Big reunion for my class this weekend which will keep me occupied for the next three days, so I have benn on the hunt for copy. Copy has left town. Nothing. Oh, I could write about how the DOW was up 177 for no discernible reason or that the 10 year passed 1.70% again before settling back, but to what point. It seems odd to say this but confusion reigns in just about everywhere. Even the NY Times is confused. Yesterday, it trumpeted, top right, above the fold, that personal wealth had grown by over 5% in the past year. Yea, Hillary! Then it was revealed that the numbers were correct except for where it counted; in the swing states. Silence. Today the Gray lady reported that Trump was growing stronger in states where job losses were high. DUH! And on the inside a story indicating that Ms. May was keeping mum as to when to invoke Article 50. And in a final act of seeming frustration, the leading article today was In Praise of John Kerry who the entire world recognizes as the odds-on favorite to come in at least third dumbest at a Box of Rocks convention and the retireror of the Blue Ribbon as to who could be the most flummoxed by tin pot dictators. And I'm sitting here feeling sorry for myself whilst the NY Times itself is engaged in space-filling exercises akin to a college kid trying to get to 1000 words in his 1000 word essay on the gender effect on cafeteria lines or whatever the hell they teach these kids today. At least it was a beautiful end-of-summer day.
Next week of course we will all be back on Fed watch as if something is going to happen. I'm beginning to believe that there's less of a future in this financial blogging thing that I once thought but all may not be lost. I was about to put this thing to bed for the week when I got a call from a bud in D.C.
"Hear about DeutscheBank and Justice?"
"No."
"The Feds are looking for $15 Billion."
"Come on, they already held them up for a bundle. Where did you get that?"
"Trust me."
"I trust you but that's nuts. Besides, they don't have it. I think they set aside only about $2-3 billion in their last filing. Besides, they are not exactly the best capitalized unit around." The Euros will go nuts."
"You think Justice cares? Bonuses all around, man if they pull this off. And Obama goes out with a bang. You watch."
I tried to get confirmation on this but so far, no good. But if this is as foretold, I'm back in business! Somewhere, cousin Nuzzi is smiling. Never in a million years could he imagine a racket like this. I wonder how much will go to "community organizations" out of this pot of gold?
Showing posts with label New York TImes. Show all posts
Showing posts with label New York TImes. Show all posts
Thursday, September 15, 2016
Thursday, September 10, 2015
YOU CAN'T MAKE THIS STUFF UP
In a blatant political move, the administration leaked to the New York Times (more on it later) the text of a speech to be given by the Attorney General, Loretta Lynch, on a change in the Justice Department's strategy for dealing with "white collar crime" which in effect, is to place more emphasis on going after the individuals in a corporation for their wrongdoing through the forcing of the corporation to "give up" their employees rather than just settling for fines against the corporations and in very rare case pleas of wrongdoing.
Having been constantly berated by people on the far left of the party for not jailing the "criminals" in the great financial crisis, this is the solution propose, in a coming election year, to silence the criticism. It is crap and a disgraceful misleading of the American public.
Huge damage was done beginning about 10 years ago. Huge mistakes were made. Huge losses were suffered but whilst there was corporate wrongdoing and stupidity, was there illegality? That is a very different question.
To be convicted of a criminal offense, under the laws of the United States, in most case two requirements must be present. The first if knowledge that one is breaking the law and the other the intent to break the law. Sounds easy, but it is not. It is very, very difficult to prove intent, and that hurdle remains despite whatever new thoughts the justice department might have regarding "going after the bad guys." For all of the noise and nonsense created, this justice department has never successfully prosecuted any individual involved with the financial--not because they it didn't want to but because it couldn't. In fact the best shot they could have had was Franklin Raines, the former head of Fanny Mae who knowingly and deliberately misrepresented the financial records of the company and was allowed to "retire" with a package somewhere in the rang of $100 million. Of course, good ol' Frankie was the political insider of all political insiders in the Democratic party and a long term advisor to Il Duce that continues up to the present day. Not on, old boy, not on, despite Fanny and Freddie being at the very heart of the collapse.
But, the Times puts this on the front page and boy, don't these guys look tough whereas nothing has really changed. A political grandstand, nothing more except that one can be sure that the white collar lawyers at the nation's big law firms might get a bit busier in the next few months explaining to their clients what all this means...for a fee of course. Oh, one of the leading firms in this game is the Washington shop, Covington & Burling. The head of it's white collar practice? Eric Holder, recently of the Attorney General's office. You can't make this stuff up.
The big talk on the street today was the apparent confusion and indecision at the Fed as to whether to raise or not next week. Whether they do or not wasn't the talk, the indecision was. No surprise, because even I was prepared to concede that they would move until the other day when the word came down from on high via a New York Times editorial that raising interest rates would not be a good idea. The politicos on the Board are now wringing their hands...Il Duce will be displeased. Hell of a way to run monetary policy. I'm tellin' ya, you can't make it up.
Having been constantly berated by people on the far left of the party for not jailing the "criminals" in the great financial crisis, this is the solution propose, in a coming election year, to silence the criticism. It is crap and a disgraceful misleading of the American public.
Huge damage was done beginning about 10 years ago. Huge mistakes were made. Huge losses were suffered but whilst there was corporate wrongdoing and stupidity, was there illegality? That is a very different question.
To be convicted of a criminal offense, under the laws of the United States, in most case two requirements must be present. The first if knowledge that one is breaking the law and the other the intent to break the law. Sounds easy, but it is not. It is very, very difficult to prove intent, and that hurdle remains despite whatever new thoughts the justice department might have regarding "going after the bad guys." For all of the noise and nonsense created, this justice department has never successfully prosecuted any individual involved with the financial--not because they it didn't want to but because it couldn't. In fact the best shot they could have had was Franklin Raines, the former head of Fanny Mae who knowingly and deliberately misrepresented the financial records of the company and was allowed to "retire" with a package somewhere in the rang of $100 million. Of course, good ol' Frankie was the political insider of all political insiders in the Democratic party and a long term advisor to Il Duce that continues up to the present day. Not on, old boy, not on, despite Fanny and Freddie being at the very heart of the collapse.
But, the Times puts this on the front page and boy, don't these guys look tough whereas nothing has really changed. A political grandstand, nothing more except that one can be sure that the white collar lawyers at the nation's big law firms might get a bit busier in the next few months explaining to their clients what all this means...for a fee of course. Oh, one of the leading firms in this game is the Washington shop, Covington & Burling. The head of it's white collar practice? Eric Holder, recently of the Attorney General's office. You can't make this stuff up.
The big talk on the street today was the apparent confusion and indecision at the Fed as to whether to raise or not next week. Whether they do or not wasn't the talk, the indecision was. No surprise, because even I was prepared to concede that they would move until the other day when the word came down from on high via a New York Times editorial that raising interest rates would not be a good idea. The politicos on the Board are now wringing their hands...Il Duce will be displeased. Hell of a way to run monetary policy. I'm tellin' ya, you can't make it up.
Thursday, August 16, 2012
AS PREDICTED
The WSJ had as its lead story today the fall-out from the thug Lawsky's actions against Standard Chartered and it wasn't pretty reading. The Brits are screaming mad as well they should be and talks of retaliation are in the air. I would rather not be the CEO of a non-American bank these days as I would have no idea to whom to listen and in what manner the game is being played. There are far too many regulators and many are not professionals but rather political thugs looking to score quick points. In the not-too-distant-future look for legislation placing the regulation of all foreign banks in the hands of the Feds or the Federal Reserve. This being an election year and Cuomo and Lawsky being Democrats the Administration will give this one a pass but no matter which party wins in November, international pressures--and not just from Europe--will bring about the change in governance of which I am speaking. The State of New York, having been run for years by political hacks may have just killed the goose with the bright, shiny egg.
Now remember my writing at one point that if you wish to learn the intentions of this Administration simply read the New York Times on a daily basis where you will find in addition to "All the News That's Fit To Print' (in accordance with our political philosophy) what to expect from Washington. This morning, once again shilling for the Administration, the NYT let it be known that Mr. Corzine will probably skate on any criminal prosecution for his role in the MF Global disaster. No kidding. After having this thing slow-walked by his former partner, now regulator, Gary Gensler, treated to the astonishing--or so it would appear--actions of the Federal prosecutors who did not grant immunity to the company's treasury official who authorized the transfers without even asking for a proffer and not even being questioned in regard to his 10-K statements, Johnny-boy is happily trading his family money seemingly without a care in the world.
