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.

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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, 1 Up Over Karl Rove

Voting lines are long.problems/index.html.  Not much news about voter intimidation.  But then this is early voting, not the big day.  Is America ready for the big news that is only 11 days away?  Some people are preparing for the transitions to the next administration.  Some people are already sensing potential presidential candidates for 2012: Hilary Clinton sensed the potential desire of Bloomberg for 2012.

 

Bloomberg got his way to run for the third term of NYC mayor.  Less than two weeks ago, Clinton said Bloomberg’s third term is “disturbing.  Really, it would not have been disturbing if Clinton won the Democrat primary.  It is disturbing because give the kind of difficulties the future administration will face, the next President may end up being a one term president.  For that reason, Bloomberg’s presidential big would be a problem for her.  

 

Given the turn out in the early voting, Democrats already see some success in their new and healthier operating model.  Expanding the base is ideal.  When it goes to the final stage, the operation is about turn out.  Candidates locked up their supporters.  How can they actually get them to the voting precinct? 

 

Obama is experimenting something new: get them early and get them young.  Voting is a habitual product, just like so many other products, such as carbonated drinks or auto insurance.  We already saw how Obama got the young voters.  We are now seeing how to get them early (early to the poll).  

 

This is labor intensive.  Given the labor cost in America is so high, this is an expensive operation.  Expensive enough that Republicans never resorted to it before.  Now, Obama does not only have a good certainty what votes they reached even though the ballots are not counted, but also what votes McCain got.  Obama got a piece of insurance on these votes.  These votes are of course the solid supporters.  He can now have more flexibility to do his offense to McCain.

 

This is the kind of operation that shows to aspiring candidates that non profit groups are important.  Or more to the point, candidates and non profit groups need each other.  This kind of operation is labor intensive only people who got a commitment to a cause would be able to help.  

 

 

 

Will he shift even more to the center?  Will he attack McCain more aggressively?  Or will he simply swamp him hardly in the battleground states, especially the ones that do not allow early voting?

October 24, 2008 Posted by | Current Events, Democrats, election, Election 2008, Electioneering, mccain, obama, Palin, politics, Republican, wordpress-political-blogs | Leave a comment

Powell, What Makes A Good Endorsement?

An endorsement is similar to an advertisement.  The endorser would want to make a difference.  What is the difference to an election? Win or lose.  You can win by 1 vote (W) or by a landside.  They all give you the presidency.  An endorsement that takes a black horse to the main field is a good endorsement.  An endorsement that pushes the last block of voters to tip the scale is a good endorsement.  Anything after it is tipped over is an accessory.  Measuring the impact of an endorsement is to measure the size of votes it affects.  For that reason, you and I probably can save the time, in terms of endorsements.  

 

Analysts give their opinions about what Powell’s endorsement means.  An endorsement can mean a lot of things.  “What is the meaning” is a fun question to ask by media.  It is an interesting content.  It is not an important question to ask.  The good question to ask is: is this endorsement consequential?  is this endorsement relevant?

 

Is Powell’s endorsement a good endorsement?  Did Powell push Obama to the main field to compete against Hilary Clinton?  Oprah did that.  If the race is already tipped over, then this endorsement is an accessory.  Therefore, the impact of Powell’s endorsement is very questionable.  Powell may end up merely making a public statement about his differences with Republicans rather than making an impact to the race, or grabbing a 3 second media attention for no self gratification (I do not believe Powell has that self gratification need), or showing his political misjudgement or miscalculation (not knowing that the race may already be over).  Powell’s endorsement may end up being no more powerful than John Edwards (Edwards endorsed after it was crystal clear that Hilary Clinton was going to lose).

 

Powell may not have had polling results to inform him the value (votes) of his endorsement.  Therefore, he is unable to draw a dividend out of this endorsement effectively.  

 

The only thing that can make such an endorsement into an incentive is to secure a political appointment in the back room.  However, Powell does not need that, even if Powell were to cleanse his past actions.  

 

Is Powell making this endorsement to reach a resolution for himself before the world (repentance is between Powell and God.  No one else can have that privilege to know)?  What is to gain by exposing Powell’s own differences with Republicans?  

October 20, 2008 Posted by | Barack Obama, Current Events, 美國, Democrats, election, Election 2008, Electioneering, John McCain, mccain, obama, Palin, politics, Republican, Sarah Palin, wordpress-political-blogs | 2 Comments

What Is The Price Per Vote To Pass The Bailout Bill?

