Econolypse Now: Buffet's Insurance Companies Seized by Regulators; Master of Float Sinks, World Financial System Follows

I recently tried out the above thought experiment/scenario on the world's number one death spiral economist. He clearly had not seriously considered the worst-of-all-possible-worlds headline but he readily acknowledged Buffet's extraordinary appetite to take on catastrophic risk with his massive arsenal of cheap capital, known as float. (See Oracle of Omaha's balls-to-the-wall forward bet on S& P and other indices http://www.ft.com/cms/s/0/45446192-bbec-11dd-80e9-0000779fd18c.html) This famous economist's studied reaction was, well, stoic. I believe he was having a true Fruit of the Loom moment. Gotta watch out for those Black Swans!

So my friends (how could anyone ever expect to be elected president using that expression?) just contemplate the above hypothetical headline as you read the "Cheat, Love, Pray" article below that I have once again gone out of my way to make convenient for you by using my personal highlighter of truth. No thanks are necessary. Someone's gotta keeo an eye on of the world for you. Everyone else is out to lunch. But don't worry, I'm all over it. Get some sleep, but take good care of that mattress-- you may need it.

love, sticky ;)

p.s. started reading OoO's biography "Snowball"-- boy, was Warren a dork growing up! makes Bill Gates look like George Clooney-- the tome is 800 pages so I'll have to get back to you after he's made his first billion. How's this for weird-- he used to drive around in a hearse.

Cheat, Pray, Love

by James Surowiecki

January 12, 2009

Along with slashed payrolls, rising foreclosures, and plummeting stock prices, 2008 brought another unwelcome development: a surge in bank robberies, which were up more than fifty per cent in New York. This wasn’t shocking: we typically expect property crimes to rise in hard economic times. There is, though, one crime against property which bucks this trend: defrauding investors. On Wall Street, fraudulent schemes tend to thrive during economic booms, and to blow up when times turn tough. While bank robbers are getting busier, the Bernard Madoffs are starting to get caught.

Madoff is just the latest in a long line of fraudsters who took advantage of investor euphoria. Time and again, as asset markets have become frothier, fraud has flourished. During England’s South Sea Bubble, in 1720, a host of bogus joint-stock companies arose, including one that described its enterprise as “nitvender,” or the selling of nothing. The boom of the nineteen-twenties featured men like Arthur Montgomery, who ran a Ponzi scheme promising investors four-hundred-per-cent returns in sixty days, and the Match King, Ivar Kreuger, who sustained match monopolies all over the world with forged bonds and doctored books. More recently, the stock-market bubble of the late nineties gave rise to enormous frauds at companies like Enron and WorldCom.

Read Full Article at: http://www.newyorker.com/talk/financial/2009/01/12/090112ta_talk_surowiecki

The Humility of Nassim Nicholas Taleb: The Black Swan

OK so you need dramamine to read his website http://www.fooledbyrandomness.com (please note he does not want any suggestions on how to improve his website that looks like it was designed by Hunter Thompson on acid) and the guy's got a ego the size of Montana, but he also has some big points. Worth reading his website and his books--

here's a clip -- he could use a little media training

My favorite part is his calling for a recall of the Nobel Prize for Economics for Modern Portfolio Theory and Black-Scholes (i guess we could send out the repo man and sell them on ebay) http://www.fooledbyrandomness.com/FT-Nobel.pdf

He refers to himself as the Distinguished Professor of Risk Engineering at NYU. What's to engineer? Everything in the universe is a train wreck waiting to happen or a white swan trying to lays enough eggs to make a black swan.

