Charity golf yesterday. Won a putter for the longest on the 18th. hole. Rolled in a nasty, downhill, sliding, 26 footer for a bird. Absolutely pure--and in when I hit it. As for the rest of the day, we stank, but for a bunch of old guys we didn't embarrass ourselves.
The big announcement is scheduled for tomorrow; i.e. the restructuring of the financial system from the standpoint of regulation. I suspect this is going to be more of a within the Beltway event with battles between entrenched interests awaiting the opening bell but I may well be wrong. I shall therefore await the announcements before commenting but the early editions seem to report that the Federal Reserve may well emerge as the "Primus inter Paris" of the assorted agencies, which, if true, would not be a bad thing. The Leader let it be known today that there will be a new agency formed expressly to protect consumers...from themselves I suppose...which will have the undoubted result of making everything more confused and expensive without doing much at all to protect anything other than the bureaucracy itself. The New York Times will applaud. We wait in joyful hope and bless that they who run in circles shall be known as wheels.
In the mean time, there was a delicious little story in the Journal last week concerning a texas based hedge fund that apparently put a big hurt on some of the smart guys up in New York. Seems as though the SG's got it into their head that they could make a quick turn on some credit default insurance the Texas boys were peddling on some stinko mortgage-backs. Convinced that the securities in question were about to go belly up, they purchased protection from the Texas boys at a really high number--like 90% of face confident that they would make a quick 10% when the securities were declared worthless. Don't mess with Texas. Seems as if the Texas boys paid--or as the lawyers like to say--caused the securities to be paid in full leaving the default insurance essentially worthless. Anyway, the smart guys paid out 90 cents on the dollar for an insurance policy they they are wearing. Win some, lose some. In the great scheme of things this does't amount to anything but it does illustrate brilliantly what we were talking about in the case of AIG just a few short days ago.
If the smart guys had purchased protection on securities that they owned, all would be fine as they would have gotten all their money back and then some. But they were not the owners; they were pure speculators trying to make a fast buck, for in order to purchase insurance protection in this market, one needn't be the owner of the underlying security just like the owners of AIG CDSs were not the owners of the underlying. So I ask again: why the hell did those speculators--and that's all they were--get bailed out? Had the regulators just put out a bid for the underlying they would have created, in effect, the greatest short squeeze in the history of the world on the non-actual holders of the underlying of the CDSs issued by AIG. Obviously, I don't know much of what transpired but if you run into your favorite regulator one day ask him why the hell he (or her...you know who I mean) aint as smart as some Texas Yeahoo. Then ask how we taxpayers are going to get the $200 billion-odd in AIG back. Then duck.
I'll be tossing an turning all night awaiting the dawn of a new financial day.
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