>

“But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.”

-Megan McArdle

>

I don’t really get Megan McArdle when she makes a statement such as the one above. It was in an article critiquing Matt Taibbi and defending Goldman Sachs.

Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly  devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for.  And of course, the people simply trying to grab a free lunch contributed mightily to the collapse.

I have 322 well researched pages that shows as much.

Goldman Sachs was but one of the 5 biggest investment banks that requested from the SEC, and received, an exemption from the net cap rules. This allowed their leverage to balloon from 12-to-1 to as much as 40-to-1.

As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .

>

Previously:
Who is to Blame, 1-25 (June 29th, 2009)

http://www.ritholtz.com/blog/2009/06/who-is-to-blame-1-25/

Stop the “Blame Game” ? (June 15th, 2009)

http://www.ritholtz.com/blog/2009/06/stop-the-blame-game/

Source:
Matt Taibbi Gets His Sarah Palin On
Megan McArdle
The Atlantic, Jul 10 2009

http://business.theatlantic.com/2009/07/matt_taibbi_gets_his_sarah_palin_on.php

Category: Bailouts

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

183 Responses to “No Financial Villains . . . ?”

  1. 1001 says:

    Megan McArdle uses as many facts as Taibbi

    NONE

    they are both hacks

  2. Steve Barry says:

    After reading John Mauldin’s Think Tank piece this weekend, another villian has emerged into my top ten…JAPAN. Their shenanigans in the 80s and 90s led to carry trades that distorted global finance. And the bad news gets worse…Japan is in so much trouble, it practically dooms any global recovery hopes.

    We actually need a global Fed that knows what they are doing…of course this is an oxmoron on so many levels, I just made myself laugh.

  3. Steve Barry says:

    Next Goldman Outrage: They may make a fortune issuing even more new debt for municipalities. They can make a fortune helping us dig our own grave.

  4. I-Man says:

    “As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”

    >

    Beautiful.

  5. Will says:

    There are many identifiable “contributors”, yes – but “villians”? This implies evil or criminal intent. Did most of these people individually perform in such that was legally, morally or otherwise different from non-villians, everyday? Normally, if a smaller company fails due to “recklessness when it came to risk management” we call it bad business and a poor investment. We don’t label the management “villians”. Don’t get me wrong, it isn’t too complicated to understand the the causes need to be addressed, but witch hunts and labeling only fulfill an emotional need.

  6. Dogfish says:

    “There are many identifiable “contributors”, yes – but “villians”? This implies evil or criminal intent.”

    Yes, villains. When committing securities fraud, there is, by definition, criminal intent. Whether we choose to hold them accountable or continue to collectively turn our heads, I think at this point there is no doubt there were crimes committed.

  7. McArdle gets her ‘talking points’, fed to her, from Party Central. She is, definitely, one for the List of: “those that should Understand that they can’t be Understood.”

    as a +

    hack 2 (hk)
    n.
    1. A horse used for riding or driving; a hackney.
    2. A worn-out horse for hire; a jade.
    3.
    a. One who undertakes unpleasant or distasteful tasks for money or reward; a hireling.
    b. A writer hired to produce routine or commercial writing.
    4. A carriage or hackney for hire.
    http://www.thefreedictionary.com/hack

    shill (shl) Slang
    n.
    One who poses as a satisfied customer or an enthusiastic gambler to dupe bystanders into participating in a swindle.
    v. shilled, shill·ing, shills
    v.intr.
    To act as a shill.
    v.tr.
    1. To act as a shill for (a deceitful enterprise).
    2. To lure (a person) into a swindle.
    [Perhaps short for shillaber.]

    The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.
    http://www.thefreedictionary.com/shill

  8. wally says:

    “As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”

    Maybe we’ve given up. Maybe we just don’t have the will or ability any longer.

  9. Pat G. says:

    Is she a blonde? That would explain her comments.

  10. ben22 says:

    what a dumb statement, I’m sure most people see Madoff as a villain, just to name one.

  11. Onlooker from Troy says:

    Hear, hear!!

    In other words, everybody’s to blame, so nobody’s to blame. B.S.

    There’s nothing the big banks, rating agencies, mortgage lenders, etc. (and some in congress for that matter) want more than for that to become the predominant mindset so that we will just go on our way without holding the most egregiously guilty parties accountable for their irresponsible and reckless actions.

    We do indeed need our own Pecora hearings.

  12. Alan says:

    “There were people who remained slavishly devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable.”

    Isn’t Megan McArdle one of them? Thank goodness she only writes for the Atlantic and doesn’t run the Fed. :)

  13. franklin411 says:

    Barry, this is not a fair thread. If you read the whole article, she is attacking the conspiracy theory (which Taibbi has shamelessly exploited) that Goldman isn’t just *A* villain, it is *THE* villain. IE, if Goldman had never existed, the economic crisis would never have happened. I agree with the notion that Goldman is only a part of the story.

