Wednesday, January 30, 2008

Just walk away, Renee

Site of the Day: You Walk Away Dot Com

And when I see the sign that points one way
The lot we used to pass by every day

Just walk away Renee
You won't see me follow you back home
The empty sidewalks on my block are not the same
You're not to blame

Written by Bob Calilli, Michael Lookofsky & Tony Sansone
Originally recorded by The Four Tops and The Left Banke
Recorded by Vonda Shepard on "Songs from Ally McBeal"

"Intentional Foreclosure"

Saturday, January 26, 2008

Damned foreigners

Guambat went for the headline in the front page article in the Washington Post, but knew from the start that this was not going to go down well with him.

The tip off?: it was written about Guam USA by the "Foreign Service" at WaPo.

Any time you get that at the beginning of any article having to do with Guam, you just know that it will be full of superficialities, often entirely mistaken, and will have to include the obligatory snake story.

Snakes, you see, invaded Guam along with the military back in the 1940's. A long time ago. Mostly harmless, they have been absolutely devastating to the island's bird population (along with house pussies).

And to hear the story told by someone who hasn't been here, they are everywhere, in your pantry, bed and cup of tea.

When Guambat came to Guam in the 1980's there was, indeed, a noticeable void of boid. But the governments (Territorial and Federal) have been making diligent and concerted efforts to get the snakes contained, and with some good success.

But, in Guambat's first encampment on Guam in the '80's, he only ever saw one such snake. And on returning after 17 years in Sydneytown, he has noted a distinct flourishing of numbers and varieties of birds and has only seen one dead snake (roadkill).

But the very mention of the "snake issue" is made to emphasize just what a other-worldly place this island of Guam is to most Statesiders, who have a penchant for making Guam the butt of endless jokes.

As WaPo tries to paternalistically put it, Guam is "a quirkily American place". Yeah, like New York City is pretty quirky, and Berkeley is quirky and New Orleans is quirky.... More "different" than "quirky" really.

Guam "marries the beauty of Bali with the banality of Kmart", and WaPo marries literature with cat litter, Seattle marries whales and Starbucks, Chicago marries blues and abattoirs....

Why do Foreign Service writers have to belittle Guam to tell the story of the greatest peace time and peaceful invasion/occupation of a small island by US military in its history?

Why can't the Foreign Service writers get the record straight that after lengthy and very public negotiations Japan is going to pay a large bulk of the bill instead of maliciously stating "U.S. tax dollars by the billions ($13 billion at last count) are to be dispatched to Guam over the next six years".

Why does the foreign service continue to skew the story that Guam doesn't pay US income tax? The fact is, Guam residents do pay the very same tax, but, rather than the US make direct payments to support the US territory, it "allows" the taxes from Guam to stay on Guam. Given that the average income of Guamanians has always been near the bottom of all US jurisdictions, that doesn't provide an awful lot of tax largess.
(By the way, and on a different story, that fiscal stimulus package Washington is all agog about will, like the EITC handout it passed years ago, do huge damage to Guam's budget because, being the low income place that it is, its tax revenues aren't adequate to cope with these Federal handouts. Guam's Revenue and Taxation Department cannot even pay the tax refunds rightfully due its taxpayers because the government is running so deep in the hole. If you don't pay, you're penalized, but if they don't pay, hey, OOG.)
In fairness, once past the opening scenes, which Guambat found unnecessary, the rest of the story reflecting on the biggest changes to hit Guam since Magellan were balanced enough to portray the issues facing Guambat's neighbours, who are some of the friendliest and most pleasant people Guambat has had the pleasure to share community with, anywhere.

It's a conundrum, really. Guam is one of the most patriotic places in all of America, contributing far above its weight in military service. And Guamanians tend to be very hospitable. So it is difficult for them to express the anguish that many loyal citizens feel about the so-called "military build-up". (However, read the comments by "jbrodie" to the PDN article link above and here; the other comments are also enlightening, after a fashion.)

Guamanians aren't so naive that they forget how the colonizers, first from Spain and then from the US, are fickle about their use of the island and islanders. How the US Navy controlled Guam from 1898 until the 1960's for its own purposes, "sacrificing" rather than defending it, then bombing the bejeezus out of it to retake it, taking land that hasn't been returned or accounted for, and then, in the coolness of the end of the Cold War, packing up and leaving it all behind, just to come back and push aside the nascent tourism industry that was blossoming in the wake of the last military pull-out to make way for yet another planner who has recognized, as have others throughout the centuries (but only from time to time), that Guam sits at a pretty strategic part in the Pacific pool.

Guambat grew up on military bases and has looked at both sides now (apologies Judy). He has sat around the hotel swimming pool with a quiet group of Japanese visitors spending their money, making the hotel possible, and sat around that same pool when a visiting ship dropped hundreds of big, happy, playful sailors, tossing footballs across the pool, shouting and having a decent, good time while the Japanese tourists picked up their towels and went to the beach.

Things will change on Guam, and always have. For many of us, the quality of life will diminish, particularly the community and the places where the community congregates. But we will also be part of a much bigger picture, and Guamanians have for a long time felt worthy of holding their own in such a place, and that will be a big bonus.

And there will be much more material wealth, no doubt. Hopefully, that will lead to better education, health and other infrastructure, but the military is making no promises about that, and the US government suggests that Guam is perhaps asking for too much to expect anything of substance in return for being such great little natives sitting out there on that tip of the spear.

And since Guam residents do not have any vote in Congress nor can they vote for President, it is not likely that they will have much opportunity to voice their concerns to their fellow American citizens sitting far back toward the throwing end of the spear.

See, also Guam military platform concerns locals

Note that Guam, along with Cuba, Puerto Rico and the Philippines, was acquired by the US as the spoils of the trumped up ("Remember the Maine!") Spanish-American War (that "splendid little war" as described by the US ambassador to England to not-yet-President Teddy Roosevelt) and the Treaty of Paris ending that war, signed in 1898, the same year the US "annexed" Hawaii. All of those territorial spoils were officially "annexed" in 1899.

Note, too, that the US had the opportunity at the time to acquire all of the Marianas and most of Micronesia when negotiating the Treaty of Paris, but didn't want to be bothered with the burden of administration, so Germany bought it off Spain. The US very deliberately cherry-picked Guam, taking with the island all the people living on it, for its own, narrow strategic purposes, not Guam's.

At the time Guam was annexed as a territory of the United States, great chunks of the US were also mere territories, including Oklahoma (statehood in 1907), New Mexico (1909), and Arizona (1912); Alaska (purchased from Russia in 1867, before most of the Western states were admitted) and Hawaii were made states in 1959.

Friday, January 25, 2008

Rogue rules, yeah baby

You know the markets are in lala land when stuff like this happens and you aren't even making it up.

With the financial world teetering on a knife's edge of fragility, what with melting CDOs, crunching credits, subprime sabotage, garbage arbitrage, and hell being carried in a handbasket, of late every bit of bad news was treated as the end of the world. News of the day turned a bit of a correction into a bit of a bear.

The slaughter became so intense, and the wall street wailing so pitiful, that Ben Bernanke grabbed his gun and went out bear hunting, preemptively slashing interest rates by three-quarters of a point.

So it was very strange indeed when, after three days of unmerciful slaughter on the floors of the exchanges, and in what seemed to be the coupe de grace, news hit the headlines that one of the world's largest and staidest banks, Societe Generale, announced that it had lost about 7 Billion dollars in a fraud committed by a rogue trader (isn't rogue a French word? Did they invent it or merely dewey decimalize it?).

