Disqus - Latest Comments for John M

Re: The Harvard Crimson :: Opinion :: The Bubble Doom

John M — Tue, 23 Sep 2008 12:26:54 -0000

The basic problem is that the US cannot afford the present wars. In fact, that has always been the problem -- Fannie was privatized in 1968 to finance the Vietnam War.

Afghanistan & Iraq were financed by foreign buyers and central banks making huge net purchases of US official debt, but especially of "agencies," which is to say mortgages backed by Fannie & Freddie. The central banks' holdings went from about $50 billion in 2000 to about $950 billion now, but in the last two months they have started to sell these off consistently. We've documented this historic trend reversal using Federal Reserve data at our web site (Housing Doom).

The fleeing of the central banks is what obviously precipitated "The Splurge" (that's what we call Paulson's plan). Other bloggers and reporters have noted that "Section 8" gives the Secretary power to do whatever he pleases with the $700 billion with no judicial oversite. This is clearly a constitutional crisis of historic proportion.

Re: Sub-prime Mess Leads to Global Summit

John M — Sun, 19 Oct 2008 16:13:07 -0000

I have noted today with some surprise that Mike Whitney is very positive about recent developments, especially Gordon Brown's intervention.

I think the present problem began in 1968 / 72 when Presidents Johnson and Nixon first privatized Fannie, then created the quasi-competitor Freddie. Then the key development was the badly constructed accounting rule SFAS 140, that has resulted in the Enronization of nearly the entire financial services industry.

After Nixon closed the gold window on 15 Aug 1971, asset backed paper replaced gold as the underlying money in most of finance. Nobody looked too hard at what was in this "canned" value for many years, but when subprime MBS blew up on, say 20 June 2007, and ABCP completely seized in mid-August of that year, it was just like when the tainted tuna destroyed consumer confidence in StarKist's plant in New Brunswick a generation ago.

The whole money system is now broken, and all the central banks, finance ministries and advanced governments are trying to put things back together again.

Heaven knows what they will come up with (Breton Woods II?) but whatever it is, if it works it will be our world for the rest of our lives. We are about to learn that money is just a social contract, and that central banks are constrained not to break it.

Re: A brilliant and simple guide to how we are being lied to about the meltdown

John M — Tue, 07 Apr 2009 14:42:07 -0000

Haven't yet watched the interview (my bad) but promise to **real soon now**. Meanwhile would like to assert (for the upteenth ...) that what we are experiencing is balance sheet consolidation and the number of the beast is "140," the FASB rule (now being retired) that let company hide risk in off-balance-sheet vehicles like Enron's (and Fannie's) beloved QSPEs. But the biggest off-balance-sheet deal ever was when Johnson privatized Fannie in 1968. At a deep level, what's happening is America taking the expenses of the Vietnam (and subsequent) wars back on its sovereign balance sheet. The markets first collectively heard the rumblings of this on July 7, 2008, and that's why the present phase of the avalanche started on that day.

Looking forward to how close Black gets to this trope.

Re: Looking for a Villain

John M — Wed, 24 Sep 2008 12:53:16 -0000

I suggest you start with Fannie Mae whistle-blower and genuine hero in the piece Roger Barnes:
http://housingdoom.com/2006/07/24/fannie-mae-fr...

In retrospect, the construction of QSPEs during the Tim Howard era might serve as a proxy for a lot of what went wrong, but it's unlikely the FBI would ever find additional wrongdoing there.

The big problem was that FASB's formulation of their Rule 140 for qualifying vehicles for "sales treatment," and therefore going off-balance-sheet, was plastic enough so that greed led to another thousand Enrons. They've admitted enough themselves, deciding to do away with QSPEs altogether. But the prospect of some ludicrous number like $10 trillion of balance sheet consolidation has everyone running around in panic.

Don't forget that what touched off the present avalanche was that on July 7th a (former?) Lehman analyst quietly remarked that said accounting rule change was going to require Fannie and Freddie to raise more capital.
http://housingdoom.com/2008/07/07/crack-of-doom...

