Showing posts from May, 2009

As Transparent as a Cesspool

This Huffington Post piece, "Accountants, Washington Helping Banks Fluff Profits," illustrates why it's so frustrating to watch this financial crisis play out, day after day.

We need greater transparency in the financial system. Nobody -- right, left, center, right of center, left of center, center of right of left of center -- contests that. Nobody has said, "What we need in America are more off-balance-sheet vehicles, derivatives traded in back alleys, murky accounting rules, hard-to-understand securitizations."

If we need more light, we do we keep embracing the darkness? I don't get it.

And if you don't like "mark-to-market rules" (accounting standards that value an asset on a company's books according to what it's worth at that moment, freely traded), then what do you like? Mark-to-whatever-you-feel-like-it rules (these by the way, in their more reputable guise, are known as "mark to model")?

If you're an accountant, the …

PPIP Deathwatch, May 28 Installment

More evidence, this in the Wall Street Journal, that Geithner's plan to purchase toxic assets from the major banks is hitting the skids: Plan to Buy Banks' Bad Loans Founders.

To be fair, this is only one piece of the public-private partnership effort to buy bank assets through a competitive bidding process. PPIP provides a mechanism for banks to dispose of both (1) loans (the article above) and (2) securities. The Treasury, in charge of the securities auctions, assures us that it's still going full-steam ahead.

Honestly though, I doubt the Treasury's earnest intentions will matter much. The banks will pull out the sharp knives, when Geithner isn't looking, and skewer him. They don't want to sell their impaired loans, their impaired securities, their impaired nothin'. The banks don't want to sell any of this crap at anything near a market price because, to maintain the fiction of solvency, they have to keep pretending it's worth more than its real val…

Mr. Greenspan, Surely You Jest

Jaw dropper of the morning ... did anyone else see this quote below? It was in a Washington Post articleon Brooksley Born, the smart lady who was ostracized by Washington's high-powered financial regulators after she (presciently) warned that unregulated derivatives could lead to a huge financial mess:
Greenspan had an unusual take on market fraud, Born recounted: "He explained there wasn't a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him."
Wow. I am just flabbergasted, bumbleboozled, speechless beyond the reach of the confines of the English language. I have one comment: Is Alan Greenspan seriously this stupid? I know he's an unrepentant Ayn Rand acolyte, but ... but ... oh my God.

This reminds me of that line about chimpanzees: sure they may look like cute pets; just remember you're getting an ape who can bend steel but who has the intelligence of a five-year-old. O…

The Interest Rate Problem of the Federal Reserve

The “Bond Fears” in today’s Financial Times could be the epilogue to my 3-part series on the international monetary relations. (I do not provide a link because you need to subscribe to FT to read this particular article.) After pointing out that the yield on 10-year treasuries had gone up 26 basis points in two day, the article asks:
What’s going on? The fall in equities is scary but comprehensible. Not so with the bond sell-off … Fixed-income investors are now genuinely bewildered. The long-term trend, the latest inflation data, not to mention the experience in Japan, all point to lower yields. Buying by the Fed is another reason to favour bonds. But this latest sell-off, taken alongside the weakness of the dollar, suggests something far more terrifying is causing sleepless nights.What is going on is this: The Fed is trying to resolve an economic crisis by means of technical maneuvers. Whether this is due to an “invincible faith in oneself”, a profound ignorance of economic relations …

How the Mighty Have Fallen

Alan Greenspan, Master of Snark? The former chairman of the Federal Reserve, whose most trivial utterances were once closely parsed for larger meaning ("Greenspan said some of the cherry trees on his drive to work seemed to be blooming later than usual this year? ... Sell Treasuries! Sell! Sell! Sell!"), appears to have been reduced to ankle-sniping. Richard Posner said he received an e-mail from the Once Great One, complaining about Posner's "rather thin analysis of the source of the current financial crisis."

Follow the link above to read the whole thing. If you want to save yourself some time, here's the version in a nutshell's nutshell:

Greenspan: My monetary policy not to blame for housing bubble; Fed sets only short-term rates which we did raise; trouble is long-term rates on mortgages stayed low and pumped the bubble because the damn Asians were saving too much. Posner: short-term rates do influence long term, the Asians be damned; in any event man…

An Analysis of International Monetary Relations – Part 3: Where We Are Going

Hegel famously said that history repeats itself. Marx equally famously said that Hegel should have added: first time as a tragedy, the second time as a farce. Marx should have been more precise. History does not repeat itself only twice. It constantly “repeats” itself, each time at a qualitatively higher plane, corresponding to a progressively more developed stage of the society’s productive forces. Tragedy and farce are always present, farce being a tragedy brought on by the ignorance of self-assured men. That is why Hegel characterized the “invincible faith in oneself” as the chief quality of a comic character. As the societies advance, farce becomes more pronounced because the contradictions become more intensified.


This is an important point which I will take up in detail in Vol. 5 of Speculative Capital. Here, let me try to explain it with an example.

Take Holbein’s oil painting, The Ambassadors, which is a signature art work of the dawn of Capitalism.

