Dubious Hedge Fund Closing Theories with CNBC's John Carney

Oy vey. A piece by CNBC Senior Editor John Carney in The Christian Science Monitor manages to make the absurd argument that regulation is forcing hedge funds to operate in a manner that increases systemic risk. The suggestion is that there is a mad dash to dump outside investors to avoid regulatory oversight by the SEC.

Does bad journalism rife with political propaganda never cease?

Based on a sample of three large hedge funds closing to outside investors (non family), Carney manufactures a trend and  leaps to conclusions that are not justified by fact.

Years of concern about giant pools of investment capital that were said to be under-regulated and under-taxed concluded in Dodd-Frank’s hedge fund regulation requirements and gave rise to new plans to end capital gains treatment for the profits of hedge fund managers.

But instead of kneeling down before the regulators and the tax collectors, some of the largest hedge funds are avoiding the regulation by shutting themselves off to outside investors

First, we had Stanley Druckenmiller who shuttered his $12 billion Duquesne Capital Management hedge fund just a month after the passage of Dodd-Frank. Druckenmiller cited his inability to meet his own performance expectations and the personal toll of working as a fund manager, rather than Dodd-Frank. But between 30 percent and 40 percent of the funds assets belonged to Druckenmiller or his associates, and he continues to manage that money. The fund didn’t shut down so much as go private—and escape the grasp of regulators.

(Christian Science Monitor)

In the case of all three of the funds--run by an 80 plus year old Soros, an aging Carl Ichan and a retiring Drukenmiller--he clearly ignores the stated reasons given to their investor,s in order to go with a manufactured reason off the top of his ideological head.

The regulation in question requires that hedge funds with assets over $100 million register with the SEC, unless it's personal money being managed. In a time when the number of new hedge funds is still proliferating, and where nearly every major fund depends on money from outside investors save for a few highly profitable and long running funds, it's ridiculous to assert that legislation is having any discernible impact at all. (We won't even count the thousands of funds that voluntarily already register).

But what we are seeing frequently in the business press is journalists with an opinion or ideology constructing thought pieces to fit with their.

Carney goes on to suggest that this is a method of closing to outside money is in response to a theoretical possibility that Obama might end the carried interest exemption, where a manager's portion of capital gains from the funds of others is taxed at capital gains rate instead of as income. Under this logic, a manager would give up all the income from management fees and capital gains on vast portions of money in the billions, in order to avoid paying slightly more taxes.

It's the argument here from people who say,"Well if my income doubled I would have all those extra taxes to pay and that would be awful." Uhm, yea, but bottom dollar, more money in your pocket right? Right?

Nobody is going to shut down a hedge fund or turn away investors to avoid regulation or paying more in taxes.

Correlation, Causation, Confusion: Obama's Bane

Correlations. Miscorrelations. The central problem that the Obama administration has had to deal with is the average person's inability to line up events in proper order and correctly deal with correlation and causation.

The glaring example of this is the general assumption by the President's least informed (or most stubborn) critics that our current economic crisis has been caused by Obama's policies. He is frequently taunted as the destroyer of the American economic system; his motives are alternately accidental because he is an empty suited, affirmative action moron, or deliberate because he is diabolically evil, and because, well, he is a socialist. (His oppositional stance to conservative economic theory of tax reduction alone correlating, naturally, with a support for socialism). We won't comment on who really is suffering from a type of oppositional defiant disorder (you publicans in the House know who you are).

Even something so simple as an unemployment number is subject to confusion. George Bush began with unemployment at 4.2%, and in his last year in office (2008), we saw that rate jump from 5% to 7.3%.  2008 was a calamitous year and conservatives go through all sorts of contortions to absolve themselves of any responsibility for those problems. Where convenient, they will give credit to their own president, and where inconvenient, they will point out that, "well, during this period to that period," like 2006-2008, their man was hampered by Democrat majorities in the Congress. This allows all dogs to go to heaven, except Democratic ones, who carry all the blame, all the time, no matter who controls the presidency.

In any case, and on Bush's watch, unemployment went from 4.2% to 7.3%, a 3.1 point rise. Contrast this with rates under Obama. In January of 2009, unemployment stood at 7.8%, rose on momentum (that began in the previous year) to a peak of 10.1% in October 2009, only to drift downward to settle at 9.2% as of now. The Obama increase is 1.4 points and even that number is arguable, since his first six months or so would not likely reflect the results of any of his economic actions.

