As we all know, Chrysler declared bankruptcy this afternoon. I made about $1500 total on that contract, but lost ab0ut $350 betting against the Chrysler-Fiat agreement. My hedges betting against a GM bankruptcy have lost me about $75, mark-to-market.
For some reason, as late as 12 ET, just before Obama came out to announce the bankruptcy, there were about 700 contracts for sale around 93. I bought them all up, and that was a good bit of my profit on the trade. I suspect it was just someone who had gotten in at a lower price earlier and wanted out with a guaranteed profit. Or it could have been someone thinking Obama might announce a surprise deal to avoid bankruptcy.
I didn't get much action on my public offer yesterday. Just bought 29 contracts at 50, and apparently dissuaded some readers from selling. That technique is 1-for-3 right now. Not sure I'll use it again.
I had thought that bankruptcy and an official Chrysler-Fiat agreement were mutually exclusive. That is, if Chrysler filed for bankruptcy, that Fiat would make the official deal during the bankruptcy proceedings, rather than before. Obvious that wasn't the case. I gave away $20 selling contracts at 95, because I didn't see Chrysler's CEO Nardelli on CNBC announcing that they had signed a deal with Fiat.
Overall, this was a very cloudy event. All the important developments took place in closed-door meetings, with occasional leaks of questionable reliability. It wasn't easy to see the motivations of all the players involved, or how the moving pieces fit together. I suspect the GM bankruptcy will be similar.
When will Franken be seated?
Jesse, I can't afford the make a new contract deal on Intrade anyway but I think a market for "When will Al Franken be seated as U.S Senator?" can have potential, especially now the Arlen Specter is switching parties.
I've been thinking the same thing. Franken obviously won't be seated before the MN Supreme Court case, which begins June 1st. If everything goes right for Franken, he could be seated before the end of June. That could be derailed if the MN Supremes decide the trial court got some of the law wrong. Or Governor Pawlenty might decide to play to the national GOP base and refuse to sign Franken's election certificate pending a US Supreme Court challenge.
What do you guys think? My Harman contract has been a bust so far. I'll put up the $100 for a Franken one if I hear there's significant interest.
Chryster's going bankrupt
I put out a bid of 250 at 50 on the bankruptcy contract. Anybody disagree?
This is not a boring day in politics
Arlen Specter to Switch Parties
Makes sense. Specter can't win the GOP primary against Toomer, and even if Toomer disappeared, Specter would have a tough time against a Democrat in the general. But Specter vs. Toomer in the general will be a landslide.
This is actually not that great of news for the Democrats. This move gives the Dems a nominal 60 votes, but they'll have to worry about defections from moderates like Specter, Ben Nelson of Nebraska, etc. If Specter had stayed with the Republicans, he would have lost the primary to Toomer, and whatever liberal Democrat won the primary would romp to victory.
Specter's statement.
Makes sense. Specter can't win the GOP primary against Toomer, and even if Toomer disappeared, Specter would have a tough time against a Democrat in the general. But Specter vs. Toomer in the general will be a landslide.
This is actually not that great of news for the Democrats. This move gives the Dems a nominal 60 votes, but they'll have to worry about defections from moderates like Specter, Ben Nelson of Nebraska, etc. If Specter had stayed with the Republicans, he would have lost the primary to Toomer, and whatever liberal Democrat won the primary would romp to victory.
Specter's statement.
More Details on Chrysler Deal
This AP article has a little bit more about the tentative agreement between Chrysler and its creditors.
As I imagine it, Treasury sat down with the 4 big banks which have collectively taken more than a trillion dollars from the Fed and the government, and bludgeoned them into submission. In the context of 13-figure numbers, each of them giving way on $500 million is just a rounding error and a favor for a friend. The question is whether the smaller banks and hedge funds will go for the deal. As I understand it, they'll need 90% of the debt-holders to agree to the settlement. No idea whether that will happen or not.
As for Fiat, it looks like they will wait until the very last minute to agree or disagree. The tentative deal appears to give them 20% of the company, with the ability to increase that share to 35% if they hit certain performance milestones. They are not required to inject any cash. That sounds like a pretty good deal for them. If the creditors settle on the tentative agreement in its current form, I don't expect Fiat's agreement to be a sticking point.
A person familiar with the talks says the Treasury Department has reached a tentative agreement with four of Chrysler's major debtholders as the automaker races to stave off bankruptcy.
Under the agreement, the four banks will forgo claims to the $6.9 billion worth of Chrysler debt they hold in exchange for $2 billion in cash when the deal closes, says the person, speaking on condition of anonymity because the agreement has not been formally announced.
The person says Treasury needs to convince all 46 banks and hedge funds that hold Chrysler debt to go along. If not, a bankruptcy filing could still be possible for the nation's third largest automaker.
As I imagine it, Treasury sat down with the 4 big banks which have collectively taken more than a trillion dollars from the Fed and the government, and bludgeoned them into submission. In the context of 13-figure numbers, each of them giving way on $500 million is just a rounding error and a favor for a friend. The question is whether the smaller banks and hedge funds will go for the deal. As I understand it, they'll need 90% of the debt-holders to agree to the settlement. No idea whether that will happen or not.
As for Fiat, it looks like they will wait until the very last minute to agree or disagree. The tentative deal appears to give them 20% of the company, with the ability to increase that share to 35% if they hit certain performance milestones. They are not required to inject any cash. That sounds like a pretty good deal for them. If the creditors settle on the tentative agreement in its current form, I don't expect Fiat's agreement to be a sticking point.
Chysler has deal with creditors?
From the WashPost this morning. So far it's just this one article, citing an anonymous source with no credentials. Apparently the creditors are willing to cut their $6.5 billion in bonds to $2 billion plus a 10% equity stake. I guess we'll see...
Trading Strategies -- The Big Bid
Saw something interesting this morning. For a week or so there's been a giant bid on the GM.CHAP11.DEC09 issue, something like 6500 contracts at 70. Then this morning, that bid disappeared and was immediately replaced by a giant ask of 4700 at 70. I might switch from buying to selling with 5 to 20 contracts based on news or instinct, but to do it with thousands is very unusual. There hasn't been that much news, just that Chrysler reached a tentative agreement with the unions.
I'm going to assume that whoever has thousands of dollars to throw around like that is not a complete idiot. First, if you actually want action, you don't put up enormous orders like that. The big money is often the smart money, so seeing those giant orders intimidates people and makes them re-think their intentions. As long as the giant offer is at a reasonable price, it doesn't get that much action. Instead, it puts a floor under the trading price. If you want to sell GM.CHAP11 and see someone wants to buy 6500 at 70, you'll figure they'll probably be willing to buy your 20 contracts at 72 or 75. Conversely, if you want to buy GM.CHAP11, you know you'll have to bid higher than 70 to get any action. The big bid scares sellers and encourages buyers to bid higher. Consequently, they are a way to push the price up without really buying much yourself.
