Saturday, January 30, 2010


Now that's a word you don't hear too often. It's saved for particular, special occasions. It's an odious word, after all.

Which is why Guambat was taken aback by China's response to the US sales of military gear to Taiwan. "Odious" turned a strong rebuke into a vehement stinkbomb.

China Suspends Military Exchanges With U.S.
"Considering the severe harm and odious effect of U.S. arms sales to Taiwan, the Chinese side has decided to suspend planned mutual military visits," Xinhua quoted the ministry as saying.

The Obama administration told the U.S. Congress on Friday of the proposed sales to Taiwan, a potential $6.4 billion package including Black Hawk helicopters, Patriot "Advanced Capability-3" anti-missile missiles, and two refurbished Osprey-class mine-hunting ships.

Chinese Vice Foreign Minister He Yafei also told the U.S. ambassador to China, Jon Huntsman, that the arms deal could jeopardise bonds with Washington, which has looked to China for help in surmounting the financial crisis, dealing with Iran and North Korea, and fighting climate change.
It is even more worrying that China said bonds might be jeopardized. Guambat truly hopes this is a correct interpretation, in the sense of "ties", and is not a veiled threat to call the loans China has made to the US.

Stories like this tend to raise unease with Guambat considering how fragile is his burrow when pitted against the might of titans clashing in the neighborhood. While the US is currently beefing up defenses here, the US has no honor in its consistency with regard to defense of this neck of the ocean.

The US very consciously decided, for instance, that they would abandon Guam rather than defend it prior to the last World War, with the results that, first, Guam became the only inhabited US territory to become foreign dominated and occupied, and that, in order to retake it, thousands and thousands of lives were lost and the island was completely obliterated in the process, with the US dumping more bombs and cannon fire on the little island than had been used in the entire WWII up until the point of liberating it.

But, if certain elements in the new Japanese government get their way, Guam may be forced to load up its defenses as the last bastion of "welcomed" defense and deterrence. What started out as an effort to begin to ease a few marines out of Okinawa and onto Guam seems to be a snowballing posse to throw out all US military forces from Japan.

Protest Held in Tokyo Against US Military Presence

As hospitable as Guam has been to US military presence, there is no way the local community or its resources could gracefully absorb the full brunt of the US Pacific defenses. And no Stateside community would stand for it, nor be expected to shoulder such a responsibility without major, major quid pro quo, either.

China's growing awakening is bound to teach us all the meaning of its old curse, "may you live in interesting times".

Trouble in paradise?


Thursday, January 28, 2010

Your money or your life

Such was the choice offered by the highwaymen of old.

It is a refrain reprized by the private bankers attending the Davos annual bankers' back slapping confab.

As Guambat speculated a few days back, it might come to pass that the big banks would take advantage of an overdue correction to pull the stocks out from under the market in push back against Obama's pulling the props out from under the banks.

This is how the Guardian characterized the banks' proposition: Choose reform or recovery, bankers tell world leaders.

Guambat would have thought that it was not an either/or proposition. And so do many other world leaders, all noted in that article. Make no doubt about it, Obama is carrying the pail, but he's got formidable support in Europe, Canada and elsewhere.

The Independent joined in on the reporting of the balking banks in this report: Bankers fight back against Obama
Lord Levene, for insurers at Lloyd's of London, told attendees that tougher regulation in the West might push businesses to new financial centres – such as Singapore, Shanghai and Zurich.

Now that's a lame threat.

Wednesday, January 27, 2010

Oregon tosses out the first snow ball??

US State budgets north and south, east and west, and most points in between are busted.
New Year but No Relief for Strapped States
Looking at its choices, Oregon has elected to raise taxes.
Oregon voters OK tax hikes on wealthy, businesses
So does that little bit of populism neutralize the Brown election win in Massachusetts?

More to the point, as the Christian Science Monitor rhetorically asks,
Will Americans raise taxes to curb deficits? Oregon a test case.

A vote in Oregon Tuesday will resonate far beyond the Cascade Mountains as a gauge of whether Americans will support tax hikes to keep budget-strapped governments afloat.

Several states raised taxes last year on high-income earners, as the measure in Oregon would do. But in Oregon, the issue is directly in voters hands, not with the state legislature.
And Oregon voters handed out a tax hike.

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Tuesday, January 26, 2010

The new debtor revolution: from Renee to Rambo

Two years ago Guambat noted the changed attitudes of consumer debtors who were going corporate on their debts and just walking away.

It was an evolutionary step for most Americans to simply give up on debt, especially home mortgage debt, hand in the keys to the house, and depart.

And it's still a matter of discussion and debate, e.g., the post from last December and this from just a day or so ago: Where we went wrong in housing, where Felix Salmon, indirectly through another interview, lauds Steve Waldman's blog, the only finance/market/economics blog link on the right panel.

But now the pacifist approach is giving away to the feral: Renee is going Rambo, if this story is any guide:
Better Off Deadbeat

While most Americans with unpaid bills dread the collector's call, Craig Cunningham sees them as lucrative opportunities. Many collection and credit card companies, intentionally or not, violate little-known consumer rights laws, and Cunningham's favorite pastime is catching them doing so and then suing them. In fact, it's a profitable side job.

Cunningham beats the debt collectors at their own game. He turns their money-making practice into a financial liability. He is a regular guy who has become a radical enemy of the banking system.

