Following the market?
Intrigued by the collapse of investment banks?
The words of the month are:
Hoocoodanode?
and "privatize the profit, socialize the risk"
Blog finance nerds anticipation - look at the comments
Athenae's rant at First Draft is a thing of cathartic beauty
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The report by Prof. Elizabeth Warren heading the Congressional Oversight Panel for the TARP loans to large US banks is out.
Report is at cop.senate.gov (151 p. pdf)]
It makes interesting reading.
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Against my better judgement, I've ended up writing a lot about the
financial mess that we're currently going through. If you've read that, you
know that my opinion is that the mess amounts to a giant pile of fraud.
But even having spent so much time reading and studying what was
going on, the…
From the calculatedrisk comments section:
John Stark writes:
My wife just reminded me of two Beavis and Butthead episodes that seem to be good metaphors for what our financial geniuses have perpetrated:
1. The boys have boxes of $1 chocolate bars they are selling for a school fundraiser. Butthead sells one of his and gets $1. But he's hungry, so he buys a candy bar from Beavis and gives him the dollar. Then Beavis buys a bar from Butthead and so on until all the candy bars are gone.
2. The boys have $1. They go to a copying place and spend the dollar making $1 worth of copies of the dollar that they think they will be able to fob off on local merchants. The merchants decline to accept this fiat currency and they wind up penniless.
That is so '80s.
Butthead should use his equity to borrow $30 from Beavis, on a note, then Beavis can use his $30 in assets to borrow $900 from Butthead, who can use his $870 in assets to conservatively borrow $25,000 from Beavis, who will use his $24,000 in net assets to borrow $720,000 from Butthead, who will use his $700,000 in assets to borrow $21,000,000 from Beavis, who will use his $20,000,000 in net leveraged assets to borrow $600,000,000 from Butthead.
Then you swap the debt for a senior tranche of mortgage backed securities with a consortium of Chinese banks, pass the swaps to the fed to borrow at 2.25% short term, and use that to bet the dollar will decline.
Take a 1% management fee, and 20% off the gross profits, and now you're talking.
Then run the whole thing in reverse to hedge your risks(ie Beavis sells a chocolate bar to raise equity for leverage). Also set up an off-shore entity capitalized with some of your assets (the B&B senior credit swaps), leveraged of course, and have it provide insurance in case Beavis eats the chocolate and defaults. That will get you a Aaa rating so the Chinese consortium will know to trust you.
If the whole thing unwinds, just walk away, take your commission and bonuses and retire.
Leave the chocolate for the feds, of course. It'll be moldy by then anyway.
Put you commission into something safe. Cocoa bean futures maybe.
Demand for chocolate bar swaps is at a historical high. If nothing else the feds will be in the market to cover the shorts as the collateral unwinds.