    There’s plenty of villains to go around. For one thing, the American people bought into the ideologies you rightly attack. They reelected the embodiment of those values, George W Bush, by a healthy margin in 2004.

    Quoting McArdle:

    “The more dangerous thing is that Taibbi makes a lot of people feel like they finally understand how they were conned. Taibbi’s facile use of technical terms, his lengthy explanation of little-known secrets that have been endlessly rehashed on every financial page for going on a decade, gives people the illusion that they have acquired valuable information about the financial crisis. They haven’t. They’ve acquired a bunch of disconnected vignettes.

    Which is not to say that I disagree with Taibbi’s project. Wall Street is an arrogant beast that more than held up its half of the devil’s bargain which drove us into our current ugly straits. Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression. They made a terrifying amount of money doing it. And now that the taxpayers have bailed them out at considerable expense, we don’t even get a goddamn fruit basket. Instead they merrily go along paying themselves gigantic bonuses for the singular feat of not driving our economy entirely back to the stone age. I think some populist rage is more than warranted.

    But just because Taibbi, or Sarah Palin, has a legitimate grievance, it does not follow that everything they say is thereby legitimate. How you press that grievance matters. And the right way to do it is carefully, honestly, and with a deep respect for the value of knowledge, even if you disagree with those who are purveying it.”

  14. Onlooker from Troy says:

    In case it’s not clear, I meant to stick Barry’s quote in the front of my post, such as:

    “As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”

    Hear! Hear!

    I don’t want anybody to misunderstand and think I was agreeing with McCardle.

  15. Transor Z says:

    We have plenty of information to start implementing some major policy reforms.

    However, we are still waiting on law enforcement to “connect the dots” in an evidence chain that can nab the major players on criminal charges.

    Specifically, we know that appraisers fed the bubble by meeting loan amount rather than more “objective” valuations.

    We know that there was widespread fraud in filling out loan applications and in representing the actual terms of mortgages to consumers.

    We know that the investment banks that securitized MBS paid fees directly to ratings agencies.

    We know that the ratings agencies would slap AAA ratings on “transactions structured by cows.”

    What we can only surmise is that the investment banks knew that mortgage origination was sketchy and therefore committed fraud in securitizing them. This seems to me a critical step in the chain. Anybody with half a brain already knows what they need to know to form an informed opinion, but due process is more exacting. Email, testimony, memos, banking records.

    As sick as I am of hearing about a corrupt system, I’m also getting sick and tired of hearing people say “But nothing will ever come of it, nothing ever does. The rich and powerful always win in the end.”

    That’s a garbage mentality. Hold the American system to its principles by participating. Send letters, emails. Make phone calls. Find like-minded friends. Organize or join groups already organizing.

    But don’t sit behind your fucking computer bitching about how the world isn’t fair.

  16. ben22 says:

    I suppose this is OT for this thread but as good a place as any:

    Social Mood regarding housing:

    I have just come across some survey findings in the June 29 Barron’s regarding home ownership so sorry if this is old news for some, I don’t find it crucial to read all of Barron’s as soon as it comes out.

    These caught my eye:

    1. According to the survey results released by the NFCC, more than half of all American adults, more than 100 million people, no longer believe that home ownership is a realistic way to build wealth.

    2. Almost 1/3 of those surveyed, or roughly 72 million people, do not think they will ever be able to afford to by a home.

    3. 42% of those who once purchased a home (but no longer own it) do not think they’ll ever be able to afford to buy another one

    4. of those who still own a home, 31% do not think they’ll ever be able to buy another home (upgrade existing home, buy a vacation home, etc. )

    Now, I have heard many pundits/economists remark over the last several weeks that “home affordability is better than ever”. On one hand, you might look at these survey results and use them as a contrary indicator (right at the bottom for housing, lots of people are negative on home ownership) OTOH, perhaps this reveals a longer term shift in social mood. I think it is more the latter. At the end of the day, many of those that are talking up affordability missed the entire crisis.

    I wonder if we will see this in the stock market before the bear market is over: The idea that people would rather not own stocks and they are no longer viewed as a long term wealth builder or a great way to save for retirement or other financial goals.

    It is obvious since the March lows that people are still part of a stock ownership society mindset trying to catch the next Citi at .97, etc. I think this is mainly due to the fact that people have been brainwashed with the stocks for the long term and think it’s the only way to build wealth, Russell may explain that they are trying to “cheat time” in many cases. The attitudes disaplayed in the market right now are what you see during Primary Wave 2 rallies.

    I’d think when all is said and done with this bear market, if a survey were done on stocks, it would reflect the negative attitude you see in the housing survey above. This shift in social mood should also cause more and more articles to be published like several here recently showing how bonds have outperformed stocks for such a long time, showing how compounding can work from a young age, and showing how buy and hold investing can ruin you, etc. This can also help fuel the demand for treasuries that everyone is so worried about as people sell equity and move to a “safer” alternative.

    Thoughts?

  17. ben22 says:

    conspiracy theories become more popular and are more widely believed during extended bear markets. The RS articles popularity should be proof of that, many of the comments on the econ blogs show it too.

