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Fr33f0rm

Fr33f0rm
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  • "Cliffs are in fashion this fall," economist Ed Yardeni writes. Not only is there the fiscal cliff, there's the political cliff and the revenue cliff. “If they fall off of it,” says Yardeni, "so will the profit margin." Which makes for an earnings cliff too. Then there's the "capital strike," described by Barclays' Barry Knapp as industry's reluctance to invest until we know the election result and whether the fiscal cliff will be averted. [View news story]
    I think that it's healthy for business and government to be adversaries. Our country was built on adversarial relationships. We were one of the first countries to have true checks and balances and it's those adversarial relationships that forced us to be great.

    If someone from the left and someone on the right can agree to a structural solution (ideally not pork-laden) then the solution is typically better than either side would have produced on their own.
    Oct 28, 2012. 11:35 PM | 1 Like Like |Link to Comment
  • "Cliffs are in fashion this fall," economist Ed Yardeni writes. Not only is there the fiscal cliff, there's the political cliff and the revenue cliff. “If they fall off of it,” says Yardeni, "so will the profit margin." Which makes for an earnings cliff too. Then there's the "capital strike," described by Barclays' Barry Knapp as industry's reluctance to invest until we know the election result and whether the fiscal cliff will be averted. [View news story]
    You can't sustain an economy on paper. At the lowest level of economics the paper is only a proxy for purchasable goods. If we cease to manufacture anything (and in this, I am including creative goods (art) and grown goods (crops)), then our currency will cease to have any value.

    A lot of the reduction of employment has to do with the development of more efficient manufacturing techniques. And yes, you are correct that high union wages helped support technology development budgets because saved man-hours equated to more money. In fact, some might argue that increased safety and regulatory guidelines spurred development as well.

    I'm becoming a fan of Joseph Stiglitz because I think he has a strong grasp on the a lot of behavioral economic theories.
    Oct 28, 2012. 11:27 PM | 2 Likes Like |Link to Comment
  • Meet the new math, same as the old math: In an upcoming meeting, the SEC will look at bringing back fractional stock prices - 1/8 and 1/16 ticks, instead of penny pricing. At heart is the power of market makers who used to be accused of improperly raising trading costs. Proponents of going back argue that higher bank profitability from bigger tick sizes will make the environment more welcoming for small companies in their IPOs. [View news story]
    I think it's a fair trade, we move back to fractions and stocks have a minimum 60 second hold time. That will get rid of front-running advantages and market makers will still be able to make money.
    Oct 28, 2012. 11:08 PM | Likes Like |Link to Comment
  • Why We Can't Simplify Bank Regulation [View article]
    There is no doubt that commercial banking has had some dramatic value-added advances over the last 20 years. Online banking, ATM check deposits, and automated systems have advanced commerical banking dramatically.

    Investment banking is a bit different though. I'm sure there are many value-added functions that I banks perform, but, honestly, I am concerned that there are just as many illusory value-added activities as real value-added ones.

    Repackaging risk is one of the most dubious "value-added" activities that you could engage in because if someone is purchasing expensive risk assets because the statistical risk is hidden (or the crank has been winding without the jack coming out of the box) then you are not creating value, you are making money by duping investors.
    Oct 2, 2012. 02:06 AM | Likes Like |Link to Comment
  • Central bankers are nothing more than “counterfeit money printers,” says perma-bear Marc Faber, and Ben Bernanke should resign for messing up the U.S. economy so badly. He's been one of the chief proponents of an ultra-expansionist economic monetary policy, Faber says, which was to blame for the financial crisis in the first place. The Fed has no mandate to boost asset prices and create wealth, it doesn’t work that way. It just winds up being a temporary boost - always followed by a crash. [View news story]
    There are a lot of different kinds of engineers and, to be honest, I am not involved with environmental regulations. I have just heard too many people proposing abolishing the EPA and the very thought of that sends chills down my spine. Here is one fact I believe: Unless legally mandated, few companies would spend money on proper chemical disposal or wastewater management.

    I was being loose in my language when I used the word "screwed". I didn't imply that all banks would fail but I did mean that all banks would have faced challenging times. It's scary that, if you believe the reports from that time, all of the big banks brought their soup bowls to the discount window. From what we've seen through the robo-signing scandal, if one of the big banks failed, there would be scrambling to figure out who actually owned the mortgages on what properties.

    Balance is always the key when you're talking about industry and the environment. I am an industrialist environmentalist (new term, I'm trying it out). The mantra we need to live by is "sustainability". If some want to regulate industrial waste less than the Chinese, I will fight that tooth and nail. But, I support smarter rule making. I think tightening CAFE standards is a good thing because, if people can stomach less powerful cars, they will end up saving money on gas and reducing our trade deficit.

    I agree that EPA rules should have to pass the reasonability test but, I have no idea who I would trust to make that judgement. I'm sure you'd say congress but, last I saw, hippies and environmentalists are light on lobbying dollars.

