OPM (Other People's Money)

We have said repeatedly that one of the triggers for the crisis was permitting investment banks to go public (prior to 1970, no NYSE member firm could be listed). We had dinner with one of our long-standing colleagues who was responsible for Sumitomo Bank's investment in Goldman Sachs and had (and continues to have) close and frequent dealings with the firm. He said that the change in the firm's behavior after it went public was dramatic. Before, it would deliberate (one might say agonize) important business decisions,. Waiting two years to enter a new field was not unheard of. But after the partners cashed in and were playing with other people's money, the firm quickly became aggressive in its use of capital in expanding the size and scope of its activities.

http://www.nakedcapitalism.com/2008/12/new-york-times-story-pulls-punches-on.html

It Really Sucks to be Rich right now

http://www.bloomberg.com/apps/news?pid=20601109&sid=aIAWDrA4RSTQ&refer=home

Abramovich, Deripaska, Oligarchs Lose $230 Billion (Update1)
By Yuriy Humber, Greg Walters and Maria Kolesnikova
Oct. 10 (Bloomberg) -- Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the 1998 default on its debt.
The combined wealth of Forbes magazine's 25 richest Russians tumbled 62 percent between May 19 and Oct. 6, based on the equity value of traded companies and analysts' estimates of closely held assets they own. The loss is four times larger than the fortune of the world's wealthiest man, Warren Buffett.
Moscow's benchmark Micex stock index declined 61 percent since its peak in May. The global credit seizure, war with Georgia and falling commodity prices led foreign investors to pull $74 billion out of Russia since early August, according to BNP Paribas SA. While Russia's 1998 default and devaluation of the ruble eradicated savings for most of the population, this year's losses are wiping out its richest citizens' fortunes.
``There was a massive transfer of wealth into the hands of the oligarchs in 1998,'' said Mark Mobius, executive chairman of Templeton Asset Management Ltd., which has about $30 billion in emerging market stocks. ``Now it's going the other way.''
United Co. Rusal's Deripaska, 40, the richest Russian on the list, lost more than $16 billion and in the past week ceded stakes in Hochtief AG and Magna International Inc. Chelsea FC owner and Evraz Group SA shareholder Abramovich, 41, lost $20 billion, based on assets excluding property and cash.
Lisin's Losses
The biggest loser has been Vladimir Lisin, 52, an avid hunter and head of Russia's Shooting Club, whose 85 percent stake in OAO Novolipetsk Steel lost $22 billion in value in the period.
Novolipetsk rival Evraz declined 83 percent, shrinking 49- year-old founder Alexander Ambramov's fortune to $2.2 billion from $13.4 billion. Russia's biggest steelmaker, OAO Severstal, also fell, cutting the wealth of chief executive officer and majority owner Alexei Mordashov, 43, to $5.3 billion.
``They should take us all off the Forbes list,'' said Alexander Lebedev, ranked 39th by the magazine in May with $3.1 billion of wealth. Lebedev, 49, who owns 30 percent of state-run airline OAO Aeroflot, said in an interview on Sept. 23 that ``silly'' rhetoric by the Kremlin over the conflict in Georgia was responsible for 40 percent of the stock market's drop in August.
Lukoil, Alfa
OAO Lukoil Chief Executive Officer Vagit Alekperov, 58, saw his 20 percent stake in Russia's second-biggest oil producer decline to $7.2 billion from $19.5 billion. The fortune of Alekperov deputy Leonid Fedun, 52, declined to $3 billion from $8.4 billion. Both men have said they will continue to buy more Lukoil shares.
Dmitry Rybolovlev, 41, who controls OAO Uralkali and owns 20 percent of OAO Silvinit, the country's only potash producers, lost about $12.8 billion, leaving him with $4.1 billion.
Alfa Group partners Mikhail Fridman, 44, German Khan, 46, and Alexei Kousmichoff, 45, ranked seventh, 10th and 17th, respectively, lost at least a combined $12.1 billion.
Alfa's shareholdings include BP Plc's Russian oil venture TNK-BP, mobile-phone operators OAO VimpelCom and Turkey's Turkcell Iletisim Hizmetleri AS, supermarket chain X5 Retail Group and television broadcaster CTC Media Inc.
