Friday, October 28, 2011

REAGAN WOULD SUPPORT DEMOCRATS TODAY

President Reagan called for closing "crazy" loopholes that let millionaires pay less taxes as a percentage of their income than bus drivers. Kind of sounds like Warren Buffet saying he shouldn't be paying less in taxes as a percentage of income than his secretary, doesn't it?



Let's make this real simple. President Reagan's policies wouldn't fit in with the right wing today if you judge him by today's right wing standards. In fact, by acknowleding that the rich should pay more in taxes than a bus driver Reagan was acknowledging both Adam Smith, and reality:

1. Adam Smith: The intellectual godfather of capitalism, believed that higher tolls on luxury carriages should be charged because the "indolence and vanity of the rich" should be made to pay for the public good.

2. Reality: Even if we taxed and confiscated everything the poorest 50% of Americans earn or own today (about 2.5% of our nation's wealth = $1.4 trillion), it still wouldn't pay for the first installment of the Wall Street bailout (above $4 trillion, to date), let alone for the amount that we've been told has been encumbered (between $9-14 trillion).

Long story short. President Reagan - like Warren Buffet - would support the Democratic Party position on closing loopholes on the top 1% today.



- Mark

Thursday, October 27, 2011

BUNKER MENTALITY

Leaders and politicians who understand they can't hold their own in the civilian population often find themselves looking for shelter and comfort. Whether it's at the end of their days in power, or because they need a place to hole up and nurture their crazy ideas, the outcome is the same. They develop a paranoid bunker mentality. With that, here are a couple of famous bunkers that helped protect those whose ideas ultimately couldn't survive the light of day ...

Hitler's bunker ...




Saddam Hussein's Spider Hole ...




Moammar Gaddafi's drainage pipe ...




The high tech bunker of many modern day conservatives ...


Just saying.

- Mark

Tuesday, October 25, 2011

WHERE'S THE TEA PARTY?

Why isn't the Tea Party all over this?

Via former regulator, Bill Black, we get this story of Bank of America directing one arm of it's company - Merrill Lynch - to transfer some it's most toxic crap (derivatives) to Bank of America. Why in the world would Bank of America want one of its subsidiaries to shift their toxic assets on to its books you ask? It's actually very simple.




The account where Merrill Lynch held its toxic assets wasn't federally taxpayer insured. The Bank of America account they shifted their toxic crap to happens to be insured by the Federal Deposit Insurance Corporation (FDIC) United States taxpayer. So if the toxic crap flounders and eventually tanks the U.S. taxpayer is on the hook, again.

Got that? The American taxpayer is getting set up to pay for Bank of America's stink, again. But wait. It gets better.

Bank of America actually started doing stuff like this when they began dumping their delinquent ("Noncurrent") debt contracts onto the federal government American taxpayer ("GovGuar") back in 2009. In fact, they went from having a little over 2 1/2 percent ("Perc") of their delinquent debts covered by government guarantees to over 20 percent covered by the government in less than 3 months. Check this out ...


For the record - and for those of you who don't remember - Bank of America received a $45 billion bailout during the financial crisis. But they also just posted a $6.2 billion quarterly profit, just 22 months after crowing about paying back their bailout money.

My question is this: If Bank of America is so healthy why does the American taxpayer have to backstop their toxic crap? I mean, part of the reason for "paying back" their bailout loan was because they were healthy, right? (actually they paid back the loans early so they could pay out bonuses, meaning it was all smoke & mirrors, rather than financial health driving the pay back; but that's another story) Instead, they're acting like Zombie Banks, surviving off the flesh of the American taxpayer.



There's much more to this story, but I think you get the point. The bailout of Wall Street and the biggest banks continues. And the "concerned about our tax dollars" Tea Party has little to nothing to say about any of this. Seriously, where's the Tea Party rage over Wall Street and the big banks dumping their crap on the American taxpayer?

This is why the Tea Party is really a right wing joke. It has always been a front for deepening the GOP's tax cut-deregulation talking points. And the Occupy Wall Street movement is (or should be) helping to make sure more Americans understand this point.

- Mark

UPDATE: It turns out that the total amount of derivatives in the FDIC-insured portion of B of A as of mid-year was $53.7 trillion, up 10 percent from $48.9 trillion the prior year. This is up nearly 35 percent from its pre-fall crisis level of $40 trillion (the Merrill Lynch securities division holds $22 trillion in addition.)

