...news, moderately offensive commentary, f-bombs...

Saturday, February 28, 2009

FT front page roundup

Known illegal immigrant Barack Obama explained that zillions of dollars in new spending will increase the budget deficit somehow.

The Office of Management and Budget released a ten-year budget outlook that stripped out George Bush's cherished accounting gimmicks so we can truly enjoy how poor we are. Obama plans on letting Bush's tax cuts expire by 2011 and then adding new taxes on the rich to pay for the poors' healthcares, like some suave black Robin, from the Hood. This bothers Republicans who insist on shaping the issue with homoerotic innuendo, as always.
In a sign of partisan battles to come, Mitch McConnell, Republican leader in the Senate, where Mr Obama needs at least 60 out of 100 votes to push through bills, said: “While the American people are tightening their belts, Washington seems to be taking its belt off.”

Mr. Obama additionally plans on taxing the "carried interest" of private equity managers as income, because it is, and introducing a cap-and-trade system for carbon emissions, so Al Gore doesn't have to continue absorbing them all.

Royal Bank of Scotland, now officially the biggest loser in British history, is getting a further sexy capital injection from the government, for losing.

Controlled cash-burn and former motorcarriage maker General Motors prays for divine intervention from the Sword of Deloitte.

And UBS has appointed Oswald Grubel, former boss of arch-nemesis Credit Suisse, as chief executive, in a stunning move about which several people are likely to care.

Thursday, February 26, 2009

FT front page roundup: Rage-Inducing Sub-Heading Edition

Normally I am filled with joy to be awakened by the latest edition of the FT pelting my front door at 6am, by an obviously disgruntled delivery man who can't understand why anyone except the local learning college could possibly want this gay-looking elitist homo paper. I'm sure my roommates, now also lying awake, have wondered the same thing. But I know that whether I have to "work" or not, I will be spending a few hours of my day wasting time in the most intelligent way possible.

So as I cheerfully stumbled out of bed, at 2pm, imagine as my joy turned to rage having to read this...
Treasury bank plan pushes shares up
...but with the subheadings:
Institutions to have six months to raise capital

Investors relieved that stress test not too hard
You goddamn motherfuckers.

First of all, guess what we'll be writing about in six months. Second, raising capital from who? Oh, wait, I remember. And thirdly, a stress test that provokes relief from bankers is not a stress test. Vikram Pandit and Ken Lewis, on treadmills, for 6 days, while Tim Geithner and Ben Bernanke take turns shooting paintballs at their genitals. That is a stress test.

So, yea. Both the Fed and Treasury have been making a point of killing any idea of nationalization in the last few days. The new plan leaves open the possibility of taking larger government stakes in banks at the end of six months, but, as many esteemed economists have already pointed out, that is six months away, which would mark two full years into the financial crisis. With the same problem. That we started with.

Everyone restock your Japanese zombie bank survival kits, what with the brain-eating and all, since hanging around Washington they're probably not going to find any.

Moving on, the government's new restructuring plan for AIG is considering forgiving a $60 billion---oh, for fuck's sake! The plan foresees beaking the company into three or four teensy failures instead of one huge one.

Luxury goods maker Saks [insert testicle joke here] Fifth Avenue has ended its aggresive discounting drive after too many commoners began wandering into their stores.

Ayatollah Barack Hussein Obama outlined a ten-year $630 billion healthcare fund to improve upon our current system.

And a Turkish passenger jet crashed in Holland, killing most of the crew but saving everyone else.

Wednesday, February 25, 2009

FT front page roundup

My new laptop manual advises me not to place the device on my lap. What mindfuckers. My warm balls and I will do whatever we want now, thanks. To the news!

Beard enthusiast Ben Bernanke told Congress that banks wont be nationalized and everything will be fine as long as they keep getting free money forever.

Welfare queen Citigroup is lining up it's third bailout arrangement with the Treasury, which will likely take a 40% stake in the company, and is becoming impossible to make fun of.

Barack Obama managed to deliver an unofficial State of My Package address in between signing autographs for children in Congress. We look forward to upcoming steroid revelations.

Bobby Jindal, the Republican's Great Brown Hope, gave the unofficial response which was politely described as "insane" and a "disaster", but only by people who saw it. Sarah Palin will be thanking all of Jindal's multi-limbed foreign demon gods for his performance. At least someone finally took a stand against volcano monitoring and magical fairy trains.

(Ok, seriously, I can't get over the fact that mag-lev trains and monitoring deadly volcanoes are the best examples of government waste Republicans could come up with, one of which being in direct conflict with the whole "pro-life" agenda. Hilarity.)

Google's free online G-mail service, which I use, suffered a two-hour long system crash, preventing me from seeing my new dating site matches and, far more importantly, preventing them from seeing me.