 

http://www.fooledbyrandomness.com/imbeciles.htm

Markopolis for Head of SEC

OK, even if he was a bit of a stalker driven crazy by his bosses for not being able to compete with Bernie Madoff's performance, Harry Markopolos should win the Nobel prize for economics and a Pulitzer prize for investigative reporting. He even did the SEC's work for them. So what if we don't know what mosaic theory is...(perhaps it's related to Passover) Markopolos parted the sea of red ink for nearly twelve years in pursuit of his man. Reminds me of David Jansen searching relentlessly for the one-armed man in "The Fugitive" . David's dead ( I think?) and Tommy Lee Jones was pretty serviceable in the movie. Please send in your casting suggestions for Bernie Madoff and for Harry Markopolos for the movie. If you want to know why we are suffering from a total infarction of investor confidence stay tuned. The guy laid thing out. Notta. Doughnut holes. Those boys at the SEC did one helluva job cracking this case wide open.

Here is Harry Markopolos' actual complaint to the SEC from November 2005-- he started searching for the financial amputor in 1999! Read for yourself: http://www.scribd.com/doc/9189285/Markopolos-Mad

Ringtones and "The End of the Financial World As We Know It"

For those of you who read Michael Lewis and David Einhorn's (below) almost very excellent piece in the NYT Mag. Here is a quiz: What song and what band does the title of their article make reference to?

OK all you REM fans -you are in luck! "It's the End of the World as We Know It" (1987) ringtones are now available - just search google for the lyrics like I did and this annoying ad keeps popping up for the ringtone (or if your lazy click the following link http://us.sso.dada.net/mobi/specialoffer_us16.html ) which I will send out as Christmas gifts next year unless Christmas is cancelled which has a 44% probability at this point. Here are the lyrics and don't miss the youtube REM video.

That's great, it starts with an earthquake, birds and snakes, an aeroplane -
Lenny Bruce is not afraid. Eye of a hurricane, listen to yourself churn -
world serves its own needs, regardless of your own needs. Feed it up a knock,
speed, grunt no, strength no. Ladder structure clatter with fear of height,
down height. Wire in a fire, represent the seven games in a government for
hire and a combat site. Left her, wasn't coming in a hurry with the furies
breathing down your neck. Team by team reporters baffled, trump, tethered
crop. Look at that low plane! Fine then. Uh oh, overflow, population,
common group, but it'll do. Save yourself, serve yourself. World serves its
own needs, listen to your heart bleed. Tell me with the rapture and the
reverent in the right - right. You vitriolic, patriotic, slam, fight, bright
light, feeling pretty psyched.

It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine.

Six o'clock - TV hour. Don't get caught in foreign tower. Slash and burn,
return, listen to yourself churn. Lock him in uniform and book burning,
blood letting. Every motive escalate. Automotive incinerate. Light a candle,
light a motive. Step down, step down. Watch a heel crush, crush. Uh oh,
this means no fear - cavalier. Renegade and steer clear! A tournament,
a tournament, a tournament of lies. Offer me solutions, offer me alternatives
and I decline.

It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine.

The other night I tripped a nice continental drift divide. Mount St. Edelite.
Leonard Bernstein. Leonid Breshnev, Lenny Bruce and Lester Bangs.
Birthday party, cheesecake, jelly bean, boom! You symbiotic, patriotic,
slam, but neck, right? Right.

It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine...fine...

(It's time I had some time alone)

Here is also a good little site http://www.songfacts.com/detail.php?id=174 that gives some interesting background on REM's pure gem that is sure to become the global anthem of well... the end of the world as we know it. Second place will go to Prince for Party Like It's 1999.

So how/why do I know so much about EOTW/REM? Ah ha! I gave a lecture on the Long Term Capital Management/Asian Flu at an unidentified uptown Ivy League Business School that shall remain anonymous in November 1998 called the "Asteroids of August". I went out bought a boom box and the REM CD and brought it to the lecture , played it as an opener and gave the sucker out as a prize (thank god they didn't have IPODs back then!) to the first (and only) student who could identify the song and why I was starting off a lecture with this selection. Well it's ten years later now and I bet a whole bunch of MBAs have just figure out what the hell that lecture was all about. If you were at the lecture and still don't get it please feel free to contact me. If the student who won the prize is still alive I would like the boom box and CD back and will pay top dollar! I would like to give it as a present to Michael Lewis and David Einhorn.