Here's what I think happened. The big bidder actually wanted to short GM.CHAP11. He put a floor on the price at 70, which caused the contract to trade in the mid 70's, where he shorted a bunch of it. The Chrysler news pushed down the CHRYSLER.CHAP11 contracts below 70, where people such as myself bought CHRYSLER.CHAP11 and sold GM.CHAP11. With the tide turning, the big bidder is now doing the same process in reverse, with a giant ask holding the price below 70 while he buys back at 65 what he shorted at 75.
As a caveat, I have a tendency to see conspiracy and complexity where there isn't any. It may just be that the big bidder saw the Chrysler news and changed his mind. Still, the Big Bid Strategy is something the high rollers can keep in their playbooks.
I'm going to assume that whoever has thousands of dollars to throw around like that is not a complete idiot. First, if you actually want action, you don't put up enormous orders like that. The big money is often the smart money, so seeing those giant orders intimidates people and makes them re-think their intentions. As long as the giant offer is at a reasonable price, it doesn't get that much action. Instead, it puts a floor under the trading price. If you want to sell GM.CHAP11 and see someone wants to buy 6500 at 70, you'll figure they'll probably be willing to buy your 20 contracts at 72 or 75. Conversely, if you want to buy GM.CHAP11, you know you'll have to bid higher than 70 to get any action. The big bid scares sellers and encourages buyers to bid higher. Consequently, they are a way to push the price up without really buying much yourself.
Here's what I think happened. The big bidder actually wanted to short GM.CHAP11. He put a floor on the price at 70, which caused the contract to trade in the mid 70's, where he shorted a bunch of it. The Chrysler news pushed down the CHRYSLER.CHAP11 contracts below 70, where people such as myself bought CHRYSLER.CHAP11 and sold GM.CHAP11. With the tide turning, the big bidder is now doing the same process in reverse, with a giant ask holding the price below 70 while he buys back at 65 what he shorted at 75.
As a caveat, I have a tendency to see conspiracy and complexity where there isn't any. It may just be that the big bidder saw the Chrysler news and changed his mind. Still, the Big Bid Strategy is something the high rollers can keep in their playbooks.
NY-20 Postgame
On the big contracts like this, I like to look back and evaluate what I did right and wrong.
Right:
-Handicapped the race at 50/50 back on March 25th. Ordinarily with events like this, it's hard to judge whether your probability assessment is correct or not. Say you think there's a 60% chance something happens one way, and it happens the other way. Even if your judgment of the probabilities is exactly correct, the outcome will come out "wrong" 40% of the time. But when the margin of victory comes down to 0.2% of the total votes cast, you know the real odds were pretty damn close to 50/50.
-Bet aggressively once the election was over, at pretty good prices. I'm guessing someone else took a look at the partisan registration of the remaining absentee ballots, saw that a large plurality were Republican, and thought this was a no-brainer.
-Once the absentee data was available, I built two models of how the votes would come it, and they basically agreed that Murphy would win by 200 votes (he actually won by 399). So, you could look at that two ways: the models got the outcome right, but they were also off by 100%. On the other hand, neither of the models incorporated affidavit ballots, which I speculated could add 100 to 500 votes to Murphy's total. So I'll just go ahead and make this a total OGC post and say I called both of those correctly.
Wrong:
-Did not bet aggressively enough before the election. Murphy was available as low as 37 before the election; that's a 33% edge if the true odds were 50/50.
-I got anchored on the price of my early position, which I bought between 30 and 40. My biggest regret is not putting down an extra $1000 on Murphy at 45 before the recount started, because my models were saying Murphy was better than 50% to win. I also didn't really add to my position after the absentee results started coming in. Those early results were better than my model predicted, and I probably should have bought more Murphy contracts. At the time I thought the price was accurate in the mid-60s.
Woo Woo! Gearing up for the auto bankruptcies as the next big thing.
Right:
-Handicapped the race at 50/50 back on March 25th. Ordinarily with events like this, it's hard to judge whether your probability assessment is correct or not. Say you think there's a 60% chance something happens one way, and it happens the other way. Even if your judgment of the probabilities is exactly correct, the outcome will come out "wrong" 40% of the time. But when the margin of victory comes down to 0.2% of the total votes cast, you know the real odds were pretty damn close to 50/50.
-Bet aggressively once the election was over, at pretty good prices. I'm guessing someone else took a look at the partisan registration of the remaining absentee ballots, saw that a large plurality were Republican, and thought this was a no-brainer.
-Once the absentee data was available, I built two models of how the votes would come it, and they basically agreed that Murphy would win by 200 votes (he actually won by 399). So, you could look at that two ways: the models got the outcome right, but they were also off by 100%. On the other hand, neither of the models incorporated affidavit ballots, which I speculated could add 100 to 500 votes to Murphy's total. So I'll just go ahead and make this a total OGC post and say I called both of those correctly.
Wrong:
-Did not bet aggressively enough before the election. Murphy was available as low as 37 before the election; that's a 33% edge if the true odds were 50/50.
-I got anchored on the price of my early position, which I bought between 30 and 40. My biggest regret is not putting down an extra $1000 on Murphy at 45 before the recount started, because my models were saying Murphy was better than 50% to win. I also didn't really add to my position after the absentee results started coming in. Those early results were better than my model predicted, and I probably should have bought more Murphy contracts. At the time I thought the price was accurate in the mid-60s.
Woo Woo! Gearing up for the auto bankruptcies as the next big thing.
Killing Chrysler so GM Knows We're Serious
The Chrysler bondholders' game of chicken is about to end badly. It looks like the bankruptcy preparations are nearly complete.
There really hasn't been much negotiation here. Chrysler owes a total of $7 billion. The government offered the bondholders $1 billion plus a small equity stake. The bondholders came back with$2.5$4.5 billion plus a 40% equity stake, saying they could recover at least that much in bankruptcy proceedings. Today the government upped its offer to $1.5 billion and 5% equity. Anything's possible, but it's hard to imagine these guys coming to a compromise in the next week.
Neither the government nor the bondholders has a really strong incentive to avoid bankruptcy. Many of the bondholders likely also own credit default swaps on their debt. If formal bankruptcy proceedings begin, the CDS pay off. If the bondholders renegotiate the debt outside of bankruptcy, the CDS don't pay. This makes them "empty creditors" who will do better in bankruptcy than outside.
Letting Chrysler fail is also good for the government's negotiations with GM. Chrysler, unlike GM, is small enough to fail. Chrysler has 66,500 employees; GM has 243,000. Chrysler's debt is $7 billion; GM's is $47 billion. By refusing to overextend its offer on Chrysler, the government sets a bar for what GM's creditors can expect.
I'm long Chrysler bankruptcy at 73 and short GM bankruptcy at 65.
There really hasn't been much negotiation here. Chrysler owes a total of $7 billion. The government offered the bondholders $1 billion plus a small equity stake. The bondholders came back with
Neither the government nor the bondholders has a really strong incentive to avoid bankruptcy. Many of the bondholders likely also own credit default swaps on their debt. If formal bankruptcy proceedings begin, the CDS pay off. If the bondholders renegotiate the debt outside of bankruptcy, the CDS don't pay. This makes them "empty creditors" who will do better in bankruptcy than outside.
