"Dear Ben" (er, Santa Claus)

An Open Letter to the Federal Reserve Chairman

Dear Ben Bernanke (er, Santa Claus):

Speaking for millions of my fellow investors, I want to thank you for all your efforts to date, uh, "supporting" stock prices.

I/we are certainly better off for it (at least in the short run; in the long run, direct federal interference in markets is a terrible precedent).

However, perusing my portfolio, I can't help but notice a couple of laggards.

Specifically, my meager holdings in Wal-Mart, General Mills, and Procter & Gamble have all underperformed the market averages year to date.

So, as the Fed prepares to pump more money directly into debt and equity(?) markets, here is my 2010 Christmas "wish list" for what you should buy:

100 million shares of Wal-Mart
50 million shares of General Mills
50 million shares of Procter & Gamble

The above purchases will scarcely cost you $10 billion -- a veritable rounding error relative to your $1.5 trillion balance sheet.

Considering that these are all blue chip companies, there's no reason why you shouldn't make a profit on these investments, just like you say you did bailing out Wall Street.

In return, I promise to spend some of my new-found "wealth" stimulating the economy, thereby making your job easier.

So, you see, you're not just helping me, you're helping yourself.

"Win-win," as they say.

Expectantly,

Ross Kaplan

P.S.: No need to wait for Christmas, if you're so inclined; it's Chanukah right now!

"We Bailed OURSELVES Out??"

"We" Minus the "Us"; or,
More Pronoun Confusion

The bailout and stimulus that we have administered to ourselves have left us without much cushion. There may be room, and even necessity, for a little more stimulus. But we have to get this moment right."

--Thomas Friedman, "Got to Get This Right"; The New York Times (11/27/2010)

I suppose if you're in London or Berlin or Beijing or wherever Thomas Friedman writes most of his dispatches, it looks like the United States bailed itself out.

However, here in Friedman's hometown of Minneapolis (actually, next-door St. Louis Park), the "we" he refers to looks decidedly more like a "them."

"Them," of course, being the same Wall Street actors whose reckless bets and insane leverage caused the mess in the first place.

It's hard to see how "we can get this moment right" if "we" can't even get our pronouns right.

Time to Get Off the Stimulus/Incentives Roller Coaster?

"Deja Vu All Over Again?"*

The number of buyers who signed contracts to purchase homes dropped in May to the lowest level on record, a sign the housing recovery can’t survive without government incentives.

The National Association of Realtors said Thursday that its seasonally adjusted index of sales agreements for previously occupied homes tumbled 30 percent in May. The index fell to 77.6 in May from 110.9 in April. May’s reading was the lowest dating back to 2001.

--"U.S. Pending Home Sales Fell to a New Low in May"; The New York Times (7/1/2010)

The above is hardly a shock to any Realtor doing business the last two months; showings, Pending sales, and virtually all other real estate activity are down markedly since the last batch of tax credits expired April 30.

So now what?

Diminishing Returns

Personally, I think it's time to change course.

Instead of another batch of incentives, which create another burst of buying (although less than last time, which in turn was less than the time before), how about doing what should have been done two years ago:

--Reform Wall Street, and specifically dismantle the mega-banks that are too big to fail.
--Charge Wall Street's leadership with the criminal activity it clearly committed, and put a couple dozen people in prison (while we're at it, confiscate their ill-gotten gains, and apply it to the exploding deficit that the bailouts exacerbated).
--Strip corporations of their status as "legal persons," which a supine Supreme Court has (incredibly) conferred upon them, and which allows for -- amongst other things -- unlimited campaign contributions.

That's what previous generations would have done -- and in fact, did -- when confronted with unbridled greed and systemic corruption.

Do all that, and just watch what happens to consumer confidence, people's faith in the system generally, and their sense that someone guarding their interests is really in charge.

Do all that . . . and home sales will take care of themselves . . .

*Courtesy of Yogi Berra

The Bumble Bee & the Cactus

One Stinger vs. Thousands

Touring the Desert Botanical Garden in Phoenix this winter, I remember the guide fielding a question about whether anyone had ever been injured by cactus needles.

