Now where did I leave my Soap Box?

From Ben S. of New Yawk, the word of the post is "harangue".

My initial thought about the word "harangue" was a sweatshirt I bought from the San Diego Zoo which had close to 15 synonyms for bother as in Don't bother the animals. "Don't bother, vex, annoy, harass, harangue, perturb, nettle, molest, harry, provoke, pester, plague, and beset the animals!" This statement should apply to bloggers, and is the Financial Improvisor ever vexed! I feel a harangue coming on...



I'm perplexed by the Treasury Department's economic policy move of the week of blocking of the sale of tax credits from Fannie Mae to Goldman Sachs and Berkshire Hathaway.  Fannie Mae, for those that have been living in an alternate dimension, was placed into conservatorship by the U.S. Government last year. Fannie Mae lost a ton money and the Federal Government (read U.S. payer) had to chip in a whole bunch of money.  So while Fannie Mae loses money, their deferred tax credits are worthless to them.   They want to sell them. Goldman, who is making a ton of money and where former Secretary of Treasury Paulson was partner, wants to buy them. (Both the NY Times and the Wall Street Journals have reported on this news item).

So the current administration now has to deal with the political fall out of:

1. letting the sale go through and Fannie Mae asks for less money but the U.S. Taxpayer gets hurt because Goldman Sachs pays less taxes or 
2. preventing the sale and Fannie Mae has to ask for more money thereby hurting the U.S. Taxpayer.

They chose option number two! Yipee! Let's throw good money after bad. Aren't we glad for both former Secretary Paulson and current Secretary Geithner? I wish I had a money printing press.

I'm collecting the nails I'm spitting for a remolding job in my depreciating house.

Blog of the Blog

If you like rants from your average Joe autodidact, then I highly recommend An Adhoc Life by Shawn Westfall.  He has a Master's degree in Literature (which means he is underemployed), performs improv and teaches his secrets to the Financial Improvisor!

Funny stuff.

Next week is "Disintermediation" from Bill L. of Maryland.

In Tip Top Type Shape....

From Tom T. of New York, the phrase for this post is "Carriage Return"

Tom and I argued about whether the carriage returns of our old manual typewriters from "Yo" Adrien Block  Intermediate School went left-to-right or right-to-left when the typist finished typing a line.  Of course I was correct (the carriage returned from left to right) and we continued about how things were done in the good old days of 1981.



Occasionally, I reminisce about the good old days when broker commissions were percentage points instead of basis points, quarters were necessary to make phone calls while on the street, Atari 2600 was the game system of choice, Queen of Hearts was on the radio, Sony Walkman on my belt, and the Glass-Steagall Act (GSA) was still in force. Many of these wonderful things have been replaced by the significant advances of technology. Of course, the younger generation has no memories of the wonderful trinkets of my adolescence.

Me: [Pantomiming typing on a manual typewriter and hitting the carriage return] Honey. what am I doing?

Precious 10-year old daughter: Typing on a computer and hitting it when it doesn't do what you want it to do.

The innocence of youth is wonderful. The innocence of policy makers is ... well... pathetic.

The only thing not replaced by new and better technology is the Glass-Steagall Act of 1933.  This brilliant piece of legislation not only created the FDIC but prevented bank holding companies from owning any other financial concerns. As an interesting historical note, Senators Glass and Steagall were from from Virginia and Alabama, respectively, and this was the last time senators from either state created good financial regulations.  The Act was castrated (see my previous blog) by the Gramm-Leach-Bliley act (Senator from Texas and Representatives from Iowa and Virginia) in 1999 and signed by that Good Ol' Boy; President Billie Bob Clinton.  The Congress in its infinitesimal wisdom gave banks the ability to take on significantly more risk without regulation or regulators to monitor it. So as a direct result, the FDIC has had to shutter more than 106 banks in the first 10 months of 2009.

So let's raise a toast to Arthur, watch Jane Fonda overact by a Golden Pond, salute Private Winger, and take a spin on the Cannonball Run. Good bye 1981, I .... nope.... I don't miss it.

Album of the Post



While listening to NPR, I heard of an album dedicated to the Brooklyn-Queens Expressway by Sufjan Stevens. I couldn't believe any sane musician would create a piece of music to a New York City throughway (Feeling Groovy notwithstanding). However, after listening to sections of the album on iTunes, it's the best new orchestral music I've heard in a long time.

I recommend it with 4.5 stars!

Next week's word of the blog is "Harangue" from Ben S.

Thanks and keep those word suggestions coming!!!

Ouch! This is gonna hurt you more than me...

It's not just for animals...

