Oct 31, 2008

Andrew Horowitz on bailout money going towards year-end bonuses

As if the economic bailout by U.S. taxpayers isn't enough to make you sick to your stomach, new information has come to light that several banks are planning to pay billions of dollars in year-end bonuses from the bailout funds they received. Investigations are beginning into the nine banks that took in the first $125 billion -- the same $125 billion that was supposed to be used to unclog the credit system which was preventing banks from providing much needed funds for individuals and businesses.

There are many feathers in a ruffle over this and New York Attorney General Andrew Cuomo and several congressmen are furious that over $20 billion has already been earmarked as bonus funds for management and employees. Unbelievably, that is just the estimates from Goldman Sachs, Morgan Stanley and Merrill Lynch. There are six more banks that are also working on similar heists.

~ Andrew Horowitz, "$50 billion of bailout going to employee bonuses," MSN.Money Blog, October 31, 2008

AEI's Desmond Lachman on the housing bust

[U]nless there’s government intervention on a big scale... we’re really not going to bottom.

~ Desmond Lachman, American Enterprise Institute, "Nev., Mich., Fla. lead ‘underwater’ homes list; New report underscores staggering depth of U.S. housing recession," msnbc.com, October 31, 2008

Oct 30, 2008

Bill Laggner on hedge funds, SEC disclosure fight

You are getting more and more layers of intervention in the most entrepreneurial piece of the investment world. There is a real sense of frustration about this because people want to keep their strategies under wraps. And as long as it is legal, why is the government looking?

~ Bill Laggner, "Hedge funds gird for SEC disclosure fight," Forbes.com, October 3, 2008

Oct 29, 2008

Friedrich Hayek on class exploitation

There has never been a worse and more cruel exploitation of one class by another than that of the weaker or less fortunate members of a group of producers by the well-established which has been made possible by the "regulation" of competition.

~ Friedrich A. Hayek, The Road to Serfdom, page 129

Oct 27, 2008

Karen De Coster on Warren Buffett, stock tout

Warren Buffett is an admired man. He is admired, even by the middle and lower classes, for his frugality, wisdom, no-nonsense delivery, plain-folk personality, and yes, his hard-earned wealth. Readers may know that I deeply respect this man because I reflect on his business acumen frequently. But his latest column puts him in the role of being a propagandist for the government and its bull market-perpetual bubble-sustainable boom doctrine. The government and its Wall Street cronies are big on building "investor confidence" these days, especially when it comes to selling you on the stock market game and the ever-increasing Dow. Warren Buffett is working to convince you, the unsophisticated investor, to have unmitigated confidence in the market so that you will continue to buy and prop up market fantasies, even in a time of rapid decline and volatility.

~ Karen De Coster, "Warren Buffett, Government Propagandist," LewRockwell.com, October 23, 2008

Citadel's Ken Griffin on market sentiment

I have never seen a market as full of panic as I've seen it in the past seven or eight weeks.

Ken Griffin, founder, Citadel Investment Group, "Citadel's Griffin says firm will change amid turmoil," MarketWatch, October 27, 2008

Despite big losses from Citadel's main hedge fund this year, Griffin said that the recent turmoil has created the best opportunities he's seen since he started trading roughly 20 years ago:
"We're very excited about the positions in our portfolio in the months and years ahead."

(Citadel's largest hedge fund, known as Kensington/Wellington, fell 35% this year, through Oct. 17, according to Chief Operating Officer Gerald Beeson.)

Oct 26, 2008

Noriel Roubini on the need for fiscal stimulus to prevent a financial meltdown

Given the collapse of private aggregate demand, consumption, residential investment and non-residential investment in structures are falling, and capital expenditure by the corporate sector was already falling before the latest financial shock and will now be plunging at an even faster rate. You need to give a boost to aggregate demand to ensure that an unavoidable two-year recession does not become a decadelong stagnation.

Since the private sector is not spending, and since the first fiscal stimulus plan (tax rebates for households and tax incentives to firms) failed miserably as households and firms are saving rather than spending and investing, it is necessary now to boost public consumption of goods and services via a massive spending program (a $300 billion fiscal stimulus).

