The Haiku of Finance for 11/03/15

Get your event straight
Organize your speakers well
Track the invite list

Blasting One Tech Conference That Yanked Me Around Today

I made the mistake today of trusting some small-time tech conference promoters to be squared away. We all make mistakes and this one was mine. One tech conference promotion team shall remain publicly nameless but they shall live in infamy in my memory.

The organizers contacted me last week to confirm my attendance. They even registered me as a "speaker" but had no slot for me to fill. I asked them what they wanted me to do, and with less than 24 hours left before the event kicked off they wanted me to moderate a panel on a topic that was completely unrelated to my background. I politely declined. When I drove all the way down to Palo Alto this morning, they had no proof that I was even registered for the conference. The final red flag about their competence came when they asked me to pay full price for entry. No way, folks. I politely declined and then departed.

The lessons for conference promoters ought to be simple. When you invite speakers, schedule them to address subjects that reflect their professional competence. Keep records of your invited guests. Above all else, the people you "invite" to appear by virtue of their expertise should attend free of charge. I know that words like "invitation" mean different things to different people, but to analysts and subject matter experts like me they mean a host seeks the benefit of my presence. Social media "invitations" and other forms of marketing outreach are legitimate ways to attract paid guests and clients seeking publicity. I get that. I don't get being labeled a speaker, panelist, or moderator who is expected to pay up merely to share my own expertise. I will not pay one penny to hear myself think out loud.

I have accepted free admission to plenty of conferences that saw value in my coverage as an analyst or participation as an expert, even if I said something controversial during or after the event. Tech conferences like speakers, and I like speaking. The two forces should be naturally congruent. Conference organizers who schedule me in advance and let me shine are invariably pleased with the result. The ones who wait until the last minute, offer me nothing, and then require me to pay them are not the ones I need in my life. Please don't play games with my schedule, people. It invites the wrath of Alfidi Capital.

The Dunning-Kruger Effect On Wall Street

The Dunning-Kruger effect afflicts most of humanity.  Statistically speaking, a big chunk of the human race is average to below average in ability.  These people overestimate their abilities and underestimate the abilities of those who are truly skilled.  Evidence that these people populate Wall Street and corporate C-suites is plentiful.

Studies of portfolio managers prove that the vast majority do not outperform benchmark indexes.  Check out the SPIVA scorecards for actively managed funds.  Their report titled "US Mid-Year 2013" reveals that most actively managed funds across all cap sizes underperformed their benchmarks during multiple time periods.  There were a few exceptions for international small-cap funds and some fixed income funds.  Investors who count on those exceptions to persist will be disappointed.  Vanguard's "The case for index-fund investing" report from April 2013 shows the persistent cost and performance advantages of passive investing over the long term.  The evidence against active money managers is overwhelming.  Active money management is untenable as a credible profession.

Money managers are just plain dumb.  I've met some of them at finance events.  They talk to me just long enough to steal my ideas because they have no ideas of their own.  These people have no business calling themselves skilled, highly qualified, superior, or any other such unearned term.  They do so anyway and investors keep handing them money.  Active portfolio managers are exemplars of the Dunning-Kruger effect.  The ones at the top of mutual fund companies and hedge funds-of-funds are probably also exemplars of the Peter Principle.  Analysts who made a few lucky calls one year on their favorite stocks don't necessarily have the broader perspective to manage a fund exposed to multiple sectors.

The record of managers in C-suites is just as bad as Wall Street's performance.  Big-shot CEOs love the headlines they get when they gobble other companies in M&A transactions.  They have no empirical justification for such pride.  The HBR blog in March 2011 noted the very high failure rate of M&A deals.  Knowledge@Wharton noted in March 2005 that M&A deals fail due to poor due diligence, post-merger integration problems, and other factors.  Top executives are paid to understand these forces before they commit to deals.  A lot of them obviously understand very little when they go hunting for acquisitions.  I can just imagine a Peter Principle investment banker trolling CEOs for deal flow, promising glowing media coverage of their acquisition prowess.

