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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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    Friday
    Jan162009

    Mirror Mirror on Wall Street: Bank For International Settlements Confirms It; We've Lost Our Minds and the Very Likely the Shirts Off Our Backs

    Caveat Emperor: Be Sure to Read Table 19


    Outstanding Global Derivatives Exceeds $658 Trillion.
    That's right-- $658 Trillion not Billion!

    Download Full PDF at: http://www.bis.org/statistics/otcder/dt1920a.pdf

     

    The arcane world of unregulated derivatives has trumped even Hans Christian Anderson's delightful fable called- as every child knows- the "Emperor's New Clothes". Wanna know why there is fear in the streets or at least why there should be? Just look at the Bank for International Settlements June '08 Report on the OTC Derivatives as voluntarily reported by "market participants". First of all, voluntary information from "market participants" is crap.  It's like asking someone in public "how many times a week do you beat your wife?" Or a hot chic who expects that her "official" campus sex survey form that she filled out on the porch of Delta House will  remain confidential.

    I don't know about you by every time I hear that nasty little phrase, "credit default swaps" or CDS my sphincter starts to invert. And it always seems to be accompanied by that really,really  scary number: $60 trillion.  Holy Mother of Merde  (hereinafter referred to as H-MOM) !!!! Do you have any idea how big $60 trillions? The entire GDP of the US  is $14 trillion and China  is a mere pittance at $3 plus trillion.  Every time one price changes in the market place/universe every other pricing relationship also changes.  It's kinda like gravity of which we know everything about except why it exists (thank you Buckminster Fuller).

    So take  $60 trillions in CDS and now overlay total global derivative products as per BIS Table 19 and you've got $658 trillion of toxicity simply because no one in charge has a clue as to what any of it means. I've yet to meet a politician, regulator or CEO of a financial institution who has a) ever executed a derivative transaction; b) has ever read a derivatives contract; c) if they did read a derivatives contract would have any idea what it said; d) can possibly explain or calculate the risk entailed in this tiny little over-the-counter unregulated $700 trillion market.  Why don't we just ship some enriched plutonium to Osama Bin Laden? It might be safer.
    It's not that all derivatives are  bad...it's just gotten completely out of control  and assessing the risk is  so damn complicated compounded by the little annoying fact that  no one in charge understands any of it.  As Jamie Dimon said "what on earth were we thinking!"

    The experts say "$658 trillion! Don't be ridiculous!That's not the real exposure. That's the notional amount, not the "gross" market value. We must look at the "net" exposure."Net shmet my ass! Well, If you don't understand it or can't explain it in Congressional Testimony we shouldn't be doing it at least where taxpayer money is the lender of last resort.

    Here is an excerpt from a most excellent article from December, 2008 Atlantic magazine entitled, "Be Nice to the Countries That Lend You Money. (http://www.theatlantic.com/doc/200812/fallows-chinese-banker) It is an interview with China Investment Corporation's Gao Xiqing, the man who oversees $200 billion of higher risk investments of China’s $2 trillion in dollar holdings. American trained he's the man who makes the big decisions for China's corporate investments in the U.S.and is the prime Sino-financial strategist With those very attractive U.S. treasury yields approaching zero you can expect to hear more about and from Gao in the future. (big hint: He doesn't invest in treasuries and he ain't too keen on the dollar either!)

    Here is a wonderful excerpt on how Gao tried to explain derivatives to China's State Council:

    If you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people.

    I was predicting this many years ago. In 1999 or 2000, I gave a talk to the State Council [China’s main ruling body], with Premier Zhu Rongji. They wanted me to explain about capital markets and how they worked. These were all ministers and mostly not from a financial background. So I wondered, How do I explain derivatives?, and I used the model of mirrors.

    First of all, you have this book to sell. [He picks up a leather-bound book.] This is worth something, because of all the labor and so on you put in it. But then someone says, “I don’t have to sell the book itself! I have a mirror, and I can sell the mirror image of the book!” Okay. That’s a stock certificate. And then someone else says, “I have another mirror—I can sell a mirror image of that mirror.” Derivatives. That’s fine too, for a while. Then you have 10,000 mirrors, and the image is almost perfect. People start to believe that these mirrors are almost the real thing. But at some point, the image is interrupted. And all the rest will go.

    When I told the State Council about the mirrors, they all started laughing. “How can you sell a mirror image! Won’t there be distortion?” But this is what happened with the American economy, and it will be a long and painful process to come down.

    I think we should do an overhaul and say, “Let’s get rid of 90 percent of the derivatives.” Of course, that’s going to be very unpopular, because many people will lose jobs.

