Twofish's Blog

September 19, 2009

Business As Usual – One hopes

Filed under: finance, wall street — twofish @ 10:02 am

One more thing about incentives. There has been no massive public outcry for really deep, radical changes in Wall Street. There will be changes, but they won’t be huge ones. The reason for this is simple. The Dow is at 9700, and unemployment seems to be stabilizing.

If the Dow were at 6000 and unemployment at 15%, there would be huge, angry, lynch mobs looking for bankers to string up, and there would be the political will and incentive for vast, deep, and radical changes in Wall Street.

As it is, things seem to be getting back to normal, and people aren’t quite as angry as they were a few months ago. With people not angry, people just don’t care that much about radical changes to the financial system, and that means “business as usual” when it comes to hammering out the details.

If we get back to Dow at 12000 and unemployment at 6%, then all will be forgiven. If we have a double dip, and things start going into free fall again, the public will be back to “shoot the bankers” and they’ll probably be even angrier than they are now.

Now what I’m thinking about is what are the minimum set of changes that we absolutely have to make to the financial system to make sure that I don’t have to go through this hell again.

September 14, 2009

Tire tariffs and the general cluenessness of the New York Times

Filed under: china, new york times, wall street — twofish @ 10:34 am

I’ve been in this discussion of the Chinese tariff on Brad Delong’s website,

when this article from the New York Times comes in.  Geeze they are totally clueless.

China unexpectedly increased pressure Sunday on the United States in a widening trade dispute, taking the first steps toward imposing tariffs on American exports of automotive products and chicken meat in retaliation for President Obama’s decision late Friday to levy tariffs on tires from China.

China’s response is only unexpected if you know nothing about international trade and Chinese politics.  The Chinese response is perfectly expected if you have the slightest idea of what is going on.  It’s not as if the Chinese Ministry of Commerce, suddenly had a meeting on Saturday when they decides what to do.

Even if you know *nothing* about Chinese politics and economics, the prospect that the Chinese government would impose some sort of tariff in response to Obama’s tire tariff is hardly unexpected.  What would you expect the Chinese government to do, hug and kiss the US trade negotiations and heap love and praise on them.  Thank you, thank you, thank you for imposing tire tariffs.  Sheesssshhh.

Also, saying that maybe you will have the WTO look into something is not a *strong countermove*.

The Chinese government’s strong countermove followed a weekend of nationalistic vitriol against the United States on Chinese Web sites in response to the tire tariff. “The U.S. is shameless!” said one posting, while another called on the Chinese government to sell all of its huge holdings of Treasury bonds.

My God!!!!  This is dumb.  The New York Times is reduced to figuring out what is going on from *BLOG POSTS*.   What’s worse they are mentioning a blog posting without doing something creative like maybe linking to the posts.

So let me get this straight.  Some college student in some internet cafe somewhere starts writing some angry blog posts in between games of World of Warcraft and surfing internet porn.  The New York Times reads this and concludes that China is about to declare economic war on the US.  OK maybe, but can you at least do me the favor of *linking* to that blog post?

But the timing of the announcement — on a weekend and just after the tire decision in Washington — sent an unmistakable message of retaliation. The official Xinhua news agency Web site prominently linked its reports on the tire dispute and the Chinese investigations.

Well maybe can you link to that website?

Also you might try to find someone that can read Chinese, who can point out that the tire dispute isn’t being mentioned very heavily at all on any Chinese website.  Finally, you aren’t getting the hint.  The tire dispute on Xinhua is number two.  If you look at the number one article on any Chinese website (that is, assuming you can read Chinese), you’ll find that the number one article on Xinhua is Hu Jintao visiting the G20 summit to talk about financial regulation.

“Why did our government purchase so much U.S. government debt?” said one posting signed by a “Group of Angry Youths.” It continued, “We should get rid of all such U.S. investments.”

Yes.  The “Group of Angry Youths.”  As we all know the “Group of Angry Youths” is such an important group in Chinese trade policy.  Now that Obama has got the “Group of Angry Youths” upset, we know that there is going to be WAR!!!!!  The Politburo thought that they were going to issue just a formulaic response, but then they started reading the blogs and found out that the “GROUP OF ANGRY YOUTHS” was upset, so Hu Jintao got on the phone and told the Minister of  Commerce,  we need to do something because internet bloggers are after us.

