Friday, December 9, 2011

Merrill announces the NEW rules for investing - so what were the old rules? Or should we revisit Merrill's 1998 Annual Report?

While on drive time today, a commercial interruption brought to you by Merrill Lynch Private Wealth Management beckoned would be customers to learn the "new rules for investing" - last I checked the securities industry was fighting tooth and nail against a fiduciary standard.

But MORE inportantly what were the "old" rules?
Perhaps we could go back to Merrill's 1998 annual report wherein it stated - as captured in Roger Lowenstein's LTCM tome "When Genius Failed"
see page 235, "Merrill Lynch uses mathematical risk models to help estimate its exposure to market risk" as Lowesntein wrote, in a phrase that suggested some slight dawning awareness of the dangers of such models, the bank added that they "may provide a greater sense of security than warranted; therefore, reliance on these models should be limited".

However, it appears that when it came time to lobby the SEC to create the 2004 vintage CSE (Consolidated Supervised Entity) program "only for the largest and most sophisticated broker dealers" the annual report writers and or signatories had had a technologic transformation only to be undone in a mere four years; as the Chairman Cox ended the infamous CSE program on September 26, 2008.

However, still today those models' valuations are wreaking havoc the world over and then some; some "markets"! What would US and or EU regulators today think of the opportunities they lost from not having passed their eyes over the prescient words from mother Merrill and taken counsel! How many foreclosures could have been avoided? How many bonuses could have been avoided? Oops or perhaps that's the reason they forgot to read - anything?

Tuesday, November 1, 2011

Be careful, someone's gonna get hurt...

Yes, things parents say, or an ode to George Carlin.

Picture the time when you were kids, and you were on a see saw, balanced by your friend who was on the other end; OH what great fun, and giggles and laughs, up and down, up and down, and the giggles and laughs wafted all over the playground; then up and down sped up, then you were overcome, all of a sudden out of nowhere, by the great silliness, soon other kids heard and saw what loads of fun and silliness was to be had and they wanted to sit on your side too; then more kids joined; then one suddenly jumped off one end and the kids on the other end went ploof, banging their heads, breaking arms and dislocating shoulders as they spilled onto the play ground pavement, like scatter shots.

Pity, before 2008, certain TBTF banks' didn't remember that lesson of leverage implicit in the children's frolic of see saw; for it is indeed great fun for BOTH sides of the see saw when it's a balanced game; except TBTF banks', knew at the time WHY house prices were rocketing north, but somehow forgot to inform mortgage borrowers that their leverage bets were being doubled, not carefully underwritten if at all, and hidden and upped, to be fueled by an relentless push for more new mortgage, often no-money down 2nd, 3rd, 4th house, borrowers (mind you primarily if not nearly only within GSE conforming loan limits) who fully thought they were playing real estate see saw but in reality were being suckered, make that defrauded into believing that house prices were going up due to market (make that FREE MARKET, some would recognize that as Capitalism) forces...

Thursday, October 27, 2011

After doing God's work they...applied for gun permits

Why would that be?

See Bloomberg article from 2009. It's sort of interesting that the release of requested information has not been reported on...

I wonder if this is Goldman's version of a new "quiet period"?

Arming Goldman Sachs With Pistols: Alice Schroeder
By Alice Schroeder - Dec 3, 2009 Bloomberg Opinion
(Corrects second paragraph of story published Dec. 1 to say the New York Police Department believes some bankers may have received handgun permits.)

“I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

I called Goldman Sachs spokesman Lucas van Praag to ask whether it’s true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn’t call me back. The New York Police Department has told me that “as a preliminary matter, it appears that some of the records you requested may be in the possession of this department” after I asked for information on approved handgun permits for bankers. The NYPD also said it will be a while before it can name names.

While we wait, Goldman has wrapped itself in the flag of Warren Buffett, with whom it will jointly donate $500 million, part of an effort to burnish its image -- and gain new Goldman clients. Goldman Sachs Chief Executive Officer Lloyd Blankfein also reversed himself after having previously called Goldman’s greed “God’s work” and apologized earlier this month for having participated in things that were “clearly wrong.”

Has it really come to this? Imagine what emotions must be billowing through the halls of Goldman Sachs to provoke the firm into an apology. Talk that Goldman bankers might have armed themselves in self-defense would sound ludicrous, were it not so apt a metaphor for the way that the most successful people on Wall Street have become a target for public rage.

