Happy Martin Luther Day

Yeah, I know it's Halloween but it's also the day that Martin Luther nailed up his 95 theses on the church to let the Catholic Pope (Holy See) know that selling indulgences was a bad thing among others. The Reformation began shortly thereafter.

We do Luther a great disservice if we see him today as a destroyer and an anarchist. Rather, history shows us a man deeply concerned with the state of his own soul and equally concerned over a Church that had become too encrusted with financial and political concerns to do fully the work of God. It was for this reason that Luther sought public discussion on the matters that seemed to him as a cleric most to defile the Church and to leave it most open to ridicule and scorn. He drew up ninety-five distinct points that he found to be in need of amendment and concerning each of which he desired a time of public debate. Then, in a stroke of genius that would do honor to a contemporary media mogul, Luther took his ninety-five propositions or theses to church with him on October 31.

Lower interest rates . . . . hmmmm

Well, the Fed has lowered interest rates again . . . down to 1%. That's great for borrowing costs assuming there is someone out there who wants to loan you money but the bigger question is, "Wasn't it low interest rates that created the subprime/financial meltdown in the first place?" Back in the day when Greenspan kept interest rates really low for a long time, not everyone was happy. Investors in bonds weren't. So the financial engineers started to create instruments that would increase the yields . . . . yes, derivatives, etc. You know how that's turned out.

I just think it's interesting that the solution to the current economic problem on one hand is the hair of the dog.

Goldman Sachs bonus pool

In spite of a implosion in their stock price and financial ruins all around, Goldman Sachs partners are getting ready to become enriched once more . . . . Goldman's profit through the first nine months of its fiscal year was $4.44 billion, down 47 percent from last year's record. The company has set aside $11.4 billion for compensation and benefits this year, down 32 percent from the same time in 2007.

The Real Economy and the Financial Economy

The recent crisis did reveal very clearly about one aspect of how the world works. There are in essence two economies: the real economy, where real goods and services are produced and consumed, and the financial economy, where assets are swapped for investment or speculative purposes. These two economies interact and affect each other, but each requires a unique regulatory framework to support. While government intervention in the real economy is almost always bad, government intervention in the financial economy is almost always necessary. For this reason, I fully agree that we need more regulation in the financial economy, as long as we are careful not to let it spill over to the real economy.

Noam Chomsky on risk taking

on Sept 19, 2008 Chomsky said this to the BBC interviewer . . . .

Markets have inherent and well-known inefficiencies. One factor is failure to calculate the costs to those who do not participate in transactions. These "externalities" can be huge. That is particularly true for financial institutions.

Their task is to take risks, calculating potential costs for themselves. But they do not take into account the consequences of their losses for the economy as a whole.

Hence the financial market "underprices risk" and is "systematically inefficient," as John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalization and reviewing the substantial costs already incurred - and also proposing solutions, which have been ignored.

The threat became more severe when the Clinton administration repealed the Glass-Steagall act of 1933, thus freeing financial institutions "to innovate in the new economy," in Clinton's words -- and also "to self-destruct, taking down with them the general economy and international confidence in the US banking system," financial analyst Nomi Prins adds.

The unprecedented intervention of the Fed may be justified or not in narrow terms, but it reveals, once again, the profoundly undemocratic character of state capitalist institutions, designed in large measure to socialise cost and risk and privatize profit, without a public voice.

That is, of course, not limited to financial markets. The advanced economy as a whole relies heavily on the dynamic state sector, with much the same consequences with regard to risk, cost, profit, and decisions, crucial features of the economy and political system.

to read more about Noam Chomsky click here

The Wild Trout Section on the Kern River

If you ever get a chance to hike up to this amazing stretch of river, do it. Drive through Kernville all the way up to the Johnsondale bridge, park your car and hike on the east side of the river for about an hour and you'll get to this great fishing area.

Where we came from . . .

Genetic evidence suggests that all humans alive today, despite their apparent variety, are descended from a very small population, perhaps between 1,000 and 10,000 breeding pairs about 70,000 years ago.

Oracle's supreme egotist . . . Larry Ellison

Oracle Corp. co-founder Larry Ellison, the fourth-richest man in America, is drawing criticism from some shareholders for a $72-million pay package that is 12 times bigger than the median pay of chief executives in the technology industry.

Ellison, who proposed the 38% raise and won approval from a committee of board members, is now the second-best-paid CEO of a public company in the U.S. He received about $1.7 million less than Merrill Lynch & Co. chief John Thain did in 2007. Oracle's market value is almost three times Merrill's.

State of the takeover market

Flash memory maker SanDisk is down 32% after Samsung pulled its $26 per share, or $5.9 billion, bid. SanDisk had previously rejected the offer as too low. Samsung now believes the offer too high given SanDisk's weak third quarter and uncertain outlook.

Ken Kesey on the 60's

"You never get over being a hippie. All that old stuff from the '60s still applies. When somebody accuses me of being a liberal, I say 'thank you. Being merciful, gentle and kind became subversive. What is the other side of that coin? Being cruel? . . . Here's what I've been telling kids who ask if I have a message for today's youth: Be excellent to each other and party on!'"

Presidents and the Economy

let's take a snarky look at the past few Presidents, and see if we can't figure out the secret to their performance numbers. My best guess is good (or bad) timing:

Bush II: Came into office after 18 year bull market and crash; Arrived after major deregulation (Glass Steagel, Commodities Futures Modernization act) were already fait accomplis, contributing mightily to the credit crisis

Clinton: Arrived post recession, mid 82-00 bull market. Greenspan Put came about in 1997. Got out before most of the wreckage took place.

