From Black Friday to Derivatives Saturday
Back in the crash of '08, clueless underlings such as myself suddenly were made aware of a mysterious component of our financial system called "derivatives."
What is a derivative? you may ask. Funny you should ask. I didn't know either, and I still don't. Although I have been trying to figure it out for seven years now, every time I think I know what a derivative is, I encounter acronymic terminology such as MBS, CDO, CDS or SEC.
These slimmed-down nomenclatures should simplify things, but they do, in fact simplify nothing. Although everybody knows SEC stands for Southeastern Conference, which is the football conference where the best American football is played, and where my alma mater LSU exercises its right to excel in athletics, except when teams like Alabama or Florida are on the field.
But I digress. I was explaining to you what a derivative is and I mentioned some of the simplifying terminology.
For instance, as alluded to above: MBS.
Well some well-positioned bloggists of the worldwideweb identify an MBS as a Masters of Bullsh*t, which is attained through much blood sweat and tears and dedicated gamesmanship acquired at a venerable institution, such as Barnwell University or Cayman College. The MBS is attained through years and years of shoveling potentially useful data into HFT, which produces a yield from which its index is derived, and lucrative assets which are then deposited into accounts on behalf of the bullish denizens of WallStreet. These rich deposits build up the notional value of our economy as a hole, thus enriching all of us, not only those who are forever horsing around on Wall Street, but also you and me and all the folks on Main Street, Easy Street and Ventnor Avenue.
Somebody has to do it. I don't mind doing my part, working with a shovel. Keeps me in shape.
Anyway, that's not the MBS of which I spake. I'm talking about Mortgage Backed Securities. I think Uncle Freddie Mac and Aunt Fannie Mae gave these instruments as gifts back during the holidays of 2007, when life was oh simple then, before time had rewritten every line.
My understanding of a Mortgage Backed Security is that they're something like an Arkansas RazorBack, which is probably why they didn't work out so well for investors, although Arkansas is ranked third in the SEC west, behind Florida and--excuse my language--Ole Miss.
After that is my LSU Tigers, presently in fourth place of SEC west, but as always and forever will be, bound for greatness.
It's quite complex to describe just how LSU could be in fourth place, because its position in the rankings is derived from the ratio of victories to losses, divided by the number of footballs passed beneath the legs of a center when he hikes the ball to the quarterback during any given play of the game.
Nevertheless, as I was saying before, a derivative is derived from the outcome, that is to say the, rear-end of a complex financial instrument.
Now I'm sure you're wondering, as any serious investor is wondering, about the real question here, which is: how much is it worth?
One thing that my research has revealed, and one thing I can tell you with surety is this: The value of any particular derivative is derived from fluctuations in the value of the underlying asset.
Here's an example: how much is my ticket to this season's Sugar Bowl worth? Well, at this point it's an open question, but let's just say this: I'll give you my ticket to the Sugar Bowl for your two tickets to the Orange Bowl.
Meanwhile, back at the ranch (Texas Aggies be forewarned), the guys who are shoveling out in the barn are asking what's the real value of these derivatives. And as I explained before, you remember that the value of any particular derivative is derived from fluctuations in the value of the underlying ass-set. That should come out plain enough.
As for the collective value of all the derivatives, this figure is derived from its notional value, which is calculated based on the notion, as defined by the US Treasury, the Fed, the NYSE, and the AP sportswriters, that whatever goes around comes around, so therefore if the value of the aforesaid derivatives passes through enough piles of assets then when it comes out the other end nobody really knows what its worth, so that it can be revalued at the going rate.
This is unpredictable, of course, as the LTCM affair had indicated back in the Glass-Steagall days, but it is bound to be worth, somehow somewhere when you least expect it, more than it was in January of 2009. So that's progress, although the Progressives may not agree with me. I don't pay much attention to all those freaks on the fringe anyway.
And you understand, of course, that all this has taken place after Cronkite passed from the scene. Before that, it was pretty much everybody working together in America toward the same values and goals. But that was then and this is now. Derivatives happens.
I'm glad I could clear this up for you. As for the Sugar Bowl and the Orange Bowl, may the best team win, as it frequently does, but sometimes not.