Pistol Ready
Common sense tells you a handgun is probably not even all that useful. Suppose an intruder sneaks past the doorman or jumps the security fence at night. By the time you pull the pistol out of your wife’s jewelry safe, find the ammunition, and load your weapon, Fifi the Pomeranian has already been taken hostage and the gun won’t do you any good. As for carrying a loaded pistol when you venture outside, dream on. Concealed gun permits are almost impossible for ordinary citizens to obtain in New York or nearby states.

In other words, a little humility and contrition are probably the better route.

Until a couple of weeks ago, that was obvious to everyone but Goldman, a firm famous for both prescience and arrogance. In a display of both, Blankfein began to raise his personal- security threat level early in the financial crisis. He keeps a summer home near the Hamptons, where unrestricted public access would put him at risk if the angry mobs rose up and marched to the East End of Long Island.

To the Barricades
He tried to buy a house elsewhere without attracting attention as the financial crisis unfolded in 2007, a move that was foiled by the New York Post. Then, Blankfein got permission from the local authorities to install a security gate at his house two months before Bear Stearns Cos. collapsed.

This is the kind of foresight that Goldman Sachs is justly famous for. Blankfein somehow anticipated the persecution complex his fellow bankers would soon suffer. Surely, though, this man who can afford to surround himself with a private army of security guards isn’t sleeping with the key to a gun safe under his pillow. The thought is just too bizarre to be true.

So maybe other senior people at Goldman Sachs have gone out and bought guns, and they know something. But what?

Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and -- oh yes -- the other banks. People “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”

Torn Curtain
There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm’s revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses.

This slip-up let the other bailed-out banks happily hand off public blame to Goldman, which is unpopular among its peers because it always seems to win at everyone’s expense.

Plenty of Wall Streeters worry about the big discrepancies in wealth, and think the rise of a financial industry-led plutocracy is unjust. That doesn’t mean any of them plan to move into a double-wide mobile home as a show of solidarity with the little people, though.

Cool Hand Lloyd
No, talk of Goldman and guns plays right into the way Wall- Streeters like to think of themselves. Even those who were bailed out believe they are tough, macho Clint Eastwoods of the financial frontier, protecting the fistful of dollars in one hand with the Glock in the other. The last thing they want is to be so reasonably paid that the peasants have no interest in lynching them.

And if the proles really do appear brandishing pitchforks at the doors of Park Avenue and the gates of Round Hill Road, you can be sure that the Goldman guys and their families will be holed up in their safe rooms with their firearms. If nothing else, that pistol permit might go part way toward explaining why they won’t be standing outside with the rest of the crowd, broke and humiliated, saying, “Damn, I was on the wrong side of a trade with Goldman again.”

(Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life” and a former managing director at Morgan Stanley, is a Bloomberg News columnist. The opinions expressed are her own.)

Click on “Send Comment” in the sidebar display to send a letter to the editor.

To contact the writer of this column: Alice Schroeder at

To contact the editor responsible for this column: James Greiff at

Sunday, October 23, 2011

Only the good...

assets (or what's left) in around the Euro zone are likely to experience that correlation event that makes models (and their technicians) sputter and gasp as they are victimized by their very liquidity, as bids head south in a hurry, deja vu all over again. Liquidity seekers find out real quick what they can sell in a hurry; it's not complicated, sort of like when your significant other doesn't answer your ring - when you really need them; dealers' that same interminable, telling...honest ring.

What's bad (assets) in the Euro zone will always be as it always was; any liquidity has long ago dried up; no matter the extra moisturizer from sponsors' sponsors.

Sort of like, make that a Gresham's law comeuppance only applied to markets of securities; not suspecting, but deserved indeed inevitable.

How many times do we have to suffer through this video tape.

Friday, October 21, 2011

Help me fill in the blanks - an exercise in Safety and Soundness a little too late...

The financial crisis underscores the importance of good risk management practices and systems. Some firms had a better understanding of the risks that they were exposed to and liquidated positions (of ________) and bought protection (on ________)as the housing boom (caused by ______)turned bust. But others took too much comfort in credit ratings (on _______) or felt too comfortable operating with very high risk concentrations (of ______). The desire to protect revenue streams (from ______)also caused some firms to stick much too long with businesses (composed of _________) that were much more exposed to risk than anticipated...

Today Mr Dudley told GARP (Global Association of RISK Professionals) the above.

