Saturday, August 29, 2009

Is this a Samson for the Too Big To Fail institutions?

Michael Hirsh has an interesting column in Newsweek discussing the TBTF issue. He reports on the comments made by Ben Bernanke's economics mentor, Stanley Fischer.

What makes it so interesting is that Stanley Fischer is from within the TBTF institutions himself.
Fischer was not only Bernanke's teacher; he was also one of the preeminent economic officials of the '90s, the era of the "Washington consensus" bias in favor of deregulation. After leaving the IMF he became vice chairman of Citigroup—the corporate embodiment of the too-big-to-fail problem. So it was all the more remarkable to hear Fischer apparently jumping to the other side of the issue and chiding his former student at the annual Jackson Hole, Wyo., conference for central bankers last week. Fischer also seemed to take aim at his former allies from the deregulatory '90s, Larry Summers and Tim Geithner. "We seem to be taking it for granted that we should go back to the structure of the financial system as it was on the eve of the crisis," said Fischer, who is now the governor of the Bank of Israel.

We have a free-market system dominated by institutions so huge and "systemically important" that they don't have to play by free-market rules. Excessive risk-taking is built into the system because bailouts are; the promise of the latter begets the former. And as The Washington Post reported Friday, the problem is getting worse rather than better: nurtured by government bailouts and a hands-off approach to their size, the biggest banks are getting even bigger and, therefore, harder to control. Both Bernanke and the Obama administration are acutely aware of this "moral hazard" problem and have sought to address it. But the biggest undercurrent of worry at Jackson Hole was that reform efforts were getting bogged down in political bickering... many at Jackson Hole talked about resistance on Capitol Hill, which is particularly susceptible to Wall Street lobbying.
Worth the read, and a letter to Obama and your legislators.

Since Guambat resides on Guam, he can't vote for President and has no Congressman nor Senator, he can only peck away at the keyboard and grumble.

Grumble, grumble.

Post Note:

Banks 'Too Big to Fail' Have Grown Even Bigger
A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.

"It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis."

Cerberus locked out

Cerberus, that private equity/hedge fund partnership whose management put investor monies into such big hits as General Motors' GMAC and Chrysler Motors' Chrysler Motors, is shocked, shocked mind you, that its investors won't let their money be locked up in Cerberus management anymore.

According to the WSJ,
Cerberus Capital Management's investors overwhelmingly want out of the firm's core hedge funds, asking for the return of more than $5.5 billion, or almost 71% of the fund assets, according to people familiar with the matter.

"We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday.

Cerberus hoped it could convince them to move their assets to a new fund with longer asset "lockups" but lower fees.

Of course it did. They have a thick skin yet remain humble, and they like their funds, probably including the new one, to expense the management fees upfront.

If you can't get to the WSJ story with the link above, there's a recap here.

Tuesday, August 25, 2009

Nationalise the expense, privatize the profits, Down Under style

Australia's privatized monopoly stock exchange's owners must have been feeling the pain of the general market malaise affecting world markets generally. Now the government has come to their aid, picking up the costs the exchange was supposed to carry in monitoring trading activities on the exchange.

The media is treating the story as the exchange's loss. Guambat reckons it's the taxpayer's loss. There was no quid pro quo in the deal for the taxpayer, just a shovel and a pile of manure to pick up.

In a move welcomed by brokers and institutional shareholders, ASIC is to supervise the share market from early 2011 while the ASX will continue to ensure companies comply with listing rules.

The decision is a victory for ASIC chairman Tony D'Aloisio.

Trade regulation powers to ASIC

D'Aloisio was the former head of the ASX, which had a rather lackluster record when it came to regulating the market. Now, as chief of the government ASIC, can we expect any better record? Or is this just another insider trading quickie? The proof of the pudding will be in the eating.

Not all reporting was glossy. Martin Collins is on a horse Guambat would back in this article:
ASX loses battle but wins the war

Contrary to the prevailing view, in many respects the ASX could be seen as the winner from yesterday's move, but it depends on how the government handles the clearing and settlement of cash equities, which account for two-thirds of the $163 million in trading revenue the ASX collects from sharemarket trading.

Supervision costs the ASX about $16m a year, after tax, and much more in terms of reputational damage, so it could easily wave goodbye to that without shedding any tears.

