Obama is Bush part 3's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/117414/comments http://seekingalpha.com/article/119126-stimulus-watch-senate-pare-down?source=feed#comment-380715 380715 seekingalpha.com/artic...

As you can see from the WP's excellent analysis -- this thing is a gigantic spending package, not a stimulus package. There are provisions for all sections of the government -- many are things that are clearly not stimulus, they are spending "wish list" items that have appeared regularly for decades.

This is nothing but a shameful grab for increased spending by unscrupulous politicians -- preying on a scared populace and taking advantage of a bad situation]]> Mon, 09 Feb 2009 08:30:36 -0500 seekingalpha.com/artic...

As you can see from the WP's excellent analysis -- this thing is a gigantic spending package, not a stimulus package. There are provisions for all sections of the government -- many are things that are clearly not stimulus, they are spending "wish list" items that have appeared regularly for decades.

This is nothing but a shameful grab for increased spending by unscrupulous politicians -- preying on a scared populace and taking advantage of a bad situation]]> http://seekingalpha.com/article/119126-stimulus-watch-senate-pare-down?source=feed#comment-380496 380496
I read your reply in which you the debate has two facets... In #2 you said GDP growth would be (with the stimulus) 3-7%. I assumed this was your guestimate?

I did not mean any sort of personal attack -- but I do think the discussion of this "stimulus package" is very dishonest:
(1) The history of these stimulus packages is very questionable. There hasn't been one that was a resounding success (ever). Even in cases where economist "think" the stimulus helped, we have no control to compare to. We don't know how things would have progressed with no stimulus. Thus, any claim that "we must do something" is unsupported by any actual data
(2) Whether you take offense or not: if you want to measure the effects of this stimulus through 2019, please tell everyone how you plan to pay off this $850 billion of extra debt. Everyone has ideas about the programs they don't like -- tell us how you are going to pay this debt off in real life... how are you going to get Congress to go along with whatever cuts you propose? I have yet to hear a single stimulus advocate give ANY answer to this.

If you don't have an answer of how to pay back the debt, then the cost of perpetual debt is infinite, and the stimulus is prima facie a bad idea. Real investments pay for themselves -- frivolous spending does not.

As for what the government should do: sure, in a perfect world I think the government could make some good long term investments. But the incentives for our politicians are to favor the present at the expense of the future. While a few politicians may have investment or business experience, the vast majority have expertise elsewhere. Our election process rewards those who can survive on no sleep and still make witty sound bites -- not those who can make good long term choices

I do not share your view that government is omnipotent, and I think history is on my side. If the government cannot achieve a result better than doing nothing -- then it should do nothing. First, do no harm...

Whatever stimulus package you want to advocate should pay for itself (and the financing costs) in a finite amount of time. I think anyone who is business has done a cost/benefit analysis and asked how long it would take for an investment to pay for itself... This same common sense must be applied here as well.

How long will it take these "stimulus programs" to pay for themselves? How long will it take to get our $850 billion, plus interest, back? The answer seems to be: "it doesn't matter, we plan to stick our kids with the bill"

If you have a plan to pay back the $850 billion plus interest, please lets hear it. If the stimulus plan actually achieves 7% GDP growth, that works out to 0.07 x $12Trillion, or $840 billion. I don't know if I accept that 7% estimate (history suggests the results will fall short), but lets go with the esitmate

Even if the tax rate was 100%, the program doesn't pay for itself, much less the interest. It obviously doesn't provide any positive return above the costs.... Ergo, it is not an investment at all]]> Mon, 09 Feb 2009 01:03:49 -0500
I read your reply in which you the debate has two facets... In #2 you said GDP growth would be (with the stimulus) 3-7%. I assumed this was your guestimate?

I did not mean any sort of personal attack -- but I do think the discussion of this "stimulus package" is very dishonest:
(1) The history of these stimulus packages is very questionable. There hasn't been one that was a resounding success (ever). Even in cases where economist "think" the stimulus helped, we have no control to compare to. We don't know how things would have progressed with no stimulus. Thus, any claim that "we must do something" is unsupported by any actual data
(2) Whether you take offense or not: if you want to measure the effects of this stimulus through 2019, please tell everyone how you plan to pay off this $850 billion of extra debt. Everyone has ideas about the programs they don't like -- tell us how you are going to pay this debt off in real life... how are you going to get Congress to go along with whatever cuts you propose? I have yet to hear a single stimulus advocate give ANY answer to this.

If you don't have an answer of how to pay back the debt, then the cost of perpetual debt is infinite, and the stimulus is prima facie a bad idea. Real investments pay for themselves -- frivolous spending does not.

As for what the government should do: sure, in a perfect world I think the government could make some good long term investments. But the incentives for our politicians are to favor the present at the expense of the future. While a few politicians may have investment or business experience, the vast majority have expertise elsewhere. Our election process rewards those who can survive on no sleep and still make witty sound bites -- not those who can make good long term choices

I do not share your view that government is omnipotent, and I think history is on my side. If the government cannot achieve a result better than doing nothing -- then it should do nothing. First, do no harm...

Whatever stimulus package you want to advocate should pay for itself (and the financing costs) in a finite amount of time. I think anyone who is business has done a cost/benefit analysis and asked how long it would take for an investment to pay for itself... This same common sense must be applied here as well.

How long will it take these "stimulus programs" to pay for themselves? How long will it take to get our $850 billion, plus interest, back? The answer seems to be: "it doesn't matter, we plan to stick our kids with the bill"

If you have a plan to pay back the $850 billion plus interest, please lets hear it. If the stimulus plan actually achieves 7% GDP growth, that works out to 0.07 x $12Trillion, or $840 billion. I don't know if I accept that 7% estimate (history suggests the results will fall short), but lets go with the esitmate

Even if the tax rate was 100%, the program doesn't pay for itself, much less the interest. It obviously doesn't provide any positive return above the costs.... Ergo, it is not an investment at all]]> http://seekingalpha.com/article/119126-stimulus-watch-senate-pare-down?source=feed#comment-380370 380370
I think you are seriously misrepresenting the situation. A very standard political ploy is to estimate the costs of a program over a seemingly arbitrary time-frame -- arbitrary except that it is chosen to make the proposal look less bad than it is.

I would challenge you to provide a shred of evidence that the $850 billion in debt is going to be paid by 2019 ... Are you at all familiar with the US government?

This Keynesian nonsense sounds great in theory -- run deficit "stimulus" spending during recessions, and then pay it back during economic booms. But in the real world, it doesn't work that way -- and its high time ALL commentators stop lying. We have had both political parties controlling Congress, the White House, both or neither -- they are all the same. Spending ALWAYS goes up, in bad times AND in good times.

Mr Lounsbury: if you were honest, you would have to weigh the short term benefits of this mis-named stimulus package against an infinite future of lower growth. It won't stop in 2019-- you have no credible evidence that it will ever stop. The debt taken on today will be rolled in perpetuity, interest accruing all the way.

In short, the CBO estimate greatly underestimates the cost. An extra 3-7% growth in GDP (assuming that happens) does not compare to the negative infinity cost of perpetual debt.

Even your guestimate of 3-7% increased growth is dishonest. Have you checked your math? GDP is about USD $12 trillion. Lets go with your higher number of 7%. 7% of $12 trillion is $840 billion -- or $10 billion LESS than the proposed cost. That is assuming your UPPER estimate (which is doubtful, to be diplomatic) and it doesn't consider the interest expense.

I can't believe anyone would be absurd enough to suggest that 100% of the spending will go to stimulus, and there won't we any fraud, waste or pork spending. You are not asking us to suspend disbelief -- you have to be insane to even think it.

How does it make sense to spend $850 billion (ahem!) to get back $840 billion? Can you name any large scale government program that did not go massively over budget?

Programs like the Big Dig, the interstate thruway system, or the Hoover Dam were planned for months or years -- and they all went way over budget. Those are the stimulus "success" stories. This latest fiasco has almost no planning (maybe three months planning if you want to suggest Obama skipped Christmas). How can you argue with a straight face that this proposed spending is anything other than unplanned?

There is no way the government can prop up asset prices (securities or houses) to bubble levels -- other than running punitive levels of inflation. The $850 boondoggle isn't going to fix this and it is fraud to suggest otherwise.

Warren Buffet has been trying to figure out how to spend $47 billion in cash now for 4-5 years. I simply refuse to believe that the clowns in government can spend 20 times as much in three weeks. This is not an investment, this is corrupt politicians trying to create the illusion of growth.

Could the government spend money to increase long term GDP growth? Theoretically yes. But the key words are "long term". Politicians, like their constituents, want instant gratification. Real education reform might make for smarter graduates (ie more productive workers) in 20 years -- but who will remember the politician who made it happen 20 years earlier?

Congress isn't going to invest for long term growth -- its not in their personalities, and it is not in the "corporate culture" of Washington.

Decades of real life experience, as opposed to theory, have shown us clearly how this works. Politicians borrow from the future to artificially and temporarily perk up the present. The benefits are short term, the debt is not.

Mr Lounsbury, our government has not run balanced **spending**, never mind a surplus, since long before George W Bush or Barack Obama were born. Unless and until spending discipline is actually established -- not theorized -- it is a lie to suggest this debt is anything other than permanent.