Monday, October 24, 2011

I'LL TAKE SOCIAL SECURITY ANY DAY ...

From Senior Annuity Alert. Underline and italics are mine. This is classic ...
__________________________________________

The purpose of an annuity
... The purpose of an annuity is always income, whether you need money now or, in the future ... The added security is that it gives you a way to get the income you need knowing it will never run out ...

__________________________________________


So far so good, right? OK, now for the fine print at the bottom ...

___________________________________________

NOT FDIC INSURED. NOT BANK GUARANTEE. MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL. NOT INSURED BY ANY STATE OR FEDERAL AGENCY.
_____________________________________

Take away all the bailouts, Fed money dumps, and other favorable legislation that subsidize our markets and, really, what do you have left? I'll take all comers that want to compare annuities to Social Security.

- Mark
 

Saturday, October 22, 2011

THERE'S HONOR IN THIS ...

United States Marine Corps. Sgt. Shamar Thomas confronts the New York Police Department because of their actions during the Occupy Wall Street movement ... Check out the video here.



- Mark

Thursday, October 20, 2011

OBAMA DOCTRINE VINDICATED (again) IN LIBYA

On the surface this is what most Americans see ...

After massive demonstrations, Tunisia's Zine al-Abidine Ben Ali was forced to flee his country as protesters forced him into exhile ... Facing similar conditions, Eypt's corrupt Hosni Mubarrak was forced to resign in February of 2011 ... Libya's leader Muammar Gaddafi is hunted down and killed by Libyans, after 41 years of ruling his nation through fear and intimidation.



But there is much more to the overthrow of three corrupt and kleptocratic regimes in Tunisia, Libya, and Egypt. In fact, in many ways, it all started with a vegetable seller in Tunisia.

After Tunisian police confiscated Mohamed Bouazizi's only means of earning a living in December of 2010 he set fire to himself. He was fed up with a corrupt regime that would take his only means of earning a living. Street protests were initiated. They became uprisings. Subsequent events in Tunisia, and then throughout the Arab world, are now known as the Arab Spring.

The Arab Spring, in turn, has both drawn from and given life to the Obama Doctrine (which he first articulated in Oslo in 2009). In simple terms the Obama Doctrine is about Peace through cooperation, Order through strength.

In the real world it means, when possible, encouraging our allies to go through international institutions, like the United Nations and NATO, to assist repressed people looking to overthrow corrupt regimes. But the Obama Doctrine also means relentlessly pursuing those who threaten America's security.

Killing Osama bin Laden in a stunning raid led by U.S. Special Forces in May proved this. This, in turn, was followed up by another spectacular military operation in September that killed the most potent post-Bin Laden al Qaeda threat to the United States, Anwar al-Awlaki.



It would be easy for me to say that cooperation and successful military raids are sufficient to understand the Obama Doctrine. But, as President Obama's comments on Israel demonstrate, this doesn't do justice to the complex thinking that the Obama Doctrine involves.

It is the difference between a checkers player and a chess player. Consider how it worked in Libya.

About a month after the protests in Libya started President Obama imposed powerful sanctions, froze Colonel Qaddafi’s assets, secured a UN Security Council resolution, organized an international coalition, executed another stunning military campaign through NATO, pushed Gaddafi’s forces back with air strikes, which effectively neutered Gaddafi's military and left them (and Gaddafi) to flee towards safe havens.

Allies. International institutions. Strategic restraint.

And the best part? It was all done without having to put American troops on the ground. This meant no American military casualties and only a handful of Libyan civilian casualties. All of this allowed the British and French to lead the United Nations and NATO - at the request of the Arab League - to continue pursuing a crippled regime on behalf of a beleaguered civilian population.



Ultimately the Obama Doctrine doesn't provide the media with the "shock and awe" fireworks of a U.S. military invasion, or the pomp and pageantry of a Mission Accomplished photo op. But it's working.

While all of this may all be too much for those who want to turn every conflict country into parking lot, today's developments - understood in the proper context - help us see the Obama Doctrine for what it really is. An approach to global politics that's starting to win the United States new fans. That it's happening in an historically antagonistic region bodes well for America, on many levels.

