MATT TAIBBI

Lower credit risk means a lower price for protection. Zero implies zero risk. The higher the basis points, the higher the implied risk. When U.S. credit default swaps were first introduced, the price of protection was around two basis points. According to Bloomberg, the price for five-year protection was around 38 basis points (per annum) on Friday. But the price in the over-the-counter market — where this stuff actually trades — was almost double or around 75 basis points.

Since most traders in U.S. credit default swaps don’t think the U.S. will default any time soon, why are they trading U.S. credit default swaps? They are speculating on price movements the way a day trader buys and sells stocks to speculate on stock price movements.

via Janet Tavakoli: Washington Must Ban U.S. Credit Derivatives as Traders Demand Gold.

Another Janet Tavakoli piece, this one about the market for CDS on the United States.

I’d like someone to explain to me how trading a credit default swap on a U.S. Treasury note isn’t gambling. This is purely betting on crowd behavior — after all, nobody really thinks the U.S. will default.

It’s weird enough living in a country where a man can legally own an arsenal of machine guns, but his neighbor growing a pot plant will send a team of DEA agents kicking his door in with a no-knock warrant. But this goes even beyond that. If I go online today to HaveNoLifeAndBetOnSports.com and bet fifty dollars on the Bucks against the Celtics tonight, I’m a criminal. But some gazillionaire firm in New York can legally bet against the United States of America in unlimited amounts in a trade that has nothing to do with anything, but a guess about how many other people will make the same bet.

Jesus, are we a weird country.

When you have agents and hangers-on handing you money and naked women and Escalades from the age of 14 on, it’s bound to swell your head. Some athletes just get a worse case of it than others.

via A Field Guide to Sports Egos | Men’s Journal.

My new Men’s Journal piece is out, and I’m interested to know if anyone thinks I left anyone out of this list of reigning sports narcissists. Obviously there’s no Kobe and I’ve gotten some letters complaining that Steph was left off, but I’m saving Marbury for an athletes-who’ve-gone-insane column.

Anyway, if there are obvious omissions, please let me know. We struggled over this one.

Look at about the 5-minute mark of this video — Janet Tavakoli debating Rick Santelli about predatory lending. You basically have a whole panel of CNBC goons pooh-poohing the idea that predatory lending took place, setting up the inevitable revisionist history that the 2008 crash was caused by individual homeowners borrowing beyond their means.

My favorite part of this comes roughly at the six-minute mark. Tavakoli has just deftly explained how a lot of the predatory practices worked — people with limited financial literacy were presented with long and complicated mortgage deals, and told they would have a fixed payment in perpetuity or a guaranteed re-finance, or were nailed by fraudulent appraisals. Then she mentioned the big one, the fact that investment banks then took all these mortgages and with eyes wide open securitized them and sold them off as worthy investments to suckers on the other end of the chain.

While she’s saying all this stuff, Santelli, who is one of the fathers of the Tea Party movement, is shaking his head furiously, video-scoffing at everything she’s saying. When he finally does get a chance to speak, this is what he says:

Here’s my problem with this. It takes two to tango. You can’t cheat an honest man.

You can’t cheat an honest man? What the fuck does that mean?

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Saturday, March 13, 2010

7:30 p.m. A Pen Warmed Up in Hell: Matt Taibbi and Charles P. Pierce :

Rolling Stone political columnist Matt Taibbi and author Charles P. Pierce (Idiot America), fresh from The Daily Show and elsewhere.. $25 ($20 for members); call 860-280-3130.

via The Mark Twain House | Calendar.

Just FYI — very honored to be giving a speech with Charles Pierce at the Mark Twain House in Hartford in a few weeks. Thought I’d pass along the details of the event:

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So my new article in Rolling Stone, “Wall Street’s Bailout Hustle,” is up and online.