The U.S. government should have a plan to immediately spend on infrastructure and new green technologies; also unemployment benefits should be sharply increased, together with targeted tax rebates only for lower income households at risk; and federal block grants should be given to state and local government to boost their infrastructure spending (roads, sewer systems, etc.). If the private sector does not or cannot spend, old-fashioned, traditional Keynesian spending by the government is necessary. It is true that the U.S. already has large and growing budget deficits; but $300 billion of public works is more effective and productive than spending $700 billion to buy toxic assets.

… Radical action can – and should – be taken to control the damage and prevent this meltdown from occurring.

~ Nouriel Roubini, "The New New Deal," Forbes.com, October 9, 2008

Nouriel Roubini on the need for monetary stimulus to stop the bleeding in world markets

Recently I suggested the need for a coordinated monetary policy rate cut. That cut arrived in early October, with the Fed, the European Central Bank and other central banks cutting their policy rates by 50 basis points (bps). The action is necessary, but only cosmetic, and it is too little, too late. European central banks should have cut rates many months ago, before the recession and financial crisis became so virulent. Now, 50 bps for the Eurozone is peanuts at a time when a minimum of 150 bps is necessary to restart the economy and unclog frozen financial markets; 50 bps is also too little in the U.S., given the damage to the real economy from the financial shocks of the last month.

~ Nouriel Roubini, "The New New Deal," Forbes.com, October 9, 2008

Thomas Jefferson on public debt

I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared.

To preserve our independence we must not let our rulers load us with perpetual debt... We must make our choice between economy and liberty or profusion and servitude.

~ Thomas Jefferson

Presidents

  1. Washington, George (1789-1797)
  2. Adams, John (1797-1801)
  3. Jefferson, Thomas (1801-1809)
  4. Madison, James (1809-1817)
  5. Monroe, James (1817-1825)
  6. Adams, John Quincy (1825-1829)
  7. Jackson, Andrew (1829-1837)
  8. Van Buren, Martin (1837-1841)
  9. Harrison, William Henery (1841-1841)
  10. Tyler, John (1841-1845)
  11. Polk, James K. (1845-1849)
  12. Taylor, Zachory (1849-1859)
  13. Fillmore, Millard (1850-1853)
  14. Pierce, Franklin (1853-1857)
  15. Buchanan, James (1857-1861)
  16. Lincoln, Abraham (1861-1865)
  17. Johnson, Andrew (1865-1869)
  18. Grant, Ulysses S. (1869-1877)
  19. Hayes, Rutherford B. (1877-1881)
  20. Garfield, James A. (1881-1881)
  21. Arthur, Chester A. (1881-1885)
  22. Cleveland, Grover (1885-1889)
  23. Harrison, Benjamin (1889-1893)
  24. Cleveland, Grover (1893-1897)
  25. McKinley, William (1897-1901)
  26. Roosevelt, Theodore (1901-1909)
  27. Taft, William Howard (1909-1913)
  28. Wilson, Woodrow (1913-1921)
  29. Harding, Warren G. (1921-1923)
  30. Coolidge, Calvin (1923-1929)
  31. Hoover, Herbert (1929-1933)
  32. Roosevelt, Franklin D. (1933-1945)
  33. Truman, Harry S. (1945-1953)
  34. Eisenhower, Dwight D. (1953-1961)
  35. Kennedy, John F. (1961-1963)
  36. Johnson, Lyndon B. (1963-1969)
  37. Nixon, Richard (1969-1974)
  38. Ford, Gerald (1974-1977)
  39. Carter, Jimmy (1977-1981)
  40. Reagan, Ronald (1981-1989)
  41. Bush, George H.W. (1989-1993)
  42. Clinton, Bill (1993-2001)
  43. Bush, George W. (2001-2009)
  44. Obama, Barack (2009-17)
  45. Trump, Donald (2017-

Cicero on public debt

The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if Rome doesn't want to become bankrupt.

Cicero, 63 BC

Oct 25, 2008

Forbes: Philip Fisher as growth investor and pioneer in qualitative analysis

[Philip] Fisher stood out as one of the first money managers to focus on qualitative factors instead of quantitative ones. He examined factors that were difficult to measure through ratios and other mathematical formulations: the quality of management, the potential for future long-term sales growth and the firm's competitive edge.

