Tuesday Morning Rant

[charlestudor2005]

Originally Posted by Sensual Lina

All humans are created equal, we all come to the world pretty much the same way, but then we travel different paths.

I'd have to make a small objection to this statement, but add a little perspective first.

It is apparent from the thread that most posters are posting from the POV of what we have here in the US.

But not all humans are created equal, nor do they come into the world in the same way (yes, all are born, but not into the same kind of affluence).

For instance, in Darfur, not only do the women have to worry about all males being killed so that propagation of the species is curtailed, but breast feeding mothers have to worry about enemies cutting their breasts off so that their babies die from lack of food. We don't even come close to that here in the US.

[Rudyard K]

Originally Posted by Sydneyb

It seems to me that the biggest problem regarding the concept that in a free society, idiots are free to make bad decisions is that people made decisions based on bad information from Moody's.

Typically people of all levels of sophistication depend on hiring people to do work that they are not qualified to do. I can't lay tile - its way outside my skillset. But I know enough to know what to look for in a qualified tile guy; as a result, I got some good work goin' on in the tile department.

Because Moody's is responsible for 40% of the rating market and BRK had a financial stake in it (I totally trust Buffett to know who to hire), the expectation is that Moody's ratings were to be trusted.

Instead there was a recalibration of credit ratings on these subprime loans. I forget the term - I read about it back when it happened; a term that implied they were shortening the period of evaluation to make these triple A paper. Some kind of manipulation of the historicals by not going back far enough. Dammit - I know it has a technical term, but can't remember it.

Anyway, I don't believe its coincience that Moody's stock was at its highest in 2005 to 2007, while they were supporting wallstreet - actually PAID by wallstreet FOR the ratings - definitely a conflict of interest there...

In addition to the recalibration of ratings based on faulty historical analysis, some of the loan rating was increased as a result of being protected via credit default insurance - so bad paper was insured, therefore it was protected in case of default. But the insurance companies were so over leveraged they couldn't pay out when the going got rough -hence the fall of AIG when it all went to crap.

This is not (only) a matter of unsophisticated people drinking the koolaid. We depended on agencies to be telling the truth about the credit ratings when we made what should have been informed decisions. Those agencies had other incentives and were not working for the people buying, but the people selling.

I can't and won't argue that Moody's, S&P, and other's did not have a conflict of interest. They most certainly did. But you didn't really hire them. The companies being rated hired them. You simply relied on a rating that was paid for by others. If you're getting a free tile floor, you might want to be careful...you just might find out it wasn't free.

A reliance upon their rating is a bit like relying on the handicapper in Vegas. If you are the one (and other's like you) who is the primary source of income to the handicapper, then you should probably be comfortable with relying on the handicapper...assuming he has a history of success. But if those being handicapped are the primary source of income to the handicapper, a reliance on the handicapper should be taken with quite the grain of salt. If you were unaware of their source of income...Is that your fault or theirs? Those relationships are disclosed. Their sources of income are published at least quarterly.

Much like an audit, one must look a bit more deeply than just the A+ rating. Their rating says it is based on the assumptions of management. Their rating says they believe those assumptions to be sound. Their ratings say there are variables that could make those assumptions invalid. Their ratings say there could be variables that are unknown to them that could effect the security of the investment. Of course many will call that the "fine print". But that "fine print" is there for a reason. It ain't a guarantee. If one wants a guarantee, one gets a guaranteed rate of return...and that return pretty well sucks.

The lawsuits will linger for years and the lawyers will make a killing. But in the end, the companies will suffer, the investers will recoup pennies on the dollar, and the lawyers will walk away with the bulk of the money. If it makes you feel better to wag your finger at someone who left the barn door open...so be it. But it was your barn door and it was your horses that escaped. I'd just as soon make sure I closed the door as I put the horses in the barn. That way I know who to blame if they got out. But that's just me.

[WTF]

Originally Posted by atlcomedy

A what?

