wobatus

Charlie Gasparino: Another Crash 'Has to Happen Again'

Excellent. At least its not just a chorus of agreement. I was too harsh on Charlie, but he really is trying to sell books to the angry crowd.

But I like how you took a phrase I used and said it meant the exact opposite. Very convenient argument tactic.

And I know a lot of wall street got away with murder. I am talking about the fact that tons of capital did get wiped out, some of it by people who believed they were making rational investing decisions, who did not think they would be bailed out and did not get bailed out. I think there was a large failure to recognize the risk on the part of certain actors that had nothing to do with moral hazard. Yes, moral hazard plays a roll. Government interference in the market plays a roll as well. So does human greed. But these aren't the only factors. To trumpet one aspect above all others, pretty much ignoring the others, is axe-grinding.


On Nov 06 01:05 PM kertch wrote:

> Your comment reflects an ignorant and dangerous way of thinking:
>
>
> "Not to absolve government, but..." - but of course you would like
> to absolve government.
> "... these dopes would have immolated even without the incentives."
> - Dopes? These guys gamed the entire U.S. economy and banking system
> to thier advantatage and walked away with Billions, leaving us with
> the tab. We got immolated: the shareholders, the bondholders, and
> the taxpayers, not the bankers. The dopes are us, the ones paying
> for the mess, believing our "trusted public servants" will keep the
> "stupid evil bankers" from robbing us. If that's what you think
> then "moral hazard" is the only card you've got left to play. BTW,
> you're just the half-wit tinpot calling the kettle black.
>
> On Nov 05 04:33 PM wobatus wrote:

Charlie Gasparino: Another Crash 'Has to Happen Again'

Interesting ideas. I don't agree with all of them, but I think even libertarians are thinking evidently you can't just let these behemoths think for themselves. The amazing thing is how regularly they f'up. Every 10-20 years it seems.


On Nov 06 06:20 PM Old Wizard wrote:

> The analysis by Gasparino is correct as far as it goes in identifying
> root causes, but doesn't go far enough. I also don't believe that
> regulations couldn't be adopted that would check the out of control
> " risk taking" which I would better label gambling and misrepresentation
> bordering on fraud. Today the banks are borrowing money from the
> taxpayers [ re; gov] at close to zero and then from the subset of
> taxpayers, those who are saving money in banks, at 1% and then lending
> it at 5% or greater. To make matters worse the Gov [ re: taxpayers]
> under the guise of getting credit flowing again buy 300b of securities
> from banks much of which banks had loaned to the Gov[re: taxpayers]
> at between 2and 3% to ensure a safe haven. In all this machination
> the handlers of all these transactions are profiting[ this includes
> the government officials as well as the "bank" officials, those in
> fannie may and freddie mac, past and present, and all the agents
> of the gov who handle the bond transactions for the Gov of which
> Goldman Sachs is a big player]. Then the treasury says the people
> should save more and wall street says that the economic recovery
> will occur when the consumer spends more. Anybody see any inconsistencies
> here. The one salient constant here is that the hardworking individual
> who pays one's bills saves a portion of one's income and generally
> keeps a positive cash flow is the loser. Now meaningful reform can
> occur with some simple laws1] No mortgage or loan can be sold in
> any form more than once 2] Commodity traders must pay at least 50
> cents on the dollar on purchases. 3] hedge fund managers must pay
> at the individual tax rate for income tax 4] No mortgage shall be
> granted by any lending institution with a down payment of less than
> 10%. 5] Lines of credit for small businesses will not be greater
> than 10% of gross sales or for start ups be administered by a special
> officer of the bank and a pool established by the banks with .1 of
> 1% of their profits. 6] Credit card limits for any holder will be
> no more than 10% of an individual's annual income and interest rates
> will be no higher than 10% annually.7] Rating agencies can not be
> part of any other company. While these may not do it all , they would
> go a long way toward decreasing the gambling, exploitation and fraud
> we've experienced and maybe just maybe get capital to make long term
> investments borne of the conviction that new products and services
> will bring adequate returns. All the parties who are now profiting
> don't have enough skin in the game and until the system allows them
> to play[gamble] with other people's money with little skin in the
> game, it ain't goona get any better.

Charlie Gasparino: Another Crash 'Has to Happen Again'

Good point. That Merrill deal seemed ludicrous at the time. They were about to fail the next week. Their stock was headed to zero. People forget the panic that weekend.