He answered that he'd seen a severe injury just once: someone who encountered a bumble bee was so undone that they backpedaled right into a nearby cactus and its thousands of needles.

In a nutshell, that's my take on how society has collectively dealt with Wall Street and a clearly dysfunctional financial system: for fear of messing with a bumble bee (and its rather mild stinger) . . . we've backed into a cactus (i.e., a potential global sovereign debt crisis).

P.S.: the analogy's not perfect: no one's ever called Wall Street docile.

"Loss Transmitters and Accelerators"

Goldman-Speak for "Mug"

Too-big-to-fail firms have become loss transmitters and accelerators to the rest of the system.

--"An Ex-Goldman Partner Lets Loose on Wall Street"; Time (2/2/2010).

Hmm . . . "loss transmitter and accelerator??"

By the same logic, I suppose that the recent, devastating Haiti earthquake was "a focused diffusion of geologic energy."

Or the Hindenburg explosion was a "sudden metamorphosis of volatile gases."

The Pentagon spending $20 billion on an obsolete weapon is an example of "transmitting and accelerating losses to the rest of the system."

Saddling U.S. taxpayers with trillions in losses and debt to clean up the financial mess Wall Street just made is something much, much . . . grander -- and nefarious.

It's one thing not to hold Wall Street accountable for its actions.

It's entirely another to mislabel and minimize what it did, and is continuing to do.

At least the "accelerator" part is right: an accelerant is what arsonists use to quickly spread a fire.

Crack Dealers vs. Wall Street: 'Top 10' Differences

Selling Tainted, Addictive Products

What's the difference between crack dealers and Wall Street?

Here's my "Top Ten" list:

Ten. The "product" crack dealers sell is a lot less tainted.

Nine. Crack dealers don't take out life insurance policies on their victims, er . . . clients.

Eight. Crack dealers don't plough a share of their profits back into hiring lobbyists to re-write the nation's drug laws to suit their interests. Or donate millions to the campaign coffers of key members of Congress overseeing them.

Seven. Speaking of profits . . . Crack dealers don't get multi-million dollar bonuses.

Six. Crack dealers wreck blocks, and sometimes even whole neighborhoods. Wall Street has laid waste to an entire economy and jeopardized its currency -- not to mention savaging millions of homeowners, savers, investors, retirees, and small businesses.

Five. Crack dealers don't require bailouts adding trillions to the U.S. deficit.

Four. The police prosecute crack dealers.

Three. Crack dealers don't become senior advisers to the President, Federal Reserve, and U.S. Treasury.

Two. Crack dealers don't solicit business (usually) from retired teachers, firefighters, etc.

One (Tie). Wall Street's "supplier," The Federal Reserve, operates legally and in plain sight//Crack dealers aren't under the illusion that they're "doing God's work" (as Goldman Sachs CEO Lloyd Blankfein was recently quoted as saying).

Speaking of Mr. Blankfein . . . consider this exchange yesterday between him and Phil Angelides, head of the Commission investigating the financial crash:

It sounds like you’re selling a car with faulty brakes and then buying an insurance policy on the car,” Mr. Angelides said. Mr. Blankfein emphatically responded that the investors buying these products were sophisticated and some of the biggest institutions in the world. Mr. Angelides [then] pointed out they represent the pension funds of teachers and firefighters.

--"Live-Blogging 4 Top Bankers on Capitol Hill"; The New York Times (1/13/2010)

Actually, I think the crack analogy is better.

How else do you explain the response of millions of Americans to Wall Street's offer of essentially free mortgage money, and the chance to cash in on the real estate boom?

Sure, you pity the crack addict for their sorry state . . . but you put the pusher behind bars.

Instead, we give Wall Street billions in bonuses, and their companies trillions in bailout money. More accurately, we give them trillions of our kids' money, that they'll have to re-pay.

Disgusting. Truly disgusting.

Paralysis by (Financial) Analysis

Instant Amnesia -- Or Something Worse?

If it exists, it's possible.