To say this stinks is an understatement but let us remember that Corzine was the no.1 fund raiser for The Leader and was the odds-on favorite to succeed The Suit in the second Obama administration if there is to be one. Probably the only good thing to come out of this may be the realization that the piece of garbage known as Sarbanes/Oxley isn't worth the paper on which it is printed. Keep in mind that if one signs a 10-K it makes no difference if a material misstatement of fact is deliberate or accidental; sign it and you're toast. It's a joke, can it and while one is at it perhaps the repeal of Dodd/Frank can be accomplished as well. This dual act of contrition may mark the finest moment in financial regulation since...hold on, I'll have to back to you tomorrow on that. Then again, the research may take a long time.
Now remember my writing at one point that if you wish to learn the intentions of this Administration simply read the New York Times on a daily basis where you will find in addition to "All the News That's Fit To Print' (in accordance with our political philosophy) what to expect from Washington. This morning, once again shilling for the Administration, the NYT let it be known that Mr. Corzine will probably skate on any criminal prosecution for his role in the MF Global disaster. No kidding. After having this thing slow-walked by his former partner, now regulator, Gary Gensler, treated to the astonishing--or so it would appear--actions of the Federal prosecutors who did not grant immunity to the company's treasury official who authorized the transfers without even asking for a proffer and not even being questioned in regard to his 10-K statements, Johnny-boy is happily trading his family money seemingly without a care in the world.
To say this stinks is an understatement but let us remember that Corzine was the no.1 fund raiser for The Leader and was the odds-on favorite to succeed The Suit in the second Obama administration if there is to be one. Probably the only good thing to come out of this may be the realization that the piece of garbage known as Sarbanes/Oxley isn't worth the paper on which it is printed. Keep in mind that if one signs a 10-K it makes no difference if a material misstatement of fact is deliberate or accidental; sign it and you're toast. It's a joke, can it and while one is at it perhaps the repeal of Dodd/Frank can be accomplished as well. This dual act of contrition may mark the finest moment in financial regulation since...hold on, I'll have to back to you tomorrow on that. Then again, the research may take a long time.
Friday, April 15, 2011
EURO FOLLIES
The great thing about the New York Times is whenever you need a laugh, just read it. The other day they ran an op ed piece written by a sociology professor at the University of Notre Dame entitled, "Portugal's Unnessary Bailout." In academia, if a professor of one discpline were to criticise the scholarship of a colleague in another discpline he would be academically tarred and feathered but outside of the hallowed halls anything goes. Dispite displaying a woeful lack of knowledge of sovereign financing and capital markets, the good professor concludes that all that was needed was for the EU simply to aggressively buy Portugese bonds (thereby displaying another woeful lack of knowledge of the EU's rules and regs) and all would have been fine. There are dark forces out there suggests Prof. Fishman. Credit rating agencies for one. The IMF for another (actually, I agree with him there), and anti-Kenesians to be sure. Memo to sociology majors under the Dome: unless he teaches a gut course, I'd avoid his classes. Anyone that prepared to make himself look silly in public has sociolgical problems.
However true to form, the editorial boys and girls at the Gray Lady followed up today with, "An Undemocratic Bailout," suggesting that the Euro forcing Portugal to accept a bailout package befor the formation of a new government would end democracy on the Peninsular as we know it. How's about a bridge loan until a new government is formed, they suggest? A bridge to where you might ask? Not discussed. Now of course the Times and Prof. Fishman couldn't give a toss about Portugal--well he might, he has a new book coming out--but what they do care about is the now-joined battle in this country concerning our own little Portugese debt profile. Remember those dark forces? Allow them to win in Portugal and they just might gain the upper hand here. If it wasn't so patheticaly obvious, the juxtaposition's intent would be truly funny. As such it just gets a giggle. Oh, by the way children, Greece's 2 year yielded 18% today.
Of course by playing silly bugger with each other, the Euros allow this sort of nonsense to go on.
It's your banks, it's always is going to be your banks. Own up to it, cover their bums, force out the present management and move on. There's so many women involved in European politics and finance one would think there would be a Lady Macbeth among them. Be bloody, bold and resolute. Otherwise you are going to face the babbling we have to put up with here in the pages of the New York Times.
See you next week
However true to form, the editorial boys and girls at the Gray Lady followed up today with, "An Undemocratic Bailout," suggesting that the Euro forcing Portugal to accept a bailout package befor the formation of a new government would end democracy on the Peninsular as we know it. How's about a bridge loan until a new government is formed, they suggest? A bridge to where you might ask? Not discussed. Now of course the Times and Prof. Fishman couldn't give a toss about Portugal--well he might, he has a new book coming out--but what they do care about is the now-joined battle in this country concerning our own little Portugese debt profile. Remember those dark forces? Allow them to win in Portugal and they just might gain the upper hand here. If it wasn't so patheticaly obvious, the juxtaposition's intent would be truly funny. As such it just gets a giggle. Oh, by the way children, Greece's 2 year yielded 18% today.
Of course by playing silly bugger with each other, the Euros allow this sort of nonsense to go on.
It's your banks, it's always is going to be your banks. Own up to it, cover their bums, force out the present management and move on. There's so many women involved in European politics and finance one would think there would be a Lady Macbeth among them. Be bloody, bold and resolute. Otherwise you are going to face the babbling we have to put up with here in the pages of the New York Times.
See you next week
Wednesday, May 5, 2010
MR. GARMAN
There's this guy by the name of Garman who is a regular contributor on CNBC I have found him to be one of the most astute if not the most astute commentators they have. Caught him today. He said without much hesitation that the Euro is dead and the EU is finished...it's just a matter of time.
You might remember that a few days ago I noted that the market was pricing in a full scale rescheduling when it came to Greek debt. Every day it appears more and more likely and now it is becoming fashionable for all the wags out there to proclaim that they have "issues" with the bail-out package as to whether it is really enough. As most of these geniuses still haven't a clue, I guess this St. Paul like moment is not a bad thing but it still makes me shudder. The Greeks had their little demonstration-day today and managed to kill three people whilst burning down a bank. Not helpful. As a wise man once put it, "It's always darkest just before the lights go out."
Tomorrow is going to be a monumental day across the pond as we see what effect today's outburst will have and at the same moment it's election time in Blighty. I'm going to hold off a bit to see what the lay of the land is before commenting further. Remarkably, the New York Times was silent today and no one...and I mean NO ONE--has even raised the issue of NATO in light of what could be a coming Euro collapse. How long do you think that state of affairs is going to last and I wonder what The Leader is thinking? Gotta love this foreign policy of inclusion...except there may not be anybody to include. Stay tuned. Big blog tomorrow
You might remember that a few days ago I noted that the market was pricing in a full scale rescheduling when it came to Greek debt. Every day it appears more and more likely and now it is becoming fashionable for all the wags out there to proclaim that they have "issues" with the bail-out package as to whether it is really enough. As most of these geniuses still haven't a clue, I guess this St. Paul like moment is not a bad thing but it still makes me shudder. The Greeks had their little demonstration-day today and managed to kill three people whilst burning down a bank. Not helpful. As a wise man once put it, "It's always darkest just before the lights go out."
Tomorrow is going to be a monumental day across the pond as we see what effect today's outburst will have and at the same moment it's election time in Blighty. I'm going to hold off a bit to see what the lay of the land is before commenting further. Remarkably, the New York Times was silent today and no one...and I mean NO ONE--has even raised the issue of NATO in light of what could be a coming Euro collapse. How long do you think that state of affairs is going to last and I wonder what The Leader is thinking? Gotta love this foreign policy of inclusion...except there may not be anybody to include. Stay tuned. Big blog tomorrow
Friday, April 30, 2010
A DAY FOR INTROSPECTION
I'm doing something wrong and I'm paying for it. Just got the forecast for the weekend: rain for two days straight. No breaks, no let-up. That means the tomatoes don't get planted outside. That means we lose a week. Damn. And all because I write something with which the whole damn entire New York Times agrees, from the front page, to the first business page to even Paul Dumbo Krugman. Every thing I have written about Greece and sovereign risk the past week they have parroted. Krugman even picked up on the fact that Spain's debt profile is markedly different. Back to the drawing board 'cause the New York Times couldn't be agreeing with me which would mean they are right, could they? This is a bad day guys, all around.
My comments about the effect of Goldie's actions even are beginning to prove correct. Rumors abound that a criminal action is being explored by the Fed and you can be certain that States' Attorneys General are licking their chops. Of course GS absolutely went in the tank today closing below 144. The market exacts a heavy price. I still find it difficult to believe that their actions are "actionable" in a legal sense but they were sure arrogant and stupid. We shall see.
