In a 9-page Vanity Fair article “Wall Street’s Near-Death Experience,”giving us a sneak peek into the lives of bankers during the global meltdown last Autumn a hilarious quote of great significance was buried.

At issue was the near-death experience that Lehman’s demise caused for Morgan Stanley and Goldman Sachs. After receiving a mysterious call from JPMorgan Chase CEO Jamie Dimon, Colm Kelleher, Morgan Stanley’s CFO, is quoted as saying “Jamie is always hanging around the hoop”:

‘Listen, [JPMorgan Chase C.E.O.] Jamie [Dimon] just called me fishing around for something,” Colm Kelleher told John Mack midday Thursday as he marched into Mack’s office. “He said he was calling to see if he could be of help. It was strange.”

James Gorman, the firm’s co-president, had just reported receiving a similar call, Mack replied, and Geithner had phoned earlier to suggest that he talk to Dimon as a possible merger partner, too.

“It’s clear that, for him to be calling us, he wants to do a deal,” Kelleher said. “Jamie is always hanging around the hoop.… You know Jamie’s saying, ‘Let’s make friends with these guys before I eat them.’”

Mack was irritated by these suggestions; he didn’t particularly want to do a deal with Dimon, as he believed it would involve far too much overlap. But he decided to stop guessing what Dimon might be up to and ask him directly.

“Jamie, Geithner says I should call you,” Mack said abruptly when he reached Dimon on the phone a few minutes later. “Let’s get this out in the open: do you want to do a deal?”

“No, I don’t want to do a deal,” Dimon said flatly.

“Well, that’s interesting,” Mack retorted. “You’re calling my C.F.O. and you’re calling my president—why would you do that?”

“I was trying to be helpful,” Dimon repeated.

“If you want to be helpful, then talk to me. I don’t want you calling my guys,” Mack said, hanging up the phone.

I think this is a brilliant quote because it encapsulates the situation perfectly. (For readers who are not basketball fans, this was a sports reference to basketball players who stay close to their basket to score easy lay-up points). Dimon, a classic keep-your-powder-dry-when-everyone-else-is-losing-his-head conservative banker, is also an opportunist.  In a move straight out of Warren Buffett’s game plan, he was looking for some easy lay-ups when the chips were down and everyone was panicked. That’s how he got bear Stearns and it’s also how JPMorgan Chase got Washington Mutual.

Update: I just picked up Chris Whalen’s piece on BofA, where he contrasts Bank of America’s management with JPMorgan Chase’s.  He says:

As we have noted before and we’ll probably state again, the difference between BAC and Wells Fargo (NYSE:WFC), on the one hand, and JPM on the other, is that Jaime Dimon had the good sense to buy WaMu from the FDIC after it was restructured via the resolution process. All of the legacy liabilities of WaMu, including the legal liabilities from the massive securitizations sponsored by Washington Mutual Inc., were left in the DE bankruptcy court after the FDIC took control of the bank unit. That is why the cleansing process of bankruptcy is so important to the restoration of a healthy, growing economy.

Notice the focus on bankruptcy. WaMu was effectively nationalized and put through the bankruptcy process – a clear sign that it is completely disingenuous to claim that nationalization was not an option for other large financial companies. It was – but they were deemed to important to fail.

Related posts:

• Quote of the day: Wells and BofA are choking on acquisitions
• Jamie Dimon: “If You Are Not Fearful, You Are Crazy”
• Jamie Dimon on the economy
• Jamie Dimon: November was terrible, December is terrible
• Jamie Dimon: ‘we don’t need’ your money

Politico asked a bunch of pundits from across the political spectrum to size up U.S. Treasury Secretary Tim Geithner’s performance in explaining his plan for rescuing the U.S. banking system. They were asked, “Did Tim Geithner blow it? What should he do now?” One pundit, Jeffrey C. Stewart, had a memorable response (Hat tip Dave):

Yes, I think Geithner did blow it. First, his demeanor is all wrong. He has a habit of looking up when his head is pointed down, which gives him the look of being either a graduate student who doesn’t know the answer to a question or a guy who has stolen something and now is being asked about it.

