Friday, September 11, 2009

September 11,2009/1

President Obama is going to Wall Street this coming Monday to make a speech. The date chosen is the first anniversary of the failure of Lehman Brothers. The speech will presumably be self-congratulatory, about how the world has been made safe for capitalism. This stinks; it smells like dancing on the grave - but presumably the President, for whom I am losing increments of trust and respect every waking day, will stick the Bush administration with the Lehman Brothers decision, which unarguably can be said to have made matters much worse than they need have been, but which did open the door for Goldman, JP Morgan Chase and others to mulct the taxpayer for upwards of a trillion dollars. In the passing twelvemonth whose anniversary the President will be marking, millions more have lost jobs, homes, self-respect, medical security. Is all this compensated for by Goldman's record profits? Is this proper cause for celebration? Not in my book.

Thursday, September 10, 2009

September 10, 2009/2

Briefly, on the President's health-care speech:
The first part of the speech was necessarily complicated but was to some extent rescued by the exhortatory peroration and conclusion. The situation still looks functionally intractable to me - too many members of Congress in the pocket of insurers etc. - but I have no doubt some illusory plan will emerge. The behavior of the Republicans - Boehner, in particular, who for some reason didn't show up in full SS regalia although he was clearly dreaming of Polish villages to liquidate - was despicable.

September 10, 2009/1

" The property portfolio doomed Lehman when a rescue still seemed possible. On Saturday, Sept. 13, 2008, Timothy Geithner, then president of the Federal Reserve Bank of New York and now U.S. Treasury secretary, asked a team of the world’s top bankers to evaluate Lehman’s real estate holdings as part of an effort to facilitate a sale of the investment bank to London-based Barclays Plc.

The team, including representatives from Goldman Sachs and Credit Suisse Group AG, determined that Lehman had overvalued its real estate investments by $20 billion to $30 billion, according to people who attended meetings at the New York Fed last September."

This, from Bloomberg this morning, validates what I, virtually alone since October, have been saying with regard to Washington's decision to le Lehman go. It wasn't Fuld's arrogance, or Barclay's being held up by UK regulators (a straw man of an excuse, if ever I heard one) that doomed Lehman, it was the firm's commercial real estate book - which set it apart from other supplicants, mainly Merrill. Here's what I wrote on on October 7,2008, three weeks after Lehman failed:

"Think about this. Every report on Lehman that I have recently read is saying that the real toxicity on the Lehman balance sheet is in its commercial real estate holdings and investments. Of no other troubled firm does this seem to be true, only Lehman, which may also explain the Paulson team's no-bailout call."

No wonder I can't find work. There's no one the mediocrities who run American media hate worse than someone who knows what he's talking/writing about.

Wednesday, September 2, 2009

September 2, 2009/1

I'm trying to balance a whole bunch of things, so won't be blogging much until Labor Day. I am fascinated by the way the media is cheerleading this "recovery." Take "productivity." The late unlamented Greenspan based much of his folly on a notion called "anhedonic pricing," which basically meant that thanks to Moore's Law each month saw an increase in productivity as computer capabilities increased faster than computer prices, ie. more bang for the buck, or more "productive." It never bothered Greenspan that the more work computers take on, the less there is for humans to do. This may be more "productive" statistically, but it promises sheer hell for any political economy pretending to be a functioning free-market democracy. Another few years of this, the United States is going to be little more than a giant El Salvador.

Sunday, August 30, 2009

August 30, 2009

We spent last week away, in far New England, in a place where it is always 1954. No tweeting, blogging, prose composition. Just sun,water, mountains, friends. This was the week that saw both Teddy Kennedy and Dominick Dunne shuffle off this mortal coil, so it was a good place - away from the noisy, and the froward and the vain (Dickens) - to reflect on two lives that mark, for me, the passing of an era.
The last time I spoke with Dominick, with whom I had an unevenly textured friendship going back almost forty years, was in June, perhaps nine weeks before he died. My publisher was pressing me to seek a blurb from Dominick, despite my admonitions that he was very sick, was in fact in Germany receiving treatment for his cancer, and I reluctantly sent him bound galleys. That would have been in May. I came home one day and Dominick - I never called him "Nick" any more than he would have called me "Mike" - was on my voicemail. He sounded worse than terrible. He couldn't do the blurb, just didn't have the strength, in fact, he said, "I think this may be it." I called him back immediately and got his voicemail. I left a message saying for God's sakes, all that matters is for you to get better, you must use every scintilla of energy for yourself. He called back a few minutes later; we chatted briefly; I told him I was praying for him.
The way we met was funny. It would have been around 1968-69, and I and a friend were on our way to Los Angeles for a weekend of fun and frolic. To make the flight pass more slowly, we had ingested some cookies baked in an upstate ashram that had a high cannabis content. By the time our flight was abeam Pittsburgh, we really no longer had need of an airplane. A bit later, it was suggested that he top off our exhilaration with a toke in the loo (we were upstairs in a 747.) The restroom door was locked when we got there, but a minute later it clicked open, and in a scene reminiscent of the Wizard of Oz, there was an enormous gust of marijuana snoke with a small figure in the middle. It was Dominick. We urged him to try what we had, and the three of us squeezed back into the small cabine and enjoyed a jolly puff.
As I say, ours was an uneven relationship. There was a bit of professional envy mixed in there, probably - make that certainly - more on my side than his. I didn't think much of his novels, and the world he wrote about for Vanity Fair didn't interest me. But I was also happy for him: he got the life and recognition that he craved, and he won the devoted admiration of thousands of fans and the deference of headwaiters. I think that when someone gets what they want, and get it more or less honestly, it's cause for a round of applause, even though it might not be what you want. It was a life that deserved a better ending.

Thursday, August 20, 2009

August 20,2009/1

Everyone agrees that what is taking place in "town halls" and elsewhere, most notably in connection with health-care reform, is proof positive of Americans' mistrust of government. On the basis of second- and third-hand observation, I'm inclined to agree, with this rider: if I had to guess, I'd say that Americans are deeply fed up with this government, which they see - as I do - as essentially functioning as a delivery system for the money interests: Wall Street, Big Pharma, Insurance etc. And I include the White House in this indictment. Back in November, I hardly thought I was voting for the Enabler-in-Chief.
I'm in my ninth year as Medicare user, and I have nothing but satisfaction to show for it. I'm not alone. Even louder than the anti-government babble is the theme, "But don't touch my Medicare!" I've had two knees replaced on Medicare, and various other procedures. It works, and I have no sense that my doctors are gaming the system, even those who don't take Medicare but will do and submit the paperwork (not the same as those who've opted out of the system.) I can't understand why the principal thrust of health-care reform, which as it's now being argued looks to me like an absolutely unresolvable Gordian knot, with the interests of the impecunious being notionally served by the bought-off, hasn't focused on extending Medicare to the uninsured, possibly working backward by age groups (extend the program to people over 55, then 45-55 and so on.)
(Added later): The head of the Mayo Clinic checks in here.
And in counterpoint, this.

Wednesday, August 19, 2009

August 19,2009/2

Your stimulus dollars at work, right here.

August 19,2009/1

Today's WSJ lead headline says it all "Reluctant Shoppers Hold Back Recovery." It's all our fault, you see. We should be out there spending money we don't have and will never see. It really is us against them. Meanwhile, profit margins are being helped by "productivity," which is output enhanced by squeezing extra hours out of workers afraid of being laid off. I have been saying and writing for years, based on my adventurous wanderings among the world's executive class and the world's wealthy, that Marx might get another bite at the apple.

Tuesday, August 18, 2009

August 18,2009/3

This bears thinking about. I think a huge psychological shift has taken place. People of moderate means, even those - like myself - theoretically in a high quintile of that economic sector, no longer buy the Reagan-Bush-Clinton-Bush myth that the ordinary unconnected citizen, who borrows money at retail, can get rich. Nor do we believe that the best-off will (a) do anything for us and (b) will cease to grab all they can using the immensely powerful financial and political levers at their disposal. We need to circle our creaky financial wagons as best we can, try to get by in a World According to Goldman Sachs and wait for some kind of messianic political eruption.