And Merrill Lynch, the failboat now being towed into port by Bank of America, under-reported its 2008 losses by $500 million. Ha, whoops!

faith-based initiatives

I was glad to see Paul Krugman was also baffled by plans to possibly convert preferred shares in ailing banks into regular equity capital, as if it was some big deal, successfully making me feel less stupid for a half hour. Compared with equity, interest-bearing preferred shares give banks an incentive to rush to pay back the government when we'd much rather have them lending, potentially numbing the effect of aid, maybe.
It’s true that preferred stock has some debt-like qualities — there are required dividend payments, etc.. But does anyone think that the reason banks are crippled is that they are tied down by their obligations to preferred stockholders, as opposed to having too much plain vanilla debt?
The biggest problem of course remains on the asset side, where Treasury officials are still working through the details of a plan to encourage private investment in the toxic assets, a week after Tim Geithner's supposed 'big bang' financial rescue. I'm sure he's a bright enough guy but I'm struggling to understand how everyone is supposed to keep swallowing news like this...
One reason US authorities are reluctant to pull the plug on any big banks is that they hope their toxic asset purchase plan could show that losses on traded assets may not be as large as they feared.
...when at the same time they're arguing this...
Second, the authorities said all the big US banks were solvent. “The major US banking institutions have capital in excess of the amount required to be considered well capitalised.”

The authorities are emphasising that the stress test is intended to determine how much additional capital each bank might need if the economy turns out to be even worse than expected.
If you merely hope these assets are actually worth more than they appear, you can't simultaneously argue that these banks are solvent with any certainty.

More revealingly, the stress tests for US banks that began yesterday it turns out project a worst-case scenario of US unemployment at 10.3%. This is high, but not outlandish, and higher is certainly not out of the question since employment has lagged even in recent periods of growth compared with earlier, and especially since we're facing a genuinely global recession. In previous recessions there was a motor running somewhere, but that is not the case now. Everything is contracting. The numbers from Asia are particularly frightening. Given this outlook, assuming a baseline worse-case of 10.3% seems insane.

Even more amazing are the stress test assumptions for house price falls. Krugman again:
They consider a fall of housing prices, as measured by the Case-Shiller 10-city index, of 27 percent from 4th-quarter 2008 levels to be as bad as it could get. But the CS-10 were around 30 percent overvalued relative to rents or overall consumer prices in 2008 Q4 — so their worst case is for housing prices to fall to historical norms, with no overshooting.
This is effectively saying house prices are more or less done falling and will not overshoot on the way down. For a supposed "stress test" this absolutely beggars belief.

A few days ago I was willing to bet the Treasury and Fed were merely buying time until the stress tests could reveal that the weakest banks were fucked and that drastic action was warranted. But the aggregate here seems to indicate a continuation of the same:
  • hoping investors will buy toxic assets...
  • that are hopefully worth more than everyone thinks they are...
  • so banks are hopefully not insolvent...
  • so hopefully we wont have to keep giving them money...
  • which is what we will continue to do in the interim.
In other words, the same damn thing we've been doing for 18 months. The only real effort seems to come from avoiding nationalization at all costs. The rest is a faith-based initiative.

Praying is for churches, dickheads.

(Tuesday's) FT front page roundup: Behind the News-Cycle Edition

Stocks fell to their lowest level since 1997 over fears Barack Obama's Canadian Central Planning Commission was about to take over the banks and sell them to the terrorists. Citigroup meanwhile was in negotiations over a third bailout and will be the star on next week's episode of "Intervention".

fAilIG, already 80% owned by Barack Obama, is also lining up for its third bailout. Baseline expectations for insurance companies generally assume their own survival, but AIG shifts paradigms.

Street urchins in Mumbai expected to gather to cheer their friend Asharuddin Ismail, child star of Slumdog Millionaire, at the Ocsars, but were soon far more interested in cheering teh boobies.

Rupert Murdoch will be taking direct control of the Fox network after failing to secure a new contract will his former minion, Peter Chernin. Expect more hot blond lip-liner sluts reading your news.

And the central banks of the Czech Republic, Poland, Hungary, and Romania pledged to defend their currencies from the Ottomans, or something. Central and eastern European currencies rallied on the news, and over the growing likelihood of financial support from the European Union and IMF.

The forint's position is perhaps the worst. Hungary for years ran a massive current account deficit, and foreign currency mortgages became particularly popular. These were generally denominated in Swiss francs and, aside from making zero economic sense, masked the risk of a painful spike in cost should the home currency fall, which it did. Borrowers were intially attracted to the low interest rates but the government did virtually nothing to warn of the downside, which it is now clear few people understood. Companies in Asia were decimated by the same mechanism in the 1997 crisis, so it is particularly awful to see household balance sheets destroyed in the same fashion.

Tuesday, February 24, 2009

"the 'N' word"

Francesco Guerrera, whose utterly tasteless joke above I wish I'd thought of, joins the cavalcade of nerds arguing that nationalization of insolvent banks is not only advisable, but inevitable. Recent days have seen support for this notion from unlikely quarters. "Enough is enough" seems to be the unifying theme...
Barack Obama, US president, will have to draw on his vast oratorical skills to avoid using the N-word but make no mistake: the authorities are going in.


When commentators warn that a failure by the latest US rescue plan would lead to a “Japanisation” of the financial sector, they are missing the point.
It is too late to worry about banks turning into “zombies” – they already are. Crushed under a pile of toxic assets, paralysed by wafer-thin capital cushions and deserted by fearful investors, once-mighty institutions such as Citi and BofA are barely able to perform basic functions such as lending and underwriting.

In his book, Frederic Mishkin described the financial system as the "brain" of the economy. This analogy proved a little too accurate as the collective craniums of finance proceeded to embark on an orgy of hormone-driven excess the human brain is famous for.