Incidentally, they also lost about $3 billion in subprime, credit crunchies, but, hey, who's counting anymore?

So what did the markets do with that news? Was it the guillotine or the victory parade?

Well, of course, the markets rallied their little buttskies off.

And why? Because, first, it was only fraud, not the abject mismanagement and mis-rated greedy incompetence that marked the credit crunch news, day after day. Why, fraud is almost a breath of fresh aire.

But even more fraternally jovial was the story that it seems the markets got a free kick from old Ben. Ha ha ha. Boy, that old Ben is sure good for a joke or two. Kick him again.

You see, what appears to have happened is that SocGen got socked by bad trades that had to be unwound, at enormous losses, and quickly before word got out and others front ran the bears. In Spain they run with the bulls, in France they ran with the bears.

And in doing so, SocGen socked it hard to the markets, pressuring them in a downward spin at a very opportune time, when markets were thinly traded. And the French, the bastards, didn't even advise the markets what was happening, so in context, it looked for and to all the world like the credit crunch Armageddon had arrived.

And that's when Ben got suckered. But it was his own fault, really. The French didn't put him up to his Bernanke put; he did it all off his own bat to look like one of the frat brothers helping out the Wall Street houses.

You just can't make this stuff up, not that Jeff Mathews would.

David Gaffen didn't make it up, but reported it in a much more lucid way than Guambat. Read his post, "Was the Fed Tricked?".

AFTERTHOUGHT: What's Ben going to think about more rate cuts once he catches wind of this?

Tuesday, January 22, 2008

Worth less, not worthless

Guambat can't speak for other bears but this bear doesn't get much delight in seeing markets fall apart. Guambat is/was bearish because he just couldn't buy into the circus sideshow which is the marketing of "wealth products" by the table pounding fast money, mad money, Captain America crowd.

Just because something is worth buying and having doesn't mean that just any price must be paid for it. The thing that made Guambat bearish was the over-hyping, hyper-teching of the markets, not the notion that capitalism must fail. It was the patent nonsense in throwing caution to the wind and risk out the discount window.

And Guambat is pleased that "values" (which tend to be in the eye of the beholder and holder) are reverting to something less hyped, more affordable, more valuable.

Given that Guambat's frame of reference for "the markets" is the Australian ASX200, it is worth mentioning that Guambat has seen the 5400 level on the index as a likely first (maybe last?) stop on a retracement of its overly bullish highs (which Guambat guesses may well see 4800 before this is all over, or, worst and unlikely case 3500). It's trading down to nearly 5300 today.

If this turns out to be a "mere" bear market, it could all be up from here.
Today's fall exceeded the 2 per cent needed for the ASX-200 benchmark to dive 20 per cent since its November 1, a level defined as a bear market. Australia would join 36 other countries already in bear market territory as of yesterday, according to Bloomberg data.
Guambat is not sanquine that this is, though, a "mere" bear market. It has the makings of something longer and stronger because of the huge amount of ignorance in the financial world (in both senses of the term) about the "value" of all that credit alphabet soup of souped up financially/genetically engineered magicians' tricks that exists ... who knows where?

In US market perspectives, Calculated Risk has produced some charts (click the link and study them) which show the degree to which past bear market plunges have gone, which indicates that a 20% drop is "garden variety". Looking at the Dow Index chart at Calculated Risk, Guambat's not insubstantial gut and intuition is that a 30% drop would not be atypical and a "reasonable" expectation.

With that in mind, Guambat hopes to stay out of the stores until the 30% off sale signs go up.

Of course, markets seem never to go in straight lines, or in the timeframe or direction expected. Thus, Guambat whiles away his time on Tumon Bay and not the French Riviera.

Disconnect -- or reconnect

Alluva sudden stock markets around the world are falling/plunging/capitulating for no apparent reason? Isn't the subprime mess contained as an America-specific problem?

This quote from six weeks ago:
"it is hard to believe in a paradigm of disconnect in a world of finance hard wired to the same trading screens".

the current crisis appears on track to be at least as bad as the five most catastrophic financial crises to hit industrialized countries since World War II.

Economic fears cuff Asia; India, Hong Kong slide
Recession fears spark heavy selling; Japan, China, South Korea also slump

Stocks in Europe become bearish after huge loss
Worst single-session since Sept. 11, 2001

Latin America Stocks Drop, Enter Bear Market, on Growth Concern

Canadian stocks drop sharply in opening trade

Mexico's Peso Falls the Most in 10 Weeks on Global Stocks Rout

U.S. stock futures point to major decline on re-open

The ASX200 index plunged 2.9 per cent, or 166.9 points, to 5580.4 yesterday in its biggest one-day fall in a month, and the broader All Ordinaries fell 168.5 points, to 5630.9 - the longest run of losses since January 1982.

Bank of China Ltd. appears increasingly likely to report a large write-down on its investments in U.S. mortgage securities, illustrating the broadening reach of the global financial downturn -- and how one of China's biggest lenders was less astute at avoiding the problem than it initially thought.

And this quote from a few days ago:
"the feeling is becoming more pronounced that maybe, just maybe, the market will finally break rather than just bend and give us the proper bear that many bear hunters have been looking for."

But maybe the best quote of the day is from Blackadder IV, courtesy of BBC, courtesy of FT Alphaville:
This is a crisis. A large crisis. In fact, if you’ve got a moment, it’s a twelve-storey crisis with a magnificent entrance hall, carpeting throughout, 24-hour porterage and an enormous sign on the roof, saying ‘This Is a Large Crisis’. A large crisis requires a large plan. Get me two pencils and a pair of underpants!

Monday, January 21, 2008

Captain Bligh's other mutiny

From all accounts, Captain Bligh was a pretty surly and unlikeable fellow, but he was also a pretty adept survivor. For most of us he was last seen drifting away into the Pacific with his crew in charge of the Bounty with many a "arrgghhh" and handsome mutineers. (Guambat hears there have been perhaps 5 movie versions of the tale of the mutiny.)

But Bligh managed to row (well, his rather diminished crew managed to row) to the lower Indonesian archipelago, Timor, and make his way eventually back to Jolly Old England. JOE didn't seem to very much want him back, however, and with a slap on the back, a "well done" and a "off you go", they sent him back to Australia as the Governor of the Colony of New South Wales, the capitol of which was Sydney.

And this is where we begin the tale of poor hapless and persistently unlikeable Bligh's second mutiny.

More to the point, this is where the Sydney Morning Herald begins the tale.
The Rum Rebellion happened a long time ago, 200 years ago next Saturday to be precise, yet some of its themes will be familiar to the modern reader. The rebellion - when the colony's garrison deposed the governor, William Bligh - involved a traffic accident and alcohol, town-planning disputes, masterful political spin and a struggle between men wanting to use public power for private gain.
Read the whole story here and have a multi-media experience of it here.

It takes a village named Nangang

The Sydney Morning Herald and its Asia Economic Correspondent John Garnaut have reported a storyline discussing the situation comrade citizens in China's rural areas face when it comes to protecting their land interests vis a vis their regional and local governments. And it would seem that China is not too keen to have these matters discussed, what with, among other things, the Beijing Olympics coming up this year.

The storyline starts out identifying a problem, but optimistic of a solution.

