Joseph L. Shaefer

Wall Street Breakfast: Must-Know News

"House Speaker Nancy Pelosi suggested recycling leftover funds from the $700B TARP fund to create jobs and boost some salaries."

And who decides which workers in which industries get a salary boost? The imperial (imperious) monarchy headed by the Queen Bee? Ah, yes, I can hear it now: "When I am Queen, *I* shall decide who gets the goodies and who has displeased me..."

Here's an alternate plan: give the "leftover" money back to the people who provided it -- the taxpayers. There is no law that says just because it was collected or extorted for one purpose, The Monarchy now gets to dispense it to some other group or for some other purpose.

And here's an even more radical thought: why not let the marketplace determine the value of goods, services and labor, while the Queen Bee hatches eggs or whatever it is Queen Bees do when they aren't devouring worker bees...

Wall Street Breakfast: Must-Know News

Spald, et al --

It gets worse. Goldman Sachs was the biggest single campaign contributor to the current administration...

...but Fannie and Freddie have more lobbyists and spend more money lobbying Congress and the executive branch. The difference is, at least we <expect> Goldman to act for its benefit and no one else's, but Fannie and Freddie use profits they make from a sweetheart deal to bring the taxing power of the national government to bear in case they ever screw up, which they do regularly, to pay for lobbyists and junkets to keep anyone from upsetting their applecart.

Break 'em up. Let regional publicly-traded firms, with their balance sheets and operating practices exposed to the harsh glare of full transparency, do the job.

Tell me again where in the United States Constitution it says the national government gets to decide who holds my mortgage?

Wall Street Breakfast: Must-Know News

"U.S. bank overseers were poor policemen. The inspectors general of the Federal Reserve and Treasury criticized both agencies for being too slow to prevent risky lending..."

Kudos to the Office of the Inspector General for its blinding insight. Just one thought here -- next time, could they notice that BEFORE 26 books, 10,943 articles and 87,453,627 investors pointed it out to them??

Wall Street Breakfast: Must-Know News

"Geithner defended his position, saying, 'The U.S. ... came into this crisis without anything like the basic tools countries need to contain financial panics. Coming into AIG, we had basically duct tape and string.' "

Duct tape and string? How about common sense, the previous experiences with Long Term Capital, Bear Stearns, Lehman, et al, and half a brain?

I believe we could take a farmer from Iowa, a 3rd-grade schoolteacher from Oregon, and an accountant from South Carolina and, singly or together, they could have used common sense and an honest concern for the American people to figure out that the problem came from Wall Street and should have stayed on Wall Street.

Of course, they would not have been beholden to Wall Street for their job, wouldn't have contempt for the hoi polloi everywhere west of Wall and Broad, and wouldn't have needed to cuddle up with other little masters of the universe in order to ensure their own feathered nest awaits them the second they leave what is more and more humorously referred to as "public service."

Where you sit may depend on where you stand -- but it shouldn't determine whether you have the courage to even take a stand.

Wall Street Breakfast: Must-Know News

"...a lobbying group for 18 of the world's largest financial firms...urged House Financial Services Committee Chairman Barney Frank not to pursue big bank break-up legislation."

Gee, there's a surprise. Big banks, having mismanaged, bungled, ruined, botched or made a mess of everything they've touched, invested in or been entrusted with, now want us to believe we shouldn't act to protect ourselves in the future.

Sort of like the usual criminal response when standing over a dead body with gunshot residue on their hands and a smoking gun: "I didn't do nuthin' wrong! It isn't my fault! The law was unclear! I had a terrible childhood!"

Blah...

Blah...

Blah.

Wall Street Breakfast: Must-Know News

"Sources say Bank of America (BAC) has reversed course, deciding to waive attorney-client privilege and hand over "troves of documents" regarding legal advice it received during its acquisition of Merrill Lynch."

From "What? Us? We didn't do nuttin' wrong," to ""Well, if we did, the lawyers made us do it!" And we are supposed to find B of A leadership credible? In my company, the buck stops here, at my desk, as CEO. The lawyers work for me, not the other way around. At B of A, who is in charge...?

FHFA's DeMarco Speaks. Remarks Offer Little Room for Optimism

Re CautiousInvestor's note about the NYT article with the "contented FHA customer": “The government gave me another chance,” she said.

Lady, all "the government" gave you was other citizens' money. They taxed US to buy YOUR vote. But of course now you'll vote for the liars and thieves who "gave you another chance+ -- a 3% down payment and "eeeaaasssyyy payments" as a sleazy used car salesman once said.

“There is no virtue in compulsory government charity, and there is no virtue in advocating it. A politician who portrays himself as ‘caring’ and ‘sensitive’ because he wants to expand the government’s charitable programs is merely saying that he’s willing to try to do good with other people’s money. Well, who isn’t?” -- P J O'Rourke

Wall Street Breakfast: Must-Know News

"Rep. Edolphus Towns, leader of the House Oversight and Government Reform Committee, said he's seriously considering a proposal from former AIG head Hank Greenberg to ease the terms of AIG's bailout package. Greenberg suggests cutting the government's stake in AIG from 80% to about 20%, and giving it more time to repay its debt while trimming interest rates."

