exact breakdown but through my ownership experience I learned the engine was Japanese and when I had to replace engine parts (parts obviously originally outsourced to inferior Korean parts suppliers at the time) the new ones came also from Japan. Hyundai, a large industrial company at the time of its foray into automating initially went to Ford, UK to requisite technology for cars and light trucks. Later they moved from foreign licensing agreements to the development of their own passenger cars. They outsourced styling to Italy, manufacturing and know how from Japan and the UK and introduced their first car, the Pony with an eye on ultimately exporting automobiles. They did not have their own in house designed engine installed in an automobile until 1992. To this day, Hyundai continues to reinvent itself by partnering with makers of various technologies for fuel cell technology, hybrid technology, truck building and manufacturing.
What is the purpose of this expose on Hyundai? I would argue that any team of engineers could create an automobile right now, outsource the major components and assemble them somewhere in the US and be in business not unlike Microsoft entered the gaming business with it’s X-box a few years back.
What you were right about in your article was your suggestion that having a “big 3” industry has been a real detriment to innovation and a real hindrance to destroying the legacy infrastructure that has ensued. The “big 3” are like the “big Soviet 3” where not only are they bound to themselves and their ideology but they are programmed to dominate and destroy any dissention from within their boarders. They have obviously not been successful in this strategy globally (the US never has been) and foreign auto companies with healthy competition have been able to innovate and reinvent as you rightfully suggest.
So what did Detroit do in the 1990’s when confronted with the obvious reality that it was becoming cheaper and cheaper to build automobiles, international competition was eating their lunch and their industry was beginning to look like the PC industry? (Side note, I have been making this argument to friends and relatives for years as they glazed over in complete befuddlement about the state of the American Auto Industry) They went right back to the 1970’s with huge gas guzzling vehicles (trucks this time conveniently re-branded Sport Utility so the consumer could have a soft and fuzzy feeling about them) they could sell for 2-3 times the price of a “passenger vehicle” and make as much per vehicle in the process as they sold cars for. Now that is a Detroit CEO’s wet dream. Yes, no restructuring needed, no retooling for the future, no innovation, shelf the hybrid technology, the fuel cell technology the regenerative hydraulic technology (Ford) and just about everything else because the future was in TRUCKS.
(Interesting fact, GM with the EPA developed Hybrid technology then GM walked and EPA published the research some time around the mid 90’s and Toyota picked it up and announced a short time after that within 10 years they would have a fleet of hybrid vehicles on the road globally. Now they own so much of the technology you practically cannot go hybrid with out a licensing agreement from Toyota if not buying the technology outright and just installing it in your vehicle)
In fact the only innovation that came from this move to trucks as passenger vehicles came directly form the typical 19th century mindsets of the people who run Detroit’s big three, a creative way to skirt all of the regulations tied to passenger vehicles in the United States and Congress gave them the tacit approval to do just this. Trucks were not bound by fuel efficiency standards of cars, they did not have the stringent side impact rules, bumper safety rules, roll over rules, emissions rules, passenger safety rules, you name it. Detroit figured out how to completely spit in the face of all car regulations and at the same time did something that any skeptic of TV advertising would be loath to admit, convinced ½ the auto buying public that they needed a vehicle that got the fuel efficiency marks of a 1978 gas guzzler, would cause them to be out of pocket something on the order of $1,000 for a tire replacement and would have annual operating cost of over $9,000 (back when we had $1.50 gas mind you) including depreciation. In addition the mass use of trucks as personal use vehicles would cause measurably more destruction of the roads (impacting their tax dollar), the environment, on drastically increased emissions and for the first time since 1978 would be the single most direct cause of the renewed increase in per-capita energy consumption in the US. These realities do not touch on the ecological destruction caused by moving to Trucks as a primary means of transportation or the overall environmental damage, stress on the global supply chain for fossil fuels, damage to the economy of the United States when fuel prices spiked to $4.00 per gallon, and damage to the image of the United States as just one massive reckless consumption nation bent on war and debt to feed their un-stainable desire to consume.
Yes I am forever reminded when moving some things from a friends apartment in early 2007 of the unprecedented success of Detroit’s marketing efforts when after seeing one of these trucks “SUV’s” parked at the loading dock asking a young lady of about 22 if that was her “truck” parked outside. “No” she said. Then I rephrased my question, “Is that your SUV parked outside”. “Oh, yes that is mine.” She replied. My my, what a job Detroit did to convince Americans of their need for a truck as their primary means of transportation, sunset rides up mountains, adventurous rides through back roads somewhere, visions of mom’s with their children happily strapped in the spacious back seat, pictures of families arriving at the beach with pounds of Chinese made plastic garbage piled in the rear storage area. The images abound. The advertising companies did their job.
In a land of more paved roads per capita than most others in the world, where the “nuclear” family has shrunk to about 1.5 children per family, where commutes have grown to nearly an hour in most large urban areas, where household costs had begun to skyrocket with the second major reason American per-capita energy consumption resumed it’s rise, massive 3,500-5,000 square ft “homes” with huge annual maintenance and depreciation costs, Americans were solidly sold on buying trucks to get to and back from work each day. Sad story at best. Meanwhile during this very time the rest of the world, Europe, especially France, Japan, Korea, China, India, you name it, the fastest growing segment of the auto industry was in vehicles with UNDER 600 cc capacity engines.
Now Detroit is reeling. They bought themselves about 15 years of life with their reckless shortsighted policies and their flight from the obvious, automobiles are now being made and sold around the world at less than $3,500 a pop. They knew this was coming. It scared the hell out of them and they yielded to the rest of the world to meet the challenge. There is no turning back.
I say we let GM, Ford and Chrysler implode. When all these smart people are jobless, perhaps they will have enough money between them to go out and start new automobile companies, ones with smart design, energy efficiency, consumer friendly, programmable interfaces, customizable on order, door to door delivery, mail order catalog business models, prices manageable with a credit card, recyclable components, flexible manufacturing technologies, safety and efficiency built in. I mean when the Cold War “ended” and we had a president who’s first responsibility was NOT to go looking for another imaginary enemy to build up the Defense Department Corporate Welfare machine, the defense industry actually shrank. Suddenly America had a bunch of smart people without a job and the next thing you know another completely new industry popped up surrounding technology these unemployed people could apply their talents to and exploit. I am writing you using that technology today and your owe your current job to it. The economy is already in the pits, what is there to loose.
Perhaps Steve Jobs and a few other smart technology people who have had to operate in an industry of advancing technology and declining prices could actually create a new automobile industry based on a set of assumptions known and operated under by the global auto industry for years. Innovate, outsource, produce, sell, repeat.
Dear Mr. Dvorak,
I read your article entitled “Could Steve Jobs Save GM?” and was struck by one of your arguments that Mr. Jobs comes from an industry accustomed to constantly declining prices. You state:
There is no such effect or urgency in the any other industry. The closest you come is with auto depreciation, whereby a new car, once driven off the lot, becomes used and worth significantly less.
You also imply the auto industry business model is not manageable the way the tech industry is. You say
And the irony is that I think it may have been possible in the past, before the companies were vertically integrated, but not in the present, where the manufacturing, inventory, subassemblies, delivery and other systems that are in place are too delicately balanced and complicated for a newbie to deal with.
I would like to argue both of your points are dead wrong. In fact I am absolutely sure the auto industry faced and still faces the same dynamics of the tech industry and has for a couple of decades now and this is in fact a key reason for Detroit’s demise. They never reconfigured their business model to this reality. Instead they looked for a way to sustain their worn out mid 20th century business model even after investing in the 1980’s to re-tool themselves to better compete with what then was a virtual onslaught of automobiles from Japan that Americans were confounded by. American consumers were astounded by the idea you could buy an automobile and own it for 5 years only needing to change tires, oil and gas. Detroit had never made such an automobile and had no intention of doing so until they had no choice.
Well part of the reality of a well-made automobile that was fuel efficient to boot, was the manufacturing process and technology used to make such a car a reality. Yes, Technology, robotics, automation, precision and ultimately declining prices of microprocessors to the extent where all things are controlled electronically from a central processor / circuit board is a reality now. All of these things became less and less expensive. Outside of the cost of raw aluminum, steal and plastics (which admittedly have risen in recent years to artificially high levels, although this is not sited as a primary reason for the collapse of the US auto makers), every factor of input used in manufacturing automobiles and every part of making the actual automobile got more technically advanced and cheaper to produce.
In addition to these realities, it became measurably easier to create a product to enter the market. Look at the Hyundai example. I was a consumer in college of a 1988 Hyundai automobile. I was amazed by the fact that the engine, transmission, parts; chassis were all a kind of stew of parts by different suppliers. I don’t have an exact breakdown but through my ownership experience I learned the engine was Japanese and when I had to replace engine parts (parts obviously originally outsourced to inferior Korean parts suppliers at the time) the new ones came also from Japan. Hyundai, a large industrial company at the time of its foray into automating initially went to Ford, UK to requisite technology for cars and light trucks. Later they moved from foreign licensing agreements to the development of their own passenger cars. They outsourced styling to Italy, manufacturing and know how from Japan and the UK and introduced their first car, the Pony with an eye on ultimately exporting automobiles. They did not have their own in house designed engine installed in an automobile until 1992. To this day, Hyundai continues to reinvent itself by partnering with makers of various technologies for fuel cell technology, hybrid technology, truck building and manufacturing.
What is the purpose of this expose on Hyundai? I would argue that any team of engineers could create an automobile right now, outsource the major components and assemble them somewhere in the US and be in business not unlike Microsoft entered the gaming business with it’s X-box a few years back.
What you were right about in your article was your suggestion that having a “big 3” industry has been a real detriment to innovation and a real hindrance to destroying the legacy infrastructure that has ensued. The “big 3” are like the “big Soviet 3” where not only are they bound to themselves and their ideology but they are programmed to dominate and destroy any dissention from within their boarders. They have obviously not been successful in this strategy globally (the US never has been) and foreign auto companies with healthy competition have been able to innovate and reinvent as you rightfully suggest.
So what did Detroit do in the 1990’s when confronted with the obvious reality that it was becoming cheaper and cheaper to build automobiles, international competition was eating their lunch and their industry was beginning to look like the PC industry? (Side note, I have been making this argument to friends and relatives for years as they glazed over in complete befuddlement about the state of the American Auto Industry) They went right back to the 1970’s with huge gas guzzling vehicles (trucks this time conveniently re-branded Sport Utility so the consumer could have a soft and fuzzy feeling about them) they could sell for 2-3 times the price of a “passenger vehicle” and make as much per vehicle in the process as they sold cars for. Now that is a Detroit CEO’s wet dream. Yes, no restructuring needed, no retooling for the future, no innovation, shelf the hybrid technology, the fuel cell technology the regenerative hydraulic technology (Ford) and just about everything else because the future was in TRUCKS.
(Interesting fact, GM with the EPA developed Hybrid technology then GM walked and EPA published the research some time around the mid 90’s and Toyota picked it up and announced a short time after that within 10 years they would have a fleet of hybrid vehicles on the road globally. Now they own so much of the technology you practically cannot go hybrid with out a licensing agreement from Toyota if not buying the technology outright and just installing it in your vehicle)
In fact the only innovation that came from this move to trucks as passenger vehicles came directly form the typical 19th century mindsets of the people who run Detroit’s big three, a creative way to skirt all of the regulations tied to passenger vehicles in the United States and Congress gave them the tacit approval to do just this. Trucks were not bound by fuel efficiency standards of cars, they did not have the stringent side impact rules, bumper safety rules, roll over rules, emissions rules, passenger safety rules, you name it. Detroit figured out how to completely spit in the face of all car regulations and at the same time did something that any skeptic of TV advertising would be loath to admit, convinced ½ the auto buying public that they needed a vehicle that got the fuel efficiency marks of a 1978 gas guzzler, would cause them to be out of pocket something on the order of $1,000 for a tire replacement and would have annual operating cost of over $9,000 (back when we had $1.50 gas mind you) including depreciation. In addition the mass use of trucks as personal use vehicles would cause measurably more destruction of the roads (impacting their tax dollar), the environment, on drastically increased emissions and for the first time since 1978 would be the single most direct cause of the renewed increase in per-capita energy consumption in the US. These realities do not touch on the ecological destruction caused by moving to Trucks as a primary means of transportation or the overall environmental damage, stress on the global supply chain for fossil fuels, damage to the economy of the United States when fuel prices spiked to $4.00 per gallon, and damage to the image of the United States as just one massive reckless consumption nation bent on war and debt to feed their un-stainable desire to consume.
Yes I am forever reminded when moving some things from a friends apartment in early 2007 of the unprecedented success of Detroit’s marketing efforts when after seeing one of these trucks “SUV’s” parked at the loading dock asking a young lady of about 22 if that was her “truck” parked outside. “No” she said. Then I rephrased my question, “Is that your SUV parked outside”. “Oh, yes that is mine.” She replied. My my, what a job Detroit did to convince Americans of their need for a truck as their primary means of transportation, sunset rides up mountains, adventurous rides through back roads somewhere, visions of mom’s with their children happily strapped in the spacious back seat, pictures of families arriving at the beach with pounds of Chinese made plastic garbage piled in the rear storage area. The images abound. The advertising companies did their job.
In a land of more paved roads per capita than most others in the world, where the “nuclear” family has shrunk to about 1.5 children per family, where commutes have grown to nearly an hour in most large urban areas, where household costs had begun to skyrocket with the second major reason American per-capita energy consumption resumed it’s rise, massive 3,500-5,000 square ft “homes” with huge annual maintenance and depreciation costs, Americans were solidly sold on buying trucks to get to and back from work each day. Sad story at best. Meanwhile during this very time the rest of the world, Europe, especially France, Japan, Korea, China, India, you name it, the fastest growing segment of the auto industry was in vehicles with UNDER 600 cc capacity engines.
Now Detroit is reeling. They bought themselves about 15 years of life with their reckless shortsighted policies and their flight from the obvious, automobiles are now being made and sold around the world at less than $3,500 a pop. They knew this was coming. It scared the hell out of them and they yielded to the rest of the world to meet the challenge. There is no turning back.
I say we let GM, Ford and Chrysler implode. When all these smart people are jobless, perhaps they will have enough money between them to go out and start new automobile companies, ones with smart design, energy efficiency, consumer friendly, programmable interfaces, customizable on order, door to door delivery, mail order catalog business models, prices manageable with a credit card, recyclable components, flexible manufacturing technologies, safety and efficiency built in. I mean when the Cold War “ended” and we had a president who’s first responsibility was NOT to go looking for another imaginary enemy to build up the Defense Department Corporate Welfare machine, the defense industry actually shrank. Suddenly America had a bunch of smart people without a job and the next thing you know another completely new industry popped up surrounding technology these unemployed people could apply their talents to and exploit. I am writing you using that technology today and your owe your current job to it. The economy is already in the pits, what is there to loose.
Perhaps Steve Jobs and a few other smart technology people who have had to operate in an industry of advancing technology and declining prices could actually create a new automobile industry based on a set of assumptions known and operated under by the global auto industry for years. Innovate, outsource, produce, sell, repeat.
Thursday, November 13, 2008
Now Something Really Scarry
I read yesterday again on Bloomberg that a firm in Dubai had agreed to borrow on terms determined by the cost of insurance (CDS, Credit Default Swap Contracts) on the debt.
I don't know if you as a reader here realize what a mind f*** this is. I mean the exact unregulated product that is out there covering some $60 trillion in debt and has been at the core of the financial collapse world wide is going to be used as a bench mark to price debt to an institution.
