Treasury: Freezing Sins, Dispensing Hope

Jesus, at the behest of U.S. Treasury Gods, is coming to a town near you to save mortgages. Now if I have my theology correct, the appearance of Jesus is usually followed by all hell breaking loose on the remaining sinners of the world.

Perhaps that is why I am not particularly enthused by this effort by the government to keep the average overextended homeowner from being punished for their sins. Forgiving sins is a tricky business, and especially when the sinner class is reveling in victim mode, blaming everyone from pitched forked mortgage brokers to their nagging wives who just had to have that house over on Apple Lane. "Honey, the mortgage guy says we can't sit here waiting for Godot, we have to act!" says the wife.

Someone is going to get crucified and if the government is not using tax dollars for it's act of deity-like forgiveness, then you should be looking around to see who is going to be the counter-party.

If Jesus, (birthday coming up, by the way, shout out!) got stuck with the sins of you and me in retro-future physics defying fashion, and we have largely learned nothing from the act (sin being generally fun or at minimum, convenient), one can be sure that the home owners will learn very little at the expense of those who will be made to suffer.

And who is that counter-party, that Jesus returned?

Well that would be various Wall Street firms and other investors in mortgage backed securities. The N.Y. Times suggests they are balking at the plan, not entirely thrilled with taking the hit by being the invisible Jesus that saves and gets killed.

Granted it's not really death. It's taking a shave here, less interest there, a write down or two perhaps. We can be sure that in no time at all, like 3 days, or three years, (or five years) such firms will be reborn and live to provide happy profits years into the future for their respective shareholder believers. Meh bee.

In any case, the market seemed to take this coming of Christ with a certain amount of euphoria. This bailout, or freeze or whatever it is, combined with a possible Fed rate cut at the next meeting, had financial stocks levitating like the rapture was upon us.

Are they assuming that greater stability in the housing market should raise the value of mortgage assets on the books overall, and in a manner that supercedes any stalled or reduced payment flow? And are they assuming that people foolish enough to get themselves into a tight spot will use the extra latitude to change their behavior? Are they assuming there won't be lawsuits when the mortgage backed securities you bet yay or nay on get slain in the spirit of the Hope Now project?

I don't know. But the nature of man is, uhm, sinful and sinfully repetitive. Or as Dylan once said, "We do what's most convenient, and then repent".

We certainly don't know how these complicated situations will play out for stockholders. In our effort to grow our little pot (of money), we take each investment one month at a time, trying to get a general range of price movement for certain stocks over a 20 day period or so. With financials that is increasingly difficult, not knowing what is revealed, what is hidden, and what news will come out of nowhere to lift or tank the sector.

The only concrete thing we can gather from this recent news is that if Paulson met with Countrywide, among others involved in the process, there is probably little reason to assume immediate collapse of that company.

Machinations by Gods, saviors and sinners does not help our process.

SAC Capital, Completely Comfortably Wrong

In an obvious but entirely appropriate piece in the N.Y.Times on Tuesday, we are warned not to take advice from hedge funds, they being like strangers with hard bad candy, and we being like kids (gullible).

It seems all is not pure gold up there in the comfy comfy of Connecticut, where one hugely successful Steven runs SAC Capital in complete secretude. In the recent past, the desire for profits overwhelmed the desire for genteel invisibility, causing SAC to dance with Jana Partners in an attempt to encourage TD Ameritrade to explore financially fornicatory mergings with Etrade. Such drama, and the leprechauns in the woods raise their eyebrows.

Says the Times:

In their letters, they harshly criticized certain members of TD Ameritrade’s board as “self-serving” and having “glaring and untenable conflicts of interest.” And they suggested that E*Trade would be a relatively safe merger partner, in part because it “assumes only modest credit risk.”

In reading this, one wonders what a true credit risk might be, and whether SAC was really concerned about long term risk at all. Probably not.

Of course the accuracy of SAC's shortcut methods to wealth enhancement is not of real importance. They will probably earn their take, making up for this, with that. It is also easy for us to recognize self dealing and bad advice in hindsight. We all have our smarty pants on. NOW.

However, we can take discomfort in the notion that certain entities and special interests can apply inappropriate influence in order to obtain undeserved profit; a profit that can come at the expense of the companies in question and their shareholders.

