Not tongue in cheek, either:
Understanding the conservative movement is like analyzing the Hapsburgs.
-Andrew Sullivan
I couldn't quite believe my ears this morning, when I heard the new ad from Maggie Gallagher's Catholic Comedy-Tragedy Central.
I'm not one to underestimate the blowback to the decisions in Iowa, Vermont, and Sweden. Heck, I was even going to send flowers and ginger cookies to Stanley Kurtz, in honor of the last one. The poor dear. Events just aren't following his script of decline and dissolution, are they?
Nevertheless, the range of their creativity constantly shocks. Apparently, there is something called Christian medicine and it is in danger in California.
Andrew Sullivan has the backstory and video.
Separately, it will be springtime soon, and maybe this assault on happy couples may fall flat:
Iowa. Now 100 reasons to love Vermont even more. What's the matter with California?
Treulich gefuhrt [long (very long), but it's Wagner, so what did you expect?]
What did he know and when did he know it? I'm serious. The guy wasn't confirmed to be a chessboard placeholder for the G.O.P. He was Attorney General of the United States.
Meanwhile, AS has this:
DOWNWIND OF THE DISH
Shouldn't a minister try not to break one live on CNN? - Andrew Sullivan
The "Axis of Evil" is at it, again.
"The launch today of a Taepodong-2 missile was a clear violation of United Nations Security Council Resolution 1718, which expressly prohibits North Korea from conducting ballistic missile-related activities of any kind," Obama said in a statement.
By opening its matryoshka, Glenn Greenwald is finding out what a small place Wall Street is.
I couldn't agree more that a more serious going investigation ought to be conducted. If that is frustrated by those in high places, it's a huge dysfunction.
As for traded CDS and their associated structured products, in particular, it does seem, even at this late date, that we have yet to come to a collective conclusion about whether these particular derivatives belong in a special category of risk(s), even among types of derivative instruments.
Still, before lamenting a lack of regulation, Glenn could spend some time thinking about what regulation he'd like to see and why. It makes a difference. It requires understanding what went wrong, on a case-by-case basis most likely, and thinking about how regulators could fix it.
For example, what firm are we talking about with this quote from the article he references?When housing prices crashed, the loans also went south, and the massive debt obligations in the derivatives contracts wiped out banks unable to cover them.
I could be wrong, but I seriously doubt it was derivatives, over-the-counter (OTC) or otherwise, that toppled the great Seattle bank (WaMU) or even Wachovia. Even the problems that drown Countrywide, Angelo Mozillo's dreamcart, were not related to OTC derivatives.
The failure to regulate probably most directly relates to the case of AIG, who reportedly set-up their infamous Financial Products division in a way to dodge what regulation there was. I should look it up, but I think they ended up directly under the Office of Thrift Supervision. That's right. What became a huge, complex, derivatives operation was quite possibly classified as a "Thrift" in U.S. law ...
Could the same risk in the case of AIG have been any collection of unregulated hedge funds? Conceptually, yes: a bunch of unregulated (non-reporting, slimly capitalized) entities with systemically important one-way bets. Practically, it's not quite as likely as that, because AIG had a 'AAA' rating, which it used to engage in the type of "regulatory arbitrage" business, helping out European banks by insuring debt instruments that wouldn't qualify without an added guarantee. You could make the case that a savvy regulator might have disallowed credit guarantees for that purpose ... but that's a different Oprah. It's worth noting that such a savvy regulator might NOT have "saved" AIG, who somehow concurrently bet the firm on a traditionally dreary business called 'securities lending'...
The general (indirect) failure to regulate probably relates to regulatory risk reporting, akin to the call reports that are filed by bank holding companies. Something like the lopsided risks that AIG was running might have appeared on even the most basic of aggregate position reporting.It's not clear whether regulation would have helped, because the CDS market appears to have grown in ways that proved problematic to it.It's not clear whether regulation would have helped, because the CDS market appears to have grown in ways that proved problematic to it. The paperwork supporting the books grew and grew. When a crisis hit, a crisis like Lehman in which losses were suddenly larger than priced/anticipated, it appears that few had an immediate grasp of what all their counter-party risks were, exactly, and how to get out, go in reverse, cancel-correct. A temporary "shut down" appears to have occured, while everyone sorted that out, to some unknown degree, against the backdrop of heightened perceptions of settlement risks, to boot.
