Copied and Pasted from CNN.... as I imagined... the dudes are crazy...
Where is Paulson putting the cash?
NEW YORK - In September U.S. Treasury Secretary Henry Paulson lobbied Congress for $700 billion to buy up troubled mortgage related assets that were dragging down otherwise stable banks. We were told the very future of the U.S. economy was at stake.
Paulson has now admitted what many had already started to guess - they got it wrong. Treasury is no longer planning to use the money to buy toxic debt. That plan, it turns out, was too complicated and was going to take too long to implement. Instead, the government is going to continue to give money directly to financial institutions in exchange for shares.
Not only that, but you no longer have to be a bank, or turn yourself into one, to qualify for help.
Treasury now wants to open the bailout coffers to companies that issue credit cards, student loans and car loans. Paulson says the aim is to lower the costs and increase credit availability to American consumers.
Some say the fact that Paulson is willing to adjust and change the plan so quickly should be applauded; it shows officials are focused on coming up with the best possible remedy to fix the economy and are not worried about losing face.
Others are outraged at what they see as a lack of transparency and information.
Which companies are tapping the funds and what is it about their business or balance sheet that justifies aid?
What about those so-called toxic assets? What happens to them now? Won’t they still be problematic?
There is only $60 billion left from the original tranche approved by Congress. How is the rest going to be spent? How much more will be needed? At Wednesday’s press conference Paulson said that he felt the original $700 billion was enough to get the job done, but few analysts think that is realistic.
What about the $1.5 trillion dollars the Fed has lent out above and beyond the original funds? The Fed has declined to comment on where that money has gone or what they took for collateral. In fact, Bloomberg News is suing the Fed to release documents under the Freedom of Information Act.
It may be the Treasury and the Fed are taking a “what you don’t know won’t hurt you” approach. If the general public knew just how bad it was at some banks or key institutions it could spark a run on those firms and perhaps make a bad situation worse.
But the American public is in no mood for behind close doors operations. There is a severe lack of trust when it comes to government officials and business leaders. Taxpayers want to know just where their money is going. They don’t like the fact that the rules of the game seem to be changing.
Saturday, November 15, 2008
Saturday, October 18, 2008
4. What will happen next...
The money post. I like to tell my team that we are all paid to predict the future in our own function. Anyone can analyze the past.. Look down the rabbit hole and tell me how deep it runs... thats what we are all paid the moolah for.
1. The western economies will roil in the oscillations
2. China will swoop harder and faster into Africa and capture key resources without anyone realizing
3. India will sit and watch.. and fight about Nano plants and the rights of farmers...
4. Russia will suffer as the West does...
5. The middle-east will capture and control several key resources in the West
6. Iran will grow stronger
7. Japan will suffer a housing market collapse, but the banks will not be hit as badly, since I believe that they were more conservative than the US banks...
Will the US get into a recession?
Yes. Atleast for a year or so. If the interest rate lowering happens at the right time, then things will improve. Else there is a long decade ahead of us.
As the US economy goes, so does the Indian economy. I predict that if 10 years ago a 1% drop in the US led to a 20% drop in India, now the drop will be around 10%. But drop it will. Indian businesses cannot sustain themselves on local demand. If they find a way, which they should, that will be great for us.
Situation in Europe and Japan?
I believe that in addition to the poor asset management practices by the IBs, the double whammy came from falling asset prices.
I think the banks in the Eurozone had similar bad asset management practices. So Trichet and co., will have to buy the junk the banks own, but I don't see a housing bubble like in the US. The clear exceptions being Spain and the UK. Spain already went down in 2007. UK will go down in 2009.
So the government will have to step in but the effect should be much more short term. Banks are affected. Home-owners and consumer should not be affected to a great extent.
Japan, I believe has the reverse situation. Assets were managed very conservatively with very low exposure to bad assets. But from what I hear the housing market was in a bubble and the real estate prices are bound to fall.