I'll disclose that I haven't been able to outperform any broad benchmarks myself for several years.  Outperformance isn't my objective given the immense price distortions central banks have generated in asset markets.  My objective is to outlast the finance professionals who will eventually be ruined by their faith in any of the pumped asset markets.  I also haven't acquired any companies, so I can't compete with the swinging dealmakers who throw money away on dumb buyouts.  A lot of the C-suite people may be Dilbert Principle promotees who couldn't handle the company's basic work.  How these people got promoted in finance and corporate life isn't up to me.  I'm only concerned with staying away from them so their Dunning-Kruger overestimations don't harm my life.  

YRCW Just Couldn't Keep Up With The Pack In 2010

LTL truckers had mostly good results in 2010, growing revenue by 9.4%.  One notable exception was YRCW, which saw its revenue decline by 11%.  All those fat union behinds cost more to haul around.  Those losers will really get a run for their money now that the FMCSA is ready to approve its pilot program for Mexican truckers to operate north of the border.  A little competition is great for those truckers who can handle it and not so great for union drivers who abhor competition. 

Speaking of competition, trucking schools are enrolling huge numbers of potential drivers.  Driving a truck isn't so difficult after all if so many people can learn to do it so quickly.  That's great news for carriers and not so great for union drivers who think their limited skills are indispensable. 

Speaking of driving skill, trucking's safety record is better than ever in 2011, with the fatality rate down by 14.1% from last year.  There's a hidden factor behind those statistics besides better training, supervision, and regulation.  That hidden factor is the declining number of union drivers on the road along with fewer union workers in general.  Fewer incompetent drivers steering big rigs means safer roads for the rest of us. 

These are all welcome trends and positive developments.  Today is a day to celebrate good news!  :-)

Full disclosure:  No position in YRCW at this time. 

Hidden Loss On AIG For Treasury

Following the AIG debacle outside the mainstream financial media leaves one prepared for the unpleasant truth.  AIG is losing more money than ever and Uncle Sam thinks we don't need to know:

The United States Treasury concealed $40 billion in likely taxpayer losses on the bailout of the American International Group earlier this month, when it abandoned its usual method for valuing investments, according to a report by the special inspector general for the Troubled Asset Relief Program.

This report will be quickly forgotten by a sleepwalking American public too concerned with the World Series to read any SIGTARP reports.  The Treasury Department has apparently hired its financial analysts from Enron.  The only other explanation for this deliberate mis-valuation is that they're from the government and they're here to help - help themselves to more bailout money.  Those analysts can look on the bright side if they lose their jobs, as there will be plenty of demand for their services in Greece to mis-value that country's bad debt. 

Clueless Hedgies Do Startup Investing In NYC

Oh, this is definitely not going to end well.  Hedge fund gamblers with plenty of money to throw away are jumping on the Web 2.0 bandwagon:

However, New York City is awash in capital for early stage startups looking for smallish (under $1 million) sized rounds. There's a lot of "hedge fund guys" looking to invest in tech startups in New York right now, says one New York investor.

Brilliant!  Hedgies' core skills lie in building trading algorithms, not mentoring executives in marketing and operations.  How are they going to help with executing product roll-outs if all they know how to do is gamble at high speeds?  I love answering my own questions:  They can't.  Startups measure their progress over years, not quarters, and the entry of hedge funds into their capital structure makes it more likely that inexperienced investors will force startups into early exits or shutdowns. 

The anonymous NYC investor quoted in the article is undoubtedly as dismayed as I am that hedgies are rushing in where "quality capital" is absent.  If we define quality capital as an investor class that is patient and focused on things like product delivery, operations, smart hiring, and the many other things needed to grow a company from zero to success. 

