Blah Blah Blah Quantitative Easing Blah Blah Blah - "I Want a New Drug"

Let's step back into our time machine and travel alllllll the way back to the 2000-2009 decade - the one we just finished.  We suffered a massive financial crisis because we, as a country and a world really, had borrowed and lent far too much money based on paper asset prices.  The assets in question were homes, and the prices were inflated by a massive ignorance of risk on the part of all parties - borrowers, lenders, insurers, modelers, financial wizards, etc.   When we borrowed money based on paper asset prices, we were totally hosed when the prices of those assets declined and we then couldn't afford to pay back our loans.

Now press "live" on your remote, and return your DVR time machine to the present.  The solution our fearless leaders at the Federal Reserve have chosen is to run this play again - quantitative easing is designed to inflate asset prices, which in turn will hopefully result in people feeling wealthier, borrowing more, and spending more - it's a "virtuous cycle!!!"   Bernanke actually told us this, specifically, in an Op-ed today:

"Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

Just to recap, the Fed's basic goal (in my opinion) is to force capital into risk assets.  The Fed buys treasuries, driving their yields to unappealing levels, until investors are forced to put their money into other asset classes:  stocks, corporate bonds, commodities.  As that happens, portfolio valuations increase, everyone is supposed to feel good again, and we go out and spend money, which flows through to the rest of the economy.    Now get back in the time machine and crank it back just a handful of years.  How did that work out last time?    Of course it was great while the bubble was inflating - flat screen TVs and newly landscaped yards for everybody! - but reality is always a bitch, and bubbles always burst.

I sympathize with The Pragmatic Capitalist, who seems to be pulling his hair out in frustration over the "solutions," we've enacted so far:

" If this indeed works (pushing up asset prices) then why don’t we just perpetually perform QE?  Why don’t we just sustain asset prices “higher than they otherwise would be”?  The very idea of this as an economic strategy is frightening in my opinion.  If QE actually works then there is no need for fundamentals.  Why does anyone get up in the morning and go to work?  We can all just go out and open an ETrade account and let Ben pour money into our accounts.  Unfortunately, that’s not the way economics works.  You would have thought that we’d have learned this after two bubbles in less than ten years, but no.  Here we are again."

We are trying to ameliorate the effects of a collapsing asset price bubble by inflating a new asset price bubble.   That drug doesn't work.   In the words of Huey Lewis, I want a new drug.

-KD

WYNN Q3 2010 Conference Call Tidbits

It's that time again - time to read the transcript of WYNN's latest conference call and see what sort of insight Steve Wynn has in store for us.  I think Wynn is one of the most brilliant and candid CEOs out there, and perhaps the best at openly speaking his strategy and vision on the conference calls.  Let's get to it.  (I have no position in WYNN or any of its peers).

Steve Wynn:

"This is the first time on the conference call that I'm going to say I believe that we've seen the bottom in Las Vegas and I don't know how fast it's going to get better, but I don't think it's going to get any worse."

I found this interesting, since LVS's conference call couldn't even pretend to be optimistic on Vegas, and Wynn is usually even more honest,  but I guess he's not saying things are getting better - just that we've FINALLY seen the bottom.  I think if you're interested in buying a condo in Las Vegas you certainly don't have to go out and scoop one up in a hurry - I can't see their real estate market recovering any time in the near future.

"I think with two months to go, we're over $900 million of EBITDA, so speaking after my 40-odd years, first year we're going to go well over $1 billion in profit, in EBITDA at least. Although I stress again that this EBITDA number, which is what everybody likes to flash around is sort of a fake number because you have to pay your interest so lots got to do with what you make as how much money you owe. And depreciation isn't something that can be discarded. The more hotels you have, the more depreciation you've got. And the more money you have to spend taking care of these places,"

Wynn mentioned this on the last call - how EBITDA is kinda a silly measure since you can't just ignore interest and depreciation - but he cites it anyway because his competitors love to use it as a metric.

"Our baccarat is closed until Christmas, it's being re-configured"

What?!!?!?  Baccarat closed?  That actually probably matters - it has to be the big revenue driver. Although I guess they'll decrease costs too because players won't be able to rip up all those cards (/sarcasm & inside joke)

Steve Wynn then goes on a little bit of a political tirade, but notes: 

"We have been the victim of 8% escalation of healthcare costs and our insurance program and we self-insure. We are healthcare provider. And we have never touched the benefits to our employees or raised their costs of their contributions in co-pay and such. Since we opened this hotel five years ago, we've just taken the hit on 8% a year. As a result of this ridiculous 2700-page fiasco that this Congress passed, our escalation of healthcare cost is going to close to 11% or 12%. Thank you very much, Congress, for all the help. They made it tougher on large businesses, small businesses, they've made it tougher on unions. In many cases, the culinary union contract with us, for example, and calls for a fixed contribution or cost of living escalation every year to be put into healthcare or wages whichever the union wants. And when it all goes to healthcare, their wages can't be increased. Or put in even a worse situation that the amount of money that we can give the union to cover their healthcare escalation doesn't equal what the union has to pay out in its policy to our employees. So the healthcare bill was a fiasco across the Board."

You can say what you want about the healthcare bill, but this is one CEO telling you that it's jacking up his costs.  It's not secret that Wynn is not a fan of the Administration, and you can read his rant on Government preceding and following that healthcare segment in the transcript.

On to Q&A:

Responding to a question about Macau:

"Some of the other fellas are a little desperate about their performance. And they've been trying to buy business. I guess in order to make an impression for an IPO or something, it's a scheme that doesn't work very well. They increased the top line but they don't increase the bottom line."

Can anyone guess what "other fellas" Steve Wynn is talking about?  (rhetorical question)

"Well, we're at it, the Board of Directors today voted a special dividend of $8 a share payable on December 7. Another promo, another piece of good news associated by our extraordinary capital structure and our cash flows still leaves us with a huge amount of excess capital and the freedom that many of our competitors don't enjoy financially. But it's good news for our shareholders who we believe should be the principal beneficiaries of this company's activities. And that has been our pattern over the past, ever since the inception of Wynn resorts to take the interest of the shareholders first and considering the whole picture in this country. It was good time for a special dividend."