"Most people hear about the abuses that debt collectors do, but you just didn't hear about the second part of it, where people sue the collectors," he says.

Cunningham accused debt collectors of misrepresenting the amount he owed (an FDCPA violation that entitles a consumer to collect up to $1,000). He sued over prerecorded and auto-dialed calls to his cellular phone (a TCPA violation worth up to $1,500 per call). He also filed complaints that agencies failed to investigate his claims that his credit file contains inaccurate information, a breach of the Fair Credit Reporting Act worth up to $1,000 per violation.

Cunningham didn't feel that he was taking advantage of the system, at least not anymore than the next guy or the brokers and bankers at the time.

What he found was an instrument not of repair or reconciliation, but of vengeance.

Cunningham, a high school athlete, dreamed of making millions playing pro football, but he was accepted to U.S. Military Academy at West Point, where a degree would give him a more grounded back-up plan. The economics major also sought out an additional perk unique to West Point: stipends and absurdly low-interest loans. In his junior year, in 2002, Cunningham took out the maximum amount for a loan and dumped the $25,000 into the booming stock market.

Call it ironic, but the only house on the block that appears to be the foreclosed end to some sad financial story is in fact the home of one of the debt collection industry's emerging and persistent threats. Cunningham calls himself a private attorney general—someone who files private lawsuits in the public interest. Debt collectors call him a credit terrorist.

This is a well told story. It mentions some of the mentors of people like Cunningham:
Steven Katz, a former New York debt collector turned consumer advocate, who now lives in Phoenix. In 2005, Katz founded a message board called "Debtorboards," with the slogan "Sue your creditor and win!"

Katz doesn't believe that people are morally obligated to pay back their debts. That notion was invented by debt collectors as a way to beat people into submission, he says. "Bill collectors would love for you to send them a check and then explain to your kids because you have the moral obligation to pay your debt they're not eating this week," he says. "But they don't see the moral obligation to feed your children or yourself.

"People are brainwashed to think that paying a credit card is more important than paying for the necessities of life," Katz says. "If you're in a position where you have to make a choice, my argument is food, clothing and shelter come first... Nobody ever went to hell for not paying a debt."

And the other guys, the debt collectors:
Jack Gordon ran his own third-party collection agency for years until a spate of FDCPA lawsuits in 2008 forced him out of business. He is familiar with Cunningham's type.

"This is definitely, if I can use a really strong word, a cesspool," Gordon says. I would have to say they are far more radicalized element of society, and there's certainly I think reason for concern. You're dealing with somebody who's looking for an opportunity. They revel in either getting opportunities or making opportunities ."

And the professional debt collection institutions:
ACA International is the largest trade group representing third-party debt collection agencies. Tom Morgan is the Texas executive director for ACA International and he believes that FDCPA lawsuits will continue to rise as more and more people in this economy can't pay their debts. He views the agencies as a kind of indirect victim in the rising tide of consumer fury and desperation.

"While our members do get filed on from time to time, the FDCPA is so highly technical there are quote, technical, violations that can occur," Morgan says. "You know, somebody makes a mistake. But there's no intent, OK, to defraud people or to violate the law.

"Usually it's settled because the agency says, Uh, we didn't intend to do that. Our collector said the wrong thing and we fess up and say, 'I didn't mean to do it but I did it...

"And this is where some of our members feel aggrieved in that because there's a hyper-technical opportunity for a plaintiff's attorney to come in, it is cheaper to settle than to fight it. And sometimes they'd really like to fight it because they don't believe they are guilty, but it's so costly, so they settle it."

Guambat was fascinated, and you will be too when you read the whole story. It's quite long, but worth the time.

It's the dirty coal face of the moral implications that Steve Waldman wrestles with, as noted in Guambat's Still Walking Away post, and the more recent interview:
Shouting masses rarely make good choices. You don’t want to put a million people in an online chatroom and then take a vote. But elevating a class of “experts” to positions of privilege and relying upon their wisdom also fails, both on grounds of legitimacy and quality. You want very dynamic processes in which hierarchies arise and shift, where there are elements of mass choice and applied expertise. You need to be very careful in how you allocate the scarce resource of human attention. All voices must be heard, both to capture dispersed information and to sustain legitimacy, but the cacophony must be filtered by some process that it both effective and fair.

It occurred to me that financial markets seemed robust to this: markets are unstructured, everyone is “cheating”, seeking whatever edge they can get, and yet we use them to make some of our most consequential collective decisions: the large scale allocation of physical and human resources. And while financial markets are obviously imperfect, I thought that they seemed to work “pretty well”, in the sense that societies that used financial markets to guide economic decisions seemed to outperform other kinds of societies.

Real market institutions seem designed to hide information and shift consequences rather than reveal outcomes and allocate costs and rewards. I quickly shed a libertarian prejudice in favor of what is “emergent” or “natural”, and became a critic of a financial system ill-equipped to serve the purpose to which it is addressed. The housing bubble and obvious, persistent imbalances in the US economy during the mid 00’s helped to persuade me that my initial enthusiasm for financial markets was misplaced (although I remain hopeful that better conceived markets and market-like institutions could be powerful tools for collective choice).