Letting Chrysler fail is also good for the government's negotiations with GM. Chrysler, unlike GM, is small enough to fail. Chrysler has 66,500 employees; GM has 243,000. Chrysler's debt is $7 billion; GM's is $47 billion. By refusing to overextend its offer on Chrysler, the government sets a bar for what GM's creditors can expect.
I'm long Chrysler bankruptcy at 73 and short GM bankruptcy at 65.
SBFD
I'm going to declare Jane Harman SBFD, or Safe Barring Further Developments. While dailykos continues to call for her head, actual Democratic Congresspeople are not particularly outraged. Pelosi, Harman's erstwhile enemy, has given a statement of support. Congress is more concerned that one of their own was wiretapped, rather than with the scandal the wiretapping revealed. The Republicans seem content to watch from the sidelines.
That said, there probably will be Further Developments. I'm sure there are a dozen reporters digging on this. Hopefully we'll soon read the actual transcript of the wiretaps, which will provide a more definitive answer.
That said, there probably will be Further Developments. I'm sure there are a dozen reporters digging on this. Hopefully we'll soon read the actual transcript of the wiretaps, which will provide a more definitive answer.
Harman Contract is Up
Under Politics--US Congress--Will Jane Harman depart from her position as US Representative before May 2009?
I started things off with a bid at 25 and ask at 45.
There's been far more anger from the Daily Kos crowd than the right-wing bloggers. Here's a dkos blogger teasing apart Harman's interview on NPR.
I started things off with a bid at 25 and ask at 45.
There's been far more anger from the Daily Kos crowd than the right-wing bloggers. Here's a dkos blogger teasing apart Harman's interview on NPR.
Jane Harman: Innocent Victim of Smear Campaign
Jane Harman defends herself on MSNBC, using a phrase which has absolutely no unfortunate historical precedents.
Harman: "If there are tapes out there, bring it on!"
Harman: "If there are tapes out there, bring it on!"
Jane Harman: Treasonous Traitor
I decided to try Intrade's new system in which users can have new contracts of their choice written. The Harman case should be an interesting test.
Earlier this week, Congressional Quarterly broke a story about Rep. Jane Harman (D-CA). In brief, she was caught on wiretaps talking to Israeli spies. She allegedly promised to work to reduce the sentences for 2 Israeli agents who had been caught, in exchange for Israel's help in getting her appointed chair of the House Intelligence Committee. This news first leaked in 2006, but (again allegedly) it was quashed by Alberto Gonzales, in exchange for Harman's help in defending Bush's warrantless wiretapping program.
Today Harman demanded that the Department of Justice release the transcripts of the wiretaps, in an effort to prove her innocence.
This should be a good contract, because:
-It's a good juicy story full of intrigue and corruption. It was on the front page of the NY Times today.
-New information will be coming out in drips and drabs over the next couple weeks.
-The outcome is not a foregone conclusion. I think there's a 40% chance she resigns over this.
Before Harman's response today, I would have put the odds of resignation much higher. This is an indefensible scandal. It's something that can be pursued by both the left and the right. The right would love to take down a Democrat for collaborating with foreign spies. The left would like to pile on Gonzales and add momentum to the prosecution of those involved in torturing prisoners. Already the dailykos crowd is tossing her under the bus.
But her demand that the tapes be released to the public indicates she wants to try to fight this. Evidently she feels she's being railroaded, and thinks the tapes will actually clear her.
So it should be interesting to watch. Since I sponsored the contract, I'll be shilling it here over the coming days and weeks.
Earlier this week, Congressional Quarterly broke a story about Rep. Jane Harman (D-CA). In brief, she was caught on wiretaps talking to Israeli spies. She allegedly promised to work to reduce the sentences for 2 Israeli agents who had been caught, in exchange for Israel's help in getting her appointed chair of the House Intelligence Committee. This news first leaked in 2006, but (again allegedly) it was quashed by Alberto Gonzales, in exchange for Harman's help in defending Bush's warrantless wiretapping program.
Today Harman demanded that the Department of Justice release the transcripts of the wiretaps, in an effort to prove her innocence.
This should be a good contract, because:
-It's a good juicy story full of intrigue and corruption. It was on the front page of the NY Times today.
-New information will be coming out in drips and drabs over the next couple weeks.
-The outcome is not a foregone conclusion. I think there's a 40% chance she resigns over this.
Before Harman's response today, I would have put the odds of resignation much higher. This is an indefensible scandal. It's something that can be pursued by both the left and the right. The right would love to take down a Democrat for collaborating with foreign spies. The left would like to pile on Gonzales and add momentum to the prosecution of those involved in torturing prisoners. Already the dailykos crowd is tossing her under the bus.
But her demand that the tapes be released to the public indicates she wants to try to fight this. Evidently she feels she's being railroaded, and thinks the tapes will actually clear her.
So it should be interesting to watch. Since I sponsored the contract, I'll be shilling it here over the coming days and weeks.
Thanks Google!
Looking over some of the search terms that people used to find my site:
"it's all just bullshit anyway"
"skip all the bullshit i want money"
"freemonies"
"ask.com, how tall ispolitician scott murpht?"
"franken human filth"
"coleman franken jew charade"
I don't think "coleman franken jew charade" found what he was looking for...
"it's all just bullshit anyway"
"skip all the bullshit i want money"
"freemonies"
"ask.com, how tall ispolitician scott murpht?"
"franken human filth"
"coleman franken jew charade"
I don't think "coleman franken jew charade" found what he was looking for...
New Markets: Assault Weapons Ban and Obama Visits
Intrade opened up a couple new markets this weekend. The first set asks whether there will be a reinstatement of the ban on assault weapons before the end of 2009 or 2010. I'm surprised this got listed, because there's less than a 1% chance it happens.
The prospect of an assault weapons ban is mainly something dreamed up by conservatives. Democrats learned their lesson about gun control: try to take away guns, and you lose elections. Particularly in Rust Belt states like Pennsylvania and Ohio. Right now the Democrats have their sights set on health care, the economy, and CO2 caps. It makes absolutely no sense for them to pursue this politically deadly area.
The only way there is legislation in this area is if there is a shooting on a massive scale, bigger than Virginia Tech. I put out a short bid on the Dec.09 contract.
The second set of contracts deals with whether Obama will visit Cuba, Iran, North Korea, or Syria. This is harder to handicap. I won't go short here because it will take until 2013 for these contracts to expire. Obama has certainly opened the door to more friendly diplomatic relations with countries which were demonized by the Bush administration. If any of these countries were to make significant moves towards democracy or even just friendlier relations, I could easily see Obama visiting. Cuba in particular: if Raul and Fidel Castro die or retire, and are replaced by someone who says the right things about democracy, Obama would probably visit to give his official stamp of approval. Overall, though, there's too many moving parts and too much uncertainty for me to bet here.