August 18,2009/2

Just listened to an absolutely pointless colloquy between Kurt Andersen and Leonard Lopate on the latter's WNYC gabfest. Kurt has written what sounds like a straw man of a book called "Reset," but being as deft a media politician as there is, he's garnered a good deal of underserved ink and attention. The thesis of the book is - apparently - that the mess we're going through will make us stronger and braver. Amazingly, Kurt claimed authorship of the use of the modifier "casino" with respect to aspects of our culture, saying he happened upon it a couple of years ago, while I think in fact Felix Rohatyn popularized the term 'casino capitalism" some twenty-plus years ago. What bothers me is that at a time when, at least in my lifetime, there has never been a greater need for clear, insightful, original thinking and clear, insightful, original speaking, the gatekeepers of the media, like Leonard Lopate, reserve access to a practiced and thus dependable troupe of blahblahblahbarians.

August 18,2009/1

Hamptons analysis: I think this is pretty much on the money.

Monday, August 17, 2009

August 17,2009/2

One does wonder sometimes. Take a look at this page from the NYT website about the present director of the Toledo Museum becoming the new director of Alice Walton's new museum of American art that is under construction in Bentonville, AK. Ms. Walton, it will be recalled, bought the famous Asher B. Durand painting "Kindred Spirits" from the New York Public Library in a transaction decried by this writer among others (Kimmelman as usual waited until the barn door was closed, locked and horse in the next county before raising a tentative admonitory finger). You can read all about it here. I hate the word "iconic," but if there is one painting that deserves the appelation in a New York context, it was this. The gilded board of NYPL, which could have passed the hat with no meaningful effect on its collective or individual net worth and kept the painting in the city, sat on its hands. What amuses me about the NYT's account of the new appointment is that it lists a number of the great American artists whose work Ms.Walton has acquired, and prints links references to each in its archive, but somehow skips a link to Durand. I seem to recall that that GREAT newspaperman, Arthur Sulzberger the whatever aka "Pinch" is on the NYPL board. The way society protects its own validates Michael Gross's charge that his interesting study of the people who've run the Met's boardroom, Rogue's Gallery, has been embargoed. All I can do is reiterate my late father's definition of "the upper crust": a bunch of crumbs held together by dough.

August 16,2009/1

Catching up after a long delightful weekend with friends who, despite considerable comparative advantage, have zero pretensions. So while I crank up,, read this, which explains my feeling that cash dividends, not share buybacks, are what managements should do with their "excess" cash.

Thursday, August 13, 2009

August 13,2009/4

This is why Obama voters like me are losing faith.

August 13,2009/3

Here's a typical NPR-style discussion (on 7/16 - just caught up with) with Bove clearly hoping someone at Goldman is listening, Taibbi staying away from the numbers. The real issue is whether Goldman's access to government/Fed/taxpayer funds and guarantees was to prop up business as usual. Goldman not having been a bank as any normal human being would define "bank" until practically the day before it reached into the TARP etc. honeypot did not have the "as usual" business real banks did. My own take is that Goldman saw an opportunity, figured out how to qualify, and took it.

August 13,2009/2

Read and weep:

For comparison, consider an illustrative family of three in which the father earns $30,000 as an independent contractor for a small plumbing company and the mother earns $25,000 from a small retailer. Neither small business provides health benefits. The couple has a daughter in second grade at the local public school and pays $100 a week for child care after school and during the summer. The family lives in a modest home and pays $1,000 a month in rent and $250 in utilities. It owes $2,312 in federal income taxes, $6,502 in Social Security and Medicare taxes, and $1,350 in state income taxes. It has two cars with payments of $300 a month each, and pays $2,000 a year in car insurance and $1,000 a year for gasoline. It spends $150 a week on groceries. The couple has avoided accruing any credit card debt, but they have no saving for retirement and no life insurance…

Right now, the federal government pays $14,777 to provide health insurance for each of Goldman Sachs’s managing directors and pays nothing to provide health insurance for this middle-income family. The Administration and Congress face a clear choice: can we modestly reduce the extremely generous government subsidies provided to the Goldman bankers and others similarly situated to help pay for a subsidy worth a fraction of that amount to families of modest means?

From the Center on Budget and Policy Priorities

August 13,2009/1

I feel like an idiot. I completely missed this market run - which for most people won't go long term until Sept-Oct-Nov. My 22-year-old son is mad at me for convincing him to hold 20% of his funds in cash. People I don't consider very smart are jangling coin and dancing in the aisles; people I consider perceptive are like me, staring gloomily from the sidelines, unable to believe that issues like toxic assets and unemployment have either vanished or no longer matter. It would appear that all that counts are corporate "profits" based on getting rid of people and squeezing suppliers. The good news from Europe comes from France & Germany, nations of savers. It's all about mood-momentum. And the fact that Goldman has gotten away with gaming the bailout the way it has makes me nauseous. Help me, someone, in my moment of agony!
And I like this.

Wednesday, August 12, 2009

August 12,2009/1

A smart quote from Dorothy Rabinowitz of the WSJ:

"The president has a problem. For, despite a great election victory, Mr. Obama, it becomes ever clearer, knows little about Americans. He knows the crowds—he is at home with those. He is a stranger to the country’s heart and character."

And this strikes me as insightful and important.

And what have some of us been arguing all along, especially with regard to Lehman?

Tuesday, August 11, 2009

August 11,2009/2

This is the speech the President should be giving.

August 11, 2009/1

Starting a new novel, so may be brief here until I get routine and momentum. An interesting column by John Crudele in this morning's NY Post. In this morning's WSJ, there's a piece that should only be read in the vomitorium, about how "B-list" firms, in this case a former employee of the bucket-shop Blinder Robinson, are coining it.
This is also excellent.
Running through some notes, I find this statement by the President to Jim Lehrer (July 21,2009):

And so our job is to -- with the resources that we've got -- try to maximize the help that we're getting to Main Street and to try to pressure Wall Street to do its part in making sure that credit is available so that businesses can start picking up again.

As my young texting friends would write: hahaha

Monday, August 10, 2009

August 10,2009/1

We spent the weekend in upstate New York where, through the generosity of friends, we saw/heard as good a La Traviata as can be imagined at Glimmerglass, and were well fed and entertained. We also visited the Baseball Hall of Fame, which is probably the only museum in the world in which the average American tourist has some idea of what's going on.
Among my wiser friends, the consensus is that the credit crisis, if not strictly speaking over, is at least contained. I agree, much as I hate the fact that the containment has been accomplished with a methodolgy that allowed Goldman Sachs to game the program in way both contemptible and contemptuous. And I have this caveat: if the credit crisis has meaningfully abated, it is on the buy side only, on the wholesale, or lending, side of the equation. On the sales end, where people borrow, a combination of shock and avarice still holds sway. Foreclosures continue. credit card horror stories abound.
Apart from the bottom line, which I suppose is all that counts, it has not been a good fortnight for Goldman. First, Blankfein's memo to the troops, in which he sounds like Polonius ("rich, but not gaudy..."), is leaked. Then Mrs. Blankfein behaved as such people inevitably do, completely ignoring her husband's admonitions - the pressures brought on by wealth can be psychologically as irresistible as the exactions of poverty - and threw her gilded weight around at a Hamptons charity do. Next, GS president Gary Cohn publicly asserts that the frm was never in real danger, and holds fast to that point even as damage control rages all about him. This raises the interesting question as to what exactly was GS's position last fall? What exactly was represented to Paulson, Bernanke, Geithner etc. ? Was the decision to become a bank, take TARP money and gain access to the discount/guarantee funding pool, largely opportunistic, as I suspect, or a function of desperate need? what about the AIG contracts? Were they hedged, as Goldman now says, or were they not? if the former, why were they paid off by the taxpayer? I think we need to know; I think we can know. There has to be a paper trail. And, by the way, what is Goldman now? How long can it be a bank, when its banking functions are purely ceremonial? With TARP repaid, and Federal guarantees off the table, is it still finding ways to avail itself of low-cost taxpayer money? What about its "excess reserves"?
Finally, there's Sunday's uproar over Paulson's communications with his old firm, which has the conspiracy-theory beagles in full cry. This will need looking into.
Character, they say, is destiny. Where there's smoke, there's fire. I think Goldman was, is now and ever will be a firm of liars. That is to say, a firm that regards truth as fungible and flexible. I except a brief "Camelot" period when the firm was presided over by John Weinberg, but even then, behind the scrim of Weinberg's probity, the moral descendants of Gus Levy were busy laying the groundwork for the great future to come, a future only realizable if Goldman could achieve what it palpably has: topput in place a web of connections, overt and under the table, policy inputs and information sources that permit it to be on all sides of every deal, every regulatory initiative, every subsidy. When I imagine GS's "public face," I see a hydra-like creature whose multiple brainstems support faces whose features are a combination of Janus, the two-faced deity, and Alfred E. Newman, of "What, me worry?" fame. Nice work if you can get it.