Washington has no leadership. We are a country full of debt addicts, and our so called leaders are nothing but pandering enablers. The reason addicts have to go away to rehab is because their family has enabled their addiction (intentionally or unintentionally) ... The only difference here is that our enablers (the politicians) are also addicts

Anyone who has bothered to look has seen the effect of unlimited spending and debt has had on other countries. We are acting like the banana republics that we used to make fun of. We are acting like former world powers did when they were well into their decline.

This is NOT a stimulus package, this is a spending package -- pure and simple.

A real stimulus package would require a completely different culture in Washington, a population that lives within its means, a government purchasing system that wasn't rampant with fraud and waste, and a group of **LEADERS** (not pandering enablers) to sort out the good investments from the bad.

Maybe Obama or someone else can create those necessary prerequisites -- in time. But the economy will likely fix itself long before Washington's culture is changed.

I don't want to be part of a dishonest discussion Mr Lounsbury. There are two things that will fix our economy: increased savings / reduced debt levels ... and time.

The desire for instant gratification got us into this mess -- I don't believe it will get us out, not even if you mislabel it as stimulus]]> Sun, 08 Feb 2009 21:17:52 -0500
I think you are seriously misrepresenting the situation. A very standard political ploy is to estimate the costs of a program over a seemingly arbitrary time-frame -- arbitrary except that it is chosen to make the proposal look less bad than it is.

I would challenge you to provide a shred of evidence that the $850 billion in debt is going to be paid by 2019 ... Are you at all familiar with the US government?

This Keynesian nonsense sounds great in theory -- run deficit "stimulus" spending during recessions, and then pay it back during economic booms. But in the real world, it doesn't work that way -- and its high time ALL commentators stop lying. We have had both political parties controlling Congress, the White House, both or neither -- they are all the same. Spending ALWAYS goes up, in bad times AND in good times.

Mr Lounsbury: if you were honest, you would have to weigh the short term benefits of this mis-named stimulus package against an infinite future of lower growth. It won't stop in 2019-- you have no credible evidence that it will ever stop. The debt taken on today will be rolled in perpetuity, interest accruing all the way.

In short, the CBO estimate greatly underestimates the cost. An extra 3-7% growth in GDP (assuming that happens) does not compare to the negative infinity cost of perpetual debt.

Even your guestimate of 3-7% increased growth is dishonest. Have you checked your math? GDP is about USD $12 trillion. Lets go with your higher number of 7%. 7% of $12 trillion is $840 billion -- or $10 billion LESS than the proposed cost. That is assuming your UPPER estimate (which is doubtful, to be diplomatic) and it doesn't consider the interest expense.

I can't believe anyone would be absurd enough to suggest that 100% of the spending will go to stimulus, and there won't we any fraud, waste or pork spending. You are not asking us to suspend disbelief -- you have to be insane to even think it.

How does it make sense to spend $850 billion (ahem!) to get back $840 billion? Can you name any large scale government program that did not go massively over budget?

Programs like the Big Dig, the interstate thruway system, or the Hoover Dam were planned for months or years -- and they all went way over budget. Those are the stimulus "success" stories. This latest fiasco has almost no planning (maybe three months planning if you want to suggest Obama skipped Christmas). How can you argue with a straight face that this proposed spending is anything other than unplanned?

There is no way the government can prop up asset prices (securities or houses) to bubble levels -- other than running punitive levels of inflation. The $850 boondoggle isn't going to fix this and it is fraud to suggest otherwise.

Warren Buffet has been trying to figure out how to spend $47 billion in cash now for 4-5 years. I simply refuse to believe that the clowns in government can spend 20 times as much in three weeks. This is not an investment, this is corrupt politicians trying to create the illusion of growth.

Could the government spend money to increase long term GDP growth? Theoretically yes. But the key words are "long term". Politicians, like their constituents, want instant gratification. Real education reform might make for smarter graduates (ie more productive workers) in 20 years -- but who will remember the politician who made it happen 20 years earlier?

Congress isn't going to invest for long term growth -- its not in their personalities, and it is not in the "corporate culture" of Washington.

Decades of real life experience, as opposed to theory, have shown us clearly how this works. Politicians borrow from the future to artificially and temporarily perk up the present. The benefits are short term, the debt is not.

Mr Lounsbury, our government has not run balanced **spending**, never mind a surplus, since long before George W Bush or Barack Obama were born. Unless and until spending discipline is actually established -- not theorized -- it is a lie to suggest this debt is anything other than permanent.

Washington has no leadership. We are a country full of debt addicts, and our so called leaders are nothing but pandering enablers. The reason addicts have to go away to rehab is because their family has enabled their addiction (intentionally or unintentionally) ... The only difference here is that our enablers (the politicians) are also addicts

Anyone who has bothered to look has seen the effect of unlimited spending and debt has had on other countries. We are acting like the banana republics that we used to make fun of. We are acting like former world powers did when they were well into their decline.

This is NOT a stimulus package, this is a spending package -- pure and simple.

A real stimulus package would require a completely different culture in Washington, a population that lives within its means, a government purchasing system that wasn't rampant with fraud and waste, and a group of **LEADERS** (not pandering enablers) to sort out the good investments from the bad.

Maybe Obama or someone else can create those necessary prerequisites -- in time. But the economy will likely fix itself long before Washington's culture is changed.

I don't want to be part of a dishonest discussion Mr Lounsbury. There are two things that will fix our economy: increased savings / reduced debt levels ... and time.

The desire for instant gratification got us into this mess -- I don't believe it will get us out, not even if you mislabel it as stimulus]]> http://seekingalpha.com/article/119126-stimulus-watch-senate-pare-down?source=feed#comment-380100 380100 www.washingtontimes.co.../

The U.S. has lived beyond its means for decades. We have far more capacity to produce "stuff" than we have economic need for it. By keeping interest rates artificially too low, the Fed created artificial demand -- at the expense of future tax hikes.

Now we have reached the future. The artificial demand could only be maintained for a short period-- but rather than admit this, the government (both parties) wants to throw more than twice as much money to create less than half as much artificial demand.

The effects of compounding guarantee this "stimulus" package will be far less effective than earlier ones -- which were harmful in the long run. After every "stimulus", we have lots more debt (which stays with us long term) but the artificial demand goes away.

Lets stop kidding ourselves: this is ****NOT**** stimulus. This is borrow from the future to artificially inflate the present. It has been tried many times before, and it doesnt work.

Lets also stop the silly "we must act now!" rhetoric. We have all heard the sky is falling, and its nonsense. The artificial demand was always artificial. Any business that cannot survive without artificial demand (aka a government subsidy) is by definition not economically viable.

This is not a stimulus package. This is yet another shameful effort to avoid living within our means -- and stick our kids with the bill.

This is not "free money" -- this is $850 billion +/- in future taxes and/or inflation.]]> Sun, 08 Feb 2009 15:22:33 -0500 www.washingtontimes.co.../

The U.S. has lived beyond its means for decades. We have far more capacity to produce "stuff" than we have economic need for it. By keeping interest rates artificially too low, the Fed created artificial demand -- at the expense of future tax hikes.

Now we have reached the future. The artificial demand could only be maintained for a short period-- but rather than admit this, the government (both parties) wants to throw more than twice as much money to create less than half as much artificial demand.

The effects of compounding guarantee this "stimulus" package will be far less effective than earlier ones -- which were harmful in the long run. After every "stimulus", we have lots more debt (which stays with us long term) but the artificial demand goes away.

Lets stop kidding ourselves: this is ****NOT**** stimulus. This is borrow from the future to artificially inflate the present. It has been tried many times before, and it doesnt work.

Lets also stop the silly "we must act now!" rhetoric. We have all heard the sky is falling, and its nonsense. The artificial demand was always artificial. Any business that cannot survive without artificial demand (aka a government subsidy) is by definition not economically viable.

This is not a stimulus package. This is yet another shameful effort to avoid living within our means -- and stick our kids with the bill.

This is not "free money" -- this is $850 billion +/- in future taxes and/or inflation.]]> http://seekingalpha.com/article/119215-by-any-means-necessary-stimulus-package-needed-soon?source=feed#comment-380055 380055
As the first commenter (pasttense) points out, they ALL run deficits. Bigger and bigger and bigger deficits.

Clinton supposedly ran a *budget* surplus, but this was basically an accounting quirk and not reality. The government has taken to claiming all sorts of costly items "don't count" -- of course you can run a balanced budget if you don't count your biggest expenses! Looking at things more accurately, Clinton -- like everyone else-- ran a huge *spending* deficit

So recently, The Bush administration wasted $750 billion in TARP money accomplishing nothing other than racking up more debt for our kids to pay. The Democrats step in last month and show small minded people that they "care more" by spending a slightly bigger amount ($850 billion) of our kids money. Only small minded people believe that a politicians "caring" should be measured by how much money they throw at us.

The government has no credible means to spend $850 billion intelligently. There aren't that many shovel ready projects-- so Congress is allocating the money to state governments... how many times have we heard this song before? The states have demonstrated, decade after decade, an ability to spend vast amounts of money on waste and fraud. The "big dig" in Boston was supposed to cost $3.5 billion and had been planned for many years -- it went years over schedule and eventually cost $14 billion. This "stimulus" nonsense was planned for less than two months -- how can anyone suggest with a straight face that this money will be spent better?