If I am invested in a theoretical company, the last thing I want is some nun who owns one share appearing at the shareholders meeting telling the CEO how tofu makes for a better beef burger. Nor do I want any other special (and soon passing) interest to try to compel the company to do long term damage for short term gain.

That some Icon or Icahn of business can waltz in, throw down, collect, and then waltz out the back door is a trend that should not be allowed to continue no matter how much said parties pretend to be helping the company.

We, the leprechauns of the world, should take note and pay close attention. Who is saying what, and how do they stand to gain? Are they patient, or are they watching the clock, and stepping atop your head on their way to catch the money train back to the Comfy.

U.S.A. Today Obscures, We Ignore

Every year we can be sure that when it comes to Thanksgiving and Christmas, there will be a few articles in the major newspapers that seek to deflate the enthusiasm for the holiday at hand via deconstructon or re-evaluation. Meanings will be slighted, founders critiqued, motives questioned, and dates adjusted, all so that some not particularly relevant point can be made.

So if it is Christmas, you will be reading about those who are depressed, or flying to the Bahamas to escape the holiday. Christmas will be flattened into a bland holiday crepe sauced over with Kwanzaa, solstice and Diwali. Santa will be on hand, Jesus on hold.

If it is Easter, you will reading about Jesus being rediscovered as temple Al Sharpton, or father of ten, or various other divinity busting careers. The newspapers will help you to select the prettiest bonnet to wear when taking your child to Central Park to meet Jesus's understudy (that would be the Easter bunny), but hardly review the best church to hear the resurrection story retold.

And if it is Thanksgiving, you will be informed that you are feasting on dual holocaust days, for turkeys and Native Americans. (Which makes you wonder if we can eat at all, given the past African American experience of slavery 365 days a year, or the suffering of nearly every ethnicity at the hand of someone at every moment of world history).

But we are blessed with USA Today's efforts on Wednesday, and an attempt by a woman, whose name I will ignore, to propose that the first Thanksgiving had much to do with a Spanish explorer celebrating with Timcua Indians in St. Augustine Florida back on September 8th 1865.

This effort fits quite nicely with the modern day sleight of educational hand that has transformed a near religious moment of thanking God for providing, into one of thanking Native Americans for the act of being on hand with snacks and food advice. But then again, if one does not have a strong belief in God, or how he might use others to help you, then one probably cannot see beyond the people to thank the God that sent them.

The efforts in Florida take us further in the direction of obscuring the events of those who played the formative role in the founding of the nation.

So this holiday I am thankful for the USA Today, because now I have a place to put my plate of turkey without ruining my mom's table.

Revisions

Sometimes I wish I were paid for things nobody knew, and I would sit there, rich as Buffet, content as a fruit basket atop the head of a voluptuous woman (don't stop me when I am feeling literary), tsk-tsking like Solomon, and letting man's freewill and lack of judgement reign.

For example, nobody knew that when mortgage lenders or home buyers chose to lie or accidentally mistate qualifications for loans, thus increasing home ownership nationwide, that scores of companies would end up taking massive losses. Who knew that increased home ownership at astronomical pricing would become an inverse indicator of the success of certain financial firms?

We know that now.

Or take embryonic stem cells. Or maybe don't take them. The the recent, yet tentative, discovery (as reported in the N.Y. Times) that adding certain genes into skin cells reprograms them into embryonic stem cells--much to the delight of those concerned about using actual embryos--should point out the rewards of patience and due diligence. Who would have realized that we need not rush into creating massive medical farms filled with potential baby material redirected to curing the skin cancer of suburban moms? Did Bush know? Did those rushing to say that the death and diseases of those alive now are paramount above all other issues, did they know?

Well we seem to know a bit more now.

And in the same way that preventing death to the living was paramount to those in favor of any sort of stem cell solution, so too that mode of reasoning extended to views on Iraq. The mantra has been, "Bring them home, because they are dying".

I've oft imagined what some mothers in the southern states might have said come the Civil War's end. "Damn, we lost a lot of owa young'ins, 'n fer what? A bunch of "blacks" and Nowthen business interests. Lawd what a waste of beautiful lives."

