Ballmer got 'em by the ying-yang? Or the reverse?

Yahoo CEO open to more Microsoft talks

NEW YORK (Reuters) - Yahoo Inc (NasdaqGS:YHOO - News) chief Jerry Yang signaled a more open stance towards Microsoft Corp (NasdaqGS:MSFT - News) on Monday, saying he had been seeking common ground when the software maker abruptly ended deal talks.

Yang told Reuters in an interview that he had "mixed feelings" about the weekend outcome, after investors showed their disappointment over the break-up of negotiations by sending Yahoo shares down 15 percent.

"We were negotiating a way to find common ground and then on Saturday they chose to walk away," said the 39-year-old co-founder of the pioneering Internet company. "They started it and they walked away."

Even when times are good, it's hard to believe that corporate CEOs can look you in the eye and tell you that they've truly earned their outrageous $10 million, $50 million, $100 million or more pay packages.

And right now, times aren't good.

But this week I saw another round of stories on corporate CEOs getting multi-million dollar "bonuses" even as their companies lose millions of dollars.

This is just another outrageous example of a corporate culture that is out of control and out of touch with most Americans. These corporations fight any kind of regulation designed to protect workers, the environment, or public health, yet when their irresponsible behavior bites them in the ass, they come crawling to us begging for a bailout, while continuing to lavish hefty paychecks on their top executives.

from The Daily Reckoning

A Reader Writes…

"…My firm and I have contacted the Merc on three different occasions with video proof that I recorded of my trading. It shows blatantly this guy crossing his orders thousands of times a day. The first person we talked to in compliance admitted that he saw something there when they reviewed the video of the trades I taped of him. He was mysteriously fired the next day…"

Only have a minute, but will write more later but…The entire S&P price action in the Futures is being controlled by one counter party. All the guys strongly hate them: their CME clearing number is 990N and they clear through Gelber trading.

Just too rich, from Mish:

"As a Citigroup investor you won't have to worry about more mark-to-market writedowns on these loans," said William B. Smith, senior portfolio manager at New York-based Smith Asset Management Inc., which oversees about $80 million, including about 66,000 Citigroup shares. "There's now a consortium of private-equity firms saying what they're worth."

One of Mish's pals replies:

William B. Smith needs to get his facts straight. Minyanville's Mr. Practical can help. Let's tune in to what Mr. P. has to say.

As investors bid up the Citigroup (C) stock price early on the news that the bank sold $12 billion of bad loans at not too much of a discount, perhaps they should look closer at the deal.

In order to get that price, C had to agree to indemnify the buyers of the first 20% of losses.

Citi obviously did the deal at this artificial price so that it would not have to mark down too significantly the rest of its portfolio. Not to let facts get in the way, but the price it sold the loans at, if you include the indemnification, is very poor.

Risk is high and growing.

Well said.

This is a very informative interview. Explains financial crisis in understandable terms. We are back to robber baron days.

Link Here.

Is there anything the Republican Party loathes more than FDR and the New Deal? How many times have people like Newt Gingrich and Grover Norquist vowed to dismantle the regulations, entitlement programs, and safety nets created by the New Deal? Time and again we’ve seen assaults on all aspects of FDR’s legacy, including a Social Security “reform” effort in 2005 that might have succeeded if George Bush hadn’t been hobbled by the Iraq War.

Last month the Republicans had a great victory in their effort to undo the New Deal, by eliminating completely any distinction between commercial banks and investment banks, while at the same time giving investment banks unfettered access to the public treasury with none of the responsibilities or burdens placed on commercial banks. All of this was accomplished in the same way as 9/11 allowed the administration to claim unheralded executive powers – by using an “emergency” to justify a power grab perpetrated with no reference to you the taxpayer, or your representatives in Congress.

So Paulson has come out (pdf) with a plan. It's primarily a reorganization plan, pushing the Thrift regulator into the SEC, creating a federal mortgage regulator, giving the Fed the right to inspect the new firms that now have access to its liquidity. There's some talk about being objectives based. It's almost always a bad sign when the primary "reform" is to create new agencies or merge old ones and Krugman is right to ridicule it as The Dilbert Strategy. What don't I see here?

I realize that this is not my area of expertise, so this whole line of reasoning might be totally naive, but here it goes:

Let's say I take out a mortgage for a price P-zero. It then gets securitized and sold from my original lender to another lender for P-one. That lender finds themselves cash-strapped and sells it to another party for a presumable fire sale price of P-two.

If, for example, P-zero is $200,000, what do P-one and P-two look like? What would be the effect if you had a law that said something akin to "If a mortgage is sold, securitized or otherwise transfered between parties, the mortgage holder in good standing must be offered the purchase of their mortgage at the agreed upon price between the other parties."

I recently had an acquaintance ask what leverage was, which made me realize that many of our readers without financial backgrounds may be scratching their heads.

