What’s Wrong With Michael Bloomberg

From here
Excellent interview with Julian Brash, Ph.D., a Brooklyn-born professor of anthropology and urban studies at the University of Toledo in Ohio.
The book is The Bloomberg Way: Class, Ideology, and Urban Development in Contemporary New York City., from Cornell University Press (not yet published)

Some excerpts:

It’s a notion of governance in which the city is run like a corporation. The mayor is the CEO, the businesses are clients, citizens are consumers, and the city itself is a product that’s branded and marketed. And New York is a luxury product.

Sure, they’re saying, we need people around to fight fires and serve sandwiches, but it’s not their city. It’s really a city for the well-off.Bloomberg realizes this vision through a privatized, top-down, outcome-based notion of government.

One, the argument goes: Bloomberg’s an excellent CEO, he’s getting things done, so why shouldn’t he continue? It’s not about making decisions in a democratic way. Democracy doesn’t matter in his model of governance because the CEO makes the decisions.

A lot of mid-level professionals–teachers, academics, urban planners, people in publishing and non-profits, people like you and me, basically–identify with Bloomberg because they identify upward. They are so happy to be living in this shiny, elite city, that the fact they’re amassing thousands of dollars in credit card debt or are desperately house-poor to fit into the New York standard of living escapes them.They’re getting screwed. Eventually, these people will just leave.

Marx said about the peasantry that they are “incapable of enforcing their class interest in their own name.” These professionals are the peasants here. They’re allowing themselves to be led by Bloomberg without a sense of their own class interest. These people are the most deluded of all.

Can’t wait for the book

Uphold NYC Term Limits

Look up your City Council rep here and tell them to vote against repealing term limits for Mayor Bloomberg.

This issue should go before the people in a referendum, not be decided in council chambers.

A Financial Parable

From Jane Wells

Young Chuck moved to Texas and bought a donkey from a farmer for $100.00.
The farmer agreed to deliver the donkey the next day.
The next day he drove up and said, “Sorry son, but I have some bad news – the donkey died.”
Chuck replied, “Well, then just give me my money back.”
The farmer said, “Can’t do that. I went and spent it already.”
Chuck said, “Ok, then, just bring me the dead donkey.”
The farmer asked, “What ya gonna do with him?”
Chuck said, “I’m going to raffle him off.”
The farmer said, “You can’t raffle off a dead donkey!”
Chuck said, “Sure I can. Watch me. I just won’t tell anybody he’s dead.”
A month later the farmer met up with Chuck and asked, “What happened with that dead donkey?”
Chuck said, “I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00.”
The farmer said, “Didn’t any one complain?”
Chuck said, “Just the guy who won. So I gave him his two dollars back.”
Chuck now works for Goldman Sachs.

Crisis of Confidence

Sorry, Jimmy. We should have listened.

We are at a turning point in our history. There are two paths to choose. One is a path I’ve warned about tonight, the path that leads to fragmentation and self-interest. Down that road lies a mistaken idea of freedom, the right to grasp for ourselves some advantage over others. That path would be one of constant conflict between narrow interests ending in chaos and immobility. It is a certain route to failure.

Jimmy Carter, July 15, 1979, The Crisis in Confidence Speech

LIBOR explained

nice explaination.

http://www.bloomberg.com/apps/data?pid=avimage&iid=iSsHtOduiRgo

(sorry for the lack of posts. i have a few in the queue that will look dated when published. sigh.)

But I don’t want to sell at market value!

From the New York Times by James Chanos.

There are plenty of buyers (including me) for “distressed assets,” at the right price. We may reasonably argue if a certain C.D.O. [collateralized debt obligation] is worth 25 or 30 cents on the dollar, but I have no interest when the bank showing me the same paper at 60, could “do the deal” at 55…! The illiquidity is due to the continued overpricing of this paper, not the paper itself.

Let me see if I get this. We’re having a credit liquidity crisis (see this). Banks are claiming they have all these “distressed” assets that keep them from issuing any credit. There are plenty of buyers of these “distressed” assets AT MARKET PRICES. Banks don’t want to sell at market value. Banks ask government to buy “distressed” assets from them AT THE PRICE THEY PAID.

Wow. Can I get the government to buy my worthless stuff at the price I paid? I’ve got tons of old computers just sitting around collecting dust.

Mark To Market

So, I got a margin call on Monday.  Seems to me that I should be able to value some of my stocks at what I think they should be worth, not what the market thinks they’re worth.  Then I wouldn’t get a margin call.  As a matter of fact, I should be able to value my holdings for a lot more, so I can get my leverage up to the $10M – $20M range.

Right?

Smarter minds than me:

A decision was made to bypass the broad, deeply traded traditional markets (Equities, Fixed Income, Commodities and Currency) and instead create new markets for new products. No one should be surprised that the net result was a flawed system of garbage paper, with too little room at the exits in case of emergency.