I'm a no spelling anarchist. LOL






Main Entry: an·ar·chist
Pronunciation: \ˈa-nər-kist, -ˌnär-\
Function: noun
Date: 1678
1 : a person who rebels against any authority, established order, or ruling power
2 : a person who believes in, advocates, or promotes anarchism or anarchy; especially : one who uses violent means to overthrow the established order

[WTF]

Originally Posted by Rudyard K

But it was your barn door and it was your horses that escaped. I'd just as soon make sure I closed the door as I put the horses in the barn. That way I know who to blame if they got out. But that's just me.

Put on you boots boys and girls the caca is overflowing from the barn!

Rudyard is selling....well trying to sell perfumed manure!

So Rudyard it comes down to knowing just who is paying the referee?

Sounds like we need to clamp down on the rating agencies. This reform does nothing on that front according to Captain Midnights fav person in the world, Paul Krugman, in an article today in the Houston Chronicle is state this reform drops that ball.


Atl l

[Rudyard K]

Originally Posted by WTF

Put on you boots boys and girls the caca is overflowing from the barn!

Rudyard is selling....well trying to sell perfumed manure!

So Rudyard it comes down to knowing just who is paying the referee?

Sounds like we need to clamp down on the rating agencies. This reform does nothing on that front according to Captain Midnights fav person in the world, Paul Krugman, in an article today in the Houston Chronicle is state this reform drops that ball.


Atl l

I ain't selling squat WTF. I actually agree, that since folks like you think the rating companies are the golden rule of intelligent investing, that these companies might ought to be required to be more arms length from their ratee's.

As such, they will probably rate the different instruments at a much higher risk rating. And the normal Joe will still not be able to evaluate whether it is a good investment or not. But at least he will know that he is investing in an unrated, or very low rated instrument.

Of course, he'll probably still lose his ass, but at least he won't have anyone to whine to but himself.

Or, he can go invest in the higher rated instruments and recieve a compensatory rate of return for such instrument.

Somehow, I think he will then be bitching that only the more sophisticated and wealthy investors are making the good returns.

I want all the women in the world to look at my body and desire it as much as that guy who works real hard at the gym for 2-3 hours a night becoming a hardbody. But I really don't want to do the work...I like watching TV and eating ice cream. You got a solution to that?

[atlcomedy]

I'm reminded of 2 stories:

The first, which I'm not sure if it is fact or a wise tale, many of you have probably heard as well. Joe Kennedy is riding in a taxi a few months before The Crash. The cabbie starts talking about the market and what he's invested in. Kennedy decides if a mere cabbie is in the market something's wrong and pulls the family fortune out just before the Crash.

The second, on a smaller scale, from my own life. It is 2003ish and I'm at a local nightspot & up pulls this guy in a $90,000 sedan. Turns out it is a fella with whom I graduated high school. He never was the sharpest tool in the shed. Actually that is generous, he finished in the bottom 20% of the class & if such things were voted on, he would have been "most likely to work as a career valet;" not rolling up to the valet line at a tony spot. So we talk for a minute or two & I ask him what he's been up to. Answer: He's a mortgage broker. Business has never been better. In fact it is so good he can't hire people fast enough to keep up with demand.

Now I thought about it at the time. If this yook is making bank selling mortgages something's wrong. I didn't act on it (not sure what I would have done in 03 anyway). Maybe that's the difference between me and Joe -- he had the courage to act on his insights....

BTW, RK, do we have a Wednesday Morning Rant to look forward to in the AM?

[pjorourke]

This is all such a crock -- and the Goldman "hearing" are comedy at its best. Give me a fucking break. What we are talking about is protecting one group of sharks from another group of sharks. Its not like Goldman sold this exotica to grandma.

[atlcomedy]

Originally Posted by pjorourke

This is all such a crock -- and the Goldman "hearing" are comedy at its best. Give me a fucking break. What we are talking about is protecting one group of sharks from another group of sharks. Its not like Goldman sold this exotica to grandma.

agree...the real learning here for companies of all shapes, sizes & industries is remind your employees not to send emails bragging about the piece of shit product you are selling your customers/consumers...that never works out well...