The analogy has since broken down, as the brain lies in a persistent vegetative state, much like myself, with the Federal Reserve in the role of life-support system. The financial system cannot even perform the most basic circulatory function, much like a bad analogy. Ben Bernanke is an intravenous drip.

The ultimate cause of the crisis, the toxic securities whose underlying revenue streams have collapsed as people fall behind or default on mortgages, remain on banks' balance sheets. Pricing them has proved impossible but suffice it to say they are substantially below face value. As the real economy deteriorates, separate classes of asset-backed securities linked to car and student loans face the same fate. Banks cannot solve the problem themselves without realizing huge, suicidal losses. The government cant simply keep handing over taxpayer funds forever.

Hence the call for nationalization.

Many of the criticisms of nationalization have smacked of ideology. However, two stand out. The widely-touted Swedish model of bank clean-up, and indeed the takeovers of small failed US banks, ignores the presence of cross-border linkages of huge multinational banks like Citigroup and BofA. The nationalization of Sweden's banks saw nothing remotely comparable in terms of scale and international exposure, since their problems were more or less isolated at home or in the immediate region.

Secondly, and related, is simply the possibility of vast unintended consequences. We already have the Lehman Brothers example, who's failure triggered defaults on credit derivatives which led to the nationalization of AIG within days. Where nationalization ideally attempts to halt the banking crisis in its tracks, the government nevertheless risks igniting a chain of events whereby takeovers merely lead to speculation over who is next, undermining the logic of nationalization in the first place and dragging the government deeper into a financial management job it was already reluctant to do. Such "black swan" scenarios cannot be ruled out.

Tim Geithner's upcoming "stress tests" for US banks are rumored to provide the pretext for nationalization, since they will no doubt tell us what is already known about banks' solvency. Any step toward nationalization then must take these items into consideration.

Though at this point, facing the exact same problems 18 months later, it still seems a risk worth taking.

A tale of two douches

Douchebag Texas bazillionaire Allen Sanford’s fraud was uncovered by the super sleuthery of a Venezuelan financial analyst. This hero bravely sacrificed an entire half-hour of his time using the sophisticated financial detective software known as "the internet", and somehow managed to access Sanford's secret library of accounting data, in something called "public financial statements". Hilarity.
"Stanford Financial was almost like a phantom company," says John Olson, a prominent Houston businessman who is managing partner of Houston Energy Partners, a hedge fund. "You never saw anyone from Stanford at any of the meetings or conferences. It was like they weren’t even there."
Indeed. Just like your money.

Bonus hilarity: Investigators have yet find a single instance of superfraud Bernard Madoff actually purchasing a security on behalf of an investor in the last 13 years. By contrast, it would take several hours to detect similar behavior from, oh, I don't know, the Domino's delivery guy.

FT front page roundup

European Union leaders gathered in Berlin to discuss the financial crisis and how they don't like it. Initial progress was made as the UK declined to block discussion over financial regulatory reform, and Germany agreed to take steps to bailout its loser neighbors should it become necessary, which it will.

The group photo session however was ruined when it became clear Nicolas Sarkozy had tracked dog shit everywhere.

Dubai, city of make-believe and poster-child of real estate and financial excess, received a bailout loan from the United Arab Emirates' mothership in Abu Dhabi to cover its not-so-make-believe debt. Unemployed camels will have many shiny buildings to look at.

The government of Switzerland and its banktards have their panties in a wad over attempts by the US justice department to make US citizens, like, pay their taxes. Switzerland ranks among the few countries whose national point of pride is, in fact, a crime.

Hope-fondler Barack Obama promised to work constructively with retards in Congress in order to halve the budget deficit to only several trillion dollars. Ultranerd Peter Orszag, head of the Office of Management and Budget, indicated the administration would begin honestly reporting how broke it is, thereby destroying George Bush's legacy.

Sunday, February 22, 2009

FT Weekend front page roundup: Saab Story Edition

Markets were shaken by speculation over the fate of welfare queens Citigroup and Bank of America. Honorary white person Barack Obama reiterated that he "wasn't" going to "nationalize", uh, "them", wink, just like he's "not" a "Muslim".

Pantsuit of Freedom Hillary Clinton paid homage to her masters in China. Human rights groups were disappointed she didn't condemn the government while simultaneously begging it for money.

The free-market nutcases in Sweden refused to bailout GM-owned Saab, which was forced to file for bankruptcy protection. Meatballs! Yea, I've got nothing.

Douchebag Texas bazillionaire Allen Stanford's ritzy lifestyle was laid out in court documents, so we can all marvel at how the other half percent live.

And Israel's Mexican president Shimon Peres tapped Binyamin Netanyahu of Likud to form a coalition government and not Kadima's Tzipi Livni, who won the most votes. Netanyahu then turned around and called for a national unity government with Kadima and Labor, instead of Avigdor Lieberman's Yisrael Beitenu, which was widely expected, by experts like me.

Netanyahu was picked because it was thought he was most likely to secure a majority in the Knesset, given the surge of support for right-wing parties. By opting for a unity government, he's completely sidestepped the logic for him to be picked in the first place, and it would be very hard to Livni to swallow being a junior partner to Likud since she won more votes. Labor, for its part, doesn't even seem to want to join any government, since it needs time to contemplate its own ass, which was handed to it.

