William Cowie

Ok, so Ken Lewis (BAC) sold his CFO a used Porsche. Isn't this taking corporate scrutiny to an extreme?

It's great to see the humor in the silliness of the scrutiny. But... why even bother with the scrutiny when the very first thing uncovered was Lewis's non-disclosure of the MAC (Material Adverse Condition)? Regardless of his reasons and excuses, his fiduciary duty (meaning he is obligated to put the interests of the company above his own) is to disclose any MAC immediately.

It's an undisputed fact that he didn't. If there's no action on that, why even look at anything else?

Is China the Next Great Bubble?

Someone raised an interesting point above. China is a prisoner of its own wealth. If it repatriates the US Dollars out of treasuries, it pushes up their currency and depresses the dollar (which, in turn, makes Chinese imports more expensive).

I believe they are now turning to what may end up being a brilliant strategy: using their US dollars to buy commodities on the cheap.

First, they get the benefit of picking up commodities at prices not likely to be seen again soon. Worst case, they can simply sell it for a handsome gain at some future point. (Of course, when that happens, the currency conundrum is raised again, but at least it gets postponed in a profitable way.)

Second, the money moves out of the States, but not directly into Chinese currency.

Third, they obtain raw materials for their businesses at great prices, making their products more competitive, even if they raise pay a little.

Fourth, they establish themselves in strategically critical businesses (Chinalco buying into Australian mining companies, for example).

This is all speculation, of course, but there are several dots that connect in a way that fits this picture.

Which makes me wonder: could it be possible that the stock market's stubborn refusal to go down again could be because some Chinese money is moving from Treasuries into the stock market? Again, I have no facts on which to base that, but the surprising hardiness of the rally makes me look to all possible reasons...

Paulson Changes His Tune on BofA and Merrill

Here's a hard fact (i.e. no opinion, speculation or inference): Ken Lewis violated his fiduciary duty (fancy language for putting your company's interests before your own) by failing to disclose critical information in a timely manner. Guilty on that charge, and he is not denying it.

The question now is: what consequences will he face for such a clear, overt and willful violation?

All he's saying is the big bad government made him choose between obeying the law and keeping his big bonuses. It still doesn't change the fact that he had a choice and his choice was not to do what the law requires him to do, i.e disclose Material Adverse Changes (MAC) to his stockholders immediately.

All the other stuff may be interesting to some, but it's peripheral to the fact that Lewis broke the law by not making proper timely disclosure. At the very least he needs to be fired WITH NO SEVERANCE. At worst, he needs to make a closer acquaintance with the fate that befell other information manipulators like Ivan Boesky and Michael Milliken.

Somebody Acquire Microsoft's Online Business ... Please

Good persepctive. MSFT has not proven they can do anything but operating and application software. Their online venture has only one goal: to perpetuate MSFT domination. Their online business has not provided one single innovation in an industry living on innovation. In fact, it seems Yahoo acquiring the MSFT online business would make more sense, because Yahoo has proven they can do online. The chances of MSFT doing that, though, are below zero.

So, we'll see how this unfolds...

German Press: Fiat to Sign Deal with Opel, Not Chrysler

Agreed. Think back when Daimler bought Chrysler. At the time, Chrysler was the most profitable of the 3 Detroit auto companies. In its first year, Daimler lost $8 billion - from first to worst in one single year. The first thing they did was fire the management team that (finally) figured out how to make money. What great logic was that?

None of the Saab, Volvo, Land Rover, etc. buys worked out. Not when BMW bought Rover, either. Of course, we all remember the biggest debacle of all: the bidding war between VW and BMW for Rolls-Royce. It ended with VW winning for $750 million, only to find out BMW got the Rolls-Royce name (which was held by Vickers, and not included in the auction) for a paltry $17m. All VW got was the Bentley name and an obsolete factory.

But, lest one would think BMW at least got one acquisition right, they botched even that by unleashing Chris Bangle, arguably the worst car designer of all time, on RR products.

Fiat, at least, will not lay out any money - they've been very clear about that. So their potential for losses is cut. Nevertheless, I'd be surprised if a Chrysler deal works...

Are CDS a Good Thing?

Credit default swaps are good for what they are: default credit insurance. However, common sense says they should be regulated as part of the insurance industry. Think about it: if you're going to buy insurance against your $100m bonds defaulting, wouldn't you want to know the issuer will be around, with enough capital, to make a claim good?

And FOR SURE no leverage should be allowed against insurance contracts, including CDS. That would be like saying I buy a life insurance policy from insurer X, only to discover they intend to borrow come time for a claim. That's why insurance is regulated, and that's why CDS should be regulated like the insurance products they are.

Megar McArdle doesn't happen to think Wall Street execs deserve their exorbitant salaries, but wonders: Why the hate?

Why the hate?

Simple answer: because they were stupid and greedy, and then had the nerve to stick us with the bill.

Want some examples? Just a few posts earlier,
www.nytimes.com/2009/0...
we find this little tidbit: "David M. Rubenstein, the founder of the Carlyle Group, a major private equity firm that was borrowing a lot of the (irresponsible - my insert) money, now gives speeches recalling how JP Morgan and Citigroup bid against each other for the privilege of lending to him. First they cut the interest rate they were asking. Then they raised the amount they would lend, reducing the equity investment Carlyle needed to make an acquisition."

