Monday, March 15, 2010

The Credibility of Credit Agencies

Peter Chatwell is almost spot on here. He says that Moody's "report is a warning shot to governments, setting out the line that they can’t cross with their budgets." Actually, he's only off by a single letter.
This is Moody's putting on a show of the Burlesque variety, all tease and no tits, to convince someone, anyone, that they and their brethren credit agencies are even remotely relevant or accurate. Remember that these are the same companies that would, by their own admission, rate a "deal structured by cows." A long time ago I said that this crisis would cause the US to lose its AAA rating, but I've long since realized that the rating is meaningless - and that it will never change. The dubious relationship between a sell-side research analyst and his bank's top client appears downright honorable when compared to that of a rating agency and firms that write agencies checks to grade their bonds.
Look, you can't have Mark to Magic without the magicians, but now that the rabbit is out of the hat and into the frying pan the curtain must fall on this sideshow.

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The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years. Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA.

Achieving the fiscal consolidation necessary to avert a downgrade will test “social cohesion” and may involve rewriting the “social contract” between governments and their people, Cailleteau said. “People have to decide what level of pain they are willing to accept to have a healthy economy.”

Wednesday, February 10, 2010

Two-face would be more appropriate than Joker

All of a sudden, or rather after reports of Banks' PACs and executives switching their donations to the elephant after the donkey's teat turned sour, Obama comes out as a supporter of bonuses and a champion of capitalism, telling Democrats that "We’ve got to be the party of business, small business and large business.”
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President Barack Obama speaking in an interview, said in response to a question that while [Dimon's bonus of] $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”
Dimon, 53, led New York-based JPMorgan, the second-biggest U.S. bank, to a profit during each quarter of the financial crisis. Blankfein, 55, was at the helm when New York-based Goldman’s shares doubled last year as profit soared to a record high. [Sounds like they didn't just make the Series: Dimon won the Golden Glove, and Blankfein got the Cy Young trophy too.]

“I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.”
President Barack Obama called bank bonuses “obscene” at least twice this year.
Obama is “trying to walk a very fine line,” said Mark Borges, a compensation consultant “He wants to represent popular anger at the bailout and Wall Street pay, while at the same time trying not to alienate these guys, who he needs [to give him the "obscene" amounts of money that he relied on to win the 2008 election.]

Thursday, January 14, 2010

The New State of the Union

President Obama plans to call on Thursday for taxing about 50 big banks and major financial institutions for at least the next decade to recoup all taxpayer losses from the Wall Street bailout fund.
While the banks maintain that taxpayers made money from the bailout to save them (many have repaid their federal funds with interest and the government also has made money in selling the banks’ warrants that it held as collateral), losses to the bailout fund are expected from money paid to rescue the automakers Chrysler and General Motors and the insurance giant American International Group, and from a program to help troubled homeowners avert foreclosures.
The administration official said that the auto manufacturers and A.I.G., as well as the housing finance giants Fannie Mae and Freddie Mac, both of which now are under government conservatorships, are not in a financial position to be taxed to recover taxpayers’ losses.
The administration is calling the tax a “financial crisis responsibility fee,”

Taxing those who paid their loans back early and at a profit to the American people to pay for failures who are explicitly excluded from the tax and calling it a "responsibility fee" is perverted irony that passes for logic in the current Administration.
I'm not saying the banks didn't have a hand in the crisis because that's just as absurd as saying that they were more responsible than Washington lawmakers gagged by lobbying bribes and regulators who should be charged with criminal negligence. Let's not forget the American people, so quick to let their fingers be pointed for them at an easily vilified target. Groupthink on this scale hasn't been seen in 70 years. Nobody wants to blame themselves when it's so much easier to demand reparations from the rich with your head held high. After all, in our culture that honors victims before heroes being impoverished connotes a certain moral superiority - which makes it all the easier to remind the wealthy of their noblesse oblige.

Thursday, October 01, 2009

The answer is inside the belly of the beast

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Documentary film director Michael Moore, who has become a millionaire thanks to the profits from his movies, told that “capitalism did nothing” for him.