…

Now that the garbage is on the books, no one wants to admit the original error of purchasing this class of assets. Its not just that the trade has gone bad, its the original buying decision was so flawed even if the trades were not such giant losers.

Recent actions of corporate titans in the financial sector are essentially an admission that their business model was deeply flawed. No one would invest any capital for a ROI of 50 bps per year. They of course knew this — so they leveraged up that 50 bps 35X or so, creating the false appearance of more attractive returns. This higher risk, potentially higher return paper was part of that misleading process.

Suspending FASB 157 amounts to little more than an attempt to hide this broken business model from investors, regulators and the public. Its not just getting through the next few quarters that matters; Rather, its allowing the market place to appropriately reallocate this capital to where it will serve its investors best. That is what free market capitalism is, including Schumpeter’s creative destruction.
Barry L. Ritholtz

 
Mark-to-market accounting should pay a role in valuating volatile financial instruments.  Now that financial institutions have bought financial instruments more volatile than tha buy-and-hold attitude of the old days would have done, ther rules must adjust to present a fair value.

I don’t see any way that lets the markets gain from the suspension of the rules.  The rating agencies will still do calculations of risk based liquidity on financial firms to set ratings.  Here’s a way to test though.  Go back to my old proposal that we have two income statements and two balance sheets.  Let the market see both a fair value and an amortized cost appproach.  If fair value is distorting, then investors will welcome and use the amortized cost figures in their calculations.  More information is better than less, and it is trivial to add back an amortized cost balance sheet and income statement.

For complex balance sheets in volatile times, I know which one that investors will prefer — fair value.  Let the advocates of eliminating fair value explain why reducing information to investors is such a great benefit.  In the end the cash flows will be the same, and maybe it will take a little longer, but the results of bad investment decisions will be revealed, and the same firms will fail — perhaps in yet more ugly ways, as their shenanigans will go on longer, with less to recover for the bondholders, and wiping out the equity entirely.

In the absence of fair value, suscpicion will take the place of information, and companies will still get marked down as failure takes place in fixed income assets classes.  The same things will happen, just in a messier way.  You can’t fight the cash flows arising from bad investment decisions, and too much leverage.
David Merkel

 

Not even going to comment on the SEC statement.

Letter to your Congressperson

>So far this is a draft.
update: go ahead and send it

Dear Congressperson ____________:

 

As I understand it, you voted to (dis)approve the Emergency Economic Stabilization Act of 2008.  While I agree with the sentiment that Congress needs to take action, I disagree with key components of the bill.  I hope that you will agree with my assessment and will be able to convince Congressional leadership to adjust the bill appropriately.

 

Section 101e:  Preventing Unjust Enrichment.

This section states that financial institutions shall not receive unjust enrichment by “preventing the the resale of a troubled asses to the Secretary at a higher price than what the seller paid to purchase the asset.”  This effectively moves the loss of the asset from the financial institution to the government (and, by proxy, to the taxpayer).  As a result, the Treasury will pay far more than the market value of these assets.  This goes against the advice of experienced money managers Warren Buffett and Bill Gross, who, among others, recommend the government pay market prices for these assets. To the average citizen facing foreclosure, the expectation is that the government buy my house at the price I paid, not the price it is worth.

 

Section 111: Executive Compensation and Corporate Governance.

This section only applies to compensation and severance deal that are struck after the bailout.  It does nothing about deals that are already in place.  Simply put, financial institutions will create excessive compensation and severance plans before approaching the government for assistance. As history has shown, any attempt to legislate executive compensation just leads to further exploitation. In 1993, President Clinton limited corporations from deducting more than $1 million salaries for top executives. As a result, it lead to explosion of executive compensation via stock options and bonuses, while reducing taxable compensation.  Executive compensation grew from 100 the average salary in 1993 to 300 times in 2000.

 

Section 132: Suspension of Mark-To-Market Accounting

This grants the SEC the authority to suspend mark to market for financial institutions if they believe it in the public interest. This is completely the wrong position to take. It was the lack of mark to market accounting that lead to this collapse to begin with.  Rather than pricing their financial assets at market value, banks were permitted to, essentially, make up prices for assets on the books.  Then, the banks used these inflated values to make their quarterly and annual results look better, and pay themselves outlandish, “performance based” bonuses.

 

 

Sadly, there are no provisions to do what I will label “common-sense” actions:

1. Force banks to stop paying dividends. Why are they asking for cash from taxpayers when they have enough to pay shareholders.
2. Force banks to write down assets to market value.
3. Have Treasury take stakes in participating banks via preferred stock or preferential bonds. In addition, the Treasury will have senior claim, above all others, to protect the taxpayer investment, in the event of bankruptcy.

 

Sincerely,

 

Your constituents

Freedom!

I wrote this on twitter earlier today. I actually enjoyed it so much, I had to repost it here.

It’s a good thing we didn’t let the terrorists win – they would have ruined our free market capitalist system.

HA!

Political Insanity