    Look how many hits zeitgeist has generated on YouTube.

  18. danm says:

    OK. I don’t get it.

    Are we going to spend the next decade wasting huge amounts of energy to put as many criminals as possible behind bars and argue what action was relatively more ethical/moral than the other or are we going to try to figure out the most efficient way to fix our system and protect ourselves from ourselves in the future.

    Because really, I don’t see thousands of Martha Stewart trials as a good use of our resources.

  19. cvienne says:

    @ben22 (10:52)

    I kind of commented on this yesterday (actually I was reflecting Schiller & Roubini comments from their interview)…

    Schiller refers to much the same as you refer to (my reference was the last bullet point, but his comments come about 45 minutes into the interview)…

    http://www.ritholtz.com/blog/2009/07/shiller-roubini-discuss-anemic-economic-recovery/#comment-192589

  20. Steve Barry says:

    Whitney’s call from today: The economy sucks so bad, and we are in such a hole, that Goldman can blood-suck a fortune from states desperate to issue debt.

    The result? Dow surges off its lows. Thanks goodness CNBC is there to get the word out. I also have to hat tip local station NBC for running a half hour infomercial Sunday for a pink sheet stock, complete with “analysts” telling us how a ten cent tsock was going to the moon. Yeah, we must be bottoming…investors seem to have wisened up.

  21. leftback says:

    @ben22:

    Yes. I think that we will see complete and utter revulsion towards real estate and stocks before this bear market is over, and we are nowhere near that point yet. Unemployment hasn’t really started to grind down real estate here in the Northeast yet although it is clearly doing so in the West. A second stock market crash seems to be completely inevitable as a variety of institutions and individuals are forced to liquidate to pay down debt.

    BR: I completely agree with the statement:

    “As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .”

    This is all part of the Tyranny of the Incompetent. Anything that isn’t simple is rejected, like science and engineering. The country is still being run by the popular kids that used to pay you to solve their differential equations, Barry. Until the nation and corporate America learns to think harder about what is going on and unload all the empty suits and marketing guys from positions of influence, we will continue to struggle.

  22. Patrick Neid says:

    Outside of Franklin I don’t think anyone read her piece.

  23. danm says:

    conspiracy theories become more popular and are more widely believed during extended bear markets.
    ——————
    It’s been shown time and time again that depressed people are pretty good at recognizing their limitations. Optimists are deluded about their level of control and abilities. So to be a balanced, well funtioning individual means you must be deluded.

    So maybe many conspiracies really are true and during downturns people are simply more realistic and aware.

  24. VennData says:

    Villians? Sir Allen Stanford (pending) Chris Cox? Subprime fraudsters?

    http://www.guardian.co.uk/business/2009/jul/09/us-homes-loans-corruption-afg-morganthau

    I’m thinking bring back the Fairness Doctrine and have somebody there to burn their straw men, cut down their cherry-picking, full out their half truths etc… Right at the source. Whoosh.

  25. cvienne says:

    @Patrick Neid

    “Outside of Franklin I don’t think anyone read her piece.”

    That goes DOUBLE for any bill being crafted in the House…

  26. ben22 says:

    Something interesting from the Almanac that made me think about some recent calls on here for a bounce late in the week:

    Since 1989 Monday, Tuesday and Wednesday have been the most consistently bullish days of the week for the Dow. Thursday and Friday the most bearish, as traders have become reluctant to stay long going into the weekend. Since 1989 M, T, and W gained 13737.33 Dow points, while Th and F combined for a total loss of 3432.33 points. During uncertain market times traders often sell before the weekend and are reluctant to jump in on Monday.

    So, if you want to try to stick to short term calls for a bounce, after these types of sell-offs, I’d stick to the first three trading days of the week, much more likely you will be right.

  27. karen says:

    Here’s the comment to read from the unreadable Megan McArdle article:

    CAMP July 11, 2009 6:26 PM
    Taibbi overreached and he weakened his case. He could have just laid out J. Aron’s place at the center of the commodity pit, the special dispensation of CFTC rules that enabled J. Aron to engineer perceived shortages in scarce commodities and hence $147 oil in a downturn. That might have been enough to ignite the public outrage he so clearly wanted to inspire. Blankfein started at J. Aron and the profits from manipulating commodity prices are key to his ability to hang onto his primo position at G-S. The top spot had always gone to an investment banker in the past. No one ever asks how a guy with no looks and less personality ascended to be Chairman and Chief Executive of the world’s premier employer of talent and ambition. What is fascinating about Taibbi’s piece is that he misses the biggest scandal of the past year. Blankfein was in the room when the FED decided to take over AIG. As reported by the FT there were only four guys in the room, Paulson, Geithner, Bernanke and Blankfein. He was not there out of public interest. The bill for the taxpayer is now $ 180 bln and counting, while G-S racks up massive profits. Socialized losses and privatized gains. When the NYTimes published Geithner’s entire calendar for 2008 as President of the NY FED (a first) that meeting and its attendees had mysteriously fallen off the record. G-S wasn’t party to the AIG deals, they were the arranger of the “regulatory capital” product used by Europe’s largest banks. Had AIG failed France would have lost its major banks. The largest AIG CDS payouts were to foreign financial institutions. During “AIG Week” when every news organization was ranting about AIG bonuses G-S quietly held a “presser” to explain that they had “no exposure to AIG at all.” If fact, they got paid on their “extra insurance” that they bought in case AIG failed. Who wrote that policy? Buffett? It might explain the sweetheart option that G-S granted to him at $ 105. G-S never held long-dated trades on its own balance sheet. They kept the fees and parked the risk at institutions with bigger balance sheets or access to the FDIC. It is not hard to spot who got paid to take on risks they were less well equipped to manage. Meanwhile, the rules that would sort out the financial services industry and prevent another shakedown of taxpayers are not even on the table at the moment.

