From Santa Clara Magazine (Summer 2009), here is Prof. Alexander J. Field's take on the economic crisis. He explains CDOs and credit default swaps particularly well:
CDOs emerged when financial institutions took a pool of mortgages and issued securities derived from them. Originally, mortgage-backed securities simply sold a right to a share of interest and principal payments from the underlying pool. Securitization reduced variance of the bond’s return, but the expected payout couldn’t really be different from that of the underlying mortgages. [Presumably, because the bond's payments were linked to actual mortgage payments.] CDO engineers, however, figured out how to perform the financial alchemy of turning junk into gold: Starting with a pool of risky mortgages, they created different grades, or tranches, of derivative securities...
Even then, some major investors and banks had to have known that the CDOs being issued weren't entirely halal/kosher. They demanded insurance:
Enter credit default swaps. For a small “premium,” institutions could insure themselves against the risk that the bonds might default. Since swaps were not technically insurance, they were beyond the reach of state regulators. American International Group (AIG) and other issuers did not maintain adequate reserves to meet collateral calls when mortgage defaults rose. In a sense, they simply pocketed the premiums without providing the insurance.
Oh, the mendacity.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Monday, June 22, 2009
Sunday, June 21, 2009
Quote of the Day
From the sublime Woody Allen film, Crimes and Misdemeanors:
Comedy is tragedy plus time.
If you like Law & Order, two of its major characters are in this 1989 film. One plays a hitman, and the other a rabbi. Everyone should see this great film, but if you are a Law & Order fan, you really need to see this film.
Comedy is tragedy plus time.
If you like Law & Order, two of its major characters are in this 1989 film. One plays a hitman, and the other a rabbi. Everyone should see this great film, but if you are a Law & Order fan, you really need to see this film.
Saturday, June 20, 2009
Random Thoughts (June 20, 2009)
1. Just read Zakaria's most recent Newsweek article--it was okay, but I loved this quote:
Elihu Root: "About half the practice of a decent lawyer consists in telling would-be clients that they are damned fools and should stop."
2. Iran's government seems confusing at first glance, but it's actually similar to the way American corporations operate. At the top, you have your Board of Directors (Supreme Leaders), who direct the executive officers (Guardian Council). The shareholders speak through their representatives (the President and Parliament), but the real power lies with the Board and the executive officers.
This analogy isn't exact, but the two processes are very similar. The result is similar also: ordinary shareholders--the common citizens--don't have much sway over major corporations--the country--unless they band together and vote as a bloc, which is logistically difficult to do.
3. I wanted to compliment our local courts' filing clerks. I usually deliver documents myself to the courthouse for filing. Except for two people over the last five years, everyone I've dealt with at the filing clerk level has been very professional. That's a great track record, especially because many of the clerks get rotated/transferred every year.
Elihu Root: "About half the practice of a decent lawyer consists in telling would-be clients that they are damned fools and should stop."
2. Iran's government seems confusing at first glance, but it's actually similar to the way American corporations operate. At the top, you have your Board of Directors (Supreme Leaders), who direct the executive officers (Guardian Council). The shareholders speak through their representatives (the President and Parliament), but the real power lies with the Board and the executive officers.
This analogy isn't exact, but the two processes are very similar. The result is similar also: ordinary shareholders--the common citizens--don't have much sway over major corporations--the country--unless they band together and vote as a bloc, which is logistically difficult to do.
3. I wanted to compliment our local courts' filing clerks. I usually deliver documents myself to the courthouse for filing. Except for two people over the last five years, everyone I've dealt with at the filing clerk level has been very professional. That's a great track record, especially because many of the clerks get rotated/transferred every year.
U.K. Crime
Britain's top cops have been caught red-handed:
http://www.guardian.co.uk/politics/2009/jun/14/expenses-fraud-detectives-scotland-yard
Oh, the wickedness.
http://www.guardian.co.uk/politics/2009/jun/14/expenses-fraud-detectives-scotland-yard
Oh, the wickedness.
