Monday Market Mania

Well that was fun in the stock market on Monday, wasn't it?

Let me start by just personally extending kudos to S&P for finally -- for the first time in several years at least for sure -- actually doing their fucking job and telling the truth, and for showing why they have always been considered and always will be considered far and away the most credible ratings agency in the world today. And especially for refusing to kowtow to pressure from no one less than the President himself not to downgrade U.S. debt as is obviously warranted at this time. In a way, I think we should probably be happy to be retaining even an a AA+ rating from S&P, and I am not the least bit surprised to see our debt only only downgraded but put on negative watch for further downgrades even from here.

I mean, it's highlarious to sit and listen to the President on national tv (for some strange reason today) as well as Treasury Secretary Geithner rage against S&P about how unwarranted the rating cut was and how mistaken S&P's judgment is, etc. When in reality you, me and everyone else in the country all know that, literally less than one week ago, this country was straight-up one or two days away from a debt default. Period, end of story, we were one or two days away from some form of debt default, a fact that was made extremely public by both sides of the debate on a repeated and consistent basis and in a very deliberate manner. Longtime readers will note that I have always been all about owning the consequences of your decisions here on the blog, and when the President and the GOP leadership both repeatedly make the decision to broadcast to the world how we are going to default on August 2, we won't be able to make a $60 million interest payment due on August 3, etc., then shut your holes and don't complain when a ratings agency whose sole job is to determine how likely your country is to suffer some form of a default on its debt, decides that maybe you are no longer worthy of the highest possible credit rating indicating the highest possible confidence that no default is ever forthcoming.

Because, you know, last week everyone and their mother associated with the U.S. government told the world loudly, clearly, and very deliberately that we were going to, you know, default on our debt on August 2 or 3. There was a stalemate on both sides heading right up to the weekend immediately prior to the scheduled default, and in fact the two sides eventually settled the debate generally by kicking the can down the road (sound familiar? It's unbelievable, isn't it?) until December to determine which programs will suffer cuts, and how much, to help stabilize the deficit in this country.

Anyways, somebody tell me again how President Obama goes nuts all week a couple of weeks back about how we're going to default on our debt on Tuesday, we're going to miss interest payments on Wednesday, etc., and then is back on tv a week and a half later questioning how S&P could possibly decide that U.S. government debt is not worth of what is essentially known as "risk-free" status among the major ratings agencies. That is just about the most thoughtless thing I've heard in the entire Obama term thus far. We're obviously not a triple-A rated country anymore in terms of our sovereign debt, and those of you Americans out there who actually have some scrotum should probably be focusing a lot more on what the fuck Moody's and Fitch could mother fucking possibly be looking at in recently re-affirming the U.S.'s triple-A "risk-free" status for its sovereign debt. As one more reminder, this is the debt that was very publicly a day or two away from literal default less than a week ago. The entire issue is really just unbelievable if you have your head screwed on straight.

Oh, and here's one other topic while I'm discussing the markets. This story makes my mother fucking blood boil -- that AIG is apparently going to sue Bank of America for some $10 billion for fraud related to subprime mortgages leading up to and during the financial crisis. And don't get me wrong -- Bank of America are a bunch of shitbags, and that bank -- the country's largest I believe -- could very well be leading the market and the sector lower as people are sure to start really considering that the bank might require another bailout or at the least a solid round of capital-raising in order to right the ship.

But this is AIG -- the company that essentially invented the notion of writing insurance contracts on other companies' debt defaulting over the past decade, accepting hundreds and hundreds and hundreds of millions of dollars in insurance premiums to insure the debts of companies like Fannie Mae, Freddie Mac, Lehman Brothers, Bear Stearns, Wachovia, etc. on the blind, thoughtless assumption that none of these banks would ever actually fail, and that AIG was thus merely being paid "free money" at zero risk to the firm of ever having to pay out those insurance obligations in case of the disaster. This is the same company that, when all of those entities I mentioned above did experience defaults or even bankruptcies or near-bankruptcies, AIG of course couldn't even come close to actually paying out what it owed under these insurance policies, and who thus required a $180 billion bailout package from the U.S. government back in 2008/2009, much of which was paid directly by the way to Wall Street banks straight out of the government's coffers.