Forget official interest rates or Libor rates or any government issued or regulated market benchmark of the cost of borrowing money. Forget the business model or the validity of the business to make money or anything else. Base it on a derivative product that as we all know has the ability to value the likelihood of debt being paid at a rate of about ZERO.
This quote is from the article:
OK, so I have said many times since the genius Greenspan then Bernanke and Paulson all suggested banks somehow should manage their own risk profiles and not have capital requirements set by regulation entities or the Fed, that banks are horrible at determining risk for anything and have been in the middle of every boom and bust and have nearly bankrupt the government regulated insurance entities that are supposed to protect Joe the citizen's money more than once and have business models that are completely out of touch with reality.
Now they are admitting their business model is broken, they don't know how to price risk, they don't know how much to charge to lend to institutions and they are all completely in the dark about the exposure they have on their books to the shit they purchased and sold over the past 10 years because of this broken model. So they are going to price debt based on a unregulated product traded on a non-transparent platform that has a bunch of hedge funds and other profiteers manipulating the prices of the products for their benefit?
What the hell is going on here? I am beginning to think the idea in the Muslim world that interest is forbidden and all "lending" must be done with equity participation and repayment is a share of profits is one that the western banks need to seriously start to look at. Maybe then they will hire staff that have finance degrees and understand business and can make determinations on "lending" based on the business model and likely profitability of the entities they are "lending" to so they can get back to making loans that they have a stake in and making money the old fashioned way, earning it through smart decisions in lending.
I don't know if you as a reader here realize what a mind f*** this is. I mean the exact unregulated product that is out there covering some $60 trillion in debt and has been at the core of the financial collapse world wide is going to be used as a bench mark to price debt to an institution.
Forget official interest rates or Libor rates or any government issued or regulated market benchmark of the cost of borrowing money. Forget the business model or the validity of the business to make money or anything else. Base it on a derivative product that as we all know has the ability to value the likelihood of debt being paid at a rate of about ZERO.
This quote is from the article:
Banks are toughening terms for all borrowers following $919.1 billion in write downs and losses worldwide by tying loan rates to credit-default swaps rather than Libor to better reflect the risk they won't get repaid. Nestle SA, the biggest food producer, and Nokia Oyj, the largest mobile-phone maker, are among companies bowing to banks' demands to link loan rates to the derivatives contracts.
OK, so I have said many times since the genius Greenspan then Bernanke and Paulson all suggested banks somehow should manage their own risk profiles and not have capital requirements set by regulation entities or the Fed, that banks are horrible at determining risk for anything and have been in the middle of every boom and bust and have nearly bankrupt the government regulated insurance entities that are supposed to protect Joe the citizen's money more than once and have business models that are completely out of touch with reality.
Now they are admitting their business model is broken, they don't know how to price risk, they don't know how much to charge to lend to institutions and they are all completely in the dark about the exposure they have on their books to the shit they purchased and sold over the past 10 years because of this broken model. So they are going to price debt based on a unregulated product traded on a non-transparent platform that has a bunch of hedge funds and other profiteers manipulating the prices of the products for their benefit?
What the hell is going on here? I am beginning to think the idea in the Muslim world that interest is forbidden and all "lending" must be done with equity participation and repayment is a share of profits is one that the western banks need to seriously start to look at. Maybe then they will hire staff that have finance degrees and understand business and can make determinations on "lending" based on the business model and likely profitability of the entities they are "lending" to so they can get back to making loans that they have a stake in and making money the old fashioned way, earning it through smart decisions in lending.
Vindication
I have found an article that totally vindicates everything I have been saying about the desperate need to reign in the unregulated derivative markets, esp. the CDO’s and CDS’s that have caused the crash in our financial system today.
This article by Bloomberg today sites the work done 10 years ago by a woman named Brooksley Born. She was head of the CFTC in 1998 during the collapse of Long Term Capital Management and cried out for several years to regulate these products. Her stubborn refusal to back down on the issue was not just ignored by people like Greenspan, Rubin and Authur Levitt but her statements were outright discounted publicly by them. Obviously they had too much push from the industry that was making money hand over fist creating and selling them.
This quote from the article about how they played down Ms. Born:
Here is a statement of how the industry was making so much money they would do anything to stop oversight:
I have said many times any time you have a completely non-transparent market where the products are designed by mathematicians and sold by an army of Ivy League “idiots” with no idea of what the hell they are selling and don’t care as long as they make a lot of money doing it is a formula for disaster. This entire crises is the result of government actions going back to the late 1990’s with deregulation of banking and investment institutions followed by Greenspan's tacit approval of anything Wall Street wanted to do followed by the influx of every one and any one starting an unregulated hedge fund to buy and sell at extreme leverage all of these exotic products.
This quote shows and example of lax oversight Ms. Born tried to tighten”
Need I say more?
Thank you Bloomberg for a concise article. I love when the many things I have been writing about which many people find extreme or don’t know where I get them from come together in one well-written short article…
This article by Bloomberg today sites the work done 10 years ago by a woman named Brooksley Born. She was head of the CFTC in 1998 during the collapse of Long Term Capital Management and cried out for several years to regulate these products. Her stubborn refusal to back down on the issue was not just ignored by people like Greenspan, Rubin and Authur Levitt but her statements were outright discounted publicly by them. Obviously they had too much push from the industry that was making money hand over fist creating and selling them.
This quote from the article about how they played down Ms. Born:
She roiled colleagues when her agency said on May 7, 1998, that it would consider whether the over-the-counter instruments should remain exempt from oversight. That same day, Greenspan, Rubin and Levitt issued a rebuke of Born's plan, saying in a joint statement, ``we seriously question the scope of the CFTC's jurisdiction in this area.''
… The near-collapse of Long-Term Capital Management, a hedge fund that had more than $1 trillion in derivative contracts, in September 1998 should have been a ``wake-up call,'' as Born once put it. The argument failed to sway other regulators.
Here is a statement of how the industry was making so much money they would do anything to stop oversight:
Investment banks fought regulation for more than a decade because derivatives, whose value is derived from bonds, currencies or other assets, were a cash cow. As much as 40 percent of the profit for dealers, including Goldman Sachs Group Inc. and Morgan Stanley, was from the private transactions, according to fixed-income research firm CreditSights Inc.
I have said many times any time you have a completely non-transparent market where the products are designed by mathematicians and sold by an army of Ivy League “idiots” with no idea of what the hell they are selling and don’t care as long as they make a lot of money doing it is a formula for disaster. This entire crises is the result of government actions going back to the late 1990’s with deregulation of banking and investment institutions followed by Greenspan's tacit approval of anything Wall Street wanted to do followed by the influx of every one and any one starting an unregulated hedge fund to buy and sell at extreme leverage all of these exotic products.
This quote shows and example of lax oversight Ms. Born tried to tighten”
While leading the CFTC in 1998, Born declared that the unregulated contracts could ``pose grave dangers to our economy.'' Born, a lawyer who according to futures attorney Dan Roth battled fellow regulators with the ferocity of a courtroom litigator, lost a turf fight with Alan Greenspan and Robert Rubin over policing the deals.
After Congress exempted the contracts from U.S. oversight in 2000, the market swelled from about $100 trillion to $684 trillion by June 30. The growth included credit-default swaps and collateralized debt obligations, custom-made products barely in use under Born's reign. They played a part in almost $1 trillion of global bank losses and are prompting lawmakers to seek controls on the complex deals.
``Brooksley has been vindicated,'' said John Tull, a CFTC commissioner from 1993 to 1999. ``Had they listened to her, I think this catastrophe could have been averted.''
Need I say more?
Thank you Bloomberg for a concise article. I love when the many things I have been writing about which many people find extreme or don’t know where I get them from come together in one well-written short article…
Monday, November 10, 2008
Irresponsible Hedge Positions “Illegal”
This is a new twist on the exceptional risk "investment" banks have taken in the recent past with respect to irresponsible lending and leverage. From the Dow Jones Newswire release today regarding Sweden's investment bank D. Carnegie & Co. AB this quote:
Yes they use the word "illegal" when citing the reason to "revoke" the banking business license of D. Carnegie.
If only the US regulators had the ability (or lets say willingness since they do have the ability to revoke) to revoke business licenses for companies that are repeat offenders in the investment banking and securities businesses.
STOCKHOLM (Dow Jones)--Sweden's financial regulator Monday revoked the banking license for D. Carnegie & Co. AB (CAR.SK) due to illegal trading activities and said the National Debt Office was taking over the bank's operations.
Yes they use the word "illegal" when citing the reason to "revoke" the banking business license of D. Carnegie.
If only the US regulators had the ability (or lets say willingness since they do have the ability to revoke) to revoke business licenses for companies that are repeat offenders in the investment banking and securities businesses.
Sunday, November 09, 2008
AIG, "I'll have a double please." US Spineless Treasury, "OK"
Un-believable? I don't think so. AIG has gone from an $80 billion government bailout to a $150 billion government bail out in less than 45 days.
I have said it a million times and I will say it again. The government CANNOT BAIL OUT THE MESS WALL STREET HAS CREATED. THEY DO NOT HAVE THE RESOURCES AND SHOULD NOT TRY.
The AIG scenario was to be expected. Where is this money going? This is what is quoted in the Bloomberg article today.
Well big F***ing deal. There is nothing in these black market insurance products that says the company that sold them to you has not been run by a bunch of complete idiots and may go bankrupt one day. If you bought "debt insurance" from an insurance company (or any fool that sold this stuff on worthless debt for a quick buck) that goes bankrupt and cannot "pay out" in case of a default on the debt you purchased thinking it was OK to purchase the shit as long as you could buy "protection" against default, tough luck. Your insurance company just went out of business so you can do one of two things, keep your debt and hope it all does not default (since there is no market for it), or find some other sucker stupid enough to sell you insurance on your worthless debt.
I just don't get it. We are giving money to AIG so they can give money to their "customers" to meet their request for additional collateral on an unregulated product sold to unregulated market participants. We the TAXPAYERS who have no reason to bail out anyone in this mess. Let the damn thing implode. Force the "parties" who bought and sold this stuff to work out deals to close out the paper and move on.
This is absolutely pissing me off. First Fannie and Freddie were bought so the government could "narrow the spread on the cost of borrowing and thus the mortgage rates to home buyers" by a whopping 3/8 to .5%. Well what happened? The rate dropped about .40 percent about 2 weeks after the deal and now sits about 5/8% HIGHER than rates were BEFORE the stupid bailout. That is a swing of over 1% to the upside in mortgage rates from their short lived drop after the bailout.
What is the verdict? FAILURE, failure, FAILURE.
Paulson, you are a complete fool and Bernanke should go back to whatever university he taught at and crunch numbers some more because he has no decent knowledge of the markets and no street sense.
Read more about this here...
I have said it a million times and I will say it again. The government CANNOT BAIL OUT THE MESS WALL STREET HAS CREATED. THEY DO NOT HAVE THE RESOURCES AND SHOULD NOT TRY.
The AIG scenario was to be expected. Where is this money going? This is what is quoted in the Bloomberg article today.
...The expanded aid to AIG may help stabilize companies that depend on AIG to protect them against debt-market losses....
Well big F***ing deal. There is nothing in these black market insurance products that says the company that sold them to you has not been run by a bunch of complete idiots and may go bankrupt one day. If you bought "debt insurance" from an insurance company (or any fool that sold this stuff on worthless debt for a quick buck) that goes bankrupt and cannot "pay out" in case of a default on the debt you purchased thinking it was OK to purchase the shit as long as you could buy "protection" against default, tough luck. Your insurance company just went out of business so you can do one of two things, keep your debt and hope it all does not default (since there is no market for it), or find some other sucker stupid enough to sell you insurance on your worthless debt.
I just don't get it. We are giving money to AIG so they can give money to their "customers" to meet their request for additional collateral on an unregulated product sold to unregulated market participants. We the TAXPAYERS who have no reason to bail out anyone in this mess. Let the damn thing implode. Force the "parties" who bought and sold this stuff to work out deals to close out the paper and move on.
This is absolutely pissing me off. First Fannie and Freddie were bought so the government could "narrow the spread on the cost of borrowing and thus the mortgage rates to home buyers" by a whopping 3/8 to .5%. Well what happened? The rate dropped about .40 percent about 2 weeks after the deal and now sits about 5/8% HIGHER than rates were BEFORE the stupid bailout. That is a swing of over 1% to the upside in mortgage rates from their short lived drop after the bailout.
What is the verdict? FAILURE, failure, FAILURE.
Paulson, you are a complete fool and Bernanke should go back to whatever university he taught at and crunch numbers some more because he has no decent knowledge of the markets and no street sense.
Read more about this here...
Friday, November 07, 2008
Hedge Fund Collapse [Major]
I read an article today on Marketwatch.
This was a follow up article from 24 October also on Marketwatch.
Why do I present this information? Simple. I have read so many of these types of articles from companies that within 6 months are dead, gone, penny stocks or bailed out, it is not funny. Citidel is massive in the hedge fund world.
I predict and have been saying for some months now that we will experience a major hedge fund collapse soon. This will be larger than the collapse last year of the of $9 billion hedge fund Amaranth Advisors.
Back in 1998 Mr. Greenspan orchestrated a the bail out of Long Term Capital Management. He did this without government money. Instead he had a dozen or so banks pony up to $250 million each to re-capitalize the fund and allow its holdings to be sold off in an "orderly" fashion.
The interesting connection between LTCM failure and the statements by Citidel in the article from 24 October is this quote:
This was exactly the cause of the collapse of LTCM. LTCM lost huge money primarily due to bets related to the Rubble. The Rubble collapsed in 1998 and Russia defaulted on debts. The key is these funds use sophisticated methods to "hedge" their investments (bets) for or against a security, currency, commodity or your grandmother's likelihood to die tomorrow or whatever else BS they can thrash around billions of dollars at to try and make a buck irrespective of the laws, lives or losses by any party willing to do business with these vultures.
Anyway, this "dislocation" Mr. Griffin talks about is exactly what number crunching mathematicians are completely unable to deal with. These guys leverage themselves to the hilt to rake out a few percentage points gain in their bets. They risk so much capital and borrowed money by use of hedging strategies that allow them to minimize risk while making high returns. However when their risk protection strategies break down they are screwed, literally. They can suddenly loose billions and often have no way to protect themselves other than to liquidate.
Well, as I have said before many times, when one is dealing with an "esoteric" market of highly complicated, unregulated "derivative products" and all hell breaks loose, whom in the hell are you going to "liquidate" to? Everyone else is playing the same game. There are no regulators, there are no authorities since these guys play in unregulated markets, there are no laws, rules, allegiances to nations, people, humanity... anything. There is no oversight or "police" looking into what these guys do. They are secretive and play with "products" most people do not understand and have terms that only work in normal functioning markets. The products are created and traded on proprietary systems by over paid number crunchers who have the street smarts of a doorknob.
OK, off the stump. Well, I will add that one of the early "brilliant" ideas of Mr. Bernanke was to open the treasury up the regulated banks followed by the unregulated Wall Street "investment" banks with the explicit idea that they would provide liquidity to their "clients" duh, hedge funds, they acted as prime brokers to, lent to and often took positions in their "investments" (raids on other companies).
It is really fascinating to see the treasury open up to the completely unregulated market through regulated entities. Oh, and when the unregulated entities begin to go broke because leverage at 30 to 1 has failed as a "business model", the fed says "OK now you just become regulated and we will open up the spigots for you." I mean this is just F***ing crazy. Period.