I'm sure many of the attendees can attest to the Safety and Soundness drill that SHOULD have been plain to see; unless of course those bonus checks based on the risks enumerated above were too much to resist back in the day.

Tuesday, October 4, 2011

It's time...

to say Foxtrot Oscar to the TBTF Banks and especially the proprietary traders and their supervisors, and the media plants that will never get it, never report it; likely until their sponsors change.

Ratification EVERY time:
They ratified their on and off balance sheet MBS investments / exposures EVERY time they cashed a bonus check, EVERY single time they cashed a salary check, as they were supposed to be doing their job; minding the firm's capital. As far as I know, no trader EVER raised his or her hand and said "wait a minute my bonus is too much" did they? That means they ratified it.

Leading up to the so-called "2008 financial crisis" billions in bonuses were paid year after year to Wall St traders however, when they were bailed out, like rats (that's really too good for them as rats are not predators) they shrank away from the spotlight; as scripted by their "messaging" departments.

It's time to get back to the cause of the current crisis - caused by TBTF bank's prop trading departments; clawback and more...deserved.

Sunday, October 2, 2011

If and that's BIG...

1. If the Chairman of the Federal Reserve, Ben Bernanke didn’t know,
2. If other dealers, counter parties didn’t know,
3. If investors sophisticated and not sophisticated didn’t know,
4. Borrowers are presumed to have known therefore their notes are valid contracts.

Yes that’s the insult to logic many mortgage borrowers, their lawyers, foreclosure attorneys and the courts believe or better said, are led to believe. That because a mortgage borrower; whether high school or college grad, English, Spanish or Mandarin speaking, signed their name to a loan to buy a house that they knew the secret that Wall St was keeping from them and many others including #1, #2 and #3 above.

The names were changed to protect the innocent - NOT
Wall St has been given a new name (remember the old TV show Dragnet “we changed the names to protect the innocent”?) is now SIFI (Systemically important financial institutions), formerly known as, like Prince, the “artists” formerly known as Too Big to Fail (depository) institutions including investment banks (formerly known as Consolidated Supervised Entities, circa the discontinued 2004 SEC CSE program) and Bank holding companies.

Why did and do many Americans still believe this?
Remember “Now a note from our sponsors” that quintessential introduction has vanished (been removed) from our airwaves and digital ink, it seems now like since forever. Belief, whether through manipulation of facts and or guilt, mortgage borrowers are being told and led again by the same financial media that waved the poms poms as they (the sponsors) paraded by with glorious, massive, free market, capitalism bonus checks in tow before 2008.

Wake up Americans…because it’s not your fault at all – it’s a 5 step program… (*unless you falsified your loan docs)
When mortgage borrowers wake up and realize the mistakes they made were:
1) not bad market timing or 2) taking on too large a debt burden or 3) thinking that their job was secure or 4) thinking that house prices had no where to go but further and further out of reach, but 5) that they were hoodwinked by TBTF banks’ trillions of hidden investments (which were the cause of the very large proprietary traders’ bonus checks) then that day will be big.

There’s a fine but bright line between the free market, capitalism champions and fraud.

Wednesday, September 28, 2011

Will we ever see the day when certain Bank trust departments sue their TBTF bank parents?

Thousands, if not millions of times banks serve as corporate trustee for private family trusts, many times IRS 501-c-3's non-profits, foundations and endowments and local charities including schools, hospitals, colleges, and museums are beneficiaries of these trusts in ADDITION to family members and future unborn generations.

Given the trillions of wealth lost to the fraud wraught on financial markets by TBTF banks shouldn't these trustees act as trustees should and "pursue any and all claims"or is that asking too much? Or is it a little to close to home base?

Morgan Stanley's CEO John Mack may have been the one quoted but he was surely not alone when he said in 2003 the "Agency model is dead".

As we entered the 2000's Wall St's bonus machine was broken, almost irreparably as competition ate away year after year at their meal tickets - commissions, M&A (Mergers and aquisition advisory fees) and underwriting new issues were confronted with unrelenting powerful, only going one way (down, faster and faster) - price competition.

Commissions were taking a hit from the likes of Schwab, Etrade, and Fidelity. From another angle the advent of ECN's (online stock trading auctions, dark pools of "liquidity") were forcing commissions levied by the NYSE to go down, and regulators ordered penny - based pricing on stocks, so bid ask spreads narrowed; all acted to force commission rates down.