And as if anyone really needed further proof that nothing much has changed in Washington, the administration is warning about the end of the world if we don't pass their spending program immediately and without thought-- very George Bush like, except this time it is Barack Obama.

More proof? The Congressional Budget Office (CBO) is controlled by Congress (ie democrats), meaning a majority of the "unbiased economists" were hired by Democrats... The CBO has said that Obama's stimulus package will HURT the economy over the long haul
www.washingtontimes.co.../

New faces in Washington, but they are up to the same old tired and discredited "spend, spend, spend" policies as the last 50 years.]]> Sun, 08 Feb 2009 14:26:35 -0500
As the first commenter (pasttense) points out, they ALL run deficits. Bigger and bigger and bigger deficits.

Clinton supposedly ran a *budget* surplus, but this was basically an accounting quirk and not reality. The government has taken to claiming all sorts of costly items "don't count" -- of course you can run a balanced budget if you don't count your biggest expenses! Looking at things more accurately, Clinton -- like everyone else-- ran a huge *spending* deficit

So recently, The Bush administration wasted $750 billion in TARP money accomplishing nothing other than racking up more debt for our kids to pay. The Democrats step in last month and show small minded people that they "care more" by spending a slightly bigger amount ($850 billion) of our kids money. Only small minded people believe that a politicians "caring" should be measured by how much money they throw at us.

The government has no credible means to spend $850 billion intelligently. There aren't that many shovel ready projects-- so Congress is allocating the money to state governments... how many times have we heard this song before? The states have demonstrated, decade after decade, an ability to spend vast amounts of money on waste and fraud. The "big dig" in Boston was supposed to cost $3.5 billion and had been planned for many years -- it went years over schedule and eventually cost $14 billion. This "stimulus" nonsense was planned for less than two months -- how can anyone suggest with a straight face that this money will be spent better?

And as if anyone really needed further proof that nothing much has changed in Washington, the administration is warning about the end of the world if we don't pass their spending program immediately and without thought-- very George Bush like, except this time it is Barack Obama.

More proof? The Congressional Budget Office (CBO) is controlled by Congress (ie democrats), meaning a majority of the "unbiased economists" were hired by Democrats... The CBO has said that Obama's stimulus package will HURT the economy over the long haul
www.washingtontimes.co.../

New faces in Washington, but they are up to the same old tired and discredited "spend, spend, spend" policies as the last 50 years.]]> http://seekingalpha.com/article/117852-bank-nationalization-the-max-holmes-proposal?source=feed#comment-374530 374530
What price do we put on the "bad" assets?

We know they are not worth par. Its pretty reasonable to say they aren't worth what the lying CEOs claim they are worth. But if there was true price discovery -- if we knew what the proper prices were-- we wouldn't be having this discussion.

The prices assigned are going to be one of two scenarios:

(1) the bad bank (aka the taxpayers) pay too much. The inept bank CEOs get a massive windfall, while the taxpayers take a massive loss

(2) the bad bank pays a fair, or too small, price. In this case, the insolvent bank is still insolvent. The CEOs know this, and have zero reason to participate in the plan. It could potentially have legal issues as well, as bond holders would sue claiming that their interests were not protected in the restructuring (shareholder equity is clearly negative, so there is nothing to protect -- but they might sue also).

Overblown CEO egos is a big reason bank insolvency hasn't been fixed yet. Everyone knows the major banks are insolvent -- but accepting that would mean the CEO would have to admit he is a professional failure.

At some point, the regulators are going to have to admit what everyone already knows but won't say out loud. The big banks are insolvent. They need to be shut down. The only real question is whether to shut each bank down overnight (a la Lehman) or to nationalize it and wind it down over a year or two (as was done years ago with Continental Illinois).

Equally clear: the big banks are really too big to save and too big to manage. If JPM or Citi failed, their assets are far bigger than FNMA or FHLMC. The government could not take on a big bank without jeopardizing its own AAA rating (investors were already doubting the AAA rating even with the GSEs). It is also far from obvious how one management team can be experts in everything -- which is the argument behind universal banks. Most of human history is about increased specialization -- Tiger Woods is a great athlete, but that doesnt mean he should play in the NFL. A bank that is really good at commercial lending probably won't be any good at trading securities. Even if we get better bank CEOs, they cannot be experts in everything finance.

This means the bigger banks need to be split up.]]> Tue, 03 Feb 2009 12:15:54 -0500
What price do we put on the "bad" assets?

We know they are not worth par. Its pretty reasonable to say they aren't worth what the lying CEOs claim they are worth. But if there was true price discovery -- if we knew what the proper prices were-- we wouldn't be having this discussion.

The prices assigned are going to be one of two scenarios:

(1) the bad bank (aka the taxpayers) pay too much. The inept bank CEOs get a massive windfall, while the taxpayers take a massive loss

(2) the bad bank pays a fair, or too small, price. In this case, the insolvent bank is still insolvent. The CEOs know this, and have zero reason to participate in the plan. It could potentially have legal issues as well, as bond holders would sue claiming that their interests were not protected in the restructuring (shareholder equity is clearly negative, so there is nothing to protect -- but they might sue also).

Overblown CEO egos is a big reason bank insolvency hasn't been fixed yet. Everyone knows the major banks are insolvent -- but accepting that would mean the CEO would have to admit he is a professional failure.

At some point, the regulators are going to have to admit what everyone already knows but won't say out loud. The big banks are insolvent. They need to be shut down. The only real question is whether to shut each bank down overnight (a la Lehman) or to nationalize it and wind it down over a year or two (as was done years ago with Continental Illinois).

Equally clear: the big banks are really too big to save and too big to manage. If JPM or Citi failed, their assets are far bigger than FNMA or FHLMC. The government could not take on a big bank without jeopardizing its own AAA rating (investors were already doubting the AAA rating even with the GSEs). It is also far from obvious how one management team can be experts in everything -- which is the argument behind universal banks. Most of human history is about increased specialization -- Tiger Woods is a great athlete, but that doesnt mean he should play in the NFL. A bank that is really good at commercial lending probably won't be any good at trading securities. Even if we get better bank CEOs, they cannot be experts in everything finance.

This means the bigger banks need to be split up.]]> http://seekingalpha.com/article/117878-the-obama-stimulus-plan-why-i-m-concerned?source=feed#comment-373480 373480
Apologies if I was not clear -- I thought I said "do nothing **NOW**. take a few deep breaths. think the problem through"

Implied (but I guess not stated) was the idea that there are long term investments that would make all kinds of sense.

I have serious doubts about the entire concept of a quick fix. I think a lot of our current problems were caused by yesterday's quick fixes

There is also a very real danger that corrupt politicians will use a false sense of urgency to ram through changes that restrict our freedoms and our future economic happiness.

The false urgency used to pass the TARP legislation should give us all pause. Not even Henry Paulson knows where he spent **OUR** $350 billion.

Taking a little time to think through the best **LONG TERM** solution will produce a far superior outcome than a bunch of self serving politicians hastily passing more foolish ideas to create the illusion that they are doing something positive]]> Mon, 02 Feb 2009 12:31:29 -0500
Apologies if I was not clear -- I thought I said "do nothing **NOW**. take a few deep breaths. think the problem through"

Implied (but I guess not stated) was the idea that there are long term investments that would make all kinds of sense.

I have serious doubts about the entire concept of a quick fix. I think a lot of our current problems were caused by yesterday's quick fixes

There is also a very real danger that corrupt politicians will use a false sense of urgency to ram through changes that restrict our freedoms and our future economic happiness.

The false urgency used to pass the TARP legislation should give us all pause. Not even Henry Paulson knows where he spent **OUR** $350 billion.

Taking a little time to think through the best **LONG TERM** solution will produce a far superior outcome than a bunch of self serving politicians hastily passing more foolish ideas to create the illusion that they are doing something positive]]> http://seekingalpha.com/article/117924-rahms-doctrine-and-breaking-up-the-banks?source=feed#comment-373387 373387
What an embarrassment this man is to our country. People are suffering the ill effects of a disastrous Federal Reserve policy -- and this slimey politician wants to use the crisis to expand his political power.]]> Mon, 02 Feb 2009 11:31:58 -0500
What an embarrassment this man is to our country. People are suffering the ill effects of a disastrous Federal Reserve policy -- and this slimey politician wants to use the crisis to expand his political power.]]> http://seekingalpha.com/article/117878-the-obama-stimulus-plan-why-i-m-concerned?source=feed#comment-373338 373338
It is always the "worst possible time" to live within our means. Americans need to stop the short term thinking that has dominated our lives for decades.

What Congress is proposing is $900 billion in future taxes. This is a bill that will have to be paid. This is not free money falling from the sky. Calling it a "stimulus package" is just slick marketing ploy on a slow witted public.

If we are going to saddle ourselves -- we should be more honest: future generations -- with $900 billion in taxes, we should be thinking about creating jobs and a tax base with which to pay those taxes.

We can spend $900 billion now and get back $1800 billion later -- or -- we could spend $900 billion now and get some trolley museums and bridges that no one uses. If we allow our corrupt public servants to spend hundreds of billions based on maybe one week's consideration, we are pretty much guaranteed to get the latter. We will have to pay the $900 billion in extra taxes either way.