- Mark

Addendum: This is probably the best interactive on the Arab Spring I've seen. Check it out.

Tuesday, October 18, 2011

THIS IS WHY MORE AMERICANS SHOULD BE IN THE STREETS

Yesterday we had an interesting conversation in class about the global economy and America's debt load. Students wanted to know why we're accumulating so much debt. I explained, apart from reckless policy decisions made under President Bush, that we're lending or committing massive amounts of money - backed by the American taxpayer, mind you - with little or no understanding of where it ends up.

One egregious example was when half a trillion dollars was transferred to Europe's central banks. Federal Reserve Chair Alan Greenspan couldn't track or explain it's final whereabouts. Seriously, even after trying to check his notes, Federal Reserve Chair Alan Greenspan had no clue about the final destination of half a trillion dollars. That's $500,000,000,000. Check it out here.



Look, accounting for a half a trillion dollars shouldn't be that difficult. Back in 2009 half a trillion dollars amounted to approximately one-half of what all of America produced and sold (GDP) in one month ...




Not being able to account for the monetary equivalent of one-half of America's total economic output for a month is akin to you and me not knowing where half our paycheck goes every month. Most people can explain where one-half of their paycheck goes every month.

I know I can. And I can do it without notes too.

But wait. It gets better (or is that worse?). Half a trillion dollars is small potatoes when we consider the trillion dollar transactions that the Federal Reserve couldn't account for back in May of 2009. Actually, it was about $9.7 trillion. But who's counting, right?



Fortunately, for us, there were several independent bean counters who figured out where the money was going. And they have nice interactive graphs that explain where the money went. Here's The Atlantic Monthly with a nice interactive of "The Fed's Cash Machine" ... in May of 2009.



If Bernanke was too busy saving the world during May of 2009 to read the The Atlantic Monthly he could have checked out Bloombergs interactive of the $9.7 trillion that we've encumbered ... back in February of 2009!

So, how many of you have heard Washington's courageous politicians talk about the trillions in future obligations that we've been put on the hook for to save Wall Street? But I'm sure you've heard plenty about taxing the bottom 50% of Americans who pay no income tax, right?

But consider this. The bottom 50% earn or own the equivalent of $1.5 trillion, total. This means we could confiscate everything the bottom 50% earn or own this year - and then turn them into industrial slaves - and we still wouldn't come close to paying what we've paid as a down payment on the 2008 market collapse.


At the end of the day, as I explained in class, we're looking at several problems here.

First, all of the money we've made available to Wall Street and the biggest banks is being used to clean up toxic assets and the failed market bets that created our bubble economy. The result is that many market players now look solvent and successful when, in fact, many should be under indictment.


Also, I have a problem with Federal Reserve officials who often don't know - or claim not to know - who ultimately gets the money we lend or make available. Playing stupid with our money is not a quality we should encourage.

Look, as early as December 2008 I found a trillion dollar hole in the Federal Reserves balance sheets. It didn't take as long as you might think. If I can find a trillion dollar obligation made with taxpayer backed dollars don't you think Federal Reserve officials should be able to explain where it went? Me too.

Next - getting back to Bernanke and that mysterious half a trillion dollars we discussed above - we need to keep in mind that the European Union could collapse under a series of national defaults (hello Greece). This is a problem because we lent the money to the EU, not to individual European nations. If the European Union collapses the EU may never pay back the hundreds of billions they've borrowed. This is a distinct possibility since Europe is essentially using debt to pay off debt, and because the language in the Fed's loan contracts to Europe effectively allows roll overs in perpetuity.

This means that what we've lent to Europe would stay on our books as debt. Nice.

Long story short? We've accumulated trillions in debt obligations that Congress neither signed off on, nor seem overly concerned about. And it's all been done in the name of saving Wall Street and the biggest banks.

Even if most ordinary Americans don't understand the specifics, they intuitively understand the larger implications. This is why they are pissed off at Wall Street. It's really that simple.

- Mark

Monday, October 17, 2011

MONDAY FUNNIES (kind of) ...

Speaking of village idiots, here's the headline ... "Brothers charged with stealing western Pa. bridge, selling 15.5 tons of scrap metal for $5,179."

From this story, it appears that this is the bridge ...