And now this same true piece of garbage company wants to recover $10 billion from shitbag Bank of America, for "misleading" AIG as to the nature of the mortgages bundled into securities that AIG accepted millions in fees to write insurance polices on. So AIG employees recklessly chased millions in fees and agreed to write countless insurance policies that the firm could not possibly ever pay off in the event of an obviously realistic set of circumstances (since they actually happened), and now they want to recoup from their clients AIG's losses on those insurance policies? Are you fucking kidding me? AIG, are you out of your fucking mind? The whole mother fucking point of offering up insurance on mortgage securities is the process of doing the due diligence to determine whether or not you are willing to provide the requested insurance, and at what price your actuaries have determined you are willing to offer it. That's the whole fucking point.

I mean, I could understand the claim that Bank of America probably made about a billion statements that turned out to be completely and utterly wrong about its expectations with respect to the value of the mortgages packaged into securities insured by AIG. Every company in America, on both sides of these transactions in fact I am sure, was more or less totally wrong about their expectations for the underlying mortgages in just about any debt portfolio five or six years ago. But how a company with the sophistication level of AIG -- the preeminent insurance company on earth as of before the financial crisis, bar none -- can willingly choose to participate for premiums that it agreed to, as an insurer of last resort in an entire securitization system that was truly hopelessly flawed, ultimately do its due diligence and decide to accepte hundreds of millions of dollars in fees to insure these mortgage securities against default at the prices agreed to by AIG in each and every case, accepting those premiums in exchange for promises to insure those securities and then now try to claim that they were somehow "tricked" by Bank of America with respect to what was in the securities that AIG had investigated before quoting its price to begin with, is beyond me.

And the thing that pisses me the shit off the most, by a mile, is that the U.S. government right now owns 77% of AIG. No, strike that -- Americans own 77% of this company right now, even after a large sale share earlier in the summer to reduce the holding from originally 92% after the company's ridiculous bailouts in 2008 and again in 2009. We own this fucking company!! And we're going to stand by and allow them to try to file downright frivolous claims that by definition would eliminate responsibility for AIG's own due diligence as the leading and most sophisticated insurance company in the history of the world? Literally! Why the shit would we ever allow that? We own this fucking company, big time. You and me brotha, we own this shit.

President Obama: if you're interested in getting someone with a head on their shoulders to at least consider voting for you in the next election, I want to see you on the fucking television, wagging a finger right at the camera, and telling AIG that they either withdraw this refluckulous claim today -- like, right fucking now -- or you are shutting them the fuck down once and for all like the filthy fucking crooks that we all already know they are. And then, let's hope they call your bluff and don't withdraw the claim against Bank of America, so you can shut those assholes down and put every one of those 63,000 full-time AIG employees out of business. You know -- our fucking employees. Mine and yours. How dare those sanctimonious shitpieces at AIG, who are only even employed at all right now by the mother fucking grace of having a two consecutive pussies as president who are just too damn afraid to stick it to the people who deserve it most, now demand the return of $10 billion because they didn't even fucking try to do their jobs and actually size the potential liabilities under the default insurance contracts they wrote. But it's not AIG's fault, right? They were "tricked" as part of the financial crisis by the very clients they were agreeing to protect. How unbelievably AIG of them.

What a load of bullshit. I would happily accept a big loss on our $180 billion investment in AIG at this point if it means putting the company's entire 63,000 full time workforce out of business. Tomorrow.

Too Big to Fail

Those of you who subscribe to HBO will have undoubtedly seen "Too Big to Fail" by now if you ever channel surf like I do. I watched it last week on the main HBO -- not HBO2, HBO3, HBO Comedy, HBO Thriller, or HBO Financial Meltdown Documentaries. The movie was done with most of the style and flair that HBO has become so well known for by now over the years -- excellent writing, good character development, a very strong cast, and of course the best pre-written plot money could buy -- and the end result was really quite an enjoyable watch for me. I ended up staying up past midnight watching -- kind of shades from back in the day when I used to be permitted to stay up all night playing online no-limit holdem mtt's -- and believe me, nowadays for me to be up past midnight is almost unheard-of, post April 15.