It took many years of planning to coordinate the "big dig" in Boston, and that was "only" about $15 billion (out of an original cost estimate of $2.6 billion). If it took many years of planning to spend $15 billion poorly -- what can we expect from the rocket scientists in Congress spending $900 billion based on less than 3 months planning? (and one of those months was the Christmas season, so it arguably doesnt count)

We spent $700 billion only four months ago on TARP -- that was done under the same foolish pretense that something had to be done NOW and there was no time to think it through at all. Absolutely no one has any idea where the first $350 billion went, and banks are still teetering on the brink of collapse.

Everyone is in such a hurry do "something" ... anything.

Sometimes, you have to have patient. Sometimes, the best thing to do is nothing. Take a few deep breaths. Think the problem through. Is there really a monster under our bed? Do we really need to build a $900 billion monster containment unit?

If we thought about it carefully, could we build some high speed trains to reduce car usage and reduce our dependence on foreign oil? Could we fund some research into alternative energy sources? Could we research new technologies to reduce our impact on the environment? Could we encourage the creation of new industries with advanced technologies that will provide future jobs (and future tax base) when the auto industry meets what is now an inevitable fate? Might some (not all) of these things prove economically viable (ie they create more wealth than they use?). Yes, yes, yes and yes – but it will require more than a few weeks thought and planning.

America needs to stop reacting to crisis – and start planning a few moves ahead]]> Mon, 02 Feb 2009 11:04:04 -0500
It is always the "worst possible time" to live within our means. Americans need to stop the short term thinking that has dominated our lives for decades.

What Congress is proposing is $900 billion in future taxes. This is a bill that will have to be paid. This is not free money falling from the sky. Calling it a "stimulus package" is just slick marketing ploy on a slow witted public.

If we are going to saddle ourselves -- we should be more honest: future generations -- with $900 billion in taxes, we should be thinking about creating jobs and a tax base with which to pay those taxes.

We can spend $900 billion now and get back $1800 billion later -- or -- we could spend $900 billion now and get some trolley museums and bridges that no one uses. If we allow our corrupt public servants to spend hundreds of billions based on maybe one week's consideration, we are pretty much guaranteed to get the latter. We will have to pay the $900 billion in extra taxes either way.

It took many years of planning to coordinate the "big dig" in Boston, and that was "only" about $15 billion (out of an original cost estimate of $2.6 billion). If it took many years of planning to spend $15 billion poorly -- what can we expect from the rocket scientists in Congress spending $900 billion based on less than 3 months planning? (and one of those months was the Christmas season, so it arguably doesnt count)

We spent $700 billion only four months ago on TARP -- that was done under the same foolish pretense that something had to be done NOW and there was no time to think it through at all. Absolutely no one has any idea where the first $350 billion went, and banks are still teetering on the brink of collapse.

Everyone is in such a hurry do "something" ... anything.

Sometimes, you have to have patient. Sometimes, the best thing to do is nothing. Take a few deep breaths. Think the problem through. Is there really a monster under our bed? Do we really need to build a $900 billion monster containment unit?

If we thought about it carefully, could we build some high speed trains to reduce car usage and reduce our dependence on foreign oil? Could we fund some research into alternative energy sources? Could we research new technologies to reduce our impact on the environment? Could we encourage the creation of new industries with advanced technologies that will provide future jobs (and future tax base) when the auto industry meets what is now an inevitable fate? Might some (not all) of these things prove economically viable (ie they create more wealth than they use?). Yes, yes, yes and yes – but it will require more than a few weeks thought and planning.

America needs to stop reacting to crisis – and start planning a few moves ahead]]> http://seekingalpha.com/article/117878-the-obama-stimulus-plan-why-i-m-concerned?source=feed#comment-373186 373186
The U.S. has spent far more money than it has earned for years -- living beyond our means is the root cause behind the current crisis. Many individuals are realizing this and cutting back on conspicuous consumption that was all the rage in recent years. If we are honest with ourselves, most of us have too much "stuff" already.

Globally, the world has more manufacturing capability than we have legitimate economic demand. For a few years, central economic planners could create artificial demand by keeping interest rates too low (at a penalty to savers).

After a few years, everyone who could afford "stuff" had at least two of everything. So the central economic planners started pushing banks to lend at sub-market interest rates to people who could not afford to repay -- creating a little more artificial demand.

There is no interest rate at which any more artificial demand can be created, so the next step in this lunacy is for the government to steal money from our children (via debt) and use that money to buy more consumption.

Three months ago, Bernanke and Paulson assured us that TARP would fix everything and we did not know who the next President would be. No one was talking about a $900 billion spending plan.

So what are the odds that someone-- anyone-- carefully considered various infrastructure spending options and determined the best use of $900 billion that no one expected they would get? Infrastructure has been underfunded for decades, why would anyone expect a sudden windfall would be a few months away? Why would anyone bother to create a shovel ready project idea for money they would probably never get?

But now, to plump up the egos of politicians and prey on economic fears, we are going to fool ourselves into thinking we have hundreds of billions of shovel ready projects.... please

Any true "investment" would require months of careful thought -- and would not be ready for Congressional consideration until fall of 2009 at the earliest. Anything that is done faster than that is clearly being done in haste, and not well thought out.

We will have hundreds of bridges to nowhere. Hundreds of trolley museums. Hundreds of economic boondoggles that will not generate enough revenue to even service (much less pay off) the billions in new debt. That means future economic growth will have to be diverted to pay for today's waste.

America needs to stop lying to itself. We cannot spend our way to prosperity. We need more savings (not less). We need to pass our children a prosperous economy -- not a mountain of debt.

If the government isn't going to carefully think through how to spend our children's money -- than it would be better they not spend it at all]]> Mon, 02 Feb 2009 09:33:25 -0500
The U.S. has spent far more money than it has earned for years -- living beyond our means is the root cause behind the current crisis. Many individuals are realizing this and cutting back on conspicuous consumption that was all the rage in recent years. If we are honest with ourselves, most of us have too much "stuff" already.

Globally, the world has more manufacturing capability than we have legitimate economic demand. For a few years, central economic planners could create artificial demand by keeping interest rates too low (at a penalty to savers).

After a few years, everyone who could afford "stuff" had at least two of everything. So the central economic planners started pushing banks to lend at sub-market interest rates to people who could not afford to repay -- creating a little more artificial demand.

There is no interest rate at which any more artificial demand can be created, so the next step in this lunacy is for the government to steal money from our children (via debt) and use that money to buy more consumption.

Three months ago, Bernanke and Paulson assured us that TARP would fix everything and we did not know who the next President would be. No one was talking about a $900 billion spending plan.

So what are the odds that someone-- anyone-- carefully considered various infrastructure spending options and determined the best use of $900 billion that no one expected they would get? Infrastructure has been underfunded for decades, why would anyone expect a sudden windfall would be a few months away? Why would anyone bother to create a shovel ready project idea for money they would probably never get?

But now, to plump up the egos of politicians and prey on economic fears, we are going to fool ourselves into thinking we have hundreds of billions of shovel ready projects.... please

Any true "investment" would require months of careful thought -- and would not be ready for Congressional consideration until fall of 2009 at the earliest. Anything that is done faster than that is clearly being done in haste, and not well thought out.

We will have hundreds of bridges to nowhere. Hundreds of trolley museums. Hundreds of economic boondoggles that will not generate enough revenue to even service (much less pay off) the billions in new debt. That means future economic growth will have to be diverted to pay for today's waste.

America needs to stop lying to itself. We cannot spend our way to prosperity. We need more savings (not less). We need to pass our children a prosperous economy -- not a mountain of debt.

If the government isn't going to carefully think through how to spend our children's money -- than it would be better they not spend it at all]]> http://seekingalpha.com/article/117760-water-the-new-oil?source=feed#comment-373143 373143
The municipal water utilities are politically controlled and are guaranteed a certain return on assets by law (the utility is, not necessarily the utility investor). Existing capital will get no less than the legislated return, but also no more. If the utility needs to expand, it underwrites more capital.

Lastly, as many private land owners in the west are discovering, water rights extend only straight down. If someone buys land that shares an underground aquifer with you, you have zero legal control over how much water he can draw. About a year ago, ranchers in Nevada sued the municipality of Las Vegas. LV went and secured land (and water rights) that were downhill (geologically speaking) from the rancher's land and began drawing as much water as they could. The ranchers had been ranching on their land for generations -- long before the city of Las Vegas was even imagined. None the less, the grass their herds eat is brown and dry, and the wells their cattle drink from depleted.

The ranchers may not have had the best legal counsel, but the problem is more politicial. If thousands of city voters want water, and thousands of jobs (and state revenue) depend on that water -- legal water rights become rather fluid (pun intended). Water ownership rights don't have the legal protection that oil / natural gas fields do]]> Mon, 02 Feb 2009 09:05:16 -0500
The municipal water utilities are politically controlled and are guaranteed a certain return on assets by law (the utility is, not necessarily the utility investor). Existing capital will get no less than the legislated return, but also no more. If the utility needs to expand, it underwrites more capital.

Lastly, as many private land owners in the west are discovering, water rights extend only straight down. If someone buys land that shares an underground aquifer with you, you have zero legal control over how much water he can draw. About a year ago, ranchers in Nevada sued the municipality of Las Vegas. LV went and secured land (and water rights) that were downhill (geologically speaking) from the rancher's land and began drawing as much water as they could. The ranchers had been ranching on their land for generations -- long before the city of Las Vegas was even imagined. None the less, the grass their herds eat is brown and dry, and the wells their cattle drink from depleted.

