Saturday, March 28, 2009

The Endless Ironies of the First Black President, continued

Surely this one tops them all:

Hillary Clinton is the Secretary of State -- number four in line for the presidency in emergency succession. She was appointed by Obama for God only knows what sort of Faustian quid-pro-quo. He is black. The first black American president, in case you haven't heard -- no, Bill Clinton was not, despite his much-publicized claims to the contrary.

So here we have this high-ranking executive in the administration of the first black president of the US, and what's she about to do? She's about to receive the "Margaret Sanger Award," for her tireless efforts to boost Planned Parenthood's business throughout the world by legislative subterfuge.

Listen to this quote by the infamous Ms. Sanger -- a quote you're not likely to read on any plaque any time soon -- better yet, since a picture is worth a thousand words, check this out:


So, it's not as if Hillary is on her way to a KKK meeting, but it's awfully close. If you want to learn more about the history Margaret Sanger, just google "The Negro Project." And maybe you could send the link to President Obama and see what the thinks about it.

I wonder, parenthetically, why we don't read about this story in the New York Times, Washington Post, or any other organ of the vaunted "free press" in the United States -- why is there a virtual news-blackout on this event? Sometimes what they don't tell you speaks louder than what they do. I tell you, these are ironic times. And apparently the distinction between irony and insanity is not an easy one to discern. Ditto the distinction between irony and sheer evil.

We found the photos here.

A previous irony.

Wednesday, March 25, 2009

Geithner's Freudian Slip Roils FX Market

It went down sort of like this: Mr. Geithner, apparently wanting for a sense of protocol during a recent press conference, says, in effect, "SDR's? International currency? We'd like that!"

After the dollar descends like a jet that's just sucked a flock of geese into each engine, Roger Altman nudges him and says, in effect, "Ahem. On behalf of the market [which is crashing, you blithering idiot], would you like to, ahem, change your remarks?"

Geithner emits invisible question marks, so Mr. Altman kicks him under the table. "I said, would you like to change your remarks, on behalf of the market!?"

Geithner discerns the clue and backpedals appropriately. But the world can never forget what he just said.

Gold has never looked better.

Bloomberg reported it this way.

The Endless Ironies of the First Black President

An administration of "firsts" can be counted on for being a wellspring of ironies, it seems.

Consider this one: America's first black president, a direct heir of the all-out war for the right to life, liberty, the pursuit of happiness, and full equality as citizens that was tirelessly, selflessly waged by Abraham Lincoln on behalf of black American slaves, one for which a life of sacrifice was the preparation and one for which his life might have finally been sacrificed, appoints as his Secretary of State a woman who says that the human rights of Chinese peasants are, in effect, not as important as the economy, or global warming, or security and are someone else's problem.

Granted, China runs its own show and Hillary Clinton is not an executive in its government (although she might be a consultant). Yet it is undeniably disengenuous to represent a black man who represents America and declaim a wholesale disregard for the rights of the oppressed anywhere. Even more so (if it is possible to be more so) that a measurable portion of American prosperity, and that of the ruling class in China, has come from the blood, sweat, and tears of that particular mass of oppressed peoples.

Adding insult to irony, this black president can't even muster the moral courage to rebuke her. How many future presidents will live and die as slave labor in China?

Tuesday, March 24, 2009

The Clinton Doctrine

Referring to China's notorious disregard for human rights, Secretary of State Clinton stated recently:

Successive administrations and Chinese governments have been poised back and forth on these issues, and we have to continue to press them. But our pressing on those issues can't interfere with the global economic crisis, the global climate change crisis, and the security crisis," she told reporters in Seoul, South Korea.

Whatever you say, Mr. Wen!
We submit that this position can be distilled to the following without any logical torture: Political expediency rules. The only issue that matters is the one that serves that end. Power matters. The peasants of China can't give me a stitch of power or influence, but legislative fiat contained in global warming legislation can. The peasant slaves of China cannot finance my insatiable political ambitions, but a well-distributed windfall can. I'm about to score trillions-with-at-T dollars of taxpayer money -- that's unheard-of clout -- and I'm not about to piss off Wen Jiabao and jeopardize that. Screw them.

