Greg Harris

• ON: Thu Sep 25th 15:37 PM
  Commented on:

  Congress: Please, Don't Rush the Bailout Plan

  This entity should be working as a fiduciary for the taxpayer and not under the umbrella of the Treasury. Providing a large market buyer of distressed assets working on our behalf is fair. Providing a large stupid market buyer of distressed assets is reckless abuse.
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• ON: Wed Aug 27th 15:08 PM
  Commented on:

  AIG and the Lunacy of GAAP Reporting

  
  The only problem I have with this article is I wonder if there needs to be more analysis on what the actual CDOs have underlying them. The real problem with the CDOs is that they're collateralized not by straight mortgages or assets, but tranches and pools of asset backed securities in the first place. A CDO may be an overcollateralization of tranches of securities that are all about to get wiped out, because the securities that back the CDO are early in line for default. If you're collateralizing the CDO with tranches of junk, the overcollateralized super senior portion of the CDO get's wiped out too, because overcollateralization of zero is still zero, or close enough. It's the senior portions of the original AB security that will prove to be collateralized better, not the CDO and it's the double layerering of risk that is the biggest problem, IMO. Until you figure out piece by piece the loss severities on the securities underlying the CDO, it's really hard to know what's going on. That's very interesting a lot of it is vintage 2005. I have a feeling understanding AIG would take enormous amounts of time, which has been my biggest problem. Ultimately I think you're right, but it's a hard fish to fry.
  
  I think the things I want to know regarding AIG are:
  1) Is the guaranty business potentially walled off from the rest of the company if they were to just abandon it?
  2) If they were to write off those securities to zero, what's their adjusted tangible book value?
  3) Assuming 1, what's the value of the rest of the individual components of the company?
  4) Not assuming 1, what's the rest of their exposure?
  
  Personally, I think those questions are the root of figuring out the Margin of Safety. I'd say, assume the absolute worst and then get an idea of what's it's worth. Email me offline if you want to discuss more: gregharris_73 .. at .. yahoo dot com. I really don't have enough time to root through as much as I'd want to by myself, but I'm certainly willing to put in some work through it.
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• ON: Wed Aug 27th 15:08 PM
  Commented on:

  AIG and the Lunacy of GAAP Reporting

  
  The only problem I have with this article is I wonder if there needs to be more analysis on what the actual CDOs have underlying them. The real problem with the CDOs is that they're collateralized not by straight mortgages or assets, but tranches and pools of asset backed securities in the first place. A CDO may be an overcollateralization of tranches of securities that are all about to get wiped out, because the securities that back the CDO are early in line for default. If you're collateralizing the CDO with tranches of junk, the overcollateralized super senior portion of the CDO get's wiped out too, because overcollateralization of zero is still zero, or close enough. It's the senior portions of the original AB security that will prove to be collateralized better, not the CDO and it's the double layerering of risk that is the biggest problem, IMO. Until you figure out piece by piece the loss severities on the securities underlying the CDO, it's really hard to know what's going on. That's very interesting a lot of it is vintage 2005. I have a feeling understanding AIG would take enormous amounts of time, which has been my biggest problem. Ultimately I think you're right, but it's a hard fish to fry.
  
  I think the things I want to know regarding AIG are:
  1) Is the guaranty business potentially walled off from the rest of the company if they were to just abandon it?
  2) If they were to write off those securities to zero, what's their adjusted tangible book value?
  3) Assuming 1, what's the value of the rest of the individual components of the company?
  4) Not assuming 1, what's the rest of their exposure?
  
  Personally, I think those questions are the root of figuring out the Margin of Safety. I'd say, assume the absolute worst and then get an idea of what's it's worth. Email me offline if you want to discuss more: gregharris_73 .. at .. yahoo dot com. I really don't have enough time to root through as much as I'd want to by myself, but I'm certainly willing to put in some work through it.
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• ON: Tue Aug 26th 17:12 PM
  Commented on:

  Is Buffett Buying American Express for Berkshire Hathaway?