On Nov 06 04:26 PM The Wog wrote:

> Good work in general, but repeated one horrible mistake - although
> to be fair a horrible mistake made by everyone. The question is not
> "bail out or not bail out." The answer is not "let them fail." You
> experimented with that once (Lehman) - don't make that mistake again.
>
>
> The answer is "bail out" - the question is "shareholders or depositors?"
> The mistake in 1998 was not to bail out Wall St, but to bail them
> out WITHOUT diluting or eliminating shareholders like when you bailed
> out GM etc.
>
> And if that's not sufficiently guaranteed to give self-regulation
> and you want market discipline over the cost of capital, don't bail
> out Tier 1 / preferred capital either - give them 40% of the stock
> in New Merrills and take their risks to earn back their lost $ the
> long, slow way.
>
> Guarantee if the management was looking at a Bear Stearns scenario
> rather than a Merrill Lynch one ($50 a share funded by the govt??
> Idiots! Should be $0.50!) they would behave themselves next time
> around.
>
> Repeat after me: "'Too big to fail' does not apply to shares!" until
> the whole country gets it, then publish the policy so it's clear
> what happens next time. Then watch things change.

Charlie Gasparino: Another Crash 'Has to Happen Again'

Nice and concise summary.


On Nov 06 04:22 PM GotLife wrote:

> My KISS analysis is, Lever up, fall farther. Corporations, banks,
> government entities, and individuals all saw the benefit of leverage
> (controlling assets in the present you cannot afford) but became
> blind to the risk of defaults. My grandfather and father saw this
> risk real time and were inherently financially conservative. We Baby
> Boomers, and later generations, are getting are own noses stuck in
> the pile, have still not internalized this message but will learn
> to remember this stench for a lifetime. And we will have a long way
> to fall, as defaults at all levels will continue for a spell.
>
> The beatings will not stop when morale improves but until the system
> is cleared of all the paper waste.

Charlie Gasparino: Another Crash 'Has to Happen Again'

If Citi, GS, MS, JPM had all followed LEH and collapsed, if backstops had not been given to money market funds, what do you suppose would have happened to the value of the collateral of the "conservative" banks? 1930s example is not to helpful for your argument on that one. Not to say that more onerous conditions shouldn't have been exacted. Even Charlies says they couldn't walk away last year, but should have sooner, say with LTCM. But LTCM was not a bailout so much as arm-twisting to get banks directly effectected resolve the situation. That type of "bailout" was the way things actually did work pre-Fed, with JP Morgan doing the arm-twisting and not the Fed. Bear Stearns didn't play along back then. memories are long, and Bear Stearns wasn't exactly bailed out, $10 a share notwithstanding.

Frankly, we get overly simplistic explanations meant to sell books and give red meat to the angry investing and non-investing populace. Everyone pushes their own axe-to-grind political explanation of the causes without acknowledging their own side's sins. A colossal foul-up from which almost nobody in this country can be completely absolved.


On Nov 06 01:38 AM ebworthen wrote:

> Refreshing - thank you for sharing.
>
> They actually should have let them fail.
>
> Rather than "save" them with interest free money from the taxpayer;
> the government should have not backstopped them.
>
> Then the trillions in liquidity could have been given to the banks
> and firms still standing.
>
> Punishing bad behavior and rewarding conservative management and
> prudence.
>
> Instead - we have rewarded bad behavior, Charlie is spot on.
>
> Those animal spirits like being rewarded.
>
> The "Ouroboros" end to a lack of adult behavior will be a collapse.

Charlie Gasparino: Another Crash 'Has to Happen Again'

Unless you toe the line in Seeking Alpha comments you get a lot of negative recs, even if you point out the obvious. To wit, the whole "government should not be involved/government was too involved" want-to-have-it-both-ways commentary you get from "experts". Government sucks, banks are greedy, let them fail, no I agree we need bailouts, they shouldn't have repealed Glass-Steagall, they should stay out of markets, they shouldn't have raised the leverage limits, there should be no government oversight, the banker's are greedy, but they would have been fine if government didn't let them act all greedy....

This is the level of discourse we get. If moral hazard alone allowed this to happen, that would seem odd, since no one had any way of knowing who would get saved and who wouldn't, as witness what actually happened. Did Citi shareholders really think of themseleves as "bailed out" with shares worth $4 that were worth $50? How does Dick Fuld feel about his shareholding in LEH? How do some LEH bondholder's feel?

