My Son, the Investment Banker?

..."Two-thirds of Americans say they have an unfavorable view of financial firm executives, making them less popular than Congress and lawyers, according to a Bloomberg National Poll conducted Dec. 3-7"...

Source: Bloomberg.Com, Dec 24, 2009.

CIA conned?

CIA is like the IVY universities in public minds -- Only the smartest get in.

Many who did get into the top IVY universities soon realize not all is what it may appear to the "outside" world. In fact you wonder how some of those you meet in classrooms ever got admitted.

CIA for years had the same aura. This story here among many in the past suggest otherwise.

What's a few millions, right?

Today' headline:
Heads of Fannie and Freddie Could Earn $6 Million.

Fannie and Freddie have so far received $111 billion in taxpayers' money to bail it out from bankruptcy. Government estimate a total of $170 billion will be required to keep them afloat. Meanwhile the two quasi government firms are still bleeding in losses.

Read the entire news report here

Wall Street Ethos

This excerpt from today's NY Times to my mind captures the core values of Wall Street:

..."The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson"...


Finally someone other than myself is using "arson" as a metaphor in describing the role of Wall Street. I long ago complained that those "masters of universe" and friends of Geithner and Summers and Paulson most cleverly played the victims of a firestorm when they were in fact accessories to arson. See my article here.

The NY Times article here (from which the above excerpt came) focuses on how Goldman Sachs as well as Wall Street firms in general knowingly packaged and sold inferior quality mortgage related derivates and then bet against these products expecting them to fall using the firms' own capital.

Normally when a financial intermediary bought or sold a product the traders would immediately hedge in part, seldom in whole, the underlying value of the product. If the market progressively moves against the firm, the hedge size gets bigger and bigger until it is fully hedged.

However, if this report is accurate which seems highly likely, then it raises not just a question of business ethics, it may have been illegal.

Do I believe something like that happened during the bubble or even as part of an ongoing process of proprietary trading on Wall Street? You bet I do.

Ah, yes. Notice the role of a Princeton graduate.

The unending AIG saga

I had no idea the bonus issue is still dragging on. Did you? Read here how the US Government continues its inability to run its 80%-owned bankrupt insurance company.

Merry Xmas -- knowing how well your government is looking after your tax dollars.

UK Dumbing Down?

UK is on the verge of a major education disaster if Lord Mandelson had his way in demanding that UK universities cut their 3 years undergraduate degree requirement to 2.

Lord Mandelson himself had the benefit of a 3 years education at Oxford. Apparently he was not much of a student spending too much time networking and drinking. That may have influenced his view on how useless a 3 years education was to him. The report is here.

It is also most unusual for a Jew to pooh pooh education which is something closest to being sacred just as the Chinese believe as well: more the better.

The issue this pathetic Lord Mandelson has missed is not about the length rather the content. He himself read the Mods, or PPE, that stand for Politics, Philosophy and Economics.

Mods modernizes the original "core" curriculum at Oxford known as the "Greats".

Greats refer to Greek and Roman Classics read in either Latin or Greek. Armed with the study of the Greco Roman philosophy, politics, literature and history, the graduates went on to help run the British Empire. That elite corps shared the same intellectual, philosophical and ethical foundation of being a Platonic Guardian (please reread your Plato's Republic) with certain moral and behavioral standards the Guardians needed to live up to.

Lord Mandelson wants to destroy all that to save a few hundred million sterling. Far more of that had bee pissed away by negligent and stupid bankers. Why is education, the basis of all human progress, is always the first to be axed by small minded politicians?

Oxford should recall the degree they had granted this Lord Peter Mendelson, former Labor MP and Cabinet member under Tony Blair. He has become the proverbial Barbarian at the Ivy Gate.

Bernanke, Time Magazine Person of the Year - 2

Yesterday I relayed a Washington Post report on Ben Bernanke's "impressive" record of missing all the signals of a bubble that was to burst.