The global financial crisis has shown Australia's regulatory structure to be basically fine. What has been missing is regulators who regulate.

Monday, August 24, 2009

Goldman rejects huddled masses in favor of huddled elite

This is really just another "well, duh" story, about how the big players play together, and the rest of us suck air.

Goldman's Trading Tips Reward Its Biggest Clients (WSJ)
Every week, Goldman analysts offer stock tips at a gathering the firm calls a "trading huddle." But few of the thousands of clients who receive Goldman's written research reports ever hear about the recommendations.

Securities laws require firms like Goldman to engage in "fair dealing with customers," and prohibit analysts from issuing opinions that are at odds with their true beliefs about a stock. Steven Strongin, Goldman's stock research chief, says no one gains an unfair advantage from its trading huddles, and that the short-term-trading ideas are not contrary to the longer-term stock forecasts in its written research.

Goldman spokesman Edward Canaday says the tips are "market color" and "always consistent with the fundamental analysis" in published research reports.

The tips usually go to top clients who have expressed interest in having the information and have short-term investment horizons, he says. Goldman doesn't want to overload other clients with information that isn't relevant to them, he says. "We are not in the business of serving thousands of retail customers," he says.

The huddles began in earnest around the time Goldman's research department got a new boss, Mr. Strongin. He came to the firm in 1994 from the Federal Reserve Bank of Chicago.... One idea that took hold was giving certain customers and traders more access to stock tips.

Last year, the Financial Industry Regulatory Authority, the industry's self-regulatory body, proposed new rules meant to clarify existing disclosure obligations under the rule requiring "fair dealing" with all clients. Firms could issue contradictory ratings as long as clients were told that such inconsistencies were possible.

That can only be a helpful disclosure if it says, in big, bold type:
Dear Client: It is our intent to f*@k you royally, but don't take it personally. We'll front run you with hyperspeed trading and we'll decide who gets the real goodies first. Look, you're only a retail client; your goals of making money are simply not big league and don't fit that time horizon (milli-seconds). Hey, you get to brag to your friends that you have a Goldman connection. What more do you want? Get real.

Are these the guys everyone (at least, Matt Taibbi) was talking about when it was suggested that some big firms were packaging and selling toxic debt instruments at the same time they were shorting them because they totally knew the instruments would blow up?

PS: Just came across this Matt Taibbi blog...
Goldman Busted Again

Slower than cane molasses

As mentioned yesterday, Kartika was having a beer in a hotel in Malaysia 2 years ago when the religious police busted her. A religious court then ordered her to pay a hefty fine and cop a caning.

That's fine with her, she said, but let's just get on with it so she could put it behind her. The religious court agreed and ordered her to report to prison this week, where she would receive her penance.

But now, in the month of fasting, things have slowed down, and Kartika will have to cool her heals for another month. Nothing lowers the pain threshold like anticipation.

Beer-drinking Muslim model wins caning reprieve

Kartika to be caned after fasting month

Islamic officials release woman held for caning

Caning the able

‘She has to be jailed first and undergo health check-up to determine whether she is fit to be caned. She will be the first woman in the country to be caned under the religious laws,’
Malaysian model accepts punishment for alcohol

She was arrested by a team from the state religious department at 1.20am on July 12, 2007.
Part-time model who drank beer to be detained for caning

Malaysian Woman Wants Public Caning
Kartika, a 32-year-old mother of two, was arrested in a raid for drinking beer at a hotel lounge last year. Kartikla will be the first Malaysian woman to be caned in a prison.

Officials confirmed that they do not intend to hurt her, but she will be struck on the backside using a small thin cane and only with moderate force. "Shari`ah whipping is more like caning naughty schoolboys," an unidentified "whipping officer" said.

"In Shari`ah the punishment is not in the force of the whipping but to bring shame. "The whipping implement is supposed to be soft and supple, so as to inflict the least pain."

She was sentenced to six lashes by a Shari`ah court in July in what was considered a warning to other Muslims to abide by religious laws. She also paid a 5,000 ringgit ($1,420) fine.

Regretful Kartika said she does not plan to appeal the court verdict. "Who am I to question the Islamic authorities' laws? That is beyond me," she said.