But the thing that struck me the most about my watching of Too Big to Fail last night is how much it still moves me. It's going on roughly three years since I left Lehman Brothers out of fear for the company's future and for my job, and yet I still could not peel my eyes away from the tv screen. As I sat and watched a pretty true to life portrayal of brash former Lehman CEO Dick Fuld by James Woods, John Heard's Joe Gregory and even a small portrayal of Lehman CFO Erin Callahan, the emotions of it all just came pouring back. They really did. The hatred I felt for Fuld there at the end. The despair showing in his eyes as he begged first his competitor investment banks, then other larger commercial banks, and eventually even the Japanese and the Koreans for a lifeline to keep his company afloat, and especially the anger and disappointment while Fuld watched Paulson, Bernanke and co. bail out AIG for over $150 billion just days later. Watching Woods' portrayal of Fuld screw up the investment deals that would have saved the company at the last minute as is commonly told really happened by those on the inside back in 2008 just makes my jaw drop, true today just as much as it was three years ago. It really was an amazing, incredible time in this country's history, and in a lot of ways -- strange as this is to say -- it was almost a privilege in some ways for me to be able to be a direct part of it as much as I was.

The other thing that I think a lot of people will take away from Too Big to Fail is the portrayal of Treasury Secretary Hank Paulson in the movie. While I think most of us will always think of a bulldog, ramming idea after idea down the throat of Congress and the American people, and the guy who presented the bill for a $750 billion bailout of Wall Street without any controls whatsoever on how Paulson could dole the money out, to whom and for what purposes, this film portrays a different side to the man who spearheaded the movement to avoid the second Great Depression in the United States. While Too Big to Fail seems to me to paint a picture of Tim Geithner as a desperate, gym-addicted, almost whimsical inputter into the country's handling of the financial crisis, the movie tells the story of a hopeful, incredibly solid, formal and almost compassionate Hank Paulson, worrying almost singularly about how to protect the country and solve the worst financial crisis in several generations. While Paulson always seemed calculated and cold-hearted to me in real life while the whole mess was hitting the fan a few years back-- perhaps that is my green Lehman blood still flowing -- HBO portrays him as a deeply concerned and caring man, literally unable to sleep at night due to the constant worry about how to fix things for his country. One of the most moving scenes of the film to me is almost a throwaway, when Tim Geithner calls after another session at the gym and tells Paulson that the financial bailout bill looks like it's not going to pass Congress, and Paulson gets this look on his face like he is literally sick, puts the phone down, and then runs into the bathroom and retches. That's just not the image I ever had of the former head of Goldman Sachs, and I think the distinction between what most of us likely think of Paulson and what the makers of Too Big to Fail obviously want you to think may be one of the highlights as well for any of you out there who choose to watch.

Yeah, it's been well over two and a half years since the events of September 2008 changed Wall Street, and America, overall forever, but to me for very personal reasons the events still feel like they were just yesterday. Watching Too Big to Fail on HBO this past week was like a blast from the past, and even though reliving much of what I lived through that year is not exactly what I would call enjoyable in the strict sense, I have to say that, with a little bit of time under the bridge at this point, I thoroughly enjoyed HBO's take on things. If you find yourself with a couple of hours to kill and you are anyone with an interest in such things, I bet you'll be glad you took the time to watch.

Woe is Full Tilt

What the fruck is going on with Full Tilt and cashouts to U.S. players? And why aren't more people making more of a stink about it? Among our group anyways, it seems like it's basically TBA, a little bit of Josie, and then about a hundred quivering blobs of protoplasm too afraid (of something) to speak out against the site that has given us poker bloggers so much opportunity over the years to beef up our prize pools, let our group play rake-free, and even the (largely untaken) opportunity to play in the WSOP (yeah right).