So the government will probably not have to step in, but the home-owners will suffer. There will be a mini-US-like situation, but the banks will be capitalized enough to manage the resulting defaults.
1. The western economies will roil in the oscillations
2. China will swoop harder and faster into Africa and capture key resources without anyone realizing
3. India will sit and watch.. and fight about Nano plants and the rights of farmers...
4. Russia will suffer as the West does...
5. The middle-east will capture and control several key resources in the West
6. Iran will grow stronger
7. Japan will suffer a housing market collapse, but the banks will not be hit as badly, since I believe that they were more conservative than the US banks...
Will the US get into a recession?
Yes. Atleast for a year or so. If the interest rate lowering happens at the right time, then things will improve. Else there is a long decade ahead of us.
As the US economy goes, so does the Indian economy. I predict that if 10 years ago a 1% drop in the US led to a 20% drop in India, now the drop will be around 10%. But drop it will. Indian businesses cannot sustain themselves on local demand. If they find a way, which they should, that will be great for us.
Situation in Europe and Japan?
I believe that in addition to the poor asset management practices by the IBs, the double whammy came from falling asset prices.
I think the banks in the Eurozone had similar bad asset management practices. So Trichet and co., will have to buy the junk the banks own, but I don't see a housing bubble like in the US. The clear exceptions being Spain and the UK. Spain already went down in 2007. UK will go down in 2009.
So the government will have to step in but the effect should be much more short term. Banks are affected. Home-owners and consumer should not be affected to a great extent.
Japan, I believe has the reverse situation. Assets were managed very conservatively with very low exposure to bad assets. But from what I hear the housing market was in a bubble and the real estate prices are bound to fall.
So the government will probably not have to step in, but the home-owners will suffer. There will be a mini-US-like situation, but the banks will be capitalized enough to manage the resulting defaults.
3. What should be done next...
So, as Pushan said, don't look at sunk costs. Make decisions with the resources you have today and evaluate how you can grow those resources at the fastest rate.
That is where the fundamental debate starts. My limited understanding is as follows: If the world GDP grows at 3%, it can be fairly said that each person in the world can expect a 3% ROC.
Now a capitalist will say, each man for himself, if I get 6% and you get 0%, just too bad for you. Survival of the fittest I say.
A socialist would say, that since you have less capital to start with, you should have easier access to capital, which in effect is a higher rate of return. So the poor grow at 6% and the rich at 0%. Spread the wealth I say.
One thing that both these morons will agree with is that the 3% GDP growth has to be maintained. Otherwise the entire discussion is moot. Both morons are then out of work.
How do we secure the 3%? For that the first question is who is providing the 3% growth. If we are to believe the world's largest economy, small businesses drive this growth.
Small businesses needed daily WC to run. Banks, performing their original task of capital collection and distribution, need to lend them money. If this credit dries up, the 3% is at risk.
What I don't understand is the inter-bank lending business. Who the hell cares if banks lend to each other. MOre inefficiency I say. If banks collapse cos they can't get money, let them. There is bound to be one super giant left behind to distribute the wealth.
So what the EuroGeeks have done is good I think. Take a trillion Euros and give it to the banks. Buy their shit, but force them to use the money to give to businesses. Cap bonuses (don't eliminate them).
In the US, the Fed has made the right noises and for once followed the more sensible and conservative EuroGeeks. As usual, W has the keys to the bank and no oversight. If anyone believes that Paulson (and whoever sits on the hot seat next) has any control on what happens to the money, I have a bridge I wanna sell them.
Anyway, this lending will give us a chance to protect the 3% growth. But thats not all. Economics is like a large spring-mass-damper system. You move it and the oscillations continue.
OK... so in order to buy the Shit and start the money flowing again, we need to pay up. Two options, Benny and Trichet print more money or they increase taxes. Inflation or reduced take home income. In the end you get less for your efforts. With an hour of work, you can't buy a shirt, but only a tie.
Printing money hits everyone the same and reaches a larger audience. Taxing can be designed to hit people who can afford it (or so one hopes).