Muslim Malays form about 60 percent of the 26-million population of multiracial Malaysia. The multi-ethnic country applies Islamic Shari`ah law only to its Muslim population.
From the comments section in above article:
kartika sari dewi!
By zainnudin -KL on 2009-08-23 04:32 (GMT)

wow good job...the first muslim woman caught drinking beer in Malaysia. see...Malaysian Muslim are very obedient, they don't drink beer...only Singaporean Muslims drink beer...but i see many Arabs coming to Malaysia to enjoy their beers and liquor, well maybe they have applied for a license to do it here?....or they are paying their fines by the US dollars??? for your info! There are 120.000 brothels and massage parlous are in Selangor state alone.Biggest gambling palace In south east Asia is in Malaysia.And yet you arrest only one girl for drink?Stupid!Who is the owner of biggest cheap drinking alcohol out let in malaysia? The zone in Johor owned by a pious muslim My friend.i can add on and on and on!why 60 percent of malay muslim youth are addicted to drug? Are they should be canned in public too?shut up you idiots!

By sifulan, 08-20-09, 03:44 PM
at last there is a islamic law that been used in malaysia...its good for me & all muslims as malaysia is an islam country...hope this method will be continue...salam
Commenting on Woman to be beaten with cane in Malaysia

Trackbacking in the Stew:
Of Joy and conversion

Religious police

Wednesday, August 19, 2009

Hell hath no fury like a woman scammed*

Weinstein and Madoff had sex in hotels for months before the affair cooled and a warm friendship followed, she says. She trusted him with her family’s savings until Dec. 11, 2008, when he was arrested for running a Ponzi scheme that defrauded thousands of investors of billions of dollars.

Rage followed.

Madoff Lover Stuck With Him Because of His Tenderness, Her Lust

You gotta read that one. I mean, really; who writes like this, or at least, where can I find others who write like this?: “When we made love, I was on fire.... Bernie had a very small penis,” she writes. “Not only was it on the short side, it was small in circumference...."

*PS: The correct version of the infamously famous saying is "Heaven has no rage like love to hatred turned/ Nor hell a fury like a woman scorned."

Oh, and it wasn't Shakespeare, either.


Tuesday, August 18, 2009

Time in a bottle

This (above) is a monthly chart of the Australian S&P/ASX200 Share Price Index, logarithmic scale, showing the 1987 crash and the structure of the recovery. It took about 10 years to make a new high and spent most of that time bobbing above and below the 50% retracement level.

Same chart, expanded to the present. The red vertical line indicates the scale of the drop in 1987 and now is essentially identical (this is on a log scale axis). The bottom of the '88 drop and '08 top bookend the almost textbook 20 year bull run.

The '87 drop was not the result of any systemic risk problems and was obviously much quicker to develop, so the sudden impact may have had a greater depression/impression on "market psychology". This one may take more or less time to play out, and the slo-mo crunch could have greater lasting risk avoidance implications. The systemic problems are different this time, but both the Berlin and the Great Walls have disappeared.

History doesn't repeat, but it does rhyme.

Saturday, August 15, 2009

Fiji Water under the bridge

Guambat has been in Fiji twice.

The first time, he was transiting on his way back to Guam from Sydney. What could be better than a day-long lay-over in Fiji, Guambat enthusiastically thought. That thought was interrupted by news reports that a coup was underway (there've been four in the last two decades, and this was the first).

Being the inquisitive and adventurous, but reasonable and cautious sole that he is, Guambat made his way into the local markets in Nadi, admiring especially the huge sacks of Indian spices. But he soon found it useful to retreat to the grounds of the "five-star resort" he had put up in for the stay-over. Whilst there, he took up various conversations with the Indian store keepers (or their staff), and shared a cup or two of kava with the hotel Fijian staff.

It seems the Indians have been there for several generations, and the Fijians had been there since time immemorial. And the island(s) just weren't exactly big enough for both of them to co-exist in a harmonious melting pot. Indeed, the only pot it seemed the Indians were good for was one with water in it and fire below. Fortunately, or not, there was all that good spice sitting around waiting for just such a stew.

