Posts Tagged ‘Bull by the Horns’

Trying to understand complicated stuff

October 6, 2012

Give me a good, old fashioned rest period any day.

That is to say: a dot, at the end of a sentence, so my overworked brain can rest before going on.

Just give me, please, a momentary neuron break so my cognitive brain cells can catch up to what my eyes are gathering.

For I am a tired, weary reader, among the huddled, online masses yearning to be free from confusion.

I have noticed, you see, a certain confusing tendency these days among bloggers, authors, journalists, commenters and other keyboard-tapping idea-flingers. This lamentable tendency is a neglect of periods. People nowadays whack out lengthy run-on phrases and clauses, strung together without the little dots that give us pause.  And yea, I say unto thee, sometimes they do it  even without commas!

This trend confuses me when I am reading and trying to understand messages that people have posted on the ubiquitous little backlit screens that you see everywhere.

It especially baffles me when I’m reading comments that are whacked out by opinionated internet denizens as they respond to the polarizing rhetoric of other internet denizens about the controversial issues of our day like politics religion and how much money should be printed and whether parents should be given choice for their children’s schools and how Congress should spend our tax money and whether Mitt’s comment about the 47% was appropriate and how the President does or does not use a telemprompter and the price of labor in China and the price of tea in Berkeley and the the price of education in Chicago and Milton Friedman’s influence and Paul Krugman’s dogma and and so forth and so on.

Rampant ideas, I say. Ideas are running rampant, without punctuation to separate, sharpen, and clarify them.

Yesterday I was reading a book, an actual, long, chapter by chapter  book, although not a printed one. It was my on my Kindle.

There  I was reading Sheila Bair’s excellent, very informative book, Bull by the Horns,  when, in chapter 9, I came across this sentence:

“But probably the biggest problem related to a fairly technical provision of bankruptcy law that gave all of Lehman’s derivative counterparties the right to cancel their contracts and liquidate any collateral Lehman had posted with them.”

This problem that Ms. Bair is describing is a troublesome one with which our bankers and lawyers were dealing, back in the fall of 2008.

And it is complicated, but I do think it is important that we citizens of this free republic understand the problem.

So I decided to demonstrate, using that sentence as an example, how multi-layered explanations can be made simpler, and thus easier to understand. The first principle is: write shorter sentences.

See if my  version isn’t a little a little easier to comprehend:

But probably the biggest problem related to a fairly technical provision of bankruptcy law. That provision gave to all of Lehman’s derivative counterparties the right to cancel their contracts, and to liquidate any collateral Lehman had posted with them.

Notice the period after the word law. This period helps me, the reader, for two reasons. One reason is that it gives my brain a little neuron break before engaging the next sentence, which is long, multi-layered, and laced with two-dollar words like derivative and counterparties. The second reason that the period helps me is: it clarifies the function of the verb related.

The inquisitive mind wants to know, you see, whether that word related  will prove to be the predicate of the sentence, or if it is being set up as a participle in a subordinate clause to modify the noun problem. However, my re-written version simplifies the reader’s dilemma by inserting a period, thus ending the sentence after the word law. This shortening effect enables the reader to solve his/her syntactical dilemma early on, instead of having the related question suspended all the way through such dense verbiage as derivatives, counter parties, contracts, collateral and so forth.

Another simplification I added to Ms. Bair’s original text was an insertion of the preposition to, in front of the phrase all of Lehman’s derivative counterparties. This identifies all (of Lehman’s derivative counterparties) as an indirect object instead of a direct object in the sentence. The counterparties are receiving something, that something being the right to cancel their contracts. And that right is more easily understand now as the direct object (whatever is being received) in the sentence. Furthermore, a second right that the counterparties receive is the right of liquidationSo my version inserts the preposition to a second times, rendering to liquidate.


I am not criticizing Sheila Bair’s writing style, nor her book, which I highly recommend. We citizens of a free, democratic republic should be informed about the problems that so easily inflict widespread financial cataclysm upon us.  Ms. Bair’s unique perspective as Director of Federal Deposit Insurance Corporation during the tumultuous years 2006-2011 is quite an eye-opener.

To further reinforce this last point, I leave you with this passage from Bull by the Horns, from the first page of Sheila’s chapter 9, which she named Bailing out the Boneheads:

“Lehman’s balance sheet was nontransparent to the market, primarily because of accounting rules that allowed Lehman to hold complex mortgage-related investments at valuations that bore no reality to their true worth.”

And therein lies the real problem of trying to understand complicated stuff.

