Randy Miller's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/327575/comments http://seekingalpha.com/article/175496-is-dubai-s-default-a-black-swan-event?source=feed#comment-779697 779697
Watching CNBC's coverage today is fascinating. Every hour they are rehashing the same information over and over, just with different talking heads. If you give them too much credence, they will sew the seeds of panic, along with certain investors, blowing the story out of proportion. Given the choice between downplaying the story vs overplaying, they will always overplay, because that is where the ratings are, and they get more attention that way.

October 2008 Henry Paulsen, Avi, CNBC, and the other talking heads were all telling us to panic. Rarely the responsible thing to do.]]> Fri, 27 Nov 2009 11:58:08 -0500
Watching CNBC's coverage today is fascinating. Every hour they are rehashing the same information over and over, just with different talking heads. If you give them too much credence, they will sew the seeds of panic, along with certain investors, blowing the story out of proportion. Given the choice between downplaying the story vs overplaying, they will always overplay, because that is where the ratings are, and they get more attention that way.

October 2008 Henry Paulsen, Avi, CNBC, and the other talking heads were all telling us to panic. Rarely the responsible thing to do.]]> http://seekingalpha.com/article/174568-more-aig-controversy-maiden-lane-iii?source=feed#comment-772099 772099
For example. Company A sells B an asset valued at $1 million, B paying A that amount. The asset happens to be a package of mortgages in Des Moines Iowa.

B purchases Default protection. The mortgages perform, and B over the following 2 years, receives $100,000 in interest, and $100,000 in principal. The remaining balance on that mortgage pool is $900,000. On January 1 of year 3, Des Moines suffers a shock in their housing market, and everyone defaults on their loans. The foreclosure value of the homes is now $500,000, so B has lost $400,000 in market value.

IF the provider of default protection pays B $400,000, he is now whole, no tax liability. IF B purchased default protection from 2 different companies, and is paid $800,000, he has profited from this adverse event, and should be taxed heavily on the $400,000 profit he made from the unfortunate events in Des Moines.

IF C had no stake in the Des Moines market, and purchased default protection, and received $100,000 from counterparties, that should be taxed heavily, because he was purely betting on the failure.

We should also look at put options on securities.

Why all this? Because it is possible for someone to profit from unfortunate events, and in some cases, they can influence those events. IF B had the power to force the mortgage holders into default, and did so, he should not profit by that. It would be no different than if I bought insurance on my neighbors house, and when it started to burn one night, I failed to call the fire deparatment. I should not profit from my action in that case, or lack of action.

I have read through the SIG's report, and we still don't know how much of the CDS was naked. If the Fed really did end up with the underlying CDO's in toto, maybe none of it was naked.]]> Sun, 22 Nov 2009 15:18:04 -0500
For example. Company A sells B an asset valued at $1 million, B paying A that amount. The asset happens to be a package of mortgages in Des Moines Iowa.

B purchases Default protection. The mortgages perform, and B over the following 2 years, receives $100,000 in interest, and $100,000 in principal. The remaining balance on that mortgage pool is $900,000. On January 1 of year 3, Des Moines suffers a shock in their housing market, and everyone defaults on their loans. The foreclosure value of the homes is now $500,000, so B has lost $400,000 in market value.

IF the provider of default protection pays B $400,000, he is now whole, no tax liability. IF B purchased default protection from 2 different companies, and is paid $800,000, he has profited from this adverse event, and should be taxed heavily on the $400,000 profit he made from the unfortunate events in Des Moines.

IF C had no stake in the Des Moines market, and purchased default protection, and received $100,000 from counterparties, that should be taxed heavily, because he was purely betting on the failure.

We should also look at put options on securities.

Why all this? Because it is possible for someone to profit from unfortunate events, and in some cases, they can influence those events. IF B had the power to force the mortgage holders into default, and did so, he should not profit by that. It would be no different than if I bought insurance on my neighbors house, and when it started to burn one night, I failed to call the fire deparatment. I should not profit from my action in that case, or lack of action.

I have read through the SIG's report, and we still don't know how much of the CDS was naked. If the Fed really did end up with the underlying CDO's in toto, maybe none of it was naked.]]> http://seekingalpha.com/article/174568-more-aig-controversy-maiden-lane-iii?source=feed#comment-771962 771962
Quit whining like wimps and victims. Get the money back.

Financial reform should say:

THe US government will never again guarantee the existence of a private company or guarantee its debts. No implicit guarantees , no explicit guarantees. Companies must be allowed to fail, so better companies can absorb their human and physical resources, and put them to better use.

Rating agencies should be held accountable for their ratings, eliminate conflict of interest inherent in the company holding the rated bonds paying the rating agency. IF the ratings agencies had done their jobs, they would have rated those super senior CDO traunches correctly. Remember, the real panic last fall was that no one knew what anything was worth.]]> Sun, 22 Nov 2009 12:49:25 -0500
Quit whining like wimps and victims. Get the money back.

Financial reform should say:

THe US government will never again guarantee the existence of a private company or guarantee its debts. No implicit guarantees , no explicit guarantees. Companies must be allowed to fail, so better companies can absorb their human and physical resources, and put them to better use.

