The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Matt Taibbi’s new book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America, was reviewed this weekend in the Sunday New York Times Book Review.

The review was rather positive, with some quibbles towards the end.

If you find Taibbi’s writing entertaining — and I do — then you should read both the full review and the published excerpt.

NYTBR:

Among the unfortunate legacies of the financial crisis of 2008 is a tendency among commentators to soft-pedal the outrage over what happened. In too many accounts, blame is considered impossible to assign given the complexities of modern-day finance. Those inclined to point fingers at Wall Street or Washington are frequently derided as innocents who do not grasp how the world really works.

The result is an apologia that goes something like this: Mistakes were made, despite the best intentions of financial professionals. Bankers lent too much money to poor people who never should have bought homes. Models used to measure risk broke down, and regulators were swamped. All of this was a shame, but accidents are a part of life, and an unavoidable part of the swashbuckling style of capitalism that has enriched Americans for generations.

Nonsense, Matt Taibbi says. In “Griftopia,” a relentlessly disturbing, penetrating exploration of the root causes of the trauma that upended economic security in millions of American homes, Taibbi argues that what unfolded was far from accidental. Rather, the nation suffered the equivalent of a hostile takeover of key areas of its commercial life by investment banking houses, while regulators and members of Congress abdicated their responsibilities either because they were influenced by campaign cash or because they believed the fairy tale that unsupervised markets always work best. The result, Taibbi asserts, was a thieves’ paradise — Griftopia.

A contributing editor for Rolling Stone magazine, Taibbi is best known for the metaphor he hurled like a grenade at the Wall Street goliath Goldman Sachs, calling it “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” He amplifies that characterization here, pointing out that Goldman managed to collect billions of dollars in taxpayer bailout funds that were paid to American International Group (A.I.G.).

Taibbi persuasively dismisses the argument that the financial crisis was caused by poor people with a taste for real estate, delineating how Wall Street eagerly handed out mortgages to anyone with a pulse, and then used the home loans as the material for a far more lucrative enterprise — the exotic investments known as derivatives. The derivatives market depended upon a steady supply of mortgages. But when too many of the bets went bad, Wall Street persuaded the Treasury to construct bailouts that Taibbi describes as a “labyrinthine financial sewage system designed to stick us all with the raw waste and pump clean water back to Wall Street.”

Full NYT review is here;  See our previous book excerpt here.

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Source:
Thieves’ Paradise
PETER S. GOODMAN
NYTBR, December 24, 2010  
http://www.nytimes.com/2010/12/26/books/review/Goodman-t.html

Caroline Baum — Bloomberg’s snarky, sardonic columnist — imagines New Year’s resolutions for various Wall Street players:

• President Obama promises his base he will attend a weekly meeting of Tax Cutters Anonymous.

• Securities and Exchange Commission pledges to find someone, somewhere who is responsible for some kind of wrongdoing;

• Ben Bernanke promises to cut up his U.S.A. credit card;

• New York Fed president Bill Dudley resolves to explain how it is the Fed can target inflation to the nearest 0.5 percentage point when it missed the mother of all housing and credit bubbles;

• Sarah Palin, former governor of Alaska and Republican phenom, pledges to finish digesting the 800-odd pages (paperback edition) of Milton Friedman and Anna Schwartz’s, “A Monetary History of the United States.”

• Caroline Baum pledges not to pick on Alan Greenspan anymore . . .

There are more at Bloomberg . . .

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Source:
Blankfein, Palin Toy With New Year’s Resolutions
Caroline Baum
Bloomberg, Dec. 27 2010
http://noir.bloomberg.com/apps/news?pid=20601039&sid=aqkX7rlz9Jqo

John Mousseau
Lessons from the Muni Bond Market in 2010
December 26, 2010

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1) When Meredith Whitney talks about Munis, I turn down the sound.

Both in September and recently on 60 Minutes, Meredith Whitney – without giving any supporting numbers – predicted widespread municipal defaults. She forecasted $50-to-$100 billion in 2011.” We disagree and would like to debate her.

