MonkeyBusinessBlog

Song of the Day: Waylon Jennings "Are You Sure Hank Done it This Way?"

I figure mix in a good dose of Americana for the Super Bowl.  Have a great Super Sunday!

Big D Is Feeling SUPER!

As part of cynic-free Friday, you won't catch Big Dick say a discouraging word either! No siree. We are going to just talk about the best way to earn some money come Sunday, the unofficial national holiday known as SUPER BOWL SUNDAY!

People say this game doesn't have the same pizzazz as last year's monumental battle but we aren't so sure here from where we sit. These are 2 very hot teams who have earned their way to the Big Game. However the first thing we notice is that the TOTAL is far too high. High you say? But what about ARIZONA's explosive offense? Scoring 30 a game in the playoffs? Well the pitt defense is #1 and ARIZONA's is improving a ton. A nifty little stat is that in the 17 road games these 2 teams have combined to play this year, a mere 4 of the games had total points scored of over 47. What's the Over/UNDER on this game? Yep 47. 13 of 17 is a nice number for Big D. UNDER!!!

The CARDS are battlers and have been given the "we don't get no respect" title this year. Teams can get some real confidence when they are talented and get no respect. However, Pittsburgh has played the toughest schedule this season and are well balanced. The "hotness factor" of covering as an underdog 3 in a row now for KURT WARNER and the CARDINALS, keeps Big D's interest. A 20-16 Pitt prediction is what we will lay down. However, CARDS+7 points is the call at the betting windows. 

Now many folks will think you are a little bit nutty for saying ARIZONA and UNDER but we like to be contrarians. Yes, even on cynic-free Friday. Good luck and God bless. Enjoy the game.  

Good Thing Real Estate Moguls Don't Have Big Egos!

Bloomberg has a piece out that had to have poked Mort Zuckerman right in the eye! Zuckerman Loss Makes Zell The Master of Real Estate.  Oooof!  From Bloomberg;

Jan. 30 (Bloomberg) -- Billionaire Mortimer Zuckerman just learned a hard lesson from billionaire Sam Zell.  Zuckerman’s Boston Properties Inc.said this week that three Manhattan skyscrapers it bought in May lost about $165 million of value in seven months. Zell exited the office property market in February 2007, selling Equity Office Properties Trust and its more than 500 buildings to Blackstone Group LP for $39 billion in debt and equity, the largest leveraged buyout at the time. It was the peak of the market.

“After that, the world changed,” said Dan Fasulo, managing director at real estate data provider Real Capital Analytics.

Boston Properties disclosed the writedowns as it reported its first quarterly net loss in at least eight years. Zuckerman bought the three office towers from developer Harry Macklowe, who was forced to sell because he had to repay short-term loans he used to buy eight buildings from Zell in February 2007.

Poor Macklowe!  He's probably trying to keep his head down and mind his own business.  Then again, Macklowe was great at putting as little of his own money down as possible so poor Deutsche Bank? 

Anyway, when asked to comment about Zell's "mastery" over him in the real estate game, Zuckerman said, “Zell sold the buildings at the right price at the right time, Nobody’s ever perfect, though. You end up buying a newspaper business.” 

Unfortunately for Zell, he took a good chunk of his EOPT winnings and bought Tribune Company in a leveraged buyout.  Last month the media company sought bankruptcy protection with $13 billion of debt.

Nice shot Morty!!

Born Again American

We just got this from one of our good friends.  "Born Again American".  I figured this was a good way to keep with "Cynic Free Friday".  "Born Again" is used not as a religious statement ("My bible is The Bill of Rights") but rather a call for all of us to take back our birthright as American Citizens and get involved in determining its future.

Cynic-Free Friday! Marijuana to The Rescue!!

Today is going to a happy Friday no matter what.  After spending four straight days reporting how the economy sucks, politicians from both sides of the aisle are full of sh*t, CNBC being an unintentional joke and Bob Rubin being.....well Bob Rubin, It's time for something uplifting.   What can be more uplifting than after twenty-five years, Cheech and Chong are getting back together!  Woooooo-hooooooooo!!!

  

Nice piece in the New York Times about the lads getting together.  I didn't realize that they had such an ugly break up.  In typical Cheech & Chong humor, they can't remember what their last big fight was about because Chong says he was deaf and Cheech said he was too stoned!   Anyway, they will be on tour all throughout 2009.  I am going to iTunes when I get done to see if I can download all their albums.

Along similar lines, one of our dear friends sent us this yesterday;

Let Us Pay Taxes

What is this all about?

California is in trouble (again) with its budget. As this is written (August, 2007), there are plans to cut one billion dollars from important rapid transit projects. There are also plans to cut back welfare for the elderly and disabled and to cut back drug treatment programs for prisoners. Cutting back on important programs will simply cause more problems in the future -- with higher demands on the budget.

In order to try to make up the shortfall, the state of California is in negotiations with Indian casinos for a portion of casino revenues. The amount of money to be gained is between $200 million and $500 million per year. However, this battle has been going on for years with no quick resolution in sight -- and it wouldn't fill the budget gap, anyway.

We offer a solution.

The producers and sellers of marijuana offer the state of California at least one billion dollars in additional tax revenue every year -- and nobody is arguing.

What will this do?

• It can fill the current California budget gap all by itself. No more disputes about what to cut and the legislators can take the summer off.
• It can fund rapid transit.
• It can fund welfare for the elderly and disabled.
• It can fund drug education programs in schools and other drug abuse prevention efforts.
• It can fund prisoner treatment programs, thus reducing crime and saving even more tax dollars in the future.
• It will stop needless prosecutions of sick people for marijuana offenses.
• It can provide for safe and well-regulated medicinal marijuana supplies for the sick.
• It will stop the transfer of billions of dollars per year to foreign criminal gangs.
• It will boost local economies.
• It will get marijuana out of the criminal underground.
• It can provide for regulations on product quality, content and warning labels, and product liability insurance.
• It will save billions of tax dollars currently spent on useless criminal prosecutions for marijuana.
• It will free up police and courts for addressing real crime issues. 
• It will help the balance of foreign trade and boost the value of the dollar internationally.

The Marijuana Producers and Distributors of California make a simple request:

TAKE OUR MONEY PLEASE!

A sensible marijuana policy can make big changes in our society. It can produce a big reduction in government costs and a huge increase in taxes.

From what we hear, the marijuana growers offer is still good.  Additional moves have come from brothels in Nevada, asking for legalization statewide so they can contribute $ millions ($billions?).  We have to start looking at these potential stop-gap measures.  If they can put slot-machines at the terlet called Yonkers Raceway in New York to draw in slot machine-arm pulling zombies to raise money, pot and sex should be included too.  At least your getting something for you money and you may not even have to leave the house!

Finally, stay tuned for Big D's Super Bowl Lalapalooza!

Song of The Day: The Clash "Julie's Been Working For The Drug Squad"

We Keep Hearing That Citi Keeps on Buying!

Remember a couple of days ago we had a post about Citigroup buying stuff like non-agency mortgage backed securities (the kind of bonds that they are putting in CitiHoldings...the bad bank with Uncle Sam's guarantee)?  Here's that post if you missed it Citigroup: Super Secret Government Agent?  Well, another one of Monkey Business's vast network of market playahs tells us,

"One of my clients just called me up after selling bonds off a bid list and said, "I don't think Citi has been the COVER (that's the bid that comes in behind the winning bid) for a year.  Suddenly they are buying my bonds and NOT EVEN ASKING FOR THE COVER!"  