Spokespeople for companies including Deripaska's Basic Element, Evraz, Nikolai Tsvetkov's UralSib Financial Corp. and Rybolovlev's Uralkali declined to comment on the losses.
Cashing Out
At least one of Russia's wealthiest got out in time.
Mikhail Prokhorov, 43, sold his 25 percent stake in OAO GMK Norilsk Nickel to Deripaska's Rusal for an undisclosed amount in April, just before nickel prices began to slump. The value of that stake plummeted from $13 billion on April 24 to $3.38 billion on Oct. 6.
Prokhorov received $7 billion in cash as part of the Norilsk transaction, the Kommersant and Vedomosti newspapers reported then, citing unidentified people familiar with the deal.
``Are you criticizing me for feasting amid the Black Death,'' Prokhorov joked with reporters in Moscow on Sept. 30, after buying half of Renaissance Capital for $500 million. That was less than a quarter of the value the investment bank had a year ago when VTB Group sought to take it over, according to a Vedemosti report. ``Crisis time is a peak for opportunities,'' Prokhorov said. ``An absolute peak.''
Trading Delayed
Russia's Micex and RTS stock exchanges delayed the opening of trading today on orders of the market regulator. It was unclear when trading would start, a spokesman for Micex said. The RTS won't resume stock trading until ``further notice,'' the bourse wrote in an e-mailed statement.
``You can now buy the free float of the entire Russian energy sector with the market cap of Coca-Cola, and still have change to buy all the Russian banks,'' Merrill Lynch & Co. emerging markets equity strategist Michael Hartnett said in a note to clients today.
The unprecedented loss of wealth may set the stage for a new round of asset redistribution, said Pavel Teplukhin, president of Troika Dialog Asset Management in Moscow.
``We've seen quite a significant inflow of fresh money by our wealthy individuals to acquire at these very attractive levels that we haven't seen since 2003, 2004,'' Teplukhin said in a Bloomberg Television interview on Oct. 9, a day the Micex Index climbed 9.8 percent.
Next Round
The next round of wealth building may be the most intense yet, according to Renaissance Capital. The first came between 1995 and 1998 as Russia's first president, the late Boris Yeltsin, agreed to sell stakes in the nation's biggest industrial assets in return for loans from bankers including Potanin, who helped organize the state bailout.
``It will be a game with bigger stakes than in early 1990s privatizations and the redistribution after the 1998 crisis,'' said David Aserkoff, chief strategist for Russia at Moscow-based Renaissance Capital.
``Oligarchs with cash will be able to use their knowledge of the business and political landscape to find the next billions,'' Aserkoff said in a research report on Oct. 6.
``The market will grow back,'' billionaire Viktor Vekselberg, 51, one of BP Plc's four partners in oil company TNK-BP and founder of Renova Group, told reporters yesterday. ``The only issue is when. I don't think it will be soon.''
To contact the reporters on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net; Greg Walters in Moscow gwalters1@bloomberg.net; Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net. Last Updated: October 10, 2008 05:44 EDT

Relief

Maybe i'm crazy, but i feel better now than before. I was on the trading floor in the crash of 87, and life didn't change a whole lot. (not that i don't think this is a LOT bigger deal). I don't want to link all this, but i feel better because

• the air is finally coming out of the equity bubble.
• the air is coming out of the income disparity bubble
• paulson is getting the message of the right way to use the 700 billion
• he seems to have the authority to do so
• europe is in worse shape than us, leveraged more and it is all a game of relative
• oil is down.....oil is down....oil is down.... that is so good for business in america
• income for the oil producing economies is down
• depression hurts china more than us (i have nothing to back this up but instinct)
  
  
  Hubby is mortified that his 401k is down. All asset classes are getting re-evaluated. No one could really predict which ones come out on top, so to a great extent it's really random where you're standing right now.
  