Also it is fascinating to see how desperately this entire process is failing. There are so many "dislocations" in the market right now nobody knows which way is up. All I know is the stock market is now a playground for hedge funds to trade and manipulate and play "who is left standing at the end of today" games to try and make a buck. They account for 40+% of the volume and for anyone in 2008 to even THINK that the stock market is a place to "invest" they are kidding themselves.
The valuation of the stock market has become such that the model of how it used to work is no longer valid when you have hundreds of billions of dollars (trillions really when you count leverage)playing it like a schoolyard game. All of the "value" funds, mutual funds, retirement accounts, endowments, pension funds and the like that still have "ownership" of stocks are simply going to hand all of their money over to whoever manages to rake the most out of it before it collapses entirely. This will be soon.
We are looking into the abyss right now and as long as the government continues to pump billions of soon to be worthless dollars into the institutions that function in this market, this money is going to simply be sucked back out by those who understand what is going on. If you want to see an example look back to that 1998 collapse of the Rubble. I will not forget the billions pumped into Russia at the time by I believe it was the World Bank. The money went into Russia as hard currency, got converted by anybody and everybody with access to the right people and promptly went right back out of the country into Swiss bank accounts and the like.
This is what is happening with the money the Fed is pumping into a dying system right now. That is why there is no market. The cash pumped in goes right back out and is being held by anyone and everyone with access to it. The "market" continues to get sucked like a vacuum.
Meanwhile, I am convinced the dollar is going to loose it's international value as the world's reserve currency and as I have said many times before, if the nations with this currency don't start spending it on I don't care what, (buy anything and everything TANGABLE you can now with the dollars you have) they will be burning them for fuel in the winter, maybe not this winter but definitely by next winter.
This takes me to Ceberus Capital Management, the fund stupid enough to buy some 80% of Chrysler and 51% of GMAC Financial Services including their desperately worthless mortgage arm ResCap. GM announced this week they don't have any money and thus have no resources to bail out Chrysler. I believe this spells b-i-g p-r-o-b-l-e-m for Ceberus. They were trying to orchestrate some kind of quick deal to get Chrysler on GM's books so the government could bail the auto company out. Not even the idiots making decisions to bail out industries in Washington right now have the stomach to hand over the money to the likes of Cerebus. They would go to jail for something like that.
What if Chrysler / GMAC / Cerebus all go down the tubes? What a party that would be.
Don't be stupid. Shake all preconceived notions about the US stock market being a place to put your money for your future. The world is being reshaped as we speak and until the idiots running our government have the "balls" (for lack of a better word) to shut down the massive unregulated markets that trash the global financial system for a living and admit all of the norms that have defined the functioning of the capital markets have been completely destroyed by this massive unregulated market and their creation of "products" to place their highly leveraged bets, normal people must stay as far from this circus as possible.
If you are saving for your future, get out of the sucker's stock market before it becomes an empty dustbin.
All the best.
This was a follow up article from 24 October also on Marketwatch.
Why do I present this information? Simple. I have read so many of these types of articles from companies that within 6 months are dead, gone, penny stocks or bailed out, it is not funny. Citidel is massive in the hedge fund world.
I predict and have been saying for some months now that we will experience a major hedge fund collapse soon. This will be larger than the collapse last year of the of $9 billion hedge fund Amaranth Advisors.
Back in 1998 Mr. Greenspan orchestrated a the bail out of Long Term Capital Management. He did this without government money. Instead he had a dozen or so banks pony up to $250 million each to re-capitalize the fund and allow its holdings to be sold off in an "orderly" fashion.
The interesting connection between LTCM failure and the statements by Citidel in the article from 24 October is this quote:
He (Ken Griffin) blamed most of the fund's losses on huge dislocations between cash securities like corporate bonds and related derivatives that Citadel and other firms use to hedge those positions.
This was exactly the cause of the collapse of LTCM. LTCM lost huge money primarily due to bets related to the Rubble. The Rubble collapsed in 1998 and Russia defaulted on debts. The key is these funds use sophisticated methods to "hedge" their investments (bets) for or against a security, currency, commodity or your grandmother's likelihood to die tomorrow or whatever else BS they can thrash around billions of dollars at to try and make a buck irrespective of the laws, lives or losses by any party willing to do business with these vultures.
Anyway, this "dislocation" Mr. Griffin talks about is exactly what number crunching mathematicians are completely unable to deal with. These guys leverage themselves to the hilt to rake out a few percentage points gain in their bets. They risk so much capital and borrowed money by use of hedging strategies that allow them to minimize risk while making high returns. However when their risk protection strategies break down they are screwed, literally. They can suddenly loose billions and often have no way to protect themselves other than to liquidate.
Well, as I have said before many times, when one is dealing with an "esoteric" market of highly complicated, unregulated "derivative products" and all hell breaks loose, whom in the hell are you going to "liquidate" to? Everyone else is playing the same game. There are no regulators, there are no authorities since these guys play in unregulated markets, there are no laws, rules, allegiances to nations, people, humanity... anything. There is no oversight or "police" looking into what these guys do. They are secretive and play with "products" most people do not understand and have terms that only work in normal functioning markets. The products are created and traded on proprietary systems by over paid number crunchers who have the street smarts of a doorknob.
OK, off the stump. Well, I will add that one of the early "brilliant" ideas of Mr. Bernanke was to open the treasury up the regulated banks followed by the unregulated Wall Street "investment" banks with the explicit idea that they would provide liquidity to their "clients" duh, hedge funds, they acted as prime brokers to, lent to and often took positions in their "investments" (raids on other companies).
It is really fascinating to see the treasury open up to the completely unregulated market through regulated entities. Oh, and when the unregulated entities begin to go broke because leverage at 30 to 1 has failed as a "business model", the fed says "OK now you just become regulated and we will open up the spigots for you." I mean this is just F***ing crazy. Period.
Also it is fascinating to see how desperately this entire process is failing. There are so many "dislocations" in the market right now nobody knows which way is up. All I know is the stock market is now a playground for hedge funds to trade and manipulate and play "who is left standing at the end of today" games to try and make a buck. They account for 40+% of the volume and for anyone in 2008 to even THINK that the stock market is a place to "invest" they are kidding themselves.
The valuation of the stock market has become such that the model of how it used to work is no longer valid when you have hundreds of billions of dollars (trillions really when you count leverage)playing it like a schoolyard game. All of the "value" funds, mutual funds, retirement accounts, endowments, pension funds and the like that still have "ownership" of stocks are simply going to hand all of their money over to whoever manages to rake the most out of it before it collapses entirely. This will be soon.
We are looking into the abyss right now and as long as the government continues to pump billions of soon to be worthless dollars into the institutions that function in this market, this money is going to simply be sucked back out by those who understand what is going on. If you want to see an example look back to that 1998 collapse of the Rubble. I will not forget the billions pumped into Russia at the time by I believe it was the World Bank. The money went into Russia as hard currency, got converted by anybody and everybody with access to the right people and promptly went right back out of the country into Swiss bank accounts and the like.
This is what is happening with the money the Fed is pumping into a dying system right now. That is why there is no market. The cash pumped in goes right back out and is being held by anyone and everyone with access to it. The "market" continues to get sucked like a vacuum.
Meanwhile, I am convinced the dollar is going to loose it's international value as the world's reserve currency and as I have said many times before, if the nations with this currency don't start spending it on I don't care what, (buy anything and everything TANGABLE you can now with the dollars you have) they will be burning them for fuel in the winter, maybe not this winter but definitely by next winter.
This takes me to Ceberus Capital Management, the fund stupid enough to buy some 80% of Chrysler and 51% of GMAC Financial Services including their desperately worthless mortgage arm ResCap. GM announced this week they don't have any money and thus have no resources to bail out Chrysler. I believe this spells b-i-g p-r-o-b-l-e-m for Ceberus. They were trying to orchestrate some kind of quick deal to get Chrysler on GM's books so the government could bail the auto company out. Not even the idiots making decisions to bail out industries in Washington right now have the stomach to hand over the money to the likes of Cerebus. They would go to jail for something like that.
What if Chrysler / GMAC / Cerebus all go down the tubes? What a party that would be.
Don't be stupid. Shake all preconceived notions about the US stock market being a place to put your money for your future. The world is being reshaped as we speak and until the idiots running our government have the "balls" (for lack of a better word) to shut down the massive unregulated markets that trash the global financial system for a living and admit all of the norms that have defined the functioning of the capital markets have been completely destroyed by this massive unregulated market and their creation of "products" to place their highly leveraged bets, normal people must stay as far from this circus as possible.
If you are saving for your future, get out of the sucker's stock market before it becomes an empty dustbin.
All the best.
Saturday, November 01, 2008
Rants on another topic...
I got a phone call from my mother the other day. She has been staying in her Jacksonville, FL house for the past 3 months. The call was some routine question about her house here in Maryland then ended. Shortly thereafter she called again. This time it was to vent about something or everything. I am not sure which but the conversation started with something like, “I am really upset about these markets.” Then some spouting about “This $700 billion bail out is ridiculous. Using taxpayer money like this really pisses me off. I am really pissed off about these markets. I mean I worked very hard for my money and now it is nearly gone. That xyz mutual fund I have is down to nothing (she was gleaming when it was going up during the unwarranted record reached in the Dow about a year ago). And what about this damn election… I don’t understand why all these black people are voting for Obama. I mean they are all excited to vote just because he is black. That really makes me mad. They are even registering “homeless” people here. Some guy was given an address like “pillar #4 under freeway…”
OK, this is when I have to just cut off the conversation and hang up (with a few short words expressing my extreme displeasure of her “TV induced Talking Head view of the world”, most likely from the antithesis of intelligent reporting, FOX news).
So what is it about Florida that once my mother has been there for more than 60 days she becomes some kind of extreme right wing racist? After she had been there 5 months or so she usually gets fed up with Florida herself and can’t wait to get back to Maryland. That is when I breath a sigh of relief and realize she is only truly 30 percent right of center and not 70 percent as she becomes after a couple of months in that dreadful state.
Occasionally I get questioned about when I am going to come down and visit. Mind you, my mother’s snowbird home is in Jacksonville. She might as well be in Alabama or Georgia cause everything north of Orlando is not worth a wintertime visit. It gets cold there. The beaches are lacking, the economy non-existent, culture does not exist and it is not perpetually warm. What in the hell would I want to go to Jacksonville Florida for? Anything north of Orlando is just not worth the trip.
My impression of the northern ½ of Florida is that it’s heavily settled by blue-collar northerners who just wanted to be in Florida when they retired and found the cheap real estate enticing. The economy there is like that of a Central American nation where all the “currency” that supports the local economy comes from the pension funds and 401k’s built up while people worked in states with productive economies. Go south of Orlando and you get the better off northerners who can afford the more pristine locations and 365-day warm weather offered by the tropical southern part of the state. Here, for example, is where you get the New Jersey and New York Jews who buy up “nice” condos on the beach in Miami and elsewhere they can use to bribe their reluctant children down for a visit. I mean even their kids cannot resist a free condo on the beach in Southern Florida. In fact, I might even visit my mom if she were down there. But no, she had to be where her siblings settled in the northern part of the state.
Initially there was hope. My mom first purchased a condo on a golf course just outside of St. Augustine, still not far enough south but it was a start. I figured maybe she would find it to cold and move closer to her ½ Jewish cousin who lives just west of Miami. I actually went to her condo for about 4 days in November 2007. It was cold. There was some kind of costal storm that had wiped out the beaches. Everything was deserted. I was told the “season” did not start till December. Huge multi story condo buildings rested on the deserted beaches south of St. Augustine. There were no restaurants, no grocery stores, bars, nothing, just rows of condos on the beach nearly deserted. It was surreal to say the least.
One day the little bridge we drove over from my mother’s misplaced “condo on golf course development” was closed and I had to take a detour to get to town where I would go the 5 Star St. Augustine hotel and borrow their network for a few hours for about $10. I was amazed at what I saw. On this detour only minutes from downtown and my mothers condo was a road bordered by double wide trailers on cinderblocks, tiny bungalows and houses that looked like servant quarters from some long lost Georgia plantation that were dragged down to Florida and had survived for 100 years only because of the hardiness of their tin roofs. I mean, the place was downright poor, Alabama, Mississippi and Louisiana poor. Yep, we were in Florida, home of stolen elections, inbred politicians and God fearing racists.
My trip to downtown St. Augustine with friends from the Netherlands and Germany who happened to be in Florida at the same time, hence my reason for trekking down there, were to find places to hang out and enjoy some bourgeois time in town. Unfortunately since we were there in November (once again before the prime season) the place was perpetually deserted except for an occasional day tripper bus tour, a few off season tourists and some students from the tiny collage in town. What was worse than the desertedness of the place was the lack of places where I would want to spend more than 10 minutes hanging out in. I mean poor towns are quite depressing to hang out in. We found one lively bar at the end of a pretty extensive strip of mostly deserted and closed bars (due to the off season time I presume) where they had live music and some people actually in the place. I met a few locals and one nice girl explained how the majority of the strip of bars I asked her about had migrated into the hands of one or two owners over the years. Yep, this is a reality in many towns in America that have seen they’re past glory come and go. The stately houses become 8 one or two bedroom tenement style housing units owned by one or two old school families and the commercial district follows suit, often by the same clan. That is when the rest of society drags down along with the town. If you have an outspoken attitude you are run out of town and if you are black or lacking in education you get exploited to the n’th degree and if you speak out, your destined for the food stamp line for life.
This is an area where the right wing politicians push for school vouchers (an idea pushed by the right wing that a family can obtain a “voucher” they can take to a school that is “achieving” positive test scores and get out of the cycle of sending their children to failed schools in their home district). The reason they push for the vouchers is these pieces of paper allow the families with the means (i.e.; transportation, income/job, freedom of movement and connections) to get a government issued pay out where they can “self bus” their kids to the one school in the entire county that may be able to have test scores that pass the national standardized tests. What the right wing does not bother to say is that in most school districts in poor states (and even in entire districts in most American cities) there is not one public school that is capable of passing national standardized tests. Thus the damn voucher is a worthless piece of paper unless you have the means to trek your kid to some other far school or district or ability to get them into a “limited access” charter school. The people with these means are going to benefit and they of course are the last people who need it. Hence, the voucher program is nothing but another subsidy for the wealthy conservatives who rake the most “rents” from poorer parts of the nation and want some kind of government handout to get their kids to better schools on the broader taxpayer’s dime. Yea, you got it, Banana Republic, I mean America, well the US anyway.
Let’s not mistake my attitude here. I had only been to Florida once, when I was 15 years old and my mother took us down to visit my right wing religious aunt and her family and to see Disney world (or land or whatever they call it there). I think that trip was also to Jacksonville where my aunt and uncle and cousins had recently moved from Tampa. My uncle was from a big farm family in Georgia and all I remember from the trip were new churches with lots of people, a different way of talking and trying to water ski (Disney whatever is a kind of blur). That trip left no lasting impression. I always made an effort to see my aunt and uncle when they came up north to visit the family though. My cousins were great when we were kids and as an adult I always enjoyed the cultural experience of talking at length with my aunt and uncle about everything. I may trash macro cultural realities but I love communicating with individual people of all stripes.
I don’t however like Florida.