[pjorourke]

That and never sit in front of a Congressperson performing for the cameras

[WTF]

Originally Posted by Rudyard K

. But I really don't want to do the work...I like watching TV and eating ice cream. You got a solution to that?

Sho nuff do

Buy Blue Bell, make allot of money and pay some gal to tell ya how lucky she is to see you nakid!

[WTF]

Originally Posted by atlcomedy

I'm reminded of 2 stories:



The second, on a smaller scale, from my own life. It is 2003ish and I'm at a local nightspot & up pulls this guy in a $90,000 sedan. Turns out it is a fella with whom I graduated high school. He never was the sharpest tool in the shed. Actually that is generous, he finished in the bottom 20% of the class & if such things were voted on, he would have been "most likely to work as a career valet;" not rolling up to the valet line at a tony spot. So we talk for a minute or two & I ask him what he's been up to. Answer: He's a mortgage broker. Business has never been better. In fact it is so good he can't hire people fast enough to keep up with demand.

?

Reminds me of a story of when a fella goes to a Doctor and says a buddy of his needs some penicillin...

[atlcomedy]

Originally Posted by WTF

Reminds me of a story when a fella goes to a Doctor and says a buddy of his needs some penicillin...

well played

[WTF]

Originally Posted by atlcomedy

well played

You complete me....






jkn with atl, Ms Summerhill. I mean no disrespect to your thread.

[Rudyard K]

Originally Posted by pjorourke

What we are talking about is protecting one group of sharks from another group of sharks. Its not like Goldman sold this exotica to grandma.

Actually Grandma did buy it.


These Sharks sold Mortgage Meltdown Product A to Hedge Fund Manager B. Hedge Fund Manager B raised money from Fund of Fund Manager C. Fund of Fund Manager C raised money from Fidelity High Yield Fund D. Fidelity High Yield Fund D raised money from Grandma or Grandma 401K.


But these same Sharks also sold Mortgage Anti-Meltdown Product E to Hedge Fund Manager F. Hedge Fund Manager F raised money from Fund of Fund Manager G. Fund of Fund Manager G raised money from Fidelity Specialized Fund H. Fidelity Specialized Fund H raised money from Grandma or Grandma 401K because it has a low correlation to Fidelity High Yield Fund D which makes for a diversified portfolio.


These Sharks collected fees for selling and administering Mortgage Meltdown Product A and for selling and administering Mortgage Anti-Meltdown Product E. These same Sharks may have even taken a position in some of these products based upon information and belief.


And we are going to try and design a regulatory environment that keeps the Sharks from eating the Chum (Grandmas)?...but still keep the Chum in the pool? All the Sharks…from the product designer, to the hedge fund manager, to the fund of fund manager, all the way down to the Fidelity fund manager…are circling the water because the Chum is in the water. You can’t really put the Sharks and the Chum in the same pool and not expect the Chum to be eaten.


Hell, a few years back, we were even trying to let the Chum of the world try to take part of their Social Security deposits and place it themselves in a higher yield position. And admittedly, I was in favor of that. But that would have just given the Sharks more access to Chum money.


If we are going to keep the masses from being prey, we have to find a way to keep them from swimming in the pool with the Sharks. Let the Sharks feed on one another. Let the Chum grow slowly into something larger. Every attempt we have made over the last 50-60 years (from deregulation of interest rates on bank deposits, to allowing investment banks to take deposits from regular folks, to access to mutual funds and such, to unique mortgage structures on home buying) that brings access on behalf of the masses to the riches of the Sharks has served to transfer wealth from the masses to the Sharks. They cannot eat what is not in front of them.

[discreetgent]

If I understand what you are saying, RK, the only way to protect the chums is to go back to set interest rate on deposit accounts, a return to Glass-Seagall act strictly enforced, a world where Investment Banks mostly issue new shares and bonds for corporate clients and execute orders then trade on their own accounts.