Let's give a simple example (when I used to trade I was shocked and astounded when I first realized just how much leverage they allowed).

Let's say that you have a trade or investement that you expect will make 5%. Say you've got a $1,000 to trade with. Your normal profit would be $50. Not bad, but meh, you want more.

So, borrow more money against it - borrow $29,000. Now you have $30,000. By $30,000 worth of the stock. Your profit? $1,500.

JP Morgan is considering increasing their offer by $8/share to $10/share after Bear Sterns shareholders threatened to sue. Many of those most hard hit, of course, were Bear Sterns employees who held a great deal of stock. The whining from Bear Sterns shareholders is beginning to grate on my nerves, especially that some of them are blaming the Fed, who apparently didn't want JP Morgan to offer more than $2.

The thing is that if the Fed hadn't intervened Bear Sterns shareholders would have lost everything. Absolutely every cent their stock was worth, because they were bankrupt and when you're bankrupt stock holders get in line last. There would have been nothing left after all the folks who Bear Sterns owed money to got through with them. $2/share was more than Bear Sterns was worth, it was worth nothing. This sort of special pleading is one of the reasons why some think the market should just be allowed to take companies down. JP Morgan would not have offered 2 cents a share for Bear Sterns without the Fed's funds and guarantees.

It is good to see that our elected officials are once again using their impeccable timing to save us poor working class folks from being ravaged by the wealthy. There is only one small problem the ravaging has already taken place. These same idiots who supported less or no regulation of business and the markets particularly think that now there maybe a problem with letting corporations and lobbyist write their own legislation and regulations? I’m shocked. Ok folks let’s have a quick recap, the reason we have Medicare, Social Security, and child labor laws is because if given a chance the greedy bastards that are the captains of industry will run this ship aground every time for short term profits.

March 19 (Bloomberg) -- Treasuries rose and three-month bill rates plunged to the lowest level in almost 50 years on speculation credit market losses will widen, prompting investors to seek the relative safety of government debt.

Bonds gained on concern the investment firm run by ex-Long- Term Capital Management LP chief John Meriwether is facing losses and Thornburg Mortgage Inc. may go bankrupt. This week the Federal Reserve has cut interest rates, opened the so-called discount window to investment banks and arranged the sale of Bear Stearns Cos. to relieve market turmoil.

JWM Partners LLC, the investment firm run by Meriwether, lost 24 percent in its $1 billion fixed-income hedge fund this year through March 14, according to two people with knowledge of the matter. Meriwether's Relative Value Opportunity fund was hurt as bond managers such as Peloton Partners LLP and Carlyle Capital Corp. were forced to sell securities to meet margin calls, said the investors, who asked not to be identified because JWM doesn't publicly disclose returns. Meriwether declined to comment.

Yesterday proved once again, at least to me, a lesson the markets are wont to reinforce from time to time, that crashes don't happen when everyone expects one; that big down days don't occur when everyone thinks they should happen. It's the contrarian nature of the market to flummox even the most experienced practitioners of the art.

I had an inkling the markets weren't going to fall off a cliff late Sunday night as the bad news started to mount. It all seemed too ominous and too built in to 'expectations' to be that bad. Call it the Tao of markets, in a sense, that when things are that bad people just shrug it off. Of course I ignored that little voice and look what happened? Markets leveled off and we got a substantial rally today. What will happen in the near term? I have no idea.

I do know that portions of the equity markets are under a great deal of stress and other sectors remain stubbornly high, creating a strange set of negative non-confirmations. That usually means markets won't tank--at least not for the time being. I'm inclined to hedge that way, but remain prudent.

There is an old adage about the markets that goes like this, "markets can be irrational longer than you can remain solvent." What that means to me is that the only thing certain about markets is that they are uncertain--a paradox, I know. And that implies the necessity to be prudent, something I have sought my entire career. There have been times when I have been very ill served by prudence, looking like a fool--and at other times it's served me well and I've looked very smart. I'm neither. Just another guy trying to better understand the almost completely random nature of running money.

Markets are a hard beast to fathom, but what a beast they are.

I don't make it a habit to laugh at other people's misfortune, but in the case of James Cayne, former and deposed chairman of Bear Stearns I cannot but help to utter a mild, "ha-ha":

James E. Cayne, Bear Stearns’s former chief executive and one of its largest individual shareholders, will most likely walk away with a little more than $13.4 million, the value of his Bear stock holdings, according to James F. Redda & Associates. Those would have been worth $1.2 billion in January 2007, when Bear’s stock was trading at a $171.51. Mr. Cayne has taken home more than $232 million in salary, bonus and other pay between 1993 and 2006, the time period for which there is publicly available data, according to Equilar, an as an executive compensation research firm.

Call it karma in action, especially for what happened in 1998.

