Power And Dollar

Did Obama Plagiarize Glass And Stegall?

Did Obama’s Volcker’s Rule announcement contribute to the drop of DJ?  Did Obama plagiarize Glass and Stegall?  Pundits all over the place say that is the result of the Volcker’s Rule.  One, Volcker’s Rule alone did not necessitate the fall.  Two, who among these pundits actually read what the White House press release, and not the Bloomberg announcement, is about?  Three, Volcker’s Rule is not “new”.  Volcker’s Rule is actually a re-tro.  Four and finally, what is the implication/impact (theoretical or academic) of Volcker’s Rule?  What can we learn from Geithner’s opposition to this Volcker’s Rule?

Yahoo (of all places) actually hit it right: there are plenty of reasons for DJ to fall.  Realizing the profits from Massachusetts Senator election is quite a good reason already.  In fact, the rise of DJ on Tuesday contradicts the fall of DJ on Thursday: DJ rose because the market expected that having 1 more Republican in the Senate would derail the agenda of Obama.  If investors believed in that, then the investors could not have believed Obama’s Volcker’s Rule would become law.  So, Volcker’s Rule alone did not create the fall.

The White House press release regarding Volcker’s Rule actually gives very little information.  And luck would have it that everything covered by Obama’s 01.21 announcement is already covered by H.R.4173 – Wall Street Reform and Consumer Protection Act of 2009.  Quite possibly, nothing is new. 

Worse, nothing is new: Glass-Steagall Act probably covered everything Volcker’s Rule is about.  Since Volcker’s Rule is not in the legislation form, no comparison can be done.  In fact even Volcker calls it “in the spirit” of Glass-Steagall Act.  It further proves that Obama named it Volcker’s Rule for political purposes: to show he is doing something to punish the bad guys (banks) for the rest of us. 

Preventing banks from having private equity funds, hedge funds et etc do decrease profits of the banks.  However, these funds make up 5% of revenues of Bank of America (NYSE: BAC), Citi (NYSE: C) and the like.  Yes, it does strengthen the point that this rule is for show, especially after the Massachusetts’ loss.  However, Volcker’s insistence on this issue has a point: it takes 5% of their revenue.  However, these banks are using depositors’ money to play these large bets, using FDIC’s insurance to back themselves up, and twisting their risk adjusted return on capital (RAROC).  Here is an example:  How much can $1000 bet if you were to trade on currencies?  Answer: with $1k, you can trade the equivalent of $100k of Japanese yen, British pound, Euro and so on.  If the currency fluctates 1%, the $1k is already gone.  If the market swings more than 1%, the bank has to lose all of its money (the $1k depositors’ money) and more.  So, these banks are misappropriating depositors’ money (which would be illegal in insurance laws), making taxpayers pay for their risk, and presenting themselves before the eyes of investors. 

What it really does is to draw out a lot of hot money from the market: less money will change hands on a daily basis.  That affects all industries.  Investors (institutional espeically) will have to play with real money, if this works.  Retail investors will make up a greater proportion of money in the market than before.  Market will be more difficult to be manipulated than before by a few players.  Will that shrink the whole market? Probably.  However (or hopefully), it will mean everyone will be trading with a saner head since no one will be playing with free money.

January 25, 2010 Posted by | banking, Current Events, Investment, legislation, market, Money, obama, opinion, Palin, politics, Thoughts, trading, US politics, wordpress-political-blogs | 3 Comments

Obama’s Another Banking Show

Taxing on banks is politically convenient since people are angry against the financial crisis.  Thus, it is a populist solution.  Furthermore, a mid-term election is coming up where the incumbent party is expecting to lose seats.  What is interesting about this item is: who will (and will not) get taxed among these banks?  What other options does government actually have to achieve the stated goals?