When you are a dealer and you buy or sell bonds in competition with other dealers, if you "win" you want to know how much you won by to make sure you didn't do something stupid, especially in these illiquid markets.  For example, if you bid 75-00 and you win, you ask the person who sold the bonds, "Thanks, what was my cover?"  In these markets if the client says, "Your cover was 74-00." you are happy.  If he says, "Your cover was 65-00."  You may have a stroke and fall out of your chair.  The good thing is clients will usually lie and tell you it was 72-00 or something!  Otherwise they know you won't be bidding on their bonds for a while, or worse, you may ask them to give you back a few points.

The important thing here is, YOU ALWAYS ASK FOR THE COVER.  The only reason you wouldn't is if you don't give a crap!  Something really funny is going on over at Citi and we have been hearing this from multiple sources that we trust. 

"Hey, Isn't that Senator Kent Conrad??" More Change We Can Believe In.

I'm watching CNBC just now and they are interviewing Senator Kay Bailey Hutchinson and a Democratic Senator about the stimulus package.  I didn't catch the Democrats name but he seemed real familiar.  Finally one of the CNBC reporters addressed him by name, Senator Kent Conrad. 

SENATOR KENT CONRAD OF NORTH DAKOTA....I remember him!!  He's the Senator that "innocently" got favorable mortgages from Countrywide's Angelo Mozilo (remember him) and then came up with the most lame story to explain what happened.  In fact I wrote about it last June.  Here is it;

Remember a couple of days ago we commented about former Fannie Mae CEO Jim Johnson's highly improper relationship with Countrywide Financial's CEO Angelo Mozilo?  Mr. Johnson participated in a lending program called "Friends of Angelo".  The program was designed for people Mr. Mozilo wished to influence with umm...how do I say it...BRIBES!  Jim Johnson took $ millions in loans from Countrywide at reduced fees, reduced rates and terms that fell outside of Countrywide's underwriting guidelines.  This was a huge conflict of interest due to the fact that Johnson was still a paid consultant with Fannie Mae and wielded tremendous influence within the company.  This was wrong because Fannie Mae guaranteed $ billions of mortgage loans from Countrywide and Johnson certainly could have had serious influence in deciding how much Fannie Mae would charge Countrywide (the charge is referred to as a "guarantor fee") for that insurance.  As we now know, Fannie certainly did not charge enough from 1999-2007 and are paying for it big time as loans go into default and there is not enough fee income to cushion these losses.

Anyway, the "Friends of Angelo" program came to light last week with Jim Johnson playing a starring role.  Johnson had recently been tapped to vet vice presidential candidates for Barak Obama.  After it was disclosed that Johnson was on the take from Countrywide, he was "un-tapped".  Then on Monday it came out that Senators Kent Conrad and Chris Dodd also were partakers of the "Friends of Angelo" lending program.  Conrad came out and said he saved $10,700 in fees and said he would give the equivalent amount to charity and immediately refinance his Countrywide loans with another lender.  Dodd essentially told everyone to stick it!   At the time we gave Conrad a pass for coming clean and Dodd, well..... We also predicted that there will be a mad rush of more lawmakers giving back money and refinancing Countrywide loans because as we know, these things never just involve a couple of guys.

So up until yesterday we just had Conrad down as a typical full of crap politician who at least had the sensitivity, given the horrible housing crisis, to admit his error and give back.  Then he went from typical politician, to lying, thieving, a-hole by giving one of the most insulting, yet funny accounts of what happened.  Lets break it down:

• Senator Conrad needed advice on refinancing a $1 million mortgage on his vacation home and a $800,000 mortgage on an multi-family investment property.  Rather than call the bank, or check the internet or the paper, he calls Jim Johnson, high powered politico and weekend loan broker!
• Conrad gets Johnson and wouldn't you know it, guess who Johnson happened to be sitting with? Angelo Mozilo, imagine that!!  Johnson, unsolicited mind you, hands the phone to Mozilo and Conrad and Angelo talk for about thirty seconds.  Mozilo gives Conrad a number to call at Countrywide.
• Conrad calls the number and as he explains he, "spoke with a young loan officer, not some big high-powered executive."  Um Senator, that's exactly the kind of guy Angelo is going to send you to, someone who thinks of Angelo as God Almighty himself.  Conrad gets his loans that most probably didn't meet Countrywide's underwriting guidelines (debt to cashflow on a non-primary residence..silly stuff like that) and had reduced fee of $10,700.
• Conrad describes his talk with Angelo "Serendipity"!  "It's an odd set of events. I know this has an appearance that's unfortunate but honestly I didn't do a single thing here that's untoward."

Senator, you would have done better if you said you toe-tapped a stranger in an adjacent airport men's room stall, that just happened to be Angelo Mozilo, and you two "hit it off"!  That is about the biggest pack of B.S. I've ever heard, and I worked on Wall Street for 16 years!  Not only are you a liar and a dirt bag, but "serendipity" and "untoward" in the same statement??

You want to know why we are in such a mess?  It's because guys like Conrad and Johnson and Mozilo claw and slither their way up to top of the pile and get their hands into our business.  That's just the way it works. You and I....could you imagine yourself saying what Conrad said with a straight face?  I doubt it.  I hope they torch this guy Conrad and make a good example of him.  It's ugly out there and we need a nice symbol to kick in the ass!!  Kent Conrad...COME ON DOWN!!

Well, Kent Conrad didn't get that butt-kicking.  Here's what he does in the Senate;

Committee on Budget

• Chairman

Committee on Finance

• Chairman - Subcommittee on Taxation, IRS Oversight, and Long-Term Growth

• Subcommittee on Energy, Natural Resources and Infrastructure

• Subcommittee on Social Security, Pensions and Family Policy  

Beautiful. Gotta run....Governor Blago is on!

CNBC in Davos

A very short post here.  It's short because I'm laughing too hard.  The kyron that CNBC puts up when Maria Bartiromo reports from the world economic circle-jerk in Switzerland is, "Dispatches From Davos"!!  I can't stop laughing.  It's like Maria is Edward R. Murrow reporting from the 1940 London Blitz!

My wife doesn't think this is funny.  I can't stop laughing!  Play this clip the next time we get another "Dispatch" and you be the judge!

I Like Markets and I Cannot Lie

People like to talk a lot, I've noticed. Very opinionated on a lot of stuff, too. You want to know though when people aren't full of kaka, (a technical term) when they are talking? When their own cash is at stake. You wanna shut some blowhard up in a conversation when you KNOW he is full of kaka? Tell him (loudly so everyone hears you), I'll bet you "X" dollars whatever crap you were spewing ain't true. Most of the time he will mutter something like "Oh, I don't gamble". Then you have exposed the assclown. However, sometimes he will accept your wager and then it gets fun.

You see, when you put money down on any kind of risk taking venture you get to learn a lot. Even "the oracle of Omaha" himself, Warren Buffett, is learning something about his last fall investments in GE and Goldman Sachs. They looked like great deals back then but they are even better now. As in the old man left a TON of money on the table by not waiting because he is down more money on just those 2 wagers than most 3rd world countries are worth! If he is smart, he will be even more careful the next time someone comes to him with a similar idea. Now in our above example, if the blowhard assclown WINS the wager, maybe he isn't such a blowhard assclown. Maybe you are the dope. But you LEARN to be smarter with your dough and maybe just walk the other way when this guy is talking loud again.

