Monday, April 19, 2010

Monday Readings

Paul Krugman miseducates the public.  One point of Leigh Drogan's post yesterday was that the media needs to get their facts straight.  Authors as influential as Krugman shouldn't be making simple mistakes like the one he made in today's op-ed:

"But now the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That’s what I would call looting."

Ummm - no. As we've been over many times already, the SEC is NOT charging GS with creating and marketing securities that were deliberately designed to fail. There's probably a good reason that's not the charge: it's much harder to prove.  The SEC is charging GS with fraud for withholding material information regarding the construction of the underlying synthetic CDO portfolio.

Eric Falkenstein does an excellent job calling out ACA: "Empty Suits of the Week: ACA."

"Anyone working for this bunch of boobs should have a huge black mark. I know that in any large failure, executives all blame someone else, and usually end up unscathed, but this deal highlights they were not doing what they advertised, assessing the collateral's credit quality. If they did, they would have noted that a high profile short gave them a bunch of credits that had an adverse sample of low FICO, adjustable rate mortgages. They clearly didn't do the most basic analysis of the portfolio they were managing, nothing.

ACA was a big player, and their business strategy was purportedly to 'assume, manage and trade credit risk'. Their action on this deal highlights their credit risk assessment appears to have merely been checking the agency ratings. That's understandable if you are a retail investor, not an institutional investor managing a $1B transaction. ACA probably was rubber stamping its portfolio collateral since inception, a strategy that worked until it didn't. These are the guys who should be inducted into the 'Empty Suit Hall of Fame'"

The only tiny flaw in there is that back when these trades were done, Paulson may not have yet been a "high profile short."

The volcanic eruption in Iceland is no laughing matter, and I only wish I had more time to focus on it instead of this GS story, but this satire passed on by MISH is funny:

"Inquiring minds are reading a letter from the Icelandic Parliament to Gordon Brown regarding Icesave

Dear United Kingdom
In response to your demand to send cash immediately ...
Please note the Icelandic Alphabet does not contain the letter "C".
We have complied with your request as best as our language allows.
It's not easy to conjure up a volcano at will to spew tons of ash.
Please consider our debt paid in full.
Respectfully yours

Also via Mish, the CrackShack or Mansion game.  Is Vancouver real estate seriously this bubbly?  Really?  Fuel55 where are you - I need to know if these listings are real!  Related story:  Paul Kedrosky from last week.  Readers can check out this amazing site which amalgamates anecdotal Vancouver real estate stories.  I can't believe it - it's like they have our blueprint, because we JUST lived through this, yet they are ignoring it.

I have one more great MISH link from last week:  Easter Comes Twice a Year

"Last week, 47 out of 47 economists were overly optimistic and 44 out of 44 were overly optimistic this week. Both times, Easter was to blame.

I am wondering how Easter came two weeks in a row and every economists missed it both times."


Jeff Matthews writes a terrific piece about how IKB is no poor rube in the whole Goldman Sachs saga.



wcw said...

In re crackshacks, in my SF neighborhood it's like the residential RE crash never happened. Things are listing for 10% above 2005 prints, and selling. I'd show you the place next door that went for 1.1m (on which we hopefully bid 0.9m, despite both feeling it was a reach), but it would just be depressing.

Which reminds, this article is right up my sour-grapes alley. I doubt you'll hear homeowners called "welfare queens" any time soon, but it appears you should.

Stupid real estate market. We need another crash to settle it down.

Fuel55 said...

Oh those shacks are real. But the houses are worthless. The list price is strictly for the land but in Vancouver (proper) there is no empty land so if you want a new house you have to doze an existing crack shack and rebuild. Rules on building are onerous, taxes and permits are onerous and contruction costs are high when you need to protect a house on either side of you. Thus prices seem whacked.

The west side of vancouver is totally land locked and is 70 blocks x 30 blocks including parks and shit so the best area to live is always in extremely high demand and prices continue to escalate as buyers grossly outweigh sellers.

Average price on westside is now $2.1M. Average ...

Fuel55 said...

It's a fact!

Kid Dynamite said...

thanks Fuel55 - how is the price to rent ratio? are rents sky high too?

are there weird building codes or something that prevent the construction of high rise condos? or we're talking more neighborhood type areas? usually, regardless of the neighborhood, when space is at a premium they build the only way they can: UP!

Fuel55 said...

I think limited data says ownership costs vastly exceed rental costs but very little of Vancouver's west side is rented and its lower end product which is likely ready for bulldozing anyway.

Condos are largely limited to downtown. Bulk of west side is single-family homes on land approaching $300 per sq ft.

wcw said...

The hovel next door went for $350/sf of land. It has a really nice view.