Anyhoo, the fascinating thing about what's going on across the pond is that the rumblings about whether the EU and the Euro really have a future have intensified. Even Krugman was in a speculative mood today which for that arrogant bugger is really rare. Usually he tells you what is going to happen and then when it doesn't he forgets that he told you. I guess this is too big a deal even for him, hence the musing-only. He did remind us that he warmed about the absence of fiscal control by individual nations faced with a common currency but then again, so did my four-year old granddaughter albeit she is very bright for a four year old. In any case, this is a real test and it aint multiple choice. No guessing here; that mob better begin to get it right before the general populace really figures out what the true situation is because at this stage they haven't. As I keep saying, there is nary a leader in sight--let's hope one emerges over the week-end, then again it's May Day and they'll probably all be marching with the proletariate (AKA "The Unwashed") so maybe not. As for me I'M going to ask my really smart friend Larry what he thinks and report back next week. If it's not raining where you are, put your tomatoes in the ground and think of me.
Have a great weekend
My comments about the effect of Goldie's actions even are beginning to prove correct. Rumors abound that a criminal action is being explored by the Fed and you can be certain that States' Attorneys General are licking their chops. Of course GS absolutely went in the tank today closing below 144. The market exacts a heavy price. I still find it difficult to believe that their actions are "actionable" in a legal sense but they were sure arrogant and stupid. We shall see.
Anyhoo, the fascinating thing about what's going on across the pond is that the rumblings about whether the EU and the Euro really have a future have intensified. Even Krugman was in a speculative mood today which for that arrogant bugger is really rare. Usually he tells you what is going to happen and then when it doesn't he forgets that he told you. I guess this is too big a deal even for him, hence the musing-only. He did remind us that he warmed about the absence of fiscal control by individual nations faced with a common currency but then again, so did my four-year old granddaughter albeit she is very bright for a four year old. In any case, this is a real test and it aint multiple choice. No guessing here; that mob better begin to get it right before the general populace really figures out what the true situation is because at this stage they haven't. As I keep saying, there is nary a leader in sight--let's hope one emerges over the week-end, then again it's May Day and they'll probably all be marching with the proletariate (AKA "The Unwashed") so maybe not. As for me I'M going to ask my really smart friend Larry what he thinks and report back next week. If it's not raining where you are, put your tomatoes in the ground and think of me.
Have a great weekend
Thursday, April 29, 2010
WE'LL ALWAYS HAVE THE ODYSSEY...
...which is a story about some Greek guy that took 20 years to get home from a war over some babe that took forever while his wife fended off suitors (for 20 years...how hot was she!?) which is still a better tale than the nonsense that is swirling around the wine-dark sea today.
Anyway, the N Y Times finally figured out one part of this soap opera today when they published the estimated exposure of the European banks about which your humble blogger had provided to you about two months ago. This was the second time for the Times but at least they managed to connect the dots which shows that this is not merely a bail-out on the part of the Euros but a doubling-down on the part of everybody but especially the Germans whose savings system just LOVED sovereign risk which is now the property of the Bundesrepublik. Oops. Nevertheless, a deal from the Germans is promised by the weekend and a structure from the IMF by early next week which will hopefully get some money flowing because repayments are rapidly approaching and if missed, things could really get ugly. So sad. With a touch more trust this thing could have been covered up for a while longer until something intelligent could be put in place but no such luck. Bye elections in Germany, natural distrust not only for Greece but throughout the Euro Zone (as I once said these guys have been trying to kill each other for nine centuries), and a total lack of leadership about which we spoke the other day.
Of course everyone realizes that the Greek paper held by the Euro banks is considered to be discountable which for all intents and purposes means it can be considered to be money-good, with no risk of default and against which no reserves need be taken. Think any of those banks have reserved against this stuff? If you do, think again. No chance. None. Should we worry? Nah. The Euros don't think like us. The banks are covered. Messy but effective. Even if there is a default. But let us remember, the majority of the Greek debt is sovereign in nature; that is not the case in Spain, which the wags are preparing to put on a wooden peg and stick in the ground for some humanitarian like George Soros to take a wack at. The result of the to-ing and fro-ing over the weekend will merely affect the timing of the next round. Portugal is buggered already what with the small size of it's economy and the cost of debt service...which, incidentally, is a hell of an argument for a concerted effort to keep interest rates down world-wide although I'm not sure it will help. Sad. The Iberian Peninsular could become a real tale and in addition, Barca is out on a disallowed goal as a result of a hand ball. Now THAT'S a real tragedy.
Here's looking at you, kid.
Reader Carter, in response to yesterday's effort asked who I thought was the client and whether I though GS owed a duty to both the long and short client as well as the cash and synthetic clients.
I'm not quite sure as to all the parties about which (s)he speaks but in my mind the only "Client" would be Paulson who asked GS to structure the transaction. The question gets, of course, to the heart of the SEC case but in my mind I find it difficult to ascribe any duty to GS in this particular circumstance because of the nature of the transaction.
Back in the good old days when--and I mean WAY back--when I ran syndicated lending at a bank I on two occasions refused participations to other institutions because I knew (or believed) they were not in a position to properly evaluate the risk so I am fully aware and sympathetic to the arguments. I was also considered a nut, but that's another story. Times have changed and so have the morays of the people in the profession. But in this situation the product was a unique one which, by its very nature required positioning of opposites and that should have been know to all parties. ACA was highly sophisticated and, indeed, not only knew the nature of the referenced assets but chose them. It made a directional bet and was wrong. There is no question they knew there were shorts in the deal. The same is true of the Germans who were long-time players in real estate. To say you relied on the opinion of rating agencies in a transaction this complex is to say you are a fool. I don't know of the involvement of anyone else and therefore can't comment.
The fault I think is one of commission. I think it is disgraceful that a totally useless exercise like this would be conducted by a firm of the size, the market position and the prestige of GS. The price to be paid is not that of a politically motivated SEC but the price they are paying as I write this. The market exacts a heavy price. I really don't think--indeed, I hope--that things will ever be the same for Goldman Sachs.
Thank you Carter, I appreciate your attention and interest
Anyway, the N Y Times finally figured out one part of this soap opera today when they published the estimated exposure of the European banks about which your humble blogger had provided to you about two months ago. This was the second time for the Times but at least they managed to connect the dots which shows that this is not merely a bail-out on the part of the Euros but a doubling-down on the part of everybody but especially the Germans whose savings system just LOVED sovereign risk which is now the property of the Bundesrepublik. Oops. Nevertheless, a deal from the Germans is promised by the weekend and a structure from the IMF by early next week which will hopefully get some money flowing because repayments are rapidly approaching and if missed, things could really get ugly. So sad. With a touch more trust this thing could have been covered up for a while longer until something intelligent could be put in place but no such luck. Bye elections in Germany, natural distrust not only for Greece but throughout the Euro Zone (as I once said these guys have been trying to kill each other for nine centuries), and a total lack of leadership about which we spoke the other day.
Of course everyone realizes that the Greek paper held by the Euro banks is considered to be discountable which for all intents and purposes means it can be considered to be money-good, with no risk of default and against which no reserves need be taken. Think any of those banks have reserved against this stuff? If you do, think again. No chance. None. Should we worry? Nah. The Euros don't think like us. The banks are covered. Messy but effective. Even if there is a default. But let us remember, the majority of the Greek debt is sovereign in nature; that is not the case in Spain, which the wags are preparing to put on a wooden peg and stick in the ground for some humanitarian like George Soros to take a wack at. The result of the to-ing and fro-ing over the weekend will merely affect the timing of the next round. Portugal is buggered already what with the small size of it's economy and the cost of debt service...which, incidentally, is a hell of an argument for a concerted effort to keep interest rates down world-wide although I'm not sure it will help. Sad. The Iberian Peninsular could become a real tale and in addition, Barca is out on a disallowed goal as a result of a hand ball. Now THAT'S a real tragedy.
Here's looking at you, kid.
Reader Carter, in response to yesterday's effort asked who I thought was the client and whether I though GS owed a duty to both the long and short client as well as the cash and synthetic clients.
I'm not quite sure as to all the parties about which (s)he speaks but in my mind the only "Client" would be Paulson who asked GS to structure the transaction. The question gets, of course, to the heart of the SEC case but in my mind I find it difficult to ascribe any duty to GS in this particular circumstance because of the nature of the transaction.
