Good Layman's guide to the financial crisis

**Majormarginal** · 04-25-2009

I read the Atlantic article. I found it scary and informative.

I read Goldberg's article in the next issue. also about finance. Not as informative.

**bourbon** · 05-07-2009

(Video) Naked short selling - redefining systemic risk, by Judd Bagley. DeepCapture, 06 May 2009. (18 Minutes)

This is the newest video from Deep Capture Productions, examining the attack on Sedona Corp, and applying the insights gained from it to the broader market — including the possibility that the federal government has recently been spending billions of dollars to take the liability of accumulated failed trades off the books of broker-dealers.

Fantastic work. Sedona Corp was the victim of a private investment in public equities (PIPE) funding fraud; what makes this case important is that the fraud when exposed would lead to the collapse of Refco, which at the time (2005) was the fourth largest bankruptcy in American history.

**Watcher In The Middle** · 05-07-2009

This whole Chrysler-Fiat deal where the bond holders are potentially going to take a hit is starting to have ramifications. Just hearing the corporate bond folks talking, and the waves from this will start small, but may not end up that way.

Have heard from several bond managers that they are doing immediate reviews on all their bond holdings, to see what portion of their holdings could reasonably be expected to be "at risk" in a similar type of situation to what is happening at Chrysler-Fiat. They are also applying the same type of "intensive review" to their tax exempt bond holdings, because if those went into receivership and the public entity issuing the bonds is also highly unionized, they're seriously concerned that they could get seriously screwed over, or at least have a portion of their bond investments tied up into knots for an extended period of time.

Anybody remember the lessons from Bear Stearns (Bear Stearns survived the first liquidity challenge, in the summer of 2007, when two of its hedge funds cratered after the subprime mortgage collapse), but couldn't survive the second one. It was a much different situation, but the overall problem ended up being a crisis in confidence. And the result is known.

The bond market managers that I know are getting very uneasy, and that's out of the ordinary. They look to be getting nervous, and when those folks get happy feet", watch out.

Hesitant to post this, but it's what I'm hearing and what I'm seeing....

**Surferbeetle** · 05-07-2009

From today's Bloomberg article by Serena Saitto: Marchionne Picks Over U.S. Wreckage to Build European Car Group

May 7 (Bloomberg) -- Fiat SpA Chief Executive Officer Sergio Marchionne is setting out to build a pan-European car company from the rubble of the U.S. auto industry.

The car industry is in turmoil, and Marchionne, the 56-year-old deputy chairman of UBS AG, says he sees opportunity. He’s taking over Chrysler LLC after a U.S.-arranged bankruptcy and seeking to incorporate units owned by General Motors Corp., including three European brands, Opel, Vauxhall and Saab, and some Latin American operations.

The German press has been awash with rumors of forecasted cuts of up to 18,000 at Opel...

From the WSJ by JOHN D. STOLL and NORIHIKO SHIROUZU Detroit's Troubles Lure World of Bidders

**davidbfpo** · 05-07-2009

A clear article on how we reached here and the failure of governments to regulate the bankers: http://online.wsj.com/article/SB1241...day-newsletter

I only read this as his writings on other subjects are good IMHO.

davidbfpo

**Ski** · 05-08-2009

Something to keep an eye on for the short (next three months) and medium terms (rest of the year):
http://www.nymex.com/RB_pre_agree.aspx

You've got a 20 cent rise in the wholesale costs of gasoline over the last month. Part of it is linked to the "summer peak" which may or may pan out due to demand.

Remember how bad the economy was getting when the gas prices hit $4 a gallon? With this fragile economy (there is no real explanation on why the market has skyrocketed...and I don't think these gains are here to stay for a number of reasons), the costs of gasoline rising to that level could really create some major problems.

As always, it's going to be interesting to see how this plays out.

**bourbon** · 06-11-2009

What's Next For The US Economy, or What's Left of It?, by 'Bob O'Brien'. The Sanity Check, June 11, 2009.