Community banks will get excluded.  Community bankers are still very influential in the local communities, i.e. they affect a lot of voting behavior in the congressional districts.  The key about this where is the cut-off point for community banks or non-community banks?  There are more than 8,000 banks in the country.  Of those, the top 3 banks take up about one third of the assets, more than $3T altogether.  About 100 banks are over $10B in asset.  If $10B is the cut-off, then we have 100 banks for this tax.  But is it $10B or $1B for a bank to be considered a community bank?  How much room is there?

The government says it wants to not affect consumers and investors.  That is rhetoric.  We all know it will get passed on to consumers AND investors.  It’s just who gets more of it. 

If eliminating fat cat is the goal, are there options?  There are always options.  The only question is: what kind of trade-offs are there?  A company is able to pay huge sum to executives (still employees) is that there are so few companies occupying the market space that investor have no choice but to part the profit to these critical employees.  Making the profit margin among these companies thinner by taxing is only one way to minimize the profit.  The more market oriented approach is to introduce more competitors in the market, for instance,

1)      Enable smaller banks to eat into the market share of the big markets;

2)      Disable banks from entering too many different markets, such as the old law that says a retail/mortgage bank cannot enter investment banking;

3)      Banks cannot perform house trade with depositors’ money.

Are these above new and bright ideas?  No.  These are all recycled ideas America has already tried and ditched or tried in other industries.  The first one is congruent to the anti-trust law.  The second one is Glass-Steagall Act.  The third one is from insurance industry and pension industry.  Obama can achieve the goal without being overly creative.  This creation simply tells us he is on another political show.

January 11, 2010 Posted by | america politics, banking, Barack Obama, 美國, Election 2010, legislation, obama, opinion, politics, Regulation, wordpress-political-blogs | 2 Comments

CNN Advertisement: Time To Buy Republican

The author (John Feehery) of this CNN commentary is a political operative, lobbyist, etc.  He makes his living by using his access to the Republicans.  When Republicans are in disarray, so is his livelihood.  In order to drum up more business, he has to encourage his potential customers to spend money in Republicans.  This article is very consistent in his message about “bottom out”.  He also points out very explicitly that political entrepreneurs will see opportunities. 

He is also very good at organizing his advertisement into 5 bullet points.  These points are also in order to of investment relevance rather than political ideology relevance. 

All his points are very valid.  However, the advertisement taste is a little too obvious.

Since when CNN did distributing ad content in place of news content?

May 7, 2009 Posted by | activism, advocacy, Current Events, Democrats, fundraising, legislation, nonprofits, politics, Republican, US politics, wordpress-political-blogs | Leave a comment

Geithner: What Did You ACTUALLY Say?

http://www.reuters.com/article/newsOne/idUSTRE52O6JP20090325?sp=true

 

Geithner had a hearing, not quite an announcement on future regulation framework.  And you cannot get much out of a hearing.  So, if you were looking for a pdf of details that can help you get a feeling if Citi (NYSE:C) will get more oversight versus Northern Trust (NASDAQ:NTRS) or Union Bank of California, then sorry.

 

This is the best article I can come up with so far: 

http://www.reuters.com/article/newsOne/idUSTRE52O6JP20090325?sp=true

 

This article says merger of regulators is now a lower priority than before.  The consequence for that is the work force continues to be in limbo.  This is not the time to make these regulator employees second guessing where their jobs will be.  The administration would want them to strengthen enforcement.  The impact of this is on banks, not banks regulated by Federal Reserve (largest banks), but OCC and OTS.

 

Another interesting point is about Mark-To-Market.  Is Geithner really thinking about modifying Mark-To-Market?  This will be a plus for the banks that operate in metropolitans since theirs assets more volatile.  

 

Securitization: Congressmen maybe simplifying the problem.  However, that can be one of the fixes.  Just don’t believe that is THE fix.

 

Most of the consumer protections make sense.  However, it looks like one thing is forgotten, unless will be included in the details: education loans got loads of undesirable business practices behind the scene.  This is a good time to take care of that too.

 

Provision standard:  be careful with this one.  Geithner may end up hurting the small banks as well.  The original intent was to decrease systematic risk, i.e. reduce largest banks’ influence and increase the market share of the small ones.

