Tuesday, November 11, 2008


Before I explain the title of this post, I want to revisit my post from yesterday by adding Clusterstock's John Carney's lessons we've learned from the AIG bailout bailout:

"First of all, don't worry about the promises you've made to the government about dividend payments. When the going gets rough, just explain to the government that you can't afford to make them.

Second, don't worry about restrictions on bonuses. You'll be able to re-cut this deal later. Just tell the Treasury you'll lose your key people if you can't pay them well enough.

Third, don't worry about limits on dividends to shareholders. Simply claim that those restrictions are preventing you from raising necessary private capital.

Fourth, don't worry about restrictions on what you can do with the money. Don't make loans under pressure from the government. Don't sell off troubled businesses. Make acquisitions. Invest in Chinese infrastructure. These Treasury guys are spineless. They'll never stop you. What's more, government officials have no upside incentive to police you. This is basically unencumbered cash.

Fifth, there's always more money. Once the government has invested billions in your business, the marginal cost of adding additional dollars compared to the loss from your failure guarantees that you'll always be able to get more money from the government.

Congratulations to everyone on your future ability to re-cut the deal with the government. And when we say "everyone" we mean everyone except the taxpayers. You're out of luck."

Now, on to my versatility. It's not everyday you'll find a blog that offers you a link to a good detailed recap of the history of modern American finance, and also a link to the evolutionary impacts of monkey sperm. Fortunately for you, my dear readers, THIS IS THAT BLOG.
Vanity Fair's Niall Ferguson penned a long but worthwhile read that explains in fairly simple terms what led to this cycle of financial boom and bust we are currently in. Although he makes one claim I don't understand the logic behind: "If stock-market movements followed the normal-distribution, or bell, curve, like human heights, an annual drop of 10 percent or more would happen only once every 500 years, whereas in the case of the Dow Jones Industrial Average it has happened in 20 of the last 100 years," I still think that readers who are still trying to figure out what caused the current crisis will enjoy Ferguson's piece.
If you're looking for something quicker and funnier, I have the link for you. I think this is the Post of the Year, from Holy Taco, about how we've evolved from monkeys slapping their sperm in the faces of potential mates, to other forms of seduction. If it doesn't make you laugh out loud, I'm not sure why you're reading this blog.
edit: this just in: another must read post, this one from Michael Lewis, titled "The End of Wall Street." relevant quote (emphasis mine):

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.


1 comment:

TheChairman said...

had dinner last night with a banker who was, in large part, defending the system and the apparatus.

I was getting pretty annoyed as the conversation progressed cause some of things he was saying just defied common sense.

When he said the models worked, I brought up this line from the Lewis article, and he responded with something along the lines of... The models worked. Just the assumptions changed.

I nearly ruined a perfectly nice dinner with friends at that point with my pointed response.