Archive - Oct 19, 2009 - Blog entry

Nassim Taleb, author of The Black Swan and Fooled By Randomness, writes brilliantly on investment risk, but his proposed solution to the economic crisis, converting defaulting mortgages to equity by banks, will result in America catching the Japanese Disease. We can't keep debt lingering on the books of banks like they did in Japan. And you can't magically turn stone into bread. Read this and tell me what you think. Perhaps he is creating another black swan.

Are Fannie and Freddie dead or are they not? That is the question. Keefe, Bruyette & Woods says the stock is toast. As of today the Administration is putting them to work for a few more years. Is the outcome the same but the timing different? What is the "Trickle Up" theory? Will it work?

I believe monetary authorities are desperately trying to reflate the real economy by flooding the financial system with a tsunami of liquidity. Asset bubbles are being formed as we speak. Equity and commodity prices will head much higher but it remains to be seen whether higher asset prices will translate into higher real prices. Stay tuned, but in the meantime you might want to curb your enthusiasm and remain very alert as asset prices disconnect from fundamentals.

Janet Tavakol says:

"During World War II, we imposed an excess profits tax. We should impose a 95% excess profits tax—or windfall profits tax—on certain financial institutions (including Goldman Sachs) enriching themselves with ongoing low-cost Fed funding and debt guarantees."

What do you think?

Russia shot itself in a foot last year when in dispute with Ukraine, it shut off natural gas supplies to Europe. That experienced was very unpleasant for Europe and underlined its dependence on a single nation.

House Financial Services Committee DOESN'T wimp out!

In reviewing the last couple of quarter's results of Goldman Sachs operating results, I have come to the conclusion that Goldman is a Federally insured, publicly traded hedge fund!

Pass this on to people who get their news from the talking heads on tv . . .

Project Mayhem reviews the most important financial and geopolitical news of the past week and takes a look at the week ahead

Let me know the chances of the FDIC's absorbing a behemoth such as the CDO trading, CDS writing, off balance sheet VIE having, QSPE bulging, California and Florida Zero recovery 2nd lien sporting Wells Fargo in the case some of its arcane and non-performing assets really hit the fan. I am getting ahead of myself though. Let's take this from the beginning.

The following post is a revision of an article I wrote for my blog. The topic is the similarities between the leap of faith that investors took when they gave their money to Bernie Madoff and the leap of faith required of those who currently own and buy shares of Goldman Sachs. Upon some reflection, there are a number of interesting parallels. The data does not include the most recent earnings report, but given another incredible performance this quarter I thought the commentary was still very relevant.