In short, everyone fucking hates Joe Avigdor Lieberman.

Friday, February 20, 2009

FT front page roundup: Partially Unsure Destruction Edition

According to an IAEA report, Iran's nuclear holocaust deniers have reached "breakout capacity" for producing a nuclear weapon within months, if they feel like it or whatever. This is said to cross Israel's "red line" for unacceptable behavior, as opposed to its "green line", which it has no problem crossing. Finally, the specter of terminal nuclear war in the Middle East to distract us from the tedious drudgery of worldwide financial collapse.

The US is suing UBS for allegedly helping 52,000 American heroes hide their money from Tim Geithner's Soviet tax monster. UBS just settled in a separate case with the US for $780m and turned over the information of 250 clients. According to math, we can expect them to settle this for $162 billion.

Mountie-hugger Barack Obama fled to Canada and had the temerity to point out that it was the only country ever not to have to bail out any of its banks, eh? Traitor.

Idiot investors in idiot banks finally decided to start pulling all their money out after it became clear Obama and his Canadian Central Planning Commission were about to go all 5-year-plan on their ass.

And below, two Chechen brothers and a third man charged with assisting in the murder of Russian journalist Anna Politkovskaya were acquitted. A third brother, thought to be the trigger man, is still at large, leaving them one short of a Monkees reunion.

Thursday, February 19, 2009

paradigm shifts

Some Republican Senate leaders have managed to excise bits of the crayons in their brains and are prepared to back temporary nationalization of insolvent banks. Agent of Incontinence John McCain and Lindsey Graham, America's gay uncle, both agreed that such an approach may be necessary in the current environment, and by "may", they meant just fucking do it already. Human Salvador Dali painting Alan Greenspan also just came out in support of this approach.

This proves definitively that unreasonable people can disagree over literally everything except giving banks free money forever.

This comes on the heels of reports in the Washington Post that the reason Treasury elf Tim Geithner's financial rescue plan lacked details was because he made it up that morning on the toilet. Virtually everyone and their gay uncle are now backing nationalization. So yea, we're waiting, Timmy.

FT front page roundup

Oppressed black man Barack Obama whipped out another package, in public, so you'll all get to stay in your crystal meth labs, hooray.

Meanwhile, Fed chair and beard enthusiast Ben Bernanke lived out his childhood dream and adopted a de facto inflation target of 2%, for America. The idea is to anchor inflation expectations at that level so the Fed can print money for everyone, with the assumption that it will take it all away again before we become Zimbabwe. Frederic Mishkin totally jizzed his pants.

UBS settled with the US justice department for $780m after helping American heroes avoid their communist taxes. UBS has also shamefully agreed to turn over the names of these patriots.

Mentally-stable Republican Bob Zoellick called for greater European Union assistance for central and eastern European economies, whom have redefined the nature of a bank run, in which banks literally fuck off and leave. Bob Zoellick is Steve Buscemi's evil identical half-brother.

And finally GM...alternator, something...bleh, dont care.

Wednesday, February 18, 2009

FT front page roundup: Central Wanking Edition

Zombie libertarian Alan Greenspan, former head of the Federal Reserve, called for the temporary nationalization of insolvent banks, thereby completing his year-long flame-out death spiral of logic, seen below.

Greenspan, the Keith Richards of central banking, was famous for the "Greenspan put", which somehow was already named after him. This is the idea that monetary policy should focus on cleaning up the mess after an asset-price bubble rather than taking preventive action. During the last decade this meant loose monetary policy all the fucking time. In his book, George Cooper called this "preemptive asymmetric monetary policy". You can simply call it for what it is: Fucktardery. The justification for a refusal to target asset prices when setting interest rates was that it was super hard to tell what a bubble looked like. If only information like this was widely available years in advance. The closest Greenspan ever came to admitting there was a housing bubble during his tenure was to allude to some "froth" in certain local markets. Central banking is hard.

Although the Greenspan put seemed to work okay in 1987, 1990something, and again in 2001, it bred a complacency in financial markets that contributed to the euphoria before the current crash, since Grandpa Alan and Uncle Ben would always be there to make everything okay. When Greenspan finally did begin raising rates, for example, he did so in an utterly predictable fashion, by 25 basis points, every damn time. He never gave markets the gut check they needed. Obviously, no one now thinks that waiting to clean up the mess after an asset bubble is preferable to an attempt at prevention. The pain of that mistake has become all too clear in hindsight.

Which brings me to my advice for current Fed chair Ben Bernanke. Whenever If the economy recovers, you need to make it clear that markets aren't your buddy. When markets are expecting steady, predictable policy, you should come out for your press conference and simply gnaw on the microphone for a few minutes. Or just not wear pants and get really, really defensive if someone points it out. I can think of no better incentive for banks to improve their own internal risk management since they'll think you've lost your fucking mind. Call it the madman theory of central banking.

Update: Wow. Greenspan has company.