Rating agencies should be held accountable for their ratings, eliminate conflict of interest inherent in the company holding the rated bonds paying the rating agency. IF the ratings agencies had done their jobs, they would have rated those super senior CDO traunches correctly. Remember, the real panic last fall was that no one knew what anything was worth.]]> http://seekingalpha.com/article/172499-too-big-to-fail-banks-a-simple-solution?source=feed#comment-755673 755673
The TBTF mentality of the last year has led to increased concentration of financial power, at exactly the time we should have been dispersing power. Why have the government hand Bear Stearns resources to Chase? Why hand Merrill Lynch to B of A? Why Not let other firms bid for those resources, so those resources might be allocated to the best team?

Require all financial institutions to be transparent to rating agencies.
Federal regulators should audit those agencies vigorously, and if there any clouding of the picture, enforce enforce extreme criminal penalties.

Let everybody know that everybody else can fail. So, if you depend on them, if you are interconnected with them, they can take you down with them. So protect yourself accordingly.

Does anybody really believe that AIG would be at $36 if they were not a government guaranteed firm?]]> Wed, 11 Nov 2009 13:56:36 -0500
The TBTF mentality of the last year has led to increased concentration of financial power, at exactly the time we should have been dispersing power. Why have the government hand Bear Stearns resources to Chase? Why hand Merrill Lynch to B of A? Why Not let other firms bid for those resources, so those resources might be allocated to the best team?

Require all financial institutions to be transparent to rating agencies.
Federal regulators should audit those agencies vigorously, and if there any clouding of the picture, enforce enforce extreme criminal penalties.

Let everybody know that everybody else can fail. So, if you depend on them, if you are interconnected with them, they can take you down with them. So protect yourself accordingly.

Does anybody really believe that AIG would be at $36 if they were not a government guaranteed firm?]]> http://seekingalpha.com/article/167778-geithner-to-blame-for-outrageous-goldman-bonuses?source=feed#comment-723350 723350
The taxpayer paid GS 100 cents on the dollar on their AIG exposure, an amount they would not have gotten if AIG had gone under. Why do I say that? Because whoever GS's counterparties were with the AIG hedge, those same entities were probably also counterparties to everybody else who was exposed to AIG. There was no combination of counterparties who could come up with the $85 billion the government paid to AIG. Therefore GS, and a lot of other Big Financials, would have gotten pennies on the dollar.

And why is AIG stock in the forties?]]> Wed, 21 Oct 2009 09:49:48 -0400
The taxpayer paid GS 100 cents on the dollar on their AIG exposure, an amount they would not have gotten if AIG had gone under. Why do I say that? Because whoever GS's counterparties were with the AIG hedge, those same entities were probably also counterparties to everybody else who was exposed to AIG. There was no combination of counterparties who could come up with the $85 billion the government paid to AIG. Therefore GS, and a lot of other Big Financials, would have gotten pennies on the dollar.

And why is AIG stock in the forties?]]> http://seekingalpha.com/article/165744-how-regulation-will-force-etfs-to-evolve?source=feed#comment-711741 711741
There is an aggregate limit on how much land you can buy in the US. The same piece of land cannot have two owners. IN commodities, we need aggregate limits. Last October oil futures markets contracts far exceeded the amount of oil that would actually move in that month. At that point, the market is just moving chips on a casino table, and pricing is not real world. There need to be aggregate limits on all commodities, and then you have to put a position limit on individual participants so they cannot manipulate the market.]]> Sat, 10 Oct 2009 13:03:47 -0400
There is an aggregate limit on how much land you can buy in the US. The same piece of land cannot have two owners. IN commodities, we need aggregate limits. Last October oil futures markets contracts far exceeded the amount of oil that would actually move in that month. At that point, the market is just moving chips on a casino table, and pricing is not real world. There need to be aggregate limits on all commodities, and then you have to put a position limit on individual participants so they cannot manipulate the market.]]> http://seekingalpha.com/article/164591-what-gm-can-learn-from-toyota?source=feed#comment-702254 702254
Once again car companies are doing poor market research, and using that market research to justify timidity. Somebody like Volkswagen, with the Jetta TDI , is going to start selling a lot of diesels in the US, and everyone else is going to be years behind. Remember how the Rabbit started selling like hot cakes in the US, and the Big Three started buying Rabbits and reverse engineering them.

Do this with your market research, Ford and Toyota. Ask the American people if they would buy a reasonably priced 60 mpg vehicle with an engine that will run for over 200, 000 miles. When they say yes, tell them it is a clean burning diesel. They may hesitate, but they will certainly take a good hard look at it.]]> Sun, 04 Oct 2009 09:19:38 -0400
Once again car companies are doing poor market research, and using that market research to justify timidity. Somebody like Volkswagen, with the Jetta TDI , is going to start selling a lot of diesels in the US, and everyone else is going to be years behind. Remember how the Rabbit started selling like hot cakes in the US, and the Big Three started buying Rabbits and reverse engineering them.

Do this with your market research, Ford and Toyota. Ask the American people if they would buy a reasonably priced 60 mpg vehicle with an engine that will run for over 200, 000 miles. When they say yes, tell them it is a clean burning diesel. They may hesitate, but they will certainly take a good hard look at it.]]> http://seekingalpha.com/article/163025-bank-of-america-s-gain-is-taxpayers-loss?source=feed#comment-689615 689615
Create true resolution authority for the BF's. If one of them is failing, FDIC or something similar takes them over and liquidates them, making sure the innocent get their deposits back.

