Does America Need “A Moral Revival”?

Andrew Leonard's bad day:

The brighter side of high unemployment, Andrew Leonard: ...BusinessWeek contributor Gene Marks ... gloats about how high unemployment is good for his business. I guess any publicity is good publicity... But he didn't pick a good day. Having already been irritated enough by David Brooks, I can't say I was exactly in the mood for an explanation of why high unemployment is great for small businesses because now there are so many "good, bright, educated people" who are "willing -- no, let's admit -- grateful to work for less money and longer hours."
Even better, the bad economy provides cover for getting rid of that "dead weight" that you were feeling too guilty to throw overboard. ... And the capper:
Because let's face it: The upside to the high unemployment rate is that it has helped us control our payroll costs. No one's asking for raises. No one's demanding more benefits. ...It's now easier and more politically correct to hire part-timers, subcontractors, and other outsourced help to fill the gaps. That's because when people are out of work, they'll do whatever they've got to do to bring in cash.
I understand that Gene Marks is ... a small business owner (he sells customer relationship management tools), who is attempting to speak to other small business owners, all of whom, presumably, are also delighted that the potential hiring pool is so chock full of talent desperate to be exploited right now.
But one wonders who exactly is supposed to purchase all those products and services from the small businesses of the world, if unemployment creeps up to the 10 percent mark or higher? High unemployment means low consumer demand. Which usually means small businesses end up going out of business, or at the very least, laying off more employees, who push the unemployment rate even higher. And so on. Low employment might mean it would be harder to find qualified employees, but it also means more customers with money burning a hole in their pockets. Which scenario, do you think, is better for society in general?
I have no problem with contrarian arguments. But a look back at the oeuvre of Gene Marks suggests that in his efforts to be routinely contrarian, he ends up coming off as, well, how can I be polite? What's the opposite of insightful?

Here's what set him off:

The decline and fall of David Brooks, by Andrew Leonard: America needs "a moral revival," declares David Brooks... We are drowning in a sea of debt, and this is because we have lost our moorings; we have abandoned our tradition of Calvinist restraint, self-denial and frugal responsibility. If we don't start living right, we run the risk of cultural failure, that time-honored historical pattern in which "affluence and luxury lead to decadence, corruption and decline."
My my my. I've seen some high horses in my day, but David Brooks is perched on a saddle so far aloft in the clouds of self-delusion that he can't even see the earth, much less reality. Let's examine his thesis more closely.
Americans ran up a lot of debt in the last few decades. There's no question about that. But one of the most striking developments of the last year has been how Americans have responded to the financial crisis at an individual level. We made a collective decision to start saving and stop spending. Is this because we woke up one morning last fall and suddenly became born-again Calvinists? No, it seems clear that we were responding rationally to economic incentives. The economy crashed, unemployment surged, home prices plummeted, and presto: We all started pinching pennies. Morality, insofar as expressed via our spending habits, is merely a reflection of the economy.
To his credit, Brooks acknowledges this point. But then he immediately dismisses it:
Over the past few months, those debt levels have begun to come down. But that doesn't mean we've re-established standards of personal restraint. We've simply shifted from private debt to public debt.
This, Brooks suggests, proves that "there clearly has been an erosion in the country's financial values." Elsewhere he suggests that our cultural decline began sometime around 1980.
Brooks displays a bizarre historical amnesia throughout his column. For example, he never even mentions the transition from the Roaring Twenties to the Great Depression. Maybe it's because the shift from decadence to thrift at that point was also obviously a response to economic incentives. Even worse, a moral revival didn't restore economic growth after the Crash -- government action and ultimately the fiscal stimulus provided by World War II did the trick.
But a far more pertinent point of reference comes much earlier. Has Brooks somehow forgotten that just nine years ago the U.S. operated under a balanced budget and enjoyed a budget surplus? The explosion of public debt since that point has very little to do with the moral failings of Americans, and everything to do with objective fact. George W. Bush cut taxes, but did not match those cuts with spending cuts. Instead, he ramped up spending dramatically, on two wars, healthcare, and finally, a huge bailout of Wall Street.
Bruce Bartlett has calculated that even without Obama stimulus-related spending increases, the current deficit for fiscal year 2009 would be about $1.3 trillion instead of $1.6 trillion. If you are a believer in Keynesian economics, you can make a pretty good case that Obama's additional spending is designed to get the economy growing again, so as to avoid even worse deficits in the future. Do nothing, and a shrinking economy means lower tax revenues and higher social spending. Morality has very little to do it -- the appropriate, responsible fiscal choice at this point is for government to spend, while the people save.
Obama would be in much better position to do what's appropriate, of course, if he hadn't been saddled with a trillion-dollar deficit when he walked in the door. But the responsibility for that does not belong with some widespread betrayal of America's founding puritan values. It belongs explicitly to the party in control over the last eight years.