 

Credit rating agency: Geithner may as well talk about appraisal firms.

 

The international settlement part will play well with countries who want more multi-polar settings.

 

It is now becoming a pattern that Geithner / Obama always gives expectation of a “plan” and then end up with a power point presentation.

March 26, 2009 Posted by | banking, Current Events, 美國, economics, Investment, legislation, politics, wordpress-political-blogs | Leave a comment

AIG The Sacrifice: The Reflection Of America’s Political Risk

 

I agree quite a few points of this article in regard to the AIG episode.

 

Of course, nothing is perfect.  I would change a word here:

It will certainly make Mr. Obama’s task much more difficult when he tries to sell the public [my version would be:  investors] on his administration’s ability to manage the rest of the bailout, and when he tries to sell private firms on the public-private partnership that will be needed to make the recovery work.”

 

Obama will have more difficulty to convince investors his future plans work (already stated in the article).  Also, Obama will have more difficulty to get troubled entities to take the bailout.  Look at AIG.  This bailout actually bites! 

 

AIG was politically insensitive.  This story alone will make firms in the future to invest more to mitigate political risk or at least reputation risk (branding), which is not a good news.  

 

In addition, a good portion of the reason for these companies to require a bailout is that their valuation (capitalization) fluctuated so greatly they were literally worthless.  So, some companies may realize taking themselves off the exchange is not a bad idea, at least they can insulate themselves from the volatility.  Is that what we want: fewer choices for mutual fund managers and pension fund managers?  If they have fewer options and social security is running out, then what are to do?

 

Fewer choices on the exchange also means quicker wealth concentration.  Gini coefficient will spike up very quickly.  Is that what Obama wants?

March 20, 2009 Posted by | activism, advocacy, america politics, banking, business, Current Affairs, Current Events, 美國, Democrats, economics, legislation, mccain, obama, opinion, politics, Regulation, Republican, US politics, wordpress-political-blogs | Leave a comment

Veto The Pork? Thought About The Cost Of Business?

Fourteen Senators are calling Obama to veto the budget (until 2009.09).  Will Obama veto?  If these 14 Senators are truly against the pork, they could eliminate the bill themselves.  They would rather say they are against it, rather than calling the President to veto it.  

 

Polosi says it is less than 1% of the bill.  If CNN’s $8B figure is correct for this $410B bill is correct, then it amounts to 2% (1.95%, if you really want 2 more decimals).  

 

Let’s check back on the bailout bill.  $787B.  How much was the pork there?  According to Republicans, it was 19.05B.  That would make it 2% again (2.42%, 2 more decimals). 

 

From 2.42% to 1.95%, that is 1/5 reduction!  Do you have to pay your real estate agent for commission?  Is this the commission for legislators?  Cheaper than our real estate agent!  The only problem is that if it were an annual ritual, then this is pretty expensive.  

 

Are these 14 Senators going to go through the process to vote against the $410B?  Maybe they did not get their proper share in that bill!

March 5, 2009 Posted by | activism, advocacy, Barack Obama, Current Events, 美國, Democrats, legislation, obama, opinion, politics, Republican, wordpress-political-blogs | Leave a comment

Gimmick? What Difference Does It Make?

Obama did not actually ask for pay limit.  Obama pretty much asks for pay through options: exercise to sell the stocks when you pay back the money to the government.  Obama also asks for more say for the shareholders.  Some will say such an ask is ridiculous.  Some will say if you want the money this badly, then this is the price to pay.  

 

Obama will likely get his way, not because of media bias, but because he is likely to get the votes for this one.  

 

Ideologies aside, what is really at stake?  This proves American economy is increasingly political.  Very soon, America will have a government with hands so full in the operations of the economy that it is not too different from China or India.  

 

Pay limit takes the headline.  However, if you read the content, the other point is the more important one: “bank shareholders will have a greater say about the salaries paid to company heads.  The measures will put in place greater transparency for costs such as holiday parties and office renovations.”  This actually follows the same concept of SOX. 