Do people realize this? Of course not. They correlate the rise in unemployment solely with the rise of Obama, and mostly because it's what they want to believe. If they chose to really reflect on the numbers, or when events occurred and how, they might also have to reflect on why they have such a hostility to Obama. But because high unemployment correlates (in concurrency fashion) with Obama as president, they are happy to run with this notion, despite the fact that the cause of the high unemployment was obviously triggered by events much earlier; the huge spike in unemployment rates in 2008 indicate that obvious point.

Nor do people give causal credit for actions that Obama actively took, as in stimulus. That $787 billion package was passed by Congress in 2009, and signed by Obama on February 17th of that year. Fully $288 billion of that package went to tax relief (see Wikipedia). Another $330 billion or so went toward education, aid to the states and unemployed, to Medicaid and veterans.

Despite the claims that the stimulus did not work, we eventually saw a reverse in the unemployment rate. In most cases the average anti-Obama enthusiast is not connecting the dots between stimulus and decreases in unemployment, because they are too busy trying to set up false correlations between Obama and other dubious factoids. (Those would include, "Obama is weak on terror" though we don't hear that one so often now, Osama being dead and Obama clearly no dove).

The way it works now, anything bad correlates with Obama, and regardless of the true cause which might have happened years earlier. Causation is crushed and yanked out of a historical time frame. Which is also how people who didn't care when the national debt hit $10 trillion can suddenly and violently care when it hits $14 trillion (and with cause).

We get another good look at this correlation and causation confusion in this Talking Points Memo piece that tracks the Romney campaign. He is out on the stump, visiting places that reflect our stumbling economy. He is trying to make a connection, a correlation, between failing businesses and Obama policy. Never you mind the details of why a given business might have failed. Don't pay any attention to the fact that a given business might have been struggling pre-Obama, thus severing any comparative causal relationships.

Romney does not have to be careful on this because the people he is speaking to don't really care about the details or any truth that conflicts with their own innate feelings about truth.

The latest example is in California, where the presidential candidate held a press conference in North Hollywood at Valley Plaza, an empty shopping center where multiple attempts to reverse its fortunes have failed to get off the ground. Romney admitted its problems predated Obama, but nonetheless blamed him for making the recession "worse" and thus helping squash development plans at the site.

(TPM)

Just link it all together across the space time continuum, call it bad, blame Obama, repeat.

Rupert Murdoch: Humbled or Humiliated or Carefully Cunning

Other news:

Where is the sacrificial lamb?

• Conservatives worst fears: Obama supports gang warfare.
• When faced with being criminal or incompetent, billionaire Murdoch chooses incompetence.
• There is no anonymity when it comes to the FBI, who are hitting corporate evildoers hard, or as this person who commented on the LA Times story states:

mr. gittesat 10:46 PM July 19, 2011

the Big Banksters nearly bring down the entire global economy; get Congress to shakedown the American people for TRILLIONS in bailouts, and yet we have the FBI rounding up anti-corporate cyber geeks that cost...what was it?....$5000 of damage to A-frickin' T&T??? "Law enforcement agencies tend to target -hackers- based on the amount of FINANCIAL HAVOC WREAKED or their POTENTIAL RISK TO NATIONAL SECURITY" Sweet mother of god this HAS to be an Onion story.....

• Hot summer, toddlers in rebellion, wrecking house.
• Question: If you state, "This is the most humble day of my life," does that actually reflect humility, or is it like saying, "I am so humble" and by way of being the opposite of that. Yea. 

Finn Talks Super 8 and Tree of Life

I finally got around to seeing Super 8, which was well worth the $5 I spent to see it, and in part because I also saw Horrible Bosses on the same budget; the erratic quality of both films combined to create a sum greater than my expenditure, if we leave out the cost of popcorn and beverage. (I like to pretend that snacks are off budget, and fungible, and that the snacks eaten at the movies would have been eaten elsewhere in another form anyway, and thus, no net increase in costs).

My main thoughts center around Super 8, a predictably retro alien movie, but let me just drop a pet peeve before continuing.

Horrible Bosses had a good premise, but was ultimately ruined by the outlandishness of the script, which called for multiple attempted murders, thus leaving a great cast to wallow in absurdities.  And when not also wallowing in a certain amount of deviance. Like Cedar Rapids, which I caught via Amazon stream, Horrible Bosses attempted to amuse us with certain bizarre sexual acts, and I've grown really tired of Hollywood writers who think that shock value can substitute for true humor. How many times do we have to see the otherwise straight laced main characters accidentally get snozzed with coke, provoking frenzy and mayhem? Lacking the courage to make a character an actual drug enthusiast, with all the life cratering sludge that would follow, we are left with the accidental dope usage and asked to laugh at the hi-jinks. It's tired and boring. But I digress in the wrong direction.

