Google, Haiti, and Taxachusetts

Saturday, January 23, 2010

There have been so many juicy topics to cover, it’s been difficult to keep away. Every time I’m moved to write, though, I really have something else to do or simply don’t want to devote the time to it. That said, here is, in summary, how to think about the following issues:

Google/China: Yes, if Google was #1 in China this wouldn’t have happened, but they’re not and it did. As a result, this is one of the great humanitarian corporate moves of all time. Perhaps the greatest (there’s not a lot of competition, I’m guessing). Google should follow through and close their business there. As arguably the most important corporation in the world, the move will properly shame China and the many companies that remain in that authoritarian country. Here’s a question that any one doing business there should ask: Would I want to live here?

Haiti: Nothing to do in the aftermath but help. In the long term, I’m with David Brooks and Bret Stephenson. Let’s stop giving money to countries “in need.” It does nothing, and may actively do harm. It’s difficult, because it is human nature to try to help fellow humans in need, but it’s also the right thing to do. Certainly, what the first world has been doing for decades has not worked.

Taxachusetts: I would have voted for Scott Brown too. Seriously. I would have voted for a cardboard cutout against Coakley. Although she was inept, I would have done it to send the message. I have said, many times, that if Obama and this Congress can’t get it done, then there is no hope for us. Year one has been an epic, unmitigated failure. Iraq, Afghanistan, secrecy, deficit spending, bank coddling, and worst of all, the healthcare nightmare. I blame Obama for not using his robust post-election strength to strong arm Pelosi (failure) and Reid (failure) immediately. Weak, poorly managed, pathetic. Obama, where are your balls? It’s time to lead.

And, btw, why do you need the 60 votes? Make an exceptional bill and let the GOP filibuster. Call their bluff. If they do it, and the bill dies, you hang it around their neck. Now, the bill dies, and it’s a Dem failure. Disgraceful.

(But then there would be no healthcare bill, someone wails. So fucking what? Paul Krugman can cry to his cats. This is not the most pressing issue in America. Budget restraint, financial reform, and confiscatory, punitive taxes on very wealth bankers, should be the priority. Followed by a 10% spending cut across the entire government, no exceptions.

We are going to have to suffer, period. Let us start suffering already so we have a shot at not fucking our children.)

The bottom line for me, in all this, is that I have really given up hope. I don’t believe our Congress (and the state legislatures) are capable of introducing the change (ethics, responsible spending) that is necessary.

Something very, very bad is going to happen in the next ten or twenty years. War with China, epic depression/inflation/default, or, in the best case scenario, a benevolent military coup (and a draft) that reforms the government in a way that makes it possible for America to function properly.

David Petraeus, are you out there? Rome needs you. Cross the Rubicon. Cast the die!

P.S. I can’t believe I just wrote that. Nevertheless, letting it stand.


The Goldman Scam

Friday, July 31, 2009

Or why Congress better tax 95% of Wall Street bonuses (with no bloody loopholes).

From a former Managing Director at Goldman Sachs, Nomi Prins, writing on Mother Jones:

Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG’s spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG’s free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there’s the $29.7 billion it’s used so far out of the $35 billion it has available, backed by the FDIC’s Temporary Liquidity Guarantee Program, and finally, there’s the $11 billion available under the Fed’s Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman’s request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks.

Read this piece and then forward to your Congressperson and the White House with your feelings on the matter. The top talent is scamming you.


Public Private Investment Partnership: The Fix is In

Friday, April 3, 2009

So the Financial Times reports that:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

Which means that, (as Joe Wiesenthal at Clusterstock points out):

Banks buying assets from each other to inflate their books has nothing to do with “price discovery” or any such nonsense. It’s all about using taxpayer money to create bids that are higher than what the market currently prices those assets at. And if it turns out those bids were too high and the cash flows never materialize then, oh well, it’s the taxpayer left holding the bag.