- Mark

Thursday, October 13, 2011

BILL O'REILLY: THIS WEEKS VILLAGE IDIOT

While defending Wall Street and the big banks, Fox's Bill O'Reilly asked why there haven't been any investigations into Wall Street criminality if what they did was so bad. In an exchange with Cornell West and Tavis Smiley, O'Reilly argued that there is "no evidence" of wrongdoing because "they didn't violate any laws!"

What an idiot.



We haven't had big investigations - let alone convictions - after the 2008 market collapse because we dumped trillions in taxpayer funded bailouts and other guarantees into the financial sector. In the process we effectively removed the threat of receivership, bankruptcy, disgrace, or the full force of our legal system from Wall Street's horizon. This is the way our legal and political system works for white collar executives with money.

So, it's not that there wasn't illegality and theft in the lead up to 2008. It's just that the rules of the game prevents our financial mandarins from having to account for their actions. And, yes, this undermines the integrity of our market system.



Specifically, O'Reilly needs to take a look at:


Purified Toxic Crap ...
Bailouts essentially turned straw into gold by using taxpayer funded cash, to purchase toxic "legacy assets" for example. To date, well over $5 trillion in watered stock, bad assets, and toxic securities have been pretty much cleaned up (forcibly) by the U.S. government taxpayer. If the worst is cleaned up, what do you go after?

Information Blackouts ...
One of the cornerstones of any market economy - and any democracy - is transparency. Without it you can't get good information. Guess what? Bailout payout information was deliberately withheld from the public on orders from current Secretary of Treasury Tim Geithner. With an information blackout the most toxic and ethically challenged market instruments have been able to fly under the radar (and then get cleaned up).

Out of Court Legal Settlements ...
Instead of entering into court battles - which are critical for building precedent and case law - financial firms like Goldman Sachs routinely pay fines into the hundreds of millions of dollars. This is chump change when you look at the trillions the financial industry has hauled in (and the trillions more we're on the hook for). It's hard to get convictions when you can pay a taxpayer subsidized fine and walk away.

Right to Sue is Waived ...
At the center of all the toxic payouts in 2008 was A.I.G. In exchange for getting bailout cash, A.I.G. was forced to give up it's right to sue Wall Street firms in court. In a few words, A.I.G. was given an offer they couldn't refuse: Take the money and shut up, or you don't get any help at all (and you might even get caught up in a legal dragnet too). But it gets better (or is that worse?). At one point during the height of the market crisis in 2008 the Federal Reserve demanded unusual national security procedures before it would share or supply critical A.I.G. bailout related documents.

For whatever reason, none of this adds up for Bill O'Reilly.



So, to simplify, you can't be sued or convicted if the problem is purified with a pile of taxpayer backed cash ... information is deliberately withheld or distorted ... you pay record fines to avoid court trials ... and if the initial keystone bailout institution is told they can't sue as a condition for receiving taxpayer money.

Let me repeat the point. You can't get investigations - let alone sued - if the state intervenes to help you bury the financial bodies. It's that simple.

If you understand this you know why Bill O'Reilly is this weeks Village Idiot.

- Mark

Addendum: As you can imagine, things haven't gotten any better over the years. Corporate America is busy playing Blame Games, and are suing one another for selling toxic crap to one another. Similarly, we're learning about the usual political stonewalling and massive lobbying of state attorney generals, which prevents or undermines larger investigations. All of this is critical for understanding why there haven't been any investigations because of how the FBI acknowledged that "mortgage fraud was substantial" as early as January 2008.

UPDATE: Here's Robert Reich with more examples of Wall Street seeking and getting legislative and legal cover from Washington.

Wednesday, October 12, 2011

THIS IS OCCUPY WALL STREET

Former reppresentative Alan Grayson explains Occupy Wall Street in less than a minute ...



Former representative Grayson also makes P.J. O'Rourke look puny and insignificant, as this longer clip from The Raw Story illustrates.

- Mark

Tuesday, October 11, 2011

OUR MODERN ECONOMY

This is why we're in trouble. Our modern economy, via Calvin and Hobbes ...


 
- Mark

OCCUPY WALL STREET & FOX NEWS

Check out this interview story, which Fox News decided not to air after the interviewee was told that he had an open mic to “put any message you want out there,” without manipulation ...

The story went viral after The New York Observer (not Fox News) gave the interview some media legs.

