Administrative note

Travelling sans computer.
Fare thee well.

Mr. Hand's Wild Ride

'Here on this mountaintop
I got some wild, wild life
Here comes the doctor in charge
{he's} got some wild, wild life
Check out Mr. Businessman
He bought some wild, wild life
On the way to the stock exchange
He got some wild, wild life
Thought control!
You get on board anytime you like!'
-Talking Heads

'Gonna break loose
Gonna keep a movin' wild
Gonna keep a swingin'
Baby
I'm a real wild child.'
-Iggy Pop

'The distribution of price changes in a financial market scales.
Given that event X has happened, what are the odds that Y will happen next?
With financial prices, scaling means that the odds of a massive price movement given a large one are akin to those of a large movement given a merely sizable one. Such is the confusion of scaling. It makes decisions difficult, prediction perilous, and bubbles a certainty.'
-Benoit Mandelbrot

'This subtle but extremely consequential property of scalable randomness is unusually counter intuitive. It is often said that "is wise he who can see things coming." Perhaps the wise one is the one who knows he cannot see things far away. Newspapers are excellent at predicting movie and theater schedules.'
-Nassim Taleb

As a youngster always read comic books, now its' the Wall Street Journal and the Financial Times. Both fluffy, with an occasional interesting tidbit and sometimes cool art; each medium presents fiction as fact. The latter though specializes in the prognostication of unknowns that through their presentation become knowns. The former usually throws an unknown unknown plot twist at ya.

Recently posted here:

'But there are unknown unknowns.

What we do not know we don't know is what the long finger of instability from the Hand will ultimately do to the markets and the economy that are still the home of the brave but alas are now a different land.

What we do not know that we don't know is how the continuing liquidation of Main Street and bifurcation of America will interact with the bankrupt ideology of the rich that had greatly succeeded in drafting the inner monologue of regular folks so that they would vote against their self interests and are trying to do it again.'

Would like to make the correction that these are known unknowns. Presumptuous and fictional to suggest otherwise.

Easy enough for an anonymous blogger to offer a correction, experts can't. For if they did how could they be experts?

Speaking of expert opinion, here are two examples straight from today's 'funny pages.'

First. Iraq and Afghanistan 'unsettled' about our announced withdrawal date.

Second, the financial industry 'unsettled' about an amendment that would require secured creditors under certain circumstances to take losses up to 20% should a financial firm fail.

Both show the conundrum of the government being 'all in' : they just can't ever 'pull out' lest the fragile system collapses. Of course the pablum narrative fails to consider that the only reason the system is so flippin' fragile is because 'we're there' in the first place.

I bet you one rentenmark Mortimer that by the time my newborn goes to college we will still have boots on the ground in Iraq and Afghanistan and the Hand will still be up the back of the 'markets'.

The first 'prediction' based on the imagining of Rahm telling Barry that if we are not over there and something happens over here he won't be able to cut his f%#$@&g legacy out of a wet paper bag with a steak knife and the second 'prediction' based on the Amerikantura knowing the game is so rigged that nostalgia for the good old days of the 'free markets' is for dreamers not schemers. 'Tis the rich man's burden it tis.

We speak of a mild outcome to all this, a new normal, as we stuff the pig on the scale of fate. We are so far down the rabbit hole Alice, so arse over tit, that it is quite plausible that the power law being applied here is masquerading mild as wild as well as its' converse.

What if the mild prognostication is deflation or hyperinflation with either A cascading to B or B cascading to A?

What if the Black Swan is just, hope upon hope, muddling through?

Never fast enough with the mute button after Santelli comes on CNBC, I caught one of the canuckleheads on Hee-Haw muse that golly gee willikers maybe we have to destroy the currency in order to create jobs! Destroy your standard of living to improve it? Nancy Capitalists in a Sovereign Democracy that are hell bent to seek rent.

And the Blacker Swan? Teleportation, room temperature superconductors, fusion ... something 'game changing'. that allows the game to go on?