Off balance sheet deals yielded juicy profits during the boom but hid huge amounts of risk that weren't generally obvious even to insiders until what I called at the time the "Black Thursday" events of Feb 8, 2007, when HSBC and New Century reported the first significant bad news on subprime from companies of a significant size.
http://housingdoom.com/2007/02/15/black-thursda...

... so to answer the question of who's to blame, it's just a case of the super-accountants at FASB botching the construction of a key risk-management tool.
http://housingdoom.com/2006/08/07/gse-risks-2/

Re: Bailout Bill: The Latest Christmas Tree

John M — Thu, 02 Oct 2008 13:05:59 -0000

Over at our web site we're calling this exercise "Riders to The Splurge" (abject apologies to John Millington Synge, who is blameless in this mess) and our favorite is SEC. 503. EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS DESIGNED FOR USE BY CHILDREN (hat tip Calculated Risk blog), which must be the replacement for the oversight in the old infamous SEC. 8.

Re: Hayman Capital's Kyle Bass Predicts Massive Sovereign Defaults

John M — Fri, 15 May 2009 21:43:30 -0000

Kyle wasn't just ahead of nearly everyone on the problem, days into the credit crisis he was proposing roughly the solution that is being tried now (way too late).
http://housingdoom.com/2007/08/25/k-bass-proposal/

Re: ‘Kelo’ Property Rights Protections gutted from housing bill (revised and corrected)

John M — Mon, 28 Jul 2008 08:56:30 -0000

"... the benefit of private parties, so long [as] the land confication served ..."

Small typo in that sentence.

Re: The Aleynikov Transcript

John M — Wed, 08 Jul 2009 08:14:13 -0000

Fascinating post yesterday on Daily Kos on how the program trading was working. Link on Doom (our blog) with bonus YouTube embed of silly gratuitous old telecom ad.

Re: Citadel Joins The Program Trading Industrial Espionage Fray, Sues Malyshev And Teza

John M — Thu, 09 Jul 2009 20:40:23 -0000

"head of high-frequency trading" -- right. Misha's the living embodiment of the Q-bomb from "The Mouse That Roared." And Ken thinks he owns his knowledge workers' souls like he's living in a Dorsai novel. No way is this going to end well.

Re: Goldman's $4 Billion High Frequency Trading Wildcard

John M — Fri, 17 Jul 2009 15:07:10 -0000

beg indulgence for this slightly OT satire on todays NYT Op-Ed (links in original) that I placed as an update to an old (7/15) post:

"... Now maybe Mikie wrote the whole thing, and maybe he’s sitting on that oyster barge of his fuming at the Old Lady for Joycing up his text; ’specially that header bit.

"But if the next Docker hits the planks is some sweet plea deal where Serge gets a slap-in-the-wrist fine and couple nice vacation months away from the kiddies & diapers, suspendered Damocles-style long as he don’t rock the boat no more,[3] then The Castle here’s gonna suspicion maybe the S.S. Bada Bling got better stuff to do this fall than perform "Disc Loss … Sure!" up against a dozen random piers with some old fed court judge scribing the reviews."

Re: Arizona Republic: Mainstream Media at its Finest.

John M — Wed, 13 Jun 2007 18:18:02 -0000

Greetings from The Dark Side ;-)

I was wondering why there wasn't a more comprehensive selection of blogs, but perhaps a side-by-side comparison of Debi with, say, Greg would not have suited Mr Creno's (and the Republic's) agenda. That being said, Ben Jones' classic bubble blog, often profiled in the mainstream as high up the food chain as Newsweek, is based not far away -- somewhere around Flagstaff, I think.

It's a shame Creno didn't play ball with your viral marketing aspirations, but have patience; I sense a follow-up could be in the offing.

Re: Tories hire Nudge author Thaler

John M — Sun, 11 Oct 2009 20:37:36 -0000

Sunstein, Thaler and fellow behavioral economist Larry Summers go way back at U Chicago, as documented in a fascinating pre-9/11 Thaler puff piece in the NYT Magazine reprinted here.
http://www2.owen.vanderbilt.edu/Mike.Shor/cours...

Sunstein & Thaler present their ideas on a pretty regular basis (including a session on Nudge) at the American Enterprise Institute. I'm beginning to get the impression that America is a one-party system, and Italy won the Second World War ;-)