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December 11, 2007 04:02 PM UTC

Tuesday Open Thread

  • 27 Comments
  • by: Colorado Pols

“Crime is contagious….if the government becomes a lawbreaker, it breeds contempt for the law.”

–Justice Louis Brandeis

Comments

27 thoughts on “Tuesday Open Thread

  1. OH-05 and VA-01 are both having special elections today.  Both are Republican-leaning districts (OH-05 is R+10, VA-01 is R+6.5), so the Republican candidates should have an edge, but there has been a lot of attention (and money spent) on OH-05, where the Republican came out of a nasty primary…

    A Dem win or close loss in either of these could be a sign of trouble for the Republican party.  Updates through the day…

      1. It’s a bit early in the day for that.

        There’s some ongoing commentary over at Daily Kos, which has tracked the OH-05 race closely.  Weather there is pretty lousy, rain turning to freezing rain, especially in the Western half of the district.  Turnout so far is reported to be low.

        Not Larry Sabato and probably other sites will be liveblogging returns from VA-01 tonight, and results are available in real time from the Virginia State Board of Elections (navigate to 2007 Election Results).

        You probably have a selection of sites liveblogging OH-05 this evening; the Ohio Secretary of State’s office has election returns reporting, too, but I’m not sure if it’s as fast as Virginia’s.

  2. Could this be a harbinger of things to come?

    Governmental bodies are required by law to invest unused funds.  The state set up a fund for that purpose, and it’s popular because of the very low fees charged, and a good investment record.  

    Can you say “Subprime mortgage?” Many of the fund’s holdings were recently downgraded.  A number of counties started pulling funds.  After a week, the state froze all accounts, then days later let withdrawals resume, but not all monies held.  Something that reflects the amount of suspect investments.  The director of the fund resigned.

    Wow, shades of 1932!  There are many who say the worst is yet to come; I think that they are right.  

        1. I wonder who didn’t do their research to see what the holdings were.  Or whether the fund shifted investments in areas they weren’t supposed to.  Someone dropped the ball…

          1. …any worse than in the zillions of banks and funds all over the world that invested in these time bombs.  “Everyone” thought that they were just fine (except me.) This particular fund did not lose its shorts because – if I understand correctly – only 14% was invested in these dubious notes.

            But it caused a lot of panic for the bodies that were expecting to pull funds to meet obligations.  

    1. Local Government Investment Pool.

      This is more similar to what happened in 1993 with Bob Citron in Orange County.  It was the largestest muni bankruptcy ever (I think–could be wrong)

      This happened because there are generally few professional money managers running these funds.  These products are similar to money market funds, but are not required to follow rules as strict as money markets.  

      When I was part of a team running money markets we ran about $20 Billion and had 9 professionals acting as traders, analysts and portfolio managers: 6 were Chartered Financial Analysts (CFA), 2 were CPAs and our boss was considered a pioneer in the money market industry.  Typically an LGIP has a professional staff of only a couple–and they make government money, not wall street money, which limits your employee pool.

      As a result of a smaller and sometimes less competent staff, the LGIP’s are more dependant on rating agencies (Moodys, S&P, Fitch), because they don’t have the staff to do their own due diligence.  SIVs (a type of strutured product) a great when structured correctly, but require several kinds of sophisticated analysis.  

      Rating agencies are private entities, but they serve a public duty and are embedded in banking, muincipal, and other regulation.  They present themselves as independant agencies and put their name on ratings.  A rating is not a guarantee of performance, but issuing a rating creates a duty for the rating agency to perform independant due diligence.

      Now on to my issue.

      The rating agencies failed their duty to perform due diligence. At every level, whether at the issuance of the CDOs (Collateralized Debt Obligations) and other MBS (mortgage backed securities), where the agencies extrapolated prime data to subprime loans, to the SIVs (structured Investnment Vehicles), where the rating agencies allowed themselves to be buffaloed by the vehicle sponsers to strip out liguidity, the rating agencies failed their duty.

      The reality is that finance runs on available balance sheet.  Banks are tightly controlled on balance sheet use ever since the depression and US banks are amongst the best regulated in the world.

      In order to free up balance sheet, banks tap the capital markets through structured products.  This is great for keeping interest rates low and credit widely available, but it has its downside as well.  

      I just noticed how long this was getting.  So I’ll cut it short (ish)

      1. You used to be on a fund team?  That’s pretty freakin’ sweet.  Isn’t it amazing how much work goes into a money market?  Just imagine some of these equity funds and such.  