In lighter news, US treasuries spiked as investors fled screaming from central and eastern Europe, which is on the brink of financial meltdown, since they've insisted on reenacting the Asian financial crisis of 1997. Current account deficits, foreign currency debt, capital flight, currency routs, retarded central banks--they've got it all. More unique, and disturbing, is the fact that so many eastern European banks are foreign-owned, mainly from western Europe. Whether these banks are pulling back now simply due to risk aversion or "financial protectionism", the fact is they are and it really sucks. The IMF is hiring.

Jeff Immelt of GE decided to wave his huge bonus which he'll probably collect next year.

Douchebag Texas bazillionaire Allen Stanford is the new Bernard Madoff.

And Chrysler and GM are begging for another $21 billion in loans from the Fed, even after plans to restructure were announced.

Tuesday, February 17, 2009

FT front page roundup: Learning Japanese Edition

General Motors is set to propose a radical restructuring initiative in order to secure more of your money. The United Auto Workers however are balking over being paid in Smarties. Fucking unions. Barack Obama meanwhile has decided not to appoint a "car czar" and will instead just make Tim Geithner President of Cars and Banks.

Pantsuit of Freedom Hillary Clinton arrived in Japan on her first foreign visit as secretary of state. Her delegation was briefly delayed on the tarmac as translators struggled over the phrase for, "Where's the black one?"

We're never leaving Iraq, if only to boost employment figures. Hippies were right about something finally.

Microsoft CEO Steve Ballmer is attempting to seize the moment while the head of his competition dies to plug his new smartphones.

And Japan suffered a 3.3% quarterly drop in GDP, holy fucking shit. Quarterly. The annualized drop is 12.7%, which again, holy fucking shit. Japan has been hit simultaneously with plummeting demand for its exports and an unwinding of the "carry trade" which has sent the yen skyrocketing against the currencies of its trading partners.

Investors had been taking advantage of Japan's super low interest rates by borrowing in yen to buy higher-yielding whatevers. Free money while it lasted, but as in all things finance, its fucking great until it isn't. Rate moves in places like New Zealand and Australia as well as general risk aversion in response to the financial crisis set this trade backwards, pushing up the yen, thereby making more carry trades unprofitable, pushing up the yen more, and so on. So while much of Asia is blessed with the same already sclerotic export environment, Japan gets to enjoy the herpes simplex 10 of currency appreciation.

In the face of the new GDP figures, some in Japan's ruling LDP are calling for a beefed up economic stimulus, proposing ¥30trn ($17) in addition to the meager amount agreed to last year. More exciting still is the possibility that the crisis will be the death knell of the LDP, which has ruled post-war Japan for nearly its entirety, save for a few months in the early 90s. The LDP, already riven by factionalism, is seeing much of it aired in the open, which is unusual. This gives the opposition DPJ a chance to win the elections later this year, despite being run by Ichiro Ozawa, who by all accounts is a huge toolbag.

But either way, Japan is fucked. The only possible way out of this besides a miraculous improvement in exports is an increase in consumption but that actually fell last quarter, too.
Asked for domestic triggers for a return to growth, one Tokyo economist just laughs. “There’s nothing at all,” he says.
More worrying still is that the Japanese social safety net is still geared around its employers since near-permanent jobs had been the norm for decades. But a large slice of the workforce is now on temporary contracts and they have little recourse to unemployment benefits, depending instead on the liberal distribution of hobo beans by civic-minded charities.

Incidentally, the Japanese word for a recessiony depression-type thing, apparently, is fukyo. Fuck, yo, indeed.

...Also yes, I know the Japanese finance minister was drunk at a press conference at the G7 meetings but I'm fucking not showing it because everyone else already has. But here, watch this instead. It contains a compelling metaphor for the task facing Japan's new finance minister, and the dozens surely to come in the next year.

Oh yea, and Al Gore, who has been trying to raise planetary awareness by looking like one, is all up in my FT.

Saturday, February 14, 2009

FT Weekend front page roundup

The eurozone entered its worst economic downturn in 50 years, which is amazing because the euro has only been around for ten, which means the euro is worse than Hitler.

Fed chairman Ben Bernanke was spotted heading to Rome for the G7 meeting in a baby-blue polo shirt of doom.

Chris Dodd, chairman of the Khmer Rouge Senate banking committee, added an amendment to the stimulus bill that will condemn executives of banks receiving significant state aid to the penury of your average bemonocled 19th century industrial magnate.

Twitter will receive $35m from two venture capital funds who submitted their investment pitch in under 140 characters.

And finally, the Twilight series and its hot teenage vampire sluts are literally the only thing keeping the economy alive.

Picture of the Week:

Magical Treasury elf Tim Geithner stunned markets Tuesday as news of his financial rescue plan was overshadowed by the fact that he was 3 feet tall.

Friday, February 13, 2009

(Thursday's and Friday's) FT front page roundup: Because I'm Lazy Edition

Congressional leaders nodding approvingly at Barack Obama's swollen package. Everyone pointed and laughed at Tim Geithner's.

Senior Wall Street douches lined up for their mock executions in Congress. Legislators yelled at them for awhile, which it turns out is way easier than learning about banking industry regulation. The douches agreed to help restructure housing debt, which they can't because they securitized it and sold it to some German bank that probably failed.