This is kinda unusual for a capital intensive company, but speaks to Steve Wynn's conservative balance sheet.  Wynn has made it clear in the past that he's positioned the company for the long haul - to withstand downturns - so that they will be able to pay their debt bills regardless of what happens.  The fact that they still have extra capital to distribute to shareholders illustrates that the balance sheet is likely seriously rock solid.  One can also note that they've "paid" the price for this prudence in the way their stock price has lagged LVS - LVS is much more highly levered, and performs better when things are good and bubbly, like right now.  LVS expanded aggressively in Macau and Singapore, and Wynn is slowly and methodically trying to catch up.  Reading on,  the next part of the conference call is Wynn speaking exactly to this "conservative" balance sheet:

"After the dividend, this company throws out the cash flow. It's almost half as much as our total debt, net debt. It's a very comfortable position to be in. I just thought I'd mentioned that. I love that ratio and try to keep it conservative like that. We don't worry about coverage of our interest payment, we worry about coverage of our earnings compared to the total debt. And we'd like it when our earnings as half of our total debt. That keeps us in a very strong position and that's after we pay $1 billion or more dividend"

Then we get to this:

Q: David Katz - Jefferies & Company, Inc.

So many things have seemed to be going right in Macau. And clearly, this is a happy release and a happy conference call, and not to spoil that in any way, but what should we consider that could potentially go wrong. What are the biggest concerns or issues we should think about going forward as we model out the next couple of years particularly in Macau? What concerns you?

A: Stephen Wynn

You want me to hypothetically think of everything could go wrong on a conference call? Who do you think you're talking to, anyway? You've got no chance of me doing that. You do that. That will give you something to do. I'm not going to do it. You understand the market clearly enough. Why would I hypothecate about stuff like that?

Whoa!  a DYKWTFIA from Steve Wynn! WHO DO YOU THINK  YOU'RE TALKING TO?!   I'm actually somewhat surprised at Wynn's reaction here - he's usually quite good about laying out potential pitfalls and obstacles and being honest about them on the call.  Wynn then goes on another tirade about the Government and how their policies make consumers and businesses lack confidence.  You can read it for yourself in the transcript.  Here's a sample:

"I mean, one of the reasons I'm so angry about this, and there's no question I am, is that I have always had a sort of a protective attitude towards my employees. I consider us a family. And I've always thought that we, as a company, if we stayed healthy, that we could protect our employees in every way possible. And now I see the government destroying the value of the dollar, lowering the quality of life and the standard of living for the working class of America, the very people that they're supposed to represent. And sure, we're going to give paychecks out, but they're going to be $0.60 on a dollar paychecks. And all these people are coming up for Social Security and Medicare. They're going to get paid with $0.60 and $0.70 on a dollar, dollars. I remember hearing the President say that the middle class has gone down and the rich get richer. The reason the middle-class relative position deteriorates, if it does at all, is because of the government. Not because of people that creates jobs and build companies. It's because of the government. And what happened now is the American public has awakened to this miserable truth. And they see right through with phony rhetoric. And if that's true, we're going to get a different kind of leadership in Congress that recognizes what it takes to run this country properly using common sense. And that's the reason that I think that this stinging rebuke that the President is going to get tonight has to have a proper effect on him and other like-thinking hypocrites."

Wynn then takes another swipe by complementing the Macau Government:

Q: Cameron McKnight - Buckingham Research Group, Inc.

Steve, would you mind commenting on some of the general macro trends you're seeing in China as it relates to your business. Are you seeing more customers? Or are you seeing more spend from a similar number of customers?

A: Stephen Wynn

More customers, longer stays, everything that the government of Macau intended to happen in Macau is happening. Here's a government with a plan, with a common sense plan, and they employed experts to execute the plan. A bunch of us that do this sort of thing.

Responding to a question about giving out hotel designs:

"I remember going to Atlantic City this past year, I was making a tour of various jurisdictions to learn about what was going on in America because I haven't done it in so long. And I was walking out of the Borganta, which I want to look at and there next-door was Harra's, with a curved tower and asymmetrical roof, a very poor, homely copy of the Wynn Las Vegas. And I called up Gary Loveman (Harrah's CEO), and I said, "Hey man, have you no shame?" I mean, and in the building was in the wrong proportion. In order to do what we do with our building, it has to be horizontal in its proportion or doesn't look right. And this one was verticals, which just looked like sort of a tall rectangle with point on one end. And he said he gave me an answer, he said "Well, duplication is a serious form of flattery." I found that relatively unsatisfactory answer. I think maybe someone should try to do their own thing instead of doing bad copies of other people's things. But we do give the boys a chance to louse up what they think we're doing. But there always one hotel behind and that reminds me of the story when Waylon Jennings met a kid that imitated the western singer. He told the kid, "Listen, I know you're a nice kid and you sing good and you're good-looking, but if you do well in Jennings, I'm already doing well in Jennings and you got to be yourself if you want to be successful in life, because I'll tell you something, son, and the boy's name was Wendell Atkins. Is it Wendell? Is it Waylon Jennings? If you do me, you're always going to be one record behind. And I thought that was a great funny remark. I was standing there when he said it. So if people copy our hotels, they're always one hotel behind. It's okay with me."

All in all, this wasn't my favorite Wynn call in terms of insight, but it's certainly a worthy read nonetheless.

-KD

Bill Gross to Ben Bernanke: Sold to You, Sucka!

Today on CNBC, I caught Bill Gross's analysis of the Fed's announcement of QE2.  Around 11:00 at the video if you want to watch the whole thing.

"To your question of selling or buying treasuries - I think for the most part those that should have bought them have bought them already and that would include PIMCO and that we would be looking forward to "handing them off" so to speak as we accelerate towards that outer orbit."

As we used to say on the trading desk:  Sold to you, Sucka.

-KD

Freddie Mac Meets Teddy KGB - "I'm Paying You With Your Money"

Everyone who has seen the movie Rounders remembers the line from Teddy KGB when he tells Mike McD, "It's a f*cking joke anyway - after all, I am paying you with your money."

