Wall Street

Goldman Testimony in the Senate

I don’t know what to say except – run for your lives! It’s the smart vs the inept and we’re in the middle of it. Goldman got no sympathy – from neither side, which is understandable. Although I did get a feel at one moment that Sen. Coburn (whom they kept calling doctor, for some reason, although he wasn’t there in a role of an ob/gyn) tried to steer Mr. Tourre to blame the media but the Frenchman did not understand where the senator was going with his question, much to Coburn’s dismay. Coburn asked Mr. Tourre what he thinks about all the firestorm that was caused by the release of his personal e-mails, how does that make him feel? Obviously, Sen Coburn expected Mr. Tourre to say something that it has ruined his life and is really hard on his family, but the guy either was oblivious to the innuendos due to language barrier or was so heavily coached that he responded that he regrets sending those e-mails and he should have used different language. It is unfortunate that senators are still not up to speed to what’s going on on Wall Street judging by their questions. Sen. Levin thinks that by selling a security to a customer and thus becoming short, Goldman is going the opposite direction from the customer and should disclose it. Coburn keeps saying “buying a short position”, forcing the guys to clarify the language before answering the question which only annoys the senators. And those big ass books with copies of e-mails and all sorts of exhibits that only makes them kill time by looking for a specific document, which they no doubt took advantage of.

Back in the days, I think it was around December 2006, my desk had dinner with Michael Swenson, one of the witnesses at today’s hearings. At the time I was leaning on the bearish side and already then I tried to short ABX when it was still trading around par. At the dinner Mr. Swenson tried to convince us that it might be a good opportunity to buy, because some bonds were trading at about 95(!) cents on the dollar. Now I know why – they were massively long ABX at that time and wanted to reduce exposure. None of us actually bought it. It is easy to say now that we knew this whole thing was going down, but of course, no one knew for sure. It was just that we have started to see things, little things, but that looked like a canary in the mine. Like some small subprime lenders going bust for example. I remember that something didn’t feel right back then and then the shit has started hitting the fan a month later, right after a major conference when ABX started to sell off in massive moves have not seen before. And the rest is history.

These Goldman guys are teflon and our senators are no match for those guys. There will be a financial regulatory bill, but I’m not sure if it’s going to be effective if it’s written by the people who don’t even understand the practices they oppose. Perhaps they separate prop trading from commercial banking, ban some sort of derivatives and that’s going to be all. As long as there are fools there will be people fleecing them. It’s as old as history and there’s nothing you can do about it.

Goldman is Goldman, but Obama is Obama

I have a friend who, as we talked about the upcoming season of Bolshoi ballet at the Met a few years ago, said: “Kirov is Kirov but Bolshoi is Bolshoi!” The same can be applied to Goldman and Obama. Goldman maybe good, Goldman maybe the best there is. But for every wise ass out there there’s a left-hand screw. Obama might as well turn out to be Goldman’s screw. But not for the reasons you think. Allow me to elaborate.
Goldman was the biggest Obama donor when he was running for president. This fact is being brought up very often in the last few days. Now picture the typical reaction of a typical politician when such fact becomes known. First he denies it, then when that doesn’t work he tries to give money back, after which he proceeds to do the donor’s bidding anyway. What Obama did is breathtaking (in a good sense). He
a) Said, yeah, I got the money from Goldman;
b) And no, I’m not giving it back;
c) And I’m going after Goldman regardless. And on top of that I’m asking them to join me in my fight.
What balls! How refreshing! It’s becoming more and more evident to me that he and his team not only know what they’re doing, they have read and memorized all the right books. Democrats, who have gotten accustomed to take it on the chin, have learned not only to attack but mastered such a subtle mockery that I’m sure puts Lloyd Blankfein in silent rage stemming from sudden feeling of helplessness and lack of control over the situation – a new set of emotions for a man like him.
My suspicions about Obama’s team were confirmed the other day by another friend of mine, no stranger to strategic moves himself – a deft poker player, a champion bridge player and shrewd businessman. Between spits and curses (he’s no fan of Obama), he admitted that Sun Tzu and Nicholo M are the table books for Obama’s team. They play by the book, he said, and that’s what will bring them down, he added. I exercised that possibility in my head, but then I thought that, at a very minimum, they must have an opponent who plays by the book. So far the opposition plays checkers to Obama’s Grandmaster level chess. Honestly, I’d be delighted to see Republicans’ strategy expanding from willfully pretending not to understand what’s written in the bill. But it seems now that it’s the only thing that comes to their mind.

REIT conference

I went to a REIT conference today. Everybody was there. Sam Zell dropped a couple of customary F-bombs. While answering somebody’s question related to a lot of money sitting on the sidelines he said: And what the fuck are they going to buy? He was the most entertaining speaker of the day. He was very critical of Obama and of the political risks that have to be considered if investing in the US. Steven Roth, the chairman of Vornado, who is a big Democratic donor is also disappointed about the administration. None of these guys seem inclined to invest in the US assets for this reason. Another reason is that even though there are a lot of juicy assets out there, no one is willing to sell them because they have no equity. Meaning they would get no money out of the sale. Bill Ackman of Pershing Square rolled in on a big white horse after making a hugely successful bet on General Growth (GGP) when he bought it last year at 40 cents. It is trading at $14 now. He also got himself on the board of GGP, so that he can have some leverage during bankruptcy proceedings. If I was an anti-semite this conference would be a perfect example of a Jews-running-the-world conspiracy. Frankly, if this kind of Jews runs the world I wouldn’t have any problem with it. Guys like Sam Zell maybe conservative but he’s not nuts, he’s not a teabagger. He’s anything but. I guess whenever your money is involved you stop being an ideologue. You look at the facts and act according to them. You don’t make bets based on the way you WANT things to be, you make bets on the way things ARE.  I mean at this point I would consider going long insurance companies in case the Health Care Bill doesn’t pass. A major defeat for Obama, but at least I would get something out of it.