On January 16 it ran "Government plans education push to relieve land disputes".
CHINA'S central government has stepped in on the side of peasants against local officials to try to contain thousands of simmering land disputes that threaten to disturb the state's vision of a "harmonious new countryside".

A Ministry of Land official said most disputes were caused by local governments ignoring national laws and regulations when appropriating village land. Liu Mingsong said the peasants had both proprietary and contractual rights entitling them to fair compensation.

The Government would use TV, radio, newspapers, mobile phones and old-style banners and slogans to get its message of legal empowerment through to the country's 900 million peasants, he said.

Mr Liu said his department was investigating a Herald report on a particularly large and bitter land battle in Fujin city in Heilongjiang, adding that he was taking the dispute very seriously. "If the farmers employ lawful means ,then we will provide all our help to address their concerns," he said.

Next, on January 19, came "Prison for activist who talked to journalists".
Details of Yu's conviction remained hazy yesterday, with Fujin officials not answering their phones. A family member told the Herald: "Yu was arrested for talking to foreign journalists. So I cannot agree to talk with you until after he returns home."

If Yu's conviction is linked to discussions with foreign journalists, as family members believe, it would raise serious questions about the integrity of China's Olympics Games commitment to allow foreign journalists to freely conduct interviews across the country. But China also has tough anti-subversion laws, which may have been acted upon in this case.
Today John Garnaut sums in all up in a column, "Smiling logic smothers justice".
Millions of middle-class Chinese are gaining rights that we would normally associate with citizenship.

In the backwaters of rural China, however, the law remains nothing more or less than an instrument of administrative brutality.

After our story, three senior officials from the Fujin government flew to Beijing specially to meet us. The Herald, it turns out, had got the whole thing upside down. "There is no dispute in Nangang village of Fujin city, at all," said the round and ruddy-faced chief of Fujin's petitions office, Lian Feng, sipping on his cafe latte in the local Starbucks. Every city in China has a petitions office, supposedly a one-stop shop to lodge and investigate complaints.

Lian, agriculture bureau chief Du Guoli and deputy mayor Lu Guangliang delivered a priceless tutorial on the illusion of collective land "ownership" in the Chinese countryside.

If there is no land dispute, I asked, why did so many villagers mistakenly believe that there was one?

"Individual villagers do not represent themselves," said Lian in the manner of a reasonable bureaucrat. "The only legal representative of the village is the village management committee and they have never lodged a complaint with us."

"I don't know what farmers have told you but, since there's been no formal request from villagers, we cannot consider the question."

We had been told that one man, Yu Changwu, had somehow got past the thugs to lodge his petition a few years ago. But that wasn't much use, either.

"Yu's request was not co-signed by more than two-thirds of the villagers," said Lian. "His petition is not legal according to the regulations."

Du, the agriculture chief, said Yu's family was greedy because it already farmed 99 mu (1.7 hectares) and lived in a 102 square metre brick house. "He can't say he doesn't have enough land," he said.

Instead we talked about the land history. Yes, it had been previously farmed by Dong Nangang villagers before the Fujin government zoned it as "wasteland", and therefore non-village land, a decade ago. But that didn't mean a thing.

"Yes, they did use it, but user rights have never been proved," said Lian, with his colleagues nodding approvingly. "The state does not need to provide any proof of ownership, but collective owners do."

Around and around it went, in a perfectly logical circle, until the closing submission: implementing the law to serve the people. So, everything they do is in accordance with the law.

The deputy mayor invited us to visit his city again and said he hoped we would remain good friends.

"We give our heartfelt thanks for the interest you have taken in the lifestyle of the common people," he said....
Completely unrelated to the Chinese story, Guambat googled "it takes a village" and noted this "analysis" of Hillary Clinton's book by that title. Professing "we will try to avoid any partisan considerations of particular programs and policies", it then proceeds:
The focus of this essay will be on the book It Takes a Village. It sets forth a clear-cut agenda, and we as Christians need to ask ourselves if this is an agenda that can be supported from the Bible.
And without any Biblical support or analysis Guambat noted (not being inclined to carefully read this sort of thing), the author went on to opine:
interspersed between these long, warm, nurturing sections which appeal to your emotions are political statements about how government should be used to help the family.

Many will remember that the First Lady used a similar tactic in the past to try to sell her plan to nationalize health care.

Discerning readers should always be asking whether or not these problems can more effectively be solved by individual initiative, community activities, and church programs.

Mrs. Clinton has become the most visible, articulate feminist in the world. What she says in the United States, and what she says at international women's conferences (like Beijing, China) hold significant weight. So let's consider what she says.

Many of her other favorites indicate a clear endorsement of socialist programs by Mrs. Clinton.

She envisions a country in which "Big Brother" essentially becomes "Big Momma."

She proposes a system in which the First Lady becomes the "First Mom"--a system in which children are no longer the responsibility of the parents, but become instead wards of the state.

Yes, racism and sexism are a sad part of our American history. But pro-family leaders are not calling for a return to those values. They are, however, reminding the American people that there was a time, not so long ago, when values and virtue were a part of the social fabric.

They are not calling for a return to segregation or Jim Crow laws. They are not calling for a repeal of laws mandating equal pay for equal work.

Anytime someone disagrees with her perspective, the motive is labeled as chauvinism.

Mrs. Clinton often proposes socialist solutions to the problems she raises in her book.

In other parts of her book she also proposes liberal, government solutions.

From start to finish, Mrs. Clinton proposes government as the answer to every problem.

Government is not a village. Families don't need more government; they need less government. In a very limited sense we might agree that it does take a village to raise a child, but that doesn't mean it takes the government to raise a child.

Sunday, January 20, 2008

The shire magnitude of CDO meltdown is Mass-ive

As reported last month, Australian shire councils have been placed in dire circumstances by the losses handed them by CD-selling brokerage houses. And now we're seeing the security of those investments is being yanked out beneath US cities, too.

The WSJ tells the story of how Springfield, Mass lost about 90% of one of its main investments to the subprime credit crunch. It turns out
This fund was stuffed with risky securities backed by subprime mortgages.

Springfield's losses, because of the collapse in subprime-related debt, follow other hits taken by government-run funds around the country, from Florida to Montana. They underscore how cities and states are emerging as the most recent -- and some of the hardest-hit -- victims of the subprime-mortgage crisis.

Unlike many of the hedge funds, banks and brokerage firms burned by their purchases of shaky mortgage-backed securities, local governments usually lack the staff and resources to make informed decisions on complex investments.

Instead, they lean heavily on ratings firms and their advisers for guidance. Florida officials were forced to close down temporarily the state's short-term-cash fund late last year after local governments withdrew billions of dollars because the fund had invested in subprime-related securities it couldn't sell.

The Montana state fund also said it had suffered more than $300 million in withdrawals. The consequences of a government fund losing money can have a direct impact on schools, police and safety, and other public services. Over time, a municipality might have to raise taxes or cut spending if it loses access to some of its cash.

Like the Australian shires, the US municipalities are blaming the brokers who sold them the CDOs.

Fortunately for the brokers, they have friends in high courts, as The Economist has pointed out.
SIGHS of relief were audible in boardrooms across America this week at the Supreme Court's long-awaited decision in StoneRidge Investment Partners v Scientific Atlanta. At issue were the circumstances in which a company can be sued for “scheme liability”.

One immediate casualty of the StoneRidge ruling is likely to be a $40 billion class-action suit against the financial-services firms that advised Enron.
It is also likely to make it harder to bring successful suits against Wall Street advisers and ratings agencies over the subprime-mortgage meltdown.
See also the Bloomberg Commentary by Susan Antilla: "Is this the highest court in the U.S. or the Chamber of Commerce?"