  28. Transor Z says:

    I agree . . . with Franlin. Did I just say that?

  29. cvienne says:

    @ben22

    “Since 1989 Monday, Tuesday and Wednesday have been the most consistently bullish days of the week for the Dow.”

    That’s when there are the most SUNSPOTS :-) – jk

  30. wally says:

    “Now, I have heard many pundits/economists remark over the last several weeks that “home affordability is better than ever”.”

    I don’t think that it is more affordable than ever. There are two sides to the affordability equation, and I think ability to pay – or perceived ability, at least – has dropped faster than house prices have dropped. So even in a market of rapidly dropping prices, affordability is seen as decreasing.

  31. super_trooper says:

    Why should we care about Megan McArdle ?

  32. leftback says:

    Megan McArdle ends up embellishing Matt Taibbi’s case for him… even if there were only J Aron and AIG to be considered, there is still a pattern of behavior that would be criminal if the laws were only slightly different.

    So, the quasi-governmental liquidity provider based at 85 Broad reports after the close tomorrow and the market already smells a rally. Might I remind the shorts that GS can stand for many things, including GIANT SQUEEZE.

  33. trainreq says:

    Megan knows of straw men.

    Comparing Taibbi to Palin. That straw figure commits Hara Kiri without another word.

    “Everyone knew a lot of the mortgages might go bad, either by defaulting or prepaying. (This is a risk for bankers, who don’t like the idea that if interest rates drop, their 7% mortgage might suddenly turn into a pile of non-interest-bearing cash which can only be invested at 5%.) But if you pool the risk, only some of the bonds will go bad, while others pay off. The result is a less risky, less volatile investment than any individual junk mortgage bond. And it would have worked, too, if it hadn’t been for … a collapse in the housing market of a scale not seen since the Great Depression.”

    EVERYONE knew a lot of mortgages could fail, apparently no one could have imagined housing prices might have fallen, or known we were in the midst of a bubble.

    While one can agree that Goldman is not the only villian, they certainly seem to be a villian, and should at least be investigated for their part.

  34. cvienne says:

    @wally

    It irks me when people use only HOME PRICES as the determining factor…

    1. Why not factor in a “job loss risk premium”
    2. Assume that in the PRICIER areas (like DC & NYC) property taxes are very elevated, eventually that hurts the higher prices homes which will be more of factor on an overall index.
    3. Property & casualty insurance
    4. Reduced FICO scores = harder to qualify for cheapest loans

    Also, the decision nowadays basically has to be to either but a NEW HOME (whith shoddy construction likely), or an OLDER HOME (likely requiring costs for upgrade & repairs…

    …and FORGET about all the crap they’re trying to stuff into the CAP & TRADE bill to require homes to be “greener” (like an auto emissions test) before selling…

  35. donna says:

    And this is the kind of crap they use to excuse themselves. It wasn’t my fault, I’m just one person, I deserve my big bonus, I can’t fight this system… etc, etc…

  36. super_trooper says:

    I can’t believe you are discussing this. Nothing is more ridiculous than a journalist discussing another journalists’ piece of work. As a journalist, go write your own piece about GS or the financial crisis. Do some “journalistic” works. This is just a pissing game at this point.
    Or am I just missing the point, is she a blogger?

  37. cvienne says:

    @lefty

    it can also stand for Giant SuckerRally

  38. “Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression.”

    even this trope, from McCardle, via F411, is complete BS.

    those equations didn’t break b/c they ‘assumed away the possibility of a second great depression.’, they broke b/c they, relevant to that agitprop, above, ‘assumed away any possible declines in RE values’

    Franklin411, it surprises, little, that you’re a McCardle aficianado. Do you two get Team Discounts for your pom-poms? if not, you may care to check out http://getpoms.com/

    http://encyclopedia.thefreedictionary.com/Aficianado

  39. Onlooker from Troy says:

    So Whitney upgrades GS based on, well, you know, and the whole banking sector goes on a 3% rally! Ah yes, the wonderfully discerning investment world that buys everything related, no matter the actual fundamentals of any other company. It’s downright humorous. And the rest of the market is along for the ride today, I guess.

