Archive for 2009

  • Best Paragraph of the Day
    , January 5th, 2009 at 11:16 am

    James Surowiecki on Wall Street con games:

    In David Mamet’s movie “House of Games,” the grifter played by Joe Mantegna explains to a former mark, “It’s called a confidence game. Why? Because you give me your confidence? No. Because I give you mine.” So the bankers gave us their confidence, in the form of mortgages and other forms of credit, and we gave them ours. This culture of credulity did plenty of damage to the economy, but now it has given way to something even more corrosive; namely, endemic mistrust. Because if there’s one thing worse than too much confidence it’s not enough. Fraud impoverishes a few; fear impoverishes the many. As long as mistrust prevails, people will keeping pulling money out of the system—sometimes even at gunpoint.

  • Renaissance Waives Fees
    , January 5th, 2009 at 10:45 am

    James Simons, the Grand Poobah of Renaissance Technologies, said he’s going to waive the fees on his futures fund which was down 12% last year, or as Simons called his performance, “less than stellar.”
    The break in fees for this year adds up to $30 million for his $3 billion futures fund. In light of Simons move, I’d also like to announce that I’m waiving all user fees for this blog due to the Buy List‘s less-than-stellar performance.
    Simons’ Medallion Fund, I should add, was up 80% last year.

  • The Frank Pentangeli Defense
    , January 5th, 2009 at 2:03 am

    Harry Markopolos won’t testify in front of Congress today due to illness. This is strangely similar to The Godfather Part 2.
    (H/T: Naked Shorts).

  • Down with Financial History
    , January 5th, 2009 at 1:36 am

    Paul Kedrosky has a very good post on the uselessness of financial history. I think he’s exactly right. Finance people tend to be very loose with historical comparisons. I’ll often hear that some situation is “eerily similar” to some year. I don’t buy it—all these historical scenarios are incredibly different. That’s also why I don’t buy the “madness of crowds” explanations about speculative bubbles (there’s another overrated book).
    Paul writes:

    I’m torn on the subject, but I’m also increasing skeptical of any and all comparisons to prior historical periods. I don’t buy trough P/E, or recession length, or relative valuation, or interest rate, or sectoral rotation arguments, or… you get the picture. I love data, but I’m increasingly close to being an outright nihilist when it comes to over-reliance on historical financial data without any truly coherent supporting rationale. We are in a grand experiment with no real history to draw on, and anyone who pretends otherwise is deluded or selling something, or both.

    My view is all these models and comparisons are useful fictions. To put it succinctly: Some are more useful than others. The danger is thinking they’re overly determinant. All comparisons need to be put in context, and context changes constantly. The more I study investing, the more I admire a truly independent mind.
    David Merkel has more.

  • Dubai, Do Sell
    , January 5th, 2009 at 1:14 am

    Paradise is going bust.

  • Lewis and Einhorn in the NYT
    , January 5th, 2009 at 1:09 am

    The must-read article from yesterday is Michael Lewis and David Einhorn’s two-parter (here and here) in the New York Times. For the most part, I think they describe the problems fairly well. My issue is that I’m not entirely satisfied when a highly complex issue is reduced to the long-term good being sacrificed for short-term gain. Whenever I hear problems put in a neat package like that, I’m suspicious. It’s like hearing that a problem is due to “a lack of communication.” Call me skeptical. The more I look at the credit mess, the more bewildering I find it.
    For proposed solutions, Lewis and Einhorn have some good ideas and some not-so-good ideas. For example, when firms get into trouble, let them fail. However, they don’t go all they way and instead suggest nationalizing a failed firm. Well, that’s not letting it fail. When I think of letting a company fail, I mean the real thing. I think the supposed “chaos of bankruptcy” is overrated. Going into bankruptcy protection is a very well-defined area of our legal system. Airlines can exist for a long time in Chapter fill-in-the-blank.
    The question I have is can the FDIC come up with a way to protect counter-party risk in a failed firm ala deposit insurance. Plus, an off-with-their-head strategy, as Lewis and Einhorn propose, could cause even more mischief from execs who have nothing left to lose.
    Lewis and Einhorn also suggest regulating credit-default swaps but they’re a little thin on the details. More specifically, there are no details.
    They also propose breaking up “any institution that becomes too big to fail.” Hmmm. Again, that’s a lot easier said than done. Particularly when you consider that firms often (though not always) become large through success. Therefore the government has to effectively punish success. I have some issues with that.