Yet the news out of Iraq is changing, modifying, so that the facts are starting to sound louder and clearer than the ability of others to distort them. It becomes a surprise, and a problem, for some, when there is no fighting in Basra, in the western sands, in Kurdish regions, and now in Baghdad. Who could have imagined?

We are discovering now.

Such reversals ought to be enligtening. Often encouraging. At the point when we think we have it all figured out, and when everything has been done, with every bit of knowledge learned, every God rendered irrelevant, things unseen reveal themselves.

When Cheng Siwei Speaks, the Dollar Bindeezes

Today the market fell a whole bunch of 2.5%, or more, and you could pick your poison:

• Chinese officials making wise points about not putting your money (all 1.5 trillion of it) into depreciating assets (the dollar), while simultaneously selling us still more multipurpose toys (Bindeez) that you can either play with or comatize yourself.



• Various companies, from Washington Mutual to Morgan Stanley to General Motors announcing slightly massive losses, reaffirming a central thesis (as in, OUR central thesis) that the head of Merrill Lynch is owed a collective apology for not being uniquely incompetent, but well in line with the collective incompetence.



• Certain ambitious New York attorney generals deciding to put pressure on various financial firms for possible fraud in their evaluation and dispensation of loans to the masses (masses who, we might add, are all innocent, having had no hand in the massive body blow to our nation's financial posture).

Who knows really what makes enough people come to embrace their inner sense of "oh no!!" and realize that we are in an unpleasant confluence of events.

The more worrying factor is that people probably have not realized how iffy and topsy things can get. The last thing you really need, on the way to a financial meltdown, is the inability to do anything constructive, from a Federal Reserve action perspective. And yet, we are fast approaching that point.

If the dollar was stronger, and the United States was the only game in town, and it's not, and it's not... we might be able to be somewhat cavalier and contemplate more central bank liquidity drippings. The Fed could lower rates, and we could sit around and wait for everything to work itself out. Creating a comfort zone for financial firms might be the GED version of getting the economy to graduate to normal productivity, but it has been done before.

But we stand at the point now where the world is in competition, and where money not parked here, can be parked perfectly well in other places, like Euroland, in Europlaymoney. Other nations in Asia and the Middle East now have the types of pools of capital worthy of preservation and active management.

Which is to say, while we don't necessarily need their money (aside from its handiness in proping up our government budget, staving off complete collapse, and us all taking to the fields to eat grass for dinner), they are fast hitting the point where they don't need our money or investments, and that is new, and not entirely helpful given our nation's budget contraints and debt binges.

Prince of the Citi Falls, Analysts "Rethink"

Well it took awhile, but the collective wisdom has finally turned its attention away from the Stanley O'Neal crucification process. Other companies are starting to do last-acknowledge losses and reprice portfolios- what Merrill and its CEO did first.

One was beginning to wonder about people's internals, as though isolating O'Neal as the worst CEO in the universe might somehow protect them from the fact that nearly everyone messed up, miscalculated, or mispriced, and that a blizzard of economic craziness is on its way.

This week we are graced with the retirement of one Charles Prince, who peeped not a peep while O' Neal was tarred blacker than black for having created Merrill's quarterly loss of about $2.5 billion. Now Citi has come forward, estimating writedowns and losses that match or exceed Merrill's, to date. Somewhere someone is doing a happy dance, while tossing $160 million dollars in the air, misery loving company.

Today the Wall Street Journal in their "Heard on the Street" column suggests that analysts are now coming to the conclusion that Merrill's write downs were not such an anomally after all. No kidding.

So now it's not O'Neal singular wrongness, it's the pricing models? He can come out of the corner with the dunce cap on, or, at least, be joined in that corner by a broad swathe of the financial industry as the days and weeks pass.

Cayne and O'Neal, Smoke and Mirrors

If one is not a rather deliberate optimist, of late it is rather hard to see that the sky is not fallen under foot. Chrysler is laying off thousands for somewhat unrelated reasons to the multitude of other firms laying off for mortgage related miscalculations. Of course, the way these things fall out, it is so easy to deride Stanley O' Neal, the former head of Merrill Lynch, for his one quarter of possibly understated losses, than it is to knock the years and years of mismanagement and mismanagers of the airline and car industries, or even others in the financial industry.