Guambat joins with Bloomberg in adding, "The opinions expressed are her own."

Saturday, January 19, 2008

It's a vixing question

Just a month ago Guambat was, again, expressing a bit of aggro that Mr. Market was holding up bigger than Chesty Bond in the face of a deteriorating (or, as Guambat saw it, deteriorated) credit system, having a whinge that the market could only just muster bearly a correction.

Now that a few more points have been shaved off Mr. Market's carefully groomed face, the feeling is becoming more pronounced that maybe, just maybe, the market will finally break rather than just bend and give us the proper bear that many bear hunters have been looking for.

But really bad bears don't just jump out of the woods at you. First they stalk, and let the fear get very personal, very sweet. You can still manage a pucker and a whistle as you hurry along past the graveyard.

And so it is that you continue to see signs of puzzling "complacency" like this, from MarketBeat:
Investor sentiment has, for what it’s worth, turned viciously negative as investors consider the financial contagion that’s started to batter the economy, which is in turn creating more turmoil for the financial system, in the form of possible downgrades for bond insurers and reduced lending from banks.

The Standard & Poor’s 500-stock index has fallen 11% since December 26, while the Russell 2000 has declined 15% in the last 14 days. At the same time, Steve Goldman at Weeden points out that sentiment indicators, such as the Chicago Board Options Exchange index, or the VIX, are still at levels associated with a bit of concern rather than all-out panic.

“Two days ago we had a decline of 2.5% in the S&P and the Vix barely moved,” he says. “I looked back in history, and the times this has happened, the Vix was in the 40s. It’s in the 20s — why?”

And Barry Ritholtz asks, and gets a thousand responses to:
Question for the assembled multitudes: Are we closer to the beginning of this correction, with an oversold bounce due (anyday now) or-- is this the start of something even uglier, with the market heading relentlessly down without interuption?

Tell it to the boss

Guambat is glad to see more comment follow the lead taken by Kate Kelly in a WSJ story back in mid-December, particularly kicked along by a recent Michael Lewis column in Bloomberg, and for a pithy reprise of those comments see Felix Salmon.

Guambat had "read with interest" as they say that Kate Kelly piece and meant to spread it around here but twas the silly season and things just got away from him. He thought the story too stale to go back to, but it has been revived and it is good that it did. Now Guambat can have his say without it being too stale.

The story examined how it was that Goldman seemed to dodge the silver bullet that caught all the other Werewolves of Wall Street.

Lewis points to the idea that if you truly want inside risk management in an organisation, you can't embed it with the departments you intend to risk manage. As Felix points out, "One can argue about whether Goldman was lucky or whether it was smart. But I don't think it's fair to say that it was overruling its own traders."

The part of the Kate Kelly story that stayed with Guambat was the unanswered question:

Goldman's success at wringing profits out of the subprime fiasco, however, raises questions about how the firm balances its responsibilities to its shareholders and to its clients. Goldman's mortgage department underwrote collateralized debt obligations, or CDOs, complex securities created from pools of subprime mortgages and other debt.

When those securities plunged in value this year, Goldman's customers suffered major losses, as did units within Goldman itself, thanks to their CDO holdings.

The question now being raised: Why did Goldman continue to peddle CDOs to customers early this year while its own traders were betting that CDO values would fall?

A spokesman for Goldman Sachs declined to comment on the issue.

Friday, January 18, 2008

The high cost of insurance, portfolio and otherwise

Guambat isn't saying that the situation facing the markets at the moment is the functional equivalent of the 1987 tempest (which was a zigzag in what has shaped up to be a long, long bull run, not any kind of 1929 crash).

Who knows?, it could get worse. Or it might not. (Guambat, who had never owned nor traded a stock or any derivative thereof once asked a senior partner in a prominent Sydney brokerage what her view of the market was, and she very carefully and laboriously explained how it could go up ... or down ... or sidewise. Guambat has never been able to fault that explanation. As a lawyer, he had to give the answer top marks.)

Anyhow, back to 1987, that bit of turbulence was attributed to portfolio insurance gone awry. This time around it is pretty much the same saga; only this time the portfolio risk is monoline insurance, otherwise coming to a headline near you as "counterparty risk".

You see, not everyone was as smart as John Paulson, even those on the same contrarian side of the trade. Some of the folks on the contrary side of credit instrument "insurance" hedges just can't seem to take a trick these days and, consequently, may be ushered out of business.

Too bad for them, you say? Well yes and no.

You see, the thing that held the noses of some very big banks above water in the recent reporting season was the accounting notion that many of their unrealized losses where unrealized because they realized early on that they needed insurance to cover the very dicey nature of those "assets" on their books. And it was that insurance that kept them from going down for the third time.

Now just suppose that the insurance company that was supposedly holding them afloat is already underwater and hanging on to their trousers. In that case, they're both on their last legs.

Guambat again must turn to the professionals for the confessionals:

FT Alphaville has two quickies on the subject which raise the alert. Gwen Robinson notes "Fears that the credit crunch might be entering a grim new phase grew Thursday as investors lost confidence in the insurers that guarantee payments on billions of dollars in bonds" and she paraphrases how Lex frames the issue:
the prospect of a second leg of big charges for Merrill if the monoline situation worsens. Other banks will also have to reflect the gathering storm over bond insurers, when positions are next marked to market. In the meantime, fear over counterparty risk, on all manner of trades, is likely to grow.

Bloomberg puts more meat on the story:
MBIA Inc. and Ambac Financial Group Inc., the two biggest bond insurers, have a more than 70 percent chance of going bankrupt, credit-default swaps show.

Moody's Investors Service threatened to cut the AAA credit ratings of their insurance units.

The bond insurers place their AAA stamp on $2.4 trillion of debt sold by thousands of municipalities across the country, as well as subprime-mortgage securities. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg.
And Yves Smith of Naked Capitalism compares the Financial Times take with the WSJ take on the story, asking, "How Far Down is Down, Exactly?"
The Financial Times and the Wall Street Journal both address one of the major causes of the mini-panic: a new focus on counterparty risk.

there is a case to be made (and I am surprised no one has argued it) that this is an unregulated insurance market, but going down that avenue might have created massive turf wars between Federal banking and securities regulators versus state insurance authorities.

The biggest problem with the lack of jurisdiction is that it isn't at all clear who if anybody has the authority to address any problems that occur. A downgrade of MBIA or Ambac will have vastly worse consequences than the bankruptcy of Countrywide would have. Yet there is widespread belief that the government played a hand in the staged purchase of Countrywide by Bank of America, possibly to forestall the losses to the Federal Home Loan Bank system. But no regulator (save perhaps New York's superintendant of insurance, Eric Dinallo) seems to be on top of this situation.

The best we can reasonably hope for is that the likes of Berkshire Hathaway and AIG shore up part of the monoline's portfolios, either by purchasing them or more likely via reinsurance.

Guambat is sure he has recently read other casandras' fears and foreboding on the subject of late, but can't find them to give credit and "network" their views. Just as well. It was too much credit going round that got us here.

PS: Guambat had not ready Barry Ritholtz' post when he wrote above "otherwise coming to a headline near you as "counterparty risk"." In fact, he's pretty sure Barry's post was not up when he put his own up. But Barry has used a similar expression in his more lucid take on the "counterparty risk" story:
Get used to hearing that phrase: Counter-Party Risk. You will be hearing a lot of it in the coming year.