    I think we're a bit stuck on this one.
    Sep 24, 2012. 12:46 AM | 1 Like Like |Link to Comment
  • Target date funds, which are supposed to limit portfolio risk as their end date approaches, have been singled out by the SEC's Mary Schapiro as not sufficiently warning investors about possible downside risks. In 2008, funds dated "2010" lost 24% on average, despite investor assumptions the funds would be heavily invested in bonds so close to their end date.  [View news story]
    I personally saw investment houses use leveraged bond funds as "safe alternatives" and the fact is that, if there are any failures in repaying bonds, leveraging the bonds can turn out just as catastrophically as levered stocks.

    I think this may account for some of the problems in the target-date funds.
    Sep 24, 2012. 12:24 AM | Likes Like |Link to Comment
  • Why We Can't Simplify Bank Regulation [View article]
    What has happened over the past few decades is that big banks shifted their focus to investment banking. If you ask an investment bank how interested it is in commercial banking, it will say "not at all". Commercial banking is boring, the classic structure of the 6/3/3 banker (Lend at 6, borrow at 3, be on the golf course by 3) is unattractive to investors but, still, very profitable for private banks.

    Problem: There is no excitement, there are no superstars.

    I think that there need to be amendments to Glass-Steagall to bring it up to today's standards that were assumed in 1933 because there was no efficient way to break a 50k loan into 100k parts. I think that there should be a mandate that all mortgage originators should maintain at least 51% of all mortgages that they originate.

    Something people forget every decade or so is that...if there is no value created by a mechanism, you are just burying risk. It is more exciting and profitable to package mortgages and sell them off to unsuspecting Saudis than to fully evaluate them and put them on your own books.

    Bundlers capitalized on executives' fear of looking stupid. No one wants to admit that they can't estimate the risk on a fourth-order bundle but, if ANY information is omitted, the task is impossible. Even so, ratings agencies didn't want to look stupid so they agreed with the assessment of the sellers, and, because ratings agencies rubber stamped them, it gave investment houses the greenlight to under-evaluate the assets they were purchasing.

    And, in response to your mention of leverage, my position is that, it is far less risky for a commercial bank to lever 10 to 1, but, investment banks have much more complexity in their risk. Commercial banks can and do use private insurance (PMI) on their investments to manage it, but investment banks require insurance from not only significant known risks but 2nd and 3rd order risks from companies affiliated with their investments and companies affiliated with them. I do not know why investment banks are allowed to lever their clients' money.
    Sep 24, 2012. 12:20 AM | 1 Like Like |Link to Comment
  • Central bankers are nothing more than “counterfeit money printers,” says perma-bear Marc Faber, and Ben Bernanke should resign for messing up the U.S. economy so badly. He's been one of the chief proponents of an ultra-expansionist economic monetary policy, Faber says, which was to blame for the financial crisis in the first place. The Fed has no mandate to boost asset prices and create wealth, it doesn’t work that way. It just winds up being a temporary boost - always followed by a crash. [View news story]
    Point 1) It's a math issue, if you have large outstanding loans (which all banks do) and the collateral that you are using to backstop those loans plummet in value, you are screwed.

    2) you called me partisan and accused me of blaming Bush when I was saying that Greenspan screwed up.

    I will take this moment to be partisan...I have listened to Hannity, I have listened to Limbaugh, and I have observed them both doing the same thing...when a point is brought across that contradicts their talking points, they accuse the other side of being partisan. That is bullshit.

    EPA standards can be daunting but, I'm pretty sure that you have no chemistry in your background or you would realize that, if your process produces poisonous byproducts, they don't disappear if you put them in your backyard. We're always learning more about what is and is not harmful. If you do not believe in the EPA, then please repaint your house with lead paint, start smoking indoors around your children, and store your gasoline cans inside your house so you can enjoy the future that you want for our children.
    Sep 18, 2012. 01:05 AM | Likes Like |Link to Comment
  • Why We Can't Simplify Bank Regulation [View article]
    I don't agree with your assertion that the repeal of Glass-Steagall had NOTHING to do with the crisis. When the trading floors got access to huge amounts of FDIC insured capital, the risk/reward ratios got warped. Do you really think an old school investment bank (i.e. one in the 1950s) would lever 50:1 on their own money?

    The reason that there is no definitive cause is because the answer is
    d) all of the above.

    Somehow a little cheating in the mortgage market was turned into sound business principle and when the SEC was away, the traders will play.
    Sep 16, 2012. 11:53 PM | 3 Likes Like |Link to Comment
  • Why We Can't Simplify Bank Regulation [View article]
    There is a fundamental problem in human nature here. When a rule is too good, people will forget why they need it.

    Despite all of the evidence proving that seat belts save lives, people still are upset at being told that they HAVE to wear a seat belt. If we were to reinstate Glass-Steagall, we would have to elevate the law to a constitutional measure to ensure that the next generation didn't try to rip the limiter off again.
    Sep 16, 2012. 11:45 PM | 1 Like Like |Link to Comment
  • Central bankers are nothing more than “counterfeit money printers,” says perma-bear Marc Faber, and Ben Bernanke should resign for messing up the U.S. economy so badly. He's been one of the chief proponents of an ultra-expansionist economic monetary policy, Faber says, which was to blame for the financial crisis in the first place. The Fed has no mandate to boost asset prices and create wealth, it doesn’t work that way. It just winds up being a temporary boost - always followed by a crash. [View news story]
    Policy is not binary. You can't simply deleverage everything and expect that it will come out alright. Cleaning up the system without excessive fallout requires measured reduction in leverage.

