Fri 2010-03-19 20:42 EDT

Breaking the chain: The antitrust case against Wal-Mart

Barry C. Lynn (Harper's Magazine, July 2006)

...It is now twenty-five years since the Reagan Administration eviscerated America's century-long tradition of antitrust enforcement. For a generation, big firms have enjoyed almost complete license to use brute economic force to grow only bigger. And so today we find ourselves in a world dominated by immense global oligopolies that every day further limit the flexibility of our economy and our personal freedom within it...what should concern us today even more is a mirror image of monopoly called ``monopsony.'' Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice other than to deal with that buyer. Not all oligopolists rely on the exercise of monopsony, but a large and growing contingent of today's largest firms are built to do just that...today we have one of the best illustrations of monopsony pricing power in economic history: Wal-Mart...Wal-Mart has grown so powerful that it can turn even its largest suppliers, and entire oligopolized industries, into extensions of itself...the firm is also one of the world's most intrusive, jealous, fastidious micromanagers, and its aim is nothing less than to remake entirely how its suppliers do business, not least so that it can shift many of its own costs of doing business onto them. In addition to dictating what price its suppliers must accept, Wal-Mart also dictates how they package their products, how they ship those products, and how they gather and process information on the movement of those products...Rather than speed up the random motion and serendipitous collisions that have for so long propelled the American economy, Wal-Mart and other monopsonists are slowly freezing our economy into an ever more rigid crystal that holds each of us ever more tightly in place, and that every day is more liable to collapse from some sudden shock. To defend Wal-Mart for its low prices is to claim that the most perfect form of economic organization more closely resembles the Soviet Union in 1950 than twentieth-century America...

Antitrust case; break; chain; Wal-Mart.

naked capitalism Fri 2010-03-19 16:10 EDT

Lehman: Regulators Chose to Deny, Extend and Pretend

The Lehman Examiner's report gives an unintentionally damning portrayal, both of the the structure of financial regulation in the US and how regulators failed to use the powers they had effectively...the authorities recognized Lehman had a large negative net worth. Yet rather than move decisively towards an unwind, they proceeded inertially. They urged Lehman CEO Dick Fuld to find a rescuer (who would invest in that garbage barge, particularly when Andrew Ross Sorkin's account makes clear that Fuld's moves were so obviously desperate and clumsy as to be certain to fail) and also promoted the notion of an LTCM-style ``share the pain'' resolution. Yet with the rest of the industry weak, and the magnitude of hole in Lehman's balance sheet a mystery, these courses of action had low odds of success from the outset (indeed, the ``Lehman weekend'' in which the authorities almost bulldozed through a deal, seemed designed to avoid sober analysis of how bad things were at the failing investment bank)...As much as the SEC did not cover itself with glory in this exercise, its lapses are somewhat comprehensible. By contrast, the Fed's are much harder to explain or excuse. And guess who is about to be given more oversight authority?

denied; extends; Lehman; naked capitalism; Pretends; Regulators Chose.

Sun 2010-02-28 13:43 EST

"Sultans of Swap" by Gordon T Long, FSU Editorial 02/24/2010

...When asked why there are $605 Trillion derivatives outstanding (1) how do you articulate an answer to this horrendous and almost unimaginable number? The US is the largest economy in the world but tallies only 2.3% in comparison. Global bank reserves amount to only 1.2% of this accumulation. The gargantuan size appears to defy all logic...we discover the Sultans of Swap. The Bond Vigilantes are of a previous era. They are dead -- RIP. Through the magic mix of Credit Default Swaps, Dynamic Hedging and Interest Rate Swaps the Sultans of Swaps effectively control interest rate spreads. Through Regulatory Arbitrage they extort tremendous political sway globally. They live in the world of risk free spreads. Low interest rates simply attract more volume for their concoctions. We have had an explosion in Money Supply globally as the charts (right) indicate. The parabolic rise matches the increase in these derivative products along with their ability to turn Interest Rate Swaps into high powered bank lending...Everything is based on tax payers paying, GDP expanding and interest rates staying low...