Damn dirty apes.

Its' a madhouse!

Yes Virginia there is no collateral.

That'll be all, Senator Sanders

SANDERS
You had Geithner sign a phony asset transfer
order--

GREGG
Senator--

SANDERS
You doctored the repos.

JOHNSON
Damnit Sanders!!

SANDERS
I'll ask for the fourth time. You ordered--

BERNANKE
You want answers?

SANDERS
I think I'm entitled to them.

BERNANKE
You want answers?!

SANDERS
I want the truth.

BERNANKE
You can't handle the truth!

(And nobody moves.)

BERNANKE
(continuing)
Son, we live in a world that has markets.
And those markets have to be guarded by banksters
with money. Who's gonna do it? You? You,
Senator Bunning? I have a greater
responsibility than you can possibly
fathom. You weep for capitalism and you
curse the banksters. You have that luxury.
You have the luxury of not knowing what I
know: That capitalism's death, while tragic,
probably saved jobs. And my existence,
while grotesque and incomprehensible to
you, saves jobs.

You don't want the truth. Because deep
down, in places you don't talk about at
parties, you want me at the wheel.
You need me there ...
We use words like 'growth','stability',
'profits'...we use these words as the
backbone to a life spent defending
something. You use 'em as a punchline.

I have neither the time nor the
inclination to audit myself for a man who
rises and sleeps under the blanket of the
very guarantees I provide, then questions the
manner in which I provide it. I'd prefer
you just said thank you and went on your
way. Otherwise, I suggest you pick up a
private sector job and stand a post. Either way, I
don't give a damn what you think you're
entitled to.

SANDERS
(quietly)
Did you doctor the repos?

BERNANKE
I did the job you sent me to do.

SANDERS
Did you doctor the repos?

BERNANKE
(pause)
You're goddamn right I did.

Today's secret word ... uh ... pablum narrative... is bubbles

(Thank you, thank you, and welcome to "You Bet Your Life." Say the secret word...uh...pablum narrative... and a swan will come down and debase your standard of living. Tonight's contestant is making a return engagement. -AM)

Wall Street Journal
March 19, 2009
By Michael M. Phillips

WASHINGTON -- Lawmakers really want the American people to know that they, too, are "outraged" about the $165 million in bonuses paid to American International Group executives.

They were so outraged, in fact, that they turned Wedndesday's congressional hearing on AIG into a daylong expression of outrage. Members of the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises mentioned their outrage at the big insurer 18 times. And that was during 45 minutes of opening remarks, even before the immediate target of their outrage, AIG Chief Executive Edward M. Liddy, entered the room.

"I certainly join my constituents in their outrage," offered Rep. Ron Klein, a Florida Democrat.

The subcommittee chairman, Rep. Paul Kanjorski, gave Rep. Randy Neugebauer, a Texas Republican, only one minute to speak, so he didn't waste any time. "I'm going to go ahead and say I'm outraged as well," he began.

Some Republicans wanted credit for their earlier outrage, saying they aimed it at those who supported bailouts of AIG and others in the first place -- presumably Democrats. None mentioned the role of former President George W. Bush, who was in the White House when the rescue money started flowing to AIG.

Rep. Jeb Hensarling (R., Texas) forecast more anger to come. The furor over AIG bonuses is "simply the outrage of the week, and the week isn't half over yet.

(Today's pablum narrative is bubbles. -AM)

Wall Street Journal
December 2, 2009
By JON HILSENRATH

Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing.

Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they've followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms "perhaps the most difficult problem for monetary policy this decade."

With Asian property prices soaring and gold prices busting records almost daily, the debate comes at a critical time. Mr. Bernanke wants to use his powers as a bank regulator to stamp out bubbles, but the Senate Banking Committee, which will grill him later this week, is considering stripping the Fed of its regulatory power.

