A Second Hand Conjecture

Admit it, you had to think for a second about whether this was serious or not didn’t you?

No Comments »

Dilbert

No Comments »

Joseph E. Stiglitz says bail out the poor, not the rich. It’s like a parlor game for abstractions to decide who can be the noblest thief. How about no one bails anyone out, and we all sustain the material consequences of our own poor investment decisions? Revolutionary, I know.

No Comments »

I hear repeatedly from our fellow citizens “where is my bailout?” For those who have been wondering the fine journalists at Vanity Fair have found the paperwork so you can begin applying now for, as the application says, “free government cash.” (Click image for Large Version.)

No Comments »

Now that the NBER has decided to endorse my view that we went into recession last December which I first first claimed last January, I think my points about the efficacy of fiscal stimulus still apply.

As for spending already pledged to save us, the figures are growing at a rate that has even astounded someone as bearish and cynical as myself. Barry Ritholtz has given us a breakdown and a spreadsheet to track it:

I suspect given the continuing issues and a President intent on expanding the government balance sheet even more than our present one that that spreadsheet will get quite a bit larger. All that money to save a $13 trillion economy. What a mess.

Meanwhile the housing market continues to collapse, as the lights repeatedly seen at the end of a tunnel seem to really just be a series of oncoming trains. Lots of charts and analysis here and here.

No Comments »

In a Q&A session at the University of the Pacific in October, Dinesh D’Souza was asked about the moral dimensions of the Emergency Economic Stabilization Act. I don’t agree entirely with the causality he posits exists between irresponsible consumer behavior and irresponsible governance, but it’s an interesting take. Particularly in how he adapts certain complaints more commonly associated with the political left, to serve a conservative argument:

No Comments »

From the comments at Financial Times:

Nov. 13 (Bloomberg) — In a surprise move today, Whoopee Cushions Inc was approved bank holding company status by the Fed to enable the company access to the recently revised TURD scheme.

Imported far-eastern whoopee cushions have decimated the domestic industry over the past two decades, leaving former giants of the industry controlling a mere 0.1% of the domestic market. Some observers point to the poor reliability and high labor costs of domestic products as a defining factor in the industry’s demise, but it appears the government are prepared to spend now and ask questions later.

Chairman and CEO, Chuck Chuckles said “It is vital that the government recognises the role we play in the modern US economy. Whoopee Cushions Inc has been the backbone of US manufacturing for over 400 years and if we were to go under it would mean 100,000 people needing to learn new skills and find work in more productive industries. I think you will agree, that is something nobody wants to see happen”.

Finance Director Mr Magoo, 12, added “Whoopee! I’m off to structure some whoopee cushion backed securities to sell to the government at inflated prices”. At time of going to press it is not known whether the pun was intended.

No Comments »

I wonder if the juxtaposition of that headline and that photo was intentional?

Anyway, over at Risk and Return I follow up Dale, McQ and my discussion of the markets and the economy during the last couple of podcasts with some thoughts, observations and suggested readings on the investment climate we are in now. Lots of links, some enlightening graphics and views from those who saw this coming, including, ahem, me.

There are hopeful signs, but large risks. How cheap are stocks? What are the risks that remain? Will recent government moves help?

My own view is that some of it will, though it is not ideal, but possibly close enough for government work.

Let me know what you think in the comments here or via e-mail.

No Comments »

Let us look at one of the ways that we are being panicked unnecessarily, and why incidentally we can help many of these financial institutions in the fashion I discussed in my post on a potential alternative plan. In my next post we will discuss ways in which we are not being misled, and why we in my mind should do something about this.
(more…)

No Comments »

I was not in favor of the Paulson plan if you haven’t caught that yet. Still, the pitiful display from our congress today set a recent low.

First, faced with an unpopular and contentious bill which she feels for the good of the nation must be passed, we get a partisan and divisive speech from Nancy Pelosi:

Pelosi had said that the $700 billion price tag of the measure “is a number that is staggering, but tells us only the costs of the Bush Administration’s failed economic policies — policies built on budgetary recklessness, on an anything goes mentality, with no regulation, no supervision, and no discipline in the system.”

Pure horse hockey. More importantly, if Pelosi believes her rhetoric about the importance of this bill the poor judgment, lack of leadership and inability to understand the importance of statesmanship in a crisis should be grounds for immediate dismissal from her post.

Then, we get this pathetic response from the Republican leadership:

“I do believe that we could have gotten there today had it not been for this partisan speech that the speaker gave on the floor of the House,” House Minority Leader John Boehner (R-Ohio) said, adding that Pelosi “poisoned” the GOP conference.

Deputy Minority Whip Eric Cantor (R-Va.) held up a copy of Pelosi’s floor speech at a press conference and said she had “failed to listen and to lead” on the issue.

The Speaker had blasted the Bush administration in her speech and Minority Whip Roy Blunt (R-Mo.) asserted that some GOP lawmakers, who had reluctantly agreed to support the bill, might have changed their minds following Pelosi’s remarks.