The prospect of an assault weapons ban is mainly something dreamed up by conservatives. Democrats learned their lesson about gun control: try to take away guns, and you lose elections. Particularly in Rust Belt states like Pennsylvania and Ohio. Right now the Democrats have their sights set on health care, the economy, and CO2 caps. It makes absolutely no sense for them to pursue this politically deadly area.
The only way there is legislation in this area is if there is a shooting on a massive scale, bigger than Virginia Tech. I put out a short bid on the Dec.09 contract.
The second set of contracts deals with whether Obama will visit Cuba, Iran, North Korea, or Syria. This is harder to handicap. I won't go short here because it will take until 2013 for these contracts to expire. Obama has certainly opened the door to more friendly diplomatic relations with countries which were demonized by the Bush administration. If any of these countries were to make significant moves towards democracy or even just friendlier relations, I could easily see Obama visiting. Cuba in particular: if Raul and Fidel Castro die or retire, and are replaced by someone who says the right things about democracy, Obama would probably visit to give his official stamp of approval. Overall, though, there's too many moving parts and too much uncertainty for me to bet here.
Chutzpah
What on earth? From the Columbia, NY Register-Star:
Tedisco asks to be declared winner
Looks like Tedisco is still in the grips of cognitive dissonance. This may take a while...
____________
Update: From The Hill:
I don't quite understand the legalities behind this, but it at least appears to have some basis in reality.
Tedisco asks to be declared winner
20th Congressional District candidate Republican Jim Tedisco submitted a petition to the Dutchess County Supreme Court Thursday asking the judge to declare him the winner of the extremely close special election race, despite the numbers currently being in favor of his opponent, Democrat Scott Murphy.
Tedisco is also asking the court to authorize recanvasing of all machine ballots to acquire the “proper” tallies. He would like them to reassess the validity of absentee votes already counted, and keep ballots challenged by Tedisco unopened.
Looks like Tedisco is still in the grips of cognitive dissonance. This may take a while...
____________
Update: From The Hill:
We've received some clarification from the Tedisco campaign. The purpose of the petition was simply to mirror a similar motion filed two weeks ago that named Joe Mondello, Chairman of the New York Republican Party, as plaintiff. Murphy's lawyers had raised questions about Mondello's standing, so the Tedisco campaign re-filed the motion last night as an "insurance policy"–it was not meant as a new effort to be declared winner in spite of the vote count.
The petition is "procedurally something we are utilizing to make sure we maintain the standing necessary to maintain the court's oversight of the recount," said James Walsh, counsel to the Tedisco campaign. "This just brings Mr. Tedisco as a plaintiff to make sure we preserve all of our rights."
I don't quite understand the legalities behind this, but it at least appears to have some basis in reality.
Game Theory, Playing Chicken, and Bankruptcy Negotiations
Yesterday I took off early from work to go on a date. We went a park and rented a paddleboat, which we promptly used to play chicken with the local ducks. We won, of course, and there was much smack talking.
Traditionally, chicken is played not with paddleboats and ducks. As seen in Rebel Without a Cause and Paula Abdul's Rush Rush video, chicken is a game for cars. The concept is simple: whoever chickens out first, loses, but if neither driver chickens out, they both die. The game theory of chicken is simple as well. In order to win, you must convince your opponent that you are more willing to risk death than he is. Removing the brakes and the steering wheel from your car before playing is an excellent strategy.
In these postmodern financial times, actual assets are boring. The real action is on meta-derivative assets, like betting on the volatility of credit-default swaps on mortgage-backed CDO-squareds. Similarly, chicken is played not with actual cars, but with GM bonds.
As everyone knows, GM is swamped with debt, and President Obama has declared that it must re-negotiate that debt with its creditors before any additional government aid will be offered. Depending on the terms of the re-negotiation, bondholders will gain or lose billions of dollars. If the two sides can't agree to terms, GM will go into bankruptcy, the results of which are murky but probably very bad for both sides. Therefore, both GM and its bond-holders have a huge incentive to claim they're removing their steering wheels and brakes. Obama and GM's management have made it clear that they consider bankruptcy not only possible, but even an agreeable option. Similarly, the big bondholders have been talking tough and refusing to give up much in any negotiation.
This means we can't trust any public statements by anyone involved. Everyone has the incentive to make it look like they are perfectly happy going through bankruptcy. It's very very hard to get an accurate idea of what is going on behind closed doors. Right now, though, I wouldn't bet against GM making a last-second turn.
Traditionally, chicken is played not with paddleboats and ducks. As seen in Rebel Without a Cause and Paula Abdul's Rush Rush video, chicken is a game for cars. The concept is simple: whoever chickens out first, loses, but if neither driver chickens out, they both die. The game theory of chicken is simple as well. In order to win, you must convince your opponent that you are more willing to risk death than he is. Removing the brakes and the steering wheel from your car before playing is an excellent strategy.
In these postmodern financial times, actual assets are boring. The real action is on meta-derivative assets, like betting on the volatility of credit-default swaps on mortgage-backed CDO-squareds. Similarly, chicken is played not with actual cars, but with GM bonds.
As everyone knows, GM is swamped with debt, and President Obama has declared that it must re-negotiate that debt with its creditors before any additional government aid will be offered. Depending on the terms of the re-negotiation, bondholders will gain or lose billions of dollars. If the two sides can't agree to terms, GM will go into bankruptcy, the results of which are murky but probably very bad for both sides. Therefore, both GM and its bond-holders have a huge incentive to claim they're removing their steering wheels and brakes. Obama and GM's management have made it clear that they consider bankruptcy not only possible, but even an agreeable option. Similarly, the big bondholders have been talking tough and refusing to give up much in any negotiation.
This means we can't trust any public statements by anyone involved. Everyone has the incentive to make it look like they are perfectly happy going through bankruptcy. It's very very hard to get an accurate idea of what is going on behind closed doors. Right now, though, I wouldn't bet against GM making a last-second turn.
NY-20: It's Over
Saratoga county, Tedisco's stronghold, reported in this afternoon. Despite Tedisco's gain of 163 votes there, Murphy still leads by 86. There are more ballots still to come from Murphy's base counties of Warren and Columbia. Most of the military ballots have already been counted. Tedisco just doesn't have anything else to look forward to.
Murphy probably has another net +200 votes hidden in challenged ballots. Not sure how long it'll take for those to be settled. I suspect Tedisco will wait for the count to be completed, and then concede the race without a court fight. Unlike Norm Coleman, he doesn't have much incentive to delay Murphy from being seated. Having the 59th vote in the Senate is critical; having 1 more House vote is meaningless. Plus Tedisco will probably run again in 2010, and he doesn't want the "sore loser" label sticking to him.
Made about $6.5k on this trade. I'll close out my position at 97 if anyone's interested.