CNN says more banks are likely to fall.  It seems like that 700B will get plenty of asset to buy.  Now, how much did the additional votes cost to get the bill?

 

Taxpayers For Common Sense compiles a list of 15 pet projects within the bailout bill ().  It would be difficult to determine which provision actually got tucked into the bill to exchange for votes.  However, we can see where the most direct beneficiary of the provisions and see the incentives of the votes, especially the switch votes.  

 

Of the 15 listed there, 10 of them are costed out.  They total price tag is $26,396 M.  

There were 60 switch votes: 58 No-to-Yes, 1 Abstain-to-Yes, 1 No-to-Yes.

 

If you cross out the direct beneficiary of the provisions listed in the website and plus 2 guesses I have for the research provision (301) and racetrack provision (317), then you get the table below:

 

Provision

Cost

Votes

Cost/Vote

States

601

3300

1

3300

OR, ID

301

19000

9

2111

TX, IL, WA

201 Sales Tax Deduction

3300

7

471

TX, FL, WA, WY, NV

325

148

1

148

NY

502

478

7

68

CA

317

100

3

33

MI

211

10

1

10

OR

503

2

1

2

OR

602

9

7

1

OH, PA, KY, VA

504

49

0

 

AK

 

This is a total of $26.4B for 30 votes (some of these votes above are the same votes).  This is a total of $890M/vote.  These 30 votes cover 51% of all swtiched votes.

 

The famous archery provision is provision 503.  That provision, jointly with 211, gave the bailout bill 1 vote.  Together, those 2 provisions cost $12M.  The interesting thing is that the House Representative who district covers the biggest beneficiary company Rose City Archery, which is located Mytle Point of Oregon, voted against the bill twice.  The original House sponsor is actually Representative Kind from WI (Yes twice).  By far, the most cost effective provision is 602 (Transfer to abandoned mine reclamation fund).  $9M for 7 votes, $1.3M per vote. 

 

The most expensive provision is 301, $19B.  I only identified TX, IL, WA.  However, I am sure there are more states which would be benefited because of it.  This one so far got 9 votes (and very likely more). 

 

The most cost ineffective is 601, $3.3B for 1 vote.  It benefits OR and ID.  However, ID completely voted against the bill.  I guess they did not exactly want the money. 

October 7, 2008 Posted by | activism, advocacy, Current Events, Democrats, economics, election, Election 2008, John McCain, mccain, obama, Palin, politics, Regulation, Republican, wordpress-political-blogs | 1 Comment

$700B buys a Wall Street PATRIOT ACT

Warren Buffet has called the credit derivatives the “financial weapons of mass desctruction”.  To combat this financial weapon of mass destruction, Bush administration is getting another Patriot Act with a price tag of $700B.  Pentagon runs about $500B.  Paulson is essentially asking to run the biggest show now.  The best part of this proposal is that Paulson left out the oversight part.  Even McCain is screaming about oversight now.

 

$700B of spending without oversight.  Hm… does it sound like the No-fly list created by PATRIOT Act?

 

Patriot Act was the last option before the Al Qaeda Armageddon.  Paulson now delivers the rescue of last resort (the latest?) before the financial weapon of mass destruction.  A nice parallel.

 

Forbes gives a good article about all the major points of the Paulson proposal here.

http://www.forbes.com/home/2008/09/20/banking-bailout-paulson-biz-wall-cx_lm_0920questions2.html

 

The foreign participant part is just special interest (executive compensation too), no different from any other legislator who wants a dip.  The interesting part is, so far, this plan seems to only focus on bailing the banks and leaves out the individual homeowners.

 

Working off these assets is a huge task.  If this bail out effort has the budget constraint of 700B, then prioritizing the assets itself is highly political, especially during an election year.  

 

The unfortunate part of this story is that he only gets to stage the show, not really running it since he will be leaving office by the time everything is running.  Is this thing going to be cost effective?  Is it going to be worth the money?  Or is it another gig of pork barrel and plum jobs?  Remember how the contractors got nice deals out of the war against terrorism? And somehow quite a good amount of them are friends of Cheney?  Is this the Paulson version now?

Fear is the best friend of politicians.

September 22, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Election 2008, Investment, John McCain, mccain, obama, Palin, politics, Regulation, Republican, Sarah Palin, wordpress-political-blogs | 5 Comments

Why AIG? Why Not Lehman?

Bush administration has been acting already.  We just don’t know if the actions are effective.  Why did the government bail out AIG (NYSE: AIG) and not Lehman (NYSE: LEH)?  And now with US$180B from central banks all over the place, would that not be enough for Lehman?  Why did the market react so well to the AIG bail out news initially and fell flat the following day (449 points)?

