MonkeyBusinessBlog

Whoa. Bad Day for Conservatives

Both Robert Novak and Rose Freidman have died today. Novak was the columnist and a beginning TV pundit who thought big government was the worst thing on earth and he HATED communism. Bob was known to get his sources for news at the bar with a martini or 4. He also was spotted at "the horse racing" from time to time putting more than $2 down on a wager. That didn't make him a bad guy. Now that I think about it, I have a "friend" who is known for his drinking and gambling and sometimes witty anti big government stances.....Yeah people will pick on his CIA Valerie Plume article back in 03 that almost put "Scooter" Libby in the fun house, but Novak was so much more than that. 

Rose Friedman was 97 and the widow of Milton Friedman, one of the greatest economists ever. But Rose was no regular housewife. She was an economist too. A real good one as well. This duo wrote a book called "Free to Choose" bashing big government meddling in the free economy. Milton always said Rose helped him with everything he wrote. Pretty heady stuff. There's a role model for all young ladies out there. Not these assclown-ettes (thanks to E for that word!) in Hollywood or on the boob tube.

So god bless to them both and all their family and friends. I almost always enjoyed their stuff and we really need more of these types of folks. Perhaps now more than ever.

Here's Another Business Indicator

I just received a phone call to my home.  Here is how it went:

Me: "Hello."

Voice: "Hello, may we speak to Mrs. Jeanne Salzman?"

Me: "Oh I'm sorry, she's out at the moment can I ask who is calling?"

Voice: "Oh, hello.  This is UPS calling.  We have been reviewing our accounts and Mrs.Salzman was thinking of using UPS Air shipping for her business a few months back.  Unfortunately we were not able to accommodate her at the time.  We would like the chance to compete for her business.  Would you know anything about it?"

Me: "Business?  (Lord I know times are tough but please don't let me find out my wife is running some illicit business on the side to make ends meet!)  What was the last thing her "business"  shipped and when?"

Voice: "Two forty pound trunks, July 22, 2008 from Hendersonville North Carolina to Harrison NY."

Me: "Oh yeah!  That was when we shipped my two sons trunks home from summer camp.  We had to send them 'business'.  Tell me, are you making a lot of phone calls like this?"

Voice: "Yeah, like you wouldn't believe!"

Me: "Well, good luck!"

Suffice it to say, the ground and air package shipping business is off a tad!

 

The Election: My Thoughts.

Last night a great man lost the race for the Presidency.  John McCain's concession speech reminded us, if we needed reminding, that he honors above all else, the privilege to serve his country.  Amazingly, concession speeches usually bring out the best in candidates.  This has always confounded me.  I've always thought, "Boy, if this guy just spoke like this during the campaign he would have won!"  However, in my estimation, while the speeches are usually beautifully written and delivered, the guy that disappointed you on the campaign trail is the real guy.  Last night however, I expected and got a truly heartfelt, eloquent speech from John McCain.  No one can doubt his love of country, his dedication to bringing us back together, and his resolve to do all in his power to heal the nation in such troubling times.

Last night I also believe that the man who won, Barack Obama, has the potential for greatness.  The challenges he faces are enormous.  I feel he has the skills and the temperament to guide the nation and the world to a better place.  We can argue about tax policies all we want.  However, the problems that we face now are much larger than worrying about what kind of check we'll be writing the government next year.  John McCain may have focused on tax policy during his campaign, but I don't think he's ever been about that.  He's about seeing a world in crisis and asking, "What can I do to fix it?" 

The President-Elect is no dope.  He understands he has been given a mandate to lead us out of this mess, not turn the nation into what I have heard so many people say, "A welfare or socialist state."  He is a very competent man, with an intellect that is keen and flexible.  In the 20th century, leaders such as FDR, Truman, Eisenhower, Kennedy, Reagan, Bush 41 and Clinton achieved great things for us because they were brave enough to try new things, cut their losses when necessary, admit failure and adjust.  I think Obama will surround himeslf with advisors and cabinet members that we will be happy with.

These are MY thoughts.  Richie will be out later with his.  That is what is great about this country.  I spent a month in Fox's "Strategy Room" and what encouraged me the most was the frank discussions that we had.  The room had people from the left, the center and the right.  We all disagreed about many things.  However, when the debates were over, we found more in common with one another than what was different.  I felt that if I had to sit with these five people of different political thoughts and ideologies and come up with a solution to a problem, we could do it.  I think we are on the same path as a nation.

Some Good News.

Lets take a break for a moment from the financial markets and talk about something that I promise will eventually be uplifting.  In the last year, a lot of people have had the rug pulled out from under them with regard to what they did for a living.  Not only have they lost their jobs, they have lost their careers as well.  I was talking to a friend of mine this week about our world of finance.  We concluded that this is a lot like what happened to the steel workers when suddenly the country stopped making steel.  What the hell are all of us finance guys going to do now that we don't "make" finance anymore ?

I'll tell you what we are going to do, we are going to use our tenacity, our creativity and brains to build all kinds of new exciting stuff!  This blog?  Let's just say that Richie and I believe in "The Gretzky Theory".  The "Gretzky Theory" states, "Don't go to where the puck currently is, go to where the puck is going to be."  We've been creating content for almost a year now and guess what?  A lot of people in the entertainment industry, especially the new wireless industry, want business content.  Ta-da!  I'm not bragging here because we haven't made one thin dime yet, but we skated to where the "puck" was going to go and now it's here.  Richie went to Yale so I won't include him in this statement. 

"If a dopey bond guy like me can do something new and at a minimum, get it into position to score, so can you!"

In fact one of our readers was just in the news for a cool new product he created.  He had the support of his family and the intestinal fortitude to take a risk and check out what happened (pay attention all you MIT-grad modelers!);

 BEND, Ore., Oct. 16 /PRNewswire/ -- Architect Mark Allan recently
suffered the loss of his job due to the economic downturn in the housing
construction market. Sending out dozens of resumes did not help his
situation, so along with his job search he also spent the last of his
savings to develop a construction toy for children. His wife and kids
encouraged him to use his advanced 3D computer training and architectural
software to develop the prototype models and metal molds. From that point
forward, it was just a short step to full plastic production. The economy
might be bad, but toys are just as popular as ever.

    Now he enjoys a brisk business, selling the toy online with big box
stores. This geometric Construction Toy of the Future -- Qubits(R), is a
dynamic new entry into the multi-million dollar construction-toy industry.
It is gaining popularity with school teachers, retailers and -- of course
-- children all across the USA. A simple plastic toy that can be built up
using a unique patented modular geometry, it quickly captures the
imagination of children who might have visions of becoming architects,
engineers, scientists or even nanotech designers.

    As a father and an architect, the inventor, Mr. Allan, realizes that
math and science can be intimidating mentally, "But if you can put
something in the hands of a child, they will be able to comprehend things
better and have more fun," he says. "Toys influence children; hopefully
Qubits(R) will inspire today's children to expand their horizons to include
engineering, chemistry or nanotechnology."

    Qubits(R), pronounced Q - bits, stands for quantum bits, Mr. Allan
said, which are a unit of measurement in the realm of science that includes
the development of semiconductors used to make the technology of cell
phones or computers. Just as coal can become diamonds when its atoms are
rearranged, Mr. Allan says Qubits(R) help children understand the
possibilities in rearranging nature's building blocks. "I always want to
associate Qubits(R) with science," Mark said. "That's what makes our toy
different from everybody else's."

