Archive for September, 2008

September 30th, 2008

Lord Lipsey cries havoc as Ireland guarantees bank deposits

Posted in Money by ed

As the international crisis swells, Ireland is set to simply guarantee all deposits in Irish banks.

Hence money is flooding in from both sides of the pond — setting off an amusing reaction in London as old animosities stir.  From the London Times:

Dublin was accused of making matters worse for non-Irish banks, with corporate treasurers and large savers pulling money out and putting it into the safer haven of Irish banks.

“If this is legal, then I’m a banana,” one disappointed senior British banker said, arguing that the Irish guarantee amounted to unfair state aid.

Lord Lipsey, the chairman of the Financial Services Consumer Panel in the UK, said it was “a national disgrace” that British depositors might be worse compensated than their Irish counterparts in the event of a bank failure.

September 30th, 2008

Minyanville chat:
Feds may can mark-to-market accounting — Better idea:

Posted in Money, These United States by ed

Ed Note:  See comments below to follow this notion through time.  As President Obama takes office the stock markets are again in free fall — and again everybody’s talking about “suspending mark to market” to stop the writedown madness.  

“Suspending” alone is not the answer, and alone would lead to a new and even more anarchic chaos.   Price controls are the other side of the coin.

I.e., yes, we should replace Federal Accounting Statement 157 — the 2007 regulation issued by the Federal Accounting Standards Board requiring assets that never supported secondary market trading to be marked on bank books at (non existent) market prices. 

But instead of allowing individual banks to go back to their own pricing models — as the FASB kinda did on the sly with the issuance of Staff Position 157-3 not long after the bankruptcy of Lehman froze the world — the feds should themselves do the modeling/forecasting.

That is, instead of spending hundreds of billions on Band-Aid bank bailouts, hire several rooms of earnest spreadsheeters and have these folks prescribe the “marks” for wounded segments of the structured finance universe, quarter by quarter, based on actual performance and best guesses about the near term future of the relevant industry (eg US housing, for mortgage bonds).  

All as eblaborated at some length here since August 2007, when it was already clear that otherwise the sudden crisis of confidence in the bankers/rating agency models would burn down Wall Street and the City of London. And Frankfurt. And Singapore, Hong Hong, Shanghai and Tokyo.  And San Franciso. Houston.  Charlotte …

Here’s a colloquoy I had with a fellow at Minyanville today about price controls.

Background: The Dow 30 rallied 485 today (ho hum) chiefly on rumors the SEC will repeal “mark to market” accounting rules, which would allow institutions to “mark” on their balance sheets their wounded mortgage bonds and similar at prices well above current (non existent) market values — thus, writing UP some of the horrendous writedowns of the past year, juicing the bank balance sheets at a stroke of a pen.

The rumor sparked many alarmed and/or sarcastic reactions from the pundits, money managers and traders I follow.

I responded to one such at Mville. Colloquoy ensued.

September 30th, 2008

July Case-Shiller Housing prices down a ton

Posted in Money by ed

S&P’s housing price index for 20 metro areas. Released yesterday.

September 30th, 2008

Somali Pirate Spokesman reveals: We’re in it for the money

Pretty funny.

September 30th, 2008

Index of Times stories re:
The week that Wall Street died

Posted in Money by ed

1. Big piece in the Times about the week that began with Lehman’s bankruptcy and ended with the hasty assembly of the Paulson Plan.

2.  In case you missed it, a piece last week providing rare insight — with actual numbers — into the world of the wounded mortgage bonds.

3.   A piece about the 2004 SEC decision to slash reserve requirements for brokers.

4.  Wall Street, R.I.P.

September 29th, 2008

Wachovia Bank down the tubes. What’s next?

Posted in Money, These United States by ed

1.  Some people are saying they’ll tweak the rescue plan and re-vote.

Others saying it’s toast and they’re back to Square One.  If so:

Price controls, anyone?

(Requires no Treasury investment, just lots of regulation.  Doesn’t solve all problems, but stops the utterly nonsensical mark-to-market accounting of instruments that (i) were not created to trade in the secondary markets and (ii) for which no market to speak of has existed since August 2007.)

2.  Wachovia Bank went under this morning.

The first giant commercial bank.  After the first giant S&L (Washington Mutual) and giant broker Lehman Brothers last week.

