Archive for February, 2009

• Bailout for Bailout Nation
  Eddy Elfenbein, February 11th, 2009 at 11:27 am

  Yesterday, Jesse Eisinger reported that McGraw Hill dropped Barry Ritholtz’s book, Bailout Nation. Barry said that it’s due to his harsh treatment of the ratings agencies (Standard & Poor’s is owned by McGraw Hill).
  McGraw Hill says that it’s dropping the book due to editorial conflicts. This strikes me as an exceedingly lame excuse. Jesse quotes Barry, “All the conversations I had with them, they made apparent this was all about S&P’s role as sister company.”
  Felix says that the relationship probably fizzled due to chemistry as well, and I think he’s right. McGraw Hill certainly didn’t want the book to be dropped. I think they underestimated dealing with a blogger like Barry who’s not going to let himself get pushed around. They pushed too hard and he walked.
  The bottom line is that McGraw Hill is making a big mistake. The book was going to be a hit and now it’s going to be an even bigger hit. My bet is that a publisher will pick it up by the end of the week.

• P.J. O’Rourke on the Death of Capitalism
  Eddy Elfenbein, February 11th, 2009 at 10:28 am

  From the Financial Times:

  The free market is dead. It was killed by the Bolshevik Revolution, fascist dirigisme, Keynesianism, the Great Depression, the second world war economic controls, the Labour party victory of 1945, Keynesianism again, the Arab oil embargo, Anthony Giddens’s “third way” and the current financial crisis. The free market has died at least 10 times in the past century. And whenever the market expires people want to know what Adam Smith would say. It is a moment of, “Hello, God, how’s my atheism going?”
  Adam Smith would be laughing too hard to say anything. Smith spotted the precise cause of our economic calamity not just before it happened but 232 years before – probably a record for going short.
  “A dwelling-house, as such, contributes nothing to the revenue of its inhabitant,” Smith said in The Wealth of Nations. “If it is lett [sic] to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue.” Therefore Smith concluded that, although a house can make money for its owner if it is rented, “the revenue of the whole body of the people can never be in the smallest degree increased by it”. [281]*
  Smith was familiar with rampant speculation, or “overtrading” as he politely called it.

• The Geithner Plan
  Eddy Elfenbein, February 10th, 2009 at 2:01 pm

  The Washington Post:

  Treasury Secretary Timothy F. Geithner this morning announced an aggressive and multi-faceted program that could commit $1.5 trillion or more in public and private funds to rescue banks and financial institutions and thaw frozen credit markets.
  The gravity of the financial crisis confronting the Obama administration was brought into stark focus as Geitner unveiled a financial stability plan that would more closely scrutinize the risks banks are facing and offer public and private capital to those that need it; create a fund, with a starting value of $500 billion, to buy up toxic real estate loans; and commit up to $1 trillion to reopen lending markets for consumer, student, small business, auto and commercial loans.
  Geithner said the administration was also working on a plan to address the nation’s housing crisis by bringing down mortgage payments and reducing interest rates. President Obama, appearing at a town hall meeting in Fort Myers, Fla., said he would personally outline the details of that plan within the next few weeks.
  Geithner did not ask Congress for more funds than the roughly $350 billion that remain in the Treasury Department’s original rescue package for the financial system. He said the balance of the money for the stability plan would, for now, come from other government agencies, such as the Federal Reserve, as well as private-sector contributions.
  “To get credit flowing again, to restore confidence in our markets, and restore the faith of the American people, we are fundamentally reshaping the government’s program to repair the financial system,” Geithner said. ” . . . We believe that the policy response has to be comprehensive, and forceful. There is more risk and greater cost in gradualism than in aggressive action.”

• The Black Swan Song
  Eddy Elfenbein, February 9th, 2009 at 4:01 pm

  I’ve already devoted too much space to Nassim Taleb and his Black Swan nonsense. It’s a mystery as to why he’s considered such a visionary. But now people are claiming he’s one of the people who saw the financial crisis coming. I’ve read both of his awful books and he never made such a prediction.
  Taleb is a Johnny One-Note. He can talk about how people have trouble with risk. Fine, got it. But when we go to any other topic, he can’t deal. He always goes into his Napoleon Dynamite routine where he’s brilliant and everyone else is a “freakin’ idiot!”
  Notice in this clip when he’s asked what to do now and he has no clue. His answer is to fire Bernanke. Yep, that’ll solve things. Strip away the attitude and vindictiveness, and there’s nothing to him.

• SNL: Pelosi and Reid
  Eddy Elfenbein, February 9th, 2009 at 3:41 pm

• Lloyd Blankfein in FT
  Eddy Elfenbein, February 9th, 2009 at 10:31 am

  Here’s a sample of Lloyd Blankfein in today’s Financial Times:

  As policymakers and regulators begin to consider the regulatory actions to be taken to address the failings, I believe it is useful to reflect on some of the lessons from this crisis.
  The first is that risk management should not be entirely predicated on historical data. In the past several months, we have heard the phrase “multiple standard deviation events” more than a few times. If events that were calculated to occur once in 20 years in fact occurred much more regularly, it does not take a mathematician to figure out that risk management assumptions did not reflect the distribution of the actual outcomes. Our industry must do more to enhance and improve scenario analysis and stress testing.
  Second, too many financial institutions and investors simply outsourced their risk management. Rather than undertake their own analysis, they relied on the rating agencies to do the essential work of risk analysis for them. This was true at the inception and over the period of the investment, during which time they did not heed other indicators of financial deterioration.

  The most provocative part is here:

  The percentage of the discretionary bonus awarded in equity should increase significantly as an employee’s total compensation increases. An individual’s performance should be evaluated over time so as to avoid excessive risk-taking. To ensure this, all equity awards need to be subject to future delivery and/or deferred exercise. Senior executive officers should be required to retain most of the equity they receive at least until they retire, while equity delivery schedules should continue to apply after the individual has left the firm.

• The Money Song
  Eddy Elfenbein, February 8th, 2009 at 2:57 pm

• Mapping Bernie’s Victims
  Eddy Elfenbein, February 6th, 2009 at 3:27 pm

  Zero Hedge has some great maps showing where Bernie Madoff’s victims are. Why is it always the rich people who have all the money?

• Just Get it Over With
  Eddy Elfenbein, February 6th, 2009 at 9:59 am

  Another brilliant graph from Jessica at Indexed:
  

• Today’s Job Report
  Eddy Elfenbein, February 6th, 2009 at 8:29 am

  Holy crap! Unemployment jumped to 7.6% last month, the worst since September 1992. Nonfarm payrolls plunged by 598,000. The economy has lost jobs for 13 straight months. Since the recession began, the economy has lost 3.6 million jobs–half of that came in the last three months of 2008.
  Here’s a look at the unemployment rate since 1995:
  
  Here’s another measure of employment, the number of employed as a percent of the total population.
  
  The traditional unemployment rate only counts folks “in the labor force” so if you’re not looking for a job, you’re not counted. Of course, people stop looking for jobs when there are no jobs so I really don’t get that one.
  How’s this for a scary number. If the employed/population rate was at the level it was in April 2000, there would be nearly 10 million more jobs today. Wow.
  I’m not a big fan of the nonfarm payroll report because it’s constantly getting revised. Today, the government revised all the monthly numbers for 2008. Can you guess if they were revised better or worse?
  
  Actually, the numbers for January and February were a tiny bit better, most everything else is a lot worse.