But we should all be just as furious about AIG, and I see very little coverage on that. Goldman Sachs gets paid 100 cents on the dollar from AIG, then turns around a has huge profits and the bonuses that go with it. What if GS had gotten 10 cents on the dollar? What would their profit be? Yes, they had an AIG failure hedged, but, (and here is the 185 billion dollar question) if AIG had failed, would those counterparties have been able to pay GS 100 cents on the dollar. I very strongly suspect that GS would have gotten a much smaller payoff. The writer who can prove that gets a Pullitzer, because it looks to me like Goldmans profits, and most of the profits of the big Financials this year, came from the US Treasury.]]> Thu, 24 Sep 2009 13:41:19 -0400
Create true resolution authority for the BF's. If one of them is failing, FDIC or something similar takes them over and liquidates them, making sure the innocent get their deposits back.

But we should all be just as furious about AIG, and I see very little coverage on that. Goldman Sachs gets paid 100 cents on the dollar from AIG, then turns around a has huge profits and the bonuses that go with it. What if GS had gotten 10 cents on the dollar? What would their profit be? Yes, they had an AIG failure hedged, but, (and here is the 185 billion dollar question) if AIG had failed, would those counterparties have been able to pay GS 100 cents on the dollar. I very strongly suspect that GS would have gotten a much smaller payoff. The writer who can prove that gets a Pullitzer, because it looks to me like Goldmans profits, and most of the profits of the big Financials this year, came from the US Treasury.]]> http://seekingalpha.com/article/157484-the-cftc-is-needlessly-breaking-good-products?source=feed#comment-640067 640067 Fri, 21 Aug 2009 13:29:11 -0400 http://seekingalpha.com/article/152891-cftc-belatedly-discovers-the-speculative-oil-bubble?source=feed#comment-612978 612978
This is all about bubbles, herd mentality, and who has better information. Everyone perceived that GS and Morgan Stanley had better information, so when they came out with price projections showing oil going higher and higher, the herd believed them, and stampeded to long contracts, creating the bubble.

So.... are the Nigerian rebels blowing up any pipelines this year? Are the Israelis planning any air strikes into Iran?

One of the factors driving up prices was the fear that the Israelis would strike Iran, Iran would close the straits of Hormuz, and we would lose 20 percent of the world's oil supply. A GS spokesman could obliquely refer to that to drive up the price, and one of Goldmans US government insiders would already know that the Bush administration had put the kibosh on any Israeli overflights over Iraq to Iran. Is GS really any smarter, or do they just have better contracts?

A free market only works correctly if all participants have access to the same information. The winners will do a better job of analyzing that information and make money. But, there is no free market without transparency in all markets, so why isn't Larry Summers effectively pushing transparency?]]> Mon, 03 Aug 2009 12:14:18 -0400
This is all about bubbles, herd mentality, and who has better information. Everyone perceived that GS and Morgan Stanley had better information, so when they came out with price projections showing oil going higher and higher, the herd believed them, and stampeded to long contracts, creating the bubble.

So.... are the Nigerian rebels blowing up any pipelines this year? Are the Israelis planning any air strikes into Iran?

One of the factors driving up prices was the fear that the Israelis would strike Iran, Iran would close the straits of Hormuz, and we would lose 20 percent of the world's oil supply. A GS spokesman could obliquely refer to that to drive up the price, and one of Goldmans US government insiders would already know that the Bush administration had put the kibosh on any Israeli overflights over Iraq to Iran. Is GS really any smarter, or do they just have better contracts?

A free market only works correctly if all participants have access to the same information. The winners will do a better job of analyzing that information and make money. But, there is no free market without transparency in all markets, so why isn't Larry Summers effectively pushing transparency?]]> http://seekingalpha.com/article/129525-two-economies-and-one-must-die?source=feed#comment-452857 452857
The Casino economy is based on speculation, just as somebody bets on the 40 to 1 shot at the track. If you want to curtail speculation, tax the profits on it at 90 percent.]]> Sun, 05 Apr 2009 22:22:00 -0400
The Casino economy is based on speculation, just as somebody bets on the 40 to 1 shot at the track. If you want to curtail speculation, tax the profits on it at 90 percent.]]> http://seekingalpha.com/article/129522-a-balanced-view-of-oil-prices-the-economy-and-speculation?source=feed#comment-452540 452540
I will agree that the long term trend from January 2005 ($42/bbl) to August 2007 ($68/bbl) could be almost totally explained by supply and demand factors. The price of oil in 2005 was too low to cover replacement cost of extraction. When the replacement cost of the last incremental barrel pumped is around $60, how do you justify $96 oil, let alone $148?


According to data from the EIA website showing crude oil stocks, stocks only went down 2/10ths of 1 percent between Aug 2007 and Aug 2008. For prices to double in the time period could only be explained by a true shortage, (which was not the case as shown by that infinitesimal drop), speculation, or panic buying.

Think back to 2008.

Every time the Nigerian rebels blew up a pipe line, the media trotted out some expert who would tell us of the downward impact on oil supplies. That would be followed by some "expert" from Goldman Sachs or Morgan Stanley telling us the impact on price. And the price would rise.