Maybe the hedge fund folks have drunk the Swensen Model Kool-Aid too many times and are looking for another asset class to play with.  They'd better look at how Silicon Valley does venture investing before they write one more check. 

Financial Oligarchs Thank You For Letting Them Rip You Off

Today a big-shot CEO thanks the taxpayer for enabling his bank's risk-free profits:

US banking giant Citigroup said Monday it had returned to profit after two years spent largely in the red, posting a profit of 4.4 billion dollars in the first quarter of this year.
(snip)

Chief Executive Vikram Pandit said the company had now turned a corner.
(snip)

"All of us at Citi recognize that we would not be where we are without the assistance of American taxpayers, said Pandit.

"We owe taxpayers a huge debt of gratitude for assisting us at a critical time. We are determined to repay this debt by continuing to build a strong company and contribute to America's economic recovery."

I love it when financial titans come clean about how they make money.  In a roundabout way, Citigroup picked the pocket of the American taxpayer.  How many Ivy League MBAs work there?  They've paid themselves big bonuses in one final rip-off blowoff before everything heads south again. 

I'd sure like to see Citigroup "contribute to America's recovery" by making more business loans available, but I won't hold my breath.  Mr. Pandit is correct about Citi being a very different company from what it was two years ago, as its stock price is now about one-sixth of its value in April 2008.  Good job Citi!  You've done poorly for your investors but had terrific results for your managing directors. 

Incompetent Bankers All Over The World

When bankers tell you they've fixed what ails their industry, it would be wise to wait until another shoe drops.  Irish banks are in more financial trouble:

Ireland’s banks need $43 billion in new capital after “appalling” lending decisions left the country’s financial system on the brink of collapse.

The fund-raising requirement was announced after the National Asset Management Agency said it will apply an average discount of 47 percent on the first block of loans it is buying from lenders as part of a plan to revive the financial system.

How could bankers have missed these holes in their balance sheets?  Maybe they were trained by colleagues at other banks who can't tell the difference between assets and liabilities in their pension plans:

However, due to different accounting rules, some banks reported a net asset on their respective balance sheets for their plans in fiscal 2009, even though the plans were in a deficit position: the funded status of Bank of Montreal’s (BMO) plans was a deficit of CAD0.8 billion, but it reported a net asset of CAD0.6 billion; the funded status of UBS’s (UBS) plans was a deficit of CHF1.9 billion, whereas it reported them as a net asset of CHF2.6 billion; and the funded status of Mizuho Financial Group’s plans was a deficit of JPY158 billion, whereas it reported a net asset of JPY523 billion.

I used to peruse career sites for job listings with banks.  The jobs advertised invariably demanded applicants of the highest caliber with clearly defined qualifications.  It turns out that the people who fill these jobs have trouble discerning the difference between assets and liabilities . . . profits and losses . . . positive and negative numbers . . . numbers and letters . . . people and inanimate objects . . . and most importantly, truth and falsehood.

I have no such difficulties.  That's why HR managers and high-powered recruiters have screened me out as ineligible to work in a bank. 

North Korea "Takes Aim" At Inflation

Well, here's one way to hold finance officials accountable for their policy errors:

North Korea executed the former head of finance of its Workers’ Party after last year’s currency revaluation triggered unrest in the communist nation, Yonhap News reported, citing people it didn’t identify.

Fortunately we in the enlightened West don't do that to our financial scions when their policies do measurable harm.  See, when our Treasury secretaries redirect billions of TARP dollars from middle-class taxpayers to rich bankers for bonus payouts, we celebrate them as saviors of the economy.  Alan Greenspan got a Medal of Freedom for the policies he authored as Fed Chairman that spawned a housing bubble and erased traillions of dollars worth of household wealth. 

We have the added benefit of a private sector that subscribes to the theory of "screw up and move up," whereby Harvard and Wharton MBAs who can't manage risk get to run big hedge funds after they lose money on prop trading desks at i-banks.  Rich preppies don't face firing squards here in the good old U.S. of A.  That's un-American and offensive to good sense and decency. 

