Referring to off balance sheet trades; really, Ben?
See video here
I'm exceedingly curious - SHOW ME how and what data you reviewed to make that statement. "That prior to Bear Stearns or certainly the Lehman-induced financial market crisis last September YOU KNEW that these OTC derivatives markets were liquid."
1) If you "knew" said markets were "liquid" that means you were aware and watching and exercising some level of prudent safety and soundness supervision correct?
2) At what point did you first become aware or had concerns; especially in light of your 2006 public comments detailed below?
3) Given what you profess to know NOW - what was THEN known, knowable, unknown or unknowable?
4) Last, since you knew said markets - Why did you need to propose emergency, extraordinary measures to send US Taxpayer cash to certain (certainly not all) financial institutions? Any reasonable conclusion would seem to be that YOU indeed did not know even the basics.
Based upon whose collateral (underlying real estate) valuations? Recall that the SEC allowed brokers to use their own valuation models back in 2004?
Based upon or more accurately in contrast to your, yes YOUR speeches related to the housing and related markets in 2006. The WSJ headline peeped on October 5, 2006 (not a typo) "Bernanke suggests sinking housing market could dampen growth" Uh, you do read the venerable journal and have penned an Op-Ed or two - but silly me I didn't happen to catch any correction or retraction.
OTC Derivatives market Liquid? Based upon what data?
The US taxpayers would like to know EXACTLY that markets' so called "liquidity" stats?
Trade volume, dollar volume, and types of securities traded in 2008 compared to any previous period - lets say any year after 2003 ok? Let's not forget to take a look at the related Repo, CP and ABCP (Asset backed commercial paper) issuance from certain parties. The NY Fed specifically carved out a new data category for ABCP when and why? In 2006, see any connections here?
Liquidity for Ben, came from where?
Look no further than the above mentioned PROPRIETARY valuation models AND the massive credit induced leverage often in financial institutions' controlled proprietary off balance sheet vehicles financed by what - also as above, look at the mammoth increase in the short term paper markets (Repo's, CP and ABCP). Leverage reported as much as 20 or 30 to 1 (Mr Buffett is quoted on Bloomberg a few months ago ..."Right and intraquarter it was a little more than that"; when underlying collateral valuations were not rising, rather declining. (Read your own speeches and media quotes). What game were you watching? Several credit ratings agencies issued reports such as 2005 (not a typo) by S&P titled "Who will be left holding the bag?"
See link here - S&P removed that one but you can email info@fiduciaryexpert.com for the pdf document.
It's not a question of intellectual capacity ok?
Intellectual capacity you have more than most (recall the awe inspiring Smartest guys in the room at Enron and the Nobel Prize winners and one former Fed Governer who drove Long Term Capital into the ground), however awake, alert, both eyes open, both hands on the wheel at all times especially while the car reaches hyper NASCAR speeds with no brakes and watch out for that curve and the WALL - !!!
BB was asked how will the Fed develop tools, if any, to determine where a or the line may be drawn for two different but related measures of a financial institution (broadly defined); illiquidity and insolvency.
The height of a principal agent problem at the head literally and figuratively of the Federal Reserve, US Central Bank - another fact and no wonder Ron Paul has come out with "The End of the Fed"
Showing posts with label Auto bailout. Show all posts
Showing posts with label Auto bailout. Show all posts
Monday, September 21, 2009
Wednesday, December 10, 2008
Reality vs Hope & Denial
US Money Market rates may soon reach negative returns; Stock market investors (Dow 30 near 8800) are priced at a trailing PE (stock price divided by stock earnings) of ~13 to 15x 2008 reported earnings; 15x earnings is arguably the long term historical norm.
Another, Different and CRUCIAL View is in comparing the "P/E’s".
The “PE” of money markets are about 100x (100 divided by the current near 1% US Treasury bill yield); 10 year bonds are approaching 40x. (100 divided by 2.7%).
Stock investors are pricing the equities market at 25 to 30x or more based upon declining expected 2009 earnings.
The critical difference:
Money markets instruments guarantee return OF principal;
Stock investors hope for a return ON principal.
Who’s right, if either?
IMHO, neither is right – it’s about signals – and the Money Market investors are by definition more careful; yet both asset classes are overpriced at least by historical measures.
Risk transfer provides another view – the exchange of a day’s labor for a paycheck and job security is broken; especially in industries colored by non-market forces for decades;
The global conscience recognizes (yet may not be ready to admit or implement) that much business activity is hollow i.e. not nearly as value added as transacted. What is the fully loaded accounting of the value added of many of the products and or services whose ENORMOUS sums starting with fees earned for M&A advisory fees in particular or investment banking in general? And who benefits the most from these deals?
Would it be better to answer (rather than continue to ask) the question, would the world be a better place – if we as global stewards of the earth and its current and future citizens – would devote a fraction of our resources to the basics – food, shelter, health care for those less fortunate and to act in the best interests of the environment for the benefit of future generations?
US Dollars – past, present and future
Too many dollars (yes Elizabeth, there are a few too many dollars especially those whose ink is still wet) have to find a home – and they often find them in the stock markets based on notions (although promulgated as "theories") which are dislocated from today’s REALITY; see below.