Wynn punts on Asia’s great casino game

The fortunes of  some of the biggest US casino operators - and Asia's gambling hot spot, Macao - seem to be turning after a difficult first half. Wynn Resorts on Wednesday priced the $1.6bn Hong Kong IPO of its Macao operations at the top end of an indicative range, as investors flocked to the first listing in Hong Kong by a US-based company....

CMBStress resumes

And now a return to your normal programming -- the ever-increasing amount of commercial mortgage-backed securities in delinquency... July's reduction in delinquent CMBS -- the first monthly decrease since August 2008 -- looks to have been a blip if Realpoint's latest report on the sector is anything to go by....

When the facts change, change the measures (and hope for the best)

Sean Corrigan of Diapason Commodities -- ever cautious on inflation --  is unsurprisingly also a bit of a money-supply fiend. The issues of monetary base, M2, M4, and all other definitions thereof, frequently make a prominent appearance in his research notes. Given that Corrigan is so passionate about the issue,...

Plan for Failure

Imagine for a moment that you are managing a large corporate bond portfolio for a major institution.  One of the first things you should internalize is that you will be wrong.  You will buy bonds of companies that will get into unexpected trouble, and their prices will decline.  Or, you play it safe as a panic deepens, and then as the fog lifts, you underperform because you did not hold onto risky bonds that would recover.

Face it: in volatile times we get it wrong.  We panic at troughs, and chase the rabbit when the market runs contrary to our bearish expectations.  But what do you do when you are on the wrong side of a trade?

The first thing to do is sit down with all concerned parties and ask their opinions.  (If you are working on your own, this point is moot.)  If everyone who has an opinion agrees, and the position still worsens, the final step must be taken.  Look at all external analytical opinion, and find someone that disagrees.  Circulate the disagreeing opinions out, and ask all concerned parties what they think.  Or, simply ask, what arguments have they made that we haven’t heard?  Do those arguments make any sense?  If they make sense, close out the position.  If not, it may be time to add more amid the pessimism.

But it is better to prepare in advance for bad times than to react on the fly.  Good investment processes plan for failure.  They realize that not every investment will win, and so they limit the downside of possible bad investments through:

  • Diversification
  • Hostile review when the investment falls by a given amount.
  • Limitations on size of positions.
  • Holding safe assets

Good investment management considers where asset values could go in the short run, and the possibility that money could be pulled if performance is bad enough.  But it also looks to the long run value of the assets, and is willing to sell when values are too high, and buy when values are too low.

As a corporate bond manager, when I got on the wrong side of a trade, I would call my analyst to me and ask her for her unbiased opinion.  If she was certain that things were good, and gave good answers to my questions, I would add to my positions.  But if she gave me the sense that things were falling apart, I would take my losses.


When I went to work for a hedge fund in 2003, one of the first questions I was asked was  how I would position the portfolio.  I found myself to be the lone bull.  When asked why, I said that we were in the midst of a liquidity rally, and that short positions were poison when liquidity was adequate to finance marginal companies.  My argument was not bought, but I focused my part of the portfolio on marginal insurance companies that would benefit most from the liquidity wave.

Today, there are many bearish hedge funds that are licking their wounds.  What to do?

1) First, assess your funding base.  Estimate how much assets will leave if the underperformance persists.

2) Look at your positions relative to your expectation of prices two years out.  Eliminate the positions with the lowest risk-adjusted expected returns, whether short or long.  Keep the positions on (or add to them) that offer the most promise.


Bad times offer an opportunity to concentrate on best ideas.  Good times offer opportunities to avoid risk.  In this time of liquidity prompted by the Fed, take the opportunity to lessen risk, because eventually the Fed will have to shift its position, and suck liquidity out of the economy.