Also, let me stress the absolute huge social difference from being a billionaire to little more than a garden variety multi-millionaire. Sure, he won't starve, but his life will be significantly altered. And it's a deserved come down for a royal jerk.

Ayn Rand can bite me, says Alan Greenspan, from naked capitalism:

Being an objectivist means never having to take responsibility for your actions. Greenspan has now decided to pin the financial market crisis on models.

Not my fault, not my fault!

Susanne Fowler & Keith Bradsher | Paris | March 17

IHT - European and Asian stocks tumbled Monday amid fresh concerns about the global banking network and the fallout from the bargain-basement sale of Bear Stearns to JPMorgan Chase.

The euro rose again against the dollar to another record, according to Reuters data, hitting $1.5904 before dropping back a little, and investors rushed to the relative safety of U.S. Treasuries.

The dollar fell as far as 95.77 yen, a 13-year low, and oil hit a new record near $112 in Asia.

The CAC 40 in France plunged 137.84 points, or 3 percent in early trading as the FTSE 100 index in Britain fell 1.07 percent. The Dow Jones Euro Stoxx 50 was off 0.92 percent. The German Dax also fell.

The markets responded negatively despite the U.S. Federal Reserve's discount rate cut at an emergency meeting and to the purchase of Bear Stearns. The acquisition was interpreted as further evidence of the weakness of the U.S. economy.

Talk about wealth destruction, JP Morgan has cut a deal to acquire Bear for $2 dollars a share. I wonder if Buffett would take that offer? I doubt it. Link here.

From the Wall Street Journal:

The deal values Bear Stearns at just $236 million, based on the number of Bear shares outstanding as of Feb. 16. At the end of Friday, Bear's stock-market value was about $3.54 billion.

Oh man, oh man, oh man!

Nota bene: Seems to me we're looking at a dollar crisis too. At what point will international banks start calling it that? $1.60 Euro? 95 Yen to the dollar? $2.15 to the Pound?

In the list of problems central bankers worry about, the very worst is a systemic crisis. Systemic risk occurs when the failure of one financial institution brings about the failure of another, and it arises from the complex network of bank-to-bank trades that exist in a variety of products. Most central bankers go through their careers without even witnessing a systemic crisis; Ben Bernanke has just started his career right in the middle of one.

Make no mistake: this Bear Stearns failure is the very definition of a systemic crisis. Bear Stearns is a major financier for hedge funds; it runs one of Wall Street’s largest back offices for processing trades; it has transactions on its books with everybody big in the derivatives business. If Bear Stearns collapses, there isn’t a bank in the world that won’t be counting their losses.

I have a question concerning fractional reserve banking, securatisation and the M3 money supply that I think is relevant to understanding the events leading to the current financial crises. I would be very grateful for any input:

My understanding of fractional reserve banking is that it greatly amplifies the amount of credit created when the Fed lends money to a bank as that money can be is recycled through a number of banks, each of which only keeps a certain fraction in reserves and lends out the rest again. In theory there is a fixed reserve requirement for the banks which leads to a maximum multiplier for the amount of credit created by a given amount of Fed lending. Several posts I have read here on agonist and elsewhere have talked about how securatisation has led to an alternative debt creation mechanism or shadow banking system which has led to a massive increase in the M3 money supply which is now imploding. I presume that this has happened because recent financial practices have found a way to reduce or get around the reserve requirement, perhaps making it effectively very close to zero, leading to a massive increase in the money multiplier effect of fractional reserve banking and hence the supply of credit. Is this correct and if so what financial practices allowed the reserve requirement to be effectively circumvented?

Recall that on March 4 I wrote about a blown-up hedge fund in our building and the secretaries and clerks leaving the office with all their belongings. I know enough about the industry to know that these people are never well paid, unless the secretary is an executive assistant who has been with the boss for a long time. Even then. They usually have lousy 410(k)s (that in environments like this are usually worthless) and lack the resources of their higher-ups to move money off shore, tax shelters, etc. . .

The reason I bring this up is to realize that when banks and hedge funds get bailouts these people are still usually terminated and new and even more sophisticated financial software--that utterly lacks the human element of prudence in risk management--are employed to cut costs. The same will happen at Bear Stearns, whatever the outcome. It's the way Wall Street works. There is always a human cost--it's just the wealthy who never pay.

I know this may sound like class warfare--in a sense it is, and about time too. I want the wealthy, hedgehogs and investment bankers to pay their fair share. When their income tax load is less than mine--as a percentage and in real dollar terms sometimes, less than people who actually produce things, then we have a problem. But you already knew this.