See the link below for the rest of his response and the other responses.

Source
Did Tim Geithner blow it? What should he do now? – The Arena, Politico

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This comes from Chapter VIII of Galbraith’s classic volume, “The Great Crash 1929.” Given the revelation today of fraud at Satyam in India and the monstrous Madoff scandal, it is a quote and concept to remember.

“In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.”

Satyam’s former chairman has a pretty good quote himself about coming clean on fraud:

“It was like riding a tiger, not knowing how to get off without being eaten.”

Sources
The Great Crash 1929 – John Kenneth Galbraith
Talk of ‘India’s Enron’ as Satyam Shares Plunge – Deal Book

Related posts:

• Quote of the day: John McCain
• Quote of the day: John McCain
• The bezzle is shrinking
• Muncipalities can tear up contracts
• Galbraith makes a comeback

You probably know that I am gearing up for some serious writedowns in Eastern Europe because I see these countries as having external imbalances which will have to be corrected as the economy softens. In previous posts, I had mentioned that there was considerable exposure to Eastern Europe in Austria, Sweden, Denmark and Germany in particular. Austria is the worst of the lot. Today, I happened upon an article and a quote which puts the Austrian exposure into context.

Internationally, Smick said export-dependent developing countries, and the western banks that financed their growth, are particularly vulnerable.

“If too many of these emerging markets go down, the IMF (International Monetary Fund) lacks the necessary resources to mount rescue operations,” writes Smick, author of the 2008 book The World Is Curved: Hidden Dangers to the Global Economy.

“To put things in perspective, Austrian banks have emerging-market financial exposure exceeding $290 billion. Austria’s GDP is only $370 billion.”

Yves Smith tells me the word on the street is that Germany may be holding back on fiscal stimulus in anticipation of a need to bail the Austrians out when their banking system comes under fire. I have not heard these rumours, but, it does stand to reckon that some larger government entity is going to be left holding the bag here. The Austrians will not be able to get out of this alone.

Source
Economic ‘bubbles have only begun to burst’ – Vancouver Sun

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With the global economy in recession and inflation headed toward zero, government bonds are looking like the best place to put one’s money.  As a result, we have seen yields on these assets drop to incredibly low levels in the world’s largest developed economies as their prices have increased.

I am on record for expecting this rally in government bonds to continue due to the economic environment despite having labeled Treasuries a bubble.  Stephen Roach agrees with that assessment, which brings me to his quote:

“Rates can go to unusually low levels for much longer than people think.”

That is exactly my point regarding Treasury securities. They may show all the hallmarks of a bubble. But does that mean that the bubble will end now? That did not happen after Greenspan’s irrational exuberance quip in 1996. It didn’t happen in 2004 and 2005 when the Federal Reserve and the Bank of England were looking to stem the tide of residential property price bubbles.

Certainly there are those like Marc Faber who think Treasuries will tank.

“It’s hard to believe that after blowing up so many bubbles over the past couple years, the Fed is managing to blow yet another bubble,” he says.

“Thirty-year Treasury bonds are yielding about 2.5 percent. You would have to assume that over the next 30 years there will be no inflation problem” to make those yields attractive.

Given the expansionary fiscal and monetary policy of the United States, “there will be a time when inflation accelerates along with a weak dollar,” Faber says.

“When that happens, central banks will have to increases interest rates, which will be difficult to implement.”

You should notice that Roach and Faber have similar views on the direction of the global economy over the next five to ten years, but drastically different views as to what this means for government bonds.

While I have my money on a rise in Treasury bonds, this is not a sure thing by any stretch. If the Federal Reserve reflates the U.S. (and the global economy) through massive stimulus, you can be sure that Treasuries will be in for a very nasty correction.

