Archive - Sep 28, 2009 - Story

"Wall Street supplies a swinging door of jobs for its financial regulators, and—in the case of many members of Congress and our Presidents—campaign contributions. This dependence is known as “capture,” and the result is that instead of reigning in Wall Street, dependent thinking enables mayhem. In the recent Ponzi scheme only the agents—mortgage lenders, rating agencies, fund managers, securitization professionals, CFOs, CEOs, and other fee or bonus beneficiaries—prospered. Controls and risk management were undermined. The financial institutions and their shareholders, for which these agents are failed stewards, collapsed. Investors in toxic securitizations lost money. Had regulators done their jobs, they would have shut down Wall Street’s financial meth labs, and the Ponzi scheme would have quickly choked to death from lack of monetary oxygen." - Janet Tavakoli

In the new, new normal, if you want to keep your job, look up moral hazard: it is your friend.

Investors are long commodities as a placement AGAINST the value of the USD, and banks and governments around the world borrow in USD. Germany and Austria have recently issued debt that is USD denominated, and they were soon immitated by... Venezuela. That to me is a sign the short-USD trade is ripe for a reversal, when basically even the biggest idiot in the house is short. The ultimate pain trade would certainly be renewed USD strength. Maybe if it happens the Fed will have the pleasure this time of bailing Venezuela with cross-currency swaps.

Spreads were tighter in the US as all the indices improved (though were unable to break Friday's tights and closed wider than Thursday's close). IG trades only 8.1bps tight (rich) to its 50d moving average, which is a Z-Score of -0.7s.d. At 105bps, IG has closed tighter on only 8 days so far this year (192 trading days). The last five days have seen IG converging to its 50d moving average.

"The enormity of the current financial collapse raises the question whether the crisis could
have been predicted. This is the second of two Economic Letters on the topic. This Letter
examines research suggesting that early warning models would not have accurately
predicted the relative severity of the current crisis across countries, casting doubt on the
ability of such models to forecast similar crises in the future." - San Francisco Federal Reserve

Goldman Sachs, which disagrees with Edmunds' expectation for an 8.8 million September SAAR, has shared its own projection of 9.3 million. Even so, the drop from the 12.5 million in September 2008 and the 14.1 million in August, is dramatic. What is scary is that there is no indication October will be any better. The only new initiative launched by Detroit: 60 day money back guarantees. Will that stimulate car sales, or simply end up as a bureaucratic nightmare for dealers, is still unknown. Although rental companies, those Chinese rockets like Hertz and Avis whose stocks have gone up by about 10,000%, will very likely not be too happy that GM has now also entered the "rental" car business.

Very predictable to see the "DaBoyz" use the light volume session today to mark everything up for Quarter End, re-substantiate Bernanke, Geithner, LLP as the leader of the "G-String" (aka G20) oligarchy, and blow up some GridBot and Forex Megadroid players at the same time.

Rep. Paul Kanjorski is preparing to take the rating agencies head on with a bill on credit agency reform. Some key Bill highlights presented.

A chart showing the relative performance of the SPY and the UUP (dollar ETF, shown inverted). The no volume equity market no longer cares about either correlation or causation.

After a very weak start to the day, the dollar has regained all of its losses. Bonds are trading appropriately. However, don't tell that to the few computers who are pushing stocks to each other today: stocks are still at the days high supported literally by no volume.

“[Bank of America and Merrill Lynch] were concealing billions of dollars in losses with one hand and clearing the way for extravagant bonus payments with the other. This case gives the public pension funds and other shareholders a chance to stand up against Wall Street.” - Richard Cordray, Ohio Attorney General

A mere two hours into the holiday trading day, and the SPY is already 20 million below the average cumulative volume. With nobody trading, it is time for the straight line up autopilot.

Today seems the perfect day to remind readers about our piece: An Open Letter To The Financial Media.

If the American people want to get the US financial system under control, then the first areas of investigation, we submit, must be fiscal and monetary policies. And if Americans do not soon get control over the habit of borrow and spend practiced by the Congress and facilitated by the Fed, then end result must be a populist backlash against Washington and incumbents in politics and the corporate world. As Congressman Ron Paul (R-TX) writes in his latest book, End the Fed: "Nothing good can come from the Federal Reserve… It's immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty."

What better way to celebrate Goldman's recent Conviction Buy optimism on Top 20 Bankruptcy Candidate Textron, and the private jet industry in general, than by clamping down and preserving liquidity at all costs? That's precisely what Textron competitor (and Goldman Sachs portfolio company) Hawker Beechcraft did earlier today.