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    Quote of the Day

    "You should be more conscious when you are sleeping"

    -Isabella Hatkoff  (June 2010) on the breaking a pinky promise by her dad who was a sleeping

     

    "You can't solve a problem with the same kind of thinking that created it."
    -Albert Einstein (1879 - 1955)

    "Give a dog a fish, feed him for a day.  Teach a dog to fish, feed him for a lifetime."

    - Walter the Farting Dog

    "Wouldn't it make more sense to read the legislation before approve you it? It's like asking the architect to design the house after it is already built."

    -Paris Hilton

     



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    Wednesday
    Feb042009

    Credit Derivative Lyposuction: How to Make $30 Trillion Disappear

    How Do Compression Cycles Make $30 Trillion of Credit Default Swaps "Just Go Away"?

    Meet TriOptima: The Cosmetic Surgeons and Wellness Specialists of Credit Derivatives

    If you really want to poop in your pants just read the following Reuters Article from January 12th, 2009 on a company called TriOptima. Their services sound remarkably like those offerred by Park Avenue Plastic Surgeons but for cellulite-laden portfolios of the biggest derivatives players in the systemically-fragile global financial markets. George Soros' econolypse awaits as the sword of Damocles (his term) hangs overhead. But TriOptima offers a broad range of cosmetic procedures that can be best described, admittedly on the graphic side, as somewhere between a massive group financial enema and downright lyposuction for the formerly-reported $62 trillion credit default swap market.

    http://3.bp.blogspot.com/_ZTt7ivF2m-0/RzMk_QUgzzI/AAAAAAAACFM/G93IhPniC7w/s400/zzzben.jpg

    Using a web-based technology known as "compression cycle eliminations", one of many derivative-shedding products from TriOpima such as "triReduce" that sounds like a metrocal-based diet for financially obese.Then there is "triResolve" for conflict resolution. Using these products and services TriOptima has helped participating institutions shed some $30 trillion of CDS exposure! I wonder where they put it waste product? Doesn't a compression cycle sound more like a piece of exercise equipment you buy at the Gym Source? No, we're not exactly sure of what it is and can promise you no one voting on an $850 billion stimulus/bailout package in Washington understands what it is either. So let's assume they have cut the reported CDS numbers from $62 trillion (as per the Bank for International Settlements) to $30 trillion, estimates still put CDS activity at $10 of speculation for every $1 dollar in underlying securities.  Earth to regulators.

    Maybe that's why nobody's lending and nobody's spending?

     

     Check out the TriOptima website:

    A network community for proactive portfolio reconciliation triResolve Eliminate notional outstandings with portfolio compression triReduce Managing counterparty credit exposures in OTC derivatives In the midst of volatile markets, TriOptima's web-based Portfolio Reconciliation and Portfolio Compression services, triResolve and triReduce help you effectively reduce and manage the risk in your OTC derivatives portfolio.

     

    Click here for the Reuters article in its entirety:

     

    Reuters Logo

     

    TriOptima CDS compression cycles eliminate $30.2 trillion in notional principal during 2008

    Mon Jan 12, 2009 9:00am EST 

    NEW YORK--(Business Wire)--
    TriOptima`s portfolio compression service, triReduce, eliminated $30.2 trillion
    in CDS notional principal during 2008. TriOptima offered 50 compression cycles
    in 2008 contributing significantly to industry efforts to reduce the notional
    principal outstandings. Reductions in notional principal continued to accelerate
    throughout 2008, increasing 300% over 2007 levels as indicated in the graph
    below.

    "In cooperation with the dealing community, we were able to accommodate the
    demand for additional regular cycles and support the special default cycles that
    were required as market conditions deteriorated," commented Brian Meese, Group
    CEO. "It is important to note that the $30.2 trillion notional eliminated by the
    dealers this year exceeds the year end outstandings of $29.3 trillion reported
    by DTCC. By reducing exposures through regular compression cycles the dealers
    were able to continue providing effective risk mitigation tools while responding
    to regulatory concerns about counterparty exposure and operational challenges."