Israel's new hit reality show, 'Oy, So You Think You Can Be Prime Minister?', continued with its opening season. Foreign Minister Tzipi Livni of Kadima managed a one-seat victory over Binyamin Netanyahu's Likud, and each will try to form a government with human skidmark Avigdor Lieberman and some other party you've never heard of. Isn't it great that the US and Israel each have a Lieberman that ruins everything? Kindred spirits! Anyway, Israel's Mexican president Shimon Peres will judge the outcome with wry wit and a British accent.

Moving on, UK mining giant Rio Tinto sold the family "crown jewels" to China's state-run Chinalco. Chinalco invested $19.5bn, much of it in convertible bonds, in preparation for their eventual conquest of Australia.

Chrysler's transmission fell out.

Republican Judd Gregg withdrew his nomination as commerce secretary when everyone remembered he was a Republican.

A Russian military anti-satellite satellite destroyed a US commercial satellite because it looked at it funny. John McCain immediately declared war.

And spotlight-fucker Nicolas Sarkozy of France proposed new regulations for hedge funds, which are managing to destroy themselves quite nicely without him, thanks.

the ultimate insult

How the mighty have fallen. Former Treasury Secretary, y Salvador de Mexico, Nicholas Brady offers up more of his Brady Bonds to save impoverished Latin American dictatorship los Estados Unidos from Chinese debtors' prison. I don't even think this is applicable to the US crisis since its not a sovereign debt one, and nevermind the intricacy of restructuring debts across US household, business, and financial sectors, but the fact that he's recommending it at all is simply hilarious. Americans no longer merely shop at the Banana Republic.

Thursday, February 12, 2009

Iran, so far away

Former Iranian reformist president of reform Mohammad Khatami succumbed to the pressure on his turban and will run against Sports Jacket of Terror Mahmoud Amadi-Nejad for the presidency of Iran. Khatami, a non-crazy person, is the Barack Obama of Iran, except that he's a Muslim, which means he's exactly like Barack Obama.

This is good news. The way recent elections in Iran have worked is that all reformist candidates are banned by the Guardian Council before they can even run over whatever stupid technicality they think up, leaving the remaining conservative Australopitheci to duke it out. And then they send out Basij paramilitaries in case you forgot who to vote for. So helpful!

Giving Khatami the business however would be a step too far, even for them. Banning all of Iran's Ralph Naders is one thing, but Khatami has name recognition and is respected there and around the world, unlike Ralph Nader. With high inflation, falling oil exports, and international sanctions, the last thing Iran's leaders want to do is break the frayed sense of national unity that would come by banning a popular political candidate.

Even though much has been said about spats between Ahadi-Nejad and Supreme Leader Ayatollah Ali Khamenei, he would still undoubtedly get the full backing of Iran's establishment. So good luck, Mr. Khatami! And someone get that man an ACORN.

Wednesday, February 11, 2009

FT financial rescue plan roundup: The Legend of Geithner's Gold

Tim Geithner, who has enjoyed fucking with our heads for the past two weeks, whipped out his financial rescue package at a press conference yesterday to audible gasps of delight. See, there he is trying to dodge questions by impersonating a flag pole.

The plan had four major points: shoring up banks with new capital and regulations; kick-starting credit markets with new Fed monies, particularly securitization markets; cleaning up banks' toxic assets; and tackling the foreclosure crisis.

With regard to the toxic assets, noticeably absent were plans for both the 'bad bank' and an insurance scheme, which means I wrote all that shit the other day for nothing. Thanks, Tim. Dick. The plan will now focus on a public-private partnership to finance purchases of the shitburgers and a renewed effort to recapitalize banks who end up selling them below their booked value, which means they'll all need to be recapitalized.

The public-private partnership will encourage private investors, "co-investors", to purchase toxic assets by providing them with low cost government financing and probably some kind of insurance program in case of catastrophic loss. The difference is investors get the insurance, not the banks. This sounds similar to the super-SIV that was originally proposed by Hank Paulson, but with actual government money behind it. An alleged benefit of the public-private approach is that it absolves the government from attempting to price the toxic assets and leaves that to private players. That sounds like more of a political benefit than anything, but subsidizing private investors doesn't exactly sound like a political winner either.

The big surprise in the plan is that banks don't seem they'll be getting gobs of free money they expected and additionally will be subjected to new regulation and "stress tests", which helps explain Wall Street's reaction yesterday. The parts of the plan that had leaked earlier seemed much more lenient on banks but those, fortunately, wont come to pass.

It's still very unclear how this will all actually be implemented, let alone whether it will work. One major unanswered question is what happens if a bank fails a stress test, if you want to be generous and say they haven't already failed several. It all still looks like a Herculean effort to avoid nationalization of insolvent banks, remember, but it doesn't specifically close the door to it either. The longer that question goes unanswered the more reluctant banks will be to lend, and if the point of the plan is to restart financial markets, it seems an odd, lazy way to go about it, making banks pee their pants in anticipation. Then there's the issue of whether the plan merely stalls the inevitable, wasting a ton of money in the process.

That said, to the extent investors are actually willing to buy the fucking things, the government will still be exposing itself to the biggest losses and will have to spend billions more refilling the hole left over from the sales. Brad DeLong notes that leaks within the Obama team are making it perfectly clear that this is the "Geithner Plan", so people will know whose house to burn down if it doesn't work.