Friday, August 7, 2009

August 7, 2009/2

This should be taken into account. Between the way the markets are run today and the good news from Washington, I smell a bull trap. Of course, I've only been 3000 Dow points wrong so far.

August 7,2009/2

A grim thought. Watching a YouTube of mobs disrupting a "Town Hall" in Florida, I wonder: do you have to be my age to recognize how these scenes resemble those enacted in Germany in the 1930s. Apart from small differences in attire and the language of preference, I can discern little to choose between them.

August 7,2009/1

It's no fun to feel old and out-of-date. I had lunch yesterday with a very smart younger friend, a writer. She extolled the virtues of Chris Anderson's Free, the book on the future economy that's drawn a lot of ink. Enough to make me decide to read it. Then she got on to the subject of Twitter. I tweet occasionally myself - to promote my novel or make my few "followers" aware of something I've written or posted somewhere. The funny thing about both these phenomena is, they seem to forbid rational explanation: they just are and ever will be, world without end. Yesterday, while we were lunching, Twitter went down, succumbing to one of those hacker attacks. Judging from the report in today's Wall Street Journal, Tweeters the world over would have sooner given up their left arms. Twitter I just don't get, I admit it. It seems to me to be an updated version of what we saw when teenagers first got cellphones; you'd seem them crossing a street, saying "I'm on 53rd St.," "I'm crossing the street now...." Anyway, as a writer in search of a readership, I won't give up. I'm going to try to figure out how to use Twitter to make people aware of my work. At my age, what else is there?
On another subject, another friend, the Vanity Fair writer Vicky Ward, has a post on her Facebook page (when I write a phrase like that, I feel like that old Flanders and Swann song that went something like "We're ever so very contemporary at number 7B") that reads like a preemptive strike. Vicky's writing a book on Lehman, and reading between the lines on her comments on what others have written and published, I think she'll be giving us the Paulson Version. I've advised her to tread carefully.

Thursday, August 6, 2009

August 6, 2009/2

Speaking of Buffett, this is interesting. I had lunch with an old friend, our friendship dating back almost 50 years now, to Lehman Brothers. We discussed the possibility of a truly punitive populist/regulatory backlash against the Street. My guess is that this will only happen if someone appears on the scene who can put across to the electorate exactly how much economic unfairness has been subsidized with the taxpayers' money. Who might that be? Not the President; he's in the tank.

August 6,2009/1

Now, inevitably, comes the argument as to how badly off Goldman Sachs was last fall when it converted to bank status and took TARP funds. You can read one view here.
The other side of the debate is articulated by Heidi N.Moore on Twitter passim. (@moorehn).
The odd part is that the "wasn't in straits" argument is based on statements coming from within GS. So was TARP forced on them or not? Knowing something of Goldman's moral history and traditions, and the firm's almost supernatural ability to plumb for and cost out regulatory loopholes and preferences, my money's on the "not in trouble" side. Taking TARP money opened up the discount window without obliging GS to undertake bothersome conventional banking practices. If you factor in what appear to be celestial returns on capital since last fall, the blended cost of TARP plus Fed/FDIC "free money" looks quite bearable. Same for the Buffett deal, which also put America's beloved financier, even if the largest stockholder of one of the principal enablers of "financial weapons of mass destruction" (Moody's), in the GS camp. It'll be interesting to see how WB deals with the GS investment in his next letter to stockholders. In the last one, he barely mentioned Moody's.
Since highly-placed people at GS now deny the firm was "near death" (see here) the government agencies involved with GS at the time will presumably come forward to confirm or deny "the Goldman Version." This should be a centerpiece of any investigation of the bailout. Paulson should be subpoenaed.

Wednesday, August 5, 2009

August 4,2009/2

When I first went to work on Wall Street, in 1961, I found the work tremendously exciting - in the sense that I fancied we were raising capital to fuel the growth, innovation and refurbishment of American commerce. At Lehman Brothers, our poster boy was Litton Industries, a company that was dedicated to the proposition that super-managers, armed with the latest in management technique and theory, could manage the hell out of any business. My father had been a key figure in Litton's early financing, a feat that had enormously magnified his reputation as a "wonder banker."
Litton spawned what in the 1960s became "the conglomerate craze." The Litton model bred a host of followers and imitators. Inevitably, everyone started to reach, and high prices began to be paid for businesses in intractable markets or with intractable production or services problems. On Wall Street, we loved it. The money to be made was unreal: fees for "expertising" a takeover, fees for followup underwritings and debt placements etc. etc. A prize example was Walter Kidde Co.'s acquisition of United States Lines, a marriage made in hell since the moment it was suggested to me in the dormy house at Pine Valley. A rubric "intercontinental intermodal transportation" - meaning containers - was coined and away we went. What mattered, and only mattered, was that a deal could somehow be done. The fee was the sole object. Wall Street and America had, so to speak, parted ways. Or perhaps Wall Street was now in touch with an aspect of the American character, if there is such a thing, that had been suppressed by the patriotic, one-for-all fervor unleashed by World War II and its Korean stepchild.
By the end of the decade, the deals were getting crazier and crazier, and were being financed mainly by debt - to the extent that the Fed finally came up to the Street, called in the hot-shot bankers and decreed "game over!" Banks were to stop making "non-productive loans," and to get the point across on the corporate side, interest on such loans, mainly for takeovers, would no longer be deductible for tax purposes.
At about that time, say 1970, I committed the sin that I think finished my career at Lehman Brothers as much as any other, including the quarrel with Daryll F. Zanuck that got me kicked off the board of Twentieth Century-Fox. I got a call from a banking client, the CEO of an old-line, profitable New Orleans shipping company called Lykes Brothers. He had been talked by a woman in New York (the less said about her the better) into considering a bid for Jones & Laughlin, the famous steelmaker then going slowly and steadily broke in Pennsylvania and Ohio. He had investigated the situation and convinced himself that there commercial and financial virtues hidden in J&L that he alone saw and that he alone could trade on to revuild the steelmaker into a glowing temple on the hill. He wanted to make a bid. Would we handle it for him? I said I'd like to think it over and call him back.
I thought it over, and I called him back - to tell him that, much as we cherished his business, this was one we would sit out. I could see only bankruptcy, the disemployment of thousands, the ruin of communities: disgrace (a little-regarded outcome in American business and non-existent n Wall Street) for all concerned. I had no wish to involve my firm in such a situation.
You guess the result. He went to another partner; Lehman did the deal and earned a bunch of nice fees, and in short order all the dire outcomes I had predicted came to pass. J&L and Lykes went bust. The demographic carnage in the Rust Belt was something to see. I fell into disfavor at One William Street. And so it goes.
Wall Street cares nothing for the economic state of the nation at large. The recent rally and the profits in the banks tell us that. Still, it was a terrible lesson for an idealistic young man to have had to digest just at the cusp of middle-age, as I was in 1970.

August 5, 2009/1

If there's anyone that reads this blog (from the absence of comment, I doubt it), I wouldn't want them to miss this. It requires no further comment.

