a fat panda

America Plays Shell Game with Bailout Money

" What he meant was that money would be showing up on the Fed's books. He didn't claim that the taxpayers would be receiving those gains."

It is actually worse than that. Because if the investments make money the banks win. If these investments lose money, the taxpayer loses because the Fed will just print more money to cover the loses.

Ben Bernanke Pleads for His Job; My Response to Bernanke

Mish, Very good work. I really like the depth of your work. Anyone can take Bernanke's words from 2008 and make him look idiot. You showed at least that he has been an idiot for many years where as others work makes you ask whether he slept through his early years in the job.

Buiter Comments

I worked in a variety of Citi's groups as a consultant, and saw a very perverse system of rewards. What I saw was projected costs and projected benefits were rewarded more than actual results. And I sense that is going to get worse with free capital.

Companies, not just Citi, promote and reward success. The promotion cycle in this company will reward those people who treat capital as though it was free. Anyone who treats capital as a cost, will under perform. This means that managerial Darwinism will select managers for the inability to price capital. This will create a serious problem once capital is not free.

Bigwigs Debate 'Too Big to Fail'

You have picked an interesting group of economic heavyweights. Most of these people were either responsible for this mess, or stood by pumping economics pom-poms. There is a major problem with the leadership of this country when incompetence is rewarded. It is difficult to say whether Bernanke or Geithner did less to protect this country, and yet one is promoted while the other is renominated.

Is Dubai's Default a Black Swan Event?

This isn't a black swan. It is just another domino. Black swans are suppose to be rare. The word is now used so much that people are naming their kids after it.

Too Big to Fail and Exec Compensation: Inextricably Linked

I know what these guys are feeling. I worked in IT during the late 90s, and my salary went up. In 2001, I was basically told that my salary was getting cut in half even though my output was essentially better than it was. The year after it was cut another 30%. The market was saying that we don't need system engineers as much as before, and the government didn't step in to prop-up our wages. I had worked in that segment of technology a relatively short period of time and could see that wages weren't coming back. 10 years later, they are up slightly.

I don't understand what these guys are thinking, though. If they are so talented and so invaluable to the business, how is that they are so out of touch with the structural changes to their business. If they don't understand that it isn't coming back, they can't be all that talented.

A Sit Down with Treasury Officials (Part I)

There is an old saying, "Better to be thought a fool than to open your mouth and remove all doubt" that comes to mind. But it doesn't do justice to inviting bloggers to the Treasury. So the new saying will have to be created :

"Better to be thought corrupt or fool by bloggers, than to invite them to ask questions for which you are not prepared and let the rest of the world in on the secret of how truely stupid you are".

What did they expect? They wanted to give you a hug and have you go away.

How Bloomberg Fabricates U.S. Housing Numbers

"Second, I would think it would be in a bank's best interest to rent
out, either to the former owners or somebody else, the homes they
foreclose upon and try and wait for home prices to recover before
putting them back on the market. If this is the case, would these
homes be considered "empty"? Just asking"

PLEASE NO!

First, banks don't understand the rental housing market, which is a capital intensive/low marginal business. Giving them money at low interest to invest in low margin business is a receipe for national disaster. If you think this is a good idea, it is because you have never rented property to a devil worshipper. I have.

This only reason that this sound even reasonable is because we as a nation have done something even more foolish. We are giving bankers cheap money so that they can comfortably hold on to the mistakes of the past as vacant property.

This is a true story from a stock named ACME, ticker ACU. They wanted to get rid of a property so they leased it to a person for $1. I am not sure what that person did, but it left ACME with a EPA entanglement that cost the company more than a million dollars to get out of.


On Nov 02 09:00 AM mavericks wrote:

> I'm going to take the other side of this argument since I own one
> of those 5-year adjustable loans and I've been paying interest only
> on 4 of those years. As it turns out, my payments will go DOWN next
> year if LIBOR stays where it is.
>
> Second, I would think it would be in a bank's best interest to rent
> out, either to the former owners or somebody else, the homes they
> foreclose upon and try and wait for home prices to recover before
> putting them back on the market. If this is the case, would these
> homes be considered "empty"? Just asking.
>
> Frankly, I think the tone of this article is a bit on the emotional
> side so that is why I'm questioning it.