The piece was a lot of fun to write mainly because I got to learn a lot about con men I never knew before. But it was also challenging for a lot of other reasons. For instance, there was a whole section on Quantitative Easing I had to cut — I say this with apologies to Tyler Durden, who walked me through a lot of that stuff — for space reasons and because delving into the incipient U.S. debt problem would likely have made the piece too complicated. Thus though the piece appears to focus exclusively on the banks and how they skimmed their own bailout — which is totally true — there is actually a more subtle story out there about the mutual dependency of our increasingly broke-ass, politically desperate government in Washington and their virtually insolvent partner-banks on Wall Street. I would like to get into that more in the future.

Already I’m getting some criticism in the mail. As I’m still pretty sick right now I can’t really respond to it at length. But one theme that comes back over and over again from some writers is this idea that I ignored what would have happened if the banks had not been bailed out. That would have been an even worse disaster, the theory goes, ergo all this whining about the banks robbing the bailout money is off base.

My feeling on that is similar to what Barry Ritholtz (check out his site if you haven’t), the author of Bailout Nation and one of the guys I spoke with at length for this story, proposed. He said that “we should have gone Swedish on their asses.” The Swedes after a similar bubble burst in 1992 temporarily seized control of insolvent institutions, forced banks to write down losses before they got aid, and gave taxpayers a huge share in the upside of recovery. It was a tough-love approach that really worked and forcefully addressed the moral hazard issue in a way we never touched.

That’s one way we could have proceeded. But whatever we didn’t do, we can be sure that what we did do was exactly wrong. Barry pointed out the classic pronunciation of Victorian economist/journalist Walter Bagehot, who said that in a crisis, a Central Bank should lend freely to solvent institutions against good collateral, at penalty rates. We did exactly the opposite: we lent to insolvent institutions, against shit collateral, at zero percent interest. We told these guys to drink themselves sober. Total crap thinking and totally typical.

Anyway, I’ll get into this more after I return to the living; right now I’m going to go hang a plasma bag from my bedroom lamp and eat the contents of the first prescription bottle I can find in my bathroom.

Thanks to those who sent get well wishes.

Sorry for the lack of posts; I’ve been really sick for days. I hope to be back at it soon.

What are you reading these days? And, are there issues I should be checking out?

Let me know in the comments.

Of course, we thought the same thing when Bay came up for discussion. As it turned out, the Sox dug in their heels on protective language in the event Bay had any injuries to his knees, a stance that ultimately blew up the deal and led to the Sox acquiring, among others, Mike Cameron, Jeremy Hermida and Adrian Beltre for roughly $20 million, about $5 million more than they would have paid Bay this season under the terms of a four-year, $60 million contract. In case you’re wondering, the Sox could have had Bay, Beltre and John Lackey for about $4-$5 million more than they are projected to pay now. [Link]

Non-baseball fans, feel free to ignore this post, but it’s almost spring training time, and… As a Red Sox fan, Tony Massarotti is starting to drive me crazy. He seems like a nice guy, but he’s fixated on the idea that the Sox should buy big bats in free agency, and in order to make that point he keeps saying stuff that isn’t really true. His thing last year was this idea that the Red Sox could have signed Mark Teixeira by being more “aggressive,” when it’s fairly obvious that Teixeira was never going to sign with Boston — New York outbid them by $10 million and would have raised the pot even more if Boston had called. And Teixeira and his wife didn’t want to live in Boston anyway.

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To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable.

via The End Of Wall Streets Boom – News Markets – Portfolio.com.

Thanks to… well, whoever sent me this. Very interesting piece by Michael Lewis, whose Liar’s Poker was a hilarious book and a great way for people to get introduced to Wall Street.

Lewis in this piece posits that that game is up for Wall Street, that its unsustainable lunacy has finally caught up with it. The premise of the piece is erroneous, I think, in that Wall Street has probably always been unsustainably crazy, not just in recent decades as he seems to imply. If you go back and read Galbraith’s book about the Great Crash you’ll be amazed at how familiar all the stories sound.

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