Much of my thinking on economic and social issues comes back to T.S. Elliot’s proposition, “It is impossible to design a system so perfect that no one needs to be good.” Once upon a time, I chose to disagree. I thought it was the challenge of our day, and the grand project of modern economics, to build a system in which people pursuing their own self-interest would provide all social goods, in which the benevolent invisible hand would rule all and we’d have no need to rely upon ideas as shifty and manipulable as “virtue”. I have done a full 180 on this question. Economic self-interest and formal legal frameworks are simply insufficient to regulate a decent society. Elliot was right.

But it’s crucial to remember that “what is moral” is something we collectively decide, and not without constraints. A social order that routinely demands heroic sacrifice of people in the name of virtue will fail. Clever hypocrites will be rewarded while naive saints pay, and the overall tenor of society will not be virtuous. The most we can demand of fuzzy constructs like morality and social norms is what Arnold Kling calls “soft rule utilitarianism”, under which people accept modest personal costs on the theory that if everybody does so, we’ll all better off. But emphasis on the word “modest”, and expectations of reciprocity. Economic and legal scaffolding has to sit beneath informal social constraints so that in general it makes sense to be good. It is like the relationship between flesh and bone: You could not build anything as beautiful as a smile out of bone, but the smile will not survive if the jaw beneath is fractured and misshapen. We regulate the “bone structure” of our society explicitly via legal arrangements, and more subtly, via social and reputational incentives. There’s a kind of hygiene we have to attend to, in order to ensure that doing well and being good are not terribly inconsistent. Over the past few decades we’ve failed to attend to that hygiene, in large part I think because we let simplistic economic ideas persuade us that we didn’t have to, and that the pursuit of wealth yields virtue automatically and dirty is the new clean.

The financial industry has changed the economic and legal landscape surrounding consumer lending so that it simply bears no resemblance at all to interpersonal loans among people of good will in continuing relationships. But those are the norms they ask borrowers to adopt with respect to repayment. That act, demanding others act in accordance with standards from which one exempts oneself, is morally offensive. In a society which, despite economic difference, accepts no social class, ones moral obligation is to behave towards others as others must behave towards you. It is clear that, in general, banks and the special purpose entities that increasingly replace them treat their transactions with borrowers as hard-nosed business arrangements which they are willing to pursue on adversarial terms when doing so is in their interest. Borrowers should do the same. To do otherwise is to reward the cynical immorality of others, which serves no social good.

We might (or might not) wish to revise the norms surrounding bank loans to resemble those surrounding interpersonal lending. But that would be a forward-looking project, and would imply radically altering the behavior of future lenders, not simply exhorting borrowers to assume all responsibility and pay.

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Friday, January 22, 2010

"this is a phenomenally good time to be a bank"

Floyd Norris notes the huge discrepancy between the return banks have been getting on "their" capital and the returns they have been "offering" to depositors, and concludes "this is a phenomenally good time to be a bank."

Here is what JPMorgan Chase’s chief executive said in the company’s earnings announcement today:

“We are gratified that we generated earnings of $3.3 billion for the fourth quarter and nearly $12 billion for the year. Those these results showed improvement, we acknowledge that they fell short of both an adequate return on capital and the firm’s earnings potential.”

Chase today is offering a rate of 0.01 percent on savings accounts, although it will go all the way up to 0.75 percent if you keep $500,000 in the account. [And, he notes, charge you fees for the privilege, thus reducing that meager return.]

One "problem" Norris pinpoints for the banks is that "bankers today are hated and resented by a lot of people".

Go figure.

And for further proof of what a good time this has been of late for banks, go read Jeff Mathews' explanation of the little game played and won by Goldman Sachs in one recent stock deal: Goldman 8, Public 0.


Thursday, January 21, 2010

Obama to kick the props out from under banks??

Obama to Propose New Rules on Banks’ Size, Proprietary Trading
Obama is renewing his focus on economic issues in an effort to tap into voter anger about the struggling economy, taxpayer bailouts and growing bank profits at a time of 10 percent unemployment and a federal deficit that rose to $1.4 trillion last year.

President Barack Obama will offer proposals to limit financial institutions’ size and trading activities as a way to reduce risk-taking, an administration official said.

Obama will announce the rules today after meeting with former Federal Reserve Chairman Paul Volcker at the White House. The proposals will be part of an overhaul of regulations and will specifically address firms’ proprietary trading, the official said yesterday on the condition of anonymity.

Goldman reaped more than 90 percent of its pretax earnings last year from trading and so-called principal investments, which include market bets on securities and stakes in companies.

ZeroHedge has evidently been advocating something along those lines for a while, and is scathing of the proprietary desk trading, calling it legalized front running. His blog post is an excellent background briefing of the topic.

In it, he reminded Guambat of the Goldman Huddle, which Guambat touched on a few months back.

Guambat's gotta go with Obama on this. Tell 'em all to go to health.


As Guambat speculated a few days ago, Wall Street is quite prepared to put some hurt on the market to apply political pressures on the administration to back off on bank reform. It's easy to do because the market had become terribly one-sided and overbought after a 70% run up from last year's low.

But they won't call this a normal corrective move; they'll chalk it up to the damage Obama is causing to the financials. Nevermind the run up in the first place was the natural flow of all the fiscal stimulus he provided the market. He got no credit for that but is now getting the blame. It's normal market behaviour masquerading as political yo-yo.

Felix Salmon, for one (and obviously Guambat for another) isn't buying the argument. He says, Three cheers for Obama’s banking reforms
Barack Obama is coming out swinging today, and good for him for doing so. Note here how Geithner and Summers just become part of “the President’s economic team”, while Volcker gets top billing.