Actually as the day goes on, I expect to see the New York Times gradually change.  Also, if any reporters from the NYT really do want some ideas as to what is going on.  Just go to the discussion on Brad Delong’s blog.

Here the general cluelessness of the NYT is just funny.  The fact that we got into a major war based on “intelligence” that wasn’t much better than this makes it less funny.

Also, I don’t have a problem with the NYT getting it’s news from blog posts and websites, but do you mind maybe *linking* to those sites.

September 12, 2009

Reading the whole damn speech

Filed under: wall street — twofish @ 10:42 pm

One problem with the sound bite era is that people read clips of speeches rather the whole damn thing.  For example  This is the whole speech the Gordon Gekko made which is very different from the clip.

Gordon Gekko: [at the Teldar Paper stockholder’s meeting] Well, I appreciate the opportunity you’re giving me Mr. Cromwell as the single largest shareholder in Teldar Paper, to speak. Well, ladies and gentlemen we’re not here to indulge in fantasy but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company! All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That’s right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.

Cromwell: This is an outrage! You’re out of line Gekko!

Gordon Gekko: Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can’t figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I’ll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated. In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much.

The other example of this is this quote from Kennedy
First, I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.
It was part of a much, much longer speech.
And the context even within that section was interesting….

First, I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth. No single space project in this period will be more impressive to mankind, or more important for the long-range exploration of space; and none will be so difficult or expensive to accomplish. We propose to accelerate the development of the appropriate lunar space craft. We propose to develop alternate liquid and solid fuel boosters, much larger than any now being developed, until certain which is superior. We propose additional funds for other engine development and for unmanned explorations–explorations which are particularly important for one purpose which this nation will never overlook: the survival of the man who first makes this daring flight. But in a very real sense, it will not be one man going to the moon–if we make this judgment affirmatively, it will be an entire nation. For all of us must work to put him there.

Secondly, an additional 23 million dollars, together with 7 million dollars already available, will accelerate development of the Rover nuclear rocket. This gives promise of some day providing a means for even more exciting and ambitious exploration of space, perhaps beyond the moon, perhaps to the very end of the solar system itself.

Third, an additional 50 million dollars will make the most of our present leadership, by accelerating the use of space satellites for world-wide communications.

Fourth, an additional 75 million dollars-of which 53 million dollars is for the Weather Bureau–will help give us at the earliest possible time a satellite system for world-wide weather observation.

Let it be clear–and this is a judgment which the Members of the Congress must finally make–let it be clear that I am asking the Congress and the country to accept a firm commitment to a new course of action-a course which will last for many years and carry very heavy costs: 531 million dollars in fiscal ’62–an estimated seven to nine billion dollars additional over the next five years. If we are to go only half way, or reduce our sights in the face of difficulty, in my judgment it would be better not to go at all.

Now this is a choice which this country must make, and I am confident that under the leadership of the Space Committees of the Congress, and the Appropriating Committees, that you will consider the matter carefully.

It is a most important decision that we make as a nation. But all of you have lived through the last four years and have seen the significance of space and the adventures in space, and no one can predict with certainty what the ultimate meaning will be of mastery of space.

I believe we should go to the moon. But I think every citizen of this country as well as the Members of the Congress should consider the matter carefully in making their judgment, to which we have given attention over many weeks and months, because it is a heavy burden, and there is no sense in agreeing or desiring that the United States take an affirmative position in outer space, unless we are prepared to do the work and bear the burdens to make it successful. If we are not, we should decide today and this year.

Toward a new two-party system

Filed under: wall street — twofish @ 10:27 pm
Also if you want a two party system, don’t worry about the Republicans. They are in the process of self-destruction. If you look at the real health care debate (i.e. not the death panel non-sense), the real fights have been between the Democratic left and the Democratic right over things like the role of private insurers and the “public option.” One possibility is that if the Republicans don’t get their act together, is that well have a two party system, but the Republicans won’t be one of them.

Obama is very clearly a member of the Democratic right. On every single issue in which he has to choose between moving left and moving right, he has moved right. The left wing of the Democratic party has put up with him only because there is fear that the Republicans are worse. If it becomes obvious that the Republicans are not going to be in power, then there is no reason for the Democratic Left to support Obama or his ideological successors, and they probably will start their own party. Alternatively if the Democratic Left gets in control of the party and it’s clear that the Republicans won’t play ball, the the Democratic Right will bolt and start their own party.

