Stop Press: Headline - The Rich are Getting Richer

According to those in the know who ought to know, the rich continue to get richer in the land of the free and the home of the brave. And you'll never get rich by digging a ditch if you're in the army now. Below are some excerpts from:

Boom in
Financial Markets
Parallels Rise in Share
For Wealthiest Americans
By GREG IP

The richest Americans' share of national income has hit a postwar record....

The wealthiest 1% of Americans earned 21.2% of all income in 2005....

The bottom 50% earned 12.8% of all income, down from 13.4% in 2004....

In an interview yesterday with The Wall Street Journal, President Bush said, "First of all, our society has had income inequality for a long time....

The IRS data go back only to 1986, but academic research suggests the rich last had this high a share of total income in the 1920s.

The IRS data don't identify the source of increased income for the affluent, but the boom on Wall Street has likely played a part, ... soaring stock prices and buoyant credit markets had produced spectacular payouts for private-equity and hedge-fund managers, and investment bankers.

Mr. Rauh said "it's hard to escape the notion" that the rising share of income going to the very richest is, in part, "a Wall Street, financial industry-based story." The study shows that the highest-earning hedge-fund manager earned double in 2005 what the top earner made in 2003, and top 25 hedge-fund managers earned more in 2004 than the chief executives of all the companies in the Standard & Poor's 500-stock index, combined.

And the sidebar commentary had these bits:

Scholars attribute rising inequality to several factors, including ... advances in communications that enlarge the rewards available to "superstar" performers whether in business, sports or entertainment. [Say what?]

Democrats may use the data to exploit middle-class angst about stagnant wages. [Exploit??]

Banks bank on toxic dump

One of the really clever uses of derivatives, and Guambat is sincere here, is to create a book that can be laid off on to other betting types that will put a figure on any type of risk/reward ratio that imaginative minds can concoct. The fascinating part of the game is that people, well, the participants in this game, then internalize these numbers as some kind of truth, some kind of window or mirror into a reality that they have constructed. Guambat has always cherished fairy tales and thus finds the world of derivatives to be endlessly enthralling.

And so it is that the wizards of finance have put a number on the upper limit to the risk that the "subprime fallout" will have on the credit markets. Three banks hope to corner the market in this contagious contango and thereby drive up the value of the shit they're holding long enough to be able to offload it onto the true believers, or their fund managers at least, thereby making a motza. They're following the model that the best systemic means to cope with risk is to share it a mile wide and an inch deep rather than an inch wide and a mile deep, except that they have interchanged the word "shit" for the word "risk" to make it so much more palatable and propitious.

Banks line up $75bn mortgage debt fund, By Gillian Tett in London, Krishna Guha in Washington, and David Wighton in New York

"Citigroup, Bank of America and JPMorgan are on Monday expected to announce plans for a fund to buy mortgage-linked securities in an attempt to allay fears of a downward price-spiral that would hit the balance sheets of big banks.

A person familiar with the discussions said that US banks collectively were expected to put up credit guarantees worth about $75bn for the fund, named the Single-Master Liquidity Enhancement Conduit (SMLEC).

The concept of an SMLEC first emerged three weeks ago when the US Treasury summoned leading bankers to discuss ways of reviving the mortgage-linked securities market and dealing with the threat posed by structured investment vehicles (SIVs) and conduits.

The Treasury acted as a neutral “third party” in the discussions, and Hank Paulson,Treasury secretary, was strongly in support of the initiative.

Robert Steel, under-secretary for domestic finance, led the US Treasury side of the discussions, with the day-to-day work handled by Anthony Ryan, assistant secretary. The plan is an attempt to address concerns about SIVs and conduits, vehicles that are often off-balance sheet but closely affiliated to banks.

They typically fund themselves in the short-term asset-backed commercial paper market but purchase long-term securities. The gap between short-term debts and long-term assets has created a vicious funding mismatch in recent weeks because investors have stopped buying notes issued by some SIVs and conduits. There are fears some SIVs may be pushed into forced sales, prompting further declines in the price of mortgage-linked securities that could hurt the balance sheets of some institutions.