The Worrisome Things Bank CEOs Say, Vikram Pandit Edition

Here is the problem since Victor is completely disconnected with reality. Citi pays people way too much and expect way too little. I have worked for Citi as an employee, as a consult, in different divisions, in different cities but the story is always the same.

When I was an employee, the rate that they paid was probably 10-20% over the market and that was pre-bonus. But over paying wasn't enough. The benefits were insane. When I started I received a total of 38 days off. That was in Atlanta not Europe.

Because I worked in programming, I had to come in on the weekends to long-running programs. There was desk where you could signin for the whole building. It wasn't just that people didn't come in on the weekends. THEY NEVER CAME IN AFTERHOURS. There were weeks where I signed in on the same sign-in sheet. So out of 220 employees, less than 25 came in after hours at any point over a 7 day period. Where else does this happen other than the government.

The government now owns Citi and the two were made for each other.

More Reasons to Break the Plastic Habit

Your boy is better than most consumers. The information regarding rate increases is normally sent in a disclosure statement that is virtually unreadable.

Real Cause of This Financial Crisis? Global Hunger for Savings Instruments

Great. We have an article about how many how many explanations there are, and we get 3 more.

Guys, It is consumer debt that caused the problems. Consumer debt enable people to pull demand forward creating the revenues that made the whole thing look reasonable. The low interest rates let people consume hamburgers today for 2 on Friday. Only it wasn't hamburgers. It was cars, and houses, and TVs.

That is layer one. In the next layer, the TV manufacturers became 'rich' selling future demand today. The workers wanted more pay so we set pensions at 8.5% discount rates so that we wouldn't have to fund them. At one point, America had something like 9% of the population was millionaires, all selling tomorrows demand today.

It wasn't just housing that had a bubble. American expectations were in the greatest bubble in history.

Mervyn King: Break Up the Big Banks

"The UK and US are peas in a pod. We don't see this extreme anywhere else on the globe. There must be a reason."

I largely agree with you up to the last point. Banks all over Europe have been hit with this financial crisis. And I think the reason that you didn't see the ripple go further was the US taxpayer back-stopped the US banks and the GSEs.

How Regulated Does Wall Street Need to Be?

"I think a model where one boring business gives you free capital to then go and risk in proprietary trading is very difficult to defend."

It should be even harder to defend a model where the boring business is the Fed's discount window. And if you think it is defensible at all run you defense past a senior citizen who is trying to live on CD interest the rates on which have been driven into the ground. I actually know a couple of these people who are suffering terribly so that Wall Street can recover.

Why We Were Right Not To Nationalize the Banks

Felix,

We are nationalizing banks - only it is called the FDIC. We are now at 100 banks nationalized or whatever you want to call it in 2009.

It is obviously your belief that we can initiate a program like TARP and not affect the banks which are not included. We have taken capital out of the system, and given it to the large banks on terms with which no smaller bank can compete.

Is Curbing Bank Pay Socialist or Capitalist?

Angry,

You are simply misinformed, and your anger is misplaced. I trade bank debt, and in Oct and Nov I was getting 5% to hold Citi debt for a month. Morgan Stanley debt due in 7 days traded down at a 70% discount to par. If GS paid Buffett 10% plus warrents and puts, you ought to be thanking every taxpayer you meet on the street for 8%, and that is higher than what was originally offered.

The welfare isn't just the money lent to the people who caused this mess. The Fed has singlehandedly created a market for the CMOs that bankers rushed to buy. It extends to being able to issue debt backed by the FDIC - if that isn't welfare why is every business in the country forming a bank holding company. There is the TAF, TARP, and capital injections via AIG.

You want to blame the CRA? If that were the problem, why is the housing bust in condos in Vegas and Miami Beach? Sub-prime loans were largely originated by lenders not covered by the CRA. The CRA is a whipping horse of bankers who want to blame someone other than themselves.