Glass Chimera
Labels: Alabama, assets, bullsh*t, CDO, CDS, Crash of '08, derivatives, Florida, football, HFT, humor, LSU, MBS, Mortgage backed Securities, notional value, satire, SEC, SEC football, Texas Aggies, Wall Street
What Friday sloucheth toward us?
Wide open spaces
sprawling out on suburban places
with auto-power its enabling basis:
that's the fossil fuel game
that climate-bangers insist we blame
for dragging earth into carbon-cluded shame.
The dead, recycled dinosaur
now pumped up from some ancient shore
soon supplies yon stripmall store
with miles of aisles of essential stuff--
piles of styles that are more than enough
to transform this world to soft, from what was rough.
So far we've come from them rugged days
when grampa's calloused hands found ways
to plow the prairies, while cattle graze.
And yet, somewhere in the world today
a farmer still drives the beast; he plows all day.
But here, strewn-out drivers glide away
from the greening world as once we knew it.
This fair and fertile land--we now eschew it;
now we transform it, as in olden days we grew it.
Yea, our trend-setting, charged-up superstore
that drives consumption from shore to shore--
so soon replays the dinosaur.
Labels: beast, consumption, dinosaur, fossil fuels, poem, poetry, suburban sprawl, superstores
Through the kindling glass: Uncle Ben in '08
History is fascinating when you get into it.
Today I'm remembering the fall of 2008--that perilous time when the financial crash was pummeling down all around us. The reason I'm remembering this is: I'm reading on kindle Ben Bernanke's book Courage to Act:
http://www.amazon.com/The-Courage-Act-Memoir-Aftermath-ebook/dp/B00TIZFP0I
So I'm remembering.
My day job during that time was working with students at a local elementary school. The workday began every morning at 8 a.m. I have vivid memories of sitting in my old Subaru wagon in the school parking lot each morning, catching the latest financial news before going inside to punch in. I'd be sitting in the car during the last ten minutes of the 7 o'clock hour while listening to Marketplace Morning on NPR.
Not that I had any real money or assets to work with, mind you, just a little nest-egg house that wife and I had just about paid for, and a little spare change we had after the three young'uns had finished college, etc. just like most folks our age.
But here's why the memory of those news reports clings to my unfettered mind so tenaciously. Those fateful September days of seven years ago released megalithic destructive financial forces of mayhem and immense complexity that changed forever the economic world as we kno(e)w it. Perilous WallStreet cluster-fuds suddenly opened a flood of financial and fiscal confusion unprecedented in the history of the world. The only thing that compares to it would be the crash of '29, but of course that was then and this was now.
In Uncle Ben's book, Courage to Act, through which he strives to shine a light of transparency into the workings of the Fed and its relationship to the financial powers that be, he explains, in chapter 12, the demise of one particular entity (the AIG insurance conglomerate) that fell during that month's frantic rearrangement of dominoes. He describes the problem this way:
"AIG FP's risk was compounded by the difficulty in valuing its highly complex position, in part because the securities that the company was insuring were so complex and hard to value."
This universal fragility about value (or sudden loss of value) of toxic assets would be something akin to a global computer-virus, but in the financial world. Nobody knew how, when, or where, the infection of overnight falling asinine asset prices could obliterate the richness of previously fat portfolios. It was like Ebola on WallStreet.
During that third week of September of 2008, the bankruptcy of investment bank Lehman Bros, and then the unraveling of worldwide cluster-fudded AIG, damn near brought the whole house of WallStreet et al etc cards of down.
I guess US Treasurer Hank Paulson and a few other arm-twisting high-flyers later put the fear of dog into Congress and into whomever else was in charge of this country at the time, so that the gov-softened crash landing of worldwide money tranches wasn't nearly as bad as when something like that happened in '29 and the whole dam American economy fell apart.
As I told you before, I was just a detached observer at the time, September 15 2008, a regular guy with no skin in the game trying to figure out what the hell was going as I heard about events on the car radio.
Now reading Uncle Ben's memoir, I see a little more clearly what was going on behind the scenes. I guess his transparency mission is being realized; at least it is on me.
I see the light. I think I understand. Fear, as Joni Mitchell once sang, is like a wilderland.