Super 8 was entertaining but left me feeling like I had seen it all before. Which, I probably have. It seemed to borrow from every alien movie of the past, giving us an alien who wants to eat us, but only some of us, and only as a snack while rebuilding his aircraft and figuring a way back home.  Set back in the 1980's, we get a bunch of kids who are into filmmaking, though lacking the conveniences of our current era where you can turn out a masterpiece that nobody wants to see on YouTube via your Android or Apple.

The story itself is pretty toss-able. Alien arrives, government somehow captures and captivates (literally) super strong and highly advanced alien, alien frees itself via scripted unlikelihood, alien gets chased and kills a few unworthies, kids run around without parents, parents run around somewhat oblivious as to where kids are until scripted moment of reflection, kids encounter alien, two species communicate via meaningful eye contact, alien creates spaceship out of crap and scriptural magic, spaceship flies off, humans look up in awe, credits.

But it was a captivating film, meaning, I didn't start feeling sleepy, or sit thinking, "Uhm, okay" like I did through certain parts of another film I saw recently. The Tree of Life was playing at my local arsty theater in Scottsdale and darned if I was not going to see it on opening day. While it carried big name stars, like Brad Pitt and a muted Sean Penn, I was more interested in whatever pretensions the director was trying to pull off. For that first half hour I sat watching an almost silent film that was infused with flecks of prehistoric imagery: volcanoes, flashes, stuff rushing around, dinosaurs, the stars of the film not actually saying anything we could hear.

I stared at the screen and stayed awake through that opening onslaught because I knew it was supposed to be some deep foundation upon which the rest of the film would build, and if you are asleep, how deep and intellectual can you appear to your fellow moviegoers? It's just not proper to fall asleep during moments like this, so you put on your introspective face and just stare at the screen like you are taking it all in and getting every nuance. (Sometimes you bring your hand up to your chin and finger your beard so that people down the row will think you are totally understanding some hidden modality they are missing). Thankfully my patience was rewarded with a heartwarming and carefully scripted and acted film that tracked the life of a family, and the relationship of a son with his father.

Which brings me back to J. J. Abram's Super 8. (Thought I got off point, didn't you?)  Super 8 is less a film about aliens than it is a study of kids and it is their interaction with each other that carries us forward and keeps it interesting.  That works out well enough, but the kids we are given strike that deja vu spot in the brain where you imagine that you have seen them before, maybe in Goonies or E.T. or some other Hollywood kid concoction from years gone by. That is, each kid is a type. We have a fat kid, we have a timid kid, we have the primary kid (as usual missing a parent) who gets the girl, we have the blond girl, we have the crazy kid who likes explosives. Each is a stereotype made to fit together in a motley crew upon which the director can hang plot points.

Heck, without the blond female, with lovingly long hair, are you really gonna run off after a creature from another planet who you have just seen kill and eat people? Of course not. In the Hollywood way of lensing the world, only a blond girl in trouble is gonna motivate you to do stupid stuff like confront aliens, or encourage your mousy explosives loving friend to create a decoy to "distract" the alien. (Apparently this was pre-bros before ho's).

While the acting was sufficient, and the faces relatively new and authentic, you still got the feeling that this was a Hollywood construct. There were moments of overacting, or moments of predictability that were glaring. They didn't seem so much to be real kids, as real kids acting in a movie, and with all that implies.  You imagined some stage mother saying, "You need to be better than the fat kid in Stand By Me".

Which is also why I loved The Tree of Life, and offer it as contrast. You will sleep or curse through whole elements of the film because director Terrence Malick sometimes assumes that visuals in themselves convey deep meaning. Often they don't, and sticking such visuals into a family drama is a risky endeavor. Not that it can't be done, it's just that he does not do it exceedingly well. If God created the world in six days, certainly Malick could have created his more philosophical imagery in mere minutes of time, instead of long moments that caused extra popcorn indulgence.