As far as markets go, I want to touch on 2. First there is a stock ticker we have talked about in these parts before called SRS. It is a stock that goes up as real estate prices--or more importantly, the PERCEPTION of future real estate prices--go down. So it's a big bet against real estate. As you can imagine, this stock had been a beautiful performer for a lot of 2008. You want to know where it closed on November 21, 2008? 295.72. Yowsah! You wanna know where it closed yesterday? At an all-time LOW of 48.95!! So what does that tell you? With all the HORRIBLE news going on about foreclosures, job layoffs, last month's housing prices, somebody (or a LOT of somebodies) is selling this SRS stock big time. What does that mean? There's a real perception that real estate prices are going to rebound. In a big way. Soon. Now maybe this stock is just the blowhard assclown like from above. So maybe you should go out and buy it because you don't believe the hype and this stock HAS to go up (and therefore real estate prices HAVE to go lower). Only the beauty of the markets is, you don't have to stomp your feet and yell about it. You can PROFIT from it. Or maybe you can LOSE from it. Buy the stock. Or sell the stock. Good luck! I LOVE markets. 

The other market I want to talk about is the Credit Default Swap (CDS) market. Some Einstein in the House of Representatives, Collin Peterson of Minnesota, has sent draft legislation that would outlaw CDS trading unless you own the underlying bonds in a transaction. Without getting too tricky, this would effectively ban 80% of the trading in this market and basically kill the liquidity. Did institutions lose money in CDS trading lately? They sure did. Is it a zero sum game? You're damn right it is. Meaning guys also MADE money on CDS. Did people also lose money on GE stock? Yes they did. Did people make money on GE stock? Uh huh. So when they cut CDS trading, is cutting trading on GE stock far behind? This is a slippery slope people. Trust me, we NEED markets in this country. Oh sure they cant be rigged and everyone needs to have a fair chance in them, but there NEEDS to be markets. Otherwise we lose the entrepreneurial spirit that made this country great and we become drunken, non-working people, who rely on the state for its survival. Think Russia during Communism. In those old clips of Russia, didn't those people always look ugly and cold? Lets stop this now! Call your congressman and cut this banning of markets talk!!

'Cause after all, if you remember Sir Mixalot's fine song from a short time ago, "Baby Got Back", one of his lyrics is "I like Big Butts and I cannot lie". Well I like Big markets and I cannot lie.      

New Home Sales............Wait For It.................boom!

From Bloomberg News;

Jan. 29 (Bloomberg) -- Sales of new homes in the U.S. fell in December to the lowest level on record after banks tightened lending and job losses mounted. Purchases dropped a more-than-forecast 15 percent to an annual pace of 331,000, the lowest level since at least 1963, according to a report from the Commerce Department today.

The median price of a new home decreased 9.3 percent from the same month last year to $206,500, the lowest in five years. Sales of new homes were down 45 percent from December 2007.

For the full year, sales fell a record 38 percent to 482,000, the fewest since 1982, Commerce said. The median price fell 7 percent, the most since 1970, to $230,600. The housing report showed builders were unable to trim inventories as fast as sales dropped. The number of homes for sale fell 10 percent to a seasonally adjusted 357,000, the fewest since Sept. 2003.

The supply of homes at the current sales rate jumped to a record 12.9 months' worth. That is more than twice as much as the five-to-six months supply that the National Association of Realtors has said is consistent with a stable market.

Good Lord.  With the tremendous amount of foreclosed inventory just waiting for ANY bid, new homes don't stand in chance in hell.  The Commerce Department should just release this for January;

Sorry Nassim But You Lost Me.

Nassim Taleb believes that it is "absolutely necessary" that we nationalize our banks to save taxpayers.  Huh?  How does the government taking ownership of the banking system help taxpayers?  From Bloomberg News;

Bank nationalizations are “absolutely necessary” to avoid taxpayers having to bear the burden of their risk-taking, said Nassim Nicholas Taleb, author of the best-selling finance book “The Black Swan.” “You cannot trust the banks in taking risks,” Taleb said in an interview with Bloomberg Television in Davos. “We have a very strange situation in which it’s the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst.”

I definitely agree with Taleb on the whole, capitalism on the way up and socialism on the way down is a unacceptable situation.  However, when Taleb says, “We should not trust these bankers; look at their track record,” Taleb said. “They know we’re going to bail them out. They hold us as hostages” and “the only way to stop the process is for the government to own those banks, tell them what to do.” Umm, talk about a Black Swan event! 

1. Capitalism on the way up
2. Socialism on the way down
3. The government running things at the bottom

Now THAT is the worst case scenario!  The government running the banks?  Has Mr. Taleb actually listened to government officials talk about banking and finance?  Doesn't Mr. Taleb know that the only people in government that are capable of understanding anything in finance have to be friends and toadies of Bob Rubin?  Last I checked all those people are already IN the government.  There's just not enough Rubinites to go around.  Sad but true.

Seriously though, I get where Taleb is coming from, but nationalizing the banks and creating "bad banks" to house assets that all have the profile a Rubik's Octagon Cubed isn't going to save the taxpayer any money.  Here is what we need to do.

1. Write the "troubled assets" down to market levels.  These levels exist....they suck but they exist and there's $billions of capital ready to buy the assets.  Move assets from weak hands to strong hands.  Everyone needs to stop fantasizing about "RTC II".  These are different assets and a different time. 
2. If a bank is insolvent after this exercise, move them from weak handed management to strong handed management.  Many banks have valuable lending and borrowing franchises.  Once the toxic assets are gone, there will be buyers.  Perhaps existing bond holders have to chip in to the equity raise through a partial bond for equity swap.

3. For solvent banks, between the FDIC, the OCC, The Fed and the OTS we have plenty of regulators on the ground.  We need to have frank discussions about what level of capital injection will it take to make them comfortable to resume normal and prudent lending activities and put new assets on their balance sheet.  We have to get back to the point where good credits who rely on normal banking for their short and long term needs get credit.

Government has a lot to do in this process.  However, government running the day to day operation of the nation's banks isn't the way to do it.  Sweden ain't the USA!

Bob Rubin Says "Mark to Market Accounting Has Done Damage."

From Bloomberg News;

Jan. 28 (Bloomberg) -- Robert Rubin, who quit his post as senior counselor at Citigroup Inc. this month, said an accounting rule forcing companies to mark down assets every quarter to reflect market value has “done a great deal of damage.”

“I spent my whole life at Goldman Sachsbelieving in mark- to-market accounting, and having said that, if you look at the experience from the last two years, I think mark-to-market accounting has led to terrible vicious cycles in asset prices,” Rubin, the former U.S. Treasury secretary, said during a discussion at the 92nd Street Y late yesterday.

Companies including Citigroup and American International Group Inc. say mark-to-market, also known as fair-value accounting, doesn’t work when few buyers are willing to trade assets like subprime mortgages.

I love it!  This shows you have delusional these guys are. You want to know how John Thain could allow $1.2 million to be spent to renovate an office, or how Dick Fuld could act like a diva, spurning all suitors as his firm goes down the bankruptcy toilet?  This is a great example.  How tone deaf can a brother be?  Rubin should be quietly wiring his money off-shore and getting out of town!  Instead, he's bemoaning the evil of mark to market accounting.  I'm not going to spend a lot of time on this because it doesn't seem to matter.  If Citi could have held off its implosion for a couple more months, Rubin would probably already have an office in the White House.  Even the tone deaf **(yes I used that phrase twice in the same paragraph) Obama Administration knew to "distance itself" from Rubin after they figured out it may not be a good idea to be seen with the Chairman of the Citigroup's Executive Committee who collected over $150 million to oversee the explosion of the world's most important bank.  Instead, the Obama Adminstration focused on hiring Rubin's disciples, Larry Summers, Tim Geithner and Nancy Killefer.