Back in the good old days when--and I mean WAY back--when I ran syndicated lending at a bank I on two occasions refused participations to other institutions because I knew (or believed) they were not in a position to properly evaluate the risk so I am fully aware and sympathetic to the arguments. I was also considered a nut, but that's another story. Times have changed and so have the morays of the people in the profession. But in this situation the product was a unique one which, by its very nature required positioning of opposites and that should have been know to all parties. ACA was highly sophisticated and, indeed, not only knew the nature of the referenced assets but chose them. It made a directional bet and was wrong. There is no question they knew there were shorts in the deal. The same is true of the Germans who were long-time players in real estate. To say you relied on the opinion of rating agencies in a transaction this complex is to say you are a fool. I don't know of the involvement of anyone else and therefore can't comment.
The fault I think is one of commission. I think it is disgraceful that a totally useless exercise like this would be conducted by a firm of the size, the market position and the prestige of GS. The price to be paid is not that of a politically motivated SEC but the price they are paying as I write this. The market exacts a heavy price. I really don't think--indeed, I hope--that things will ever be the same for Goldman Sachs.
Thank you Carter, I appreciate your attention and interest
Monday, April 19, 2010
PAS DE DEUX
Front page, column 8, above the fold. That's where the Times put the Goldman story. If you get the SEC complaint you might note it reads exactly like a Times news story; it's a real grabber. For any of you who dropped off the turnip truck passing through town, here's a reality check: this is a great co-ordinated operation between the administration, the Sec and their favorite news organization. As we speculated on Friday this is all about the legislation before congress...and if you really want to be cynical, about the greatest created opportunity for the Trial Lawyers Association since the asbestos scam. Just my opinion.
But as we also said, Goldman, as our Brit fiends would put it is too clever by half, too arrogant by a factor of 10, too unloved by a factor of 100%, too scummy by infinity but probably, in the end, innocent as well.
I don't for a minute buy the deal that senior management was unaware of the goings-on until the very end if at all. I would assume that a barrel-full of lawyers went over this structure with a fine tooth comb and the proposed method of distribution as well. Nothing happens at Goldman by accident. Nada. They knew exactly what was going on at all levels of the organization. It's really slimy in my mind, but for the life of me as much as I hate it I can't say that what they did was outright wrong or even outside the practice of the street tho granted, I have been away from it for a while now.
As for the buyers, what in the hell were you doing in your spare time? To invest heavily in an asset such as this which by it's very nature will attract guys on the other side of the trade and then claim you were duped is beyond belief. I have no sympathy for them. And yet, let me let you in on a secret: on the Street, money is the most important thing, but there is two kinds of money. There is smart money and there is dumb money. If you are on the sell side and if you are any good at your job you know exactly where the dumb money hangs out. For structures such as this, you're lookin' for dumb money. It was obviously found. Remember, there's nothing wrong about a client making an honest mistake ON HIS OWN and dumb money will often make an honest mistake.
It would be a shame if this adventure were to be successfully used as a political hatchet to enact legislation that could and should be improved upon through open debate and compromise. But The Leader and his mob are very good at street tactics. The shrill sounds from the political left are rising. Goldman has handed them winning strategy on a sliver platter. Makes you wonder; maybe these guys aren't so smart after all.
Off to see the grandkids. Back week-end.
But as we also said, Goldman, as our Brit fiends would put it is too clever by half, too arrogant by a factor of 10, too unloved by a factor of 100%, too scummy by infinity but probably, in the end, innocent as well.
I don't for a minute buy the deal that senior management was unaware of the goings-on until the very end if at all. I would assume that a barrel-full of lawyers went over this structure with a fine tooth comb and the proposed method of distribution as well. Nothing happens at Goldman by accident. Nada. They knew exactly what was going on at all levels of the organization. It's really slimy in my mind, but for the life of me as much as I hate it I can't say that what they did was outright wrong or even outside the practice of the street tho granted, I have been away from it for a while now.
As for the buyers, what in the hell were you doing in your spare time? To invest heavily in an asset such as this which by it's very nature will attract guys on the other side of the trade and then claim you were duped is beyond belief. I have no sympathy for them. And yet, let me let you in on a secret: on the Street, money is the most important thing, but there is two kinds of money. There is smart money and there is dumb money. If you are on the sell side and if you are any good at your job you know exactly where the dumb money hangs out. For structures such as this, you're lookin' for dumb money. It was obviously found. Remember, there's nothing wrong about a client making an honest mistake ON HIS OWN and dumb money will often make an honest mistake.
It would be a shame if this adventure were to be successfully used as a political hatchet to enact legislation that could and should be improved upon through open debate and compromise. But The Leader and his mob are very good at street tactics. The shrill sounds from the political left are rising. Goldman has handed them winning strategy on a sliver platter. Makes you wonder; maybe these guys aren't so smart after all.
Off to see the grandkids. Back week-end.
Monday, March 8, 2010
WHERE ANGELS FEAR....
to tread. There were similar stories today in both the New York Times and the Wall Street Journal regarding the discussions/disagreements within the Fed as to the institution's supervisory role. The upshot was that there are a lot of people inside the place that feel it wasn't good enough in the past and it's not good enough today. Further, the role of the regional institutions within the system is under active discussion as is direction from Washington.
It's an interesting story and one I must confess to which I haven't paid too much attention primarily because I have this view that unless you are deep within an institution it's almost impossible to get a true read on situations like this. I have other biases as well. At the conclusion of the WSJ story it was revealed that DUSTOFF and his guy Dan Tarullo, a recent appointed board member and ex-Clintonista, ex-Law Professor (about whom I know zilch) have tapped Fed economist Patrick Parkinson to run bank supervision in D.C.
Now I know things have changed quite a bit since I grew old but I can't help but wonder if appointing an economist to run supervision is a step forward or a stroll over a cliff. I can't help but recall to mind FDR's famous comment on why he appointed Joe Kennedy as the head of the newly-created SEC: "It takes a crook to catch a crook." I'm sure Mr. parkinson is a brilliant guy and I'm certain in the manner of calculating capital adequacy he is probably without peer but my question is has he ever been in the business because (see above) if you're not in it and worse, if you never have been you may really have a problem separating the good guys from the bad guy; they don't wear white or black hats any more. But I just don't know enough about it, so I'm going to try to find out. Read the articles, sick with me and I'll be back tomorrow.
It's an interesting story and one I must confess to which I haven't paid too much attention primarily because I have this view that unless you are deep within an institution it's almost impossible to get a true read on situations like this. I have other biases as well. At the conclusion of the WSJ story it was revealed that DUSTOFF and his guy Dan Tarullo, a recent appointed board member and ex-Clintonista, ex-Law Professor (about whom I know zilch) have tapped Fed economist Patrick Parkinson to run bank supervision in D.C.
Now I know things have changed quite a bit since I grew old but I can't help but wonder if appointing an economist to run supervision is a step forward or a stroll over a cliff. I can't help but recall to mind FDR's famous comment on why he appointed Joe Kennedy as the head of the newly-created SEC: "It takes a crook to catch a crook." I'm sure Mr. parkinson is a brilliant guy and I'm certain in the manner of calculating capital adequacy he is probably without peer but my question is has he ever been in the business because (see above) if you're not in it and worse, if you never have been you may really have a problem separating the good guys from the bad guy; they don't wear white or black hats any more. But I just don't know enough about it, so I'm going to try to find out. Read the articles, sick with me and I'll be back tomorrow.
Thursday, February 18, 2010
ABOVE THE FOLD
The positioning of a news story is usually a good indicator as to its importance. With respect to the New York Time"Above The Fold" always indicated that the story was important(the paper being folded in the middle for newsstand presentation). less known is what the positioning as to the right or left above the fold means with everybody knowing that right column, above the fold is reserved for THE story of the day...but the left? Ah, that's an important story but over the years regular readers have figured out that the Times didn't have to work quite as hard for that one. That position is usual a spot for an important leak; a tale the pols want run up the flag pole to see who salutes. So it was today.
The Times released a story indicating that the administration had reached the decision that it would be the Treasury that would be the overseer of systemic risk...or something like that. What was suggested that the Secretary of the Treasury would chair the effort with the Chairman of the Federal Reserve serving as vice-chair. What that means of course is anybody's guess but that's about as far as the discussion got. Interesting enough, what was NOT said was that there was broad, general agreement to this policy decision either within the administration or within Congress...or at least that's the way I read it.