Funding Still "Dear"

Three-month Libor just posted, jumping from 4.523% to 4.75%.  Banks are still under tremendous pressure to fund not only current cash holdings but expectations of future cash outflows.  As one of our very astute readers pointed out yesterday, with regard to AIG asking for another $38 billion from the Fed;

"AIG needs more cash because the CDS party for Lehman gets started on Friday where they try to figure out who owes who what. Guess who was a big player in the space selling insurance. Ding, AIG. WaMu's party is getting held on the 23rd.

I wouldn't be a bit surprised to see all of that 37 billion leave AIG very shortly."

Many players in the banking system underwrote protection on Lehman and Wamu and on many other names that very well may trigger future events of default in the future.  It is the "perfect" environment to continue cash hoarding.  The "Shadow Banking System" of Credit Default Swaps has now come into the light.  Like a veteran pass-thru (MBS) trader once told me, "No matter what you do, eventually everything settles to cash."  On top of that, we are looking at potential massive hedge fund redemptions going into year end.  That means big outflows of cash held at banks who serve as prime brokers.

**Two-year swap spreads are out nine basis points this morning, to 145 basis points over the two-year treasury note. TED spreads continue to widen. It's like you plug a hole in one place (like commercial paper) and another hole springs up.

"AIG needs more cash because the CDS party for Lehman gets started on Friday where they try to figure out who owes who what. Guess who was a big player in the space selling insurance. Ding, AIG. WaMu's party is getting held on the 23rd.

I wouldn't be a bit surprised to see all of that 37 billion leave AIG very shortly."

Many players in the banking system underwrote protection on Lehman and Wamu and on many other names that very well may trigger future events of default in the future.  It is the "perfect" environment to continue cash hoarding.  The "Shadow Banking System" of Credit Default Swaps has now come into the light.  Like a veteran pass-thru (MBS) trader once told me, "No matter what you do, eventually everything settles to cash."  On top of that, we are looking at potential massive hedge fund redemptions going into year end.  That means big outflows of cash held at banks who serve as prime brokers.

**Two-year swap spreads are out nine basis points this morning, to 145 basis points over the two-year treasury note. TED spreads continue to widen. It's like you plug a hole in one place (like commercial paper) and another hole springs up.

Paulson Calls For "Special Meeting" With G-20 Countries!

Oh boyeee....this is gonna be great!!  Stay tuned for running commentary! 

* Okay, it is just part of a press conference, explaining the latest actions taken by the G-20 countries and once again stating very strongly that Treasury will use all its powers to stabilize the global financial system.  This is good.  It took a while but my hat is off to Paulson.  He is taking charge, he understands what needs to be done and he is doing it. 

"That's it. Bring it All Up. Just Get Your Head Over the Bowl. You'll Feel Better"

Last night, pre-Nikkei open I asked one of my buddies who has been running money in Asia since 1997, "Any confidence out there after the Fed's action to invest directly in the commercial paper markets?  His answer was pretty simple, "Anything short of a concerted effort by global central bankers to cut rates, this market is ready for complete capitulation.  When the Dow hits 5,000 Buy!"  Ladies and gents, the Nikkei closed down 9.38%, its third largest percentage move ever.  Hong Kong came back from holiday to take the Hang Seng down 8%. I asked him this morning if the concerted global rate cut would help.  He said, "Forget that, it's already discounted.  In fact the Hong Kong Monetary Authority announced a 100 basis point rate cut tomorrow and the Hang Seng still fell 8%.  And don't forget, hedge fund redemptions are going to be huge, which will cause forced selling. "

This morning Bloomberg News is reporting that the U.K. government will invest approximately $87 billion directly into the banking system by purchasing preferred shares from banks and the Bank of England will make available a liquidity facility of approximately $348 billion.  Additionally, the government will make available $435 billion to serve as a guarantee to refinance debt.  It looks like the U.K. watched what we did in the U.S. and has made improvements with regard to directly infusing capital on the preferred level to the banking system.  They are also heading off the debt roll meltdown that was sure to come once banks began to deal with maturing debt obligations.  Together, Barclays and Royal Bank of Scotland have approximately $95 billion of debt maturing between now and March 2009.  We have this same problem in the U.S. Obviously, the U.K. hasn't worked out who gets how much capital and why, but the important thing is that they have taken these bold steps.

We said yesterday that the greatest global financial crisis since the 1930's was rapidly coming to a head.  When things finally come to a head you get horrifying days and weeks like we are having right now.  The equity markets were whistling past the graveyard for most of this disaster and now they are catching up.  This needs to happen.  However, governments are fully engaged now, pumping capital into banks and insuring deposits. There is going to be lots of fits and starts implementing the various plans. For instance, I asked one of my buddies who works on a bank funding desk if the Fed's new commercial paper facility is going to help and he said, " The CP market is a $1.5 trillion market.  How much CP are they going to buy, and from who?.  Additionally, what is the procedure with regard to buying, highest rate (highest bid)?  Eventually it will help but the Fed and their global counterparts have to ease as well."

More pain is to come in stocks for sure.  Bank of America's capital raise was disastrous.  We found it odd that suddenly, a couple of months ago, the press declared BOA the bastion of strong banking.  They were in all the same games as their other brothers and sisters and they have tremendous exposure to consumer credit, which is hitting the fan just now.  Also, the big insurers are now weighing in.  Met Life withdrew its 2008 earnings forecast last night and said that operating profit fell as much as 48%.  They own a lot of residential and commercial mortgage garbage and they are beginning to write it down.  The U.S. insurance industry has written down ONLY $80 billion with regard to these assets.  They have a long way to go.  They also have significant investments in private equity and hedge funds.  Met is going to try raise approximately $2.75 billion.  That should be interesting.

Capitulation has begun in earnest for the equity markets.  Remember though, really try to remember that equities are the last kid in the financial family to catch the stomach flu that credit has already been going through for months.  Credit, while still very sick will lead us out and there seems to be a firm, global commitment to making that happen.  I think it is almost a given we see the Fed cut today.  Be lucky.

Positive Things

We know it's really bad out there.  But here is the good news, it was bad yesterday and the day before that.  Today however, we have a $700 billion bank rescue package and a new commercial paper vehicle, set up to buy corporate CP, with funds lent to the vehicle by the Fed.  One, by one, governments in Europe are stepping up and planning bank recapitalizations and increased deposit insurance.  The dire situation that the global financial system is in is finally being recognized by the people that can take action to slow the bleeding.  The powers-that-be are not staring like deers in the headlights anymore, and that is a good thing.  The last time this happened in the 1930's, too many institutions were paralyzed with fear and ignorance for too long.

We know all this is enough to make you all puke.  But while it may not make us feel better for a while, it may just help us not feel too much worse.  Here's the way I look at the action that has been taken in the last three days.  When I was a little kid a bigger kid kicked my ass everyday for a week.  Everyday seemed to be worse than the next.  Then, over the weekend Dad gave me a few "tips".  When it came time to get my ass kicked on Monday, this time I got a couple of good shots in instead of turtling.  Things got better from there.  In fact, I haven't thought about that for a while.  I may find out where this guy lives and have a quarter ton of top-soil delivered to his house!  Anyway, my point is that maybe this week could be the week that we remember as the time we fought back and took the steps to reversing the tide.  And also remember that today was the day that Cramer told everyone to sell!  If that's not positive, I don't know what is!