This is also a good sign: in the wake of Dodd making noises about softening existing legislative proposals, Obama has come out and said, quite rightly, that we should push hard in the opposite direction, and tighten them up. OK, so this is populism. But populism in the service of a good cause is no great sin.

Banks stocks are down in the wake of the speech, but not dramatically: it’s easy to get overexcited about a 6% fall in JP Morgan’s share price while forgetting that it’s still over $40 a share, compared to less than $15 in March. Indeed, its all-time high, back in 2007, was barely over $50. Let’s get the Republicans on board with this, and push it through. It’s probably our last chance to enact meaningful financial reform this generation.

Yves Smith, at Naked Capitalism, says,
This should have been implemented months ago, when the banks were on the ropes and beholden to Washington. They are now emboldened and will fight tooth and nail. The most encouraging bit of this story is that Volcker finally seems to be having some influence on policy
In another post Yves also says this about the bank bail-out claw-back fee:
Gee, Warren Buffett happens to own a chunk of Wells Fargo, and also provided an equity injection to Goldman Sachs. So it should come as no surprise that he has come out in a Bloomberg interview arguing against the so-called TARP fee, a charge to be levied against the non-deposit liabilities of large banks.

Now this little bit of lobbying via the media should end any delusions that Buffett is a friend of the little guy. But what is even more striking is his failure to mount a serious argument. It’s an insult to the public’s intelligence.

The idea that the fee is to punish the banks is a convenient fiction pushed by the banksters and their backers. The public is angry, but the anger is correctly founded: the banking industry got massive, unwarranted subsidies for failure, the safety nets are still operative and clearly will be redeployed in the event of future errors and chicanery. Yet no one has been brought to justice, and virtually nothing has been done to prevent a recurrence.

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Tunnel to Nowhere

Alaska is not the only place they build infrastructure projects to nowhere. Sydney has its share, too.

Several years ago, Sydney decided to enter into Public and Private Partnerships to build some tunnels, ostensibly to alleviate the maddening traffic mess, but, as speculated at the time, more likely to line some Public and Private Pockets.

See, Tunnel vision, The tunnel or the shaft? , and Highway robbery? for some of the posts from back in 2005, culminating in The light at the end of the tunnel comes from the fire sale in 2007.

And how does it all look now?

Toll of misery as tunnel goes under

The Lane Cove Tunnel has collapsed into receivership, becoming the third major infrastructure project in the city to fail in the past two decades

The failure of the tunnel a little more than three years after the financial collapse of the Cross City Tunnel means the State Government in now unable to turn to the private sector to fund new tollroads.

The brainchild for the model of financing used by many PPPs was Sydney homeboy, Macquairie Bank, the "Millionaire Factory", the slickest cat on the catwalk: the Macquarie Model.

The Sydney Morning Herald now characterises the whole infrastructure arrangement as,
just money down a hole

Every financial boom has its fads. The Dutch went mad over tulip bulbs in 1624. Nickel fever swept financial markets in the late 1960s. Thirty years later, it was anything with in the name.

But toll roads? Who would ever have thought it possible? And in Sydney, we finessed it just a little further to include tunnels.

After the debacle of the Cross City Tunnel, another so-called Public Private Partnership, it would be a fairly safe assumption that financiers would think twice about plunging into similar infrastructure projects in the future.

So who is to blame? And why was the project, like so many others of its time, so far removed from reality when it came to valuation?

The sad fact is that both the Cross City Tunnel and the Lane Cove Tunnel were built, not because they solved traffic management problems, but because they provided windfall gains to a cash-strapped State Government and some quick-talking investment bankers.

Taxpayers [and commuters and municipal planning] did not enter the equation.

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"Wall Street banks are wards of the state, not private enterprises"

That's not Guambat's characterization, though he might share it. That's Ronald Reagan's head of OMB, David Stockman talking.

You remember Reagan. The Middle Class' "Great Communicator"; in other words, a populist.

Republicans do not consider him, unlike the current President, to be a socialist. He's the economic hero of the Republican Party, the architect of Supply Side Economics.
Banks as wards of the state !!? Surely Stockman has committed GOP treason here.

Stockman said that in a NYT Op-Ed, which, if you are a non-subscriber could soon cost you to read, so read this one whilst you can. Some appetisers for you:

Taxing Wall Street Down to Size
WHILE supply-side catechism insists that lower taxes are a growth tonic, the theory also argues that if you want less of something, tax it more. The economy desperately needs less of our bloated, unproductive and increasingly parasitic banking system. In this respect, the White House appears to have gone over to the supply side with its proposed tax on big banks

Make no mistake. The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class. To be sure, it was lured into these unsavory missions by a truly insane monetary policy. It was an unprecedented exercise in market-rigging with printing-press money, and it gave a sharp boost to the price of bonds and other securities held by banks.

Meanwhile, by fixing short-term interest rates at near zero, the Fed planted its heavy boot squarely in the face of depositors, as it shrank the banks’ cost of production — their interest expense on depositor funds — to the vanishing point.

In supplying the banks with free deposit money (effectively, zero-interest loans), the savers of America are taking a $250 billion annual haircut in lost interest income.

