Tuesday, April 27, 2010

Too much……

I've always been grateful to Gene Lees for that story he told about Allan Broadbent. They were sitting on the terrace of a hotel with a couple of drinks, it was a perfect day and a young woman in a bikini walked by. She was absolutely stunning. Neither Lees nor Broadbent said a word for a moment as they watched her pass by, but when she had gone Broadbent turned to Lees and said, "...... and she really digs Bud Powell".

Tuesday, April 20, 2010

Celebrity Hanging – Goldman Sachs

The SEC action was almost inevitable – a regulatory agency in full retreat

William D. Cohen…. on Wall St and Main St.

What makes the market’s pounding particularly painful is that early next week, Goldman’s stock likely would have soared after it announced huge earnings for the first quarter; instead, the S.E.C.’s civil complaint has crushed it.

But wait a second. Does the punishment fit the alleged crime?

“Are we suffering from hindsight bias?” wondered Peter Henning, a professor at Wayne State University Law School and a former lawyer at the S.E.C., after reading the commission’s complaint. Has the fact that we are all looking for someone to blame for the financial crisis — and haven’t found anyone yet — influenced the government sanctions? Or did Goldman actually mess up?

Despite the market’s reaction, the questions will be answered only after months of discovery, depositions and documents enter the public realm.

Goldman might also settle — which is the usual course these things take, witness Quadrangle Group’s decision, announced on Thursday, to pay $12 million to settle allegations that it paid kickbacks to win lucrative business from the New York State pension fund — rather than face a trial and months of negative publicity. Goldman says it won’t settle and that “the S.E.C.’s charges are completely unfounded in law and fact.”

(Disclosure: I own a small amount of Goldman stock.)

In this unusual shot across Goldman’s bow, the S.E.C. certainly makes its case in dramatic fashion. Among other things, the commission alleges that, starting in early 2007, Fabrice Tourre, a vice president working in Goldman’s New York headquarters at the time, structured and marketed Abacus 2007-AC1 — a synthetic collateralized debt obligation tied to the performance of a bunch of residential mortgage-backed securities. The problem was that he did this without telling Abacus investors that John Paulson, a prominent hedge fund manager who made billions of dollars by famously betting against the mortgage market, had selected the mortgage-securities that went into Abacus specifically because they were so lousy.

And then, the S.E.C. alleges, Paulson bet against Abacus and made $1 billion, while the investors — among them, ABN Amro and IKB, two big European banks — lost $1 billion when the real-estate market collapsed.

The S.E.C. spiced its complaint with slices of e-mail message that certainly make both Tourre and Goldman look unappealing. On Jan. 23, 2007, Tourre sent an e-mail message to a friend, referring to himself as fabulous Fab: “The whole building is about to collapse anytime now. … Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of those monstruosities!!!” This is painful to read, but is it the whole message? The S.E.C. does not say.

There’s something else the complaint doesn’t do. It doesn’t mention any of Tourre’s bosses, let alone David Viniar, Goldman’s chief financial officer, or Lloyd Blankfein, its chief executive. This suggests to me that Tourre may have been a lone ranger, not an unheard of occurrence on Wall Street.

Goldman did not become the most admired and feared Wall Street firm by cutting corners in legal disclosures for securities sold to sophisticated investors. As has been well documented by now, Goldman started shorting the mortgage market in December 2006 and, in another part of the firm, continued to create and sell securities like Abacus. This might not be good for public relations, but it turned out to be pretty good for business.

Goldman also was not above working with a client like Paulson to structure a security — for a fee — that Paulson could then short. Would those European banks not have bought Abacus if they had known that Paulson had helped select what went inside it? Possibly. But no one forced them to buy Abacus.

And if the housing market had soared for a few more years, and Paulson and Goldman had lost billions instead of making billions, would the S.E.C. have filed a lawsuit against Abacus’s investors?

These might not be the most popular questions to be asking right now, but until we get the answers we can’t assume Goldman’s guilt. For now, all we have is a media frenzy and billions of lost shareholder value.

Tuesday, April 13, 2010

Adam Smith warned of this… rent seeking scum and govt that supports them….

Peter Geddes in New West (not his heading… I’m just more angry or less polite than he is)

If Congress passes climate change legislation, someone must manufacture and sell products and services to help companies meet lowered carbon emissions targets. With this in mind a friend asked if I saw profitable opportunities. Surely there is money to be made in alternative energy sources like biofuels, wind, and solar? Perhaps arbitraging the CO2 markets is the way to go? While on the surface this seems like a target rich environment, I advise caution to investors considering this arena. Here’s why.

Global warming has created a breeding ground for political capitalists. These are businesses that are expert at manipulating the political process to gain profits they can’t make in the competitive marketplace. The opportunities for political capitalism increase with the size and scope of government. When government allocates resources and imposes constraints it is generally to serve the strong and entrenched; the weak and aspiring suffer. The recent health care reform clearly exemplifies just this sort of mischief.