Which prompted this from Rep. Spencer Bachus:

Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

You will never stop Wall Street greed and gall unless you legislate it (and even then…). People keep saying that it is the end of an era on Wall Street. My feeling is that it might be, but the end will only be temporary, of course. After all, they repealed Glass-Steagall, and that, in part, led to where we are today. But, if, for some reason, Congress and the international community doesn’t act to firmly regulate the financial industry, we are doomed.


Manhattan Co-op Prices Down 22% in Q1

Thursday, April 2, 2009

From Bloomberg:

Manhattan co-op prices dropped the most since 1995 and transactions for all apartments plummeted 48 percent in the first quarter from a year earlier as the recession and Wall Street unemployment cut demand.

The median price for co-operative apartments fell 22 percent to $587,500, according to a report today by New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate.


Stiglitz Hates Good Bank/Bad Bank

Wednesday, April 1, 2009

And so do I.

This is the age of the moral hazard. There is no absolutely incentive to do the right thing.

From Stiglitz in the NY Times:

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Ya got that? 1-to-4 odds for that wager. Stiglitz continues:

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses.

When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.

With no good options, Obama, while staving off desperation, is courting true, epic disaster. You spell it with four letters and it got us into this mess in the first place.

Where, I ask, are the criminal prosecutions for AIG, Bear, Lehman, Citi, WaMu, Merrill, etc?

And why is Chris Dodd still in office?

I am not placated by congressional hearings. I want blood.


Is it Wrong to Like James Baker?

Monday, March 2, 2009

Although I will never forgive him (and everyone involved) for his role in the Florida recount and Bush’s eventual presidency, I have been impressed with Baker’s latter work as a statesman and government elder.

Today, he’s got a sensible piece in the Financial Times about how to clean up our banking mess. The prescription?

We should act decisively. First, we need to understand the scope of the problem. The Treasury department – working with the Federal Reserve – must swiftly analyse the solvency of big US banks. Treasury secretary Timothy Geithner’s proposed “stress tests” may work. Any analyses, however, should include worst-case scenarios. We can hope for the best but should be prepared for the worst.

Next, we should divide the banks into three groups: the healthy, the hopeless and the needy. Leave the healthy alone and quickly close the hopeless. The needy should be reorganised and recapitalised, preferably through private investment or debt-to-equity swaps but, if necessary, through public funds. It is time for triage.

To prevent a bank run, all depositors of recapitalised banks should be fully guaranteed, even if their deposit exceeds the Federal Deposit Insurance Corporation maximum of $250,000 (€197,000, £175,000). But bank boards of directors and senior management should be replaced and, unfortunately, shareholders will lose their investment. Optimally, bondholders would be wiped out, too. But the risk of a crash in the bond market means that bondholders may receive only a haircut. All of this is harsh, but required if we are ultimately to return market discipline to our financial sector.

From everything I’ve read, this sounds about right to me. Let’s get it going.


Manhattan Real Estate: It’s Over

Thursday, February 26, 2009

The stories are now coming in fast and furious. The years of excess inventory. The tens-of-thousands of unsold condos. Prices plummeting. Manhattan (and Brooklyn) heading due south (no Miami pun intended).

It didn’t take a genius to figure this out, just look at any of the new condo developments at night. They’re empty.

Plus, Nouriel Roubini was talking about this years ago, long before the real estate/Wall Street bubble popped.

At any rate, here are some of the stories:

Dumbo Goes Down
Harlem, Too

An Insider on Inventory Piling Up:

1. inventory now at 11,000 listed homes, condos and coops in manhattan which is almost 3x normal
2. inventory actually grew 1200 units over the last 30-days (the attached stats are a couple of weeks old and the listing velocity INCREASED the last 2 weeks)

Condo 50% Off Auctions Coming Soon
Buyers Forfeiting Six Figure Deposits
Buyers Organizing Because They Paid Too Much (for Shoddy Buildings)

The talk is of a return to prices as they were in the mid-90s; $500/sq. ft. or less in prime Manhattan.