A really forward-looking regulatory scheme might have forestalled that kind of shut-down. It's doubtful that the schema proposed by the CFTC in 1996 would have been that insightful. As it was, demands for collateral proved to be a systemic vasoconstrictor, including a Repo-market lock-up. No regulation probably could have stopped a general deleveraging (intense among hedge funds), and the dry-up of financing for arbitraging inefficiencies created by a massive one-way dash for protection.
The long history of fighting regulation of the OTC market is not entirely sordid, in the sense that many of the dire predictions of OTC disaster, going back to the early 90s, never materialized. What's more, the patchwork of global regulatory schemes have always created the additional, vexing pitfall of "havens", making the role of the Chief Regulator like fighting a Hydra. It's not quite as bad for 'traditional banks', but still.
One could make a strong case that the *real* problems of the past have been with the Corporate Office that does not understand the products that they are selling, even at basic levels. This is a failure to elevate the right kind of management, not of the OTC market, per se. It's hard to tell whether passing "product approval" to regulators, who may be similarly challenged (or paid off by lobbyists), is an obvious public good. Still, one should be open to the possibility that credit products / guarantees may be the exception to the rule ...Beyond managment's ability to understand the individual risks, did Glenn ever have a look at the staggering amount of collective real-estate debt on the balance sheet of global warship, Merrill Lynch, as it headed for the rocks, spraying its pirate masters with multi-million dollar payouts until the very end? Beyond managment's ability to understand the individual risks, did Glenn ever have a look at the staggering amount of collective real-estate debt on the balance sheet of global warship, Merrill Lynch, as it headed for the rocks, spraying its pirate masters with multi-million dollar payouts until the very end? How is THAT related to OTC derivatives? Technically, it is, to the extent that they wrote liquidity puts (including the implicit ones) that forced them to suck back stuff they had sold or set-up SPVs that they had to take back on balance sheet, because they "failed". But, in the bigger picture, in that context of prudently managing the risks of the firm, those are not the 'causes', just the mechanisms by which disaster was invited, right?
From a regulatory point of view, many of those problems relate to having accounting rules and enforceable capital requirements that are adequate to the risks being run and that do not distort the marketplace. As for just bad management, that relates to the ability of 'the system' to avoid too big to fail. Even big, diversified firms can go awry enough to hit the skids.
Last, those interested in yet another layer of perspective, read about the case of Conseco & Green Tree Financial, the Connecticut firm that went bankrupt, before "sub-prime" was anything but a technical term among loan professionals. David Brooks thinks its more about stupidity than about greed or that otherwise clever managements were duped by their own cleverness or by traders? What a belly laugh.
Overheard on CNN:
"[the Binghamton shooter] ... apparently frustrated over not being able to master the language of English."
Pause and think about that sentence.
U.S. SET TO BECOME VICTIM OF EVENTS IN MID-EAST, SHORTLY
Andrew has been doing work keep the ganja from the mideast flowing on his blog.
For instance, Yep: He means it
What I haven't seen seriously discussed is what an Israel attack will do within the region.
Iran might retaliate through Iraq, at least in the short term. That could pin U.S. forces down there for ... a generation and threaten the regional collapse that everyone thought had been avoided so far. (Hey, I made the case for a "precipitous" withdrawal, but that's not the Washington consensus ...).
The quite obvious bottomline is that the current Israeli government cannot stomach an Iranian bomb. This makes them easy for the Iranians to manipulate.
Soon, we may well see a Krauthammer piece outlining how much of a non-event it will be to bomb Iran, downplaying the aftermath. Followed by FOX et. al. beating the war-drums in similar fashion.
Meanwhile, the Palestinians ... have no downside to non-cooperation, so their situation goes on. Their talks in Cairo to "unite" have broken down, for now.
I wonder what the history is of all the Democrats ever lining up on a budget quite like the GOP's members did this week.
I honestly don't know, but it sure makes it look easy to be a Republican. I mean, you'd expect some diversity of opinion in a caucus their size, right?
I'LL TAKE PETER FOR $1,000, ALEX
Geithner has all the spotlight the past two weeks, but Peter Orzag is really the unsung hero, so far.
Here is a quiet competence on the CBO's revisions, last week.
There is just something incredibly infectious about Joe's uncontrollable laughter. It's like a classic scene from Faulty Towers or something.
No need to watch beyond half-way point.
I just have to laugh at those elite Conservatives who think liberals are just balls of mindless emotion.
THERE AND BACK AGAIN
See, if you step back, you see why it is possible to "over-interpret" stock market moves.