We suspect there were many who held to this view during the awful era of slavery. But economic well-being has never been a pure or strong enough motive to carry a people through the tortuous task of overcoming some greivous evil, like slavery. Fortunately, a visionary president, one Abraham Lincoln, was imbued with a conviction quite the opposite of that espoused by this administration: that nothing is as important as human rights, and government has no purpose whatsoever if not protecting them. He was willing to risk the Union to establish those rights here.

On the contrary, Madame Secretary, one might argue that a statesman worthy of the title would recognize the uniqueness of the moment and leverage it to insist that China begin to officially recognize all its citizens as equal human beings. A statesman who valued the sanctity of human life would seize the historic chance to press the issue in favor the poorest and the weakest, not regardless of them. When she was telling the world "it takes a village," she apparently envisioned a village with lots of peasants living like slaves in order to keep the ruling classes in opulence.

This, readers, from the champion of government controlled health care: human rights don't matter as much as money, and damn the powerless and silent. What sorts of scenarios might that result in when czars and consultants decide who gets treatment for what medical ailment, and for how long?

This administration may broker deals to get the mechanisms of money working again so that the market indices make new highs, but morally, they're making record lows daily. And we hold that moral short selling brings down financial markets, too.

Monday, March 23, 2009

If only the cockroach could talk.

I crossed paths with a cockroach
And asked him to my table
I bade him, “Tell me a story,
That is, if you are able.

“What sorts of things are discussed
Among your peers and the like
In the days and hours
Before the earthquake strikes?

“Do you seek out cockroach therapy
And pour out in words your angst?
To which the doctor says, ‘I understand;
That’s two hundred dollars, thanks.’

“Do you charge en masse headlong
Into leveraged speculations
That make you instant millionaires
Then bankrupt entire nations?

“Do you defraud, betray and brutalize
Your neighbors, kin, and babies
Do you lie, cheat, steal and manipulate
To pay for that Mercedes?

“Do you congregate in cults
Of unconscious dread
To deny the signs of earthquakes
And decry hurricanes instead?

“Do you rush more eager
Into mindless, brute distractions
and spin the simplest ideas
into intellectual abstractions?

“Do you, in other words
Live for ‘circuses and bread’
And submit with blind devotion
To the one who keeps you fed?

“Tell me, won’t you please
my shiny brown friend:
Do you all lose all your marbles
just before the end?"

Though attentive and robust
He gave me not a clue
So I smashed him with the Times
And flushed him down the loo.

Thursday, March 19, 2009

wen2ben: pwn3d!

Wen Jiabao and His Shadow

Big shots in China state, for publication, that they're nervous about holding so much US debt (if I recall, that's money we sent them for cheap toys and electronics but that's beside the point) and less than a week later, the Fed announces its plan to buy a third of a trillion dollars in bonds.

The Chairman of The Federal Reserve

Bloomberg attributed the "bold plan" to the "Rambo Fed." Oh, Ben, you're so decisive with that dragon on your back.

We attribute it to something more like China whining about being short on cash and insinuating it might have to dump some bonds since the US isn't buying all its crap anymore.

Madame Secretary
But the plot is actually a bit thicker than even this. Recall, if you will, that our illustrious and capable Secretary of State, Hillary Rodham Clinton, recently visited China. Right after all this TARP nonsense was OK'd by congress, as a matter of fact. Recall that it was on this visit of urgent state business that Mrs. Clinton made her famous [we paraphrase] "civil rights matter, but money matters more" declaration, something that might come to be known as the Clinton Doctrine.

It might be best to dramatize what likely went on during that meeting with an account of a telephone conversation, that might be "fake but accurate," or not.

[Madame Secretary and The Premiere (and, presumably, his shadow) are tossing back Mai Tai's or whatever they drink on the shores of pristine mountain lakes in China. In a synagogue in a tony suburb of Boston, a cellphone buzzes.]

Chairman Bernanke: "Madame Secretary, I'm meeting with my rebbe. I cannot talk to you now."