“You know, I had to pretty much beg, borrow and steal,” he said. “The system is not set up to help somebody from the working class make a movie like this and get the truth out there.”
“In fact, in Fahrenheit 9/11 if you remember, capitalism, the Disney Corporation, tried to kill that film--tried to make it so that people couldn’t see it,” said Moore.
Moore reportedly was paid $21 million by Disney for producing, directing and creating the film.
Moore also earned 50 percent of the profits of his 2007 film “Sicko,” totaling $25 million plus DVD sales, according to Vanity Fair. asked: “Critics may say, when they see this movie, Michael Moore has amassed a fortune of over $50 million, some have said and –”
Moore said: “Really? Are you kidding me? Seriously? Wow. Where did it go?
The good news is that if single-payer health care passes Moore will either die from a heart attack or be found out to have used private doctors (like the wealthy liberals in "progressive" Western democracies Moore talks about do) and defrauded as a grade-D pork once and for all.

Wednesday, September 30, 2009

An MBA in Hustling

Given the amoral utilitarianism of Russia's oligarchs it's not surprising that they would be willing and able craft what may very well become one of the only business schools that's more than a circle jerk rest stop for burned-out bankers and bored corporate types seeking to switch careers.
Learning how to deal with the prevalent issues of politics, bureaucracy and corruption is applicable not just to emerging markets, but to the developed world as well. Wherever there are puppet politicians there are puppeteers pulling the strings.
Furthermore, anyone who has worked for a large corporation understands the importance of successfully navigating office politics and greasing bureaucracy's palm to free oneself from its suffocating grasp.
A handful of top Russian business figures have created an MBA program that tackles the issues they faced themselves: bribery, relentless bureaucracy, imperfect laws.
Skolkovo includes classroom courses in management theory, but invites dozens of guest speakers [and] might even invite an organized crime boss to talk about the challenges of management.

Skolkovo faculty members say they avoid moral judgments, and offer no ready-made strategies for handling corruption and predatory practices.

Among the patrons are some of the Russian business world's biggest names: Abramovich, the billionaire investor and owner of the Chelsea football team, donated 26 hectares (64 acres) of choice land outside Moscow for the construction of the gleaming $250 million campus, which has its own helipad.
Skolkovo's training doesn't come cheap. Fees for a full-time MBA including accommodation, flights to India, China and the U.S. come to euro50,000 ($74,000).

Monday, September 28, 2009

A Darling Buffoon

Alistair Darling must have slept through his maths classes in elementary school. If you want to get tax revenue from the rich, but also command firms to curb bonus payments then where are you going to get that extra money from?
At least he is being completely "Frank" about his socialist, Robbin' Hood, ideals. Maybe Labour should just drop the pretense and rename themselves the Pathetic Proletariat Party.
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Chancellor of the Exchequer Alistair Darling, targeting what he calls “greed and recklessness” in Britain’s financial system, asked banks to curtail bonuses and said the rich will pay more in tax.
“It is right that those who earn the most should shoulder the biggest burden.”
“We will introduce legislation to end the reckless culture that puts short-term profits over long term success. It will mean an end to automatic bank bonuses year after year.”
Darling said he has raised tax rates and eliminated relief for pension contributions for the rich.
This week, Darling will [ask bank heads of remuneration] that they reduce bonus payments at the ahead of a change in the law aimed at formalizing curbs on pay.
“The government’s implicit presentation of excessive remuneration as the cause of the crisis, and the banking bill as a silver bullet that will kill off financial excesses, is singularly unconvincing,” said Simon Morris, a partner at law firm CMS Cameron McKenna.

Thursday, September 24, 2009

Robertson puts it in real simple terms for the fools on the Hill

...but somehow I doubt even these clear and irrefutable facts from one of the brightest minds in finance will make them listen.
When all you're thinking about is reelection, or your immediate problems - in the case of dimwitted constituents, it's hard to see past to the burgeoning debt load that will put a vice grip on future generations. At least we'll all be green - cars will be too expensive and dollars will be crowding out all other colors in landfills.
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The US is too dependent on Japan and China buying up the country's debt and could face severe economic problems if that stops, Tiger Management founder and chairman Julian Robertson told CNBC.
Julian Robertson
"It's almost Armageddon ... if the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent.
It's not a question of the economy. It's a question of who will lend us the money if they don't. Imagine us getting ourselves in a situation where we're totally dependent on those two countries. It's crazy.”
“The other thing is, they're buying almost exclusively short-term debt. And that's what we are offering, because we can't sell the long-term debt. And you know, the history has been that people who borrow short term really get burned.”
"The U.S. has to quit spending, cut back, start saving, and scale backward," Robertson said. “I really do think the recession is at least temporarily over. But we haven't addressed so many of our problems and we are borrowing so much money that we can't possibly pay it back, unless the Chinese and Japanese buy our bonds.”