Sources
Roach: No Recovery Until 2010 – Newsmax
Faber: Recession Will Last Five to 10 Years – Newsmax
Faber: Short Treasuries Massively Now – Newsmaxi

Related posts:

• Another take on the treasuries bubble
• Stephen Roach: Downturn in Asia less severe, but recovery later
• Treasuries are getting crushed
• Stephen Roach is still bearish, no recovery until 2010
• Video: Andrew Barry says stay away from treasuries

With Treasury securities at all time lows you get the feeling fundamentals is not the only thing driving the rally in U.S. government bonds.  After all, the Fed has been lowering interest rates and showering the financial sector with money. So, I wanted to highlight a comment that I find fitting.

“The cash has to go somewhere and the most likely vehicle is going to be some sort of Treasury,” says Bill Knapp, investment strategist for MainStay Investments, the retail arm of New York Life Investments.

Now, Bill goes on to say some other things but his comment here crystallizes in a sentence why the rise in Treasurys is a problem.  Well done.

Source
Will Treasurys Stop Rallying? – Market Beat

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• Treasurys are in a bubble
• Chart of the day: U.S. Consumer Price Index
• Random musings on the market direction
• Treasury yields go below zero
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Jim Chanos, the famous hedge fund guru and short-seller does not think stocks are going to be up for long.  He sees the recent rally on the back of promised government stimulus as temporary and expects markets to resume their downward course.  In fact, he is now shorting cement as a play on continued weakness in construction.

This is what he said according to Bloomberg News:

“It will not be profitable to the extent that people think,” Chanos, whose Ursus Fund has risen more than 50 percent this year, told Bloomberg Television today. “People are forgetting that there are always promises of infrastructure plans.”

Chanos added:

“It’s a bear-market rally.”

While there are many bargains in the market, I certainly think Chanos is right.

Source
Jim Chanos Sees Stock Rally Faltering, Shorts Cement – Bloomberg

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• Jim Chanos: short sellers are heroes
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• Rosenberg thinks U.S. market may Test March lows

Caroline Baum had a good column today at Bloomberg in which she suggests central banks consider asset prices in monetary policy going forward. In the piece she quoted William White, a former economist from the Bank for International Settlements. He said:

“The most calamitous downturns were not preceded by any degree of inflation. There was no inflation in 1873-74, in the 1920s, in the 1980s in Japan and in the 1990s in Southeast Asia.”

This is a very important historical point because central banks have been fixated on consumer price inflation for years as a result of runaway consumer prices in the 1970s. However, consumer price inflation and inflation are not the same thing. Inflation comes from increasing the money supply and increased credit.

During the 1990s and this past decade, there were a number of factors which suppressed consumer price inflation, the fall of the Iron Curtain and the integration of China into the global economy being the most important. As a result, increased money and credit found its way, not into consumer pries but into asset prices fueling several destabilizing bubbles along the way.

If central banks want to be more successful going forward they will need to heed Caroline Baum’s advice and start to consider asset prices as well.

Source
Central Banks Can Do Better Than Just Mopping Up: Caroline Baum – Bloomberg

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• Bernanke is responsible for the market meltdown
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• Caroline Baum: Dollar Policy for Dummies
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Willem Buiter has a very useful and provocative blog at the Financial Times website called Mavercon.  The Dutch-born former Bank of England MPC member is not afraid to take policy makers to task or call a spade a spade.

In his latest post on why banks are refusing to lend to creditworthy customers, he has some useful insights and a very memorable quote:

Banks that don’t lend to the non-financial enterprise sector and to households are completely and utterly useless, like tits on a bull.

Buiter is always interesting, sometimes provocative and often hilarious.

Source
Tits on a bull – Willem Buiter, FT Mavercon

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This is a quote from the populist American politician William Jennings Bryan, a Democrat famous at the beginning of the last century.

“There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been tht if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.”
-The Snowball: Warren Buffett and the Business of Life

I am neither Republican nor Democrat, but this quote strikes me as very much a reflection of the ideals of the two American political parties one century later.

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Reflecting on the market turmoil today, Marshall Auerback had a funny if ironic thought:

Our beloved Treasury Secretary promised us Financial Armageddon if we didn’t pass his wretched bill a few weeks ago. I wonder how he would describe this?