    TriOptima`s CDS compression cycles include American, European, Emerging Market,
    Asian and Japanese indices; ABX and CMBX indices; American and European
    tranches; US, European, Emerging Market, Japanese, and Asian single name CDS;
    and special cycles for single names and indices affected by credit events like
    Washington Mutual, Fannie Mae, Freddie Mac, Lehman and the Icelandic banks.




     

    Monday
    Feb022009

    Too Big to Succeed!!!!!!!!!

    Harsh Reality "Too Big To Succeed" Replaces "Too Big To Fail"


    Sacred Doctrine Flipped on Its Head


    Watch Greenspan concede his "ideological flaw"; turning point in capitalism


     

    The fact is the doctrine of "Too Big to Fail" has failed as a doctrine.  All you have to do is watch Alan Greenspan's tortured testimony about the flaw in his ideology about financial markets.   Citibank, the poster child for the doctrine, has for all intents and purposes failed, AIG has failed, Fannie and Freddie have failed.  Dead banks walking.  The industry consolidation  has left us with four viable national banks (at one time considered money center banks- now an archaic term). Citi, JP Morgan, BofA (now rebranded as  Booba: Bank Officially Owned By America) and Wells Fargo.

    Thursday
    Jan292009

    Coming Soon: Alexander Hamilton's Golden Rule

     

    Steve Forbes Waxes Eloquently on the Gold Standard

    Can the Wisdom of Shooter Hamilton Help Us Calm the Storm?

    Alexander HamiltonAs Rupert Murdoch, Nouriel Roubini and George Soros see the econolypse on the horizon, it is pretty damn clear that you can't run and you can't hide. The degrees of financial interdepence have doomed us to reconsider everything we held sacred about Capitalism. From Adam Smith's Invisible Hand to the radicapitalist Ayn Rand to Gordon "Greed is Good Buddy Boy" Gekko we are being forced to re-evaluate, re-assess and re-imagine, well, virtually everything. We are in a world of post-Newtonian financial physics and new paradigms will emerge not yet considered. I was always astounded by Milton Friedman's opening true parable called "The Island of Stone Money" about the Island of Yap in his book "Money Mischief". (Just read pages 3-7 and you'll get the idea.) 

    So the world financial system is stuck in the netherzone.  Unknown minds and faces will have to fidure this one out simply because all the regular suspects have been thoroughly discredited.  How cool is this going to be? All options are on the table. We will start series of thought experiments about what a capitalistic future might look like. By the time we're done you'll hardly recognize the place.

     

     

    Hamilton Got It Right--Why Can't We?

    By Steve Forbes

    In his stirring inaugural address President Barack Obama called for a new era of responsibility. One area in which that admonition is badly needed is the integrity of the dollar. From the days of Alexander Hamilton to the 1960s it was an article of faith that the dollar should be strong and stable; this could be reliably achieved only by anchoring it to gold. Weak, volatile and eventually worthless money has been the bane of countries throughout history. Hamilton and his successors recognized that a firm dollar was an essential foundation for a lawful society and for economic progress. True, Franklin Roosevelt in 1933--34 played with the greenback as if it were a delightful toy. But that short-lived experiment didn't work, and during World War II the dollar's tie to gold was reaffirmed by the Bretton Woods international monetary system.

    In the 1960s the idea took hold that a flexible greenback could help generate perpetual economic growth. Ignored were centuries of experience: Fooling with money invariably has unpleasant, unintended consequences and does more harm than good.

    The Nobel Prize winner Milton Friedman rightly admonished us that inflation was purely a monetary phenomenon: If a central bank prints too much money, you're in trouble; if it doesn't, money retains its value.

    forbes_0216_p015.jpg

    to read article in its entirety:

    http://www.forbes.com/2009/01/28/fact-and-comment-opinions-0128_steve_forbes.html

     

    Thursday
    Jan292009

    Buffet Part II

    Thursday
    Jan292009

    Rod Serling Redux: Negative Nominal Interest Rates Part II

    But it's not possible!


