Posts Tagged ‘MBS’

Hilary, Liz and Dodd-Frank

February 21, 2017

Violin

Oh, there was a time, when I was a young man, when I would fiddle around, and that was nice enough for a while.

Then life came and went.

Nowadays, I find myself content to merely listen while life slips by.

In ages past, a maestro such as Felix Mendelssohn could  imagine something incredible; he could then summon up in his own mind and hands– an exquisite composition, an intricate stream of vibrations–as sublime as any that could ever be coaxed from a mere box constructed of wood and wire. He could then write the composition. Then, 170 years later Hilary could set bow to instrument and, with help from the orchestra, make it all happen so perfectly.

https://www.youtube.com/watch?v=o1dBg__wsuo

There’s a reason why my fiddle has been set aside all these years. Why bother? There’s somebody who can do it better. There’s somebody out there who can, in fact, do it perfectly.

Just listen. But I get to thinking. . .

Years go by. We pay attention, try to figure things out. There’s always somebody out there who can do things better than we can. Leave the complicated stuff to experts. And listen. Listen and learn. Maybe you’ll learn a thing or two.

Just daydreaming now; I think of Sally Field in Forrest Gump when she was playing his mother and she said life is like a box of chocolates; you never know what you’re gonna get.

Think about 2008. Everybody just lollygaggin’ along. . .then whoosh! well, you remember what happened. Everybody’s shell-shocked. Uncle Hank stammering on the Tube. They had to twist Congress’ arm two or three times before they’d come up with the money to fix the mess, at least temporarily.

Then the experts get trotted out to analyze, to testify, to figure what the hell happened in stock markets that made the thing come crashin’ down–something about market manipulations of MBS’s, unforeseen incredibilities of CDO’s, the incredulous defaulting of credit default swaps blah blah blah

As the thing unwinds, along come the explanations, the excuses, the wagging fingers, the committees, the commissions, the oversight agencies get rolled out, cranked up. Republicans in shock because Obama’s in. Democrats trying to figure out what went wrong and how to fix it. Democrats got to fix everything, so what do they do. . .

Let’s fix everything up, they say.

Ok. Obamacare and Dodd-Frank.

Years go by. Big shock when Trump comes blasting’ into 1600 Pennsylvania Ave after those 8 years of Mr. Smooth.

Now this morning we hear Amy and Juan on the radio, and here’s Senator Liz whining about how the new Republican whirlwind wants to wind down Dodd-Frank, which was supposed to be the big fix, the big Democratic fix.  I mean, she’s a little bit crazy, like all Democrats, but there’s one thing about Liz, she can play the rhetoric like Hilary plays the violin. It’s no wonder Mitch had to cut her off last week. Anyway,  Liz is saying:

“Commercial and consumer lending is robust. Bank profits are at record levels. And our banks are blowing away their global competitors. So, why go after banking regulations? The president and the team of Goldman Sachs bankers that he has put in charge of the economy want to scrap the rules so they can go back to the good old days, when bankers could take huge risks and get huge bonuses if they got lucky, knowing that they could get taxpayer bailouts if their bets didn’t pay off. We did this kind of regulation before, and it resulted in the worst financial crisis since the Great Depression. We cannot afford to go down this road again.”

I mean, Liz might have a point there. If things are so ROBUST, why do we still get this feeling about the 20,000+ Dow? Is it deja vu, or deja due, or prescience, maybe too much twitter or not enough facebook, or a rerun of common sense or what? Maybe it’s all just a bunch of hot air blowin’ around and we keep wonderin’ about the whole house of cards but we can’t really put our finger on what’s wrong cuz you know the answer my friend is blowin’ in the wind and life is like a box of chocolates anyway, a mere lala land where we think we got it figured out but really we don’t.

Although I do have to remind you, Liz, since I am a registered Republican: we can’t fix everything. If we could, and if we did, why, how boring would that be?

So my advice to you is we’d best leave the fiddlin’ to the experts. Sooner or later we’ll all have to face the music anyway.

Glass half-Full

From Black Friday to Derivatives Saturday

November 28, 2015

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, 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.

Tyger

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

Tappin’ the laptop rap

July 28, 2012

While we nodded, nearly napping, suddenly

There came a tapping, rapping on my laptop door:

 

Let us build a free nation, they said in 1776,

Let us mortar it with liberty; we’ll use this vast continent for bricks.

So then came our great exploration, on horses, on wagons, then on rails,

in a century of expansion, steeped in sweat, and debt, with bundles of tall tales.

‘T’was an age of corn and wheat, a time of tobacco and great toil,

boiling in a cauldron of soil and coal and oil.

