Quoting the Crisis

11/12/2009

“ So the old system of inefficient bureaucracies and artificially high prices has basically been completely protected. What we’re left figuring out is exactly how to pay for a hugely expensive new program without taking significant money out of the pockets of these industries. The other challenge for the Obama administration is how to unite Congress enough to pass this gigantic new venture that really doesn’t achieve much, and the strategy there is turning out to be just what you’d expect: rather than pushing a single cohesive plan that makes sense in the long term, party leaders are putting forward a confused mish-mash of non-plans and trying to buy off the various segments of the Congress with pork and other forms of bribery as a means of solving the extremely short-term problem of how to pass this bill in time for the 2010 elections. „

Matt Taibbi (via azspot)

Quote posted at 14:57

“ Too many wrongly characterize the debate as “security versus privacy.” The real choice is liberty versus control. Tyranny, whether it arises under threat of foreign physical attack or under constant domestic authoritative scrutiny, is still tyranny. Liberty requires security without intrusion, security plus privacy. Widespread police surveillance is the very definition of a police state. And that’s why we should champion privacy even when we have nothing to hide. „

Bruce Schneier’s reaction to Eric Schmidt (via foomandoonian) (via idiosyncratic-routine)

Quote posted at 12:53

10/12/2009

“ A future in which privacy would face constant assault was so alien to the framers of the Constitution that it never occurred to them to call out privacy as an explicit right. Privacy was inherent to the nobility of their being and their cause. Of course being watched in your own home was unreasonable. Watching at all was an act so unseemly as to be inconceivable among gentlemen in their day. You watched convicted criminals, not free citizens. You ruled your own home. It’s intrinsic to the concept of liberty. For if we are observed in all matters, we are constantly under threat of correction, judgment, criticism, even plagiarism of our own uniqueness. We become children, fettered under watchful eyes, constantly fearful that — either now or in the uncertain future — patterns we leave behind will be brought back to implicate us, by whatever authority has now become focused upon our once-private and innocent acts. We lose our individuality, because everything we do is observable and recordable. „

Bruce Schneier (via azspot)

Quote posted at 16:52

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The Anti-Counterfeiting Trade Agreement (ACTA) is a broad intergovernmental agreement under negotiation ranging from the key social issue of access to medicine to criminal Internet regulation. We fear it could seriously hinder European innovation in the digital single market while undermining fundamental rights and democracy at large.

The negotiation process itself raises important questions of transparency and due democratic process, given that the content of the draft agreement has been kept secret for more than 18 months, although some details about the proposals recently leaked to the public. More worrying still, while the European Parliament has been denied access to the documents, US industry has been granted access to them, albeit only after signing non-disclosure agreements.

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Beginning of the open letter signed by a worldwide coalition of Non-Governmental Organizations, consumer unions, and online service providers associations, in ACTA: A Global Threat to Freedoms (Open Letter) | La Quadrature du Net

Quote posted at 14:51

04/12/2009

“ The smart people of the world are no longer using their knowledge to improve the human condition. Now they spend their days trying to figure out how to more efficiently move money in circles while skimming some off the top as it slides through their hands. „

Jerry Pournelle, in a TWIT podcast quoted in The Bob - The Money is Moving in Circles

Quote posted at 18:22

“ One of the ongoing complexities of security analysis is that you can never satisfactorily determine where you are in a cycle. How long might a bull or bear market last? Had you avoided the upward frenzy of 1929 and miss the great crash only to jump into the market in early 1930, the pain you would have felt by 1933 would hardly have been different from the agony of those who invested at the 1929 peak. We will not be certain until much later whether the so-called bargains of January, 2008 were truly undervalued or merely dangerous temptations to value-starved investors. „

Distressed Debt Investing: Wisdom from Seth Klarman - Part 6 (via nonolet)

Of course, it used to be easier to invest when you could simply make a value judgement instead of wondering when a massive, leveraged investor like GS or Paulson or Galleon was coming along to be a “contrarian” and crush sound investing with pure “I’m bigger than you” speculative power or insider shit. Nowadays it’s not enough to just price a security to risk, you have to price in the participation of leviathans.

(via unsolicitedanalysis) (via nonolet)

Quote posted at 16:21

03/12/2009

“ Whatever place the ‘credit crunch’ eventually finds in economic history, one certain victim of the crisis has been free market economics. It is impossible any more to hold that economies will prosper only if markets are freed from political bondage. Attacks on the economists by politicians and journalists have become commonplace. Even the Queen of England asked publicly why none of them saw it all coming. The ideological hegemony of mainstream economics, especially since the 1980s, has been holed below the water. This is not to say that the free marketers have been silenced, but public acceptance of the notion that the economy is social, institutional and in need of political guidance is now commonplace. And Karl Marx, after being sidelined for decades, is once again a best-seller in Germany. All of this suggests to me that the crash has opened up a new terrain for thinking about anthropology, economics and history. „

Professor Keith Hart, in Angry Bear: Cross-post: A human economy for the twenty-first century

Quote posted at 20:50

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Out-of-the-money options: The payoffs to high-risk lending can be replicated using an alternative strategy of writing deep out-of-the-money options. This can be achieved, for example, by selling protection in the CDS market. The writer of that protection receives an insurance premium and thus a steady source of income ingood states of the world. Because of that, this strategy appears to generate “alpha” – excess returns – during the good times.