 

Obama is actually addressing quite a few things here.  

 

In large corporations, small shareholders never get a say.  The big shareholders usually end up being mutual fund companies.  Mutual fund companies tend to be silent partners.  So, they do not say much.  In fact, they do not even want a seat on the board.  Boards are still running the way it used to be 50 years ago, 100 years, old boys club.  However, the number of shareholders these days is: way too many.  However, 100 years ago, a large corporation did not have hundreds of thousands of shareholders.  These days, if you count the mutual fund holders, you easily have millions of shareholders.  Large shareholders get ways to take care of themselves, preferred shares or even board compensations for the lucky dozen.  The theme of transparency in this issue is actually consistent to one of his campaign messages.

 

Annual reports are informative.  For a large publicly traded company, say 100 million operating budget or 1000+ employees, tucking in ridiculous expenses on executives is too easy.  Even though SOX asks for any small thing that is “material”, what is half a million to a 100 million?  Obama essentially is having one stepping further: SOX is about relative to the nature and complexity of the business, let’s have it relative to ordinary people.  

 

Impact on economy?  For people who have >500k, do they spend all the money and let the money circulate in the economy and create jobs?  No, they tuck half of it in their 401k anyway.  In a way, Obama is actually tying up all their 401ks into their own company’s stocks.  Now, since these executives will have no diversification of the assets, they now have complete vested interests in the survival of the company.

 

So, political gimmick or not, this move actually does make a difference. 

February 4, 2009 Posted by | activism, advocacy, banking, Barack Obama, business, Current Events, 美國, Democrats, economics, legislation, obama, politics, wordpress-political-blogs | Leave a comment

How Long Can You Wait For A GM Bailout?

GM (NYSE: GM), Chrsyler and Ford (NYSE: F) are asking for a nagging for an auto industry bailout.  This is what should have been expected once the $700B bailout flood gate is open.  After the auto industry will be the steel industry, the building industry.  If you bailed one, you need to bail all. 

 

Obama said the auto industry is important.  That may be an electoral language.  It may be too early to tell if he will deliver or break the promise.  However, one thing is certain: he should focus more on transition than governing.  For that reason, he is likely to remain mute on this issue.  

 

What about Bush?  Bush already said he will not bail out.  Some think Bush is using that to bait Senate to rectify trade treaties.  It is more likely Bush is being a prudent and a responsible out going president – do nothing.  This is best described by Treasury Secretary Paulson’s article on NYTimes.  During a transition period, the stunt show could have been to advocate for McCain (“who else can steer us through this mess?” Not that it worked).  Once the election is (or was) out of the equation, the job (Paulson’s job) is make sure the ammunition is available for Obama and hope that Paulson does (did) not have to use the ammunition or use all the ammunition.  Here is why: Paulson’s reputation will be the first for crucifixion under the Obama administration when Obama is up for a recovery failure.   The best Paulson can offer is to recommend the best talent he can find.  

 

The starting point to any bailout is the House.  Will House give the money?  Even if Pelosi wants it, she is unlikely to get the ammunition to push it through, given the controversy of the $700B and the margin that vote had.  Suppose it passes, it does not have enough votes to override Bush.  

 

Will Obama ask for it?  Who will take credit for the bailout?  Or the blame?  Who will have to be accountable to the execution of the bailout, if the money actually goes through?  Obama administration or Bush administration?  Obama wants no ambiguity.  Bush is unlikely to want to create another potential mess for a Democrat to manipulate against him.  The $700B stunt show is already enough for both Bush and Obama.  

 

So, the story is then: forget about trading auto stocks based on political news or even the hearing.  No matter how appeal the hearing will turn out to be, the earliest possible actionable news is after Obama’s cabinet becomes clear, if not after inauguration.  