Paul Krugman did a better job than me in giving a poor grade to his former Princeton colleague. One point I missed putting in my previous post was this:

The only lifetime intellectual benefit of having gone to a "branded" university is to carry with you the conviction that not all who have gone there deserve automatic intellectual "kowtowing". You need to be selective. As I have often written in the past, the various Admissions Offices of those elite universities more often than not fly in the blind, contrary to the myth of how thorough they screen candidates. There is no way anyone can pick 8-9% of all applicants (those are the rates at HYP and columbia) and then claim they are all the best of the best on this planet.

So many with the most prestigious degrees have crashed and burned. Need I mention Bush, Cheney, Rumsfeld in DC. Alan Greenspan, Arthur Burns both former Fed Chairmen. Many, arguably most at the top who ran Wall Street right into the bubble? And now Bernanke with a Harvard BA and a MIT PhD?

I don't even want to yet again mention Hank Paulson, Geithner and Summers whose record on how lax their Wall Street bailout conditions have been letting Obama do the pro-forma lecturing to Wall Street about lending more to Main Street and their jumbo size bonuses right after Main Street bailed them out. Well, I mentioned it anyway!
It is not even a secret that they titans of Wall Street totally ignore Obama's PR posture on such matters.

Here is what Krugman wrote in a recent blog of his:

..."December 22, 2009, 10:58 AM
A strange complacency

Many people have written about this WaPo article on the Fed’s failure to foresee the crisis. I was particularly struck by the complacency over housing prices. I mean, there had just been an enormous increase in prices; the dotcom bubble was fresh in our memory; simple indicators like the price-rent ratio were flashing red. How could they have been so sure nothing was wrong?

And I was particularly struck by this part:

In January 2005, National City’s chief economist had delivered a prescient warning to the Fed’s board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.

The message wasn’t well received. One board member expressed particular skepticism — Ben Bernanke.

“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.

“I would have to say California,” said the economist, Richard Dekaser.

“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.

This time the warnings were correct …
Believe it or not, the Post is being too kind to Bernanke here, by implicitly asserting that past warnings about California housing bubbles had proved wrong. Um, no. Here’s a quick and dirty chart of Los Angeles metro housing prices, adjusted for inflation, between 1980 and 2000 (I’m using FHFA numbers and national PCE; you could do a more careful version, but I’m sure it wouldn’t make much difference):



The point is that there was indeed a huge CA bubble in the 80s, which burst painfully. Nor was this an obscure bit of knowledge: in fact, people like Calculated Risk and yours truly were quite explicitly using the great California bubble of the 80s as a model for what was going to happen nationally.

This whole episode makes me think considerably worse of my former department head."

Bernanke, Time Magazine's Person of the Year.

Bernanke was wrong all the way until the bubble burst. Yet, Time Magazine honors him. He is also to remain chair of the Fed for a second term. Does he really deserve all this? This Washington Post questions his ability by documenting here how wrong he was during most of this first term.

Lots of things happen in this world are not based on sane logic. Obama getting the Nobel Peace Prize while calling his war in Afghanistan a "just" war when most Afghans do not even want the Americans to stay? It is a "just" war to keep drug lords and the corrupt president in power?

Geithner and Summers were writing big checks to save Wall Street, more accurately the tycoons on Wall Street, but not Main Street? Yet they are not fired?

Paul Volcker, the only sane voice in Washington, and advisor to Obama's Rescue Program, is totally ignored by Obama?

And so it goes.

This is the country we want to "save"?

Sicilian "justice" in Kabul, here.

Corruption in Kabul?

Excerpts from today's newspaper here:

..."Karzai wants to replace Muhammad Ibrahim Adel, the current minister of mines. Earlier this month, two U.S. officials in Washington alleged that Adel took a $20 million bribe to steer a $3 billion copper mining project to a Chinese company. The minister denied taking any bribes, saying the agreement was approved by the Cabinet and that Karzai was also aware of it"...

..."The president also wants to replace Sediq Chakari, who heads the Ministry of Hajj and Mosque. Allegations surfaced recently that money was pocketed at the ministry. Chakari, who has denied involvement, said two of his employees were being investigated in connection with missing money"...

Corruption in Kabul? Cabinet ministers taking bribes? Nah, never happened.

Yale vs Harvard, Harvard vs Princeton, Princeton vs Yale

Amazing story here.