Fear is a big part of this whole things fall apart deal that we see in life sometimes.
In the case of the investment banks and Wall Street and all that derivative-induced shenanigans that came unwounded in fall of '08, it was fear of losing value on a massive scale, fear of diminishing assets on a global scale, and hence fear of metastasizing money-loss on a megadential scale.
But hey, there are worse fears in life. . .fear of dying?
Speaking of death, we could say that old folks are generally closer to it than young ones. But the fear of death can be, I feel, softened somewhat by the sense that one has lived a fulfilling life, or maybe an adventurous life, or perhaps a prosperous life, whatever attribute of the good life floats your boat.
Here's something Uncle Ben wrote in his memoir about the old-timers on Wall Street during that fateful fall of '08:
"For Wall Street old-timers, the events of the (Lehman weekend) weekend would evoke some nostalgia. Two iconic Wall Street firms that had survived world wars and depressions, Lehman (Bros.) and Merrill (Lynch), had disappeared in a weekend. I felt no nostalgia at all. I knew that the risks the two firms had taken had endangered not only the companies but the global economy with unknowable consequences."
Unknowable consequences. That's what you get when a bunch of old (or young) wise guys play fast and loose with a world-class pile of other people's money.
But hey, that was then and this is now; it could never happen again.
At least not the same way.
Labels: 2008, AIG, assets, Ben Bernanke, Courage to Act, derivatives, fear, financial crisis of '08, Lehman Brothers, loss of value, remembering the fall of 2008, September 15 2008, toxic assets, Wall Street
Here come da sword to separate
When our rebellious 20th-century soul
slit its wrist with a broken existentialist bowl,
our severed spirit was cast out to wander
in a rational world cut a-sunder.
Then while the brotherhood of man
was striving to put us together again
along came the jihadi with sharpened sword
moving swift, like a terrorist horde,
calling for righteousness, the Muslimic version,
and it brought forth a jihadi incursion.
Now Western decadence and license is no defense,
even if our license permits us to sit on the fence,
against the marauding jihadi whose scimitar is red
with so much collateral blood being shed.
The Word of God is sharper than any two-edged sword,
and while battalions of man-made righteousness move toward
a world that's torn up with terror and strife,
I'm still staking my claim on eternal life,
Christian version,
with a Spirit incursion.
That's my story and I'm stickin' to it;
'cause Jesus' resurrection is more convincing than anyone else can do it.
My faith will outlive any worldly disgrace
that could possibly o'ertake us as we run this race.
Glass half-Full
Labels: brotherhood of man, decadence, existentialist, incursion, jihad, poem, poetry, rebellious, resurrection, righteousness, sword, terrorist, two-edged sword, Word of God
52 Pickup
Strange things happen in this world, but you never know what's pre-planned and what's the luck of the draw.
52 years ago, the government of Vietnam was overthrown when President Ngo Dinh Diem was deposed in a coup led by his own military leaders. The next day, November 2, Diem was shot dead.
Three weeks later, American President Kennedy was assassinated on November 22. Two days after that, the alleged assassin, Lee Harvey Oswald was shot dead while in official custody.
I was twelve years old at the time.
Strange string of events, it seemed to us. Mystery still surrounds. Some things we'll never know.
After Kennedy was gone, Lyndon Johnson became President. Johnson was a good man; among many other notable accomplishments, he shepherded the Civil Rights Act of 1964 through Congress, as he knew it had been an important component of his slain predecessor's would-have-been legacy. Lyndon was very good at getting things done, and so he came through, as Chief Executive instead of President of the Senate, to get that historic legislation manifested as the law of the land.
LBJ was a Texan. He walked tall like a Texan because he was a Texan. Lyndon's leadership style had originated within his humble beginnings; he was a man who knew the nuts and bolts of what makes America work. He knew how to get things done; was a wheeler dealer politician who pulled himself up by the bootstraps. As fate and his own fortitude would have it, he was in the right place at the right time in 1960 when the Democrats selected him to take the VP slot on Kennedy's ticket.
And so, three years later on that fateful night of November 22, 1963, while the nation was in shock, he was in the right place at a bad time, to receive, in the whirlwind of a tragedy, the awesome mantle of national--yeah I say unto thee-- even world, leadership.