Although Fisher focused on the qualitative characteristics of a company, he was first and foremost a growth stock investor. He felt the greatest investment returns did not come from the purchase of stocks that were undervalued, since a stock that is undervalued by as much as 50% would only double in price to reach fair market value.

Instead, he sought much higher returns from those companies that could achieve growth in sales and profits greater than the overall market over a long period of time. Furthermore, Fisher did not seek companies showing promise of short-term growth due to cyclical events or one-time factors. He felt that the timing was too risky and the promised returns too small.

~ Forbes, "Ken Fisher's Dad's Lucky 13," October 20, 2008, by Wayne A. Thorpe

Oct 21, 2008

Saint Augustine on government and criminality

Remove justice, and what are kingdoms but gangs of criminals on a large scale? What are criminal gangs but petty kingdoms? A gang is a group of men under the command of a leader, bound by a compact of association, in which the plunder is divided according to an agreed convention.

~ Saint Augustine of Hippo in The City of God against the Pagans, in th early 5th century

Oct 15, 2008

Alan Greenspan on the gold standard, savings and inflation

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.

~ Alan Greenspan, Federal Reserve Chairman (1987-2006), in 1966

Oct 13, 2008

Patrick Henry on government accountability

The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them.

~Patrick Henry

Oct 6, 2008

Henry Waxman's grilling of Lehman's Richard Fuld

You made all this money by taking risks with other people's money. The system worked for you, but it didn't seem to work for the rest of the country and the taxpayers, who now have to pay $700 billion to bail out our economy.

~ Rep. Henry Waxman, D-Calif., chairman, House Oversight and Government Reform Committee, "Lehman sought millions for execs while seeking aid," AP, October 6, 2008

Phil and Kevin Duffy on speculation

False prophets lead to true losses.

~ Philip Duffy and Kevin Duffy (joint effort), October 6, 2008

Anonymous banker on the Community Reinvestment Act

I am an expert in the Community Reinvestment Act and the Home Mortgage Disclosure Act and related Fair Lending laws. I have been consulting in this specializeed compliance area for 14 years and have worked with hundreds of banks and some community organizations as well. There is a good deal of truth to the allegation that the CRA did contribute to the current financial crisis . . . . There is much good to be said about the CRA, but as the old saying goes, "The road to hell can be paved with good intentions." While the CRA has been around for more than 30 years, it was the changes made in 1995 under the Clinton administration that set the ball in motion for the pressurs that created market premiums for LMI ["low- to moderate-income, or sub-prime] mortgages. In 1995 for the first time, the CRA specified quantitative performance standards specifically related to LMI mortgages. It took 7 or 8 years for the cumulative effect to become too big to ignore.

About 50% of the sub-prime mortgages originated can be ascribed to banks and their affiliates (which itself is still very substantial). Under CRA banks receive credit [by the Fed and other regulators, for making bad loans] not only for loans they originated, but loans they purchase as well. This resulted in a premium value for mortgages to low- and moderate-income [i.e., sub-prime] borrowers . . . . The premium was reflected in the secondary market for these loans [i.e., Fannie and Freddie's operations] I personally saw transactions between banks in which these mortgages were sold and purchased at huge premiums that were driven by the "CRA value" of the credits [i.e., browny points with Fed regulators] for the loan purchaser. I vividly remember one portfolio transaction in which the purchasing bank paid a premium of $15000 per mortgage to effect a transaction just before year end. Some unscrupulous firms went around marketing "CRA mortages" . . . touting the mortgages to borrowers as highly attractive because of the CRA-angle. Lehman Bros. was one of the most acive players in the secondary market purchasing these loans. The reality is that the regulatory pressure exerted by CRA was a factor that should not be ignored. Ironically, at the same time, many banks did offer discounted rates to LMI borrowers that did benefit them. Not all sub-prime loans took advantage of borrower ignorance.

~ Anonymous banker, "A Banker on the Evils of the Community Reinvestment Act," LewRockwell.com Blog, September 29, 2008

Martin Masse: Karl Marx would be proud of the bailouts

In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001.

“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.

~ Martin Masse, "Bailout marks Karl Marx's comeback," Financial Post, September 29, 2008

Marketwatch on $700 billion bailout package: plenty of perks for taxpayers, savers, and small business owners

U.S. taxpayers, small-business owners and savers may find plenty to cheer about in the final version of the financial-rescue plan, which goes beyond injecting liquidity into the nation's financial markets to offer tax and other perks to Main Street as well.