The End of the Financial World as We Know It

By Michael Lewis and David Einhorn

January 3, 2009

AMERICANS enter the New Year in a strange new role: financial lunatics. We’ve been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street.

This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?

Read Full Article at: http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?sq=michael%20lewis&st=cse&scp=1&pagewanted=print

Madoff Investor’s Suicide Was an ‘Act of Honor,’ Brother Says

By Alan Katz

January 3, 2009

Thierry Magon de La Villehuchet’s sense of honor led the descendent of French army officers and an ennobled shipping family to commit suicide after he put his friends and family in a “catastrophic” financial situation by investing with Bernard Madoff, his brother said.

Villehuchet, 65, chief executive officer of Access International Advisors, believed that he had lost all of the funds invested with Madoff’s eponymous investment firm, including the $1.4 billion LUXALPHA SICAV-American Selection managed by Access, Bertrand Magon de la Villehuchet said in an interview.

“For him, it was a positive act of honor,” said Bertrand, 74, who lives in Paris and received a note from his brother after Thierry’s death. “He brought his friends and clients, and a lot of them were his friends, to a catastrophic situation.”

Read Full Article at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ1dnq3VWwOs&refer=worldwide

Yo Bernie: Don't even think about taking a page from the Code of Honor! Earth to regulators-- how much life insurance does Bernie have? If there is a carve-out for suicide --tie the mother down! Unless its from AIG. Then again they only do property and casualty insurance -- they don't do life. (Their executive's might by the time the Inquisition is done with this investigation).

You gotta love Thierry Magon de La Villehuchet! Went out like a man. He was honorable and also incredibly considerate-- he collected his blood in pail! Really! Read the god damn article... I'm not making this stuff up! Then again Prince Michel from Yugoslavia was in charge of Investor Relations for his firm. Really! Keep reading. Rumor has it the Pope was Chairman of the Audit Committee (that's a joke?) but plausible.

-Love Sticky

Space Shuttles Aren't the Only Things That Disintegrate: U.S. Next?

Having just read the final NASA report of the disintegration upon re-entry of Space Shuttle Columbia (definitely not for the squeamish) there are some interesting parallels to Dr. Igor "the Saw" Panarin's theory of the disintegration of the US into six separate countries. (see map) by 2010 that is catching fire like a snowball in punditry-land.

Normally, this type of Russo-propaganda gibberish would appear in the National Enquirer or People Magazine however it just made it onto the front page of the Wall Street Journal on December 29th (a mere five weeks after the Drudge Report reported the story). What concerns me is that if the WSJ spent five weeks analyzing the story and finally concluded it was important enough to run with it, (a) they were asleep at the switch; (b) wanted to run it when everyone was away on vacation (c) they took it really seriously (note they included a beautiful multi-color map!) or it was intended as a humor piece (which I find dark, tasteless Shuttle humor less anxiety provoking at this point of the econolipse"). If you buy Dr. Saw 's analysis: the new state anthem for Alaska will become "We're Back in the USSR") and Sarah Palin's "I look at Russia every day from my back porch" have new meaning.

Cine-moment Flashback: To cheer you up you might want to watch the original trailer from John Carpenter's "Escape from New York"

As if Things Weren't Bad Enough, Russian Professor Predicts End of U.S.

By Andrew Osborn

December 29, 2008

In Moscow, Igor Panarin's Forecasts Are All the Rage; America 'Disintegrates' in 2010. For a decade, Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument -- that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S. -- very seriously. Now he's found an eager audience: Russian state media.

In recent weeks, he's been interviewed as much as twice a day about his predictions. "It's a record," says Prof. Panarin. "But I think the attention is going to grow even stronger."

Read Full Article at: http://online.wsj.com/article/SB123051100709638419.html