Do any of you people really think that giving away a bunch of stuff to us over the years -- stuff which, believe you me, full tilt thought they were getting fair value for when they "gave it away" to us to begin with -- gives an online poker site the right to, or in any way absolves them from, commingle our U.S. player funds with the site's own funds, and now the consequent problems in giving us back our money? Can anyone really think that way? I've seen a few bloggers out there voicing that opinion, but as this cashout saga draws on and on and more and more details emerge about what is and is not happening at full tilt, is it possible that people really continue to just throw up their arms and give this site a pass?

Here's all I know: Pokerstars took what, ten days to get us our money? Less, even? They saw that they could no longer offer real-money play to U.S. players, and they basically immediately entered into a deal that would ensure the return in full of all U.S. players' funds, in conjunction with the U.S. government. This could only be done because pokerstars looked at their accounts and knew right away that they had segregated somewhere all the money they needed to cover all U.S. players' deposits somewhere in their coffers.

Now UB / Absolute, we like to think they are a different story. They're probably never returning any U.S. players' funds, and ultimately I think anyone who played at that site who expects them to do different now, simply is not in tune with the history of fraud and abuse at this company. Those funds are probably gone, and hopefully those of you who did play there anyways (like me) hedged against that risk by never leaving anything more than a few hundy on that site at any time. But guess what, guys? Full Tilt might be in that same boat as UB when it comes to returning your funds.

Yeah, I said it. And how much "free" stuff they "gave away" to bloggers over the past several years has precisely zero to do with it. What would that possibly have to do with whether or not full tilt is going to give players back their money? It doesn't. In fact, why should all the blogger "giveaways" over the years mean that we even give full tilt the benefit of the doubt at this point? Pokerstars got it done right away, because obviously they did not have player funds commingled with pokerstars funds. Full tilt, on the other hand, obviously did. And can anyone really feel secure when a bunch of professional poker players control an online poker site, and those players have just had the incredible cash cow that online poker is for most of their rolls, totally revoked, possibly forever but at least for a decently long, undetermined time to come, and when it turns out that that site now also had its own funds commingled with U.S. players' funds? Throw in what, tens (hundreds?) of millions of dollars that now needs to be returned and cashed out to U.S. players, and someone thinks I should give these funds-commingling scumbags the benefit of the doubt?

I have news for you rose-colored glass, all humanity is good, etc. people out there. Commingling our funds with the company's own funds -- that is, not actually having our cash separated on hand to pay us each back if and when we ever requested a cashout -- that already is the crime, as far as I'm concerned. Whether U.S. players end up getting all or most of their money back eventually, is almost secondary in my mind. The fact is that it turns out that the people who run full tilt have been running a kind of a modified ponzi scheme -- as long as people keep depositing, there are enough funds to go around for everyone to do what they want to do, but when they have to cash out all U.S. players in one fell swoop, guess what? They can't find the money for it all. And of course this is why the communications from full tilt have been so horrible (and so scarce) over the past couple of weeks, because they don't know how to explain this situation without admitting obvious guilt / fraud / etc. Think about it -- Pokerstars had the money, they knew they were going to be ok as a continuing business offering online poker only outside of the U.S., and they got their U.S. players their money back as quickly as humanly possible, and were very clear in their communications with respect to the situation. Full tilt, on the other hand, does not necessarily have the money to return to their U.S. players, and the long-term viability of their business is much more in doubt as full tilt was primarily focused on the U.S. market, and thus far it is just lie after lie, story after story, and excuse after excuse.

For any institution with access to individuals' finances to commingle its participants' funds with its own funds is punishable in almost any context and almost every circumstance. So no matter how this story ends up, Full tilt is already guilty in my mind. I am still proceeding on the assumption that I will one day see my $265 and change left on the site at the time of Black Friday, but I'm sure as hell not counting on it at this point. And with every passing day, the odds that we ever see that money dwindle further and further IMO.

Newsflash: Banks to Participate in Revised Bailout Plan

Man I had so many other posts half written and waiting to go today. Jay Cutler, Curt Schilling, the Final Four, major league baseball and the title defense of Your World Champion Philadelphia Phillies, lots of stuff.

But then I saw this story.