A week or two later, the Israelis would threaten military action against Iran. Some expert would give us a dire forecast on the supply impact if the Iranians closed the straits of Hormuz. Then the experts at GS or MS would predict another price rise. Lo and behold the price would rise.

Then there was one day the price went up $10 per barrel. This time the honest smart money said no, that was not supply in demand, that was short sellers covering their positions, and had to pay anything to cover their bets. The following week, the price receded about $5.

The price exploded because of PERCEIVED SHORTAGE AT SOME FUTURE TIME. The same things happened in the grain markets. The huge runup in the grain markets led to the slaughter of large cow herds, and our national cow herd dropped to its lowest levels since the fifties. Hog farmers in this part of Iowa aborted pig litters because they could not profitably feed them at those inflated prices.

In oil and grain, projected shortages enabled speculators to run up prices. Supply and demand had some effect, but those shortages never really materialized, and prices of oil and grain dropped. By that time, the agricultural sector had over compensated, and we will be feeling the effects for years.

So, when Hamilton and others cling to their supply/ demand paradigms, and rule out speculation as a primary cause, they do damage. That damage is caused when some legislator quotes them saying this was all about supply and demand, therefore we should not take any action to penalize speculation.

Action items: First, quit calling speculators investors. An investor is someone who wants to improve the true VALUE of an asset, instead of just the price. A speculator is someone who wants to hold an asset to realize price gain and sell it at a speculative profit, or someone who short sells for speculative profit.

Second, use the tax code to reward genuine investors and entrepreneurs with low capital gains taxes, and set the tax rate for speculative profits at 90 percent.]]> Sun, 05 Apr 2009 14:42:49 -0400
I will agree that the long term trend from January 2005 ($42/bbl) to August 2007 ($68/bbl) could be almost totally explained by supply and demand factors. The price of oil in 2005 was too low to cover replacement cost of extraction. When the replacement cost of the last incremental barrel pumped is around $60, how do you justify $96 oil, let alone $148?


According to data from the EIA website showing crude oil stocks, stocks only went down 2/10ths of 1 percent between Aug 2007 and Aug 2008. For prices to double in the time period could only be explained by a true shortage, (which was not the case as shown by that infinitesimal drop), speculation, or panic buying.

Think back to 2008.

Every time the Nigerian rebels blew up a pipe line, the media trotted out some expert who would tell us of the downward impact on oil supplies. That would be followed by some "expert" from Goldman Sachs or Morgan Stanley telling us the impact on price. And the price would rise.

A week or two later, the Israelis would threaten military action against Iran. Some expert would give us a dire forecast on the supply impact if the Iranians closed the straits of Hormuz. Then the experts at GS or MS would predict another price rise. Lo and behold the price would rise.

Then there was one day the price went up $10 per barrel. This time the honest smart money said no, that was not supply in demand, that was short sellers covering their positions, and had to pay anything to cover their bets. The following week, the price receded about $5.

The price exploded because of PERCEIVED SHORTAGE AT SOME FUTURE TIME. The same things happened in the grain markets. The huge runup in the grain markets led to the slaughter of large cow herds, and our national cow herd dropped to its lowest levels since the fifties. Hog farmers in this part of Iowa aborted pig litters because they could not profitably feed them at those inflated prices.

In oil and grain, projected shortages enabled speculators to run up prices. Supply and demand had some effect, but those shortages never really materialized, and prices of oil and grain dropped. By that time, the agricultural sector had over compensated, and we will be feeling the effects for years.

So, when Hamilton and others cling to their supply/ demand paradigms, and rule out speculation as a primary cause, they do damage. That damage is caused when some legislator quotes them saying this was all about supply and demand, therefore we should not take any action to penalize speculation.

Action items: First, quit calling speculators investors. An investor is someone who wants to improve the true VALUE of an asset, instead of just the price. A speculator is someone who wants to hold an asset to realize price gain and sell it at a speculative profit, or someone who short sells for speculative profit.

Second, use the tax code to reward genuine investors and entrepreneurs with low capital gains taxes, and set the tax rate for speculative profits at 90 percent.]]> http://seekingalpha.com/article/128355-the-up-tick-rule-reimplementation-is-bad-for-markets?source=feed#comment-444431 444431
One other point on short sellers. Some of the spikes in the oil price last summer were caused by large numbers of short sellers having to cover their position. They lost a lot of money, but they also created the false perception that the high prices were economically justified, which disrupted the market to everyone's disadvantage.]]> Sun, 29 Mar 2009 17:17:48 -0400
One other point on short sellers. Some of the spikes in the oil price last summer were caused by large numbers of short sellers having to cover their position. They lost a lot of money, but they also created the false perception that the high prices were economically justified, which disrupted the market to everyone's disadvantage.]]> http://seekingalpha.com/article/128354-the-market-as-regulator?source=feed#comment-444424 444424
The trick with regulation is to keep it simple. Don't ban short selling, but enforce the rules against naked short selling by using technology to insure transparency. No naked CDS. Require the creators of new financial instruments to make them understandable and transparent.

Very few people criticize the entrepreneurs for risking everything they have and getting rich, because they realize that most fail. The Wall Street types like Cassano, who took out millions at no risk to themselves......that is the other end of the spectrum. Remember Mr Falkenstein, there are smart prosecutors out there too, so Cassano and people like him can run and hide for a long time, but eventually justice will get him. When Cassano said he did not see how AIG could pay a single dime on CDS, that is fraud. Either he lied when he said that, or lied to the people who he sold CDS when he convinced them they needed it. And...stupidly, he was arrogant about it.