Upfront about their pay - and that's the problem

LIAM PLEVEN and SUSANNE CRAIG wrote a front page WSJ article today that only says what a lot of people have been saying for a long time is wrong. Not necessarily morally wrong in that sense, but wrong from a benefit reward sense when the whole system is evaluated. Wrong in the sense that the incentives distort the end goal.

But since the people benefiting from this arrangement include the CEOs and most of management, there has been no one around to try to put a stop to it. And now that the market is putting a stop to the businesses that are skewed this way, the issue is finally getting a bit more spotlight.

It's the way the pay packets are structured, not the size, that is the culprit (well, not for this post anyway). It creates a divergence of interests with the enterprise, not the vaulted convergence.

Guambat reckons last year's tempest in a tea cup about back dating and under gating options was just one aspect of the whole shebang.

But the real journalists probably say it better than a mere sideline, part time, unpaid, anonymous plume de blog observer.

Guaranteed Rewards Of Bankers, Middlemen Are in the Spotlight
To understand a root cause of the financial crisis shaking global markets, take a look at [a broker's] paycheck.

He earns his money upfront, taking a percentage of each loan once papers are signed. "We don't get paid unless we can say YES" to loans, his firm's Web site says.

Brokers have little incentive to say "no" to someone seeking a loan. If a borrower defaults several months later -- as Americans increasingly are doing -- it's someone else's problem.

At every level of the financial system, key players -- from deal makers on Wall Street and in the City of London to local brokers -- often get a cut of what a transaction is supposed to be worth when first structured, not what it actually delivers in the long term. Now, as the bond market wobbles, takeover deals unravel and mortgages sour, the situation is spurring a re-examination of how financiers get paid and whether the incentives the pay structure creates need to be modified. This week, Congress asked three prominent executives to testify about their pay packages.

Upfront commissions and fees are well established on Wall Street. Investment banks get paid when billion-dollar mergers are inked. Firms that create complex new securities are paid a percentage off the top. Rating services assess the risk of a new bond in return for fees on the front end.

Critics argue this system can give people a vested interest in closing a deal, regardless of whether it turns out to be a good idea over time.

In various forms, a similar pay structure exists at the top of the financial world, where executives can reap lucrative pay packages, even if deals made on their watch later go south.

The financial world's pay structures are also at the center of the market for new investment products, which grew rapidly in recent years.

Wall Street came up with ways to repackage mortgages and other debts into securities that could be traded much like regular bonds. These, in turn, could be sold to new clients -- such as mutual funds -- that would have had little appetite for the original debts.

It enabled financial houses to sell off mortgages and other debts that previously might have remained on their own books. This meant the people who originated the loans often didn't have much of a direct financial stake in whether the loans are eventually paid off.

The new securities are tradable, so they can routinely be sold to others. That has led to the revival of an old one-liner on Wall Street: "A rolling loan gathers no loss."

TAGGING ON: Guambat didn't want to make another whole post on it but ran across this bit running not too far off the point of this post, from Steve Waldman's usually informative and interesting Interfluidity blog:
Institutional managers herded into structured products promising high yield at next to no risk, products that seemed to violate the most elementary rule of finance (no arbitrage), and were shocked, shocked when after four years of great bonuses, their clients learned there was risk after all. And bankers of all ilks and alphabets, I-bankers, C-bankers, M-bankers, discovered there was great money to be made, intermediating (originate and sell!), dealmaking (LBOs, baby, it's a new era of infinite leverage and no defaults!), and shoving risks where stockholders and regulators couldn't see them (SIVs are just innovative!).

We should pick on them. It's not because they're bad people. Most bankers are very nice people. We should pick on them because, as Andrew says, banks intermediate. They are a point where all the lunatics meet to transact, a point where applying pressure can change everything. We can rant and rail against human nature, but who cares? People is people, God bless 'em.

But banks are formal institutions, amenable to laws, regulations, and litigable norms and standards that are easily reshaped. We don't have to throw up our hands at frailty and corruption and watch reruns from the 1930s over and over again. We can actually mess with banks (and other financial intermediaries) in ways that indirectly shape the behavior of the rest of us (and that are not terribly intrusive to most of us).

It simply isn't true, in the general case, that human desires are exogenous and "demand will find supply". The explosion of misbehavior on all sides of the credit market over the past several years was not caused by a burst of theta-waves from the Earth's core.

We allowed our institutions to evolve to a place where misbehavior was ordinary, caution uncompetitive, prudence a firing offense. If we change the institutions, we change the behavior. We can do that, and we should do that.

PS. Peter Hartcher, in the Sydney Morning Herald Jan 19th, has this take on that WSJ story: Bad loans have come home to roost

Wednesday, January 16, 2008

Chinese Confucian over American philanthropy

In the prior post, Guambat related the WSJ story of John Paulson, who made billions by betting on the credit bubble bursting. The Journal story including the anecdote that Paulson
"has told friends he'll increase his charitable giving. In October, he gave $15 million to the Center for Responsible Lending to fund legal assistance to families facing foreclosure. The center lobbies for a law that would let bankruptcy judges restructure some mortgages."
Coincidentally or not, the Journal also ran a column from its jounalist Li Yuan, entitled "Understanding American Philanthropy", in which she explains the puzzlement that Chinese people have about the American trait of giving. Ms. Yuan frames the puzzlement as follows:
This couldn't be further from the traditional Chinese belief that "fertile water should be kept to your own soil" -- wealth should be passed down through families. Confucian belief also holds that charitable donations should be done quietly, and a man of virtue should shy from fame.
She looks at some statistics and many individual acts of giving and notes the many different reasons American cite for giving/donating/tithing. She concludes,
It's also hard not to be philanthropic in this country. Public radio and TV stations keep reminding you over the airwaves that you should support them. Around Christmas and New Year's, newspapers and magazines offer page after page of advice on how to give wisely. And your friends will enlist you in their own causes. Raising several thousand dollars for a charity can get you a guaranteed entry in the New York City Marathon -- which is how my friend Piya ran in 2006.

And then there's the mail. Looking through it one recent weekend, I found letters from Amnesty International, UNICEF, the United Nations Children's Fund, and the Smile Train, which provides free cleft-palate surgery to children in developing countries. Robin, a filmmaker, told me over Thanksgiving dinner that the letters make her feel that she's not giving enough.

Sometimes I'm still puzzled by the fact that some Americans are as generous as they could be to strangers half a world away, but reluctant to help out their immediate families. But while I wouldn't want Chinese people to lose our tradition of filial respect, I think we could benefit from expanding our horizons in thinking about who really needs help.

With social unrest looming amid the growing income disparity in China, it might be in the interest of the rich to have their wealth benefit more than their offspring. I hope they would have more freedom to set up foundations and other charitable organizations. I also hope that they wouldn't be shy about lending their names to charities, and that the public would spend less time judging whether or not their philanthropic acts are done completely out of altruism. What does it matter if their motives are pure or not? The most-important thing is that those in need are getting help.
It's a pleasant read, particularly the sidebar note describing her column, "About Beautiful Country". Read and enjoy. It's even available in a Chinese language version.

Of pricks and bubbles

Chairman Greenspan introduced us to the central bank dilemma of whether to prick a bubble or pick up the pieces. His assessment was that bankers weren't such good pricks and much better at cleaning up after the fall.

Tell that to Humpty Dumpty.