SMLEC is likely to be unpopular with some banks which have already started trading in distressed subprime securities at knockdown prices."

Before coming to Treasury, Paulson was Chairman and Chief Executive Officer of Goldman Sachs.

Prior to his confirmation as Assistant Secretary, Mr. Ryan served as a Senior Advisor to U.S. Treasury Secretary Henry M. Paulson.

Robert K. Steel retired from Goldman Sachs as a vice chairman of the firm on February 1, 2004.


Market meltdown fund launched

"It is thought that the SMLEC would buy up sub-prime assets and then repackage them in a way to give investors more confidence. This would also save banks from having to try and sell them at a heavily reduced price, which could have a big impact on balance sheets across the sector."

Goldie as political hedge fund

FOLLOW UP:
This conduit story has been conducive to much comment in the financial tomtoms. The (Newscorp/Fox) WSJ blog, Deal Journal, has a take that "resonates" Guambat, which is hard to do to a thick blog of mass. One comment to that post (by mike harrold (chicago)) in particular stood outside Guambat's burrow sounding like a maiden siren:

By promising to be the lender of last resort to their SIV clients, Citicorp essentially “sold” a put option that has now become “in the money.”
For years Citicorp generated large fees from their SIV-clients. That revenue was effectively overstated because it did not properly account for the probability that the option premium sold “short” would justify the liability assumed by the seller, Citicorp.

Citicorp made money by selling out-of-the-money option premium too cheaply.
By miscalculating the “real” cost of the option they were short, and therefore selling it too cheaply, Citicorp enjoyed what looked to them like a “free lunch.”

Now that the option is “in the money” Citicorp would like its possessors to NOT exercise it so that the underlying collateral’s value will have more time to (hopefully) go up.

As long as one incorrectly estimates the likelihood of a several-standard deviation move in volatility, one will always sell option premium too inexpensively.

A "bird" for the Bush is worth two for the media

Former General and top commander of coalition forces in Iraq, Ricardo Sanchez, laid down a covering fire, drawing snipers from every which side.

As the NYT saw it, "General Sanchez’s main criticism was leveled at the Bush administration...."

As Fox News saw it,

"much of the criticism of the media by Lt. Gen. Ricardo Sanchez has been left unreported.

In his speech to the Military Reporters and Editors Association in Washington, D.C., on Friday, Sanchez accused reporters of "unscrupulous reporting, solely focused on supporting an agenda and preconceived notions of the U.S. military."

Guambat, being the hopelessly myopic creature that he is, saw it as just one more perplexed participant in a mindless shoot first and ask questions later knee jerking god fearing ring the wagons reaction in the total tragedy that started long before 9/11 but obtained spiritual strength from the slaughter, sort of an eye for an eye biblical/greek tragedy that marks us as humans better than our use of tools ever will.

Sigh.

Wee willy wankers now crawl through the town

Wee Willy Winkie,
Runs through the town.
Upstairs and downstairs,
In his night gown.
Rapping at the window,
crying through the lock,
“Are the children in their beds?
Now it’s eight o’clock.”

Guambat's mother used to coo this little nursery rhyme ditty to him when it was bedtime. That was, of course, long, long ago.

Still, the soothing, sleep inducing symphony of his Mother's voice came back to him when he read what the good folk down in Sydneytown are doing to yank the wankers off the streets:

Pinkie ads slow down speedsters

"A controversial road safety campaign that implies young men who speed do so because they have small penises has become one of the state's most successful anti-speeding campaigns, Roads Minister Eric Roozendaal has said.

The Roads and Traffic Authority TV ad, dubbed "Little Pinkie", shows onlookers wiggling their pinkies upon seeing a speeding male driver.

The gesture is used in youth culture to indicate a small penis.

The TV ad was part of a broader campaign that included magazine and outdoor advertising featuring the slogan "Speeding: No one thinks big of you".

"Wiggling your pinkie has cut through to that crucial age group of young drivers - they're using it as a way to slow their mates down and stop them acting recklessly on our roads."

