“The only thing we have to fear is fear itself.”
Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope. Who was to blame?
"The government, writ large, had a hand in creating the conditions that encouraged the approval of dubious mortgages. It was the government, in the form of Congress, that repealed Glass-Steagall, thus allowing certain banks that had previously viewed mortgages as a source of interest income to become instead deeply involved in securitizing pools of mortgages in order to obtain the much greater profits available from trading. It was the government, in the form of both the executive and the legislature, that encouraged deregulation..."
- Judge Jed Rakoff
Desperation and the sound of hot air hissing out of the Bond Bubble
Our bloated government needs to stop controlling and start serving. Providing its "less wealthy" citizens the very same investment freedoms that it grants its wealthier ones would be a good start.
Lets face it, shysters exist....it's our job to ensure we stay well clear of them. Here are some RED FLAGS to look out for!
When Charles Ponzi was around, it took just a tad longer to rake in the cash and commit financial fraud, escaping with the proceeds to better climates. Today, the internet and the power of the virtual world have made the transfer of funds so much quicker.
Through most of the 20th century, America led something of a charmed life, at least when compared with the disasters endured by almost every other major country. We became the richest and most powerful nation on earth, partly due to our own achievements and partly due to the mistakes of others. The public interpreted these decades of American power and prosperity as validation of our system of government and national leadership, and the technological effectiveness of our domestic propaganda machinery - our own American Pravda - has heightened this effect. Author James Bovard has described our society as an “attention deficit democracy,” and the speed with which important events are forgotten once the media loses interest might surprise George Orwell.
Now that The Show is over, we are left with the equivalent of a Sunday morning hangover following a binge of promises and lies. After the Supreme Court upheld the PPACA, a spate of mergers rippled through the managed health care realm, to ostensibly cope with smaller profit margins and ‘compliance costs.’ But really, it’s because each firm wants to corner as much as possible of the market, in as many states as it can, to garner more premiums and control more disbursements and prices at the upcoming insurance ‘exchanges.’ Meanwhile the more hospitals are viewed as profit centers, the more their Chairmen will cut costs to maximize returns, and not care quality. They will seeks ways to sell underperforming assets, programs or services and reduce the number of nonessential employees, burdening those that remain. And if insurance companies can manage doctors directly, they can control not just costs, but treatment – our treatment. It’s not an imaginary government takeover anyone should fear; but a very real, here-and-now insurance company takeover, to which no one in Washington is paying attention.
The departure of Vikram Pandit as CEO of Citigroup (C) should come as a relief to the markets, regulators and customers – indeed, just about everybody besides the volatility junkies who like to trade this very liquid, very unstable stock.
For anyone who had doubts that the JPM CIO debacle was only just starting, the just broken news by Bloomberg that the firm has hired former SEC enforcement chief William McLucas "to help respond to regulatory probes of the firm’s $2 billion trading loss" should put all doubts to rest. Because the last thing JPM needs now is to be perceived as engaging in even more regulatory capture (its current general counsel was also previously a head of enforcement at the SEC) . Yet because it is doing precisely this, means that the offsetting cost, namely the fallout that will be associated with the CIO unwind if and when completed (and we will know for sure when the Q2 earnings are released at the latest), will be fast and furious.
Enron --> Worldcom --> Adelphia --> Lehman --> MF Global --> Greece --> Sino Forest --> ????
We would rank these as some of the more notorious bankruptcies. These weren't normal course of business bankruptcies. These were dark and deviant. They have many similarities. Opaque and convoluted accounting and finances are common to them all. Whether it was Jedi for Enron, repo 105 for Lehman, or off-market swaps with Goldman for Greece, they all used every trick in the book to keep debt off balance sheet and to obfuscate the risk. It is hard to watch what is going on in Europe and not believe that Greece is just the first of many. Countries and their banks. Countries and their regions. Countries and EU programs. Banks and their national central banks. Banks and the ECB. It is hard to pin down the fatal flaw, but for us it is harder to believe that there is nothing to see there and we should happily move along.
This cannot be the right course for us to take in the wake of such a widely recognized crisis. The lack of purposeful outrage is deafening. We cannot restore lasting stability to our economy and society unless we are willing to face up to what we did wrong, right it, and throw out the bums who put us there. Without that, the pattern of ever escalating crisis and interventionist, market-distorting solutions will surely lead to a bigger crisis still ahead... Perhaps the most important symbol of our failure to address reform are the pictures accompanying much of the coverage of Greg Smith’s letter, those of a power-posing Blankfein and Cohn, who without the Government’s accommodation might be striking a very different pose, indeed. You want to sign on to Mr. Smith’s army in joint distaste for Goldman’s lost culture? Please, be my guest. But more deserving of your enmity is the insidious co-option of the core premise of capitalism by a handful of people to ensure the banks’ undeserved survival, and their managers’ really nice lifestyle.
Until the Congress rectifies the current bankruptcy laws and allows trustees to claw back payments made to secured lenders and other counterparties, there is no reason for any rational personal to allow a broker dealer to hold securities in custody.
Trust Bloomberg's Jonathan Weil to put two and two together, and to remember that everything new is just well forgotten old. In this case Bank of America. And we are not talking comparisons to Lehman (or even SocGen) - those are boring. No, it is much more fun to compare the insolvent bank to another world con, in this case WorldCom. As Weil reminds us, the news that Moynihan's last stand was considering a tracking stock reported earlier by the WSJ, as a means to demonstrate to the Fed its "viability", is nothing short of the comparison of WorldCom's last ditch in kind method, which none other than a WorldCom director likened to, well, horseshit.
In any period of ‘reaching for yield’ the market sees a gradual shift as investors move out the curve, purchase weaker credits, or dabble in structured products. These are not their usual “comfort zone” of investing. Someone used to investing in 3 year risk, is not used to the volatility of investing in 10 year bonds. The investment grade investor may not fully understand the convexity of callable high yield bonds, not the impact of secured loans above you in the capital structure. Worst of all, the straight bond investor who takes a punt on some structured assets may not fully understand the asset and over estimate the liquidity in bad times by orders of magnitude. These shifts are generally very gradual. It takes investors awhile to get comfortable with the increased risk. As the asset class performs, the investor is more confident in their decision making, and likely has even more need to reach for yield, so they add more money to areas outside of their core competency. Then, one day, almost out of nowhere, something sparks a sell-off. It is almost as though one day the asset class is great, the investor is smart, and the next day, the market is selling off and the investor has no idea why. If it was an area they were experts in they might assess the market carefully and decide to retain their position, or even add. But in a market that they don’t have much experience, the declining price creates fear, and ultimately, it is impossible for the investor who reached for a few extra bps to bury the sensation that they could lose far more money than they hoped to make. Those few extra bps, which the investor viewed as so important, just a short while ago, were only available because this investment was MORE risky. That risk now becomes too much and the investor joins the selling parade, creating a sharp sell-off.