November 27, 2009

Ruin All Traders, Says Paul Krugman


I know this is a time when we should all be thankful for the good things in our lives but you've got to admit this is one hell of a Thanksgiving.

First, Dubai reminds us that Black Swans can hatch anywhere in the world, in the desert for example. As a result, the very popular dollar carry trade might just get a little less popular going forward.

Then Paul Krugman, in his New York Times column, decides that ruining traders would be a good thing for the global economy. His idea of a "Tobin tax" applied to all financial transactions strikes me as a misguided "hammer in search of a nail" type of solution to the global financial crisis.

It is also inconsistent with Krugman's other recent writings (of which I am an enthusiastic and assiduous reader). He is a proponent of monetary and fiscal easing (here and here) for as long as the economy has not recovered and, by his own reckoning, we are still a very long way from recovery. How does an across-the-board tax that will (and that is its stated goal) severely shrink the entire financial sector help the economy to recover? How can one rail against the very mention of deficit restraint or anything that might be a tiny bit contractionary (here, here, here, and here) and at the same time advocate a tax that will suffocate an entire activity?

Having said all that, I might be persuaded, despite my obvious bias (Full disclosure: I trade for a living), that shrinking the financial sector might be one among several long-term solutions to the global financial imbalances and that some sort of tax might be a good way to de-incentivize excessive and "socially useless" risk-taking. But a sudden and immediate across-the-board financial transactions tax is more akin to self-mutilation than to therapy.

November 20, 2009

Welcome to a World Where...


...Bill Gross urges us to imitate Warren Buffett and buy utilities already. According to him (Gross), that's the only sane and safe way to go when cash pays 0.01% and stocks are up 60%.

...David Brooks writes an ode to Tim Geithner, our Treasury Secretary, against calls for his (Geithner's) resignation from some of his (Brooks') fellow conservatives.

...The New York Times strongly encourages Goldman Sachs to donate billions of dollars to the Federal Government (to the Bureau of the Public Debt, to be exact) to try and assuage the public's rancor against it (Goldman).

November 19, 2009

Indisputably Good


This is not the freshest of news, far from it, but here is an interesting Big Money profile of one of the few indisputably outstanding financial bloggers out there, Felix Salmon. It's interesting not in a People Magazine way but in what it says about financial blogs, what they can, at their best, uniquely bring to the table, what kind of people write them and read them (mostly the same subset but not always):
And it is [Salmon's] mastery of the form—vectoring the facts and observations of others into his own opinionated but open-ended mini-essays—that amounts to his real expertise. Print and television journalism have their defining faces and voices. Salmon can lay claim to being the blogosphere’s signal personality despite his position in the traffic rankings.

November 16, 2009

A Question of Perspective



I could have titled this post: A Tale of Two Charts.

The first chart shows a runaway market making new high after irrational new high.

The second chart shows a market that took a monster hit - a more than 50% dislocation - and that has been recovering nicely although it is still a long way from where it stood before all the nastiness took place.

You've guessed it: the two charts are actually one and the same, they both represent the Dow Jones Industrial Average. The first is the daily DJIA chart since March 2009 and the second the monthly chart since October 2007.

November 13, 2009

Maestro No More


From Sorkin in Too Big to Fail, this elegantly pointed paragraph about the man formerly known as "the maestro":
By the summer of 2007, however, America's second Gilded Age had come shockingly to an end, and Greenspan's reputation lay in tatters. His faith that the market was self-correcting suddenly seemed fatally shortsighted; his cryptic remarks were judged in hindsight as the confused ramblings of a misguided ideologue.

November 12, 2009

The Goldman Sachs Sabbatical


I, like most of my potential readership, am in the process of reading and enjoying Andrew Ross Sorkin's Too Big to Fail, the instant classic du jour. This caught my attention:
Though he [Robert Steel, former under secretary of the Treasury, domestic finance] always planned a triumphant return to the private sector, he wanted time to pursue public service, like many other Goldman alums.
Though folks are getting upset about things not changing fast enough if at all in the financial world, I will go out on a limb and venture that this practice of Goldman Sachs alums taking a sabbatical out of GS and into government will soon be history. I might be wrong and at some point in the (distant) future, GS's unpopularity may wane and having worked there won't be an insurmountable political handicap any more but the odds are quite low.

November 9, 2009

John Reed's Mea Culpa


So John Reed, Citibank's chairman in the 90s, feels bad and goes on record with a mea culpa:
We learn from our mistakes. When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.
It's interesting to note that, in his mind, serving Citibank's shareholders and serving the citizens at large are necessarily two opposing endeavors. Not for him the tired cliché that says maximizing shareholder value is the patriotic thing to do.

But what's even sadder is that he's seemingly oblivious of how damning his statement really is. He says he tried to do "what's right for the stockholders". Well, we all know how that worked out: Citibank is now a ward of the state and a quasi-penny stock.