Madame Secretary: "Benjamin, shut up and listen. Wen needs some money, and can't be bothered with that little snot Timothy Geithner. What we can do for him?"

Chairman Bernanke: "Madame Secretary, I've already told you, we don't have enough TARP funds as it is --

Rebbe: "Benjamin, the time!"

Premiere Wen overhears and begins to protest, pushing his lips tightly together to keep his mouthful of Mai Tai in his mouth. The outburst sounds like a man being electrocuted while humming.

Madame Secretary: "Benjamin, if Mr. Wen starts selling his Treasuries, the collapse of the financial system will be all your fault. Surely you know how hard it will be for you to find work..."

Chairman Bernanke [resignedly]: "I get the picture. What do you want me to do, Madame Secretary?"

Madame Sec: "That's better. Let's say we set aside a third of a trillion -- how's that, Wen? [looking at Wen, who nods vigourously] -- right, a third. Mr. Wen will do some footstomping for the Times, so you'll have your cover. Wait a few days, then announce your bold and brilliant plan. You'll look like a hero, I promise."

Chairman Bernanke: "Yes, Madame Secretary."

Buy! Buy! Buy!

Madame Sec [winking at The Premiere]: "...And then, Chairman, you get in there and buy! buy! buy! Just like Trading Places! [voice becoming animated] You buy some muthahf*ckin' bonds [standing, swinging her fists, and spilling her Mai Tai all over a shocked and disgusted Premiere] and rip out the throats of those shorts, you hear me!! Oh! I'd better let George know...adios, Benjamin" [Click.]

Credit

Before the Moody's building downtown was demolished, this plaque graced its entrance:




"Credit: Man's Confidence in Man", begins the inscription, followed by:

Credit is the vital air of the system of modern commerce. It has done more, a thousand times, to enrich nations, than all the mines of all the world. It has excited labor, stimulated manufactures, pushed commerce over every sea, and brought every nation, every kingdom, and every small tribe, among the races of men, to be known to all the rest. It has raised armies, equipped navies, and, triumphing over the gross power of mere numbers, it has established national superiority on the foundation of intelligence, wealth, and well-directed industry...

...which is, in turn, an excerpt from a statement by Daniel Webster, which continues:



...Credit is to money what money is to articles of merchandise. As hard money represents property, so credit represents hard money; and it is capable of supplying the place of money so completely, that there are writers of distinction, especially of the Scotch school, who insist that no hard money is necessary for the interests of commerce. I am not of that opinion. I do not think any government can maintain an exclusive paper system, without running to excess, and thereby causing depreciation.


Moody's has come a long way since Mr. John Moody, a man of extraordinary character, launched the firm over 100 years ago. It has, as Mr. Webster might say, undergone a severe "depreciation." Perhaps it's no coincidence that the old Moody's building has been demolished, and the plaque no longer appears in public view (only a replica of it in the new corporate offices).

In the midst of a Financial District demolished by terrorists and the abuse of credit, one would think the words of Webster might be a helpful reminder of, among other things, the sorts of things that men think about in a time when it's reasonable to have confidence in them.

There's a bit of irony in the image, though: a Native American shaking hands with a Settler. What's this, the deal to sell Manhattan? Confidence, indeed, with the emphasis on "con." But that's legend. Less legendary is the telling omission of the very last line of Webster's wise words: I do not think any government can maintain an exclusive paper system, without running to excess, and thereby causing depreciation.*

* Senator DANIEL WEBSTER, remarks in the Senate in favor of continuing the charter of the Bank of the United States, March 18, 1834.


Imagine a supranational reserve currency...

It's easy if you try. Moscow has, according to The Moscow Times. And China, according to the Financial Times.

Regarding a supranational reserve currency, or even a national reserve currency, any such animal will likely need a nominal gold tie in order to establish credibility...which is why we remarked to a friend (some time ago) that gold is to be owned at all costs, even if it sells down to $5, in which case an opportunity to reduce its average cost would be present.

