Thanks so much for the link, Yves!

This is reading derigour. I have been comparing what’s happening now as a legacy of what wasnt learnt in the late 80’s (using Bonfire of the Vanities as a comparison rather than Liars Poker) and that we are now paying the price of what wasnt learnt then.

What concerns me is that without lessons being learnt NOW (by not enough pain being inflicted on those who caused the problems), what we reap in the future will be a multiple of the pain inflicted now.

The other concern, stated by another reader on another post yesterday, is that we (mistakenly) expect these “crooks” or “charletons” to be repalced by people with integrity and that most likely will not be the case.

Great article.

Swaps deal — $70 bil to cover the questionable securities at par, divided between lost collateral and purchase at present market.

Securities lending deal — $23 bil to take the stuff off AIG books, plus whatever has been paid out to the other side already.

Assuming that doesn’t add up to 150 bil, what’s the rest for?

“he was cautiously optimistic about the future of the financial services industry”: No Havoc Here

Does this guy think he’s Jonah? What’s with Ha-Navi act? From the FT:

http://www.ft.com/cms/s/0/834ebf5e-aff9-11dd-a795-0000779fd18c.html

“The global economy is entering a slowdown of epic proportions, comparable to the Great Depression, John Thain, chairman and chief executive of Merrill Lynch, warned on Tuesday.

Speaking at the firm’s annual banking and financial services conference, Mr Thain said that while he was cautiously optimistic about the future of the financial services industry, he was not at all optimistic about the near-term prospects of the US economy and global markets.”

Good Lord, that’s self-serving. Everyone else is in the crapper, but the financial services industry looks peculiarly resilient ( Maybe because of the massive infusion of government largess ). Um, where should smart money go, I wonder?

“Mr Thain also said that the economic problems afflicting the US, where housing prices and other asset values were falling, would wreak havoc across the world.

“There is no such thing as decoupling,” he said, referring to the popular theory that emerging markets could sustain reasonable growth rates even while the world’s leading economies suffered through recessions. “All equity markets are linked. Each individual economy will be more or less affected, depending on reliance on global trade and commerce.”

He’s telling everyone to build a teva. It should be made of…I forget. Is there still such a thing as divorce?

“Despite his gloomy take on the economy, Mr Thain expressed cautious optimism about the state of the financial services industry. Referring to the US government’s $700bn bailout package and the direct infusion of $125bn to recapitalise the nation’s biggest banks, Mr Thain said “all of that is starting to take effect and things are starting to get better.”

Thankfully, all you silly taxpayers propped us up while you’re consigned to havoc. We can afford arks.

“Still, he added, there remains “a huge amount of dislocation in credit markets. Although things are starting to improve, this is going to be a long process.”

Thankfully, he’s saying, it will take quite a while for this to be worked through, so we can make out quite well.

“The combination would also give Merrill Lynch’s vaunted team of wealth management advisers access to BofA’s “huge pool of wealthy individuals”, Mr Thain said.”

Forget the little guy. Zero in on the rich.

I wonder if this pool of wealthy investors is like the giant pool of international money that led to the bubble?

Don the libertarian Democrat

“There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

“…The guy who got 133 into the bill, Representative Spencer Bachus (R-Alabama), the ranking minority member of the House Banking Committee, told me he wasn’t trying to politicize accounting. ‘It just says, “Study it,”‘ he told me. “It doesn’t say [to do] a study to repeal it. It doesn’t say [to do] a study to suspend it…”

I would normally say this was a reasonable proposition (if only it hadn’t been uttered from the lips of a politician). However, the discussion should have been held years ago- BEFORE the adoption of SFAS 133. I’ve always been of the opinion that 133 is not as practical as historical cost standards for auditors to verify. Once you get beyond verifying the values of securities traded on a market exchange, there’s just too much room for monkey business in coming up with a FMV for other assets not listed on exchanges. Verifying historical cost seems to be more of a science(trace the item back to what was paid- cancelled check or charge on Bank statement) while the FASB adoption SFAS 133 moved the auditing profession in the direction of being more like an art(Let’s see, whadda we think this is worth?).

Having said that, I’m truly conflicted on this issue because SFAS 133, if followed properly, does seem to provide to provide important additional information. In theory, 133 made a great deal of sense. However, in practice (human nature being what it is) we can see it was not followed appropriately. The various CDO values blessed by the auditors, over the past few years, turned out to be highly inflated (probably due mostly to misrepresentations of risk associated with these instruments).

ps- I seem to recall the Baucus was one of the hardliner holdouts to the Treasury’s initial bailout bill. Wonder where he’s coming from on this.

The Chinese, French and Germans are FURIOUS at such an asinine position.

In terms of lobster price collapses, is this another example of a pending deflationary microburst?

That term doesn’t even exist among the cretins at CNBC or the American press. It seems highly likely to enter it soon. First shipping, then lobsters….

Stay tuned. Turn off your TV. Scrupulously avoid reading the American press. Don’t buy gold.

Matt Dubuque
NEVERSPAMmdubuque@yahoo.com