Desiderata

Shit, Bull Shit, Horse Shit and More Shit – Those were the tabs on my brother’s notebook in college, and they really capture the essence of the Chief Magistrate’s <a href=”http://finance.yahoo.com/news/WH-warns-tax-defeat-could-apf-3072595197.html?x=0&amp;sec=topStories&amp;pos=main&amp;asset=&amp;ccode=”>most recent threats</a> about tax cuts.  This isn’t an explicitly political blog, so put the politics aside for a moment.  The assertion by gas-bag-extraordinaire Larry Summers that not going along with the tax cuts threatens the economy is possibly the most ridiculous, groundless and unsupportable piece of hucksterism you’ll ever see.  Factually speaking, something these clowns don’t like, tax cuts have a history of not helping the economy.  If I were a democrat, I would be pissed.

Sued for Paying Too Much – Morgan Stanley was actually sued last year by its largest shareholders for spending too much on compensation.  So, this year they’re going to <a href=”http://dealbook.nytimes.com/2010/12/08/morgan-stanley-looks-to-rein-in-executive-pay/?ref=business”>back it down to the 50%</a> range.  This will end very badly in one of two ways:  1) Gorman will be canned; or 2) lots of other people will get canned.  Hmmmm, I’m going with option #2.

Bond Market Not Impressed – I realize the purpose of this blog is to decode what’s written in the business press, and nowhere is that more helpful than the bond market.  The yields on bonds are going up (which means prices are going down) as a result of the recent tax plan.  Why?  The people in the bond market – generally a hard headed group – think <a href=”http://www.nytimes.com/2010/12/09/business/economy/09place.html?_r=1&amp;ref=business”>the tax and unemployment deal is insanity</a> because it will cause the budget deficit to continue to grow, and cause more trouble than the money staying in peoples’ pockets will cure.  Makes the completely stupid comments from Larry Summers seem even more stupid.

UNIONS BAD (to be read in a Cave Man Voice) – You hear it all the time, right?  Unions are against free trade and just want to protect their jobs at any cost (how the desire to protect your job ever became a bad thing is a master work of business propaganda).  Well two of the biggest unions left are all in favor of the <a href=”http://www.nytimes.com/2010/12/09/business/global/09trade.html?ref=business”>proposed free trade deal with Korea</a>.  It’s not too hard to understand why.  In this case, the US auto market has already been opened completely to Korean cars, while the Korean market has been completely shut off to our exports.  There’s nowhere to go but up.

Can They Really Do That?!?! – I’ll be you a dollar you didn’t know about this. There are people who do nothing but buy obscure patents, sue companies for allegedly using them without proper licensing agreement, and threaten to shut them down if they don’t pay big fees. It’s blackmail, of course, but since it’s done by the monied class, they don’t call it that. What they do is dress it up as a venture fund and raise billions of dollars from some of the most highly respected investors in the country. Not an ethical way to go, but as Daffy Duck once said, “eh, it’s a living.” In a great column, Nathan Vardi lays it out pretty clearly. By the way, Nathan Myhrvold used to be one of the highest ranking people at Microsoft. Once a predator, always a predator.

Desiderata

We Loaned Money to WHOM?!? – It came to light recently that the Fed loaned money, not just a little, but tens of billions, to foreign banks in 2008 during the “bleakest” days of the financial meltdown. Barclays (England) and USB (Switzerland) both got billions of dollars from the Fed. In the meantime, why don’t you go down to the local bank and try to get a line of credit for a well capitalized small business. Yeah, right.

More Lies From Goldman – During those same dark nights of financial crisis there was one bright shining light of security: Goldman Sachs. They told us repeatedly that they were fine, didn’t need the money and were well capitalized. And, if you looked at their quarterly filings in 2008 and 2009 you may have been misled into believing just that. Turns out they too got a couple ($30+) billion from the Fed. Please, please, please; the next time Goldman comes up won’t someone laugh or cough or blow their nose? All they can do is lie.

End of the World…or Best of Times – I can’t swing a dead cat without hitting a politician (in both parties) who says our economy is going to disappear SOON if we don’t stop borrowing so damn much money from China, and running up all these crazy debts. The private sector is being pushed out of the way by the government and the government is as reckless as a drunken sailor on shore leave. Or so the story goes…and goes…and goes. So why does the dollar continue to hold its value relative to foreign currencies? Why did consumer spending increase over the prior year? And most importantly, why hasn’t China stopped buying US Treasuries? Hell, we’ve all but told them we’re a dangerous investment. There are a lot of reasons for these phenomena. But the point is that every single politician is completely full of shit when it comes to these matters.