SO lets assume that since this shit was caused by a few, the funds are raised with 70% taxes and 30% inflation.
So now, I have more taxes, and with what I have left, I can afford less. Demand falls. Businesses who now have money from the banks don't see demand and have to reduce capacity. Eventually business will suffer and shut down. Unemployment will increase and the death spiral will continue.
There is another lever though. The Fed can lower interest rates at a suitable time. If done right, consumers will be able to have easier access to money to buy stuff from businesses that they already bailed out. With these levers, the economy can remain afloat... and hope that as the shrewy pitbull said 'the innovation and the will of the American people' might pull the economy out of it...
So the people first pay to bail out the banks, then borrow money to buy stuff from businesses and keep them afloat, and then work their asses off to create additional value and growth.
Thats what should happen next.
That is where the fundamental debate starts. My limited understanding is as follows: If the world GDP grows at 3%, it can be fairly said that each person in the world can expect a 3% ROC.
Now a capitalist will say, each man for himself, if I get 6% and you get 0%, just too bad for you. Survival of the fittest I say.
A socialist would say, that since you have less capital to start with, you should have easier access to capital, which in effect is a higher rate of return. So the poor grow at 6% and the rich at 0%. Spread the wealth I say.
One thing that both these morons will agree with is that the 3% GDP growth has to be maintained. Otherwise the entire discussion is moot. Both morons are then out of work.
How do we secure the 3%? For that the first question is who is providing the 3% growth. If we are to believe the world's largest economy, small businesses drive this growth.
Small businesses needed daily WC to run. Banks, performing their original task of capital collection and distribution, need to lend them money. If this credit dries up, the 3% is at risk.
What I don't understand is the inter-bank lending business. Who the hell cares if banks lend to each other. MOre inefficiency I say. If banks collapse cos they can't get money, let them. There is bound to be one super giant left behind to distribute the wealth.
So what the EuroGeeks have done is good I think. Take a trillion Euros and give it to the banks. Buy their shit, but force them to use the money to give to businesses. Cap bonuses (don't eliminate them).
In the US, the Fed has made the right noises and for once followed the more sensible and conservative EuroGeeks. As usual, W has the keys to the bank and no oversight. If anyone believes that Paulson (and whoever sits on the hot seat next) has any control on what happens to the money, I have a bridge I wanna sell them.
Anyway, this lending will give us a chance to protect the 3% growth. But thats not all. Economics is like a large spring-mass-damper system. You move it and the oscillations continue.
OK... so in order to buy the Shit and start the money flowing again, we need to pay up. Two options, Benny and Trichet print more money or they increase taxes. Inflation or reduced take home income. In the end you get less for your efforts. With an hour of work, you can't buy a shirt, but only a tie.
Printing money hits everyone the same and reaches a larger audience. Taxing can be designed to hit people who can afford it (or so one hopes).
SO lets assume that since this shit was caused by a few, the funds are raised with 70% taxes and 30% inflation.
So now, I have more taxes, and with what I have left, I can afford less. Demand falls. Businesses who now have money from the banks don't see demand and have to reduce capacity. Eventually business will suffer and shut down. Unemployment will increase and the death spiral will continue.
There is another lever though. The Fed can lower interest rates at a suitable time. If done right, consumers will be able to have easier access to money to buy stuff from businesses that they already bailed out. With these levers, the economy can remain afloat... and hope that as the shrewy pitbull said 'the innovation and the will of the American people' might pull the economy out of it...
So the people first pay to bail out the banks, then borrow money to buy stuff from businesses and keep them afloat, and then work their asses off to create additional value and growth.
Thats what should happen next.
2. Who is to blame?
Another favorite topic. Given that we are only 2 weeks away from one of the hardest choices the US population has to make (thats what I also thought in 2004), clearly there has to be someone to blame.