But why would such a thing even be feasible? Well, let's see how all this new debt - what are we up, $3 trillion so far? - and the taxes that will, of necessity, be levied to pay for it - affect the economy. And see how that affects our leverage with current and prospective purchasers of our debt. And see if there isn't a massive loss of confidence in "the full faith and credit of the U.S. Government" -- and why shouldn't there be? -- and let's see if the dollar doesn't get trashed or otherwise abandoned.

The "merged currency" mechanism was employed effectively in creating the Euro -- the pitiful condition of the underlying economies notwithstanding. And we all know that global problems and global egos call for global thinking -- BIG thinking. (And we all know just fallible BIG thinking is).

Hey, we're in the age of messianism -- of sweeping solutions to all our "problems." People won't settle for less...

(Seeking Alpha provided the link to the Moscow Times).

Friday, March 13, 2009

Honor Among Thieves

Bernard Madoff has admitted his wrongs, detailed his illegal activities, and expressed his remorse in a convincing manner.

This makes him about the most honorable of disgraced former Wall Street titans.

It also makes him an easy target for the collective bile of the age. If he'd gotten away with it, of course, or if he'd never admitted anything, they'd idolize him. But repentence and remorse are like red meat to the lions. You're only a loser if you're stupid enough to admit anything. They love you until they hate you.

Mr. Madoff started his legitimate businesses in 1960 with $5,000 he'd saved from summer jobs. Not exactly the sort of thing a "pig" would do. He worked hard and smart for three decades and ran two successful businesses in a very tough, competitive industry.

What happened after that is detailed in his statement, below. We all know that a bunch of rich people got tagged. Somehow I can't understand the righteous indignation of the New York media at this -- I just don't believe that they're in sympathy with the folks in the 'hood, who probably just started believing in Divine Justice again.

Mr. Madoff's statement to the court:

March 12, 2009 --

Plea Allocution of Bernard L. Madoff

Your Honor, for many years up until my arrest on December 11, 2008, I operated a Ponzi scheme through the investment advisory side ofmy business, Bernard 1. Madoff Securities LLC, which was located here in Manhattan, New York at 885 Third Avenue. I am actually grateful for this first opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed. As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal.

When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come. I am painfully aware that I have deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money. I cannot adequately express how sorry I am for what I have done. I am here today to accept responsibility for my crimes by pleading guilty and, with this plea allocution, explain the means by which I carried out and concealed my fraud.

The essence of my scheme was that I represented to clients and prospective clients who wished to open investment advisory and individual trading accounts with me that I would invest their money in shares of common stock, options and other securities of large well-known corporations, and upon request, would return to them their profits and principal. Those representations were false because for many years up and until I was arrested on December 11, 2008, I never invested those funds in the securities, as I had promised. Instead, those funds were deposited in a bank account at Chase Manhattan Bank. When clients wished to receive the profits they believed they had earned with me or to redeem their principal, I used the money in the Chase Manhattan bank account that belonged to them or other clients to pay the requested funds. The victims of my scheme included individuals, charitable organizations, trusts, pension funds and hedge funds.

Among other means, I obtained their funds through interstate wire transfers they sent from financial institutions located outside New York State to the bank account of my investment advisory business, located here in Manhattan, New York and through mailings delivered by the United States Postal Service and private interstate carriers to my firm here in Manhattan.

I want to emphasize today that while my investment advisory business - the vehicle of my wrongdoing - was part of my firm Bernard L. Madoff Securities, the other businesses my firm engaged in, proprietary trading and market making, were legitimate, profitable and successful in all respects. Those businesses were managed by my brother and two sons.

To the best of my recollection, my fraud began in the early 1990s. At that time, the country was in a recession and this posed a problem for investments in the securities markets.

Nevertheless, I had received investment commitments from certain institutional clients and understood that those clients, like all professional investors, expected to see their investments out-perform the market. While I never promised a specific rate of return to any client, I felt compelled to satisfy my clients' expectations, at any cost. J therefore claimed that I employed an investment strategy I had developed, called a "split strike conversion strategy," to falsely give the appearance to clients that I had achieved the results I believed they expected.