The emperor has lost his clothes, the emperor being Wall Street speculators who had everyone convinced they were the best and brightest. That would appear not to be the case.

My suggestion is for them to learn humility, and realize that their compensation will sink to the traditional level where bankers and brokers used to be , as opposed to that false perception that they were worth more just because they could make things seem complicated.


]]> Sun, 29 Mar 2009 17:02:54 -0400
The trick with regulation is to keep it simple. Don't ban short selling, but enforce the rules against naked short selling by using technology to insure transparency. No naked CDS. Require the creators of new financial instruments to make them understandable and transparent.

Very few people criticize the entrepreneurs for risking everything they have and getting rich, because they realize that most fail. The Wall Street types like Cassano, who took out millions at no risk to themselves......that is the other end of the spectrum. Remember Mr Falkenstein, there are smart prosecutors out there too, so Cassano and people like him can run and hide for a long time, but eventually justice will get him. When Cassano said he did not see how AIG could pay a single dime on CDS, that is fraud. Either he lied when he said that, or lied to the people who he sold CDS when he convinced them they needed it. And...stupidly, he was arrogant about it.

The emperor has lost his clothes, the emperor being Wall Street speculators who had everyone convinced they were the best and brightest. That would appear not to be the case.

My suggestion is for them to learn humility, and realize that their compensation will sink to the traditional level where bankers and brokers used to be , as opposed to that false perception that they were worth more just because they could make things seem complicated.


]]> http://seekingalpha.com/article/127977-congress-handling-of-aig-bonuses-is-shameful?source=feed#comment-441544 441544
Henry Paulsen used fear to stampede Congress into the original TARP plan, and Barney Frank helped him. Even today, Bernanke keeps saying things would have been much worse if there had been no bailout.

Liddy reads death threats to plant fear that Congressman will be culpable if names were released.

Liddy and others planting the fear that only the guys who made the mess could straighten it out. And that we are cutting our own throats by criticizing the current crowd at AIG.

So, what if, instead of TARP, Congress had passed a law giving FDIC authority of AIG and other large companies, as Geithner proposed today. FDIC could have stepped in on a Friday night in October, split off the genuine insurance side of AIG, the strong viable parts, and said they would be open for business on Monday morning with temporary government ownership until those units could be sold. They could have frozen the Financial Products division, and re-written the contracts to say that the government would use the proceeds from the sale of healthy units to pay the counterparties WHEN THEY ACTUALLY HAD A DERIVATIVE FAIL TO PERFORM.

That is the one pertinent fact that seems to be ignored. I think it was the head of OTS who said last week in Congressional testimony that not one of the the super senior traunches that AIG FP insured has gone into default. Their value may be lower, but they are still performing. IF AIG FP had just re written the CDS contracts to say that we will pay up if the insured derivative actually fails to perform, they would not have needed to send one dime to Goldman Sachs, the French banks, the German banks, etc. In some cases AIG has used taxpayer money to buy some of the CDO's , etc, which will be fine as long as they keep paying. The value of the counterparty CDO had gone down, and because of the way AIG FP wrote those contracts, AIG had to pay up to cover the lowered value. The banks in particular were using the value of the insured CDO's as capital for regulatory purposes, so when the CDO value went down, their capital base shrunk, and they were going to have problems with their regulators. If the governments had just said, even though these CDO's have lost value, they have still not defaulted, so list them in your capital statements at par, in this one special case. You would be telling the actual holders of those CDO's that they would be made whole in the event of a default, which is what insurance is supposed to do.

Of course the speculators holding naked CDS would be hosed. We need to know how much AIG money went to those speculators. A month ago I was concerned we would never know. One value of the populist outrage is that it drew public attention to AIG per se, so the good reporters could say yes, the bonuses are bad, but look what has been going on in the back room. Instead of distracting us from those back room dealings as has been charged, the outrage brought more attention to them.

The way the contracts were originally written would be like writing fire insurance for a house in the woods, and during a forest fire AIG would have to pay money just for the fire approaching the house, even though the fire never gets there or damages the house. This was not a contract written in the best interests of anyone but a small group of people.

But... Cassano still got his fees, and put them in the bank.


]]> Thu, 26 Mar 2009 17:03:51 -0400
Henry Paulsen used fear to stampede Congress into the original TARP plan, and Barney Frank helped him. Even today, Bernanke keeps saying things would have been much worse if there had been no bailout.

Liddy reads death threats to plant fear that Congressman will be culpable if names were released.

Liddy and others planting the fear that only the guys who made the mess could straighten it out. And that we are cutting our own throats by criticizing the current crowd at AIG.

So, what if, instead of TARP, Congress had passed a law giving FDIC authority of AIG and other large companies, as Geithner proposed today. FDIC could have stepped in on a Friday night in October, split off the genuine insurance side of AIG, the strong viable parts, and said they would be open for business on Monday morning with temporary government ownership until those units could be sold. They could have frozen the Financial Products division, and re-written the contracts to say that the government would use the proceeds from the sale of healthy units to pay the counterparties WHEN THEY ACTUALLY HAD A DERIVATIVE FAIL TO PERFORM.