During February, the outlook worsened, based on a few housing market indicators. During March, the outlook didn't improve, but the acceleration to the downside stopped.
In the stock market, that was worth a huge sum. Shows how risky things are, right now. We just had a big round-trip past a new precipice, that's all.
Meanwhile, here is a chart comparing where we are vis-a-vis the Japan real-estate bubble cycle (Nikkei all-time high, Dec-89, US stock high, Oct-07). Either it has a wealth of information or it means nothing ...:
Allegedly, AIG is getting its faced ripped off as it seeks to unwind its risk.
To be honest, AIG's economic motivation for these unwinds remains unclear (to me). The number of corporate downgrades has continued apace in 1Q09, so it is entirely possible that they are/were still losing money, despite everything. They may have, at last, decided to throw-in-the-towel at any price, or something... Qien sabe?
After the third restructuring of their rescue, I kinda figured that any "hits" would work through the income statements in 4Q08, especially for Goldman, who were alleged to be one very key counterparty-risk in all the Paulson-Blankfein conspiracy theories (and floor rumors during the week of AIG's first botched rescue attempt). Nothing obvious did come through (I thought).
Now, I'm not sure which books are unwinding, IF the above account has merit.
Vexing problem #59841:
You've just ripped the face of AIG with a massive trade that, not only books a profit at the time of the trade, but will likely be highly profitable to the firm over the upcoming year. Do you have a "right" to a massive bonus?
That's the Obama enigma: boldness wrapped in caution rooted in an ambivalent relationship to the status quo. This is why Obama will, by turns, challenge not only his entrenched adversaries but also his natural allies.-E.J. DionneI can't tell you how fast this "boldness" is going to unravel if it is wrong, given how team Obama have played their hand out publicly.
WHEN TRADERS MAKE NOISE
Did you hear Cramer today? Last fall, he said that TARP had taken "great depression two" off the table. Then, he started advising people to buy Obama-proof stocks and talking about a "garden variety depression" (gasp!). Today? Well, apparently the depression is 'over'.
One wonders if he has ever held a position longer than 30 days. Not that one shouldn't be nimble or willing to change their mind, but ... seriously, Jim?
If you want a preview picture of what the hardline, GOP, retrograde rant will look like, eventually, catch up with how Larry "The Screaming Reaganite" Kudlow sounded today: monetary policy did it all, everything else was not pro-growth.
FASB'S SPRING HAT FANTABULISM
Managements, especially bank managements, will decide when to realize losses that the market has already recognized, if it is judged that the transactions that formed the 'market' were fire-sale, i.e. not "orderly on the weight of the evidence".
This puts a LOT of say-so into Bank hands. On the other hand, it does remove a mechanism in which market pessimism can become self-reinforcing, by dragging down bank asset quality as 'measured' by markets charging huge liquidity premia... (a reason why stocks likely rose, today).
It does appear that banks will have to disclose their valuation assumptions. We'll see how comprehensive those disclosures are.
The cash flows will be the cash flows. FASB's rulemaking, of course, doesn't do anything to alter that simple truth for all, including legacy assets.
If commercial real-estate loans or private-equity loans go bad, so that they are no longer on accrual-basis, flipping this switch isn't really relief of any kind. For spikes in defaults in pooled securities or collateralized securities, this change has the effect of merely pushing the realization of losses down the road.
Pushing losses down the road (while talking up prospects) is a reason why today's bank stock prices would rise and a reason for those trying to write a policy script for recovery to be afraid, because the timing is now expanded, the pain-to-be-taken rendered chronic, not acute....
The idea that bank capital is 'protected', even in the short term, is an illusion (bank control is what is protected, arguably). The reality is that stronger institutions will 'mark down' as quickly as possible, under normal circumstances, putting pressure on the weaker ones.
Who ever said that accounting wasn't fashionably exciting?
UNLIKE DAVOS, THE SPECIAL OLYMPICS OF WORLD FINANCE
The scope of these summits is sometimes breathtaking.
The communique continues the theme that there is going to be a new category of firm, one for 'systemically important'. I'm not sure at all how that is going to stick. We'll see.
China gets its structural trade advantages 'codified' for another 12 months. Everyone is 'hands off' trade, even the stuff that is long overdue to be scrutinized.
Credit rating agencies will be regulated.
What are they going to do? Waive fingers at them, periodically? I mean, if they didn't go out of business, if the franchise didn't collapse after it was compromised at the core, what gives with 'regulation'?
[trivia: what board of directors now has the former President of a major ratings agency?]