Tuesday, August 4, 2009

August 4, 2009/3

I consider this one of the most brilliant and insightful analyses I have read - and am likely ever to read - of the mess that has been made up and down, right through the American economy. Its author's spiritual journey from neocon to new dealer is fascinating.

Incidentally: some years ago, in a talk at some club, I predicted that the curse of the computerization of Wall Street would be the enabling of profitable trading of ridiculously small fractions of money. "Flash trading"? "Dark Pools?" It has come to pass.

August 4, 2009/2

It will be interesting to see which arrives sooner in my existence: death or taxes. My money's on the latter. How the taxes necessary to restore some of our eroded position are formulated may be Washington's (and the voters') last chance to make good use of the crisis. Here are some thoughts.
What about a national sales tax, say 2%, on online purchases? It makes no sense that if I buy a classical CD from Arkiv, I pay NY sales tax, whereas if I buy the exact same disc from Amazon, I don't. Makes no sense - and offends my sense of equity. Half the tax collected could be ratably rebated to the states.
Corporate dividend payments should be deductible at the source. This would encourage distributions, keep the heat on managers and to some extent offset the cost of taxing benefit contributions.
Individual taxes, both on income (of any type) and capital gains, need to be indexed to reality. Or, as my mantra puts it, only tax AS rich what IS rich, on a sliding scale that begins low - at, say, $50,000 and moves upward in increments to a top bracket of, say, 50% on income in excess of $5 million and gains in excess of $50,000,000.

August 4, 2009/1

News reports today suggest that the strain is starting to tell on Geithner. It's understandable: the evolving regulatory structure will inevitably involve a lot of turf-protecting and a lot of turf-building. Personally, I think the notion of a single, uber-regulator is ludicrous. I am opposed to anything that makes lobbyists' work easier, and this will effectively permit one-stop shopping for K-Street. Here again, why is history being ignored? When banking and investment banking (for lack of a better word) were separated and kept separate (1933-99) by Glass-Steagall, and the two sides were separately regulated, Wall Street's ability to plunge the nation into systemic disaster was limited: the dot-com bubble was about as bad as it got. This economy runs on two energy sources: fossil fuel and credit. The pricing of the latter has been outside our control since 1973, when we failed to take steps to counter OPEC, and the repeal of Glass-Steagall effectively terminated our control of the latter. In both sectors, the principal agents of waste, the auto companies with their SUVs, and Wall Street with its securitizations and derivatives, ran wild and here we are. Why not go back to where we were?

Monday, August 3, 2009

August 3,2009/4

I wrote some months ago, either on or in NYO, that no experienced private-sector financier would do a deal on the giveaway terms that Uncle Sam was negotiating on the taxpayers' behalf with the TARP suckfish. The disparity in returns earned by Buffett vs. the taxpayer appears to substantiate that assertion. For a more eloquent analysis, by Roger Ehrenburg, go here.

August 3, 2009/3

Reading about how successful the "cash for clunkers" program appears to have been brings to mind a column I wrote some months back for NYO in which I argued that the best way to stimulate the economy would be to send every taxpayer (roughly 100,000,000 of us) a check for $25,000. That would add up to $2.5 trillion, cheap compared to the money the Great Geithner Giveaway has shoveled at Wall Street. Most of that money would get spent, I believe, and would move through the economy much more usefully - and rapidly - than via Wall Street computer trading. I stand by my argument.

August 3,2009/2

I defer to no one in my high regard for Joe Nocera as a financial writer, except for one quirk: now and then he'll strut his sympathy for Wall Street, he'll show that he feels the pain of Goldman Sachs and others for the terrible things people are saying about them. This past Saturday's column was a good example. Goldman and the rest have merely been doing what they do, he argued, and to call them greedheads or fraudsters - words that I happen to think apply - for not having behaved otherwise in the months since the October credit freezeup is wrongheaded. I disagree. I do not think that TARP and other taxpayer-funded facilities were designed to fund business-as-usual for Goldman, JPMC and the other survivors. I do not think these taxpayer programs were put in place to subsidize the overpricing of risk inevitable if 50% of the historical competition is swept off the board and an oligopoly brought into being in the name of "bailout." I do nor think that discount window "free money" was intended to finance computer-driven trading programs of whatever frequency. Given the speed of its profit reversal, I seriously doubt that Goldman was in anywhere near as bad shape as it must have represented itself as being in last fall, or that its exposure to AIG was truly critical. I have my doubts as to Buffett's investment in Goldman. It's not that I quarrel with Berkshire-Hathaway earning twice the rate of return on an investment a fraction of the size of the taxpayers' assumption of risk. I just wonder whether that deal may not have been window-dressing.
I like the way a team of writers recently put it in Der Spiegel:

"The taxpayer is paying for the chips in the casino," the head of the German operations of an international investment bank says quite openly, but anonymously nevertheless. "It doesn't get any better." The government, he says, provided guarantees for banks like Munich's Hypo Real Estate, whose securities are now being traded on the market at a huge discount. Investment banks, for their part, have bought the securities with money they borrowed from central banks at ridiculously low rates.

"The biggest beneficiary of the crisis has been US investment bank Goldman Sachs, which posted record earnings of $13.8 billion (€9.7 billion) in the second quarter. Its traders used money from the US government and the Federal Reserve Bank to speculate, behaving as if the bank were a gigantic hedge fund. Profits from proprietary trading almost doubled over the previous year, while earnings rose by a whopping 186 percent in the bank's bond, commodities and foreign currency speculation businesses. And Goldman CEO Lloyd Blankfein's appetite for risk is still growing. Value at risk (VaR), a measure of the risk of loss on a single day of trading, rose to $245 million -- the highest VaR in the bank's history."

To me, this kind of behavior with respect to measures designed to open up the credit spigots is inexcusable.

August 3, 2009/1

Took me longer to get back to town than expected. Getting head together after three hours on LI highways. Will write later today.

Friday, July 31, 2009

July 31,2009/2

Good light weekend reading:
and here:

July 31, 2009

I'm taking off in an hour or so and won't be writing until Tues. probably. Aside from pondering how many more rounds of bad golf are left in my bag before the Eumenides snip the thread, I'll be pondering the state of affairs. It's hard to avoid the suspicion that the big bailout beneficiaries - the survivors - have decided, after looking at the wealth of information available to them, and after tapping into unmatchable sources, that the thing to do, given the outlook, is to get all they can now - because there ain't going to be much to get in the future. They've eliminated "citizenship" from their working lexicons, with the arrogance born of an awareness that there exist no admonitory powers, not political, not in the media, not in public opinion, that can compel them to put the brakes on. To revert to Rahm Emanuel's notorious trope, as far as Wall Street's grip on the money levers is concerned, this crisis has been wasted.
Talk to you next week.

Thursday, July 30, 2009

July 30,2009/2

Income inequality? New taxes? Opportunity?
I think there's a connection between the widening spread in income distribution and the growth of financial services as a percentage of GDP. When I was a kid, Wall Street was there, but it wasn't the center of the known universe. When I started working in New York in 1959, as a curatorial assistant in the European Paintings Department of the Metropolitan Museum of Art, I made roughly $6000 a year. And so did all my contemporaries, no matter what they did, whether they worked in publishing, fashion, the law, stock brokerage, art dealing. When I moved to Lehman Brothers in 1961, I started at $6250. But as time went on, and I rose in the firm, becoming a partner in 1967, I soon started making more than the CEOs of a number of my corporate clients - which made no sense at all. Then of course I left Lehman, went to Burnham, left Burnham, "consulted" for a while, and then in 1980 started writing and back down the financial slope I tumbled, passing a great many people with whom I'd been tight as a young man, and who were suddenly cashing in. A number of them were discovering how much they loved money, and the more they made, the more they loved it, which effecively ruined the dynamic of friendships that, twenty years ago, I would have bet on as lasting to the grave. It's like the verses in that great Bob Dylan song:

"With haunted hearts through the heat and cold,
We never thought we could ever get old.
We thought we could sit forever in fun
But our chances really was a million to one.

