Phil Trupp

This Recession Ain’t Over

Are economic forecasters living in a real or imaginary world? It would require superhuman patience to judge their records, and in the end, one would eventually conclude that they belong with the pre-Copernican cosmologists who had a theoretically consistent system to describe the universe. They were spectacularly wrong. The celestial mechanics to which the pre-Copernicans subscribed "proved" that the visible universe revolved around the earth. They had the observable data to "prove" it. Conclusively. In similar fashion our uber-quanting economists have placed their faith in mathematical models, constructs, and hypotheses they believe reflect, to a reasonable extent, the real world. The model of this trend is the securitization of mortgages and other bizarre idols of mathematical logic. All these models give us, unfortunately, is only a "percentage chance" of being right, and it is not a 50-50 split. Far from it. While I believe this article is an admirable take on the "art"--not science-- of economic projection, it suffers the same weaknesses that afflict all such models: the unpredictable, the unknown, and the bias of model-makers. Mainstream economics must change. We can't continue to quantify an improperly perceived world.

New Taibbi Feud with Goldman

From sources on Capitol Hill: "GS is running against the tide on naked shorting." The subject appears to be a perennial revolving door, with great swings for and against, and at the middle of it all is confusion. Naked shorting has done much to suck wealth and value out of the markets. Official endorsement of GS' request will lead to more abuse, more controversy, and a continued flow of under-the-table payoffs between Wall Street and its enablers in Washington.

Is Wells Fargo Regretting Its Wachovia Acquisition?

Wachovia was tainted from the start. It was caught-up in numerous scandals. It's management was appalling. It's books were a mess. Lawyers were lined up a mile deep. Mr. Steel's late role at Wachovia was singular: engineer the Wells-Wachovia marriage. It has turned out to be a bad union. Meanwhile, Wells is caught in the ARS scandal with nearly $1 billion in bonds it refuses to redeem. Jerry Brown, AG of California, has launched an investigation. Having studied both Wachovia and Wells for several years, I'd say Wachovia was always a known bad actor, but Wells somehow managed to get away with murder. It doesn't matter that Warren Buffett loves the bank. Warren Buffett's blessing isn't what it used to be. Wells badly needs a remake, and sooner the better.

Interview: Journalist Matt Taibbi

Taibbi is doing what more mainstream financial journalists ought to be doing: informing the public while avoiding the usual journalistic shilling and tortured prose. I spent years writing for big city dailies, later created mainstream magazines, and spent seven years in what was known in the industry at the time as "trade journalism." In all these venues good, easy-to-understand financial reporting was hard to find. We're doing better today with writers such as Taibbi, Pearlstein, and Lewis. We need more of them. Ordinary citizens (and this includes citizen investors) are in great need of understandable information written in plain English. Lack of public financial knowledge is one of the reasons we're now facing a serious economic crisis. Surely Taibbi opened up a whole new world to readers who likely have never heard of Goldman Sachs and its endless dark pool tactics. A little hard truth goes a long way.

Caroline Baum: Obama's Regulatory Campaign Is Disastrous

The bonfires of stupidity and greed of past eight years has nearly destroyed the world economy. Little wonder then that government seeks stabilization at any and every level of the financial system. There will be grasping at straws and many missteps in the panicky attempts to reconstruct the broken economy.

Meanwhile, Angry Banker (above) fears what he calls "populist politicians," presumably those now in the majority in Washington. But in the broader sense all politicians are populists stroking their constituencies in order to be reelected. Angry Banker is probably among the so-called "special interest populists" such as former SEC Chairman Christopher Cox, whose mission it was to destroy the minimal regulatory powers of the commission he headed. Henry Paulson, at Treasury, was another special interest populist, crippling the competitors of Goldman Sachs where Paulson's core constituency may be found. Present SEC chairperson Mary Schapiro served the interests of the banks which funded her last position as head of FINRA. Ms. Schapiro dumped millions of dollars of auction rate securities off FINRA's books shortly before the ARS market collapsed, leaving investors holding $336 billion in illiquid assets.

Populist politicians are standard issue, and this applies as well to political appointees. They are, all of them, taking care of their own. The rest of us are invisible.

Should We Reinstate Glass-Steagall?

Legislative (read governing) Washington has over the years morphed into Corporate Washington. In the real world it makes sense to bring back Glass-Steagall. It makes sense to restore the uptick rule. It makes sense to unwind the concept of too big too fail. But odds are that none of these reasonable, mainstream events will occur. Virtually every top financial regulator (Bernanke is the exception) is a linear creature of Wall Street. Almost without exception these bankers-turned-bureauc... will talk sound economics. They will pose as mainstream thinkers. But inevitably they will revert to type. Will the coup be complete when Timothy Geinther is appointed to replace Bernanke?

Greenspan's Ghouls, Kool-Aid Drinkers and the Shortcomings of Obama's Reforms

Banks have created chaos from Day One. The wreckage they have brought us is plain to see. It's hard to know where to find the blame. Perhaps our concept of banking--the working model--is fatally flawed. Maybe those who run these institutions are just the wrong people. I suspect we'll never get to the bottom of it. But few will deny we have a problem. Thomas Jefferson famously remarked: "I believe that the banking institutions are more dangerous to our liberties than standing armies." That's a radical statement. Why did Jefferson believe this? Answer: He possessed an uncanny knowledge of human greed and how greed turns into a weapon of social destruction: "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (the banks) will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered." Jefferson's solution: "The issuing power should be taken from the banks and restored to the people, to who it properly belongs."