That is the one pertinent fact that seems to be ignored. I think it was the head of OTS who said last week in Congressional testimony that not one of the the super senior traunches that AIG FP insured has gone into default. Their value may be lower, but they are still performing. IF AIG FP had just re written the CDS contracts to say that we will pay up if the insured derivative actually fails to perform, they would not have needed to send one dime to Goldman Sachs, the French banks, the German banks, etc. In some cases AIG has used taxpayer money to buy some of the CDO's , etc, which will be fine as long as they keep paying. The value of the counterparty CDO had gone down, and because of the way AIG FP wrote those contracts, AIG had to pay up to cover the lowered value. The banks in particular were using the value of the insured CDO's as capital for regulatory purposes, so when the CDO value went down, their capital base shrunk, and they were going to have problems with their regulators. If the governments had just said, even though these CDO's have lost value, they have still not defaulted, so list them in your capital statements at par, in this one special case. You would be telling the actual holders of those CDO's that they would be made whole in the event of a default, which is what insurance is supposed to do.

Of course the speculators holding naked CDS would be hosed. We need to know how much AIG money went to those speculators. A month ago I was concerned we would never know. One value of the populist outrage is that it drew public attention to AIG per se, so the good reporters could say yes, the bonuses are bad, but look what has been going on in the back room. Instead of distracting us from those back room dealings as has been charged, the outrage brought more attention to them.

The way the contracts were originally written would be like writing fire insurance for a house in the woods, and during a forest fire AIG would have to pay money just for the fire approaching the house, even though the fire never gets there or damages the house. This was not a contract written in the best interests of anyone but a small group of people.

But... Cassano still got his fees, and put them in the bank.


]]> http://seekingalpha.com/article/127977-congress-handling-of-aig-bonuses-is-shameful?source=feed#comment-440868 440868
Instead of trashing the hard working Americans who are upset about Wall Street culture, do what the President said the other day, get out to North Dakota, Iowa, Arkansas, spend some time with real people, who are worried about financing their kids' state school tuition, worried about speculators driving the price of oil above $100 again, worried that they will now delay retirement until they are past 70. Sit with them in a small town cafe or at their supper table, and maybe you will get a glimmer of understanding.

We are not a bunch of rubes who can be stirred up by any demagogue. Congress did not stir up this rage. That small town banker Jim Bunning talks about whose entire years profits were wiped out by the new FDIC assessment, an assessment caused by your friends on Wall Street, that banker was mad a long time before Jim Bunning talked to him. Congress is funneling that rage, and you had better listen. Right now there are a lot of people in this country who would vote for Global warming to flood Manhattan, and for all the apologists in the media to be working at a small city TV station covering the latest car wreck.

Todd Sullivan, you guys in the media are a big part of the problem, but you are never going to see that because you have totally lost your objectivity. You are not the laughingstock that CNBC has become, but you need to step back and look at your career. Every financial reporter should have to divulge who they socialize with, because you cannot be objective about people who are your friends.]]> Thu, 26 Mar 2009 10:03:43 -0400
Instead of trashing the hard working Americans who are upset about Wall Street culture, do what the President said the other day, get out to North Dakota, Iowa, Arkansas, spend some time with real people, who are worried about financing their kids' state school tuition, worried about speculators driving the price of oil above $100 again, worried that they will now delay retirement until they are past 70. Sit with them in a small town cafe or at their supper table, and maybe you will get a glimmer of understanding.

We are not a bunch of rubes who can be stirred up by any demagogue. Congress did not stir up this rage. That small town banker Jim Bunning talks about whose entire years profits were wiped out by the new FDIC assessment, an assessment caused by your friends on Wall Street, that banker was mad a long time before Jim Bunning talked to him. Congress is funneling that rage, and you had better listen. Right now there are a lot of people in this country who would vote for Global warming to flood Manhattan, and for all the apologists in the media to be working at a small city TV station covering the latest car wreck.

Todd Sullivan, you guys in the media are a big part of the problem, but you are never going to see that because you have totally lost your objectivity. You are not the laughingstock that CNBC has become, but you need to step back and look at your career. Every financial reporter should have to divulge who they socialize with, because you cannot be objective about people who are your friends.]]> http://seekingalpha.com/article/127572-aig-fear-and-loathing-on-wall-street?source=feed#comment-438184 438184 Congressman X: " Do you have good people who understand these derivatives?"
Regulator: "Yes"
Cong: "Did you have to give them a $2 million bonus to keep them?"
Regulator: (Laughing) " No, they get around $100,000 per year in salary"

The guys in AIG FP who insist they need to be kept are guilty of extortion. Get real.

Maybe the system is working. 15 out of the top 20 have given the bonuses back. Some of them are doing that because it is the right thing. Some fear exposure. Let's see, fear of being exposed doing wrong..... I think they call that accountability. And as far as the death threats, that's a red herring. Nobody takes them seriously, Liddy read them for the shock value. Most of the bonus money will come back, the foreigners who keep it should be fired, and then we can get onto the real issue, which is the payments to the banks and Goldman Sachs.
]]> Tue, 24 Mar 2009 11:25:04 -0400 Congressman X: " Do you have good people who understand these derivatives?"
Regulator: "Yes"
Cong: "Did you have to give them a $2 million bonus to keep them?"
Regulator: (Laughing) " No, they get around $100,000 per year in salary"

The guys in AIG FP who insist they need to be kept are guilty of extortion. Get real.