As easy it was to tell black from white,
It was all that easy to tell wrong from right.
And our choices were few and the thought never hit
That the one road we traveled would ever shatter and split."

Well, split it did - and as the paths further diverged some kind of social conscience replaced the wallet as my principal center of feeling. Go to downtown or central Brooklyn, walk to the bus, look around: see if you can help saying to yourself, "These people have nothing. What must their day be like?" It's not my fault, I know, but I can't help experiencing a brief shiver of guilt.

Well, there's one thing we need to face. The income and wealth inequality of the past thirty years has been built on a foundation of subsidy. Capital begets capital because Uncle Sam facilitates the birthing. Sooner or later, the only way to redress an imbalance that is moral as well as financial will be through a system of graduated taxation, both as to income and investment returns - but this will only work if the ruling premise is to tax AS rich what IS rich by the standards of today.

July 30,2009/1

The dog days are soon upon us, and it's hard to be upbeat. Everything seems so wrongheaded, as if common sense had been made illegal. I'm no expert, but the Health Care issue looks like a Gordian knot to me. It also looks like the Wall Street bailout has benefited mainly the Street, not so much the rest of the country. Perhaps it's our deficient sense of history, but we seem to have an equally deficient sense of the future. We don't ask, "This is happening. Where is it likely to take us?" Instead, we get run over, clamber to our feet, and ask, "This has happened. Why?" Investigative commissions are set up and they will find that the pricing algorithms that Wall Street used in the runup to the Credit crisis were flawed. Rereading Pecora's review of the '29 Crash shows that almost exactly the same behavior patterns were manifested in the Jazz Age as in 2005-7. There seemed to be no one around, myself included, and certainly no one in a position to do anything, who said that if the Street does this, and this, and this, calamity is a sure bet.
Of course the big problem is Washington. For fifteen years now, operating on the theory that you get the government you pay for, I've argued that we cannot expect much from legislative bodies whose members are paid less than third-line Wall Street people to preside over a $13 trillion economy. So we end up with people who can't afford to be in Congress (who else in America is required to maintain two residences, one in the district and one in the District) and are supported by K-Street off the books, and a Senate peopled with idiot millionaires. Then throw in the ratcheting-up of campaign costs...well, it figures. Time and again, in the Observer and elsewhere, I've fulminated on this point, and folks have looked at me like I'm nuts. At last, however, someone else has mounted the barricades, Matt Gimein, a writer for The Big Money. You can read him here.
And I'd like to see us go whole hog. Pay our legislators sufficient compensation tp keep them out of the hands of the K-Street pimps, and break up Washington as well. Leave the Congress, White House and Supreme Court in the District, and the Pentagon across the river. But relocate the departments to other parts of the country: State Department to Brooklyn (Atlantic Yards), Fed to Manhattan, Energy to Houston etc. etc. Tremendous local stimulus. After all, some wenty years ago, on some talk show, I observed that it was a terrible omen for the country that the hottest real estate market going was Washington, DC and its conurbation (a great word I'm pinchingfrm Jason Epstein's excellent piece on Jane Jacobs in the latest NY Review of Books.) I think I've been proven right.

Wednesday, July 29, 2009

July 29,2009/5

Just when one thinks the summit of repellent behavior has been reached, someone comes along to raise the bar. Here we have a concatenation of Fashion Mile and Wall Street, a combination loathsome to contemplate. Click here and then scroll down and click "RSVP list" and see if you also don't think a pretty good case for selective euthanasia has been made.

July 29, 2009/5

Generally speaking, there have been few times in my life when I wished I was a woman - but I do so now when I receive my friend Camilla Dietz Bergeron's monthly newsletter. Camilla and I have been friends for 35 years. She was a founder of the legendary Wall Street firm known as Furman Selz (the full name, let posterity be aware, was Furman Selz Mager Dietz and Birney). When the firm was sold, Camilla was able to indulge her life's passion and ambition: to deal in vintage and estate jewelry, and she set up in trade with her friend Gus Davis, who did jewelry at Sotheby's. Let me tell you, folks, Camilla and Gus are the goods! Impeccable taste, a high level of inspiration, impeccable service, originality, fair prices. And Camilla sets it all down in a fantastic newsletter that has me drooling and pricing sex-change surgery when it arrives. Sign up for it here.

July 29, 2009/4

I just got around to read a recent blog post by Justin Fox, who comments on finance for Time, and whose work I admire. In it (here), Justin chides those who criticize Goldman Sachs for its outsize profits, who gripe that they are unseemly in a time of credit and general financial stringency. GS, he argues, makes the money it does because it does what it does (trading, underwriting etc.) better than anyone else.
But here's the thing. TARP and the FDIC "free money facility" and related stimulus/credit loosening initiatives are not supposed to finance that which Goldman does best. They are supposed to free up credit, not bankroll program/proprietary trading and positioning. To get its hands on this taxpayer money, Goldman became a bank - but it does nothing that banks do: it certainly conducts no retail lending business. I admire Goldman for its trading skills; just don't do it with my money.
One other thing: thanks to Henry Paulson, the "anyone else" whom Goldman does what it does better than has been shrunk by around 50%. Seeing one's competition cut in half does wonders for one's pricing and one's profits.

July 29,2009/3

David Leonhardt, consistently the most even-toned of big-media economics writers, explores in today's NYT the thorny issue of taxing health-care benefits, the only way any possible universal plan can come within an ace of being funded. For some time, looking at the seemingly intractable health-care situation, and working only with common sense, I've wondered whether it might make sense to offset some of the pain at the corporate level, whether inflicted on the employer or the employee, by making dividend payments deductible for corporate tax purposes.
I don't know how the sums work out vis-a-vis projected health-care arithmetic, but there are many other good reasons for doing this. It has long been clear that retained profits are too valuable to be entrusted to management. Eliminating the tax on dividends at the source would encourage distribution across a broad range of equities that are now valued entirely on the basis of per-share earnings prospects that may never be monetized for the benefit of stockholders. This would have to be good for the economy - putting money in the hands of people and institutions that can use it now - and for the equity markets. My corporate-finance mentors at Leman Brothers, mainly the late, great Harold J. Szold, taught that when corporations require equity for capital projects, they should get it afresh from stockholders via underwritten rights offerings, which have all but vanished from present-day finance. A return of this practice would be good for Wall Street. There is something about a recurring, rising dividend that would not only posthumously warm the hearts of Graham & Dodd, but is more solid than the hit-or-miss, now-and-then stock buyback programs that have replaced dividends in corporate favor. And there is this: anything that favors equity financing, or lightens its capital-structure burden, may slow the headlong rush to borrowed-money leverage that has already cost us so dearly.

July 29,2009/2

For us Goldman Sachs hysterics, here's a lesson in how to approach the subject.

June 29, 2009/1

In the old days, when something like the sad business involving Henry Louis Gates and Cambridge police officer Crowley occurred, people would talk about among themselves, around dining tables, in bars, strolling beside the river. There would be some pulpit action. People would be given time to consider the possibility that this is just one of those things that happens, especially in a culture that believes it's all about "me" and extrapolations thereof, in times that have everyone on a hair-trigger. Gates would have been tired, hot, on edge from the effort of having to break into his own house, irritated in the back of his mind at the inconvenience, maybe the cost, of fixing whatever damage he'd been forced to wreak on his own front door. Officer Crowley would have been hot, too, probably out of sorts at being sent on what must clearly have seemed at first blush a fool's errand. He would have been doing what he saw as his duty. At such moments, what is said, no matter how mild or modestly intended, is susceptible of combustion and escalation. So now an entire nation has to take sides in a debate about racial profiling, proper apologies etc. etc. etc. which is no business of the 99% of the opiners and pundits and public-radio weighers-in. Where has common sense fled to? And ordinary good manners? Where did this notion that to apologize is to lower, demean, prostrate oneself come from? I must say "sorry" or "please" a dozen times a day. It's reflexive, not so much tied to a specific incident or occurrence or contact as to a general feeling that the best way to get along in a crowded, intemperate world is to signal my recognition that there are other people out there trying to get along, too. I might add that, as I live in Brooklyn, and travel mainly by public transportation, nine in ten of those to whom I extend these small, painless courtesies are persons of color. And nine out of ten of them reciprocate.

