Paul Bogdanich

More AIG Controversy: Maiden Lane III

The whole bail-out as administered was just a series of really bad decisions predicated on saving the system from the top down. Predictably the bottom 80% got nothing but the bill and now they are starting to complain. The President's political support is drying up and everyone is becoming so risk averse that we are headed for a double dip which means the policy failed. Only next time around were broke as well. No more bail-outs if you didn't already get yours and no one but the bankers and bond-holders got theirs. It's going to be very ugly.

Sen. Dorgan: The System Is Rigged

"trite comments and accusations that sound clever, but are totally vacuous."

What else would one expect from one who takes the appellation Augustus?

Property Values Set to Fall 43% from Current Depressed Levels

Where it's really starting to show is rents. People simply don't make enough to support these prices. Now that the easy credit is gone and the first time home buyers incentives are waning and baby boomers are due to begin selling homes the prices have to come down. No one wants to hear that though. Actually some people get quite upset when you mention it.

Market: Spooked Today, But Panic Attack Is Likely Temporary

I worry more about the day after Thanksgiving shopping numbers than most of the rest of this. If those are terribly weak we have problems. Store inventory has already been on "sale" for 9 months now. Additional discounts or "sales" will represent nothing more than dumping of inventory before closing stores and layoffs or the retailer filing a writ. If that happens then the REITS and the small banks that hold all the commercial real estate paper have had it. So in short I see the sell off as a reaction to the consumer confidence numbers. We, as an economy, can't take another very weak Christmas shopping season. If we are down from last year then the reflation probably fails. Additionally the bankers paying record bonsuses at the same time everyone else goes in for the double dip vastly increase the probability of material social unrest.

Colonial Bank Failure Highlights the Problem

The banks and their treatment are truly outrageous. Why anyone would give a banker a trillion dollars before getting the appropriate reforms in place is hard to imagine. As near as I can tell Obama is either an idiot or a company man. The congress we already know about. They are merely bought and paid for.

Who's Blowing This Bubble - And When Will It Pop?

And it is the primary dealers that are fueling this rally. If the Fed allows the T bill/bond purchase program to lapse September 30, 2009, the primary dealers bail and the markets go South.


On Aug 08 01:12 PM bearfund wrote:

> Distribute by helicopter would actually be a lot less harmful than
> what we have today. At least you have some chance of standing where
> the helicopter happens to be. The current regime enriches traders
> employed by Primary Dealers and basically no one else.

Who's Blowing This Bubble - And When Will It Pop?

A very worrisome situation indeed. If the policy of reflation is abandoned it will be becausee the policy makers were forced, compeled, to abandon it. The only way that happens is if we can't borrow the money and the monetization of the debt breaks or threatens to break the currency. In that situation cash is of diminished use as well. Gold is good for squat besides giving you a warm feeling but you can't buy anything with it nor pay your bills with it. I personally don't see anything that's "safe" right now. So when in doubt follow the liquidity.

This Advance Will Be Measured in Days, Not Months

Too bad you're not a major client of a big bank like UBS. They let those clients hold the positions open indefinitely. Goldman ony closes out clients when it's on the other side of the trade. Morgan is touchy depending on who you are and most of the others that were bought by the commercial banks like BofA are worthless.

Obama: Catastrophic Errors in Judgement

Yeah his first catastrophic error was to give a bunch of bankers the money without getting the reforms and concessions first. When you do that all you get is ripped off. The guy is terribly naive. Everyone that had ever met a banker before should know better.

The Pope on the 'Financialization' of the Economy

Like who? They own every politician in both Britian and the US.

Deficits and the Dollar's Declining Value

This analysis is good but does not factor in indirect deficits like the expansion of the Fed's balance sheet. If one takes the position that the marginal portion of the Fed assets (about 60% under Bernanke's expansion) should be added to the gross deficit then the picture looks even worse. And who got the benefit from all this largess? Overwhelmingly the finance industry. The habit of honoring all the CDO and CDS obligations of AIG wiothout question, examination or renegotiation will prove to be one of the worst decisions in financial history. Right up there with tightening monertary policy at the start of the depression. In 75 years the consensus will be that we caused our own problems (the worst of which are still in front of us by the way) through incompetence. But back to the deficits, where are the cuts going to come from? From the programs that generally tend to benefit taxpayers and of course defense. Our days as an aggressive imperial force with world wide power projection are rapidly coming to a close. We simply can't afford it any further. We didn't generate enough value from our previous campaigns. To much ideology; freedom, democracy and all that hoohey. So in sum it would appear that the whole affair was nothing more than just a very sophisticated rape of the treasury. Declining empires are quite the sight if one adores ugliness.