Hordes of new competitors hungry for a piece of M&A and stock and bond underwriting forced fees down and or fee - sharing there as well; at the end of the day bonus pools were evaporating.

It was clear and recognizable that new competitors, many aided by available faster, better cheaper technology were forcing Wall St's profits south - so what did the TBTF banks scheme up to do to restore their bonus checks?

Leverage an American institution - the "home mortgage" as its implicit and explicit dual leverage made for maximum bonus; and in the wake of 9/11 it was "patriotic"...
A scheme to approve any and all mortgage apps, turn them into Mortgage backed securities, sell some of them to investors like mutual funds, insurance companies and pension plans both here and overseas; but begin to horde trillions of them in a second set of books literally OFF balance sheet (and in some cases off shore).

The beauty of this scheme was that the "market" and price competition would not be involved. Yes, let me repeat "the market and price competition would NOT be involved" traders at the same TBTF banks could use their own computer models to assign value to the increasing MBS stored in the likes of "200 stories tall mortgage warehouses". It was a rare event indeed for any of these off balance sheet holdings to see the light of any true, arms-length market - based trade.

Even the Fed chairman was unaware...
Federal Reserve Chairman Ben Bernanke gave a speech to the NY Economic Club, in October 2007 he educated the assuredly august, learned and rapt audience that in the "old days" banks used to make a mortgage loan and hold it ON their books until it was paid off by the borrower, departing from that practice he said that today (2007) banks packaged mortgages into mortgage backed securities and sold them OFF TO (third party, arm's length) investors. [emphasis added]

Excerpt: At one time, most mortgages were originated by depository institutions and held on their balance sheets. Today, however, mortgages are often bundled together into mortgage-backed securities or structured credit products, rated by credit rating agencies, and then sold to investors.

However, as far as I can tell, there is no report, that anyone in that room raised their hand to correct the Fed Chairman. Why?

Because the same Fed chairman, a year later, would learn that his statement was incorrect. TBTF banks were NOT selling MBS off to investors; millions of mortgages were approved for one purpose, to create more MBS, while TBTF were cranking trillions of MBS out, they were NOT selling them off to investors, they were hiding them off balance sheet, misleading every mortgage borrower, every investor to replace what had been lost to fair, disclosed, free market - based price competition (some would call that capitalism) - THEIR MASSIVE BONUS CHECKS. The FDIC uses the word "concealed" here.

Excerpt: Further, many of the complex structures that concealed additional leverage and exposure, such as structured investment vehicles and other off-balance-sheet conduits have been largely consigned to the history books. Cash and liquid securities represent larger percentages of the balance sheet, while reliance on short term debt has declined.

In comparison, today Amazon released it's new tablet called "Fire" priced at $199 to compete with others most importantly Apple's more expensive iPad. See we benefit from lower and lower prices on new technology why? Because it's out there people use it, compare it, blog about it - in a word any and all information from manufacturers to users is "transparent". In the year 2011 I remain incredulous (but not surprised) at the opposite by TBTF banks and their paid foot soldier representatives lobbyists, media and think tanks. Applying their business model's opacity, I wonder if they would be comfortable paying thousands for a Commodore II pc and for how much memory?

Estimates of the amount of TBTF Bank support direct and indirect provided by the Fed and or US Treasury is about $2o Trillion including the recent QE programs. MBS issuance largely by the TBTF banks from 2001 to 2008 is $17 Trillion; is there any connection?

The damage to the economy for years was a false growth from cash out refinancings, borrowers were defrauded when they applied for loans and were universally approved for any and all types of and amounts of mortgages. Borrowers did NOT approve their own loans, ultimately in effective control (and pricing) of the MBS markets; TBTF banks approved EVERY loan.

We later know, only from limited emails that mortgages and MBS deals composed of these very same mortgages were called shit, crap and cows by any number of TBTF-produced and or related information; one even said it's 100% ALL DEALER RISK, NO MTM. Translated it means that MBS held by TBTF banks was "only TBTF bank risk, no mark to market (only marked to traders' internal computer models.)"

Perhaps when bank trust departments wake up from the train wreck, home movie they've been watching they will recognize a claim and pursue it as fiduciaries should; of course they can always resign as they ALL serve voluntarily and with pay (or is that the reason)?