Remember that predatory interests don't really care whether economies or currencies get wrecked or not - they benefit mainly by massive volatility, in either direction, caused by their actions. They know the timing as they engineer the swings, thus are perfectly positioned to profit from everyone elses's loss.

An example of how the current calamity played out:

Michael Lewis on CNN's Fareed Zakaria GPS, June 7, 2009. (Video)

"...one of the things that's odd about the current situation is that the people who created the problem are so powerful in deciding what the solution to the problem is going to be. There is a great tradition on Wall Street of making a fortune, creating a mess, and then making a fortune cleaning it up. But to do it on this scale is breathtaking to me.

And it is amazing to me the degree to which, say, Goldman Sachs is intertwined with the Treasury, and how they're -- there don't seem to be any independent voices in the thick of the decision-making. The decision-making is all being done by people who one way or another might expect to make a lot of money from Goldman Sachs in the future..."

How Traders Killed Value Investing: Want to know why GM stock is above zero? Look to hedge funds and short-term trading, by David Weidner. The Wall Street Journal, June 11, 2009.

The old notion that profitable companies with good growth prospects should have rising share prices -- and that failures like GM should be gone, or at least trading in the pennies -- is history.

Today, a hedge fund investing billions using a quantitative formula can stall a stock; a couple hedge funds aligned can turn a profitable company into a Dow laggard. Toss in a few short sellers and you have the great Wall Street collapse of September 2008.

It wasn't always this way. Before the machines and the shorts took over Wall Street, stocks were evaluated by an underlying company's prospects. Buy-and-hold investing ruled the day. Investors such as Warren Buffett and Bill Miller were the models.

Those fellows are a far cry from this generation's masters of the universe. Traders are in charge now. They rule the market. They dominate volume. That stock you bought because you thought the company was in good shape? It's a pawn in the hands of a computer model or some supertrader like Steven Cohen at SAC Capital Partners or Bridgewater Associates' Ray Dalio.

To move a security, they don't need to own it. They can have a short position. They can put an order to sell 1 million shares in a dark pool, those anonymous marketplaces that operate outside the walls of the exchanges. They can own options or futures contracts. Buy enough GM puts and watch the price begin to fall under the pressure.

**Schmedlap** · 06-12-2009

Fareed Zakaria's show, though I disagree with him on almost everything, is one of the few TV shows that I watch on a fairly regular basis. He has great guests and asks decent questions. I saw that interview with Michael Lewis and what I found most amazing was simply the lousy leadership displayed on Wall Street. Candor seemed to be scorned. What he recounted was a "make it happen" attitude that was unconcerned with reality. Reminds me of some of the most linear-thinking commanders whom I had the misfortune of serving under.

I came across some good visuals at Business Insider that help to make sense of the data underlying the mortgage industry collapse. This graph below shows where the loans came from.

The final graph, below, suggests that we are only one-third to half of the way to a solution (in dollar terms; in terms of time, it may be a lot longer). The first four bars are loss estimates. The company named below the chart is the company that made the estimate (not the company holding those bad debts). The two bars on the right are the write-downs and capital raised as of the April/May timeframe.

Click through the entire presentation at the blog here. Really good summary with lots of visuals. The big surprise, for me, was to see how much of the losses are in commercial real estate loans ($700 billion).

**Ski** · 06-12-2009

Oil prices are continuing to rise as well. Natural gas is really taking off especially when you start looking at the 4-5 month futures.

I just have this feeling we are looking at another house of cards here with the current run up in the stock market. The U6 numbers are over 15% now.

**Watcher In The Middle** · 06-18-2009

And tiny little Amherst Holdings of Austin, TX did just that....

Amherst Holdings Throws an Unwelcome Curveball at Wall Street Banks

Amherst Holdings, a small Austin-based brokerage house, executed a CDS (Credit Default Swap) trade that ended up losing big banks, including JP Morgan Chase and Bank of America, tens of millions of dollars. Now, the big banks are trying to cry foul. The Wall Street Journal has the story:

Believing the securities would become worthless, traders at J.P. Morgan bought credit-default swaps over the past year from Amherst, according to people familiar with the matter. Credit-default swaps act like insurance, paying off the buyer if securities are hit by losses. Other banks including RBS Securities, which is the U.S. investment-banking arm of Royal Bank of Scotland, and BofA also bought swaps on the securities from different trading partners.