So after a news editor admitted "infiltrating" D.C. protests in order to undermine it, and GOP congressman Peter King (a Fox News darling) stated we can't allow more coverage of Occupy Wall Street, a narrative seems to be emerging. Unless it's a Tea Party protest - which defends tax cuts and reckless deregulation (i.e. more of the same) - the Right, and Fox News, want nothing to do with demonstrations on the street that question financial subsidies for corporate America and Wall Street's taxpayer subsidized gains.

One would presume that this is the rationale for the crowd chanting "Fox News Lies!" and forcing Geraldo Rivera to flee an Occupy Wall Street event.

- Mark

Monday, October 10, 2011

SECONDARY MARKETS AND VULTURE CAPITALISM



When I discuss the issue of development and underdevelopment, among the topics I cover are debt and the rise of secondary markets. What are secondary markets, you ask? I'm over simplifying but, in a few words, they're like financial flea markets where market players buy and sell debt and other market instruments that may have been "marked down" or discounted. 

This impacts development because when financial players (or banks) find, or think, they won't get paid for the loans and debt that they underwrite they will sell it to other market players at a discount. It's like the 99 cents store buying books in bulk when they don't sell. But unlike the 99 cent store, the market players who purchase discounted debt don't settle for 99 cents. They pursue avenues for negotiating settlements, or getting countries to pay as much of their debt as possible.

As you can imagine, this means pursuing high cost legal and political efforts. It also means using the levers of the state (i.e. government officials, state courts, and international institutions) to get debtor nations to pay out. Threats and legal pressures are applied. In fact, without the levers of the state, there would be few to no payouts at all.

And the payoffs are big, as you will learn from this article on vulture capitalists.

- Mark

KRUGMAN: "PANIC OF THE PUTOCRATS"


___________________________________________

In addition to creating the link, I'm going to post half of Paul Krugman's NY Times' op-ed, "Panic of the Plutocrats." Follow the links to read the entire article. It's excellent.
___________________________________________


Op-Ed Columnist
Panic of the Plutocrats
By PAUL KRUGMAN
Published: October 9, 2011

It remains to be seen whether the Occupy Wall Street protests will change America’s direction. Yet the protests have already elicited a remarkably hysterical reaction from Wall Street, the super-rich in general, and politicians and pundits who reliably serve the interests of the wealthiest hundredth of a percent.

And this reaction tells you something important — namely, that the extremists threatening American values are what F.D.R. called “economic royalists,” not the people camping in Zuccotti Park.

Consider first how Republican politicians have portrayed the modest-sized if growing demonstrations, which have involved some confrontations with the police — confrontations that seem to have involved a lot of police overreaction — but nothing one could call a riot. And there has in fact been nothing so far to match the behavior of Tea Party crowds in the summer of 2009.

Nonetheless, Eric Cantor, the House majority leader, has denounced “mobs” and “the pitting of Americans against Americans.” The G.O.P. presidential candidates have weighed in, with Mitt Romney accusing the protesters of waging “class warfare,” while Herman Cain calls them “anti-American.” My favorite, however, is Senator Rand Paul, who for some reason worries that the protesters will start seizing iPads, because they believe rich people don’t deserve to have them.

Michael Bloomberg, New York’s mayor and a financial-industry titan in his own right, was a bit more moderate, but still accused the protesters of trying to “take the jobs away from people working in this city,” a statement that bears no resemblance to the movement’s actual goals.

And if you were listening to talking heads on CNBC, you learned that the protesters “let their freak flags fly,” and are “aligned with Lenin.”

The way to understand all of this is to realize that it’s part of a broader syndrome, in which wealthy Americans who benefit hugely from a system rigged in their favor react with hysteria to anyone who points out just how rigged the system is.

Last year, you may recall, a number of financial-industry barons went wild over very mild criticism from President Obama. They denounced Mr. Obama as being almost a socialist for endorsing the so-called Volcker rule, which would simply prohibit banks backed by federal guarantees from engaging in risky speculation. And as for their reaction to proposals to close a loophole that lets some of them pay remarkably low taxes — well, Stephen Schwarzman, chairman of the Blackstone Group, compared it to Hitler’s invasion of Poland ....


Read the rest here.
___________________________________________
 
- Mark

Saturday, October 8, 2011

Friday, October 7, 2011

WHAT A BUNCH OF PR**KS

From TheConsumerist.com ...