It sure pays to be civilized.  (Sarcasm filter off.)

Unprepared Americans Face Economic Annihilation

Too many Americans - particularly Baby Boomers - have saved very little capital for their retirement years:

The prolonged recession is making it harder for many workers to set aside money for retirement.

A new survey released Tuesday by the Employee Benefit Research Institute shows the percentage of workers who say they've saved for retirement slid to 69 percent in January, down from 75 percent in 2009.

Perhaps more alarming is the increasing number of workers who say they have little or no retirement savings.

More than a quarter of those surveyed said they have less than $1,000 set aside. That's less than a mortgage payment for many homeowners.

I can think of several factors that contribute to this predicament.  Yes, we all know the stock market has hurt the balances of most investors' 401(k)s and IRAs.  A larger contributing factor is probably the psychology of the Baby Boomer generation.  Their mantra in the 1960s was "live for today" with no thought for tomorrow.  Tomorrow has now arrived and former hippies find themselves unprepared.  Maybe the money they spent on pot and acid in the early 1970s should have gone into the stock market. 

There's another force hurting Americans:  their mortgage payments.  Check out the hint in the article that $1000 is less than many homeowners' monthly mortgage payment.  The so-called dream of homeownership - sold to naive Americans by an army of realtors, homebuilders, and bank loan departments hunting for commissions - has enticed people to buy houses that were larger and more expensive than they could afford.  Money they should have saved for retirement instead turned into negative equity on homes destined for foreclosure. 

A final contributor to the impoverishment of many soon-to-be-seniors is the boodoggle known as Social Security.  The massive unfunded liabilities in that entitelment program are well documented, but the damage it has done and will do to America go far beyond actuarial results.  The mere existence of this program for three generations has subtly taught many Americans that they don't have to rely upon themselves for financial security.  Instead, they chose to rely on empty promises from a government program that will be insolvent just when they need it most. 

I have relied on myself throughout my working life, even at those times when I was a hostage to the whims of incompetent supervisors and derelict employers.  I now have enough of a pile to survive indefinitely as long as I don't go into debt or do something stupid.  There's a lesson there somewhere.  What could that be?  Oh, yeah, I know:  save and invest as much of your income as possible starting on the first day of your working life. 

You Tell 'Em, Warren

Warren Buffet once again hands the world some common sense. Unfortunately it's no longer common:

Buffett used most of his letter, released Saturday, to reiterate the business basics that have made his company a juggernaut. But it did include a section about how corporations should manage risk. Buffett said CEOs and the boards that hired them should pay a steep price if their companies get into trouble with risky investments.

Buffett lamented that shareholders, not CEOs and directors, have borne most of the burden of company failures during the economic crisis.

He's describing what's known in academic circles as the agency problem. Agency problems are now a permanent fixture of corporate governance because a hereditary class of perpetual Peter Principle executives has captured boards of directors. Why do people join boards anyway? Ostensibly they should enjoy working for shareholders and helping CEOs fix problems. I suspect they just want the prestige value of board membership for networking and resume padding.

Grow some spine, board members. Put me on a board and watch sparks fly as I insult some Harvard MBA CEO for buying a private jet. Then watch me get voted off the board for making waves. Wheeee! Business is fun.

California Busting Bonds

California is the Golden State. Its credit rating, unfortunately, is not so golden. Its general obligation bond rating is the lowest in the nation and has shown a steady deterioration throughout 2009. How did this happen? A recent article outlines the unfolding tragedy:

Federal law prohibits states from declaring bankruptcy and without a legal framework, assertions about California's solvency are left to interpretation. But persistent multibillion-dollar budget deficits, cash crises, tens of billions of dollars in debt and other obligations have blurred the legal distinction.
(snip)

Over the next 16 months, the state has a $20 billion deficit in the general fund budget. That's the equivalent of nearly a quarter of the current spending plan of $84.5 billion. Much of that spending is locked in because of voter initiatives and federal mandates, limiting options for lawmakers. The deficit this year is more than the state spends on higher education and prisons combined.