Tuesday, July 28, 2009

July 28, 2009/3

On the Goldman Sachs front:
On Wall Street, the devil is always in the numbers, which may account for the indifference with which an innumerate or anumerate electorate regards the shenanigans. If you're interested, go here and follow the subsequent links.

July 28, 2009/2

Sunday I sent around an e-message to friends telling them that I felt it was time to leave the NY Observer. As I usually am, I was candid about my reasons. I have no intellectual or ideological connection to the new regime there. Tom McGeveran, the new editor, seems like a very nice guy, but we've never worked together, and since I have some idea what Peter Kaplan endured over the last couple of years, I can only imagine that Tom must feel, some mornings, that he's woken up in the journalistic equivalent of the trenches at Verdun.
My e-circulation list included a few people in what we broadly call media." Friends who happen to be journalists, people for whom I've written. Page Six wasn't on the list, not that I don't like Richard Johnson, and enjoy what he does, because I do - emphatically - but I simply didn't think the departure of an old guy of 73 after a gig that ran 22 years from first word to last wa very gossipworthy. I lawyer friend of mine is fond of saying, "In e-mail, the e' stands for 'evidence'" - advice that I've taken to heart, but - to repeat myself - I really didn't think there was any evidentiary interest in my having decided to go in the direction I have. That I used to refer to Donald Trump as "the Prince of Swine" is a matter of record; in my NYO column I took a view of the way people exhibited themselves in public (their private lives were off the record) and got themselves written about. Nicknames and sobriquets were a neat way of sticking a pin in; I was particularly fond of my coinage for Ralph Lauren: "the Wee Haberdasher." There were risks in this; having referred once to a fashion personality as "a shirtlifter," I found myself essentially blacklisted with regard to freelance assignments for a major publishing company. Anyway, public is as public does, and private is something else. I know Donald Trump's dirty secret, going back some 40 years, when we were both on the board of the much-missed Le Club. It is this: when he shrugs off the public persona that sells books and buildings and TV bullying, he's a very nice guy. But don't tell anyone!
Anyway, someone on my list obviously forwarded the e-mail to Page Six. I'm pretty certain I know who it is, because there are only one or two people on my circulation list to whose lives publicity - the trade-off of someone else's info for future mention of oneself - is as vital and essential a force as gravity is to the solar system. Not that it matters.
But that's really neither here nor there. It does prompt one or two reflections about my former employer. Some dozen years ago, it must have been, Conrad Black briefly flirted with the idea of buying the NYO. A mutual friend, the late, beloved Arthur Ross, called me up and invited me - then a NYO headliner - to meet Conrad for an exchange of views. After te usual pleasantries, I asked Conrad what he thought of NYO as a newspaper. I've never forgotten his answer: "The NYO isn't a newspaper," he said, "it's a mascot."
I think Conrad had a point. Long, long ago the paper hit a circulation wall at around the 50,000 mark - a level it's never surmounted since to any meaningful degree. This suggests that people grow into the paper and later grow out of it. In the past six months, I can't count how many times someone's come up to me and said "I see you're back in the NYO. I gave up my subscription but now I'll start reading it again."
Here's the thing. When you're young, at least until the recent economic mess, life is a lark, to be lived in and of the moment. You want to be hip, current, a la mode. You don't want serious - which is why most young people don't read newspapers, because the NYT et al traffic in the serious. But as you grow older, life starts to get more serious. Policy begins to matter more than personality. The latest fashion no longer matters, the latest scandal, the latest nightclub. They no longer make movies that anyone with an IQ over the national speed limit can suffer through, and hip-hop is unspeakable, so you quickly stop knowing exactly what the latest celebrity is famous for. You're no longer the person the NYO is written and published for. You give it up.
Most people won't believe this, but the NYO started life as a serious paper. The city already had enough of those, however, and Graydon Carter came along and created the editorial enlivenment that got the paper talked about. I stopped writing thinkpieces about capitalism and started calling people funny names, and Women's Wear Daily sent someone to interview me and take my picture. Pretty heady stuff.
The trick is, however, to hold your original audience while adding new readers. Twenty years ago, I pleaded with Arthur Carter to start a Medicine page, on the theory that of the straws that stir the New York drink, medicine is right up there with media and finance, and an aging readership, naturally more mindful of its health, of what are called "wellness issues," would stay with us. Just look at how New York does with its annual "Best Doctors" issue. Arthur didn't buy the idea. I tried again with the new publisher. He didn't answer my e-mail. I still think the idea's a good one.
In my demographic, no day begins without a lament for the late Sun. In culture, arts, sports - and in coverage of the city, which was NYO's original stakeout - it quickly rose right to the top. Made chopped liver of the NYT, with its pathetic, alienating effort to be groovy. Early on, Seth Lipsky asked me to write for his fledgling paper. I was also being importuned to return to the NYO. Here's what I told Seth: "I'm on the horns of a dilemma. Either I can be a juvenile on a grownup paper, or a grownup on a juvenile paper."
I think that says it all.

July 28,2009/1

All of a sudden, questions are being asked of Goldman Sachs from every side. The big firm has its critics and its defenders. I suppose I count among the former.
I'm simply trying to see GS plain. I think that firms, being composites of human nature, have a DNA of their own that ultimately determines their outcome. Lehman Brothers was a hotbed of self-destructive dissension when I was there (1961-1973), and after a number of attempts at suicide, finally succeeded. There was always something cheesy about Bear Stearns. Goldman seemed always to operate on the principle that if you're going to work within a system, you might as well work the system itself. Here's an example of what I mean. During my Wall Street time, Gus Levy was simultaneously managing partner of GS and Chairman of the New York Stock Exchange. It so happened that Gus and I found ourselves opposed in a tender offer for United Fruit, I on behalf of Zapata, Gus representing the late Eli Black. father of Apollo's Leon Black. In those days, the NYSE had a rule that firms (in this instance Lehman and GS) acting as dealer-managers in a tender could only accept "unsolicited orders" in the shares of the target company (United Fruit.) In other words, you couldn't just go out and round up the target shares, you were supposed to wait for thm to come to you. I was in my office one day when it was reported to me that GS had just crossed (had both sides of a buy-sell order) what looked like half the common stock of United Fruit. I called Gus. "Congratulations," I said, "that has to be the goddamdest unsolicited order ever." "well, Mike," Gus drawled in that syrupy Confederate way of his, "you know how these things are."
Well, if I hadn't before, I did now. But I've always wondered about the ethic of playing fast and loose with the rules of an organization you're the chair of. In 1929, Albert Wiggin, President of Chase, was shorting his bank's stock even as he was offering bland public assurances that all was well. Nothing changes.
What needs explaining to me is the rapidity with which GS has returned to fat profitability. Last all, it was theoretically on the ropes. Today, it's practically back to the level of profit it enjoyed back before anyone knew how to spell "subprime"(I exaggerate, for historical purposes, but readers will know what I mean.) That was a mere 9-10 months ago. Logic suggests that GS was in nowhere as desperate shape as was represented. Between the time Buffett made his deal and March, 2009, GS stock went from around $100 to around $50, even as TARP funds had been aded to Buffett's and Goldman was at the government trough, snout buried in virtually free taxpayer money. Its trading computers were whirring ceaseless and its competition had been decimated. Even though it was now a bank , it had no depositors, in the conventional sense, to look out for.
Great big firms simply don't turn around on a dime. One can only assume that GS was in nowhere as bad shape it let the bailout boys believe.

Monday, July 27, 2009

July 27,2009/4

My goodness gracious me!
See here why I'm thrilled.
So, if Bernanke held nose then, why not apply Kleenex now: windfal/excess profits tax - proposed by me months ago in a col?
Listening to WNYC's Brian Lehrer, a true genius of an interviewer - but maestro of a show that, 9 times in 10, ought to be called "The Usual Suspects."