Murphy probably has another net +200 votes hidden in challenged ballots. Not sure how long it'll take for those to be settled. I suspect Tedisco will wait for the count to be completed, and then concede the race without a court fight. Unlike Norm Coleman, he doesn't have much incentive to delay Murphy from being seated. Having the 59th vote in the Senate is critical; having 1 more House vote is meaningless. Plus Tedisco will probably run again in 2010, and he doesn't want the "sore loser" label sticking to him.
Made about $6.5k on this trade. I'll close out my position at 97 if anyone's interested.
Facebook IPO
I got a message today asking what price I wanted to go long on the Facebook IPO. Here's my thinking about that.
The market conditions are terrible for an IPO. They're slightly less terrible than a month ago, as evidenced by Changyou's recent successful IPO. But we're a long way from the exuberance of 2 years ago. If Facebook goes public now, it will make less money than if it had done it back in the good old days.
That said, Facebook may have no choice. Facebook has a very valuable property, but they're still losing money. Without additional investment, they will probably run out of cash before turning a profit.
The reason I got interested in this market is because Facebook recently let their CFO go, and announced they were seeking someone with "public company experience." Facebook's CFO had been going around to potential private partners, seeking new investment. He was not able to land any. I can't tell whether the CFO was fired because they want to go public, or because he failed at his biggest job, which was to secure additional financing.
In order for an IPO to occur, Facebook will first need to find a replacement CFO. That will take 3-6 months. Then they'll need to get all their ducks in a row with their underwriter and regulators, which will take more time. Then they have to hope that the market has not plunged even further by that point. I'm not at all confident that they would be able to complete all this by the end of the year.
Facebook is not in a desperate situation. They've said they have enough cash to last at least into next year. If conditions aren't right for an IPO, they can pay 10-12% for a 1-2 year loan to tide themselves over.
All that said, I put up 200 orders at 25 on the IPO.FACEBOOK.DEC09 contracts.
The market conditions are terrible for an IPO. They're slightly less terrible than a month ago, as evidenced by Changyou's recent successful IPO. But we're a long way from the exuberance of 2 years ago. If Facebook goes public now, it will make less money than if it had done it back in the good old days.
That said, Facebook may have no choice. Facebook has a very valuable property, but they're still losing money. Without additional investment, they will probably run out of cash before turning a profit.
The reason I got interested in this market is because Facebook recently let their CFO go, and announced they were seeking someone with "public company experience." Facebook's CFO had been going around to potential private partners, seeking new investment. He was not able to land any. I can't tell whether the CFO was fired because they want to go public, or because he failed at his biggest job, which was to secure additional financing.
In order for an IPO to occur, Facebook will first need to find a replacement CFO. That will take 3-6 months. Then they'll need to get all their ducks in a row with their underwriter and regulators, which will take more time. Then they have to hope that the market has not plunged even further by that point. I'm not at all confident that they would be able to complete all this by the end of the year.
Facebook is not in a desperate situation. They've said they have enough cash to last at least into next year. If conditions aren't right for an IPO, they can pay 10-12% for a 1-2 year loan to tide themselves over.
All that said, I put up 200 orders at 25 on the IPO.FACEBOOK.DEC09 contracts.
Still Looking Pretty Good for Murphy
Five of the 10 counties have finished counting their absentee ballots. The results look promising for Murphy. The graphic below compares the projection from my model based on election-night results with the actual reported numbers. There have also been a number of challenges in each county. Following Minnesota, I've assumed that these are all frivolous attempts to keep out an opponent's vote.
Murphy has outperformed by a total of 78 votes out of 1546 counted, or about 5%. From these 5 counties, there are about 50 military votes yet to be counted. Murphy will probably get at least 25% of these, yielding a gain of 25 or so to Tedisco.
The model originally predicted Murphy would gain about 150 from absentees, to overcome his election-night deficit of 75. If the results from the 5 smaller counties extrapolate to the 5 larger counties, he'll gain an additional 225, for a total victory of 300 votes.
______
Edit to add: Turns out that the military doesn't break Republican as sharply as it used to. Obama won 44% of the military vote in 2008. Murphy will probably not do that well. Obama had the advantage of an endorsement from Colin Powell, and strong support from African-Americans. Still, Murphy will probably get at least 33%, which would improve his projected margin to +367.
Murphy has outperformed by a total of 78 votes out of 1546 counted, or about 5%. From these 5 counties, there are about 50 military votes yet to be counted. Murphy will probably get at least 25% of these, yielding a gain of 25 or so to Tedisco.
The model originally predicted Murphy would gain about 150 from absentees, to overcome his election-night deficit of 75. If the results from the 5 smaller counties extrapolate to the 5 larger counties, he'll gain an additional 225, for a total victory of 300 votes.
______
Edit to add: Turns out that the military doesn't break Republican as sharply as it used to. Obama won 44% of the military vote in 2008. Murphy will probably not do that well. Obama had the advantage of an endorsement from Colin Powell, and strong support from African-Americans. Still, Murphy will probably get at least 33%, which would improve his projected margin to +367.
The Wile E. Coyote Bailout
One of the things I like about blogging is that when someone writes something that's just fucking stupid, I don't have to tiptoe around it.
First let's hear from someone who's smart. Take a look at this fascinating Bill Moyers interview with William Black. William Black is an economist who played a key role in resolving the Savings & Loan crisis in the 1980's. He has a deep, insiders understanding of how the banking system works. His opinion is that the nation's biggest banks intentionally made bad loans to bulk up their profits and their executives' bonuses. The current crisis was not only foreseeable but inevitable, given the way banks made loans without making the slightest effort to verify borrowers' job, income, and qualifications. And now we're in a situation where our top economic policymakers publicly deny the severity of the crisis, while shoveling trillions to the banks as quietly as possible. The whole interview is worth reading.
Now contrast that to this imbecilic column in Time: "More Quickly Than It Began, the Banking Crisis Is Over." The tone is ridiculously authoritative, especially given that the author is a failed dot-com executive with no experience in the banking industry. Hey! It turns out the government's plans worked perfectly! So perfectly we can ignore those silly "stress tests" and go back to the way things were! You know, when the economy was based on flipping houses and borrowing from the Chinese.
What was the magic turning point? Wells Fargo made $3 billion in the first quarter this year. Which should come as absolutely no surprise to anyone who follows this stuff. Fundamentally, banks are in the business of borrowing short-term money and lending long-term money. The Fed has reduced short term rates to 0%, while long-term rates are 4.5% or above, which is an unprecedented spread. That's no accident--allowing banks to try to earn their way out of the crisis was a big reason for the ultra-low short term rates. Of course banks are going to earn money this quarter.
How much is $3 billion, though, really? Looking over Wells Fargo's balance sheet, they're holding $860 billion in loans ready to go bad. Nobody really knows how bad it'll get, but do you think their loan portfolio might be worth 0.3% less than they claim it is? It's going to take a lot of $3 billion quarters to make up for the losses on that portfolio.