The state's pension fund, CalPERS, has $16.3 billion more in liabilities than assets at the latest calculation, although that number fluctuates with the system's investment portfolio. Adding to that, a state report released this month calculated that California also faces a $51.8 billion bill - in 2009 dollars - for the health and dental benefits of state retirees and future retirees.

The Governator's plan to balance his state's budget in 2010 relies heavily on a federal subsidy of $6.9B. There is no assurance that this subsidy will be forthcoming in an era when one of every three dollars in federal spending is itself borrowed from the bond market. Note further that the non-partisan Legislative Analysts's Office has published a pessimistic analysis of proposals to reduce the state budget deficit. The LAO assesses a significant part of the Governator's "trigger proposal" estimate to be unreconcilable; it further assesses many business subsidies and tax exemptions as ineffective and unjustifiable. This sets the stage for further political wrangling and puts the passage of a balanced budget for 2010-11 at risk.

The excerpted article above notes further down that the state's net assets exceed its net liabilities by $34B. If the state is unable to resolve its budget crisis, would it sell state parks and government buildings to pay its bills? The Governator floated just such a trial balloon last year, probably as a political ploy to force a budget solution. A budget crisis this year may see such proposals become reality.

The risk to California muni bond investors from prolonged budget inaction is significant. In addition to individual and pension plan holdings of Cal munis, three ETFs hold state bonds - PowerShares Insured California Muni Bond (PWZ), SPDR Barclays Capital California Muni Bond (CXA), and iShares S&P California Muni Bond (CMF). The ETFs hold about $290mm worth of munis, all with medium to high interest rate sensitivity. Any further downgrades to California's credit rating will raise the state's borrowing costs, posing an immediate risk to holders of those ETFs.

Nota bene: Anthony J. Alfidi does not own any California muni bonds or any of the ETFs mentioned in this post. He is a resident of San Francisco, California and thus a state taxpayer.

Ken Fisher's Contrarian Call to Bankrupt Everyone

I once respected Ken Fisher. I thought he had some interesting things to say about arbitrage pricing when he spoke at the San Francisco Money Show in 2002. I lost all respect for him when he spoke there again in 2006 after he claimed that American's home equity was a good substitute for savings in the bank.

Ken Fisher has now given me a reason to never consider respecting his opinion again with his call for massive increases in Americans' debt:

The U.S. has too little debt, not too much, Fisher says. The U.S.'s return on assets is high and interest rates are low, so our borrowing capacity is much higher than our current debt levels.

Also, Fisher says, you have to look at the U.S. in the context of the world, because the U.S. is only 25% of world GDP. The world is way under-leveraged, so one country's particular debt-to-GDP ratio doesn't matter.

Some financial icons manage to outlive their reputations for brilliance. Warren Buffett and Alan Greenspan come to mind. Now it's Ken Fisher's turn to be ignored. Apparently he hasn't watched I.O.U.S.A. or visited Perot Charts. Maybe he's still stuck in the 1980s when his acumen as a portfolio manager and analyst was at its peak.

Folks, please don't listen to Ken Fisher if you want to survive the next few years of malaise. Just stay out of debt for the foreseeable future. That's my own plan.

A Primer On Financial Career Archetypes

Careers in finance are fun and rewarding. If you want to win you have to arrive prepared and ready to roll. The specific type of job doesn't matter. You can be a banker, broker, analyst, manager, whatever, but in general you need to have "what it takes." Let's discuss the most common types of employee you'll find nowadays on Wall Street.