     


    So there you have it. Ninety percent of all derivatives is a bunch of crap.  George Soros agrees 

    with Gao and so do I.  Derivative are appropriate for hedging activities and capital raising activites in well-define transactions. In other words they have to be attached to some product or some underlying transaction (fixing the rate on floating rate borrowings or borrowing in yen and converting to dollars.  In other words no naked positions no trading -- at least not at institutions where tax payer money is at risk which is soon to be all. Want to speculate? Try Atlantic City or Vegas.  Knock yourselves out.

    So how do we untangle this mess of $658 trillion of derivatives.  I'm working on. Got a few ideas.  See you at the great unwind.  Caveat Emperor.

    Monday
    Jan122009

    Stunning Market Development: Madoff Remains Free on Bail; Judge Orders Hank Paulson to Jail in His Place

    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


    Markets Surge by 273 Points out of Confusion

    Concluding that Hank Paulson had inflicted far more damage to the world economy than Ponzi-topper Bernie Madoff, U.S. Magistrate Judge Ronald Ellis kept Madoff out of the slammer today free on bail of $10 million. Instead Ellis issued a surprise sentence for Treasury Secretary Henry Paulson calling for his immediate arrest and imprisonment for what he described as "crimes against capitalism".

    In commenting on the most curious extra-judicial event in recent memory Judge Ellis said that "Madoff had only conned people out of $50 billion" while Paulson had "managed to hoodwink the U.S. public and all three branches of the United States Government out of $700 billion!" His ruling argued, "we at least have a shot at tracing the Madoff money; good luck to anyone who thinks they can trace what the hell Paulson did with the TARP funds!" He said his unilateral decision to sentence Paulson was based on an obscure provision of 13th Century Salic Law stemming from disputes dating back to the Battle of Hastings in 1066 and the signing Magna Carta in 1215 AD (see http://en.wikipedia.org/wiki/Salic_law) that served as the underpinnings to the rule of law under Charlemagne. He admitted it was a bit of a legal stretch but made a strong point. Wearing a wig, Judge Ellis read aloud the entirety of his 73-page hand-written ruling in Latin to a stunned federal courtroom in lower Manhattan that was packed with reporters, various stakeholders and Madoff himself who was overheard whispering to his attorney, "Is he serious?"

    When asked why Judge Ellis felt he could sentence a public federal official who has not yet been accused of any wrongdoing or been subject to any criminal investigation in a situation where he clearly has no jurisdiction whatsoever, Judge Ellis responded candidly that this was the only thing could think of that would quell public outrage at his decision at letting Madoff roam the streets. "It seemed like a fair trade to me. There was a sense of justice, that I will admit might at first blush seem a little perverted." When asked where on earth he came up with this idea, Judge Ellis said he had been inspired by Anthony Quinn's performance in the Biblical epic film "Barabas". In fact public reaction has been mixed.

    Creating quite a stir, however, was the reaction of Harvard Professor Elizabeth Warren, chair of the Congressional Oversight Panel (COP) who has been stone-walled by Paulson and his gang of financial miscreants. Appearing on Lou Dobb's earlier this evening , "I think this bizarre twist of events may actually serve the public interest Lou. Maybe now Paulson will respond in writing to the balance of 26 unanswered critical and legitimate questions he has so far refused to answer!" (see 65-page COP report http://cop.senate.gov/documents/cop-010909-report.pdf). Warren also unveiled on-air the revamped cutting-edge COP website http://cop.senate.gov/index.cfm including the new much-touted blogging feature (http://cop.senate.gov/blog/). When pushed by Dobbs whether this was a bit of an all-too-transparent populist pandering and whether she would confirm rumors that Madoff has agreed to be a guest blogger she threw her both shoes at Dobbs and responded "Shame on you Lou. I am not going to comment on any true rumors!"

    And now for the real stories...

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aDdj8PNsZyds&refer=home

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ah.k33EGzlcQ

    Monday
    Jan122009

    Tata to Tata???? Formerly sprawling soon to be crawling?

    May be a little early to call this one but the formerly sprawling Tata Group (including its Tata Motor's ambitious plan to deliver a $2,500 car seems to be running out of gas quickly. Ratan "the Man" Tata very visibly promised over and over that he will deliver on-time the $2,500 micro-car named, with breathtaking originality, the Nano. Those plans have been scaled back and rumors, certainly apocryphal, are that he is re-engineering his Nano and is trying to convince Steve Jobs to put little wheels on Apple's fabulously successful micro-device so he can meet his pledge. But time is running short. After crapping out seeking money from big global investors (I thought he was supposed to be one of those a big global investor himself--no?) Ratan will take money from just about anyone and has resorted to doing a retail rights offering in his native India. People aren't exactly rushing out to sell their kidneys to get into this one.