THE FINTAG NEWSLETTER @ 30 September 2009



So on-line advertising is beating TV adverts for the first time. I rarely watch TV although yesterday I was glued to a socialist ranting on about how he was going to spend even more of my money and a comedy-tragedy drama about the lost Lehman weekend. The casting was strange and Dick Fuld was quite a lovable character. Thain was good but Paulson wasn’t hard enough.

The programme may have been a repeat but I saw it for the first time and found it quite gripping.

Given I am out of words today, today is more of a pic-fest. Enjoy.


financial news

JP Morgan’s top manager in Europe has quit after a quarter of a century at the US bank as chief executive Jamie Dimon announced a major reshuffle of the investment banking division.

Fintag says
As I mentioned yesterday, the man had turned sour and it appears he knew he was being pushed and he opened his mouth or he opened his mouth and was pushed. I met the guy a few times. Very quiet and a real lifer of the old school.

cityam says ” Winters is ousted from JP Morgan”



AIRLINES can still put on a great show, as yesterday’s inaugural British Airways flight from City Airport to New York JFK testified. We were treated to water salutes from firefighters, cheerleaders and champagne on tap. And apart from the fun of flying on a brand new, 32-seater all business class luxury Airbus A318, the exercise was a good opportunity to catch up with BA’s top brass, not least Willie Walsh, the firm’s ever-energetic CEO.

Fintag says
I loved EOS. But its timing was poor. For those in the Wharf this is good news – no more missing flights by getting stuck on the M4 but more importantly no more screaming babies or students flying on airmiles spoiling the ride.

Let us hope the BA crew are as cool and trendy as the black clad EOS ones …



Gordon Brown tried to revive his party yesterday with a conference speech packed with policy announcements designed to appeal to middle-class voters and prove that he had not run out of steam.

The Prime Minister promised to remodel the economy, clean up politics and create a more responsible society during a defiant performance in Brighton in which he set out the lines on which the looming election battle will be fought. He told MPs and delegates not to give in to defeatism but to “dream big dreams”.

Fintag says
I hope you enjoyed my Labour Conference Bingo on twitter yesterday. If the man gets re-elected, I shall leave. My bags are packed.

fintag’s twitter



Muscle and joint pain – musculoskeletal disorders (MSDs) – account for almost half of all sick leave, both in the UK and across Europe, a study has found.

No less than 49% of all sickness absence is caused by MSDs, said the Fit for Work Europe report by the Work Foundation business consultancy group.

It estimates that this costs the UK economy £7bn each year, rising to 240bn euros (£$349bn; £219bn) across Europe.

Fintag says
On 16th October a new magazine is being launched in Germany called BusinessPunk. It will have an initial circulation of 100,000 and I feature heavily with an in depth interview and lots of photographs. Given it is a lifestyle magazine about how the rich, successful and good looking live their lives, readers of fintag should prepare for some more stories like this to get you in the mood.

[Editor: This news story is about being sick?]



Swiss fund of hedge funds group GAM will split from parent Julius Baer Group on Thursday. And for the new asset management group, independence means an ambitious new growth plan.

On Thursday, Julius Baer will list its private bank on the Swiss Exchange under the parent company’s existing name, Julius Baer Group. The existing listing will become GAM Holding, and include the fund of funds arm, Swiss & Global and a minority stake in Artio Global Investors, which Baer listed in New York last week.

Fintag says
Nice but dull.



He is single now. “I’m not into partnerships,” he says dismissively. I don’t even know what it means.” He “couldn’t care less” about gay marriage. “Does anyone care what Americans think? They’re the worst-educated people in the First World. They don’t have any thoughts, they have emotional responses, which good advertisers know how to provoke.” You could have been the first gay president, I say. “No, I would have married and had nine children,” he replies quickly and seriously. “I don’t believe in these exclusive terms.”

Impaired mobility doesn’t bother him — he “rose like a miracle” on stage at the National — and he doesn’t dwell on mortality either. “Either you accept there is such a thing or you’re so dumb that you can’t grasp it.” Is he in good health? “No, of course not. I’m diabetic. It’s odd, I’ve never been fat and I don’t like candy, which most Americans are hooked on.”

Fintag says
I love listening to crotchety old men. We don’t pay enough respect to our elders.

links for 2009-09-29

U.S. Stocks Weak; Euro Rises

U.S. stocks declined after weak manufacturing report and rising unemployment claims put investors on an alert. Microsoft decreased after Goldman removed the company from its recommendation list. Euro declined and German retail sales fell 1.5% in August.