Here are three main types of people drawn to careers in financial services.
Type 1: The Angel. The conscientious, hardworking, intelligent person who insists on taking care of the client and delivering the highest quality service. This person is scrupulously honest and insists on strict adherence to laws, regulations, and the highest standards of ethical behavior.
Type 2: The Predator. The lying, thieving, conniving, backstabbing, manipulative, egotistical jerk. This person would sell their own mother down the river for a fast buck and epitomizes the "I'll be gone, you'll be gone" (IBG/YBG) absence of concern for the long-term effects of their actions on the health of clients and the industry.
Type 3: The Preppie. The spoiled, airheaded, condescending trust-fund baby who had their high six-figure first job handed to them after sleeping their way through four years in the Ivy League. This person is amused at anyone who has to work hard for a living as such things are so declasse for someone at their level.

Now that we've identified the three types of people you're most likely to meet in your Wall Street career, let's discuss their typical career paths.

Angels are immediately identified for eventual termination. They are given plenty of grunt work to keep them busy, the results of which will always be claimed by the other two types. They are widely viewed as weak and unfit for employment in finance, and will never earn anyone's respect with the way they do their jobs. Their honesty and devotion to detail quickly prove to be career liabilities because they pose a threat to the chicanery of their managers.

Predators are initially successful based on their ability to lie, bluff, and bully their way around clients and the office. The more successful ones will ally with a Preppie to network their way up the ladder and gang up on Angels for fun. They predominate in sales but can also be found in management if they can ride the coattails of a well-regarded Preppie. They earn the respect of others by abusing and firing Angels and by outmaneuvering other Predators.

Preppies are the most successful of the three archetypes. Their extensive family connections will steer huge amounts of business to their employer as a matter of course, with little to no effort necessary. They show up late to meetings and vacation for months at a time because they know there will be plenty of Angels back at the office to do their work for them as long a few Predators are left behind to yell at them. It's okay if they fall asleep on the job because they always have an Angel at hand to take notes for them and explain what they missed. Preppies intermarry primarily with each other to extend their bloodlines, but sometimes the more adventurous among them will deign to marry a genetically healthy Predator (based on looks and personality). They usually rise to the top on the back of work done by Angels and Predators. Preppies are the star performers of Wall Street and darlings of the social scene in major metropolitan areas.

If you are a Preppie, you don't need to read my blog. All of your career insights will come from family members. If you are a Predator, you'll probably read my blog just to claim my ideas as your own so you can score a promotion (go to hell, jackass). If you're an Angel, for Pete's sake don't spend longer than a year or two working for Predators and Preppies. Start your own business and outperform them in life.

Calpers Board Votes to Assure Its Self-Destruction

CalPERS has lost money. Haven't we all lately? Well, apparently they want to lose the rest of what they have left. They've gone and selected a new leader, Joseph A. Dear, who will probably assure that result:

Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.

This guy and his ideas are the epitome of everything that's wrong with modern pension fund management. First of all, by his own admission, he's not an investment expert. His formative experiences were all in political appointments. He even thinks "the fun part is the investment part," in his own words, as if it should be secondary to things like organizational design and political relations. Secondly, his big bet on bold ideas is nothing more than a rehash of the Swensen Yale model. Remember that one? The one that delivered outsized returns during David Swensen's tenure at the Yale endowment until it blew up spectacularly last year? Yeah, that one. This dude didn't get the memo that the Age of Leverage is over, so all of those years that private equity delivered alpha of 3% are long gone. He also thinks that political tricks like asking investment firms to sequester the state's money in separate accounts will help manage risk. News flash: Sequestering money is of zero benefit if the manager's investment philosophy fails, because you'll have a heck of a time getting it out if other claimants to that failed fund litigate the manager.