    Seems that the trophy-hunting Mr. Tata has severely misunderestimated the extent of the global financial crisis and owes $3 billion comin' due in June. In a spectacularly mis-timed effort to create a portfolio of international luxury brands including the very British Land Rover and Jaguar Ratan is folding in his wings. The Tata legacy has been around for 140 years and Ratan Tata (wow say that five times fast) has emerged as the symbolic success story and iconic entrepreneurial poster child for India asa serious global player.  (India has achieved the clearly non-alphabetic third position "I" in BRIC which as you can imagine has severely off pissed the Chinese due to its last place position in the curious acronym). Ratan,is the Indian equivalent of one part Al Gore, one part Richard Branson and a dollop of the Donald. As to his success, it is attributed to his Englophonic propensities or as he likes to says, "Dress British, think Yiddish"). As for delivering a $2,500 car to market  Tata might consider snapping up  GM's otherwise unsalable inventory of Hummers at market value, re-sell them for $2,500 and probably still make a profit.


    Tata Motors Struggles to Raise Cash, Introduce Nano by Deadline

    By Vipin V. Nair

    January 12, 2009

    Tata Motors Ltd., the maker of Jaguar cars and Land Rover sport-utility vehicles, must repay a $3 billion loan and aims to introduce the world's cheapest car this year. It is struggling with both.

    The Indian car maker needs to raise cash by June to repay a bridge loan taken to fund last year's purchase of Jaguar and Land Rover from Ford Motor Co. The $2,500 Nano car, already delayed, is crucial to revive falling demand in the car maker's home market.

    The global credit crunch has forced Chairman Ratan Tata to reconsider a plan to raise $600 million from investors abroad. Instead, the company is offering small investors up to 11 percent interest for three-year deposits after raising 41 billion rupees ($840 million) through a rights offer in October. Collapsing sales at Jaguar and Land Rover in the U.S. and Europe are echoed by plummeting demand for cars and trucks in India.

    "They are now fighting on three fronts: their core business is collapsing, the small car project will have to prove itself and the global credit availability is a problem,'' said Rashesh Shah, chairman of Edelweiss Capital Ltd. "Companies don't open multiple flanks and go after every attractive opportunity. That is ambition, and that has affected them.''

    Read Full Article at: http://www.bloomberg.com/apps/news?pid=20601087&sid=alQs3oaFa9Fg&refer=home

    Monday
    Jan122009

    Surprise! Surprise! Bernie's (Almost) Surprise Birthday Present; better to give than receive?:

    The sins of the father and husband are not necessarily the sins of the sons or the wife. But then again I guess we will find out soon.... in the meanwhile while there has been enough disgrace to go around for the next 30 generations of Madoffs this little article is a peak into the psyche of the little woman behind the man. A bit of a human interest story where there is otherwise very little human about the man to report.


    A meeting with Mrs. Bernard Madoff

    By Michael Skakun and Ken Libo, Jewish Daily Forward

    December 18, 2008

    We arrived, two scribes-for-hire, at the Madoff residence on Manhattan’s Upper East Side. “Queens High Baroque,” we said sotto voce in unison as we stepped off the elevator and into the vestibule of the Madoffs’ apartment. It was a wet day, and we quietly removed our galoshes.

    We had been summoned by the lady of the house, Ruth Madoff, director of Bernard L. Madoff Investment Securities LLC and wife of the company’s owner, to help with a special project. We took no notes that day, about five years ago, but the scenes and quotes that follow have come to mind in recent days, and are told here as faithfully as memory allows.

    The ample Madoff foyer and living room burst with what appeared to us as classical knockoffs, the regal effect spoiled by overexertion. Gold sconces lined the stenciled wallpaper, a Napoleonic-style desk stood to the side, and the Greek and Egyptian statues vied with each other to set a mood of antique decorum. Arabesque-styled Central Asian rugs beguiled our vision with looping patterns and impressive symmetries, further softening our footfalls.

    Ruth Madoff, a petite blonde with a pert nose and quick movements, ushered us into a sunlit kitchen. We could see that the downpour outside had come to a halt. “We’ll be more comfortable here,” she told us. White cabinets swept from floor to ceiling. The Formica-topped oval table had an array of crystal-cut glasses brimming with cooled fruit juices.

