Monthly Archives: March 2008

Truth Hidden in Plain Sight

NEW YORK (Reuters) – Bear Stearns Cos shares fell nearly 5 percent on Friday after Chairman James Cayne, who was seen as opposing JPMorgan Chase & Co’s acquisition of the investment bank, sold his stock.

This represented $900 million plus in paper losses for Mr. Cayne and is viewed by many as signaling the end of negotiations for a better deal by Bear Stearns.

Since the JP takeover was an all stock deal why not hold the onto your Bear shares until you get the JPMorgan shares; unless of course you think JP Morgan’s stock is going down before the deal closes.

If money talks, then Mr. Cayne’s money is telling us the financial pain isn’t over yet.

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When do the honest become the blind?

Paul O’Neill, the former truth speaking Secretary of the Treasury, had a good analogy to explan why the subprime issue has spread to the rest of the economy (h/t my dad).

To paraphrase: imagine you had ten bottled waters; one of which contained poison.  Without knowing which one, would you take a drink of any?

This would be a good analogy were sub-prime mortgages truly the only issue.  In fact, O’Neill is blind to the reality of much wider problems.

A more accurate analogy would go as follows:

1.  Imagine you have ten bottle waters and you are told by the Federal Water Reserve that one contains poison.

2.  After watching someone pick one of the bottled waters and then promptly die, you then observe another person pick a different bottled water and then promptly die as well.

3.  Would you drink from any other bottles?

All houses are infected with the poison of bubble prices.   Those in the sub-prime category were just the first to become insolvent and the only ones without a PR firm or lobbyists to defend them.

New World Order

UBS to Customers – Buyer Beware

From the WSJ: UBS Cutting Value Of Auction-Rate Securities In Brokerage Accounts

UBS is the first of what will surely be many large banks to pass losses on Auction Rate Securities on to their customers. Of course these are the same customers who were told that these investments were as liquid and as safe as cash.

The Money Quote:

“Some Clients Will Face Losses on Paper Of More Than 20%”

We’re all Charlie Brown now

Charlie Brown and Lucy Kick Football

Homeowner = Smoker

Is it really appropriate to use the same “should have known” language for people with negative equity or too high a mortgage payment that is has been used for a smoker with emphysema?

If so, should we also blame victims of medical malpractice for failing to understand their own medical procedures?

Of course we can blame any lay person for mis-applied trust, but what is the end result?

The regulatory environment that arose during the Great Depression (Securities Exchange Act of 1934, Securities Act of 1933,) came about to restore trust in stocks and the stock market.  It’s a testament to their effectiveness that it took over seventy years for Wall Street to subvert them.  There will always be people willing to break the law, the problem arises when you can commit fraud without technically breaking the law; as evidenced by stock brokers in the 1920’s and mortgage brokers in this decade.

Hopefully, we will have the same political will, as in the 1930’s, to close this loophole without the financial upheaval of yesteryear.

TBTF – Too Big to Fail

TBTF is the new version of the early 1900’s trusts; inevitable without regulation and destructive to capitalism in the end.

Trusts and the GOP

Spitzer Must be Saved

Eliot Spitzer is a hypocrite of the highest order whose stupidity and hubris rival Greek and Shakespearean actors, but he must be saved to send a countervailing message to the Bear Stearns, ne Wall Street, bail-out.

Without the redemption of Mr. Spitzer, Wall Street will be doubly emboldened to rape and pillage both the American Taxpayer and the American Investor for years to come.

Hypocrisy and self aggrandizing behavior must be tolerated in this case precisely because the main target of Spitzer’s behavior was not the weak but, as evidenced by his swift downfall, the powerful.

Despite the dislike both Democrats and Republicans (the rich ones of both parties that is) have for him and his heavy handed prosecutorial methods, his public persona as a champion of the little guy must trump his other foibles and petty crimes.

Even though his attacks on Wall Street may have been motivated by electoral self-interest and, evidently his prosecution of prostitution was steeped in hypocrisy, his attacks on financial con games were still grounded in real, costly, and long-standing Wall Street malfeasance.

The dual encouragement of bailing out Wall Street stupidity at taxpayer expense and punishing the Sheriff of Wall Street for not towing the party line must not be allowed to stand. Make no mistake, he is no longer Governor because of he refused to follow standard operating procedure when dealing with the sacred NY cow of Wall Street.

Proportionality

Former Senator Phil Gramm, one of the architects of the deregulation that led to our current “credit crunch”, is now making millions as a Vice Chairmen of the Union Bank of Switzerland (UBS) while Elliot Spitzer is being crucified for sex.

Structuring” may be a crime but so is treason. Senator Phil Gramm championed legislation for yeas that allowed an agent of a foreign government, UBS, to profit enormously for years and which is now threatening the collapse of the American Economy (according to the Federal Reserve).

Of course, we don’t know for sure that Senator Phil Gramm committed treason and the constitution does require overt acts, but has the FBI dedicated the same effort to the investigation of $10 billion in losses that are now being covered by the American taxpayer as they did towards the movement of less the $100 thousand in unseemly commerce.

Add to UBS all the Caymen Island hedge funds that have reaped disgusting profits since both deregulation and the elimination of Glass-Steagall Act. These same tax dodging entities are now threatening our financial security and, if the Bear Stearns model is followed, will cost US taxpayers billions, and maybe trillions, of dollars.

Any prosecutor with high office aspirations could make a career out of attacking these tax dodging, tax bailout, millionaire hedge fund enterprises just like Spitzer did following the Dot Com bubble. But, with the seemingly perfect timing of Spitzer’s comeuppance, these potential prosecutors have been sent a none too subtle message; make your bones attacking the defenseless and handle the powerful with kid gloves .

Eliot Spitzer, like still serving Senators Larry Craig and David Vitter, is a high ranking hypocrite, but that is not the reason for his downfall. He attacked the status quo; attacking long standing Wall Street practices and applying intimidation techniques usually reserved for the defenseless defendant and not the well healed, influence peddlers of Wall Street.

Now I like an abusive prosecutor even less then I like a philanderer, but this country and it halls of of government are full of both. The truly rare thing is someone who attacks the status quo.

Is it any coincidence that the only other high profile disgraced prosecutor also tried to attack some rich kids, Mike Nifong? The “Duke Lacrosse” prosecutor’s downfall, considered on it’s own in a vacuum, is a triumph for defendant’s rights and a rebuke of an abusive prosecutor’s reprehensible behavior. But we don’t live in a vacuum.

What happened to the prosecutor in the Central Park Jogger Case, that, unlike the Duke case which resulted in no undeserved jail time, saw five innocent young boys serve sentences ranging from five to thirteen years.? Oh yeah, that prosecutor recently ran for President of the United States. See a pattern here?

Eliot deserves a “Get out of Infamy Free” card to send the message that while we bail-out Wall Street for the “Greater Good” we must also bail out the nemesis of Wall Street for the Greater Good.