I have no philosophical objection to investment vehicles like real estate partnerships and private equity funds. When used judiciously, in severely limited amounts that are restricted to areas within a manager's natural sphere of competence, they can diversify a very large portfolio. The problem comes when illiquid structures become a huge allocation within an investment philosophy that must be liability-driven (i.e., significantly liquid!). Year after year into perpetuity, a pension fund must cough up enough cash to pay its retirees according to tables designed by actuaries. If any one of those sequestered, illiquid investments blows up, CalPERS will risk defaulting on its legal obligations to pay pensioners and the state of California will be forced into a legal crisis. Taxpayers will of course have to fill that hole.

The funny thing is that I was just about to turn cautiously optimistic on California muni bonds now that the state's elected leaders have reached a budget compromise. CalPERS' stupidity is going to blow that right out the window within two years. The risk of a muni bond default is increased dramatically if state taxpayers have to make up shortfalls in CalPERS' payments to its retirees. Maybe a sovereign bankruptcy will ultimately be necessary to sort out whether muni bondholders or state retirees have a senior claim on California's tax revenues.

The NYT article ends on a telling note. This dude plans to spend a third of his precious time on "outside issues," as if the job of running the nation's biggest state pension plan isn't important enough to warrant all of his time. Note to Joseph A. Dear: Quit thinking of this job as some kind of extracurricular activity with a fun investment part. There is nothing more important to you right now than the security of retirees' money.

Nota bene: Anthony J. Alfidi does not receive a pension from CalPERS or hold California muni bonds. He is in fact a taxpayer to the state of California and is very interested in that state's financial solvency.

The Haiku of Finance for 07/22/09

Bernanke's Fed plan
Lots of talk that sounds so great
No way will it work

Your Canceled Bonus Went to Your Rich Neofeudal Boss

It's a slow news cycle Saturday. Let's check out another signpost on the road to neofeudalism:

Regulators and politicians who want to curb the huge bonuses paid to financiers in the wake of the global credit crisis may find the banking sector's response even more unpalatable.

More money for the highest flyers and less for the rest.
(snip)

Britain's finance watchdog said in March: "Although it is hard to prove a direct causal link, there is widespread consensus that remuneration practices may have been a contributory factor to the market crisis."

Ya don't say? Really? A compensation consultant quoted in the article is incredulous that guaranteed bonuses could prove to be perverse incentives. That's disingenuous; that consultant is paid by investment banks to justify those bonuses. Some people can make themselves believe any kind of bunkum if their paycheck depends on it. I witnessed that self-delusion when I worked for large investment firms and I even came pretty darn close to accepting it myself. My resistance and ultimate rejection of such temptation bought me my termination notices.

But how can banks afford to continue the largess for their top pedigreed preppies? By taking the money from you:

Fifteen percent of employers surveyed by the Society of Human Resource Management reduced pay in the past six months — a threefold increase from earlier this year. Companies like Hewlett-Packard, Caterpillar and the New York Times have taken the pruning shears to wages.

Granted, this excerpt is from an opinion column, but facts are facts. The only social class in the United States that has ever had any social cohesion is the ruling class (thank you G. William Domhoff and E. Digby Baltzell), and that class is now circling the wagons to defend their Olympian redoubt from the proletariat. Look for media stories over the next few years to happily chronicle the noble lives of the struggling poor, to make it seem as if remaining poor is natural and desirable. Look for Hollywood dramas and comedies to sing a similar tune. The programming is being prepared.

What is to be done about this? As far as most Americans are concerned, nothing. After all, doesn't God want you to be poor? As far as I am concerned, I am as focused as can be on taking care of myself financially before the door to upward mobility slams shut in my face forever.

Fed's Hopeless Signs Signal Overconfidence

The Fed continues to engage in wishful thinking to prop up equity markets:

The Federal Reserve expects the economy to improve in coming months, even as policymakers have downgraded their outlook for all of 2009.
(snip)

The Fed now expects the economy will shrink this year between 1.3 and 2 percent. The old forecast called for a contraction between 0.5 and 1.3 percent. The unemployment rate may hit nearly 10 percent, up from 8.8 percent in the old forecast.