From Harold B. of Minnesota, the word for this post is "Castration".

Harold is a college friend and his suggestion makes me worry about him. I'll be calling and making sure he's all right.

Normally, I post pictures related to the subject of the blog entry but I just can't bring myself to do it.

Castration comes in many forms and happens for many reasons: The castration of Eunuchs to protect the harems, men who go through the painful and extremely expensive sexual reassignment surgery, and of course, what women have been doing to men for centuries... just without a knife (unless your name is Bobbit).

I'm fortunate enough to be married to a wonderful woman who came from a matriarchal household. After my third date, my future mother-in-law took me aside and told me in her thick Eastern European accent "If you touch my beloved daughter, you will never salute sun again..." My wife learned from her mother and to this day, I wear a metal sporran. Castration can come in many forms.

Financially speaking, I wonder why haven't corporate boards or activist shareholders haven't castrated CEOs like Zeus upon Uranus. Corporate Boards hire CEOs with iron clad contracts as if all these fine upstanding citizens are the Michael Jordans of the business world. I'll remind everyone there is only one Michael Jordan. The closest superstar in the business world is the one and only Warren Buffett. Even Bill Gates is no Warren Buffett. Why can't we just go back to the tried and true way of pay for performance?

The only CEOs who seem to have their salaries castrated are the ones from companies which received American Tax Payer bailout money. While I haven't had much positive to say about Obama's economic wonderboy (His Royal Highness Larry Summers), I'm thrilled the Pay Tzar (with the extremely spiffy title of Special Master for Executive Compensation) Kenneth Feinberg has drastically cut 25 salaries of executives in seven companies. Maybe other companies can learn this important lesson. "He who has the gold, rules."

"Socialism! Communism! Populist Government run free enterprise!" I hear from my fellow University of Chicago free market economists. To them, I reply "Codswallop!" Once the government has to bail your sorry over-leveraged balance sheets out of the fire, you've lost all right to hold your head up high and claim free-market economics! The companies and the people involved do not deserve to have their full paychecks! The poor executives who still have jobs will have to live on a mere $5,000,000 a year. Like the rest of us they'll have to learn to shop in Wall Mart, Target and (gasp!) K-Mart! Like I tell my kids, "You broke it you pay for it!"

Financial Book of the Blog

Animal Spirits: How Human Psychology Drives the Economy and Why it Matters for Global Capitalism by George Akerlog and Robert Schiller.

Ranking: 3.5 Stars

Only Professors Akerlog and Schiller can take the simple of idea that worth is in the eye of the buyer and turn it into a turgid densely written tome. Still they have some good points but only people with an economics graduate degree should read this book.

Next week "Carriage Return".

Peace.

Financial Improvisor!

One Ringgy Dinggy, Two Ringgy Dingy

A Ringing In My Ears....

From Nancy M-B of Florida, the word for this post is "Phone Call".

Phone calls are the bane of Jewish sons ever since the lower east side of Manhattan was wired. The phone call produces dread as bill collectors call. The phone call was the start of a new caper for Charlie's Angels. A joy for me every time Ernestine patched a call on Laugh-in.

I find myself with a love/hate relationship with the phone call. Times I avoid taking calls because I want to isolate and other times I get irritated when I can't reach anyone. So when I call myself and I don't pick up, I'm furious!

What I find amazing is the history of the phone call from the fabled Alexander Graham Bell call to the Batphone to the cellular phone. Most people don't realize that the phone call became possible only after an Hungarian Engineer by the name Tivadar Puskas developed the first switchboard in 1876. Telephone operators have been annoying us for over 100 years!

The telecom industry has been annoying investors for about the same amount of time with their inevitable boom and bust cycles. Of course, like the energy market, investors are surprised each and every time they loose money. Phone calls require a great deal of infrastructure which increases the barrier to entry and makes telecoms profitable as new subscribers want the service. At some point of saturation, telecoms run out of new markets and new subscribers. We've seen monopolies busted. We've seen new technologies: push button phones, two line phones, call forwarding and cordless phones. Heck we've seen telephone calls over those new fangled intertubes.

I'm curious, what were your most important phone calls? Leave a note in the comment section.

I thought about doing a quick improv game of telephone but that would be too trite.

Please keep the suggestions coming in!!!

Under Pressure

A Quick Mea Culpa...

I haven't Blogged since the beginning of the summer (June 30th to be exact). I have the usual excuses:

• Work (Let's be real. I work for the Federal Government).
• Family (Well I was depressed about my beloved Grandmother passing away and older daughter's college essay).
• Alien Abduction (Getting rid of the Anal probe was a pain in the ....)
• Vacation (Orlando is lovely in July....)