It is acknowledged that the US consumer has enjoyed, rather overstayed its place at the head of the table of the world's consumers due to a debt-induced buzz; aided by the overlooked, undervalued and imprudent risk transfer inherent in securitization since the early 1980s.
The future of the US Dollar, interlinked global currency and trade exchange mechanisms is as currently practiced untenable. Unless and until the inputs of labor, land (natural resources and rents), capital and entrepreneurship / innovation / intellectual capital / human rights / environmental obligations signals are openly priced and align with demand and recycle in alignment – we may experience persistent disruption.
Mr Kashkari - misplaced and or misguided LOYALTY?
Perhaps I may be wrong, I hope so, however during Mr Kashkari’s testimony today before the House finance committee showed that he was not crystal clear on an implied fact – that is this: he is Under Secretary of the US Treasury i.e. his paycheck comes from and on behalf of the people.
IMHO he needs to vigorously respond to the question of whose interests he represents and act accordingly; communicate with Congress (the people) before he acts and DEMONSTRATE a transparent, prudent investment process and an ARMS-length relationship with borrowers or else as one congressman suggested he could or should step aside.
US Money Market rates may soon reach negative returns; Stock market investors (Dow 30 near 8800) are priced at a trailing PE (stock price divided by stock earnings) of ~13 to 15x 2008 reported earnings; 15x earnings is arguably the long term historical norm.
Another, Different and CRUCIAL View is in comparing the "P/E’s".
The “PE” of money markets are about 100x (100 divided by the current near 1% US Treasury bill yield); 10 year bonds are approaching 40x. (100 divided by 2.7%).
Stock investors are pricing the equities market at 25 to 30x or more based upon declining expected 2009 earnings.
The critical difference:
Money markets instruments guarantee return OF principal;
Stock investors hope for a return ON principal.
Who’s right, if either?
IMHO, neither is right – it’s about signals – and the Money Market investors are by definition more careful; yet both asset classes are overpriced at least by historical measures.
Perhaps are MM investors factoring in some other variable which stock investors are not? Therein lies the value of being more careful, with an eye towards conservation of principal – DEFLATION is being baked into the MM rates; a reflection of the realities befalling Main St.
Job Losses are REALITY
Every job cut is an amputation from the body; the US consumer juggernaut of yore which used to make up well over two thirds of US GDP. Jobs and more importantly workers do not magically reinvent themselves overnight; they retrench, spend less (not more) and save for tougher times ahead; worse often wind up not paying their debts (mortgages, credit cards, cars, toys, gambling) save booze, smokes or smokes and booze; whatever the need for the preferred fix du jour.
Job Losses are REALITY
Every job cut is an amputation from the body; the US consumer juggernaut of yore which used to make up well over two thirds of US GDP. Jobs and more importantly workers do not magically reinvent themselves overnight; they retrench, spend less (not more) and save for tougher times ahead; worse often wind up not paying their debts (mortgages, credit cards, cars, toys, gambling) save booze, smokes or smokes and booze; whatever the need for the preferred fix du jour.
Risk transfer provides another view – the exchange of a day’s labor for a paycheck and job security is broken; especially in industries colored by non-market forces for decades;
The global conscience recognizes (yet may not be ready to admit or implement) that much business activity is hollow i.e. not nearly as value added as transacted. What is the fully loaded accounting of the value added of many of the products and or services whose ENORMOUS sums starting with fees earned for M&A advisory fees in particular or investment banking in general? And who benefits the most from these deals?
Would it be better to answer (rather than continue to ask) the question, would the world be a better place – if we as global stewards of the earth and its current and future citizens – would devote a fraction of our resources to the basics – food, shelter, health care for those less fortunate and to act in the best interests of the environment for the benefit of future generations?
US Dollars – past, present and future
Too many dollars (yes Elizabeth, there are a few too many dollars especially those whose ink is still wet) have to find a home – and they often find them in the stock markets based on notions (although promulgated as "theories") which are dislocated from today’s REALITY; see below.
It is acknowledged that the US consumer has enjoyed, rather overstayed its place at the head of the table of the world's consumers due to a debt-induced buzz; aided by the overlooked, undervalued and imprudent risk transfer inherent in securitization since the early 1980s.
The future of the US Dollar, interlinked global currency and trade exchange mechanisms is as currently practiced untenable. Unless and until the inputs of labor, land (natural resources and rents), capital and entrepreneurship / innovation / intellectual capital / human rights / environmental obligations signals are openly priced and align with demand and recycle in alignment – we may experience persistent disruption.
Mr Kashkari - misplaced and or misguided LOYALTY?
Perhaps I may be wrong, I hope so, however during Mr Kashkari’s testimony today before the House finance committee showed that he was not crystal clear on an implied fact – that is this: he is Under Secretary of the US Treasury i.e. his paycheck comes from and on behalf of the people.
IMHO he needs to vigorously respond to the question of whose interests he represents and act accordingly; communicate with Congress (the people) before he acts and DEMONSTRATE a transparent, prudent investment process and an ARMS-length relationship with borrowers or else as one congressman suggested he could or should step aside.
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