Martin Wolf has more. He is pessimistic, to say the least.
Why Obama's new Tarp will fail to rescue the banks
The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers.


Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. [...]

If Mr Geithner or Lawrence Summers, head of the national economic council, were advising the US as a foreign country, they would point this out, brutally. [...]

The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. [...]

By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.

In other front page news...

General Motors in cutting 14% of it's white-collar work force. It is unclear what color unemployed people's collars are.

No one knows which right-wing asshole won Israel's election. Tzipi Livni of the "centrist" Kadima party, if you're willing to make the leap that Ariel Sharon was a centrist, claimed victory. Binyamin Netanyahu of Likud hasn't conceded. Any viable government will depend on Yisrael Beitenu's Avigdor Lieberman, who is by far more right-wing and an asshole than either of them.

And advertisers are overhauling their strategies in order to target America's fastest growing demographic: really fucking poor people.

Tuesday, February 10, 2009

FT front page roundup

Senators have finished slobbering over Barack Obama's package. Most agree that its big and somewhat effective.

A United Kingdom report argues that the IMF is reluctant to tell the countries that pay its bills that they suck. Shocking.

Executives at Barclay's and Royal Bank of Scotland are voluntarily limiting bonuses before pitchfork-wielding mobs voluntarily harvest their organs.

And the election in Israel is too close to call. Israelis wait patiently to find out which right-wing asshole will lead them to the promised land, which they already live in.


Lloyd Blankfein, CEO of Goldman Sachs, is quite literally intent on surviving the recession. From his op-ed in the FT.
More generally, we should apply basic standards to how we compensate people in our industry. [...] An individual’s performance should be evaluated over time so as to avoid excessive risk-taking. To ensure this, all equity awards need to be subject to future delivery and/or deferred exercise. Senior executive officers should be required to retain most of the equity they receive at least until they retire, while equity delivery schedules should continue to apply after the individual has left the firm.

For policymakers and regulators, it should be clear that self-regulation has its limits. We rationalised and justified the downward pricing of risk on the grounds that it was different. We did so because our self-interest in preserving and expanding our market share, as competitors, sometimes blinds us – especially when exuberance is at its peak. At the very least, fixing a systemwide problem, elevating standards or driving the industry to a collective response requires effective central regulation and the convening power of regulators.

[...] Regulators should consider the regulatory inputs and outputs needed to ensure a regime that is nimble and strong enough to identify and appropriately constrain market excesses, particularly in a sustained period of economic growth. [...] To increase overall transparency and help ensure that book value really means book value, regulators should require that all assets across financial institutions be similarly valued. [...]

[...] Regulators should implement more robust information sharing and harmonised disclosure, coupled with a more systemic, effective reporting regime for institutions and main market participants. Without this, regulators will lack essential tools to help them understand levels of systemic vulnerability in the banking sector and in financial markets more broadly.
In other words, thank you, sir, may I have another!

Wall Street douches take note. This is how you grovel. Such a welcome departure from the whiny, defensive, self-serving, tone-deaf dissonance we've been hearing. Everyone kindly spare Lloyd Blankfein's family in the upcoming unemployment riots.

Monday, February 9, 2009

FT front page roundup: Poor Material Edition

Barack Obama finally stopped stroking his bipartisanship wand and pointed out that there's like this MASSIVE RECESSION outside waiting to kill you unless you pass my stimulus bill, thanks. Republicans meanwhile continue to argue that the bill has too much stimulus in it.

Efforts by the Fed to keep mortgage rates down have been ineffective, which bodes ill for the coming tsunami of debt issuance by the Treasury. And it probably bodes other things as well. Like your mom.

UBS is trying to poach brokers from US rivals by offering them lots and lots of money. So conventional.

Some asshole set southeastern Australia on fire.

And Steven Spielberg's whatever is doing a thing with Disney, like I fucking care. See. None of this was funny.

Shorter Edward Luce

For Obama, the road to bipartisanship gets bumpy
Due to prevailing journalistic conventions, I can only subtly allude to the fact that Republicans are both incredibly dim and completely full of shit, as opposed to simply pointing out that Republicans are incredibly dim and completely full of shit.

Sunday, February 8, 2009

no one could have predicted...

Gaza offensive boosted Hamas, poll concludes
Palestinian support for the Islamist Hamas movement has soared in the wake of Israel’s three-week offensive against the Gaza Strip, according to a poll released on Thursday.
As the article points out, the political narrative in Israel is that the Gaza war significantly dented Hamas's military capability, which is likely, and its political support, which is fantasy.
Israeli officials argue that Hamas has been severely weakened by the recent offensive, and say the group lost much of its military capability. Several Israeli leaders have also claimed that the war served to strengthen “moderate” Arab and Palestinian movements, while weakening Iranian-backed Islamist groups such as Hamas and the Lebanese Hizbollah.
The most worrying part of the poll is that support for Hamas has spiked in the West Bank, further undermining moderates in Fatah we're supposedly courting. Way to go, morons.

Department of No Shit

The hippies at the IMF stumbled away from their bongs for five minutes to report on the global recession. Their shocking conclusions:
Estimates of the so-called “fiscal multipliers” – the eventual effect on gross domestic product of a given tax cut or increase in government spending – showed that infrastructure investment would add between 0.5 per cent and 1.8 per cent to output per 1 per cent of GDP spent by government.