Monday, September 26, 2011

Thank God for the Department of Transportation

Americans love cars, perhaps we are forced to, after all most of us drive every day. There have been many impressive improvements over the years. When it comes to the car we choose I believe comfort remains at or near the top of most everyone’s list. The part on the vehicle that makes a vehicle comfortable is (it’s time for the interactive part to begin so fill in the blank) ____________ the shock absorber. Imagine the opposite, how would you feel driving a car that was not comfortable, or worse a car without shock absorbers, or missing even one shock absorber? You’d be pretty miserable wouldn’t you?

Since Americans remain fascinated by their cars I hope it makes it a little easier to understand the housing bubble. How it occurred and why it is still so bad, over seven years from the peak of home ownership in 2004, five years after the peak in prices in 2006 and over three years after the Wall St bailouts in 2008 and the movie that Mr Bernanke saw the first time plays on today in his latest trifecta wager on QE.

The housing bubble was like a car that lost its shock absorbers,
Mortgage finance shock absorbers decline from 28% to 3%

Since the beginning of time, make that mortgage finance in the US in the 1930’s, borrowers nearly always had to put 20% down to qualify for a loan, after getting approved by the lender’s underwriting department. Lenders intermediated about 12 times over and above their total equity. That implies that lenders had about 8% equity stake in each mortgage loan. Adding up borrower’s down payment, known in bank underwriting parlance, as the initial loss absorbing cushion of 20% plus lender’s second loss absorbing cushion of 8% gives us a total of 28% loss absorbing cushion against any decline in the price of the home.

Total loss absorbing cushion shrank to 3% or less
When the music started playing in the 2000’s…certain lenders in arrangements with Too Big to Fail (TBTF) Banks let, I repeat let borrowers get loans with no down payment, so the first loss absorbing cushion was totally wiped out by, make that approved by, the lenders. Too big to fail banks issued almost $17 Trillion of MBS from 2001 to 2008. The TBTF banks having both nationwide and global sales teams, known as registered representatives, or as Goldman Sachs calls them “professionals” typically sold 100% of every deal off to third party investors, institutions like mutual funds, insurance companies and pension plans. However, TBTF banks started to amass trillions worth of these MBS for themselves, many concealed in a 2nd set of books. As a result of the hiding, although it was legal, nearly wiped out the 2nd loss absorbing cushion bringing it down from 8% as it had been for decades, to 3% or less.

Shock absorbers on a car are carefully engineered
Most of us drive on flat roads to and from work each day; however the engineers design the shock absorber to withstand pot holes or the occasional off road adventure. Shock absorbers play crucial safety functions when we put on the brakes or when we are going up and down hills.

When the housing market began to climb uphill, shock absorbers disappeared
As the housing market took off, rather than taking a breather it didn’t slow down, prices climbed faster and faster as home prices went up more than anyone had ever seen before, causing more and more first time home buyers to jump into the action. Many of these new home buyers were inexperienced, however, instead of requiring 20% down payments they were approved for loans with no money down, and worse, many lenders’ underwriting personnel approved every loan application; as in what’s become known as IBGYBG (I’ll be gone, you’ll be gone) passing problems whether big or small onto the next party.

As the car with no shocks, driven by new and inexperienced drivers approached the peak of the mountain, the lack of shock absorbers made for more than a bumpy ride…
The loss absorbing cushion of 20% down payments and banks 8% equity cushion fell by the wayside only after being approved by TBTF banks. Mortgage borrowers all across the country and institutional investors alike plummeted down the other side of the mountain with no shock absorbers, then the braking system became overwhelmed and it too gave out; as they are designed to work with the shock absorbers.

Banks’ Safety and Soundness regulations were blinded by the size of the bonus checks…
It’s clear that none of the TBTF banks’ prop traders or CEOs raised a hand and said it was too much or questioned the size of their bonus checks at the end of every year. No TBTF Banks' boards whether past or present, no regulator or official at the SEC, FDIC, OCC or OTS; no one on the FOMC, at the Federal Reserve Board appreciated that a car stripped of its shock absorbers makes for a bumpy, dangerous and when travelling up and back down a curvy mountain road often deadly experience. I wonder if any of the TBTF Bank CEO’s or the financial experts; Mr Bernanke, Mr Geithner, Mr Paulson, Mr Summers or Mr Rubin drive cars without shock absorbers? Thank God for them that the Department of Transportation is not part of the SEC, Department of Treasury and or the Federal Reserve Board and sees to it that automobiles are required to have shock absorbers; nothing fancy just basic safety equipment.