In an effort to tweak the noses of protesters involved in the "Occupy Chicago" movement signs were placed in the windows of the Chicago Board of Trade that say, "We are the 1%."



So you know, the Chicago Board of Trade is the nation's oldest mercantile exchange. People make lots of money there. It's where the top 1% of our nation's wage earners work.

The interesting thing is that the signs are on the 8th floor. This tells me that the people who posted them are gutless wonders. Security keeps them shielded from repercussions. Cowardice shields them from reality.

At the end of the day, while market traders may talk about "survival of the fittest," and being rugged individualists, they don't even have the cajones to walk into the street and tell protesters what they really think. Taunting from behind a wall isn't bravery.

And we wonder why the top 1% need bailouts when they screw up the market. It's obvious they can't face the person on the street, let alone professional failure. Can someone explain that rugged individualist, accountability thing, again ... please.

What a bunch of pricks.

- Mark

Thursday, October 6, 2011

WE'VE CREATED A FINANCIAL MONSTER

After years of reckless deregulation, the Financial Services Modernization Act (1999), the 2008 market collapse, and our screwed up bailout in perpetuity programs, we've created a banking and financial monster ...




More specifically, just as Frankenstein was built from the parts of the dead, our increasingly Frankenstein-like banking and financial system has been pieced together from dead and rotting institutions (click chart to enlarge) ...




Why is this important, you ask? Consider this.

A year ago (2010) the total assets controlled by Bank of America, Citibank, JP Morgan, and Wells Fargo ($7.7 trillion) were almost double the combined assets of the next 46 biggest banks. This represented at least 64 percent of total commercial assets of all the banks in the United States.

This is a real concern because the four biggest banks banks in the nation now control more assets today than they did in December 2007 - when they held just $4.95 trillion in assets, and were considered Too Big to Fail.

But wait. It gets even better. We haven't even begun to delve into our "shadow banking" system, which manages and controls even more assets than the big four do today.

- Mark

Addendum: Kudos to John (and others) for posting the chart above on FB. Also, here's a list of the biggest commercial banks, with assets, from SNL ...

STEVE JOBS, 1955-2011

* * * * * * * * * * * * * * *




- Mark

If you want to read additional commentary on Steve Jobs check out this list of articles compiled by Barry Ritholtz ...

• Steven Paul Jobs, 1955-2011 (WSJ)
• Steve Jobs, Apple’s Visionary, Dies at 56 (NYT)
• Apple Fans From Cupertino to Singapore Mourn Passing of Jobs (Bloomberg)
• Steve Jobs’ 2005 Stanford Commencement Address (Video)
• Steve Jobs’s Best Quotes (Digits)
• His Life, His Companies, His Products (NYT interactive)
• boingboing goes old school Mac Classic (bb)
• Mossberg: The Steve Jobs I Knew (WSJ)
• Tech honchos remember Steve Jobs (Digits)
• A Look Back at Steve Jobs of Apple (Dealbook)
• Jobs’s Death Draws Outpouring of Grief and Tributes (NYT)

Tuesday, October 4, 2011

THE WHINE INDUSTRY ...

Kudos to Tom for finding this. The Whine Industry ...


- Mark

A MONKEY WITH DARTS, AND OUR ON-GOING MARKET "CRASHES"

So the market's tanking. Again. Yawn ...

Every time this happens I have fun watching the market analysts. Many like to pretend they know what they're doing when, in fact, they're little more than market cheerleaders, who live in a bubble that they help inflate.


What they ignore is that for the better part of 30 years what's been supercharging the markets - and subsidizing their profits - has been a combination of emergency bailouts, easy money policies (the Greenspan Put), plus favorable legislation and reckless deregulation (which has pretty much made gambling legal on Wall Street).

Then we have the backdoor bailouts, regulatory market props, and other government supported market schemes that pretty much insure that a monkey throwing darts could have made money in the market over the past 30 years. Seriously.

Don't believe me? Check out this story.

A Monkey Throwing Darts
In 1988 the Wall Street Journal began a contest inspired by Princeton Professor Burton Malkiel’s book A Random Walk Down Wall Street. In the book Malkiel suggested that "a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts."