The Wachovia carcass is being bought  by Citigroup (itself on the ropes)  — at pennies on the dollar. As WaMu was last week by JPMorgan.

In each case, banks with over $300 billion deposits have been bought for less than $2 billion.  Grand theft, of a sort.

(The bankrupted Lehman bits are also being bought at fire-sale prices, mostly by Barclays and Nomura.)

Thus:  The crisis is concentrating financial services into the hands of a very few mega corporations:  JPMorganChase.  Bank of America.  Wells Fargo.  US Bancorp.   And maybe Citigroup, if it hangs on.

Credit cards, checking accounts, small business loans, mortgages, insurance … All are going to get harder to get and more expensive.  For the duration.

3.  The Wachovia CEO went on prime time last Tuesday and said everything was fine.

Q: What happened in the four trading days since?

A:  A ton of mortgage bonds and similar on Wachovia’s books had to take horrendous write downs — because of the publication of the fire-sale prices at which the Washington Mutual assets were bought (stolen) by JPMorgan.

Is the insanity of it all at last plain?  There has been no market worthy of the name for mortgage bonds since August 2007.

Yet the accounting regime requires that institutions holding such bonds mark them on the books at (non existent) market price.

Price controls would put an end to this aspect of the general madness.

But the Free Marketeers continue to insist on the pursuit of “price discovery,” razing cities and scorching fields as they chase Phantom Market.

September 29th, 2008

House Rejects Paulson Plan –
Stocks go off cliff –
Pelosi must follow

Posted in 2008 Elections, Money by ed


1. I’m surprised at the vote — rejecting the Congressional leadership version of Paulson’s plan 228-205.  With 95 Donkeys braying Nay.

Here’s a map showing where the No votes came from.  The hinterlands, mostly.


2.  The Dow in reaction was down 777. Too bad it’s not a slot machine.

The sell-off was the largest ever in raw points and the 17th largest percentage drop.

Can anyone measure the damage done to the country and the globe since the Straussian installation of Bush-Cheney?

3.  No — but for that matter:  Pelosi.

I’ve never thought she was much of a leader:

– She laid down before the GOPhers going into the Iraq war. The most signal case:

A Donkey rep from the south, three months before the invasion, had the temerity to speak truth to Joe Public: that the White House had been shanghaied by a cabal of radicals for whom Tel Aviv was the center of the universe.

Pelosi, the next day, chastised him publicly about anti-semitism and deprived him of his subcommitte chair.

– After the voter revolt in 2006, her first move was to squash the impeachment momentum, which — again — had the effect of easing pressure on Bush-Cheney.

– Her inability to get the Donkeys (at least!) in line for today’s vote settles questions about her talents as a floor leader.  She was a chief negotiator of the bill, and had her face all over it on TV.  Yet came up twelve noses short.

These three suggest she’s more interested in getting along with people than ramming bills and resolutions through the pipeline.

Then again, apparently the fiery speech she gave directly before the vote alienated some GOPhers. From the Times:

In the speech that Republicans said infuriated them, Ms. Pelosi accused Mr. Bush of squandering the budget surpluses of the Clinton years.

“They claim to be free-market advocates, when it’s really an anything-goes mentality,” she said. “No supervision. No discipline. And if you fail, you will have a golden parachute and the taxpayer will bail you out.”

Democrats later said that if her speech truly cost votes, then Republicans, in the words of Representative Barney Frank, Democrat of Massachusetts, were guilty of punishing the country because Ms. Pelosi had hurt their feelings.

David Brooks (whom I rarely agree with) reacts by observing that perhaps this wasn’t the best moment for the Speaker to give a fund-raising speech.

One hopes then the Change theme reaches across the aisle a bit post November.

Steney Hoyer of Maryland — who tangled with Pelosi for the speakership after the 2006 vote — should get the job in the new Congress next year.  He’s super smart and a great worker of the chamber.

September 29th, 2008

Israeli PM rejects militarism —
as Iran’s nukes advance /
Internationalize Jerusalem?

Posted in Mideast & Oil by ed

Ed Note:  Here is a nearly full version of the interview with Olmert, published in the December 4 NY Review of Books (America’s finest periodical).  Very worthwhile reading.