November 19, 2008 Posted by | Barack Obama, business, Current Events, Democrats, economics, Investment, legislation, Money, obama, politics, Republican, stock, wordpress-political-blogs | 1 Comment

What about the bank insolvencies?

No, not a bank insolvency but bank insolvencies.  It is not just Indymac, but also Freddie and Fannie.  

 

Taking over will also create more national debt, by 1/3.  This will make USD fall even further; gas goes higher; imports more expensive.  Euro is getting lower.  TSE is also falling.  This latest hit in the US may start a domino effect (finally) of global correction.

 

It is likely 2009 will see more government involvement, possibly through tax dollars.

 

With the collapse of Indymac, this may make the legislature get into the speed of passing the appropriate housing bill.  The sign is that house republicans are likely to pass anything democrats ask for to save their seats, although bush wants to have advantages for banks and investors, rather than retail consumers and mortgagors.  However, the house democrats may want to drag it longer for the presidential election. 

 

Frank-Dodd bill is looking at a higher likelihood of passage into law. The bill would provide a federal guarantee for refinanced mortgages where the principal had been written down below the value of the underlying property.

 

If the question is if there will be mortgage relief bill, then the answer rests with House Speaker Nancy Pelosi.  The only way to see that a good bill passed ASAP is the house democrats see the urgency of showing their homework to voters.  News on Monday is that Pelosi wants to get this done.  If indeed the case, then this should be done in weeks.  This cannot get drawn into the election.  Else, this legislation will get too much volatility into the race, and thus more tubulence int he market as well.  The draw will be the effect on the next administration.  Which fix will be considered handicapping the next President?  Is the neighbourhood item too fiscally expensive for a Republican president?  Or too “Democratic” to provoke more right wing votes?  Will the item of bank’s consent to write down as too Republican?  It will become too difficult for any candidate to get a grip on this issue. 

 

Where should money go? 

Consumer is down.  Financials are also down.  Manufacturers are getting beaten up by Chinese manufacturers who are also closing down due to the down turn in the US.  That leads back to the necessities: commodities. 

 

If the question is if the economy will get over soon, then the answer is the same as stated before in this blog, not yet.  Will more banks close?  Treasury does not want to bail any one any more.  He would rather see insolvencies than bail.  His famous line is going to be this one: “For market discipline to effectively constrain risk, financial institutions must be allowed to fail.”  Well, read his press release hereThere are many reasons banks will close, but there will be very few reasons this year, since the government regulator is unlikely to force more closures by anything other than insolvency.

July 14, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Election 2008, John McCain, legislation, mccain, obama, politics, Republican, stock, US politics | 2 Comments

Senate Banking Cmt: Mortgage Bill on Thursday

Senate Banking Committee Chairman Chris Dodd (D-Conn.) yesterday said that his panel on Thursday will consider a draft housing bill that would allow the Federal Housing Administration to insure up to $300 billion in refinanced mortgages, and create a new regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Under the legislation, lenders would, among other things, volunteer to substantially reduce the amount of the original mortgage note. In exchange, the FHA would insure a new loan at a 30-year fixed rate that the borrower could afford. The House last week passed a housing package with some similar measures.

This is not the version of Treasury Secretary Henry Paulson. 

This plan is more consumer-centric than that of Henry Paulson, although improvements can still be made.  For instance, the mortgage write-down has to be initiated by the lender in this version.  For that reason, the lenders have the strongest incentive to unload the riskiest mortgages first.  However, the riskiest mortgages may not be the neediest. 

This riskiness may be perceived as loan by asset.  The lender may also see that as mortgage payment by burrower’s income.  However, the most desperate burrowers usually would see the need as payment by income.

Burrower’s consent is not needed.  The house has to be owner occupied.  The gov’t will also own part of the house’s equity (proceed upon sale).

Bush has threatened veto this legislation.

 

The text can be found in the Banking panel of the Senate website.

May 13, 2008 Posted by | banking, business, Current Events, economics, Investment, law, legislation, market, Money, politics, Regulation, wordpress-political-blogs | 1 Comment