If you have any interest, outrage, or just plain rage related to this whole bank bailout mess, and especially how some of these financial firms have been ready and willing to game the system and take advantage even despite receiving mass injections of taxpayer funds to keep them afloat, then I suggest you read that article, a report out of the Financial Times today. It's short and it's just preliminary at this point, but the essential gist of the link for those of you too lazy to read or just very bad at summing things up to main ideas, is that the largest U.S. banks, including Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley among others, are considering participating in the Obama administration's revised bank bailout plan. Not news, right? Well, there's a catch. Those banks, and others according to the report, are considering participating as buyers in addition to as sellers.

Why is that bad, you may ask? Well, for starters, check out this line from the article:

"This week, John Mack, Morgan Stanley's chief executive, told staff the bank was considering how to become "one of the firms that can buy these assets and package them where your clients will have access to them," according to the paper."

Hmmmmmmmmmmmmmmmm. Let's see. An investment bank. Using taxpayer funds to buy troubled assets, packaging them and making them available in little slices to its clients? Now gosh durn it if that doesn't ring a bell from somewhere, doesn't it? Does that remind you all of anything that's maybe happened before? I'm gonna have to skip some space here to give that quote a minute to really sink in -- Morgan Stanley's CEO wants to be "one of the firms that can buy these assets and package them where your clients will have access to them".



















My hat blew clear off my head there when I read that again, so I had to go chase it down, sorry. Ok so, these banks are going to be permitted to take advantage of government lending unavailable anywhere else in the world, as well as the incredible leverage of the government providing almost all of the capital and taking on almost all of the risk involved in buying up these troubled asset pools from the revised TARP plan that they've now renamed so no one remembers this was the TARP plan, and all of this will be taxpayer-financed out of the new TARP. In other words, the very banks that contributed so greatly to the proliferation of risk and speculation that lie at the heart of the current crisis, are now planning to use taxpayer funds to buy each other's distressed assets at cheap prices that should reap significant rewards over time. The possibility of securitizing those crappy assets all over again and selling them to clients is just a bonus I suppose, I guess for the taxpayers who bear the largest burden under our tax system. My favorite quote of the article comes from Spencer Bachus, the top Republican on the House financial services committee, who vowed to fight against such ridonkery. Apparently Bachus told the Financial Times that it would mark "a new level of absurdity" if financial institutions were "colluding to swap assets at inflated prices using taxpayers' dollars". Ay-men to that.

So far, President Obama honestly does seem to feel our pain and our rage towards these meshuginas in the banks, and the bravado with which they continue to try to take advantage of the system and of the taxpayers of this country in the race for the Almighty Dollar, doesn't he? I can't wait to see his reaction to this one. Stay strong man, stay strong.

Oh and before I forget, don't forget the big blonkament on Sunday. No, not that one, I said the big one, the one I am actually going to be playing in. That's right, it's back -- Julius Goat's Bad Bankroll Management Tournament (BBmT). This will be the second run at the quarterly festival dedicated to those who know how to fritter away their bankroll in true bloggeresque fashion on tournaments with a clear negative expectation. The second BBmT goes down this coming Sunday, April 5, at 9pm ET on full tilt. Password is, appropriately, "busto". The buyin is a far-too-steep-for-your-bankroll $50 + $5, and, as the Goat himself puts it, the tournament wil feature both "Superstacks" and "Superdonks", as well as absolutely no BBT points at all. So come and check it out on Sunday evening -- in fact, be like me and go register now so you don't forget. There's some serious coin to be won lost in this thing for sure.

Down With "Mark to Market"?

Well, the Financial Accounting Standards Board has just messed up, big time. One of the things driving the stock market's strong gains today is this story, which has the FASB approving a change to the "mark to market" accounting rules that will now only require banks to carry troubled assets on their books at what the prices of such assets would be in an "orderly sale", as opposed to at today's current market prices which are considerably depressed as compared to the values the banks are holding such assets on their books. This is crucial to the banking sector in this country, because the need to continually mark down their troubled asset portfolios to their current values is exactly what has our nation's banks recording billions and billions and billions of losses every single quarter for most of the past two years, and what many sector analysts and market pundits believe still represents another trillion dollars or more of expected writedowns in future quarters before the credit crisis is truly behind us.