The resulting ultrasteep yield curve for banks is heralded, by a certain breed of Wall Street tout, as a financial miracle cure. With this monetary fuel, the banks manufactured, aggressively at first and then recklessly, a tide of new loans and deposits. [I.e., a financial rocket scientist's alphabet soup of derivatives and other securitizations, much backed by dubious debt, including subprime real estate.]

But these profits were not evidence of Mr. Market doing God’s work, greasing the wheels of commerce and trade by facilitating productive financial transactions. In fact, they represented the fruits of hyperactive gambling in the Fed’s monetary casino — a place where the inside players obtain their chips at no cost from the Fed-controlled money markets, and are warned well in advance, by obscure wording changes in the Fed’s policy statements, about any pending shift in the gambling odds.

It is a vast and capricious reallocation of national income, which would be hooted down in the halls of Congress, were it properly brought to a vote.

The baleful reality is that the big banks, the freakish offspring of the Fed’s easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed. This is why the Obama tax is welcome: its underlying policy message is that big banking must get smaller because it does too little that is useful, productive or efficient.

Interesting to read of a bankers' "culture" of entitlements. Usually, when lawmakers and Wall Street types talk about cutting back on "entitlements", they're talking about the "culture" of welfare and other so-called handouts to the poor and others in need of a helping hand.

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Wednesday, January 20, 2010

With the Bible in its sights

From the House of Abraham came three main branches and three great books. The three Houses of Abraham have in common the notion of One God, but seemingly not much else.

The Jews started with their Torah.

The Christians followed with their Bible.

And the Muslims came after with their Koran.

The modern world identifies these three branches as separate religions and associates each religion with its respective great book.

This very basic and widely accepted knowledge is important to bear in mind when thinking about the following story. And remember, they all believe and trust in one God.

Marine Corps Concerned About 'Jesus Guns,' Will Meet With Trijicon
Following an ABC News report that thousands of gun sights used by the U.S. military in Iraq and Afghanistan are inscribed with secret Bible references, a spokesperson for the Marine Corps said the Corps is 'concerned' and will discuss the matter with the weapons manufacturer.

As ABC News reported Monday, the sights are used by U.S. troops in Iraq and Afghanistan and in the training of Iraqi and Afghan soldiers. The maker of the sights, Trijicon, has a $660 million multi-year contract to provide up to 800,000 sights to the Marine Corps, and additional contracts to provide sights to the U.S. Army.

U.S. military rules specifically prohibit the proselytizing of any religion in Iraq or Afghanistan and were drawn up in order to prevent criticism that the U.S. was embarked on a religious "Crusade" in its war against al Qaeda and Iraqi insurgents.

One of the citations on the gun sights, 2COR4:6, is an apparent reference to Second Corinthians 4:6 of the New Testament [i.e., the Bible].

Other references include citations from the books of Revelation, Matthew and John dealing with Jesus as "the light of the world."

Trijicon confirmed to that it adds the biblical codes to the sights sold to the U.S. military. Tom Munson, director of sales and marketing for Trijicon, which is based in Wixom, Michigan, said the inscriptions "have always been there" and said there was nothing wrong or illegal with adding them.

Munson said the issue was being raised by a group that is "not Christian." The company has said the practice began under its founder, Glyn Bindon, a devout Christian.

A video on YouTube that discusses the Bible verses had close to 20,000 views. "I love it. I love it. Yes, Trijicon, those guys are Christians. On all of their different sights they have verses on there."

"For those of you who aren't Christians, well, you know, get over it."

Michael "Mikey" Weinstein, an attorney and former Air Force officer, said coded biblical inscriptions play into the hands of those who call the wars in Iraq and Afghanistan "a Crusade."

However, a spokesperson for CentCom, the U.S. military's overall command in Iraq and Aghanistan, said he did not understand why the issue was any different from U.S. money with religious inscriptions on it.

"The perfect parallel that I see," said Maj. John Redfield, spokesperson for CentCom, told ABC News, "is between the statement that's on the back of our dollar bills, which is 'In God We Trust,' and we haven't moved away from that."

Maybe not away (since all Abrahamic Houses trust in God), but certainly towards the Biblical Christian version. That interjects a divisive religious element into our military, labels America as Christian-only, and will inflame those whose hearts are at the other end of the sights.

Guambat hopes ABC follows up on this story to see where it goes from here.
"We are aware of the issue and are concerned with how this may be perceived," Capt. Geraldine Carey, a spokesperson for the Marine Corps, said in a statement to ABC News.


Unfortunately, it was Fox that weighed in, and the commentary there was "they started it", they being the Muslims.


ABC has now reported the Bible references will be removed by the contractor: " ... our decision to offer to voluntarily remove these references is both prudent and appropriate," said Stephen Bindon, Trijicon president and CEO.


DJIA as political yo-yo

The crowd following US stocks gets into various themes - fads, "stories", whatever - and Guambat reckons the meme du jour is politics.

Now, most folks will tell you that politics is irrelevant to the stock market, and in general that would seem to be true. But if Guambat's observation is any where near close to correct, and the tag put on today's market movements is any guide, until the next thing comes along, politics seems to have some market play about it.

In Guambat's most recent post, following a 100+ point fall of the DJIA, Guambat noted the fall was not coincidental when viewed in light of the official announcement that President Obama was going to push through banking reforms and claw back the money given away to the banks under the TARP. Guambat reckoned the Wall Street machine was playing political push back by putting some hurt on.