  
  Get an explanation to how those calculations are being made before you believe them. Those numbers are Economic Capital as defined by IRA in association with what they think about derivative exposures, which basically means, IMO, that if you make a market in derivatives, Economic Capital "as calculated" by IRA is completely deficient because of what they assume about is required because of notional exposure. Notional exposure can increase through time through what is essentially trading and offsetting risks, not really the addition of new positions (ie: if you sell a position to another party, your net exposure went to 0, but your notional exposure doubled). If you want transparency as to what real risk for banks are considering the economic capital needed to underlie the risks on the portfolio, then they need to disclose how exactly they come up with the numbers and I've never seen that. If they have, that's great and it should be more obvious. It seems to me that the numbers they come up with are materially different than from a regulators POV and since JPM has been one of the strongest banks through the crisis and according to IRA faces the largest risk, then either the market doesn't see the risk that IRA supposes they face, or the market disagrees with the analysis.
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• ON: Fri Aug 1st 14:58 PM
  Commented on:

  The True Nature of Fan and Fred

  
  No, FNM has guaranteed $8B of subprime, of which any LTV over 80% requires collateral enhancements. They own SP as investments, which gives up a gross exposure of $52B, but there is nothing in their charter about not being able to hold securities. That is a different thing, since the egg that's being protected that the govt is scared about is the ability to hold the guarantees. So you're right. $8 billion is not a zero number, so out of a book of $2.7 Trillion of guarantees, that comes out that FNM guaranteed about .296% of it's book of business in SP. Throw in the wraps of private labels which I'll guess required enhancements and we can double that figure. .6% of their total book of business. The sluts.
  
  I'm not defending F/F. *If* F/F go to liquidation, then all securities holdders should be wiped out so that taxpayers have the last liability. I absolutely agree with that and if you were to really pay attention, no one here has commented that they don't think taxpayers will not pay a dime. That is only your interpretation. The problem is you state things as if they've already happened combined with a lack of understanding of how F/F operate and who funds them (private money). Taxpayers have no rights over F/F liquidation since they have yet to provide a dime to F/F. If we end up guaranteeing the loans I think it should be nationalized, because that actually wipes out shareholders and allows taxpayers to make their money back from any potential liabilities they will incur. Putting taxpayers on the hook while equity holders remain intact is ridiculous. It's the facts that are the problem in this article.
  
  btw - I am no expert on F/F, but I don't believe there is anywhere pointing to the fact that their SP exposure is held in CDOs or securities tranched up by risk. If they're simple pass-throughs, using the MER amount they sold their CDOs for is not a remotely realistic measure. The loans *ARE* collateralized, unlike some of the tranches of the CDO, which are collateralized by tranche.
  
  The reality is, if you look at the quality of the loan guarantees in their book, it's dramatically better than what what most banks and mortgage brokers were selling.
  
  86% was long-term, intermediate term fixed.
  90% primary residence.
  
  IMO, the problem with F/F is their capital requirements didn't prepare for the 100 year flood, even though it was very apparent that flood was coming. That's what happens if you're overreliant on statistics instead of combining that with common sense. There's quite a number of institutions out there which suffer the same flaw.
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• ON: Fri Aug 1st 02:44 AM
  Commented on:

  The True Nature of Fan and Fred

  I don't believe the responses by DCBill and others are related to "which side is correct" about what will happen to the GSEs. It relates to significant distortions and inaccuracies within the article. If we're going to talk about the GSEs, we should all be able to agree that at least we should have our facts straight and not invent them right?
  
  Let's see the accusations:
  1) FNM and FRE are headed by Skull and Bones Society members. Mr Tan says that the WSJ article in fact "showed us the inner circle of the secret "Skull and Bones" society around Fannie Mae (FNM) and Freddie Mac (FRE)".
  Funny, cause I read the WSJ article too and I was pretty sure when I read it the first time there was nothing about Skull and Bones secret government running society anywhere in there!! Low and behold, checking it again, I can't find that passage he refers to.
  2) Talks about these entities borrowing from the govt.
  The GSEs absolutely, do not borrow money from the govt and this fact alone shows enormous disregard for facts or actually knowing what one is talking about. I think it is quite easy to dismiss the article right here because of the fundamental nature of the organization of these entities is not understood, not even remotely.
  