Beloved is one way to describe Hank Paulson.

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• Quote of the day: China hopping mad about GSEs
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• Quote of the day: Gordon Brown, get your bazooka
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• Don’t think, react

I love Jamie Dimon, JPMorgan Chase’s CEO. He really tells it like it is. At last quarter’s earnings call, he called a spade a spade and said “prime looks terrible” in reference to prime mortgage loans.

This quarter his quote is even more to the point:

“If You Are Not Fearful, You Are Crazy.”
-Deal Book

Words of wisdom.

Related posts:

• Quote of the day: Willem Buiter – Tits on a bull
• Quote of the day: “Jamie is always hanging around the hoop”
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• Jamie Dimon makes the best case for not breaking up banks
• Jamie Dimon on the economy

This comes from the Huffington Post:

“Jobs, baby, jobs.”

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This comes from Politico:

Reprising a line she’s been delivering on stage with McCain since the GOP convention, Palin said of her running mate this morning in Virginia Beach: “Since he won’t say it on his own behalf, I’m gonna say it for my running mate here: There is only one man in this race who has ever really fought for you.”

Then McCain took the mic and said: “I”ve been fighting for this country since I was 17-years-old and I have the scars to prove it.”

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Talking about how he will fare against Barack Obama in the upcoming third and last U.S. Presidential Debate, John McCain said:

“We’re going to spend a lot of time and after I whip his you-know-what in this debate, we’re going to be going out 24/7.
-Huffington Post

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Ben Bernanke and Alan Greenspan have been the worst monetary stewards in U.S. Federal Reserve history. A former Fed Chairman William McChesney Martin Jr. once said it was the Fed’s job “to take away the punch bowl just as the party gets going.” Alan Greenspan and Ben Bernanke, with their easy money polices, failed to do so. Their role is one of oversight, not befriending Wall Street.

Therefore, I must quote from Michael Douglas in the classic 80s movie “Wall Street“:

If you need a friend, get a dog.
-Gordon Gekko

Something for Chairman Bernanke to think about. Oh, and check out the mobile phone Michael Douglas is using in the movie — doesn’t exactly fit in the pocket, eh? I love the 80s.

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• Quote of the day: Gordon Gekko – greed is good
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Jeremy Grantham has seen this crash coming for quite some time. Nevertheless, he is not selling everything and waiting out the market in Kruggerrands and cash. has kept a good long-term perspective about investing that bears repeating here.

Keep telling yourself every night that you’re a long-term investor and don’t look at daily stock prices. And it’s not too late to shift some of your money to high-quality blue chips. Emerging markets are probably no longer too expensive either. If you had 80% of your stockholdings in blue chips and 20% in emerging markets, you’d have a pretty reasonable portfolio to ride out the bad times.
-Jeremy Grantham, CNN Money

The crux of his comments are that good long-term investors do not just passively accept what the market dishes out. They actively manage their investments for long-term performance. One need not panic and sell everything. A better strategy would be to keep enough cash to cherry pick those investments that cheap in order to profit over the long-term.

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With blood on the street and one flagging financial institution after another gasping for dear life, a quote from the Movie “Wall Street” bears remembering:

In the last seven deals that I’ve been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.
-Gordon Gekko

Judging by the turmoil this weekend, apparently greed is not so good after all.

Related posts:

• Greed is not good
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Today, David Wighton over at the Times Online referenced U.S. Treasury Secretary Hank Paulson’s quip that the U.S. Government had a bazooka ready to us in the case of the Frannie and Freddie Nightmare on Wall Street in saying:

Helping to stabilise the U.S. housing market should bring some benefit to British counterparts. It will also increase pressure on the British to take bolder action. The U.S. will inject up to £110 billion into Fannie and Freddie, arguably the biggest such intervention by any western government since the Second World War. That makes last week’s £1 billion housing package from Gordon Brown look less of a bazooka and more of a peashooter.

The flop is played and the U.S. Treasury has gone all-in. Gordon Brown, over to you.