    Ruth’s taut, well-tended skin made her look a good 10, if not 20, years younger than she was. She was thin, sylphlike, giving further economy to the word “trim.”

    Ruth shook out her curls as she sat herself down on a wicker chair. Her manicured fingers lay folded on her lap. “It’s heimisher in here,” she said. The spotless kitchen stood in warm contrast to the cold hauteur of the foyer. The Madoffs, we feared, had effectively exiled themselves from their well-appointed living room, reserved strictly for formality and occasion.

    On the tabletop lay her spiral-bound, hearth-toned cookbook, filled with recipes she had culled from the great Gallic and American chefs, many graduates of the French Culinary Institute. She had charmed the likes of Emeril Lagasse, Daniel Burke, Daniel Boulud and Bobby Flay to conjure up dishes that would pass the strictest dietary laws. Among its tinted pages, recipes for vegetable gumbo jostled against those for paupiettes of baked salmon; wok-seared duck breasts nestled side by side with braised and cooked goose, garnished with watercress aglio-olio.

    “Now we can get down to business,” she said, pouring herself a cup of hot tea. “Bernie is turning 65. Other men slow down; take it easy, not him. He’s got the whole world on his head.”

    Ruth smiled wanly and brushed her hand through her soft, layered hair.

    “I want to give him a birthday present he won’t forget,” she said.

    We asked her what she had in mind.

    “Maybe a surprise scrapbook, you know, pictures, photos, invitations, the works,” she said.

    We let the idea settle in, and she continued.

    “Oh, we’ll think of something, maybe interesting collage effects. What we’ll want is to bring out Bernie’s many facets,” she said.

    But no sooner had she spoken than she caught herself.

    Bernie, she said, was cautious, even circumspect, a man who liked the tried and true, things in their proper place. He never wanted to be caught off guard. But that is exactly what his wife was hoping to pull off, somehow to charm him without startling him.

    At first, Ruth thought she knew exactly where to begin. She brought out photos of a smiling, gap-toothed Queens boy, bat at hand, ready to hit a home run. He had quite a swing in those days. Boy, could he send those balls flying.

    But with each passing photo she hesitated, breathing more heavily.

    Bernie, she observed, was a secretive man. “He likes to keep things close to his vest,” she said. She looked wistfully at the photos lying on the table.

    Suddenly, she gathered the pictures into a heap. She looked wistfully out the window.

    “Let me mull this over,” she finally said and whisked us out the door.

    The next day we received a call from Ruth. We could hear the pause in her voice. It seemed touched with sadness. She had changed her mind. More time was needed, she said. She thought 65 was an age betwixt and between. Seventy, three score and ten, would give the fuller measure of a life, would be just the right moment to spring this happiest of surprises on Bernie.

    Now, we have learned, it is Bernie who has sprung the unhappiest of surprises on investors around the world.

    Friday
    Jan092009

    Meet the Dead Men Talking!  Cause we need all the help we can get.

    I'd like to introduce you to a few of of EPD's latest guest contributors:  George Washington  whose reputation was built upon murdering a poor, defenseless cherry tree that did nothing wrong to him.  Alexander "Shooter" Hamilton (that's right --the original Secretary of the Treasury, the man who brought you the New York Post and had worse aim with a pistol than Mr. Magoo). Last but not least, good ole Abraham Lincoln who has told me he can't take any more of this "Team of Rivals" crap. Asked me to personally send a note to Doris Kearns and tell her to zip it.  "She wasn't there and she really doesn't know what she is talking about."


    These three columnists are people you can trust -even though  they're dead. And we hope to be recruiting more historio-bloggers like these three giants as we gain momentum and their agents see the wisdom in getting paid nothing to help save the nations. 


    So here is the first glimpse of our new commentators.  Okay- I know. Georgie's a little bloodied and beat up ( just like the dollar itself upon whose green parchment George's mug appears) --Abe's got a little bit of that Johnny Depp/Keith Richards/Pirates thing going on.  So what if Shooter Hamilton looks a bit like Heath Ledger, (may he rest in peace and win the Academy Award).


    After much deliberation and handringing  I decided- maybe just maybe -- what this country needs is some good old-fashion  leadership to restore its credibility and rebuild confidence in itself. (Our current crew in Washington has done a fantastic job in flipping out every domestic and foreign investor - large or small- on the planet). Who better than these guys- dead or alive-who've been with us all along and have alot invested in this increasingly dubious experiment called democracy and even more dubious system of resource allocation called capitalism. Perhaps they can help us fnd something we lost along the way known as our "legacy". As we rapidly approachthe highly endangered species list facing extinction due to our own stupidity, it is not too late. A rendezvous with destiny?  Hell no! Just a confrontation the Chinese who own $2 trillion of our debt.