The reality was I wasn't motivated in Life and the blog suffered. I apologize to all 4 of my loyal fans and to myself. Occasionally, I need a kick in the ass (without the probe thank you very much) to get back on the right track. Thank you to all you ass-kickers out there. You know who you are.

And now for something completely different!

From Jenny D of India, the word of the post is "Pressure".

My first and very geeky thought is P = (nRT)/V. My second initial thought was the amount of pressure it takes to convert coal into diamonds. My last initial thought is the pressure I felt asking out girl in the 11th grade to break my string of 8 rejections (I had a wining streak like the Northwestern University football team and, yes, I got rejected again by a Sophomore named Lucy Liu).

Clearly, pressure comes in many forms. President Obama created self-inflicted pressure by licking third rail of American politics of healthcare reform. He could have waited until the ghost of Edward Kennedy made an appearance on the senate floor. The Financial Improvisor favors a single payer plan but even he knows that partisan politics ignores good economic theory.

We can't get agreement on did the stimulus plan work or was it just the healer of all things, time? We see the Krugman of the NY Times going mano-a-mano with Robert Barro of the WSJ. Round one was a draw. Round Two starts next month! *DING*!

However, I think of Freddie Mercury when it comes to pressure and please forgive my modification of his lyrics.

Economic Pressure down on me

Employment down on you no man help you
Under pressure - that burns a career down
Splits a family in two
Puts people on streets
It's the terror of unknowing
What this economy is about
Watching some good friends
Screaming help me out
Pray tomorrow - gets me higher
Pressure on people - people on streets

Please send me your words!!

The Financial Improvisor.

There once was a Man from Nantucket...

Before I start today's post I'd like to thank Susan K. for the suggestion of "Do Over" used in the June 21st post and Beth S. for today's word "Nantucket". Please keep sending me your suggestions.

Now back to our regularly scheduled posting.

My first thought with the word Nantucket is the little Limerick that we all know so well:

There once was a man from Nantucket

Who kept all his cash in a bucket

But his daughter, named Nan,

Ran away with a man

And as for the bucket, Nantucket. (Nan-took-it)

(Keep your mind out of the gutter people .... ) This 1924 limerick spawned similar ditties with the following towns; Pawtucket, Manhasset, Juneau and Cape Ann. If you have time on your hands and decide you have to know what happened to Ol' Nan, I recommend you go to Yesterday's Island at the following link --> here.

However the current condition of bank balance sheets and the word of the day reminds me of a large oil spill 25 nautical miles off of the coast of Nantucket. On December 17, 1975, the tanker Argo Merchant ran aground and spilled 7.7 million barrels of heating oil when it broke apart 4 days later. It was later determined the two helmsmen were unqualified and they had broken equipment. Sound familiar?

Bank balance sheet detox can be compared to cleaning the oil spill with a large leaky bucket while the oil burns on the high seas. Moreover, the captain (i.e. bank and other portfolio managers) complains to the clean up crew (i.e. the government) that the oil still has economic value and shouldn't be removed. The Financial Accounting Securities Board, supposedly to define the cost of the clean up like the EPA, agreed with the ship's captain and ruled only the oil already burnt will be counted towards the loss.

What we need is a Super Hero to help us in our time of need and improv provides!

Politically Correct Person: Oh my religious unspecified higher power! The Bank Balance Sheets are filled with toxic assets! I need help as collaboration and diversity will solve any problem! Calling Optimist Womyn!

Optimist Womyn: Don't worry PCP! I've informed our Government, who is always ready to help in a quick, decisive, economically efficient manner, of the situation. They are ready for change and have prepared programs with catchy acronyms to help! However, the Feds need more assistance and I've called Super Special Interest Man!!!

Politically Correct Person: Don't you mean Super Special Interest Person?

Optimist Womyn: Of course. Super Special Interest Person to the Rescue!!!

Super Special Interest Person: I've solved the problem! My policy proposal will make my constituents ...err... fellow tax payers money but it will usher in a new era of fiscal responsibility driven by self-interest ...err...umm... patriotic duty to the United States of America. My work here is done.

Optimist Womyn: A new day has arrived! We are saved! I can go and paint happy faces on my 401K statements!

Politically Correct Person: It's amazing what we can do when a diverse group put their heads together and create beautiful solutions.

Improv to the rescue!

Hope to hear your comments soon!

Daddy, can I have a do-over?

Happy Father's day to all the fathers out there. While I can't speak about other people's families, my wife and kids needed reminding of this most noble of Hallmark holidays.

Me: Do you know what today is?

