Review of Michael Lewis' "Boomerang"

Michael Lewis captured many of the elements of the financial crisis and now looming threats to sovereign debt, since nations have decided to socialize the risks taken by reckless banks. His book examines the financial crisis from the viewpoints of Iceland, Ireland, Greece, Germany and the United States. The compelling question he raises is: Left alone in a dark room with a pile of money, what did these people do with it?
While there is a great depth to the reporting and witty writing, there appears to be a lot of missing parts. He didn't look at Asia with Japan's lingering malaise after its bubble burst in the early 1990s or China, the world's second largest economy with an abundance of poor people. However, a lot of eyes are on China to subsidize the folly of relatively affluent Westerners. He also hasn't looked at other emerging markets. In a topsy turvy world, emerging markets are now deemed less risky than many euro-zone nations. His coverage of the U.S. was centered on California, which is a financial basket case. But there is so much more of the story to tell about the financial crisis in the U.S. None of the people who were victims of subprime loan fraud were interviewed. The incomplete feel of the book led to a one star deduction.

Review of "Exile on Wall Street" by Mike Mayo

Securities analyst Mike Mayo recaps his career on Wall Street, where he covered the banking industry. Mayo outlines where the banks went wrong during the course of his career and what his independence and honesty cost him. As someone who was a financial reporter, I found myself nodding along with many of the points he raised in Exile on Wall Street. Executives and corporations will freeze you out if you don't "play along." Analysts who are on the team get rewarded with access and their banks are the ones who get deals. The financial stakes are much higher in that regard compared with the "media relations people" who will freeze out reporters who are too critical.
the book also included a concise history of Citigroup, a company that represents much of what's wrong with banking. It's too powerful, takes a careless approach to risk and it expects the Fed and government to step in when it runs into trouble. TARP is only one of several bailouts it has received over the years.
It is definitely a worthwhile read if you are interested in a behind the scenes look at finance and corporate management. Some of his recommendations and conclusions shouldn't surprise anyone though, since they are sound calls for smarter regulation, more accountability in management and greater transparency among banks.

Michael Lewis (Author of Liar's Poker, Moneyball, The New New Thing, and Panic) offers some conventional wisdom about our culture's obsession with investing. I wish a lot of the bank executives had followed his advice. We'd be a lot richer for it. Some of his advice follows the Warren Buffett adage about investing in only what you understand.

Nationalizing the Banks -- Adopting Sweden's Bailout Plan

Barry Ritholtz says the banking system may need to be nationalized to save it. It would clear the decks and could help depositors. I disagree. Depositors are insured and the banks could also be converted to mutual banks owned by depositors. It would be a modified form of receivership. Nationalizing the big banks introduces politics and the gov't picking winners and losers. Why should Citigroup or Bank of America get rewarded for mismanagement when the local thrift that prudently managed its business does not get help?

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Bailouts: Where's all this cash coming from?

A couple hundred billion here and a couple hundred billion there. What's a few billion between friends? The government is spending hundreds of billions of dollars to sustain banks, AIG and the big mortgage aggregators, Fannie Mae and Freddy Mac. Is it really clear what we're buying as taxpayers? The money's being used to buy "toxic assets" but there is no clarity about what prices we're paying for subprime mortgages or other assets from banks to keep them solvent.
Citigroup's pricetag for a bailout grew by another $20 billion from the original $25 billion. The government also agreed to shoulder another $300 billion in losses from bad assets. How did Citigroup and the government come up with this figure? Do they just pull these numbers out of a hat? As a taxpayer, do I really want to own a business whose mismanagement makes GM look like a beacon of efficiency? Would it make more sense for the government to pay $30 billion to acquire all of Citigroup and close its doors? Taxpayers might be better off given the rising price tag for this mess.