1.  The same turn that Itzak Rabin and Ariel Sharon experienced once in the driver’s seat seems to have come about with Ehud Olmert as he waits for his successor as prime minister to take office.

He is calling for withdrawals from the West Bank and East Jerusalem, and denouncing the notion of a unilateral attack on Iran as “megalomania.”

In short, he seems to be renouncing militarism as the basis of Israeli security policy.

From the Times:

“What I am saying to you now has not been said by any Israeli leader before me,” Mr. Olmert told Yediot Aharonot newspaper … “The time has come to say these things.”

He said traditional Israeli defense strategists had learned nothing from past experiences and seemed stuck in the considerations of the 1948 Independence War.

“With them, it is all about tanks and land and controlling territories and controlled territories and this hilltop and that hilltop,” he said. “All these things are worthless.”

He added, “Who thinks seriously that if we sit on another hilltop, on another hundred meters, that this is what will make the difference for the State of Israel’s basic security?”

The words are all the more stunning in light of recent history.

Itzak Rabin, a celebrated general and then Likud prime minister, was assassinated for turning on his militarists.

And some people believe that Ariel Sharon — terrorist, then general, then Likud prime minister — who broke with the party policy of perpetual war and founded the new centrist Kadima to pursue peace — was poisoned or neurologically disabled during surgery.

2.  Over the summer I spoke with a number of people, mostly Jewish, about prospects for change in Israel. The idea that popped out was rather shocking: the internationalization of Jerusalem.

The sense being:  Israel’s security and way of life has decayed to such an extent — and all the more so given the shocking decay of U.S. power under Bush-Cheney — that peace is really the only chance left — and that a serious peace would require not only land and respect for a Palestinian state, but healing the wound of Jerusalem.

Internationalizing the city would more than suffice — would be the grandest gesture of peace imaginable — and would silence war cries for the city’s liberation that for decades have been used by entrenched enemies to recruit footsoldiers.

3.  Not that the current prospects for peace are inviting.

Bush-Cheney announced as they took office in 2001 that (Sharon’s) Likud would have free reign to deal with the Palestinians.  And then invaded Iraq.

These moves have set the region aflame, spiritually and physically.

–  Iraq is in bloody pieces.  Humpty Dumpty.  In no condition to stand as a western bulwark against Iran.  Inviting the prospect of another major Sunni-Shia war.

–  Civil war of a kind is again roiling Lebanon — and now (just this week) touching off bombs in Syria.

– Iran, with Made-in-America wars on her borders east and west, is clearly expanding influence in both directions.

– Meanwhile Bush-Cheney energy policy and (non) statesmanship have alienated Saudi Arabia and the other wealthy Arab gulf states, leaving the fabric of relationships regionwide frayed.  War thrives in such confusion.

Would a genuine settlement with the Palestinians and the “liberation” of Jerusalem be enough to draw Arab and Persian leaders to bury the hatchet with Israel, and to deprive the jihadist ideologues of recruits?

A guess is yes.  The ideologues would remain, and persist, but would lose their majority in the street.

Who knows. Perhaps it’s too late. Perhaps 60 years of war have bred animosity that a negotiated peace cannot extinguish.

But the significance of Olmert’s words, against the history of Rabin and Sharon, should not be lost.

They mean:  If peace does not work, then nothing will:  Israel, born in a war of conquest that has never ceased, and which she cannot win, sooner or later must lose.

It will be interesting to see the reaction of Likud leader Bibi Netanyahu, of the Israeliocentric lobbyists in Washington, of the right-wing Jerusalem Post, and of New York’s reputable Jewish Daily Forward.

And, of course, of Olmert’s successor. The current Foreign Minister, Tzipi Livni. A woman. The first since Golda Meir.

Perhaps Olmert intended to clear roadblocks for something new that she may have in mind.

4.   Complicating matters:  there seems a growing consensus that Iran’s capacity to build nuclear weapons is advancing at a faster rate than the consensus gauged a year ago.

Here’s today’s Op-Ed by the head of the Wisconsin Project for Nuclear Arms Control.

And here’s Nobel Peace Prize winner Mohamed El Baradei, head of the Int’l Atomic Energy Agency, expressing renewed worries himself.

5.   It’s … piquant that these renewed worries, and Olmert’s change of heart, come to light during days when the United States is in complete free fall.