Today there was a 100+ point rise in the DJIA, which the pundits are also attributing to politics.

MarketWatch said,
The stock market hit a new 15-month high Tuesday, spurred by the biggest jump in health-care shares since the summer as traders bet on the outcome of a Senate race with big implications for proposed health-insurance reforms.

"Not only could today's race turn out favorably, but the signal here is that we could also be headed for November elections that would cause some real gridlock" if the balance between Democrats and Republicans tips further in Republicans' favor, said Peter Cardillo, chief market economist at Avalon Partners in New York.

"From the market's standpoint, that would be exactly what the doctor ordered."
Bloomberg , echoed the line: "U.S. stocks rose, boosted by a rally in health companies on speculation Republicans will block an industry overhaul."

The Bloomberg article also noted,
The S&P 500 is up 70 percent since reaching a 12-year low in March. The biggest stock market rally since the Great Depression boosted the index’s price-earnings multiple to a seven-year high 25 last week from 10.1 in March, the lowest in a quarter-century, data compiled by Bloomberg show.
Of course, nobody is giving the President any credit for that. Especially at the WSJ:
Republican Rise

As Barack Obama enters his second year in office amid an enduring economic downturn, voters are less optimistic about his ability to succeed and no longer favor keeping the Democrats in control of Congress, according to the new Wall Street Journal/NBC News poll.

The survey results show that Mr. Obama's personal popularity remains high across a large swath of the electorate, but they also chronicle a decline in the high support for his agenda.
Obama didn't get elected on his good looks.

In largest part, he was elected because Americans were sick and tired of the agenda put in place by Republicans to remove financial regulations, drive down the value of the US dollar with low interest rates and easy money, and give free reign to the big banks, especially the (then) investment banks (which morphed to normal banks merely to exploit the bail out money) ... the crowd that brought on the biggest financial chaos since the Big Depression.

That crowd is now financing and manipulating the market's yo-yo behaviour to keep its own agenda in place.

Of slightly related interest is this story in the Financial Times:
How the big banks rigged the market

When Lloyd Blankfein met politicians in London a little while ago he brushed aside warnings that investment banks faced higher taxes if they ignored the rising public outcry about multibillion-dollar bonus pools. The Goldman chief executive seemed to believe governments would not dare.

That misjudgment – a measure of the breathtaking hubris that, even after all that has happened, continues to separate bankers from just about everyone else – may explain Goldman’s response to the British government’s decision to apply a 50 per cent tax to this year’s payouts.

In the description of Whitehall insiders, Goldman executives reacted with anger and aggression.

Many in Mr Blankfein’s world want to pretend the backlash against the banks is a conspiracy between the mob and populist politicians. They hope, and expect, the pressure will go away when prosperity returns.

read the story. It gets very interesting.

The aggressiveness of the banks is also mentioned in this Bloomberg piece:
Wall Street May Seek to Sway Congress by Hiring Top Lawyer

The banks could try to argue in a lawsuit that a law imposing a bank tax would be a so-called bill of attainder, or measure that singles out a certain person or group without due process, said David Rivkin, a Washington lawyer at Baker & Hostetler LLP.

“It would be a difficult argument, but not unreasonable,” Rivkin said. Even so, “It’s important to push back early and aggressively,” he said.

And in an even slightly more less but still related way is this article: The Derivatives Of Politics

But if pushback is the order of the day for Wall Street banks, they better have a clear idea of what it is they're pushing back against. Obama is not a push over, as David Weidner points out.
The traders on Wall Street rarely miss an opportunity, but they did last year, and now the industry is about to pay a price.

Here's how: Back in March, newly minted President Barack Obama, in only his second live prime-time address from the White House, warned Wall Street not to block new regulations.

"Bankers and executives on Wall Street need to realize that enriching themselves on the taxpayer's dime is inexcusable, that the days of outsize rewards and reckless speculation that puts us all at risk have to be over," Obama said.

During the next five months he repeated the message.

Finally, fearing the memo wasn't getting through, he went to Wall Street on Sept. 14 and delivered this admonition:

"There are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them. They do so not just at their own peril, but at our nation's."

Risk-taking went unabated for much of the year. Now, Wall Street is in the process of paying out $145 billion in bonuses, 18% more than was paid in 2008 and slightly more than was doled out in the record bonus year of 2007.

They bet against Obama and now they're paying the price.

Greed on Wall Street is showing itself to be an uncontrollable urge. Had Wall Street shown some restraint, it likely would have avoided the clampdown coming its way and bought itself time until the populist anger blew over.

They've spent $3.8 billion during the last decade, including $64 million last year, lobbying. In the current election cycle, banks and brokerages have put up $14 million in contributions so far, an amount that ranks only behind the legal and healthcare industries, according to the Federal Election Commission.

The influence that money buys could present a stumbling block to the bank tax and any reforms that may be proposed. But it's a big bet, given the outrage over the $1.2 trillion in support the government has given banks and the markets.

The industry could also be hoping that reform and efforts to curb pay collapse upon themselves. There's no guarantee the Financial Inquiry Commission will bring meaningful reform. And other than a pay review by the Federal Reserve, there are no hard and fast rules governing compensation.

A better bet would have been to show some restraint, if only for a year.


Barry Ritholtz gets shrill about the politicizing of the WSJ reporting, particularly it headline writing and its selection of leading messages, here and here.

