Wednesday, June 24, 2009

The best articles of the year.

Here is what I think are the most important articles on the Crash of 2008 and the aftermath.

First former IMF chief Simon Johnson's critique of the Wall Street Oligarchs control over Washinton, published in the Atlantic magazine.

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Michael Lewis wrote a story in about the subprime fiasco and the hedge fund manager Steve Eisman who bet against it. An excerpt:

For Eisman wasn’t raising his hand to ask a question. He had his thumb and index finger in a big circle. He was using his fingers to speak on his behalf. Zero! they said. “Yes?” the C.E.O. said, obviously irritated. “Is that another question?” “No,” said Eisman. “It’s a zero. There is zero probability that your default rate will be 5 percent.” The losses on subprime loans would be much, much greater. Before the guy could reply, Eisman’s cell phone rang. Instead of shutting it off, Eisman reached into his pocket and answered it. “Excuse me,” he said, standing up. “But I need to take this call.” And with that, he walked out.

Finally, there is a new story in Rolling Stone by Matt Taibii which portrays Goldman Sachs as the parasite on the American people that they are.
It is a story about how Goldman Sachs is the cause of every major bubble in the US Economy from housing to internet stocks to oil prices to global warming.

Here is a good quote

In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages. "That is how audacious these assholes are", says one hedge fund manager. "At least with the other banks, you could say they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I asked the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than your customers - doesn't amount to securities fraud. "It is exactly securities fraud," he says. "It is the heart of securities fraud."

and another

If America is circling the drain, Goldman Sachs has found a way to be that drain.

and another

The basic scam of the internet age is pretty easy for even the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out of 50-story windows and opening the phones for bids. In this game you were the winner only if you took your money out before the melon hit the pavement.

Great stuff!

Update. Here is another very good one.

Saturday, June 13, 2009

What is really going on in China

Chinastakes is one of the best places to read about economic trends in China. The latest article is a doozy.

Basically the Chinese are following America's example and flooding their economy with stimulus spending. In fact the majority of the stimulus is just the government directing their state run banks to lend money to anyone for any reason. Where is the money going to go when demand for manufacturing is plummeting? Speculative assets obviously. Here is the money quote.

“I began to invest my money in villas when orders began to decline in the second half of last year and my factory's production was cut by 1/3. The reason is simple. Under current economic conditions, investing in houses is safer than investing in factories,” said the owner of a private firm.

“Do you really think all those stimulus bank loans have entered the real economy?” queried a real estate dealer in Shanghai. “Of course not. They are still in enterprises’ hand, or have been invested in real estate and the stock markets. Some companies took money they scored on the stock market and invested in real estate soon after.”

Anyone with thorough knowledge of financial history knows how this is going to end.


Good story with links at
Zerohedge .

Tuesday, June 9, 2009

Whiney banks

The banks are whining again. This time about buying back their TARP warrants. Remember, the tiny amount of warrants were issued to make it look like the taxpayer was going to get a little bit of the upside from their investment" in the banks. Now that they want out of TARP, they also want to renege on their contract and get those warrants back.

Listen to the whining

“We shouldn’t have had to pay a dime,” said Sun Bancorp Chief Executive Thomas Geisel...Taxpayers deserve a return for the risk they took on, but it wasn’t a risk to invest in us.”

"You shouldn't have to pay a dime, Tom?". Did you not sign a term sheet giving you tax payer financed capital in exchange for warrants? Now you want those warrants cancelled for nothing in return? Please show me in the term sheet where it says that the warrants will be cancelled.

Jamie Dimon, CEO of New York-based JPMorgan Chase, said June 1 that that the U.S. should cancel half the warrants it holds “out of fairness.”

Ok, Jamie and why don't we reduce everyone's mortgage balance by half out of fairness. Can I pay back half my credit card balance? That sounds fair to me. 50-50. Even steven. Meeting you half way. Apparently contracts are sacred to bankers except for the ones signed between the banks and the taxpayer where the banks have made concessions.