Barry Ritholtz, who writes "The Big Picture" blog and is an investment strategist for Fusion IQ, says the bailout pricetag now exceeds $4.6 trillion. It is more than the combined cost of the Marshall Plan, NASA, the New Deal, the Louisiana Purchase, the Korean and Vietnam Wars, and the Iraq invasion. Bloomberg did some calculations and said the overall package is over $7 trillion. In other words, this is $24,000 for every American. I think the economy would have been a lot better off if The Fed and the Treasury just cut each person the checks. A $96,000 check for my household would eliminate my debts, pay a few years of tuition at a state college for my daughter and still leave enough for me to buy a car (effectively helping Detroit's autoworkers). Is that any less worthwhile than giving it to some poorly managed banks?

Instead, the Federal Reserve and the Treasury are keeping the printing press going and for no certain benefit, for ill defined objectives and for assets that do not have a clear market value. Our economy will be that like a South American banana republic when this is all done. We'll be begging the Chinese to lend our government more money and the dollar won't be worth much of anything. To top it off, President Bush and his Treasury Secretary have been absent in terms of providing leadership during this economic crisis. Could we just accelerate the Obama inauguration and evict Bush from 1600 Pennsylvania Ave?

Trenton's a swamp that needs to be drained

Ballot questions in N.J. are often overlooked when people vote. Most of the time nobody pounds the pavement about them or advertises a point of view on tv (except in California where many things go on the ballot). However, their impact ends up being felt years later when people wonder "How the hell did we get into this mess?" This year, New Jersey had two ballot questions and they were ingeniously unclear. Here's Question 1:

QUESTION
Do you approve the proposed amendment to the State Constitution which
provides that, after this amendment becomes part of the Constitution, a law
enacted thereafter that authorizes State debt created through the sale of bonds
by any autonomous public corporate entity, established either as an
instrumentality of the State or otherwise exercising public and essential
governmental functions, such as an independent State authority, which debt or
liability has a pledge of an annual appropriation as the ways and means to pay
the interest of such debt or liability as it falls due and pay and discharge the
principal of such debt, will be subject to voter approval, unless the payment of the
debt is made subject to appropriations of an independent non-State source of
revenue paid by third persons for the use of the object or work bonded for, or are
from a source of State revenue otherwise required to be appropriated pursuant to
another provision of the Constitution?

Yep, that's what we were able to vote on. Believe it or not, it can impact our states finances, which are a mess from all the debt on its books ($3 billion a year in debt service). The newspapers also didn't have much to say about it either. Therefore, I had to go to the League of Women Voters to get a true interpretation. See page 3 for the implications. Where are the reporters in New Jersey to write about this stuff? Isn't it their role to interpret complex material and improve voter understanding?

Unfortunately, our politicians are not being held accountable either. This is an act of intellectual dishonesty. If our politicians cannot be up front with the public, what good are they. It just leads me to say, Trenton is a swamp that needs to be drained.

Fed Cuts Rates

Econ 502:
If the Fed starts buying treasury bonds to put even more downward pressure on interest rates, we might work our way through this. Also, less cash will be in the fed's hands and more will be in the hands of investors. I'm still expecting a recession, but at least its severity can be kept in check.
The banks still have to work their way through some crappy mortgages on their books and the appetite for risk is probably not there in the near term. With lower interest rates, at least more sound projects and investments (or even home mortgages that make sense) will get bank funding.

By Keith Weir and Daniel Trotta
LONDON/NEW YORK (Reuters) - Central banks around the world cut interest rates in unison on Wednesday in a joint response to the global financial crisis, giving a boost to battered stock markets.

The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in the coordinated response which analysts had been demanding.

U.S. stock index futures leapt on the news and world stock markets trimmed their losses.
Before the rate cut, stock markets across the world had continued their downward spiral amid the worst financial crisis in nearly 80 years and fears of a global recession.

"The fact that we have got them coming across the board suggests that this is the end game," said Peter Dixon, an economist at Commerzbank in London. "Will it help the markets? Questionable in the short term."

The cuts followed days of calls for concerted action by economists and world leaders after repeated attempts by central banks to inject liquidity into world markets failed to halt a crisis of confidence.