But good ole Lyndon was in a very difficult place at that right time. While we were weeping, reeling from the thought of Jackie dressed in pink climbing on the back of that convertible to get away, or to assist the Secret Service guy while she reached over what was left of her husbands head…
while all that was fresh in our minds, this big man Lyndon Baines Johnson took an oath while winging through the atmosphere at 35,000 feet, and the nation heard of it, and he landed a few hours later in Washington. Even before he stepped off that plane Lyndon was in charge.
Like it or not, there he was.
There we were.
And while we loved Lyndon, prayed for him, looked askance at him, we hated, absolutely hated the circumstances that had slammed him into that perilous Office, and had thrusted him into the fragile pinnacle of leading--not just the Senate or the Congress--but the whole damn United States of America in the days to come.
In the days that followed, he proved to be a strong President. I mean, after all, he was a strong man with a forceful, arm-twisting leadership style.
A couple of years passed. In some ways, our nation settled down a bit after the trauma of Kennedy's assassination; in other ways, we didn't settle down at all, because a lot of circumstances were raveling at the time. One of them was the war in Vietnam. By 1965, after consulting, as Kennedy had done before him, multiple voices of military and diplomatic leadership, LBJ decided to escalate the war.
It was no simple situation over there. The South Vietnamese could not stop the onslaught of Viet Cong and North Vietnamese insurgents, and it's questionable whether they really had the gumption to do it.
The tall Texan was not about to allow to the USA to withdraw from such a thing as that. Many of his advisors, even McNamara, indicated that maybe the whole damn thing was, as Cronkite said, a stalemate. But LBJ plunged us in deeper.
Then in 1968 LBJ, strongman that he was, decided not to run for re-election. He could have, perhaps, devised a plan, before retiring, for this nation to extricate from Vietnam, but he chose not to do so. Not on his watch.
When Nixon got in the White House in 1969, he could have saved us a lot of grief and death if he had wound the war down at that time. Instead, he escalated it with intention of obtaining peace with honor. Another Not on my watch scenario.
He should have just gotten us out of there. A few years later, Nixon was history too; by '73 we were officially out of there, and by '75 we were really out of Vietnam.
52 pickup; here's another card I chanced to pick up today:
64 years ago, the King of Jordan, Abdullah I ibn al-Hussein was assassinated while attending prayers at the Al Aqsa Mosque in Jerusalem.
Not that it means anything here, but this writer was one week old at the time.
King Abdullah had sought to be a peacemaker. He was one of the few Arab leaders who had been willing to negotiate with the Israelis in 1947-48 when Israel was establishing its independence and identity as a nation.
July 20, 1951, a Palestinian named Mustafa Ashi shot Abdullah dead after Friday prayers. Ten alleged conspirators were later prosecuted in Jordan. According to Wikipedia, the prosecutor alleged that one conspirator, Colonel Abdullah el-Tell, ex-Military Governor of Jerusalem, had given instructions "that the killer, made to act alone, be slain at once thereafter to shield the instigators of the crime."
Strange string of events, it seemed to us. Mystery still surrounds. Some things we'll never know. Strange things happen in this world, but you never know what's pre-planned and what's the (bad) luck of the draw. Makes you wonder what woulda, coulda, shoulda happen.
No point in that, really. Life goes on. It is what it is.
Boomer's Choice
Labels: Abdullah, Al Aqsa, assassination, conspiracy, history, Jerusalem, JFK, LBJ, luck of the draw, mystery, Nixon, President Johnson, President Kennedy, Vietnam, Vietnam War
Bare Bach, Vivid Vivaldi
Summer's done and leaves are gone:
branches bare, and death's begun
to take its toll on the living one
whose active hands are not yet done.
Sound, summoned from somewhere deep inside,
strikes from string an imaginary ride
upon vibrations far and wide.
Here is life, and death must hide.
https://www.youtube.com/watch?v=5bVRTtcWmXI
While bare branches inspire a sparse domain
'twixt Bach and Perlman's music without name,
some strenuous feat is being strewn upon a stringy frame
as spider spins his precious game.
