Archive for the 'General' Category

Wow

Wednesday, November 27th, 2019

Austin Bay: “what a stunning victory and an embarrassment for Beijing. Turnout was 71% – most impressive. The pro-democracy candidates won around 90% of the vote for the 452 contested seats on Hong Kong’s 18 district councils. A late report gave the freedom fighters 389 seats and the Beijing faction about 60. The freedom fighters now control 17 districts. What a wipeout.” Wow.

CR: “In a city of some 7.5 million, a record-breaking 2.94 million people turned out to vote — amounting to more than 70% of a record-breaking 4.1 million registered voters. Hong Kong has 18 District Councils, all of which were controlled by pro-government figures prior to this election. On Sunday, that switched radically. Voters gave Hong Kong’s pro-democracy contingent control over 17 of the 18 District Councils.” Wow again.

Skool Daze

Wednesday, November 27th, 2019

We, the undersigned, call on the administration of Washington and Lee University and President William Dudley to provide students with the option of removing the portraits of namesakes Robert E. Lee and George Washington from their diplomas,” proclaim the law students in their petition. Washington and Lee University diplomas display portraits of both George Washington and Robert E. Lee, given that the school has been named after them. The petition insists that its signees will be satisfied if school administrators simply give students “the option to have a diploma without portraits,” rather than making the change “mandatory” for all diplomas. “The goal of establishing this option is to create a diploma that alumni are proud to prominently display in their homes and places of work,” affirms the petition, noting that the school had made changes to its diplomas in the past, “such as the transition from sheepskin diplomas to paper diplomas.” The students go on to cite “the aftermath of the 2017 Unite the Right Rally in Charlottesville and the heightened awareness of making Washington & Lee an inclusive and compassionate environment to all students” as their reasons for desiring such changes. “We believe this request provides alumni the ability to honor their alma mater without the presence of the portraits that some may find controversial or offensive”

Um, maybe you chose the wrong skool. Bonus fun: Syracuse Scam.

More Thanksgiving Eve fun: we love the tweets and jokes. Woof, added Conan.

Duh

Tuesday, November 26th, 2019

Poll:

The study was conducted for CNN via telephone by SSRS, an independent research company. Interviews were conducted from November 21-24, 2019 among a sample of 1,007 respondents. The landline total respondents were 355 and there were 652 cell phone respondents. Interviews were conducted among a representative sample of the adult population, age 18 or older

Gee, not voters, 652 cell phones. What do you expect such a poll would report?

Nunes

Monday, November 25th, 2019

Ugh. This has gotten so tiresome.

And this is just plain weird.

2 4 6 8 – time to transubstantiate

Sunday, November 24th, 2019

Roger Simon has an entertaining piece, and we link to Tom Lehrer too. No politics today – it’s waaaaaaay too boring.

Misc

Saturday, November 23rd, 2019

(1) Owens and Allison, a good read. (2) Solomon versus that awful Vindman. (3) Why are the woke SJW’s protesting Art Laffer of all people? (4) Suing CNN anyone? (5) No links but a very pleasant time reading letters from 1974, with a trip w/girlfriend from Geneva through Italy and ending in Paris, just in time to have dinner with the high school friend and Nan Robertson, and then see Nixon resign. (6) Very interesting long piece on the silly 1619 thing.

Note the really big change

Friday, November 22nd, 2019

The Orange Man has changed things in a big way. Quite a few GOP members of Congress have turned into fighters, speaking loud and direct in front of TV cameras and their opponents. We’ve come a long way since 2012.

Ah yes

Friday, November 22nd, 2019

We watched some of the 1960 debates on TV, toured a number of DC sites in the last days of the Eisenhower administration, and remember well viewing the JFK Inaugural Address, the Cuba missile crisis, etc. It was a horrible day when the Reverend Mother came into class to report the awful news of this day. As we’ve noted elsewhere, we’ve actually met a head of government who was murdered, but that was long after 1963. Seeing Jack Ruby that Sunday was one of the strangest things ever.

Funny stuff

Thursday, November 21st, 2019

This stuff makes JournoList look good by comparison.

For unfunny stuff, we recommend watching the 11-22 Brian Williams “news” cast on MSNBC. No link here. Two universes. Very senior people live in that other universe, and (gasp) they think they are right in doing so. 11/3/20 is gonna be a heckuva day.

Oddly enough

Thursday, November 21st, 2019

We just received an invitation to the Living Legends of Aviation dinner in January, to be hosted by a guy who flies a 1964 Boeing 707 among other things. The owner of a company called Blue Origin will be giving out his first annual award. Blue Origin was started two decades ago to send people into outer space, and its owner personally gives the company $1,000,000,000 a year or more. A billion dollars a year? Huh? Very odd for lots of reasons, but we suppose it’s nice to have a hobby.