That said, Malick nails it with his choice of child actors and their direction. There are entire scenes between brothers, between father and son(s), between friends, that thoroughly pull you in and make you feel like you are watching real lives and real relatives. The child actors don't seem to be acting, or overacting, or even aware of what they are doing. They don't pop out of the context of the script in words, actions, visuals or deed. Even the way they walk strikes authentic.

The Tree of Life has probably some of the best acting by young people I've seen on screen. There is one scene where the brothers and their friends are walking through the neighborhood, drifting aimlessly, pausing here and there to poke at this, look at that, and culminating in the breaking of a window. It's entirely authentic and reminds me of my own wanderings with friends, no destination in sight, nothing to do, nothing that had to be done, just drifting, walking, seeing what might turn up around the next corner.

That's what you want in a movie, the unexpected around the corner.

Hmmm

Murdoch, the Old Fox, Gets Hounded

Gotta wonder if Rupert Murdoch's journalistic practices in the United Kingdom extend to the United States. I've not been hearing a lot of Fox employees reflecting on the ethics of their supreme leader, consciences whistling past the graveyard of mayhem he Old Rup has created in Britain.

The United States has far too many pressing issues, and is far too important a country, and too special a place, for the likes of people who would seek to manipulate the public and foster malice and ill will. No media outlet has gone quite as far to create a misguided patriotism that masks darker, un-American sentiments. In light of the controversies in the U.K., where employees of the Fox have shown a complete disrespect for honest dealing and privacy, we can only wonder how low people are willing to go, and whether those faulty choices extend far and wide.

The fallout threatened to spread to the United States, homebase of Murdoch's News Corp media empire which owns a clutch of prominent U.S. media properties including The Wall Street Journal, the New York Post and Fox Broadcasting. 

U.S. Senator John Rockefeller, chairman of the committee on commerce, science and transportation, called for an investigation to determine if News Corp had broken any U.S. laws.

Rockefeller said he was concerned that the phone hacking acknowledged in London by News Corp "may have extended to 9/11 victims or other Americans," in which case he said "the consequences will be
severe."

(Reuters)

None of this is entirely a surprise. British papers have long had a freewheeling nature, and Rupert's properties here in the States have shown an ability to be quite crass and unreliable themselves. One thinks of Fox News, which started out with a noble idea--that of being fair and balanced and offering a conservative perspective on issues that the other press outlets often pretended didn't exist. But Fox took the ball and ran, eventually deciding to be a dishonest political player rather than an honest broker of news and multiple perspectives.

Let us hope that this is the day the old fox has met his hound, and receives his comeuppance.

Myspacing the United States Economy, Failing to Google the Pluses

Megan at the Atlantic worries about the long term unemployed, and the Atlantic seems to be pushing this theme in an additional long thought piece that spans four pages and incorporates a number of academic studies about the effects of joblessness on men, families, and communities. Here Megan wonders what to do with these people.

That is what these numbers mean: millions of people, staring into the abyss of an empty future.  We don't know how to re-employ them.  The last time this happened, in the Great Depression, World War II eventually came along and soaked up everyone in the labor force who could breathe and carry a toolbag. I hope to God we're not going to do that again, so what are we going to do with all these people?

(The Atlantic.com)

Well yes, we will see many long term unemployed people, especially in sectors like construction that were bubble-ized. We will also see it in education and a few other sectors getting hit for shortsighted or ideological reasons.  If we had a housing bubble from roughly 2006 or so forward, anything approaching those levels, whether in housing employment, general employment or prices, should be seen as abnormal. And until the banking industry fully swallows its losses, we also shouldn't expect to see much new hiring on the part of businesses or any new employment innovation. Basically the economy is like a body that overindulged and has regurgitated the excess onto the floor. Cleaning that up will take a while.

But, in the same way that people hyperventilated over Wall Street in 2007 and 2008, and imagined the industry forever chastened and changed, we should not overstate the problem here when it comes to unemployment and not imagine that something, some sector, will arise to somewhat normalize (not idealize) the work situation.  That is, if we let it. There has to be a fundamental "looking forward" where we attempt to foster and support new industries, rather than trying to recreate the past and return to some unsustainable work structure. We saw this twice, both in the dot.com boom, and recently in the housing boom, where the essential drivers of job growth were somewhat chimerical. We suffered for it, later and now.

Don Peck in the longer Atlantic piece wonders if this down period will make us all humbler, kinder, and move us away from our lusts for riches and large homes.

Journalists in particular always make the same mistakes over and over, and assume that what is here today is perpetually normative. It's what we can call Myspacing the economy, where the social network we see today is the one we assume will always be here.