    Oh yes it is!!!! (Coming Soon to a Central Bank Near You)


    Negative Nominal Interest Rates: You Get Back Less Than You Invest but by Design Rather Than Surprise

     

    This introduction to my favorite TV show from the 60's still creeps me out 40 years later:

     

    Is  Washington starting to run out of ideas?  As every conceivable monetary, fiscal and taxation policy tool has been thrown up against the wall including the kitchen sink,here's one they haven't floated that may be worth a look: Now may be the perfect time to  implement a bold new experiment utilizing a theoretically  heretical policy tool-- Negative Nominal Interest Rates (NNIR). You get back less than you invest but on purpose.  What a welcome relief to investors who have become used to getting back less than they invest as a matter of standard operating procedure. At least they would know what they weren't getting back!  No surprises which as we know: just as nature abhors a vaccuum all investors hate surprises.

    Take a look at our  entry from December 11, 2008 where we initially discussed this  theortical possibility of  negative nominal interest rates. I have been intrigued with this theory for nearly 20 years and see it as a real possible anti-dote to a financially necrotic set of policy tools.  This powerful prescription has little prededent (but some-- check out 1947 in Chicago) and I am pushing it around to radicapitalists and trend setters to take a second serious look. One of the leading ecomomic theorist is Marco Bessetto . Here is his research paper presented to NBER in 2004.  http://www.nber.org/~bassetto/research/negrates/negrates.pdf

    So as a thought experiment imagine a 400 bp yield curve starting at -2% sloping upward to +2%.  Then imaging the discontinuity of using 0% as the rate of discount.  NPV of periodic cash flows would equal the aggregate undiscounted summation through infinity. It's a little bit like the speed of light. Alternating cash flows as fiancial geeks represent multiple internal rates od return.  Kind of like  imaginary numbers in algebra  (very different than the imaginary numbers they use at the rating agencies).  We are approaching a new zone of a post-Newtonian framework where really weird things start to happen.  Stay tuned as you will here a lot more about this unprecedented monetary tool , a secret weapon of sorts, as we move further and deeper into the twilight zone.

     

     

    Here is a replay of an EPD article  from nearly six weeks ago written back in 1999

    By Daniel L. Thornton

    January 1999

    Can nominal interest rates be less than zero? Many people would argue not, reasoning that no one would invest $100 today with a promise of receiving only, say, $99 in one year, given the alternative of simply holding the $100 in cash. Yet, rates on short-term Japanese government bills recently were negative, and several foreign-owned banks in Japan have paid negative nominalinterest rates on yen deposits.

    Read Full Article at: http://research.stlouisfed.org/publications/mt/19990101/cover.pdf

    Monday
    Jan262009

    WTF? NEWS FLASH : Geithner Confirmantion Not Exactly a Confidence Inspiring Vote: 60-34

    WTF? NEWS

    Published Irregularly Weather or Not We Feel Like ItAny Damned Time We Please

    Important Dislaimer: In case any reader doesn't quite get it, this is parody protected under the first amendment of the Constitution of United Statements of America. If you don't like the law then feel free to go try and change it. If you are interested in further information on freedom of the press we suggest you start with John Milton's masterful essay "Areopagitica" (1644) http://www.uoregon.edu/~rbear/areopagitica.html



    Geithner's "Doogie Howser Problem"; In Serious Need of Reverse Botox

    Can Market Confidence Be Restored by New Secretary of Treasury Through TV Nostalgia?