Geithner's plan seems to be, "As long as everyone pretends the banks are solvent, we'll be fine." He's arranged for the PPIP plan to overbid on toxic assets so the banks can mark them higher on their books. He's created phony stress tests with overly optimistic numbers so as to give the banks a clean bill of health. Like Wile E. Coyote chasing the roadrunner off a cliff, we'll be fine as long as we don't look down. I don't know how long they can keep this up, but I don't recall Time publishing anything this dumb since they named Amazon's CEO as Man of the Year just before the dot-com crash.
First let's hear from someone who's smart. Take a look at this fascinating Bill Moyers interview with William Black. William Black is an economist who played a key role in resolving the Savings & Loan crisis in the 1980's. He has a deep, insiders understanding of how the banking system works. His opinion is that the nation's biggest banks intentionally made bad loans to bulk up their profits and their executives' bonuses. The current crisis was not only foreseeable but inevitable, given the way banks made loans without making the slightest effort to verify borrowers' job, income, and qualifications. And now we're in a situation where our top economic policymakers publicly deny the severity of the crisis, while shoveling trillions to the banks as quietly as possible. The whole interview is worth reading.
Now contrast that to this imbecilic column in Time: "More Quickly Than It Began, the Banking Crisis Is Over." The tone is ridiculously authoritative, especially given that the author is a failed dot-com executive with no experience in the banking industry. Hey! It turns out the government's plans worked perfectly! So perfectly we can ignore those silly "stress tests" and go back to the way things were! You know, when the economy was based on flipping houses and borrowing from the Chinese.
What was the magic turning point? Wells Fargo made $3 billion in the first quarter this year. Which should come as absolutely no surprise to anyone who follows this stuff. Fundamentally, banks are in the business of borrowing short-term money and lending long-term money. The Fed has reduced short term rates to 0%, while long-term rates are 4.5% or above, which is an unprecedented spread. That's no accident--allowing banks to try to earn their way out of the crisis was a big reason for the ultra-low short term rates. Of course banks are going to earn money this quarter.
How much is $3 billion, though, really? Looking over Wells Fargo's balance sheet, they're holding $860 billion in loans ready to go bad. Nobody really knows how bad it'll get, but do you think their loan portfolio might be worth 0.3% less than they claim it is? It's going to take a lot of $3 billion quarters to make up for the losses on that portfolio.
Geithner's plan seems to be, "As long as everyone pretends the banks are solvent, we'll be fine." He's arranged for the PPIP plan to overbid on toxic assets so the banks can mark them higher on their books. He's created phony stress tests with overly optimistic numbers so as to give the banks a clean bill of health. Like Wile E. Coyote chasing the roadrunner off a cliff, we'll be fine as long as we don't look down. I don't know how long they can keep this up, but I don't recall Time publishing anything this dumb since they named Amazon's CEO as Man of the Year just before the dot-com crash.
Early results looking good for Murphy
The machine recanvassing was completed last night, giving Tedisco a margin of 68 votes from what was cast on election night.
Election workers also began counting absentee ballots. MSNBC has an overview of the preliminary results, and they look good for Murphy. With only partial results from a few counties, Murphy has narrowed the gap to 24.
Rensselaer County appears to be the only county that has completed the absentee counting process. 428 domestic absentee ballots were sent in, of which 217 went to Murphy and 209 to Tedisco. Apparently there were no challenges or rejected ballots. 20 military ballots and 9 federal ballots remain to be counted. These will probably end up giving Tedisco a single-digit lead. Tedisco won 51.51% of the vote on election night; applying that margin to the absentees would have predicted a Tedisco gain of 14 votes. These are small numbers, but it appears Murphy is outperforming his election-night margins.
Preliminary results from other counties also suggest Murphy is outperforming. If these trends hold, Murphy will win by more than 200 votes.
Election workers also began counting absentee ballots. MSNBC has an overview of the preliminary results, and they look good for Murphy. With only partial results from a few counties, Murphy has narrowed the gap to 24.
Rensselaer County appears to be the only county that has completed the absentee counting process. 428 domestic absentee ballots were sent in, of which 217 went to Murphy and 209 to Tedisco. Apparently there were no challenges or rejected ballots. 20 military ballots and 9 federal ballots remain to be counted. These will probably end up giving Tedisco a single-digit lead. Tedisco won 51.51% of the vote on election night; applying that margin to the absentees would have predicted a Tedisco gain of 14 votes. These are small numbers, but it appears Murphy is outperforming his election-night margins.
Preliminary results from other counties also suggest Murphy is outperforming. If these trends hold, Murphy will win by more than 200 votes.
X-Factor: Provisional Ballots
I've built this up a little too much, given the paucity of information available.
But virtually no one is talking about the impact of provisional ballots on the NY-20 count. Provisional ballots (called "affidavit ballots" in NY) are cast by people who believe they are eligible voters but do not appear on the rolls at their polling place. In many cases these are people who are not actually eligible voters, but some are people who moved within the district and went to the wrong polling station, or similar things. Affidavit ballots tend to pull very heavily towards the Democrats.
There does not appear to be any information available online about these ballots. Based on other races, I'd speculate there are about 3,000, give or take 5,000. Assume 30% turn out to be valid votes, and that those favor Murphy by 20 points, and they add another 180 votes to Murphy's column. Obviously that number is a wild-ass guess, but I don't think it's too far off to suggest these ballots could give Murphy another 100 votes, and I wouldn't be shocked if they added 500.
Trivia: the NY State Elections Board breaks down the absentee ballots into "Domestic," "Military," and "Federal." What are the Federal ballots? US citizens who move abroad are no longer allowed to vote on state and local races, but they are allowed to vote for Congress in the district where they last lived in the US. My guess is these will lean somewhat Democratic, but who knows?
But virtually no one is talking about the impact of provisional ballots on the NY-20 count. Provisional ballots (called "affidavit ballots" in NY) are cast by people who believe they are eligible voters but do not appear on the rolls at their polling place. In many cases these are people who are not actually eligible voters, but some are people who moved within the district and went to the wrong polling station, or similar things. Affidavit ballots tend to pull very heavily towards the Democrats.
There does not appear to be any information available online about these ballots. Based on other races, I'd speculate there are about 3,000, give or take 5,000. Assume 30% turn out to be valid votes, and that those favor Murphy by 20 points, and they add another 180 votes to Murphy's column. Obviously that number is a wild-ass guess, but I don't think it's too far off to suggest these ballots could give Murphy another 100 votes, and I wouldn't be shocked if they added 500.
Trivia: the NY State Elections Board breaks down the absentee ballots into "Domestic," "Military," and "Federal." What are the Federal ballots? US citizens who move abroad are no longer allowed to vote on state and local races, but they are allowed to vote for Congress in the district where they last lived in the US. My guess is these will lean somewhat Democratic, but who knows?
Crossing Over
Shorter NY-20: It depends on how many Republicans voted for the Democrat.