Alternatively, the Republicans could come up with a political genius like Reagan to reconstitute some sort of coalition, but it’s really, really hard for me to imagine Sarah Palin saying good things about big corporations, thereby gaining access to corporate and lobbyist money. The thing about Reagan is that he could combine different Republican factions because he wasn’t one of them. He wasn’t a member of the religious right, the economic right, or the Cold War hawks. Right now, there isn’t any major political figure that I can see that appeals to the remaining factions within the Republicans, but aren’t one of them.

One thing about Democrats is that they are willing to make tactical compromises. I’m sure that Michael Moore dislikes me and everything that I stand for (corporate America good!!!!!), but he is willing to put up with me as long as it means keeping someone worse out of power, and no one is under any illusions that this is anything other than a marriage of convenience.

The problem is that I don’t see this sort of willingness to tactically compromise among the Republicans.

Gordon Gekko votes Democrat

Filed under: wall street — twofish @ 10:19 pm

Gordon Gekko here…..

I’m a Gordon Gekko, “greed is good”, Reagan/Thatcher, pro-Wall Street, corporate America-loving, pro-banking, pro-business, wannabe filthy rich, pro-finance, economic conservative, and I’m on your side.

It’s quite simple. Since I’m a fan of Gordon Gekko, I take a look at who is more willing to let me make money and keep it, and it’s not the Republicans. I’m greedy, but I’m not stupid. Helping you make money, helps me make money. Getting the economy in shape so that everyone has health care, jobs, and a decent standard of living, means that you aren’t going to get angry when I make lots and lots of money. Heck, if it is obvious that my bonus is paying for your health care and your kid’s schools, you’ll probably want me to make more money. That’s fine with me.

If you think that I make too much money, then we sit down, and you tell me how much you want? You want health care, good schools for your kids, good public transportation, a great job. Fine…. That probably works up to about a modest increase in my taxes, so have the IRS take a fraction of my salary (I probably won’t notice it), spend it on your family, and enjoy. You would regulation so that we don’t have another financial disaster? So do I. So put in government bureaucrats to monitor capital requirements and lending policy, don’t put in restrictions on salaries and bonuses, and we are all good.

The Republicans have become very anti-banking, anti-corporate, and anti-finance. There are anti-banking, anti-corporate, and anti-finance people in the Democrats, but the interesting thing about them is that they can be reasoned with. If it’s about money, then we can make a deal. Figure out how much you want and then take it.

I am a greedy bastard. I don’t like dealing with people that are crazy in a bad way. You can’t cut a deal with crazies. Once you do cut a deal, you can’t be sure that they won’t stab you in the back when you aren’t looking, and they tend to stubbornly cling to their ideas even if it means taking them and me to the poor house.

Michael Moore, Ralph Nader, and Paul Krugman aren’t like that at all.

And Barney Frank is my hero……

May 30, 2009

Discussion on the US financial system

Filed under: china, finance, wall street — twofish @ 7:17 pm

October 19, 2008

How to take over the world

Filed under: china, finance, wall street — Tags: , , — twofish @ 5:41 pm

black swan: The solution is so simple. Instead of having the Fed/Treasury insure the new senior debt of the nine banking institutions that sheltered the architects of our present worldwide solvency crisis, have them insure muni bonds.

Not so simple. If you insure municipal bonds, but don’t insure the banks, then you don’t have anyone to underwrite the issuance of the bonds. What typically happens when a municipality wants to float an municipal bond is that they go to a syndicate of investment banks that buy the bond, and then the bank takes the bond and sells them on the credit markets. If you insure the bonds, but the banks aren’t willing to underwrite them beause they have no cash, then it’s pretty useless, since you have no mechanism to sell the bonds.

black swan: I believe the Treasury is not talking about doing anything like this, because the Treasury is Goldman Sachs (Paulson, Kashkari, Wilson and Forst).

Precisely. They know the securities markets well enough to know that some things just won’t work. This is a big problem that I’m not sure how to deal with. Anyone that really understands the market is heavily involved in it and is going to have connections, left and right, and hence conflicts of interest. Anyone with no conflicts of interest probably doesn’t have the experience needed to do the job. Another problem is that if you need someone to do a job quickly, you find someone you know and trust, but this tends to squeeze out competent people that you don’t know, and the people who Paulson trusts are precisely the people that a lot of voters *don’t* trust.