I Had to Laugh – Some guy named Frank Aquila writes a column for Business Week. Those poor souls are so desperate for content they’re getting it from lawyers. But Frank is no ordinary lawyer, he’s a mergers and acquisitions partner for Sullivan & Cromwell; possibly the world’s most expensive law firm. Frank’s worried that America won’t be competitive enough to hang with the big boys in the world economy. Meanwhile, just about every serious study has shown that mergers rarely if ever achieve their stated goals or benefit shareholders. So we’ve got some clown who’s laboring at the very heart and soul of inefficiency writing a column warning us of the dangers of not being competitive.

Insider Trading Probe – This has gone quiet for the moment. The most recent development is that it has extended to some large mutual funds, most prominently Janus. Let’s wait and see just how rigged the system may be against small investors.

Another Perspective on Gutting Social Security and Medicare

Dean Baker provides a lot of great insights. His perspective always seems to be that of the normal person. Most people in this country will rely, in whole or in part, on Social Security for their retirement and on Medicare for their health care at some point in their life.

In this article, Baker takes on some pillars of the liberal media establishment which are parroting current demands to slash these programs.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/substituting-money-for-competence

Desiderata

Wikileaks: Coming to a Bank Near You – Over on the Premise page, we make it clear that we don’t believe in conspiracies; except the ones designed to stick up liquor stores. So, it will be interesting to see what comes out of the next set of Wikileaks which are apparently going to target a major US bank. One comment from Julian Assange, Wikileaks’ founder, is that the documents will illustrate the unethical policies and lack of regulation that are common at US banks. We look forward to the release of internal documents that support our contention that the sort of bad behavior we talk about here is in fact going on, and is actually the POLICY of some (read “all”) major financial institutions.

Insider Trading – A quick update here from an utter shill name of Halah Touryalai at Forbes. This a breathtaking example of bad writing, muddled thinking and just plain stupidity. Halah’s hard nosed take on all of this? When you play a rigged game, you’ve got to expect this kind of stuff AND she’d be shocked if anyone was put in jail (it’s not clear but I think she’d be shocked as in outraged, not shocked as in surprised). Hey Halah, the stated premise of EVERY company that sells stocks to the public is that it ISN’T a rigged game. And of course, in case you forgot, it shouldn’t be. You’re not hard bitten and cynical, your a moron and a shill for the big boys. BUT, keep in mind, that is the way many, many people who write about Wall Street view the matter.

Your Job is Gone…Forever – You may have seen last week that US businesses posted record profits (and you thought we were in a recession!). One way they’re doing this is by asking workers to find every way possible to save money (great) and to do so with existing technology so the company doesn’t have to buy new or upgrade (hmmmm). What this translates to in many cases is that there really will be persistent unemployment even when the economy does start to rebound. Too bad your 401(k) was decimated in the recent crash or you’d be cashing in on the rising stock prices.

Just a Thought – I keep hearing talk about how our economy is going to crash and go the way of Greece and Ireland because we have such a consumer focused economy and don’t have adequate exports. Here’s a thought: to start to turn that around, let’s devalue our currency (just like China does) and encourage manufacturing and exporting. Any takers? Sure, all the people who would get jobs would love it. And, since pretty much every country in the world manages its currency rate to some extent, it wouldn’t be anything new. But any thoughts along these lines will ALWAYS be railed at as protectionist. Anyone with a good answer as to why this would be so bad, let us know. Mind you, we only want real answers. Any answer that is based upon the sanctity of free trade, the need for global trade etc. will be put in the spam folder.

Desiderata

Happy Thanksgiving! We have much to be thankful for in America. Despite the hard times for many, this is a great country and a great place to run a business!

KKR Buyout of Del Monte – It’s often said that venture capital funds and hedge funds are helpful, and even essential, to the economy since they provide liquidity needed to make markets and for people to grow businesses. That’s true in many cases. Of course, it’s also not true in many cases. KKR is leading a buyout of Del Monte; they’re taking it private (buying all the stock so it is no longer publicly traded, and thus a private company). Del Monte is doing fine. In fact, it’s a solid company that’s in no financial trouble. The private equity firms are going to buy the shares, gut the company and then take it public again in around five years. Nothing especially productive will come of this, and lots of people will lose their jobs. What will happen, however, is that the ultra-rich investors will make more money and their lawyers and advisers will stay busy.

The point: private equity firms and hedge funds often engage in financial transactions which add little or no value to the underlying business, but make the funds lots of money. Don’t believe it when people say they are essential to our economy. They’re not.

