Top 10 at 10: Want to be Mark Hotchin's personal trainer?; Anger over Kelvin Syms; Euro deal 'Shocking and awful'; Dilbert
11th May 10, 12:55pm
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Here are my Top 10 links from around the Internet at 10 to 1 pm. It's been a difficult morning. We want to be thorough... I welcome your additions and comments below or please send suggestion for Wednesday’s Top 10 at 10 to bernard.hickey@interest.co.nz
1. Would you like to be Mark Hotchin's personal trainer? - There might be a few volunteers who would like a trip to Hawaii and would like to make Mr Hotchin feel the burn. And that's not just the burn from the exercise.... The NZHerald has the story to make Hanover Finance investors choke on their Kornies...
The Herald has learned he has splashed out money to fly his personal trainer to be with him. The trainer works at Parnell gym Boxing Alley, which Mr Hotchin part-owns. Photos on the trainer's Facebook page give a glimpse of Mr Hotchin's luxurious getaway spot in Hawaii. It is understood the trainer is staying there for three months. He is not the first visitor - Sally Ridge and her children were reportedly staying with the Hotchin family last month. While staying in Hawaii the Hotchins also have a local yoga instructor come to the house twice a week, and a nanny looks after the children six days a week.2. How do you feel about Kelvin Syms? - The founder of the Northplan and Vestar group of financial advisers is not a popular man with his investors, as this post on the Victims of Vestar blog shows. The Ferrari-driving adviser seems to think he has done nothing wrong and he's still living the life of Riley. There are interesting details and names in the post. Here's a comment below from BA about Syms and Vestar. HT Vern Wilson via email.
We were very conservative, short term investors but Vestar put all our money with finance companies. All six are now in receivership or default. Our plans went up in smoke with the disastrous consequences of the very poor advice we received. Vestar did NOT do a good job. My experience is one of having been conned. It has nothing to do with tall poppy. I think Syms just can’t face the ugly truth. Vestar was not a good business. It was just a very slick selling chain that conned a lot of people and then failed when the economy turned because they’d made such bad decisions and created such a bad basis for their business. Those white shoe people aren’t fit to run anything other than a used car sales yard. I think they’d be really good at that.3. Just papering over cracks - David Roche at the FT.com puts his finger on the problem with the European 'shock and awe' package. It's just more debt to solve a problem created by too much debt. I'm going to sprinkle through this top 10 a bunch of useful charts from the increasingly excellent Der Spiegel on the Euro's problems that will not go away.
Initially, markets may be wowed by the size of the package. But the size just means that more debt has been added to a problem that is about too much debt! EU governments and the European Central Bank are now obliged to guarantee or buy the sovereign debt of other members as a solution to the eurozone’s debt crisis. But the solution to a hangover is not more alcohol. The shock of this package will eventually give way to less awe. As all the AAA-rated nations in Europe have 70-80 per cent of gross domestic product public debt ratios already — not far behind the “junk bond” states (and worse than Spain), we reckon the market will soon wake up to the fact that this deal is a form of contagion by official action. The real worry is that the eurozone debt crisis may seem like a tea party if the contagion spreads to the US, the UK and Japan. The UK has no effective government in prospect that can start to deal with its fiscal crisis, while the Japanese and US governments are in denial about the extent of their debt burden. Tighten your seat belts.4. And yet more debt - Amidst all the 'sturm und drang' overnight, America's biggest mortgage lender Fannie Mae quietly joined its brother Freddie Mac in asking for another bailout worth US$8.4 billion from the US government, the New York Times reports.
The government has already transfused US$137.5 billion into Fannie Mae and its cousin, Freddie Mac, since seizing the two mortgage lending giants in August 2008. The money covers losses on mortgages that the companies bought or guaranteed during the housing boom, allowing them to continue buying new loans. The company essentially became the world’s largest investor in mortgage loans, and its losses reflect the vast numbers of Americans who continue to default. One consequence: Fannie Mae now owns real estate worth US$11.4 billion. The company said it acquired 61,929 single-family homes in the first quarter alone. Freddie Mac said last week that it lost $8 billion in the first quarter. It asked for another US$10.6 billion in federal assistance. At the same time, the companies have only become more important to the health of the housing market. Private sources of mortgage funding evaporated almost completely during the financial crisis, and have yet to make a significant comeback. The government directly or indirectly provided financing for 96.5 percent of mortgage loans in the first quarter, according to trade publication Inside Mortgage Finance.5. The amazing Wing Chau - Bloomberg has a great investigative piece on CDO marketer Wing Chau, who features as the prime patsy in Michael Lewis' (must read) book 'The Big Short'. The encounter between Wing Chau and sub-prime short maestro Steve Eisman in the Venetian Casino in Las Vegas in early 2007 is now legendary. It is one of the great set pieces in the book (and there are a few). I plan to visit that casino just to see the room where that meeting happened. Here's more detail and Chau's defence.