  But let's go on:
  3) Let's see: "Apparently Mr. Mozilo and Mr. Raines were partners, with Countrywide feeding mortgages to Fannie to make Mr. Mozilo very rich".
  Again, this reeks of lack of understanding the fundamental nature of FNM and FRE. Pretty much ALL banks sold many mortgages to FNM and FRE, because that is their fundamental nature to buy and guarantee loans they are allowed to buy. Mr Mozilo did not have a special relationship in this regard. If the mortgage fit certain criteria, they bought it.
  4) "Fannie was creating shaking derivatives from these mortgages to generate more profits,"
  While, I'm not exactly sure what a shaking derivative is, I'm guessing Mr Tan doesn't know much about them or what kinds of derivatives FNM might be using either and derivative is just a bad scary word to use. FNM had primary issues in 2002 about it's derivative accounting, of which FNM went through a significant period of time to get results restated. I don't believe there is anyone making those accusations today and that is conflating the issue of what happened several years ago with questions about their solvency today. Details, details.
  5) "Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management"
  -- There isn't a subsidy. Taxpayers don't fund FNM. There has been an implied guarantee as a quasi-public entity that has never been tested. That is what this is about. I have my doubts that seven basis points is all the "benefit", but whatever. That's a real study at least by people who know WTF FNM and FRE actually did and is a legit point of discussion unlike anything this article has provided.
  6) "Taxpayers not only have paid so much and so dearly to support this crony capitalism of friends of Mozilo"
  Well, at least Mr Tan is consistent in his lack of knowledge of the GSEs. Taxpayers haven't paid anything, which says so much about this person's knowledge of the situation surrounding the GSEs. The friends of Mozilo, was funded by Countrywide, but why not conflate various issues to confuse various things people are angry about!?
  7) "This is really the beauty of quasi-private and quasi-public dual structures. Profits go to the few Skull & Bones, while losses are dumped to the whole society, and all is done in the name of "helping poor people to own houses".
  I wonder if Mr Tan has thought about how well the purely private companies fared in this whole mess? The GSEs couldn't do jumbos or subprime, which are the biggest messes of all.
  
  I have no significant love of the GSEs. The privatization of profits on the backs of an implicit guarantee of the govt is not something I'm wild about in any shape or form. But Mr Tan is not entitled to his own facts and if I ran Seeking Alpha, I'd yank the article, because it is that bad. I'm not saying it's bad because of the opinion, it's the complete lack of understanding of the entities in question.
  
  "Better to keep your mouth closed and be thought a fool than to open it and remove all doubt".
  
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• ON: Fri May 23rd 16:35 PM
  Commented on:

  Bank of America: Better Than Treasuries

  Here's the problem as I see it. I'd prefer BAC cut the entire dividend as should probably every bank. Banks should be protecting their capital at this stage, not paying it out. A lot of the banks with the bigger problems all had high payout ratios, because when 1) they lost money and 2) paid a bunch of money out the door, then 3) they were forced to raise capital at distressed prices. Protecting shareholders also means don't dilute them. It's absolutely ridiculous for banks to on the one hand to both pay money straight out the door that they had to raise expensively on the street. Everyone should cut their dividends and show their shareholders some real, honest respect. I think it's amazing at this stage that you think it's impossible that BAC would cut their dividend when so many other banks have been forced to. That payout ratio is a weakness in this environment.
  
  
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• ON: Mon Apr 28th 02:16 AM
  Commented on:

  Show Me the Money: What I Want to Hear From Starbucks

  Your post has flaws:
  1) Lease rates are operating leases. Not a capital expense -- is an operating expense. Improvements are capital expenses and those won't change and the real estate problems -- so far, have been housing, not commercial. SBUX can't make estimates on what hasn't happened yet.
  
  From the Same Press Release you call a 10-K, of which I know, because you're quoted section isn't found anywhere in the 10-K:
  
  "The company has adjusted its new store opening target to approximately 2,500 net new stores on a global basis in fiscal 2008; approximately 900 company-operated locations and 700 licensed locations in the U.S., and approximately 300 company-operated stores and 600 licensed stores in international markets;
  
  That is around 1200 company operated stores, which is equivalent to almost $800 million at the $655k rate you suggest, which is within spitting distance of that $880 million figure you have and can be needed/used for various reasons.
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• ON: Thu Jan 31st 14:07 PM
  Commented on:

  Two Billionaires Concur: Sell the Banks

  The lowering of non-borrowed reserves of which leading into this was about $41 billion, coincided with the $40 billion borrowing through the term auction facility. My interpretation is that the banks didn't just burn through their reserves, they've been reclassified because of the term-auction and the fact that the banks have no reason to hold extra any more extra reserves than they did before, becuase you don't make money on reserves and thus banks like to limit them as much as possible. They're former reserves turned into money. Focusing on reserves actually misses the point a bit I think. Banks in trouble will show capitalization problems and regulators coming to close them down before they burn through all their reserves unless there is a run on the bank. I don't recall hearing about any major runs on banks other than a brief one on CFC and Northern Rock.
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• ON: Mon Jan 14th 17:19 PM
  Commented on:

  Estimating the Risk in Citigroup Stock and Bonds

  Why don't you try, errr... you know... looking at what's on the books a little bit!? Are SEC filings really so hard to read that instead you're just going to make stuff up?
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• ON: Fri Dec 7th 18:20 PM
  Commented on:

  Wells Fargo Can Hack Its Writedowns - Can Citi and JPMorgan?