Many municipalities, local and state, just printed their third quarter in a row of rising tax receipts. In the past eight quarters, state and local governments swung a collective $115 billion in budget balance, from $65 billion deficit to $50 billion surplus (source Strategas). “State spending fell 3.8 percent in the 2009 fiscal year and 7.3 percent more in the 2010 fiscal year” said the lead editorial in the Sunday New York Times (December 26). They are making tough decisions on budgets and expenses. Our take is that not all situations can be painted with the same broad brush. The Harrisburg, PA incinerator has NOTHING to do with the Kansas Turnpike Authority. Ms. Whitney is not the only person who has been fanning flames without the facts. CNBC and the Wall Street Journal have also added to the hype. Security for most general-obligation and essential-service revenue bonds is very strong. There are difficult choices for state and local governments – and most are making them by adding forms of austerity to their budget lines.

2) The bond market can survive without bond insurance.

As little as two and a half years ago, almost 60% of new issues were coming to market with some form of bond insurance. The downgrade of most bond insurers was not because of Muni related credits. It was due to the problems of their insuring mortgage-backed securities. Right now only Assured Guaranty, which merged with FSA, is writing insurance. That 60% is down to single digits, but the market is coping. The world has learning to live with bonds rated BBB, A, and AA on their own.

3) Bond insurance is not totally dead.

Assured Guaranty continues to insure municipal bonds. Other insurers are not writing insurance because the market has discounted away their value. Both FGIC and AMBAC’s parent companies declared bankruptcy, but the insurance subsidiaries continue to insure the bonds already insured, AND the covenants that were put into place by the issuers when purchasing the insurance are also in place. As a point of interest, MBIA Inc., the parent of the bond insurer, has seen its stock price actually go up from $4 to $10 this year. Remember, the insurers are still amortizing older bond premiums and are still earning interest from their investment portfolios.

4) Build America Bonds (BABs) were a good thing.

BABs will end 2010 with approximately $186 billion in issuance. The program, which began in April of 2009, is that rare program crafted in Washington, DC that actually WORKED the way it was intended to. It provided lower financing (through a 35% Federal subsidy of the interest paid) to municipal bonds issued for SHOVEL-READY projects. While it currently has not been renewed for 2011, there is talk that a bill will be introduced in the new Congress to extend BABs, albeit at a lower subsidy rate. The existence of BABs subtracted from new tax-free supply. That put downward pressure on tax-free bond rates until this November. It also opened up the municipal marketplace to a newer and broader scope of investors: pension funds, foundations, IRAs, Keogh plans, and foreign buyers. Expanding the base of buyers of municipal debt was one of the BAB goals and it was VERY successful. To have Asian pension funds and Belgian dentists and Persian Gulf sovereign wealth funds all wanting to buy the North Carolina Turnpike authority in BABs form is a desirable outcome of the program. The United States runs a current-account deficit and needs incoming foreign capital to balance it. BABs were one way that we were filling this void – until Congress failed to extend it. We believe the program should be brought back.

What happened at the end of 2010?

The tax-free bond market is still susceptible to huge volatility swings. It is driven by the decisions of millions of American taxpayers. It is comprised of nearly 100,000 separate issues, totaling almost $3 trillion. The pricing of bonds is estimated by mathematical formulas from limited actual transactions since only a few of those bonds trade daily. The days of homogenous bond pricing off a AAA bond insurer’s rating are long gone. Therefore, the forced selling of a mutual fund into this market drives all prices dramatically down even though only a few actual trades occur. This created the highly emotional panic selling by some bondholders. It became a self-fulfilling prophesy. The media hype seized it and exacerbated it.

As the end of 2010 approached, municipal issuers thought they would need to “beat the rush” of expiring BABs authorization, so BABs issuers flooded the market. Then non-BABs issuers who were going to issue regular tax-free bonds figured that they would also have to beat the rush. The result was that all of these issuers – thinking they were being proactive – walloped the market with supply. A lot of early 2011 new-issue supply is already behind us. Many issuers are now pulling or adjusting their schedule of future deals, as they have no wish to issue debt at the present high relative yield levels. The Bond Buyer 40 yield (a long-maturity index) skyrocketed from a 4.93% yield at the end of October to 5.73% last week before making its way down to the current 5.50%. With the current taxable US Treasury 30-year bond now yielding 4.45%, we think the tax-free market at 5.5% is a terrific bargain.

To put it in perspective, when the 30-year US Treasury bond was at this yield level last May, the same Bond Buyer 40 index was at 5.08%. We are being proactive with this opportunity.

Have a great holiday and New Year.