Tax cuts of equivalent size would add 0.3 per cent to 0.6 per cent, it said.

The debate has divided politicians in leading economies, with Republicans in the US Congress saying tax cuts would be a more effective boost to the economy than infrastructure investment favoured by the Democrats.

“Tax cuts are an indirect
form of stimulus, so you don’t know what the recipient of the tax cut will do with them,” said a senior IMF official. “The infrastructure investment would be a more direct form.”
Oh yea, also:
The fund repeated its call for governments to be more aggressive in restructuring troubled financial systems and said temporary nationalisation might be justified in some cases.
Bah, socialists.

In a sane world none of this would even be worth pointing out. Still, its useful to keep harping on about this since one party has a Crayola lodged in its brain.

I wonder if Canada would be interested in a trade. Their Conservatives for our Republicans. Oh yea, and Alex Rodriguez.

Saturday, February 7, 2009

Deep Thought

How would Sarah Palin handle this?

Bond Markets Made Fun Tolerable

Obama's plan to bail out everything is making the bond markets nervous. The yield on 10-year Treasuries had shot up almost a full percentage point since the end of December. This pushes up the cost of borrowing for everyone, but more importantly for the government and Fannie Mae and Freddie Mac, the US housing giants, just when they'll need to borrow most.

The US is already facing a $1 trillion deficit this year, without even factoring in the cost of the stimulus bill, some $800 billion plus, or the coming bank bailout, likely to be somewhere similar, though these will be stretched out over several years. Still, dude, that's a lot of fucking debt.

One actual bright side of the financial crisis has been that people have piled into safe assets like US Treasuries en masse, driving down the immediate cost of borrowing since investors have merely sought a return of capital, rather than a return on it. This, obviously, will not last.

A painful irony is that the measure of success against the financial crisis is investor's willingness to buy something else other than safe government securities. As they shift out of those, which is what we want, remember, they will inevitably push up government borrowing costs just after we've taken on those gargantuan debt levels. Moreover, any unwinding of global imbalances will require China to save less, meaning fewer purchases of US Treasuries, exacerbating government borrowing costs even further.

As I alluded to earlier, Ben Bernanke has an ace up it's sleeve to deal with this epic problem. Actually, he has an infinite number of aces up his everywhere. The Fed can print money and buy US government securities to drive rates back down, which it seems likely to do shortly. What this means long-term for the dollar and inflation prospects I don't even want to think about. Still, all very exciting.


Krishna Guha offers a sexy breakdown of the shitty asset insurance scheme being debated by Obama's econonerds. The benefits of such a such a scheme, as opposed to a government-run bad bank, are as follows:
  • banks will actually have to pay something for it.
  • the government wont actually have to physically engage in the embarrassing transaction in which it purchases a turd sandwich for more than the value of a turd sandwich...
  • so the accurate pricing of assets, therefore, becomes somewhat less important.
  • to the extent shitty assets are insured, it will cap banks' potential losses on them. Theoretically this eliminates the uncertainty of catastrophic losses and will kick-start the financial markets by allowing investors and lenders to do something other than cower in the basement.
The unbenefits of an insurance scheme, however, are that:
  • there's no reason to believe this scheme will be significantly less costly to the taxpayer since...
  • the government takes the brunt of the losses as it is, and probably all of any catastrophic loss.
  • pricing the shitburgers is still important because the government could potentially undercharge for insurance.
  • also any difference between the book value of the assets and the amount the government agrees to insure will need require more capital to fill the hole, from the government.
  • the assets will still be on the banks' balance sheets.
  • shareholders don't get stripped and beaten in public.
This plan really is the Anything But Nationalization (ABN) plan. The biggest problem to me seems that working out insurance schemes individually for all these fucking things will take months, while they remain on bank's balance sheets, which seems the antithesis of a speedy, definitive bank rescue however you structure it. And coupled with a new recapitalization scheme and a smaller bad bank seems to make the plan needlessly complex, where mind-numbing complexity was already an issue. At least with the bad bank, which I also hate, the toxic assets are gone and banks can get on with it. Instead, years from now, they'll still be there.

A year and a half into it and Obama's promised deathblow to the financial crisis is turning into a slow, plodding clusterfuck of bad ideas already proposed and discarded for whatever reason, and that not even smarts will be able to understand anyway.

Temporary nationalization seems to me the easiest, most straightforward approach, not that it doesn't present problems of its own. But pricing the toxic assets wont matter, since the government can hold them to maturity for all anyone cares, or simply wait until a market for them materializes. Shareholders will actually be punished for investing in the things that brought down the planet, which is what's supposed to happen when your company gets bailed out anyway. And finally, ahem, let's recall these banks are already insolvent, for fuck's sake.
It may be indelicate to say so, but many of these banks are, realistically, bust. While policymakers are admirably reluctant to extend the process of nationalisation, more public ownership is both inevitable and potentially helpful. For state control can facilitate more lending. It also removes the acute conflict of interest between taxpayers and shareholders regarding finding a value at which bad assets can be extracted from bank balance sheets without favouring one group at the expense of the other.
The only way the proposed rescue plan makes sense is to avoid the above. So far, as Paul Krugman says, its like socialism without the justice.