Source
U.S. bazooka for Fannie Mae and Freddie Mac trumps Brown’s peashooter – Times Online

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Obama mentor Joe Lieberman is going all out for Obama’s opponent in order to defeat Obama. Why, you ask, when he made quotes like this one in 2006 (via Political Wire):

“The gifts that God has given to Barack Obama are as enormous as his future is unlimited. As his mentor, as his colleague, as his friend, I look forward to helping him reach to the stars and realize not just the dreams he has for himself but the dreams we all have for him and our blessed country.”

– Sen. Joe Lieberman, introducing Sen. Barack Obama at the 2006 Jefferson-Jackson-Bailey dinner in Connecticut.

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I have a friend who is a very unusual and cosmopolitan blend. Satoshi is a Japanese guy who grew up in the deep south in New Orleans who I met when we worked together at a German bank in the high yield market in London ten years ago.

He has this expression he always used that seems to fit the economic period we’re living through. You see, despite Satoshi’s worldly cosmopolitan charm, he grew up a typical American southern kid playing typical American sports like football — I’m talking American football, not the British version. So, think Peyton Manning — except Peyton’s 5′9″ and Japanese (I think they may have even gone to the same high school, although Satoshi is older).

Anyway, Satoshi’s football coach used to ride him hard whenever he thought Satoshi wasn’t doing what he was supposed to out on the field. The coach would ask Satoshi, “what the heck are you doing out there,” in far more colorful language. Satoshi would respond, “I thought…,” at which point his coach would cut him off and render the line:

“Don’t think, react!”

Needless to say, that’s exactly what central banks and governments are probably going to do to ’solve’ our economic crisis. Don’t be surprised when they come up with some ridiculous bailout plan that is doomed to failure. These people are politicians and they need to be seen as fixing things. Their modus operandi may well be to be seen doing something, anything, to stem the tide of recession, house price decline and foreclosure. Doing something is better than doing nothing.

Translation: don’t think, react.

Related posts:

• Credit conditions
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• Links: 2009-01-18

At the end of last week, the warning came. The Chinese officially warned Hank Paulson et al. that they better get their act together on Fannie and Freddie. The Chinese own a ton of GSE paper and they would be hopping mad to see their investments lose value.

The implicit threat is that the Chinese will cut the dollar loose if Fannie and Freddie fail. If the dollar falls precipitously against China’s currency, then all bets are off regarding the future course of the U.S. economy and inflation. That said, it remains to be seen whether the Chinese would make good on their threat as it would cause problems for the China and its export market as well.

In the end, the comments highlight how excessive pending by the U.S. has led to the relative weakness in geopolitics. But, so it is when one depends on the kindness of foreign governments.

“If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,” Yu said in e-mailed answers to questions yesterday. “If it is not the end of the world, it is the end of the current international financial system.”
-Yu Yongding, former adviser to China’s Central Bank

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On Friday, Bloomberg quoted a former LTCM partner as saying the $1.9 trillion hedge fund industry faces “much worse” conditions than in 1998, when Long-Term Capital Management LP collapsed.

“It’s definitely a trickier environment. The market is much worse that it was in 1998. Then it was just LTCM, but this impacts everybody.”

-Hans Hufschmid, former partner at LTCM

To date, we have not seen an LTCM-like blow up. Are these guys good, lucky or is there risk lurking in the weeds? Is the commodity-play unwind just the thing to bring the dead bodies to the surface? The violence of the commodity and currency moves has the faint whiff of panic.

Related posts:

• Hedge Funds
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The number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million — the largest figure since the government began tracking such data more than half a century ago.
-NY Times, A Hidden Toll on Employment: Cut to Part Time, 31 Jul 2008

Read the story to find out more.

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“I am officially scared. In 2000, we had a technology bubble. But this is massive, a massive credit crisis and a bubble in global housing, global equity and global land.”
-Jeremy Grantham as quoted by Chicago Tribune

Related posts:

• Jeremy Grantham: “Many shares priced for… economic collapse”
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