"This campaign is about saving lives - not pride. If it dents a few egos but helps save a life, then it's worth it," Mr Roozendaal said.

The RTA and the Advertising Standards Bureau had received 34 complaints about the campaign, an RTA spokeswoman said.

The complaints were that the ad was discriminatory...."

And therein lies another tail.

Hello dollar!

This is a chart of the $Aus/$US overlayed against the Australian SPI futures contract, a sort of Down Under S&P500 contract. The SPI is lagged half a year to more clearly point out the big picture relationship. The timeframe goes from present back to the start of 1983, almost 25 years (it's all the data Guambat has).



This chart does not suggest any trading tips, but does, perhaps, provide tips to a long term investor, as it seems to paint a generally inverse relationship between the value of the SPI and the value of the AUD/USD. Until recently, however, when both SPI and AUD/USD have been on a tear.

Perhaps it's different this time.

NO laughing matter

NO2 is the chemical makeup of nitrous oxide, the "laughing gas". NO is the chemical makeup of nitric oxide, a key component, so it now appears, in delivering oxygen via the blood system.

Banked Blood Could Do More Harm Than Good

Two US studies suggest that almost as soon as it has been donated, banked human blood loses the vital ability to transfer oxygen to body tissue that desperately needs it. The researchers say that for the majority of patients, blood transfusions with banked human blood could do more harm than good.

Almost immediately after it leaves the body, human blood begins to lose an essential gas, nitric oxide which is believed to be crucial to the delivery of oxygen to tissues because it keeps the tiny blood vessels inside the tissue mass open. The researchers also believe that it helps red blood cells to stay flexible so they can easily fit into the narrow constraints of the blood vessels.

But while scientists knew that banked blood was not the same as the blood in the body they did not know why it should carry these risks.

To test whether putting nitric oxide back into the stored blood would affect its ability to supply oxygen, Stamler and his team used dogs.

They showed that when they gave stored blood to the oxygen deprived animals, the blood flow did not increase properly. Yet paradoxically stored blood is often given to heart patients to prevent heart attacks. This experiment showed that doing this could actually be increasing the risk of a heart attack.

When they added nitric oxide to the stored blood they gave to the dogs, blood flow to the heart was increased, indicating the blood vessels were sufficiently dilated to allow passage of the blood cells and oxygen transfer to take place.

"This suggests that adding nitric oxide to human banked blood could theoretically improve its ability dilate blood vessels and thus prevent heart attacks and even death in patients," said the researchers.

A large-scale randomized clinical trial in humans is needed, said McMahon and Stamler. These studies show that donated blood has risks as well as benefits, and therefore should undergo clinical trials in the same way as drugs and medication.

Officials: Transfusions valuable
By Melissa Dunson

The danger in not having enough nitric oxide in transfused blood is that without the component, the vital blood cannot get to the tissues that need the oxygen.

“If the blood vessels cannot open, the red blood cells back up in the vessel and tissues go without oxygen,” said Dr. Jonathan Stamler of Duke University, leader of one of the research groups. “The result can be a heart attack or even death.”

Chris Pilgrim, marketing manager for the blood center, acknowledged the need to further examine the issue of degrading nitric oxide, but said the historical importance of blood transfusions should not be undermined.

“There has been some study that shows there is some degradation of the blood when it is stored, but nothing can replace blood transfusions,” Pilgrim said. “There is no alternative to blood, and, unfortunately, it has to be stored.”

Thomson said the decision by doctors to transfuse blood is always a risk-versus-benefit analysis, and when someone is seriously injured and needs blood, the benefits almost always far outweigh the risks.

Guambat is aware that blood collection, even by "non-profit" organisations, is big business, just as is every other aspect of modern medicine. There will be a clamor over this as the vested interests spin and defend, but it appears these studies point to a fix of the problem, and that can only be a good thing when that is finally worked out.

White birds CAN dance

A usually unreliable source has tipped Guambat to a quick flick that is just too cute for words. Stay with it 'til the end. Cheers!

Visit May I have this dance and click the play [>] button (if you need instructions).