When you are quadruplets and are accepted, let's say, by Yale, Harvard and Princeton, and knowing the 4 had never separated, how would they individually and collectively choose?

What shall thou do, dear quadruplets?

It is High Noon. Never did any quadruplets apply to these 3 designer colleges together, as far as we know.

What would these fab 4 do if the other 2 colleges accepted them as well after this big front page story in today's NY Times! I would wager a nice dinner that Harvard and Princeton would also offer 4 places to fab 4.

Paul Samuelson Spoke (Part 2)

On derivatives:

Samuelson: ..."Mea culpa, mea culpa. MIT and Wharton and University of Chicago created the financial engineering instruments, which, like Samson and Delilah, blinded every CEO -- they didn't realize the kind of leverage they were doing and they didn't understand when they were really creating a real profit or a fictitious one. There 's a lot of causality in economics, even though it's very far from an exact science"...

On Larry Summers:

Interviewer: And China .. You've written some about that. How real do you think the threat of a run on the dollar is? Some people, like your nephew Larry Summers has said that there's kind of "balance of financial terror" there -- that it's not in China's interest to see a big decline in the value of dollar denominated assets.

Samuelson: Well first let me say that I have big admiration for Larry Summers as an economist. However, when he was at MIT as an undergraduate, he never took a course of mine!

But I think he was wise. If he had people could always say, 'well, he's traveling on someone else's steam.' There's a Chinese wall between him and me. Any view he expresses and any view I express -- there might be some overlap, but there's nothing synchronized.

So you're not in touch with him now?

No.

...By the way, I don't want you to think that I think that everything for the next 15 years will be cozy. I think it's almost inevitable that, with a billion people in China wide awake for the first time, and a billion people in India, there's going to be some kind of a terrible run against the dollar. And I doubt it can stay orderly, because all of our own hedge funds will be right in the vanguard of the operation. And it will be hard to imagine that that wouldn't create different kind of meltdown"...

All the above excerpts are from an interview published in June by The Atlantic magazine before Samuelson passed away this month. I only came across that 2 parts interview now.

Paul Samuelson Spoke (Part 1)

On Harvard star professor, Greg Mankiw and Ben Bernanke:

Samuelson: ..."The 1980s trained macroeconomics -- like Greg Mankiw and Ben Bernanke and so forth -- became a very complacent group, very ill adapted to meet with a completely unpredictable and new situation, such as we've had. I looked up -- and by the way, most of these guys are MIT trained; Princeton to MIT or Harvard to MIT -- Mankiw's bestseller, both the macro book and his introductory textbook, I went through the index to look for liquidity trap. It wasn't there!.."

Footnote: [Liquidity Trap is a technical term describing an economy when very low interest rates, like today, do not give the economy the boost it needs to revive from a serious recession. Not even zero rate of interest. It happened in Japan in the 80's and it is happening now in the US today. The "trip" is so identified with John Maynard Keynes who became intellectual poison in the States after the "monetarist revolution" led by Milton Friedman that even Mankiw threw it out from his best selling textbook}

..."And I looked up Bernanke's PhD thesis, which was on the Great Depression, and I realized that when you're writing in the 1980s, and there's a mindset that's almost universal, you miss a lot of the nuances of what actually happened during the depression"...

On Milton Friedman:
Samuelson: ..."Milton Friedman. Friedman had a solid MV = PQ doctrine from which he deviated very little all his life. By the way, he's about as smart a guy as you'll meet. He's as persuasive as you hope not to meet. And to be candid, I should tell you that I stayed on good terms with Milton for more than 60 years. But I didn't do it by telling him exactly everything I thought about him. He was a libertarian to the point of nuttiness. People thought he was joking, but he was against licensing surgeons and so forth. And when I went quarterly to the Federal Reserve meetings, and he was there, we agreed only twice in the course of the business cycle...

...When the economy was going up, we both gave the same advice, and when the economy was going down, we gave the same advice. But in between he didn't change his advice at all. He wanted a machine. He wanted a machine that spit out M0 basic currency at a rate exactly equal to the real rate of growth of the system. And he thought that would stabilize thing"...