But, it seems, maybe he's right, at least on a personal level. He's about to clean up, himself, by joining the winning side that bet on the subprime bubble (which Guambat prefers to describe as a more generic credit melt-up engineered by the Chairman's easy credit policies, and which are now visiting us as a wider credit crunch melt-down than mere subprime bust).

The WSJ reports that Mr. Greenspan "is signing on as an adviser to hedge-fund firm Paulson & Co., which has profited handsomely from the collapse of that bubble."

The story tells us he now has three consulting contracts: "all three of his clients have profited from a bearish view on housing and mortgages."

That story is one of a trifecta that the Journal put together on the people who gained from the pained subprime borrowers, but probably more from the funny money that thought they were the ones making the money off the subprimes, the banks and brokers who packaged, sold and distributed that toxic waste.

Now that the big banks are finally fessing up to gigantic losses on those bets, these stories show us where at least some of those losses are showing up on the other side of someone else's balance sheet. The Journal, following other stories in Bloomberg and, perhaps elsewhere, began to lift the cover on this story over a year and a half ago.

One of the biggest players to profit from the mortgage bubble burst, as reported in today's WSJ, was John Paulson. Although his hedge funds did well enough, "Mr. Paulson has reaped an estimated $3 billion to $4 billion for himself -- believed to be the largest one-year payday in Wall Street history." More:

Merely holding a different opinion from the blundering herd wasn't enough to produce huge profits. He also had to think up a technical way to bet against the housing and mortgage markets, given that, as he notes, "you can't short houses."

Also key: Mr. Paulson didn't turn bearish too early. Some close students of the housing market did just that, investing for a downturn years ago -- only to suffer such painful losses waiting for a collapse that they finally unwound their bearish bets.

He began selling short the bonds of companies such as auto suppliers, that is, betting on them to fall in value. Instead, they kept rising, even bonds of companies in bankruptcy proceedings.

"Where is the bubble we can short?"

One Wall Street specialty during the boom was repackaging mortgage securities into instruments called collateralized debt obligations, or CDOs, then selling slices of these with varying levels of risk.

For buyers of the slices who wanted to insure against the debt going bad, Wall Street offered another instrument, called credit-default swaps.

Naturally, the riskier the debt that such a swap "insured," the more the swap would cost. And this price would go up if default risk appeared to be increasing. This meant an investor of a bearish bent could buy the swaps as a way to bet on bad news happening.

During the boom, however, many were so blind to housing risk that this "default insurance" was priced very cheaply. Analyzing reams of data late at night in his office, Mr. Paulson became convinced investors were far underestimating the risk in the mortgage market. In betting on it to crumble, "I've never been involved in a trade that had such unlimited upside with a very limited downside," he says.

"We've got to take as much advantage of this as we can," Mr. Paulson recalls telling a colleague around the middle of 2005, when optimism about the housing market was at its peak.

His bets at first were losers.

He decided to launch a hedge fund solely to bet against risky mortgages.

Housing remained strong, and the fund lost money.

Investors had recently gained a new way to bet for or against subprime mortgages. It was the ABX, an index that reflects the value of a basket of subprime mortgages made over six months. An index of those made in the first half of 2006 appeared in July 2006. The Paulson funds sold it short.

Mr. Paulson, who was already worth over $100 million before his windfall, isn't changing his routine much.

One thing is different: It's easy to attract investors now. The firm began 2007 managing $7 billion. Investors have poured in $6 billion more in just the past year. That plus the 2007 investment gains have boosted the total his fund firm manages to $28 billion, making it one of the world's largest.

Mr. Paulson has taken profits on some, but not most, of his bets. He remains a bear on housing, predicting it will take years for home prices to recover. He's also betting against other parts of the economy, such as credit-card and auto loans. He tells investors "it's still not too late" to bet on economic troubles.
But as often happens to spoil a perfectly good trade, many others started jumping in to do it, too. Guambat's chemistry teacher in a dingy South San Antonio Junior High School lab almost 50 years ago demonstrated to him the fallacy of "if a little is good a whole lot is better".

So it was that Mr. Paulson found big fish, like George Soros, inviting him around to share his lunch. But it seems what really cheezed him off was when an associate of his struck out on his own using the same idea.

Actually, "struck out" is not the most accurate description. Struck oil would be more like it.

The third tale in the WSJ trifecta is about that guy, Jeff Green.
If Mr. Paulson is the pensive, low-key mastermind of the lucrative bearish bet, 53-year-old Mr. Greene is the strategy's most flamboyant exemplar. A Los Angeles real-estate investor who made and lost a bundle 15 years ago, bounced back, bought himself three airplanes and a yacht, and entertains celebrities in his multiple homes, Mr. Greene has hired a P.R. firm to raise his profile and help him move into new business spheres.

"He never told me: 'Don't do it,'" Mr. Greene says. Mr. Paulson won't discuss the matter.

For the artwork in Mr. Greene's new Beverly Hills mansion, money is one motif. A dark metal rendering of a dollar bill hangs over the bar.

Eroticism is another. In the east wing are two huge erotic paintings that Mr. Greene waited to hang until after his September wedding there.

After a 2½-year run through Johns Hopkins University, he saved up $100,000 in three years managing telemarketing centers, which he used to make his first property investment: a three-family house in the Boston area. He lived in it while getting a Harvard M.B.A., acquiring 17 more homes while at the business school.

He bought and developed low-slung apartment buildings in the Los Angeles area, using loads of borrowed money. "My early windfall was a result of the excesses of the S&L era," Mr. Greene says. He says he had pushed his net worth to $35 million before the savings-and-loan crisis all but wiped him out in the early 1990s.

"I went through a very tough time. I didn't know how I would get out of it," he says. But by the late 1990s, as the California economy recovered, he was on his way to an even bigger fortune, eventually including 7,000 apartments.

He bought three jets, most recently a Gulfstream. Though he paid just $2 million for an older model, "I certainly could afford" a $50 million one, he says. He adds, in a telephone interview from his 145-foot yacht: "I tend to be pretty conservative in the way I spend money."

His wine will bear a label using the name that he and his 32-year-old bride, Mei Sze Chan, chose for their sprawling nest. "Palazzo di Amore," Mr. Greene says -- "it's a bit cheesy, but that's what it means to us."

Friday, January 11, 2008

Will Merrill be Lynched?

JULIA WERDIGIER and JENNY ANDERSON are writing in the NYT that a Giant Write-Down Is Seen for Merrill, about twice the size it earlier predicted and "far" exceeding expectations.
The developments underscore the rising toll that the mortgage crisis is taking on many once-proud Wall Street banks. In recent months Merrill and several other firms have grabbed financial lifelines from wealthy foreign governments.

Mr. Thain, who won plaudits as head of the New York Stock Exchange, has wasted little time. After he took over last month, Merrill Lynch promptly sold a $5.6 billion stake to Temasek Holdings, which is controlled by the government of Singapore, and Davis Selected Advisers, a money management firm based in Tucson [don't they lynch bull thieves and other varments out there in the wild west?].

[H]e has said that Merrill is considering selling noncore assets like its stake in Bloomberg, the financial news and information company founded by Mayor Michael R. Bloomberg of New York.

Among other things, that means Merrill will now pay fewer bonuses based on individual performance and instead focus on the performance of a team [and employees will be pouring over the Personnel Manual to find the definition of that]. Many employees received bonuses this week that included a greater portion of stock than in the past.