FSU Editorial 02/24/2010; Gordon T Long; sultans; Swap.

naked capitalism Sun 2010-02-28 13:13 EST

Das: Mark to Make Believe -- Still Toxic After All These Years!

Satyajit Das

n 2007, as the credit crisis commenced, paradoxically, nobody actually defaulted. Outside of sub-prime delinquencies, corporate defaults were at a record low. Instead, investors in high quality (AAA or AA) rated securities, that are unlikely to suffer real losses if held to maturity, faced paper -- mark-to-market (``MtM'') -- losses. In modern financial markets, market values drive asset values, profits and losses, risk calculations and the value of collateral supporting loans. Accounting standards, both in the U.S.A. and internationally, are now based on theoretically sound market values that are problematic in practice. The standards emerged from the past financial crisis where the use of ``historic cost'' accounting meant that losses on loans remained undisclosed because they continued to be carried at face value. The standards also reflect the fact that many modern financial instruments (such as derivatives) can only be accounted for in MtM framework. MtM accounting itself is flawed. There are difficulties in establishing real values of many instruments. It creates volatility in earnings attributable to inefficiencies in markets rather than real changes in financial position...

Das; Make-Believe; marked; naked capitalism; toxic; years.

Sun 2010-01-31 11:43 EST

Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980...the peak of the furious advance in S&P 500 driven by enthusiasm over "less bad" economic news, though with little proven economic strength. It was the last day of the 1980 bull market. The economy later proved to have been in a short lull within a double-dip recession, taking stocks to their final lows in 1982...One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out...

2009; Hussman Funds; intermediate term; October 19; Overbought; stock market; weekly market comments.

zero hedge Fri 2010-01-15 17:46 EST

Is The Mysterious "Direct Bidder" Simply China Executing 'Quantitative Easing' On Behalf Of The Federal Reserve?

...we make the claim that the Fed has now informally offloaded the Treasury portion of Quantitative Easing to China, which does so via the elusive Direct Bid. It also explains why the Fed has generically been much less worried about TSY purchases under Q.E. (a mere $300 billion out of a total $1.7 trillion in monetization). It does beg the question of just how much Chinese holdings of US Debt truly are, as this number is likely hundreds of billions higher than the disclosed $799 billion...if there is indeed an implicit understanding between Bernanke and his Chinese colleagues, it means that not only the housing market (via Agency and MBS security purchases), but the Treasury market as well, are both manipulated beyond recognition and implies that broad securities are massively overvalued due to the stealth purchasing of core "riskless" assets by the US and China, as investors look higher in the cap structure for yield. Lastly, implications for world trade are great, as Asian countries will have to deal not only with the Chinese behemoth, which will constantly seek to keep its currency as low as possible, thus exacerbating the rest of Asia's foreign trade balances, but that of the US itself. The immediate implication is that China (or the US for that matter) will likely not reflate their currencies out of their own volition any time in the foreseeable future. Look for a much weaker dollar in the coming months.

behalf; Direct bidders; Federal Reserve; mysteriously; Quantitative Easing; Simply China Executing; Zero Hedge.

zero hedge Mon 2009-12-28 22:26 EST

Moody's CMBS Delinquency Tracker Hits Decade High

Yes, yes, everyone knows commercial real estate is a neutron bomb waiting to go off, and while many are yapping, nobody is doing jack. The Fed will deal with that implosion, the expectation goes, just as tidily as it dealt with the last bubble implosion...Delinquency increased 37 basis points in October, as measured by the Moody's Delinquency Tracker (DQT). The delinquency rate now stands at 4.01%, more than six times the rate seen at the same time last year. The rate has increased over 375 basis points from the low reached in July 2007, with further increases anticipated.

Moody's CMBS Delinquency Tracker Hits Decade High; Zero Hedge.

Jesse's Café Américain Mon 2009-12-28 21:07 EST

Who Is Buying All These US Treasuries (And Can They Keep It Up in 2010)?