    Glory, glory, hallelujah!

    And they finally stopped the idiots from trading GM’s stock. LOL I guess the fools who ended up holding the hot potato are going to feel pretty stupid.

  40. danm says:

    Of course it was somebody’s fault. The problem is that by the time you’ve built all your jails, you’ll be Easter Island II.

  41. call me ahab says:

    what Megan doesn’t seem to understand is that the housing market was poised for collapse- rampant speculation- with the only thought to resell at a large profit-

    you can package all the shit up any way you like- but once the speculation fever ends the whole market collapses- and it won’t matter how pretty the wrapper is at that point and how the risk is pooled, etc, etc,etc, BS, BS

  42. Transor Z says:

    @Karen:

    Speaking as a financial layperson, pseudo-knowledge is a big temptation for me. I try not to overreach the true extent of my limited understanding of markets and the economy and repeatedly have to remind myself that the financial blog thing is like a seminar for me. I try to do the assigned reading and try to contribute “homework projects” for class participation. Failing that, I throw out smart-ass remarks.

    I was wowed by the ZH end-of-the-day pump charts and knowing talk about SLP-as-PPT etc. When Kid Dynamite and a few others helped set the record straight (IMO anyway) about program trading I realized my ignorance and put down my pitchfork. I still think there’s something sketchy about it, but I’m less inclined to jump to conspiratorial manipulation. More precisely, I don’t believe I understand it well enough to level that kind of accusation at anyone right now.

    I thought the Taibbi article was funny and witty but lacking in substance when it came right down to it. Possibly pandering. On the other hand, journalists hardly ever get it right on technical subjects. It is very hard to get to the truth of things and you have to hack your way through the underbrush with a machete every damned day, more work than a lot of people are willing to do to understand things.

  43. GB says:

    Will they be villians if they help lead to a collapse of local governments, retirements, pensions and health care?

    I think it’s sad to chalk this up to capitalism when we clearly aren’t. Well for the banks anyways.

  44. leftback says:

    @cvienne said: “it can also stand for Giant SuckerRally”

    True, my friend, but for today, it matters not – for we are long, and not wrong. We set out to trade technically this week but with an eye to earnings reports. A modest or weak open to the trading week, then we would be long into GS earnings (that’s where are now). An übersqueeze resulting in a huge rip through 900 would see us looking to get short into overhead resistance on Wednesday or Thursday. Let’s see which scenario plays out.

  45. Greg0658 says:

    danm @10:58am .. I’m sorta with you there … take the cemetary plot scandal going on in Chicago right now .. $300K for the perps and probably $30M by the time the whole thing plays out in courts – after investigation and incarceration .. add to that the judgements for wrong doing to the litigants paid by who? us and insurance companies (again us)

    sorta = gotta do something or else it stays “all messed up”

    Martha Stewart episode what a crock

    in my tinfoil hat I say .. Enron and Ken Lay in the voice of Dana as the Churchlady “how convenient”

  46. ben22 says:

    @cvienne,

    That’s when there are the most SUNSPOTS – jk

    I see people joke about this a lot, and I often wonder if they have seen long term charts and the corresponding spot cycle. As if we really completely understand it, as if we really understand millions of things about space. I for one will not fully dismiss that it has some impact. James Simons thought it was worth millions of dollars to look into it.

  47. Banksters_Suck says:

    No Financial Villains? Hah!

    http://forum.thedailyshow.com/tds/board/message?board.id=economy&thread.id=3931

    Obviously the whole thing was the French’s fault ;)

  48. karen says:

    Tranzor, I, too, try to keep a level head on when those around me are losing theirs.. i’m also not a fan of hyperbole.. the woman’s article was annoying.. especially the quote in question. I bet she wishes she could rephrase that. This financial crisis has more than one villain, and it only takes a few for a perfect storm.*

    *The phrase was awarded the top prize by Lake Superior State University in their 2007 list of words that deserve to be banned for overuse.

  49. Andy T says:

    Her quote was:

    “But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.”

    BR, I think you actually made her point for her. She’s simply saying there is no ONE person or even ONE group powerful enough to take down a whole system. And I agree. It was group think, greed and societal herding that led to most of it. I don’t she said there weren’t any villains….

  50. Thor says:

    I must say – I greatly admire both Ben and Karen for their stock savvy posts, but I admire you both even more today for swimming against the “GS is The Antichrist” tide. Good, level heads!

  51. Steve Barry says:

    Anyone see Hussman’s piece today, titled High Loan-to-Value + Trigger Event (Unemployment) = Default?

    Kind of reminds me of my comment last week:

    Steve Barry Says:

    July 5th, 2009 at 2:25 pm
    No Savings + Layoff also = FORECLOSURE

  52. leftback says:

    @Karen: “Green shoots” will be banned for overuse at the end of 2009.