The banks had to pay up for the protection, similar to a person buying insurance on a beach house just before a hurricane. They paid as much as 80 to 90 cents for every dollar of insurance, the going rate last fall according to dealer quotes, expecting to receive a dollar back when the securities became worthless over the coming months.

Link to the full story

Here's another link to the WSJ analysis of this deal

Looks like once again, we have a case where the "Masters of the Universe" aren't quite some masterful....

**slapout9** · 06-23-2009

We are in bad shape

http://www.youtube.com/watch?v=6JPci...eature=popular

**Surferbeetle** · 06-24-2009

...and their reporting from the financial fallout shelter

In the meantime from today's WSJ by Gina Chon Big Oil Ready for Big Gamble in Iraq

BAGHDAD -- Next week, Iraqi officials plan a welcome-back party for Big Oil.

The government intends to auction off oil contracts to foreign companies for the first time since Iraq nationalized its oil industry more than three decades ago. If all goes according to plan in the first round, foreign oil companies will move in to help Iraq revive production at six developed fields that have suffered from years of war and neglect.

Mr. Shahristani's oil deals are crucial to this war-torn country's economy. Iraq is thought to have one of the world's largest supplies of crude oil, with 115 billion barrels in proven reserves. But foreign know-how is key to its plans to boost oil output to four million barrels a day within four to five years, from 2.4 million barrels currently.

Despite security risks, Western oil companies are clamoring to get in. Iraq is still relatively unexplored, offering big companies a potentially easy-to-tap source of growth. Some are touting Iraq as the most important opening of petroleum fields since the discovery in 2000 of the giant Kashagan field in the Caspian Sea.

Some 120 companies expressed interest in bidding for the contracts at the June 29 and 30 auction, according to the oil ministry. Thirty-five companies qualified to bid, including Exxon Mobil Corp., Royal Dutch Shell PLC, Italy's Eni SpA, Russia's Lukoil and China Petroleum & Chemical Corp., or Sinopec. The six oil fields at stake are believed to hold reserves of more than 43 billion barrels. Foreigners won't get the most prized piece of the action -- ownership stakes in the reserves -- but will be paid fees for ramping up output.

**Schmedlap** · 06-24-2009

Originally Posted by Watcher In The Middle

Looks like once again, we have a case where the "Masters of the Universe" aren't quite some masterful....

Living in DC will make one cynical. I just moved back here temporarily. I live in an apartment building that is very expensive, yet I was surprised to discover how many people living here are undergrads. A few weeks ago, many of them graduated. I overheard no fewer than 10 of them mentioning that "my dad got me job" or "my uncle got me a job" or something similar. Many of them are going to work for investment banks (who knew banks were hiring new talent?). I have no idea what useful skills or knowledge these kids have amassed from 4 years of living in DC, having their bills paid by their parents, driving a BMW supplied by mommy and daddy, getting their credit card bills paid by someone else, and enjoying a lifestyle that most people cannot attain until they've established themselves in a career (dead serious - they all hire maids to clean up after them after their 4-times per week beer pong parties). But they are the future of the banking industry, apparently. I hope their finance courses were stellar, because I don't think they picked up many useful life lessons.

**slapout9** · 06-24-2009

Originally Posted by Schmedlap

Living in DC will make one cynical. I just moved back here temporarily. I live in an apartment building that is very expensive, yet I was surprised to discover how many people living here are undergrads. A few weeks ago, many of them graduated. I overheard no fewer than 10 of them mentioning that "my dad got me job" or "my uncle got me a job" or something similar. Many of them are going to work for investment banks (who knew banks were hiring new talent?). I have no idea what useful skills or knowledge these kids have amassed from 4 years of living in DC, having their bills paid by their parents, driving a BMW supplied by mommy and daddy, getting their credit card bills paid by someone else, and enjoying a lifestyle that most people cannot attain until they've established themselves in a career (dead serious - they all hire maids to clean up after them after their 4-times per week beer pong parties). But they are the future of the banking industry, apparently. I hope their finance courses were stellar, because I don't think they picked up many useful life lessons.