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John Mousseau is a portfolio manager and heads the tax-free Muni section of Cumberland. He is a member of the Management Committee of Cumberland Advisors. His bio is found at www.cumber.com. His email is John.Mousseau-at-cumber.com.

What a strange, funky wonderfully dischordant mash up:

[Flash 10 is required to watch video]

Hat tip Josh

The WSJ reports today that nearly 100 U.S. banks that got TARP funds from the federal government in Q4 2008 are in danger of going bankrupt.

So far, 7 bailout recipients have failed, resulting in more than $2.7 billion in lost TARP funds. The balance of the remaining potential failures relatively small banks — the median size was $439 million in assets, and the median TARP infusion was $10 million apiece:

“Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.

The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program.

When TARP was created in the heat of the financial crisis, government officials said it would help only healthy banks. The depth of today’s problems for some of the institutions, however, suggests that a number of them were in parlous shape from the beginning.”

There are many many reasons not to bail out failed banks: Moral Hazard, rewarding the incompetent, thwarting legitimate competition, reducing incentives to be risk averse. We can add another to the list: Throwing away billions of dollars . . .

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click for interactive graphic

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Source:
Bailed-Out Banks Slip Toward Failure
Number of Shaky Lenders Rises to 98 as Bad Loans Pile Up; Smaller Institutions Hit Hardest
MICHAEL RAPOPORT
WSJ, DECEMBER 26, 2010
http://online.wsj.com/article/SB10001424052970203568004576044014219791114.html

For the Google Demo Slam, three animators Tu+, Namroc, and Metcalf Anything put together an animation completely in Google Docs. Three days, 450 slides, and they got the video below. A tool might be limited, but you can still get a lot done with a little bit of imagination.

hat tip Flowing Data

Peter Boockvar is on vacation the week of December 27th and will return on January 3rd 2010

The weekend WSJ reports on a positive economic development that might surprise some people: The increasing number of job offers:

“As the economy gradually recovers, some big U.S. companies are cranking up their recruiting and advertising thousands of job openings, ranging from retail clerks and nurses to bank tellers and experts in cloud computing.

Many of the new jobs are in retailing, accounting, consulting, health care, telecommunications and defense-related industries, according to data collected for The Wall Street Journal by Indeed Inc., which runs one the largest employment websites. It said the number of U.S. job postings on the Internet rose to 4.7 million on Dec. 1, up from 2.7 million a year earlier. The company daily collects listings from corporate and job-posting websites, removing duplicates. Its figures may undercount available jobs because some companies don’t post all listings online, an Indeed spokesman said.”

To be sure, the employment losses in the 2008-09 recession were much worse than previous contractions. The WSJ adds that “official payroll data so far haven’t shown signs of a big rebound in hiring.”

Online job posts tend to be light on Farming, manufacturing and construction jobs, and heavy on computer and mathematical jobs.  The key for many of the available jobs is technical expertise; they are tghe jobs that are the most plentiful and have the fewest number of applicants per opening.

Other positives for the job market include:

• Government data shows a rising trend in openings. October 2010 had 3.2 million private-sector job openings versus 2.3 million from October 2009 (Source: Bureau of Labor Statistics.)

• Companies have become highly profitable and have built strong cash positions;

• Consumer confidence appears to be reviving; 2010 was the best holiday for retailers in 4 years;

• The economy should continue recovery gradually — and that will encourage more companies to hire

Companies that are currently hiring include Deloitte, PricewaterhouseCoopers, AT&T, WellPoint, Science Applications International, Catholic Health Initiatives, Wells Fargo, and Lockheed Martin.

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Source:
Job Offers Rising as Economy Warms Up
JAMES R. HAGERTY And JOE LIGHT
WSJ, DECEMBER 24, 2010
http://online.wsj.com/article/SB10001424052748703548604576037612752480904.html

Beck on SNL

Read the rest of this entry »

Bob Lefsetz is a music industry observer, and publisher of the Lefsetz letter:

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1. Spotify In The States

Spotify kills piracy dead. Isn’t this what the rightsholders want?

As for it being free on the computer… I hate to tell you, music is already free on the computer, ever heard of YouTube?

Yes, we’re moving to streaming, and we’re moving to a mobile world. You’ve got to pay to use Spotify on your mobile, people will do it (and for those unfamiliar with Spotify, thousands of songs live on your handheld, so even if you’re out of range, like on the top of Everest, you’ll be able to listen to music on your mobile…well, at least as long as the battery holds out.)