Still Up 20 Grand sound clip  Matt Damon sound clips

I used that quote previously on this blog when talking about AIG, but today's Freddie Mac announcement takes the cake, removes all ambiguity, and, well, has to make you laugh:

"The company had a net worth deficit of $58 million at September 30, 2010, compared to a net worth deficit of $1.7 billion at June 30, 2010. The deficit in net worth for the third quarter resulted from several contributing factors, including a dividend payment of $1.6 billion to Treasury, which exceeded total comprehensive income of $1.4 billion. To eliminate the third quarter net worth deficit, the Federal Housing Finance Agency (FHFA), as Conservator, will submit a request on the company's behalf to Treasury for a draw of $100 million under the Senior Preferred Stock Purchase Agreement"

So Freddie Mac has negative net worth because they had to pay a dividend to Treasury.  Solution?  Borrow money from Treasury!  Voila!  FIXED IT! (/sarcasm)

This takes "I'm paying you with your money" to a whole new level.  Life imitates art. Again.

-KD

Citibank Sucks

I value my rights as a consumer.  Despite Ally Bank, the former GMAC, offering juicy (relative to other banks) yields, for some reason I've refused to open an account with them.  Somehow, I was thinking that I'd refuse to be part of the government bailout program and refuse to feed the beast.  Of course, at the same time, I still had a chunk of my assets at Citibank, which is very much a part of the problem.  I justified this to my inner Judge by telling myself that Citi sucked, and we all know that, but at least they weren't as bad as GMAC - which may not be true at all.  I also wrote this week about how I opened an account at American Express Bank, while Amex was a receipt of federal funds as well.   So anyway, my consumer idealogies were somewhat misplaced and unjustified, but hey - that's my prerogative.  I was too lazy to close my Citi account - I like their bill pay functionality and as long as I can easily move my money around when I want to, it didn't worry me too much.

Well, I found out this week that Citi put in some new rules to impede me moving my money around.  Several years ago, I had a link between an Etrade account and a Citi account.  One could, if one so desired, transfer up to $100k daily between these accounts.  When I opened up my new Amex Bank account, I linked it to my Citi and Etrade accounts.  Amex allows transfers of up to $250k daily, while Etrade will let you send $100k.  Citi? The outgoing limit is $2,000.  Oh sure - they'll let you transfer money IN - but if you want to take it out, they say "oh, these are new anti-money-laundering regulations." 

"That's nonsense," I explained to the woman on the phone, "Other banks let me transfer much more - and Citi will accept plenty of money as long as it's coming in not going out."   Of course, like most Citi customer service reps, she was powerless to help me or answer my questions.

Nothing makes me want to take my money out faster than a bank who tries to impede my ability to take my money out.  Eff you, Citi - I'm done with you.  I'm gonna whittle my account there down to the bare minimum, and give my business to a bank that pays me interest and provides real customer service.

As a friend of mine put it, "I've had credit cards and accounts with them, and I've never hated a bank so much.  I just shut it down."  I didn't really care about the inept customer service, as long as I could do what I wanted online - but once Citi implements rules that make my money hard to easily transfer out of there electronically, I'm gone. 

My needs in a bank are pretty simple:  I want an account that doesn't charge me fees (you're holding MY money and making profits off it - you should be paying ME), pays me a competitive interest rate, has up to date electronic technology in terms of bill pay, account management, and transfer abilities, and a competent customer service agent to talk to should something get screwed up.  If the bank doesn't have a physical location near me (which neither Citi, Amex, or Etrade do), that's ok as long as I can easily transfer money to an account at a bank that does have a branch near me.

Citibank sucks.  They have inept customer service, pay well below market interest rates, and make it harder for you to take your money out.  I'm taking my business elsewhere - finally.

EDIT:  an Anonymous commenter leads me to a clarification - I can "pull" the money out by initiating the transfer from my Amex account instead of "pushing" funds from my Citi account - but that is treated differently.  In such "pull" transactions, the funds have a 6 day hold on them before they can be used.  In transactions initiated by Citi (or any party on the other side, ie, NON-Amex), the funds are available overnight.  Of course, this "pull" from the Amex side is exactly what I'm doing to get my money out of Citibank.

-KD

disclosure:  long a teeny bit of C stock, for some inane reason (greater fool theory?  moral hazard trade?)

Politicians Never Fail To Dissapoint

I try not to write about politics too much on this blog.  I feel like there isn't usually much that can come out of a comment conversation about the topic - ideologues on both sides usually batter the opposition with their viewpoint.  Jeez - I mean - it's hard enough to discuss economics with its corresponding ideologies on each side.  But I was just made aware of a comment that Senate Minority Leader Mitch McConnell made last week, which disgusts me.

 “The single most important thing we want to achieve is for President Obama to be a one-term president”

Now - was that taken out of context?  Did McConnell mean something else?  I don't know.  I'm generally fiscally conservative at least, but when I hear crap like this coming out the mouths of our elected officials it makes me furious.

In the words of SF Giant's closer Brian Wilson:  "I feel like I want to rage. RIGHT NOW."

and now I'm off to vote...

in other news, this is a much watch, courtesy of Marginal Revolution:

-KD

Krugman's Readers Set Him Straight

I didn't even want to write about Krugman's absurd piece today: "Mugged By the Moralizers," in which he completely fails to understand what has America so angry.  Krugman mis-diagnoses the problem:

"“How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?” That’s the question CNBC’s Rick Santelli famously asked in 2009, in a rant widely credited with giving birth to the Tea Party movement. 

It’s a sentiment that resonates not just in America but in much of the world. The tone differs from place to place — listening to a German official denounce deficits, my wife whispered, “We’ll all be handed whips as we leave, so we can flagellate ourselves.” But the message is the same: debt is evil, debtors must pay for their sins, and from now on we all must live within our means. 

And that kind of moralizing is the reason we’re mired in a seemingly endless slump."

Krugman brushes aside "debt moralizers" as wingnuts who want others to suffer, and mockingly derides "moralizers" as the root of the problems, where he of course sees the solution as spend spend spend.

Fortunately, a few comments on Krugman's piece really hit the nail on the head, and are very worthy of publication here:

From "DC" in NJ:

"As a Democrat but one who lives closely with Tea Partiers, I have to say you are seriously misreading the problem. The complaint is not at all about morality or moralizing, although certainly there is an undercurrent of righteousness. It is about what the Tea Partiers regard as a vast fiscal irresponsibility and a deep inequity in what they see as the government enabling the 'lazy' poor and the irresponsible big spenders.