Now we all know that Helicopter Ben had pretty much caved on everything to insure his re-confirmation but what is less widely know is that there has been a hell of a push-back not only in the D.C. Fed but in the reserve banks as well. And rightfully so I might add. On top of this it is the systemic risk issue that has gotten everyone's knickers in a twist around the world (although no one has a better handle on what they are talking about than we do) but that is coupled with a concern that Uncle hasn't really gotten its act together especially on the political level. Nobody wants to deal with this Treasury which is generally considered to be disorganized and in some areas quite inept. On a issue such as this where a full and in depth understanding of all things international, not the least of which is the payments system, few consider the Treasury to be the peer of the Fed. But as is becoming more and more clear, everything in this administration is political and to a great extent everything is being run by the policy boys who in matters such as this are precisely the people you DON'T want running things.
I've said before that I haven't a clue what is a systemic risk institution except that it undoubtably one that is BIG in size and BIG in functions. It is one that is too big to fail but as Volker the Great has put it if you're too big to fail, you're too big. Consequently, at some point somebody is going to come to reach the startling conclusion that everybody is talking in circles and the answer is not in the appointment of some mess of poor schnooks who are given all the responsibility but none of the authority to prevent what is probably unpreventable by those not endowed with the foresight and wisdom of the Deity and to focus more clearly on governance of the institutions themselves for as much as we may hate to admit it I suspect we have reached to point--for a variety of reasons--where regulation and regulatory infrastructure have reached their limits. More on that in the days to come.
The Times released a story indicating that the administration had reached the decision that it would be the Treasury that would be the overseer of systemic risk...or something like that. What was suggested that the Secretary of the Treasury would chair the effort with the Chairman of the Federal Reserve serving as vice-chair. What that means of course is anybody's guess but that's about as far as the discussion got. Interesting enough, what was NOT said was that there was broad, general agreement to this policy decision either within the administration or within Congress...or at least that's the way I read it.
Now we all know that Helicopter Ben had pretty much caved on everything to insure his re-confirmation but what is less widely know is that there has been a hell of a push-back not only in the D.C. Fed but in the reserve banks as well. And rightfully so I might add. On top of this it is the systemic risk issue that has gotten everyone's knickers in a twist around the world (although no one has a better handle on what they are talking about than we do) but that is coupled with a concern that Uncle hasn't really gotten its act together especially on the political level. Nobody wants to deal with this Treasury which is generally considered to be disorganized and in some areas quite inept. On a issue such as this where a full and in depth understanding of all things international, not the least of which is the payments system, few consider the Treasury to be the peer of the Fed. But as is becoming more and more clear, everything in this administration is political and to a great extent everything is being run by the policy boys who in matters such as this are precisely the people you DON'T want running things.
I've said before that I haven't a clue what is a systemic risk institution except that it undoubtably one that is BIG in size and BIG in functions. It is one that is too big to fail but as Volker the Great has put it if you're too big to fail, you're too big. Consequently, at some point somebody is going to come to reach the startling conclusion that everybody is talking in circles and the answer is not in the appointment of some mess of poor schnooks who are given all the responsibility but none of the authority to prevent what is probably unpreventable by those not endowed with the foresight and wisdom of the Deity and to focus more clearly on governance of the institutions themselves for as much as we may hate to admit it I suspect we have reached to point--for a variety of reasons--where regulation and regulatory infrastructure have reached their limits. More on that in the days to come.
Monday, February 15, 2010
DON'T BLAME ME!
Blame George Bush. Hell, I don't know why the Euros didn't do a deal over the weekend with the Greeks. Because nobody wants to? Could be. As Paul commented, "It's Greece, who cares?" Aside from the bond holders I suspect that there are a few hundred members of the European Parliament in Brussels earning a couple of hundred thousand Euros a year for doing sweet fanny adam care even though in the best of weather Brussels is a God-awful town even when the trains don't run into one another but in the winter it's unlivable. Good Grub, though. Sensational if the truth be known but only if you like butter and cream like me.
I suspect it just hasn't gotten bad enough yet. It will, rest assured. Carter asked, "Who's next?" and to be honest, I hadn't thought about it. I guess the felling over there is let's not have a next one, let's try to end it with the Greeks but to an extent it's sort of like putting the toothpaste back in the tube; the problem has been exposed and a lot depends upon how much international co-operation is present. One thing you might keep a eye on, however, is how this mess over there is affecting things over here. Last Wednesday, we had a perfectly stinking auction of $16billion worth of long bonds Primary dealers were forced to take down almost 50% of the issue. Now I recognize with the economic conditions being what they are all around the world, 30 year bonds should not be expected to be the smell of the week but this auction was bad with a capital B. I keep going back to the point I've been trying to make over and over; this business is ll about trust and perception. It really doesn't make a difference what the reality of, say, Spain's finances might be. If the perception is Spain's finances stink, they stink. In today's world, Greece affects Spain, Spain affects Portugal, Portugal affects God knows who and they all affect us...at some point, even if it means nothing more than paying up for a 30 year issue.
As to this little Euro mis-understanding, there was a tiny miracle today in the New York Times. Paul Krugman actually got it right and wrote something that actually made sense. Seems as though he's cottoned on to the fact that when your fiscal policy originates in Athens but your monetary policy is set about 1000 miles away you may have a problem. He also thinks that political union may not be a bad thing to go along with monetary union but that might be hard to come by. Way to go Paulie, Bay-bee! Some of us had that germ of an idea some 20 years ago but welcome to the party. Wonder way he's saying this now when his guy is in deep do-do? Maybe I'm too suspicious, oh well. Anyway, Carter, my loyal reader, the real answer to your question may not be Spain, Italy, Portugal or any of the usual suspects. The real answer may be the EU itself, as impossible or unreal as that may seem. It's a good story. We'll be watching it this week.
I suspect it just hasn't gotten bad enough yet. It will, rest assured. Carter asked, "Who's next?" and to be honest, I hadn't thought about it. I guess the felling over there is let's not have a next one, let's try to end it with the Greeks but to an extent it's sort of like putting the toothpaste back in the tube; the problem has been exposed and a lot depends upon how much international co-operation is present. One thing you might keep a eye on, however, is how this mess over there is affecting things over here. Last Wednesday, we had a perfectly stinking auction of $16billion worth of long bonds Primary dealers were forced to take down almost 50% of the issue. Now I recognize with the economic conditions being what they are all around the world, 30 year bonds should not be expected to be the smell of the week but this auction was bad with a capital B. I keep going back to the point I've been trying to make over and over; this business is ll about trust and perception. It really doesn't make a difference what the reality of, say, Spain's finances might be. If the perception is Spain's finances stink, they stink. In today's world, Greece affects Spain, Spain affects Portugal, Portugal affects God knows who and they all affect us...at some point, even if it means nothing more than paying up for a 30 year issue.
As to this little Euro mis-understanding, there was a tiny miracle today in the New York Times. Paul Krugman actually got it right and wrote something that actually made sense. Seems as though he's cottoned on to the fact that when your fiscal policy originates in Athens but your monetary policy is set about 1000 miles away you may have a problem. He also thinks that political union may not be a bad thing to go along with monetary union but that might be hard to come by. Way to go Paulie, Bay-bee! Some of us had that germ of an idea some 20 years ago but welcome to the party. Wonder way he's saying this now when his guy is in deep do-do? Maybe I'm too suspicious, oh well. Anyway, Carter, my loyal reader, the real answer to your question may not be Spain, Italy, Portugal or any of the usual suspects. The real answer may be the EU itself, as impossible or unreal as that may seem. It's a good story. We'll be watching it this week.
Monday, May 4, 2009
A GOOD DAY
Awakened to a perfectly lovely spring morning and what with the perfectly timed rain we've been having I thought I would test my luck. Walked around the property and across the street at the neighbor's and came back with about half a pound of Morels. Turned them into a wonderful omelette, brewed a pot of coffee and sat back to read the newspapers. It is highly rewarding to know that you have just finished a breakfast that probably would have cost at least $50.00 in all of the power capitals of the world and probably more than that in some of them. Will anyone really miss Balducci's? Finished the local Blat and started on the N Y Times. I like to HOLD a newspaper when I read it, not scroll down on a keyboard and this morning even the Times felt good.