July 27, 2009/3

Correction. The link to Gongloff in today's WSJ is here. The link above is to Peggy Noonan's interesting healh care op-ed of last Saturday, recommended to me by Philip Howard and worth reading.

July 27,2009/2

Finally finally finally!
For months I have been railing, in NYO and on, that Wall Street was turning a fat profit on the taxpayers' dollar thanks to the subsidies and guarantees made available at the Fed and FDIC. Now, at long long last, the mainstream media has picked up on the greatest bailout scandal of all. An excellent piece by Mark Gangloff in today's WSJ lays it out. You can read it here. The "lede" and "sublede" say it all:
"Banks Profit from U.S.Guarantee/The U.S. guarantee on new debt issued by financial firms will save the companies about $24 billion in borrowing costs over next three years."
Thanks to tax losses, that $24 BILLION! goes straight to the bottom line of GS and other deserving sorts. That's where the profits on which bonuses are based are coming from. It is - to repeat myself - the greatest scandal of the bailout, among the greatest scandals in history. In his grave, Jay Gould must be whirling with envy. Who knew it could be so easy?

Monday, July 27,2009

Last week, on Tina Brown's Daily Best, I expressed my curiosity why it could have been that GS didn't figure in the "Pecora Commission" hearings that in 1933-34 investigated the 1929 Stock Market Crash. After all, GS, with its pyramided investment trusts ("Blue Ridge," "Shenandoah" and "Goldman Sachs Trading Company") was as notorious as any other firm for Jazz Age abuses, thanks largely to the onstage abuse heaped on the firm by the comedian Eddie Cantor, who had been killed by his GS investments. But Pecora doesn't mention them in Wall Street Under Oath, the book he published in 1939, and the official GS history barely mentions Pecora, and not at all in context. What the GS history (Charles, D. Ellis, The Partnership, 2008) does reveal is that Sidney Weinberg of GS already well on his way to becoming a Wall Street and American legend, was FDR's largest Wall Street contributor, and was appointed by FDR to head a committee set up in 1934, at the same time that Pecora was grilling J.P.Morgan and others, to give business leaders "an assured hearing" in the White House. It would seem that GS may have learned a thing or two from the crafty Machiavellian at 1600 Pennsylvania Avenue as it - under Weinberg - began to develop what has become its signature business trait: a unique ability to place itself on every side of every issue, to be on both ends and the middle, of major financial and political transactions.
Since that post, I've been pondering the matter, and it strikes me that there may have been another factor at work, which simple fairness insists on putting on the table. The Pecora hearings were a ind of "show trial," a relatively benign ancestor of the proceedings that would begin three years later in Moscow. The great names of Wall Street - of which GS was then not quite yet one - were hauled into a Senate hearing chamber and publicly pilloried, mainly by their own testimony.
At the same time, however, across the Atlantic, the Nazis had come to power. FDR had always been sensitive to Jewish concerns (see Arthur Hertzberg, The Jews in America, 1989) and these feelings, possibly coupled with advice from the likes of Felix Frankurter, with whom FDR was still on good terms, may have convinced him that to put an upstart Jewish firm on public trial, as it were, could be combustible. After all, this was a time when people like Father Charles Coughlin, a spewer of radio-borne ethnic and religious hatred, were getting up to speed.
Anyway, it's an interesting, happily minor historical puzzle.
Pecora's book has long been out of print, but it makes for fascinating reading; one can only wish that someone in Washington or the New York Fed had taken down a copy in, say, 2006. What I find so interesting about Pecora is that his investigation found exactly the same kind of causal abuses figuring in the runup to 1929 that analysts have been connected to the Credit Crash of 2008: leveraged and pyramided securities too complex to be understood, massive amounts of credit for investment, the system twisted inside out and so on and so on.
I think this is what Santayana had in mind when he spoke of the lesson of history. As far as present action is concerned, we tend to think of the uses of history in terms of outcomes rather than causes. The latter is what we get into after the fact, among the ruins. What Pecora seems to show is that certain behaviors - behaviors that need to be understood psychologically and pragmatically, in a way that no trading/investment algorithm can ever capture - are going to produce a crash. That when these behaviors manifest themselves in markets, they need to be put a stop to - or else there is going to be a convulsion.
In 2009, Wall Street is behaving the way it did in 1930: the worst is over, business is getting back to normal, time to buy stocks again and away we go. I missed this rally, which pains my brain almost as much as, among other vital organs, it pains my wallet. Still, I cannot suppress the conviction that the only one true constant in history is human nature, and that generations alternate in a cycle of remembrance and forgetting, and that we have a way to go yet before this drama is played out.
And now I think I'll go ponder the fact that Warren Buffett has earned approximately twice the return on his bailout investment in GS as Washington has on behalf of the taxpayers' bailout investment of multiples of billions more. Which is why I have taken to calling the Wall Street Rescue of 2008-09 "the Great Geithner Giveaway."

Sunday, July 26, 2009

It looks as if the NY Observer and I are parting company for good. The new owner stands pretty much squarely on the side of those whom I consider the bad guys in the great civic and financial equations that govern our parlous existence. That his prospective father-in-law is Donald Trump, a person known to earlier readers of the NYO "Midas Watch" as "the Prince of Swine," only adds to the confusion. While I have written for other websites, most notably and, most recently, The Daily Beast (here)
the complete editorial freedom of this blog is appealing, although I may from time to time revert to those or other venues with a link here. I am also frankly tired of seeing stuff I write about crop up in some more famous column or from a bullier pulpit three or four weeks later, with no idea whether it was my thinking that struck the spark in a particular writer.
This blog will not be about me, or what I am up to. It will be about what I think, about what I like and dislike about the way we live now. I may write about books, food, the media, golf, music, Wall Street, manners, the writer's trade, Brooklyn, local politics, the Hamptons and other subjects that deeply interest me and that I think I have earned some small right - thanks to experience, research, observation and reflection - to discuss.
You might want to bookmark this space.

Thursday, June 18, 2009

Wednesday, June 10, 2009

Wednesday, May 20, 2009

Tuesday last I did

a segment on Fox Business News about the bailout. You can see it here.

Wednesday, May 13, 2009

Wednesday, May 6, 2009

Wednesday, April 29, 2009

Tuesday, April 28, 2009

Wednesday, April 22, 2009

Wednesday, April 15, 2009

Wednesday, April 8, 2009

Wednesday, April 1, 2009

Wednesday, March 25, 2009

Tuesday, March 24, 2009

The Hedge funds etc.

thought the Geithner Plan to be worth a 500-point bounce in the market yesterdays. the taxpayer? Well, here's another view.

Monday, March 23, 2009


From my friend John Dizard's FT col:

"In fact, the serious errors in management and corporate governance at AIGFP cannot be traced to incentives created by bonuses paid out on short term profits. The mess was created by central banks’ artificially depressing market volatility, AIGFP’s adopting risk management models that projected those false signals into an indefinite future, dependence on corrupted ratings agencies, and the inappropriate use of mark to market accounting."

Friday, March 20, 2009

west side story

You will be amused if you compare the reviews by Brantley in the Times and Teachout in the Wall Street Journal. Both lament a departure from the Robbins etc original that leads to a slightly different emotional axis, if you will. Brantley says that the original's tough, vicious street kids have been replaced by wide-eyed innocents. Teachout says that the original's wide-eyed innocents have been replaced by tough, vicious street kids. Quo vadimus?

Tuesday, March 17, 2009

And this


William Cohan, House of Cards

Here is my take on Cohan's very good book on Bear, Stearns.

Wednesday, March 11, 2009


This makes good sense.

The "Three Guys" stimulus plan

From today's New York Observer, read it here.

Tuesday, March 10, 2009

In search of Lost Time

Here is a good selection of Midas Watch cols written during the buildup to crisis. Reading them now, I'm quite pleased.

Thursday, March 5, 2009

On - Madoff, Markopolos, the media

read it here

Bloomberg today reports

that Legg Mason, the big money manager, has dumped its toxic Structured Investment Vehicles (SIVs) at 25 cents on the dollar. That's about what Merrill Lynch got for its junk last all from Lone Star. So maybe this can be a starting-point basis on which to price bad assets in general.