2. All-In Ticketing

What kind of crazy fucked up world do we live in where the most hated corporation in America, Live Nation/Ticketmaster, is the leader on this?

Can’t we all take the pledge? The add-ons are only hurting overall business.

If you believe in add-ons, I hope your record deal has a discount for breakage. Add-ons are a result of promoters’ inability to make money. Then again, if there’s all-in ticketing, the acts want to commission that too. You may hate Live Nation, I hate the greedy acts and agents more.

3. Lower Concert Ticket Prices

Can’t anybody in this business leave some money on the table now so they can reap rewards in the future?

Oh yeah, that’s right, the Dave Matthews Band, Phish, all those touring acts that care more about their customers than their pocketbooks.

If you’re ripping off your audience, it’s only a matter of time until people turn on you. Just ask the record labels who discontinued singles and made you pay twenty bucks for a CD with only one good track.

4. Uniform Licensing

I want anyone with a startup to be able to get all the rights they need for a clearly stated price. Yup, everything. Recording rights, publishing rights, even sync rights. I’m not saying the deals should be cheap, but they should be easy. And upfront payments, if they exist at all, should be small. Imagine if you had to pay for all of your kids’ college expenses when they were born, even though you’re young and starting a career. That’s what it’s like trying to license music for a startup.

5. A Uniform Music Social Network

There’s only one site online. Competition is a pipe dream. Every site exists side by side, just a click away. The best one wins. There’s only one Amazon, one iTunes, one Facebook… Face it. I’m not saying there won’t be competition on the way to the standard, or that standards can’t be eclipsed, as Facebook did with MySpace, I’m just saying there will only be one winner. Get over it.

And stop focusing on the money-losing Vevo, playing to the advertisers everybody hates, and go directly to the public. Let them come in for free, then upsell them with virtual and exclusive goods. Look to Zynga/FarmVille for instruction.

Let’s get everybody excited about music. Let’s get everybody playing the music game. We don’t want an exclusive world, we want an INCLUSIVE world!

6. A Tax On Any Act That Doesn’t Release New Music Every Year

The album is an archaic financial product. If you’re truly making a full-length statement and need sixty minutes to do so, that’s fine with me, but almost no one does. Most acts need to make a full length to justify their existence. Just like they need to send reporters a finished CD to feel good about themselves. If you make music people want, they’ll climb mountains to get it. Focus on creating incredibly desirable music. And I hate to tell you, in this world, even ten year olds are challenged for time. Make it easy. Release singles. If you’re good, people will want everything you do. And just because you make a steady stream of finished singles does not mean we don’t want your rehearsal recordings and road videos and… The key is to put enough out there so that if you’re a fan, you can dig for hours and be satiated… And continue to be satiated.

7. The Disbanding Of The RIAA

The record companies no longer rule. This organization has done more harm than good. I’m all for a music trade organization to lobby in Washington, D.C., but the RIAA is not it.

8. A Reduction In The Number of Grammy Awards

Ten tops.

Now if you can’t get nominated for a Grammy, you didn’t release a record. If the Grammys are about rewarding excellence in all genres, an insider circle jerk, cancel the TV show and don’t publish the endless nominations. But most of NARAS’s money comes from CBS… Can we at least make the awards comprehensible? And how about transparency as to who’s actually voting? Or maybe an insiders’ award. One voted on by those who were Top Ten in music sales and touring revenue.

9. Discontinuation Of The Fallacy That There’s No Cost To Tying In With Corporations

If you want to sell out, it’s your choice. But there’s always a cost, nothing’s free in this world. If you don’t know that, you’re still wet behind the ears. If you’re taking corporate money, you’re more into money than music. You love success more than playing. You can make it without the Fortune 500. But it’ll be slower, you’ll struggle. But it’s this struggle that makes great art.

10. The Best Of Howard Stern on Terrestrial Radio

Cut up a daily four hour show and turn it into a best of two hour broadcast for terrestrial the very next day. This is a win/win/win. For Howard, Sirius XM and terrestrial radio. If you don’t know Howard Stern is the best broadcaster in existence today, more honest than anybody else on the radio, you haven’t listened to him. It’s pitiful that such a powerful voice has such a limited audience.

11. The Failure Of American Idol

I’ll get this one, I don’t even need to wish and hope. “American Idol” was always about TV, not music. Now you eliminate all the drama?