My point here is not to feel sorry for them. Merely to point out that there were some misunderstanding of risk here that could not have been from moral hazard, but from simple misapprehension of the risk. nd that, awful as the government's role has been, it is being chastised often by the same people for intervening too much on one hand and too little on the other. or for allegedly making bankers some how greedier than they might already be. Let's face some facts: compensation practices were completely askew. yes some folks knew the risks. Others evidently did not (ratings agencies didn't get it or willfully ignored the risk, and so did huge shareholders and many executives). And the fact you could reap wild benefits in good times and even if you made nothing in bad times no one made you give it back. That is what fed the risk mostly.

And whose fault is that? Corporate governance. Shareholders not having enough say, not understanding, but mostly simply not caring. The vast majority of shareholding is done by institutions who don't rock the boat. They invest other people's money. They vote with their feet (i.e., hold or sell shares), not by proxy. They let this happen on their watch, cozy board's, no management oversight and no reigning in of the compensation practices. And then you get the WSJ et al come in and pooh pooh the admittedly awful spectacle of government pay dictation, when they trumpet the "free" market that let this happen, were huge drum-bangers to end Glass-Steagall, to let leverage go where it might in the free market, even knowing of the distorting effects of moral hazard, Fannie and Freddie, CRA, etc.

In the vast scheme of things, plenty of blame to go around: wall street, government, rating agencies, mortage brokers, certain borrowers, and yup, the institutional shareholders and managements they empower that let this happen as thieves of OPM.


On Nov 05 04:33 PM wobatus wrote:

> Not to absolve government, but these dopes would have immolated even
> without the incentives. Moral hazard is such an over-played card.
> Did all the shareholders and bond-holders of LEH really expect to
> get bailed? Well that was wrong, wasn't it? Same with ma and pa Citi
> shareholder. And then we get half-wit tinpot commentary from financial
> illiterates.

Charlie Gasparino: Another Crash 'Has to Happen Again'

Not to absolve government, but these dopes would have immolated even without the incentives. Moral hazard is such an over-played card. Did all the shareholders and bond-holders of LEH really expect to get bailed? Well that was wrong, wasn't it? Same with ma and pa Citi shareholder. And then we get half-wit tinpot commentary from financial illiterates.

U.S. Markets Propped Up by Delirious Toxicity

Ever read the Ron Paul Political/Survival Report?

I have some respect for Paul. I even have some modicum of respect for bernie Sanders. Hell, at least Ron ain't Robert Byrd. Somehow he doesn't bother the Daily Kossacks much.


On May 20 03:57 PM Jasper M wrote:

> Wobat,
> You present one good question I can help you with.
> Ron Paul doesn't quit the Republican party because he believes (along
> with many other libertarians), that it can be redeemed, and remains
> the 'First Best Hope' to save the country.
>
> I happen to believe he is mistaken in this (too much rot there for
> me to stomach), but I have to acknowledge that the issue remains
> in doubt for a large number of participants. And I respect the man
> entirely too much to second-guess his strategy.

U.S. Markets Propped Up by Delirious Toxicity

Hey, Goldman is down, FAZ triple short financials way up, BAC back to flat, big time reversal off of huge blowoff top.

Ya happy?

Don't worry, disaster will come back, ok Cassandras? You will either be proven right, or what is rightfully yours, disastrous market crash, will be prevented by the trilateral commission, the gnomes of zurich, and the rothschild family. Oh and Chris Dodd. ooga booga.

U.S. Markets Propped Up by Delirious Toxicity

BTW, Goldman's forward p/e is about 11, admittedly justa collection of skin in the game guesses. Using p/e without context, and saying the stock "should" be this or that ignores many factors. GS, like many banks, took a lot of writeoffs, and we DID have a full on financial panic this past fall and winter, after all. Should it be $140? maybe not.

IF he sees coming inflation and commodity rises, invest that way. I happen to agree that we have a wave of taxes coming.

The funny thing is I see people saying look out, it will be just like japa,, so year crash, but they also call for inflation. Well, japan has had years of deflation. NOt against gold you say?

Fine, buy gold.

You say prices are manipulated? Theyc an't stay manipulated forever. Short term voting machine, long term weighing machine. You all know the phrase.

If GS can be propped up forever, why did it crash to $40s? How did LEH collapse if THEy control everything? Oh, because they were GS's rival? Then why not Morgan Stanley?

The guy complains that we will have a bad crash. Worse than the last bubble burst. So, is a burst bubble bad? If so, then why is he complaining as markets recover? Oh, because the method of recovery is improper? maybe so, but don't forget, anything that can't go on forever, won't go on forever.