The undercurrent is that while you and I were scrimping and doing without a vacation and a new bathroom, our neighbor was spending idiotically with money he didn't have. And who is rewarded? The neighbor. While bankers and Wall Street was gambling with money that wasn't theirs, you and I were working two shifts or 10 hours each for both husband and wife. And whom does Obama reward? The bankers. While you and I were responsibly spending $500/month on health insurance we could barely afford, our low income neighbor decided against health insurance - although he enjoys drinking beer and partying - and when he had needed medical he just went to emergency, free of charge because he has no assets. Whom does the government support? The beer guzzling neighbor (I have seen this personally many times by the way--something higher income people in their gated communities never see).

That is what Rick Santelli's rant is about---it is very little to do with moralizing and everything to do with a deeply American sense that things ought to be fair, that hard work should pay off and laziness and irresponsibility ought to be punished.

By miscategorizing the problem you cannot find the solution; by condescendingly dismissing the complaint as merely one of 'moralizing' you ignore that there is indeed a valid world view here that the Tea Partiers and others are addressing. Do I agree? No. But that doesn't make their world view simplistic and without any merit..."

Kudos DC - very well put.  It's the parable of the Ants and the Grasshoppers, Krugman - read it.

I also liked comment # 81 - from Mike in Shenzhen, but I don't want to excerpt it here as it brings up a little more potential for off-topic nonsensical backlash in the comments.

-KD

"Difficult Financial Realities!"

The early Quote of the Day comes from Wilmington Trust CEO Donald Foley, who sold his bank to M&T Bank over the weekend for 1/2 of its Friday closing market value.  Emphasis mine:

"Wilmington Trust today has two very strong fee-based businesses that continue to perform well.  However, as our third quarter earnings announcement shows, we continue to face difficult financial realities associated with the credit quality of the loan portfolio in our banking business.  As a result, our Board examined a range of strategic alternatives and has held discussions with several potential partners.  After careful study, the Board, advised by its lead financial adviser Lazard Freres & Co., LLC, concluded that our merger with M&T is the best available option for our stockholders and also serves the interests of our clients and almost 3,000 staff members. In M&T, Wilmington Trust has found a partner with complementary businesses, a strong financial foundation and an outstanding reputation.  Our merger will allow us to build on our many strengths and preserve our commitment to clients and the Delaware community."

"Difficult financial realities!"  In plain English, what he means is that they could no longer pretend that they were solvent and they had to pack it in.   They were so hosed that it was in the best interest of stockholders to sell out at 1/2 of the previous day's closing price.  We'll continue to watch and see if the TBTF banks can perpetuate the myth that they are solvent as they try to "earn" their way out of their losses, while avoiding marking their assets (mortgages, second liens) to market.

-KD

Happy Halloween From Oscar & Mr. Griffey

Warning - pictures of dogs in costume follow...  If this sort of thing offends you, you will want to click away ASAP.  Also, if you are afraid of Bee Dogs, click away!

We discovered that Mr. Griffey has no qualms about wearing things - costumes, jackets - while if you put anything at all on Oscar he acts like he's wearing one of those collars from the Running Man that will make his head explode if he moves at all.   Griffey happily pranced around the house in his purple cape earlier this week, as we constantly hailed King Griffey:

We couldn't bear to torture Oscar when it wasn't Halloween, but he looked scared that he was going to get costumed up anyway:

Today, on Halloween, we got one trick-or-treater - a planned visit from a neighbor who wanted to see the pooches dressed up.  I present to you:  BEE DOGS!

I think this is the saddest bee-dog in the world:

If you have honey on your hands, bee-dogs will SWARM:

Thus ends today's episode of dog costume torture.  No dogs were actually harmed during the taking of these pictures.  If you haven't yet gotten your fill of beedogs, BeeDogs.com will keep you busy all day.

-KD

NOT Material Nonpublic Information

I opened up a high yield savings account with American Express Bank.  I mention it because I finally decided that there's no reason not to earn 1.30% with them instead of a few basis points at Etrade and Citi where the balance of my money is/was.   Anyway, I mention it because I've been absolutely bombarded with their ads everywhere I go online.  It's rare that I get hammered with advertisements for products which I may actually care about.

I called customer service today to ask about some electronic transfers I'm setting up, and after the agent answered my questions, I asked her if they'd been really busy lately.  She said that this high yield savings account campaign was the biggest ad-blitz they'd ever undertaken, and that they were extremely busy opening up new accounts.  I have no position or opinion on AXP stock, and I don't know what sort of deposit gathering The Street's analysts are looking for, but I'd expect AXP to garner a metric crap-ton of deposits this quarter.  I'm not sure what the implications of that are for them, but anyway.

note: for prior posts about the intricacies of identifying insider trading, see this and also this - good comments in those threads too.

-KD

Effin' Lawyers/Judges - Today's Sign of the Apocalypse

What the fuck is wrong with people?  Seriously.  I've preached about personal responsibility a lot on this blog  - I'm a firm believer in it - but there are limits: like saying a 4 year old can be sued for negligence for running into an old lady while riding a bike with training wheels. 

"Citing cases dating back as far as 1928, a judge has ruled that a young girl accused of running down an elderly woman while racing a bicycle with training wheels on a Manhattan sidewalk two years ago can be sued for negligence. 

The ruling by the judge, Justice Paul Wooten of State Supreme Court in Manhattan, did not find that the girl was liable, but merely permitted a lawsuit brought against her, another boy and their parents to move forward." 

Look - sue the parents - fine - THEY are responsible for the actions of their four year old.  But a four year old girl?   This one is too friggin' crazy not to keep reading:

"The suit that Justice Wooten allowed to proceed claims that in April 2009, Juliet Breitman and Jacob Kohn, who were both 4, were racing their bicycles, under the supervision of their mothers, Dana Breitman and Rachel Kohn, on the sidewalk of a building on East 52nd Street. At some point in the race, they struck an 87-year-old woman named Claire Menagh, who was walking in front of the building and, according to the complaint, was “seriously and severely injured,” suffering a hip fracture that required surgery. She died three weeks later."

Ok - it sucks that this old lady got hurt and died.  And no, I'm not going to argue that she should have been responsible enough to get out of the way - she was on the sidewalk.   The article continues with a reasonably sensible 2 paragraphs:

"Her estate sued the children and their mothers, claiming they had acted negligently during the accident. In a response, Juliet’s lawyer, James P. Tyrie, argued that the girl was not “engaged in an adult activity” at the time of the accident — “She was riding her bicycle with training wheels under the supervision of her mother” — and was too young to be held liable for negligence. 