The GOVERNMENT doesn't have an 80% stake in AIG. The government has no money other than that which it prints or gains from taxation. The PEOPLE currently own 80% of AIG. And with a sweep of the magic wand, the government may "negotiate" (read: surrender) that stake down to 20%. Ah, politics...

Wall Street Breakfast: Must-Know News

Russia under Putin (oops, "Medvedev") continues its lugubrious reversion to complete one-man autocracy. They've extorted another "settlement" from a bank that did no wrong, but realized they could never win so they settled.

If it wasn't a money center bank over-reaching to discover a niche for its loans, you could almost feel sorry for Mellon, instead of see3ing it as one bully meeting n even bigger bully in the alleyway...

Big Banks Commit to Transparency

I could agree this move "would bring stability to the overall sector" EXCEPT -- there is no way these banks will permit transparency. If these modern-day Emperors did so, we'd all see they have no clothes.

Well before the always-a-step-behind regulators can finish debate about regulating a particular product, the bankers have already created a slightly different type of product that is designed to circumvent both the letter and the spirit of the law.
A WSJ article this morning said it quite well: “Major banks have regained their footing, and some of their swagger. Profits are off their lows. Large compensation packages are back, And so is risky business. Banks are back to selling exotic financial products similar to those that felled markets and the world economy last fall. And bank’s appetite for risk for themselves has grown. The nation’s top banks collectively stood to lose more than $1billion on an average day in the second quarter of 2009 should their trading bets go sour, a record level.”
Bankers (and their subsidiary brokers) have learned NOTHING from the terrible events of the past two years, other than how to lay off their problems on the taxpayer and keep their bonuses rolling in.
As market analyst Sy Harding, discussing the “too big to fail” problem, has observed, “…the Paulsen fix last year was to let a few [brokers and banks] go under and give the rest hundreds of $billions to make them even larger. So, as of June 30 the three largest banks, Bank of America, Wells Fargo, and JP Morgan had $2.3 trillion in deposits, or 31% of the total deposits in the entire banking industry, a 50% increase over the 20% they had two years ago.”
“Too big to fail” is not a license to flail, wail and blackmail.
Nor should any of these blackguards ever again be too big to curtail – or see its perps sent to jail.

Six Things to Learn from the Financial Crisis

A fine reminder, DGI.

Value investing, portfolio rebalancing, and a willingness to stand back from "The Madding Crowd" is such an ingrained habit with many SA contributors that we forget that not everyone thinks this way.

It's important to every now and again state, or re-state in different terms, what has worked for us for years. Maybe those burned by ignoring these basic rules will learn from it when they see a viable alternative...

Wall Street Breakfast: Must-Know News

"...in the nine months that ended June 30, investors withdrew around $300B from hedge funds..."

It's worse than we think if this story is accurate and investors actually << withdrew >> $300 billion. Not long ago, I addressed the annual GAIM Fund of Funds (hedge funds) conference and uncovered a little-known facet of hedge fund management. The hedge funds have FAR more than this $300 billion in liabilities to their investors.

Once a hedge fund investors "requests withdrawal" the hedge fund has a contractual obligation to refund anywhere from x months to x years. However, the hedge fund then effectively becomes a liquidating trust. It cannot buy anything with the funds earmarked for refunds but must only hope for a rising market in order to get the best price for assets earmarked for refund.

In other words, they have every reason to hype, fabricate and cheerlead stocks higher but no ability to fan the flames of a higher market with actual purchases.

If $300 billion is already withdrawn, there is at least that much ready to be sold at the first hint of lower prices...

Wall Street Breakfast: Must-Know News

“The FDIC's watchlist of potentially problematic banks grew by more than a third to 416 in Q2, the highest level in fifteen years…”

If the FDIC shutters all 416 it is still treating only SYMPTOMS, not underlying CONDITIONS. if instead we saved those 416 smaller banks (for FAR less money) and let Citicorp or B of A or Megabank Inc. die the natural death they should, given their mis-steps, mis-takes, and mis-appropriation of taxpayer largesse, we could probably safely move all Citi (for instance) depositors to smaller banks that would then be able to continue as growing concerns. And we’d have removed one more “too-big-to-fail” bloated cancer from our nation.

Wall Street Breakfast: Must-Know News

"The White House will update its projections for the fiscal 2009 federal budget deficit next week and sources said the number will come in at around $1.58T, slightly less than the $1.84T previously predicted."

The newly revised number would have been even lower had not expenditures for smoke and mirrors increased apace...

10 Notes on the Current Markets

Applying a slight variation of the broken window fallacy to AIG, it seems the elected and appointed elitists in government believe that, yes there may be some harm, but since taxpayers own 80% of AIG, by allowing AIG to default on its obligations to taxpayers the harm would be so diffused that it could only cost each taxpayer a couple hundred dollars.

Whereas allowing AIG to default on obligations to Goldman Sachs or JP Morgan could -- horreurs! -- mean a loss, maybe even a whole quarter of losses, then a possible snowball effect bringing down the financial sector, then the stock markets, then the end of Western civilization as we know it.

And thus ends another of Wall Street's Fairy Tales...