I suppose if I were a CEO of a Fortune 500 company and could use the corporate jet to fly down to my waterside house in Palm Beach or Boca Raton for the weekends like about 60% of them do there might be some reason to visit the place. But even then I wince at the idea of finding any kind of cultural entertainment or other stimulating leisure experience to recharge before heading back to the office in some productive economy state. (Well other than having a rolodex of other Fortune 500 company CEO’s and good social calendar where I could always find the hottest place to hang out and flirt with hordes of beautiful borderline professional women who haunt the place looking to land their sugar daddy CEO. Needless to say, this is not happening any time soon.)
So to my loving mother I politely asked again in a follow up email full of apologies and other niceties both ways about the short heated conversation on everything that is wrong with our lovely country simply to avoid political issues in our conversations. We are days from an election and even though many of her siblings up north that moved right of center during the waning years of the Clinton administration have, after being completely disenfranchised by the doorknob running our country for the last few years, decided also to vote for Obama (even though they are not black) my loving mom who has spent the last 90 days surrounded by the many God fearing racist in the poor state of Florida, has not had the opportunity to change her mind.
OK, this is when I have to just cut off the conversation and hang up (with a few short words expressing my extreme displeasure of her “TV induced Talking Head view of the world”, most likely from the antithesis of intelligent reporting, FOX news).
So what is it about Florida that once my mother has been there for more than 60 days she becomes some kind of extreme right wing racist? After she had been there 5 months or so she usually gets fed up with Florida herself and can’t wait to get back to Maryland. That is when I breath a sigh of relief and realize she is only truly 30 percent right of center and not 70 percent as she becomes after a couple of months in that dreadful state.
Occasionally I get questioned about when I am going to come down and visit. Mind you, my mother’s snowbird home is in Jacksonville. She might as well be in Alabama or Georgia cause everything north of Orlando is not worth a wintertime visit. It gets cold there. The beaches are lacking, the economy non-existent, culture does not exist and it is not perpetually warm. What in the hell would I want to go to Jacksonville Florida for? Anything north of Orlando is just not worth the trip.
My impression of the northern ½ of Florida is that it’s heavily settled by blue-collar northerners who just wanted to be in Florida when they retired and found the cheap real estate enticing. The economy there is like that of a Central American nation where all the “currency” that supports the local economy comes from the pension funds and 401k’s built up while people worked in states with productive economies. Go south of Orlando and you get the better off northerners who can afford the more pristine locations and 365-day warm weather offered by the tropical southern part of the state. Here, for example, is where you get the New Jersey and New York Jews who buy up “nice” condos on the beach in Miami and elsewhere they can use to bribe their reluctant children down for a visit. I mean even their kids cannot resist a free condo on the beach in Southern Florida. In fact, I might even visit my mom if she were down there. But no, she had to be where her siblings settled in the northern part of the state.
Initially there was hope. My mom first purchased a condo on a golf course just outside of St. Augustine, still not far enough south but it was a start. I figured maybe she would find it to cold and move closer to her ½ Jewish cousin who lives just west of Miami. I actually went to her condo for about 4 days in November 2007. It was cold. There was some kind of costal storm that had wiped out the beaches. Everything was deserted. I was told the “season” did not start till December. Huge multi story condo buildings rested on the deserted beaches south of St. Augustine. There were no restaurants, no grocery stores, bars, nothing, just rows of condos on the beach nearly deserted. It was surreal to say the least.
One day the little bridge we drove over from my mother’s misplaced “condo on golf course development” was closed and I had to take a detour to get to town where I would go the 5 Star St. Augustine hotel and borrow their network for a few hours for about $10. I was amazed at what I saw. On this detour only minutes from downtown and my mothers condo was a road bordered by double wide trailers on cinderblocks, tiny bungalows and houses that looked like servant quarters from some long lost Georgia plantation that were dragged down to Florida and had survived for 100 years only because of the hardiness of their tin roofs. I mean, the place was downright poor, Alabama, Mississippi and Louisiana poor. Yep, we were in Florida, home of stolen elections, inbred politicians and God fearing racists.
My trip to downtown St. Augustine with friends from the Netherlands and Germany who happened to be in Florida at the same time, hence my reason for trekking down there, were to find places to hang out and enjoy some bourgeois time in town. Unfortunately since we were there in November (once again before the prime season) the place was perpetually deserted except for an occasional day tripper bus tour, a few off season tourists and some students from the tiny collage in town. What was worse than the desertedness of the place was the lack of places where I would want to spend more than 10 minutes hanging out in. I mean poor towns are quite depressing to hang out in. We found one lively bar at the end of a pretty extensive strip of mostly deserted and closed bars (due to the off season time I presume) where they had live music and some people actually in the place. I met a few locals and one nice girl explained how the majority of the strip of bars I asked her about had migrated into the hands of one or two owners over the years. Yep, this is a reality in many towns in America that have seen they’re past glory come and go. The stately houses become 8 one or two bedroom tenement style housing units owned by one or two old school families and the commercial district follows suit, often by the same clan. That is when the rest of society drags down along with the town. If you have an outspoken attitude you are run out of town and if you are black or lacking in education you get exploited to the n’th degree and if you speak out, your destined for the food stamp line for life.
This is an area where the right wing politicians push for school vouchers (an idea pushed by the right wing that a family can obtain a “voucher” they can take to a school that is “achieving” positive test scores and get out of the cycle of sending their children to failed schools in their home district). The reason they push for the vouchers is these pieces of paper allow the families with the means (i.e.; transportation, income/job, freedom of movement and connections) to get a government issued pay out where they can “self bus” their kids to the one school in the entire county that may be able to have test scores that pass the national standardized tests. What the right wing does not bother to say is that in most school districts in poor states (and even in entire districts in most American cities) there is not one public school that is capable of passing national standardized tests. Thus the damn voucher is a worthless piece of paper unless you have the means to trek your kid to some other far school or district or ability to get them into a “limited access” charter school. The people with these means are going to benefit and they of course are the last people who need it. Hence, the voucher program is nothing but another subsidy for the wealthy conservatives who rake the most “rents” from poorer parts of the nation and want some kind of government handout to get their kids to better schools on the broader taxpayer’s dime. Yea, you got it, Banana Republic, I mean America, well the US anyway.
Let’s not mistake my attitude here. I had only been to Florida once, when I was 15 years old and my mother took us down to visit my right wing religious aunt and her family and to see Disney world (or land or whatever they call it there). I think that trip was also to Jacksonville where my aunt and uncle and cousins had recently moved from Tampa. My uncle was from a big farm family in Georgia and all I remember from the trip were new churches with lots of people, a different way of talking and trying to water ski (Disney whatever is a kind of blur). That trip left no lasting impression. I always made an effort to see my aunt and uncle when they came up north to visit the family though. My cousins were great when we were kids and as an adult I always enjoyed the cultural experience of talking at length with my aunt and uncle about everything. I may trash macro cultural realities but I love communicating with individual people of all stripes.
I don’t however like Florida.
I suppose if I were a CEO of a Fortune 500 company and could use the corporate jet to fly down to my waterside house in Palm Beach or Boca Raton for the weekends like about 60% of them do there might be some reason to visit the place. But even then I wince at the idea of finding any kind of cultural entertainment or other stimulating leisure experience to recharge before heading back to the office in some productive economy state. (Well other than having a rolodex of other Fortune 500 company CEO’s and good social calendar where I could always find the hottest place to hang out and flirt with hordes of beautiful borderline professional women who haunt the place looking to land their sugar daddy CEO. Needless to say, this is not happening any time soon.)
So to my loving mother I politely asked again in a follow up email full of apologies and other niceties both ways about the short heated conversation on everything that is wrong with our lovely country simply to avoid political issues in our conversations. We are days from an election and even though many of her siblings up north that moved right of center during the waning years of the Clinton administration have, after being completely disenfranchised by the doorknob running our country for the last few years, decided also to vote for Obama (even though they are not black) my loving mom who has spent the last 90 days surrounded by the many God fearing racist in the poor state of Florida, has not had the opportunity to change her mind.
Wednesday, October 29, 2008
Letters to Tom 6
-----Original Message-----
From: Thomas
To: Patrick
Sent: Tue, 28 Oct 2008 3:19 pm
Subject: impatient White House
Pat, here a headline from recent article that is kind of shocking:
"AP - An impatient White House served notice Tuesday on banks and other
financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans."
What the hell is that all about? Telling banks to make loans? Americans are bankrupt, are they not? They, republican/neo-cons, already ran the middle and lower class to the hilt with sub-prime, so who can actually afford credit right now? Wouldn't the banks loan it if they saw any chance of getting some interest on it, plus their money back? I also read that there's trouble on the horizon because of credit card debt. How is that gonna play out in the coming months?
t
Hi Tom,
Yes this is the cry from the White House and their cronies. As it happens, the big bad bail out of $700 billion was originally to buy worthless derivative paper based on just about everything. Then the UK had this bright idea of just parking the money in the bank's coffers to shore up their balance sheets (of course by buying some kind of newly created "preferred shares" in the US). The idea was if banks have healthy balance sheets they would be willing to lend again right?
Thing is, the banks don't have healthy balance sheets. They are looking at a really tough economy and as you reference in the second part of your email, increasing delinquencies in their consumer credit divisions. These delinquencies are already approaching 7% or more at some institutions. This is astronomical when you consider the costs and need for extra reserves to cover these losses on top of recently delinquent home equity loans (the borrowed cash that gave Bush his debt financed "growth" for the past 5 years).
Yes the banks and credit card companies like Amex and Cap One are looking at shrinking margins on their cards, increasing delinquencies and an almost evaporated credit market where they normally sell the credit card "receivables" as debt to the credit markets (mainly purchased by money market funds, an area I think should disappear as I believe money market funds have fueled the extraordinary expansion of short term debt from the consumer side of the equation over the past 20, yes 20 years, as I bitched about this with my professors back in 1990 at UM when consumer debt was approaching $800 billion, a small number in hindsight).
Anyway, with the banks bleeding money from write downs on their bad "investments" over the past few years and vastly expanded "assets" of garbage loans to consumers who are all tapped out and loosing their jobs, once they got their hands on the Fed money they just want to sit on it or start scheming up ways to gobble up their competition and gain deposits on the cheap. Well, wouldn't you? With bank shares down 70% or more why not take advantage of that and just buy your way out of your troubles using "cheap" government handouts?
But the government in all its brilliant ideas just doesn’t understand all this. They look at some economic model and say "Hey, if the banks have capital they will want to lend it and expand their assets and make more money right?" Well Tom, you are right this time. Hell no! They have no interest in lending to a tapped out consumer who may loose their job and there are few businesses with enough cash to lend to (remember, in tough times banks only lend to those who don't need it).
Patrick
From: Thomas
To: Patrick
Sent: Tue, 28 Oct 2008 3:19 pm
Subject: impatient White House
Pat, here a headline from recent article that is kind of shocking:
"AP - An impatient White House served notice Tuesday on banks and other
financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans."
What the hell is that all about? Telling banks to make loans? Americans are bankrupt, are they not? They, republican/neo-cons, already ran the middle and lower class to the hilt with sub-prime, so who can actually afford credit right now? Wouldn't the banks loan it if they saw any chance of getting some interest on it, plus their money back? I also read that there's trouble on the horizon because of credit card debt. How is that gonna play out in the coming months?
t
Hi Tom,
Yes this is the cry from the White House and their cronies. As it happens, the big bad bail out of $700 billion was originally to buy worthless derivative paper based on just about everything. Then the UK had this bright idea of just parking the money in the bank's coffers to shore up their balance sheets (of course by buying some kind of newly created "preferred shares" in the US). The idea was if banks have healthy balance sheets they would be willing to lend again right?
Thing is, the banks don't have healthy balance sheets. They are looking at a really tough economy and as you reference in the second part of your email, increasing delinquencies in their consumer credit divisions. These delinquencies are already approaching 7% or more at some institutions. This is astronomical when you consider the costs and need for extra reserves to cover these losses on top of recently delinquent home equity loans (the borrowed cash that gave Bush his debt financed "growth" for the past 5 years).
Yes the banks and credit card companies like Amex and Cap One are looking at shrinking margins on their cards, increasing delinquencies and an almost evaporated credit market where they normally sell the credit card "receivables" as debt to the credit markets (mainly purchased by money market funds, an area I think should disappear as I believe money market funds have fueled the extraordinary expansion of short term debt from the consumer side of the equation over the past 20, yes 20 years, as I bitched about this with my professors back in 1990 at UM when consumer debt was approaching $800 billion, a small number in hindsight).
Anyway, with the banks bleeding money from write downs on their bad "investments" over the past few years and vastly expanded "assets" of garbage loans to consumers who are all tapped out and loosing their jobs, once they got their hands on the Fed money they just want to sit on it or start scheming up ways to gobble up their competition and gain deposits on the cheap. Well, wouldn't you? With bank shares down 70% or more why not take advantage of that and just buy your way out of your troubles using "cheap" government handouts?
But the government in all its brilliant ideas just doesn’t understand all this. They look at some economic model and say "Hey, if the banks have capital they will want to lend it and expand their assets and make more money right?" Well Tom, you are right this time. Hell no! They have no interest in lending to a tapped out consumer who may loose their job and there are few businesses with enough cash to lend to (remember, in tough times banks only lend to those who don't need it).
Patrick
Monday, October 20, 2008
Letters to Tom (5)
From: Thomas
To: Patrick
Sent: Sun, 19 Oct 2008 4:02 pm
Subject: Re: Cheer up???
Pat,
As usual I can't hold on to the economic ship you describe since I'm not an economist (as you obviously are). But... I refuse to let go and drawn. With that in mind, let me give this economy stuff a go.
Inflation? Are you saying as in "inflation" of national economies? I think what you might be referring to is deflation. I don't know, Pat. I don't think inflation is what it used to be.
Aren't you forgetting about the drastic decrease in the price of oil recently? Russia and China - both economies almost wholly dependent on (fictional?) petro-dollars - are right now tittering on the edge. And why is that? You're right that the dollar is weak but what is also clear is that no matter what happens too many countries are dependent on that dollar - no matter what form that dollar has. A bit ironic, perhaps, that all the G8 leaders are going to meet to discuss how to deal with this problem (notice they don't use the term G8 anymore - since Russia isn’t invited.) What do you think they're going to talk
about? How Russia and China are going to burn (real) cash to fuel their winters?
What "real" cash, Pat? There is no such thing as cash in this crisis. It is truly about trust - as in: whom do you trust? (The west or...?)
What is so interesting about this crisis (to me) is the fact that it has never been more obvious that the money being put into the system right now ($700b in the US) is truly monopoly money - as in Monopoly the game! It is not even referred to as "cash". Well, I guess some refer to it as that but... The dippy Bush referred to it the other day as "capital" - it is clearly not that. Isn't it really liquidity? No? Wait. Isn't it really anything more than a Bookie guaranteeing his store?
To me the real question is how much more production can America afford to lose through this crisis? Will GM buy Chrysler? Can America really sustain itself by having a majority service economy? And on top of that afford all this wacky Wall Street krapp?
I recently thought about an old econ101 term that I haven't heard in years. What ever happened to M3? The crisis is really stirring up 200 or so years of capitalism - that part the hedge fund guy got right. But couldn't this crisis also be changing economics as well?
Ah, what do I know?
t
Funny you mention M3. All the monetary numbers M1-M3 used to be published regularly. They were removed from being published a few short years ago. They are simply mind-boggling and I guess the Fed did not see the point. Lets just say over 85% of the "currency" in dollars is outside of the US.