  • Ed Reed
    , January 4th, 2009 at 11:50 pm

    In today’s playoff game, Raven’s safety Ed Reed had two interceptions, including one he returned for 64 yards and a touchdown.

    What’s remarkable about Reed is his ability to return inceptions for big yardage. He has 43 career regular season inceptions, which ties him for 58th place all-time. For yardage, however, Reed has 1,144 yards which ranks him sixth all-time.

    In week 12 of this season, Reed returned a pick 107 yards for a touchdown to set an all-time record for the longest interception return in the history of the NFL. The previous record was 106 yards.

    Set by Ed Reed in four years ago.

  • Not Getting the Year Off on the Right Foot
    , January 2nd, 2009 at 1:14 pm

  • Madoff Statue Returned!
    , January 2nd, 2009 at 12:04 pm

    The thieves brought it back. And attached a note: “Bernie the Swindler, Lesson: Return Stolen Property to rightful owners. Signed by – The Educators.”

    The copper statue was reported stolen from Madoff’s $9.2 million mansion on Dec. 22 – about a week after the Wall Street money man was accused of scamming investors in a $50 billion Ponzi scheme.
    The statue does not appear to have any damage, and police are continuing to investigate the incident.
    Frick said he was not aware of the 2004 German movie The Edukators, in which anti-capitalist activists break into the homes of rich people, move furniture around and leave notes that say “the days of plenty are over.”
    The activists kidnap a rich businessman, have ideological discussions about money and politics, and then let him go, possibly teaching him a lesson on ethics and morality.
    “Interesting,” Frick said when told of the film.

  • What’s the Difference Between a Recession and a Depression?
    , January 2nd, 2009 at 11:16 am

    Hebert Hoover used the word “depression” instead of “panic” to describe the events of his administration. Since then, there’s been a battle to define what’s a recession and what’s a depression. Most seem to define a depression as a 10% drop in GDP. The Economist says that it’s “a decline in real GDP that exceeds 10%, or one that lasts more than three years.”

    America’s Great Depression qualifies on both counts, with GDP falling by around 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938. The Great Depression was America’s deepest economic slump (excluding those related to wars), but at 43 months it was not the longest: that dubious honour goes to the one in 1873-79, which lasted 65 months.
    Japan’s “lost decade” in the 1990s was not a depression, according to these criteria, because the largest peak-to-trough decline in real GDP was only 3.4%, over the two years to March 1999. Since the second world war, only one developed economy has suffered a drop in GDP of more than 10%: Finland’s contracted by 11% during the three years to 1993, mainly thanks to the collapse of the Soviet Union, then its biggest trading partner.
    Emerging economies, however, have been much more depression-prone. Among the 25 emerging economies covered each week in the back pages of The Economist, there have been no fewer than 13 instances in the past 30 years of a decline in real GDP of more than 10%. Argentina and Poland were afflicted twice. Indonesia, Malaysia and Thailand all suffered double-digit drops in output during the Asian crisis of 1997-98, and Russia’s GDP shrank by a shocking 45% between 1990 and 1998.
    The left-hand chart shows The Economist’s ranking of slumps in developed and emerging economies over the past century. It excludes those during wartime (both Germany and Japan, for example, saw output plunge by 50% or more after 1944). The depressions in Germany and France in the 1930s make it into the top 12, but not that in Britain, where GDP fell by a relatively modest 6%.

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