Read that again if you need to. The numbers are forecast to worsen but the Fed's leaders mouth hope for improvement. They wouldn't entertain such schizophrenia unless they could count on the American financial media's distaste for real analysis.

Meanwhile, the Fed is forced to recognize that the real world can make a most unwelcome intrusion into rosy forecasts:

Some Federal Reserve officials judged last month that the central bank may need to boost its purchases of assets to secure a stronger economic recovery, while all policy makers agreed to hold off on such a move at the time.

More bond buying on the way? Now we see the connection between downward revisions to forecasts and public optimism about recovery. The Fed overestimates its ability to quantitatively ease the U.S. out of its distress. Go look up "hubris" in your dictionary.

Does all of this make you uneasy? It should, unless you own some gold (like me, IAU and GLD).

Voices and Deaf Ears, Part 2 on Our Road to Serfdom

A few days ago I mused that i-bankers and others at the top of our society aren't really being forced to change their rapacious ways. Today's selections offer us insights on why this is so.

The Atlantic, one of the oldest Anglo-American journals of record, serves up an indictment of America's descent into Third World status:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending.
(snip)

But there’s a deeper and more disturbing similarity: elite business interests — financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

The Atlantic's only real rival for the title of most intellectual publication in America is Harper's (and it's just as old!), whose editor emeritus Lewis Lapham has always held a rather jaundiced view of his peers in the ruling elite. His florid prose is always a joy to read (excerpted from Money and Class in America, 1988):

By abdicating their authority and responsibility, the sovereign people also relinquish their courage. Like rich old women in Palm Beach or a committee of dithering lawyers, the American electorate listens to the wisdom of its public servants as if to voices of minor oracles. Politicians and Cabinet ministers appear in the role of of the omniscient butler who finds phrases of art with which to conceal the embarrassments of the young master’s profligacy and reduced circumstances.

Finally, Rolling Stone offers us this colorful portrait of our dire straits as a result of the above:

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The authors all recognize that neofeudalism is here. I've seen it coming too, probably since my days at Notre Dame when I first encountered the children of one wing (the hard-right, hypermoralistic, hypocritical Catholic wing) of our ruling class. I have spent my adult life aspiring to join the ranks of America's patricians only to find that, in the main, they won't have me among them. No matter. The turmoil now brewing will allow me and others like me to simply displace them with new wealth, like the Darwinian process that allows mutated species to survive ecological catastrophes.

There were numerous warning signs on our national road to economic annihilation. Many of my fellow Americans seem to have mistaken them for billboard advertisements. I read every sign up close, took notes, and marked their locations. I will wait patiently for the day when I will sign the deed on a San Francisco mansion. Quite a few will be vacated by people who couldn't be bothered to pay attention.

Welcome, neofeudalism. Let the jousting matches for fiefdoms begin.

Somebody Doesn't Understand Lending

This MSNBC article is a gem.

But the government may also end up paying nothing at all, largely because it received collateral in return for backing much of these debts and could recoup some money if borrowers stop making their interest payments.

And how exactly is that going to happen?! If you hold collateral, and your debtor stops making payments, then your collateral just became worth a whole lot less. You recoup no money whatsoever. Jeez louise. I didn't even have to use my MBA to figure that one out.

The article's author isn't the only one having trouble understanding what a "loss" means.

That forced him to reluctantly accept a major Democratic proposal that authorized FHA to spend up to $300 billion to help homeowners who, because of falling prices, owe more than their homes are worth. The expected cost to taxpayers of this program is $1.7 billion, the Congressional Budget Office said.

Wow. Apparently the FHA's potential spending of $300B that it doesn't have on homeowners who can't pay it back has no bearing on the cost estimate of "only" $1.7B.

The preceding non-logic is par for the course and shows us all why we are in such a mess. The lack of competence of journalists and government budget officials spills over to a mis-informed public unable to comprehend problems.