“Might” have effected them? What whining. If it is false it shows the same tin ear that Pelosi demonstrated. If it is true it is even worse. Either way, did it not occur to them how petty it would look in a moment of crisis?

If these congressman or women really didn’t support the bill and were going to vote for it anyway, the idea that they would change their votes because Pelosi was her normal clueless self is enough to deprive them of my vote forever.  It is even more damning if they thought the bill was necessary and voted against it due to her behavior.

This is a disgrace.

1 Comment »

doesn’t look like it’s going to pass the House floor.

Update: It failed.

The vote was 207-226 against the measure, with one member not voting, half an hour after voting began. Voting remains open even though the “official” time has expired for casting a ballot.

There was broad bipartisan opposition to the measure, with 95 Democrats and 133 Republicans voting against the bill. Republicans voted more than 2-1 to oppose the bill.

Update 2x: The gavel hasn’t fallen yet and already 2 people have changed their vote to ‘yes’, possibly feeling pressure from the large losses in the DOW after the rejection. Supposedly the Dems are trying to get 4-10 R’s to switch their vote to ‘yes’ and then a huge number of Dem’s will change theirs to ‘yes’ as well. Similar to the strategy that the GOP had with NAFTA in the 90s of getting a good number of Democrats to vote for it to cover themselves politically against any populist blowback.

No Comments »

Larry Summers and Mark Thoma argue that if done right the bailout will mean we can solve this crisis and still have everything we want, tax cuts, health care spending and all kinds of other goodies. Larry argues:

Just as a family that goes on a $500,000 vacation is $500,000 poorer but a family that buys a $500,000 home is only poorer if it overpays, the impact of the $700bn programme on the fiscal position depends on how it is deployed and how the economy performs. The American experience with financial support programmes is somewhat encouraging. The Chrysler bail-out, President Bill Clinton’s emergency loans to Mexico, and the Depression-era support programmes for housing and financial sectors all ultimately made profits for taxpayers…

Maybe, but Alex Tabarrok finds this optimism a bit ironic:

Does this sound familiar? I can hear it now. A vacation sir is consumption but a home, ah a home, that’s investment. Investments pay off. Just look at the American experience. Rising home prices! Never a downturn. Isn’t that encouraging? Hell, at prices like these you can hardly afford not to buy. Yes sir, a home that’s a wise investment. And that makes you sir, a wise investor. And a wise investor, well a wise investor can certainly afford a nice vacation.

How the economy performs isn’t really the issue as much as the housing market. Chrysler was bailed out at a cyclical low, we are not at a cyclical low in housing, we aren’t even at a cyclical average. We aren’t even close.

Nor was Chrysler such a rousing success anyway. The bailout of Detroit only postponed the pain for the American auto industry and kept them from either going out of business or becoming better, if probably somewhat smaller organizations, and the costs to us all will eventually be pretty damn high. That isn’t even factoring in cementing the idea of “too big to fail” in corporate America. That encourages larger organizations rather than more profitable ones to be created.

No Comments »

The hedge fund industry is feeling gloomy, and so is Mayfair.

Meanwhile our government is considering following London’s lead and making their lives even more difficult, by banning short selling for a while. Yep, Fannie would have been just fine with mismatched liabilities, toxic assets and corrupt accounting mixed in with 40-1 leverage if nobody had been selling their stock, which is really all a short sale is.

This is crazy, and likely to lead to a much worse environment for both investing and the smooth functioning of capital markets, which are supposed to over time allocate capital. They are not supposed to lead to higher returns regardless of the worth of a company.

Wealth is not created out of thin air, it is supposed to be connected to the actual income stream a company can produce over time.

Market corrections are what keep wealth from being a product of a mere price we would like for assets, which is awfully disappointing to those who want wealth to be a casino where the house always loses, the drinks are free and the girls (or young men) always accommodating. (more…)

No Comments »

From Slate

On tonights podcast at QandO, I called in at McQ’s request to discuss the economy. One of the things we discussed was the likelihood of our government continuing to bail out our financial institutions. For a number of reasons that will be problematic.

Of interest is how many institutions are likely to fail?

One way to look at that is to see what the market is implying. Weighted by assets, right now the market is pricing in about a 4% failure rate for just the next six months. That would be far above the S&L crisis’ peak, and over its full term it amounted to failures of 17% of total assets. The assets which would need to be absorbed….575 billion. How much capital would that require to absorb them….50 to 80 billion. There is only about half that available from other institutions to take them over. Of that, nearly half is in small institutions which will be of little help. As loans continue to go bad that capital is likely insufficient to cover their own losses.  This implies much more raising of capital, and who is going to give it to them? Most people who were willing have already ponied up. JP Morgan and the Fed already took on Bear Stearns. Whose balance sheet is available?

The losers in this? Taxpayers and bondholders. Having just taken on Fannie and Freddie, and guaranteed their bondholders, I assume bondholders will have to start taking hits. The lesson might be for bondholders, if you are going to fail, fail early and fail spectacularly!

No Comments »