Chau calls suggestions that he constructed CDOs to benefit banks “outrageous.” “At the time, there were no conclusive signs that we were headed into the greatest economic crisis since the Great Depression,” he said in an e-mail response to questions from Bloomberg News. “Many investors that chose to purchase the bonds were among the most sophisticated in the world, including the proprietary trading desks of investment banks as well as large insurance companies.” The suggestion in Lewis’s book that CDO managers “didn’t do much of anything,” created in part through the account of the Las Vegas meeting, is “truly offensive,” Chau said in his e-mail to Bloomberg News.
The lesson that they should learn is to let the market work. During the past 15 years, in the United States especially, they refused to allow the market do its work. Alan Greenspan swore every day that he believed in market forces, but every time there was a problem he over-rode the market. If he had allowed “Long-term Capital Management” to go broke, we would not have had these problems now. That allowed people at Bear Stearns and Lehman’s, who were incompetent before, to carry on. Instead of licking their wounds and learning how to drive cabs, they went off looking for the next fish to fry. At the time everybody thought Greenspan knew what he was doing. But if you look back at some of the things he said, we now know he was a fool. Through his policies, he goosed up a consumption and a housing bubble. He said, “The derivatives markets are great. They’re a fabulous thing to help the financial system.” He came out and said all these things out loud, officially, under oath.7. A pungent view - Tyler Durden at Zerohedge also rarely pulls his punches. Here's what he thinks about the Euro bailout and what it means for US taxpayers and banks. It's not pretty. He focuses, in particular, on the little-reported decision over the last couple of days by the US Federal Reserve to open up US$500 billion of swaps lines with other central banks.
Well guess what: with about US$500 billion in liquidity swaps about to hit the asset side of the ledger (that's a conservative estimate based on the last time the Fed went full bore on bailing out Europe, and sorry, that European bailout does not come cheap), Excess Reserves (fed liabilities) are about to skyrocket by a comparable amount to match the assets. And here is the double whammy: US$500 billion in new excess reserves earning 0.25% for holder banks, means US banks are about to earn an additional $1.25 billion a year risk-free courtesy of US taxpayers, who already are getting the shaft by paying more for gas thanks to the privilege for having bailed out Europe and drowned the world in new and unprecedented gobs of excess liquidity! Simply stated, the Greek "bailout" is a roundabout way of funneling over another extra billion to US banks! Direct cost to US taxpayers to bailout Europe via IMF: $50 billion; Indirect cost to fund incremental bank excess reserves: $1.25 billion; The joy of being raped daily by the Fed-Wall Street complex and assuring another year of record Wall Street bonuses: priceless. Some things money can't buy. For everything else there are trillions in Federal Reserve Notes appearing each and every day out of thin air.
The way to get the public deficits down and start stabilising public debt ratios (as if these goals meant anything) is to stimulate economic growth. That will not occur via austerity programs. That will only worsen living standards and push the ratios further into the realm of conservative hysteria. The automatic stabilisers are reversable. That is why they are called automatic. There is no political dilemma involved – no programs that have to be cut – no incomes that have to be savaged. The budget balance is largely endogenous and is driven by private spending growth. Once that improves, which it will as public spending multiplies through the income generation process, then the budget balance will fall both in absolute terms and as a percentage of GDP. The way to cut deficits is through growth. You cut a deficit by expanding it.9. Pointed questions - Felix Salmon at Reuters has some pointed questions about the European rescue package (SPV). He also wonders how durable last night's rally will be.
Just like Hank Paulson’s TARP bazooka had to be pulled out and used, the markets are going to push the Eurozone periphery to a point at which the new bailout mechanism needs to be activated. And right now, nobody knows how or whether that mechanism is going to work. Does it need to be ratified by every individual country which is providing a guarantee? How cheaply will the SPV be able to borrow? Will it just borrow at floating rates overnight while lending at three-year terms, thereby essentially becoming a bank? How much faith will the markets place in the fragmented set of guarantees which is meant to reassure lenders to the SPV that they will be paid back in full? If one country fails to make its pro-rated payment, what happens then? Does the SPV have seniority over private-sector bondholders and even bilateral lenders in the way that the IMF does? Can any of this work in the absence of a formal international treaty setting it up? There are simply too many questions and too many uncertainties for anybody to be reassured at this point that the eurozone’s fiscal problems have found even an intermediate-term solution. Well done to the ECB, then, for saving the day — at the cost of its own independence. Let’s hope that it saves at least the rest of the year as well. Otherwise the cost was surely too much of a price to pay.
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