Thursday, September 22, 2011

Fed's QE3 "the Twist" still ignoring TBTF Banks 2008's multi Trillion $ difference between Legal title and Equitable title to Assets; aka LEVERAGE

The Fed's 2011 QE3 called "Twist" (is a re-incarnation of the 1960's Fed Twist so named because Chubby Checker's song was the hit of the day) is yet another failed and failing attempt by Mr Bernanke to rejuvenate and re-liquify TBTF bank's assets back to life. Like previous "programs" failures is like the Fed pushing on the proverbial string.

As we wrote in 2007:
"Cash infusions by operators, sponsors, market rescues, liquidity by the Federal Reserve bank through discount rate cuts, extended rollover provisions, open market operations band aid liquidity only; Fed action does not cure the credit (or credit worthiness) and or valuation issues surrounding these securities" never has and never will.

QE3 is yet another attempt to game, excuse me fix what's wrong on Wall St in the hopes it shows up in increased final demand; it's remotely possible in textbooks but unlikely.

Final demand, writ large, has been replaced by necessary versus nice for some time now; except for the lucky beneficiaries of Mr Bernanke's previous rescue attempts.

Not for nothing, but the Fed is somewhat conflicted in this endeavor as well - because it (QE3) is also supporting valuations for the $1Trillion of MBS it holds (renting) on its balance sheet too, acquired from the TBTF banks for 100 cents CASH on the dollar in 2008/9.

Although a persistent one, when will Mr Bernanke awake from his intellectual slumber and finally recognize that markets need to clear - sometimes at and in this case, distasteful prices. But there's no denying that the market now or will eventually know best; and then it likely won't be a string...

Tuesday, August 30, 2011

Burlington Northern; may be just priceless...information to Mr Buffett

Imagine, the head start on the "market" if you could triangulate securities gum shoes earnings reports, channel checks, industry confabs, supplier checks, conference calls, forward looking statements and official guidance, the Reg FD variety with REAL time shipping information from...manifests.

It's likely what Mr Buffett had in mind when he conjured up buying the railroad giant. Priceless, information, not just who is shipping, and where it's going, not just whether it's more or less weight compared to the previous shipment but likely SKU level information available to the investment pros "faster-than-I-can-type-this-sentence-fast" back in Omaha. Got SKU's and their origins and destinations can triangulate gross margins-critical to forecasting EPS.

BUT WAIT IT'S EVEN BETTER...shippers can't just show up to BN's with a container and say ship this to Chicago for me; they have to, da da da arrange for and disclose what they're shipping IN ADVANCE.

What could be better for the lucky Berkshire Hathaway shareholders and for Mr Buffett.

You never know what you'll think of when you watch one of those miles long Burlington freight trains wind slowly around the bend when you're driving from LA to Vegas.

Monday, August 29, 2011

One year, one Trillion dollars; the education of Ben Bernanke from 2007 - 2008...

In the span of one short year, the head of the Fed, apparently learned he HAD TO hand out one trillion long.

Mr Bernanke, in a speech delivered on October 15, 2007 made a distinguishing point:
"At one time, most mortgages were originated by depository institutions and held on their balance sheet. Today however, mortgages are often bundled together into mortgage backed securities or structured credit products, rated by credit rating agencies and sold to investors."

This is the same man, who a year later, would be buying over $1 Trillion (of _______) interactive portion see if you can fill in the blank from the cellars of certain depository institutions in a certain Federal Reserve district east of the Hudson.

When or ever will Mr Ben tell us when exactly he came to learn, understand and appreciate that certain banks did not sell mortgage backed securities TO investors; unless of course, Mr Bernanke forgot to mention he was including off balance sheet entities (special purpose vehicles, erstwhile SIV's) of the same depository institutions to be "investors" as if they were truly arms - length; but then he may have (or should have had) a problem with those same institutions' "safety and soundness".

And of course, there's more and more financial data flying around but it seems Mr Bernanke was unaware of size of balance sheet and supporting equity; in particular the utter lack thereof.

Mr Bass, testified to the FCIC in January 2010. Mr Bass in paragraph after paragraph repeated institutional "LEVERAGE" including by "depository institutions" and provided a spreadsheet detailing certain (now TBTF) bank's leverage as of the end of 2007; just a few months after Mr Bernanke entertained the NY Economic Club.