What makes this 1533 work s…

Krugman Does China

Couldn't resist letting Paul Krugman's China trip slip by without comment, especially since I just moved out of Hong Kong after three years. I found this article by China Stakes (Krugman in China: Stimulating, Controversial, and Expensive) to be amusing.

It appears the Chinese were initially delighted to have Krugman on the Sino-lecture circuit for several reasons. First, he is seen as an economic prophet (and what price can you put on one of those -- oops, looks like $200,000 an appearance, according to the article, making this probably a million-dollar jaunt for PK). He also won the Nobel Prize recently and has been a harsh critic of the U.S. response to the financial crisis.

Everything seemed to be in the cards for a lovely week of high-powered talks and shmooze-fests. You can almost see the dark-suited Chinese officials sitting in the front row and nodding with vigor as Krugman lambastes the Obama team's tepid response to the banking mess. "Why, oh why, are they so …

Finance Blogs: What I Read

I looked over my last couple of blog entries and found them, er, somewhat lacking (ahem: boring), so I thought I'd mix things up a little today. My pet project of late of course is tracking PPIP (as readers can tell, I've solidly thrown my weight behind the "it will fail because the banks won't play" theme, a la Roger Ehrenberg). A quick observation here: the ever-cantankerous banks, mewling and whining about the onerous provisions of TARP as they feast at the Fed's trough of cheap funds, seem to be bearing out my prediction. Their attempted smackdown of their regulator during the "stress tests," arguing downwards the amount of capital they had to raise, showed them to be typically uncowed in the face of Washington power. These refractory banks won't be nudged into participating in the Geithner plan. So stay tuned for "Whatever happened to PPIP?" stories. I expect them in, let's say, early June when it becomes clear that nothing is…

Stress Test Math Makes Absolutely No Sense

I just can't get too excited about these stress test results. It's the mathematician in me.

Sure, it sounds great: the 19 largest banks need only $75 billion, total. They emerged from their Geithner shakedown cruise not in tip-top shape, but looking far better than anyone thought.

Sure, it sounds great, if you don't think too hard about the numbers.

It's simple really. New York University Professor Nouriel Roubini, one of the few economists who was eerily prescient about the magnitude of this crisis, forecasts $3.6 trillion of losses to come on U.S. loans and securities, more than half of that coming from banks and broker-dealers.

What do the stress test results imply about losses to come? The 19 banks that were examined control two-thirds of the banking system's assets. If you assume for simplicity that they hold two-thirds of the "losses to come" (though in truth they probably hold more, having dabbled in riskier assets more recklessly), that seems to imply…

The Fault, Dear Brutus ...

Today, the Center for Public Integrity, a journalistic watchdog, published the results of its investigation into the causes of the subprime mortgage meltdown which precipitated the larger meltdown. The Financial Times headline summed up the gist of the report: Few escape blame over subprime explosion. The paper went on to say, quoting the report, that “almost every US power centre had a hand in lighting the fuse to the global meltdown”, and that:
Most of the top 25 originators, most of which are now bankrupt, were either owned or heavily financed by the nation’s largest banks, including Citigroup, Goldman Sachs, Wells Fargo, JPMorgan and Bank of America. Together, they originated $1,000bn in subprime mortgages in 2005-07, almost three quarters of the total.These supposedly hard hitting reports are a monumental waste of time. If everyone is guilty, then no one is guilty. We learn nothing from them except a back-handed confirmation of our prejudice about the human fallibility. We are bei…

A Humble Proposal For Reducing Speculation

“Of our time” description, when used for a poet, a writer or a philosopher, could have two distinct and opposite meanings. One is that of a fool who struts and frets his hour upon the stage but is nevertheless useful, the way an inanimate archeological object is useful, because in deciphering what he uncomprehendingly recorded we could learn about his time. The other is that of a knowing, perceptive observer who is conscious of the goings on around him and can therefore add to our knowledge with his observations and insights.

T.S. Eliot is a poet of our time strictly in the latter sense. He has an eye for the social ills as they affect individuals. Of particular interest to him is a large class of hollow men. Hollow man, as competently elaborated by Craig Raine in his study of T.S. Eliot, is “a physically damaged, confined soul, corroded by its own caution, a life disfigured and distorted, rusty with reluctance”.

This phenomenon, which is present at every age, especially stands out in m…

The Dance of the Seven Veils

I'm back in the U.S. (to live), having traversed too many time zones in too short a period of time. The planes did feel like airborne virus cages, with the phlegmy cough in seat 14C recirculating a few dozen times, and I did appear to contract something but -- keep the CDC off my doorstep -- it appears not to be swine flu but rather a garden-variety head cold. In Tokyo (layover), there was an interesting scene of unknown conclusion: a phalanx of surgical mask-wearing health workers shot past a bunch of us deplaning passengers, followed by a hustling man carrying a videocamera. Where they were headed, and what they were doing, was unclear though ominous. So I'm back in the good ol' U.S. at last, which brings me to this first (short) entry, as I de-jetlag ...

The leakapalooza surrounding the Bank Stress Tests (why not capitalize? It feels like this has been with us for, oh, a few decades by now) has been interesting to observe. It is almost like watching a pilot (I'm in a…