While the WSJ didn't ultimately use real monkeys (liability issues) they did use staff members to throw darts. The contest became such a popular feature in the WSJ that journalists and academics alike wrote about the implications (which you can find here). While rules were established and changed over time the basic guidelines included asking four professional market players to make market picks each month. They would then select one stock that would be followed over the next six months.

The "pro" stock picks competed against four stocks chosen by the Journal's "monkey" staffers, who tossed darts at financial pages pasted on a board. On October 7, 1998 the Journal presented the results of the 100th dartboard contest, with the pros winning 61 of the 100 contests.

There's no doubt that winning 61 out of 100 times is impressive. It would get you into the playoffs in most professional sports. But the fact that throwing darts randomly at financial pages could produce better results than the pros 39 percent of the time says much about market players. Think about it. A team of monkeys wouldn't beat a professional sports team 39 percent of the time, even if they were WSJ monkey staffers.


But wait, it gets better.

The performance of the market pros "sure winner" stocks was compared against simply leaving portfolios alone to ride out the fluctuations of the Dow Jones Industrial Average. It was even less impressive. The pros beat the DJIA only 51 out of 100 contests (though pro returns were slightly better). Put another way, if you simply invested and left your money alone in a portfolio (i.e. passive investing) you - the real investor - would've beaten the pros almost half of the time.

In 2002, the WSJ stopped the contest, but wouldn't say who won. Still, a point was made.


This isn't good, especially when you consider management fees, transaction costs, or taxes assessed on taxable investors.  And all for what? So you can be told the market equivalent of "don't put all your eggs in one basket"? (though, to be fair, there are smart market players who will tell do-it-yourselfers what to look for, or who will admit that they really can't beat the market over an extended period of time).

If you're still not thinking about dumping your market expert for monkey staffers with darts that's fine. I wouldn't either. Playing the percentages wins games in baseball too.

Still, confirming the fact that market analysts and market pros aren't always the best sources for understanding what's happening in the market is the following ...

Going Ape in 2008
We always want to keep in mind that a great deal of the market enthusiasm before the 2008 market crash came from market experts who were supposed to be objective analysts. None of them ever took a step back to explain that the market surge since the 1980s was a direct result of government bailouts, Fed money dumps, and reckless deregulation - or that it couldn't last.

In fact, none of the market experts who were cheer leading everything from deregulation-tinged CDOs and CDSs - or those who were coddling the financial titans that peddled financial crap - were made to pay for their boot licking incompetence after 2008.


Look at all the talking heads on the cable networks today. Who left? Who was forced to resign in disgrace from the networks?

Then we have all those bonuses that were paid out to Wall Street for doing such a bang up job before 2008 ... What made the "recovery" and record payouts possible? Taxpayer backed guarantees, or market acumen?



Which brings us back to what's happening in markets today. Let me make this real simple, again. The outlandish market successes we've been enjoying over the past 30 years have been the product of primarily three interrelated market subsidizing developments:

1. Bailout Nation 
2. Easy Money (the Greenspan Put + debt)
3. Favorable Legislation / Reckless Deregulation

At the end of the day, our market system is living on borrowed time, and borrowed money. And it's all government sponsored. When these three "magic of the free market" gifts end, or stop working - for whatever reason - the geniuses who have been managing your money, or talking up the markets, will no longer be geniuses.

And I should know. I've been a market guru for some time now ;-)

- Mark

Monday, October 3, 2011

WALL STREET OPERATING AS A CRIMINAL ENTERPRISE?

If you want to know what's helping to drive the protests on Wall Street check this out ...


I've been saying that we should use mob-driven RICO statutes to go after the banksters for some time now. The key is prosecuting our biggest banks as criminal enterprises. So, have our nation's biggest banks become criminal enterprises? This July article from Money Morning's Shah Gilani - "The Bank of America Settlement: The Latest Travesty in the U.S. Banking System" - says the answer is "yes."

Those of you who follow this blog know why I agree. So, I'll leave it at that for now.

On another note, this article on pensions explains why we need to keep public sector defined benefits programs with the public sector, instead of shifting public sector retirement monies to Wall Street/private sector managers.



In a few words, the private sectors fee and bonus stuffed overhead costs are prohibitive, with guaranteed percentages regardless of performance. In many ways, it's the essence of wealth extraction over wealth creation.

Neither article is long or overly complex, so I'm pretty sure you'll enjoy both.

- Mark