Winston Smith of Oceania

Wall Street Breakfast: Must-Know News

"Any review of the government's actions 'must be considered in light of the unprecedented circumstances in which they were made.'"...and any unruly mobs toting guns marching toward Washington must be considered an adequate response in light of the government pillaging the people.

Talent shift: Could a high-IQ exodus from finance lead to stronger productivity growth and a more robust economy?

"When you see corruption being rewarded and honesty becoming a self-sacrifice, you may know that your society is doomed." -- Ayn Rand

Talent shift: Could a high-IQ exodus from finance lead to stronger productivity growth and a more robust economy?

You have Andrew Hall, a trader, in a battle to once again make $100 million a year, Steve Schwarzman of Blackstone making $702,440,573, Lloyd Blankfein making $72 million, and Steven Schonfeld, owner of a trading firm collecting $200 million. And what did they produce? Wealth for the shareholder? Not likely, most profits (or lack thereof) paid the company executives. What good did they bestow to humanity? Nothing! If anything, their net effect was negative. Whether it was creating financial instruments that contributed to this liquidity mess or trading oil contracts that they never had any interest in taking delivery for. Meanwhile, the average human saw their fuel consumption cost double. Why? Just so someone could play a high-stakes game and make more than a lottery winner in a single year. At what cost has this excess damaged humanity? What if all this effort and brain power actually went toward a noble cause? Would we as humans be better off today? Will the person that finds a cure for cancer or figures out how to land a human on Mars be paid quite as handsomely over their lifetime what these guys made in one year? Doubtful. What has humanity come to that the highest paid are those that shuffle paper?

Wall Street Breakfast: Must-Know News

If you destroy a free market you create a black market. If you have ten thousand regulations you destroy all respect for the law. -Winston Churchill

Hedge fund manager Nick Bullman says stocks may be 20% overpriced and calls the rally a "dash for trash," saying he's gone short on the S&P 500 and financials via ETFs, and bought gold.

Shouldn't he then change his name to Nick Bearman?

Wall Street Breakfast: Must-Know News

The IRS had sued UBS to disclose 52,000 US clients suspected of tax evasion. They got 8.5% of what they asked for. How is that the raging victory as the IRS claims? Who paid who to keep the other 91% secret?

Socialism's F

Even children understand--

I was talking to a friend of mine's little girl, and she said she wanted to be President some day. Both of her parents, liberal Democrats, were standing there, so I asked her, 'If you were President what would be the first thing you would do?'

She replied, 'I'd give food and houses to all the homeless people.'

'Wow - what a worthy goal.' I told her, 'You don't have to wait until you're President to do that. You can come over to my house and mow, pull weeds, and sweep my yard, and I'll pay you $50. Then I'll take you over to the grocery store where the homeless guy hangs out, and you can give him the $50 to use towards food or a new house.'

She thought that over for a few seconds 'cause she's only six. And while her Mom glared at me, she looked me straight in the eye and asked, 'Why doesn't the homeless guy come over and do the work, and you can just pay him the $50?'

And I said, 'Welcome to the Republican Party.'

Her folks still aren't talking to me.

10 Highest Paid CEOs for 2008: Unbelievable

So you have Andrew Hall, a trader, in a battle to once again make $100 million a year, Steve Schwarzman of Blackstone making $702,440,573, Lloyd Blankfein making $72 million, and Steven Schonfeld, owner of a trading firm collecting $200 million. And what did they produce? Wealth for the shareholder? Not likely, most profits (or lack thereof) paid the company executives. What good did they bestow to humanity? Nothing! If anything, their net effect was negative. Whether it was creating financial instruments that contributed to this liquidity mess or trading oil contracts that they never had any interest in taking delivery for. Meanwhile, the average human saw their fuel consumption cost double. Why? Just so someone could play a high-stakes game and make more than a lottery winner in a single year. At what cost has this excess damaged humanity? What if all this effort and brain power actually went toward a noble cause? Would we as humans be better off today? Will the person that finds a cure for cancer or figures out how to land a human on Mars be paid quite as handsomely over their lifetime what these guys made in one year? Doubtful. What has humanity come to that the highest paid are those that shuffle paper?