Advantage Sales and Marketing – Here’s more evidence of the above point. A company called Advantage Sales and Marketing is going to be bought by a private equity group for about $1.8 billion. The company was is being bought from another private equity group which bought it for $1.05 billion all the way back in 2006. This is an example of a “secondary buyout” where one private equity firm buys a company from another. This lets the seller lock in profits and lets the buyer do something with its money. No underlying value being added AT ALL.

Ongoing Insider Trading Story – We saw the first of what will undoubtedly be many stories with the angle that people think the stock market is rigged in favor of the big guys and against the individual investor. Hmmmm, you think so? The only reason I can think of to publish a story like that is to raise the idea that there may still be people who DON’T think the market is rigged. If there are, find them and sell them something; they’re suckers.

Desiderata

Ireland, or, What Not to do With Your Economy – Ireland adopted a fairly strong version of the supply side/trickle down approach to their national economy. The cornerstone to this approach is to gut taxes. A common accompaniment is lax regulation, especially in the financial sector. Two results were achieved. First, lots and lots of foreign multinationals showed up to take advantage of the low tax rates. They hired lots of well educated locals and were a major contributor to the “Celtic Tiger”. Second, the banks went on a rampage and pretty much did whatever they wanted. One thing they apparently wanted to do was to loan way too much money to real estate developers.

Wait, three things happened. The third being that the economy hit a wall, even harder than everyone else, and the country is on the verge of bankruptcy. And here’s a great quote from one of the multinational companies that showed up: “HP is very clear,” Lionel Alexander, head of Hewlett-Packard’s Irish operations, told Bloomberg Television. “If the tax rate increased, we would be relooking at our investment in Ireland.” The standard business press mantra when faced with quotes like this is that HP has an obligation to its shareholders. True. And if Ireland is the cheap whore, rider her. But I wonder if Lionel Alexander said something like, “we don’t give a fuck about Ireland or the Irish people, but if we can locate a facility this close to Europe AND pay almost no taxes (12.5% v. approx. 28% in other parts of Europe), we’re in. No, he didn’t

The point: Every time you hear someone talking about how we have to keep lowering taxes here, ask them how it worked in Ireland. This is also relevant to the Bush tax cuts.

$100 Million Here, $100 Million There…It Starts to Add Up – Goldman Sachs trader Fabrice Tourre is facing additional charges in an ongoing battle with the SEC over Goldman misleading investors in products related to subprime mortgages. For its part, Goldman settled for $550 Million. Put another way, Goldman settle for $550,000,000! You don’t do that if you’re innocent. I know it’s a big organization. I know they don’t want bad press. I know they make a lot of money. But you don’t willingly part with more than HALF A BILLION DOLLARS unless you thought you might be compelled to part with more.

The point: Goldman was ripping off everyone they could during the height of the real estate bubble. They may not have broken too many laws, but they were fucking everyone they could. They were lying to anyone they had to. They were doing anything at all to make obscene amounts of money. They are NOT just sophisticated players in a major international marketplace. They are parasites.

Corporate Profits – Logged in at $1.66 trillion. Yes, trillion. That’s on an annualized basis. Unemployment hovers just below 10%. Suck it.

The point: I thought Obama was killing business (I’m not a fan of the current Chief Magistrate for what it’s worth). I thought the economy was teetering on the brink of the abyss. I thought the huge government debt was sucking the life out of the economy. No, the economy, as measured by profits, is soaring. Don’t believe any macroeconomic argument you hear from a politician on the left OR the right.

Ben Bernanke is a Drug Dealer – This is the takeaway from an utterly moronic column written by Shaun Rein at Forbes. See, Shaun had a friend (“Johnny” was his name…surprise, surprise) who was a junkie. When his parents ran out of love, all they could give him was money. But Johnny was an addict, so THAT DIDN’T HELP. Similarly, Bernanke “giving money” to US businesses won’t help (yes, Shaun’s boiled QE down to that). Why won’t it help? Here’s why: “Low interest rates and an increased money supply are worthless tools if companies don’t think there are ways to make money.” Maybe Shaun didn’t see that US businesses just clocked in with record profits.

The point: this really doesn’t have anything to do with business. The point is that when a column purporting to be serious is so poorly conceived and so stupidly written, you should just ignore whatever it’s saying. If someone else provides a reasonable basis to disagree with QE, give them a listen. But if it’s this clown, don’t bother.

Insider Trading (cont.)

As predicted, the business press is trotting out the expected comments on the brewing insider trading scandal. I may have been a bit imprecise with my three categories, but they pretty well cover the water front.