Through the split-strike conversion strategy, I promised to clients and prospective clients that client funds would be invested in a basket of common stocks within the Standard & Poor's 100 Index, a collection of the 100 largest publicly traded companies in terms of their market capitalization. I promised that I would select a basket of stocks that would closely mimic the price movements of the Standard & Poor's 100 Index. I promised that I would opportunistically time these purchases and would be out of the market intennittently, investing client funds during these periods in United States Government-issued securities such as United States Treasury bills.

In addition, I promised that as part of the split strike conversion strategy, I would hedge the investments I made in the basket of common stocks by using client funds to buy and sell option contracts related to those stocks, thereby limiting potential client losses caused by unpredictable changes in stock prices. In fact, I never made the investments I promised clients, who believed they were invested with me in the split strike conversion strategy.

To conceal my fraud, I misrepresented to clients, employees and others, that I purchased securities for clients in overseas markets. Indeed, when the United States Securities and Exchange Commission asked me to testify as part of an investigation they were conducting about my investment advisory business, I knowingly gave false testimony under oath to the state of the SEC on May 19, 2006 that I executed trades of common stock on behalf of my investment advisory clients and that I purchased and sold the equities that were part of my investment strategy in European markets. In that session with the SEC, which took place here in Manhattan, New York, I also knowingly gave false testimony under oath that I had executed options contracts on behalf of my investment advisory clients and that my firm had custody of the assets managed on behalf of my investment advisory clients.

To further cover-up the fact that I had not executed trades on behalf of my investment advisory clients, I knowingly caused false trading confinnations and client account statements that reflected the bogus transactions and positions to be created and sent to clients purportedly involved in the split strike conversion strategy, as well as other individual clients I defrauded who believed they had invested in securities through me. The clients receiving trade confinnations and account statements had no way of knowing by reviewing these documents that I had never engaged in the transactions represented on the statements and confirmations. I knew those false confirmations and account statements would be and were sent to clients through the U.S. mails from my office here in Manhattan.

Another way that I concealed my fraud was through the filing of false and misleading certified audit reports and financial statements with the SEC. I knew that these audit reports and financial statements were false and that they would also be sent to clients. These reports, which were prepared here in the Southern District of New York, among things, falsely reflected my firm's liabilities as a result of my intentional failure to purchase securities on behalf o fmy advisory clients.

Similarly, when I recently caused my firm in 2006 to register as an investment advisor with the SEC, I subsequently filed with the SEC a document called a Form ADV Uniform Application for Investment Adviser Registration. On this form, I intentionally and falsely certified under penalty of perjury that Bernard L. Madoff Investment and Securities had custody of my advisory clients' securities. That was not true and I knew it when I completed and filed the form with the SEC, which I did from my office on the 17th floor of 855 Third Avenue, here in Manhattan.

In more recent years, I used yet another method to conceal my fraud. I wired money between the United States and the United Kingdom to make it appear as though there were actual securities transactions executed on behalf of my investment advisory clients. Specifically, I had money transferred from the U.S. bank account of my investment advisory business to the London bank account of Madoff Securities
International Ltd., a United Kingdom corporation that was an affiliate of my business in New York. Madoff Securities International Ltd. was principally engaged in proprietary trading and was a legitimate, honestly run and operated business.

Nevertheless, to support my false claim that I purchased and sold securities for my investment advisory clients in European markets, I caused money from the bank account of my fraudulent advisory business, located here in Manhattan, to be wire transferred to the London bank account of Madoff Securities International Limited.

There were also times in recent years when I had money, which had originated in the New York Chase Manhattan bank account of my investment advisory business, transferred from the London bank account of Madoff Securities International Ltd. to the Bank of New York operating bank account of my firm's legitimate proprietary and market making business. That Bank of New York account was located in New York. I did this as a way of ensuring that the expenses associated with the operation of the fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses.

In connection with the purported trades, I caused the fraudulent investment advisory side of my business to charge the investment advisory clients $0.04 per share as a commission. At times in the last few years, these commissions were transferred from Chase Manhattan bank account of the fraudulent investment advisory side of my firm to the account at the Bank of New York, which was the operating account for the legitimate side of Bernard L. Madoff Investment Securities - the proprietary trading and market making side of my firm. I did this to ensure that the expenses associated with the operation of my fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses. It is my belief that the salaries and bonuses of the personnel involved in the operation of the legitimate side of Bernard L. Madoff Investment Securities were funded by the operations of the firm's successful proprietary trading and market making businesses.