I’m not that worried about Goldman-Sachs taking over the world, since if Goldman-Sachs starts acting out of line, the other big investment banks will start screaming. Of course, then there is the valid question of what you do when the big investment banks collectively act out of line.

black swan: There isn’t a modicum of evidence to suggest that any of the Treasury’s ‘fixes’ are done to benefit the US taxpayer.

We’ll see in a year. Goldman-Sachs is making one of those “bet the firm” bets that they are famous for. If three years from now, the economy is in great shape, and you point to the voter that Goldman-Sachs is in control of the Treasury Department. They may react with “Great!!! We need more people from Goldman-Sachs running the world. I want my kids to work for Goldman-Sachs. God bless Goldman-Sachs” If three years from now, the economy is in a depression, then Congress is going to hold lots of hearings on cronyism and people will be demanding human sacrifices.

The first case may sound odd, but there is precedent for something like this. At the start of the Great Depression, a small group of people figured out that they that could run the world by putting key people in charge of the economic infrastructure of the United States, and if did it competently that they would amass more power and wealth than anyone could dream of, and they could do it in a way that the general population would actively support their efforts. These people were in charge of running Harvard, Yale, Princeton, MIT, Stanford, University of Chicago, etc.

September 28, 2008

Reports of the death of Wall Street have been greatly exaggerated

Filed under: wall street — Tags: — twofish @ 3:52 am

I really do think that people are being much too premature about the death of Wall Street.  Sure a lot of the stupid craziness is going to end, but that isn’t necessarily a bad thing.  Yes the new institutions that are going to be running Wall Street may be much less highly leveraged, but you can make up for lack of leverage with volume and as long as the underlying economy is more or less sound, you can find volume.

This might sound odd.  Two days ago, I was saying “Oh my God, we are doomed!!” and now I’m talking about the economy being fundamentally sound.  It’s there a contradiction, here?  Not really.  Think of it as flying on an airplane.  There isn’t that much difference between a smooth comfortable ride, and a life threatening situation in which you end up dying in a huge fireball.  The sense that I had a few days ago, was that of a passenger strapped into an airplane seat, entering a massive thunderstorm heading toward a mountain, and then suddenly seeing the pilot with this crazed look that suggests that he might be drunk or suicidal.  Once it becomes clear that the pilot isn’t drunk or suicidal, and once the airplane suddenly swerves and misses the mountain, then I can finish vomiting and try to relax.

The fact that there is no contradiction between “the economy is fundamental sound” and “oh my God, we are all doing to die” is what makes things like the Great Depression rather tragic.  In the United States in 1929 (or Japan in 1988), there was a lot of craziness, but you had an economy with factories, jobs and employment, and the fact that things spiraled out of control shows how a financial crisis can turn into an economic crisis if that crisis isn’t handled very carefully.  To use another metaphor, if you cut off someone’s oxygen, they are going to die.  It’s true that if you are unhealthy, you are more likely to have your oxygen cut off, but if someone dies from lack of oxygen, that doesn’t mean that they were basically unhealthy to being with.

April 19, 2008

Subprime mortgages and food prices

Filed under: china, finance, wall street — twofish @ 12:31 am

In economics everything is connected with everything else, and the difficulty is to figure out the connections.

Right now I’m trying to figure out

subprime mortgage collapse -> **** -> rising global food prices

One problem here is that I’m not a farmer so I know nothing about the economics of agriculture.  In particular, I don’t know how a farmer interacts with the credit markets.

Michael Pettis has argued that the inflation in China is due to monetary policy, but the one thing that makes me suspect that there is much more to the story is that it isn’t obvious why RMB exchange rates should increase food prices in Haiti.

April 1, 2008

Financial regulation

Filed under: finance, wall street — twofish @ 3:55 am

And now for something really different financial regulation in the United States.

It seems to be odd that there are already detailed plans for how to change financial regulation in the United States, without a discussion of some pretty fundamental questions:

1) Why are we regulating? Is it to protect consumers? Is it to insure that “bad guys” be punished? Is it to deter future “bad guys”? Is it to prevent a collapse of the financial system?

All of these are legitimate reasons for regulation, but they may cause contradictory policy. For example, a system that focuses on punishing bad people is often too late to protect consumers.

Once we have an idea of what the bad thing is we are trying to prevent, then two questions follow

2) Who are the new regulators? What is the role of the Fed, the SEC, the Office o Thrift Supervision, etc??

3) What do we regulate? Is the purpose of regulation to provide information? To prevent bad behavior? to prevent risky behavior?  to save people from themselves?

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