Jawohl Herr Kommandant

Wednesday, November 20th, 2019

This guy Vindman (here and here) makes Sergeant Schultz look like a General. Add Shifty Schiff to the mix, and this has got to be the stupidest civil war in history.

And BTW, there were some serious people in that old TV show.

Minor point

Wednesday, November 20th, 2019

All the business about a phone call “transcript” is a bit silly, since it would be nuts for the heads of big, maybe all, countries, to tape record all CEO to CEO phone calls, one way or another. We understand of course the ritual ignoring of such an obvious practice, but it helps make the current nonsense even more insane.

One definite conclusion

Wednesday, November 20th, 2019

A place not to go on vacation.

Update: cuckoo bird.

Update 2: nonsense pointed to above that makes these hearings the worst thing ever on TV, even worse than these. But hey, we like Barney.

Ha Ha Question

Tuesday, November 19th, 2019

When the woke SJW geniuses read this poem, if they can read, what line do they focus on? Here’s kind of a hint.

Duh!

Tuesday, November 19th, 2019

He’s in business to make money via click-throughs, advertising, etc.

Another blast from the past

Tuesday, November 19th, 2019

2007 again. We had the good fortune to meet a man who was present as a child at one of the precipitating events of the Great Depression, the failure of New York’s Bank of United States in December 1930. His grandfather, who lost his savings in that bank, took him to witness the scene as depositors thronged to bank doors that were locked during normal business hours. The panic from bank failures in New York and elsewhere spread around the country — there was no deposit insurance — driving banks to maximize liquidity, sell assets, foreclose loans, and create the Mother of All Credit Crunches, which became known as the Great Depression. Here’s how the NYT described the scene in its December 12, 1930 city edition:

onset.gif

Perhaps you have been taught that the stock market crash of 1929 caused the Great Depression. That is not so. The crash both reflected and amplified the recession that the US economy was entering in 1929; however, it was the problems of the banking system and of monetary policy that cascaded recession into depression. We will quote from Friedman and Schwartz’s Monetary History of the United States (from pp. 309-313):

The stock market crash…left no mark on currency held by the public. Its direct financial effect was confined to the stock market and did not arouse any distrust of banks by their depositors.

The stock market crash coincided with a stepping up of the rate of economic decline. During the two months from the cyclical peak in August 1929 to the crash, production, wholesale prices, and personal income fell at annual rates of 20%, 7.5%, and 5%, respectively. In the next twelve months, all three series fell at appreciably higher rates…Even if the contraction had come to an end in late 1930 or early 1931, as it might have done in the absence of the monetary collapse that was to ensue, it would have ranked as one of the more severe contractions on record….

In October 1930, the monetary character of the contraction changed dramatically…A crop of bank failures, particularly in Indiana, Illinois, Iowa, Arkansas, and North Carolina, led to widespread attempts to convert demand and time deposits into currency…A contagion of fear spread among depositors…such contagion knows no geographical limits. The failure of 256 banks with $180 million in deposits in November 1930 was followed by the failure of 352 with over $370 million of deposits in December…the most dramatic being the failure on December 11 of the Bank of the United States with over $200 million of deposits.

That failure was of especial importance. The Bank of the United States was the largest commercial bank, as measured by volume of deposits, ever to have failed up to that time in US history. Moreover, though an ordinary commercial bank, its name had led many at home and abroad to regard it as somehow an official bank, hence its failure constituted more of a blow to confidence than would have been administered by the fall of a bank with a less distinctive name.

In addition it was a member of the Federal Reserve System. The withdrawal of support by the Clearing House banks from the concerted measures sponsored by the Federal Reserve Bank of New York to save the bank — measures of a kind the banking community had often taken in similar circumstances in the past — was a serious blow to the System’s prestige…

Friedman implies that the reason that the Clearing House banks failed to bail out the Bank of United States, despite often intervening in other, similar cases, is that the BoUS’s customer base and board were Jewish. This contention seems to be supported by statements from the NY State Banking Commissioner of that time, Joseph A. Broderick (p. 310). Let’s take a look at how the New York Times reported the attendees of the meeting the day before the Clearing House pulled the plug on the Bank of United States:

bous.gif

We have no way of knowing if Milton Friedman’s contention is true or not, though it appears likely to us that, unlike Herbert H. Lehman, the “small, able” Mr. Isidor J. Kresel was probably not a member of Our Crowd. TIME Magazine summed up the banking community’s view of the Bank of United States in its December 22, 1930 issue on that fateful meeting:

Another late arrival was lanky Owen D. Young who came about 11 p.m. in full dress, accompanied by Thomas William Lamont of J. P. Morgan & Co. Looking taller than usual in his full dress, Mr. Young paused to peer down at and converse with small, able Isidor Kresel, counsel for Bank of United States…Conservative Manhattan bankers last week were angry at Bernard K. Marcus, dark-haired, heavily-built president of Bank of United States. His aim was perhaps much too high. Only last year he stated: “Often we’ve put two or three days work into one. We have gone ahead two or three times as fast as we would have had we been working only one day at a time.” To bankers, a day’s work is a day’s work, to be done well, thoroughly.