The ranchers may not have had the best legal counsel, but the problem is more politicial. If thousands of city voters want water, and thousands of jobs (and state revenue) depend on that water -- legal water rights become rather fluid (pun intended). Water ownership rights don't have the legal protection that oil / natural gas fields do]]> http://seekingalpha.com/article/117584-furthering-the-discussion-on-bank-nationalization?source=feed#comment-372723 372723
This is more than disturbing. Bailout advocates are now arguing we have to double down on a terrible investment in order to bail out the previous bailout?

I am very happy that bank nationalization is now being debated, rather than rammed down our throats by an unelected Treasury Secretary... but one argument that has ZERO validity is the claim that we have to make more foolish moves because we already made foolish decisions.

The unfortunate reality that nationalization advocates won't admit to is that the banks (in aggregate) are too big to save. The trillions it would take to prop up poorly run businesses would devastate the US government's financial position.

Further, a nation filled with zombie banks would not possess the tax base needed to keep Uncle Sam in business going forward.

Too many people cite the (isolated incident) of the Chrysler bailout as evidence of bailout "success". One success, if it really is a success, does not prove a idea is sound.

Was Chrysler a success? The company is back for more handouts, so at best Chrylser can be called a delay of death, not a save. While government accountants have stated that the US government "got all its money back" -- this is an incomplete accounting. If Chrysler had been allowed to fail, what other businesses would have been created in its place? How much taxes would those other businesses have paid while Chrysler was paying none?

Further, if Chrysler had been allowed to fail, would that have been the kick in the pants needed to get GM and Ford to implement reforms? How much extra taxes would have been paid by a more healthy car industry? And fast forward to today, how many more billions will the "successful" Chrysler bailout cost taxpayers to bail out Chrysler (again) as well as GM?

With success like that, who needs failure?

Banks are poorly run businesses -- they have proven that beyond any doubt. Plenty of writers have talked about financial disintermediation -- banks are no longer really needed to perform many of the functions they used to. Indeed, it was bank's efforts to branch out into businesses they didnt know and didn't understand that got them in trouble.

New financial institutions, based on a different business model, are needed. Bailing out poorly run banks is unaffordable (even if it was a good idea) and delays the needed reforms in the industry]]> Sun, 01 Feb 2009 17:12:13 -0500
This is more than disturbing. Bailout advocates are now arguing we have to double down on a terrible investment in order to bail out the previous bailout?

I am very happy that bank nationalization is now being debated, rather than rammed down our throats by an unelected Treasury Secretary... but one argument that has ZERO validity is the claim that we have to make more foolish moves because we already made foolish decisions.

The unfortunate reality that nationalization advocates won't admit to is that the banks (in aggregate) are too big to save. The trillions it would take to prop up poorly run businesses would devastate the US government's financial position.

Further, a nation filled with zombie banks would not possess the tax base needed to keep Uncle Sam in business going forward.

Too many people cite the (isolated incident) of the Chrysler bailout as evidence of bailout "success". One success, if it really is a success, does not prove a idea is sound.

Was Chrysler a success? The company is back for more handouts, so at best Chrylser can be called a delay of death, not a save. While government accountants have stated that the US government "got all its money back" -- this is an incomplete accounting. If Chrysler had been allowed to fail, what other businesses would have been created in its place? How much taxes would those other businesses have paid while Chrysler was paying none?

Further, if Chrysler had been allowed to fail, would that have been the kick in the pants needed to get GM and Ford to implement reforms? How much extra taxes would have been paid by a more healthy car industry? And fast forward to today, how many more billions will the "successful" Chrysler bailout cost taxpayers to bail out Chrysler (again) as well as GM?

With success like that, who needs failure?

Banks are poorly run businesses -- they have proven that beyond any doubt. Plenty of writers have talked about financial disintermediation -- banks are no longer really needed to perform many of the functions they used to. Indeed, it was bank's efforts to branch out into businesses they didnt know and didn't understand that got them in trouble.

New financial institutions, based on a different business model, are needed. Bailing out poorly run banks is unaffordable (even if it was a good idea) and delays the needed reforms in the industry]]> http://seekingalpha.com/article/117613-consumers-confident-wells-fargo-will-survive?source=feed#comment-372255 372255
Now Wells has merged with Wachovia, paying whatever positive nominal sum for a bank with a negative net worth. Wachovia comes with the disaster that finished it off -- Great Western Savings ... whose underwater assets are based in California.

Even if Well's asset mix was markedly better than the market average before (which is hard to swallow) -- they now must add in all the garbage they got from Great Western via Wachovia. There is no way asset quality could possibly be anything but worse following the merger

And as Bank America has learned, if you pay a positive amount for an asset worth less than zero -- you will have future losses]]> Sat, 31 Jan 2009 21:28:13 -0500
Now Wells has merged with Wachovia, paying whatever positive nominal sum for a bank with a negative net worth. Wachovia comes with the disaster that finished it off -- Great Western Savings ... whose underwater assets are based in California.

Even if Well's asset mix was markedly better than the market average before (which is hard to swallow) -- they now must add in all the garbage they got from Great Western via Wachovia. There is no way asset quality could possibly be anything but worse following the merger

And as Bank America has learned, if you pay a positive amount for an asset worth less than zero -- you will have future losses]]> http://seekingalpha.com/article/117671-risk-management-or-risk-manipulation?source=feed#comment-372246 372246
As a number of other comments have already noted, VaR has been criticized by Nassim Taleb (and many others) for years. Many finance models, including the Black-Scholes option model, use a set of assumptions designed to make the math into an equation that can be solved with existing math techniques-- rather than assumptions that reflect reality. Black Scholes relies on no transaction costs (commissions and bid/ask spreads do not exist?), no taxes (guess we are left with just death as inevitable?), and Gaussian distribution (which does not fit historical distributions, but has solvable equations).

I wish you had touched more on the human / behavioral side of why risk management has problems. Most Wall Street firms operate as though sales and trading are 110% of the firm. All back office functions -- including risk management -- are cost centers that need to be minimized and marginalized.

An extra dollar spent on risk management hurts the bottom line, and the CEO's paycheck. On the other hand, there is no way to quantify the benefit of spending that extra dollar --- and certainly no incentive for CEOs to focus on risk. By the time big banks got the bills for the lack of risk management-- the CEOs had long since collected hundreds of millions in pay. So what if the bank collapses? That does not effect the long term compensation of the CEO one bit]]> Sat, 31 Jan 2009 21:04:00 -0500
As a number of other comments have already noted, VaR has been criticized by Nassim Taleb (and many others) for years. Many finance models, including the Black-Scholes option model, use a set of assumptions designed to make the math into an equation that can be solved with existing math techniques-- rather than assumptions that reflect reality. Black Scholes relies on no transaction costs (commissions and bid/ask spreads do not exist?), no taxes (guess we are left with just death as inevitable?), and Gaussian distribution (which does not fit historical distributions, but has solvable equations).

I wish you had touched more on the human / behavioral side of why risk management has problems. Most Wall Street firms operate as though sales and trading are 110% of the firm. All back office functions -- including risk management -- are cost centers that need to be minimized and marginalized.

An extra dollar spent on risk management hurts the bottom line, and the CEO's paycheck. On the other hand, there is no way to quantify the benefit of spending that extra dollar --- and certainly no incentive for CEOs to focus on risk. By the time big banks got the bills for the lack of risk management-- the CEOs had long since collected hundreds of millions in pay. So what if the bank collapses? That does not effect the long term compensation of the CEO one bit]]> http://seekingalpha.com/article/117690-how-wall-street-keeps-dooming-itself?source=feed#comment-372235 372235
They have never once run balanced spending. Yes, I am sure someone will whine that that so-and-so cooked the books and produced balanced "budgets" -- but no one ran balanced spending.

No one produced an energy policy beyond Jimmy Carter suggesting we all wear a sweater. No one properly funded infrastructure like railways and highways. Adjusted for purchasing power parity, the US spends more per student on education than any other country on Earth -- but I would suggest our schools do not reflect that. While administrators sit in newly refurbished offices, teachers are forced to buy their own supplies.

For this "public service", government bureaucrats (both elected officials and career bureaucrats) have enjoyed pay raises that exceeded CPI. While stated salaries are generally less than the private sector, productivity is WAY WAY less than the private sector -- adjusting for lower productivity, public sector workers get paid LOTS more than the private sector.

And that is before we take into account benefits that are much better than almost all private sector workers

These underworked, overstaffed and overpaid bureaucrats are the ones who are (and were) supposed to be regulating all these banks.

What right do voters have to whine about bank bonuses (which are admittedly obscene) when we have been tolerating the "pay for lack of performance" compensation of our so-called public servants?]]> Sat, 31 Jan 2009 20:37:14 -0500
They have never once run balanced spending. Yes, I am sure someone will whine that that so-and-so cooked the books and produced balanced "budgets" -- but no one ran balanced spending.

No one produced an energy policy beyond Jimmy Carter suggesting we all wear a sweater. No one properly funded infrastructure like railways and highways. Adjusted for purchasing power parity, the US spends more per student on education than any other country on Earth -- but I would suggest our schools do not reflect that. While administrators sit in newly refurbished offices, teachers are forced to buy their own supplies.

