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Showing posts from August, 2010

The Conspiracy Theory – 3: The Mother of All Conspiracies

Truth precludes contradictions. That’s the meaning of explanation. Explanation, whether of a murder mystery or events in the world of finance, is the resolving of contradictions surrounding a narrative.

Take the charter school initiative which I said was being driven by speculative capital. So there are a few hedge fund types behind the charter school movement. Does that constitute the takeover by speculative capital of the country’s education system? Putting it differently, is the push for the expansion of charter schools “the same” as creating the CDO market? Schools are not sexy and exciting ventures the way more well-known speculative capital-driven fields such as derivatives and structured finance are. Maybe school privatization is one of those won’t-hurt-to-make-a-few-extra-bucks-on-the-sidelines ventures of a few entrepreneurs. How do we know it is the full frontal assault of speculative capital on public education?

The question contains the nucleus of the answer. We tell the di…

The Conspiracy Theory – 2: Vanquishing Ironies, Making Sense of Chaos

It is a common belief in the West that chess was invented in Iran.

Like many common beliefs in the West about the East, the belief is wrong.

The Iranians know that chess is an Indian invention. Legend has it that it was sent to the king of Iran by the king of India as a gift and a puzzle. The Indian challenged his Iranian equal to decipher the game. There were rumors of war between the two countries and the gift was meant to show that Indians knew the art of war.

The Iranian king summoned his wise men who managed to figure out the game. A pleased king asked them to name their reward. They wanted one grain of wheat on the first square of the chess board to be doubled in the next square and so on until all squares were full. The king was disappointed at their modest request and ordered the treasurer to comply. A week later the treasurer came back with the news. You know the story; it was lots of wheat. It must have been the wise men's way of showing that they had truly understood the g…

Bad Photographer, Meek Subject, Telling Picture

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In today’s New York Times I came across this picture of Bernanke. The Chairman of the Federal Reserve Board is sitting in the middle of an empty hallway next to some elevators, sheepishly looking at the camera.




The Times credited one Mary F. Calvert with the picture. She no doubt went for the powerful-man-alone-in-the-hall-of-power effect; that Citizen Kane stuff, you know. Even the security guard was removed from his post!

My advice to Ms. Calvert is to keep her day job; she must have one. Her unpardonable error is not so much poor staging but the lack of attention to lighting – that Alpha and Omega of the art of taking pictures. The light from the window behind Bernanke creates a halo around his head. But that contradicts Bernanke’s sheepish posture and look, which is not that of a saint but of a mark. Eleventh-century Russian icons looked more alive!




Why does a man with the power to move the world’s economies obey so absurd a “sit” command and agrees to be photographed on a chair in f…

The Conspiracy Theory – 1: Judging a “Narrative”

Last Tuesday, the Wall Street Journal published a letter by Franklin Raines, the ex CEO of Fannie Mae. (I don’t provide a link because the WSJ charges for access to its articles). Raines had written to protest and correct the errors and misrepresentations of a hack job, of the kind that the Journal frequently publishes about Fannie Mae and Freddie Mac. Referring to the two companies, he wrote:
The losses which crippled the companies were caused by the purchase of loans with lower credit standards between 2005 and 2007. The companies explicitly changed their credit standards to regain market share after Wall Street began to define market credit standards in 2004 ... So the cause of the financial problems for Fannie and Freddie was bad decisions, not their government sponsored status.The Journal’s rabid ideologues used the letter to go on the editorial rampage againt Raines. In a half-page article titled Rewriting History at Fannie Mae they began: “If you want proof that the Washington …

The Cause of the Financial Crisis in Two Words

The other day I was thinking: ask any knowledgeable observer what caused this financial crisis, and you'll probably get a long, rambling explanation with anywhere from four to ten villains, their identities largely depending on the speaker's ideological/philosophical bent.

But what if that person was allowed only a word or two to capture the essence of the problem? What would the best word(s) be?

Some might say "greed." But that's no good. Greed's a given on Wall Street. If anything, greed is the grease that makes the wheels move over there. The greedy may have become greedier, but this still doesn't supply a satisfying explanation for the whole mess that paralyzed our financial system.

My two words (you're welcome to suggest your own), which provide a prism through which I think most of this crisis can be understood, are simple:

Mispriced risk.

Now for the walk through. First, the obvious stuff. Peel off the outer layer of any CDO and you'll find plen…

Taleb With a Telling Anecdote on the Regulatory Mess

Nassim Nicholas Taleb weighs in on the regulatory mess in our financial system through a curious tale of being approached while at Davos with the following (legal) proposal to avoid FDIC regulations:
[He] tried to sell me a peculiar investment product. It allowed the high net-worth investor to go around the regulations limiting deposit insurance (at the time, $100,000) and benefit from coverage for near unlimited amounts. The investor would deposit funds in any amount and [the] company would break it up in smaller accounts and invest in banks, thus escaping the limit; it would look like a single account but would be insured in full. In other words, it would allow the super-rich to scam taxpayers by getting free government sponsored insurance. Yes, scam taxpayers. Legally. With the help of former civil servants who have an insider edge.Got it? I left out the name of the salesman for this scheme for shock value, because it was none other than ... Alan Blinder, a former Vice Chairman of t…

Top 5 Sexiest Rib Cage Tattoo Designs For Women

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Rib side tattoo is definitely the most recent sexy thing in the tattoo world because women and girls are searching for methods to express their personality and feminine beauty through body art. The rib cage is positively an attractive and beautiful location for a female to get tattooed since it displays the natural curves and shape of her body. They are even highlighted with guaranteed designs that are form fitting and naturally flattering to the rib side of her body. Here are the top 5 choices when it comes to tattoo pieces on the rib cage for girls.
A girl can never go wrong with flowers as they are naturally beautiful and form fitting for her body. The language of flowers always speak about what is important to a female's heart and what she believes or wants to express. The most sought after floral designs on the rib side are cherry blossoms, lotus, lily, rose and Hawaiian flowers like orchids, hibiscus and plumeria.

Butterflies

A butterfly, no matter how common it is will alway…

Epilogue –The Goldman Case: The Insanity of the Rational

If the securities laws in the U.S. were consistent, there would be no Goldman case. A consistent body of the securities laws would be based on a scientific understanding of finance and the legal and the economic definition of a “security” would match. Since neither a CDO nor a CDS is a security, matters related to them would fall outside the jurisdiction of the SEC.

But the law is muddled. The Securities Acts (of 1933 and 1934) and their various amendments do not define a security (because they could not). Rather, they confer the status of security on select products and contracts by declaration, by designating them as such. A note is a security because the statute says so. So is a stock, for the same reason. How about a “product” such as a synthetic CDO that is not named in the statute? That is referred to case law, to be decided in light of the various definitions and tests for a security that courts have established over the years.

But judges could shed no more light on the meanin…