And the WSJ Heard on the Street column writes, "The wild card of government policy is back with a vengeance."

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Sunday, January 17, 2010

Paying the Piper, and changing the tunes: not an idea whose time has come to Wall Street

Obama Promises All-Out Battle to Impose New Tax on Major Banks
President Barack Obama defended his plan to “collect every dime” of taxpayer bailout money from as many as 50 major financial institutions and promised enactment of legislation to crack down on practices that led to the financial crisis.

“We’re not going to let Wall Street take the money and run,” the president said in his weekly radio and Internet address. “We’re going to pass this fee into law.”

“These financial firms took huge, reckless risks in pursuit of short-term profits and soaring bonuses,” Obama said. “They gambled with borrowed money, without enough oversight or regard for the consequences. And when they lost, they lost big.”

The goal “is to promote fair dealings while punishing those who game the system; to encourage sustained growth while discouraging the speculative bubbles that inevitably burst,” Obama said.

Obama said the financial industry is fighting “against common-sense rules to protect consumers and prevent another crisis.” Those same firms, he said, are “now handing out more money in bonuses and compensation than ever before in history, are now pleading poverty. It’s a sight to see.”
"If the big financial firms can afford massive bonuses, they can afford to pay back the American people," he said. "After a very tough two years, after a crisis that has caused so much havoc, if there is one lesson that we can learn, it's this: we cannot return to business as usual."

One analyst called the fees "onerous," especially for firms focused on capital markets like Goldman Sachs Group Inc. and Morgan Stanley. Another compared the plan to the policies of Venezuelan President Hugo Chavez.

JP Morgan just reported, according to Reuters,
Strong investment banking results helped quarterly profit soar to $3.3 billion, topping Wall Street expectations.

And, JPMorgan is set to pay its banking staff handsomely. It set aside a record $9.3 billion to pay investment banking employees.
Meanwhile, the Goldie boys and girls are seen to be having their own great expectations.

Goldman Sachs bankers 'set for 81% rise in bonuses'
JMP Securities analysts concluded that even though the proportion of pay and bonuses to revenues will fall at Goldman, "we still expect an 81% rise in compensation per employee in 2009 to $599,000 per head … although this remains 14% below peak 2007 compensation levels".
The Big Banks, of course, will not take this, or anything else that tries to put rails on their sand box, lying down.

Volcker Calls for Support in Fighting Bank Lobby on Reforms
“Some market participants, possibly some in this room, seem to be suggesting that the events of the past couple of years were like a bad dream -- a truly unsettling bad dream, but nonetheless something that in the cold light of day need not require a really substantive change in the structure of markets or corporate lifestyle,” Paul Volker, the former Federal Reserve chairman advising the Obama administration, said.

Volcker said bank lobbyists are promoting “reform light” and blocking regulatory changes that would stave off future crises. “There is heavy lobbying on the other side, and that has to be overcome.”
“It’s nothing more than another tax on the American public,” Michael Steele, chairman of the Republican National Committee, said.

Obama’s Tax Faces ‘Fierce’ Congress Opposition, Martinez Says
President Barack Obama’s proposal to tax the biggest financial firms will face “fierce” opposition in Congress, former Florida senator and Republican National Committee Chairman Mel Martinez said.

“This is a significant 10-year tax which may put U.S. banks at a very disadvantageous position in terms of world competition,” Martinez said. “This is not just for the bonuses this year.”

“It’s particularly bad that he’s not asking General Motors to pay back,” Martinez said. “In fact that money was designed for financial institutions. It was never supposed to be a bail- out for General Motors.”
Obama Bank-Tax Proposal Has Populist Appeal, Political Critics
Republicans labeled Obama’s “Financial Crisis Responsibility Fee” a politically motivated proposal that, while aimed at an unpopular industry, would end up hurting most citizens.

“The public is incredibly angry at the banks and feels that the banks have made a huge amount of profits off the taxpayer rescue,” said Doug Elliott, a fellow at the Brookings Institution in Washington and a former managing director at JPMorgan Chase & Co. “Virtually every figure in Washington right now is trying to step forward and make clear they’re with the people and not the bankers.”
Wall Street May Reduce Compensation to Avoid Outcry (Update1)

Guambat reckons that there has not been one scratch made in the highly polished walls of Wall Street, and it will bring us more misery of the kind seen this decade until the excessive laissez-faire mindset is rolled back.

Indeed, Guambat half expects to see weakness in the Wall Street stocks as the machine cynically winds down a bit to put the hurt, and the appearance of hurt, on stockholders until Obama's plans to rail in the bully boys are squashed.

Guambat reckons Goldie and the others have already put on the derivatives to profit from that, too, just as they did with the subprime derivatives.

While Wall Street likes things laissez-faire in Washington, in their Hood, there's nothing fair.

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Thursday, January 14, 2010

When interrogation is terror -- and when it is not

Panel Rips Wall Street Titans (WSJ)
a committee investigating the financial crisis grilled the nation's top bankers Wednesday in the latest example of Washington's smoldering anger at an industry many there feel hasn't atoned for its role in the slump.

[The story characterized the "grilling" as] reminiscent of the Pecora hearings that investigated the 1929 crash that led to the Great Depression. [USA Today says those hearings would be a hard act to follow.]

commissioners asked probing questions about the banks' possible acts of negligence, their duties to customers and other issues that could crop up in such cases.

the confrontation between Wall Street and Washington quickly turned personal.