Bush I: Bad timing everywhere: Recession was ending during re-election campaign, but not yet felt by election data yet. Mistimed the war, patriotic fervor was cooling before re-election.

Reagan: Came into office at the tail end of a 16 year Bear market.

Carter: Arrived post Vietnam, Post Watergate. Malaise. Inflation, oil crisis were rampant.

That smells too much like dumb luck to me.

Making a Fortune from luck, then going about losing

Ask David Weyrich if the thinks he was the one who made the fortune and he'll probably tell you he did but all he really did is benefit from luck . . . huge luck. How? Well, he was born into a family that started and built a huge billboard business and sold it. So, of course, he thinks he's pretty good at business so he starts developing real estate, starts a charter airline business, takes on a ton of debt, etc. and now it's all coming home to roost. He is in the process of trying to sell assets to pay off loans and probably will lose most of his fortune . . . . read more click here

Separation of Church and State - - - Sarah Palin style

Alaskan Governor Palin is not averse to allowing the Alaskan taxpayers to pick up tabs for her to go off and make appearances at religious gatherings. According to records, she and her family have been the beneficiaries of more than $13,000 in attending 10 religious events and meetings with Christian pastors since she took office in 2006; she has also billed the state $3,022 for the cost of attending Christian gathersings exclusively to Assembly of God in Wisilla and Juneau. Guess what? She's not alone in this type of behavior, it's happening everywhere.

Not everyone kept what we think they made

Here's an example of one individual who lost big . . . .

XL Capital Ltd. Chairman Brian O'Hara said he was forced to sell about 80 percent of his stake in the Bermuda-based insurer to meet margin calls.

``The forced sale was due to the precipitous drop in XL's share price last week,'' O'Hara said in a statement distributed by PR Newswire today.

``I had pledged those shares as collateral to secure a personal loan used to fund purchases of XL shares in order to avoid the expiration of certain options,'' O'Hara said. ``The sale in no way reflects a lack of confidence in XL's current and future prospects.''

Social Security investing in the S&P 500

If there ever was a time for the SSA to go private, now;s the time to do it. What if it took 10% of it's assets and bought Spyders here?

Ultimate comment

``I don't even want to imagine what might happen'' if the markets react negatively, Klaus-Peter Mueller, head of the German banking association, said earlier today in Washington before the blueprint was unveiled. The market response may be something ``we haven't seen at any stage in our lifetimes.''

The Ultimate Fallback Postion

an announcement from the G7 Meeting that there is an consensus plan for dealing with the financial crisis but here is the last paragraph of the statement . . . . let's hope it doesn't go there.

No G7 official was sure the plan would work, so deep is the global financial crisis. If it does not, the next steps would be one of two nuclear options: either to guarantee all liabilities of banks, effectively nationalizing the financial system, or for governments to seek to bypass financial institutions by lending direct to companies and households. Officials hope they will not have to contemplate these options.

Comments from Henry Paulson on the G7 meeting

The G-7 will ``provide liquidity to markets, strengthen financial institutions, protect savers and enforce investor protections'' under a ``coherent framework,'' Policy makers will pursue ``robust international partnership and cooperation.''

This relieves me a little but the sooner this gets going the better.

Oil

OPEC will need to reduce production not because the price is currently too low but because there is not enough demand . . . . are we looking at a world wide recession?

Another comment on predicting (or looking forward)

As observers of historical results, we have the advantage of knowing the end of the story. You don’t know the end of the story when you are in the action. We should not impute the clarity we have looking back, when our need is to look forward.

Credit Crisis - Financial Meltdown in simple terms

from Barry Ritholz at Big Picture blog

To repeat my prior arguments, the proximate cause of the Housing crisis were 1) Ultra-low rates; and 2) Abdication of traditional lending standards, thanks to 3) originators ability to resell mortgages for securitization purposes, and therefore not have to worry about loan defaults.

The credit crisis was caused by 1) the above securitized mortgage paper, that was 2) rated triple AAA by Moody's and Standard & Poors, which then 3) Which was then "insured" by credit default swaps (CDS) -- the unreserved for, shadow insurance products whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation. The lack of reserve requirements is why there is now $62 trillion in CDS, many of which will never pay their counter parties the promised insurance.

If you are going to blame Fannie/Freddie/CRA, or George Bush or Barney Frank, you are missing the big picture.

What does the future financial world look like?

From the Financial Times in London . . . . Take a look here

Bail Out Legislation in detail

If you'd like to read the entire legislation, click here

is the S&P still overpriced?????

The S&P 500, down 25 percent this year, still trades for almost 21 times profit from the past 12 months. Only four of 48 developed and emerging nations tracked by MSCI Inc. -- Switzerland, Jordan, Colombia and Morocco -- have a higher price-to-earnings ratio, according to data compiled by Bloomberg yesterday.

Can't Take My Eyes Off of You

Just saw "Jersey Boys" while in Toronto. Great show and the music of the Four Seasons was then and now pretty good. Researching Bob Crewe and Bob Gaudio I found this . . . In 1999, when the US performing rights and royalties organization BMI (Broadcast Music Incorporated) announced its Top 100 Songs of the Century, Can't Take My Eyes Off You landed in the top ten with six million airplays or. BMI calculates one million continuous performances of a song of the average length (3 minutes) as representing 5.7 years of continuous airplay.