    Anyone want to predict the next bailout? CIT is maybe like Lehman, not TBTF, perhaps, but big enough to screw up the credit markets, precipitate small biz BK and f*** up a lot of portfolios? Then there is Arnie’s Army in CA…?

  53. cvienne says:

    @ben22

    “As if we really completely understand it, as if we really understand millions of things about space. I for one will not fully dismiss that it has some impact.”

    I don’t dismiss it…I just don’t understand it…On that note, explain to me how someone could hold out a notion of sunspots, yet dismiss Martin Armstrong?

  54. Andy T says:

    So, Meredith upgrades and talks bullish….

    I remember once hearing Guy Adami say, when I used to watch Fast Money, “Even analysts can get squeezed.”

    For instance, when a stock or market starts to get away from them, they sometimes “chase” and feel the need to upgrade and vice versa….

    Wonder if this is what’s going on here…..

    It all feels like a nice setup for “sell the news” tomorrow when GS reports….

  55. efrltd says:

    Leverage! Now that’s the devil’s name this time. The farm collapse of the ’80′s. Mortgage REIT’s of the 1970′s. In the 30′s. And going back! See the “The Exchange” about the Depression of 1807. It was bank leverage, and Jackson’s fool hardiness, that toppled that time too. And back some more ….. before that–tulips, Mississippi Land.

    I find trying to name names is a popular exercise. But the names are endless … big names; big corporations; all the way down to John and Jane Doe buying the bungalow on the come with nothing down, or even less, with a mortgage designed to blow up soon. They, in a couple years, they got a second, a home equity loan. Go to any court house…the registry of deeds and liens. That’s the names you want to head the list. Then follow the paper trail all the way to the double, triple and quadruple leveraged derivatives…banks, mortgage brokers, investment bankers, pension and mutual funds, pensioners and other investors.

    I wrote a book too, “Public Utility Economics and Finance,” that shows also how the public utility holding companies of the 1920′s and ’30′s blew up by over leveraging. Leverage piled on leverage that’s the devil’s doing then and now.

    Nobody made John and Jane Doe over lever; their bank wrote the paper; pocketed fees and passed the paper on to investment bankers and again by a couple of side doors on to Grandpa and Grandma Doe’s local broker, pension fund and mutual fund. They all are the culprits; they all played the devil’s hand, leverage, and lost.

    My specific question is: If Goldman was the hand that brought the system down, if they ‘re too big to fail, why are the still the one standing? Somebody is missing something here to try to target Goldman. If authorities start taking names miss the forest, leverage, for the tree, Goldman’s, the problem will never be fixed. From John and Jane to Goldman, leverage has to be controlled–self control or formal regulation.

    This is a serious point I’m making, not a quibble. Most of problem is there’s little or no equity in the deal–from the house at 123 Main all the way up Wall Street and back down to 546 Main, where I M Investor lives. The blow up has been obvious for years. Everyone just kept playing the devil’s hand, now they want the villains names. Sorry lots of people need to look in the mirror. That’s step one. Step two, step back from leverage at every turn. If it’s not affordable without leverage, whether on Main Street or Wall Street, it’s not affordable with leverage.

  56. cvienne says:

    @Andy T

    All the cash that was unwound in oil the past week (and after the Treasury rally last week) is finding a “home for a day” in financials…

  57. I-Man says:

    Hard to fade Meredith… Especially when she says things like:

    “you dont want to be short these names…” She’s talking: GS, JPM, MS, BAC…

    Well guess what Meredith?

    Watch I.

    Long FAZ and SKF.
    Short Meredith Whitney.

  58. Onlooker from Troy says:

    efrltd

    Excellent point re: leverage. It is indeed at the root of it, isn’t it? Without extreme leverage all these other factors wouldn’t lead to a complete implosion, just a dust up.

  59. Onlooker from Troy says:

    Wow, they’re having a veritable orgy in bank land today, eh? And the REITs are along for the ride as well.

    I certainly wouldn’t short GS, but the others…

  60. leftback says:

    Here is our first important technical area of the day, SPX 893-897, don’t be surprised if we blow through this.

  61. The Curmudgeon says:

    It just occurred to me. The government is pretending it won’t rescue CIT today. I bet just so Goldman or Pimpco can buy some of their bonds real cheap today to cover their CDS exposures, so tomorrow when the government rides to the rescue, it’ll be another AIG, but w/out the naked exploitation people are catching on to.

    See, now before this faux financial crisis where Goldman was rescued from itself and from 3 of its competitors, and Pimpco started setting monetary policy, I’d have never been so suspicious. But who am I to believe, Goldman and Pimpco, or my own lying eyes?

  62. cvienne says:

    @lefty

    Cardiff…A DRAW?

  63. CapitalistCanuck says:

    @LB

    As Andy pointed out earlier smells a bit like a pump n dump, tomorrow the retail sales report comes out and I intend to fade the move either direction. 895 appears to have resistance, plus it will make a lot of people whole from last weeks move down.