These were the dickheads who thought they had all the answers, for which they "earned" gazillions of dollars, but when their answers turned out to be wrong, they
(a) still all have their jobs and
(b) insist they're worth bonuses bigger than the value of our entire city block
(c) "persuaded" the government to change the laws that protected us (Sandy Weill and the repeal of the Glass-Steagall Act)
(d) merged to reach a size where they "could not be allowed to fail"
(e) colluded with Paulson to get free money to bail out their messes
(f) when it turned out that bailout money cut their pay, they
(g) quickly changed their tune: we don't need that money any more, now that it isn't truly free money any more
(h) colluded again with the government, this time Geithner, to concoct PPIP, which will achieve their original goal: truly free money they can keep, with no compensation control strings attached.

I could go on, but our alphabet doesn't have enough letters. I'm sure the esteemed SA group can add many, many more examples as reasons why we despise the arrogant donkeyholes that walk the Street.

Arnold Kling and Mark Thoma go head to head, discussing, among other things, The economy as a broken spaceship; Are macroeconomic models just hogwash?; and Did we have to bail out the banks?

We would have done much better splitting up the banks (and AIG and GE, while we were at it). What's so nice is the government doesn't have to do anything. AT&T and (back in the day) Standard Oil were split up by private enterprise because the government said: just do it. Both were outstanding successes.

Once the banks were smaller, letting the smaller ones fail would not have done as much harm as the Wall Street/Capitol Hill gang wants us to believe. Will this ever happen? If that means Lloyd Blankfein can't pull down his $67.8 million paycheck, your answer is: no way.

Worse: we're not even securing the door after the horse has bolted. Must we go through this again 10 years down the line?

The Federal Reserve Is Suffering in Silence

Help me out here. The Fed is not a government agency. It is owned by the banks. It is run by the banks for the banks. (We won't go into how it got started.) But if they suffer losses, how does that get to us?

Don't get me wrong. The way these shifty guys are bamboozling the nation, I have no doubt they'll yank any dime they lose from us - I'm just curious HOW they'll do that.

Paulson/Bernanke: Conspiracy to commit securities fraud? Could be, says a former SEC accountant.

We all know they broke the law. They weren't the only ones. The question is: does the government have the onions to do the right thing about it?

Shared Perspective: Buy and Hold Is Changing

Buy and hold, done the Buffett way (i.e. with a lot of homework to pick very few stocks, and go big on them) is very much a viable strategy, especially these days. There are several solid, dividend-paying stocks with strong market franchises selling for reasonable prices today. Two years ago, with prices too high and cash running out of everyone's ears, that wasn't true. Even Buffett stubbed his toe in that time. But these days it is back true again.

Not a popular view these days, but then again, his views were never popular at the time, only in hindsight...

"What's wrong with business school is not that some MBAs cheat. It's that they don't even feel compelled to lie about it."

It's more fundamental than that. There is, for example, the assumption that economics is a valid thing to teach. A few days ago, we had here on SA an interview with Daniel Kahneman, who made the point very convincingly that the fundamental assumption underlying all economics (i.e. all decisions are rational) is false. sometimes it is, but more often human ("soft') considerations overrule pure logic.

I had the privilege of working on the 1988 AACSB review study. (AACSB is the accrediting body for business schools worldwide.) Even back then, there was grave concern over the predominance of the quantitative disciplines, and the disconnect with human traits of integrity, honesty and ethics.

A big part of the problem is not too different from the NCAA: MBA programs bring in big money, and it's a competitive business. In order to attract those high-paying students, institutions have to cater to them. In their actions, they often model lack of integrity more eloquently than any course they could teach.

Karl Denninger wonders where on earth WSJ picked up that, "Under normal circumstances, banks must alert their shareholders of any materially significant financial hits." - "Uh, its not under 'normal circumstances,' it is under all circumstances." He thinks heads should roll.

Let's apply Lewis's logic to a Domino's delivery driver. His boss says get that pizza to the customer before it gets cold. He speeds, and gets pulled over. "Officer, my boss said I get fired if I obey the speed limit." Valid defense?

Wall Street is so used to simply buying off a few politicians to change the laws to suit them, why bother obeying them? Especially with megabonuses at stake.

The heads that should roll are not only on Wall Street - there are plenty of ripe candidates on Capitol Hill, too...

Portfolio.com presents an in-depth portrait of Geithner, and says "the question now — you might call it the $100T question — is whether Geithner can shake off his bureaucratic past" and figure out what to do next.

The main thing Tim Geithner needs to change is his fundamental assumption that the bigness is a given. It isn't. It's the result of the megalomania of a few individuals, Sandy Weill and Ken Lewis to mention but two.

What he needs to do is restructure the zombies to make them smaller. These are not monolithic banks; they are conglomerations of business units that do not even talk to each other. It's relatively easy to split them apart. The good and healthy ones (and there are many of those shrouded under the cloak of the toxic units) will fetch good money.

Once the size of the zombies has been reduced and the healthy units set free, shutting down the (much smaller) underperforming units can be done with much less collateral damage. It is healthy for the economy, it is healthy for Wall Street and, above all, it's healthy for the abused taxpayers.

Now, will Geithner get that? I'm not holding my breath...

Worthwhile interview of SA contributor Mebane Faber on CNBC. In his book, The Ivy Portfolio, Faber endorses a strategy that combines mimicking the Ivy League endowment funds, and simple yet effective active risk management.

Wait a minute. Are we talking about the infamous Harvard and Yale funds? The ones that took more risks than high flying hedge funds? The ones that came crashing and burning to earth these past few months, laden with toxic assets? If that is a good way to manage risk, I'd sure hate to see what a bad way looks like...