Hybrid of Risky Mortgages and a Ponzi Scheme
By Barry Ritholtz - March 26th, 2009, 5:48PM
Dilbert, 2 days in a row:
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In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Macro Notes
US$ rally continuesPeter Boockvar
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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March 26th, 2009 at 5:54 pm
More like “Dogbert the Federal Reserve Chairman and Treasury Secretary”.
Private sector ponzi schemes are so 2008.
March 26th, 2009 at 6:24 pm
crack me up- appreciate the cartoons Barry- sometimes you have to look at the preposterousness of everything and just laugh.
March 26th, 2009 at 6:26 pm
How is it that the news media and punditocracy never get it, but comic strips and comedy shows do?
March 26th, 2009 at 7:15 pm
How is it that the news media and punditocracy never get it, but comic strips and comedy shows do?
You have to have a pretty good sense of humor to confront this reality for what it is and still maintain your sanity.
March 26th, 2009 at 7:49 pm
barry –
just wondering if i went across “the line” this afternoon telegraphing the tape?
my comment from 3:25 was deleted for some reason…
apologize if i offended the forum. take care.
March 26th, 2009 at 7:52 pm
Unlike many other people, I have had great difficulties in understanding what the Geithner Plan really is. To gain a little bit more understanding of my own confused situation, I also turned for help from without. In fact, I found at least four possible ways to make sense of Tim Geithner´s Plan.
If there are any others who have had similar feelings of incomprehension, may I most respectfully ask your opinion on what of these alternatives comes closest to what one should feel and think of Tim Geithner and his Plan?
Here are the contestants:
So, would it be:
(a) Tim Geithner acting as a postmodernist bankster: “I am going to make you an offer that makes no sense!”
or
(b) Tim Geithner becoming the Therapy Secretary: “Now, to many of you it may look just an inkblot. For some of you it may look like the so-called Rorschach inkblot. But in fact it is a great improvement on Paulson´s Plan.”
or
(c) Tim Geithner wanting to create a Rufus T. Firefly moment:
“Minister of Finance: Here is the Treasury Department’s report, sir. I hope you’ll find it clear. Rufus T. Firefly: Clear? Huh! Why a four-year-old child could understand this report! Run out and find me a four-year-old child, I can’t make head or tail of it.”
(Groucho as Firefly in “Ducksoup”, of course)
or maybe
Tim Geithner having his rabbinical moment:
“A young rabbinical student went to hear three lectures by a famous rabbi. Afterwards he told his friends: ´The first talk was brilliant, clear and simple. I understood every word. The second was even better, deep and subtle. I didn’t understand much, but the rabbi understood all of it. The third was by far the finest, a great and unforgettable experience. I understood nothing and the rabbi didn’t understand much either.’ ”
(As told by Abraham Pais in “Niels Bohr’s Times in Physics, Philosophy, and Polity”)
The winner will receive the unofficial Maimonides Prize for the best Guide for the Perplexed…
March 26th, 2009 at 8:04 pm
Plenty of Rahm at the AIG Table
Rahm has a new plan, BARF, the Big Ass Relief Fund for the Banker Buddies.
Over the past ten days, as the furor over AIG retention plan bonuses has focused on Sen. Chris Dodd and Secretary of the Treasury Timothy Geithner, the White House has undertaken a PR offensive to protect the highest ranking Obama Administration official who was involved in the House and Senate negotiations over the stimulus bill, in which the AIG waiver language was inserted.
“Right now, you get the feeling this is all about protecting [White House Chief of Staff] Rahm Emanuel,” says a former Treasury Department lawyer, who worked in that department’s counsel’s office on the Troubled Asset Relief Program (TARP) before joining a D.C.-based law firm in February. “At the time, we were led to believe there were basically three or four people from the Administration at the table when the final deals were cut and one of them was Emanuel.”
Informal advisers to Geithner are growing increasingly frustrated, they say, that Geithner is being held up as the straw man for the public anger over the bonuses. “Just over the weekend you saw a new guy added to the target list, [White House economics adviser Larry] Summers,” says a longtime Geithner colleague at the New York Fed. “You have Dodd, Geithner, Summers, but there were other, more senior political people involved in this mess, and their names aren’t being mentioned. Why isn’t anyone asking Rahm Emanuel, ‘What meetings were you in?’ ‘What did you and the President know and when did you know it?’ Tim has some culpability, but he’s not the guy who signed off on the Dodd language. He wasn’t that empowered to do something like that.”
(Excerpt) Read more at spectator.org …
http://spectator.org/archives/2009/03/23/plenty-of-rahm-at-the-aig-tabl
http://www.time.com/time/business/article/0,8599,1885583,00.html
Will Obama’s Chief of Staff Return Money From Stock Options He Got While Helping to Drive Freddie Mac Into the Ground?