It may be that the fire lit by Bush-Cheney and their Likud Lobby foreign policy team will be put out by China and Russia with some help from Europe, while Uncle Sam watches sadly selling apples on the street corner.

September 28th, 2008

Daily Show & Saturday Night Live re Looming Disasters

Posted in 2008 Elections, Money by ed

Jon Stewart from the night of the White House food fight.  Pretty sharp.

And SNL with a great Miss Alaska bit.

September 27th, 2008

Derivative Obligations:
Oh what a tangled web …

Posted in Money by ed

Ed Note: See comments below for updates on the themes sounded here across subsequent days and weeks into October. The cruelest month.

Very good overview in the Times of how credit default swap agreements got out of control at AIG.

Lehman, however, is/was in the same pickle — and the air in the Times story that the world just barely missed stepping off the cliff here is misleading.  The bankruptcy of Lehman is pulling the world apart by the seams.

1.  The culprits at Lehman are very much as described by the Times at AIG:  a zillion outstanding swap agreements entered into by supposedly sequestered “specialty financial products” subsidiares (e.g., Lehman Brothers Special Financing, Inc.) — which swaps, however, were guaranteed in side letters by Lehman Brothers Holdings Inc., the corporate parent.

While AIG, an insurance company, seems to have focused on providing bond “insurance” by acting as Protection Seller in credit default swaps, Lehman, a broker-dealer, was more focused (in my experience drafting deals for them) on issuing not only mortgage bonds (Bread and butter, bread and butter …) but CDOs and similar as problem solvers for particular clients.  (See What is a CDO? (I mean really).)

But every CDO and CMO I’ve ever cast eyes upon was festooned with swap agreements:  Interest rate hedge swaps. Interest cap swaps. Perhaps credit default swaps on assets in the CDO pool, or on collateral appended as “credit enhancement,” to sweeten the deal …

That is: the versatility of the ISDA swap agreement means it can be used to solve just about any problem — to bridge any gap between a hustling young so-called banker trying to close his first or second deal and the intended buyer(s) of the bonds produced by a securitization.


2.  Three or four years ago my boss and I wondered aloud for a while what would ever happen if a Credit Event struck Lehman — thereby triggering termination of these zilion swaps.

Here’s an answer, from a prominent Wall Street law firm.

“Credit Event”?  E.g., a reduction in its long-term credit rating, for example, by Moody’s or S&P. Just a notch or two would do it.  Never did we contemplate the parent’s bankruptcy.

3.  This I think is what’s behind Bill Gross’s call Friday for the Fed to step up and act as a “clearinghouse” to “unclog the pipes” of the financial system.

That is: Simply because of the Lehman bankruptcy there are counterparties worldwide holding the bag on a zillion busted swaps — and in most cases probably in deals that until the bankruptcy filing were healthy.

E.g., a diversified CDO.  Where mortgage bonds comprise no more than 3 or 4% of the assset pool (as was often the case in deals I drafted most of this decade). Credit card bonds 10% or 20%. Maybe no auto loan bonds at all. No Manufactured Housing loans.  Half the pool in well rated corporate bonds.

Ie, a diversified pool of bonds and similar most of which were likely still performing when Lehman made its filing.

Disaster has now struck such deals, as the swaps that were built in to protect the investors (against, eg, big interest rate swings) have had their termination provisions triggered by the mother of all Credit Events (the guarantor-parent’s bankruptcy) — and thus money is due from Lehman but not forthcoming — and so the CDO itself (it says here) has to be wound up — which means selling the vast pool of bonds — into the worst credit markets we’ve ever seen.

In most deals probably no one wants to do that — neither the Lehman bankers nor the trustee with fiduciary responsibility for assets nor the portfolio manager nor the tranche investors.

So working something out — by bushwacking beyond the confines of the deal contracts — until the chaos subsides … This I imagine is what Mr Gross had in mind when he called on the Fed to function as a plumber and a clearinghouse.

(Something like this occurred when Delphi auto parts went under ca 2003 (if memory serves) and the world discovered a universe of swaps — now triggered by the collapse — that could not be settled by their own terms. What to do? The big boys got together and worked things out.)