We had a few kids from the local U over the other night talking about current events. There's a lot that's not so hot about growing old but one good thing is that age gives one perspective which I was dolling out in copious form the other evening. If you have been following this blog you may have noticed that I have been comparing the events of the past few months to a period with which I am quite familiar, the 1970ies. Perspective. One also, over the course of a lifetime is able to experience and evaluate a large number of people and, in relation to one's own views and in the course of history, grade them. More Perspective. Allen Meltzer, presently resident at Carnegie Mellon is one individual I have followed over the years with interest and appreciation. His Op Ed piece in the Times today entitled, "Inflation Nation" is an absolute must read. He chronicles the seventies, citing the mistakes that were made and puts them in perfect perspective with the actions that we have sen over the past few months. I could have written it myself. He also points out that when the inevitable result of the inflation-producing actions must be faced and reversed, the consequences are often dire; just as they were in the seventies. He also points out that in those days we had a strong, independent Chairman running the Fed in the person of Paul Volker who was granted his independence by two successive administrations of vastly different political persuasion and used his independence to achieve the maximum result. It was ugly both here and abroad for the unintended consequence of Volker's assault on inflation was the destruction of a large number of over-leveraged economies leading to the Latin American debt crisis and what is known south of the border as, "The Lost Decade." Paul Volker is still with us and though still part of this administration he has been marginalized. We are the vastly over-leveraged economy depending upon the continuing faith of those, many of whom with which we have little in common either morally or politically, to support our efforts. Indeed, in some cases these states can be considered our competitors both politically and economically. There is no perspective of age, only the rashness of relative youth and the fervor of the True Believer driving us along this path. It is a fearful time, yet if one cam wake up to Alan Meltzer echoing what one has been saying for a few months, it is a Good Day. Free Morels aren't a bad thing either.
We'll try to get back to the banking business tomorrow.
We had a few kids from the local U over the other night talking about current events. There's a lot that's not so hot about growing old but one good thing is that age gives one perspective which I was dolling out in copious form the other evening. If you have been following this blog you may have noticed that I have been comparing the events of the past few months to a period with which I am quite familiar, the 1970ies. Perspective. One also, over the course of a lifetime is able to experience and evaluate a large number of people and, in relation to one's own views and in the course of history, grade them. More Perspective. Allen Meltzer, presently resident at Carnegie Mellon is one individual I have followed over the years with interest and appreciation. His Op Ed piece in the Times today entitled, "Inflation Nation" is an absolute must read. He chronicles the seventies, citing the mistakes that were made and puts them in perfect perspective with the actions that we have sen over the past few months. I could have written it myself. He also points out that when the inevitable result of the inflation-producing actions must be faced and reversed, the consequences are often dire; just as they were in the seventies. He also points out that in those days we had a strong, independent Chairman running the Fed in the person of Paul Volker who was granted his independence by two successive administrations of vastly different political persuasion and used his independence to achieve the maximum result. It was ugly both here and abroad for the unintended consequence of Volker's assault on inflation was the destruction of a large number of over-leveraged economies leading to the Latin American debt crisis and what is known south of the border as, "The Lost Decade." Paul Volker is still with us and though still part of this administration he has been marginalized. We are the vastly over-leveraged economy depending upon the continuing faith of those, many of whom with which we have little in common either morally or politically, to support our efforts. Indeed, in some cases these states can be considered our competitors both politically and economically. There is no perspective of age, only the rashness of relative youth and the fervor of the True Believer driving us along this path. It is a fearful time, yet if one cam wake up to Alan Meltzer echoing what one has been saying for a few months, it is a Good Day. Free Morels aren't a bad thing either.
We'll try to get back to the banking business tomorrow.
Monday, April 27, 2009
WITH FRIENDS LIKE THIS...
Fascinating story in the Times today, front page, left lead, above the fold on Our Hero and his connections on Wall Street. Like much of the top stories of the past few years in what used to be a great newspaper it is long on hard speculation and gossip and soft on real facts. Anyway, to boil down the 10 columns, Our Hero has been, and remains awfully close to the people he was trying to regulate to the point that he was once offered the job of the successor to Sandy Weil as the CEO of Citigroup while sitting as the President of the New York Fed.
There are the standard clips to Provide "balance;" testimonials to the fact that Mr. Geithner would never place personal relationships or the thought of personal reward before his duty as a public servant. Nor is there any real hint as to what might have motivated Mr. Geithner to take some of the positions he has taken over the past five years from which he might have personally benefitted. On the contrary, at about 400 Large a year, Our Hero seems to have severely underpaid given the company with whom he broke bread.
But this wasn't a puff piece, far from it. Nor was it intended to inspire confidence in the director of the finances of the western world. This was a hit job...an elegant hit job but a hit job none-the-less. So the question is, as my friend Guido would put it, who let out the contract on Our Hero? An even more interesting question would be why, and the final piece would be why the Times Mob would allow themselves to be used as the contractor and who is the button man in the organization?
The Times and Democratic politics are pretty much joined at the hip. Disagreements with the policies of this Administration are hardly drawn in bright, vivid colors but in shades and degrees of gray. Then why, one may ask, would they choose to place the supposed architect of the Administration in such a tenuous position as to suggest...nay...imply that he might be severely conflicted as a result of his relationships and past actions? The Times has for quite some time been suspect as the harbinger of policy shifts and pronouncements for their political favorites, not only through their editorial pages but through their news reporting as well (these days, admittedly, the distinction may be without a difference). Is this a warning to Our Hero that his actions are being watched verrrry carefully and a scenario being created for his ultimate demise, or is it just The Times sending a message on it's own that you are not doing what WE want you to do and you better start listening to us and in particular our op ed page guys and girls a lot more closely. Either way, the ante in this game has just gone up for Our Hero in a most unpleasant way. I must admit, however, that the reporting delivered more tid bits from inside the New York Fed than have been revealed in years. I'd certainly like to be in a couple of senior officers' luncheons over the next few days.
In a related financial event today (understatement) the new CEO of GM announced the long-awaited restructuring plan that ills Pontiac as a brand and, if agreed, turns over ownership of the company to the UAW and the government. The equity guys and the bond holders get it in the neck but as Maria Caruso Cabrera said on CNBC today that EVERYONE knew the union would come out in first place, so shed no tears gang, the fix was in. Smart lady. Now it is going to be interesting to see if the bond holder fold and take at best 10 cents on the dollar for a company who's future chance of success is somewhere between unknown and who cares. Actually, it will be important to witness how brutal the Administration plans to be in forcing this "solution" down the throats of the Bond guys in relation to their possible tactics with the banks. Bets anyone.
Sorry, it's a slow day when one has to get John LeCarre-like and talk about non-deals, but that's life in the mid west.
There are the standard clips to Provide "balance;" testimonials to the fact that Mr. Geithner would never place personal relationships or the thought of personal reward before his duty as a public servant. Nor is there any real hint as to what might have motivated Mr. Geithner to take some of the positions he has taken over the past five years from which he might have personally benefitted. On the contrary, at about 400 Large a year, Our Hero seems to have severely underpaid given the company with whom he broke bread.
But this wasn't a puff piece, far from it. Nor was it intended to inspire confidence in the director of the finances of the western world. This was a hit job...an elegant hit job but a hit job none-the-less. So the question is, as my friend Guido would put it, who let out the contract on Our Hero? An even more interesting question would be why, and the final piece would be why the Times Mob would allow themselves to be used as the contractor and who is the button man in the organization?
The Times and Democratic politics are pretty much joined at the hip. Disagreements with the policies of this Administration are hardly drawn in bright, vivid colors but in shades and degrees of gray. Then why, one may ask, would they choose to place the supposed architect of the Administration in such a tenuous position as to suggest...nay...imply that he might be severely conflicted as a result of his relationships and past actions? The Times has for quite some time been suspect as the harbinger of policy shifts and pronouncements for their political favorites, not only through their editorial pages but through their news reporting as well (these days, admittedly, the distinction may be without a difference). Is this a warning to Our Hero that his actions are being watched verrrry carefully and a scenario being created for his ultimate demise, or is it just The Times sending a message on it's own that you are not doing what WE want you to do and you better start listening to us and in particular our op ed page guys and girls a lot more closely. Either way, the ante in this game has just gone up for Our Hero in a most unpleasant way. I must admit, however, that the reporting delivered more tid bits from inside the New York Fed than have been revealed in years. I'd certainly like to be in a couple of senior officers' luncheons over the next few days.
In a related financial event today (understatement) the new CEO of GM announced the long-awaited restructuring plan that ills Pontiac as a brand and, if agreed, turns over ownership of the company to the UAW and the government. The equity guys and the bond holders get it in the neck but as Maria Caruso Cabrera said on CNBC today that EVERYONE knew the union would come out in first place, so shed no tears gang, the fix was in. Smart lady. Now it is going to be interesting to see if the bond holder fold and take at best 10 cents on the dollar for a company who's future chance of success is somewhere between unknown and who cares. Actually, it will be important to witness how brutal the Administration plans to be in forcing this "solution" down the throats of the Bond guys in relation to their possible tactics with the banks. Bets anyone.