Your Honor, I hope I have conveyed with some particularity in my own words, the crimes I committed and the means by which I committed them. Thank you.

Friday, March 06, 2009

Word Association

What do The New York Times, the Apocalypse, Banks, and Starbucks all have in common, besides the fact that they all appear, in unrelated comments, in this post? Probably lots of things, none of them of any concern to me at this moment. All I needed was a way to tie them together in the same paragraph.

I rarely read the Times, for the same reason, I suppose, that I don't read the Enquirer: I don't trust it. But I do concede that the Times has a bunch excellent craftsman churning out really delightful, if dubious, pieces.

However, I spied a headline in the neighbor's Times this morning as it lay on the stoop, and made a mental note to look into it later. The story is about how HSBC took a hugh-mongous beating on its 2002 acquisition of Household Finance and Beneficial, America's big subprime lenders. That's no news flash, but the angle of the piece was that this acquisition was The Deal That Fueled Subprime; and while it may be, the story won't convince you. (I don't know how long that link will be good; you may have to hunt the NYT site if you want to actually read it, in the event it expires.)

It's really "Business Lite," but that's not why I'm writing about it here. I'm doing that because the piece makes the following assertion:

Securitization was based on the fiction that financial engineering could turn risky loans into risk-free securities.

Bosh! This is itself a fiction. I can't recall ever seeing, in any official document or any commentary, the claim that any securitized assets were "risk-free." That's probably because claiming they are would be like claiming cars could be made to run on seawater. All "financial engineering" (a term I've never, ever agreed with, even when I was studying it), did, with the aid of computer power that wasn't available a few short years ago, was allow financial instruments to be created from pools of assets, and enable the clever attribution of the characteristics of such aggregates.

The characteristics of the loans -- their terms, risk profiles and cash flows -- are aggregated (it is a pool, after all) and then re-arranged and divvied-up again in a way that is entirely customizable, within the parameters of the pooled characteristics. Like all things designed to appeal to the "sophisticated," the sliced-up assets were given a french name: "tranche," meaning, of all things, "slice." In this, at least two notable things occured: Wall Street prefigured Starbucks by at least a decade, and a high-water-mark in truth in advertising was reached.

Some of the slices were first in line to receive their prorated cut of the cash flows from the underlying loans. Some were last, and some were in-between. Where the slice fell on this hierarchy determined it riskiness with regard to the rest of the slices, and hence, its debt rating. This isn't engineering so much as it is high-powered, labor intensive accounting. But the computers make the intensiveness of labor a moot point. And computers do things mathematically. And engineers speak "math." So high-powered accounting became known as "financial engineering." This can be likened to the pencil and ledger opening up accounting possibilities that were simply too labor-intensive in a world dominated by the abacus. Nothing new under the sun, indeed.

To some extent, all accounting is "fiction," but it's very useful fiction. The accounting one does doesn't affect reality, it only does bold things to one's perception of it, semantically. The loans that are pooled didn't change, but their characteristics are micro-managed.

Nobody would ever say such pools were "riskless," but the pro's and con's of this micro-management are perhaps both misunderstood and misrepresented, at various times, willfully and not so willfully.

In that environment, with the help of a little grease to the skids, bond insurers found they could do a pretty good business by selling insurance on these asset pools. Insurance is a business of averages -- statistics -- and we all know what they say you can do with statistics. In any event, the purchase of a misguided rating -- Triple-A, for example -- from a government-sanctioned rating agency might go along way to overcoming, in the mind of the manager of large pools of investment capital, any visceral trepidations regarding such newfangled instruments. It might, in other words, fog one's judgment. In any case, a rating ensured that someone was on the hook financially in the event that one of these nifty financial robots went berserk and started killing the pilots of the great spaceship that Wall Street had become.