But I digress. It seems that until a large transaction will take place, a catalyst of some sort, commercial real estate market will remain frozen. Public and private investors raised hundreds of billions of dollars last year in anticipation of making acquisitions and some of them will be pressed to invest them in a short period of time. But there’s nothing to buy in terms of property, because the sellers are not in a position to sell. Where will that money go? I don’t know but I’ll stay long some REITs just in case. Steve Roth used a good metaphor about the situation: You guys came here with a knife and a fork, but there’s nothing to eat! And then he probably thought to himself: What a roomful of suckers!

Well, despite Obama’s supposed hostility towards Wall Street, the stock market had the most spectacular run in decades. Some analyst even said recently (I think I saw it on Bloomberg) that if Obama was a Republican he would be praised non-stop for his policies on CNBC. Remember how early in his presidency whenever he spoke, CNBC would have a real-time graph of Dow Jones as if to say: See? When Obama speaks market goes down. For some unknown to me reason they stopped doing it. I guess because the facts don’t conform to their agenda. CNBC is clearly an ultimate roomful of suckers.

Wall Street Regulation

And Saturday Motivational Video

As the financial crisis spread in October of last year we had many discussions on the desk about the unfolding events. The consensus, probably genuine among the bosses and manufactured among the court cocksuckers, seemed to be that it’s the people who supposed to be renters who bought houses they could not afford caused all of this. The lenders were merely vehicles that helped those irresponsible schmucks to buy into their American dream. Frankly, I couldn’t believe that people who were saying it really believed it. After all, they all know how those loans are originated and what happens to them afterwards. And yet, there they were, screaming at Barney Frank on CNBC screens. I, of course, played the role of the desk’s token Commie.

These guys, who supposedly should know value when they see it, stubbornly refuse to see the most obvious fact: when one is given free money he’d be a fool not to take it. It’s as simple as that. A good trader understands it. And those who provide him with this free money carry more blame than he who actually takes it. It’s like leaving food outside your tent in the camping ground and then be surprised in the morning that the bear ate it. And blame the bear for eating it, not themselves for leaving it outside. Usually, at this point in the argument my opponents start bringing up conservative values and personal responsibility. You know, everyone should only bite what he can chew and not take out $500,000 credit while earning $20,000 a year. Why not, I ask? Isn’t that what Wall Street is all about? Besides, they were begging him to take it. Or, wait! Personal responsibility is only applicable to the little guy. True, the little guy is most likely to be a high-school drop-out and unable to understand not only the fine print, but even the fact that he has to pay the loan back. But it’s not his problem. If he came to me asking for a loan, he’d be sent marching. But lenders embraced this guy, courted him, knowing full well that he’s never going to pay that loan back. Because, who cares? Those loans will be packaged and sold to an Icelandic bank.

I frankly find it disingenuous, these attempts to pin the blame on a homeowner whose only fault is being stupid. Which brings me to financial regulation. I remember watching at awe Greenspan testimony to Congress last year when he, the maestro of deregulation and free markets, reluctantly admitted that maybe markets don’t always self regulate.

I’m afraid the freaking Democrats are about to blow this one if they haven’t already. The new financial legislation that is supposed to install new tough regulations is anything but.

It is full of all kinds of exemptions and exceptions that would defeat the purpose of the bill. Not surprisingly the bill was written with the help of special interests (read: bankers).

There’s a great article in The Nation magazine on the topic.

http://www.thenation.com/doc/20091130/greider

One great quote: “As recent election returns suggest, if the president continues to soft-sell reform, he is at risk of being identified with the old order in Wall Street. The longer Congress tries to placate the bankers with meek reforms, the sooner Democrats will discover this is really dumb politics.”

I think the way Democrats should deal with Wall Street should look somewhat like this:

I love this monologue so much I’m gonna put it out in print:

“I think I want my money back. I think you got the wrong impression about me. I think in all fairness, I should explain to you exactly what it is that I do. For instance tomorrow morning I’ll get up nice and early, take a walk down over to the bank and… walk in and see and, uh… if you don’t have my money for me, I’ll… crack your fuckin’ head wide-open in front of everybody in the bank. And just about the time that I’m comin’ out of jail, hopefully, you’ll be coming out of your coma. And guess what? I’ll split your fuckin’ head open again. ‘Cause I’m fuckin’ stupid. I don’t give a fuck about jail. That’s my business. That’s what I do. And we know what you do – you fuck people out of money and get away with it.”

“You put my fucking money to sleep – go and get it or I put your fucking brain to sleep!”

And then later to Ace: “Where’s my head? Where’s your fucking balls?”

So, Democrats, where’s your fucking balls?