The Chicago Trib reports how Rahm Emanuel scored big at Freddie Mac!
http://www.chicagotribune.com/news/politics/obama/chi-rahm-emanuel-profit-26-mar26,0,5682373.story?page=1
Gorelick earned an estimated $26,000,000 serving as vice chair of Fannie Mae from 1998 to 2003
The Clinton administration’s White House Budget Director Franklin Raines ran Fannie and collected $50,000,000. Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26,000,000. Big Democrat Jim Johnson, recently on Obama’s VP search committee, has hauled in millions from his Fannie Mae CEO job.
These figures have paid themselves impressive private-sector salaries. Johnson earned $21,000,000 in just his last year at Fannie Mae. Raines earned $90,000,000 for five years’ work at Fannie Mae. Gorelick got $26,000,000.
It’s no secret that Democrats under Bill Clinton had used both organizations as personal piggybanks to reward loyal friends.
Lori
March 26th, 2009 at 8:04 pm
Simon Johnson: The Triumph of the Banking Oligarchs
http://paul.kedrosky.com/archives/2009/03/simon_johnson_t.html
Provocative piece from Simon Johnson in the current The Atlantic magazine on the “triumph” of the U.S. banking oligarchs. Worth reading in its length entirety.
Let’s see if Obama admim can ‘walk their recent talk’ and swing the regulation pendulum back.
If not, he’s a one termer.
March 26th, 2009 at 8:24 pm
If the loans that the FDIC is going to “insure” go sour (under the Geithner plan), Bernanke can just buy them. Who needs another TARP when you can just print the money?
March 26th, 2009 at 8:30 pm
When a philosophy is so inherently anti-democratic as to be viewed as closer to fascism or totalitarianism than a representation of the American Rebuplic it should be a simple task to repudiate its minions out of hand – yet the neocon cabal and followers of Strauss continue to be little challenged in the mainstream media and continue to influence policy.
From “The Ivy League Dissects the Neocon Cabal:
“Straussian critics have long recognized that they ‘refuse to read the work of other scholars,’ writes Norton, while they organize campaigns of character assassination and harassment against other academics who disagree with their unique – and often bizarre – interpretations. The effect of all this, says Norton, is to prevent the circulation of ideas, and to ‘preserve the powerful against criticism.’ In other words, their purpose is to produce propaganda…. ”
To understand Washington elitism, one should look at the thinking behind the neocon cabal. The thinking still permeates the environment.
March 26th, 2009 at 8:49 pm
You know, after a long day at the salt mine, I had a thought…(occassionally happens….)
You know who must be really pissed? I have been thinking about Ponzi schemes and past failures…PanAm, WorldCom, and the ones who must really be pissed are the workers and investors in Enron…I mean, if they could have held that baby together until fall 2008, they might be doing just fine, with the No one deserves to fail concept…
March 26th, 2009 at 8:57 pm
Bruce @ 8:49
They should have at least bought put options.
March 26th, 2009 at 8:59 pm
WM, chill dude. Agree the NeoCons are crazed fascist, but, what spun you off on that?
Br’nTn, funny how that happens. Remember Fuld – why did they let us fail?
March 26th, 2009 at 9:00 pm
yep.
March 26th, 2009 at 9:03 pm
I am sitting here with my taxes which I will try to finish this weekend…
It actually does bother me that much of my taxes this year will fund things I don’t believe in…things that have been discussed over and over here…
Our partnership will make less money this year than last, and I am considering just hanging it up…
I guess it is too late to try out for the Chippendales…….?
March 26th, 2009 at 9:06 pm
Costa Rica beckons.
March 26th, 2009 at 9:12 pm
Br’nTn, understand. And to think that the money we save in our tax defered savings plans (assuming we have some to save), under the impression that when we retire we will be in a lower tax bracket, when inflation and/or tax increases will obviate the benefits of saving.
Chippendales? Dude, come on.
March 26th, 2009 at 9:13 pm
Nice waves.
March 26th, 2009 at 9:23 pm
Any opinions on how long this rally continues? These things usually end as soon as I jump back in, so I expect a reversal any day now.
March 26th, 2009 at 9:24 pm
@km4:
What a terrific article! Thanks for the link.
March 26th, 2009 at 9:26 pm
Transor Z you’re welcome. I also posted here for more exposure maybe…
http://www.dailykos.com/story/2009/3/26/713488/-Simon-Johnson:-The-Triumph-of-the-Banking-Oligarchs
March 26th, 2009 at 9:54 pm
The entire Simon Johnson article:
http://www.theatlantic.com/doc/print/200905/imf-advice
There are many telling paragraphs – an example:
“In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.
Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world. ”
Johnson in the end talks about two possibilities – that the financial oligarchs will persevere, sustained by bailout after bailout, or …
“The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.
Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.