Anyway, remember the later 90's? We had something they were talking about there called the "Goldie lox economy" where unemployment dropped into the 4% range (where previously the Fed used to think under 6% would start to cause inflation to rise) but inflation was stagnant or non existent. I mean there was just no noticeable inflation until after 2001. And yes, typical inflation assumes rising prices, commodities usually start the rise then prices go up and people demand higher wages etc.
Strange thing is during the housing boom / bubble, housing prices skyrocketed and I kept saying, where is the rise in income to sustain the rise in prices? Well it was not there and never appeared, hence the housing bubble burst. We had a very strange time. There was my attitude during the bubble where I asked my friends who talked about their rising house prices and posed this question: Did you house price go up or does it simply take more dollars to buy your house?
Understand the difference? I believed it was the latter and house prices were foretelling a collapse of the dollar. If you remember, during the 70's inflation time, house prices went up with inflation. Those were old and traditional and reliable economic models we all learned from. Today we are in different times. The "Goldie lox economy" followed by the "housing bubble" without underlying income to support it and the current melt down in the credit markets as a separate event from the industrial production etc parts of the economy are all putting traditional models out to rest.
My fear of inflation is a simple one. It assumes the lack in faith of the value of the dollar. I feel by pumping more and more dollars into the banking and credit system we are taking the assumption that there is some kind of intrinsic value of the dollar, which allows us to recklessly print more. I mean, what other country can get away with the kind of national debt and trade deficits we have? None! There is the rub. The globe accepts our trade deficits, budget deficits, consumer debt and other reckless numbers. But with every possible number going bad, what is not to say pumping dollars into the financial system at this point does not have the ability to create the "prefect storm" where no matter how many dollars are put out there, credit remains tight, people horde dollars and nothing moves. Then just like any "asset class" that is horded, at some point people will want to unload. That is the problem, are they going to unload dollars into a dead economy? If we lower interest rates to 1% or .75% or whatever, and the US economy sinks further, who will want to hold dollars?
Anyway, I am just thinking out loud here. I don't have all the technical knowledge to determine the viability of what I am saying. I just feel it in my gut. I feel it in the panic in Washington, the panic in the Fed the panic in the Treasury, the panic on Wall Street, the Panic in London the Panic everywhere you look... I just feel it.
Patrick
To: Patrick
Sent: Sun, 19 Oct 2008 4:02 pm
Subject: Re: Cheer up???
Pat,
As usual I can't hold on to the economic ship you describe since I'm not an economist (as you obviously are). But... I refuse to let go and drawn. With that in mind, let me give this economy stuff a go.
Inflation? Are you saying as in "inflation" of national economies? I think what you might be referring to is deflation. I don't know, Pat. I don't think inflation is what it used to be.
Aren't you forgetting about the drastic decrease in the price of oil recently? Russia and China - both economies almost wholly dependent on (fictional?) petro-dollars - are right now tittering on the edge. And why is that? You're right that the dollar is weak but what is also clear is that no matter what happens too many countries are dependent on that dollar - no matter what form that dollar has. A bit ironic, perhaps, that all the G8 leaders are going to meet to discuss how to deal with this problem (notice they don't use the term G8 anymore - since Russia isn’t invited.) What do you think they're going to talk
about? How Russia and China are going to burn (real) cash to fuel their winters?
What "real" cash, Pat? There is no such thing as cash in this crisis. It is truly about trust - as in: whom do you trust? (The west or...?)
What is so interesting about this crisis (to me) is the fact that it has never been more obvious that the money being put into the system right now ($700b in the US) is truly monopoly money - as in Monopoly the game! It is not even referred to as "cash". Well, I guess some refer to it as that but... The dippy Bush referred to it the other day as "capital" - it is clearly not that. Isn't it really liquidity? No? Wait. Isn't it really anything more than a Bookie guaranteeing his store?
To me the real question is how much more production can America afford to lose through this crisis? Will GM buy Chrysler? Can America really sustain itself by having a majority service economy? And on top of that afford all this wacky Wall Street krapp?
I recently thought about an old econ101 term that I haven't heard in years. What ever happened to M3? The crisis is really stirring up 200 or so years of capitalism - that part the hedge fund guy got right. But couldn't this crisis also be changing economics as well?
Ah, what do I know?
t
Funny you mention M3. All the monetary numbers M1-M3 used to be published regularly. They were removed from being published a few short years ago. They are simply mind-boggling and I guess the Fed did not see the point. Lets just say over 85% of the "currency" in dollars is outside of the US.
Anyway, remember the later 90's? We had something they were talking about there called the "Goldie lox economy" where unemployment dropped into the 4% range (where previously the Fed used to think under 6% would start to cause inflation to rise) but inflation was stagnant or non existent. I mean there was just no noticeable inflation until after 2001. And yes, typical inflation assumes rising prices, commodities usually start the rise then prices go up and people demand higher wages etc.
Strange thing is during the housing boom / bubble, housing prices skyrocketed and I kept saying, where is the rise in income to sustain the rise in prices? Well it was not there and never appeared, hence the housing bubble burst. We had a very strange time. There was my attitude during the bubble where I asked my friends who talked about their rising house prices and posed this question: Did you house price go up or does it simply take more dollars to buy your house?
Understand the difference? I believed it was the latter and house prices were foretelling a collapse of the dollar. If you remember, during the 70's inflation time, house prices went up with inflation. Those were old and traditional and reliable economic models we all learned from. Today we are in different times. The "Goldie lox economy" followed by the "housing bubble" without underlying income to support it and the current melt down in the credit markets as a separate event from the industrial production etc parts of the economy are all putting traditional models out to rest.
My fear of inflation is a simple one. It assumes the lack in faith of the value of the dollar. I feel by pumping more and more dollars into the banking and credit system we are taking the assumption that there is some kind of intrinsic value of the dollar, which allows us to recklessly print more. I mean, what other country can get away with the kind of national debt and trade deficits we have? None! There is the rub. The globe accepts our trade deficits, budget deficits, consumer debt and other reckless numbers. But with every possible number going bad, what is not to say pumping dollars into the financial system at this point does not have the ability to create the "prefect storm" where no matter how many dollars are put out there, credit remains tight, people horde dollars and nothing moves. Then just like any "asset class" that is horded, at some point people will want to unload. That is the problem, are they going to unload dollars into a dead economy? If we lower interest rates to 1% or .75% or whatever, and the US economy sinks further, who will want to hold dollars?
Anyway, I am just thinking out loud here. I don't have all the technical knowledge to determine the viability of what I am saying. I just feel it in my gut. I feel it in the panic in Washington, the panic in the Fed the panic in the Treasury, the panic on Wall Street, the Panic in London the Panic everywhere you look... I just feel it.
Patrick
Sunday, October 19, 2008
Letters to Tom (4)
Tom,
I am increasingly convincing myself our economy (including Europe's but to a lesser extent) is about to hit an unprecedented bout of inflation. My prior comments over the past few years about allowing China to take some of their hundreds of billions of dollars and buy US assets before they end up burning them for heating fuel in the winter is starting to take real shape (like the hedge fund guy Andrew Lahde's comment about the legislation that never passed because industry bought off the government, those industries also bought off the government by convincing them to not allow China to purchase several American companies which is the best thing that could happen to all those dollars they have collected).
This will not be the kind of inflation economist’s talk about, rising asset prices, wages etc. but a simple collapse in the faith of the US currency combined with the government's current bias towards literally flooding the banks and financial markets with "unlimited" dollars to improve liquidity. I am not kidding. We went from 10's of billions in dollars of support to hundreds of billions to now quoted everywhere, "unlimited" of financial support from the fed.
I seriously think China may in fact be using those dollars as fuel this winter, they will become that worthless as the US current reckless attempts to bail out a financial system that is larger then their capacity to deal with it results in a complete loss in confidence in the value of the dollar. I cannot say it will all happen by this winter, in fact it may take closer to 8-10 months to happen but I feel strongly it IS going to happen. It is in my gut for all I know as a measly undergrad economics degree holder.
The question is how to "profit" from this reality. The only asset class traditionally to migrate to is Gold. I hate Gold. I hate the thought that the idiots running our country and economy for the past 8 years or so still think like it is the 19th century, before central banks, when currencies went bust regularly, precious metals where the only stable value and vast amounts of resources were spent scouring the globe for mineral riches. I would much rather invest in the foundation of our technological advances over the past 30 years or so where some of the smartest people spend their lives creating more amazing products and devices that have ways of "improving" human life. Things like semi-conductors, real medical advances, energy saving technologies, better and more efficient products and art. Instead, my option to hedge what I fear is an impending loss of confidence in the dollar is to buy the very thing I despise the most, a damn base metal extracted from the earth.
I am really pissed off. I feel like the French during the French Revolution. I strongly believe our government (an expression that I have had for about 25 years now) had become so impotent and bought that they have put our entire system in jeopardy. It is unfortunate. I can remember back when I was in my early 20's and talked about entering politics sometime after I was 35 saying I felt by the early 21st Century the US would be in such a mess that it would be easy to run for president. I mean, who would want the job? To see what is going on now makes me feel for the next person to enter that house on Pennsylvania Avenue. I am willing to bet that within 2 years the house will become nothing but a ceremonious museum. The citizens of the United States will become so disenfranchised by what has happened to our economy that they will create a situation that causes smart people to conclude there is no way the leader of the US can govern from such an accessible location. It will simply be too dangerous. The entire seat of government around the capital will become sealed for blocks around and the 1/2 a billion dollars that has been spent making the Capital visitable again will be wasted cash.
Mark these words.
Now, how to profit from a complete loss of value in the dollar...
Patrick
I am increasingly convincing myself our economy (including Europe's but to a lesser extent) is about to hit an unprecedented bout of inflation. My prior comments over the past few years about allowing China to take some of their hundreds of billions of dollars and buy US assets before they end up burning them for heating fuel in the winter is starting to take real shape (like the hedge fund guy Andrew Lahde's comment about the legislation that never passed because industry bought off the government, those industries also bought off the government by convincing them to not allow China to purchase several American companies which is the best thing that could happen to all those dollars they have collected).
This will not be the kind of inflation economist’s talk about, rising asset prices, wages etc. but a simple collapse in the faith of the US currency combined with the government's current bias towards literally flooding the banks and financial markets with "unlimited" dollars to improve liquidity. I am not kidding. We went from 10's of billions in dollars of support to hundreds of billions to now quoted everywhere, "unlimited" of financial support from the fed.
I seriously think China may in fact be using those dollars as fuel this winter, they will become that worthless as the US current reckless attempts to bail out a financial system that is larger then their capacity to deal with it results in a complete loss in confidence in the value of the dollar. I cannot say it will all happen by this winter, in fact it may take closer to 8-10 months to happen but I feel strongly it IS going to happen. It is in my gut for all I know as a measly undergrad economics degree holder.
The question is how to "profit" from this reality. The only asset class traditionally to migrate to is Gold. I hate Gold. I hate the thought that the idiots running our country and economy for the past 8 years or so still think like it is the 19th century, before central banks, when currencies went bust regularly, precious metals where the only stable value and vast amounts of resources were spent scouring the globe for mineral riches. I would much rather invest in the foundation of our technological advances over the past 30 years or so where some of the smartest people spend their lives creating more amazing products and devices that have ways of "improving" human life. Things like semi-conductors, real medical advances, energy saving technologies, better and more efficient products and art. Instead, my option to hedge what I fear is an impending loss of confidence in the dollar is to buy the very thing I despise the most, a damn base metal extracted from the earth.
I am really pissed off. I feel like the French during the French Revolution. I strongly believe our government (an expression that I have had for about 25 years now) had become so impotent and bought that they have put our entire system in jeopardy. It is unfortunate. I can remember back when I was in my early 20's and talked about entering politics sometime after I was 35 saying I felt by the early 21st Century the US would be in such a mess that it would be easy to run for president. I mean, who would want the job? To see what is going on now makes me feel for the next person to enter that house on Pennsylvania Avenue. I am willing to bet that within 2 years the house will become nothing but a ceremonious museum. The citizens of the United States will become so disenfranchised by what has happened to our economy that they will create a situation that causes smart people to conclude there is no way the leader of the US can govern from such an accessible location. It will simply be too dangerous. The entire seat of government around the capital will become sealed for blocks around and the 1/2 a billion dollars that has been spent making the Capital visitable again will be wasted cash.
Mark these words.
Now, how to profit from a complete loss of value in the dollar...
Patrick
Saturday, October 18, 2008
Letters to Tom (3)
-----Original Message-----
From: Thomas
To: Patrick
Sent: Wed, 15 Oct 2008 4:02 pm
Subject: This is the end?
Oh my god, Pat. Are you worth, like, negative money now?
(Sorry. Hope you don't mind the weak attempt at a bad joke.)
Just heard the market is way down again.
How are you doing?
T
Hi Tom,
Let's just say about a year and 1/2 ago I could have bought a decent boat and had another 5 years where I would not have to work. Now, I could buy a dingy and take a few months off. Ha Ha.
http://www.ft.com/cms/s/0/19153990-9615-11dd-9dce-000077b07658.html
This is a great site to review recent financial history offered by the FT.
I have become the dreaded "day trader" that I never really liked. It is difficult for me to see value in a stock and buy it just to unload it when it moved up a dollar (or in the case when I short it buy it back when it falls a dollar) but this is what I am doing. On some days I can make a few grand. On others I lick my wounds. The market swings are heaven for day traders and I am trying to make it work. I actually look forward to 400 point swings and last week was full of them. I mean from Tuesday am open 9800 at to Thursday about 11 am at 8200 the market moved an entire years worth: nearly 20%
So if anyone sold into the early Tuesday rally they could have cashed out by Thursday morning and I can tell you I was one lucky person with one position I took on Monday which when the market was up I had shorted. I thought I would loose my shirt that day but by Thursday AM was making silly money as the market plunged (well on that position anyway). My only mistakes are not seeing how far the market can move. My strategy is move in 250-500 shares at a time then exit 250-500 shares at a time. Unfortunately this drastically lowers profit in really big swings but the key word here is to make a profit even though there are "make a killing" opportunities I give up with this more conservative strategy.
The news is finally starting to speak about hedge funds. There are by some estimates 8000 hedge funds and anywhere from $1.9 to $2.4 trillion they hold. From ALL the government speak and bailout speak and every thing damn else, you would think hedge funds did not exist. You know my take on the bastard industry. Well now they are making their way into the financial news at least and it is only the big names and their losses and redemptions over the last 60 days. Like we are supposed to cry for these pigs. Yea, even some of those assholes did not predict a crash and they did not get to cash early enough. Anyway, I have been predicting some of them will crash and it will be uglier than today. They are unregulated and some of them hold or held as much debt as Lehman. 1998 saw the bail out of LTCM, which was a hedge fund, but NOT with government money. Greenspan brokered a deal for a dozen or so banks to pony up enough cash to keep the fund from collapsing on Monday morning that year but no Fed money went in the pot. To this day, I have been pissed to no end at the Fed's opening up cash to non regulated Wall Street funds with tacit understanding they were going to support the unregulated hedge fund market with their access to cash. Lehman was $400 Billion in leverage (and this was DOWN to 23% or so when they went under). At their peak they had about $600 Billion in debt outstanding, a ration of over $30 invested for each $1 in capital. They were essentially one big hedge fund who operated right on Wall Street and took real money from real people. That is no joke. Well hedge funds run $7-10 for each $1 in capital if they are conservative. Others go $20-30 to $1 and they are out there now.