    And btw, what regulators are you talking about that are increasing leverage?
    Sep 16, 2012. 07:54 PM | Likes Like |Link to Comment
  • A new White House report warns that massive across-the-board spending cuts at the start of the new year would be "deeply destructive" to core government responsibilities and especially the military. But Pres. Obama's own defense budget calls for big cuts, and Bob Woodward's new book suggests the Administration instigated the idea of sequestration to gain political ground[View news story]
    "Obama has tried to ignore the law and enact some sort of his own perception of social justice - and he's entirely failed at that and his entire housing policy."

    I was following you until that one...working to prevent machine-gun foreclosures wasn't an action of social justice, it actually served to help the economy. Obama deployed a lot of parachutes...the housing markets were tanking and to he had a lot of success with reducing the rate of descent...but human nature is to question why we haven't gone back to the hypercredit-based growth in 2003...it's because that growth wasn't real.

    Romney hasn't said anything about what he's going to reduce in terms of deductions. By all accounts, his proposed budget would INCREASE taxes on those making less than 100k/yr. He's talking about reducing public costs, and then he talks about invading every country that looks at us cross-eyed. How does that reduce the deficit at all? Nothing in Romney's rhetoric is self-consistent. You don't spur growth by cutting upper income taxes, it's a fallacy that has been perpetuated ad infinatum by people who benefit from the lie.
    Sep 16, 2012. 07:45 PM | 2 Likes Like |Link to Comment
  • Central bankers are nothing more than “counterfeit money printers,” says perma-bear Marc Faber, and Ben Bernanke should resign for messing up the U.S. economy so badly. He's been one of the chief proponents of an ultra-expansionist economic monetary policy, Faber says, which was to blame for the financial crisis in the first place. The Fed has no mandate to boost asset prices and create wealth, it doesn’t work that way. It just winds up being a temporary boost - always followed by a crash. [View news story]
    Simply, the market was over inflated but to allow deflation would force the banks that were already falling apart to implode.

    It's like dealing with an arrow through your stomach...It shouldn't have been there in the first place but keeping it in place may keep you alive longer than pulling it out.

    And as far as compensating for "counter-productive liberal fiscal policy and regulation" that statement is a bit confusing.

    We had a credit and bank expansion from 2000 to 2008 when a self-professed conservative was in office. In many ways, I would consider the liberal fiscal policies of Greenspan during the end of his tenure to be largely to blame for the mess. If you've ever heard of the "Greenspan put" it was a term for, whenever the market would have an issue of any kind, he would lower the Fed funds rate and give the market a jolt. Greenspan created a lot of unnecessary credit in the system and encouraged advanced financial products like "credit default swaps" and "adjustable-rate mortgages". If those terms make your hair stand on end, they should...Bernake is doing a lot to try to clean up after Greenspan...

    I agree with your statement unless it is targeted at the current administration, then I would call you an idiot.
    Sep 16, 2012. 07:31 PM | 2 Likes Like |Link to Comment
  • Central bankers are nothing more than “counterfeit money printers,” says perma-bear Marc Faber, and Ben Bernanke should resign for messing up the U.S. economy so badly. He's been one of the chief proponents of an ultra-expansionist economic monetary policy, Faber says, which was to blame for the financial crisis in the first place. The Fed has no mandate to boost asset prices and create wealth, it doesn’t work that way. It just winds up being a temporary boost - always followed by a crash. [View news story]
    Yes, inflation is a huge risk, but the inflation activities undertaken by the Fed over the last 4 years managed to stay pretty well controlled because it served to balance out the deflation risk that happened when the mania-fueled price of homes dropped. I agree that the Fed should start backing off from pumping the system full of dollars but, based on results, I cannot fault his actions to date.
    Sep 16, 2012. 02:08 PM | Likes Like |Link to Comment
  • Central bankers are nothing more than “counterfeit money printers,” says perma-bear Marc Faber, and Ben Bernanke should resign for messing up the U.S. economy so badly. He's been one of the chief proponents of an ultra-expansionist economic monetary policy, Faber says, which was to blame for the financial crisis in the first place. The Fed has no mandate to boost asset prices and create wealth, it doesn’t work that way. It just winds up being a temporary boost - always followed by a crash. [View news story]
    People from the Austrian school still hold that Hoover's approach to the Great Depression was needed and beneficial to the long-term economic viability of the United States but he is still regarded as one of the worst presidents in history by the history books.

    I'm not saying that closing our borders and forcing out international competition was the right thing to do, but we are judged by what happens during our watch, not the actual results of our actions.

    (For proof, just see the GOP mockery of Dems assigning blame to Bush)
    Sep 16, 2012. 01:13 PM | Likes Like |Link to Comment
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