In legal papers, Mr. Tyrie added, “Courts have held that an infant under the age of 4 is conclusively presumed to be incapable of negligence.” (Rachel and Jacob Kohn did not seek to dismiss the case against them.)"

Right - a 4 year old can't be negligent... But wait - this girl was four AND THREE QUARTERS!

"But Justice Wooten declined to stretch that rule to children over 4. On Oct. 1, he rejected a motion to dismiss the case because of Juliet’s age, noting that she was three months shy of turning 5 when Ms. Menagh was struck, and thus old enough to be sued. 

Mr. Tyrie “correctly notes that infants under the age of 4 are conclusively presumed incapable of negligence,” Justice Wooten wrote in his decision, referring to the 1928 case. “Juliet Breitman, however, was over the age of 4 at the time of the subject incident. For infants above the age of 4, there is no bright-line rule.” 

Hey Justice Wooten - there's also no bright-line rule that says when kids learn morality, responsibility and right and wrong.  Holy cow - I am on BAJUNGI TILT.

It gets even crazier:

"“A parent’s presence alone does not give a reasonable child carte blanche to engage in risky behavior such as running across a street,” the judge wrote. He added that any “reasonably prudent child,” who presumably has been told to look both ways before crossing a street, should know that dashing out without looking is dangerous, with or without a parent there. The crucial factor is whether the parent encourages the risky behavior; if so, the child should not be held accountable."

Wait - so if I'm driving down the street, and a 5 year old runs out in front of me and I run him over - it's his fault for negligence, right?  He should know that he has to look both ways, right?  He has presumably been told that already, right?  (END SARCASM!)  What planet does this judge live on where 5 year olds don't "dash out into the street" because they know better?  Guess what - they DO dash out into the street even though they MAY know better because they are only 5 years old and they are just thinking about getting their ball back!

Isn't there a saying "Behind every bouncing ball is a running child?"  Note how it's not "Behind every bouncing ball is a running child under the age of 4, because children over the age of 4 are reasonably prudent and should know better."

Maybe I'm overreacting.  I don't have kids.  Why don't some of my readers out there tell me if their 4 3/4 year olds have a sense of morally righteous behavior and know never to engage in any activity that might cause harm to themselves or others.

This is not a guiltless crime, obviously, the parents are responsible for their children's actions.  Justice Wooten is living in his own world of crazy that's so out of touch with reality, it makes me weep for the future of our judicial system.

Edit:  in any case, this seems like the perfect time to revisit an old classic:  Punitive Damages!

-KD

ps - I really really hesitate to bring it up because I really don't want to get into a tangent in the comments, but one of the things that's bothering me most about this case is that so much of our recent financial crisis has resulted in people trying to absolve grown adults of their responsibilities (ie, in understanding documents that they sign which tell them how much they'll have to pay on their mortgage) - and now we're trying to assign responsibilities to FOUR YEAR OLDS?  Come on.

Grantham and Gross

Two items for you to read:

1) Jeremy Grantham's monthly piece
2) Bill Gross's monthly piece.

enjoy.
-KD

Phish Manchester 10/26/10 - Please Me Have No Regrets

Phish came up to Manchester, NH last night, an easy 30 minute drive for me.  I met up with Dr. Pauly (I haven't read Pauly's review yet) and Senor before the show and we perused the wasteland that was the lot outside the Verizon Center.  It looked like a filthy tailgate scene - with wookies of all shapes and sizes hawking their wares:  sparkly head bands, grilled cheese sandwiches, Nitrous balloons, beer, etc.  I was surprised that the notoriously anal NH State Troopers didn't jump on the nitrous sales - I hypothesized to Pauly that they probably didn't know what it was - NH isn't used to that level of degeneracy!  

Pauly and I found our seats with time to spare, and relaxed as we watched the arena fill up.  "5 guy" was sitting next to us - a guy who wears a shirt with a large number 5 on it, who Pauly recognized from Colorado.   The band kicked off at 8:15 with After Midnight, which got the place pumped, and the energy after the follow up The Sloth was sizzling.  "Sleep all day, Rip Van Winkling. Spend my nights in bars, glasses tinkling."  Sadly, for me, I thought that Phish totally lost their way after this in the first set.  They had the crowd absolutely charged up after Sloth, but a constant cease in the flow - they'd stop and discuss the next song after every song, something I've never seen them do to this extent - and a shaky song selection (lots of tour debuts though) crushed the crowd's energy.  Alumni Blues was cool, but the Mellow Mood follower had people running for the bathrooms.  Things didn't improve with Access Me, but the crowd released pent up fury during a raucous Llama.  I didn't think the sound mix was nearly as good as it was in Providence, despite the fact that I had nearly identical seats, and Llama came out sounding like a lot of noise.  Between songs, I would make sarcastic song requests to try to tilt Dr. Pauly, fake screaming "T T EEEEEEEEEEEEEEE!!" and "JOYYYYYYYYYYYY"  which made him laugh, knowing I was joking.

Phish crushed the budding enthusiasm again with All of These Dreams, before rallying with The Curtain With, which led the crowd to chant along with the lyrics "As he saw his life run away from him, thousands ran along, chanting words from a song.  Please, Me have no regrets."  The crowd enjoyed Scent of a Mule, but again, with the sloppy sound mix I found it to be a lot of noise.  A Song I Heard the Ocean Sing was long and jammy, and It's Ice was dark and dirty before they closed the set with Walls of the Cave, which took 10 of its 12 minutes to build into a worthy explosion of energy.  There was a guy two rows behind us blowing up the kind of balloons you make balloon animals out of, and carefully launching them in a regular stream out over the crowd.

At the set break, Senor came down to sit with us, and he shared my disappointment over the first set.  I've seen a lot of Phish shows and the common theme in all of them is frenzied crowd energy.  It just wasn't there - a result, I think, of the disjointed song selection.  Reading some reviews this morning, however, people are calling this one of the best shows of the tour, so who knows.  All I can say is that the first set seriously lacked a strong energetic vibe.