One view that I missed entirely is the unrepentant one voiced very clearly by John Carney from CNBC http://finance.yahoo.com/news/The-SECs-Absurd-War-Against-cnbc-1773887254.html?x=0. The fancy name for this point of view is the Efficient Market Hypothesis (“EMH”).

EMH says there shouldn’t be ANY rules against insider trading because the market should be totally transparent, and only by letting insiders trade freely in a stock will the market accurately reflect all the available information on that stock. Let me guess, this guy just loves Ayn Rand and thinks the Atlas Shrugged is a great piece of literature. I thought this kind of nonsense went out with Greenspan’s public recanting. That was where former Fed Chair Alan Greenspan owned up to his profoundly naive belief that markets would regulate themselves. At least Greenspan had the balls to look at the wreckage his outlook helped create and say that he was terribly wrong.

The only way someone can continue to believe this nonsense is that they’re just naive. Carney read this theory, probably in business school, and bought it hook, line and sinker. It makes sense, in a vacuum, especially to young people and people with little or no real world experience. If insiders have information others don’t they’ll use it to their advantage and to your disadvantage. I don’t think the owners of a business would like it if their employees started buying stock based on a positive development the company wanted to keep under wraps until a specific point in the future. When you hear this theory or arguments that sound like it, just laugh at the proponent. They’re wrong. Tell them Alan Greenspan had the same idea and look where that got us.

Personally, I have a comic vision of guys like Carney and Greenspan being conned into believing this nonsense by people with real money who are just using them as shills.

So let’s dismiss Carney. He’s a shill. But remember, this is an outlook that ruled the business press roost for years, and won’t go away quietly.

Todd Harrison brings another perspective. Todd says it’s just terrible that people are viewing big finance as a bunch of thieves. He even pats himself on the back for not being acrimonious as he throws in a link comparing people who disagree with him to the idiotic supermodel in the movie Zoolander. He also casts those who disagree with him as conspiracy theorists. At the end of his article, Todd tells us that hedge funds are essential and that without them (if this makes sense to anyone, please send me an email explaining it) “the specter of free market capitalism will be forced to endure an entirely more profound pathway.”

Does profound mean bad? Will the specter be forced to endure such profundity, or will capitalism itself be forced to endure it? Even your humble decoder is left wondering what this means.

Calling these people to the carpet doesn’t make you a conspiracy theorist. Pointing out that the hedge funds have structural advantages that ordinary investors can’t compete with isn’t bad or wrong. Todd’s made good money in the business and is paid to defend it. That said, I agree with him that there aren’t any conspiracies at work here; that most people in this industry haven’t broken the law; and that people shouldn’t be found guilty before a trial.

The big press will probably have stories over the holiday weekend. There’s a lot of digging to do and no one wants to go off half-cocked on this one. There’s a LOT of life left in this one! I think the “overzealous prosecutor” angle will get some play, but less than in the past, given Bernie Madoff et. al. I’m still hoping for some “this stuff is too complicated” stories.

Stay tuned!

Desiderata

Insider Trading Probe

– The SEC and the Manhattan DA are in the midst of a massive insider trading probe. It’s early in this one, so we can follow it from the beginning. Initial focus is in part on “expert networks” that trading companies put together to bolster the information they have on certain industries and companies. No charges yet. Let’s guess how the story is cast in the B-press: 1) overzealous prosecutors with some anti-Obama administration angle; 2) the ever changing face of insider trading rules; 3) insider trading rules are so complex even sophisticated investors don’t understand them. This should be fun. Stay tuned.

War of the Worlds (brought to you by a moron)

– Some clown at Yahoo wrote a piece about how the world would end if the Chinese stopped buying US Treasuries. Presumably, this is part of the rhetoric being put up to slow down QE2. Not mentioned by this moronic fear monger is what happens if the US stops buying Chinese goods, why the Chinese would benefit from total chaos in world financial markets, why others wouldn’t buy US Treasuries or the fact that these same stories were written 20 years ago, only then the villain was Japan, not China. Japan, with a structurally fucked up economic system went down. China will too, but it will take some time.

The World Isn’t Going to End

– Meanwhile, back at the ranch, or in this case the Cleveland branch of the Federal Reserve, a report says that inflation will stay low for the next couple of decades. OK, we have a bias against professional economists, but it is fun to see a group of economists saying inflation isn’t a big worry when there is a constant drumbeat from politicians that the Fed’s program of buying Treasuries to put money into the economy to increase investment (and thus economic activity) is going to turn the US into the Weimar Republic. The only group less dependable than economists is politicians. Particularly any group or politicians which includes the dumbest, most consistently wrong person alive today Billy William Kristol of the National Review. Whatever this gas bag says…bet on the opposite.