When we hear of debt markets freezing up, it is like "hello". Any idiot, including me, saw this thing happening years ago. With that many firms leveraged at such ratios it is like going to implode. I am surprised inflation did not really bite, I mean they chased oil and commodities to unheard of prices and somehow real businesses swallowed the costs and kept making money, albeit less.
It is the financial businesses that have imploded. I wondered at amazement for years what in the hell banks like Bank of America who was taking in after tax profit margins of 30% ($3 Billion on profit on $9 Billion in quarterly revenue back in 2006!) and other Wall Street firms where doing with all this money. Also, corporate America, with National Retailers and food producers who had bought up all the competition and commanded 40% of their respective markets, what were they doing with all the profits? Well as the quarterly reports come out and the exposure to Lehman Brothers and other financial firms are reported, it is becoming obvious that Wall Street was not only taking money from dumb suckers. They were taking money from corporate America, pension funds, university endowments, utility companies, all the way down to local governments and community banks.
In the US, unlike the 1980’s S&L scandals with Milkman (I mean Milken who was a genius at milking cash from anyone and everyone to play his buyout game), where junk bonds at the end of the debt boom where being sold to pensioners and old ladies through their local S&L, this current mess was not sold directly to individual private investors (with the exception of the "auction rate bond products" where banks are having to return capital to individual investors who bought these products and were stuck not able to sell them when the auctions "seized up", polite for Wall Street firms did not have any money left to support the artificial and non transparent market they “created” and for any person for 1/2 a brain, this was a canary of things getting worse as this market collapsed early in the crises).
In Hong Kong there have been near riots by individual investors because they were actually sold Lehman structured debt products directly. Can you imagine the hell they are going through? This paper is worthless. I am only glad the impotent and incompetent and largely on the sidelines SEC had rules on the books that unregulated paper could not be sold to Joe the Investor. All this crap created was basically unregulated insurance on debt. Strange stuff. There was a chart in the WSJ of the CDS market that went from an insignificant amount in 2000 to over $60 Trillion of the paper by 2007. The crazy thing is there came a point where debt could not be issued without the blessing of a CDS price (the cost to insure the debt). The ratings agencies still rated the stuff but the sellers of insurance on the debt were really making a killing (obviously or the product would not have grown so fast). Then of course this insurance product became a weapon and indirect way of destroying the ability of a company or municipality to issue debt. The issuers of unregulated insurance products suddenly had the power to decide who would get access to capital. The exceptional thing about this is that 99% of the people selling and writing this stuff (after the mathematicians and lawyers had written the novel long contracts) did not know a damn thing about insurance and had no capital to back losses if the underlying debt their "products" were created for actually went sour.
Along with the creation of this market which shows a curve going straight up from 2000 - 2007 before coming down for the first time in 2008 is the graph showing consumer price inflation doing the exact same thing along with Oil and commodity prices and I have seen graphs showing the private equity buyout craze (which started a bit later, say 2003) which had escalated to a point where a continued growth rate would have had private equity swallowing all of Wall Street.
Actually come to mention it, this week’s buzz about GM buying Chrysler is really a desperate attempt by Cerberus Capital Management and the syndicate of banks who backed this ludicrous buyout to avoid complete collapse when the private Chrysler declares bankruptcy. Yes, they will be bankrupt or bailed out by GM within 10 days of this posting. You know why? The Government bailed out Chrysler the first time but no person, even amongst Paulson’s cronies, has the stomach to bail out Chrysler while they are in the hands of “private equity”. I mean those guys are the cream of pigs. They buy companies with little to no money down, steal all the cash, strip the assets, pay themselves billions, then re-float highly indebted companies back on the street and cash in again. Who wants to lend these guys a hand? At the same time the complete collaps of this important Private Equity firm and or Chrysler will have real repercussions in the US economy. That is my take. Look at their company description:
Anyway, the paper economy of the first decade of 21st Century has collapsed. The problem I see is the Reagan boom was built on debt and ended with the collapse of the savings and loan and real estate markets and nearly took the banks with it, while the Bush II economy was built on debt and has ended with the collapse of the banking industry, investment banking industry, real estate market and is so severe it will cut into the "productive" side of our economy as well potentially destroying what actual productive industries we have left in the US. The Clinton boom also ended with a big bust of the artificial internet bubble economy and to some extent the financial world with the collapse of the tech oriented NASDAQ, but no matter how you slice this boom / bust, technology never accounted for more than 6% of so of the economy so the collapse did not have such a great an overall impact. Industries remained intact, banking remained intact and successful technology companies remained intact.
Anyway, without more on this, things are moving along.
Patrick
From: Thomas
To: Patrick
Sent: Wed, 15 Oct 2008 4:02 pm
Subject: This is the end?
Oh my god, Pat. Are you worth, like, negative money now?
(Sorry. Hope you don't mind the weak attempt at a bad joke.)
Just heard the market is way down again.
How are you doing?
T
Hi Tom,
Let's just say about a year and 1/2 ago I could have bought a decent boat and had another 5 years where I would not have to work. Now, I could buy a dingy and take a few months off. Ha Ha.
http://www.ft.com/cms/s/0/19153990-9615-11dd-9dce-000077b07658.html
This is a great site to review recent financial history offered by the FT.
I have become the dreaded "day trader" that I never really liked. It is difficult for me to see value in a stock and buy it just to unload it when it moved up a dollar (or in the case when I short it buy it back when it falls a dollar) but this is what I am doing. On some days I can make a few grand. On others I lick my wounds. The market swings are heaven for day traders and I am trying to make it work. I actually look forward to 400 point swings and last week was full of them. I mean from Tuesday am open 9800 at to Thursday about 11 am at 8200 the market moved an entire years worth: nearly 20%
So if anyone sold into the early Tuesday rally they could have cashed out by Thursday morning and I can tell you I was one lucky person with one position I took on Monday which when the market was up I had shorted. I thought I would loose my shirt that day but by Thursday AM was making silly money as the market plunged (well on that position anyway). My only mistakes are not seeing how far the market can move. My strategy is move in 250-500 shares at a time then exit 250-500 shares at a time. Unfortunately this drastically lowers profit in really big swings but the key word here is to make a profit even though there are "make a killing" opportunities I give up with this more conservative strategy.
The news is finally starting to speak about hedge funds. There are by some estimates 8000 hedge funds and anywhere from $1.9 to $2.4 trillion they hold. From ALL the government speak and bailout speak and every thing damn else, you would think hedge funds did not exist. You know my take on the bastard industry. Well now they are making their way into the financial news at least and it is only the big names and their losses and redemptions over the last 60 days. Like we are supposed to cry for these pigs. Yea, even some of those assholes did not predict a crash and they did not get to cash early enough. Anyway, I have been predicting some of them will crash and it will be uglier than today. They are unregulated and some of them hold or held as much debt as Lehman. 1998 saw the bail out of LTCM, which was a hedge fund, but NOT with government money. Greenspan brokered a deal for a dozen or so banks to pony up enough cash to keep the fund from collapsing on Monday morning that year but no Fed money went in the pot. To this day, I have been pissed to no end at the Fed's opening up cash to non regulated Wall Street funds with tacit understanding they were going to support the unregulated hedge fund market with their access to cash. Lehman was $400 Billion in leverage (and this was DOWN to 23% or so when they went under). At their peak they had about $600 Billion in debt outstanding, a ration of over $30 invested for each $1 in capital. They were essentially one big hedge fund who operated right on Wall Street and took real money from real people. That is no joke. Well hedge funds run $7-10 for each $1 in capital if they are conservative. Others go $20-30 to $1 and they are out there now.
When we hear of debt markets freezing up, it is like "hello". Any idiot, including me, saw this thing happening years ago. With that many firms leveraged at such ratios it is like going to implode. I am surprised inflation did not really bite, I mean they chased oil and commodities to unheard of prices and somehow real businesses swallowed the costs and kept making money, albeit less.
It is the financial businesses that have imploded. I wondered at amazement for years what in the hell banks like Bank of America who was taking in after tax profit margins of 30% ($3 Billion on profit on $9 Billion in quarterly revenue back in 2006!) and other Wall Street firms where doing with all this money. Also, corporate America, with National Retailers and food producers who had bought up all the competition and commanded 40% of their respective markets, what were they doing with all the profits? Well as the quarterly reports come out and the exposure to Lehman Brothers and other financial firms are reported, it is becoming obvious that Wall Street was not only taking money from dumb suckers. They were taking money from corporate America, pension funds, university endowments, utility companies, all the way down to local governments and community banks.
In the US, unlike the 1980’s S&L scandals with Milkman (I mean Milken who was a genius at milking cash from anyone and everyone to play his buyout game), where junk bonds at the end of the debt boom where being sold to pensioners and old ladies through their local S&L, this current mess was not sold directly to individual private investors (with the exception of the "auction rate bond products" where banks are having to return capital to individual investors who bought these products and were stuck not able to sell them when the auctions "seized up", polite for Wall Street firms did not have any money left to support the artificial and non transparent market they “created” and for any person for 1/2 a brain, this was a canary of things getting worse as this market collapsed early in the crises).
In Hong Kong there have been near riots by individual investors because they were actually sold Lehman structured debt products directly. Can you imagine the hell they are going through? This paper is worthless. I am only glad the impotent and incompetent and largely on the sidelines SEC had rules on the books that unregulated paper could not be sold to Joe the Investor. All this crap created was basically unregulated insurance on debt. Strange stuff. There was a chart in the WSJ of the CDS market that went from an insignificant amount in 2000 to over $60 Trillion of the paper by 2007. The crazy thing is there came a point where debt could not be issued without the blessing of a CDS price (the cost to insure the debt). The ratings agencies still rated the stuff but the sellers of insurance on the debt were really making a killing (obviously or the product would not have grown so fast). Then of course this insurance product became a weapon and indirect way of destroying the ability of a company or municipality to issue debt. The issuers of unregulated insurance products suddenly had the power to decide who would get access to capital. The exceptional thing about this is that 99% of the people selling and writing this stuff (after the mathematicians and lawyers had written the novel long contracts) did not know a damn thing about insurance and had no capital to back losses if the underlying debt their "products" were created for actually went sour.
Along with the creation of this market which shows a curve going straight up from 2000 - 2007 before coming down for the first time in 2008 is the graph showing consumer price inflation doing the exact same thing along with Oil and commodity prices and I have seen graphs showing the private equity buyout craze (which started a bit later, say 2003) which had escalated to a point where a continued growth rate would have had private equity swallowing all of Wall Street.
Actually come to mention it, this week’s buzz about GM buying Chrysler is really a desperate attempt by Cerberus Capital Management and the syndicate of banks who backed this ludicrous buyout to avoid complete collapse when the private Chrysler declares bankruptcy. Yes, they will be bankrupt or bailed out by GM within 10 days of this posting. You know why? The Government bailed out Chrysler the first time but no person, even amongst Paulson’s cronies, has the stomach to bail out Chrysler while they are in the hands of “private equity”. I mean those guys are the cream of pigs. They buy companies with little to no money down, steal all the cash, strip the assets, pay themselves billions, then re-float highly indebted companies back on the street and cash in again. Who wants to lend these guys a hand? At the same time the complete collaps of this important Private Equity firm and or Chrysler will have real repercussions in the US economy. That is my take. Look at their company description:
Company Overview
Cerberus Capital Management, L.P. is a principal investment firm specializing in investments in undervalued companies. The firm seeks to invest in aerospace and defense, apparel, automotive and industrial, building products, commercial services, consumer and retail, financial services, healthcare, manufacturing and distribution, paper, packaging, and printing, real estate, food service, logistics, media, hospitality, technology and telecommunications, transportation, and travel and leisure sectors. It holds controlling or significant minority interests in its investee companies. Cerberus Capital Management, L.P. is headquartered in New York, New York…
Anyway, the paper economy of the first decade of 21st Century has collapsed. The problem I see is the Reagan boom was built on debt and ended with the collapse of the savings and loan and real estate markets and nearly took the banks with it, while the Bush II economy was built on debt and has ended with the collapse of the banking industry, investment banking industry, real estate market and is so severe it will cut into the "productive" side of our economy as well potentially destroying what actual productive industries we have left in the US. The Clinton boom also ended with a big bust of the artificial internet bubble economy and to some extent the financial world with the collapse of the tech oriented NASDAQ, but no matter how you slice this boom / bust, technology never accounted for more than 6% of so of the economy so the collapse did not have such a great an overall impact. Industries remained intact, banking remained intact and successful technology companies remained intact.
Anyway, without more on this, things are moving along.
Patrick
Friday, October 10, 2008
Letters to Tom (2)
Today another reply to in inquiry from Tom about hedge funds I thought worth posting...
Tom,
Hedge funds traditionally got cash from wealthy individuals and institutions (corporations and the like). The basic rules were something like one had to have a net cash worth of about $1.5 million or total assets of like $5 million or some other arbitrary number. In addition, since they are unregulated, brokerages could not sell or recommend directly to their clients so they would have to arrange social events or other such things to introduce their hedge fund friends to wealthy clients.
In the past few years, some hedge funds tried to become more transparent by listing on stock exchanges. Fortune Group in the US along with Blackstone and Man Group in the UK were the first. This has stopped.
The SEC put out a report about 2002 or so suggesting they tighten rules and researched whether it would be wise to regulate them. They did require "registration" of hedge funds with a certain size and some other criteria around 2004 but the hedge funds sued the SEC and won so all that got turned back. (my dates are from memory here as are the stats but the info is correct)
They have plenty of cash, there are hundreds of hedge funds, they hold over $2 trillion and leverage themselves anywhere from 7 to 20 to one. They engage in every scheme imaginable to make money and were involved in much of the success of esoteric products based on debt. I suspect they are responsible for the margin calls against brokerages, insurance companies and the like who sold the CDS insurance products without enough cash to back losses when things turned sour. Thus they have enough knowledge of the extent of the crises to know the sellers would not be able to cover their obligations and went heavy into shorting their stock, putting them out of business while making money on the fall. They got their cash anyway I guess one could suspect.
Wall Street has not changed.
I suggested a couple years ago that Wall Street had become dwarfed by the pools of money outside of the regulated system. I was right. The regulated system is for suckers and the Government will not win against the unregulated pools of money. They cannot print enough to keep up. Secondly, the money they are printing to cover the insurance calls against companies like AIG is going directly into the pockets of those who bought the unregulated insurance products and are now being paid big time cash to keep the hedge funds from bringing more companies to their knees.
So, the unregulated money industry, with hedge funds in the center along with private equity, and the esoteric products created and sold which were also unregulated insurance products, are bringing down the regulated markets.
No one in Washington will say this and I just don't get it. However as I said, this is the biggest wholesale transfer of wealth the history of capitalism has ever seen.
Said.
Patrick
Tom,
Hedge funds traditionally got cash from wealthy individuals and institutions (corporations and the like). The basic rules were something like one had to have a net cash worth of about $1.5 million or total assets of like $5 million or some other arbitrary number. In addition, since they are unregulated, brokerages could not sell or recommend directly to their clients so they would have to arrange social events or other such things to introduce their hedge fund friends to wealthy clients.
In the past few years, some hedge funds tried to become more transparent by listing on stock exchanges. Fortune Group in the US along with Blackstone and Man Group in the UK were the first. This has stopped.