Dow Jones Marketwatch | New York | March 14, 2008

Marketwatch (Dow Jones) - 3:05P Visa IPO to trade a day early on Wedesday, sources say (V, GS, JPM)
NEW YORK (MarketWatch) -- Underwriters for the blockbuster Visa Inc. (V) deal moved up the trading of the initial public offering by one day to Wednesday, according to reports on Friday. Moving up the schedule by one day means that Visa will price its 406 million shares at $37-$42 a share on Tuesday night, in a bid to raise about $16 billion. It's posied to exceed the $11 billion raised by AT&T Wireless in 2000 as the richest IPO ever in the U.S. J.P. Morgan (JPM) and Goldman Sachs (GS) are underwriting the IPO, which will trade on the New York Stock Exchange under the symbol V.

Quite a big truth here:

If the hedge funds and rich folk get caught here, without a net, you imagine possible domino effect throughout the brokerage and banking industries as people start pulling out cash and heading for safer pastures, such as trust companies.

You gotta marvel at the fact that Herb actually even said this, but the bottom line is that they have been caught without a net--who knew there was safety net for the 'haves'.

With so many hedge funds freezing redemptions, and money market funds frozen for millionaires, you can imagine the volume, quantity and tenor of screams being hurled at the White House and the Fed and the Treasury.

Who will pay for the bailouts of Carlyle, Bear, Peloton and others?

Why, you and I.

Back in the old days, when the landlords starting squeezing the peasants real hard, the peasants quickly broke out the pitchforks.

What ever happened to creative destruction? It really is socialism for the big boys but cutthroat capitalism for the little people in this country. In my opinion, Bear Stearns, more than any other firm on Wall Street should be allowed to fail. No handouts, or bailouts from the Fed. If this were 1998, well, we all know what happened when Bear declined to aid in the bailout package of LTCM. So, that's one reason. But the other is this: the more the Feds prolong a real shakeout the worse it will be when it finally comes.

Wow, it really is socialism, of the worst sort. From Barry at TBP:

If you are wondering WTF a non-recourse, back-to-back financing is, pull up a chair:

JPM gets to go the the Discount Window and borrow all the greenbacks they want; Then they loan that to Bear. In the event that Bear defaults, the NY Fed cannot go back to recover from JPM -- hence, non-recourse.

The Fed is pissing away our taxpayer money on a company that in so many ways deserves to fail.

Update: Via Mish:

* Why do you reward a company with a failed model and poor results?
* Why do you bail out an over leveraged enterprise that is technically insolvent?

It certainly isn't because they are too big to fail.

Update 2: Someone on a listserve I am on just asked a very trenchant question: "I wonder if Bear Stearns Exec's will give up their bonuses?" The cost of the bailout by the Fed should be forced disgorgement of their bonuses.

Let's take a few moments to highlight the realities of the global financial system. Call it a snapshot, if you will:

First, gold ticked above $1,000 an ounce. Oil is above $110. Dollar versus the Yen ticked below 100 today for the first time since 1995. The dollar is being utterly routed by the Euro, at $1.55 plus, and creamed by the Swiss Franc which is almost at parity for the first time I can remember.

Piling Pelion atop Ossa the budget deficit will be massive next year and the Fed's new credit facility, $200 billion in total, caused a one day rally in the domestic equity markets but now they are sinking back down. What a bargain!

Retails sales finally showed a real drop--in spite of all the statistical legerdemain from the Commerce Department or whoever published the numbers. Hedge funds are imploding across the spectrum and across borders in an almost daily cataclysm of wealth destruction. Home sales and real estate in general have fallen off a cliff. Domestic car sales? Don't make me laugh. And to boot, there appears to be some oversupply building in the aluminum market. Are we seeing a commodity bubble? (I don't really know the answer to this, yet.)

Have I missed anything?

Oh, yeah: we continue to piss away $2 billion a day of our wealth in the sands of Mesopotamia. Wealth that literally comes from oil sheikhs and Chinese government mandarins. What a policy!

A couple of years ago Stirling, Ian and I kept saying, "things that cannot go on forever, won't." And guess what? No matter what the Feds do, the chickens have now come home to roost. Or to really mix a metaphor--it's time to pay the piper and the fat lady is singing his tune.

The markets aren't going to like this:

The U.S. unexpectedly lost jobs in February for the second consecutive month, adding to evidence the economy is in a recession.

Payrolls fell by 63,000, the biggest drop since March 2003, after a decline of 22,000 in January that was larger than initially estimated, the Labor Department said today in Washington. The jobless rate declined to 4.8 percent, reflecting a shrinking labor force as some people gave up looking for work.

Then again, knowing how crazy the markets have been, they might actually be up today.

Nota bene: But there are fewer unemployed people, as the jobless rate declined to 4.8% this month. What a crock!

Another nota bene: Here's another issue I have with the headlines about this report: the Times and Bloomberg both say jobs fell 'unexpectedly.' What, in God's name, was unexpected about the drops if we long-haired hippy bloggers saw it coming?