IS ANYBODY IN CONTROL?

Anywhere? Let's see. Having just concluded an agreement as to the standards by which it's banking system would be judged, the head of the European Central Bank, M. Trichet, comes out and says, "not good enough." OK, what is? Unfortunately, he didn't quite go that far implying, however, that what was needed was a more universal standard for judging soundness about which of course he is correct. As my Euro friend said, they are playing a game of chicken over there and not just with Ireland. The suspense is overwhelming as though no one expects a rescheduling of sovereign debt to occur.. I think the only thing in the way is universal agreement as to how the accounting is going to work for the banks. Hell, give 'em 10 years to write the stuff off as Chile did 30 years ago. Life goes on.

Over here, Lizzy (Borden) Warren is off mustering support for her agency for which she has not been appointed head, which reports to no one and receives money by simply asking for it. She has come up with a figure of $20 billion from the "big" (her word not mine) banks who service--or rather disservice mortgages--in compensation for the inability or unwillingness to restructure mortages in default or otherwise impaired. There was a congressional oversight hearing today to look into this but undoubtably nothing will result. One would think that an unauthorized woman attempting to take 20 bil out of what some folks believe are undercapitalized banks might attract some attention somewhere but with the exception of the WSJ apparently not. Oh well.

The Suit has come out out for the revival of the home mortgage market through the European idea of covered bonds. For those of you unaware of the product, banks write mortgages, pool them on their books and the sell bonds to which the mortgages are pledged. Works fine in Europe but the minute The Suit pooped up with this, up popped Poo Bair at the FDIC proclaiming that would reduce the assets available to her little fifedom when she starts winding up banks and limit payment to depositors. The woman remains delusional; she actually believes that the FDIC is importsant in the grand scheme of things. Shutting down banks in Gator Guts Plorida should be enough for her but apparently not. She actually still thinks she's a major player and no one will tell her otherwise.

Meanwhile, back in New York, the President of the N.Y. Fed had a stoke of genius last week. I was not going to bring this up but when you make a WSJ editorial, the Devil said, "DO IT!" Bill Dudley, (herein after referred to as "Billy the Dud" or "Dud") gave a speech in Queens--noted financial capital of the world--in which he presented proof positive of the fact that there is no inflation in the economy by pointing to the reduction in the price of the I Pad II as opposed to the I Pad I. There seemed to be a lack of agreement as to this point in the audience as someone asked him if had shopped for food or gasoline lately. You can't make this stuff up but then again, who lets Dud out by himself? Does anyone dress him?

And finally, in the midst of collapsing stock markets, upheaval in the Middle East, Nuke terror in Japan and the threat of another economic collapse, The Leader put out his picks in college basketball today. There's a man who has his priorities.

So who's in charge? Looks like Ghaddaffi to me. Remember him? He's the guy who, make no mistake, must leave. In which regional is he playing.

WADDYA KNOW JOE...

That was a song title back in the 40ies. The answer was, "I don't know nuttin'." Funny song but in the case of the N.Y. Times' Joe Nocera, he figured it out last week.

Joe actually read the Financial Crisis Inquiry Commission's ("FCIC") report--or at least parts of it. You see, Joe gets paid to do things like that whereas I don't. Then again, while Joe may not have an instinctive understanding of what goes on in the business, as his last week's article proves, he's a pretty good, quick study. I'm not going to go through his analysis for it is best if you read it for yourselves, but Joe does come to two very correct conclusions:

1. The report is a hodgepodge of facts and figures which reaches no definative conclusion and, indeed, may raise more questions surrounding the events of 2008, and
2. It's going to happen again.

Now there is a show-stopper! Where have we heard that before...on these pages perhaps? Guilty as charged I'm happy to say. Joe and I agree because we have both reached the same conclusion: the fault was not in a rush to deregulate leading to a lack of regulation; we had plenty. It was not due to a cascade of fraudulent practices...although there were plenty of those. It was not due to new products that were created; but they facilitated what happened. It was not due to the actions of Fannie and Freddie; although they clearly exacerbated the crisis. It wasn't even due to the prolificacy of the Fed...although God knows it couldn't have happened without it, or the rating agencies or the accountants. In fact, we are not entirely to blame as this was a global disaster. All of these things are important but to use Mr. Nocera's words, the real cause was hiding in plain sight: It was the human condition.