All of that changed in set two.  Perhaps the crowd was coiled like a snake waiting to strike - the Possum opener absolutely BLEW UP the joint.  A very loud, very intense 10 minute Possum seemed like a relief to the crowd, who finally got to explode in a Kuroda-driven series of halogen-lit peaks.  There was no settling down in this set, as Light followed and kicked off a stream of segues that saw the band continue without break for most of the rest of the set.  Mike's Song started, as usual, happy and bright, and ended raucous and pounding, with Senor dancing in the row behind us playing multiple air-instruments at the same time.  Mike's jammed out before settling into the novelties of Simple and Makisupa Policeman, where Trey sang the lyric "Woke up this morning, all I could do was shrug.  Go back in my bedroom and smoke another nug."  Makisupa flowed into Night Nurse, a reggae cover, which morphed back into Makisupa, and was then followed by and upbeat Wedge.

Ghost followed, and was dark and searing - 11 minutes of filth - before another novelty, the Mango Song.  One review I read today said that Mango only got played because they butchered the opening segue back into Weekapaug Groove, which came out like Mango, so they went with it.  I noticed at one point that Trey was directing the band - he said something to Mike, who went to tell Fishman, but Fishman was looking into the crowd and spacing out, so Mike had to stand there for 3 minutes before Fishman turned and finally got the call.  At one point a girl in the first few rows got up on a guy's shoulders and flashed Trey.

Weekapaug jammed back into Llama, which closed the set in a firestorm of noise, light and energy.  Sadly, Show of Life was a mellow encore, missing an opportunity to put a real stamp on the night.

An insane second set made up for an energy lacking (although rarity bust-out filled) first set, and sent the mass of wooks out into the hallways of the Verizon Center still whoooping en masse.   I made it home in half an hour, and settled into bed to a ringing in my ears...

-KD

Insider Trading Redux

Last week I wrote a post about potential difficulties in identifying insider trading.  The post and the comments are worth a read - if for nothing more than to illustrate how cloudy the topic can be.

Today, NYT Dealbook's Andrew Ross Sorkin visits the subject, with another interesting case:

"Have you heard about the railroad workers charged with insider trading?

Late last month, the Securities and Exchange Commission brought an unusual and colorful insider-trading case: It accused two employees who worked in the rail yard of Florida East Coast Industries and their relatives of making more than $1 million by trading on inside information about the takeover of the company.

How did these employees — a mechanical engineer and a trainman — know their company was on the block?

Well, they were very observant.

They noticed “there were an unusual number of daytime tours” of the rail yard, the S.E.C. said in its complaint, with “people dressed in business attire.”

The case is raising eyebrows — and some important questions — about what constitutes insider trading at a time when the government is taking a tougher line against Wall Street and white-collar crime."

later:

"The S.E.C. claims that Mr. Griffiths and Mr. Steffes acted on more than a hunch. The commission says that “shortly after the tours began, a number of F.E.C.R.’s rail yard employees began expressing concerns that F.E.C.R. was being sold, and that their jobs could be affected by any such sale.”

The S.E.C. also claims that Mr. Griffiths was asked by the company’s chief financial officer for a “list of all of the locomotives, freight cars, trailers and containers owned by F.E.C.R., along with their corresponding valuations, which she had never requested before.” Florida East Coast Railway, or F.E.C.R., was a wholly owned subsidiary of Florida East Coast Industries.

Is all of that material information? Clearly, it is all nonpublic. But without being told directly that a deal was in the works, did the men actually have inside information?

Sorkin relates a good rule of thumb, pretty much the same as the one I proffered in the comments of my previous thread: "A safe maxim might be: “If you have to ask if it’s right or wrong, it’s probably wrong.”

EDIT: thanks to commenter UrbanAnalyst for pointing me toward the official SEC complaint.  It's a must read for anyone wanting to comment intelligently on the details of this case.  

-KD

Phish - 10/22/10 - Providence: 1000 Barefoot Children Outside Dancing On My Lawn

Friday I journeyed down to Boston to meet my brother-in-law, Dan, and then we continued on down to Providence to catch Phish at "The Dunk" - The Dunkin' Donuts Center, formerly the Providence Civic Center (where I saw Smashing Pumpkins some 15 years earlier).

Traffic to Boston was brutal, and even worse continuing to Providence, but we made it to the room Dan's buddy Glen had secured in the 4 star (sarcasm) establishment that is the Seekonk, MA Ramada Inn.  The hotel had been overrun by Phishheads, and they had the staff flummoxed.  As we were walking in, we saw a pack of 8 wooks with their own camping gear piling into a room down the hall.   We had a mere hour to pre-party, but Glen had smartly hooked up pizzas and beer already, and we ripped through them like a tornado.  Upon trying to get a cab to the venue at 7:30, we realized that we had a problem, as there was a 30 minute delay.  We managed to pile in with a nice couple who had already been waiting 45 minutes, and thanked them by paying for the cab, which got us to the venue at 8:05.  We made it to our seats and had 90 seconds before the lights went down and Mike Gordon's base wanked out the opening chords of Down With Disease - one of my favorite Phish songs.  

The crowd was fired up, and DwD was tight and short, followed by Funky Bitch.   Fluffhead was somewhat of a surprise next, and as they entered the dissonant jam part I went in search of Dan and Glen, who'd gone for beers 15 minutes earlier.  I found them 2nd in line, dealing with a Bajungi tilt situation in the incompetent beer girl.  Glen had a bunch of speeding tickets, so his license was, for a time, restricted - it says "valid 7am to 7pm" on it.  As he gave it to young Brittany, she looked at it, looked at her watch, and said "It's after 7pm, I can't serve you."  That should have been really funny, but she wasn't joking.  Glen provided another expired license, and after checking with her supervisor, Brittany said she couldn't serve him.  

"Ok - just 6 beers then, instead of 8,"  I countered, aiming to confuse and confound.

"You only have 2 people," she was getting more confused.

"No - there are three of us," I pestered, but she informed me that Glen couldn't be served and that I'd get in trouble if I handed the beers to him.  "Ohhh okayyyy," I mocked, as I handed the beers to Dan, who handed them to Glen.  Brittany then tried to short me $20 on my change, which I somehow caught, and then Dan made me laugh when he said "I'm just gonna stand here and order 2 more beers,"  which he did, and Brittany blurted out, "HEY - you TRICKED me!" as she woke up to the simple reality of the situation.