Lets be positive and use this piece for a risk management lesson.  I may not be as smart as Bob Rubin or Tim Geithner but here is something that I used as a risk manager.  When an asset has limited liquidity, like residential subprime CDO's, and you've never really seen them trade in a bad market, DON'T BUY THEM, LEVERAGE THEM UP TWENTY TO THIRTY TIMES, AND GO ALL-IN WITH THE FIRM'S CAPITAL!  YOU KNOW THAT YOU HAVE TO MARK THAT SH*T TO MARKET NOT JUST FOR THE ACCOUNTING STATEMENTS BUT ALSO FOR THE GUYS YOU BORROWED THE MONEY FROM!!   Presumably Citi thought they were getting this kind of wisdom when they hired Rubin and paid all that money.  Ahhh, probably not.  They hired him to make calls to the right people when little things like Enron or the equity analyst scandal popped up, which apparently he did. 

Anyway, I hope the folks at the 92nd Street Y had a nice lunch and plenty to drink to wash down Bob's bullsh*t.

** Tone deaf refers to the Obama Campaign's initial hiring of Fannie Mae's Jim Johnson to vet Vice Presidential candidates, the nomination of New Mexico Governor Bill Richardson for Secretary of Commerce despite an ongoing investigation as to whether Richardson's office participated in a "pay for play" deal with a municipal finance consulting firm, Tim Geithner's appointment as Treasury Secretary despite his tax problems and Rahm Emanuel's appointment as White House Chief of Staff despite his mastery of the public/private revolving door that the Administration reportedly abhors. 

Media Alert!

Catch Richie tonight on Fox Business "Happy Hour"!  Tune in from 5-6PM!

CNBC in Davos, Steve Schwarzman's B-Day Party And The Golden Calf

My friend just sent me a preview of famous investor John Bogle's new book, "Enough: True Measures of Money, Business and Life."  The preview lists the book's main takeaways;

1. What matters in life is not success but rather character and virtue.
2. The financial system subtracts value from society.
3. Within the financial services industry, self dealing has eclipsed client service.
4. The scandals of egregious CEO compensation and the high fees investment managers get whether their clients prosper or not are symptoms of a rot in the financial system.
5. Professionalism means working for the good of others and of society.  The investment industry must regain professionalism.
6. Success is a poor measure of one's overall performance.
7. The things that matter most in life are the things that counting cannot capture.

Beautiful isn't it?  I think so.

Meanwhile, as I am reading this I am looking at the RIDICULOUS image of CNBC's Maria Bartiromo reporting live from Davos Switzerland, decked out in a fur coat and hat.  At times like this I am torn between which is funnier;

• The CNBC cheerleaders reporting breathlessly about the same old crap from some far and exotic location as opposed to reporting it AGAIN from New Jersey or;
• That they still have this ridiculous Davos conference!  Besides a forum for a bunch of "Masters of the Universe" to strut their stuff, pat each other on the back about all the great things they were doing and try to outdo one another with their "Davos Parties", this conference is one gigantic, expensive circle jerk.

Then, as I am alternatively laughing and yelling at the TV, a story about Blackstone's Steve Schwarzman comes across Bloomberg.  Schwarzman is crowing that the environment for his business will soon be "wonderful".  Whatever.  Of course any story about Schwarzman isn't complete without recounting the 60th birthday party HE threw for HIMSELF a couple of years ago.

For his 60th-birthday party in February 2007, Schwarzman had the Park Avenue Armory in Manhattan redecorated to resemble part of his 35-room Upper East Side apartment, complete with a replica of a painting of himself by Andrew Festing. The guest list of 500 was stacked with notables, including Donald Trumpand JPMorgan Chase & Co. head Jamie Dimon. Rod Stewart entertained them for a $1 million fee.

Not to get all religious here but between Davos and Schwarzman birthday party all I could think of was the Israelites and The Golden Calf - Exodus 32:1-10 

 1And when the people saw that Moses delayed to come down out of the mount, the people gathered themselves together unto Aaron, and said unto him, Up, make us gods, which shall go before us; for as for this Moses, the man that brought us up out of the land of Egypt, we wot not what is become of him.

 2And Aaron said unto them, Break off the golden earrings, which are in the ears of your wives, of your sons, and of your daughters, and bring them unto me.

 3And all the people brake off the golden earrings which were in their ears, and brought them unto Aaron.

 4And he received them at their hand, and fashioned it with a graving tool, after he had made it a molten calf: and they said, These be thy gods, O Israel, which brought thee up out of the land of Egypt.

 5And when Aaron saw it, he built an altar before it; and Aaron made proclamation, and said, To morrow is a feast to the LORD.

 6And they rose up early on the morrow, and offered burnt offerings, and brought peace offerings; and the people sat down to eat and to drink, and rose up to play.

 7And the LORD said unto Moses, Go, get thee down; for thy people, which thou broughtest out of the land of Egypt, have corrupted themselves:

 8They have turned aside quickly out of the way which I commanded them: they have made them a molten calf, and have worshiped it, and have sacrificed thereunto, and said, These be thy gods, O Israel, which have brought thee up out of the land of Egypt.

 9And the LORD said unto Moses, I have seen this people, and, behold, it is a stiff necked people:

 10Now therefore let me alone, that my wrath may wax hot against them, and that I may consume them: and I will make of thee a great nation.

Luckily Moses was around to calm God down back then.  Now?  John Bogle?

AIG Takes Another Dump On Our Collective Front Lawns.

Ah, the boys and girls at AIG are at it again.  From Bloomberg News;

Jan. 27 (Bloomberg) -- American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.

About 400 workers at the financial products unitmay get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.

Hmmm, $450 million for four hundred people in THE FINANCIAL PRODUCTS GROUP!!

1. This is the group that ripped a gaping hole in the entire financial system by writing credit default protection on basically anything that anyone asked them to using the sophisticated "anus" model.  After all it was free money right?  Almost? No??
2. We, the taxpayers, have already met all their $ billions of collateral call obligations on these default swaps, bailing the geniuses on the other side of AIG's trades.
3. When these trades kept moving against AIG (us) late last year we effectively tore the swaps up and spent $52 billion to buy the assets from the counterparties and end the trades.  The good news here is now that we own all these great residential mortgage credit assets, the Fed has announced that they will attempt to modify the loans in the securities to stem foreclosures.  So we have that going for us.

So it seems to me that we have pretty much done all the work that the window-lickers (thank you Captain Zach.  I will always be indebted to you for giving me that term!) in the AIG Financial Products group would need to be retained to do right?

“I was extremely disappointed -- but not surprised -- to learn that AIG will be awarding bonuses to the very division that drove the company into the ground,” said Representative Elijah Cummings, a member of the House Committee on Oversight and Government Reform, in an e-mail. AIG shouldn’t be awarding “millions of unmerited dollars to employees while at the same time begging the U.S. government for financial life support.”

I'm a little disappointed too Congressman.  However, while I can do nothing, can't anyone in the government that owns these sorry-ass SOBs put the hammer down?  How about accelerating the repayment terms on the loan that we made to AIG by say....$4.5 billion.  No one else seems to be paying attention to the rule of law in this country so why the hell should we? 