Sorry, it's a slow day when one has to get John LeCarre-like and talk about non-deals, but that's life in the mid west.
Wednesday, April 1, 2009
I'D RATHER BE LUCKY
Having promised to do the really hard part which is to key the discussion on Our Hero's financial stabilization plan, I got side-tracked in talking about the Detroit debacle when low and behold, here comes not only the Wall Street Journal AND the New York Times to help me out in the form of a leading article and a learned piece from a Nobel laureate. Patience is indeed a virtue and good things come to he who waits. The Times is usually easy to dismiss so let us begin with Prof. Joseph Stiglitz.
I don't get it about these Nobel guys. How the dickens can you be that smart in one area and be so woefully uninformed is seemingly all others, especially when your success and fame has been a result of painstaking research. Yet, both Stiglitz and the new rock star of the op-ed page, Paul Krugman. I think they get in each other' head. Today, Stiglitz, parroting Krugman proclaims that nationalization of banks would be preferable to Our Hero's plan because the FDIC has taken control of failing banks before. "It has even nationalized large institutions like Continental Illinois...and Washington Mutual." Memo to Messrs. Stiglitz and Krugman: you haven't a clue. The FDIC has NO BOD EE to handle anything like the institutions in question. Dirty little secret: when the FDIC wants to get into a bank THEY HIRE AN OUTSIDE FIRM TO DO IT FOR THEM. THEY OUTSOURCE THEIR WORK JUST LIKE THE MILITARY WITH BLACKWATER. Got it guys? Con Ill and WaMu were a walk in the park...especially Con Ill. Con Ill failed because, limited by Illinois banking laws they were highly dependent on short term funding and failed when they lost their liquidity as a result of correspondent banks (many Japanese) pulling their lines. Lost liquidity. Now where have we heard that before? Restore the liquidity, allow some time and bingo, a new bank!
Aside from his preferred solution, Prof Stiglitz is not a bad read in as much it points out quite clearly that one of the terrible features of Our Hero's plan is that if it doesn't work the taxpayer foots almost all the bill. Then again, in for a Penny in for a Pound is what I say. Then again, there are a lot of Pounds...
The Journal has an extremely interesting take on the evolving tale. As I understand the plan in its present form, the Treasury is proposing to assist in the creation of a pool of "toxic assets" selected by participating institutions to be made available for sale by way of auction to selected "fund managers" chosen by Treasury under a set of guidelines proposed by Treasury. These guidelines go to the size and experience of the managers based on the amount of similar assets in their portfolios. From the get-go this is certain to severely limit the number of firms who could qualify as managers. Treasury, in what it refers to as a "partnership" with the managers would share in an equal amount of "equity" with the managers and make available debt geared to approximately 7x the equity to the managers to enable them to purchase the assets from the banks. This debt would be of a non-recourse basis: i.e. the Treasury--you Mr. & Mrs. taxpayer--will get it repaid ONLY from the assets purchased; the manager is not on the hook in any way save for its equity contribution. It appears that Our Hero has read somewhere that Wall Street is governed by fear and greed and this structure is designed in his mind to appeal to the greed part. Big pay-off if things go right for little risk. He is probably correct. From the standpoint of the participating institutions, if all this works they get this bad stuff off their books, are able to recapitalize and head off into the sunlight ready to make available massive amounts of new credit which will reinvigorate the economy, which will...well, you get the idea. A triumph of the market.
Of course, there is always some smart-ass that starts asking questions. If the object is to create a market for these thing as Treasury so states, why restrict the pool of potential purchasers to a hand-picked few, asks the WSJ? Wouldn't one wish to have as many potential purchasers as possible out there to obtain as much competition as possible on the bid side? I fair question I think. Oh, isn't this Washington and doesn't politics rule Washington and if so wouldn't politics play a (big) role in the choice of a limited number of managers--or to put it another was, it's the transparency thing. If you answered that question in the negative, stop reading. You're hopeless. Another thing also comes to mind: How are these assets to be priced and who gets involved? One assumes that we are in the midst of the famous stress test after which the Treasury and the Fed will know precisely what these institutions have and the value of the same (the Fed is added because you always need some poor slob to blame if things go wrong). And to add to the list of sure things, the Cubs will win the World Series.
You see, the institutions have already had their brains beaten in by being forced to mark these assets down with the resulting loss in capital. Having taken the medicine, if there is a chance that they might recoup some of those losses as the assets mature and pay off they are going to be loath to surrender the upside. Consequently, their offer price might result in a considerable spread from the managers' bid...remember, these guys are not the Little Sisters of the Poor. What happens? Well, in a real market, one side would say, "Nothing done," and move on. But is there a real market? I think not. What troubles me and I am sure more than a few of the participating banks is that this will be a government mandated and managed transaction. To work, there must be a bid and I can easily see The Leader with his crack team beside him announcing to the American People, "It is not our intention to run the banks, but bold new steps must be taken and in that spirit, Messrs Jones, Smith and Brown have resigned as CEOs and I have asked My Secretary of the Treasury..." There will be an offer that the managers can lift gang, bank on it. More on this tomorrow and oh, hey, isn't this G20 thing a kick!
I don't get it about these Nobel guys. How the dickens can you be that smart in one area and be so woefully uninformed is seemingly all others, especially when your success and fame has been a result of painstaking research. Yet, both Stiglitz and the new rock star of the op-ed page, Paul Krugman. I think they get in each other' head. Today, Stiglitz, parroting Krugman proclaims that nationalization of banks would be preferable to Our Hero's plan because the FDIC has taken control of failing banks before. "It has even nationalized large institutions like Continental Illinois...and Washington Mutual." Memo to Messrs. Stiglitz and Krugman: you haven't a clue. The FDIC has NO BOD EE to handle anything like the institutions in question. Dirty little secret: when the FDIC wants to get into a bank THEY HIRE AN OUTSIDE FIRM TO DO IT FOR THEM. THEY OUTSOURCE THEIR WORK JUST LIKE THE MILITARY WITH BLACKWATER. Got it guys? Con Ill and WaMu were a walk in the park...especially Con Ill. Con Ill failed because, limited by Illinois banking laws they were highly dependent on short term funding and failed when they lost their liquidity as a result of correspondent banks (many Japanese) pulling their lines. Lost liquidity. Now where have we heard that before? Restore the liquidity, allow some time and bingo, a new bank!
Aside from his preferred solution, Prof Stiglitz is not a bad read in as much it points out quite clearly that one of the terrible features of Our Hero's plan is that if it doesn't work the taxpayer foots almost all the bill. Then again, in for a Penny in for a Pound is what I say. Then again, there are a lot of Pounds...
The Journal has an extremely interesting take on the evolving tale. As I understand the plan in its present form, the Treasury is proposing to assist in the creation of a pool of "toxic assets" selected by participating institutions to be made available for sale by way of auction to selected "fund managers" chosen by Treasury under a set of guidelines proposed by Treasury. These guidelines go to the size and experience of the managers based on the amount of similar assets in their portfolios. From the get-go this is certain to severely limit the number of firms who could qualify as managers. Treasury, in what it refers to as a "partnership" with the managers would share in an equal amount of "equity" with the managers and make available debt geared to approximately 7x the equity to the managers to enable them to purchase the assets from the banks. This debt would be of a non-recourse basis: i.e. the Treasury--you Mr. & Mrs. taxpayer--will get it repaid ONLY from the assets purchased; the manager is not on the hook in any way save for its equity contribution. It appears that Our Hero has read somewhere that Wall Street is governed by fear and greed and this structure is designed in his mind to appeal to the greed part. Big pay-off if things go right for little risk. He is probably correct. From the standpoint of the participating institutions, if all this works they get this bad stuff off their books, are able to recapitalize and head off into the sunlight ready to make available massive amounts of new credit which will reinvigorate the economy, which will...well, you get the idea. A triumph of the market.
Of course, there is always some smart-ass that starts asking questions. If the object is to create a market for these thing as Treasury so states, why restrict the pool of potential purchasers to a hand-picked few, asks the WSJ? Wouldn't one wish to have as many potential purchasers as possible out there to obtain as much competition as possible on the bid side? I fair question I think. Oh, isn't this Washington and doesn't politics rule Washington and if so wouldn't politics play a (big) role in the choice of a limited number of managers--or to put it another was, it's the transparency thing. If you answered that question in the negative, stop reading. You're hopeless. Another thing also comes to mind: How are these assets to be priced and who gets involved? One assumes that we are in the midst of the famous stress test after which the Treasury and the Fed will know precisely what these institutions have and the value of the same (the Fed is added because you always need some poor slob to blame if things go wrong). And to add to the list of sure things, the Cubs will win the World Series.