Bare-branched strains give way to woven strands
so, through ages, some vivid virtuoso stands
to spin a web of Stradivarius demands;
Vivaldi's winter surrounds Samuelsen's hands.
https://www.youtube.com/watch?v=9KxzuY0fJ-s
Labels: Bach, bare branches, life and death, Mari Samuelsen, Music, Perlman, poem, poetry, spider, Stradivarius, strings, violin, Vivaldi, web, winter
Bankers, Banksters, Bernanke, Black and Beethoven
How's a fellow to make sense of it all? Who you gonna call? Who you gonna believe? What's the world coming to? What's it to ya? and Who's in charge here?
I've been trying to figure out a few things about our financial system.
About a week ago I loaded Ben Bernanke's book, Courage to Act, and have been reading what the former Chairman of the Federal Reserve has to say about those events of 2007-8 that brought this country to its money-grubbing knees.
Now about a quarter of the way through Bernanke's explanation of things, I must say I like the guy. He has a personal mission to bring more transparency to that enigmatic institution known to us as the Federal Reserve. I think he really wants regular folks to understand our financial system and the function of the central bank which, having been founded by Congress in 1913, tries to keep a rein on the nation's banking system so it doesn't become a runaway horse.
Nevertheless, the System did morph into a kind of bucking bronco back in the fall of 2008. The crash and crisis of that time may have seemed quite sudden to many of us, but in fact the collapse of Wall Street et al during September-October of that year was the culmination of a bunch of misadventures and misdeeds that had begun a year or two or more before it all came crashing down.
I vividly remember, during that time seven years ago, sitting in my car in a parking lot, a few minutes before 8 am when I would enter my day-job, and hearing on the car-radio with dread or fascination about the demise of such formerly venerable institutions as Lehman Brothers, Washington Mutual, Bank of America, Wachovia, Countrywide, Golden West, AIG, Fannie, Freddie, even General Motors, and then about how Hank Paulson and Wall Street and the Fed, Bernanke and the President and Congress would deal with the degenerating situation by instituting TARP which was rejected by our Representatives and Senators before it was passed and implemented a week later after Hank and Larry and Tim put the fear of god in the legislators' minds or whatever it was they told them to convince them that they should loan the distressed banks $767 billion so the whole dam bailiwick wouldn't fall apart and drag us into another Depression, or so they said.
The world was changing. Have you ever watched the world changing? It is an awesome thing, to see history being made.
What a time a time oh what a time it was. . . a time of innocence (lost), a time of confidences (lost forever), as Paul Simon once sang. Oh what a time it was. Eventually the dust settled and the country lapsed back into normalcy or something like it but not really.
Things were different after that. You know what I'm talking about. . . the Great Recession, everybody and their brother deleveraging, budgets tightening, layoffs and downsizing, fading into perpetual "jobless recovery" with wage deflation, rising unemployment, then descending unemployment but with more part-timing and less money. . . stock-crunchers and media fixated on monthly numbers from the Fed, the gov, BLS, etc, a languid economy generating fewer jobs, then a few more jobs, then leveling out and stabilizing and lapsing into destagulation and blah blah blah. . .
And it was about that time, or actually a year of three later by n' by, that the Occupy Wall Street crowd came along.
My wife and I visited our son in Seattle during fall or early winter of 2011. I woke up one morning and strolled down Pike Street. I stopped at the Westlake Center and entered a Starbucks where I settled in for a while. I was observing through the large glass storefront, the Occupiers who had gathered across the street in Westlake Park.
After a while I noticed among all those protesters, many of whom were carrying signs (mostly say hooray for our side) . .here comes an especially noticeable fellow with a sign. He was tall, scruffy, with a long beard. He looked like the classic cartoon image of the street-corner doomsday prophet, and his sign said:
"Jail for Banksters"
Well that's interesting.
Now, yesterday, November 7 2015, I recalled having seen that fellow and his sign, and I was thinking about what his sign said.
I had been reading Uncle Ben's very informative book--his plainly-written, quite "transparent" explanation of what had happened back in '08, when the low quality of vast numbers of subprime mortgage loans catapulted those same home-loans into default, and subsequently cast a ubiquitous monkey wrench into the vastly complex financial machinery of sliced/diced tranches of mortgage-backed-securities and collateralized debt obligations and credit default swaps, etc etc and then wall street came crashing down and all the Fed's horses and all the Treasury's men couldn't put humpty dumpty together again (not for a while anyway) and the world changed forever, or so it seemed at the time and for quite a long time after that, even until now.