And, of course, the transformation of a pool of loans into a synthetic "bond" can, by commoditization, encourage a new flow of capital to wash into the asset class (which it did, even if it can be argued by supply-side logic that the availability of all that capital spawned the creation of something else for it to flow into, after all known rivers and tributaries had been submerged); and it did replace bankers with pensioners as risk takers on ever-more ill-conceived mortgages. The move of a giant like HSBC into that market would certainly increase the volume of such transactions. This much of what the article floats makes some sense.

The term "riskless" is a theoretical, financial-math term (referring to government agency debt issues) that is roughly analogous to the term "frictionless" in physics. In high-school you learn that "frictionless" is a convenient myth, that it's factually, but not relatively, untrue. Nobody builds buildings by making any assumptions about frictionlessness being a fact. And nobody -- n.o.b.o.d.y, especially Wall Street sharpies -- takes the term "riskless" literally.

Now, about this Times piece. Admittedly, there's a great deal of misconception (willful and otherwise) surrounding all things finance, and the volume of misconception is proportional, surely, to the area of newsprint (or airtime, or book titles, or Internet links, etc) that is devoted to any particular topic. Considering how many column-inches have been spent on reporting the "financial crisis," this indicates the presence of a great deal of misconception, indeed.

We humbly admit to a small amount of this here. The comments on how CDS's sink protection-sellers still need some fleshing-out. But the operative word here is "admit," and, by the way, in case you haven't noticed, this is not the New York Times. I don't get paid six figures for writing this, I don't get invited to posh parties in Manhattan, and I don't have a cool business card. The upside of this is at least twofold: I can maintain a clean conscience when I write and nobody will ever call this blog the "Gray Lady."

Mojo Nixon wasn't a fan of banks. And I'm not a fan of Mojo Nixon or banks, but I'm glad he wrote a song called "I Hate Banks." Parenthetically, I wonder what it says about us culturally that it takes (what used to be) a character from the outer fringes of the edges of mainstream to say what we all feel: banks are probably really just fronts for little satanic outposts.

I say this as one who has worked for, interestingly, a bank that was concurrently the world's largest (by assets) and its smallest (by market capitalization). Continuing the theme of opposites, banks have been, for most of my lifetime, places of arrogance (on their part) and humiliation (on the customer's part). How many times has the teller smirked at you while refusing to cash the check you brought in, because you don't look like the person on your license, or some such inanity? Banks are the roach-motels of finance: money comes in, but it doesn't go out.
How many times have you been late making a deposit (even if you weren't stalling) and gone to the ATM to get a few bucks for a date and found out that you bounced twenty checks and are now in the hole $510 ($500 in NSF fees, and ten bucks for the lousy check you wrote at the grocery store). Chastened, you enter the bank on Monday, to find the manager has installed a limbo-pole in his office that he expects you to grovel under, while the staff watches with glee, doing shots of tequila and placing bets on "how low you can go."

Yeah, banks are not often associated with happy memories for most of us. Yet I've discovered something so rare -- a bank lobby that has really nice people working there -- that I had to comment on it. Sure, it's Wachovia, the same bank that surprised (and temporarily bankrupted) an acquaintance by illegally seizing and freezing his account, just because some bill-collecting lawyer sent an official looking (and fraudulent) fax to them. But when the pickings are slim, you take the bad with the good. It's Wachovia on 42nd and 1st, and the usual lobby staff is beyond stellar. They act like real people. Not all of them, of course, but enough, and often enough, that it's noteworthy.

If you had to start the apocalypse, how would you do it? Here's one suggestion: start refashioning your administration, if you're president of the United States, as anti-Israel. It's that simple. You don't come out and say that, of course, but if you start appointing in strategic roles the sorts of people who espouse that particular insanity that expresses itself as an irrational hatred of Israel, you'll get the ball rolling. Because what that does is it shows all those countries that have institutionalized the hatred of Israel into law and policy that the US is no longer going to stand behind the tiny, eternal hotspot at all costs, like a great, big brother staring down bullies.