 

Lehman’s failure is expected to be well contained within the market.  Federal Reserve considered AIG’s failure to be contagious.  Since asset seller always knows more about the sale than the buyer, Federal Reservemay have advanced knowledge (they must have studied the books and saw it coming.  Else Federal Reserve cannot come up with a number, any number, just enough to be a lifeline.) about AIG’s books and prompted the bail out.  Furthermore, Lehman, Merrill (NYSE:MER) (sold, not bail out), and AIG may give a strong appearance of cascade effect.  Therefore, propping up someone may be necessary to give the signal that Treasury continues to back up the market and will not let a free fall. 

 

Bailing out AIG gave confidence on the day of bail out news release because the market thought “Thank God they bailed out AIG”.  However, the fall on 2008.09.17 is the result of an after thought: “Since AIG is not a primary dealer to the Federal Reserve, its exposure should not be the greatest.  Therefore, if AIG can go down, ….”

 

The not bail out of Lehman is giving some other information. 

 

Is Federal Reservebeing selective about the bail out based on the quality of portfolio rather than the dollar amount required?  After all, Federal Reservebailed AIG, Freddie, Fannie and Bear Stearns and not Lehman.  On top of that, Federal Reserveengineered Countrywide and Merrill sales.  Bear Stearns was just the first time.  By the time Freddie and Fannie got their bailouts, Treasury should have a good experience by then (sadly).  

 

Is Federal Reservebeing selective about the bail out based on the exposure of counter party risks (I doubt this part of AIG’s books is public information.  I can only suspect that LA Times is making a speculation.)?  Is that why Lehman is not saved?  Therefore, “Too Big To Fail” is based not on dollars but counter parties.  Will that encourage other firms to increase its counter party risks in order to secure itself to be bail-able?

 

Federal Reservehas been trying to implement other controls to fix the market.  Is Federal Reservestudying the second wave of controls based on Lehman’s failure?  In this case, it would be very clear that we can expect more failures since the previously implemented controls failed to prevent more meltdowns.

September 18, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Investment, John McCain, mccain, obama, Palin, politics, Republican, Sarah Palin, wordpress-political-blogs | 3 Comments

Where Do Mccain And Obama Want To Go With This?

Lehman was still crying about loss of the Korean (KDC, sold at SEO, not in any of the US exchanges) sale last Friday.  And now, poof, gone!  Merrill is now a subsidiary of Bank of America!  Certainly buying Merrill is a smarter buy when one compares the balance sheets.  However, what about the management cost to make the transition?  What kind of clienteles do they have in common?  Of course, Bank of America may just want to buy the asset portfolio and client list and start cost elimination (layoffs).  However, this event is more than Merrill, more than Merrill and Lehman, more than the whole today’s S&P.  Lehman and Merrill have become a political issue in this election year.  It has been given its own life and it will take to all sorts to directions.  Its political impact will probably exceed Katrina or Ike and Katrina combined.  

 

The non political impacts are obvious: oldest brands in the investment banking world are gone (who will do my next merger deal?); financial consequences are global (where to park my money?); confidence in the America investment banking is immediate; confidence in the financial industry is also weaken (Countrywide, Freddie and Fannie, Merrill, Lehman, AIG.  Anyone left?). 

 

The political impacts are very unpredictable:  Republicans are calling regulation overhaul; Democrats are taking shots at the McCain’s subscribed philosophy.  

 

Are the Republicans are talking about a reform in mortgage underwriting?  Or retail banking? Investment banking? Hedge fund?  Speculative commodity trading?  Or accounting practices so that nothing is off the balance sheet?  Or are the Republicans talking about payday loans?

 

Are the Democrats talking about getting rid of exchanges?  McCain’s POW philosophy (if there is such a thing)?  

 

The candidates are so vague not only because they need to have the flexibility, but also they are clueless of what is going on.  You may laugh.  But that is the dangerous part.  Any piece of the finance industry is now part of a tighter regulation cycle.  This situation is no different than FDR’s power grab. 

 

Mortgage companies were in trouble.  Now, investment banks.  The connection is not “Wall Street” industry.  The connection here is the work flow.  The problem started out from the mortgages, the product.  Next, the buyers of these mortgage investment products.  Bond underwriters and the like are obviously the first one in line to take a hit.  However, the next ones are insurance companies, especially re-insurance companies.  AIG is the best exchange.  UK’s Lloyd is another one.  These companies are no different than multi-line banks: making money out of interest rate spread.  These insurance companies employ similar financial products to make their money.  