At the same time, pending legislation in the House could leave Mr. Bernanke running a less independent institution. The House Financial Services Committee has passed a measure that would subject the Fed's interest-rate decisions to scrutiny by the Government Accountability Office, an investigative arm of Congress. Mr. Bernanke and others at the Fed fear that with Congress looking over their shoulders, any decision they make about interest rates would be subjected to the winds of politics -- making it harder to control inflation or financial bubbles.

Fed officials used to think there was little they could or should do to prevent bubbles from inflating. For one thing, identifying bubbles with any certainty was deemed to be too difficult. And even if they could be accurately pinpointed, pricking them might do more harm than good. Raising interest rates to stop a bubble, for instance, could slow growth in other parts of the economy that were otherwise healthy.

The Fed's main strategy instead was to mop up after a bubble burst with lower interest rates to cushion the blow to the economy and restart growth. That strategy was a key conclusion of Mr. Bernanke's writings on the subject of bubbles when he was a Princeton professor, and again when he first came to the Fed as a governor in 2002. It was an approach embraced by his predecessor Alan Greenspan.

One of the few doubters was William Dudley, then chief economist at Goldman Sachs and now president of the New York Fed. He is one of the Fed's more outspoken proponents of preventing bubbles, and has said it's not as hard to spot them as many economists believe. "I can identify at least five bubbles that one could reasonably have identified in real time," including the tech boom, Mr. Dudley said in 2006 speech. He knew, he said, because he had speculated against three of them himself when he was at Goldman.

Now, Fed officials admit the stance didn't work. They're groping for alternatives. Of the two methods to prevent bubbles -- using regulations to protect the financial system from excess and changing monetary policy by raising interest rates -- Mr. Bernanke falls on the side of greater regulation, an idea he has advocated in the past.

"The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset price bubble bursts in the future," Mr. Bernanke said in answer to a question after a speech in New York last month.

Playing the interest-rate card, in contrast, is considered by many to be a more aggressive and risky move. On Tuesday, Philadelphia Fed President Charles Plosser said interest rates were "a very blunt instrument" to thwart a possible bubble. He said raising rates could "affect all other asset prices at the same time."

But some on the Fed's research staff are pushing senior officials to include interest rates in their plans -- and some officials say they can no longer rule that out. Kevin Warsh, a Fed governor who spent seven years on Wall Street before moving to Washington in 2002, says he's keeping close track of commodities prices, the dollar and movements in credit markets. The Fed, he says, has to be open-minded in its search for solutions to bubbles, including whether interest rates should be used to squash them.

Yet the question of whether and how to tackle bubbles before they burst is becoming a growing concern amid fears of new bubbles developing in commodities markets and in emerging economies. Gold prices are up more than 50% in a year's time. China's Shanghai Composite stock index is up more than 75% this year. Stocks in Brazil are up even more. Oil prices have rebounded. They remain far below last year's peaks but a return to those highs could fuel inflation in goods and services more directly than tech stocks or housing did.

"This is a very dangerous period," says Frederic Mishkin, a Columbia University economist and former Fed governor. If a new bubble threatens to emerge and the Fed decides to fight it more aggressively, he says, it could damage an already weak economy. "You don't want to be fighting the last war," he says.

The debate extends far beyond the Fed. Researchers at the Bank for International Settlements, a Basel, Switzerland-based group that coordinates central-bank activities around the world, are pushing to address bubbles more aggressively. On a recent trip to Asia, the Fed's Mr. Warsh and San Francisco Fed President Janet Yellen got an earful from finance officials in China and Hong Kong, who worry that low U.S. interest rates are prompting investors to borrow in the U.S. and drive up asset prices in Asia.

Fed officials are now debating the differences between bubbles as a way to understand them better and come up with the right solutions.

The most dangerous part of a bubble may not be the rise in asset prices, but the level of debt that builds up at financial institutions in the process, fueling even higher prices. That means keeping these debt levels down might be one way to prevent busts.