NY-20 is a district with a huge Republican advantage in voter registration. 45% are Republicans, 29% Democrats, and 26% independents. However, this voter registration difference has not always translated into Republican victories. In 2008, Gillibrand (D) romped to re-election, and Obama carried the district 51-48. Essentially, there are plenty of Republican-registered voters who are happy to vote Democratic.
The election-night results came back in a dead heat. It is the 6,500 absentee ballots which will decide the winner. The NY state elections board has helpfully provided the breakdown of the outstanding ballots by party registration: 3111 Republicans, 2394 Democrats, and 976 non-affiliated. Clearly, if all the Republican-registered voters actually voted that way, Tedisco would win.
Just as clearly, there will be substantial crossover by Republicans. As 538 and others have pointed out, if the counties' absentee ballot results follow the same percentage breakdown as the election night results, Murphy will gain a couple hundred votes. The question is, how well will the absentees match up with the election night results?
Research in the 1980s suggested that absentee voters tended to lean Republican. More recent research has not supported that claim. One clear difference between absentees and regular voters is that the absentees are more strongly ideological. In one study of Texas elections, absentees were about 10% more likely to be "strong partisans," i.e. to vote a party-line ticket, and about 15% more likely to say they take a great deal of interest in politics. How much will this tendency of absentee voters to be more ideological reduce the Republican crossover?
I built a model. I make a lot of models.
Siena College took a poll just before the election. It had Murphy ahead 47-43, and it also gave the breakdown by party. Democrats favored Murphy 84-11, Republicans preferred Tedisco by a smaller margin, 64-27, and independents were split 45-44.
The basis of my model is that absentee ballots will follow similar patterns to the poll. This poll, of course, underestimated Tedisco's election-night results by 4 points. To correct for that, I added 4 points to Tedisco's partisan totals. For simplicity, I'll assume that all the Conservative ballots will go to Tedisco, and all the WFP and Independence party ballots will go to Murphy. (They're a fairly small portion of the total anyway.) Crunching the numbers, those assumptions give Murphy another 180 votes.
Okay, so what happens if absentee voters are more ideological and there's less Republican crossover? The partisan difference was 57% in the adjusted poll numbers (i.e. Tedisco did 57 points better among Republicans than Democrats, and vice versa with Murphy). Based on the study cited above, we'll increase that by 10%, to 63%. Then Tedisco does better with Republicans but worse with Democrats. The model still has Murphy gaining 136 votes.
For the model to give a statistical tie, the partisan difference needs to be increased to 81 points. I don't think that's likely. There's still a good bit of uncertainty here, but I think Murphy should obviously be better than 50% to win.
X-Factor still to come.
NY-20 is a district with a huge Republican advantage in voter registration. 45% are Republicans, 29% Democrats, and 26% independents. However, this voter registration difference has not always translated into Republican victories. In 2008, Gillibrand (D) romped to re-election, and Obama carried the district 51-48. Essentially, there are plenty of Republican-registered voters who are happy to vote Democratic.
The election-night results came back in a dead heat. It is the 6,500 absentee ballots which will decide the winner. The NY state elections board has helpfully provided the breakdown of the outstanding ballots by party registration: 3111 Republicans, 2394 Democrats, and 976 non-affiliated. Clearly, if all the Republican-registered voters actually voted that way, Tedisco would win.
Just as clearly, there will be substantial crossover by Republicans. As 538 and others have pointed out, if the counties' absentee ballot results follow the same percentage breakdown as the election night results, Murphy will gain a couple hundred votes. The question is, how well will the absentees match up with the election night results?
Research in the 1980s suggested that absentee voters tended to lean Republican. More recent research has not supported that claim. One clear difference between absentees and regular voters is that the absentees are more strongly ideological. In one study of Texas elections, absentees were about 10% more likely to be "strong partisans," i.e. to vote a party-line ticket, and about 15% more likely to say they take a great deal of interest in politics. How much will this tendency of absentee voters to be more ideological reduce the Republican crossover?
I built a model. I make a lot of models.
Siena College took a poll just before the election. It had Murphy ahead 47-43, and it also gave the breakdown by party. Democrats favored Murphy 84-11, Republicans preferred Tedisco by a smaller margin, 64-27, and independents were split 45-44.
The basis of my model is that absentee ballots will follow similar patterns to the poll. This poll, of course, underestimated Tedisco's election-night results by 4 points. To correct for that, I added 4 points to Tedisco's partisan totals. For simplicity, I'll assume that all the Conservative ballots will go to Tedisco, and all the WFP and Independence party ballots will go to Murphy. (They're a fairly small portion of the total anyway.) Crunching the numbers, those assumptions give Murphy another 180 votes.
Okay, so what happens if absentee voters are more ideological and there's less Republican crossover? The partisan difference was 57% in the adjusted poll numbers (i.e. Tedisco did 57 points better among Republicans than Democrats, and vice versa with Murphy). Based on the study cited above, we'll increase that by 10%, to 63%. Then Tedisco does better with Republicans but worse with Democrats. The model still has Murphy gaining 136 votes.
For the model to give a statistical tie, the partisan difference needs to be increased to 81 points. I don't think that's likely. There's still a good bit of uncertainty here, but I think Murphy should obviously be better than 50% to win.
X-Factor still to come.
First Day of Spring
Some people think the seasons change on baseball's opening day. Not me. For me it's opening day at the horse track. Horse racing is the only kind of gambling that I can't beat but I still enjoy. Sure, my boxed trifecta might not come in, but I think it's worth six bucks to threaten a horse with a trip to the glue factory. (I'm not sure what emoticon to add here to indicate that I actually love horses and that was Soviet-level black humor. Maybe a smiley Dostoevsky?)
NY-20: A couple of number-crunchers have begun looking at where the absentee ballots came from. They're correct that a county-by-county analysis gives Murphy an extra couple hundred votes. But they're missing another huge factor, which I'll talk about in a couple days.
I've got about $4k on Murphy, to win $6.5k. I want to add another $1k, if I can get it at 40-45. I'm not bridge-jumping this one because there's too much uncertainty, but I'm comfortable risking $5k. There's no huge rush in building a position. The lawyers will keep this one tied up for quite some time.
NY-20: A couple of number-crunchers have begun looking at where the absentee ballots came from. They're correct that a county-by-county analysis gives Murphy an extra couple hundred votes. But they're missing another huge factor, which I'll talk about in a couple days.
I've got about $4k on Murphy, to win $6.5k. I want to add another $1k, if I can get it at 40-45. I'm not bridge-jumping this one because there's too much uncertainty, but I'm comfortable risking $5k. There's no huge rush in building a position. The lawyers will keep this one tied up for quite some time.
My New Hero: Elizabeth Warren
US watchdog calls for bank executives to be sacked.
Great news for anyone who believes in good government. Elizabeth Warren is Congress' chief watchdog for the $700 billion in TARP funds. Her prior experience is as a law professor at Harvard, teaching contracts, commercial law, and bankruptcy. She's written several books about the financial difficulties faced by the American middle class.