Yesterday, I had made note of this sentence from Ben Bernanke's book:
"As the chain from borrower to broker to originator to securitizer to investor grew longer , accountability for the quality of the underlying mortgages became more and more diffused."
And I was wondering, if the accountability had become more and more diffused, then who was responsible for this mess?
My own personal answer to that question is: Human nature, collectively. Shit happens.
Not everyone sees it that way, though. Some folks feel the need to investigate, litigate, prosecute, execute, and. . . as the protester's sign said, send the "banksters" to jail.
So here I was yesterday, having taken a break from reading Uncle Ben's book, and I was fiddling around online when I landed upon an interview that Chris Martenson did with Bill Black.
http://www.peakprosperity.com/podcast/95125/bill-black-why-banksters-winning
Now Bill is well-informed fellow; he's an academic like Ben Bernanke, but from a totally different perspective than Ben's. Bill is a regulator, investigator, earth-shaker, litigator who is crowing that Eric Holder, former Attorney General and head of the U.S. Department of Justice, should have prosecuted the banksters for their corruptive abuse of the system. In his interview with Chris that I listened to yesterday, Bill Black said:
"Every dollar by which you inflate an asset inflates capital by a dollar and creates an additional dollar you can steal. . . they lied and they lied to the extent of trillions of dollars. They lied and made stuff that was really in the trade, right. So the bankers are actually calling these things toxic in their internal memorandum. And they are simultaneously rated Triple A, which is supposed to mean that they are equivalent to United States Treasury and are "risk free" by which they mean credit risk."
Furthermore, whistle-blowing Bill Black says that culpability for the crash also includes the Fed's complicity, when Bill says:
"You say Bank of America has got 50 billion of these things. They sell them to Fannie/Freddie.
Next thing we know, Black Rock is in there with the Federal Reserve helping the Federal Reserve decide which tranches of MBS to go out and buy. And the Federal Reserve vacuums up 1.25 trillion or thereabouts of these mortgage backed security pieces of paper. Here is the question. What is the chance that the Fed preferentially or accidentally (but I am going to think preferentially) went out and vacuumed up some of the worst of these things so that they could die quietly on its balance sheet rather than do damage to bank balance sheets?"
So Black is implying that Bernanke shares some of the blame for the Crash of '08.
But in my reading of Uncle Ben's version, I see a very smart man, an honest man, who was trying to do his job--that job to which he had been appointed by the President and approved by the Congress of the United States. He was striving, as best he could, trying to stop the nation's calamitous slide into financial oblivion. Ben writes:
"Just as the bank runs of the panic of 1907 amplified losses suffered by a handful of stock speculators into a national credit crisis and recession, the panic in the short-term funding markets that began in August 2007 would ultimately transform a 'correction' in the sublime mortgage market into a much greater crisis in the global financial system and global economy."
From Chairman Ben Bernanke's perspective, he was doing his job-- using every tool in his Reserve tool-chest to arrest to the "panic" that would eventually impose a "much greater crisis" in the global financial system and global economy.
You can't blame a fellow for trying to do his job. And that's how I make sense of it all. I try to do my job, while I see everyone else doing theirs, and that's what makes the productive world go around.
Although, every now and then shit does happen. Then, as Schumpeter said. . . it is creative destruction, and somebody's got to clean up the mess. Jobs for everybody, cleaning up the mess from places high and low. And then reconstructing it all, a vicious (or inevitable) cycle. It's been going on for 10,000 years. But now with hi-tech, everything goes faster and faster, until it grinds again to a screeching halt and. . . can you hear it? The music of the ages.
https://www.youtube.com/watch?v=TEbyBINYBfo
Labels: bankers, banksters, Beethoven, Ben Bernanke, Bill Black, blame, Courage to Act, Crash of '08, culpability, Federal Reserve, financial meltdown, responsible for this mess, the Fed, Wall Street
Musical mystery Ghost leaf