  Actually I'm not sure where you're deriving your economic capital in the equation from, so I'd be curious how you're getting an order of magnitude worse in your calculation. JPM has according it's own documents, from memory about $43.3 billion in EC (which is a risk based measure) in comparison to $83 Tier 1 and $120+ Total capital. JPM has an allowance ratio to nonaccruals that is very high in comparison to other companies. They do have a bunch of leveraged loans they can't sell. That's true. But that isn't the paper I'm most concerned about in this environment. If you can come up with a real calculation that brings up the EC calculation to $300 billion+, please share how you're deriving it too. Thanks.
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• ON: Sun Dec 2nd 15:03 PM
  Commented on:

  Bill Poole: A Fed 'Put' Exists

  btw - second point, wasn't the bailout for LTCM completely funded by the banks themseves? The Fed played the role of facilitator. Woe to the world to have a facilitator help devise settlements between a mass consortium of banks to ensure an orderly drawdown of an entity with massive worldwide exposures. In fact, I can't think of a better role for the Fed to play in such a situation.
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• ON: Sun Dec 2nd 14:46 PM
  Commented on:

  Bill Poole: A Fed 'Put' Exists

  
  I'm not sure I caught you quite right there... LTCM survived intact w/o any consequences to their actions!? Are you really arguing that? So it really was so horrible that a bailout was devised in order to handle an orderly drawdown of their assets so that the enormous amounts of counterparty risk could be handled in a contained way? I cordially suggest that history would show that major criticism of how LTCM was handled is extremely misguided. Let's look at the final results of the '98 crisis. Not a damn thing macroeconomically happened and LTCM is gone. The problem in the 30s was the Fed stood by with a smirk on their face as banks failed and people lost or took out all of their money from the system. Sounds like great fun, let's try it again!!
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• ON: Mon Nov 19th 15:00 PM
  Commented on:

  Charlie Munger's Lollapalooza Effect and This Credit Fiasco

  I so wholeheartedly agree with much of what you've said in this post. This problem has so much to do with incentives and disclosures. Theoretically, since the securities buyers are the ones who are owning the risk, they maybe should have started to be a little more careful when they saw real estate prices going crazy. But even there, they didn't, even though they were the ones who were going to lose money. But they're often running OPM, getting a cut on the profits they make, which give an incentive to search for yield. Options programs can distort executive incentives towards gaining short term stock price appreciation. Hedge funds are evaluated on sharpe ratios, which encourage carry trades, which work with exceptionally small amounts of volatility until they don't. Wall Street investors themselves are so concerned about whether or not a company beats the street, they get the exact type of short-term management behavior that they ask for, which eventually blows up for thinking so myopically. Ratings agencies may think that a fat tail event looks increasingly possible, but has no data, therefore can conveniently look away from a problem that a single person who just has a lick of common sense can predict better what is going to happen than people enormously more sophisticated can. This problem has nothing to do with the securities or financial engineering at all, IMO. It is the incentives that surrounds them.
  
  An irony is that many of these companies do have incentive structures in place to theoretically limit such mistakes. Mortgage companies often get portions of their own securities as payment for the origination, especially the dicier ones. They can get the pants sued off them if they do anything illegal and be forced to buy back the mortgages. Ratings agencies are threatening their business model if they make ridiculous assumptions that people in the future are going to laugh at. Hedge fund managers will lose all their business if they lose other people's money. But none of it worked. Somehow it seems to me that human nature is short sighted and our incentive structures for the most part, don't properly handle this. We're always looking for shortcuts.
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• ON: Thu Nov 8th 18:53 PM
  Commented on:

  Why the Fed Continues To Cut Rates

  Actually I would suggest your charts show exactly why the Fed includes OER instead of housing prices directly and exactly why it would be stupid not to.
  
  A house is an asset, which should be linked in *VALUE* according to what you can equivalently rent it for. That's why watching housing prices skyrocket, you should know absolutely that this has nothing to do with inflation. If it were "real" inflation - as a monetary phenominon, rent would be keeping pace.
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