For this "public service", government bureaucrats (both elected officials and career bureaucrats) have enjoyed pay raises that exceeded CPI. While stated salaries are generally less than the private sector, productivity is WAY WAY less than the private sector -- adjusting for lower productivity, public sector workers get paid LOTS more than the private sector.

And that is before we take into account benefits that are much better than almost all private sector workers

These underworked, overstaffed and overpaid bureaucrats are the ones who are (and were) supposed to be regulating all these banks.

What right do voters have to whine about bank bonuses (which are admittedly obscene) when we have been tolerating the "pay for lack of performance" compensation of our so-called public servants?]]> http://seekingalpha.com/article/117135-thinking-the-impossible-could-bank-of-america-go-to-zero?source=feed#comment-372227 372227
Like many other banks, BofA's stock is an option that the government will shift the losses to the taxpayers and leave the equity holders with something economically relevant. Under the previous crony Hank Paulson regime, that was possible -- albeit unlikely since Uncle Sam could not afford to take on the debts of FNMA and FHLMC. Even with a tax cheat in the Treasury, the odds are now even lower.

BofA (and JPM and Citi) are too big to save]]> Sat, 31 Jan 2009 20:21:38 -0500
Like many other banks, BofA's stock is an option that the government will shift the losses to the taxpayers and leave the equity holders with something economically relevant. Under the previous crony Hank Paulson regime, that was possible -- albeit unlikely since Uncle Sam could not afford to take on the debts of FNMA and FHLMC. Even with a tax cheat in the Treasury, the odds are now even lower.

BofA (and JPM and Citi) are too big to save]]> http://seekingalpha.com/article/117350-would-the-new-legislation-kill-the-cds-market?source=feed#comment-370428 370428
The problem is one of margins (or lack thereof). Unlike futures contracts, where buyers and sellers must post margins to make sure they will make good on contracts -- CDS traders do not post any margins with the counterparty. The host bank is not required to maintain any reserves against its CDS positions. There is an immediate payment "earned", but no reserve taken against future defaults -- thus the profitability of the trading is vastly overstated. AIG learned this the hard way.

Second problem, CDS pricing models make very dubious assumptions... for starters: default probabilities are clearly not normally distributed. The correlations between issuers is not constant -- during boom times, two issuers might trade inversely to each other (providing a possible hedge); but during a recession, those same two issuer's become positively correlated. This problem makes it very difficult to try to assess a bank's total portfolio risk (across many traders or across the whole desk). I don't know the answer to this.... but it is all too obvious the banks don't either

If CDS are to continue trading, they need to serve an economic purpose. It is not obvious what purpose they serve, other than artificially inflating bank profits in the short term. Further, if CDS serve a purpose, then CDS risk models need serious rethinking

If CDS really serve a need and if the risk can be managed properly, investors will find a way around any legislation. If banks are predicting the end of CDS trading, they are saying CDS really don't serve a true economic need]]> Thu, 29 Jan 2009 17:40:53 -0500
The problem is one of margins (or lack thereof). Unlike futures contracts, where buyers and sellers must post margins to make sure they will make good on contracts -- CDS traders do not post any margins with the counterparty. The host bank is not required to maintain any reserves against its CDS positions. There is an immediate payment "earned", but no reserve taken against future defaults -- thus the profitability of the trading is vastly overstated. AIG learned this the hard way.

Second problem, CDS pricing models make very dubious assumptions... for starters: default probabilities are clearly not normally distributed. The correlations between issuers is not constant -- during boom times, two issuers might trade inversely to each other (providing a possible hedge); but during a recession, those same two issuer's become positively correlated. This problem makes it very difficult to try to assess a bank's total portfolio risk (across many traders or across the whole desk). I don't know the answer to this.... but it is all too obvious the banks don't either

If CDS are to continue trading, they need to serve an economic purpose. It is not obvious what purpose they serve, other than artificially inflating bank profits in the short term. Further, if CDS serve a purpose, then CDS risk models need serious rethinking

If CDS really serve a need and if the risk can be managed properly, investors will find a way around any legislation. If banks are predicting the end of CDS trading, they are saying CDS really don't serve a true economic need]]> http://seekingalpha.com/article/117419-gross-stop-the-asset-price-decline?source=feed#comment-370368 370368
But all his "gains" boil down to political connections and having the Fed or Treasury artificially inflate prices!! PIMCO shareholders are paying millions to have this guy rob taxpayers -- who are also the PIMCO shareholders.

PIMCO shareholders are paying this guy to rob them, take a few million off the top for himself, and then give the shareholders their money back -- calling it "profits" !!!!]]> Thu, 29 Jan 2009 16:33:40 -0500
But all his "gains" boil down to political connections and having the Fed or Treasury artificially inflate prices!! PIMCO shareholders are paying millions to have this guy rob taxpayers -- who are also the PIMCO shareholders.

PIMCO shareholders are paying this guy to rob them, take a few million off the top for himself, and then give the shareholders their money back -- calling it "profits" !!!!]]> http://seekingalpha.com/article/117126-fomc-statement-redacted-version?source=feed#comment-369300 369300
Monetizing debt has only one outcome...]]> Wed, 28 Jan 2009 19:39:36 -0500
Monetizing debt has only one outcome...]]> http://seekingalpha.com/article/117065-bailed-out-executives-will-repeat-mistakes-if-we-keep-rewarding-their-failures?source=feed#comment-368899 368899
some of those execs are now running the NY Fed and the Treasury, while others moved to buy $35,000 commodes at a different bank. One of the academics who assured those executives that distributions are normal and markets are always rational is now chairing the Fed.

Your general argument -- the same inmates are still running the asylum -- is spot on]]> Wed, 28 Jan 2009 13:44:06 -0500
some of those execs are now running the NY Fed and the Treasury, while others moved to buy $35,000 commodes at a different bank. One of the academics who assured those executives that distributions are normal and markets are always rational is now chairing the Fed.

Your general argument -- the same inmates are still running the asylum -- is spot on]]> http://seekingalpha.com/article/115553-does-wealth-equal-money?source=feed#comment-366712 366712
When "wealth" was increasing 15-20% per year (housing notably) from 2001-2006, did you advocate that Fed Funds should be increased to match that "inflation"? Can you provide a link to an article where you make this argument?

I have asked this question of all the deflation advocates -- and not one has replied.

If you want to argue that wealth = money, then it should also hold when times are good -- otherwise, you are simply arguing for keeping rates perpetually too low

Please give us the link to the article in which you argued for 15-20% Fed Funds during the boom]]> Mon, 26 Jan 2009 14:10:55 -0500
When "wealth" was increasing 15-20% per year (housing notably) from 2001-2006, did you advocate that Fed Funds should be increased to match that "inflation"? Can you provide a link to an article where you make this argument?

I have asked this question of all the deflation advocates -- and not one has replied.

If you want to argue that wealth = money, then it should also hold when times are good -- otherwise, you are simply arguing for keeping rates perpetually too low

Please give us the link to the article in which you argued for 15-20% Fed Funds during the boom]]> http://seekingalpha.com/article/116244-annals-of-cds-demonization-michael-lewis-edition?source=feed#comment-365846 365846
Seeking Alpha needs to get better writers...]]> Sun, 25 Jan 2009 15:49:56 -0500
Seeking Alpha needs to get better writers...]]> http://seekingalpha.com/article/116193-it-s-time-for-ge-to-lose-its-triple-a?source=feed#comment-364396 364396
Orange County, CA was AAA when it filed bankruptcy. Enron was listed as investment grade when it collapsed. All this ABS, CDO, SIV debt was supposedly AAA. The opinion of useless credit rating agencies should not even be considered by any intelligent investor

As for GE's actual credit worthiness, it should be remembered that many years ago Bill Gross of Pimco complained about GE's over reliance on the commercial paper market. I am not sure he was the first person to point out GE's weak finances -- I only highlight him because he is/was well known and his opinions well read (whether or not you agree with him, everyone at least knows his thoughts).

GE hasn't been an industrial company in decades -- dozens of analysts have pointed out the dominance of GE Capital in GE's results. GE has long made more money financing aircraft engines and medical equipment than it did selling them.

Besides GE Capital, the biggest earnings driver during Jack Welch's time was mergers and acquisition! When Welch started in the early 1980s, there were lots of poorly run conglomerates (GE was one of them) that needed to be split up -- M&A made sense. But toward the end of Welch's reign, GE was straining to find an M&A deal that was profitable and yet big enough to impact a company of GE's size...

Imelt's two competitors for the CEO position went on to devastate the business models of Home Depot and 3M. And the former GE Capital chief Gary Wendt was unable to turn around Conseco. So much for GE's heralded manager development process.

Imelt himself "won" the CEO position after running GE's aircraft and medical divisions -- which, however well run, were side shows compared to the financing and M&A activities

GE is a heavily leveraged bank, in a difficult banking environment, being run by a guy who climbed the ranks running manufacturing businesses

That is what investors should consider -- not the un-informed opinion of credit rating agencies]]> Fri, 23 Jan 2009 14:22:58 -0500
Orange County, CA was AAA when it filed bankruptcy. Enron was listed as investment grade when it collapsed. All this ABS, CDO, SIV debt was supposedly AAA. The opinion of useless credit rating agencies should not even be considered by any intelligent investor

As for GE's actual credit worthiness, it should be remembered that many years ago Bill Gross of Pimco complained about GE's over reliance on the commercial paper market. I am not sure he was the first person to point out GE's weak finances -- I only highlight him because he is/was well known and his opinions well read (whether or not you agree with him, everyone at least knows his thoughts).