AIG is worried about retaining employees in the Financial Products Group?  How rediculous (that's how the young people say ridiculous) is that?  The Street is laying off all kinds of financial products people every day!  It's like a scene from "On the Waterfront" here in the New York Metro Area!  I'll be more than happy to report to work at AIG tomorrow and send out bid lists!  I can probably get a few of my friends too!

Barney Frank, an angry nation turns its lonely eyes to you.  Do something about this....please.

Confidence Down? Disillusioned With Our Folks In D.C.? Disgusted With Corporate CEOs? Here's a Message From Uncle George.

John Thain: "You Got To Roll, Roll, Roll Me and Call Me The Tumbling Dice!"

I've been thinking an awful lot the last few days about John Thain.  With his ramrod straight posture, his conservative haircut and his Clark Kent demeanor I always thought of him as a conservative, no fun guy.  Clearly, looking back on things I was wrong.....very wrong. 

Thain is a wild man!  Between playing it fast and loose with the financial statements all through 2008, telling investors one thing and doing another, tattooing BofA's Kenny Lewis with the sale of Merrill, creating a kick-ass office for himself and getting the whole firm paid before BofA could say no..........Call Johnny Thain "The Breeze", "The Super-Freak"........Hell man, I'm going with my all time favorite....Call Johnny Thain "The Tumbling Dice"!  Here's to you Johnny..."The Rank Outsider Playing the Field Every Night."   My favorite version of my favorite song.

A Letter to the New York (New Jersey?) Jets

Dear New York Jets who live and play in New Jersey,

Hi Jets! Its me Richie B from Section 107! I just got a beautiful glossy packet that must've cost you a fortune to produce! It talked about your new Personal Seat License (PSL) program for the "privately funded" stadium you are going to move into with your colleagues, The New York (New Jersey) Giants! I must say it was an interesting read this packet. Very intricate. Lots of moving parts. Even had examples of other season ticket holders and advice as to what they should do about tickets for the new stadium opening up 2010. I was captivated.

It says about 20 times how you are going to grant seat preferences based on seniority (how long one has held season tickets for the Jets). It also says you only have records though dating back to Jan 1, 1977. What, did you trade those season ticket records before that with Joe Namath to the LA Rams too?! Sorry, a little humor there......Well I can tell you my family has had these tickets since the Jets played at the Polo Grounds (1960-63) which is now an apartment building. We were there when you guys opened at Shea in 1964 with the Beatles and Mets. You guys practiced in my hometown in the 60s and the aformentioned Joe "Willie" Namath took pictures with me as a little tyke at those practices. (A little aside: you know how it was a common saying that black folks had at least a picture of 3 people in their house in the 60s, Jesus Christ, JFK, and Martin Luther King? Well Im not sure if we had a picture of those 3 guys but we did have one of Joe Namath). If you look real closely at the old clips at what has turned out to be your most important home game of all time, the 1968 (yes I said 1968) AFL Championship Game versus the hated Raaaayyyy-duuuuuuuhssss on that 8 degree December day, I was there! Those cold rainy Sunday's  in the 70s when you were like 3-10 and there were 2 people bundled up in the upper deck still cheering in a meaningless game? That was me and my old man who I DRAGGED to the game. You think he wanted to go? But he went anyway.

So I guess I have made my point that I am as loyal as there is. So when I looked at my seats in the new stadium you can imagine my expression when, if I want them back, I need to fork up 10 grand per ticket upfront for the PRIVILEGE of buying the seats at $140 per ticket per game. Since you require season ticket holders to buy 10 games (8 regular season + 2 crappy, nothing pre-season games) that's $1400 per ticket per season X 3 tickets = $4200. Add up my 30 grand upfront number and we are looking at $34,200 in 2010 to get my tickets. Um, can you tell me what the Per Capita Income is of this country? I think its close to $34k!! Then I have to renew every year at $4200 provided you dont raise my ticket prices after that. My tickets right now cost $800 per SEASON per ticket. Thats $2400 a season. I thought the FED was worried about DEflation not Inflation? We havent even talked about if you make the playoffs which will be a LOT extra. But lucky for us Jet fans we dont have to worry about that expense too much (Has it really been 40 years since we beat the Colts in Miami). Um, are you guys watching what is happening in the economy? 

Oh, but look here, if I dont want to fork over a PSL payment I can sit in the upper deck where tickets are priced at $125, 105, and if you want to sit in the last row, you can pay $95 per game. I find it interesting that the worst seats in the house are still 20% higher then my current decent seats. So Jets you have put me in a bit of a pickel. See if I keep my current seats, how do I explain it to the missus? You know how explain it? I dont. She explains it to me. If I get to spend almost 35 dimes on "stupid football", she can get to spend at LEAST that on "stuff" she wants. So I look at this as a 70k proposition. For chrissakes, I can buy a nice house for that amount in one of these foreclosure auctions.

I see you dont give us a lot of time to make a decision. I have until February 3! I think this is called impulse buying or something. You try and scare me into it. Only you dont try and just scare me into it. You try and scare 80,000+ suckers into it all at the same time. 

Don't worry you'll have my answer on the 3rd of February and it will be a long answer. Hey that'll be right after the Super Bowl! Do the Steelers or Cards make their fans pay for PSLs for the exciting football that they showcase? No? Well then in closing, I'd just like to say thanks for nothin'. Assclowns.

Love,

Richie

P.S. I'm making up some "Jets in '69" t-shirts. Not for 1969. For 2069. Good luck finding the suckers.

Citigroup Super Secret Special Government Agent?

A little over two weeks ago we posited (I save that word for special occasions) that Citigroup was beginning to act more like a "governmental tool" when they became the first big bank to change their opinion regarding a move by Democrats to afford bankruptcy protection for mortgagees defaulting on their primary home mortgage.  This was a BIG deal.  Citigroup services nearly 7% of all the mortgages in the country!  Citi going along sent a very big signal for the rest of the banks to get in line.  The ramifications of allowing bankruptcy court judges to modify mortgages and "cram down" reduced principal and reduced rates to mortgage lenders and investors are huge.  We did a piece yesterday Cram It!. 

The last few days I have been hearing some very interesting things from our friends that are still in the trenches about Citi's behavior on troubled asset "Bid Lists".  Nearly everyday on The Street there are multiple auctions of "troubled assets" that are put out by clients (hedge funds, money managers, etc.) looking to shed these assets.  These auctions are called "Bid Lists".  The way it works is as follows;

1. XYZ Hedge Fund sends a list of a few bonds (or a lot of bonds) to six or seven dealers at 9:00 AM with the title B.W.I.C. (Bid Wanted In Competition).  The hedge fund will list the time they want to receive all bids.  Lets use 11:00 AM as a example.
2. Each Wall Street dealer's trading desk sends the list out to the sales force to solicit clients to bid on the bonds.  The trading desk also looks at the bonds and comes up with what they think the price of the bonds should be.  The values are called "price talk".  The desk then sends out "price talk" to the sales force.
3. The sales force sends the "price talk" to their clients and begins making calls to clients that may be interested in buying the bonds.
4. Hopefully, a lucky salesman has a client that wants to buy at least one of the bonds.
5. The client of the lucky salesman looks at the bond and says something like, "Hmm, your trading desk thinks the price that gets this bond is 33-00?  That sounds about right, everyone is "talking" that bond around that level.  I'll bid 33-00.
6. The trading desk, looks to make a quarter point on buying the bond from the client selling and selling the bond to the client buying.  This is called "crossing bonds".  The trading desk is not bidding to take the bond themselves, although sometimes they will give a position bid...but not for our example.  The desk shows the client a bid of 32-24
7. All the bids from all the dealers are submitted to the client at 11:00 AM.  The client then begins "hitting" the highest bids and selling his bonds.
8. Lets say that our bid of 32-24 was the second best bid.  That is called the "cover-bid".  Because you were the cover bid (which is valuable to the client) the client will tell you what the winning bid was.  In our case, lets assume it was 37-00.  That's over four points better than the cover.  In a illiquid market that may not be such a big deal.  So what in this story is a big deal and what does it have to do with Citi?