  Obama is probably going to end up being the best man for his time. Read something that he is in negotiations for a half hour block of time. That's perfect. Reassure a worried nation. He's very smart and style may matter more than substance for the next 4 years. Substance will be all around him.
  
  Obama might win. We might have control of all three branches.
  
  The opportunities are insane.

Remember to Breathe

The dow at 8579. Between the hedge funds liquidating, the cds swaps trying to settle, a lack of shorts in the market to cover, a lack of traders willing to trade, (Does anyone else wonder what all those masters of the universe at the investment banking trading desks are doing these days? They have to be exhausted, not to mention the strain of wondering if you have a job, who you work for, whether or not your cash is in insured deposits...) that last little drop was a doozy.

Unwinding

So, the POTUS has gone on national television and described unspeakable (literally unspeakable) horrors that are going to come down the pike if we don't hand 700 billion to wall street but the american public (to their credit) are not buying it. In an election year, no less, only 7% of americans polled support the bailout. Oh, yea, congress is going to pass this and go face their constituents!

Of little note in the economic blogosphere (which, imho, has been very instrumental in rallying the public to scream, kick, yell and fight this within an inch of their lives) is this from bloomberg:

http://bloomberg.com/apps/news?pid=20601110&sid=a3PO453H_A58

Sept. 25 (Bloomberg) -- Credit-default swap dealers reduced outstanding contracts for the first time amid efforts to cut risk by cleaning up the derivatives market. The volume of trades in the worldwide market fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since New York-based ISDA started surveying traders seven years ago.

That's a pretty big drop, suggesting to me that the POTUS may not have been talking to us, but them.

A Day of Mourning

700 billion with absolutely no, (i know you don't believe me, so i'll repeat it, louder, NO) oversight. Here's the text:

Sec. 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

2.5 billion to the terrorists at lehman who are now holding us for ransom because no one understands their complicated bs but them.

cohen is one of my heroes, as is kris (freedom's just another word for nothing left to lose.) Cohen is currently trying to recoup from theivery so i bet he won't mind if i quote his words in full:

Everybody Knows
by Leonard Cohen
Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost

Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That's how it goes
Everybody knows
Everybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died

Everybody talking to their pockets
Everybody wants a box of chocolates
And a long stem rose
Everybody knows
Everybody knows that you love me baby
Everybody knows that you really do
Everybody knows that you've been faithful
Ah give or take a night or two
Everybody knows you've been discreet
But there were so many people you just had to meet
Without your clothes
And everybody knows

Everybody knows, everybody knows
That's how it goesEverybody knows
Everybody knows, everybody knows
That's how it goesEverybody knows

And everybody knows that it's now or never
Everybody knows that it's me or you
And everybody knows that you live forever
Ah when you've done a line or two
Everybody knows the deal is rotten
Old Black Joe's still pickin' cotton
For your ribbons and bows
And everybody knows

And everybody knows that the Plague is coming
Everybody knows that it's moving fast
Everybody knows that the naked man and woman
Are just a shining artifact of the past
Everybody knows the scene is dead
But there's gonna be a meter on your bed
That will disclose
What everybody knows

And everybody knows that you're in trouble
Everybody knows what you've been through
From the bloody cross on top of Calvary
To the beach of Malibu
Everybody knows it's coming apart
Take one last look at this Sacred HeartBefore it blows
And everybody knows
Everybody knows, everybody knows
That's how it goes
Everybody knows

Oh everybody knows, everybody knows
That's how it goes
Everybody knows
Everybody knows

It's a New World

This is the war of our generation.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)3rd president of US (1743 - 1826)

As the world scrambles to err on the side of caution, protect the financial system, sacrifice our children to these banker-pigs, we need to hold hands, take a deep breath and treat this like any other natural disaster. We will be fine.

Bankers won't.

Err on the side of caution? What if the revolutionaries felt that way? What about Lincoln?

Americans are woefully unprepared for this, but nothing is going to convince them to include money and economics in the curriculum faster than this mess. We have to get up to speed.