No one at the Fed has yet come out in favor of raising interest rates to stop the next bubble, but the idea is being discussed more seriously among Fed officials.

Donald Kohn, the Fed's vice chairman, was one of the strongest proponents of the old don't-pop-bubbles view. Today, he says, he has much less conviction about that strategy. Still, he worries that using higher interest rates to tame an asset boom would be like using a sledgehammer to drive a tack -- it might stamp out the boom but it would do a lot of peripheral damage in the process.

"You raise interest rates [to fight a bubble] and you damp all kinds of capital spending and consumer durable spending," said Mr. Kohn in an interview.

Mr. Bernanke is leaving himself hedged. If he felt stamping out a bubble with higher rates would forestall a rise in inflation or stabilize the economy, "We'd have to think about that very seriously," he told the New York Economic Club recently. "We can never say never."

(Hahahahahahahahaha ... oh my ...gasping for breath... heh heh heh ...dabbing eyes... that was great just great. Waiter another round for my friends please. Let's see what is next on the playbill ... adjusting glasses ...hmmm... Geithner discussing the strong dollar... and then...squinting.. it looks like a Congressional panel on deficit reduction. My oh my, what a show.-AM)

Groundhog Day, Slaughterhouse Fine

'Some pigs are more equal than others.'
-George Orwell

'hey pig
yeah you
hey pig piggy pig pig pig
all of my fears came true'
-Nine Inch Nails

'If you didn't care what happened to me,
And I didn't care for you
We would zig zag our way through the boredom and pain
Occasionally glancing up through the rain
Wondering which of the buggers to blame
And watching for pigs on the wing.'
-Pink Floyd

'When brokers get on a plane it proves that pigs can fly.'
-Anonymous Monetarist

By Henny Sender in New York
Published: December 1 2009 22:00
Financial Times

Some of the most controversial financing practices of the credit-bubble years – from cov lite loans to Pik toggle notes and dividend recap exercises – have returned to Wall Street, stoking fears that debt markets are growing overheated.

The techniques fell into disrepute during the financial crisis because they were based to varying degrees on the same rosy expectations that encouraged companies and consumers to assume what proved to be crippling levels of debt.

In a cov light – short for covenant light – loan, borrowers are granted credit with few, if any, conditions.

Pik toggle transactions make it possible for debt to be repaid with more debt – payment-in-kind notes. In a dividend recap, companies take on additional debt to pay dividends to their owners.

The reappearance of such instruments in recent weeks has stirred concerns that government efforts to stimulate lending are having unintended consequences, encouraging lenders to take positions based on “best-of-all-possible-worlds” assumptions.

Fed policymakers have signalled their concerns about the impact of low rates on market practices.

In the minutes of its November meeting, the Federal Open Market Committee noted “the possibility that some negative side effects might result from the maintenance of very low short-term interest rates including the possibility of excessive risk-taking”.

(And in a related comment the Oracle at Eccles proclaims with guarded confidence that the fiery ball of yellow gas in the sky may be the sun. -AM)

We're on a mission from POTUS

By RUTH SIMON
WSJ
12/1/09

The Treasury Department announced plans Monday to beef up its foreclosure-prevention effort by pressuring mortgage companies to complete more loan modifications.

But the new initiatives don't address significant shortcomings of the program, which often provides little relief to borrowers who have lost their jobs or who owe far more than their homes are worth.

The program provides financial incentives for mortgage companies and investors to reduce loan payments to affordable levels for financially troubled borrowers. The Treasury said Monday that it would send "SWAT teams" to the largest mortgage servicing companies.

(The sound of one Hand hamping.-AM)

Enemies of the People

Taleb's 'swan song' is understandable ... notoriety has its privileges but anonymity is a lot calmer. The catalyst for justifying his oft-stated desire to retreat Walden-like to poetry and musings is represented by his entry. "Good Bye! The reappointment of Bernanke is too much to bear", but this humble blogger believes recent MSM articles about the rehabilitation of the ratings agencies may have very well tipped his 'anger fits and neck pain' scale to 'ah screw it!'

