Saturday, May 09, 2009

So many interesting reads, so little time

In the spirit of the old FinanceProfessor Newsletter, here is how I am going to try and catch up:

Over at ClusterStock/BusinessInsider Joesph Weisenthal was really on a roll this week. The first article is an excellent fast look at why the Federal Government should not be active bank shareholders:
"The real question should be: Does the US having an active stake in Citigroup make it more likely that the bank will be run better for shareholders? If it does then okay, we can debate. But this seems highly unlikely, given how politicized lending can become. This is the same problem as having labor union representation on a board. The board's duty is not too look out for their sponsoring shareholders, their duty is to look out for all shareholders. But any government rep -- armed with mandates, such as "green" lending, lending to labor union-dominated companies and providing more affordable housing loans -- would have a totally separate agenda."

Weisenthal also reminds us that Fannie Mae and Freddie Mac are losing e money ($400 B to date) faster than AIG and GM combined but we hardly hear anything. He opines:
"But the news of the quarterly loss is getting hardly any attention....The problem is that the Fannie and Freddie disasters don't fit into any conventional media narrative....Fannie Mae? They help nice families get into homes. Their motto is something about helping the people who help house America. Who could be against that? Plus, the Fannie and Freddy story doesn't help explain the idea that laissez-faire deregulation is what allowed Wall Street to go crazy. Fannie and Freddy had their own freakin' regulator...."

And one more from ClusterStock. John Carney points out that a staggering 60% of subprime mortgage defaults, STARTED out as prime mortgages.
"...Mike Rotny takes a look at a recent study by the Boston Fed that devastates the subprime villain mythology. It turns out that roughly 28 percent of all mortgages defaults, and 60 percent of all subprime defaults, were mortgages that started with a prime mortgage.

"...28% of all mortgage foreclosures, and 60% of subprime foreclosures, are from people who started with a prime mortgage. Those are the Us — good credit scores, 20% down, pay the bills on time. . . .

In one we alluded to in class this week Henry Rearden probably turned in his fictional grave as 1.5 million Verizon subscribers will have to switch to AT&T as their regions (mainly rural) were sold to alleviate monopoly concerns.

"Yesterday AT&T announced that it has reached an agreement with Verizon Wireless that will see AT&T acquiring a large number of former Alltel Wireless assets and 1.5 million subscribers from Verizon for US$2.35 billion in cash. Verizon Wireless was required to divest of most of these particular markets in order to get federal approval for its acquisition of Alltel. The government required Verizon to release these Alltel markets in order to maintain competition."

Some of my favorite books ever are alternative histories. You know, the what would have happened if Day 2 of Gettysburg hadn't happened etc. In that spirit, "Big Jake" writing for Seeking Alpha has a great piece. It is just possible enough to be believeable, but just far fetched enough to be still be fiction. Definitely worth the time of reading the whole thing! The Worst Case Scenario (Someone has to say it) : (one look in at #4)
"As the government sends out additional “rebate” checks and takes ever-more drastic measures to force banks to lend, hyperinflation could take hold. However, comprehensive debt relief via a devaluation of the dollar is even more likely. This would entail the government issuing one “new” dollar for some greater number of “old” dollars—thus reducing both debts and savings simultaneously....

As there are many more debtors than savers in the U.S., the vast majority would support devaluation. The Chinese and other foreign holders of our bonds would be screaming mad, but unable to do anything"

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