Fly me too the moon

Japan is parked in lunar orbit, hovering before landing to get it's hands dirty.

China and India have plans to pay visits in the next year or so.

Maybe we'll have to all revert to a lunar calendar.

Source: Japan's First Lunar Probe Reaches Moon Orbit

Too blinking right

President George W appeared a tad dissembling when he advised today "This government does not torture people." You can see his performance on CNN here.

As soon as he said it, he went blink, ... blink, ... blink, blink.

The US Defense Department suggests the following:

"Interpreting Nonverbal Messages. You must interpret nonverbal messages as part of the overall communication system.

* Typically, an individual nonverbal message is difficult to accurately interpret in isolation because most messages have several possible meanings. For example:

o A yawn might indicate a lack of interest, physical fatigue, or both.
o Rapid eye blinking might indicate deceit or just poor fitting contact lenses.

* A nonverbal message is easiest to interpret when it is consistent with other communications that you are receiving at the same time. For example, you might be more likely to interpret rapid eye blinking as indicative of dishonesty if the person also avoids eye contact while speaking.

* An inconsistent nonverbal message may be impossible to interpret. However, an apparently negative nonverbal message should raise a red flag indicating that you should look more carefully for related verbal or nonverbal clues. Look for messages that correlate with each other so that you can make a more accurate interpretation."

Guambat is not absolutely against torture, per se, conceding that there may possibly be some circumstance when it might be used to yield a higher good. But Guambat is too fuddled to articulate what that circumstance might be.

One of the many problems with Bush's attempt to support its use is that he suggests it is ok to use on terrorists and extremists. That certainly begs a question if the purpose of the interrogation is determine if the person is a terrorist or extremist, at the very least.

He justifies use of torture if the detainee "may have information ..." without any proof the person does have information, so if they don't he's torturing an innocent person.

He then shifts the paradigm away from the torturous aspects, saying that it is merely trained professionals "questioning" individuals. No issue has ever arisen over mere questioning. The issue is one of torture, and he tries to sidestep it as simple Socratic dialog.

Lastly, Guambat is suspicious that this simple denial of the use of torture is perhaps a semantic slight of hand, along the lines of "I did not have sex with that woman".

Guambat is not convinced that this administration very well balances the conflicting interests of truth and liberty.

RIAA vs Microsoft?

Two stories from the Google news links today:
First, this poor woman gets a US$222,000 judgment against her for sharing music:

Vivendi, Music Industry Win First Downloading Trial (Update2)By Susan Decker and Tom Wilkowske Oct. 4 (Bloomberg)

A jury in Duluth, Minnesota, said today that Jammie Thomas, a 30-year-old environmental coordinator with the Mille Lacs Band of Ojibwe Indians, improperly distributed songs over the Internet. She was told to pay $9,250 for each of 24 songs downloaded, for a total of $222,000.

More than 26,000 lawsuits have been filed by record companies, and about 8,000 have been settled, usually with the individual paying about $3,000. Some cases have been dismissed because the individuals were dead, children or people who didn't own computers, or because of other hardship reasons.

And this part of the case was more than a little disconcerting (dis-concert-ing):

Sony BMG's chief anti-piracy lawyer: "Copying" music you own is "stealing" By Eric Bangeman

Testimony today in Capitol Records, et al v. Jammie Thomas quickly and inadvertently turned to the topic of fair use when Jennifer Pariser, the head of litigation for Sony BMG, was called to the stand to testify. In doing so, she advocated a view of copyright that would turn many honest people into thieves.

Pariser has a very broad definition of "stealing." When questioned by Richard Gabriel, lead counsel for the record labels, Pariser suggested that what millions of music fans do is actually theft. The dirty deed? Ripping your own CDs or downloading songs you already own.

Gabriel asked if it was wrong for consumers to make copies of music which they have purchased, even just one copy. Pariser replied, "When an individual makes a copy of a song for himself, I suppose we can say he stole a song." Making "a copy" of a purchased song is just "a nice way of saying 'steals just one copy'," she said.

There's more detail to this story, but Guambat is sure that you will see much more from other sources before much more time passes.