Friday, June 19, 2009
Note to Rupert Murdoch and the Newspaper Barons
Newspapers must have idiots running their business department. Newspapers price their product in ways that no other retailer would even consider. The current system penalizes long-term subscribers and rewards new ones. For example, the WSJ offers a $119 annual rate to new subscribers and then tries to charge existing customers a $398 renewal rate. That's like Macy's charging its best customers more money for a dress while offering a new, unproven customer a discount. Either give everyone the same price, or offer a discount to the proven subscribers.
If I ran the show, I'd charge a higher initial subscription, say, $200 to $400 a year. Then, each year, the rate would become progressively lower until reaching a minimum of say, $50 a year. However, to get the discounted rate, subscribers would have to agree to disclose some basic personal information useful to advertisers, like gender, age, education, and marital status (not political affiliation or financial information) and to return one advertising survey a year (either online or regular mail). My system would benefit everyone: advertisers, who usually look to target a particular audience, would have better information; newspapers, which are begging for ad dollars, would be able to effectively market to specific advertisers; and subscribers would pay less money for the same product.
Also, newspapers wouldn't have to hire those annoying marketers who call at 9:01AM trying to forcefeed their product to someone who's already received six renewal offers by mail and two by email. Entire telemarketing teams would disappear, as well as the waste that occurs from multiple renewal offers. Newspapers would only have to send one renewal notice with the following message: either subscribe and pay within three weeks, or lose the discounted rate.
Isn't it shocking no one has tried this yet? What am I missing?
If I ran the show, I'd charge a higher initial subscription, say, $200 to $400 a year. Then, each year, the rate would become progressively lower until reaching a minimum of say, $50 a year. However, to get the discounted rate, subscribers would have to agree to disclose some basic personal information useful to advertisers, like gender, age, education, and marital status (not political affiliation or financial information) and to return one advertising survey a year (either online or regular mail). My system would benefit everyone: advertisers, who usually look to target a particular audience, would have better information; newspapers, which are begging for ad dollars, would be able to effectively market to specific advertisers; and subscribers would pay less money for the same product.
Also, newspapers wouldn't have to hire those annoying marketers who call at 9:01AM trying to forcefeed their product to someone who's already received six renewal offers by mail and two by email. Entire telemarketing teams would disappear, as well as the waste that occurs from multiple renewal offers. Newspapers would only have to send one renewal notice with the following message: either subscribe and pay within three weeks, or lose the discounted rate.
Isn't it shocking no one has tried this yet? What am I missing?
Bill Maher Calls Out Pres Obama
Bill Maher on Obama (June 12, 2009, Real Time):
http://www.hbo.com/billmaher/new_rules/20090612.html
And, this is why I don't want my president to be a TV star. Because TV stars are too worried about being popular, and too concerned with getting renewed...speaking of the Republicans, if you can't shove some real reform down their throats now, then when? Folks, Barack Obama needs to start putting it on the line in fights against the banks, the energy companies and the health care industry.
I'm glad Obama is president, but the "audacity of hope" part is over. Right now, I'm hoping for a little more audacity.
Interesting perspective. Obama has already done quite a bit, but it doesn't seem enough for many people. For those people upset with the current pace of reform, remember: slow and steady can win the race.
http://www.hbo.com/billmaher/new_rules/20090612.html
And, this is why I don't want my president to be a TV star. Because TV stars are too worried about being popular, and too concerned with getting renewed...speaking of the Republicans, if you can't shove some real reform down their throats now, then when? Folks, Barack Obama needs to start putting it on the line in fights against the banks, the energy companies and the health care industry.
I'm glad Obama is president, but the "audacity of hope" part is over. Right now, I'm hoping for a little more audacity.
Interesting perspective. Obama has already done quite a bit, but it doesn't seem enough for many people. For those people upset with the current pace of reform, remember: slow and steady can win the race.
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