It is madness that the ratings agencies have not been hoisted onto their own petard by now. The pablum narrative of free speech should not apply to fee speech.

'If they can get you asking the wrong questions, they don't have to worry about the answers.'
- Thomas Pynchon

How apropos Alice. If democracy does contain the seeds of its own undoing, the rating agencies are clearly the roots of the tree masquerading as liberty.

Oh let's vote George Bush out for Barry Dunham ( personal note : I am a fierce social liberal and fiscal conservative) because that will bring about change! Although will admit that it is refreshing to have folks in charge of government agencies that haven't spent their entire adult life fighting against the very rules that they are appointed to supervise, what conclusion should the rational mind draw from an ubiquitous bankster-friendly policy flowing from the opposite side of the political spectrum?

So gosh let's circulate a petition to throw out Timmy G and BSB. For what? The same policies spewed forth by a different glamor girl?

Once upon a time I sat down in front of the agencies. Had an exclusive to place a'third'a billion face of a rather unique asset class. In order to get the buy side to bite of course we needed a rating.

It is not in any way embellishment to state that the work done by the agencies on this deal was so amateurish, so ephemeral, that a high school student with the toolkit of 'opposable thumbs and frontal lobes' could have coaxed Mr. Google into producing a superior report.

Ultimately the squints created a white paper and slicks in my biz waved it around industry conferences as if it were gospel.

Of course the gospel was built on the bell curve and the curve was based on assumptions.

While seers like Taleb and Mandelbrot have shown that it is the flight of an arrow and that reality is the tail risk, the coin flippers have heretofore admitted no more than hey... it's a modified coin flip and our assumptions, which we provided to you in the King's English, why they're free speech babe!

Shame that there isn't a smoking gun.

Waitaminnit ...

by Jesse Eisinger Oct 15 2008
Portfolio Magazine

In December 1997, J.p. Morgan closed on its first big credit-derivatives deal, the Broad Indexed Secured Trust Offering, or Bistro for short. Insurance companies and banks, the initial customers, were enthusiastic, snapping it up in just two weeks. The deal was enormous for the time, off-loading more than $9.7 billion of J.P. Morgan’s exposure. Morgan had succeeded in reducing its balance-sheet risk and was able to free up capital to buy its stock back.

J.P. Morgan would go on to launch a credit- derivatives assembly line, becoming the Henry Ford of the new financial market.

Bistro “was the most sublime piece of financial engineering that was ever developed. It was breathtaking in terms of beauty and elegance,” says Satyajit Das, a risk consultant and the author of Traders, Guns, and Money, a financial history. But “in many ways,” Das adds, “J.P. Morgan created Frankenstein’s monster.”

For J.P. Morgan, Bistro worked wonderfully. But even in that first deal, the weaknesses in structured finance and credit derivatives that would come to the fore in the 2007 credit-market crash were already there.

Despite its blue-chip assets, Bistro didn’t perform pristinely. The initial slice, the equity layer that Morgan retained as a cushion against trouble, was so thin that it couldn’t weather even one default from one of the bigger companies in the bundle. That ultimately happened, wiping the slice out entirely. The investors who were one notch up, in what’s called the mezzanine layer, lost money as well. Even the buyers of the top-rated tranches, which were thought to be rock solid, had to endure bumpy periods before they got their money back.

During that first major deal, the credit-rating agencies, which were supposed to be impartial, were already deeply enmeshed in the give-and-take of the process.

A former Morgan banker who helped create Bistro recalls that Standard & Poor’s was giving the bank a tough time. The rating firm would run the deal through its models, and “each time, it came up with disastrous results. We did some tinkering and all of a sudden, it could rate the deal,” the banker says.

Tinkering!

What an innocuous word for fraud.

Move along nothing to see here.