Just so we are clear, I need someone to blame for the fact that banks are constantly writing off $50B, 3 large banks have vanished, and the various Central Banks have had to back-stop these idiots with my money. So... who is to blame for my money being wasted like this?
I watched super-villan Fuld getting his bones chewed at some irrelevant House Committee.
The moron questioning Fuld, I don't event want to hunt down his name, is not worth the piece of paper he is reading from.
Anyway, who is really to blame? The bankers? They ran un-regulated and no one complained when it was raining money... the government? As we all know they are incompetent. They wouldn't see a financial crisis if it came and knocked at the door. Plus clearly they were not going to shut down a source of re-election money.
I gave my money to the MF houses to invest since you know diversification and all that crap. They bought stock in Lehman amongst other things. Lehman was wondering what to do with all this money, so they gave some of it out as bonuses and with the rest of it, they leveraged it, and bought some cashflow on a bad loan pool from assets whose price was about to fall. In order to leverage, they issued bonds to the same mutual fund houses. The mutual fund houses then also bought insurance against default from AIG. AIG was supposed to take this money and put it away, just in case. But you know the same mutual fund also had equity in AIG. So AIG took the money, handed out bonuses to their people, and with the rest...
You know how it goes and how it went.
But at the bottom of it were the investors who invested in Lehman without knowing what Lehman was doing with the money.
Now the same investors, having lost their money, are being asked to pay out more money to save whatever money they might have left.
What other choice is there?
If it is still not clear, I feel it is those investors who are to blame. I think there was a slight amount of laziness from individual investors who trusted institutions, not with their funds, but with their judgement. They let professional money managers make decisions for them. Good when the going was good.
Capitalism is driven by individuals being responsible and curious for information. It is quite similar to democracy in that sense. It only works if each of us makes our own decisions and exercises our judgement. If we are lazy and give that power to a few, we have no one to blame but ourselves.
But neither BO or JMac will, can, or afford to blame Joe the Plumber or Joe Six Pack.
Just so we are clear, I need someone to blame for the fact that banks are constantly writing off $50B, 3 large banks have vanished, and the various Central Banks have had to back-stop these idiots with my money. So... who is to blame for my money being wasted like this?
I watched super-villan Fuld getting his bones chewed at some irrelevant House Committee.
The moron questioning Fuld, I don't event want to hunt down his name, is not worth the piece of paper he is reading from.
Anyway, who is really to blame? The bankers? They ran un-regulated and no one complained when it was raining money... the government? As we all know they are incompetent. They wouldn't see a financial crisis if it came and knocked at the door. Plus clearly they were not going to shut down a source of re-election money.
I gave my money to the MF houses to invest since you know diversification and all that crap. They bought stock in Lehman amongst other things. Lehman was wondering what to do with all this money, so they gave some of it out as bonuses and with the rest of it, they leveraged it, and bought some cashflow on a bad loan pool from assets whose price was about to fall. In order to leverage, they issued bonds to the same mutual fund houses. The mutual fund houses then also bought insurance against default from AIG. AIG was supposed to take this money and put it away, just in case. But you know the same mutual fund also had equity in AIG. So AIG took the money, handed out bonuses to their people, and with the rest...
You know how it goes and how it went.
But at the bottom of it were the investors who invested in Lehman without knowing what Lehman was doing with the money.
Now the same investors, having lost their money, are being asked to pay out more money to save whatever money they might have left.
What other choice is there?
If it is still not clear, I feel it is those investors who are to blame. I think there was a slight amount of laziness from individual investors who trusted institutions, not with their funds, but with their judgement. They let professional money managers make decisions for them. Good when the going was good.
Capitalism is driven by individuals being responsible and curious for information. It is quite similar to democracy in that sense. It only works if each of us makes our own decisions and exercises our judgement. If we are lazy and give that power to a few, we have no one to blame but ourselves.
But neither BO or JMac will, can, or afford to blame Joe the Plumber or Joe Six Pack.