Wednesday, March 4, 2009

On the other hand

once the Right trots out this ignoramus and former cokehead, confidence is restored.

Obama is starting to worry me

During his campaign, he radiated common sense and realism. Lately, however, it's the latter I'm concerned about. The basis for any progressive tax system must be to tax AS rich what IS rich. A family income of $250,000 doesn't qualify, no matter in how a percentile it places one in. Wealth needs to be taken into account. Obama's on the right track when it comes to shaving the tax efficacy of certain kinds of deduction. But why not a progressive capital gains tax?

Hold & Suffer

In October, my nerves couldn't take it any more, and I sold out the stocks that comprised the modest mite that I had hoped would see me to my grave. As it is, measured by projections of resources versus overhead, I have a life expectancy of 5-6 years before I either reach for the hemlock or take up residence under a viaduct somewhere.
This morning, on NPR, I heard the great David Swensen of Yale counsel against selling stocks. That may be good advice if your own good companies for pennies and are looking at a fat tax bite even at these levels, but the way I see t, if and when it seems reasonable to go back into equities, I will have more money with which to start.

In today's Observer

go here

In today's Observer

go here

I was out of the country

last week, which accounts for my silence. You can find not only me but all sorts of other good stuff by going here.

Thursday, February 19, 2009

Worth pondering

In 1938, ask the world economy was re-taking, bringing collectivism and fascism in its wake, a group of ideologically mixed intellectuals met in Paris. Read about that assembly here

Wednesday, February 18, 2009

Feb 18 utterances

You can read me today in the NY Observer and on

Blah blah blah

In the past 48 hours I've overdosed on 2 TV specials and one Leonard Lopate WNYC blabfest, all addressing the cause of the present Wall Street/credit/CDO-mortgage crisis. all featured journalists mouthing pieties about matters which, if they'd had any knowledge, or guts, they'd have reported on, and vehemently, two years before the fact, when all the evidence was there, loudly pointed to by the likes of James Grant, rather than riding bravely around the chatterati circuit two years after. Not one of these talking-writing heads had anything to offer apart from the most trite and anodyne observations, yet these are the blatherers who occupy prime real estate in what I suppose we should call "the media space." No wonder people hate newspapers and magazines and networks. Supposedly guardians of our life, liberty and happiness, they in fact guard nothing except what seems to be a premptive claim on talk-show time. Enough, already!

Tuesday, February 17, 2009

Theory That A Good Offense Is The Best Defense

Has anyone noticed that the Republicans and the bank presidents are pursuing the exact same PR tactic? Cooperation is regarded as a sign of weakness and remorse for past fiscal sins is unthinkable. The theory seems to be that the best way to deal with public fury is to ignore it until in time it goes away.

Friday, February 13, 2009

Long held belief confirmed (sort of)

When King Duncan arrives at Macbeth's castle and is told of the death of the traitor Cawdor, he remarks, "There's no art to tell the mind's construction in the face," by which he means we have no way of telling what a person's like, or is likely to be thinking at the moment, from his expression. The latter, as in poker face, is certainly true, but I've always argued that you can tell quite a bit about a person's character, personality etc. from his physiognomy. Now there's a bit of science that confirms that thery.

Thursday, February 12, 2009

A Practical Solution

For the past couple of days, I've been mulling a solution to the credit blockage. The problem has been valuation. The only practical solution would be to bypass that problem for the moment and let time and markets take their course, with the upside socialized and the downside privatized. I finally came up with what seemed a perfect solution, only to read in today's Huff Post that Jeffrey Sachs had reached almost the identical conclusion. While I suppose there's little consolation in second place, the Sachs plan is still the only one I've read that makes sense.

A jab at St.Warren

THIS bears reading. If derivatives are, as Buffett famously declared, "financial weapons of mass destruction," Moody's supplied the missile fuel

Wednesday, February 11, 2009

Midas Watch Column

To read me in today's Observer, go here

Tuesday, February 10, 2009

Sublime Irony

Geithner's noncommital language regarding the TARP/TALF etc. planwas obviously designed to pacify Wall Street by making clear that Uncle isn't yielding to populist outrage. It's clear they're still trying to figure out how to cut the Gordian knot of pricing, especially with the Lone Star-Merrill 22cents-on-the-dollar CDO fire sale being the latest media elephant in the room. Naturally, the Street obliged with a near-400 point markdown.

Geithner Plan

This strikes me as on the money.


begins with a "G" - as in "Gutless"

Bernanke may be smarter than it appears

With Treasury yields as low as they are, the "safety premium" (low yield = low risk) vs. good corporates and municipals may be too pricey for money managers and could force the bond market to open up. The success of the Cisco offering could be an indicator.

Monday, February 9, 2009

Common sense

This makes a lot of sense.

Reflections on a lottery ticket

Ordinary people in this country are inhumanly patient with the fatcats who lecture them constantly about not saving enough etc. My personal favorite among these is a screed that reappears regularly in the pages of lofty journals with circulations of about 10,000 like-minded people: the point is always how stupid the poor and humble are to buy lottery tickets, given the astronomical odds against winning. But here's something these people know that some asshole at Harvard doesn't. The odds of a janitor or a pizza deliverer becoming wealthy via the lottery may be one in a trillion, but the odds of becoming wealthy via the social and economic mechanisms of this "meritocratic democracy" are ZERO! Looked at in this way, a $1 flyer on the Mega-Millions is an overlay.

More Fiscal Idiocy

On WNYC this AM more foolish talk about how tax cuts get saved and therefore aren't properly stimulative. I get a tax cut that I spend. But the store I spend it in breaks up my disbursement and pays fractions out to suppliers and employees, and these may well put it in their banks, 401 (k) plans etc. This economy depends on bang for the buck: dollars moving from one point of transaction to the next, again and again. The old multiplier. But eventually, EVERY DOLLAR SPENT WILL BE SOMEWHERE SAVED! Right now, the money's grinding to a halt in the banks. There's the problem.

Saturday, February 7, 2009

Uncle to the Rescue

Today's Times indicates that the Treasury plan will include taxpayer-backed guarantees designed to induce private-sector purchases of toxic assets. This "inducement" must be fairly priced. Already, there are billions in vulture funds circling this area. The only equitable arrangement must include a fee for guarantees that gives the vultures a choice between buying a CDO at 60 for a 15% current yield or buying the same paper, government-guaranteed, at 90 for a 10% yield. Uncle Sam has to be mindful that the private market could gang up and offer low prices. $78 billion of our money has already been blown away by Paulson. Time to stop!

Thursday, February 5, 2009

My latest for Forbes

click here


It now seems incontrovertible that Larry Summers is helpless in the face of his egotism, and is determined to keep Paul Volcker out of the loop. This is not good.

Wednesday, February 4, 2009

More Idiocy

I just heard someone calledStephen (?) Hall, identified as a "compensation consultant) knock the proposed compensation limit on the grounds that many of the afflicted have built lifestyles predicated on the incomes derived from choking the global financial system with crap and this will wreak severe hardships on their families. What I find myself asking is this: what's the moral difference between these and some poor fool who bought a house he could never afford? I guess it's that the former depended on the latter to underwrite the McMansion lifestyle.

Latest in NY Observer

click here

Tuesday, February 3, 2009

A puzzlement

Why didn't Obama reach out to Paul O'Neill, Bush's first Treasury Secretary, who was fired for speaking truth to liars.

Deep Thinking Department.

Odd how the same guys who 18 months ago swore that increased regulation would drive business away from Wall Street now aver that increased regulation (equals transparency) etc. will bring business to Wall Street.

Thought for the Day

In a culture where Time is Money, Foresight is too expensive to heed.

Sunday, February 1, 2009

Resolved: that Retained Earnings are too valuable to be entrusted to management

I think this is as good an argument as any for making corporate dividends tax-deductible at the source. This should force a higher rate of disgorgement as well as oblige CEOs to go to their stockholders for equity financing.