10 year old daughter: Well... It isn't my birthday. It isn't Hannukah. It isn't Purim. It isn't New Years. It isn't Thanksgiving... Can you give me a hint?

Me: It's Father's day!

10 year old daughter: [Truly Embarrassed] Can I get a do over on the question?

The Senate wishes they had a do over with Secretary "Tiny" Tim Geithner. Larry Summers wants a do over being Secretary of Treasury. Rick Wagner wants a do over of $85 Billion of losses at GM. I want a do over of college organic chemistry class which prevented me from becoming the doctor my Jewish mother always wanted me to be.

In improv as in life, there are no do-overs. The number one rule in improv is to always accept what your partner says and then add on. This idea is better known as "Yes And!" (see posting #1 for more detail).

So ... how can we apply this simple yet powerful skill? Here's a possible scenario.

President Obama: Geithner is our Treasury Secretary and he has the talent.

VP Biden: Yes and we'll enhance his toughness by water boarding him.

Senator Reid: Yes and we'll give him experimental cloned brain cells from Milton Friedman to improve his acceptability to the right.

Leader Pelosi: Yes and we'll give him leadership course from former President George W Bush to improve his ability to make bold decisions.

Director Summers: Yes and Wall Street will hire him away and I'll get his job!

The Financial Improv guy fixes all economic problems!

Too Technical, Too much and Too little??

Several readers complained, commented and whined about the level of technical jargon in my previous post.  "What is a subprime mortgage? How do they get  securitized?" they asked me. Well I could write a 500 page manifesto on this topic but there is an almost 9 minute video (staring the brilliant comics John Bird and John Fortune) which explains everything beautifully. Subprime Crisis

President Obama laid out his frame work for a more centralized more efficient financial regulation by adding two agencies and getting rid of one.  Reminds me of the Tom Lehrer's song New Math. 

I'm confused.  

I don't understand how we can achieve more government efficiency by adding another government agency to effectively regulate highly paid, highly educated, highly motivated financial wizards.  Only the supreme brain power of the University of Chicago, Harvard, Wharton, Kellogg, Stanford, Columbia, and NYU business schools could have produced this colossal systematic meltdown. The poorly paid government worker never had a chance. 

[Hint: Better pay induces wall street types to leave the sin of their profession and go to the holiness that is public service. The GS scale doesn't cut it.  You can't buy Armani on a government salary and send you kids the finest private schools.]

(And why oh why didn't they merge the SEC and the CFTC? Were they afraid of cooties?)

Well I'm reading the 85 page financial regulation manifesto and it's putting me to sleep.  

Till next time.

Welcome to the world of Financial Improv

In July 2007, Bear Stearns announced their two highly leveraged CDO funds were worthless and investors woke up to the idea that structured investments may actually take losses. Investors panicked and withdrew money from hedge funds. Hedge funds panicked and stopped buying any assets. Wall street firms and CDO managers panicked because their money making machine seized. Private label residential mortgage backed securities issuers panicked because no one would buy their subordinate bonds. Non-agency mortgage originators panicked because no one would buy their crappy loans. And so on, and so on.....

The mortgage market, that had developed in the early 2000s and reached its nadir in late 2006, died. As the unfolding crisis continued, financial market participants scrambled to stave off liquidations, forestall bankruptcy, create solutions, protect balance sheets, and blame everyone else under the sun.


While watching this unfolding crisis from my unique position, I realized financial market participants used many of the strategies employed in Improvisational Theater (think Whose Line Is It Anyway and Second City). For instance, Rating Agencies (sometimes called Nationally Recognized Statistical Rating Organizations or certain choice expletives) used to use the well known Yes And! technique for rating CDOs. I remember those conversations well...


[Fictionalized Flashback to 2006]


CDO Manager: This CDO is the best ever!
Rating Agency Senior Analyst: Yes and using Credit Default Swaps (CDS) as 70% of the underlying collateral is brilliant!

CDO Manager: Yes and it's heavily weighted towards subprime and Alt-A mortgages. US mortgages NEVER EVER go bad.

Rating Agency Senior Analyst: Excellent! Yes and your back of the envelope credit models give us great confidence that the collateral you choose is only the best quality!

CDO Manager: Yes and our fees will be at the top of the received waterfall and we can trade up to 25% of the assets per year.

Rating Agency Senior Analyst: Fantastic! Yes and we know that this bond will always pay, we'll make a fat fee, and deserves a AAA rating!

[End Flashback]


This blog is dedicated to those talented individuals within improvisational theater and the financial which have taught us so much and caused to laugh, cry, and hurl obscenities.


Send me a word and I'll improvise a post.