Maybe the system is working. 15 out of the top 20 have given the bonuses back. Some of them are doing that because it is the right thing. Some fear exposure. Let's see, fear of being exposed doing wrong..... I think they call that accountability. And as far as the death threats, that's a red herring. Nobody takes them seriously, Liddy read them for the shock value. Most of the bonus money will come back, the foreigners who keep it should be fired, and then we can get onto the real issue, which is the payments to the banks and Goldman Sachs.
]]> http://seekingalpha.com/article/124055-why-did-geithner-duck-the-question?source=feed#comment-412920 412920 He could have said that "we are rolling the dice that the economy will start turning around in time, and budget deficits will start heading down in time to re instill confidence in the American dollar and treasuries. " Would that have re-assured the bond traders?

Or he could have said, "We probably will not be able to cover all our expenditures with borrowing, in which case we will have to increase the money supply. M1 plus M2 last April was around 7.7 Trillion. We might have to add a trillion" How would the bond traders respond to that?

Or he could say the truth which is "WE DON"T KNOW, but we know the cost of doing nothing, as demonstrated by Bush and Paulsen and Kashkari kicking the can down the road."

The congressman asking the question knew the answer, it is an unspoken truth, but Geithner ducked the question because speaking it would really disrupt the market.

We are all looking into a crystal ball, but that crystal ball has been clouded far more by Wall Street Opacity than Geithner.

I will ask you a question Bruce K. How much taxpayer money went to AIG, and then on to speculators who bought NAKED CDS from AIG? John Paulson turned a $22 million dollar bet into $1 billion when Lehman failed. Who besides AIG had deep enough pockets to cover that bet, with US taxpayer assistance?

You are asking Geithner to predict the future, when most of the financial pundits cannot answer the question on something that has already happened, "Where did the AIG money go, and how much of it was naked CDS?"

And then you can answer the question, "How many Wall Street bankers and hedge fund operators are SPECULATORS, and how many are really investors, trying to build long term strength in our companies and economy."

I agree with the posters who say Geithner is a weak communicator. As was Henry Paulsen. He needs to speak more persuasively, or take more of a behind the scenes role.]]> Wed, 04 Mar 2009 13:05:55 -0500 He could have said that "we are rolling the dice that the economy will start turning around in time, and budget deficits will start heading down in time to re instill confidence in the American dollar and treasuries. " Would that have re-assured the bond traders?

Or he could have said, "We probably will not be able to cover all our expenditures with borrowing, in which case we will have to increase the money supply. M1 plus M2 last April was around 7.7 Trillion. We might have to add a trillion" How would the bond traders respond to that?

Or he could say the truth which is "WE DON"T KNOW, but we know the cost of doing nothing, as demonstrated by Bush and Paulsen and Kashkari kicking the can down the road."

The congressman asking the question knew the answer, it is an unspoken truth, but Geithner ducked the question because speaking it would really disrupt the market.

We are all looking into a crystal ball, but that crystal ball has been clouded far more by Wall Street Opacity than Geithner.

I will ask you a question Bruce K. How much taxpayer money went to AIG, and then on to speculators who bought NAKED CDS from AIG? John Paulson turned a $22 million dollar bet into $1 billion when Lehman failed. Who besides AIG had deep enough pockets to cover that bet, with US taxpayer assistance?

You are asking Geithner to predict the future, when most of the financial pundits cannot answer the question on something that has already happened, "Where did the AIG money go, and how much of it was naked CDS?"

And then you can answer the question, "How many Wall Street bankers and hedge fund operators are SPECULATORS, and how many are really investors, trying to build long term strength in our companies and economy."

I agree with the posters who say Geithner is a weak communicator. As was Henry Paulsen. He needs to speak more persuasively, or take more of a behind the scenes role.]]> http://seekingalpha.com/article/123606-the-aig-scandal?source=feed#comment-409986 409986
Why is Cassano, the head of AIG financial products not in jail. He made CDS so complicated that nobody could comprehend it, and the big wheels at AIG like Sullivan and Greenberg were not humble enough to admit that. And then Cassano said a little more than a year ago that he could not see any way that AIG would lose one dollar on CDS.

Go after Cassano. Hold all payments to counterparties who bought naked CDS from AIG FP until they can prove they had nothing to do with driving down the value of the underlying asset.

If something seems to good to be true, it probably is, so stay away from it.

If something is to complicated to understand, be humble enough to admit that.....and stay away from it.

]]> Mon, 02 Mar 2009 16:18:05 -0500
Why is Cassano, the head of AIG financial products not in jail. He made CDS so complicated that nobody could comprehend it, and the big wheels at AIG like Sullivan and Greenberg were not humble enough to admit that. And then Cassano said a little more than a year ago that he could not see any way that AIG would lose one dollar on CDS.

Go after Cassano. Hold all payments to counterparties who bought naked CDS from AIG FP until they can prove they had nothing to do with driving down the value of the underlying asset.

If something seems to good to be true, it probably is, so stay away from it.

If something is to complicated to understand, be humble enough to admit that.....and stay away from it.