    For now, I’m content to take a small hit on SSO from a BIG loss on SSO last week, and my FAS calls are up very nicely.

  64. manhattanguy says:

    S&P reached my 895 target. It might have a few more points to go. I expect markets to sell off after GS results tomorrow. My $FAS is doing great. But $UCO not so much.

  65. call me ahab says:

    my guess is buy the rumor sell the news- if GS comes anywhere close to expectation- expect a sell off tomorrow

    also- I find it interesting that here we are talking about the failure of C offset by upgrades from Whitney for a couple names- one is almost a certainty- the other- who knows-

    but in the end the real economy will be the arbiter of which way stock prices go

  66. leftback says:

    @cvienne: Cardiff…A DRAW? Indeed. A glorious draw, snatched from the jaws of defeat, despite being outplayed by Australia for four of five days. Englishmen everywhere rejoiced.

  67. cvienne says:

    @lefty

    5 days of test…16 tea breaks later…A DRAW…

    You gotta love cricket! :-)

  68. manhattanguy says:

    I hate test matches. As if one day match is torture enough to watch :)

  69. The Curmudgeon says:

    @I-man, ditto, long SKF

    …except for a papering over by the Fed, nothing fundamental has changed. They’re all (the TBTF) insolvent because they can’t borrow against their assets, except from the Fed. It will all blow up again, just a matter of when.

    Whitney’s cute, but this smacks more of a desire for attention than a serious analytical stance.

  70. ben22 says:

    I-man/AT,

    I think MW was just saying for a trade right now, I thought she was fantastic this morning. If you didn’t see the whole segment she wasn’t as bullish as it seems everyone is saying. For example, she called for unemployment to go much higher from here, I think she said 12%, however, it is worth noting she said if she weren’t so chicken (career risk) she’d say 14% and she talked about long term structural issues that could cause a weak economy for years. She also made a point to say that she’s not including ALL banks in this, C, she said was not in her group of trades. This is part of being an analyst, in a place where markets have trended up for a very long time, especialy after you just opened your own shop and were named one of the most influential women on wall st.

    These “earnings” should be “stellar” from the banks. How could they not be, they just were handed a perfect environment to make money in. That said, anyone trying to buy and hold a bank here because they see “value” is crazy imo.

    @cvienne,

    Good question re Martin Armstrong, I don’t fully dismiss anyone, I just tend to agree with some people far more than others. As for being confused about sunspots, or not understanding them, I’m firmly in that camp too.

    @Thor,

    Karen is a waaaay better trader than me so I’m happy you put us in the same class up there of being contrarian.

  71. cvienne says:

    opex week=5 day test match

  72. leftback says:

    A bit like bear markets really, up and down for five days = sideways, I guess you have to be there to enjoy it.

    Now, back to business. Bears beware! So many of you know what the market is going to do and are getting short, and that is usually the recipe for a debilitating squeeze. We will all know when the right moment arrives, but remember that if you bet against GS or even against C and BAC you are betting against banksters. Be careful.

    The real action is CIT, IMO, as a bailout would initiate selling of Treasuries and a big equity squeeze. At the moment it looks like we are aiming for an “orderly liquidation”, but we have all been screwed before, right?

  73. oblom says:

    cvienne,

    I’m getting out of my long hedges before the close today. Have a feeling we’ll push to 899 today on the GS rumors. Don’t want to be there for “sell the news” part, given retail sales numbers come out tomorrow as well.

  74. cvienne says:

    @Curmudgeon

    …if she were a President she’d be Babe-raham Lincoln

  75. I-Man says:

    @ B22:

    Not disputing the earnings… disputing the reaction to them… and her reco that you can own these things going into earnings… which I think is a helluva risky strategy.

    You could own these things about 25% ago. Now the risk is way too skewed to the downside… unless you’re DTing it and know what you’re doing.

    Most of the folks bidding this shit up today dont.

    Thats all. MW should stick to analyzing the books… not making short term trading calls… thats the “career risk” IMO.

  76. cvienne says:

    @lefty

    I’d be happy to see Treasuries sell off a little so I could add…

    Let’s stir the pot a little!

  77. ben22 says:

    @lefty,

    I agree with almost everything you say and your 2:03 is no exception. You guys are brave trying to short banks right here with 3x leverage. I could see doing that on an individual name but on a basket of stocks during earnings reporting, well, not for me. That doesn’t seem like a time when the probability is way on your side to make money.

    Whats is obvious is obviously wrong.

    - Joe Granville

  78. CapitalistCanuck says:

    @ben22

    Truer words could not have been spoken, if there is any sector that could really rally this earnings season it’s financial. The fact that energy/materials are still rolling over is worrisome and I would not be long ahead of retail sales report tomorrow…

  79. karen says:

    ben, i do not deserve your compliments : ) let’s wait till year end…

  80. ben22 says:

    I-man,

    No doubt about this:
    Most of the folks bidding this shit up today dont.