Nasdaq Up 15.7%; Dow, S&P 500 Up 15%

The three popular indexes gained around 15% in the third quarter and several European indexes closed up between 15% and 23%. Australia index surged 20% and the benchmark added 17% in India. The Shanghai index fell 6.1%. in the quarter. Gold added 8.7% in the third quarter.

Dimon shakes up JPMorgan

Jamie Dimon, chief executive of JPMorgan Chase, on Tuesday initiated a shake-up of his top management team, ousting Bill Winters, co-head of investment banking, and anointing Jes Staley as likely heir to the top job. Under the reshuffle, Staley, who has been at JPMorgan since 1979, will take over the investment bank while Steve Black,...

AT&T, next-gen developers move to OnLive

The major video game publishers have switched development of next-generation games from consoles to the OnLive platform of internet-based gaming, according to the service’s founder. Steve Perlman, (pictured) OnLive chief executive, said his service was also gaining considerable attention from investors, as he announced a major funding round led by AT&T Media Holdings. OnLive caused a major [...]

BNP Paribas in €4.3bn cash call

BNP Paribas on Tuesday launched a €4.3bn ($6.3bn) cash call in a move to repay its government bail-out. France’s biggest bank said it would use the funds to repay €5.1bn of non-voting stock issued to the French government this year in addition to a €226m interest payment. The bank is offering 107.6m new shares at €40 each – a 30% discount to Monday’s closing price of €56.57....

CIT in last-ditch rescue bid

The fate of  CIT Group was hanging in balance on Tuesday as the US commercial lender readied a plan to hand control to its bondholders, reports the WSJ. CIT is preparing a sweeping exchange offer to eliminate 30% to 40% of its $30bn-plus debt outstanding. The plan would offer bondholders new debt secured by CIT assets and nearly all the equity in a restructured company....

US banks could pay $45bn to FDIC

US banks will have to pay $45bn in up-front fees to the Federal Deposit Insurance Corporation under a plan presented on Tuesday to shore up the FDIC’s depleted deposit insurance fund. The agency warned it will run out of liquid funds early next year due to bank failures, and said the estimated cost of expected failures from 2009 to 2013 had increased to about $100bn from an earlier estimate of $70bn....

Brown: ‘City is ideologically bankrupt’

Gordon Brown declared the City "ideologically bankrupt" and promised Labour that bankers "will pay back the British people", in a speech positioning his government firmly against London’s financial community ahead of a general election, reports the Telegraph. At the Labour conference in Brighton, the UK prime minister linked the financial crisis with the Tories,...

ICBC to buy Thailand’s ACL Bank

Industrial and Commercial Bank of China, the world's largest bank by market value, is buying Thailand's smallest lender ACL Bank for up to $545m, in a move to tap the fast-growing Thai economy and expand regional operations, reports Reuters. ICBC agreed to buy a 19.26% stake in ACL Bank from Bangkok Bank for 3.52bn baht ($104.8m)....

China gives insurers investment nod

Chinese insurance companies will be permitted to invest directly in commercial property for the first time under new regulations that are set to trigger an influx of cash – conservatively estimated at $34bn - into China’s high-end commercial property market. The new rules take effect on Thursday,...

Dutch eye action on Fortis, ABN

The Dutch state is pursuing parallel tracks to sell the commercial banking arms of either ABN Amro or Fortis Bank Nederland in an effort to satisfy EU competition regulators that a merger between the two state-owned banks can proceed. FBN and ABN, both nationalised late last year, are to be merged ahead of a planned privatisation in or after 2011....

HRE chief urges ‘pragmatism’

The chief executive of Hypo Real Estate says that a German government plan to enforce a controversial “squeeze-out” of minority shareholders next week is the only option for the troubled bank. Axel Wieandt said the move, which will deny shareholders the chance to recover further value from the lender after its near-collapse,...

BBVA names new chief

BBVA, the second biggest Spanish bank after Santander, on Tuesday named Angel Cano Fernández as its new chief executive to lead a more aggressive international expansion programme. The board decided on Tuesday that Francisco González, executive chairman, would stay in place; Cano replaces José Ignacio Goirigolzarri,...