4.  Everyone says (could be wrong) that the weekend before Lehman filed bankruptcy, the CEO, Richard Fuld, gave the finger to his crocodile suitors offering dimes for dollars.  (Primarily, Barclays of London — which since has been picking the carcass clean.)

Lehman at that moment was struggling to get delivery on a $17 billion line of credit with JPMorganChase — which had consumed Bear Stearns in March with $29 billion in aid from the Fed.  Now, as Lehman floundered, JPM refused to put the $17 billion in the mail.  (Lehman shareholders have since sued JPM.)

Fuld, in telling Barclays no deal, perhaps was relying on the JPM credit line and the history of fed intervention with Bear Stearns.  In any case, by arriving at Monday morning with no deal done, he in effect challenged Paulson and Bernanke: Go ahead, I dare you. Let us fail.

And Paulson called the bluff.  And Fuld filed bankrupctcy.

But, a day later, as the Times article makes clear, AIG in the same position dragged Goldman Sachs (which Paulson not long ago chaired) to the precipice. And Paulson blinked.

Or was it a wink?

That’s the piquant question — which the Times piece clearly alludes to.

But … There plenty more pressing questions at the moment on the table.


When one steps back to comprehend the wreckage of the Bush-Cheney years ….

Enron, Lehman, AIG, no doubt others, all involve, mechanically, a network of obligations entered into at outposts along the corporate periphery manned by young hustling so-called bankers or account executives, but which lead by circuitious roots to the parent.

In Enron it’s clear that criminal intent was involved in masking the public tallying of those obligations.  I haven’t seen anything yet to suggest same at Lehman or AIG.


– Ecstatic greed by the hustling young looking to be millionaires before their 30th birthdays.

– Blinding greed and laxity by senior managers overseeing the hustlers’ deals.

– Misplaced faith in the parent’s ability to handle its many splendored obligations, based in part on ignorance and willing blindness but also on

– professed faith in spreadsheet models that failed to predict high-stress (non) performance of MBS, CMOs, CDOs, etc. — in many cases (as already discussed in the press) because the models were tweaked to be forgiving … by hustling so-called bankers … and so-called senior managers … yadda yadda yadda …

September 26th, 2008

Prez Debate #1

Posted in 2008 Elections by ed

1. I watched it streaming online, but have not seen any of the punditry.

Obama did extremely well. Presidential and cool and smart and good-natured.

But it seems clear that McCain neither “lost” nor stumbled nor did a Nixon 1960 — and that constitutes a surprise victory. He comes across better on formal TV than in stump speech news video.

2.  Shocked to hear McCain harping on cutting spending. Twice going out of his way to do so at length.

As if going out of his way to parrot Herbert Hoover. Who spent his last three years echoing calls from Wall Street and Treasury and the Fed for a balanced budget to combat the contagion set off by the ’29 crash.

As if unaware that by March 1933, as FDR took the oath, every bank in the country had shut its doors, and every titan of finance had passed through the Congress to confess in public the bankruptcy of his ideas.

What is McCain thinking?  Same thoughts that led him to quietly participate in the House GOPher food fight at the White House last night?

3.   Also less than pleased that Obama kept saying We gotta get Osama.

But, that’s show business …

4.  So.  It’s a real race.  And whatever complacency may have infected Team Obama in Denver has now been dosed.

So what’s the Vegas line? Another half dozen banks are likely to disappear next week. Surely the GOP cannot survive this calamity …?


Oh yeah …

Speaking of which. I fear Joe Biden (whom I like) may overplay his hand in next week’s episode — may talk too much — and too exuberantly — his eyes and his teeth are way too bright — allowing Miss Alaska, like McCain last night, to exceed expectations by not shitting the bed and tumble out ahead.

Somebody give Senator Biden a sleeping pill, he’s always flailing out of frame. Less is more, Joe. Think Michael Caine.

September 26th, 2008

28 million DVDs defaming Islam (Obama ?) distributed by Likud Lobby

Posted in 2008 Elections, Mideast & Oil by ed

The Asia Times is fingering well known Likud Lobbyists in D.C. and the publishers of the right-wing Jerusalem Post as the folks behind an apparently vile DVD that’s been inserted  in 28 million battleground-state newspapers in recent weeks.

Ah, here it is: Obsession: Radical Islam’s War Against the West.

The DVD does not mention Obama. But people elsewhere are complaining that nevertheless it targets his candidacy.