In addition to seeking funds from outside investors, which heavily dilutes the stakes of existing shareholders, Merrill Lynch has sought alternative ways to raise capital. In December, it agreed to sell most of its commercial finance business, Merrill Lynch Capital, to General Electric, raising about $1.3 billion in equity.

Mr. Hintz, the securities analyst, suggested another option would be to reduce the firm’s fixed-income business by a third, which would add about $3 billion in capital.

He estimates that Merrill will write down its $27 billion of combined collateralized debt obligation and subprime-related exposures by $10 billion and report a loss of $5.10 a share for the fourth quarter. Any write-down above $20 billion, he said, would “significantly increase leverage and would threaten the credit ratings of the firm.”

Bernanke putz fire under stocks

Mr. Market was in the doldrums most of the day. But Bernanke putz some fire into it, changing the traffic lights from red to green, with his suggestion that there may have to be substantive interest rate cuts to deal with mounting risks. (See, e.g., MarketBeat blog.)

Guambat reckons all those folks (including some very big folks) who can't seem to get credit at any price will be just damned delighted that it will be cheaper for them not to get it now.

Guambat wonders why Mr. Market got so slap-happy with the prospect of Mr. Risk mounting him.

Guambat wonders why he's up this time of day wondering.

"Tis better to give -- and get

Now that there's a credit crunch of sorts going on, it seems polite to tip-toe around the sensitivities associated with leverage, capital raising and the sort. In these straitened times, it is politic to respect Franklin's Almanac: "Never a lender nor a borrower be".

That was Guambat's take on reading The Morning Brief in the WSJ today and following on to read its link to another WSJ story. (It was also the tip-off for the prior post about Northern Rock, thank you very much.)

TMB reported, "A Mideast government fund is expected to give between $3 billion and $4 billion to Merrill Lynch...."

Mighty bloody nice of 'em Guambat reckons. 'Tis better to give than to receive.

Chasing up the storyline in the related article, Guambat reads that Merrill and Citigroup are in line "to get additional infusions of capital from investors, primarily foreign governments."

Merrill is expected to get $3 billion to $4 billion, much of it from a Middle Eastern government investment fund. Citi could get as much as $10 billion, likely all from foreign governments.
The Journal reckons all this gettin' and givin' is "salubrious":
It's better for capital-short banks to raise money from investors than to sell assets and cut back on lending -- thereby spreading the credit crunch from Wall Street to Main Street.
The Journal article also notes that Citigroup is thinking about putting away some preserves of its own:
"The board of Citigroup is expected to meet on Monday, a day before it reports earnings, and to discuss cutting the firm's hefty dividend in half."
Felix Salmon (thankfully) instructs how a real journalist looks at the Journal article.

Guambat will just be gettin' back in his burrow now while he gives some thought to moving out past the black stump, far away from the streets.

Outsourcing the nationalisation of Northern Rock bank

Guambat has noted before the struggle over in Jolly Old England to either nationalize Northern Rock bank or to simply privatize its profits while the government purse guarantees its losses.

Now, it appears that "Alistair Darling, the chancellor, has told Goldman that the government has no objections in principle to so-called sovereign wealth funds being included in any financing solution."

Treasury believes it is sensible for the sovereign wealth funds to be approached, given that they have accumulated vast cash reserves after the fourfold increase in the price of oil over the last five years. The main players in the region are the Abu Dhabi Investment Authority and the Qatari Investment Authority.

These Middle Eastern states, as well as wealthy governments in Asia, have already helped to prop up the US banking sector, which has been badly hit by the subprime mortgage crisis. The Abu Dhabi Investment Authority has poured billions into the US bank Citi, while Beijing has taken a stake in its rival Morgan Stanley.

Barclays also turned to sovereign wealth funds in China and Singapore when it needed funds for its ill-fated bid for the Dutch bank ABN Amro.

A private sector sale is preferred by shareholders who are anxious that they will lose all the value of their investment if the government resorts to nationalisation - a route that ministers are also desperate to avoid. But it is known to have encouraged Goldman Sachs to consider a number of options to unravel the crisis. Among the options are a private sector buyout, nationalisation with taxpayer support keeping Northern Rock operating until a buyer can be found, or a very brief period of state ownership followed by a bailout by Britain's commercial banks.

Thursday, January 10, 2008


Guambat doesn't know if BO still means what it used to mean or if anyone is around who still remembers what it used to mean. But a couple of posts in WSJ's Deal Journal blog reminded him of that old phrase. First, there is the one about "What Wall Street Banks Learned From Broken LBOs". This one suggests that the buy out boys will now have more chaste in their haste than taste in their chase.
In their haste to cash in on the roaring buyout market the last few years, all parties concerned got a little sloppy.

Perhaps most striking is the merger agreements themselves. Highly detailed and clear-cut documents in all outward appearance, many of them turned out to be downright imprecise. That lack of precision enabled the parties to gloss over fine points that could have slowed their rush to the bank. Now, it has been coming back to haunt them.

The post didn't point out, but Guambat will, exhibit x: The Genesco/Finish Line deal.

Then there is the one about "
Taking the ‘L’ Out of the LBO". Here, they tell about how, to get the deals closed, party hardy buy out boys are actually having to put their own money where their mouths are. For instance, to grease the wheels on this one,
KRG Capital Partners, for instance, acquired lubricant distributor Tri-County Petroleum, for an undisclosed amount, by bridging the entire transaction with equity capital.

This means firms will, to some extent, sacrifice returns in exchange for the certainty of closing. As firms put in more equity, they use less debt, which is the juice for higher returns.

Of course, this isn’t a favored tactic of buyout shops... the tactic was a “by-product” of the credit crunch, and ... they have used more equity than they normally would since the debt market seized up.

Yep, the real buzz of a buy out is to use someone else's money. Yeah boy, that's real buzziness.

Hell, even a Guambat knows that an LBO without the 'L' is plain old BO (in case any of youse was thinkin' this pic is about a bunch of guys sticking they eLBOws out).

Time to buy ... Ball jars

Guambat's relatives, he recalls from his distant youth, were rich. You wouldn't have got that impression from their digs, but from their cellars and pantries. One of the great joys of visiting the oldies on the farms and in their small towns was to go down to the storm cellar or the basement or into the pantry and drool over the shelves loaded down with Ball jar after Mason jar (and many jelly and jam jars, too) of "preserves".

Back then, when the times and seasons were replete, they'd "put away" or "can" tomatoes, relishes and chow-chow, jams of just about any fruit you could imagine, peaches, rhubarb, apricots, pears, apples, cherries, plums, strawberries and all sorts of other berries, figs, pickles, beets, marmalades, peas, beans and all the wonderful treats that filled their abundant tables during thick times and, if they were careful and lucky with the weather, thin.

And down or out in those cool places where all those preserves weighed dusty on the shelves, the wealth, to Guambat's young eyes, abounded.

Guambat was reminded of those days of yore by this article's title:

MBIA slashes dividend to preserve capital

MBIA Corp. is cutting its quarterly dividend by 62% as part of a plan to preserve capital and maintain it's all-important AAA credit rating, the bond insurer said Wednesday.

"We are committed to the successful implementation of this comprehensive plan to significantly strengthen our capital position and secure our Triple-A ratings without qualification," said Gary Dunston, the company's chief executive, in a press release.

MBIA isn't the only company to suddenly be taking an interest in putting a way a few preserves.
Citigroup analyst Prashant Bhatia reiterated his "sell" rating on [E*Trade]. and said he expects the company to reduce headcount in the first quarter to preserve capital.