GE hasn't been an industrial company in decades -- dozens of analysts have pointed out the dominance of GE Capital in GE's results. GE has long made more money financing aircraft engines and medical equipment than it did selling them.

Besides GE Capital, the biggest earnings driver during Jack Welch's time was mergers and acquisition! When Welch started in the early 1980s, there were lots of poorly run conglomerates (GE was one of them) that needed to be split up -- M&A made sense. But toward the end of Welch's reign, GE was straining to find an M&A deal that was profitable and yet big enough to impact a company of GE's size...

Imelt's two competitors for the CEO position went on to devastate the business models of Home Depot and 3M. And the former GE Capital chief Gary Wendt was unable to turn around Conseco. So much for GE's heralded manager development process.

Imelt himself "won" the CEO position after running GE's aircraft and medical divisions -- which, however well run, were side shows compared to the financing and M&A activities

GE is a heavily leveraged bank, in a difficult banking environment, being run by a guy who climbed the ranks running manufacturing businesses

That is what investors should consider -- not the un-informed opinion of credit rating agencies]]> http://seekingalpha.com/article/114382-smith-barney-math?source=feed#comment-353584 353584
Morgan Stanley brokers are not going to tolerate a Citi brokerage culture -- anymore than Merril brokers are going to tolerate the bureaucracy of Bank of America.

In a "produce or perish" rain maker culture like Morgan Stanley, many of Citi's brokers are a liability... someone will have to pay for the severance costs.

If the MS/C venture adopts a "nice" culture, than the rain makers might just walk out the door -- which will cost a lot more.

In all these bank acquisitions, analysts who try to place values on the "new" company always seem to forget to subtract the costs of merging corporate cultures. Ask Morgan Stanley how much fun it was to merge with Dean Witter.]]> Mon, 12 Jan 2009 13:54:20 -0500
Morgan Stanley brokers are not going to tolerate a Citi brokerage culture -- anymore than Merril brokers are going to tolerate the bureaucracy of Bank of America.

In a "produce or perish" rain maker culture like Morgan Stanley, many of Citi's brokers are a liability... someone will have to pay for the severance costs.

If the MS/C venture adopts a "nice" culture, than the rain makers might just walk out the door -- which will cost a lot more.

In all these bank acquisitions, analysts who try to place values on the "new" company always seem to forget to subtract the costs of merging corporate cultures. Ask Morgan Stanley how much fun it was to merge with Dean Witter.]]> http://seekingalpha.com/article/114382-smith-barney-math?source=feed#comment-353553 353553
If 51% of Smith Barney is worth $2.5 billion, than the whole is presumably worth around $5 billion.

Citi CEO Pandit wants us to believe that $5 billion is equal to $10billion -- and somehow he doesn't understand why no one trusts the numbers on his balance sheet.

I am not trying to pick on Mr Pandit -- basic algebra skills seem to be eluding all the bank CEOs lately, and Hank Paulson too.]]> Mon, 12 Jan 2009 13:26:48 -0500
If 51% of Smith Barney is worth $2.5 billion, than the whole is presumably worth around $5 billion.

Citi CEO Pandit wants us to believe that $5 billion is equal to $10billion -- and somehow he doesn't understand why no one trusts the numbers on his balance sheet.

I am not trying to pick on Mr Pandit -- basic algebra skills seem to be eluding all the bank CEOs lately, and Hank Paulson too.]]> http://seekingalpha.com/article/114207-ecri-u-s-inflation-pressures-continue-to-collapse?source=feed#comment-352899 352899
Main Street figured out home prices were in a problem long before Wall Street. Time, Newsweek and US News all talked about a housing bubble months before the Wall Street Journal

Lets not forget that Greenspan, Bernanke et all already tried to pull this deflation scam in 2001. It never happened, and the low interest rates they pushed on us directly contributed to the housing bubble.

Bernanke and Paulson both assured us until about a year ago that the subprime debacle was "well contained"

Its time to stop parroting the economic foolishness. There is no deflation. Bond yields and interest rates are well below inflation (measured by money supply or cost of living, whichever you prefer).]]> Sun, 11 Jan 2009 23:25:34 -0500
Main Street figured out home prices were in a problem long before Wall Street. Time, Newsweek and US News all talked about a housing bubble months before the Wall Street Journal

Lets not forget that Greenspan, Bernanke et all already tried to pull this deflation scam in 2001. It never happened, and the low interest rates they pushed on us directly contributed to the housing bubble.

Bernanke and Paulson both assured us until about a year ago that the subprime debacle was "well contained"

Its time to stop parroting the economic foolishness. There is no deflation. Bond yields and interest rates are well below inflation (measured by money supply or cost of living, whichever you prefer).]]> http://seekingalpha.com/article/114116-why-property-taxes-must-be-cut?source=feed#comment-352875 352875
Obviously we are in a recession at the moment, but if you look at U.S. GDP over a long period (25+ years), it has been growing a little less than 5%.

Government spending by municipalities has been growing 8-9% (looking at a national average) over the same long period.

Expenses cannot grow faster than revenues... that should be common sense.

Municipal workers are whining all the way to the bank. While *stated* salaries are "only" 60K in my town, many of the bureaucrats actually take home well into six figures. A high school janitor last year apparently raked in $180K with all sorts of overtime.

Another recently discovered scam is "double dipping" -- and its a scam that has appeared in newspapers in FL, CT, NY, and Illinois (that I am aware of -- probably elsewhere). Municipal workers are eligible for retirement after a much shorter period. After working 20yrs, they "retire" for 32 days (one month plus one day) and then get rehired into the same position -- collecting both a pension and a paycheck for the same job.

Even if these cases are isolated to just the four states above -- the simple practicality is that the United States cannot afford to pay so much for government. Period.

If GDP is growing 5%, government can grow no faster... its a mathematical truism. Liberals may want government to grow the full 5%, conservatives may want government spending confined to 2% (CPI rate). Anything in that range is a valid opinion -- even if we don't agree with the other guy.

But growing government spending faster than the economy is a recipee for bankruptcy -- plain and simple.

California is learning this lesson the hard way -- they will be forced to cut government spending whether they want to or not. New York City had to learn the lesson back in the 1970s -- and indications are they will have to learn the lesson again soon.

Money doesn't grow on trees -- not even if you are a government]]> Sun, 11 Jan 2009 22:41:23 -0500
Obviously we are in a recession at the moment, but if you look at U.S. GDP over a long period (25+ years), it has been growing a little less than 5%.

Government spending by municipalities has been growing 8-9% (looking at a national average) over the same long period.

Expenses cannot grow faster than revenues... that should be common sense.

Municipal workers are whining all the way to the bank. While *stated* salaries are "only" 60K in my town, many of the bureaucrats actually take home well into six figures. A high school janitor last year apparently raked in $180K with all sorts of overtime.

Another recently discovered scam is "double dipping" -- and its a scam that has appeared in newspapers in FL, CT, NY, and Illinois (that I am aware of -- probably elsewhere). Municipal workers are eligible for retirement after a much shorter period. After working 20yrs, they "retire" for 32 days (one month plus one day) and then get rehired into the same position -- collecting both a pension and a paycheck for the same job.

Even if these cases are isolated to just the four states above -- the simple practicality is that the United States cannot afford to pay so much for government. Period.

If GDP is growing 5%, government can grow no faster... its a mathematical truism. Liberals may want government to grow the full 5%, conservatives may want government spending confined to 2% (CPI rate). Anything in that range is a valid opinion -- even if we don't agree with the other guy.

But growing government spending faster than the economy is a recipee for bankruptcy -- plain and simple.

California is learning this lesson the hard way -- they will be forced to cut government spending whether they want to or not. New York City had to learn the lesson back in the 1970s -- and indications are they will have to learn the lesson again soon.

Money doesn't grow on trees -- not even if you are a government]]> http://seekingalpha.com/article/114075-welcome-to-ermflation?source=feed#comment-352869 352869
Canada's healthcare system is heavily subsidized by Canada's oil and natural gas exports. Canada also has a much smaller population. The U.S. population is much larger (requiring more resources) and we import 40% of our energy needs --- indeed Canada is our #1 supplier.

Canada relies on "free" pharmaceutical research... or to be more blunt, the U.S. pays for you. Try paying for your own research before telling us how great you think you are.

Lastly, Canada has **TWO** healthcare systems. One for the rich (who travel to the United States or Asia for anything other than emergency care) and the government one for the poor. That is hardly a healthcare system anyone should brag about

]]> Sun, 11 Jan 2009 22:25:23 -0500
Canada's healthcare system is heavily subsidized by Canada's oil and natural gas exports. Canada also has a much smaller population. The U.S. population is much larger (requiring more resources) and we import 40% of our energy needs --- indeed Canada is our #1 supplier.

Canada relies on "free" pharmaceutical research... or to be more blunt, the U.S. pays for you. Try paying for your own research before telling us how great you think you are.