Overnight Libor Jumps More Than 1%

Overnight Libor jumped from 2.36% to 3.97% this morning.  Three-month Libor increased three basis points, from 4.29% to 4.32%.  There is some hope filtering through the money markets this morning that the Fed and Treasury may try something radical to intervene in the unsecured money markets.  Time is running very short though.

Bernanke & Paulson Get It. There is Hope.

Last night I wrote a piece where I stated my belief that we are now in a new phase of the crisis.  The day to day pounding on our financial plumbing, the short term credit markets, is beginning to take a very dangerous psychological toll on the system.  We are moving from fear to despair.  Once despair and complete lack of faith kicks in, it really is game over.  I said that it is time for the Fed to intervene directly in the Commercial Paper (CP) market. Here is a comment posted by one of our most astute readers and free-market thinkers last night.

Credit facilities everywhere are being cut. Covenants are being forcibly and EMOTIONALLY renegotiated. If you board a plane heading to NY right now you'll have at least a handful of cfos and treasurers in your company.

The commodities business is grinding to an ear-splitting, metallic halt. No one wants to trade anything: be it natural gas swaps to trains of aviation fuel on down to barges of soybeans. Producers are getting assaulted by the double entente of surging interest expenses (if they can get credit!) and stutka-diving prices. This on top of the fact many expanded what were only marginally profitable businesses during high prices- only to see unprecedented board drops.

Something must be done fast. Otherwise we're about to enter the ultimate house of pain.

Last night, I wrote that it is time for the Fed to throw the old playbook out, and do what I called "A Bobby Layne".  Bobby Layne was a Hall of Fame quarterback in the 1950's.  When the game was on the line, Layne was known to toss the playbook, draw his own play in the dirt while in the huddle, and lead his team to improbable victory.  I am very happy to see this morning that Ben Bernanke, Hank Paulson and our friends across the pond in the U.K seem to be doing just that.  Here is what has happened overnight and what is being seriously discussed.

1. According to Bloomberg News The Fed is signaling that they are preparing measures with Treasury to "unfreeze markets where loans are not secured by assets".  By this I believe they means the CP markets and potentially bank revolving credit facilities.  Bill Gross of PIMCO said last night, "The Federal Reserve must act as a clearing house for banks.  The must also take another bold step: outright purchase of commercial paper."  Also the very highly respected former Fed Governor Larry Meyers said, "The Fed is not done yet.  They are going to try to leapfrog ahead and do something even more dramatic."  Currently what constrains the Fed is that it is not allowed to make unsecured loans.  It is already providing emergency loans to commercial banks to purchase asset-backed commercial paper from money market mutual funds.  Given the Treasury's new buying powers, the Fed is looking to do something in concert with Treasury to push the envelope again and get directly into the CP markets.
2. The combination of the Fed increasing it's Term Auction Facility (TAF) to $900 billion and paying interest on deposits (new power gained from the Emergency Economic Recovery Act) is acting as a "stealth easing" according to John Ryding.  The ability to attract deposits from banks hoarding excess cash and re-lend is flooding the banking system with liquidity.  The Fed has effectively pushed the overnight lending rate down from 2% to 1.25%
3. Bloomberg News reports that "The U.K. government may invest at least $79 billion in banks including Royal Bank of Scotland and Barclays to bolster capital depleted by mortgage-related losses, two people with knowledge of the situation said."  The UK's biggest banks have up to $95 billion of debt maturing between now and March 2009.  Confidence in the banks, like elsewhere is severely weakened.  A direct infusion of capital by the government would bolster confidence and allow the banks some operating room.

If we go down, we are going to go down swinging.  That inspires some hope on my part.  Be lucky today.

Nikkei Drops below 10,000 For the First Time Since December 2003

The Nikkei has opened down sharply this evening, dropping more than 483 points, breaking the 10,000 level for the first time since December 2003.  Hey, we broke 10,000 today too on the Dow!  So we have that going for us.  I just wanted to share with you the thoughts of a trader that have the utmost respect for.  We were discussing just what the world governments have left to arrest this precipitous slide.

Eric, you're right about Europe. One thing about the US is that the Fed and the Treasury at least have the will and wherewithal to act quickly. TARP, albeit with a political hiccup, was passed quickly. In Europe, I see no such will among the member  governments or the ECB. I cannot even imagine anything similar happening in Asia with the exception of the Hong Kong Monetary  Authority (HKMA), which intervened famously in 1998 if memory   serves me correctly, buying up US$15Billion of HK blue chip stocks, which later tripled in value. At the time, it was considered a daring, desperate move. Well, these are desperate  times now. Which government has the will to act now?            

"Billy, Have You Every Seen An Entire Financial System Naked?"

Wow, what a day?  I honestly think that we are days away from financial Gotterdammerung.  We are quickly approaching the point where we all look at each other and say, "Sorry pal, I have no idea what to tell you. I have no idea what to do."  It's kind of like the financial equivalent of one of those movies where an asteroid is hurtling toward Earth and there's just nothing in our scientific tool box to stop it from hitting us.  Think about what has gone on in the U.S. the last few weeks. 

• The Fed is pouring money into the banking system as fast as it can. 
• Congress has given Treasury the authority to buy up to $700 billion of "troubled assets".
• The government has bailed out Freddie Mac, Fannie Mae, AIG (and therefore Goldman Sachs).
• The banking system has managed to take out Wachovia and Wamu without having to hit the FDIC.
• Warren Buffett helped save GE from a funding heart attack (by the way, I have seen analysis that shows after valuing the stock options WEB got, his preferred status and his fat coupon he essentially bought the equivalent of GE common at $9.30 !!)

I know that the rescue bill has just passed, but when you combine its passage with these other events and it still doesn't inspire one grain of confidence, it's bad.  Psychologically, no one trusts anyone in an institutional sense.  This feeling has been prevalent for weeks now, intensifying every day.  This is what guys like Ben Bernanke mean when they say, "The system can't take much more of this."  He's talking about the disintegration of faith.  This is what depressions are made of.  They are not just about dollars and cents.  They are about a loss of hope.  I wasn't here for the 1930's.  I was however, here for the mid to late 1970's.  Jimmy Carter is scorned for his speech about "A malaise" enveloping the country.  People can mock all they want, but he was right.  We had lost faith in our institutions back then and the real scary thing was the 1970's weren't even ten percent as bad as the 1930's.  I guess the point I'm making is that group psychology is very powerful and can't be exercised easily.  Just ask the Japanese about the 1990's.  And remember, for at least a good part of the 1990's the rest of the world was prosperous.  Now we could be talking about things on a global scale.

I think the Fed and Treasury have one or two more chances to blow the asteroid off-course.  This is time for good old "Bobby Layne" style playmaking.  Bobby Layne was a Hall of Fame quarterback who used to draw up plays in the dirt.  The Fed can't make banks lend money but now they can take deposits and pay a rate on them.  If that $900 billion Term Auction Facility cash is getting hoarded, the Fed has to get the cash rich institutions to lend it back to the Fed and that money has to go directly into the commercial paper markets.  Treasury has to try a program with their new powers to buy the first $100 billion of loans in danger of default and foreclosure from banks, who won't voluntarily participate in the $300 billion Housing Recovery Program (why the hell should they right?), take the hit and make a new FHA loan that the borrower can pay.  It's time for dramatic action.  Maybe I'm off the wall, but I think it's time to be as creatively off the wall as we can.  Be glad to hear your thoughts or ideas.  I don't think letting it all meltdown is the answer.