Stan is held up for a particular type of beating, namely because he let the firm drift into highly risky methods of making money while at the same time failing to be appropriately clubby with his underlings. One usually does not like to factor race into the ridicule, and when you have written down $8 billion, and with possibly more losses to follow, it's easy to leap to levels of anger not quite appropriate to Merrill's 3rd quarter loss of $2.5 billion or so. One might think, from the outcry, that Merrill has been unprofitable for the year thus far, or for the length of O'Neal's reign. One might also think that the head's of Citibank, Countrywide Financial, and Bear Stearns were never born.

One can read around and see the suggestions that O' Neal should not be allowed to depart with his stock grants intact, that he should somehow forfeit past pay, though all those investors in and out of the stock- the little people now complaining- invariably gained. Indeed, as of now, the stock remains above where it was when he first took charge.

But the comments have been withering, with those who know better in the industry applying a gleeful smirk to their criticism. Those less informed, the average individual, inclined to dislike the massive payouts of Wall Street to begin with, and without the knowledge of why Wall Street is even necessary or how much financial firms grease the economy, are quick to say that O'Neal is akin to Enron's Skilling and should have his pay revoked by government action. People, generally, being mentally hyperbolic and economically retarded, cannot tell the difference between legitimate business risk and outright fraud and are fully willing to judge a person's entire career via a snapshot of activity, or... by color of skin.

There are the veiled comments that suggest that nobody should be surprised at the loss, given affirmative action, and O'Neal's race, and this despite the evidence that the entire financial world was on its bum in the 3rd quarter of this year. If you disqualify O'Neal based on 3rd quarter results, you must logicially disqualify all the profits as well, and from every period, as the methods that created profits were largely the same.

Nobody blinks too much of an eye when the CEO of Bear Stearns, James Cayne, is portrayed by the Wall Street Journal (on Thursday in an article by Kate Kelly ) as being an avid pot user who found it easy to be down south playing in bridge tourneys as the firm went through its contortions rooking investors inside its two collapsed funds now under government investigation. Or that one of the two funds was so highly leveraged, that it in fact probably impacted other firms (like Merrill Lynch) as their values dropped to zero.

And even in an article that purports to critique Cayne's running of Bear, it is chock full of enough ego floating characterizations that one could, if Cayne, walk away thinking, "Yea baby, I'm a tough talking, weed smoking, chick getting, Mother Merrill F***ker" (as one can question whether the assets Merrill seized for debts owed could be offloaded at sufficient value).

That's how it goes. Stan takes the hit, and the new CEO, when someone has the courage to step up, will take the glory as assets are eventually revalued (upwards) or all the errors are corrected. Obviously Merrill was hitting on all cylinders in most of its businesses, and in previous years, but people have memories that are locked on the present.

They also have minds that are fixed on O'Neal, when in fact, there is every indication that a bunch of financial firms are scrambling to mask, delay, and otherwise ghost away potential losses on assets that should probably be accounted for in more obvious fashion. But why focus on the forest when one tree is so interesting.

Nor will anyone currently castigating O'Neal lower the bar a bit, and hold the mirror to masses. One could argue that we are in the state we are in NOT because money was easy, or because Wall Street miscalculated how to value CDO's, but rather, because the average man on the street was far too greedy, and when handed the opportunity to buy a home beyond their means, grabbed the bull by the horns with all their might and gored themselves.

Of course, when you read the sad sack homeowner profiles in USA Today or your local paper, all the suffering homeowners, in over their heads and struggling to pay, claim personal ignorance and fraud on the part of their mortgage lenders. Apparently the ability to know your means, your income, and your monthly payment capabilities escaped the masses like a plague in reverse.

O'Neal will survive, and find something to do in eighteen months or so when his non-compete clause runs out. He was allowed to retire (fired) in part for approaching Wachovia for some kind of merger deal, among other options presented to the board. Cayne hopped his plane to China to exchange capital with a foreign firm via billion dollar mutual investments. Cayne will likely continue on, talking tough, telling folks to "Keep your Irish Down", as he calmly nagivates Bear Stearns next disaster from the comfort of his smoke filled bridge table. But let's hope not.