~ MarketWatch, "Money for Main Street; There's plenty of perks for taxpayers, savers in final rescue plan," October 3, 2008

Keynes on government deficits and taxation

It is common to speak as though, when a Government pays its way by inflation, the people of the country avoid taxation. We have seen that this is not so. What is raised by printing notes is just as much taken from the public as is a beer-duty or an income-tax. What a Government spends the public pay for. There is no such thing as an uncovered deficit.

~ John Maynard Keynes, famous British economist, in his Tract on Monetary Reform published in 1923

Oct 5, 2008

Motley Fool's Jim Mueller on Conference Board bearish sentiment

An August New York Times article pointed out that bearish sentiment, as measured by the Conference Board, had hit an all-time high. Fully 55% of the people questioned in July expect the stock market to decline over the next 12 months.

Why is this important today? Because each time bearish sentiment has exceeded 35% over the last 21 years, the market has confounded that sentiment by gaining ground over the following year, at an average pace of 20.5%.

~ Jim Mueller, "Buffett Says It's Time to "Be Greedy," The Motley Fool, October 1, 2008

William Jennings Bryan on destiny

Destiny is not a matter of chance - it is a matter of choice. It is not a thing to be waited for - it is a thing to be achieved.

~ William Jennings Bryan

Nicholas Falletta on paradox

A paradox is truth standing on its head to attract attention.

~ Nicholas Falletta, author of The Paradoxicon

Mark Twain on tolerance

If the man doesn't believe as we do, we say that he is a crank, and that settles it. It does nowadays, because now we can't burn him.

~ Mark Twain

Shakespeare on truth

It is a fool's prerogative to utter truths that no one else will speak.

~ William Shakespeare

Max Planck on acceptance of the truth

A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.

~ Max Planck, German physicist and founder of the quantum theory

Niels Bohr on paradox and progress

How wonderful that we have met with paradox. Now we have some hope of making progress.

~ Niels Bohr, Danish physicist and Nobel Prize winner, 1922

Admiral Leahy on the feasibility of the atomic bomb

The (atomic) bomb will never go off. I speak as an expert in explosives.

~ Admiral William Leahy, just before the atom bomb was first detonated

Oct 4, 2008

Friedrich A. Hayek on liberalism and conservatism

There is one point of phraseology which I ought to explain here (in Hayek's book, The Road to Serfdom) the term "liberal" in the original, 19th-century sense in which it is still current in Britain. In current American usage it often means very nearly the opposite of this. It has been a part of the camouflage of leftish movements in this country, helped by the muddleheadedness of many who really believe in liberty, that "liberal" has come to mean the advocacy of almost every kind of government control. I am still puzzled why those in the United States who truly believe in liberty should not only have allowed the left to appropriate this almost indispensible term but should even have assisted by beginning to use it themselves as a term of approbrium. This seems to be particularly regrettable because of the consequent tendency of many true liberals to describe themselves as conservatives.

It is true, of course, that in the struggle of the believers in the all-powerful state the true liberal must sometimes make common cause with the conservative, and in some circumstances, as in contemporary Britain, he has hardly any other way of working for his ideals. But true liberalism is still distinct from conservatism, and there is danger in the two being confused. Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power-adoring tendencies it is often closer to socialism than true liberalism; and with its tradionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disallusionment, appeal to the young and all those others who believe that some changes are desireable if this world is to become a better place. A conservative movement, by its nature, is bound to be a defender of established privilege and to lean on the power of government for the protection of privilege. The essence of the liberal position, however, is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others.

~ Friedrich A. Hayek, 1974 Co-winner of the Nobel Prize for Economics, in the Forward to The Road to Serfdom, Page ix

Oct 3, 2008

Ken Heebner when asked if the latest government actions were specifically designed to bail out Goldman Sachs and Morgan Stanley

I wouldn't use the words bail out. These are healthy companies. I'd call what the government did protection from short sellers.

They are bastions of financial strength. They have no problems with their balance sheets, and Morgan Stanley just reported a quarterly profit of more than $1 billion. Yet early in the day (of September 18), Morgan Stanley's stock got as low as $11.70.