        That’s why good fund managers make dang good money.

        Thanks for the information, I appreciate it

        1. More transparency.  A stock is a stock (generally). The price is the price (generally).

          That is not the case in fixed income (FI).  Bonds are not fungible. Ratings are not equivalent.  and pricing is opaque (there is no ticker).

          StrucFin is even worse because there is opacity to the underlying assets (to a varying degree).

          The other thing in FI is that in equities 1 good trade can bail you out of 9 bad ones, that is not the case in FI.  High yield (junk) is a little like equities in that there is enough upside to bail you out of some mistakes.  Even Corps (long/med investment grade)can survive a mistake or two.  Money markets on the other hand can’t survive any mistakes, this makes you spend an incredible amount of effort for what amounts to pennies.  

          Because MMs, LGIPs and treasury pools are perceived as low risk there is a tendancy to skimp on staff–and then there is a blow up.

          Having done corps and mm’s the only thing easier about mm’s is that you can use amortized pricing as opposed to mark to market.  But the reality is with strucfin its mostly mark to model anyway and most corp funds are actually investmet grade funds and contain an increasing amount of structured products.  The reason why its mark to model (or sometimes mark to matrix) is there is no true liquidity in a crisis.  I actually think the stress in MMs is higher because of the demand for perfection.

          Again too long

          1. Isn’t this just rewarding bad behavior? Where are the “free marketers” when those who fail aren’t allowed to…..well, fail?

            The Federal Reserve has joined with four other major central banks to announce a series of measures designed to inject added cash into global money markets in hopes of thawing a credit freeze that threatens their economies.

            The Fed said today it would create a new “term auction facility” under which it would lend at least $40 billion and potentially far more, in four separate auctions starting this week. The loans would be at rates far below the rate charged on direct loans from the Fed to banks from its so-called “discount window.” But the new loans can still be secured by the same, broad variety of collateral available that banks pledge for discount window loans.

            h.t Greg Ip @ WSJ

  3. FL probably has more tax issues than any state I’m aware of.  Even with TABOR in CO, or the population overload in CA.

    So, I figure I’ll register my car, an old 1989 Jeep….

    They don’t use the value of the car, but the weight! This is the same as the last 70 years, IIRC. And the registration coincides with birth months, and commercial licenses all are renewed in June!

    Wait!  It gets weirder.  They don’t use a sliding scale of time of registration to birth month, it’s the same for 1-12 months!!!!  Since I was born in May, my $50 has to be coughed up again in five months!

    AND they charge $100 for the license plate (AND you only get one!) and $35 for the new registration. Bottom line is $235 to get through next May.  

    This means that a Ferrari and a small Ford pay the same license fees!  No wonder all those narcos drive Ferraris!  Talk about leaving money on the table.

    CO and CA, of course, use a value of car fee structure. And IIRC, the plate comes with the first time you register, included.

    I just mailed in my registration to Arapahoe County.  Maybe I’ll just be visiting for a long while…….

    1. Just in time for Christmas …

      Fruitcake Recipe

      1 cup water

      1 cup sugar

      4 large eggs

      2 cups dried fruit

      1 teaspoon baking soda

      1 teaspoon salt

      1 cup brown sugar

      lemon juice

      nuts

      1 gallon Jack Daniels Whiskey

      Sample the whiskey to check for quality.

      Take a large bowl.

      Check the whiskey again to be sure it is of the

      highest quality.

      Pour one level cup and drink.

      Repeat.

      Turn on the electric mixer; beat 1 cup butter in a

      large,fluffy bowl.

      Add 1 teaspoon of sugar and beat again.

      Make sure the whiskey is still OK.

      Cry another tup.

      Turn off mixer.

      Break 2 legs and add to the bowl and chuck in the cup

      of dried fruit.

      Mix on the turner.

      If the fried druit gets stuck in the beaterers, pry it

      loose with a screwscriver.

      Sample the whiskey to check for tonsisticity.

      Next, sift 2 cups of salt. Or something. Who cares?

      Check the whiskey.

      Now sift the lemon juice and strain your nuts.

      Add one table. Spoon. Of sugar or something.

      Whatever you can find.

      Grease the oven.

      Turn the cake tin to 350 degrees.

      Don’t forget to beat off the turner.

      Throw the bowl out of the window.

      Check the whiskey again.

      Go to bed.

      Who the heck likes fruitcake anyway?

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