I haven’t seen it.  The trailer at the website suggests it relies heavily on video of jihadist training camps and doctrination sessions.

To instill the fear of Allah in middle-of-the-road voters, clearly, is the aim.

Is it fair, then, to conclude that they’re trying to push the idgit vote to McCain, having finally been snuffed this spring by baby Bush?

However that may be, both candidates were careful to bow deeply to Israel in the debates this evening.

That is: Lehrer asked about the threat Iran posed to the US — and instead each candidate devoted his time to expounding the threat to Israel and the mideast generally.  Reading the same teleprompter.

Caroline Glick, a top editor at The Jerusalem Post, and a bellicose belcher of neofascist screed, is named by the Asian Times.

And in D.C. — Meyrev Wurmser.  Of similar cast.  (Proud to have blocked the application of the Helsinki Accords to Israel’s war.)  You can check her out here — then follow the links within her bio to others and …

Voila. You’ve been well introduced to the Likud Lobby, and the makers of the Iraq war.

Apparently they want more.

(Want more? Here.)

September 26th, 2008


Posted in Money by ed

Blew out my flip-flop
Stepped on a pop-top
Cut my heel had to cruise back on home

But there’s booze in the blender
And soon it will render
That frosty concoction that helps me hang on

Here’s Jumpin’ Joltin’ Jersey Jim Cramer’s Friday evening meditations, after the two most tumultuous weeks in Wall Street since …  1929?  1907?

September 26th, 2008

Morning After: Credit freeze

Posted in 2008 Elections, Money by ed

Reactions to the food fight at the White House last night from the realtime “Buzz & Banter” board at

Credit Market Update
Bennet Sedacca
10:24:45 AM

Have you ever walked up to a diner really hungry and seen a ‘closed for business’ sign on the door?

Welcome to the credit market, folks, it is officially closed.

After Lehman, Fannie Mae, Freddie Mac, AIG and Washington Mutual debt and preferred holders have been unmercifully tossed under the bus so [JPMorganChase Chairman] Jamie Dimon can be given banks, do you really think many want to get in front of this train wreck.

Me thinks not. For what it is worth I was just offered Wachovia (WB) 5.8% hybrids at 10 cents on the dollar, and I passed.

So the few that can raise capital, like JPMorgan (JPM) and Goldman Sachs (GS) will survive, but many failures lie directly in front of us.

Many regional banks are likely next.

Risks remain high, and the stock market, IMO, still has blinders on.

Vibes from Minyan Tony “Snoop” Dwyer of FTN Midwest

The leaders of the Republican Party don’t understand how serious this crisis is, and as a result, the credit markets that drive the global economic engine remains seized up.

The entire global financial system is melting down and one-by-one, major institutions are failing with Washington Mutual being the latest victim.

Listening to Senator Shelby state publicly that it is ok not to get a mortgage relief facility and “let the markets correct,” is the scariest statement we have heard in a long time.

As I have said, this is rapidly growing into a national security issue and not a “save Wall St.” issue.  As soon as they opened this rescue package debate to the public, the impact of the deal was significantly diminished.

How serious is this?

Washington Mutual experienced a run on the bank, and according to the Financial Times, Morgan Stanley has lost close to a third of their prime brokerage assets in the past week.  This despite all unprecedented the Fed and Treasury actions to date.

Now read the interview with Mr Practical at Minyanville.

McCain this morning has said Aw shucks, let’s debate.  This crisis leaves me unable to imagine him winning in November.

Knock on wood.

September 25th, 2008

Guardian: Bush refused Israel green light to bomb Iran

Posted in Mideast & Oil by ed

1. The story’s in the Guardian today.  Interesting.

Bush, by refusing, seems to have fully broken with the Likud Lobbyists he had hired in 2001 to run foreign affairs, and to have fallen in line with the eurocentric Bilderberger consensus.

Noteworthy that the initiative and its snuff came more or less on schedule: May 14.  For a year it had been surmised and stated in back pages that April 2008 was the point beyond which Israeli intelligence felt the Iranian nuke program could not be allowed to grow.

2. The Jerusalem Post this morning reacts with a news story with reader comments and a mediocre Op-Ed by Richard Pipes.

3.  Meanwhile, at the UN in New York, Iran’s president spoke softly:

Growing world problems like war and poverty are the result of American mismanagement of global affairs, he said at one point.