    But, her main focus today was on GS, and that stock could have been snagged below 139 on 7/8. That’s a nice gain after such a huge rally, that stock was below $60 in Jan. You are right though, the smart money did this trade a week or two ago and are sellers now. I just don’t know about going short, I’m sure you’ll figure it out though.

    I’m also curious to see if the reaction is more to the earnings or towards the guidance. I think the latter is more important right now. People want a confirmation of that second half recovery to justify the rally.

    As for MW only analyzing books, sadly that is probably never an option for her again given all of the fame she has now. This is why people like Roubini get grilled for stock picks every time they go on tv.

  81. Steve Barry says:

    I don’t know all the exact timing of her calls…but if Whitney just put a buy on GS, she has already missed a big move.

    At the very beginning of the crisis, Dick Bove was seen as the analyst who was bearish and right…for those who don’t remember, he put out several misguided calls for “generational buys” since then.

  82. leftback says:

    I could see shorting a bank or two here and there – but not the XLF, not here. The banks have had a profitable trading quarter (again), and remember that they have all been borrowing from the Fed at exceptionally low rates for a long time now, and they are also able to Mark t0 Magic again. Therefore one might consider the danger of even C and BAC having earnings upsides along with the obvious potential for write-downs.

    Continue to play the technicals, but don’t over-commit, and remember that earnings are always interpreted against the technical backdrop. That’s really why “buy the rumor sell the news” works, although we are in a bear market, so watch out for “sell the rumor, buy the news”. The good news is you can fade the move after a massive squeeze. Unless you’ve been crushed that is. Stay nimble here and then you can load on SRS and FAZ after fools rush in.

  83. ben22 says:

    I wasn’t around much this weekend and maybe you guys already talked about it but what do you all think of this Ron Insana BS?

    I recall him as being very bullish all the way down last year.

    Can we add him to the list of villains?

  84. cvienne says:

    @ben22

    “I’m also curious to see if the reaction is more to the earnings or towards the guidance. I think the latter is more important right now. People want a confirmation of that second half recovery to justify the rally.”

    If I see GS trade above $163 and stick, I’ll take notice…Up until that point, I think it’s mostly technical…

    That said, there is still more than 11% to scare the crap out of any newly minted shorts…

    For my $$, I’ve been a million miles away from the financials for…FOREVER…

  85. ben22 says:

    looks like silver is finally taking a little breather from the sharp drop it’s had. I think six straight weeks down.

  86. Andy T says:

    I’m showing that the neckline of that H&S is being vigorously tested on the candlesticks and will soon be vigorously tested on the closing basis (60-120 min charts). Why do I get the feeling that everyone who sold that neckline is about to get stopped out….?

  87. leftback says:

    Ronaldo es el hombre Insana.

  88. ben22 says:

    @cvienne,

    You and me both, I haven’t touched a bank in almost three years. I was tempted during this rally to try and trade some but I’d rather just enjoy people talk about the wins and losses on them here. I really almost pulled the trigger on WFC after T3 comments on it but I realized I just wanted to do it b/c he said so, not because I really believed in it.

  89. I-Man says:

    Yeah let me be clear: I’m not adding to any shorts here… just not bailing on them on account of today. Thought about it, yes.

    But as per technicals… the trend is down in XLF, thus I have no reason to sell FAZ. Its really that simple. I do try to make it more complicated tho… only human… all too human.

    Ask me again at XLF > 12.25 and I might tell you different.

  90. ben22 says:

    AT,

    Well, you predicted that didn’t you? Everyone and their mother is talking about that H&S.

  91. leftback says:

    How many times do you have to see this action and feel the cold steel on your balls to know that this is a squeeze?

  92. I-Man says:

    Andy…

    You’re already on top of it with your “X Wave”.

  93. Andy T says:

    ben22. Yes, and then after they (newly minted technicians) get stopped and then the SP500 craters, we’ll have to explain to them that it was “in the spirit of head and shoulders pattern afterall.”

  94. Andy T says:

    @left. Well stated….that’s a nice phrase “cold steel on your balls”….you must have been a previous resident of a trading floor…there are all sorts of colorful ways of describing a squeeze….I couldn’t even share them here amongst mixed company….

  95. cvienne says:

    It’s all just your everyday garden variety opex week “clownin’ around” to me…

    So I’m with lefty @ AT…”watch your technicals”

  96. CapitalistCanuck says:

    LOL, is anyone really surprised the H&S pattern didn’t play out as text-book? Yahoo was reporting on this 2-3 weeks ago…I think this is a short squeeze and it eventually play out to the downside. Besides the banks, I really don’t see anyone reporting a very strong quarter although I will not put it past them to spin it…

  97. Steve Barry says:

    I see signs of a stock bubble…insane P/E…interest in penny stocks (seen in infomercials)…analysts moving markets…people trading worthless shares of GM

  98. karen says:

    Steve, you wouldn’t consider the “stock bubble” inflation, now, would you? lol.

  99. karen says:

    and wait til Cit’s white knight arrives.. cuz it will happen. look at $vix candles, hindsight is 20/20.