Jesse

...according to the government, US households are absolutely piling into US sovereign and corporate debt at record levels, and at record low interest rates. And almost no one but the Fed is buying Agency Debt...this is why I think we might see quite a bloodbath in the bonds in 2010, as mom and pop get skinned by the Street for weighing in so heavily on this one sided trade in US sovereign debt. The US household sector is a slow moving convoy, presenting a traditional and tempting target for the Wall Street wolf packs...Sprott Asset Management says: "Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills...under the auspices of Quantitative Easing, they bought almost 50% of the new Treasury issues in Q2 and almost 30% in Q3...We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury's ability to attract outside capital. If our research proves anything, it's that the regular buyers of US debt are no longer buying, and it amazes us that the US can successfully issue a record number Treasuries in this environment without the slightest hiccup in the market."

2010; buy; Jesse's Café Américain; keeping; Treasury.

naked capitalism Tue 2009-12-22 11:53 EST

``Basel III -- the OK, the Unfinished and the Ugly''

Richard Smith, who works for the London consultancy Cubematch whichspecialises in risk, collateral and change management

The BIS analysis of the 2007-09 banking crisis floats my boat. Here is their headline list of causes: excessive on- and off-balance sheet leverage, diminutive and low quality capital bases, insufficient liquidity buffers at banks.

Basel III; naked capitalism; Ok; ugly; unfinished.

zero hedge Thu 2009-12-17 10:37 EST

Is Selling US CDS A Risk-Free Way To Short The Dollar?

There has been much conjecture on whether using CDS is an effective way to hedge against US default risk. Many theoreticians, especially those of the post-March lows variety, have sprung up and are speculating that buying Credit Default Swaps on the US is ultimately a futile and pointless endeavor. The main argument: a US default would likely mean that interconnected dealers won't recognize contracts on a US default event, as they themselves will be out of business. Even if they continued to exist, like cockroaches in a postapocalyptic world, the collateral which backs derivatives is mostly US Treasurys: the same obligations that would end up being massively impaired...the US CDS seller syndicate could easily be one of the key sources of dollar short funding: with sellers pocketing euros and immediately going to market and selling dollars...a dollar-short unwind would probably have repercussions in the US CDS market. Not only would the dollar spike, but paradoxically US credit risk would probably widen dramatically...any unwind at the heart of the prevalent risk trade now: the massive dollar carry, would impact virtually every investment product, quite possibly in self-referential feedback loops. If correct, it merely shows how much more the Fed has at stake in keeping the dollar depressed than merely getting mom and pop to buy Amazon at $130/share. Losing control of the carry trade will be the systemic equivalent of allowing Lehman's book to be marked-to-market: a potentially complete collapse in systemic confidence, which would have such far ranging implications as the $300 trillion interest rate derivative market. And when sudden volatility reaches this product universe which is 6 times bigger than world GDP, the events from last year will seem like a dress rehearsal.

CDS; Dollar; Risk-Free Way; sell; short; Zero Hedge.

zero hedge Mon 2009-11-30 11:15 EST

Fannie Mae Reports Massive Q3 Loss, Asks For Another $15 Billion From Government As It Is Set To Become Largest US Landlord

The latest particular does of lunacy and economic calamity coming out of the intellectual midgets at Fannie and the FHA should be sufficient to push the market well into 1,100 territory tomorrow. FNM's loss for Q3 is $18.9 billion, up from $14.8 billion in Q2, a time when the market was up a good 15%: ever wonder who keeps on subsidizing those gain? That's right - you. Credit-related expenses increased to $22 billion in Q3 from $18.8 billion in Q2. Oh, and Fannie now wants another $15 billion rescue from the Treasury (which is having some troubles with getting that pesky debt ceiling raised to one googol) so it can continue with its plan of keeping shadow inventory away from the market, rent foreclosed houses to their owners at staggeringly low rates, and continue the pretence that bank's balance sheets are well capitalized...

15; asks; becoming largest; Fannie Mae Reports Massive Q3 Loss; government; landlord; set; Zero Hedge.

naked capitalism Thu 2009-11-19 10:43 EST

Roubini Predicts ``Mother of All Carry Trade Unwinds''

Nouriel Roubini has officially left the ``hedging your bets on the economy'' camp. He has declared the markets to be frothy because super low dollar borrowing rates have turned the greenback into the funding currency for the carry trade. Far more important than the peppy rally in the stock market is the resumption of early 2007 style risk taking in the credit markets.

carry trade unwind; mother; naked capitalism; Roubini predicted.