Glass half-Full

October 3, 2012

Sheila Bair served as Director of Federal Deposit Insurance Corporation (FDIC) during the financially tumultuous years 2006 through 2011. She has written a book about her experience during that time of cataclysmic economic events. In Bull By The Horns, the former FDIC director gives an account of her strategy to assemble a group of financial heavy-hitters who had generated, securitized, and traded billions of dollars of low-quality home mortgages that were, in 2006-7, beginning to default in large numbers. In 2007, Sheila rounded up some subprime mortgage brokers, their money-lenders who had financed the mortgages, and representatives of the larger banks who serviced the loans after those loans had been tranched into complex Wall Street securities.

The escalating problem in 2007 centered on a large group of unqualified home-buyers who had bought into Adjustable Rate Mortgages. These mortgages began with a reasonably low interest rate with manageable monthly payments that were typically in effect for two years. But after those first two years of each mortgage, the interest rate had been contracted to balloon into a higher rate, which would enable the financiers to maintain an even greater profitable advantage. But the po’ folks who were trying to pay off their new houses could not handle their newly adjusted, higher monthly payments. This turned out to be the weakest link in a chain of financial dealings that later broke in September of 2008, thereby inflicting on our economy the so-called Great Recession.

This passage from chapter 6 of Sheila Bair’s book is somewhat long for a blog, but it helped me to understand what was happening behind the scenes during that time of mounting catastrophe, back in 2007. Sheila Bair writes:

“I decided that the best thing to do would be to get all stakeholders in a room together and try to hash out some type of agreement to start modifying subprime hybrid ARMs. Delinquencies on subprime hybrid ARMs were increasing quickly, and nearly half a trillion dollars’ worth of such loans were scheduled to reset (to the higher interest rate,ed.) in 2007 and 2008. The answer seemed obvious: eliminate the reset and simply extend the starter rate. In other words, convert the loan into a thirty-year fixed-rate mortgage, keeping the monthly payment the same as it had been during the starter period. We thought that investors–even Triple-A investors–should support such a step. We weren’t really proposing that their payments be reduced, just that they give up a payment increase that they had never had a realistic expectation of receiving. As previously discussed, hybrid ARMs were designed to force refinancings after two to three years, not to be paid at the higher rate for the life of the loan. Our data confirmed that the debt-to-income ratios on these loans were extremely high. Indeed, more than 90 percent of hybrid ARMs were  refinanced at the end of the starter period. The number of borrowers who continued paying after reset was miniscule.  Without some relief, subprime borrowers would default on a large scale, generating heavy losses for all bondholders, as well as the broader housing market.”

As you may surmise from the subsequent implosion of our financial system in the fall of 2008, Ms. Bair’s strategy of getting the mortgage players together to solve their problems hardly made a dent in the immensely complicated vortex of failing subprime mortgages. This foundational shifting sand of widespread defaults ultimately initiated a near-collapse of our financial resources and  the banks who administered those funds.

Ms. Bair’s attempt to guide the lenders and securitizers into corrective collaboration was a nice try, though. Surely it was a valiant effort by an exemplary, far-sighted public servant who is worthy of our respect. In the long run, however, her finger in the dyke of preventive regulation could not prevent the flood of insolvency that later debilitated our banks.

Reading her book, and particularly the above account, I was reminded of an old parable spoken long ago. In the gospel of Mark, chapter 16, we find these words from Jesus Christ:

“There was a rich man who had a manager, and this manager was reported to him as squandering his possessions.

And he called him and said to him, ‘What is this I hear about you? Give and accounting of your management, for you can no longer be manager.’

The manager said to himself, ‘What shall I do, since my boss is taking the management away from me? I am not strong enough to dig; I am ashamed to beg. I know what I shall do, so that when I am removed from the management people will welcome me into their homes.’

And he summoned each one of his boss’s debtors, and he began saying to the first, ‘How much do you owe my boss?’

And he said, ‘ A hundred measures of oil.’ And he said to him, ‘Take your bill, and sit down quickly and write fifty.’

Then he said to another, ‘And how much do you owe? And he said, ‘A hundred measures of wheat.’ He said to him, ‘Take your bill and write eighty.’

And his boss praised the unrighteous manager because he acted shrewdly; for the sons of this age are more shrewd in relation to their own kind than the sons of light.

” And I say to you, make friends for yourselves by means of the wealth of unrighteousness, so that when it fails, they will receive you into the eternal dwellings.’

Unfortunately, our modern money managers did not similarly cut the Mortgage Backed Securities losses before exponential toxicity invaded the entire financial system. But such calamity is the story of the human race. What else is new?

Glass Chimera