The SEC put out a report about 2002 or so suggesting they tighten rules and researched whether it would be wise to regulate them. They did require "registration" of hedge funds with a certain size and some other criteria around 2004 but the hedge funds sued the SEC and won so all that got turned back. (my dates are from memory here as are the stats but the info is correct)
They have plenty of cash, there are hundreds of hedge funds, they hold over $2 trillion and leverage themselves anywhere from 7 to 20 to one. They engage in every scheme imaginable to make money and were involved in much of the success of esoteric products based on debt. I suspect they are responsible for the margin calls against brokerages, insurance companies and the like who sold the CDS insurance products without enough cash to back losses when things turned sour. Thus they have enough knowledge of the extent of the crises to know the sellers would not be able to cover their obligations and went heavy into shorting their stock, putting them out of business while making money on the fall. They got their cash anyway I guess one could suspect.
Wall Street has not changed.
I suggested a couple years ago that Wall Street had become dwarfed by the pools of money outside of the regulated system. I was right. The regulated system is for suckers and the Government will not win against the unregulated pools of money. They cannot print enough to keep up. Secondly, the money they are printing to cover the insurance calls against companies like AIG is going directly into the pockets of those who bought the unregulated insurance products and are now being paid big time cash to keep the hedge funds from bringing more companies to their knees.
So, the unregulated money industry, with hedge funds in the center along with private equity, and the esoteric products created and sold which were also unregulated insurance products, are bringing down the regulated markets.
No one in Washington will say this and I just don't get it. However as I said, this is the biggest wholesale transfer of wealth the history of capitalism has ever seen.
Said.
Patrick
Letters to Tom (1)
This letter originally sent to Tom was also sent to Danny Roman in response to a very insensitive email from him through the economic forum on Barack Obama's web site although I do not think he has any official role there.
His email was sent as follows:
My reply was a reprint of a just sent email to my friend Tom, creator of worstwriter.wordpress.com with a bit of language editing.
His email was sent as follows:
It0s Not That Bad
Lately, over 300 emails hit my Inbox daily and a disproportionate amount are from citizens afraid and apprehensive over what is happening to the American financial services industry. So many, who ordinarily would bend over backwards to preserve civility and respect toward other views and opinions, are now bucketing out rancor, condescension and insolence; contemptuously voicing inflammatory speech that frankly…should not be verbalized or heard.
Yesterday, the Dow had its biggest loss in history, and today it rebounded by almost 500 points; proof positive that the American economic engine is unmatched in the world.
So, everybody…take a deep lungful of air…slowly exhale…again…one more time…smile…okay, now isn’t that much better?
=0 A
My reply was a reprint of a just sent email to my friend Tom, creator of worstwriter.wordpress.com with a bit of language editing.
Well Danny,
This was one of the worst and most insensitive comments I have seen from anyone in a long time. Below is a reply to an email from a very long time and good friend of mine that starts off commenting about his blog post and follows with some take on the current state of affairs in America. Perhaps a short read would be in order. You can start with the blog post here:
http://www.peter-hacks.de/phpBB2/viewtopic.php?t=1265&sid=fd00180b815ccc6e4ce6544bea169727
and follow up with my letter back...
Hi Tom,
I got around to reading this. Did your publisher really give up on the site? Were you a last ditch effort to save it or something?
Anyway, fun reading. I don't completely get the chip on your shoulder analogy but liked reading the history of the idea anyway. I think applying that idea to the suckers who sit on their asses and watch TV until the world collapses around them and they sort of wake up and try to find someone to blame, now that is a person / people with a chip on their shoulder. Only they need to look in the mirror to find out why they have such an attitude / chip on their shoulder.
On to better things. Well Tom, we are living the evolution of a depression begun by the promulgation of over $60 trillion in worthless unregulated paper traded in regulated and unregulated markets in a completely un transparent way and proved successful by 1) greed and the realization that since there is / was no transparency (you notice in all the shit the government is doing no body has proposed that these "instruments" be quoted in a public way) you could quote whatever you wanted for the paper, based on mathematical formulas only a bunch of Chinese mathematicians could figure out, and sell it at a profit if you could match it with another piece of worthless paper which guaranteed the first piece of worthless paper in case of default and 2) these were unregulated insurance products sold under the name of something else which allowed money to flow like water because anyone who issued or bought debt could also buy insurance that the debt would not default.
Now I saw this for what it was a long time ago, a house of cards that when it collapsed, there was no institution in the world who could ultimately pay the insurance claims. But that is me. See my rants at http://econ4beginners.blogspot.com/ for those of you who are not familiar with my BS.
So what do suckers like me and you do when there is, to this day, no person in Washington willing to say the words "hedge funds"? What the hell? It is hedge funds that account for 40% + of the daily volume of the NYSE. It is Hedge funds that are making a killing shorting the market and playing any other games that will make them a profit on their unregulated capital. It is hedge funds that have over $2.5 trillion dollars in cash they can bet against or for or sideways or whatever they want to do with the market and have no government or regulator or person or nation or group of people or international institution or anyone else to answer to. You mention conspiracies, do you think there are Russian "hedge funds" fighting US "hedge funds" in the race to crash each other's stock markets? I don't know, but with no one in Washington willing or capable of even mentioning the words "hedge funds" when they are the golden cow in the room, what in the hell is anyone to do? If you have enough money to be invested in hedge funds you will understand they are the avenue for the largest theft and movement of wealth into the hands of a very few people that the history of capitalism has ever seen.
You will also begin to understand why about 2 years ago I started asking people if there should not be a way to "identify" the elite rich in the world. I complained that unlike a couple centuries ago, where the average man owned one or two sets of clothing and a few basic physical artifacts verses the nobles etc who traveled with several people and material possessions and displayed immediately an obvious outward show of wealth, why we have / had not established a comparable way to identify the "nobles" amongst us so we could all bow down and pay homage when the moved down the street and thus understand our proper place in the world we were taught somehow sees us as "equal". Perhaps there are some people who heard my rant who understand now what I was talking about. Soon, the average man, who throughout the process of going from industrial to information to post information ages and is left barely able to tie his shoes as a product of the "paper economy" will begin to see not only has he nothing to offer a collapsed post information age economy where nothing physical is produced any longer, but there is no longer any basis for his known world of economy at all.
Where does this take us? Big Brother it seems. Government takeovers of the entire market. I guess it is time for an Orsen Wells for the 21st century to translate what we are experiencing to where we are going...
Cheers,
Patrick
Thursday, October 02, 2008
Real Demand vs Hedge Fund Demand
I have had it with the constant jabbering that commodities prices were / are / have been determined by "real demand" by emerging economies etc. It is and has been clear that the bubble in commodities prices was created by artificial demand by hedge fund buying and indirectly by the suckers managing pension funds who were pulled into investing in hedge funds and commodity funds as an "asset class" creating additional "investor" demand for various commodities.
It is finally becoming clear to those who were propagating the idea there was "real demand" in the sector that they were wrong. The demand was artificial and this artificial demand inflated the sector and is now rapidly unraveling. This quote from a Dow Jones News Wire report today highlights this reality.
This statement solidifies the reality that demand for commodities was artificial, driven by hedge fund buying and is now imploding.
Sorry for the farmers who stockpiled grains anticipating further gains as they have watched the value of their stocks decline by 50% in recent months.
Perhaps some of this is coming to light with this part of the report exposing the suspicions of some in government all along that prices were being manipulated:
Need I say more?
It is finally becoming clear to those who were propagating the idea there was "real demand" in the sector that they were wrong. The demand was artificial and this artificial demand inflated the sector and is now rapidly unraveling. This quote from a Dow Jones News Wire report today highlights this reality.
The economic slowdown is far from the only worry for agriculture stocks: hedge funds are facing requests from clients for redemptions and are forced to sell their holdings. That's affecting commodity prices and the prices of commodity stocks that hedge funds rode up to their peaks in the summer.
This statement solidifies the reality that demand for commodities was artificial, driven by hedge fund buying and is now imploding.
Sorry for the farmers who stockpiled grains anticipating further gains as they have watched the value of their stocks decline by 50% in recent months.
Perhaps some of this is coming to light with this part of the report exposing the suspicions of some in government all along that prices were being manipulated:
The run-up in fertilizer prices earlier this year also drew scrutiny on Capitol Hill. Sen. Byron Dorgan, a Democrat from North Dakota, asked the Federal Trade Commission to investigate pricing practices in the industry. Dorgan had met with farmers in his state concerned about the increases.
Need I say more?
Wednesday, September 24, 2008
Fannie Freddie Honeymoon over...
Congress should be asking some HARD AND FRANK questions to Paulson about this bulletin. Already the market is asking tremendously higher rates on Fannie and Freddie debt offerings!!!! This is a clear indication that the proposed bail out of the "debt garbage" out there will hammer the ratings of the US National Debt ratings...
Read this from Dow Jones today:
By Prabha Natarajan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Yields on newly issued Fannie Mae (FNM) and Freddie Mac (FRE) short-term bills skyrocketed Wednesday as investors demanded much higher risk premiums to compensate for sharp swings in short-term credit markets.
Fannie sold $1 billion of three-month bills at a yield of 2.972%, 0.84 percentage point higher than the 2.131% yield it paid last week at an auction of similar bills.
The housing giant sold $1 billion of six-month bills at a yield of 3.459%, 0.82 percentage point over the 2.635% yield Fannie paid last week for bills of this maturity.
"The short-term funding market appears to be in disarray," said Jim Vogel, senior vice president on the FTN Financial.
Freddie, which completed its $2 billion short-term bills auction Monday at more favorable terms than Fannie, felt the impact of the market dislocation Wednesday when it sold the same amount in one-month bills.
Freddie paid a yield of 2.655%, a 37-basis-point increase from last month's yield on similar bills.
Some market participants felt falling Treasury yields have largely contributed to the higher financing costs the mortgage companies had to pay.
"The flight-to-quality bid to Treasurys has sidelined traditional investors in agency paper," said Margaret Kerins, managing director and head of agency strategy at RBS Greenwich in Chicago.
The higher yields agency bills were driven by outsized risk premiums investors demanded. For instance, Fannie's $1 billion in three-month bills sold at 252 basis points over comparative Treasury yields.
This is in stark contrast to the less than 100-basis-points over Treasury yields these bills had priced in recent months.
Similarly, risk premiums on Fannie's six-month bills widened to 188 basis points and Freddie's one-month bills stretched to 248 basis points over comparative Treasury yields that had dipped to 0.17%.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=PJeHmS4lRrSS53ZpCwJJZg%3D%3D. You can use this link on the day this article is published and the following day.
Read this from Dow Jones today:
By Prabha Natarajan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Yields on newly issued Fannie Mae (FNM) and Freddie Mac (FRE) short-term bills skyrocketed Wednesday as investors demanded much higher risk premiums to compensate for sharp swings in short-term credit markets.
Fannie sold $1 billion of three-month bills at a yield of 2.972%, 0.84 percentage point higher than the 2.131% yield it paid last week at an auction of similar bills.
The housing giant sold $1 billion of six-month bills at a yield of 3.459%, 0.82 percentage point over the 2.635% yield Fannie paid last week for bills of this maturity.
"The short-term funding market appears to be in disarray," said Jim Vogel, senior vice president on the FTN Financial.
Freddie, which completed its $2 billion short-term bills auction Monday at more favorable terms than Fannie, felt the impact of the market dislocation Wednesday when it sold the same amount in one-month bills.
Freddie paid a yield of 2.655%, a 37-basis-point increase from last month's yield on similar bills.
Some market participants felt falling Treasury yields have largely contributed to the higher financing costs the mortgage companies had to pay.
"The flight-to-quality bid to Treasurys has sidelined traditional investors in agency paper," said Margaret Kerins, managing director and head of agency strategy at RBS Greenwich in Chicago.
The higher yields agency bills were driven by outsized risk premiums investors demanded. For instance, Fannie's $1 billion in three-month bills sold at 252 basis points over comparative Treasury yields.
This is in stark contrast to the less than 100-basis-points over Treasury yields these bills had priced in recent months.
Similarly, risk premiums on Fannie's six-month bills widened to 188 basis points and Freddie's one-month bills stretched to 248 basis points over comparative Treasury yields that had dipped to 0.17%.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=PJeHmS4lRrSS53ZpCwJJZg%3D%3D. You can use this link on the day this article is published and the following day.
Monday, September 22, 2008
The US Government is Absolutely Insane
Paulson and the Fed have done it again, panicked. Another 300 point drop last week and walla, they are off to save Wall Street.
I will say this one time: Buying the kind of debt that is on the books of financial institutions is complete madness. We are not talking about buying mortgages here. This is a quote from a Bloomberg article today: Read
These guys are completely nuts. Off their rocker! Find me ONE and I mean ONE sane person with any hint of an economic background and they will tell you, Paulson is nuts! The Federal Government is going insane one 300 point Dow drop at a time.
Let me put something into perspective here. The market has only had a 20% correction since it’s all time high less than one year ago. You heard me correctly, LESS THAN A YEAR AGO!!
With the completely reckless way Wall Street and all other financial firms for that matter lent money to Private Equity, Hedge Funds, Structured Investment Vehicles etc. a 20% correction is peanuts.
After the dot-com crash in 2000 the Nasdaq dropped nearly 80%. We had telecommunications, technology and other bankruptcies of epic proportions. We had billions of dollars evaporate from all of the worthless pipe dream companies launched on a whim with idea of getting rich on the Internet (remember we were mostly dial up then also). The Dow fared well dropping only about 40% and as we sit today it is still above most of the levels of 2006 and all of 2003-2005.
So I ask you, who exactly are we protecting here? If the worthless paper sold as stock of legitimate companies during the tech bubble created an 80% correction in the tech heavy Nasdaq (which still has not managed to maintain ½ it’s highs of 8 years ago), is it not expected that an index like S&P Financial Index should not loose 80% of it’s value after the worthless mathematically engineered garbage pumped onto the balance sheets of nearly every financial institution, pension fund, local government and some individuals collapses? Well as I write this it is down roughly 50%. It touched 70% in July.
Now I am not trying to bore you with this index / history stuff. I am no chart watcher and do not profess to have expertise in this subject, but common sense will tell you, the government did not bail out Worldcom, PSI.net, Enron (well that was a world of it’s own), Global Crossing, Adelphia and Kmart right? Yes, about a Trillion Dollars worth of major bankruptcies (filings over $1 billion) happened over the four years from 2000 to 2003. The government did not bail anyone out, not anyone. So what gives?
I can tell you this for sure. This will not work. This is not the same as the Resolution Trust Corp. bailout. This is dangerous, reckless, stupid and disastrous for the US economy, dollar, interest rates, inflation etc. We will be bringing wheel-barrels of cash to buy groceries if we do this. Trust me. I am not kidding. I am not a doomsayer, conspiracy nut or radical. I have common sense and what Paulson, Bernanke and your government is doing right now is completely crazy.
I am not going to say there are easy solutions here, but when our government is run by to many impotent, bought and paid for weans who will bend over to any idea pushed out there to protect their political future instead of thinking of what is right for the American People, we are in trouble.
Bailing out Bear Sterns, Taking over Fannie and Freddie, and taking a controlling stake in AIG were all wrong. All of these situations could have been dealt with in a fashion that did not involve the government as we did.
Our government is playing chicken with the largest pool of unregulated money on the planet, the hedge fund industry, and until and when they shut this thing down, they will LOOSE.
