Randy Miller

Is Dubai's Default a Black Swan Event?

It's a black swan if the herd says it's a black swan. CNBC's ratings go up everytime there is some financial crisis, just like the weather channel's ratings go up every time there is a big storm. The difference is that the weather channel's coverage never made a storm bigger.

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.

Too Big to Fail Banks: A Simple Solution

Create a statute that says the US government shall not guarantee the existence of any firm.

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?

Bank of America's Gain Is Taxpayers' Loss

Read Niall Ferguson in this week's Newsweek. He makes a lot of sense about Congress and the WH not having the political will to break up the Big Financials. To allow the BF's to go forward with an implicit government guarantee is what I find infuriating.

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.