http://www.acredittrader.com/?p=65

That’s a common strategy today…creating a business so that it will then be bought by another with the entrepreneur more than willing to jump ship on his “creation”. Arbitrage and mergers are fostered, not feared. Who really has a stake in the sustainability oif a company anymore? It’s only the employees.

“Creating Value for the Stockholders” is one current phrase. It leads to short-term bottom line thinking and discourages building for any sake, but to increase the stock value which the top management also owns. Somewhere in there the value to the public gets lost.

Yesterday Gingrich said that we should forget about clawbacks. He said that if we went afterthem they would be afraid to invest “their” money.

“Clawback” sounds awful. Maybe we should just tax the super rich to make them pay for the cost of government cleaning up their mess and to help people hurt by it. Or, to focus more narrowly, maybe we should tax financial transactions on “Wall St.” of a particular kind. Justice, as any kid knows, is having to clean up your own messes.

Recall the number of short positions held on the airlines prior to 9/11 for example.

Those who write the script get rich in both directions, by placing bets in advance of the news that they know they will create tomorrow.

Has anybody ever looked into whether there were credit default swaps “insuring” failure of the airlines used in the 9/11 ‘attacks’?

It’s no wonder the Bushies talked about “creating the future” or somesuch. People have talked down stocks for years to take advantage of shorting. Now there’s real efforts to destroy companies like GM because of CDSs.

It’s very scary stuff.

Texas hedge

A faulty strategy that increases the risk; what looked like a hedge (protection) turns out instead to increase the exposure.

http://www.anz.com/edna/dictio…..exas_hedge

Sounds like the perfect term to describe the Bush Presidency!

hedge, bush what’s the diff?

Just watch out for any politicians from Georgia. Down there they’ve got kudzu and it takes over everywhere.

The sheer size of the Treasury and the Fed’s interventions, the trillions upon trillions of dollars pledged or spent, all show just how unsound the system is.

“is” and has been, but doesn’t necessarily have to be in the future. Mortgages were screwed up and lost value and stocks & bonds can be that way too. The whole idea of banks having to keep reserves makes them very sensitive to this and we’re seeing it in action today.

Take away firms that are “too big to fail” and a lot of your problems disappear immediately. Regulate in ways which have worked in the past and you eliminate about 90% of the problems. This can be done quickly.

Or just stop bailing them out and get what we can from them we will never get the imaginary money back.

Timing is important. Consider this analogy:

You’re a doctor. A pregnant woman was in a car wreck and is dying. Do you just let her die or do you put her on life supports until you can deliver the baby? “Dr.” Geithner said we should evaluate the patient first with a ’stress test’ to see if we can save both and after that we’ll make further decisions.

Now, want to just toss ‘em both in the trash without doctoring first?

Okay, so I bought a house in the Lower 9th Ward of New Orleans the week before Hurricane Katrina and had it insured with AIG. Then, as a hedge against me loosing my house to flooding, AIG bought all the other houses on my street. (not a perfect analogy, by any means, but it works for me)

This can be very complicated when you take into consideration the huge market that developed on CDSs and the downward trend of the US dollar.

What if they sold you a CDS “insurance”, but then sold that on to someone else. They’d end up with a cash stream from the bigger fool. Having a large market in these things could mean any number of deals would look foolish, but could turn out profitable. A lot would also depend upon how likely it might be for the ‘insurance’ to face a claim during a given time. If it would take a while before a payout (even a 100% guaranteed forced payout), then the value of the money in hand from the CDS sale might be worth more than simply having less cash in hand the whole way and watching it’s value ebb away. Remember, they were selling paper for cash, so they were getting to have LOTS of cash in hand for a time period.

Who can say whether this kind of thinking is what we want insurance companies to engage in. If there’s a street culture where it’s agreed upon as acceptable, viable and for the long run, then why not.

They should be in jail for RICO and fraud. Gambling is regulated as far as I know.

Uh, actually no. Specific efforts were made to ensure CDSs would NOT be regulated.

If they all got rich, and all of the counterparties are getting paid at par (100%) on their swap claims, and they are all making billions

It’s par for the course during this crisis that a lot of bad and/or stupid people are making out like bandits. That doesn’t necessarily mean it’s illegal or entirely unwarranted or bad. It just means it’s a real mess and the best way out is to do whatever it takes to unwind all this regardless of who benefits or gets hurt. Hopefully homeowners and the economy can be protected while the mess is getting fixed.

We all want it solved, but I think it’s going to take time. Treasury and the Fed have been at it a while, now the housing foreclosure mitigation program is in place, the bankruptcy foreclosure legislation is to come and the regulation ‘leg’ has to come along next — not that that’s an all-consuming effort of the entire Congress.

I think one good thing about a blog post like this is it shows how nasty the real details are and how impossible it would be to explain any of it to the public. This is the sausage making process at it’s worst and is really best left to the front-line guys at Treasury, the Fed, FDIC, bankruptcy courts and the companies.

Priorities with regard to fixing the financial crisis are

things going now:
fix banks,
stimulus spending to keep economy running,
help car companies,
direct lending and loan guarantees from the Fed for various things,
mortgage foreclosure mitigation;

things to come:
financial industry regulation,
health care reform,
and last (if there is an order/sequence) energy bill,

ALL of that in parallel with the withdrawal from Iraq.

Yes, government will have to do more than one thing at a time. Fortunately some is done by the Treasury, some by the Fed, some by the military, some by Congress.

I think it can be managed, but it will indeed be an unusual time for government.

One of my primary reasons for believing this can be done is that Dems have looked at health care forever and we have the ‘93 experience and we have the Obama plan from the campaign. If we don’t know this issue by now, then we never will. I think if you had 3 senators (2 D, 1 R) and 5 reps (3 D, 2 R) and about half a dozen staff members, you could get a great framework written with general principles and goals in a couple of weeks. Perhaps the early discussion should just be on what those principles and goals should be and on the overall structure the system should take.

We do have enormous issues at hand. It’s time for everyone to rise to the occasion, including Plunger!