"The banks have to preserve capital and the first step is to cut the dividend," Miller [analyst Paul Miller of Friedman, Billings, Ramsey Group Inc.] said.

National City Corp. fell to its lowest price in 12 years after Ohio's largest bank said it will eliminate 900 jobs and halve the quarterly dividend, the first reduction since the payout began in 1935.

The yield for Washington Mutual Inc., the biggest U.S. savings and loan, also exceeded 10 percent before the Seattle- based company reduced its payout last month by 73 percent.

Among banks listed in the Standard & Poor's 500 Stock Index, Memphis-based First Horizon National Corp., the largest bank based in Tennessee, still yields more than 10 percent. First Horizon will probably be next to cut its payout....

Being in New Zealand doesn't make US Rep. John Lewis an All Black

Over Guambat's IRESS newswire screen comes this short note, begging for the just-right headline*:
Wellington, Jan 9 NZPA - A senior United States black politician, Representative
John Lewis, says he has no regrets about endorsing Hillary Clinton over Barack
Obama - a black candidate -- for the 2008 Democratic presidential nomination
given their performances in Iowa and New Hampshire.

But the Atlanta Democrat and civil rights leader, currently touring New Zealand
with a congressional party, also expressed admiration for the success Obama
enjoyed in early voting - primarily at the expense of Clinton.

"Thank goodness for what Obama has been doing in Iowa and New Hampshire. It's
historic," Lewis told the Atlanta Journal-Constitution from New Zealand.

"It's just the beginning," said Lewis, who spent his life fighting for black
voting rights and then raised eyebrows by backing Clinton, a friend, over

*Hint for Yanks: Think Kiwi Rugby Union.

Tuesday, January 08, 2008

Australian Government moves to micromanage interest rates

This story has the first blush of bashing the newly elected Labor Government, as the SMH and other major Fairfax/non-Murdoch Australian papers (compare this) report that Treasurer Wayne Swan is doing more jawboning than chewing the fat over recent bank interest rate rises that are not immediately connected with official interest rate rises.

But watch carefully; not all is as it seems as the story gets spinned.

The SMH report:
THE Treasurer, Wayne Swan, has sought urgent briefings from key financial and regulatory agencies about a decision by the ANZ Bank to lift its standard variable mortgage rate by almost double the amount announced by NAB last week.

But in a strong message to these other banks, Mr Swan said last night he was seeking advice on why the ANZ's increase was so much larger than that by NAB.

"I would also point out that any excessive rises will not be viewed favourably by the Government ...," he said.
It sounds as if he's summonsed watchdogs to answer to him:
Officials from the Reserve Bank, the Australian Prudential Regulation Authority and Treasury will brief the Treasurer in his Brisbane offices today about the discrepancy.
The Melbourne Age on the same topic:
Treasurer Wayne Swan has issued a veiled threat to banks not to be greedy after a second major institution lifted mortgage rates independent of the Reserve Bank of Australia (RBA).

Both banks have blamed their decision to lift rates - independent of any change in the official cash rate by the RBA - on the global credit crisis.

And homeowners could be facing further pain when the RBA meets on February 5 to decide whether it should raise the official cash rate from its current 6.75 per cent.

Last week, Mr Swan defended NAB's decision as he urged the banks to think about the impact of their actions on families and businesses.

While still maintaining that the banks were acting as a direct result of the credit crisis, Mr Swan pointed out they were very profitable and warned unnecessary hikes would be frowned upon.

"Although this is clearly a direct consequence of the US sub-prime crisis, I do point out that Australian banks are very profitable, and would caution them against putting additional and excessive pressure on families," he said.
And here's that summons again:
He will seek briefings from RBA and regulatory authorities on Tuesday in what appears to be a move to make sure that the banks aren't taking advantage of their customers.

Mr Swan has asked for briefings from the RBA and prudential authorities to satisfy himself of the necessity of the hikes.
The Murdoch take is puzzlingly "friendly" in playing down the hands-on approach of the Government while also providing some of the same quotes as Fairfax articles:
The rise, which follows the 0.12per cent increase announced last week by the National Australia Bank, sparked a warning from the Treasurer, who was last week criticised for his soft approach in handing the bank's rate rises.

"Customers will want to know why the ANZ's hike was almost twice the NAB rise announced last week and that's a fair question," Mr Swan said.

"I would also point out that any excessive rises will not be viewed favourably by the Government or by Australian families, who can vote with their feet in a competitive banking market."
And the mention of summonsing briefings was certainly toned down:
The Treasurer called together top officials from the Reserve Bank, the Treasury Department and banking regulator APRA for a briefing on the economic outlook as a rise in US unemployment sparked a sell-off on Australian and Asian markets.
So is the Labor Government going where no Australian Government has gone before?

Hardly, as Murdoch News explains:
"Treasurer (Wayne) Swan's tempered reaction to NAB's rate increase shows that the pseudo-regulation of mortgage pricing has been removed."

ANZ chief economist Saul Eslake said banks would have increased mortgage rates sooner, but for extreme political pressure by former treasurer Peter Costello.

"The main reason why banks haven't moved before this point is, to put it bluntly, because of the extraordinary political pressure exerted on banks by the previous government, and in particularly by the previous treasurer Peter Costello during the lead-up to the last election campaign," he said.

Mr Eslake said Prime Minister Kevin Rudd and Mr Swan had taken the position that it was up to banks to decide when to raise rates.
So what's going on here? It appears to Guambat that the Fairfax media adoration of Malcolm Turnbull deserves to be served with a spoonful of salt.

It also appears to Guambat, however, that the Government had better learn to set its own agenda, if it has one, rather than let Mr Turnbull set up straw men for them to try to knock down. After all, this is the same Turnbull who turned the Republican issue upside down so very craftily.

The Australian ABC reported: Swan, Turnbull trade blows over rates rise
The Federal Opposition's treasury spokesman Malcolm Turnbull has seized on the [bank rate] move, warning the Government's industrial relations changes are adding to the problem.

"The reality is that the Rudd Government is working to put prices up," he said.

But Treasurer Wayne Swan has hit back, saying he inherited a legacy of inflation.

Mr Turnbull says for a government that campaigned hard on the cost of living, Labor's done little to help struggling families since coming to power.

"What's happened since he's been elected, is we've seen petrol prices going up, interest rates going up," he said.

"What's Rudd got to say about it? What's Wayne Swan got to say about it?

That's classic Turnbull, taunting the opposition into a position where there is no defensible stand to take; the issues are beyond Government control. Turnbull, it should be remembered, was a player in the immediately prior Government which had been in power for near-record time, and Labor has only just recently been sworn in, so it is particularly cheeky to ask "what's happened since he's been elected?"

Guambat reckons, when Malcom says, "What's you got to say about it?", that nothing is a pretty good response. Instead of pollie-knee-jerking slapping the cheek back, Labor should turn another cheeky. Talkin' ain't walkin', noways.

Guambat remains baffled, though, at the strange bedfellows: Murdoch and (liberal) Labor vs Fairfax and (conservative) Liberals.

It is probably simply a case of Foxy Rupert, being the pragmatic mogul that he is, choosing a bedmate from within whatever government is holding (or about to grasp) power, and Fairfax having the opportunity to promote a fellow Eastern Suburbs plum whilst also sniping away at the government of the day.

Davo would probably have a much clearer understanding.