What we are hearing is that Citigroup is winning a high percentage of these bid lists, paying prices way above "the cover bid".  Citigroup, the guys drowning in these troubled assets, is the consistent winner of these bid lists!  Now you might ask, "What is Citi doing with the bonds?  Maybe they have some big customers that only talk to them and are buying the bonds at a higher price than everybody else.  Maybe Citi is making a killing 'crossing bonds' like the example above?"  The problem is, our friends tell us, a few hours or days later Citi is "re-offering" the bonds at a even higher price than where they bought them!  That means they didn't buy the bonds for a customer.  They bought the bonds for themselves at prices way above where customers and their competitors care!

Something doesn't add up here right?  The only thing I can think of is the government is already using Citi, similar to how they are using Freddie and Fannie.  They are taking troubled assets out of the market at above market levels, thus reducing supply AND reflecting a market price that might allow others to keep their bonds marked higher than market value.  This is just my opinion.  Maybe I'm nuts but last I checked we passed "nuts" about a year ago.

They're Pissing Down Our Leg and Telling Us it's Raining And it's Pissing Me Off!

There are very few things that piss me off more than having somebody give me a line of bull-sh*t and think they are getting over on me.  I try not to be political on this blog, but I will tell you that I voted for Barak Obama and I like Barak Obama.  However, his first few days have me beside myself.  First I had to watch Tim Geithner's senate confirmation hearing and hear him try to explain how he couldn't figure out how to file his taxes....twice.  I won't even get into the consequences of Geithner's inaction while he was President of the New York Federal Reserve because nobody besides Baseball Hall of Famer and Senator Jim Bunning seems to care about that (we care too Senator!).

Next we had President Obama sign a executive order to make sure that no one in his administration could become a lobbyist and lobby his administration.  The President says he wants to make sure that "public service" really is public service as opposed to a revolving door to make contacts in the public sector and then make $ millions in the private sector.  Well, that must make his Chief of Staff Rahm Emanuel nervous right?  After all if there was ever a poster-boy for using the old revolving door it's "Rahm-Bo!  Rahm Emanuel left his position as senior adviser to President Clinton in 1998 and went to investment banking powerhouse Wasserstein & Parella.  Considering that Emanuel's resume contained nothing in the way of investment banking experience you would think that he started out as a first year associate right?  Nope, Emanuel came in as a Managing  Director.  His two main deals involved the heavily regulated energy utility industry (a merger between Unicom Corp and Peco Energy) and the heavily regulated, especially earlier in the decade, telecom industry (SBC's sale of Security Link to a private equity firm GTCR Golder Rauner).  Here's a description of Emanuel's involvement in the Unicom-Peco Energy transaction from the "not exactly unfriendly to Democrats" New York Times;

Mr. Emanuel’s biggest transaction came in late 1999 when he landed an advisory role for Wasserstein in the $8.2 billion merger of two utility companies, Unicom, the parent company of Commonwealth Edison, and Peco Energy, to create Exelon, now one of the nation’s largest power companies.

John W. Rowe, the former chief executive of Unicom who now holds the same position at Exelon, sought out Mr. Emanuel after he went to Wasserstein. Mr. Rowe said he believed Mr. Emanuel would offer a different dimension, providing wisdom on what might pass muster at the governmental level.

“You can’t understand utility transactions without thinking about whether they’ll play or not play in legal and political circles,” said Mr. Rowe, who was first introduced to Mr. Emanuel by Lester Crown, the billionaire scion of Chicago’s influential Crown family.

Hmmm, "Providing wisdom on what might pass muster at the governmental level."  You be the judge of what that means.  Actually, have some fun and read the whole article In Banking, Emanuel Made Money and Connections.  Mr. Emanuel cleared about $16 million in his years as a "investment banker", getting a windfall when the firm was sold.  Additionally, in 2000, President Clinton appointed Mr. Emanuel to the board of directors of a little firm name Freddie Mac.  Mr. Emanuel served on that board for nearly two years, netting director fees over $200,000.  The period of time that Mr. Emanuel served on the board was the period of time that Freddie began to carry out their accounting fraud.  I'm sure that Mr. Emanuel knew nothing about these activities because he was probably as inactive and clueless as the rest of the board. 

I'm not saying that Rahm Emanuel did anything illegal but rather he worked the age old revolving door system really well.  However, don't make the guy the White House Chief of Staff and then give everyone a lecture on ethics because when you do that your pissing down my leg and telling me it's raining.

The Frog and The Scorpion

The John Thain-Ken Lewis war of words and accusations is getting uglier by the day. 

• First, Thain gets canned by Lewis as Lewis implies that Thain was less than truthful about remaining troubled asset time bombs when the deal closed in December.  BofA also implied that Thain accelerated the  payment of $4 billion of bonuses in December, before the BAC MER deal was completed, without their knowledge.  Additionally, "someone" put out the story that Thain spent $1.2 million to renovate his office.
• Now, Thain is trying to prove that BofA was fully aware of the bonus situation.  With regard to the $15 billion of losses posted from Merrill in the fourth quarter....well in the words of Don Rumsfeld, "Stuff happens."

Anyway, it's getting uglier by the minute and you have to imagine there's a good chance Kenny Lewis may not be around as BofA chief much longer.  As you may know, I like to imagine conversations that might of or should have happened.  Here's one imagined conversation between Lewis and Thain, sometime in early January.

Thain:  "Kenny, I didn't know you were up in New York today, come on in and sit down!  Oh wait, don't sit on that chair...it's an antique.  Got a great deal on it.  Only $35,000!"

Lewis:  "Thanks John.  Listen....ah...I ah..."

Thain:  "Kenny, are you ok?  You look terrible, was it a rough flight?  If your going to throw up try not to get it on the rug, it cost $87,000....Oh Kenny, not in that waste paper basket...it costs $1,400!"

Lewis: "Sorry John.  Listen...about these $15 billion additional charge offs...I've checked my notes and you pretty much assured me all your troubled assets were marked down the nuclear winter levels."

Thain:  "And they were Kenny.  Problem here is, we had about $40 billion of assets that we didn't think were "troubled".  Who knew commercial real estate was going to get so bad.  European high yield loans...like I said..who knew?"

Lewis: "Come on John, that's just bull-sh*t!  How could you have lost so much money?

Thain:  "Well Kenny, think about it this way.  You see that toilet in my bathroom?  The seat on that toilet costs thousands.  I'm a thrifty guy.  Therefore, to get maximum utility out of that toilet I make sure I use it at least six time a day.  Now think about my head of trading, Tom Montag.  I paid $89 million for him.  I'll be damned if I was going to let him just sit there in the fourth quarter and do nothing but caretake the book.  I made sure he was trading the CMBX around like it was nobody's business...and well....sh*t happens." Kenny...if your gonna puke again...you get it on this rug...you bought it!  Oh wait, actually you already did....hah hah hah....."