]]> http://seekingalpha.com/article/123465-nationalization-by-any-other-name?source=feed#comment-408866 408866
We need to clean the speculators out of Wall Street, and let the good conservative bankers run the show. There are good people there, but if Wall Street cannot clean itself up, either the government needs to do it, or the financial center of America needs to be moved out of Wall Street. There is a trillion dollars in capital sitting on the sidelines, and that capital will not get loaned out or invested until the owners of that capital feel they are putting it in a safe place. It speaks volumes that they do not feel safe putting it on Wall Street.]]> Mon, 02 Mar 2009 04:16:35 -0500
We need to clean the speculators out of Wall Street, and let the good conservative bankers run the show. There are good people there, but if Wall Street cannot clean itself up, either the government needs to do it, or the financial center of America needs to be moved out of Wall Street. There is a trillion dollars in capital sitting on the sidelines, and that capital will not get loaned out or invested until the owners of that capital feel they are putting it in a safe place. It speaks volumes that they do not feel safe putting it on Wall Street.]]> http://seekingalpha.com/article/112881-ignore-the-pundits?source=feed#comment-343705 343705 Thu, 01 Jan 2009 17:45:09 -0500 http://seekingalpha.com/article/112881-ignore-the-pundits?source=feed#comment-343704 343704 Thu, 01 Jan 2009 17:45:09 -0500 http://seekingalpha.com/article/112579-mark-to-market-accounting-used-with-flexibility-it-s-a-good-thing?source=feed#comment-341422 341422
The value of mortgage backed securities was overstated two years ago, understated today, but the economic value of my house is the same as it was 15 years ago, 10 years ago, and five years ago.

Mark to market is one tool of many, with the objective of preventing fraudulent accounting. Perhaps the problem rests with the people looking at the numbers, people who thought housing in some markets could keep going up 10 percent every year, people who thought commodity prices could keep going up and up, and so on.

So much of valuation is blue sky, based on the psychology of the moment. Willing buyer, willing seller. Reluctant buyer, distressed seller is not a true market for valuation purposes, and I believe the FASB standards factor that in.

We do not need excessive regulation, people filling out an endless pile of forms. WE DO NEED RULES, to keep honest people honest, and to keep dishonest people reluctant to cheat.]]> Tue, 30 Dec 2008 10:44:44 -0500
The value of mortgage backed securities was overstated two years ago, understated today, but the economic value of my house is the same as it was 15 years ago, 10 years ago, and five years ago.

Mark to market is one tool of many, with the objective of preventing fraudulent accounting. Perhaps the problem rests with the people looking at the numbers, people who thought housing in some markets could keep going up 10 percent every year, people who thought commodity prices could keep going up and up, and so on.

So much of valuation is blue sky, based on the psychology of the moment. Willing buyer, willing seller. Reluctant buyer, distressed seller is not a true market for valuation purposes, and I believe the FASB standards factor that in.

We do not need excessive regulation, people filling out an endless pile of forms. WE DO NEED RULES, to keep honest people honest, and to keep dishonest people reluctant to cheat.]]> http://seekingalpha.com/article/112502-how-to-use-credit-default-swaps-to-create-synthetic-debt?source=feed#comment-340848 340848
Sunshine's article is pretty good. And the problem with the multiple nature of naked CDS is how those naked CDS holders could manipulate the psychology of the market to enrich themselves.
]]> Mon, 29 Dec 2008 16:43:44 -0500
Sunshine's article is pretty good. And the problem with the multiple nature of naked CDS is how those naked CDS holders could manipulate the psychology of the market to enrich themselves.
]]> http://seekingalpha.com/article/112471-stupid-is-as-stupid-does-the-sec-and-cftc-legalize-electronic-gambling?source=feed#comment-340757 340757
I am somewhat concerned that the insurance type of CDS is so inexpensive. If I own a building that is a firetrap, no sprinkler system, poor wiring etc, I should have to pay through the nose for insurance. But for companies in deep trouble, such as Lehman, you could buy CDS on Lehman bonds for a few cents on the dollar, and then gotten 91 cents on the dollar on settlement day in October.

If I bought insurance on a firetrap of a building for a small premium, there is no incentive on my part to make the building safer. So if I can get CDS on a CDO for pennies on the dollar, there is little incentive to assess risk correctly. In the case of AIG, I think the guys in Financial Products were fraudulent in assessing risk, merely getting as much money in premiums as possible to enrich themselves.

I hope these guys are all getting fitted for handcuffs, but if in fact they broke no laws, they should never be allowed to have a job in the financial sector again.]]> Mon, 29 Dec 2008 14:45:47 -0500
I am somewhat concerned that the insurance type of CDS is so inexpensive. If I own a building that is a firetrap, no sprinkler system, poor wiring etc, I should have to pay through the nose for insurance. But for companies in deep trouble, such as Lehman, you could buy CDS on Lehman bonds for a few cents on the dollar, and then gotten 91 cents on the dollar on settlement day in October.

If I bought insurance on a firetrap of a building for a small premium, there is no incentive on my part to make the building safer. So if I can get CDS on a CDO for pennies on the dollar, there is little incentive to assess risk correctly. In the case of AIG, I think the guys in Financial Products were fraudulent in assessing risk, merely getting as much money in premiums as possible to enrich themselves.

I hope these guys are all getting fitted for handcuffs, but if in fact they broke no laws, they should never be allowed to have a job in the financial sector again.]]>