Overnight Update: Europe Wants a Bailout They Can Call Their Own.

Wow, imagine if the House FAILED to pass the rescue bill!  Europe and Asian stocks are down 4.5 to 5.5% this morning.  Lots of activity over the weekend in Europe as BNP Paribas has stepped in to purchase Fortis's Belgium and Luxemburg's operations for $19.8 billion this weekend.  Fortis, Belgium's largest financial service firm, destroyed themselves in large part with their purchase of a big chunk of ABN Amro, the Dutch firm with a fabulous lending operation in the United States.  It wasn't so long ago that Fortis , Barclays and Royal Bank of Scotland were fighting over ABN!  What's hysterical is that here in the states, at least amongst long time mortgage investors, ABN was more or less seen as an out of control mess.  And that view went back for ten years! 

Meanwhile in Germany, after a failed bailout attempt last week from a consortium of the German government and German banks ($49 billion wasn't enough!), the government and the Bundesbank have called Hypo Real-Estate too big to fail.  Hypo Real Estate spokesman stated, "The bank is in a very difficult situation.  We hope everyone involved in the discussions is aware of this."  Umm, Hans?  I think everyone's aware!  The fact that the German banking system makes the U.S. banking system look strong has been a weakly kept secret for almost a year now.  They were huge investors in U.S. subprime and were among the first to get burned.  And that is in addition to the losses now being thrown off in the European real estate markets.  For much of the last year, despite huge injections of cash from the ECB, it's as if Europe decided to deal with their financial industry problems with prayer.  Now the situation is rapidly deteriorating and authorities are seen to be desperately trying to play catch up.  Sound familiar?  According to Pio De Gregorio, head of equity research for Centrobanca SpA, "The government's plan for individual action is a failure.  This is a systemic crisis and it warrants a systemic solution.  We need a European fund that will recapitalize banks."

I have a feeling if our Congress had a hard time passing a systemic plan, wait till more than a dozen countries that make up the European Union get together to come up with a plan of action!  What a food fight that is going to be.  The Euro continues to tank, now down to 1.3566.  I really wonder if the Union was designed to deal with this.  I don't think so.

There She Is...Emergency Economic Stabilization Act of 2008!

The House passed the bill, let the healing begin!  Like we've said, this was actually the easy part, and it was damn hard.  The immediate effects that will help will be, some degree of confidence in financial institutions, which in turn should take at least a little pressure off the credit markets (hopefully financial company commercial paper markets) and bank to bank lending.  Also, the Fed can now start paying interest on deposits, which should allow funds to get to banks in need without effecting the federal funds rate.  That should help the dollar.

Now Treasury has forty-five days to come up with a plan to purchase $700 billion of some of the funkiest assets known to man.  This should be interesting.  This is not the plan that we would have voted for as the best, but it will have to do.  We would have preferred private capital paying market prices for the assets, with the Treasury making up the difference in return for either super-senior debt or preferred stock.  So be it.  Lets breath a little sigh of relief and pick this up Monday!

Let the Healing Begin! Senate Passes Rescue Bill 74-25.

Ah, this is why our Founding Fathers wanted the Senate to be appointed and not elected!  The House was for the rabble.  The Senate was for learned gentlemen, serving as a bulwark against the seething masses, easily swayed by demagoguery.  Ok, maybe that's a bit much, but they passed the rescue bill in a bipartisan effort so the day is theirs.  We tip our hats.

This bill, imperfect as it is, needed to be passed and the Senate has come through.  With the linkage to the extension of tax breaks that will save taxpayers $149 billion, $17 billion of credits for the development of renewable energy and a change to the Alternative Minimum Tax that will spare twenty-four million families from $62 billion for the 2008 tax year, the bill has something in it for everyone, especially the twelve members of The House of Representatives that we need to change their nay vote to a "AYE!" vote.  There is the usual amount of pork in there to make this a true, bipartisan, normal piece of Congressional legislation.  Whoever is the next president can kiss the next four years goodbye with regard to any spending projects.  It just got spent to get these twelve dolts to say "Aye".

The Senate bill that was passed reiterates the SEC authority to suspend mark to market accounting.  This sucks plain and simple.  This is like the new, twenty-first century Little League, where everyone gets a trophy and no one is a loser.  If this is what it takes to get the rescue passed, then that is what it takes.  I will leave you this to ponder.  If you think that you got hoodwinked by the banks the last two years over the true state of their financial condition, wait till they have the ability to record assets wherever they want to.  This is just setting up the next problem.  What makes it worse is, we, the tax payer are going to buy assets from these clowns at their "mark to model" prices and we are going to lose money.  Anybody who looks you in the eye and tells you different is either lying or a jackass.  You can take that to the bank, pardon the pun.

Hopefully this bill becomes law and we can get to "The end of the begining".  We still have a long road to travel and there is going to be a lot more pain to take.  We wish we could say different, but we think that's the way it is.  Hopefully, we can level with the American people going forward to prepare them for what is left to come.  We will make sure that you get the hard facts on this little blog and hopefully, someday soon, we'll be telling you how to make money as opposed to telling you how to protect your money.

Overnight Update

The good news is the overnight LIBOR rate (the rate that banks lend dollars to each other for one day came off it's obscene high of 6.88% (set Monday) to 3.79% this morning.  The bad news is that banks still won't lend to each other for term.  Three-month LIBOR  went from 4.05 to 4.15%.  We have to caution that when we talk to funding desks, LIBOR has been a somewhat fictional rate that member banks phone in to the British Banking Association ("BBA").  And unfortunately, by fictional they mean it's lower than the banks actual cost of funds.

There's a battle raging over market to market accounting for U.S. banks.  The rescue bill in front of Congress has a provision that would allow Treasury to allow banks to suspend mark to market accounting and use "mark-to-model accounting on hard to price assets.  We think this is ridiculous.  Bad assets brought on this disaster, not mark to market accounting.  What we need now, especially since we will be buying these assets, is as much transparency as we can get.  Warren Buffett has come out very strongly against suspending mark to market accounting, so there!  This is a very contentious subject of debate over the rescue bill.

Time to be Straight With John Q. Public

Well, the one good thing about all the turmoil today surrounding yesterday's House of Representative's rejection of the "Emergency Economic Stabilization Act" (the word bailout will no longer be used here) was it took everyone's attention away from the July S&P/Case-Shiller home price numbers.  Three words, OH MY GOD!  These are July numbers! 

• This was when Hank Paulson still had his Freddie and Fannie bazooka in his pocket! 
• Lehman was a solid as the Rock of Gibraltar.
• Wamu and Wachovia were still Wamu and Wachovia. 
• Over at Merrill Lynch, John Thain had, "All the capital he needed." 
• AIG was still running ads of annoying little kids congratulating each other for talking their parents into using AIG for all their insurance and investment needs!

The home index number of twenty U.S. cities declined at the fastest pace on record, 16.3% year-over-year.  This is just brutal.  For goodness sake, at least let us move on to the next crisis in commercial mortgages, corporate loans and consumer loans !  Can't we call surrender on the residential mortgage game?  What the hell are the August numbers going to look like?  Seriously, now that we are bringing the American people up to speed on how screwed up things are, we better tell them that these hits to the banking system are still coming.  It's time for everyone to come clean.  Lost in yesterday's Citigroup purchase of Wachovia was the company's warning that they will be writing off up to $10 billion more in their loan book for the third quarter, primarily in credit card debt. I was too busy panicking to notice!