Republicans on the bipartisan panel expressed more sympathy for banking-industry leaders.

Morgan Stanley Chairman John Mack struck a conciliatory tone. "There is no doubt that we as an industry made mistakes," he said. "The financial crisis also made clear that regulators simply didn't have the visibility, tools, or authority to protect stability of the financial system as a whole."

After the hearing, Mr. Blankfein left the room, while Mr. Dimon of J.P. Morgan Chase stayed to answer a few questions. "I felt they were looking for answers," and not seeking to embarrass the CEOs, Mr. Dimon said.

There seems to Guambat to be a disconnect between the attention grabbing headline and the actual story; is that simply an editorial touch by the Journal? The following story simply corroborates that feeling and suspicion.

Few Burns for Four Bankers on the Hot Seat (NYT)
For those anticipating a cathartic ceremony of dressing-downs, apologies or verbal brawling, there was little of it during the three-and-a-half-hour hearing. Nor did the circular House hearing room resemble anyone’s idea of a circus tent; it was packed but quiet, scattered with a few innocuous protesters. The 10 commissioners pressed the bankers on executive compensation, on managing risks and on lending practices, keeping up a brisk pace while the witnesses fidgeted like busy people who all had planes or trains to catch.

The initial round of questions and responses provoked disapproval, a few pointed fingers and sporadic shows of humility from the witnesses.

Guambat wonders if they ever got around to doing away with water boarding? And if that would make these hearings perhaps as interesting and popular as the Pecora hearings?


Preaching the religion of Haiti

Pat Robertson, who once seems to have predicted Orlando might get hit by a meteor as payback for allowing gay pride flags to fly on its streets, and can't seem to tell a natural disaster from an unnatural one, has this time suggested the Haitians brought on the latest catastrophe themselves -- 200 years ago.

Haiti disaster blamed on pact with devil
Speaking on his television program The 700 Club, Mr Robertson said the pact happened "a long time ago in Haiti".

"They were under the heel of the French, you know Napoleon III [sic] and whatever. And they got together and swore a pact to the devil," he said.

"They said 'We will serve you if you will get us free from the prince.' True story.

"And so the devil said, 'OK it's a deal'. And they kicked the French out."

"But ever since they have been cursed by one thing after another," he said.

Mr Robertson said the curse was evident when Haiti was contrasted with its neighbour, the Dominican Republic.

"That island of Hispaniola is one island. It is cut down the middle - on the one side is Haiti, on the other is the Dominican Republic," he said.

"Dominican Republic is prosperous, healthy, full of resorts, etc. Haiti is in desperate poverty. Same island.

Guambat reckons the Dominican Republicans (Robertson always sides with Republicans) must not have been touched by the quake.


Tuesday, January 12, 2010

A kick in the tail winds

Some folks look at an empty glass and call it half full.

"The economy's 'tailwinds' (tame cost-of-living, less inventory disinvestment, recovering stock prices, and a still relatively low dollar) should offset the familiar 'headwinds' (jobs and the credit crunch) enough to support moderate 2010 real GDP growth of 2.6%," wrote Maury Harris, chief U.S. economist for UBS Securities, and as reported in Rex Nuttings' MarketWatch report.

That's, first, "tame" cost of living. It's tame because deflation is so rampant in the US that, despite unprecedented US fiscal stimulus, the cost of living inflation rate remains with hardly a heart beat. Cost of living is no tailwind when lack of income can't take advantage.

Less inventory disinvestment is simply the reality check that car companies and other consumer product sellers must, at some point, have something to sell or roll over. The operative and relative words are less disinvestment. That hardly counts for something positive. Which, again, ain't much of a tailwind.

The recovering stock price story, now that is the cynical part. It is so dissonant with the world outside Guambat's burrow that it has caused normally not deranged people to go somewhat paranoid. See "Analyst charges that government is manipulating markets", another Rex Nutting report. Suffice it to say that it has been a lightly supported, exponential spurt of deadly but dubious detachment from Main Street. In other words, business as usual for Wall Street.

Which leaves us with the last "tailwind", the weak, indeed moribund, US dollar. To a great extent that is simply a derivative of the first factor, which has been a low cost of living regime brought on and/or propped up by Japan-style low government interest rates. And the low rates are still not low enough to encourage banks to lend. They won't even lend money that is being given to them.

So, Guambat turns to the head winds, and where better than to a bloody whinging Pom, who looks at a glass overflowing and will only concede it is half empty.

Ambrose Evans-Pritchard writes America slides deeper into depression as Wall Street revels:
The [US] labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters.

Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.

Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck's Grapes of Wrath.

It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset violently upwards this year and next.

David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War.

For the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever.

The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) in since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc.

[And note, US Consumer Credit In Record Drop, Biggest Since 1943 and US Home-equity delinquencies rise to record level.]

Europe is even worse.

Mr Rosenberg is asked by clients why Wall Street does not seem to agree with his grim analysis.

His answer is that this is the same Mr Market that bought stocks in October 1987 when they were 25pc overvalued on Shiller "10-year normalized earnings basis" – exactly as they are today – and bought them at even more overvalued prices in 2007, long after the property crash had begun, Bear Stearns funds had imploded, and credit had its August heart attack. The stock market has become a lagging indicator.

Tear up the textbooks.
Have a nice day.

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