You see, the institutions have already had their brains beaten in by being forced to mark these assets down with the resulting loss in capital. Having taken the medicine, if there is a chance that they might recoup some of those losses as the assets mature and pay off they are going to be loath to surrender the upside. Consequently, their offer price might result in a considerable spread from the managers' bid...remember, these guys are not the Little Sisters of the Poor. What happens? Well, in a real market, one side would say, "Nothing done," and move on. But is there a real market? I think not. What troubles me and I am sure more than a few of the participating banks is that this will be a government mandated and managed transaction. To work, there must be a bid and I can easily see The Leader with his crack team beside him announcing to the American People, "It is not our intention to run the banks, but bold new steps must be taken and in that spirit, Messrs Jones, Smith and Brown have resigned as CEOs and I have asked My Secretary of the Treasury..." There will be an offer that the managers can lift gang, bank on it. More on this tomorrow and oh, hey, isn't this G20 thing a kick!
Friday, March 13, 2009
GRAY SPOTS IN THE GRAY LADY
One of my loyal readers wrote this morning: "I think I agree with you but I'm not sure I understand all the issues you raise well enough to say I'm sure."
Honesty. Not much of that going around but of course I was grateful for the support. I must say it did occur to me to question why the writer would be reading this blog if he (or she) didn't have the facts or knowledge upon which to reach considered decisions. Then I read Floyd Norris in the New York Times this morning and I asked myself, "If you don't have the facts or the knowledge, why are you writing a column?
Mr. Norris, who is the chief financial writer for the Times, weighed in this morning on the subject of mark-to-market accounting with a somewhat passionate defense of the practice and a sarcastic assault on all who would argue that it is a huge hinderance to a solution to the problem before us. He seems to have been smitten with the idea being floated about Washington of the government financing those who would be a buyer of so-called toxic assets from financial institutions which would, in theory, unlock a major obstacle in the way of the increased extension of credit. Mr. Norris seems to believe that the bankers are standing in the way of this concept because in their eyes, "Cheap volatile assets with a huge upside are precisely the kinds of optionlike investments that clever zombie managers are looking for. If they soar, the banks' stock may be worth something..." he writes, quoting Prof. Edward Kane of Boston College. Well, we certainly can't allow THAT to happen, I guess. But, "if we knew which securities each bank owned and where it was valuing them, we...could reach our own conclusions as to values." Wow! Isn't that easy! "The final step would be to get the market for such securities functioning," writes Mr Norris. Damn! why didn't I think of that?!
The birth of this idea having been reported to taken place in the administration, I can just see Larry Summers, a brilliant academic economist proclaiming, "Assume a market..." and things falling right into line. Mr. Norris feels that markets are created in this manner for as he states in his piece as soon as we have accomplished the forgoing all we have to do is find the buyers.
If you wish to follow FASB 157 Mr. Norris it's the market that sets the price with bids an offers being freely made and accepted or rejected , not a forced pricing mechanism (by the by, who is the "WE" in your example) and a fire sale enriching a whole class of vulture funds at the expense of bank equity and debt holders. FASB 157 works only when there is a functioning market...the eccomist's "Poof, let's make a market," doesn't work. We do not have a mechanism by which these assets can be priced in any objective manner, and to do otherwise is to bare the risk of fraud and outrageous political influence, for the mechanism to obtain the pricing to fulfill the prerequisites of any such scheme will be a political one. I would also like to point out Mr. Norris that your claim that financial institutions were already subject to market-to-market treatment is not entirely correct. Certain assets were indeed subject to such treatment but vast categories of other assets were not. For years, a bank's loan portfolio was not subject to mark-to-market treatment; unless impaired, assets were held at par until maturity and not subject to a market test until sold or otherwise disposed. The movement towards securitization (now THERE'S a subject) certainly enhanced the argument for different accounting treatments but one can argue which came first; securitization or the movement to securitize as a result of mark-to-market. This is the General Patton theory of banking: "The object is not to die for your country but to make the other poor dumb son-of-a-bitch die for his!" Don't hold a loan whose value is not under your control. Securitize and sell it! Not your problem any more. Was the requirement to market-to-market an advance, providing greater transparency or something quite different? Let's think about it over the weekend. But for now, someone had best make it go away. Next week, we'll talk solutions
Final comment. The name of Rogin Cohen was floated out last week as possibly the new Dep Sec. of Treasury.. Mr. Cohen, the managing partner of Sullivan & Cromwell had represented the N.Y. Clearing House since the sun first rose in the East and individually, at one time or another, every bank of any size in the world. He is a brilliant lawyer and appeared to me to have been conflicted as all get-out. He was also dead set against any attempt to nationalize any bank. Why he would even consider working for this mob is beyond me. But from the administration's standpoint they would do well to take the advice of the ESPN crew...JUST SHUT UP!
Honesty. Not much of that going around but of course I was grateful for the support. I must say it did occur to me to question why the writer would be reading this blog if he (or she) didn't have the facts or knowledge upon which to reach considered decisions. Then I read Floyd Norris in the New York Times this morning and I asked myself, "If you don't have the facts or the knowledge, why are you writing a column?
Mr. Norris, who is the chief financial writer for the Times, weighed in this morning on the subject of mark-to-market accounting with a somewhat passionate defense of the practice and a sarcastic assault on all who would argue that it is a huge hinderance to a solution to the problem before us. He seems to have been smitten with the idea being floated about Washington of the government financing those who would be a buyer of so-called toxic assets from financial institutions which would, in theory, unlock a major obstacle in the way of the increased extension of credit. Mr. Norris seems to believe that the bankers are standing in the way of this concept because in their eyes, "Cheap volatile assets with a huge upside are precisely the kinds of optionlike investments that clever zombie managers are looking for. If they soar, the banks' stock may be worth something..." he writes, quoting Prof. Edward Kane of Boston College. Well, we certainly can't allow THAT to happen, I guess. But, "if we knew which securities each bank owned and where it was valuing them, we...could reach our own conclusions as to values." Wow! Isn't that easy! "The final step would be to get the market for such securities functioning," writes Mr Norris. Damn! why didn't I think of that?!
The birth of this idea having been reported to taken place in the administration, I can just see Larry Summers, a brilliant academic economist proclaiming, "Assume a market..." and things falling right into line. Mr. Norris feels that markets are created in this manner for as he states in his piece as soon as we have accomplished the forgoing all we have to do is find the buyers.
If you wish to follow FASB 157 Mr. Norris it's the market that sets the price with bids an offers being freely made and accepted or rejected , not a forced pricing mechanism (by the by, who is the "WE" in your example) and a fire sale enriching a whole class of vulture funds at the expense of bank equity and debt holders. FASB 157 works only when there is a functioning market...the eccomist's "Poof, let's make a market," doesn't work. We do not have a mechanism by which these assets can be priced in any objective manner, and to do otherwise is to bare the risk of fraud and outrageous political influence, for the mechanism to obtain the pricing to fulfill the prerequisites of any such scheme will be a political one. I would also like to point out Mr. Norris that your claim that financial institutions were already subject to market-to-market treatment is not entirely correct. Certain assets were indeed subject to such treatment but vast categories of other assets were not. For years, a bank's loan portfolio was not subject to mark-to-market treatment; unless impaired, assets were held at par until maturity and not subject to a market test until sold or otherwise disposed. The movement towards securitization (now THERE'S a subject) certainly enhanced the argument for different accounting treatments but one can argue which came first; securitization or the movement to securitize as a result of mark-to-market. This is the General Patton theory of banking: "The object is not to die for your country but to make the other poor dumb son-of-a-bitch die for his!" Don't hold a loan whose value is not under your control. Securitize and sell it! Not your problem any more. Was the requirement to market-to-market an advance, providing greater transparency or something quite different? Let's think about it over the weekend. But for now, someone had best make it go away. Next week, we'll talk solutions
Final comment. The name of Rogin Cohen was floated out last week as possibly the new Dep Sec. of Treasury.. Mr. Cohen, the managing partner of Sullivan & Cromwell had represented the N.Y. Clearing House since the sun first rose in the East and individually, at one time or another, every bank of any size in the world. He is a brilliant lawyer and appeared to me to have been conflicted as all get-out. He was also dead set against any attempt to nationalize any bank. Why he would even consider working for this mob is beyond me. But from the administration's standpoint they would do well to take the advice of the ESPN crew...JUST SHUT UP!
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