Goldman Sachs: No Global Financial Espionage Story Here

The thing that goes unmentioned and is scandalous in my estimation is the treatment of the low liquidity issues in the index rebalancing. It is widely known that Goldman, Morgan and formerly Lehman contract with the funds that don't maintain trading desks or proprietary trading affiliations to do the index trading for them. No big deal so far. What is a big deal is Goldman and formerly Lehman were in the habit of selecting baskets of low liquidity issues and delivering index receipts to their index fund customers without ever buying the underlying stock. Then sometime during the following year they use thier trading power against selected low liquidity issues to drive the shares into the dirt and cover the counterfeit position or drive it down and watch it fall off the index with the next rebalancing and close the position with another book entry. This practice should not be allowed. I can see giving them 120 or 180 days to accumulate the index positions based on the liquidity in the issue in some of these low liquidity issues but allowing them to make the trades through book entries only and hold the positions open unreported short under the exemption indefinitely creates an incentive on the part of Goldman and the other banks to make sure these lower oliquidity issues never trade well. This perversion of incentive really hurts capital formation on the lower end and that hurts everyone as these smaller firms are generally the one who are hiring. Just a corrupt system and in all our "reforms" we steadfastly refuse to look at these perverse incentives created by the regs. It's just a mess and as it looks now the system will fail again in a few more years and then what? All in my humble opinion of course.

Even the A-Team Doesn't Always Win

The A team is the problem. No wonder stocks sell off when they run their festering gobs. I think a lot of people have real difficulty with this across the board subsidy approach for all the large banks. In many people's opinion some banks need to be wound up, many need restructuring and perhaps a few could be made right with a small subsidy but one would have to vet that very carefully. But the big charade here is the "A Team" talkingh trash like they have the juice to enact their plan. There is no way in the world that Congress votes the money for a straight across the board subsidy for all the banks. Geithener and his PIPP and all that trash are dead on arrival. Furthermore, Bernanke is about to get his little wings clipped as the congress is equally furious at him providing the money through the Federal Reserve Act thus bypassing the congress. The power to coin money is reserved for the congress under Acticle One Section Eight no legal challenges allowed and they are about to un-delagate that authority. Obama is a bright man speaks well and a lot of people, incluiding Mr. Cara are rightfully affraid of him but his bank bail-out policies are, in my estimation, what Vietnam was to Lyndon Banes Johnson. They are going to ruin everything else he is trying to do or actually does.

Why Economists Have Downgraded Obama to Bush-Plus

In my estimation the problem with Obama is that despite all the PR fluff to the contrary he is just a systems man. The financial crisis was not unforseen. There were many critics and people who accurately predicted the problems. I mean it was not hard to see. When you write $300 in paper for every $100 in a worldwide assets the first guy that wants cash settlement and won't take more paper crashes the system because there literally isn't that much money in the World to pay the notional amounts of all that paper. That was called a "liquidity" crisis. The problem is that Obama froze all the critics out and is depending on people like Geithner and Schapiro for the solutions when they were a large part of the problem. When you have a systemic problem expecting the system to fix the system is lunacy as we shall learn once again over the next nuumber of years.

Reflation Is the Only Option

Reflation as the man calls it is the only option at this point. If one keeps the nominal value of the national debt and assets like houses stable then there are no nominal losses to write off and the debt as a percentage of GDP becomes more managable. The trick is to make sure that GDP and personal income of the bottom 80% grow in tandem with the M3 money supply. Hence all the stimuli packages. So if a house nominally costs $500,000 but cab fare from Laguardia to Midtown is $200 then $500,000 is not that much compared to current incomes. Of course retirees and people holding non-productive assets get screwed but we have no other viable alternatives given what has already happened in the preceeding eight years (doubling of the debt, wars while doling ouut tax custs etc.). The debt is already too high to be honored in full without some trickery so we reflate.