“We don’t want all this, we like to have friendships,” he said. “I really don’t think that the American people like what they see either. If American people had the chance to truly express themselves they would definitely express opposition to how the world has been run.”

If we only had the chance …!

September 25th, 2008

Then the President said,
“this sucker could go down.”

Posted in 2008 Elections, Money by ed

What the heck happened in the Cabinet Room last night?


September 25th, 2008

Putin and Chavez talk nuke development

Posted in Geopolitics by ed

A great move for Russia after embarassing Bush-Cheney in Georgia.


September 25th, 2008

Naked Capitalism: Mark to Market Mythologies

Posted in Money by ed

Posted something at Naked Capitalism, in response to a piece by the moderator (great fellow) that painted the Treasury bailout as advocating “Mark-to-Myth” accounting.

I think just the opposite — in that Tsy is proposing to do away with the “marks” on the banks’ books entirely!  By swapping them (and the wounded mortgage bonds they represent) for cold cash.

Read this article in the Times today first.

And maybe section 4 of this.

bull.jpg   Thus prepared — here’s the thing I posted at Naked C:

I drafted CDOs most of this decade and they were never meant to trade in the secondary market. They were crafted, rather, by buyers and bankers working in tandem, to solve specific buyer-related problems.(See What is a CDO? (I mean really) at

A middle ground between the Tsy plan and Free Market mythology would be price controls — only on the wounded mortgage bonds that Tsy is now preparing to buy.

The wounded bonds stay on the bank books at Tsy-specified prices based on current trailing three- or six-month performance for the various segments of the wounded MSB universe.

Ie, how much interest are they actually paying and how much principal are they actually losing?

Thus Tsy does a lot of spreadsheeting, but doesn’t lay out cash. Adjusts the controlled prices each quarter based again on trailing performance.

This cures the legitimate current Market Liquidity problem, which has been the largest element in the horrendous writedowns of the MBS on the bank books the past year.

But the risk of future performance of the wounded bonds is retained by the banks, not transferred to Tsy.

AND — take note. Price controls would NOT covertly rescue FASB 157 violators. But the Tsy plan will.

That is, such violators — holding MBS on their books at marks elevated above current (non) market prices — will be in effect selling those non-compliant marks to Tsy for cash.

This latter I think is the dirty little secret of the plan that Boom Boom and Hammerin’ Hank have not discussed.

But — for those in compliance — the current plan is mythological, I believe. The myth is that there ever was intended to be a market for these deals, which happen to have been executed in the form of a bond.

There was not. They were not really “bonds.” They were problem solvers for particular clients.

The problem, in other words, is that the current crisis has for 14 months demanded that hundreds of billions worth of these instruments suddenly trade efficiently in public to produce “price discovery” for ancillary (political?) purposes.

In any case — price controls would be a better solution I believe.

They would leave the banks responsible for future performance, but with transparent (re MBS), slightly juiced (other than FASB violators) and stabilized balance sheets.

And short sellers would find it much harder to mount rumor campaigns in that environment.

Then across two or three years the wounded bonds would wind down, probably as Boom Boom says, throwing off more interest and returning more principal than current (non) mkt values imply.

And if across those years, the performance-based controlled prices got marked back down, even to today’s levels, then that’s as it should be. Most banks would weather the storm.

And Tsy would not be on the hook for performance.

There were a few responses, to which I responded.  Click on the Naked link above if curious.

September 25th, 2008

Psychological Profile Map of U.S.

Posted in These United States by ed

Interesting.  Maybe.

September 25th, 2008

Pakistani & GI Joes lobbing lead

Ed Note:  See comments below to follow the story of US-Paki relations into the Obamatime.

Well. Maybe we are indeed at war with Pakistan.

Paki army and US army soldiers exchanged gunfire on the ground earlier today, after the Pakis again fired at raiding US helicopters crossing the border.

Meanwhile, back at the ranch, the Paki army fought a pitched battle with pro-Taliban joes — 50 dead or so.

Is it civil war yet?

And why are we and the Taliban both shooting at the same guys?

Let’s see, the enemy of my friend’s enemy is my enemy’s best friend’s worst enemy of a friend’s …