bricki

Closing Update: Stocks String Together 3 Straight Wins, Commodities Gain

The thing that I find incredible is all the talk about inflation. Consumers aren't borrowing - they are paying down debt which is deflationary. Banks are deleveraging, unemployment is high, asset prices except equities are falling, capacity utilization is horrible...

If we have inflation there is going to have to be a recovery first.

On Sep 08 04:58 PM enigmaman wrote:

> consumers reduced credit borrowing by 21.6 billion in the month of
> June, economist predicted the number to be 4 billion so the economic
> geniuses who tell us what to expect from the future missed by a factor
> of 5, what else might they have gotten wrong about the economic recovery,
> for one thing if they are waiting for the consumer to return they
> will have to wait a lot longer then they expected, multiple by 5
> the number of months they had anticipated the return of the consumer
> and then maybe we will be dealing in reality, this sobering consumer
> stat has to do something to make the market pause and ask, WHAT!

Capco: WTF?

Fortunately Capco isn't likely to get bailed out. Anyone who suggests such deserves to be subject of a deep probe (where the sun doesn't shine) to determine what stake they have in such a bailout.

Of everything criminal in this "Great Rip-Off - Recession" the bailout of AIG has to be the worst. AIG should have been allowed to fail, and the Fed should have then picked up the pieces afterwards on an individual basis. By backing AIG we have rewarded banks who bought insurance they knew had no backing and were fraudulently using this insurance to reduce their reserve requirements. We will never recover anything but a small fraction of the AIG bailout (0.2 trillion), however if we had bailed out AIG clients we could have had TARP-like control of what was going on, and warrants to boot. Not to mention we wouldn't have been sending bailout money to non-US banks.

Making the AIG mistake with Capco - well it would make me want to barf.

Monday's Closing Update: Housing, Financials Rally Broader Market

The key thing I think is to not get wrapped up in a particular point of view or dogma - be it positive or negative, but rather make hay when the sun is shining and have a good umbrella for when it is raining.

On May 18 05:47 PM archman82011 wrote:

> Cetin:
>
> Just to be clear, I am just presenting information for informations
> sake. I do not mind the market going up. No, not at all.
>
> You are right. The gains are there (though not "locked in") until
> the sellers drop the prices below where people bought them. Unfortunately
> for the average mom and pop investor, and as per a very good WSJ
> article this morning, most people let gains turn into losses and
> sell out AFTER they have lost a lot of money or sell out right at
> the bottom.
>
> Unless someone bought near the bottom, or like me, lost only about
> 15% last year and does not "need" stocks to shoot back to DOW 14K
> tomorrow, I do not need to chase any rally, and I can afford to look
> for more than just one or two bits of positively spun news before
> I commit more money to this market.

AIG CDS Unwind: From a Waterfall to a Trickle

> The obvious question that arises here is why did AIG slow down its > CDS unwind process so much?

Somebody told them to stop. Pelosi? Presumably because there is some political backlash developing about the terms of the unwinding.

Banking Reform: Value for Value

The key phrase here is "The high returns of the past, which thrived on the opacity of financial products, are history."

In many jurisdictions this would be classified as "theft by deception", i.e. fraud.

It is high time these games became illegal.

On Apr 28 02:10 PM Mad Hedge Fund Trader wrote:

> This is a sector best avoided. IBM has made public an excellent report
> on the long term future of the financial industry, one of its largest
> customers. The survey of 2,750 firms concludes that the age of extreme
> risk taking and huge bonuses is over. The high returns of the past,
> which thrived on the opacity of financial products, are history.
> Their guess is that profit margins will drop from an average 26%
> to 14%. Lower margins will be more sustainable. Long term compensation
> will be linked to long term gains, not short term profits. The government
> is going to mandate capital and liquidity cushions. Product sophistication
> outstripped investors’ ability to manage, or even understand inherent
> risks. Up to 88% of past profits came from off exchange, over the
> counter trades that never saw the light of day. The easy money will
> be commoditized as the business is moved on to listed exchanges.
> Large hedge funds with easily replicated strategies will be under
> extreme pressure. It’s an insightful report with more than a ring
> of truth which you should get your hands on.

Are CDS a Good Thing?

Well clearly the AIG scheme (or was that scam) of selling insurance backed by no capital at all should have been illegal. And in fact there probably some laws violated, at least on the disclosure side. And how Sarbanes-Oxley doesn't get caught up in this I am not sure...

And then of course there is the little-mentioned reason these swaps came into existence - they were bought by banks as insurance on loans to reduce their own reserve requirements. So the net effect of CDS was to increase leverage to totally insane levels. The banks were complicit in this fraud - they knew AIG had no reserves, and the banks were using the CDS to avoid having reserves themselves. Clearly the banks should have some responsibility to determine the quality of the insurance they bought. Any bank that is in trouble due to this scam should have all senior executives and its board kicked to the curb immediately.

We are lucky the crash last year wasn't MUCH worse. It also explains why the government is so intent on keeping AIG afloat.

Wall Street Breakfast: Must-Know News

Even worse that so much of the US taxpayer funding of AIG went to rescue European banks that bought AIG CDS rather than maintain reasonable capital levels on their owm.

We certainly got suckered on that one.

I hope whatever regulatory mechanisms get put in place recognize that there has to be per-country liquidity firewall that prevent the sort of interlocking leverage structures that the CDS mess enabled.

What a house of cards.

Preview from Europe: Does the Rally Have Legs?

It somewhat frosts my butt to see US taxpayer dollars going to bail out European banks. This is surely a huge argument in the "let it fail" column in the AIG bailout argument.

That plus the unwinding bailout saga is seriously making me wonder why these crooks aren't in line after Madoff for some serious jail time.

The Financial Supermarket Is Dead

I don't think this is news to anyone.

However I am not optimistic that this sector will ever recover to its former glory. Risk aversion and regulation will limit return on capital. Size through merger will limit profitability and keeps expenses up.

The Road to Economic Hell

The question is do you want to keep all the damage concentrated in one place (AIG) or let it blow up in many places? It isn't going to be pretty no matter what your choice. I don't see that letting AIG fail, and then have the counter parties fail too is going to be a better answer. It may not be worse, but I don't see how it is better.

The other aspect of the issue is that it is not really bottomless. AIG has reduced its CDS exposure from 500 billion to 300 billion in about 4 months. Hopefully they will be able to get rid of the rest in another 6 months or so.

It would be really really bad if we were still in this same position a year from now.

On Mar 05 09:31 AM prudentinvestor wrote:

> Simon, as ususal, you bring up many excellent points. Although the
> party in control has changed, it is the same policy of using public
> funds in opaque ways to subsidise the financial industry's gambling
> titans.
>
> The AIG situation is astonishing, as they seem to have a bottomless
> cesspool of CDS's, and it now appears that the government wants to
> pass endless, meaningless casino-gambling liabilities to the taxpayers.
> Is it not better to let AIG's counter parties swallow the loss of
> having placed their bets with a hollow counter party?

Losing Trades: When to Double Down

Do you you feed a dead horse?