I honestly think that most people out there, already enraged about what's happened (even though more than a few of them are probably showing up on Citi's bad credit writedowns!), don't know that this loss number is a growing one.  It's not like the financial sector dropped $500 billion and its over.  There's still the potential of another $250 to $500 billion.  Why the hell should the average guy out there know that there's more losses coming?  Up until a few weeks ago all he or she heard from their government and the management of our banks was, "Things are fundamentally sound."  Well, they weren't then and they're not now.

Luckily, it seems that a lot of people have woken up to the fact that this rescue deal isn't about "bailing out Wall Street."  This tsunami blew through Wall Street a couple of hundred miles back.  It's heading to "Main Street" and it's pissed off.  So as long as we have most people's attention on the right things now, we should not abuse their trust again.  They have to know that this rescue plan is vital to stop a complete meltdown.  However, they also have to know that it doesn't settle all accounts.  The bill is still being tallied and its a big one. 

House Rejects Bailout Bill. Running Commentary

Wow.  This wasn't in the game plan.  The House has voted to reject the bill enacting the "Emergency Economic Stablization Act of 2008"! 227 to 206.  Time for Plan B.  We'll keep updating as we hear anything.  But it appears the bill has failed and they are moving on to "other business" 

Man I wish I paid closer attention in 9th grade to "Your Government and You."!   There's still hope for the bill.  Now is when they start horse trading the bill.  This could come back for a vote.

As one of our friends just said, "How's the Wamu and Wachovia deals looking to JPM Chase and Citi now?"  Also, one of the first faces I saw in my mind when this failed was Warren Buffett smugly saying that he wouldn't have bought into Goldman Sachs if he didn't think there would be a bailout.  I wonder how many people in the House were turned off by that?

CNBC just reported that a senior Congressional staffer said that there is NO chance of a second vote today.  They want to assess the economic situation!  WTF?  That's like delaying bypass surgery for a guy with clogged arteries so you can see if he has a heart attack or not!

I love it. Former Fed Vice Chairman just told CNBC's Erin Burnett that the stock market is just a sideshow.  Finally somebody went on that channel and set those idiots straight.

It appears the House Republicans feelings were hurt by Nancy Pelosi so they voted against their own President's bill.  On the other hand, over ninety Democrats voted no as well. They are just as bad.  Well maybe not "just as bad". They delivered 60% positive vote for a Republican Presidents bill.  They probably had a lottery to see what Democrats can vote no so they can tell their constituents that they opposed the "Bail out of Wall Street by Main Street".  In fact Barak Obama just used the "Wall Street vs Main Street" line.  Fools.

I wonder what happens to the Fed's plan to pay interest on deposits from member banks?  This was a measure in the bill.  Right now I would imagine that this is the worst IMMEDIATE impact from the bill's failure.  The Fed has to have a way to get the money its pumping into the system to the Commercial Paper markets.

Nouriel  Roubini is saying that the next step in the crisis is the "mother of all bank runs".  A $ trillion cross border exit from U.S. banks to somewhere else.  Mommy!  I stand by what I said Sunday.  The FDIC will not fail.  Trust me.  The United States has all kinds of taxing powers to raise cash to protect the fund.....I think.

Overnight Update

Well, the good news is it seems those pesky House Republicans are going to go along with the bill enacting "The Emergency Economic Stabilization Act" ("EESA").  The bad new is it looks like the world was looking for the bill to be signed and $250 billion to be deployed on Wednesday, or Thursday latest!  Equities are down sharply in Asia and Europe.  We are seeing a continuation of Libor-OIS and TED spread widening to new and historic levels.  As we have said, writing and passing this mother was the "easy" part and you know it sure wasn't easy.  In fact, after what we have seen since last Thursday, nothing is done until it's done.  From the signing of the bill into law, Treasury has forty-five days to come up with the actual plan to start purchasing assets. We put a summary of the bill on the blog last night as I read 110 pages of pure adrenaline pumping excitement!

Meanwhile, over the weekend Belgium and The Netherlands bailed out Fortis, the biggest bank in Belgium.  The government's put up $16.3 billion to bail out Fortis who, along with Royal Bank of Scotland ate the bad shell-fish known as ABN Amro!  Also the U.K. seized Bradford & Bingley, the nations biggest lender to landlords and Germany guaranteed a loan to Hypo Real Estate Holdings AG.  This should do wonders for US/European relations.  Other hard hit financial institutions are wobbling as well.  Thank God for the short ban.

Meanwhile, the take over talks for Wachovia continue.  It appears that the most intense negotiations are with Wells Fargo.  As we reported last night, The Federal Reserve, Treasury and FDIC are all represented at the senior level at these talks.  Wachovia is currently trading $3/$4 in European trading.  Wachovia closed Friday at $10.  Remember, this is all with a short ban in place.  We'll keep you updated as we get information on CDS spreads, etc.

Rescue Bill Has Been Drafted. One Hundred and Ten Pages of Legislative Goodness! **Running Commentary

CNN has reported that a draft of the "Main Street Bailing Out Wall Street Bill" is here!  Thank you Main Street.  This latest compromise bill is one hundred and ten pages and therefore 3,500% better than Hank Paulson's original three page plan.  The draft is now circulating through Congress as leaders try to gauge support.  We will keep you posted as I read through the Act.

Here is a copy of the proposed bill courtesy of CNN

https://money.cnn.com/2008/09/28/news/pdf/index.htm

Its name is, "The Emergency Economic Stabilization Act of 2008"  Reading now.  I like "Main Street Bailout of Wall Street Act of 2008" better.

It appears that the Act gives Treasury the decision making power whether to purchase troubled assets (which are described as residential and commercial mortgages and any security related to those instruments.) or to turn to the House Republicans plan of offering a credit guarantee on any related troubled asset.  The House Republicans are going to be pissed when Treasury completely ignores this option.  This will make the oversight meetings interesting.  Also, if Treasury deems it necessary to purchase any other asset class, it must first consult with The Federal Reserve and transmit its intent to Congress.

The Act calls on Treasury to come up with a methodology for pricing and valuing troubled assets, procedures for selecting asset managers (Remember PIMCO said they'd work for free if everyone else did!), a criteria for identifying troubled assets for purchase.  Treasury has forty-five days from the passing of the bill to come up with the goods.

The Act establishes a Financial Stability Oversight Board to oversee the implementation of the Act.  The Board will be made up of The Chairman of The Federal Reserve Board, The Secretary of The Treasury, The Chairman of the SEC, The Secretary of HUD and the Director of the Federal Home Finance Agency. The Act calls for some pretty detailed reporting of activities to the oversight board.  The Board will review actions almost on a line by line basis with regard to purchasing or insuring troubled assets.

The Act addresses "Foreclosure Mitigation Efforts" on any underlying mortgage that Treasury might purchase.  The Treasury can use credit enhancements and loan guarantees to mitigate avoidable foreclosures.  I'm no expert but this appears to be where this Act dovetails with the "Economic and Housing Recovery Act of 2008".  The Treasury can target pools of loans underlying securities it has purchased and work to modify terms and conditions of existing mortgage contracts.  The Democrats didn't get their wish for bankruptcy procedure changes but they have granted Treasury a lot of latitude in the Act to mitigate foreclosures.