Go ahead. Write your congressman. It better be more coherent than what you write here. They are pretty thick headed anyway. have fun cheerleading for brave Phil Grandy.

U.S. Markets Propped Up by Delirious Toxicity

Well then, why doesn't Ron quit the Republican party?


On May 20 08:17 AM doubleguns wrote:

> General loons.
>
> "In any other country in the world today, this would be known as
> "a conspiracy".
>
> Its still a conspiracy in this country. We just need a Ron Paul type
> administration to get an investigation going. The demicians and republicrates
> in office will NEVER investigate this since they know they would
> be outed for having their fingers in this cookie jar.

U.S. Markets Propped Up by Delirious Toxicity

I dunno, I didn't buy any BAC. I own some faz, which is triple inverse the financials. Just as a hedge.

The price of a stock isn't where you and the author feel it should be, based on exactly what I don't know, perhaps some normalized earnings stream out into the future, but I seriously doubt it. It is all populist, perceived wisdom.

Regardless, because a stock isn't doing what is expected, we hear calls for criminal investigations, arrests, etc.

Hey, if there is some manipulation going on, be my guest. I have held some stocks that were naked shorted down and it royally pisses me off as well.

Frankly, though, the lack of specificity makes me think he doesn't have a case.

And I made that post knowing a bunch of folks would just give it the thumbs down. It is very easy to get thumbs up on this site. Tell folks what they want to hear.


On May 20 07:34 AM herbert hoover wrote:

> If the author is a loon what would you call the morons who own stock
> in BAC who actually drove up the stock price after their holdings
> were diluted another $40 billion last night? Freaking hilarious.
>

U.S. Markets Propped Up by Delirious Toxicity

Disclosure: author is a major loon.

A Bull Market That Few Are Buying

OK, my 2 (thus far) negative recommenders, how is what i said wrong?

Bear Stearns was just an investment bank. Same with LEH. Same with Merrill. None of them were hypbrid commercial/investment banks, yet they were the poster boy "fails."

What did Morgan Stanley and Goldman do? become banks proper.

How were Merrill and BSC "saved"? Shotgunned into mergers with banks.

Not saying this helped said banks.

But all the i-banks are gone. None of them were post-Glass-Steagall hybrids, but none exist as investment banks any more.

And banks that had nothing to do with investment banking also tanked.

So repealing Glass Steagall didn't cause their downfall. The answer to these questions, what caused the collapse, isn't "Glass-Steagall was repealed." There were a lot of factors.

Further, there are investment bank/commercial bank hypbrids in other countries besides the U.S.

I agree that commercial banks or that side of business, with insured deposits and now explicit government backstops, needs effective regulating. I just don't know that saying you can't do both is the be all answer. Does that imply that our i-banks can just be cowboy risk mongers?

In any event, if you have pure investment banks and pure commercial banks both failing, and in fact representing the most glaring examples, it is hard to say repeal of Glass Steagall caused the problem.


On May 12 03:59 PM wobatus wrote:

> Also interesting is that JPM is a combination and yet perceived as
> fairly safe comparatively. LEH, BSC were just i-banks, ML was an
> i-bank forced to merge with a bank to survive. So combining the 2
> things didn't kill those 3. GS and MS were forced to convert to banks.
>
>
> The model got killed. No one would touch them without explicit government
> backing.
>
> Wamu and Indybank failed, and they were plain old banks, or s&ls.
>
>
> Mixing i-banks and commercial banks is not at all what caused the
> problem. C is a hybrid, but it was just remarkably poorly run. <br/>
>
> In short, I don't think repealing Glass-Steagall did it. Indeed,
> being explicitly regulated may have led to a sense of safety that
> wasn't there.
>
> But back to the i-banks, going public may have started it. The partners
> risked their own capital. Once you went public it was all OPM.<br/>
>

Why This Rally Is Unsustainable

Hey, now we are almost back to where it was when it ws unsustainable. Almost. Not quite.

There's always tomorrow....


On May 08 05:31 PM wobatus wrote:

> Even MORE unsustainable. :)
>
> Good call on TBT. Thought about it myself. Woulda coulda shoulda.
> bad call short financials. I am long some financials that I put on
> in the winter and plan to keep (GS, GFIG, GE), but did add some faz
> this week as a hedge. Gettin' killed, but added some more at $4.55.
>
>
> But that's kinda a lark.
>
> GOOOOOD luck with all the hocus pocus. Thems a lotta words.