     


    [Timothy Geithner]http://theintvduals.files.wordpress.com/2008/02/doogie-howser-md.jpg

    Timothy Geithner      Doogie Howser MD

    With hardly a  resounding vote of confidence, a Senate confirmation vote of 60 for 34 against, placed  our delicate  futures in the delicate hands of Timothy Geithner, the H & R Block DIY-not poster child.  The incredibly smart, policy wonkish but thoroughly Paulson-tainted Geithner limped across the finish line to be confirmed as Secretary of the Treasury.  The once master-of the-universe Paulson  should have stayed on Wall St.  Paulson turned out to be  quite the blithering idiot savant of the ill-reasoned, conflict laden bail-out imbroglio.  Do we see a pattern here people? Paulson, Rubin, Fuld, Thain etc. Good at one job doesn't necessarily make you good at another. Replacing Paulson with  Donald Duck probably would have sent the market soaring and have achieved a better Senate confirmation ratio than Geithner's.  Rumors of a Quinnipiac pole , most likely apocryphal,  suggested Donald Duck would have been confirmed at 72 for 26 against and 2 abstentions.  Without a resolute vote of confidence--  how about somthing more like 98 for 2 against  or even 89 for 11 against-- where does that leave us? Have  you ever tried to paddle a canoe with a crow bar?

    But we refuse to throw the baby out with the bath water which gets to the heart of the part of the matter. He just looks too damn young.  Another rumor  has it that a good portion of those voting against Geithner felt he bore an eeirie resemblance to  Doogie Howser MD but even younger.  An unidentified Senator voting against Geitner was overheard saying to an on-the-fence colleague. "I would rather let Doogie Howser perform a pre-frontal lobotomy on me with a jackknife than place the restoration of confidence in the global  markets in Geithner's hands."  So we just need to make hi, look older, tougher and a little bit grizzly.  Someone who would elegantly bite the head of a chicken off with his bare teeth-- but only if he needed to.  Any doubts Sarah Palin would qualify on that front? So what can we do.  He's our guy.

    Two things I can think of:  First  is we put Geithner into an episode of "Nip and Tuck", and weather and leather him him up a bit. Do a "makeunder" instead of a makeover. Not that I have a man crush or anything but he's just too pretty and delicate looking for the job but in a good way, a much manlier way than devil-dog John Edwards (who you just wanted to go over and mess up his his hair). There must be a new strain of botulism out there somewhere -- a highly virulent one- that can act act as a reverse botox agent. Let's get some real lines in that forehead. Put a few scars on his face, a few pock-marks. And please get rid of the spread collars. Where is Andre Leon Talley when you need him?

     

    Second thing is Geithner should  turn to the golden years of network television (an archaic term) for some inspiration. If he looks like Doogie Howser than let's just go for it. 

    For those of you who are a little rusty or just too young here is a clip from the inspirational series Doogie Howser MD:

     

     BTW, remember Winnie Cooper  from that other high-nostalia coming-of-age TV show The Wonder Years?   Danica McKellar, who played the role of  Winnie recently came out of the closet so to speak as a bona fide math genius who is now hawking a best-selling series of inspirational books for high school girls traumatized by the subject of math.  The series is called, I kid you not, Kiss My Math, which is exactly what every red-blooded young America boy wanted to do except Doogie,who in real ife as  Patrick O'Neal also came out of the closet. That  explains alot of things.

    So what's the point here?  Perhaps Geithner could bring in Danica McKellar to replace Neel Kashkari as the head of TARP. Check out Danica/Winnie's 1998 mathematical dissertation  on "Percolation and Gibbs states multiplicity for ferromagnetic Ashkin-Teller models on \mathbb{Z}^2".   I bet good ole Winnie could sort out $700 billion  of these toxic securities in a heart-beat.

     

     

     

     

     

     

    Danika McKellar aka Winnie Cooper before and after

     

     

    Need a Real Sponsor here

     

     

    JANUARY 27, 2009

    Geithner Confirmed as Treasury Secretary

     

    WASHINGTON -- The Senate confirmed Timothy Geithner as President Barack Obama's Treasury secretary by a 60-34 vote, paving the way for the new administration to usher in its financial-rescue plan.

    With Mr. Geithner now officially on board, the Obama administration is expected to detail shortly efforts to shore up the financial sector. In his first move, the Treasury Secretary is expected Tuesday to announce new rules intended to curb the influence of lobbyists and special interests in determining who gets aid from the government. The new efforts, part of Mr. Obama's plan to revamp the financial bailout, are aimed at ensuring that investment decisions are based on what is best for the stability of the financial system, rather than on any type of political influence.