The Act has many pages dedicated to executive compensation caps and golden parachute snips.  A pimple on an elephant's butt so I don't care.  Just political red meat.  God bless.

The Act states that Treasury cannot purchase assets from any institution without first receiving warrants to purchase common or preferred non-voting stock.  Woooooooooohoooooooooooo!!  They will also contain anti-dilution provisions.

The Act calls for $250 billion of funds available to Treasury at any one time.  The President can submit to Congress his approval to move that available funds amount to $350 billion.  The President can then submit to Congress a strategy to utilize the remaining $350 billion if needed and a joint resolution will increase the maximum funds outstanding at any one time to $700 billion.  The Act lays out rules for debate with regard to the resolution.

The bill goes on in painful but necessary detail, laying out the checks and balances around the implementation of the Act.  It makes it even more amazing that The White House thought they could hand a three page, double spaced document to Congress, for this authority and think that ANY of them would have signed it!

Whoa!  On page 96 - The Chairman of the SEC can suspend mark to market accounting?  Lucky for the bill, no one in Congress knows what that means except what Yingling over at the ABA tells them, which is, "get rid of mark to market accounting."  Good thing the Chairman of the SEC is a smart guy..oh wait...no.  Well, at least the SEC is going to commission a study of mark to market accounting.  I guess if we didn't have mark to market accounting everything would be okay right now.  Unpatriotic accountants!

I can't find it, probably to do with my ADD, but Bloomberg News is reporting that the Act will also give the Federal Reserve the authority to pay interest on deposits.  This is important because right now, banks with excess cash are hoarding it as opposed to the normal Fed Funds and longer term based lending to banks that have deficits.  Now, banks with excess can bring it to the Fed and receive a market interest rate.  The Fed, in turn can get the funds to banks who are short.  This is a nice step.  If you can't trust the Fed then....?

*As of 8:10 PM House Republican rank and file are still behind closed doors listening to their leadership, that has already agreed to the package.  This has been going on for three hours.  Analysts are saying that if the leadership had the votes in pocket this scene wouldn't be going on.  Until those boys come out of that room and say they got the votes, I wouldn't assume this bill is a done deal.

* 8:20 PM....House Minority Leader John Boehner just came out to address the press.  He looked just like Tommy Kirk when he had to shoot "Old Yeller"!  He and Representative Roy Blunt spent the last three hours going over the new bill with the rank and file.  I would say by the looks on their faces that the bill is going to get the votes because they carried themselves as guys who are doing something they just don't want to do. 

Here's a tip to all these great Americans that we have in Congress.  The guys who keep talking about "Wall Street" as if its some secret evil society that they never interact with, and "Main Street", this mythical place where everyone is pure as the driven snow.  Hard working, responsible, God-fearing, etc, etc.  Hey boys, cut the bullsh*t!  You've been living off the Wall Street teat most of your adult lives.  You ever take money from a banking lobbyist, or a real estate development lobbyist?  Have you ever voted to help some big old company get a deal that put hard working Americans out of work?  Sure you have.  Here's another question; Any of you fine fellows serve on any banking or housing committees?  I'm sure you have.  Did you support deregulation of the financial sector?  Did you ever ask any questions when the folks in your hometown were buying all kinds of things they couldn't afford.  If "Wall Street" is such a bad, awful, un-American place, did you ever try to figure out what exactly it did?  Did you ever actually try to understand how the American economy works?  I have to tell you boys that from listening to you guys the last few weeks, you don't know a bond from a basketball.  So give your little speech and then vote for the damn bill. 

Bailout "Framework" Agreed Upon According to Lawmakers.

After marathon sessions Friday and Saturday it appears that Congress and the Administration have come to an understanding that allows them  to go forward and create a bill sometime today, with the House potentially voting on it today as well.  It should be quite an interesting bill.  It appears that the House Republicans have gotten their wish to have banks purchase "insurance" on "troubled assets" from Treasury thus insuring against losses, but paying "market rates" on the insurance.  The Republicans have left it to Treasury's discretion on how to price and utilize this program.  It's not entirely clear if Treasury will have the option to pass on this methodology all together once the plan is put into action.  This part of the plan seems akin to asking folks who's house is on fire to buy fire insurance before the fire department will put the fire out.  What do you think the price would be on that?  The banks might as well just hit "fire sale" market bids on their troubled assets.  Either way, it doesn't increase capital or mitigage losses, which is the whole point of the "rescue". 

It seems like ideology and politics ruling over what is practical and what is needed.  Everyone knows that members of Congress don't want to have, "Main Street  bailing out Wall Street."  We've heard it ad-naseum for the last two weeks and we get it.  Now shut up and give us the freaking money!  We said on Friday, that Treasury's method of pitching this plan, through "shock and awe" ten days ago, set in motion a REAL countdown to meltdown.  Everyone from investors, to bankers, to depositors now believe that if we don't get something passed by tonight, the world ends tomorrow.  Perception has become reality.  I got calls yesterday from friends and family asking me if they should pull their money out of banks, scared silly that the FDIC could fail.  And I got more than one call.  My advice was as long as you don't break the maximums for FDIC insurance in you accounts, don't worry about it.  The United States Government will not let the FDIC fail on one dollar of insured deposits.  Period.  The Government may have to declare a financial martial law and extract a few hundred billion of cash out of its tax base (us) to get the money, but they will not let the FDIC go down. 

Meanwhile, Wachovia appears to suffering from strong outflows of deposits and might be going the way of Wamu as early as tomorrow.  I strongly believe that Treasury's hysterics brought Wachovia a lot closer to the brink a lot sooner.  And this is coming from a blog that's been saying for months that Wachovia is cooked.  Citigroup has been in talks with Wachovia, but the word is that Citi wants a government back stop on Wachovia's terrible residential mortgage portfolio.  Perhaps the bailout legislation will take care of that.  My only problem is, JPM Chase had to raise $10 billion in capital when they took Wamu's $188 billion of deposits.  Wachovia has $400 billion of deposits.  Isn't Citi going to have to raise a big chunk of capital too?  Who wants to buy $20 billion of Citi equity?  Wachovia is a great franchise.  Great retail deposits, a good money manager (Evergreen) and a good retail brokerage (A.G. Edwards).  Maybe adding this franchise to Citi, with sharp writedowns to the residential mortgage portfolio, a wipe-out of shareholders and potentially debt holders, and a Treasury Department vehicle to take the bad assets gets this deal done.  I'm a little surprised that America's two newest commercial banks, Goldman and Morgan Stanley have not been involved to take at least a portion of Wachovia's deposits.  The price will be right to get some nice stable FDIC insured funding.  I wonder what a failure of Wachovia does to money market funds that can't break below par?  I hope the system isn't too exposed to medium term Wachovia notes like they were Lehman.  In any event, the Fed has backstopped the money market funds so  it may just cost us some money as opposed to another run on that vital sector.

Anyway, back to the bailout of Wall Street by Main Street!  It appears that the method of giving Treasury $250 billion up front immediately, with $100 billion on the follow and the remainder available and only held up by a new Congressional resolution, is in place.  There will be caps on executive compensation and bank participants will be forking over equity warrants to Treasury.  The Democrats seemed to have caved on their desire to put changes to bankruptcy procedures that would allow judges to modify mortgage terms.  However, Chris Dodd says that there is, "Good foreclosure mitigation language in there."  At this point, Congress gets the joke.  Tomorrow morning banks, investors, corporate treasurers and depositors need to know that there is an agreement in place, ready to be signed into law.  I think we get it.  Implementing the plan will be like watching a Three-Stooges movie, but it should calm the markets and buy us some time.

