Monday, August 10, 2009


I wish the government would explicitly say that no firm that pays back TARP monies will get a second chance at a bailout in the future. Perhaps this would quell some of the populist anger that's going around at Wall Street right now, under the logic that the big boys are still gambling with taxpayer dollars. Even if firms have paid back TARP money, there is still the impression amongst the public that these firms are willing to continue to take significant risks because the government will always be there for them again if the shit hits the fan. The populist anger is justified - and it's absurd that the Administration didn't install some rules (like: no second chance for you!) for the guys paying back the TARP dollars.

Unfortunately, it's probably also an impossibility that the authorities could make such a promise that they'd let firms fail. Since we haven't really reformed systematic risk modulation, the government can't tell Goldman that they're on their own if they fuck up.

Here's what I've been reading for the past few days:

MISH on Bernanke:

"About a week ago Calculated Risk wrote "I'd like a doctor who never gave up trying for a cure, but I'd prefer someone with better diagnostic skills."


Praising Bernanke now is like praising a doctor for nearly killing your son because he finally guessed right on the fourth guess (in this case assuming that the right medicine has finally been prescribed, which is debatable)."

And Dean Baker on Bernanke:

"Saying that you didn't give us another great depression is not exactly a winning re-election slogan."

FNM's earnings:

"Second-quarter results were driven primarily by $18.8 billion of credit-related expenses, reflecting the ongoing impact of adverse conditions in the housing market, as well as the economic recession and rising unemployment...We are experiencing increases in delinquency and default rates for our entire guaranty book of business, including on loans with fewer risk layers. Risk layering is the combination of risk characteristics that could increase the likelihood of default, such as higher loan-to-value ratios, lower FICO credit scores, higher debt-to-income ratios and adjustable-rate mortgages. This general deterioration in our guaranty book of business is a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices."

On the unemployment data: Calculated risk has a terrific chart of the employment/population rate, which is important because declining "labor force participation rate" skewed the unemployment rate lower, even though we still had sizable job losses. EconomicPicData explains the numerical shenanigans clearly:
"How does this work? The numerator in the unemployment rate is unemployed... the denominator is labor force. Simplified example:
  • 19 people are unemployed out of 200 in the labor force = 9.5% unemployment rate
  • 1 of those unemployed individuals leaves the labor force
  • 18 people are unemployed out of 199 in the labor force = 9.0% unemployment rate"

Bailouts: "From each according to his ability to each according to his lack thereof." How "Atlas Shrugged."

Rolfe Winkler on Warren Buffett:

"It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage"

Finally - good news for my long time readers: I'm going to Vegas this weekend for Big Show's bachelor party! I haven't been since the day Lehman went bust - so I'm due, and it's almost guaranteed that I'll have a blogworthy trip report next week.



Anonymous said...

Everybody loved Ann Rand in high school but then some of us grew up....

Stick with your short, you and Doug Kass, should pan out. Eventually.

Kid Dynamite said...

it's Ayn Rand, not Ann Rand... remember - the ignorant comments go on SeekingAlpha - the intelligent comments go here...

I'm in the middle of Atlas Shrugged right now - reading it for the first time. It's an especially incredible time in history to be reading the book, as we deal with issues of raising taxes on the rich to pay for the problems in our society. It rings so true.

I'm glad you still take time to come visit my blog even though you clearly hate it. you must have a happy life.

My final out said...

"it's Ayn Rand, not Ann Rand... remember - the ignorant comments go on SeekingAlpha - the intelligent comments go here..."


Cant wait for the Vegas trip report KD. Those are by far my favorite.


Anonymous said...

How's the short going?

Kid Dynamite said...

i am a sell and hold investor -feeling good about it ;-)

thanks for asking.