Lastly, Canada has **TWO** healthcare systems. One for the rich (who travel to the United States or Asia for anything other than emergency care) and the government one for the poor. That is hardly a healthcare system anyone should brag about

]]> http://seekingalpha.com/article/114075-welcome-to-ermflation?source=feed#comment-351830 351830
This sounds like any January rally should be used to trim one's market exposure. No matter what Obama's strengths or weaknesses, no human being could possibly live up to the Obama hype.

Both Hilary Clinton and John McCain complained that Obama made "soaring speeches" in which he essentially said nothing. This might have been a great campaign strategy, but now Democratically leaning newspapers are running op-ed pieces saying (in so many words) "Obama, the election is over -- its time to get specific"

Very much like George Bush, Obama doesnt have any plan. Not a good plan, not a bad plan, not a medium plan -- just no plan. Speeches are great on the campaign trail, but once you sit in the Oval Office, you have to have a plan in order to lead.

Members of Congress from his own party (Barney Franks, Waxman, Pelosi, etc) are constantly on TV acting quasi-presidential in advocating new economic policies. Obama's first task will be to simply convince everyone that he is actually in charge -- and he has to put members of his own party "in their place" to do that.

Lots of people like to blame Bush for his handling of hurricane Katrina... In the run up to the Gulf War, it took the US military about 5 months to move 500,000 troops into the Iraq theatre. Military personnel are trained and equipped to be very mobile, they are in better physical condition than the general populace, and the military transport system is geared around moving troops to/from the battlefield. The military has a very clear chain of command.

New Orleans (never mind Alabama and the rest of Louisiana) had a population of 2.5 million people (five times the number of military personnel moved above) -- including elderly, sick, babies and others who cannot move themselves. I imagine the people of New Orleans are as healthy as the rest of the country -- but as a general statement not in as good physical condition as military members. The military spent five months moving to Iraq; New Orleans had about 8-10 days notice of Katrina. And lastly, there were (and still are) disputes over what resources are controlled by FEMA and which are controlled by city and state officials. Everyone wants to pass the buck on Katrina -- and they are able to do so because there was no clear chain of command.

New Orleans was built below sea level, with highways that could barely handle daily commutes never mind full evacuations. The city's desire to collect more property taxes made them develop the wetlands on the outskirts of the city -- reducing protection from the sea and limiting areas where water could drain without effecting residents.

I am not trying to exonerate FEMA/Brown's behavior -- I am just saying that there is no precedent for evacuating an entire city full of people (2.5 million people, including elderly, etc), on 10 days notice, to an undefined place, with no clear chain of command. It took the military 5 months to move 1/5th as many well trained, well equipped troops that were in condition to move themselves. Even if Brown had done an effective job, the infrastructure of New Orleans was almost designed to be a major problem.

Obama faces a similar issue with the US economy. We have too much debt already. We really on credit to over-consume / live beyond our means. Clearly, any real solution involves more savings and less consumption -- but that solution will exacerbate the recession in the short run. Our lack of savings makes us completely at the mercy of foreign creditors.

Even if Obama does a "perfect job" (assuming we could agree what that is), the "infrastructure" of our economy will not allow a pain free outcome.

Even if Obama rises to the challenges of the Oval Office, expectations are far above what any man (or woman) is able to do.
]]> Sat, 10 Jan 2009 14:42:07 -0500
This sounds like any January rally should be used to trim one's market exposure. No matter what Obama's strengths or weaknesses, no human being could possibly live up to the Obama hype.

Both Hilary Clinton and John McCain complained that Obama made "soaring speeches" in which he essentially said nothing. This might have been a great campaign strategy, but now Democratically leaning newspapers are running op-ed pieces saying (in so many words) "Obama, the election is over -- its time to get specific"

Very much like George Bush, Obama doesnt have any plan. Not a good plan, not a bad plan, not a medium plan -- just no plan. Speeches are great on the campaign trail, but once you sit in the Oval Office, you have to have a plan in order to lead.

Members of Congress from his own party (Barney Franks, Waxman, Pelosi, etc) are constantly on TV acting quasi-presidential in advocating new economic policies. Obama's first task will be to simply convince everyone that he is actually in charge -- and he has to put members of his own party "in their place" to do that.

Lots of people like to blame Bush for his handling of hurricane Katrina... In the run up to the Gulf War, it took the US military about 5 months to move 500,000 troops into the Iraq theatre. Military personnel are trained and equipped to be very mobile, they are in better physical condition than the general populace, and the military transport system is geared around moving troops to/from the battlefield. The military has a very clear chain of command.

New Orleans (never mind Alabama and the rest of Louisiana) had a population of 2.5 million people (five times the number of military personnel moved above) -- including elderly, sick, babies and others who cannot move themselves. I imagine the people of New Orleans are as healthy as the rest of the country -- but as a general statement not in as good physical condition as military members. The military spent five months moving to Iraq; New Orleans had about 8-10 days notice of Katrina. And lastly, there were (and still are) disputes over what resources are controlled by FEMA and which are controlled by city and state officials. Everyone wants to pass the buck on Katrina -- and they are able to do so because there was no clear chain of command.

New Orleans was built below sea level, with highways that could barely handle daily commutes never mind full evacuations. The city's desire to collect more property taxes made them develop the wetlands on the outskirts of the city -- reducing protection from the sea and limiting areas where water could drain without effecting residents.

I am not trying to exonerate FEMA/Brown's behavior -- I am just saying that there is no precedent for evacuating an entire city full of people (2.5 million people, including elderly, etc), on 10 days notice, to an undefined place, with no clear chain of command. It took the military 5 months to move 1/5th as many well trained, well equipped troops that were in condition to move themselves. Even if Brown had done an effective job, the infrastructure of New Orleans was almost designed to be a major problem.

Obama faces a similar issue with the US economy. We have too much debt already. We really on credit to over-consume / live beyond our means. Clearly, any real solution involves more savings and less consumption -- but that solution will exacerbate the recession in the short run. Our lack of savings makes us completely at the mercy of foreign creditors.

Even if Obama does a "perfect job" (assuming we could agree what that is), the "infrastructure" of our economy will not allow a pain free outcome.

Even if Obama rises to the challenges of the Oval Office, expectations are far above what any man (or woman) is able to do.
]]> http://seekingalpha.com/article/111400-positioning-a-portfolio-for-a-lousy-economic-environment?source=feed#comment-334825 334825
1) Why you think CPI will accurately reflect cost of living increases. Many people have written detailed articles of why CPI is a flawed measure of inflation. I have heard all the arguments that the money supply is collapsing and therefor these "experts" claim we are facing deflation right now. My grocery bill, health care costs, education expenses all say otherwise. Health and education have been increasing **at least** double the rate of CPI for two decades.

2) you talked in an earlier article about incentive problems. Well, the government's liabilities (TIPs, government employee wages and Social Security) all hinge on CPI, directly or indirectly. The government gets to define, and redefine, CPI at will -- and they have already major revisions during the Clinton administration (the Boskin Commission) and minor revisions during other administrations... Why would you buy a floating rate bond that pays off an index that is set by the debtor? This is a textbook case of conflict of interest

3) the implied par value "put" that is built into TIPs gives something of a floor on the CPI cashflow stream-- so this might make TIPs a good **trading** vehicle over the next year or two... but given that most people are not good at market timing, how do we know when to swtich out of TIPs?

4) please mention the tax problems of TIPs:
4a) if you buy them directly (not an issue if bought via a mutual fund). the TIP owner pays tax on the CPI "distribution", even though the cash payment is not made until maturity.
4b) taxes are assessed on the **entire** interest. You pay taxes on the CPI "payments" -- meaning that even if CPI were an accurate measure of the cost of living, you are not protecting purchasing power over time


It seems to me that most people would be better off avoiding TIPs, which are really nothing more than a floating rate Treasury bond that pay off a questionable index. If you don't like nominal Treasuries, than you shouldn't like TIPs either]]> Sat, 20 Dec 2008 22:55:59 -0500
1) Why you think CPI will accurately reflect cost of living increases. Many people have written detailed articles of why CPI is a flawed measure of inflation. I have heard all the arguments that the money supply is collapsing and therefor these "experts" claim we are facing deflation right now. My grocery bill, health care costs, education expenses all say otherwise. Health and education have been increasing **at least** double the rate of CPI for two decades.

2) you talked in an earlier article about incentive problems. Well, the government's liabilities (TIPs, government employee wages and Social Security) all hinge on CPI, directly or indirectly. The government gets to define, and redefine, CPI at will -- and they have already major revisions during the Clinton administration (the Boskin Commission) and minor revisions during other administrations... Why would you buy a floating rate bond that pays off an index that is set by the debtor? This is a textbook case of conflict of interest

3) the implied par value "put" that is built into TIPs gives something of a floor on the CPI cashflow stream-- so this might make TIPs a good **trading** vehicle over the next year or two... but given that most people are not good at market timing, how do we know when to swtich out of TIPs?

4) please mention the tax problems of TIPs:
4a) if you buy them directly (not an issue if bought via a mutual fund). the TIP owner pays tax on the CPI "distribution", even though the cash payment is not made until maturity.
4b) taxes are assessed on the **entire** interest. You pay taxes on the CPI "payments" -- meaning that even if CPI were an accurate measure of the cost of living, you are not protecting purchasing power over time


It seems to me that most people would be better off avoiding TIPs, which are really nothing more than a floating rate Treasury bond that pay off a questionable index. If you don't like nominal Treasuries, than you shouldn't like TIPs either]]>