Never Mind, No Bailout....Yet.

All I can say is Thank God for the Goldman Superheroes (just hit the logo on the right....they are going to take care of everything!) because the bailout that was hours away from being agreed to is back to square one.  What the hell were these guys thinking?  I figure that unless these parties are run like The Communist Party or The Fascist Party, don't the individual members have a right to vote the way they want to?  Who was responsible on the Republican side for taking a little poll about how their party's congressmen felt about this?  Isn't this what congressmen are supposed to be good at?  I knew something didn't seem right when the leading Republican on the Senate Banking Committee, Richard Shelby said he wasn't going to vote for the plan worked out between the Administration and Congressional leaders (except him!).

Apparently the Republican Representatives in the House have offered up a plan based on banks buying insurance on their "troubled assets" from Treasury and relaxing regulations to "allow for private capital formation"  I don't know but it sounds like these guys weren't with the program from the get go.

So, get ready for a fun day tomorrow, or if you are a reader on the other side of the world, hide under your desk and repeat over and over, "There's no place like home.  There's no place like home...."

Tenative Agreement on $700 Billion Bank Bailout Reached. Treasury Department Fax Machines Overload With Dealer's CDO Inventories!

Gentlemen start your engines!  According to the Wall Street Journal, top House and Senate Republicans and Democrats have reached a tentative agreement on the bail out bill;

• Treasury will have immediate access to $250 billion, with another $100 billion on the follow, if needed.  Congressional oversight can then assess the progress and decide if they want to fork over the rest.  That is DEFINITELY a meeting I want to be at!
• Participants in the program will be subject to limits on executive pay and "golden parachutes".
• There is positive talk of Treasury receiving warrants on participants stock.  There has yet to be any clarity on what part of the capital structure the warrants will be aimed at.  If things go they way they usually do, Treasury will end up with Goldman common, with Buffett sitting on top of them in "Preferred-Class"!
• They are still hammering out whether to include changes to the bankruptcy law to give judges power to change mortgage terms.  This is still a hotly debated issue.

Now the interesting thing is implementing the plan (assuming it passes the House and Senate).  Remember just a few short weeks ago when Congress passed the "Housing and Economic Recovery Act of 2008"?  Writing it and passing it was the easy part.  As far as we can tell, they still haven't figured out a way to properly implement it. 

There is a lot of work to do here and I hope that we can figure out a methodology to bid on the assets in question and I really hope it is transparent.  Chairman Bernanke is not a dope, he just has never had to get his hands dirty bidding or offering bonds before.  Hopefully, this week he has learned the difference between what is "supposed" to go on, trading in illiquid bonds, and what actually "does" go on.  In the meantime we'll try to find some alternative Treasury fax numbers for your CDO and Non-Agency MBS offer sheets!

I Think it's Time For Howard Beal

For the kids out there who weren't old enough for this classic.  What's amazing is this is 1976 and almost everything Howard is raging about is happening again right now...minus the $ trillion bailout of course!

Enjoy and try not to hurt yourselves

Maybe the Government Should Go Into the Charity Benefit Business?

There's a story on Bloomberg News that I KNOW they put there a few times a year just to get everyone all riled up.  The story is, "Hampton's Elite Grab $100 Lobster Salad; $12 Burgers Get Lonely."  The story is filled with descriptions of how the super-rich are spending as much as they ever spent on stuff that makes your head spin.  I guess the story could get you more pissed off than usual because a lot of us that thought we were rich have recently found out... that we're not.  The people buying lobster salad at $100 a pound?  They're rich.

Anyway, I'm reading this article and I notice that between four "charity events" that were mentioned, nearly $2.75 million was raised!  Three of these events were actually benefits to support important stuff like sculptor gardens and things like "the one-armed gay midget interpretive dance troupe"!  The one charity was the Amaryllis Farm Equine Rescue! 

These people, some famous, some just real rich, are paying up to $50,000 to have a few drinks, some nice hors devourers, and a meal!  These folks have too much money and they don't know what to do with it!  Also, they DEFINITELY have time on their hands.  The government has always gone about getting money from them the wrong way.  Taxing people makes them mad, it makes them work hard to avoid paying it and they get absolutely no entertainment value from it.  These are tough times so lets think outside the box.

We have all kinds of problems in this country that need money.  We have some of our best people coming home after fighting for their country without the proper attention they need, which includes a freaking nice house and financial security.  We have the housing problem, the healthcare problem and a whole bunch of other problems.  The good thing is we have LOTS of super-rich people and an absolute explosion of celebrities!  If the U.S. Government could get itself together with some high-end caterers, event planners and public relations firms, they could be NETTING $10 million a day, easy.  Remember, we have a lot of billionaires, both citizens and ones who come over to visit.  A billionaire makes about $50 million on his money per year, at least.  That's approximately $137 thousand a day!.  I say, liquor them up, stick them next to Howard Stern's table and roll them for $50 thousand a night!  It's a start.

"You See Children, Many Years Ago There Was This Thing Called the Cold War..."

Over the last two years I have become a firm believer that everything bad that has happened will happen again, especially if a whole bunch of "smart people" say it won't.  We are seeing another example of this in the behavior of our "Russian allies".  Smart people from both the left and the right told us over and over again there was a new world order, that the frightening doctrines like "Mutually Assured Destruction" or "MAD" were a relic of the past. 

Somehow we thought that we could just go to every former Warsaw Pact country and sign them up for NATO, and the Russians either wouldn't care, or wouldn't be able to do anything about it.  Put Anti-Ballistic Missile systems in the Czech Republic?  Sure why not, it's not like the Ruskies can do anything about it right?  And we didn't just stop with the Warsaw Pact countries, we went to members of the old Soviet Union, Georgia and Ukraine!  We were trying to sign them up for NATO!  Thank God we didn't get that done, otherwise we would be obligated to somehow find our way into that country and battle the Russians!

What gets me is, don't we have thousands of people who are supposed to be monitoring this stuff?  We certainly weren't monitoring the banking system.  It makes you kind of wonder what these people in Washington do to pass the time because it sure isn't their jobs!  Russia has Europe in a strangle hold when it comes to energy.  We saw how the whole continent crapped its pants last year when the Ruskies turned off the natural gas spigot to Ukraine to teach them a lesson.  Like Richie said yesterday, before you get too excited about falling oil and gas prices, watch the Russians flip a switch and take us back up to $140 a barrel.

This is perhaps our worst nightmare.  If we could go back in time to 1979 and merge the Arabs with the Soviet Union, we would have what we have now!  What did we think the Russians were doing with all that dough that was flowing in by the billions?  You can only buy so many tacky mansions, sport-cars and $15,000 handbags.  I guarantee you that they have been pouring money into rebuilding their armed forces, including their nuclear capabilities.  This isn't the Russian Army of 1995.  This army has money.  We kind of laughed at the Russian Army in the mid 90's.  I heard countless people say, "These are the guys we were afraid of?  They can't even shoot straight." Think of the American armed forces in say, 1975, the Army Bill Murray joined in "Stripes".  They didn't look too good either.  However, put a $ trillion or so into the effort and we became super-bad-asses pretty quick.  That is what the Russians are doing now.