The last time, hopefully, Guambat was in Fiji was last year, where he boarded his dream cruise, from Fiji to Guam via Vauatu, The Solomons, the Federated States of Micronesia, and home to Guam. All tolled, Guambat has not spent much more than a couple of days in Fiji, so his sampling error is significant. Nevertheless, he's not a fan. The islands are ok, but the dysfunctional ideal of a Pacific Paradise is anything but. It could be, but no one seems prepared to allow the natural ebb and flow of humanity to allow it to be thus.

Which all seemed to spill from the fingertips of Guambat after he read this story:

Fiji Water: Spin the Bottle In typical Mother Jones/Indiana Jones reportage, the story sets the stage:
What followed, in a windowless room at the main police station, felt like a bad cop movie. "Who are you really?" the bespectacled inspector wearing a khaki uniform and a smug grin asked me over and over, as if my passport, press credentials, and stacks of notes about Fiji Water weren't sufficient clues to my identity. (My iPod, he surmised tensely, was "good for transmitting information.") I asked him to call my editors, even a UN official who could vouch for me. "Shut up!" he snapped. He rifled through my bags, read my notebooks and emails. "I'd hate to see a young lady like you go into a jail full of men," he averred, smiling grimly. "You know what happened to women during the 2000 coup, don't you?"

Eventually, it dawned on me that his concern wasn't just with my potentially seditious emails; he was worried that my reporting would taint the Fiji Water brand. "Who do you work for, another water company? It would be good to come here and try to take away Fiji Water's business, wouldn't it?" Then he switched tacks and offered to protect me—from other Fijian officials, who he said would soon be after me—by letting me go so I could leave the country. I walked out into the muggy morning, hid in a stairwell, and called a Fijian friend. Within minutes, a US Embassy van was speeding toward me on the seawall.

Until that day, I hadn't fully appreciated the paranoia of Fiji's military regime.

In this day of blogger bludgeoning over "borrowing" from paid journalists, Guambat daren't repeat much more. Click the link and read for yourself.

Thursday, August 13, 2009

Can you say "blow-off top"?

OK, but can you spot one???

The Australian S&P200/ASX Share Price Index (SPI).

Time will tell.

Friday, August 07, 2009

Influence peddling Chinese style

China Executes Airport Chief for Bribes
An intermediate court found 60-year-old Li Peiying guilty in February of accepting almost $4 million in bribes and embezzling about $12 million in public funds over the past 14 years

China has long-struggled against corruption among high level Communist Party officials, especially in state-owned enterprises in energy, transportation and other key sectors that wield vast power and influence.

In 2007, China executed the director of its food and drug agency for approving fake medicine in exchange for cash. One antibiotic was blamed for causing the deaths of at least 10 people.

The Capital Airports Holding Company of which Li was chairman, operates more than 30 airports in nine Chinese provinces with managing assets of more than 100 billion yuan ($14 billion) and 38,000 employees, according to the company's Web site.

In handing down its sentence in February, the Jinan Intermediate People's Court said there was evidence that Li had solicited the bribes, making the crime more serious.

There'd be a lot of back peddling if this caught on in the West.

Tuesday, August 04, 2009

Good moral - or some other kind - of compass

$1200 restaurant bill
Yasuyuki Yamada and his fiancee had dined at Rome's Il Passetto last month when they were hit with a bill for €700 (A$1200).

The couple complained to police about the exorbitant lunch bill, which included a charge of €207 for a pasta dish and a €115 service charge, The Guardian reported.

Il Passetto defended its bill, claiming the couple ordered the most expensive items on the menu, which included oysters and lobster.

"They ordered 12 oysters, two kilos of lobsters, wine, 1.5 kg of seabass and even took photos with the waiters with the waiters before leaving," owner Franco Fioravanti told Rome's Il Messaggero daily.

To make amends, the Italian Government offered the couple an all-expenses paid return trip to Italy as guests of the Government, The Guardian said.

Mr Yamada, 35, thanked tourism minister Michela Brambilla for the offer but knocked it back, saying it was a "useless way to spend Italian taxpayers' money", The Guardian said.

Monday, August 03, 2009

Oil prices unrelated to commodity trading activities??

Andrew J. Hall, head of Phibro, a small commodities trading firm, claims to be owed $100 Million as his "cut of the profits from an aggressive year of bets in the oil market".

And that had no effect on prices at the pump??

Read about it in the NYT: $100 Million Payday Poses Problem