I will say this one time: Buying the kind of debt that is on the books of financial institutions is complete madness. We are not talking about buying mortgages here. This is a quote from a Bloomberg article today: Read
``The scope of the government's purchase program is quite significant,'' Merrill Lynch & Co. strategists Akiva Dickstein, Roger Lehman and Kamal Abdullah wrote in a note to clients today. At distressed prices, the Treasury could acquire as much as 10 percent of the outstanding residential and commercial mortgages that aren't already owned or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, they said.This is not the half of it. The article goes on to say:
The U.S. Treasury late yesterday gave Congress revised guidance on its plan, which may allow the government to also buy other devalued assets such as car loans and credit-card debt. Paulson also has proposed as much as $400 billion to guarantee money-market mutual funds.Am I reading this correctly? The US Government is going to purchase auto loans? Purchase credit card debt? Guarantee money-market mutual funds? (I have a whole nother dissertation about the lunacy of guaranteeing the money-market industry)
These guys are completely nuts. Off their rocker! Find me ONE and I mean ONE sane person with any hint of an economic background and they will tell you, Paulson is nuts! The Federal Government is going insane one 300 point Dow drop at a time.
Let me put something into perspective here. The market has only had a 20% correction since it’s all time high less than one year ago. You heard me correctly, LESS THAN A YEAR AGO!!
With the completely reckless way Wall Street and all other financial firms for that matter lent money to Private Equity, Hedge Funds, Structured Investment Vehicles etc. a 20% correction is peanuts.
After the dot-com crash in 2000 the Nasdaq dropped nearly 80%. We had telecommunications, technology and other bankruptcies of epic proportions. We had billions of dollars evaporate from all of the worthless pipe dream companies launched on a whim with idea of getting rich on the Internet (remember we were mostly dial up then also). The Dow fared well dropping only about 40% and as we sit today it is still above most of the levels of 2006 and all of 2003-2005.
So I ask you, who exactly are we protecting here? If the worthless paper sold as stock of legitimate companies during the tech bubble created an 80% correction in the tech heavy Nasdaq (which still has not managed to maintain ½ it’s highs of 8 years ago), is it not expected that an index like S&P Financial Index should not loose 80% of it’s value after the worthless mathematically engineered garbage pumped onto the balance sheets of nearly every financial institution, pension fund, local government and some individuals collapses? Well as I write this it is down roughly 50%. It touched 70% in July.
Now I am not trying to bore you with this index / history stuff. I am no chart watcher and do not profess to have expertise in this subject, but common sense will tell you, the government did not bail out Worldcom, PSI.net, Enron (well that was a world of it’s own), Global Crossing, Adelphia and Kmart right? Yes, about a Trillion Dollars worth of major bankruptcies (filings over $1 billion) happened over the four years from 2000 to 2003. The government did not bail anyone out, not anyone. So what gives?
I can tell you this for sure. This will not work. This is not the same as the Resolution Trust Corp. bailout. This is dangerous, reckless, stupid and disastrous for the US economy, dollar, interest rates, inflation etc. We will be bringing wheel-barrels of cash to buy groceries if we do this. Trust me. I am not kidding. I am not a doomsayer, conspiracy nut or radical. I have common sense and what Paulson, Bernanke and your government is doing right now is completely crazy.
I am not going to say there are easy solutions here, but when our government is run by to many impotent, bought and paid for weans who will bend over to any idea pushed out there to protect their political future instead of thinking of what is right for the American People, we are in trouble.
Bailing out Bear Sterns, Taking over Fannie and Freddie, and taking a controlling stake in AIG were all wrong. All of these situations could have been dealt with in a fashion that did not involve the government as we did.
Our government is playing chicken with the largest pool of unregulated money on the planet, the hedge fund industry, and until and when they shut this thing down, they will LOOSE.
Saturday, September 20, 2008
Peak Energy, This is GOOD!, Message to Senator Obama
I want to encourage Senator Obama to avoid being sucked into the "drill more oil" debate by reading the message below and using this message to completely redefine the debate on energy extraction and use in the world. He is beginning to seem a bit of a reactionary to events around him on this issue instead of creating a leading vision. This message draws the framework for this vision.
The potential that we have reached "peak oil" is the greatest gift the human race could have right now. It means the earth is incapable of producing (humans are incapable of extracting) enough carbon-based energy (oil) to meet the growing demands of 6 billion plus people. Wow, think for a moment and consider the earth as one large complex computer program that includes a kind of formula for energy extraction and use that has human need and technological maturation in it. No matter how hard we try we cannot completely destroy our planet because of the limits of human kind to extract from the planet enough carbon based fuels at a rate which will produce enough pollution to completely destroy our environment; while at the same time human kind has reached the technological capacity to tap into “clean” energy (solar, wind, hydro current, and to some extent nuclear) at economic rates and efficiencies that make the replacement of destructive 19th century power sources we originally tapped into to fuel our insatiable demand for material consumption, practical.
This is kind of like keeping us from drinking too much by limiting how much alcohol we can immediately consume.
If anyone in the Obama camp, including Obama himself, can see this for what it is and take a hold of the idea that "earth" is telling us that if we truly could produce enough energy from carbon based sources to burn all we wanted we would destroy our very existence, i.e.; drink to much and poison ourselves. Instead, we cannot. The formula of energy to consumption has reached "peak" with carbon-based fuels. What better message, gift, could we have than to simply have to face the fact that the time is now to shift to non carbon based energy. It is the "Duh" factor.
Now, if we can spend $1 Trillion on some completely destructive mission half way around the world (in a country with a total population only 3 times that of New York City) and accomplish absolutely NOTHING, they why should the Obama camp not be capable of taking hold of this gift of global balance (peak) in carbon energy extraction and turn it into a powerful "vision" for removing us from its use. This message would resonate with everyone from the “religious” who believe in the wisdom of a supreme power to the science crowd and average Joe who can understand such an idea.
Surly a fraction of the $1 Trillion spent on destruction / reconstruction / destruction in the war (say $300 billion) could allow us to completely transform a large chunk of our energy to solar, wind and other renewables (not corn) over a period of less than 10 years.
The time has come to recognize a Gift Horse when you see one and stop pandering to the PR hype and Think Tanks.
The potential that we have reached "peak oil" is the greatest gift the human race could have right now. It means the earth is incapable of producing (humans are incapable of extracting) enough carbon-based energy (oil) to meet the growing demands of 6 billion plus people. Wow, think for a moment and consider the earth as one large complex computer program that includes a kind of formula for energy extraction and use that has human need and technological maturation in it. No matter how hard we try we cannot completely destroy our planet because of the limits of human kind to extract from the planet enough carbon based fuels at a rate which will produce enough pollution to completely destroy our environment; while at the same time human kind has reached the technological capacity to tap into “clean” energy (solar, wind, hydro current, and to some extent nuclear) at economic rates and efficiencies that make the replacement of destructive 19th century power sources we originally tapped into to fuel our insatiable demand for material consumption, practical.
This is kind of like keeping us from drinking too much by limiting how much alcohol we can immediately consume.
If anyone in the Obama camp, including Obama himself, can see this for what it is and take a hold of the idea that "earth" is telling us that if we truly could produce enough energy from carbon based sources to burn all we wanted we would destroy our very existence, i.e.; drink to much and poison ourselves. Instead, we cannot. The formula of energy to consumption has reached "peak" with carbon-based fuels. What better message, gift, could we have than to simply have to face the fact that the time is now to shift to non carbon based energy. It is the "Duh" factor.
Now, if we can spend $1 Trillion on some completely destructive mission half way around the world (in a country with a total population only 3 times that of New York City) and accomplish absolutely NOTHING, they why should the Obama camp not be capable of taking hold of this gift of global balance (peak) in carbon energy extraction and turn it into a powerful "vision" for removing us from its use. This message would resonate with everyone from the “religious” who believe in the wisdom of a supreme power to the science crowd and average Joe who can understand such an idea.
Surly a fraction of the $1 Trillion spent on destruction / reconstruction / destruction in the war (say $300 billion) could allow us to completely transform a large chunk of our energy to solar, wind and other renewables (not corn) over a period of less than 10 years.
The time has come to recognize a Gift Horse when you see one and stop pandering to the PR hype and Think Tanks.
Tuesday, September 16, 2008
Game of Chicken
Letter to my Senator:
Senator Mikulski,
I beseech you to please make it clear to those that are making these government bail out decisions that they are playing a loosing game against the most powerful unregulated pool of money on the planet, the Hedge Fund Industry.
This industry has over $2 trillion in assets and is completely unregulated, primarily incorporated in island nations where they are completely out of the legal jurisdictions of the nations they operate in, have no allegiance to any nation, and have one primary objective: To make as much money as possible indiscriminately, at all cost and risk.
The time has come to understand, "With 6.2 billion people on the planet and economies all interlinked there is no longer any positive role that can be determined by having $2.5 trillion floating around playing havoc with any asset class it so chooses”.
I cannot make this message any clearer. There is much talk about regulation and cleaning up Wall Street and Washington etc. However no person anywhere is talking about the Golden Cow in the room, the Hedge Fund Industry. Without an immediate set of regulations baring players in this industry from operating in the United States under any context, you will loose, the American People will loose and our government will loose.
I leave you with this thought:
There is a story in the Old Testament about a bunch of people who flee repression only to end up building and worshiping a golden cow. This leads to great moral degradation and a sinful and corrupt people. Does anyone see the golden cow here? Lets call the golden cow "hedge funds" for the lack of a better word.
The golden cow analogy: All of the powers that be, including the chiefs of all the financial firms and government leaders across the globe are playing with the golden cow. So why does the subject of hedge fund influence in Wall Street never come up? Why does everyone talk around the subject, talking about 'regulation' etc. without mentioning the golden cow? The golden cow corrupts deeply and its influence is broad.
Sincerely,
Senator Mikulski,
I beseech you to please make it clear to those that are making these government bail out decisions that they are playing a loosing game against the most powerful unregulated pool of money on the planet, the Hedge Fund Industry.
This industry has over $2 trillion in assets and is completely unregulated, primarily incorporated in island nations where they are completely out of the legal jurisdictions of the nations they operate in, have no allegiance to any nation, and have one primary objective: To make as much money as possible indiscriminately, at all cost and risk.
The time has come to understand, "With 6.2 billion people on the planet and economies all interlinked there is no longer any positive role that can be determined by having $2.5 trillion floating around playing havoc with any asset class it so chooses”.
I cannot make this message any clearer. There is much talk about regulation and cleaning up Wall Street and Washington etc. However no person anywhere is talking about the Golden Cow in the room, the Hedge Fund Industry. Without an immediate set of regulations baring players in this industry from operating in the United States under any context, you will loose, the American People will loose and our government will loose.
I leave you with this thought:
There is a story in the Old Testament about a bunch of people who flee repression only to end up building and worshiping a golden cow. This leads to great moral degradation and a sinful and corrupt people. Does anyone see the golden cow here? Lets call the golden cow "hedge funds" for the lack of a better word.
The golden cow analogy: All of the powers that be, including the chiefs of all the financial firms and government leaders across the globe are playing with the golden cow. So why does the subject of hedge fund influence in Wall Street never come up? Why does everyone talk around the subject, talking about 'regulation' etc. without mentioning the golden cow? The golden cow corrupts deeply and its influence is broad.
Sincerely,
Monday, September 08, 2008
Paulson's 300 Point Panic Trigger
Every time the Dow drops 300 points Treasury Secretary Paulson has to jump. He and his buddy Bernanke at the Fed are two of the most incompetent people to ever be appointed to their respective positions. In one year these guys have dramatically lowered interest rates, pumped hundreds of billions of dollars of "liquidity" into the banking system, opened the Fed to non bank Wall Street investment firms so they could prop up the unregulated hedge fund market and themselves, and now the idiot Paulson takes control of Fannie and Freddie. Paulson still works for Wall Street only he sits in a taxpayer supplied office and has access to the largest checkbook in the world.
I know it has been fashionable for Dick Chaney and Presisent Bush to use the Treasury to write huge checks to their buddies over the past 8 years under the umbrella of the Iraq War, but to put a guy like Paulson in the administration so he could give his Wall Street buddies a gift every time the market goes through a badly needed correction, has been unlike anything Washington has ever experienced.
Back on 20 August when CEO Daniel Mudd himself was on the Diane Rehm Show in Washington, 88.5 FM I sent the following message:
I did not get the kind of response I expected but for the following week after Mudd's "appearance" on the show Fannie's stock rose from $4.5 to $7.5 per share. It was clear from Mudd's comments that Fannie was sound at least till the end of the year and that Paulson needed not meddle in their affairs.
But watch out when the market falls 300 points in a day!!! The idiot Paulson will spring into action.
Paulson has said he is leaving his post on 20 January 2009. What he has just done is his big gift to his pals on Wall Street. Once the Government takes over Fannie and Freddie, any idiot can see that the companies will NEVER be floated back on the market as they once existed. They will be broken down piece meal and sold to Wall Street and be no more, just like those guys want it. They hated having the competition, even though they proved their total incompetence in the mortgage business, and they can not wait to get their hands on the cash cow business that Fannie and Freddie ran until some really bad management allowed them to play around with the garbage Wall Street was selling as "securities" during the height of the "mortgage rip off scam" that Wall Street Firms were running and put their government sanctioned, taxpayer backed capital at risk.
I am pissed and I cannot wait until Paulson and Bernanke are gone and someone with the concern of the American Citizen is in their respective posts (not to mention the White House) who also have some inkling of economic principals and doing what is "right" and not what will "benefit their buddies on Wall Street".
I know it has been fashionable for Dick Chaney and Presisent Bush to use the Treasury to write huge checks to their buddies over the past 8 years under the umbrella of the Iraq War, but to put a guy like Paulson in the administration so he could give his Wall Street buddies a gift every time the market goes through a badly needed correction, has been unlike anything Washington has ever experienced.
Back on 20 August when CEO Daniel Mudd himself was on the Diane Rehm Show in Washington, 88.5 FM I sent the following message:
Several years ago wall street ran an intense PR campaign to do away with Fannie Mae and Freddie Mac. They were making billions and wanted to make more in the mortgage business. Their business model making money from retail level to securities to derivatives was so profitable they couldn't wait to destroy Fannie and Freddie and take that business. Today it is no different. Wall Street and its PR
campaign is doing everything they can to destroy these organizations and put them in private hands not unlike the same efforts they made to destroy social security and put it in private hands. I would like a comment from your guests.
I did not get the kind of response I expected but for the following week after Mudd's "appearance" on the show Fannie's stock rose from $4.5 to $7.5 per share. It was clear from Mudd's comments that Fannie was sound at least till the end of the year and that Paulson needed not meddle in their affairs.
But watch out when the market falls 300 points in a day!!! The idiot Paulson will spring into action.
Paulson has said he is leaving his post on 20 January 2009. What he has just done is his big gift to his pals on Wall Street. Once the Government takes over Fannie and Freddie, any idiot can see that the companies will NEVER be floated back on the market as they once existed. They will be broken down piece meal and sold to Wall Street and be no more, just like those guys want it. They hated having the competition, even though they proved their total incompetence in the mortgage business, and they can not wait to get their hands on the cash cow business that Fannie and Freddie ran until some really bad management allowed them to play around with the garbage Wall Street was selling as "securities" during the height of the "mortgage rip off scam" that Wall Street Firms were running and put their government sanctioned, taxpayer backed capital at risk.
I am pissed and I cannot wait until Paulson and Bernanke are gone and someone with the concern of the American Citizen is in their respective posts (not to mention the White House) who also have some inkling of economic principals and doing what is "right" and not what will "benefit their buddies on Wall Street".
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