The tall and lanky in full dress versus the small, able, dark-haired, overreaching, and heavily-built. We get the picture. Thanks, TIME.

This piece has been quite educational to research. We see once again that great events can turn on small episodes of human weakness, prejudice and folly. And who knew at the time that a crowd gathered at a bank on a cold December day would become anything other than the “local” event that the head of the NY Clearing House opined that it would be?

We should not believe that we can’t make mistakes of similar magnitude or wrongheadedness again. The stagflation of the 1970’s was caused by foolish economics policies of three presidents in a row — Nixon, Ford, and Carter — that weren’t reversed for a decade until Ronald Reagan and Paul Volcker had the wisdom and courage to take the harsh steps required to kill inflation. Today, one new challenge is the anti-China, pro-protectionism movement increasingly vocal in the US today. The greatest folly can seem trivial or reasonable at the time, which is precisely why it is so dangerous.

A few things

Monday, November 18th, 2019

(1) Stefanik, and again. (2) Kind of a long Niall Ferguson piece. (3) Someone named Morrison, but not Jim. That’s enough for now.

Blast from the past

Sunday, November 17th, 2019

From 2007, predicting a number of the problems of 2008 and beyond:

Phase One

Even within the last year, you may recall driving down the highway listening to one of the many mortgage ads on the radio and hearing the phrase: “No income verification.” Perhaps you thought: “That seems a little odd. I wonder how they do that. They must have very sophisticated computer models.”

Well, the phrase is still around, but for the most part the loans aren’t. And therein lies a tale. In the olden times, say, 20 years ago, you went to the bank to get a mortgage when you bought a house. The loan officer went over your tax returns, credit report, bank statements, proof of down payment and all the rest, and the loan committee decided if you were creditworthy. That all ended when mortgage securitization was invented and then became widespread, expanding massively in this decade, as interest rates reached historic lows.

It is much easier to use computer models than credit judgment. And computer models showed fascinating facts about mortgage holders and defaults. They showed consistent correlations between different credit ratings and mortgage default rates, for example. So using various inputs of this sort, computer models of large numbers of mortgages showed that only a small portion of the mortgage holders default and most mortgages were as good as gold. This allowed smart fellows to divide up, say, $1 billion in mortgages, into various groups, or tranches (see Allan Sloan’s article).

The tranches then got ratings from the credit agencies, well known entities with long histories like S&P and Moody’s. Based on various metrics gleaned from statistical history, large numbers of these mortgages were rated AAA, and lesser mortgage pools got lower ratings, etc. So then the mortgage tranches could be sold to different groups who wanted AAA paper at a low yield, or riskier paper at higher yield, etc.

But the computer models were wrong. They made, in essence, the same mistake that Mike Milken made in his analysis many years ago of the low default rates of junk bonds. It was true that junk bonds had historically low default rates, but of course that was not an Iron Law. In fact issuing vast numbers of junk bonds changed the very nature of the game, attracting a group of wise guys who sought to exploit the fact that investors had substituted a computer model for common sense. So it became with subprime mortgages, when a flood of new subprime borrowers changed the game and created the certainty that future default rates would vastly exceed those from loans made in a previous time of prudent lending.

It wasn’t just the issuers of these Collateralized Mortgage Obligations (CMO’s) or the rating agencies who were using these bad computer models. The buyers of these securities were as well. And just who were the buyers? The buyers included the traditional banks and insurance companies here and abroad of course, but also included sophisticated trading operations of investment banks, as well as the relatively new category of investment institution called hedge funds.

One of the ironies of our age is that a great many of these hedge funds are not in fact hedged in any meaningful sense. That became clear enough this summer. Though there were some earlier headlines, around the beginning of August, the markets seemed to focus on the subprime matter, all at once. And all at once the computer models used by many of the smartest investors around began to shout SELL simultaneously. It is hard to forecast discontinuities, which are inherently difficult to anticipate, and the computer models did not do so. As a result, many hedge funds had to sell assets at the same time to raise liquidity, which played havoc on the equity and debt markets.

Of course not everyone was caught by surprise, though many of the smartest firms were. Morgan Stanley got caught. Its CFO said, referring to the extensive computer modelling that the firm had done, “no stress model in the world would ever have had it.” Goldman Sachs, previously one of the prime purveyors of subprime paper, fared much better. It apparently was well aware of what it was shoveling into the marketplace, and was not fooled by computer models. Goldman made money from precisely the same circumstances that caused Morgan to lose money.

