Tuesday, March 02, 2010

Correcting the Mainstream Media, and Other Links

Felix Salmon is part of the mainstream media, yet he has repeatedly demonstrated a much greater understanding of complex financial issues than some of his colleagues do.  More importantly, Salmon attempts to educate readers, rather than incite riotous anger based on false premises.  Lately, he's penned a few posts taking issue with journalists who are either deliberately or ignorantly confusing credit default swaps with currency swaps.


"Maybe the reason that politicians spout such nonsense on credit default swaps (CDS) and the like is that they read newspapers, and believe what they read. Two different high-profile newspaper columnists confused Greek credit swaps in 2010 with Greek currency swaps in 2001, for instance, on Sunday alone, and I’m not sure which was worse, although I’ll give the prize this time to the FT."

-EconomicsOfContempt takes aim at the same Gretchen Mortgenson piece, in typically no-holds-barred style:

"Gretchen Morgenson has yet another article about credit default swaps in today's NYT. I don't have time to debunk all of the myths or point out all of the false statements (of which there are many) in her article. Suffice to say that at several points she confuses currency swaps with credit default swaps, which is pretty goddamn hard to do. But one statement jumped out at me, because while it's not terribly important, it's an indisputably false statement, and provides a pretty clear example of the kind of lazy and uninformed analysis that Morgenson brings to the table."

-David Merkel writes "You Can't Cheat An Honest Man" (re: Greece)

"Did investment banks like Goldman Sachs take advantage of a bunch of rubes?  No.  They took advantage of politicians who were looking for a cheap deal, and were willing to cut corners in their due diligence.

You can’t cheat an honest man.  Honest men don’t cut corners, and they pay in full, on ordinary terms.  But those wishing for a low-cost way out of the political troubles on the cheap are great targets for those that want to cheat others."

switching gears:

"Here is a deceptively complex and subtle legal question involving Ponzi schemes and fraud: What are “losses” in the legal sense of the word? The question arises in the case of Bernie Madoff, whose offices cranked out account statements like they were junk mail.

As it turns out after the fact, that was all they were — merely junk mail. And that key fact is the major determinant of what the actual losses were.

By the end of his multi-decade fraudulent run, the final account statements (November 30 2008) issued to all his “clients” totalled the sum of $73.1 billion dollars. The people conned by Madoff believed they were worth a collective $65 billion dollars more than their accounts were worth.

The initial amount of cash put up: ~$20 billion dollars, beginning in the early 1960s and continuously from there forward.

The bankruptcy court in this case made the basic determination that the losses were ONLY the cash that was initially given to Madoff & Co. The extra $45 billion was a fictitious part of Madoff’s fraud. Therefore, it represents funds that were not actual investment losses, and are not covered by SIPIC insurance"

this makes a lot of sense, but it still very interesting.   Barry concludes his post with:

"The final amount is merely a fantasy number, how much was the victim of the fraud erroneously believed they had. Any other decision leads to potential absurdities created by the reliance on entirely fabricated accounting entries. The number based on accounting fraud does not represent an actual loss — only the amount the victim was scammed into believing they actually had."

I left a comment on his post that said: "somewhere in here there is an analogy to the paper wealth many other Americans have in our stock portfolios and our homes"

-Michael Panzner: "Tales of the Unexpected?"

- Dealbreaker: "Horse Semen, Scalding Hot Coffee:  Matt Taibbi Suddenly Making So Much Sense,"  wins the "headline of the week award" and it's not even close.

"Tactics in California to shore up its municipal bond rating are quite humorous. Supposedly, by delaying payments to schools, California can boost confidence in its bonds"


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