Will China Drop U.S. Debt? Unlikely

The Chinese are intent on keeping their exporters in business. As a result, the mechanics of their finance require them to continue buying U.S. dollars. Nouriel Roubini says the Chinese have yet to internalize the contradictions in their position. He may be correct, but their macro pattern remains intact. Excess demand in the U.S. created the market for Chinese exports, but now demand has softened and the Chinese have jumped into commodities. Meanwhile, the frustration of lower demand has caused China to be less than comfortable tied to continuing volatility in U.S. markets. In the short run, they are focused on keeping their exports high and maintaining a lid on their own currency.

Naked Short Selling Is a Phoney Problem

For years the shorts and naked shorts have pulled value from the markets and from the economy and the results are painfully obvious. Shorting to bankruptcy is, indeed, the dream. As a pricing tool, shorting has become vicious in this predatory environment. The position of being a fulcrum in the process of arbitrage has long been abandoned. We now have wolf packs with a refined taste for blood.

Did Politics Cause Monday's Dow Decline?

If nothing else, this reasonable (if wistful) column by Mr. Krasowski has touched a nerve among the jingoists. This comes as no surprise, but it is a little disheartening. Terms such as "communism," "socialism" and so forth aren't the point of Krasowski's column. He is speaking of a pullback in stock prices after a 40 percent move off the bottom--a pullback driven not by politics but rather by predictable profit taking. Though many readers may disagree, there is a clear disconnect between politics and market activity. Policy, on the other hand, has some causal impact on market movements, but even these adjustments tend to be peripheral and short-lived. Market pros are linear thinkers. Flag waving and talk of vast political upheavals have little to do with the day-to-day business of stock trading. The pros tend to stick to their knitting (making profits) and leave the jingoism to those seated in the Peanut Gallery.

Book Review: Fool's Gold, by Gillian Tett

Now that the radioactive dust has begun to settle around the all-out war the financial system declared on the world economy, we see more clearly what "innovation" truly means to the unfortunate clique of banking geniuses we have been forced to endure. There are no heroes to cheer--certainly not Mr. Dimond. He is simply one of the gang that perpetuated the present chaos. Ms. Tett deserves credit for unmasking the endless catch-me-if-can engagement between the corrupt subculture of the banking and brokerage syndicates and the regulators who are slow to act and too often indifferent to life-altering games of deception. We need a little less innovation in financial markets and fewer "holes" to be plugged in the broader economy. These so-called holes are in reality centers of weakness and opportunity to be exploited by manipulative bankers. We need more attention paid to risk, fair reward, and the need of rational capital flow to areas of the economy where it is most needed and will do the most good.

Metaphor of the Day, Hank Paulson Edition

Unwinding the fine print of Hank Paulson's TARP offensive will be the job of economic historians for years to come. Did Mr. Paulson push the panic button in late 2008? In hindsight, it would appear that his prophecy of total economy collapse was in part fear-driven. On the other hand, there is solid evidence that government intervention was unavoidable. TARP was not a perfect model. It did, however, stabilize the core bank sector, and there was an exit strategy which appears to be working. It remains to be seen whether or not TARP was a sustainable fix or merely an expendable patch job for a banking system run amok. Many economists believe the program provided breathing room to allow banks to find their centers of gravity. Banks have begun lending again, and Treasury Secretary Geithner reports $1.8 billion in interest payments. For all its flaws, TARP appears to have been a timely intervention.

Baltic Dry Index Rise Indicates Good Economic Tidings

Once again we have a writer suggesting the BDI is a precursor of general bullishness. It is not. The BDI is specific on a daily basis regarding commodities and commodity shippers, and as one writer has indicated, it is sometimes useful as a lead indicator. However, the index is linear in nature and subject to all manner of intervening variables. One can not make broad market projections based on BDI fluctuations. It does hone in on the fortunes of shipping companies and commodity trade; in these areas it acts as a pulse for those markets.

Bill Gross on Staying Rich as U.S. Fortunes Decline

The world of the bond trader is a gloomy place. It always has been. It is peopled by bears whose prophecies evoke our worst fears and anxieties. Bonds, after all, soothe those anxieties--that is, until Bill Gross and other bond traders can find something else to drive the VIX sky high. Bond trading is a lot like the "dark science" of economics. As it happens, economics isn't a science; it surfaces only in a big way when when things are indeed dark and getting darker. Notice the smile on Paul Krugman's face whenever he's asked to make one of his own end-of-the-world-as-we... prophecies. Haven't we learned that no one can make fail-safe economic predictions? If we could, we'd all be rich as kings and have little use for bonds or Mr. Gross.

Is a Rising Baltic Dry Index a Bullish Sign for the Market? No.

The BDI has very little correlation to the broader market. It is narrowly defined. The primary focus of the BDI has to do with shipping rates as they impact the financial health of carriers such as Frontline and other dry bulk shipping companies. A secondary focus is on global demand for dry bulk commodities such as copper, coal, steel ingots, etc. It's quite a stretch to equate these factors to the overall market.