We returned to our seats for the end of Fluffhead and were hit with Roses are Free - a Ween cover - which gave me the opportunity to tell the classic Ween story of when I was out in NYC a few years ago with Dirty Dave and JC.  Dave somehow was in touch with a friend of a friend of a friend who was at a party with Ween at the La Quinta Inn near Herald Square.  "If you want to destroy my sweater?"  I sang out - but Dave chided me: "WEEEEEEN - not Weezer."  We ended up in a surreal scene, walking into the "penthouse" at the La Quinta.  It was a smoke filled room straight out of a Quentin Tarantino movie, with girls passed out in the bathtub (clothed) and weird music playing.  We beat a hasty retreat.  Anyway, back to the Dunk:

Rift was hot, and the lyric "and shocked and persuaded my soul to ignite," resonated with me, as the crowd bounced into a frenzy.    Moma Dance confused me, despite the fact that I've seen it many times, and Ocelot was a nice happy shift.  I love NICU, and spent the next 36 hours whistling the melody while chanting the refrain "Would you please, make clear to me, I'm peering out through your opacity. And you've rehearsed tomorrow's verse, forgive me if I don't sing in your key."

I tried to put Dr. Pauly on tilt during Sample in a Jar by sending him a text that said "Sample is the nuts," but it didn't work, and a raging Julius closed the first set.  Pauly came down to visit us during the set break, and I gave him his ticket for Tuesday's Manchester, NH show, which we'll be going to together.  I chatted briefly with the crew of guys behind us, who were from Concord NH!  They gave me tips on the Concord hot spots, and talked about the afterparty.

Rock and Roll got people back in their seats, but the dark and angry Carini got the crowd frenzied for real.  It's always hard to describe the audience at a live show, and even in video it rarely translates, but Carini was the beginning of some serious bee-hive activity inside the Dunk.  They slowed it down with a song I've never heard before "My Problem Right There," but I thought it was a pretty good song.  Interestingly, Phish's fans seem to know EVERY song they every play from the first note, but it was clear that I wasn't the only one who didn't know this song - the vast majority of the crowd seemed unaware, but also seemed to like it. 

From there, the roller coaster picked up speed - Mike's Song was intense, and Sanity in the middle of the Weekapaug sandwich pleased the crowd greatly.  Suzy Greenberg was the intensity highlight of the night - with pure energy exploding from the band and the crowd in one.  I swallowed my gum while screaming "SUUUUU-ZEEE, SU-ZEEEE, SUUU-ZEEE SUUU ZEEE, SUUUUU ZEEEE SUUUUZEEEEE GREEENBERG" and jumping up and down, but I rallied and recovered.  Light followed, then Character Zero and 2001, which generated the expected enthusiasm from the crowd.

Not quite done, Loving Cup pushed it over the edge, and First Tube as an encore was, strangely, almost a letdown from the frenetic atmosphere that had been established.  I normally find First Tube to be one of the most intense songs Phish plays, and have seem some sick versions of it - but this night it just didn't work for me.  Maybe I'll change my mind when I listen to the MP3s again.

We'll do it again on Tuesday

-KD

Foreclosures vs Short Sales vs Principal Modifications

When homeowners are unable to pay their mortgage, there are basically a few options that the banks have.   First, they can foreclose on the home - take back the home which is the collateral for the loan they made.  Second, since so many of today's homeowners are "underwater" on their mortgages - owing more than the value of their home, and are unable to pay, banks could write down the value of the outstanding loan, since the collateral isn't worth as much as the loan is anyway, in an effort to keep the homeowner in the home and eventually recoup the market value of the home via a .  A third solution is allow a "short sale" where the homeowner sells the house for less than they owe on the mortgage - ie, they sell the house for $200k and the banks takes that money instead of the $250k that's owed on the mortgage.

I previously discussed a reason why banks may not want to do principal writedowns, and MISH touched on it again last week - it creates incentive for people to fall behind on their mortgage.  Although the bank may actually be better off by allowing the person in the home to replace a $250k mortgage with a $200k mortgage that reflects the current value of the home, which is the value that the bank would get if they foreclosed (actually, the bank typically gets less by foreclosing, because of all the expenses involved), doing so creates incentive for other borrowers to seek the same deal, which is potentially disastrous for the banks who are desperately trying to avoid a massive wave of strategic defaults.  By taking a hard line against principal writedowns, the banks avoid giving borrowers the impression that they can get a "benefit" of sorts by deliberately becoming delinquent. 

Short sales, on the other hand, seem like a slam dunk for the banks - instead of having to foreclose, remove the borrower from the house and sell the house themselves -  the banks merely have to accept less than the value of the mortgage in a sale of the house.  Since the value of the house bears no resemblance to the outstanding mortgage, I would think that the banks would like this deal - homeowners are hardly going to take advantage of banks by executing short sales (although there are potential ways that people try to beat the system with short sales, like having a friend buy the house on the cheap and then sell it back to them).  As long as the banks have a decent estimate of the market value of the home, it seems clear to me that they should prefer a short sale at fair market value to a foreclosure which would then result in the bank attempting to garner fair market value anyway through their own sale process.

Which brings me to today's NY Times article about how hard it is to get short sales done - banks prefer to foreclose, for some mysterious reason.  I still talk to my realtor regularly, and he confirmed that it's extremely difficult to get responses - never mind acceptances - from banks on short sale related transactions.  The only "sensible" explanation I've seen is the one in the NY Times article:

"But less obvious financial incentives can push toward a foreclosure rather than a short sale. Servicers can reap high fees from foreclosures. And lenders can try to collect on private mortgage insurance.

Some advocates and real estate agents also point to an April 2009 regulatory change in an obscure federal accounting law. The change, in effect, allowed banks to foreclose on a home without having to write down a loss until that home was sold. By contrast, if a bank agrees to a short sale, it must mark the loss immediately."

Ahhh - so we have the "pretend we aren't really taking a loss on this" extend and pretend game, and also the interesting angle of the potential ability of lenders to collect on mortgage insurance in foreclosures, but not short sales.  Of course, there are also the skewed incentives of servicers who process foreclosures.

Am I missing anything else?  Is there any other reason banks should prefer foreclosures to short sales - aside from this accounting quirk?  I guess if banks were bullish on the real estate market and simply felt that they'd make more in the foreclosure process than the short sale process as housing prices rebounded, that might make sense, but I doubt the banks are so delusional in today's market.

NOTE:  this post has nothing to do with ForeclosureGate, and I don't want the discussion to revolve around ForeclosureGate either - I'm just trying to understand the banks' seemingly bizarre actions in preferring foreclosures over short sales.