At first blush, this change may seem like a fair one, at least conceptually. Why force the banks to write down (and thus record losses related to) the value of their asset portfolios to their current "distressed" levels, if the current environment does not reflect an "orderly" market where a more respectable price by historical standards may be fetched by these asset pools? That makes perfect, logical sense, right? Wrong, for at least two key reasons, and don't let the banks convince you otherwise.

First, it's not like the current "distressed" market for these securitized pools of assets is some kind of an artificial market. It is a real market, and the prices to which many of the big banks have been marking down their distressed mortgage portfolios represent real, actual sales of comparable pools of loans made recently in arms' length transactions between two actual parties, an actual buyer of the loans and an actual seller. In other words, although the market for such assets is clearly in a significant shambles compared to where this market was just a couple of years ago, the current comparable sales reflect where the market for the values of those assets truly is right now. The whole idea of course is that the banks should have to report their assets based on their real-time, real-life values, not the values the banks wish these assets were at, and not the values they are being recorded at on the banks' books, which in many cases may be several years old and completely out of date. So, to the extent that the true, current value of these distressed assets is lower than it was a year ago, two years ago or relative to any period of time, then in my view that is the correct value to which banks' assets ought to be marked at this point in time. If, in the near (or distant) future, the market for securitized assets picks up significantly, then at that time I would suggest the banks be permitted to recognize those corresponding gains in their mortgage portfolio values. This is good because, if the market for these securitized assets never actually picks up much from current levels, then we will have had our banks marking these assets at their "correct" values from as soon as the market adjusted itself downward with respect to these assets.

The second reason that allowing the banks to mark their mortgage assets down to "orderly" sales prices is a very poor idea is that once again it puts the banks in control of determining subjectively how much these assets are worth. And need I remind you of where that whole situation got us last time? Requiring the banks to use objective, actual sales of comparable pools of assets actually made in the market to value their own portfolios keeps the whole system honest, and it takes much of the subjectivity out of the process, thereby promoting accurate valuations for our country's banks. Allowing the banks, however, to determine (somehow) what the prices of these assets would be in an "orderly market" -- whateverthefuck that means -- will simply give the banks the freedom to continue not to mark their troubled assets down to their realistic, current levels. This will ensure that we do not have an accurate picture of the health of our banks, and will distort capital ratios, making them look far better and the underlying banks therefore far healthier than they actually are. Is that a good thing?

And need I remind you, nobody seeks or sought to enforce this new mark to market system on the banks when they kept marking up their ridiculous mortgage portfolios from 2001-2007, did they? Where was the FASB and congress and shareholders clamoring then for the banks to only carry these assets at the prices they would fetch in an "orderly market", thus at much lower levels than what we now all know was a redonkulous glut of credit and not actually "orderly" or sustainable by any measure? Nowhere, of course. Changing this mark to market rule now is only being done to help beaten-down banks to procrastinate a little longer in taking the rest of the trillion dollars of writedowns that they need to take to get their books trued up to the current reality. And this is particularly important in the banking sector, because as I have mentioned here previously, the level of capital that banks are required to keep on hand is typically calculated as a ratio of the bank's total capital to its total assets on hand. Allowing banks therefore to inflate the value of their current assets by using figures that are subjective and significantly higher than their actual current values will simply ensure that the banking system in this country not only stays weak -- with banks not having adequate capital on hand to withstand further shocks to the economy -- but also that it will continue to paint an unrealistic and overly rosy picture of the health of those banks, giving the impression of health when in reality the truth is far from it.

President Obama was right when he said this is the time to end the Era of Irresponsibility. Easing mark to market rules to allow banks to decide for themselves what an "orderly market" price for their beat-down asset portfolios would be is tantamount to a license to lie, and that's exactly what they'll do. They already did it, even when they weren't expressly allowed to by the FASB, which is what got them all into this huge mess of writedowns in the first place. Allowing the banks to lie to themselves, their shareholders, their customers and to the rest of the world in overstating their financial health relative to the current free market, unfortunately, is going to lead us to the direct opposite of the President's stated goal.