Meanwhile, Clusterstock collects the reviews of Geithner's reported closed-door cursefest.

Perhaps Larry, Tourettes Timmy, Shelia, and Barry Obama should all have a beer summit in the White House garden to sort things out.

Top banking regulators will testify in Congress against Obama's financial reforms, with FDIC's Bair saying she can't "see merit or wisdom in consolidating federal supervision." The public criticism is in spite of strongly-worded warnings from Geithner.

Tourettes Timmy formerly known as Turbotax Timmy.

Tuesday Outlook: Commodities, Global Markets

The FED is not a tool for the people but they are tools. Here is the article Dave referred to:

Wall Street profits from trades with Fed By Henny Sender in New York

Published: August 2 2009 23:04
Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.


The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.
However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.

“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”

A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”

The central bank’s approach to securities purchases was defended by William Dudley, president of the New York Fed, which is responsible for market operations. “We believe that opting for transparency is a greater good,” he said. “If we didn’t have transparency, we’d be criticised on other grounds.”

However, another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.”

Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system.

“You can’t rescue the credit system without benefiting some of the people in it.” Still, Mr Frank said Congress would be watching. “We don’t want the Fed to drive the hardest possible bargain, but we don’t want them to get ripped off.”

The growing Fed activity has coincided with a general widening of market spreads – the difference between bid and offer prices – as the number of market participants declines. Wider spreads enable banks, in their capacity as market-makers, to make more profit.

Larry Fink, chief executive of money manager BlackRock, has described Wall Street’s trading profits as “luxurious”, reflecting the banks’ ability to take advantage of diminished competition.

“Bid-offer spreads have remained unusually wide, notwithstanding the normalisation of financial markets,” said Mohamed El-Erian, chief executive of fund manager Pimco in Newport Beach, California.

Spreads narrowed dramatically during the years of the credit bubble.

Brad Hintz, an analyst at AllianceBernstein, said he doubted that spreads would ever return to those levels, a development that could be pleasing to the Fed.

“They want to help Wall Street make money,” he said.

Jamie Dimon, commenting on JPMorgan's (JPM -1.6%) exposure to CIT Group (CIT -69.2%) on this morning's earnings call (full transcript here, later): "We have exposure to CIT, secured and unsecured, but I’m telling you, the primary and direct effect on the P&L would be not material to us."

Isn't this the same thing that Goldman said about AIG? Sure...we believe you guys...

Nonfarm payroll data at 8:30, one day early, because markets are closed tomorrow for the July 4 weekend. Consensus is for about 365,000 job cuts, after May's 345,000. Unemployment seen climbing to 9.6% from 9.4% - a 26-year high. Futures just ahead of the numbers: S&P -0.6% to 913.50. 30-year Tsy flat. Euro -0.7%. Crude -1.7%.

Clearly someone is trying to pull a fast one while most people are half asleep dreaming about the weekend or already out on vacation for the long weekend. "Hey, let's quick throw a terrible jobs number out there and hope that everyone has forgotten about it by Monday." Good thing the administration has saved us 2.5 million jobs.

Mark Sunshine to Peter Schiff: "Peter, do you really not trust the data that the government publishes? Do you think that Treasury, the Fed and the BEA are like the Iranian election commission?"Schiff: "I think government data is compiled to create a false sense of prosperity so that politicians can claim credit for growth that is not real and be more easily reelected."

Data....Ha! As the famous quote says, "there are lies, damn lies, and statistics." And as John Williams questions , "Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting."

Now that 10 banks have been approved to repay TARP, what's going to happen with the stock warrants the Treasury owns? Pricing the warrants is tricky and given the government's tendency to let banks underpay, the most likely losers are the taxpayers.

Once again...of course the taxpayer loses. It was gamed that way from the start. As Barry Ritholtz said, "It was all an elaborate ruse, a coverup of the fact that Citigroup was busted...The hurry to repay this cheap cash confirms that the fix was in. If this banks were really in the basd shape Paulson suggested, they would hold onto this cheap source of credit. Instead, they want to throw the yoke of government monies off as soon as possible.The desire to return to their old compensation packages for executives cannot be the only factor..."