    Possibly as soon as this week, the Obama administration will also announce its own approach to the crisis, including possibly asking Congress for additional funds to supplement the $350 billion that lawmakers recently approved.

    Mr. Obama's rescue is expected to focus on helping homeowners and bolstering financial institutions so they are willing to lend to consumers, businesses and each other. The Obama plan is expected to include a mix of efforts, including more capital infusions into banks and relieving firms of the toxic assets clogging their books.

    The White House on Monday left the door open for a request for additional funds. White House spokesman Robert Gibbs said "there may also be additional steps that are taken outside of" the $350 billion to address the financial crisis.

    The 60-34 vote speaks to the controversial nature of Mr. Geithner's nomination after disclosures that he failed to pay some employment taxes in a timely manner while working for the International Monetary Fund. The bulk of the dissent came from Republicans, but three Democrats broke with their party to vote against Mr. Geithner.

    Meanwhile, Mr. Geithner's confirmation will free the Federal Reserve Bank of New York to announce his successor as president of the regional Fed bank. William Dudley, a former Goldman Sachs economist who runs the New York Fed's influential markets desk, is likely to get the job. An announcement is likely Tuesday.

    The New York Fed is the Federal Reserve's eyes and ears on Wall Street, and the markets desk has been in charge of implementing many of the Fed's new lending and investment programs, making the job one of the most important in central banking.

    The choice of Mr. Dudley gives the New York Fed an assurance of continuity at a tumultuous time at the bank. Several of the Fed's biggest programs -- including one aimed at boosting the consumer loan market and another supporting mortgages -- are still in the process of being ramped up. Mr. Dudley is known inside the Fed and at Goldman as a tenacious pragmatist who has logged long hours during the financial crisis and developed a strong relationship with Mr. Geithner.

    The Obama administration is still wrestling with the details of its rescue, including how to help struggling firms without making the U.S. the de facto owner of the banking industry. With bank stocks low and bank capital needs high, additional government investments could give the U.S. effective control over financial firms, something the administration would like to avoid on a large scale.

    Among the ideas being discussed, according to industry officials, is a two-pronged approach that would allow the government to both purchase assets through a "bad bank" entity and also guarantee assets against further losses. This would allow the government to deal differently with securities, such as those backed by real-estate and other assets, and loans, including commercial and residential mortgages. Both options are designed to put banks on a firmer footing, which in turn would prompt them to lend more and could encourage private investors to come back into the industry.

    "They are probably going to do everything and use every tool," said Tom Gallagher, a policy analyst with ISI Group in Washington, D.C.

    The government used asset guarantees in its rescues of Citigroup Inc. and Bank of America Corp. In both instances, the government agreed to share losses with the banks on a certain group of assets. The banks agreed to take the first hit, and taxpayers are on the hook for much of the rest. In the case of Citigroup, the total amount of assets protected is more than $300 billion.

    Under the bad-bank plan, the government would create an entity to purchase assets, possibly using money from the $350 billion remaining in the Troubled Asset Relief Program and having the entity raise money by selling government-backed securities.

    The concept is rife with problems, including what price the government should pay. If the government pays too low a price, banks may have to take deeper write-downs than they have already, exacerbating their financial woes. But if the prices are too high, then banks -- and their shareholders -- are benefiting at taxpayer expense.

    The administration is also planning additional capital injections, which it views as necessary to restart the market for lending. But that, too, raises concerns, given the low stock price of the banks and their capital needs. The government already owns a significant chunk of Citigroup and Bank of America, as well as American International Group Inc. and Fannie Mae and Freddie Mac. Injecting enough money to shore up the banks in exchange for an equity stake could nationalize chunks of the banking sector.

    "They'll try to avoid full-frontal nationalization. But I don't think that means they'll oppose having some banks become nationalized," Mr. Gallagher said.

    —Jon Hilsenrath and Joann S. Lublin contributed to this article.

    Write to Deborah Solomon at deborah.solomon@wsj.com