The events of 2007 and 2008 were not unusual. We have had financial collapses throughout history although none, perhaps, as devestating or as globally comprehensive as this one. Every one, however, has remarkable similarities. There is generally an asset involved be it tulip bulbs or ocean front property in Boca or Santa Monica or Las Vegas. There is always an excess of liquidity. There is generally a period of prosperity. There is many times a preferred asset class of investment as witnessed by the dot.com. period of the nineties. There may be governmental stimulus or directed investment or consenual oversight as there was in the seventies following the oil shock as banks operated as disinteremdators on behalf of sovereign borrowers. And there is always, ALWAYS, a delusion on the part of all participants that what has gone up will NEVER come down or that any downturn will be "mannageable." It is in our stars, always has been, always will be.

Mr. Nocera figured this out and good on him. Some of us have known this for quite some time. Some of us have actually witnessed this manifestation of humanity on multiple occasions and have actually spoken out and warned against a repeat of history. And all of us have, for the most part, been ignored. I have no idea how much the work of the FCIC cost the taxpayers. A lot would be my guess, and while an interesting exercise it was more or less a wasted effort, except for the fact that I suspect there are a few more Joe Nocera's out there who have figured it out which may lead to something different that the Barney/ Chris the Crook monstrosity that is supposed to save us from ourselves. With a bit of help that I have received I'm going to try to help out with a few thoughts tomorrow. Stay tuned.



Ed. Note: This is being posted a day late. I have no idea what happened yesterday

BUT FIRST...

...before we head off to yet another wedding and the graduation of our granddaughter from the eighth grade which will keep me out of action for a week, I thought I would briefly comment on the financial regulation bill winding its way through Chris the Crook's committee.

But first (clever, eh) I though I would let you know I'm in trouble.  Hans rang up yesterday.

"Charlie!  What for the hell you do that, Ja?!!!"

"...And a very Gutten Tag to you mein leiber freund.  Do what?"

"You know what. Ackermann!"

"What about him?"

"You call him ein Deu,,,ah,,,German.  For Damn, Charlie, you knows he is Swiss!"

"Oh come on Hans, alles ist mir wurst, nein?"

"Nein, nein, nein!  Alles ist nicht ! They are not us!  Nein!"

"Hans, be honest.  In '46 you were all Swiss."

"Ach, Charlie zu...zu...zu..."

"Hans, I know German can be wonderfully expressive but it's so difficult to formulate.  Use Ein-lish!"

"You are a sh*%!

"But a lovable one!   How's the Frau?"

"Gut.  She loves you, Charlie, but you are still a sh*%!"

I must be more careful next time.



Anyway, last week in Congress there was a slight glimmer of intelligence and another monstrous example of stupidity and cynical arrogance within the Democratic majority in the Senate.  Maria Cantwell of Washington, one not usually given to intelligent pronouncements joined with Rep. George LeMieux in proposing an amendment to Chris the Crook's legislation that would remove the congressional impremator on the rating agencies.  That, sportsfans, would be a hell of a good thing as it would force those good folks who will invest in any old crap as long as it has the appropriate rating into doing the jobs for which they are paid, namely, managing risk.  Remember my comments about institutions that would be designated as being so big as to propose systemic risk?  The market would take that to mean TBTF and rush in.  This is precisely what happened with risk ratings provided by institutions designated by the government as THE ONLY ONES authorized to provide such ratings.  Who would have thunk that the U.S. Government would allow a bunch of dummies to get it so wrong.
The operative word is government...a synonym for dumb.  Let's see where this goes.  It's a big deal

Unfortunately, the junior Senator from the state of Minnesota has other thoughts.  Al Franken, a dreadful creature at best, proposed an amendment that would memorialize the activities of the agencies in yet ANOTHER governmental body to be overseen by the SEC and each would, if I understand it correctly, be assigned certain categories of risk to rate.  In other words, rather than having a government sanction for their actions, the rating agencies would now be under DIRECT government control.  Might I remind you, dear reader, that government control in matters such as the extension of credit often doesn't work out too well to which Fanny, Freddie and the FHSA can bear witness.  As you mull this over, keep thinking what that "sh%* Charlie keeps saying, "$1Trillion in losses."  Imagine if he's right.




There was a real hit piece on the New York Fed in the Wall Street Journal the other day.  I'll try to get to the bottom of it but I have the suspicion that The Bair of Very Little Brain was behind it somehow.   Things are getting ugly.

See you when I can.