In fact, this strategy is a wolf wrapped in sheep’s clothing; it is beta dressed up as alpha. In the event of a bad state of the world – default by the reference entity in a CDS context – the writers of the insurance suffer a significantly negative payoff, eliminating the apparent alpha earned in good states (Figure 3). This was, in effect, the AIG strategy. AIG is believed to have written around $1.0 trillion of CDS protection. This strategy delivered large apparent “alpha” returns during the disco years. But when the music ceased and true beta was revealed, AIG required state support of around $180bn.

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Andrew G Haldane, Executive Director, Financial Stability, Bank of England, and Piergiorgio Alessandri in Banking on the State (PDF)

Quote posted at 18:48

“ I should have assumed that Wall Street’s tendency toward reckless myopia – ingrained over the past decade – would return at the first sign of even temporary stability. The eagerness of investors to chase prevailing trends, and their unwillingness to concern themselves with predictable longer-term risks, drove a successive series of speculative advances and crashes during the past decade – the dot-com bubble, the tech bubble, the mortgage bubble, the private-equity bubble, and the commodities bubble. And here we are again. „

John Hussman on Reckless Myopia

Quote posted at 16:48

“ Has it really come to this? Imagine what emotions must be billowing through the halls of Goldman Sachs to provoke the firm into an apology. Talk that Goldman bankers might have armed themselves in self-defense would sound ludicrous, were it not so apt a metaphor for the way that the most successful people on Wall Street have become a target for public rage. „

Arming Goldman With Pistols Against Public: Alice Schroeder - Bloomberg.com

Quote posted at 10:35

02/12/2009

» Anatomy of a Government-Abetted Fraud: Why Indymac/OneWest Always Forecloses

crazynutjob:

That is a sweet deal. The loss-share agreement OneWest entered into with the FDIC pays out better on foreclosures than for mods. Left Hand, I’d like to introduce you to Right Hand. You two should probably coordinate a little better.

Link posted at 21:09

“

Goldman questioned PriceWaterhouse, Goldman’s and AIG’s common auditor, about prices. Goldman wanted lower prices, which meant that AIG would have to produce more collateral. When AIG was downgraded in September 2008, AIG was required to put up an aggregate amount of $14.5 billion in additional collateral to equal the full difference between original prices and market prices. But “market prices” in this illiquid market were influenced by Goldman Sachs.
Goldman was right to question the prices, make calls for collateral, and protect itself.

Goldman’s activity was not the same as that of an arsonist buying fire insurance, but its trading activities with AIG and others were accelerants of AIG’s problems.

„

Janet Takavoli in Goldman’s Undisclosed Role in AIG’s Distress

Quote posted at 17:07

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Congress is now debating a financial reform bill that is supposed to prevent this sort of disaster from ever happening again. Leaders in Congress are promising us tough measures that will put an end to “too big to fail” institutions and the other implicit and explicit subsidies that allow the Wall Street crew to get incredibly wealthy at our expense.

It’s still an open question as to whether this reform effort will just be a pointless source of greenhouse gas emissions. If the goal were to fix the financial system, then the process would not be difficult. But the halls of Congress are infested with financial industry lobbyists. As a result, the bills being put forward are written like the adjustable rate subprime mortgages that helped get us into this mess. The wording often leads to bills that do the exact opposite of the stated meaning.

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Vampire banks rise again | Dean Baker | Comment is free | guardian.co.uk

Quote posted at 15:06

“ To review the bidding to date: there is a consensus among economists and white-collar criminologists (and senior regulators that have successfully resolved prior crises such as William Seidman, Edwin Gray, and Paul Volcker) that failing banks should be placed promptly into receivership if they cannot recapitalize. So the fundamental question, even if the PCA law was never passed, is what can the nation do to end the disastrous Paulson/Geithner policy of covering up the largest banks’ losses and leaving the CEOs and senior officers that caused their failures, often through fraud, in power? How many of those of us that voted for Mr. Obama believed that they were voting for a continuation of Bush’s failed financial regulatory policies? Given the terrible cost to taxpayers during the early years of the S&L debacle of “forbearance” for failed S&Ls, the horrific failure of Japan’s embrace of the cover up of its bank losses, and the great success of the vigorous reregulation of the S&L industry why would we adopt the failed strategy instead of the proven success? The way we reregulated the S&L industry was not simply an economic success, it was vital to restoring at least some integrity. We insisted on honest accounting, used prompt receiverships, and rooted out the control frauds. This led to over 1000 felony convictions related to the debacle – the greatest criminal justice success in history against elite white-collar criminals. „

William K. Black in Bill Moyers Journal: William K. Black on The Prompt Corrective Action Law

Quote posted at 13:02

01/12/2009

“

Mr. van Praag states “Starting in the mid-90s, we bought credit default swaps from AIG to protect our firm from the risk of a decline in the value of risk we had assumed on behalf some of our clients, (i.e. assets to which we had exposure).” Near the end of his email he again mentions “CDOs from our clients” (emphasis added).

His email never once mentions that the problematic CDOs requiring collateral calls from A.I.G. that precipitated its liquidity problems, the one’s referenced in the report, seem to be chiefly 2004/5/6 vintage CDOs. Goldman underwrote the Abacus CDOs on its own list, and Goldman also underwrote CDOs that featured prominently and in large portion on the lists of French Banks SocGen and Calyon as well as Bank of Montreal and Wachovia that also hedged this risk using CDSs with AIG.

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Janet Tavakoli: Goldman Sachs Responds To The New York Times

Quote posted at 21:08