Lewis:  "John!  How could you do this to me?"

Thain: "Well Kenny, have you ever heard to story about the frog and the scorpion?  One day a scorpion came to the edge of a pond and wanted to get to the other side.  Next to the scorpion was a frog.  The scorpion asked the frog if the frog would ferry him across the pond.  The frog said to the scorpion, "If I let you get on my back you will sting me."  The scorpion said, "Look, you are doing me a great service.  There is no way I will kill you after you provided me such a great service."  The frog said, "Ok, hop on and lets get across the pond."  The frog ferried the scorpion across the pond.  As soon as they got to the other side the scorpion stung the frog.  As the frog lay dying he said, "Why did you sting me? I did you a great favor and you said you wouldn't sting me.  Why did you do it?"  The scorpion replied, "I don't know, I guess it's in my nature."

Lewis:  "Jesus John, what the hell are you talking about?"

Thain:  "Kenny, you came all the way up to New York to ask me why I screwed you right?  I guess it's just because it's in my nature!  I'll have my $250,000 a year driver take you back to the airport."

Ok I was WRRRRRRRR............

Remember the sitcom "Happy Days" back in the 70s? Well they had a "cool" guy named Arthur "Fonzie" Fonzerelli, AKA "The Fonz". The Fonz knew everything. He could fix cars, he could scare away bullies, he always had the hot chicks (not sure if I'm including Pinky Tuscadero in there), and The Fonz was the one who literally "jumped the shark" in his leather jacket and bathing suit while water skiing. Now whenever you hear that a TV show has "jumped the shark" that means its time is done. The term is gotten from when people point to how "Happy Days" went downhill right after The Fonz jumped the shark. (A little known fact is "Happy Days" ran for 2 more years after the "Jumping the Shark" episode which made a lot of people a lot of money for those 2 years. Hardly the end but I digress).

Anyhow, one of my favorite episodes was when The Fonz was actually WRONG about something one time. And I do believe it was ONE time. In any event, The Fonz had to admit to the gang that he was wrong. Only he couldnt say it! He would say, "Ok, I was WRRRRRRRR........" (audience laughter). Or "I'm sorry I was wrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr....." (audience louder laughter). Finally, after about 28 minutes of the half hour show he says the word WRONG. Ladies and gentleman one of the most popular sitcoms of the 70s......

Well, I am no Fonz. I could never say stuff like, "AAAAAAAAAAAAAAAAAAAAY up yaw nose with a rubber hose! Twice as far with a candy bar. AAAAAAAAAAY" very well. (I COULD balance coins on my elbow and flick them into my palm with the best of 'em but that's for another time). So by not being the Fonz, I make mistakes. I must admit I made a pretty big one when telling you to buy the stock with the ticker SPY the other day.

Today is shaping up to be pretty ugly in the markets and I did say I was only telling you to put the SPY trade for a little bit. Well I'm telling you to get out of it. Now. As in sell at the open this morning and we will live to fight another day. But I am NOT telling you to sell the other stocks we've hit you with which are doing quite fine, thank you very much: MCD, EDR, NLY. Just sell the SPY. We'll be back to you with new stuff soon. Sell SPY I was...........WRONG

Cram it!

There's a lot of buzz going on with regard to a change in bankruptcy law that will for the first time, afford bankruptcy protection for a bankrupt individuals primary residence.  As with just about anything, there will be winners and losers.  If you are someone who pays their bills on time, someone who bought mortgage backed securities or asset backed securities (or a lender who make mortgages, credit card loans, home equity loans).....you get screwed.  If your someone who qualifies for bankruptcy protection, meaning if you are a borrower that is "just right" with regard to not being able to pay your current mortgage but can potentially pay a cram down mortgage, you win....potentially by a large amount.  Overall, it can be argued that allowing primary residences to be protected under bankruptcy law will stem the tide of foreclosures and improve housing technicals.  It can also be said that this critical change will

• Greatly increase the amount of individuals filing for bankruptcy,
• Creates huge losses for banks and investors that traffic in the $multi trillion consumer lending market as these lenders must now compete with mortgage creditors in bankruptcy filings.
• Greatly increase the risk premium charged for future home loans and consumer loans.
• Trigger some long forgotten language in $ billions of mortgage backed securities that completely screw senior AAA bond holders.  Many deals have language in them that states if losses resulting from a bankruptcy exceed $100,000, the the losses from bankruptcy are shared EQUALLY WITH THE ENTIRE CAPITAL STRUCTURE.  That means that the B-rated note holder gets his pro-rata share of the the proceeds along with the AAA note holder.  Stick that in the model!

Anyway, here is a nice summary from Credit Suisse's Rod Dubitsky;

 The proposed bankruptcy law reform will allow a judge in a Chapter 13
filing to reduce or "cram down" the balance of a mortgage securing a
principal residence to the current property value, along with other rate
and amortization term changes.

* During the implementation of the bankruptcy plan, the crammed down
portion of the mortgage will be treated as an unsecured claim of equal
priority to other unsecured claims such as credit card debt. The crammed
down amount may therefore be partially recovered from a borrower's
disposable income over a 3- to 5-year period. The benefit of a mortgage
cram down to the borrower is contingent upon successful completion of
the bankruptcy plan.

 * Overall we think the bankruptcy reform will be a net positive in terms
of foreclosure reduction, as it may be an effective way to improve both
home equity and affordability. It has several attractive features
relative to other loss mitigation alternatives, such as comprehensive
debt restructuring, less moral hazard, and direct dealing with second
liens. Though it is an important new tool in the toolkit, we can't
dismiss unintended consequences such as: (1) many more borrowers filing
than who qualify, (2) bankruptcy bar ramping up its marketing machine,
and (3) new defaults created by borrowers who believe (falsely or
otherwise) bankruptcy will be their salvation.

* Only borrowers who can service the secured portion of the mortgage and
a portion of the unsecured portion will be eligible. However, it's not
entirely clear whether borrowers with high income relative to debts or
very low income would file bankruptcy anyway. Likewise some very
marginal borrowers may be confirmed, but will ultimately fail the plan.

* We expect the bankruptcy plan will provide about a 20% reduction in
foreclosures. This is based on our belief that many delinquent loans are
too far underwater relative to borrowers' income, many properties are
empty, and many borrowers wouldn't want to go through the onerous
bankruptcy process.  

One interesting note with regard to recovery of the "crammed down" portion of the mortgage is that, based on the borrowers disposable income, a PORTION of the crammed down balance will be paid over a 3-5 year period.  Therefore, if the crammed down portion is $100,000, the amount the court will require the borrower to pay back is based on what he can pay in a 3-5 year period.  Maybe he can afford $5,000 a year, or $25,000 in five years.  It doesn't matter that he could pay the entire amount in twenty years, he gets off the hook on $75,000.  I know there is a present value of money situation to deal with, but its still a big write off for the bank or the investor.  It's a zero sum game and if you were a lender of a investor that believed in the rule of law that was in place when you put your money down, you're a loser.  If you are a strong credit, you are going to pay for this in the form of higher financing costs for anything you may want to finance in the future.

If John Thain Was a Roman on Bonus Day!

President Obama Escapes Injury!

Let it be Known: Monkey Business Gave John Thain the 2008 "Dope of the Year" Award Last September.