Cheers to Mr Bass.

This writer breaks the housing bubble down into two simple financial steps.
1) borrower's leverage measured by the required down payment (or the lack thereof) and
2) Bank's balance sheet leverage
In the old days, we all will recall that borrowers typically, but not always, put 20% down. This allowed them to buy a house worth 5 times as much or 5 times leverage. Banks levered their balance sheets around 12 times. So financial system leverage was historically 60x (5 x 12).

In and around 2004, banks changed BOTH leverage factors above. Borrowers were ALLOWED by banks to put zero down, and banks decided they would lever their balance sheets at 30 X. Oh I need to remind you that Zero down payments, which banks ALLOWED, equal 100 times leverage on the borrowers end. So let's do the math, 100 times 30 = ____? 3,000X financial system leverage, known, approved and controlled not by borrowers, but by, and only by the banks; otherwise known as depository institutions.

However, the American people, writ large, still have not been told the indispensable direct cause of the financial crisis nor the housing bubble which caused it; and yet we pay for this...still.

Saturday, July 2, 2011

Dates matter: IMF elects Lagarde June 28, DSK rape case, charges teeter, July 1

Was the DSK prosecution's information revealed yesterday held until...?

Why was yesterday chosen as the date to announce that the alleged charges and or some perhaps irrelevant and or questionable "issues" in the accusers' background ?

Was it a "safe - enough 72 hours, and a different month" after Christine Lagarde was elected on June 28 to replace DSK as president of the IMF? As Forbes reports here...

Just a question - no one seems to have raised yet...

Wednesday, April 27, 2011

Will they or won't they include on the invitation list to the Royal Wedding...

those courtesy of the 2010 US Supreme Court decision Citizens United v Federal Election Commission now known as corporate personages?

Or is the court's decision laying some pipe, er...foreshadowing further enlargement of certain rights on up the food chain, in international disputes down the road?


Saturday, April 23, 2011

Geithner, the USD and the zero rupee...

A commenter to the Swampland article about Iowa AG Miller's compaign contributors takes issue with the Supreme Court decision allowing person - hood writing here:

This is why the Supreme COurt let companies become persons with the rights to contribute, so we could have the the equivalent of legal bribery...look to India and the zero rupee for a solution; take back person hood from companies and especially from law firms... show more show less Read more:

The zero rupee is obviously not technically correct; however it is an apt metaphor for the international confidence and respectability or the lack thereof of the rupee; in contrast to the highly skilled and fast growing Indian entrepreneurs. Mind you India has the 2nd largest population in the world.
apr 1 2011, With 1,210,000,000 (1.21 billion) people, India is currently the world's second largest country. India crossed the one billion mark in the year 2000, one year after the world's population crossed the six billion threshold. Demographers expect India's population to surpass the population of China, currently the most populous country in the world, by 2030. At that time, India is expected to have a population of more than 1.53 billion while China's population is forecast to be at its peak of 1.46 billion (and will begin to drop in subsequent years) Link here:

Bloomberg's Jonathan Weil wrote that Mr Geithner, asserting that the US will never have its debt rated anything other than AAA has therefore downgraded his credibility to "junk"

Tying it all together in a nice Easter Bow - ALL currencies' flag bearers are sworn to conflicted duties that of defender of same and to deal credibly with the press; ultimately full faith and credit (and by extension the currency) is backed by taxpayers; in practical terms (and we know how exceedingly practical certain investors can be) that credit is manifest in our political system, process and people. And it is further undeniable; that nothing is ANY different today than in the hundreds of years before, only now, courtesy of massive information sharing, much has been been lifted out of the darkness into the sunshine...and here here that much more continues to be exhumed.

All currencies are subject to one and the same forever human, and political frailties.

Tuesday, April 19, 2011

From Brooklyn to VOSP "tell me something I don't already know"...

After S&P chirped in with a negative outlook the 10 year did what? Increased.
And the dollar did what? Increased, in fact staged it's strongest rally in over 4 months.
Now that the fear has become news and hit the market; the uncertainty has lifted.
Shorts were likely called out.

VOSP = voice of S&P....the little voice of S&P that is.
Brooklyn-ism, well known in the boroughs, but perhaps not as well outside; "tell me something I don't already know."

See Yahoo Finance recap and the NY Times on the "negative outlook" rating here.
And S&P's release here.