~ Ken Heebner, as appeared on CNBC, September 18, 2008

Ken Heebner turns bullish on financial stocks

For now, at least, ace fund manager Ken Heebner has turned bullish on financial stocks. At the same time, Heebner, who has been running mutual funds for more than 30 years and is known for his uncanny ability to measure the pulse of the market, has dramatically pared back his funds' commitment to commodity-related stocks.

Heebner, who trades feverishly, says he now has more than 30% of the assets of his flagship CGM Focus fund in financials and only about 10% in commodity stocks. As of June 30, according to Morningstar, Focus (symbol CGMFX) had 86% of its assets in energy and industrial-materials stocks and nothing in financials.

Heebner revealed his moves on September 19, as stocks rallied furiously in response to an array of government actions designed to end a crisis in global financial markets.

~ Kiplinger.com, "Ken Heebner Is Bullish on Bank Stocks," October 3, 2008, by Manuel Shiffres

Nancy Pelosi on the $700 billion bailout bill, round 2

Passing this legislation is the beginning of our work to protect the American future.

~ Nancy Pelosi, House Majority Leader, speech before the House, October 3, 2008

Barbara Tuchman on folly in government

Personal self-interest belongs to every time and becomes folly when it dominates government.

~ Barbara W. Tuchman, The March of Folly, Page 126. Barbara Tuchman was a distinguished American historian of the 20th Century. The March of Folly's theme is the pursuit of policy contray to self-interest using examples from the Battle of Troy, the Renaissance popes, the British loss of North America and ultimately America betraying herself in Vietnam.

Oct 2, 2008

Former Treasury Secretary Paul O'Neil on bailout bill

Doesn't this seem like lunacy to you? If they pass this thing, it's awful what the consequences are going to be in terms of an ongoing federal relationship that doesn't need to exist with the institutions. Are we going to insist on having a federal representative on boards of directors to protect our investment? We have no capacity in the federal government and it's not possible to create a capacity to manage a $700 billion property portfolio, It's crazy. It's like we've lost our moorings.

~ Paul O'Neil, former Treasury Secretary

Oct 1, 2008

Warren Buffett on Paulson's $700 billion bailout

The market could not have, in my view, taken another week like what was developing last week.

It's everybody's problem. A collapse of the kind of institutions that were threatened last week would have caused industry, retail and everything else to grind close to a halt. Thank heavens that Paulson had the imagination to step up. [This plan] is absolutely necessary to avoid going over the precipice.

~ Warren Buffett, as appeared on CNBC, September 24, 2008

Joshua Williamson on the Fed move to pump another $30 billion into global markets

This is another weapon in the arsenal of governments aimed at boosting confidence. Hopefully it will help market sentiment, stop banks from hoarding cash and start greasing the wheels of the financial economy.

~ Joshua Williamson, senior strategist at TD Securities, "U.S. stock futures higher on Buffett's Goldman buy," MarketWatch, September 24, 2008

(This morning the central bank added $30 billion to the flood of dollars it is pumping into global markets. The new funds came in the form of new currency-swap agreements with central banks in Australia, Norway, Sweden and Denmark. The agreements allow those banks to trade their currencies for dollars.)

Warren Buffett on his decision to invest $5 billion in Goldman Sachs

In this case, there's no better firm on Wall Street. The price was right, the terms were right, the people were right and I decided to write a check.

~ Warren Buffett, as appeared on CNBC, September 24, 2008

(Buffett is investing $5 billion in convertible preferred stock, entitling him to warrants on an additional $5 billion in stock at a strike price of $115 per share. Shares of Goldman jumped $3.39, or 2.7%, to $128.44 on the news.)

Ben Bernanke on Paulson's proposed $700 billion bailout

I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover. My interest is solely for the strength and recovery of the U.S. economy.

~ Ben Bernanke, Federal Reserve chairman, speaking before Senate Banking Committee, September 23, 2008

Ron Paul on bailouts and the futility of propping up prices

If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

~ Congressman Ron Paul, "The Austrian School and the Meltdown," LewRockwell.com, September 26, 2008

Ron Paul on the financial meltdown

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market's attempt to re-establish rational pricing of houses and other assets.

~ Congressman Ron Paul, "The Austrian School and the Meltdown," LewRockwell.com, September 26, 2008