The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late. “
March 26th, 2009 at 10:02 pm
Haven’t had much time to make comments lately…two things I want to get out there:
1) Anyone see Eric Dinallo on CNBC this morning? He mentioned GE along with AIG and Kernan and Becky Quick went into desperate scramble mode to get him to recant any such association…would love to see a replay of that. He did not back down much if at all.
2) It sucks being short right now…I read a few commenters asking me what I was still doing. I have made no changes to my investments. Bullishness is building back to levels that will allow for the next leg down (some like put/call have been there already for awhile). The MSM, as BR has exposing regularly, are reporting “good economic news” that is in actuality abysmal. Anecdotally, my daughter’s private school, in one of the most affluent areas in the country, is laying off 9 teachers…people can’t afford private school. The S&P has negative earnings for the first time ever for a full year…this is no joke.
March 26th, 2009 at 10:19 pm
That Simon Johnson article is depressing. Merely reaffirms what many of us think but depressing nonetheless.
March 26th, 2009 at 10:32 pm
Actually, speaking of commissions, that would be quite the return to the hedge fund manager if using only 3% down he/she was able to earn full commission on 100% of assets. Use 3% down, buy @ 25 cents/dollar, sell for 50 cents/dollar….. wash, rinse, repeat….
March 26th, 2009 at 10:34 pm
P.S. Kudos to Simon Johnson. Bullseye!
March 26th, 2009 at 10:34 pm
Threats to AIG: “We Will Get Your Children”
http://www.nbcconnecticut.com/news/local/AIG-Threats-We-will-get-your-children.html
March 26th, 2009 at 10:40 pm
Matt Taibbi chainsaws Jake DeSantis:
http://www.alternet.org/workplace/133627/aig_exec_whines_about_public_anger%2C_and_now_we%27re_supposed_to_pity_him_yeah%2C_right/
March 26th, 2009 at 10:57 pm
Wow, that’s quite a follow up to Taibbi’s Rolling Stone piece. Wall Street had better stop poking at Main Street with a stick. It’s not going to end well if they continue with this approach.
March 26th, 2009 at 11:04 pm
Mannwich, just wondering if you read the link I suggested re: the compensation of Canadian Bank CEO’s, and if so, what you thought?
March 26th, 2009 at 11:15 pm
Was interesting, greg. Thanks for sending. There are obviously some striking cultural differences in comparison to our northern neighbor. Seems we could actually (heaven forbid!) learn a thing or two from them.
March 27th, 2009 at 12:42 am
I’ve heard the opinion that Obama should shelve his Healthcare/Energy/Education aspirations to focus completely on dealing with the financial markets.
We all know that this is where the problem begins and ends (ends?). But imagine a world where the gov was throwing all of the common man’s loot at the “Wall St” predicament and nothing at the common man over on “Main St?” Imagine the disposition of the “We Will Get Your Children” types if that were the situation. I doubt systemic risk is something they have the patience or lucidity to comprehend.
AIG would need more than this…
http://gawker.com/5175745/aig-corporate-securitys-tips-for-surviving-an-angry-mob
We all would.
March 27th, 2009 at 2:10 am
@greg, maybe we need Canada to pull a “Mouse that Roared” kind of deal and take us over!
March 27th, 2009 at 7:19 am
http://www.msnbc.msn.com/id/29841493/
WTO predicts steep drop in global trade
Decline of 9 percent would be the worst since World War II
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahCDwyRZkAUI&refer=worldwide
Soros Says Commercial Property Values Will Fall 30%
…I think there will be a chance to be short again this year….no prolem…
March 27th, 2009 at 7:28 am
Soros also said ….from Bloomberg.
“Soros also warned that if the United States failed to live up to its responsibility in helping solve the global crisis, “we shall cease to be the dominant financial power.”
If the global financial system falls apart, “China is liable to come up ahead,” he said.
While the United States wanted to re-inflate and Europe wanted to regulate, “it should be possible to find common ground in the need to protect the periphery countries from a calamity that is not of their own making,” he said.
“Actually, we need to both re-inflate and regulate, but re-inflation is urgent and regulatory reforms will take time to implement,” Soros said.”
March 27th, 2009 at 8:20 am
“Actually, we need to both re-inflate and regulate, but re-inflation is urgent and regulatory reforms will take time to implement,” Soros said.”
Just because you are wealthy does not mean you have brains.
Give us the money NOW,
we’ll regulate LATER.
Haven’t we been doing this the last 25 years?
March 27th, 2009 at 12:49 pm
@ Marcus Aurelius at 6:26 pm
How is it that the news media and punditocracy never get it, but comic strips and comedy shows do?
~~~~~~~~~~~~~~~~~~~~~~
By and large, the news media and punditocracy DO get it…., it’s just not their job (anymore) to convey “it” to the public, but for the most part to do just the opposite.