The Russians have just done two things in the span of a week.  They've told Georgia and Ukraine, don't even think of joining NATO (I have a feeling we'll be pulling back our invitation anyway) and they have rolled back the West's attempt to circumvent Russia to get at all that cool oil and gas in Central Asia, through Georgia.  As things get chillier, I would be real worried about any investments you have in Russia and any of their former republics because this party is just getting started.

Enough dreary news, here's a great clip from the good old days.  It will help all the twenty-somethings familiarize themselves with The Cold War.

1970's Checklist: All We're Missing Are Angry, Well Armed Ruskies..Oh Wait, Here They Are!

It's now official, it's 1979 again (take the Steelers for the Super Bowl)!  We have inflation, a recession, an energy crisis, no faith in government and finally, the Red Army is back!  Watching Russian tanks roll across their borders, pounding civilian targets to "liberate" people this weekend really takes you back no?   

As far as I'm concerned, it's right on schedule.  Once the oil and gas revenues started pouring in, you had to know it would only be a matter of time before the Russians rebuilt the Red Army and started trying to roll back the last eighteen years of humiliation.  They certainly are going to roll back the pipeline running through Georgia that competes with Russia's stranglehold on energy exports to Europe.  We're worried about oil money going to Islamic jihadists?  Like Howard Johnson said in Blazing Saddles, "F**k that sh*t, HERE COMES MONGO!"  Putin and his boy-toy Medvedev are going to go to town and that includes rebuilding their "strategic rocket forces".  You may want to add this little geo-political risk to you investing calculus.  Former provinces like Ukraine are rightfully shaking in their boots.  It doesn't help that its the Olympics and Putin is realizing that his country only wins about 50% of the medals they used to win before they broke up the Soviet Union.

This invasion into Georgia might get real ugly and can have huge consequences to an already crappy world economy.  But on the bright side, once the Cold War begins again, we can start producing classics like the following clip from "Spies Like Us"!  Who knows, Chevy Chase may become funny again....maybe.

After all we are not Communists

Our boy Charles Gasparino of CNBC wrote a piece in the editorial section of the NY Post today basically blasting the CEOs of Wall Street for backing Barack Obama and his economic policies. He took shots at John Mack of Morgan Stanley, Jamie Dimon of JPMorganChase, Gov. Jon Corzine and Bob Rubin both formerly of Goldman Sachs, amongst others. His point was that Obama's policies are so anti-Wall Street that these guys had to be nuts to back him. But then he realized that these guys had MADE their money and it wouldnt affect them as much as the guys coming up the ranks.

All interesting stuff but another guy he mentioned who is "in" with Obama is Warren Buffett. Yep the Oracle of Omaha himself. Well if youve heard the old man, he has been vociferous in his battle against these mega rich guys who pay taxes "on a percentage basis of their income LESS then their secretaries". Which is going to create strange bedfellows in this upcoming election. So I'm not an expert on politics but Obama, if he's elected, is going to raise taxes on all the "rich folk" who make more then $250,000 a year. So I'm no expert on financial CEOs but I think they all make more than $250,000. So if these guys are going to have money taken out of their pockets why would they back the guy who is going to take from them? Charisma? Change? Leadership? Um let's go back to the Oracle of Omaha. I think the answer is tax shelters baby! What the hell do these guys care if Obama raises taxes if they arent paying any of it?!?!? Right?!?! This reminds me of a story.

Now I dont know these CEOs that Mr. Gasparino mentioned in his editorial personally. However, I will tell you this. When I was starting out in this thing they call Wall Street back in the late 1980s, there were quite a few guys who were left of center shall we say on the politcial spectrum. They all voted democrat (some even voted for Communists!) and looked to be espousing the left wing view. I thought to myself, "man these guys making all this dough. Fiscally these guys they are voting for,(and donating large campaign donations to) are really trying to sock the rich and thats who these Wall Street guys are! These are real amazing guys. Very generous." Then I found out it was all a fraud. These guys would "give" to their "houses of worship" or "charities" and receive a brown paperbag out the back door filled with Ben Franklins. They also would pay a ton of money on personal tax attorneys and CPAs so that they could get "legal" tax shelters to not have to pay much at all of these taxes! I immediately thought "um these guys arent great guys, these guys are scumbags. Big time!" I then wrote them all off as a bunch of you know what. So when I see Mr. Buffett commenting on this very issue it tells me this tax evasion is alive and well in the 21st century.

So look I'm not going to discuss these CEOs personal tax payments but hey I know it HAS gone on. Mssrs. Gasparino and Buffett may be on to something and if any of these guys are skirting the system personally while jumping up and down for Obama they will probably burn in hell. As Don Barzini in Godfather I said in the meeting of the 5 families, "After all we are not Communists." Definitely not.

A Follow-Up on The Monkey Business Exclusive on "The Hot Lap Dance" Raid!

First of all, we want to thank our dear readers for tipping us off to the Thursday night raid at the great and perhaps "late" Hot Lap Dance Strip Club.  As far as I saw, Monkeybusisnessblog.com was first to report the exciting story!  New York Post?, New York Daily News??  PIKERS!

Anyway there's some great coverage in the Daily News today.  Club owner Lou "Daddy" Posner gave a jail house interview where he categorically denies that there was anything illegal going on at the club.  "Daddy" (this is what the employees called him..just like Idi Amin!) paints a picture of a loving, caring place of employment, where everyone was really just one big happy family.  Some of the employees echoed "Daddy's" sentiments.  Unfortunately, other dancers painted a picture where the only prostitution that wasn't allowed was prostitution where "Daddy" didn't get a cut of the action.  The dancers also alleged that they had to have sex with Daddy if they wanted to work.  We'll see who is talking turkey as this exciting drama plays out. 

Anyway, here is perhaps the GREATEST courtroom sketch I have ever seen!

Never Challenge Worse! "Hot Lap-Dance Club" Raided!

So, working on Wall Street just isn't that great anymore.  There's no more money and there's no more fun.  Just a lot of stressed out people trying to get through one horrific day after the next without getting canned. Could it get worse?  Well like we say here, "Never challenge worse, EVER!" 

Last March, Dealbreaker.com broke a story about a trader from Bank of America who apparently got a heel in the eye when a female lap-dancer accidentally kicked him (probably one of those leg over the head moves that went bad...at least thats what people who go to these places tell me!).  The trader sued the strip club, The Hot Lap-Dance Club.  Lord knows what he was thinking when he filed a lawsuit against a strip club, but he did and now he will be forever known as "the guy who sued the strip club".

Anyway, our sources tell us that last night, the exclusive "Hot Lap-Dance Club" was raided.  Apparently, the police arrived in full riot gear as the club is to rumored to be owned by organized crime (imagine that).  I have been told by a reliable witness that this club was THE CLUB as far as strip clubs go.  In fact if you go to their website they will tell you it is the "Number One Strip Club in the World!"  Unfortunately, along with all the girls, a lot of our brothers (and maybe some sisters) on Wall Street got scooped up in the raid.  We are told that most if not all were given a stern talking to and sent home.  The girls, well, the ones that don't have the right papers will probably be deported.

So back to "Never Challenge Worse!"  You just know that more than one guy there was long the mortgage basis, or short financials, or some trade that went real bad yesterday.  He probably said as he sat down at his favorite strip club, "Well, cheers boys, it can't get any worse!"  And then it did!