Thu 2009-11-19 10:14 EST

Business & Technology | Part two | WaMu: Hometown bank turned predatory | Seattle Times Newspaper

David Heath

What few people knew was that bank executives crafted a radical new business strategy in 2003 that was intended to boost profits. The new WaMu used huge sales commissions and misleading marketing to hawk risky and overpriced loans to borrowers. In short, WaMu became one of the nation's biggest predatory lenders. The strategy eventually failed, not only bringing down Washington Mutual but deceiving borrowers, costing thousands their homes. In particular, the bank promoted as its "signature loan" a complex product known as the option ARM. This adjustable-rate mortgage, much like a credit card, gave borrowers the choice of making low minimum payments. But that option didn't cover the interest and only dug them deeper into debt.

business; Hometown bank turned predatory; part; Seattle Times Newspaper; Technology; WaMu.

Tue 2009-10-27 12:58 EDT

Looting: The Economic Underworld of Bankruptcy for Profit by George Akerlof, Paul Romer

During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust. In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds. Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

bankruptcy; Economic Underworld; George Akerlof; Looting; Paul Romer; profits.

naked capitalism Tue 2009-10-27 12:18 EDT

Guest Post: Capitalism, Socialism or Fascism?

George Washington of Washington's Blog

What is the current American economy: capitalism, socialism or fascism? ...Nouriel Roubini writes ``We're essentially continuing a system where profits are privatized and...losses socialized.'' Nassim Nicholas Taleb says ``the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren.'' Nobel prize winning economist Joseph Stiglitz calls it ``socialism for the rich'' ...leading journalist Robert Scheer writes: ``What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as ``financial fascism'''' ...Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because ``the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social'' ...one of the best definitions of fascism -- the one used by Mussolini -- is the ``merger of state and corporate power`` ...Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing the causes of the S&L crisis and other financial meltdowns...[Looting is the] common thread [when] countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust...Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations ...Whether we use the terminology regarding socialism-for-the-giants (''socialized losses''), of fascism (''public and social losses''), or of looting (''left the government holding the bag for their eventual and predictable losses''), it amounts to the exact same thing. [kleptocracy] Great comments, including Joseph: Three core ideas characterize the myth of our society: 1. Free market; 2. Capitalism; 3. Democracy. The conceptual error that people make is to think that they are compatible, or indeed represent aspect of the same thing. In fact they are all deeply antagonistic towards each other. It is the miracle of post-war society that we managed to hold them in balance for so long. That balance has now been destroyed. A simple example of the contradiction, and the one that the over-socialised right finds most confusing, is the contradiction between capitalism and the market. Capitalism is a system of ownership; the market is a system of distribution. The perfect world for the capitalist is one in which they are price setters in terms of the commodities they produce and labour they employ -- ie a state of monopoly. Each individual capitalist seeks the destruction of the market. What has occurred over the past year is not corruption; it is the triumph of capitalism. The market and democracy have been defeated. Not socialism, not fascism,...

capitalism; Fascism; Guest Post; naked capitalism; social.

Yahoo! Finance: Tech Ticker Tue 2009-10-27 11:18 EDT

Policymakers in "Denial" About the Banks, Carmen Reinhart Says

In "This Time Is Different," economic professors Kenneth Rogoff (Harvard) and Carmen Reinhart (Maryland) examine eight centuries of financial crises, demonstrating how the credit crunch of 2008 wasn't so unique, after all. That's the good news...Reinhart gives policymakers "low marks" for failing to deal head on with toxic assets. There's "a lot of denial" in the approach to the banks, she says, seeing comparisons to Japan's post-bubble policies of delaying write-downs, which created zombie banks. "I'm not seeing a great deal of learning,"

bank; Carmen Reinhart Says; denial; finance; policymaking; Tech Ticker; Yahoo.