    With these new columnists from history we now have our own versions of Maureen Dowd, Thomas Friedman and David Brooks. Here are people  from the government and, remarkably, they are here to help, share their wisdom and shed some light on an increasingly dark mood that is sweeping across the globe like wildfire. But we need to laugh again: at our delusions, at our folly and at our ourselves. No civilization under siege (did you ever watch that snake eat itself on Animal Planet?) has ever recovered without humor- however dark and tasteless it may be. So god damn it! Makes us laugh! Stay tuned. They'll be back regularly in Dead Men Talking and the Presidential Advisory Council here exclusively at EPD.  As George Washington told me (in the spirit of Albert Einstein) "If I had known this is what would happen to the world, I would have lied to my father about the friggin' cherry tree!"

     

                                

     

        

    Friday
    Jan092009

    Here She Comes... Professor Elizabeth Warren; head of  COP and  Kashkari  Castrator

    Neel, watch those family jewels cause she's coming after both of 'em.

    Why? Because we know you are smart as hell, and a real rocket scientist to boot but unfortunately you belong at NASA not as the front man for the agency intended to restore confidence in the global markets. Gets some serious media training quickly or get the hell out of town. Not that there is anything cheery going on but you look as if you have never smiled in your entire life and haven't had a bowel movement since you left Goldman Sachs. You exude   arrogance but hubris belongs in Greek tragedies not in history's greatest financial calamity-- particularly one that you managed to exacerbate with your brilliant bailout ideas. You've somehow managed to create instant financial global warming. No fossil fuels were even used. Forget about the Nobel prize. When you testify and you don't know something just try saying "I don't know Professor Warren but I will get you an answer as fast as humanly possible." TARP is something we should put over your head whenever you appear in public.  Lighten up bud! Seriously!

     

    Panel Steps Up Criticism of Treasury Over TARP

    By Michael R. Crittenden

    JANUARY 9, 2009

    WASHINGTON -- The U.S. Treasury has failed to reveal its strategy for stabilizing the financial system, not answered questions asked by a government watchdog, and has done nothing to help struggling homeowners, a report being released Friday charges.

    In the most scathing criticism yet of Treasury's implementation of the $700 billion financial-rescue package, a draft report being issued by the five-member congressional oversight panel said there appear to be "significant gaps" in Treasury's ability to track hundreds of billions of dollars of taxpayer money.

    Related Article:

    Treasury Plans to Better Track TARP Funds (1/09/09)

    "The panel's initial concerns about the [Troubled Asset Relief Program] have only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury," said the draft report, which found that the department has "not yet explained its strategy" for stabilizing the financial markets.

    The report faults Treasury on a variety of fronts: having no ability to ensure banks lend the money they have received from the government; having no standards for measuring the success of the program; and for ignoring or offering incomplete answers to panel questions.

    The bipartisan panel, headed by Harvard Law School professor Elizabeth Warren, reserved its most strident criticism for Treasury's approach to dealing with the foreclosure crisis at the root of the economic turmoil. The draft report noted that Treasury hasn't used any of TARP's $700 billion to help borrowers refinance or deal with mortgages that are worth more than the market value of the homes they are tied to.

    "Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what 'help' means," the draft report said.

    Treasury is responding to political pressure with a plan to better track what banks are doing with billions of dollars invested by the U.S. government.

    For banks, it could ratchet up pressure to make loans they consider imprudent given economic uncertainty and the difficulty increasing the number of deposits that underpin their business.

    Treasury Assistant Secretary Neel Kashkari, who leads the TARP program, said the Treasury plans to use already available quarterly data to compare lending by banks that have received TARP funds and those that haven't. The Treasury plans to collect monthly data from some of the largest banks that have received capital injections from the federal government.

    Mr. Kashkari, in a speech in Washington, noted that the Treasury still has roughly $75 billion to distribute to banks as part of its $250 billion capital-injection program. "This capital needs to get into the system before it can have the desired effect," he said.

    A Treasury spokeswoman said there is no time frame for instituting the new measurements and that details of the data to be collected remain uncertain.

    Read Full Article at: http://online.wsj.com/article/SB123147360470067363.html?mod=WSJ_myyahoo_module

     

    Here is a random clip of Kashkari doing the moonwalk during additional Congreesional Testimony (this clip is for serious wonks only)