The right stance is one of realistic optimism, and where we look outward and start adopting some of the policies that are working for some of our competitors, whether in Germany or China or elsewhere.

Obama Urged to Use Superpowers to Fight Economic Saboteurs

A few voices on the left are urging Obama to use his constitutional superpowers to invoke the 14th Amendment, thus affirming his right to direct the Treasury to continue paying American debts. We highly doubt he will go this far, nor do we doubt that his critics won't use such an act as opportunity to tag him as whatever evil villain (like Lucifer) happens to be on their minds that day.

So says the Washington Post:

In theory, this is unthinkable, and it will be remedied by reasonable political parties making reasonable concessions across the negotiating table. But Republicans have been negotiating in bad faith, unwilling to compromise even an inch on their extremist and absolutist positions.Some are no longer willing to come to the table at all.

With that backdrop, President Obama may find that there is only one course left to avoid a global economic calamity: Invoke Section 4 of the 14th Amendment, which says that “the validity of the public debt of the United States … shall not be questioned.” This constitutional option is one that the president alone may exercise.

If the Aug. 2 deadline arrives and no deal has been made, Obama could use a plain reading of that text to conclude — statutory debt ceiling or not — that he is constitutionally required to order the Treasury to continue paying America’s bills. In that sense, this is not just a constitutional option, it is a constitutional obligation, one even the Tea Party will have trouble denying.

Obama going that route seems a wee bit aspirational, since he also seems inclined to do everything "by the book" no matter what the opposition tosses his way.

Aid the States, Save the Economy

In a previous post we argued that more money should have been give to the states to fight off economic sluggishness. This article from Daily Kos lays it out strong rational and solution in a way we never could.

What Obama seems to be ignoring is the united front of Republicans working at the federal and state levels to sabotage recovery while pursuing their political orthodoxy. The layoffs at the state level, unchecked, will not be superseded any time soon by hiring gains in the private sector, and there is somewhat of a symbiotic relationship between the two. Developing some kind of direct state aid via additional stimulus is imperative, despite the general public's inability to see how it actually helps them.

Avenging Angel writes:

The Washington Post, the New York Times,Bloomberg,and the Wall Street Journal among others began ringing the alarm bell late last year, warning that state and local governments were fiscal facing a fiscal triple-whammy. Even with spending now well below 2008 levels, the downturn-induced drop in revenues and increased demand for social services coupled with the looming end of the American Recovery and Reinvestment Act (ARRA) is producing yawning gaps in state budgets. And the states, all but one of which must balance its budget each year, are responding with sharp spending cuts, massive layoffs, deferred payments to state employee pension funds and, in some cases, tax hikes.

(Daily Kos)

The author proposes a voluntary state aid/loan fund with lenient repayment schedules to help stem the tide of layoffs, and it's exactly the right prescription.

It's much harder at the federal level to direct money to where it should go; states can handle that task better and faster, and it frees the government from having to micromanage in matters where its policy effect might be minimal or distorted as it trickles down to application.

Jesus Has Returned and His Name is Grover Norquist: Bow Thyself Down

God Speaks, Conservatives Bow

You might be wondering what's holding up a deal to raise the debt ceiling on the debts of the United States. Wiser voices in economic circles and the business world have suggested that it's a dangerous game to put the full faith and credit of the Federal Government on the line.

The holdup, if you must know, is due to God. Certain politicians in the House of Representatives and the Senate have pledged allegiance via oath to God to refrain from putting all options on the table to settle the debt cap problem. So here in a complex age and an economically difficult time, and coming off the near collapse of the financial system in 2008, they have decided that they will walk into any budget debate with preconceived and hardened positions and will not bow down to supposed false choices.

That God is Grover Norquist, head of "Americans for Tax Reform." We put that in quotes because we cannot be sure how many Americans actually want tax reform that comes only in the form of tax cuts, and often tax cuts that benefit the wealthiest. Ideally reforming the tax code is a great thing, as are lower taxes, so long as all Americans are properly being represented in any new tax scheme, and so long as the needs of the less fortunate are factored in. This is NOT the goal of Norquist's efforts. The Norquist agenda is to pull the government out of any action on behalf of "the people".

False Fair Other God, Ignore Him

But there he floats above it all, with conservative politicians channeling Abraham, and tying the American public down on the alter of sacrifice.

Will God, will Norquist, call off the sacrifice in time, and free his servants to do what is right?