 

We may want to think about what kind of creative regulations politicians can think of.  However, the more myopic question is: where does it end?

September 15, 2008 Posted by | banking, Barack Obama, business, Current Events, Democrats, election, Election 2008, John McCain, mccain, Money, obama, opinion, Palin, politics, Republican, Sarah Palin, wordpress-political-blogs | 5 Comments

Bail Out: Fannie/Freddie or McCain?

S&P responded very well on Monday to the bailout news of Fannie Mae and Freddie Mac.  We should also expect more news generated from Bush administration to lift the economy when we move toward November.  Actions taken will be timed to trickle into the economy by late October.  We are now 54 days to November.  If this bailout were aimed to ease the credit market, then this bailout maybe a little late to help McCain.  It may work to lift a little more support, if McCain is lucky.  

 

This response also coincides with the surge of McCain in polls.  Yes, they are clearly unrelated, they got their own different causes as well.  This surge is more related to Palin, of course.  Polls don’t mean much. It is the electoral votes that matter.  if we look at the electoral votes, then we see that Obama has lost 11 electoral since 08.29 (Obama: 228; Mc Palin 185; Toss Up 125).  Obama now has 217 (Mc Palin 189, Toss Up 132).  If there is no toss up, both sides stay the same.  McCain Palin has not earned much but destabilized Obama’s electoral votes.  However, it does seem like Palin has made firm gain. 

 

This bailout is not the kind of solution Paulson has vowed to implement.  Bailout is a patch, not even a fix.  Yes, this is costly, costly enough that it now became an item into next year’s budget.  What is the next step for the federal government?  Is there an exit strategy for this bailout?  Federal government ought not to own these enterprises, although they are Government Sponsored Enterprises.  With such a huge price tag, how can the federal government unload them?  What kind of effect will it then be when the government unloads?

 

The kind of solution Paulson wanted probably meant to make both Fannie Mae and Freddie Mac to have smaller market share so that there will be more competitors in that segment.  However, bailing them out means that option is shut for another one or two presidential administrations.  Subsidizing for political purpose does not mean it is economic for the whole society.  However, bailing them out may mean suffocating all competition in that market.  Fannie Mae and Freddie Mac are now nationalized.  If they continue to monopolize that portion of mortgage market, it may become more and more difficult for the small retail banks to keep their residential mortgage portfolio healthy.  That is another risk Paulson has chosen to take.  So, is this bail out for the health of economy or for presidential election?

September 10, 2008 Posted by | Barack Obama, Current Events, Democrats, election, Election 2008, John McCain, mccain, obama, Palin, politics, Republican, Sarah Palin, wordpress-political-blogs | 2 Comments

Obama vs Palin vs Stock Performance

Since Tuesday, S&P has fallen more than 3%.  Certainly, reasons like retail and job data can point to that direction.  On the other hand, oil is easing as well which should have facilitated a spike.  A political news that may have played a bit is the announcement of Sarah Palin, the presidential contest is finally set since all the tickets are finalized.  On top of that, Palin has little experience may also point south: investors are holding cash to understand what is going on.  

 

People usually compare the presidential candidates.  However, both candidates do not have executive experience this year.  The most executive experience one has among the 4 (which should have been 2) of them has only 2 years.  Investors could be thinking: Can anyone run the show? 

 

It would be interesting to see how much of that 3% can be contributed to Palin.  With the energy Palin accentuates and the media attention she attracts (at least for now), McCain has created an instant celebrity just as well.  The question moves to: how much of that is her and how much of that is manufactured by professionals?  

 

Palin already generated more google searches than Obama (please compare to the media attention Biden against Palin).  If this trend can sustain after the Republican National Convention, then we may end up seeing the presidential race contested by Palin and Obama in the TV box.  

 

In the polling figures, Obama’s lead has been shrinking.  Given an unpopular incumbent, a flash back memory of Katrina, it is a nice surprise that a party convention (namely Republican now) gave McCain a lift in polling.

 

If Palin is really a pit bull, an effective campaigner and a quick study, then this contest between Obama and Palin probably will turn out more interesting than Obama versus Clinton.

September 4, 2008 Posted by | Barack Obama, clinton, Current Events, Democrats, election, Election 2008, Hillary Clinton, John McCain, mccain, obama, Palin, politics, Republican, Sarah Palin, US politics, wordpress-political-blogs | 2 Comments