Phase One of the credit crunch appears to be winding down at the moment with the White House and Treasury proposing some sort of subprime bailout. But our story doesn’t end there.

Phase Two?

Many of the same structural conditions of the mortgage market have made their way into the corporate debt market as well. We mentioned CMO’s above. There are also such things as corporate Collateralized Debt Obligations or CDO’s.

The same dynamics of substituting computer modeling for credit judgment have come to apply in the corporate debt arena as well. That is one reason why so many highly leveraged deals have been able to be sold to the marketplace, until this summer. As the ex-CEO of Citigroup said in July, among many other foolish things, Citigroup was “still dancing” at the party of loan syndication, where “liquidity rushes in” to fill gaps in markets. He’s not the ex-CEO for nothing.

In the old days, banks made loans to creditworthy customers. If the loans were large, they were syndicated among banks, with one bank acting as the “lead.” The bank group was stable and often of long standing. People knew each other, often for many years. If difficulties arose in a credit, they were addressed by knowledgeable people who understood the company and its industry. With securitization, some of these dynamics change.

We described how different tranches of mortgage securities were sold to hedge funds and other institutions who wanted various yield versus risk trade-offs. The corporate debt market adds a couple of highly significant wrinkles to this concept.

Of significant importance is that a specific tranche of a debt instrument may wield a great deal of power in dictating the affairs of a company. A classic example is that in bankruptcy, according to the priority rules, the first impaired creditor class becomes the equity in a reorganized company. This has given rise to a mini-industry, the loan-to-own hedge funds, institutions that deliberately buy themselves into (at a deep discount) the debt of a troubled company, with the idea that they will ultimately control the company and make outsized returns.

And that is just one of the tricks of the trade of these activists and wise guys. Another example would be a hedge fund owning part of a tranche of debt that could approve or deny the waiver of a particular debt covenant for a company in default. The fund might make it known that it will not consent to a waiver, meanwhile clandestinely buying up major pieces of debt at a lower level in the capital structure at a huge discount, and then approving the waiver. Immediately the fund could make a profit on its manipulated investment in the lower parts of the capital structure. We haven’t even scratched the surface of the funds’ creativity with these examples.

While insider trading has made up a minor part of the equity markets for many years, as a result of enforcement activities, it would appear to be routine in some debt instruments, where trades are not public, sometimes do not involve “securities” at all, and often take place among institutions who have agreed in advance not to sue each other over material non-disclosures. Though the SEC has prosecuted some insider trading cases involving debt since 1943, these are the exception, not the rule. Thus hedge funds of a certain mindset have every incentive, and few structural limitations, to try to manipulate certain markets.

Finally, we want to mention yet another instrument that has arisen from a reasonable need, but would appear to offer a further opportunity for abuse by the wise guys. That is the credit default swap, an instrument whose spreads have widened considerably over the course of 2007. The value of a credit default swap varies of course along with the underlying credit of the company whose credit risk is being hedged. That much is obvious.

However, the value of a credit default swap also can vary as a result of the assessment of the health of the credit markets generally. That is because a credit default swap is merely a contract between two financial counterparties, and is only as good as the health of those counterparties themselves. As Warren Buffett observed:

“Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses — often huge in amount — in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen).”

The general point to be made about the loan-to-own hedge funds, the wise guy traders in distressed debt, and credit default swap speculators is this: there are tremendous fortunes to be made by short selling the entire financial system. There are people and institutions who benefit if credit markets seize up, banks default on their obligations, or companies file for Chapter 11. One possible reason for the talk of doom and gloom, and periodic rumors of panic, in a period with objectively strong economic statistics is that there are investment funds who have shorted prosperity and have gone long doom and gloom — and they have every incentive to make that bet profitable.

OK, you decide…

Sunday, November 17th, 2019

…which side has lost its mind.

Bonus fun: this weeks’s pictures are really funny.

Beyond bizarre

Saturday, November 16th, 2019

Somebody with a job at Georgetown:

We are the fifty-two Americans who forty years ago this month began 444 days of deprivation, torture and captivity in Teheran. We are the dozens of Americans stationed at our embassy in Cuba and consulates in China, who mysteriously and dangerously — and in some cases perhaps permanently — were injured in attacks from unknown sources several years ago. And we are Ambassador Chris Stevens, Sean Patrick Smith, Ty Woods, and Glen Doherty — people rightly called heroes for their ultimate sacrifice to this nation’s foreign policy interests in Libya

Hey maybe she invented Nightline too. Final point: they clearly worked very hard on her script, but it sounds like it was written by somebody in high school.