The second story: Microsoft wants to take a piece of the music sharing market:

Microsoft next month will take another crack at blending social networking with digital music by Gregg Keizer, Computerworld

Microsoft Corp. will take another crack at blending social networking with digital music next month with the release of new Zune music players and a renewed campaign to promote song sharing.

It also removed one restriction on Zune-to-Zune wireless sharing in the hope of fostering the feature that debuted last year with the first-generation player. Although tracks received from another Zune owner can still be played only three times, the three-day time limit has been dropped. Another limitation, that a song can be passed once -- in other words, a shared tune cannot be shared by the recipient with yet another Zune owner -- remains in place.

Any bets RIAA will take on someone its own size?



Another day, another view: Declan McCullagh blogs:

After decades of special-interest lobbying by large holders of intellectual property rights, U.S. copyright law has spiraled out of control. It's been transformed from limited protections of authors' rights for 14 years to a juggernaut with criminal enforcement, sky-high penalties, and up to 120 years of legal protection.

Copyright no longer abides by the fundamental principle of law, which is that the damages awarded should be related to any harm committed.

"It doesn't strike a regular person that by passing a CD around the neighborhood, they should have their house taken away," says Lew Rockwell, president of the free-market Mises Institute in Auburn, Alabama. "And by electronic means it shouldn't be any different."

I guess I'd be a bitter man, too

"Steve Bitterman, 60, said officials at [Iowa] Southwestern Community College sided with a handful of students who threatened legal action over his remarks in a western civilization class Tuesday.

"'I'm just a little bit shocked myself that a college in good standing would back up students who insist that people who have been through college and have a master's degree, a couple actually, have to teach that there were such things as talking snakes or lose their job,' Bitterman said.

"[He] claims he was fired after he told his students that the biblical story of Adam and Eve should not be literally interpreted."

Teacher: I was fired, said Bible isn't literal
The community college instructor says the school sided with students offended by his explanation of Adam and Eve.
By MEGAN HAWKINS
REGISTER STAFF WRITER

"Students in the class, also broadcast to a classroom in Osceola, said Bitterman told them to question their religious beliefs. As a debate became heated, he told student Kristen Fry to "pop a Prozac."

"Fry said she left the class in tears, then contacted a lawyer.

"'I talked to a lawyer and was told that what he was doing was illegal,' she said. 'He was not allowed to be derogatory toward me for being a Christian. I told my adviser I would sue if I had to.'"

Students say fired Red Oak community college instructor was insulting

"Fired adjunct professor Steve Bitterman's comments to the Register show his total disregard, if not contempt, for those who view the Old Testament as the word of God.

"The Old Testament would be a great teaching reference since it has been found to be historically accurate and is a literary masterpiece.

"The CIA's World Factbook sites that 78 percent of U.S. citizens are Christian.

"Faith is the basis of the Christian religion, and faith is defined by Webster's dictionary as "a firm belief in something for which there is no proof." What role would faith play if every biblical account had to first be authenticated by academic scholars?

"Bitterman didn't get fired because he took an academic approach to a Bible story. He was fired because he didn't truly understand the book he taught from.

- David Swain"

Teacher's misuse of text warranted his dismissal

"It's completely understandable to have conviction for your own set of beliefs, and the wish to have those beliefs honored and respected by people around you is natural.

"But what is so utterly bull-headed and blind about all of this is that Bitterman's firing wasn't just a childish attempt to prove 'We're right and you're wrong.' It was the outright proof of just how easily we continue to let bullies take control.

"And that's really all this is: a case of some zealot fundamentalists nagging until they get their way - just to prove a point. It's an attempt to once again pull in to question the seperation [sic] between church and state, begging every 'freedom-loving American' to really think about how little freedom Christians in this country really have.

"But that argument is tired. Let's be honest: It's really just a lame excuse. In all reality, there doesn't seem to be much weight to the argument of the nation's religious majority claiming such injustice."

"Students should learn to take comments with grain of salt", by the Southern Methodist University The Daily Campus Ed Board