So yeah, it turns out if you have a regulator who hasn't been bought and paid for by industry (unlike Geithner and Summers), they agree that you can't just pour money into the banks and hope for the best. The only problem? She doesn't have much official power. As we learned between 2000 and 2008, during a crisis, the executive branch pretty much runs everything. Warren has been complaining for some time about lack of accountability and transparency from the Treasury Department.
Geithner rolled out his plan to mixed reviews, and has been trying to drum up political support for it. This is the initiative that is supposed to clean up the banking mess. In that context, Warren's report is a bit of a "fuck you" to Geithner and Treasury. It is highly, highly unusual for the Treasury Secretary in a Democratic administration to be to be criticized publicly by a head regulator chosen by a Democratic Congress.
Warren's report this week will penetrate the news cycle for a couple days at least. It's hard to tell whether it will have any lasting effect.
Also: I'm accumulating a position on Murphy in NY-20. Though I think it's an open question whether the vote count gets resolved before November 2010.
Great news for anyone who believes in good government. Elizabeth Warren is Congress' chief watchdog for the $700 billion in TARP funds. Her prior experience is as a law professor at Harvard, teaching contracts, commercial law, and bankruptcy. She's written several books about the financial difficulties faced by the American middle class.
So yeah, it turns out if you have a regulator who hasn't been bought and paid for by industry (unlike Geithner and Summers), they agree that you can't just pour money into the banks and hope for the best. The only problem? She doesn't have much official power. As we learned between 2000 and 2008, during a crisis, the executive branch pretty much runs everything. Warren has been complaining for some time about lack of accountability and transparency from the Treasury Department.
Geithner rolled out his plan to mixed reviews, and has been trying to drum up political support for it. This is the initiative that is supposed to clean up the banking mess. In that context, Warren's report is a bit of a "fuck you" to Geithner and Treasury. It is highly, highly unusual for the Treasury Secretary in a Democratic administration to be to be criticized publicly by a head regulator chosen by a Democratic Congress.
Warren's report this week will penetrate the news cycle for a couple days at least. It's hard to tell whether it will have any lasting effect.
Also: I'm accumulating a position on Murphy in NY-20. Though I think it's an open question whether the vote count gets resolved before November 2010.
Obama: Don't worry guys, we won't really change anything
Here's why the market rallied after Obama's bank plan.
In the late 1800's, American industry was dominated by large, interlocking oligopolies known as trusts. These trusts dictated prices and used a variety of legal and extralegal methods to crush upstart competitors. This was the basis of the Gilded Age -- the owners of these trusts used their privileged positions to extract enormous personal wealth from the economy. The inequality of wealth during that period reached levels unrivaled in American history, at least until the past decade.
The end of the Gilded Age began 1901, when William McKinley was assassinated, thrusting Teddy Roosevelt into the Presidency. Roosevelt had built his name as a Progressive reformer, running against corruption and machine politics. Once in office, he quickly followed through on his reputation, breaking up 44 trusts during his 2 terms, and implementing the Square Deal and the Pure Food and Drug Act.
Obama has a similar opportunity. He is presented with a banking industry which has done its level best over the past 30 years to evade regulation and take on as much risk as it could -- risk which is ultimately borne by the taxpayer, rather than the bank's executives. And Obama has the political capital to break up these modern-day trusts. There is a standard, tested method of dealing with an insolvent banking system. It's the Swedish method: temporarily nationalize the failing banks, strip out the bad assets and pile them together in a "bad bank," and then re-privatize the banks along with new, effective regulations.
In other words, Obama could have ended the era of "too big to fail," but he chose not to. Instead, he agreed to Geithner's PPIP plan. As others have noted, this is essentially a way of handing off $500 billion more to the banks, without requiring any significant changes to the way they do business.
By choosing this giveaway over effective reform, Obama has signaled that he is not Teddy Roosevelt. He is not going to significantly challenge the present economic oligarchy. That's horrible news for the country as a whole, for consumers, for workers, for small businesses. But if you're one of the 30 enormous companies that make up the Dow Jones Industrial Average? Fucking brilliant.
In the late 1800's, American industry was dominated by large, interlocking oligopolies known as trusts. These trusts dictated prices and used a variety of legal and extralegal methods to crush upstart competitors. This was the basis of the Gilded Age -- the owners of these trusts used their privileged positions to extract enormous personal wealth from the economy. The inequality of wealth during that period reached levels unrivaled in American history, at least until the past decade.
The end of the Gilded Age began 1901, when William McKinley was assassinated, thrusting Teddy Roosevelt into the Presidency. Roosevelt had built his name as a Progressive reformer, running against corruption and machine politics. Once in office, he quickly followed through on his reputation, breaking up 44 trusts during his 2 terms, and implementing the Square Deal and the Pure Food and Drug Act.
Obama has a similar opportunity. He is presented with a banking industry which has done its level best over the past 30 years to evade regulation and take on as much risk as it could -- risk which is ultimately borne by the taxpayer, rather than the bank's executives. And Obama has the political capital to break up these modern-day trusts. There is a standard, tested method of dealing with an insolvent banking system. It's the Swedish method: temporarily nationalize the failing banks, strip out the bad assets and pile them together in a "bad bank," and then re-privatize the banks along with new, effective regulations.
In other words, Obama could have ended the era of "too big to fail," but he chose not to. Instead, he agreed to Geithner's PPIP plan. As others have noted, this is essentially a way of handing off $500 billion more to the banks, without requiring any significant changes to the way they do business.
By choosing this giveaway over effective reform, Obama has signaled that he is not Teddy Roosevelt. He is not going to significantly challenge the present economic oligarchy. That's horrible news for the country as a whole, for consumers, for workers, for small businesses. But if you're one of the 30 enormous companies that make up the Dow Jones Industrial Average? Fucking brilliant.
Looking for action on a couple markets
I think Facebook is going to IPO this year. And I think Tedisco is overpriced to win NY-20 at 80. Anybody disagree?
Worst Month Evar!
Not so much a brag this time. Ended with $52,543, down a little from my $54,024 last month. Honestly, not a lot happened last month. There were no opportunities for my trademark "all-in at 80%" move. Volume has been way down. Even an actual, razor-tight election last night only saw about 800 contracts traded.
My main losses were $1000 on the Watchmen box office, and a little less than that on the departure of Rick Wagoner from GM. Wins? Burris didn't leave, but that was a foregone conclusion by the end of last month.
Here's one bright spot of volume: Somebody wants to bet $20,000 at 60% that GM will go bankrupt by the end of the year. I'm not taking that bet, but it's nice to see some high volume at a fair price.
My main losses were $1000 on the Watchmen box office, and a little less than that on the departure of Rick Wagoner from GM. Wins? Burris didn't leave, but that was a foregone conclusion by the end of last month.
Here's one bright spot of volume: Somebody wants to bet $20,000 at 60% that GM will go bankrupt by the end of the year. I'm not taking that bet, but it's nice to see some high volume at a fair price.