12. Lady GaGa Must Perform In Street Clothes

She’s made it, can she afford to make it about the music?

13. U2 Must Donate The Entire Proceeds Of Their Concert Tour To RED

They’re tax exiles. Bono’s trying to save the world while he’s lining his own pockets. Put your money where your mouth is.

14. Every Touring Act Must Do A Minimum Of Five Club Gigs

Sure, tickets will be impossible to get. Scalpers will sell them for zillions. But imagine the buzz!

15. Paperless Ticketing

Goes a long way towards eliminating scalping. But demonstrates exactly what demand truly is, which oftentimes is lower than public perception.

16. The Death Of ReverbNation

And Constant Contact and all the other sites that spam consumers under the aegis of helping performers. These are just sham organizations, ripping off wannabes and cluttering our inboxes. Maybe there should be a fine for unwanted musical e-mail.

17. Top Forty Radio Must Be Renamed “Rhythmic” or “Beat” Or Really Play All Genres Of Music

18. The Demise Of EMI

Why are we delaying the inevitable.

Sell the publishing to Warner and the recordings to Bertelsmann, or maybe both to Bertelsmann. Now the company is playing with both hands tied behind its back. If you’re signing to EMI, you’re naive. By time your record comes out, not only will the employees be gone, it’ll be owned by someone else. That’s if your record comes out.

19. Everybody In The Music Business Gets Paid On The Upside

No big salaries, just rewards upon success.

20. Twenty Five Percent Of Every Music Corporation’s Employees Must Be Under The Age Of Twenty Five

And they must make twenty five percent of the payroll.

Kids buy the music, they know technology, why are they frozen out of the business?

21. Newspapers Must Publish The Weekly Touring Grosses Alongside The Record Sales

Touring means more. Why don’t the papers know this? Oh, that’s right, the papers are on the road to extinction.

22. MTV Is No Longer “Music Television”, Can We Eliminate It From The Discussion?

23. If You Can’t Play, Write Or Sing, You Can’t Get A Record Deal

24. Fifty Percent Of Every Record Must Be Made By The Artist

There’s singing, playing, writing… Just like CanCon, you must be an authentic musician or you can’t release a record.

25. Jimmy Iovine Must Decide Whether He’s A Record Exec Or An Entrepreneur

Jim Guerinot had to leave A&M when his management client Offspring was more successful than any act on the label. How can Jimmy sell Beats and HP sound and still work at Interscope?

26. Doug Morris Can’t Work At Sony Until He Gets Interviewed By…

We want accountability. Transparency. Honesty. Every exec must have a Twitter account and a published e-mail address. How come everybody in music lives in an ivory tower, yet gets to bitch that the public is ripping them off? You’ve got to listen to the public if you want to complain.

27. Stop Saying Google’s The Savior

It’s a one hit wonder. They do search really well. They bought Android. Everything else they’ve done is a failure…Wave, TV, the list goes on and on. We don’t hold up Vanilla Ice as the great hope for the music business, why do we put our faith in Google?

28. Cessation Of Discussion About Apple Acquiring Music Rights

In your dreams. Why would they do this? So they can listen to managers and acts bitch? Apple’s a retailer. A very good one. One that is relying on music ever less.

29. A Great Music App

That is customizable, that allows me to track any and all of my favorite artists.

30. Cheaper Prices At The iTunes Store

They didn’t raise the prices on typewriters when the computer took hold, why have they raised the prices of tracks? Music ownership is a declining paradigm. Hell, if Netflix is a streaming company, what makes you believe people are gonna want to own music?

31. Cessation Of The Argument Re The Value Of Music

What’s your computer worth? Your iPhone? Stop telling me about your blood, sweat and tears, what your music should sell for, think of all the technology, the R&D at your fingertips. Get a grip.

32. Elimination Of Play/Spin Buying

Why is everybody a crook? Look, you can have a million views on YouTube and still be a stiff.

33. Recognition That Video Is Subservient To Music

So you can make a cool video. A great track needs NO visuals, a lousy one is not improved by dazzling images.

34. Recognition That It’s About Continuity

Where’s Atomic Tom today? Never mind the rest of the YouTube wonders. You’re hot on YouTube for a day, maybe a week at most, then what? Music, more than ever, is about what have you done for me lately?

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