Monday, April 12, 2010

Finally – Rotten Australian Apple Logic Dumped

As Roarprawn might say – we have been fighting this most of our working life… and the Australian rent seekers have indeed succeeded in coming the raw prawn for all of that time. Hopefully no more…..

“Apple and pear growers have finally notched up a win against Australia at the World Trade Organisation over use of non-tariff trade barriers to block the export of NZ pipfruit across the Tasman.

Sources say the WTO panel, which adjudicated the long-running dispute, comprehensively rejected the Australian defence, the trans-Tasman political newsletter reported.

Pipfruit NZ chairman Ian Palmer told NZPA the Government had received the WTO decision, but had not briefed the grower organisation - though "that might change now that this has been leaked".

The trade row has been festering nearly 90 years.” N.Z. Herald

Friday, April 9, 2010

Learning from What Works

Extra good, if obvious sense here…. (HT NZBRT)

By Richard W Rahn (Washington Times)

9 April 2010

Economists, political scientists, reporters and pundits spend too much of their time looking at dysfunctional societies and trying to explain why there are poverty, joblessness and hopelessness. In many ways, Haiti is easy to explain - no rule of law and 200 years of corrupt and incompetent governments. Switzerland is the polar opposite. It has almost no corruption and has the rule of law with honest, competent judges and government administrators. The question should be, "What can we learn from the Switzerlands of the world about how to do things right" rather than, "What is wrong with the Haitis of the world?" Switzerland manages to run a smaller government as a share of gross domestic product than the United States and most other countries while providing a higher level of service, security, prosperity and freedom. How does it do that?

In many ways, Switzerland seems unlikely to be such a long-term global success story. It is a small country with religious and language differences; nevertheless, the Swiss have managed to live peaceably together for a long time. It has few natural resources, yet it has managed to have one of the highest per capita incomes in the world. It has a world-class health care system, which is privately run. Health care insurance is subsidized, and everyone has access regardless of income, but there is no "public option."

Thursday, April 8, 2010

Journos – again: Schizoid or just Problems with consistency?

Typically nothing gets the scribblers in search of scandal more excited than an “owner” of media taking an interest in editorial policy – that piece of irrelevance in the “editorial” journalists are under the illusion is more important than the classifieds… which make the money (or used to BI (before the internet).

They and their academic forbears frequently claim that the survival of civilised society demands that “owners” remain at arm’s length and let editorial policy fall where it will…… OK.

Now “Sunrise” – apparently a commercial disaster – falls. But we have a Canterbury University media academic commentator saying…. well with the “owner” being Iron bridge (a private equity group) as owners, we cannot expect a decent owners interest in news…. these guys are only after profits.

So what do you want in a business????? Profit is utterly neutral. It has no interest in left, right or centre…. it ought to be the ultimate owner.

Bad case of be careful what you wish for.

Wednesday, April 7, 2010

Clean Air for Road Fatality Victims

Transport Minister Steve Joyce advises us, correctly, that the age of a vehicle and thus its safety characteristics has a lot to do with road fatalities. Newer cars, better technology, fewer deaths. Logical.

Then a few weeks ago he implements some legislation to “up” the standard of emissions from cars (by setting a standard not met by imports of a given age) in the plausibly useful interest of reducing air pollution. This however is not free. Fewer cars of a given price are imported.

Result. The price of cars goes up. Eventual effect – higher incentive to keep the existing, non complying dunga a few years longer. The NZ car yard (car stock in Aotearoa) gets that much older.

Thus we have more cars with a higher probability of contributing to fatalities…… and possibly some clean(er) air.

Resulting Public Choice equation (the bit of economics which analyses the economics of political behaviour)…

1. Number of Ministers voted out for failing to get road toll down = zip

2. Number of Ministers possibly gaining / retaining votes for being “green” = a positive number…. possibly quite a few.

Relationship to trade off between death and clean air – sweet bugger all.

Saturday, April 3, 2010

Don’t look at Keynes too closely – the truly insightful Hicks didn’t…

Courtesy of Greg Mankiw….

Fascinating quotation from the esteemed economist John Hicks:

"Of all great economists, Mr. Keynes is probably the most Impressionist; the General Theory, in particular, needs to be read at a distance, not worrying too much about detail, but looking principally at the general effect. At least, that is how I have read it myself, and it seems that as a result I retain a higher opinion of it than Professor Robertson does. His own criticisms sometimes remind one of a man examining a Seurat with a microscope and denouncing the ugly shape of the individual dots. It is very probable that the Impressionist method is not particularly appropriate to the higher economics (though it may be suitable enough for more popular writing); however, it is Mr.Keynes' method, and in his hands it has some countervailing virtues."

"The Monetary Theory of D.H. Robertson", 1942, Economica.