You CANNOT be Serious

Not too long ago the US Government (that’s you and me, dear reader) paid billions of dollars to the vampires at Goldman Sachs to ensure that they would be made whole on some exotic financial instruments they were involved in. Seems like the company guaranteeing the value of those instruments (AIG) was going belly up, and wouldn’t be able to completely fulfill their obligations. That meant that Goldman, Citi and others would – GASP – lose money on their investments.

But for some reason, the US Government, Bush was still in power at the time, but Clinton or Obama would’ve done the same, PAID FULL PRICE for these toxic assets. We had to make sure that the contracts which were in place were honored to the letter.

But now, as the Great Liquidation (a nifty little term coined by the Trustafarians at Fortress Investment Group) gets underway, hedge funds are buying impaired assets from banks for pennies on the dollar. One of the biggest classes of financial assets that are being bought are Collateralized Debt Obligations (CDOs) the nasty things that we bailed Goldman out of for FULL VALUE when everyone in the world knew they were worthless.

A couple of points to take from this:

1. Banks sell assets for far less than their book value all the time. It’s a common practice. It’s called getting a hair cut. The Fed didn’t give Goldman and the rest of the gang a hair cut because former Goldman execs ran and run the Fed. Simple conflict of interest. Not a conspiracy.

2. At the time, Goldman and others put up fancy arguments for why they should be paid in full. Never believe that kind of crap. For all the complexity of any given financial instrument or any particular deal, financial markets are wonderfully simple in this respect: the golden rule is in force. The party with the gold makes the rules. Never, EVER, believe a fancy justification. It is always a lie.

3. Wallow in the over arching hypocrisy of Wall Street. They storm around telling everyone that it’s a hard world, and you have to take your losses, but when they are faced with losses, they get made whole. They deserve scorn and contempt.

Desiderata

The Value of the Dollar

– It’s nice to see something on this topic that clearly highlights the relevance of this issue. A piece in the NYTimes contrasts two companies with different outlooks on the value of the dollar versus the remnimbi. PS Brands, an importer of socks from China, wants the dollar to stay high so they can continue to import socks cheaply. Staco Systems, a manufacturer of aerospace electronics, wants the dollar to go lower so their products are more attractive to Chinese buyers. What’s better: an artificially low remnimbi which helps import cheap socks for people without jobs or a higher dollar that supports exports and high-value manufacturing jobs? Hmmmmmm.

Champerty

– That’s a strange old word from the common law. It is the act of an attorney footing the bill for the cost of a lawsuit and taking part of the settlement in return. Champerty was forbidden because – you guessed it – it encouraged lawsuits. There’s a place in the world for contingency agreements (the modern word for legalized champerty), but surely things have gone too far when hedge funds are investing in lawsuits. There’s actually a company called Ardec Funding whose business is to fund lawsuits for a cut of the award. Ardec, in turn, is bankrolled by a hedge fund. God only knows which one. I’m sure they’ve funded some cases with wonderful plaintiffs, but this has got to be the ultimate example of bottom feeding lawyers.

QE2

– This is the cheeky nickname given by the business press to the Fed’s second round of quantitative easing. For the most part the business press said QE2 would lead to the END OF THE FUCKING WORLD in the form of rampant inflation and a swoon in the value of the dollar. So far: “QE2 was supposed to send the dollar down. Instead it’s going up. Interest rates were supposed to go down. Instead they’ve gone up.”

Another example of the business press pushing its own agenda thinly disguised as analysis. But this is an even better example of the fact that economists are making well informed guesses. Keep that in mind the next time you hear an economist saying this or that policy is terrible and will have horrible results, or is great an will have terrific results. They’re just guessing (see our earlier post where they admit that they’re just guest).

Foreclosure Update

– Maybe champerty ain’t so bad after all! Banks are being hit with class action suits targeting their foreclosure processing: you know, robo-signing, bad documents, botched evictions, the usual. The icing on the cake is the RICO suits. Yes, RICO suits against the banks. Couldn’t happen to a better group of people. RICO is a statute that was designed to go after the mob, but was twisted into a way to go after everyone. Why? Because it lets the plaintiff ask for treble (TRIPLED) damages. RICO stands for Racketeering Influenced and Corrupt Organizations, so using it against banks in this instance probably isn’t too much of a stretch.

Remember, the business press is there to support big business so don’t be afraid to question it!