Here is a reprint from our September 2, 2008 post:

It's Official. Thain Clinches the 2008 Dope of the Year Award!

I truly believe that John Thain has some kind of deal where if he can destroy Merrill Lynch by the end of 2008 he gets a special bonus!  Today, it has been announced that Merrill has hired Mike Nierenberg to run it's "Global Mortgage and Securitized Product Business".  Mr. Nierenberg was key to building Bear Stearns securitized product business.  If this were 2005 you would probably say, "Hey, that's a nice grab by Merrill."  Unfortunately it's 2008.  In 2008 we say, "You're paying a kings ransom to hire a guy to run a business that no longer exists!  Are you out of your freaking minds??"

This really has to be a moral builder over at Merrill.  First Thain comes in and hires his buddy Tom Montag, who was currently being paid BY NO ONE, for $89 million to run global trading and sales.  Montag couldn't start his new job for three months, thus paralyzing all decision making for that little business until Tom could start working, which was last month.  Now he's hiring Nierenberg to head up a business that destroyed the firm and a good part of The Street.  What's he going to do?  How is he going to possibly justify whatever they are paying him?  Unless, like we said about Montag last month, he can cast a magic spell and make the rest of Merrill's tier III assets disappear at par, he's nothing more than a high paid thumb in the eye for everyone else working at the firm.  Someone should check on Danny Tully and David Komansky to see if they need to be revived!  Stan O'Neal must be rolling around on the floor laughing!

Anyway, I've been saving this clip for this occasion.  Think of John Thain as The Honorable William J. Le Petomane.  Think of Slim Pickens as any employee of Merrill.

>

I truly believe that John Thain has some kind of deal where if he can destroy Merrill Lynch by the end of 2008 he gets a special bonus!  Today, it has been announced that Merrill has hired Mike Nierenberg to run it's "Global Mortgage and Securitized Product Business".  Mr. Nierenberg was key to building Bear Stearns securitized product business.  If this were 2005 you would probably say, "Hey, that's a nice grab by Merrill."  Unfortunately it's 2008.  In 2008 we say, "You're paying a kings ransom to hire a guy to run a business that no longer exists!  Are you out of your freaking minds??"

This really has to be a moral builder over at Merrill.  First Thain comes in and hires his buddy Tom Montag, who was currently being paid BY NO ONE, for $89 million to run global trading and sales.  Montag couldn't start his new job for three months, thus paralyzing all decision making for that little business until Tom could start working, which was last month.  Now he's hiring Nierenberg to head up a business that destroyed the firm and a good part of The Street.  What's he going to do?  How is he going to possibly justify whatever they are paying him?  Unless, like we said about Montag last month, he can cast a magic spell and make the rest of Merrill's tier III assets disappear at par, he's nothing more than a high paid thumb in the eye for everyone else working at the firm.  Someone should check on Danny Tully and David Komansky to see if they need to be revived!  Stan O'Neal must be rolling around on the floor laughing!

Anyway, I've been saving this clip for this occasion.  Think of John Thain as The Honorable William J. Le Petomane.  Think of Slim Pickens as any employee of Merrill.

Dick Parsons Provides Easiest Layup of the Day.

Financial Times headline this morning; "Parsons Calls For 'Bad Bank'.

"Hey new Mister Citigroup Chairman....you already got one!"

Sorry but that was too easy.  Seriously though, here's Mr. Parsons from FT

"I lived through the first crisis," said Mr. Parsons, who ran Dime Bank, a small lender, between 1991 and 1995.  I remember one of the keys to bottoming out of the crisis was the presence of the RTC...We need something along those lines.

I remember Mr Parsons being at Dime Savings in 1988.  Dime was a disaster and maybe by today's standards Dime was small, but back then it was pretty sizable.  To Mr. Parson's credit, the damage had been done to Dime before he arrived and he did turn it around, or at least stop the bleeding.  One thing that definitely helped was the RTC cleaning up all the real-estate-owned from failed banks in his New York area of operation.  Getting that REO moved helped Dime move or resolve their own REO. 

This time around though?  It's a problem of different assets in a different time.  The aggregator bank is going to pay too much for the assets (meaning way above where real money would pay for them) and eventually stick us with the losses and tie up too many valuable resources.  Part of the RTC's success is what I said above, it moved REO from failed institutions to strong hands, established market clearing levels, reduced the overhang of properties, and allowed banks that hadn't failed to resolve their issues.  This plan does not move assets to strong hands and inflates their "value".  All that will do is miss-price assets and allow some institutions to kick the can of loss recognition down the road. 

A Special Announcement From BofA's Ken Lewis

Here's a Group We Haven't Called Out

You know who has kind of fallen through the cracks in the blame game of this whole housing mess? The Real Estate Brokers! Let's think about what these guys and gals do. Let's say you are a buyer of real estate. The broker brings you around to see places to buy. Shows you info on the place, usually the size, taxes, age of the dwelling, any approval processes necessary, and of course, the price. Now back in the good old days (like 2 or 3 years ago), if you were looking to buy real estate, did you ever have a broker tell you stuff like, "you better buy NOW!" Or "at a price like this, it wont last on the market very long." Or, "I've got 6 different showings on this very place today." Now if you substitute the word "shaky" stocks in the above example, that unscrupulous stock brokers similarly try and sell you, doesn't it sound even more familiar? Well, as we know, there were a lot of LIARS in the financial world over the last few years. Hopefully, these guys will be brought to justice. But who regulates the real estate brokers? I know. I know. They have some regulatory body. But how does it work? I've heard of customers suing their stockbroker and their firms and winning (sometimes!) and getting restitution. That's a fancy way of saying, they got their money back. Any idea how hard it is to get out of a real estate deal once you move in? Yeah, good luck.

Look, I know everyone needs to make a living. The real estate broker makes a better living when prices are higher because they generally make a percentage of the entire sale. So doesn't it behoove them to keep the prices nice and high? It sure does. You think they'd ever go to a flat fee price? Meaning if I'm a buyer or a seller I just agree to pay a set fee, if I transact, REGARDLESS what the price is on the dwelling. Makes a bit of sense, no? No way in hell they go for it though, unless things get real bad. Which might be coming.

But you know what really frosts my rump (a technical term)? When the real estate brokers come out with these quarterly reports saying how much prices went up or down. Can you imagine if there was no exchange for stocks and your stockbroker told you today, "yeah guy that Lehman Brothers stock you bought? Its fine. Dont worry about the bankruptcy. Its all good my friend. Would you like to buy more?" Ludicrous right? But isnt that really what the real estate brokers do when they say real estate in certain areas (hint: it rhymes with Blue Dork Kitty) are "only" down like 5%-7%? 

So what happens next? If you are a seller of real estate you say, "oh yeah, only 5-7% Trixie? Sell my place." Thats when the real fun starts because NOBODY comes a knockin' on your door. Sound familiar? Then you drop the price 10%. Then another 10% - and still no one. Finally someone shows you a price that is WAAAAAAAAAAAAYYYY lower - that they will take it off your hands. Now hopefully, you dont HAVE to sell at that level. You pull your place off the market and realize the real estate market is filled with LIES. You think I'm making this up? Call some of your pals in Blue Dork Kitty and in the surrounding areas and see how things are going with their properties that are listed for sale. As a matter of fact, the next time you talk to your broker and they talk about "foreign buyers keeping it up", or "this place is different than anywhere else around", just say, "Lehman Brothers stock is holding in there too, assclown."