1. Capitalism... Who was the winner?
Rather interesting turn of events in the world today... I refer to my original post on the role of the firm... and the role of banks in the world... Banks are supposed to allocate money to firms that have good (cash generating) ideas.. instead these morons sit and productize money...
I am a simple guy and as I studied for the hardest exam in the world, only one law was really needed to to solve all the problems that came my way. Energy is conserved.
On wall street, I strongly believe that once a $1 bill is printed it can't vanish. Where did that $1 bill go? What I wanted to know was which smart-ass got the money.
I've started buying the FT Weekend edition. Its a great read and its also good for quality time with my better half, since one section is on how to make money and the other (the better half) is on where to spend it.
Anyway, thats when I heard the name David Einhorn for the first time.
When I first studied economics at IITM, the final exam was to write an essay on a financial event in the last decade. 90% of the class wrote about the Liberalization of the Indian economy. I guess that whole jing bang had completely escaped me... I wrote about Bearings Bank and my personal hero at the time, Nick Leeson. I was 17 and the only idiot who thought that a bank going down was a financial event of some magnitude.
So, Mr. Einhorn who is a hedge-fund manager at Greenlight Capital, apparently had the smarts or the patience to look at Lehman's balance sheet. He then went on to talk to the CFO and other Fuldian cronies and decided they were in the Structured Bullshit business.
This is the most sensible thought process I have heard from anyone on Wall Street.
And he is currently the owner of that missing $1 bill. There is really no value lost on Wall Street in my opinion. All the widows and orphans invested in Lehman and Bear, just gave their money to David.
The winner and my new hero.
I am a simple guy and as I studied for the hardest exam in the world, only one law was really needed to to solve all the problems that came my way. Energy is conserved.
On wall street, I strongly believe that once a $1 bill is printed it can't vanish. Where did that $1 bill go? What I wanted to know was which smart-ass got the money.
I've started buying the FT Weekend edition. Its a great read and its also good for quality time with my better half, since one section is on how to make money and the other (the better half) is on where to spend it.
Anyway, thats when I heard the name David Einhorn for the first time.
When I first studied economics at IITM, the final exam was to write an essay on a financial event in the last decade. 90% of the class wrote about the Liberalization of the Indian economy. I guess that whole jing bang had completely escaped me... I wrote about Bearings Bank and my personal hero at the time, Nick Leeson. I was 17 and the only idiot who thought that a bank going down was a financial event of some magnitude.
So, Mr. Einhorn who is a hedge-fund manager at Greenlight Capital, apparently had the smarts or the patience to look at Lehman's balance sheet. He then went on to talk to the CFO and other Fuldian cronies and decided they were in the Structured Bullshit business.
This is the most sensible thought process I have heard from anyone on Wall Street.
And he is currently the owner of that missing $1 bill. There is really no value lost on Wall Street in my opinion. All the widows and orphans invested in Lehman and Bear, just gave their money to David.
The winner and my new hero.
Saturday, August 2, 2008
Copyright Battles Heat Up on Web
I read a nice article on the Washington post recently...
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/01/AR2008080103131_pf.html
and something struck me...
"Hasbro is stupid," said Saffo. "Thanks to this new electronic lounge called Facebook, board games are hot. Two Indian students pointed [Hasbro] to what could be their iTunes and they responded with lawyers."
One of my pals has written a nice argument in favor of 'People should have to pay for music'. I am unable to write an argument against it. But something in my head tells me that this is not right. I need to frame my thoughts... but along the way... this story also captures part of what I feel...
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/01/AR2008080103131_pf.html
and something struck me...
"Hasbro is stupid," said Saffo. "Thanks to this new electronic lounge called Facebook, board games are hot. Two Indian students pointed [Hasbro] to what could be their iTunes and they responded with lawyers."
One of my pals has written a nice argument in favor of 'People should have to pay for music'. I am unable to write an argument against it. But something in my head tells me that this is not right. I need to frame my thoughts... but along the way... this story also captures part of what I feel...
Tuesday, July 22, 2008
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