Samuelson: ..."Milton Friedman had a big influence on the profession -- much greater than, say, the influence of Friedrich Hayek or Von Mises. Friedman really changed the environment. I don't know whether you read the newspapers, but there's almost an apology from Ben Bernanke that we didn't listen more to Milton Friedman.

But anyway. The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system.

Those guys were useless at Federal Reserve meetings. Each time stuff broke out, I would take an informal poll of them. If they had wisdom, they were silent. My profession was not well prepared to act"...

Well, it was about the worst form of prediction that various people who ran scores on this -- and I remember a very lengthy Boston Federal Reserve study -- thought possible. Walter Wriston, at that time one of the most respected bankers in the country and in the world fired his whole monetarist, Friedmaniac staff overnight, because they were so off the target....

Footnote: [Rational Expectationistas swept the Nobel Prizes in th 80's: Lucas, Prescott and at least 2-3 others who leveraged off the idea that the "market", meaning you and me and all our uncles and nephews, are so rational that no government actions or temporary anomalies can fool us. Hence, the market quickly if not instantaneous will correct itself requiring no one to set it right. This became a mantra that had real world consequences. Under the last Bush administration, SEC deliberately took its eyes off regulations on the notion that the "market" being rational would police itself to rid off whatever that was needed to be regulated. Self regulation was implicit in a rational market ideology. Christopher Cox, ex Chair at SEC admitted himself that was his belief. Ditto Alan Greenspan]

On Greenspan:

..."And this brings us to Alan Greenspan, whom I've known for over 50 years and who I regarded as one of the best young business economists. Townsend-Greenspan was his company. But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can't take the cult out of the boy. He actually had instruction, probably pinned on the wall: 'Nothing from this office should go forth which discredits the capitalist system. Greed is good"...

Theory vs Practice in Managing $$

Remember how Harvard under Larry Summers, often described by the press as "one of the brightest economists of his generation", nephew of 2 Nobels in economics lost about 1/3 of its endowment?

Here is more embarrassing news as to how at one point Harvard was so desperate for cash to balance its books, it had to ask the taxpayers of Massachusetts to lend the university some money. Read here.

Obama, a One Term President?

Food for thought from the Baseline Scenario Blog:

"Why Obama’s Poll Numbers Are Plummetting
Posted By Barry Ritholtz On December 17, 2009

The political buzz today is all about the President’s falling approval [1] ratings. He has now fallen faster than President Bush did (prior to 09/11).

The simple solution for the White House: Stop jerking around with Financial Reform. When there is high unemployment, people don’t want to see bailed out bankers making a killing. Fix what was wrong with the system, what led us down the path to disaster.

As noted in these pages back in September, the brain trust around Obama made a terrible tactical error by tackling Health Care before they fixed Wall Street. (See: Tactical Error: Health Care vs Finance Regulatory Reform [2]). The record low approval ratings during his presidency reflect that.

Unless Obama wants to lose one or both Houses in 2010, he best shake things up.

My advice?

Put Paul Volcker in charge of Financial Reform.

IT WILL SAVE YOUR PRESIDENCY.

’nuff said"...

A Royal Mess in Kabul

So, Obama has sent 30,000 more troops to save President Kabul whom no high American official sent to Kabul to talk to him ever liked or trusted. See this report here. One of the US officials, working at UN, even plotted to have him removed.

The Great Depression in Detroit

50% unemployment in Motown! Read this here.

America, the Beautiful and the Colored!

In the second half of the 21st century the principal language in America is likely to be Spanish!

Read this.

Now you know why conservatives such as Patrick Buchanan, the late Harvard scholar Samuel Huntington and many other less serious rightwing folks are really mad as hell in the States

Bailout Over? No!

Remember Fannie and Freddie who were the first jumbo "too big to fail" institutions? While the front page news is on Wall Street firms returning some bailout money, these two institutions may need more. Read this here.

Has America Learned Its Past Mistakes?

Maureen Dowd of the NY Times has a pair of eyes as sharp as any war correspondent hawks. When you read her latest take on the war in Afghanistan and her sharp questions to Defense Secretary Gates, do you feel she was convinced by him?

Read her column here.