That's because nothing has chnaged or will change until the Fed is brought under control. Pay special attention to the Allan Greenspan interview. Enjoy!

http://therealnews.com/t/index.php?o...4+12%3A25%3A28

**bourbon** · 06-25-2009

Michael Milken, 60,000 Deaths, and the Story of Dendreon, by Mark Mitchell. Deep Capture.

What follows is part 1 of a 15-part series. The remaining installments will appear on Deep Capture over the next several weeks, after which point the story will be published in its entirety. It is a story about the travails of just one small company, but it describes market machinations that have affected hundreds of other companies, and it contains a larger message for anyone concerned about the “deep capture” of our nation’s media and regulatory bodies.

Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 1 of 15). 18 June 2009 by Mark Mitchell.

The attack on a company called Dendreon raises questions about Michael Milken, his "philanthropy" and his hedge fund friends. Chapter 1 of 15

Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 2 of 15). 21 June 2009 by Mark Mitchell.

A brutal attack on Dendreon, a company with a promising treatment for prostate cancer, raises questions about the integrity of our financial markets. Meanwhile, we ponder the work of seven colorful hedge fund managers and a famous criminal named Michael Milken.

Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 3 of 15). 24 June 2009 by Mark Mitchell.

It's time to learn the identities of the seven hedge funds that bet big against Dendreon. We'll start with a firm that's been in the news a bit lately...

**Schmedlap** · 06-25-2009

Originally Posted by slapout9

That's because nothing has chnaged or will change until the Fed is brought under control. Pay special attention to the Allan Greenspan interview.

I don't think the Fed can set policies that ban nepotism or bad parenting.

On a Fed-related note, Business Week says that Ben is doing the right thing (or at least not doing the wrong thing).
Why the Fed Isn't Igniting Inflation (if it looks like a blank screen, you may have to scroll down - their website is acting screwy).

**Surferbeetle** · 06-25-2009

Originally Posted by Schmedlap

But they are the future of the banking industry, apparently. I hope their finance courses were stellar, because I don't think they picked up many useful life lessons.

Infographic from the Economist....Banks' profits Red and black ink

THE balance sheets of many banks took a pounding last year. Royal Bank of Scotland, which received a government bail-out of $3 billion, posted the largest loss of $59.3 billion, according to an annual review of the world's leading banks by The Banker magazine. Citigroup and Wells Fargo also fell into the red by over $45 billion. But all three are still counted among the 12 biggest banks in the world by tier-one capital, albeit at a lower rank than in 2007. Not all was doom and gloom. ICBC turned a $21.3 billion profit, one of four Chinese banks to make the top ten. HSBC and Barclays, British banks that showed better risk management than RBS, also saw a decent profit.

**slapout9** · 06-25-2009

Originally Posted by Schmedlap

I don't think the Fed can set policies that ban nepotism or bad parenting.

On a Fed-related note, Business Week says that Ben is doing the right thing (or at least not doing the wrong thing).
Why the Fed Isn't Igniting Inflation (if it looks like a blank screen, you may have to scroll down - their website is acting screwy).

Duh...."it is hard to reduce your debt when you are unemployed" I cain't believe he actually said that in an interview

it's hopeless

Agree nothing they can do about nepotism...they don't have any parents....which makes them?

**davidbfpo** · 06-25-2009

In the City of London law firms have postponed for a year new entrants, an odd move when they are so busy - divorce cases have rocketed. Two reasons clients leaving for new places (some to get jobs and others avoid tax) and wives with expensive tastes suddenly been told to cut spending.

Anecdotal from an observer of the city.

davidbfpo