On farms and orchards swelled our sweet fruits of sweat labor;

in pastures and ranches our blooms of prosperity’s favor.

Iron horse came a roaring over trestle and prairie

through a land ripe with harvest, rich with mineral and dairy.

 

We were milking the dream, skimming the cream,

moving on muscles and running on steam,

Across the tracks and over the roads, here rode the passengers, there the heavy loads;

extracting the mother lodes, knocking up white picket abodes.

Sodbustin’, soon with internal combustion, we rode, driving cattle and pigs with our pokes,

we volks and them blokes, all manner of folks with their yokes, ever now ‘n then tellin jokes,

we came casting off troubles, heaving the rubbles, and wielding our worn steel shovels,

we went building our houses, our stations and shacks, and nailing up mansions and hovels.

we’re blazin’ trails with ole Dan’l and Davy, eatin’ biscuits and gravy, ‘bibing a wee nip o’ liquor,

through sagebrush the saga and ragtime the raga with bustin’ raw rigor and unlimited vigor.

 

Let us build a rich nation! Let us form companies;

Let us develop, and envelope, opportunities.

We’ll raise capital, and stock it and sell it, until all the shares are sold.

Let us hammer out a Great Northern Railway, on tracks of steel, burning Appalachian coal;

We’ll wrangle our way to the West, dear partner; we’ll wildcat our wells while we roll.

Out of raw earth we summon a Standard Oil, a USSteel, and a B&O;

Across the wide prairies we’ll fence ranches and dairies, with windmills and farms, high and low.

Let’s sign up the hires and string up the wires, tapping Morse signals all the while as we go,

Till we’ve rolled and we’ve tolled and we’ve bought and we’ve sold all the long way to San Francisco.

~~~

Mr. Edison says let’s turn on the light; Mr. Bell says oh yes, and hello

Mr. Morgan proffers finance and wealth, while Mr. Ford cranks up our engines to go.

Summon the lawyers for incorporation, in big divisions, with a company town.

Call Wilbur; tell Orville: let’s drum up some capital, and get this great work off the ground!

Pack me a sack of groceries, will ya, from the corner at the A&P,

and buy us some trinkets and widgets and blinkets from the dime store, or the big new Kresge.

Here in our houses with spouses, in our homes with our loans, we’ll make and we’ll do and we’ll prosper;

now we’ve adorned Lady Liberty with a fashion outfit, and fed her and bled her, and yet we’ve not lost her.

And ‘though the folks in the old country drag us into their wars,

we’ll not lose sight of our stripes, nor dim our bright stars.

 

Let us run our great machines on American dreams!

Drive our Chevys to the levees for beer and ice creams.

Punch us an IBM card and we’ll flip out the bucks, at Kmart and Walmart and Radio Shack.

Bring in this Microsoft, this Apple, this modem and fax. Hey, buy me some Windows and Cracker Jacks.

Truck in the autos; pump in the gas; toss me a loan and float me a boat.

Fling wide the fridge!  Bring me some chips; hook me up with the tube. Where’s the remote?

Sign me up for a card; don’t make it too hard.

Just give me some credit; you won’t need to vet it. Approve my home loan; I’m ready to get it.

You know it don’t matter I’m makin’ half what I used to; I’m presently performing some credit jujitsu.

 

But our great yankee contraption having now been built,

and the boomer consumers all leveraged to the hilt,

the guys down on WallStreet were feeling the pinch.

With fewer and fewer equity opps, they’re no longer a cinch.

Traders squinting for spreads, on margins and bets,

our great growth machine slows, then it sputters and spets.

So let us whip up some synthetic collateralized debt obligations! they said

We’ll bundle those low-grade mortgages in convoluted configurations, and we’ll follow the Fed.

Let’s slice em and dice and twice em and thrice em

to pump up a million, trade up a billion, swap up a trillion, maybe gazillion.

Slap me some MBS, shoot me some CDOs and credit default swaps;

those sub primes are hot, triple-A, so S&P say, too complicated for regulatin’ by SEC cops.

 

So our great American ranches morphed to securitized tranches.

Maybe we shouldn’t have let the big players get in with bank branches.

Was this dot.com trouble– that real estate bubble, our last great Kapital hoorah?

Is this all we got left–this bubblin’ Booyah?

Have we bought for too long on the troughs, have we sold out too short on the peaks?

Are we so severely crippled by our insider leaks?

Have we reached the end of this long leveraging line? With our great capitalist expansion now running out of time?

Has our American Dream Machine run out of steam? Has it sputtered in the gutter  of avaricial schemes?

Say it aint so, entrepreneurial Joe!

Quoth the Trader, “Nevermo.”

 

Now that’s a rap,  on my laptop tap.

Glass Chimera