The deterrent to bullies, once removed, invites all manner of mischief. Bullies push, and test, and torment, and they never stop, until and unless they're stopped. And if the bullies have stated perennially, repeatedly, and unequivocally, their longing for the complete and utter destruction of your little sibling, there's no reason to expect them to stop, until....

If you're Israel, a) you're not stupid and b) you're not weak and c) you're gonna prepare to kick some serious ass because your tormentors are emboldened by the absence of meaningful reality-checks to their insanity.

Now, if you manage to do this in a time when one particularly loony regime is known to have the ability to make nuclear weapons, you just might get your Apocalypse.

It's easy, really.

Finally, in solidarity with the multitudes who have recently "downsized" their lives (especially myself) I have not only moved to more reasonably priced digs, but I didn't bother to subscribe to an Internet provider there. Sure, my inner sloth reasoned that I'd find a wireless network in the building that wasn't password-protected (it was wrong; they're getting harder to find than solid-silver quarters); but the better part of me relished the idea of having to discipline and organize my Internet access, planning for outings to some public access point.

As it turns out, there's a Starbucks right around the corner, and since I was recently gifted with a Starbucks gift card, the decision about where and how to do things online was pretty much made for me.

I'm a Dunkin' Donuts man all the way, at least pre-corporate Dunkin' Donuts. But I'm also open to having my horizons expanded, and accordingly I've actually imbibed in that caustic brew known as Starbucks coffee. One mid-morning I went crazy and had a refill, and I did not get to sleep that night. They do, however, sell a great Plain bagel.

I may say more on the Starbucks culture, later, but just now I'm overdosing on the caffeine. I would like to observe, in closing, that the place is frequently jammed with online jobseekers, and that can't be bad for coffee sales.

I guess that's a good thing for all those poor farmers in Brazil, eh?
[this piece is a work in progress, which means I'm my own editor. This ain't the Times, remember?]

Thursday, March 05, 2009

Death by Credit Default Swap

How can CDS and naked short selling be employed to destroy publicly held companies for profit?

Put your thinking cap on and read this ...Thwarting Debtors with Credit Default Swaps. Then ask yourself that classic question, "cui bono?"

The players: hedge funds who buy the CDS, short the stock, and hope to score; their enablers in the media and pools of foreign capital; the investment banks, who sold "protection" to the hedge funds thinking it was easy money-- after all, these big companies wouldn't default in isolation, in a thousand years, let alone all together: never happen! -- plus, bankers can prop them up (now you know why they're dropping like flies, sports fans); and various and sundry accomplices, both witting and un-.
In that last category, we have to mention the US regulatory agencies who appear to be as focused as the proverbial blind pig, the Treasury for taxing all future generations of Americans to raise trillions of dollars to meet the margin calls the banks need to make on their CDS contracts (that is, payments to their counterparties, the hedge funds, et al).

The subject is complex and, given the average person's inability to balance his checkbook, it's unlikely that the truth will ever be understood widely, even if it ever is ultimately discovered and reported.

Tuesday, March 03, 2009

Dead Cat

The Dow Jones Industrial Average has fallen about 8000 points from it peak last summer -- over 50%.

At its high so far today, the Dow Jones was up 70 points; it is currently up about 11 from yesterday's close.

And Bloomberg News calls this a "rebound."

Granted, a short covering rally could ensue -- why not? Not only do shorts have some profits to take, even beginning technicians are familar with Elliot Wave ideas on bounce points (50%, for example). A few good headline might just induce the expected bounce.

But still, while it may be hopeful or even prescient to call a 0.14% move a "rebound," is it sound journalism?

Addendum: Scratch that last -- who really cares if it's "sound journalism?" Everyone knows Bloomberg is just a story-mill. What I really meant to express was my amazement that the collective psyche is at the point where an ankle snapper is described as a big mama.

This brings to mind other things, like does the Treasury (or some other entity with an interest) employ a consultant who says things like, "It's down 50%, Elliot Wavers think a bounce is coming, start peppering them with positive headlines to scare the shorts and you'll get a rally..."
Or maybe, "Blue Horseshoe loves Teldar Paper...."
Ahh, well, who knows...