-KD

Let's Second Guess Mike Tomlin

Last week I questioned Bill Belichick's decision to throw a Hail Mary at the end of regulation instead of attempting a super long field goal.  Today I was similarly baffled by Pittsburgh Steeler coach Mike Tomlin's decision to let the clock expire at the end of the first half.

Pittsburgh had a 17-16 lead, and two timeouts, with a third down around the Miami 38 yard line and roughly 30 seconds left.  Ben Roethlesberger got sacked back at the Miami 40 yard line, and Pittsburgh let the clock expire instead of calling a timeout and attempting either a 57 yard field goal or a Hail Mary.

I just don't understand this.  There is no chance that the field goal attempt is negative expected value.  Jeff Reed's career long is 51 yards I think, but I'd guess that most NFL kickers will make a 57 yard FG - what - at least 20% of the time?  Readers last week made the comment that a Hail Mary had less potential downside than a long field goal attempt - that argument is more true with a 63 yard FG than a 57 yard FG - but still - why not take another shot at the endzone if you don't want to kick the FG?

Miami suffered a tough beat at the end of this game when Roethlisberger fumbled on the goal line, but the play was prematurely blown dead and ruled a touchdown before the officials made a ruling about who had recovered the ball.  Miami challenged the play, and the review showed that Roethlisberger did indeed fumble the ball before crossing the goal line, but there was not conclusive evidence of who recovered the ball, so by rule Pittsburgh keeps the ball on the half yard line - where they promptly kicked the game winning field goal.

-KD

Gone Phishin'

I'm driving down to Boston and then Providence this afternoon to see Phish at the Dunkin' Donuts center.  Then the band will come up to Manchester on Tuesday and I'll see them again.

Recaps to follow...

-KD

Circle of Life

Ah hah - you thought that the title "Circle of Life" was going to be related to some interesting New Hampshire wildlife experience I had?  No - I'm thinking of the big headline yesterday about Pimco, Blackrock and the NY Fed pushing to putback faulty mortgage backed securities to Bank of America.

Now, it's not that I don't want BAC to have to buyback fraudulent or faulty crap that they created - I do - but the NY Fed's involvement?  What will happen? The NY Fed will put this crap back to BAC, which will result in BAC spending all their money and needing another bailout, which will then be provided by... that's right - you're one step ahead of me this morning - THE NEW YORK FED!   The circle of life.  Beautiful.

The other story bugging me this morning is the absurd spin-job "Wall Street Bailout returns 8.2%, beating Treasury bonds."

"The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than they could have made buying 30-year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades. 

The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better."

I'm not going to spend a ton of time on this one, but to say that the investment was "$309B" is flat out ludicrous.  You can think up your own analogy, but the one I'm thinking of is if you bought stock in a factory, perhaps, for $1B.  Then you spend another $5B buying everything that the factory produces, and thus your "stock" investment turned a profit of $100M.  "Hey look - I have a $100MM profit on a $1B investment!"  You boast - only your true investment was much more than $1B.

Now, that analogy isn't perfect, obviously, as the Treasury/Fed won't lose all of the other money they've invested (the TRILLION they've spent buying MBS and Treasuries, for example) - they might not even lose any of it.  But it's still Ponzi math to high five and annualize returns based on the equity portion.  We won't even get into the intangible effects of the bailouts (savers earning 0%, asset price inflation, moral hazard, etc).

-KD

Insider Trading and Material Non-Public Information

One of the first things any new hire on Wall Street, or any executive in a publicly traded corporation, learns about is the laws pertaining to insider trading.  Individuals are prevented from trading on material non-public information, and from tipping off their friends to trade on such information as well.  The cases aren't always crystal clear in terms of legality, but this one seems pretty easy, and I would have gotten in wrong (although, on the correct side - the side that says "don't do it!")

From Bloomberg:

"Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.

What’s wrong with this picture? Nothing, according to the law. Nor would it be illegal for him to tip someone else, say, his largest campaign contributor"

Now, it seems pretty clear to me that this is material non-public information.  What's the "reasoning" behind the legality of it then?

"Laws that criminalize insider trading cover corporate insiders and those they tip, but not specifically Congress. And while scholars differ on whether existing law could be applied on Capitol Hill, it hasn’t been."

I never really thought about the fact that insider trading laws cover only corporate insiders.  Congressmen are not corporate insiders, thus they are not covered!  Pretty surprising - if there are any securities lawyers in my audience, make your opinions known in the comments - could the existing law be applied to Congressmen?  There is another article linked to from the Bloomberg article that says that the answer is "no." (of course the whole point of the article itself is that the answer is "no!"  Actually, let me talk for just a second about the claim that linked article makes:

"This Comment argues against prohibiting trading on political intelligence by outside actors  (lobbyists and hedge funds) because these actors are merely the Washington equivalents of market analysts, whose information gathering functions are perfectly legitimate, if not desirable."

Huh?  Market analysts?  No - they are getting material non-public information from policy makers!  Just like it's illegal to trade on this information when it comes from company insiders, it should be illegal to trade on this information when it comes from policy makers.

It seems impossible to me that one could make the argument that if Congress is holding confidential talks about a bailout of the big banks, that it should be legal for Congressmen to trade on that information - or even that it is legal!  As the article notes, "scholars differ whether existing law could be applied on Capitol Hill."

“This is an area in which the public is quite justifiably suspicious about dual standards,” says Representative Brian Baird, a Democrat from Washington state. 

Along with New York Democrat Louise Slaughter, Baird has been trying to apply insider trading law to Congress through the Stop Trading on Congressional Knowledge bill..."

...

"But when it comes to forbidding members of Congress from using access to secrets for financial enrichment, Slaughter and Baird have gotten nowhere on their bill. Now Baird’s retiring. 

He says Congress could solve the problem without a new law or a repeal of an old one. 

“It’s not that we have laws protecting us,” Baird says. “We don’t have laws applying it to us.” 

All it would take is a change in ethics rules, which now generally forbid conflicts of interest and using official influence for personal gain.

EDIT - how about this from the SEC's website:

"Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information." 

Examples of insider trading cases that have been brought by the SEC are cases against:

-Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;

-Government employees who learned of such information because of their employment by the government;"

I guess they are talking about something else other than policy makers?  Maybe, like, it's illegal for the Chairman of the FDA to short the stock of a drug company whose drug his administration is about to reject?

-KD