--unknown

Believe me, it's not what it is.

--caption, New Yorker cartoon (what husband caught in bed with another woman says to his wife, standing in the doorway).

Let's see: as every investor, saver, employed person and sentient being knows, the U.S. financial system -- indeed, the global financial system -- effectively crashed in mid-September, 2008.

The proximate cause was the failure of Lehman Brothers, which set off a horrific series of financial dominoes that threatened virtually every major global financial institution.

To stem the panic, sovereign governments around the world, led by the U.S., intervened with an unprecedented series of financial injections, guarantees, bailouts, etc.

Those actions appear to have stabilized the (economic) patient, but the prognosis -- not to mention the staggering costs of said intervention(s) -- have yet to be sorted out.

So, what are the defenders of the status quo, opposed to breaking up so-called "Too Big to Fail" financial institutions, calling for?

More study (just like global warming skeptics).

Consider this op-ed, from Friday's Wall Street Journal:

Congress, as part of its reform legislation, should mandate the creation of a new expert commission designed to fully investigate the extent and consequences of interconnectedness before any new regulation of systemically important institutions is actually adopted.

--Hal Scott, "Do We Really Need a Systemic Risk Regulator?"; The Wall Street Journal (12/11/09)

Do we really need a "new expert commission" to tell us, years from now in mind-numbing jargon, what we just collectively witnessed?

Does this guy live in the real world??

Actually, he doesn't: he's a Harvard Law School Professor.

"Lost in America," Wall Street version: We're the Schmucks

Refunds at the Casino, Courtesy of Taxpayers

In my favorite scene in one of my favorite movies, "Lost in America," a distraught couple makes an impassioned plea to the casino manager to return all the money that the gambling-addict wife has just lost.

The LA-based couple, played by Albert Brooks and Julie Hagerty, had just decided to drop out of the rat race, sell all their belongings, and use the proceeds to travel cross country (in a mobile home, yet).

They make it as far as Las Vegas before Hagerty's' character blows their (sizable) nest egg playing craps.

Broke and desperate, Brooks' character, a marketing guy, has a brainstorm: the casino should give them all their money back as a public relations stunt!

He pitches the casino manager:

What about a billboard with my wife and I on it and we would be smiling and there would be a saying, something like, "These people . . . lost their nest egg at The Desert Inn, but The Desert Inn gave it back." And maybe there could be some kind of a visual with you handing us an egg or something. Now I mean, I'm just formulating this now, as I'm talking, but you can imagine, when it's worked out how effective it could be.

Picture this: maybe, my wife and I will do a television commercial for you and there could be a jingle and it could go: (begins to sing) "The Desert Inn has heart! The Desert Inn has heart! The Desert Inn has heart!" Something like that. See what I mean?

Here's how the casino manager, played by a pitch-perfect Gary Marshall, responds:

I gotta tell you, this is one of the best things I've ever heard. What's the board gonna say again? "Gamblers, come and get your money back." Great. That's great.

He continues:

Let's assume you're serious here. What if this caught on? Could you imagine what would happen? Why, we would have to return everybody's losses. The casino would just crumble. We couldn't pay our bills. You know the casino accounts for a great deal of our profits.

Albert Brooks then tries to explain that the casino wouldn't make everyone whole:

I understand. Of course, you don't pay back everybody's losses. You make a distinct division between the bold, who are out there searching, and all the other schmucks, who come here to see Wayne Newton.

No go (it turns out Gary Marshall's character is a Newton fan).

Here's how things conclude:

Brooks: And just so I understand, we can't get any of our money back, right?

Marshall: Well, not today, no. But if the policy ever changes, we'll write you. (still chuckling as he goes back into his office) That's wonderful. Very good.

If only this scenario had played out in real life.

Imagine, when Henry Paulson had gone to Congress with his request for $700 billion in TARP money, he'd been told: 'good luck to you and stay away from the tables next time.'

Instead, when Wall Street asked government for its money back, it -- us -- gave it to them!

Lost, indeed.

P.S.: guess who the "schmucks" are?