From the cloisters

So last night the Best Western Zinon. When I arrived that part of the city was consumed by something like a Sunday market, and it was pretty intense, thronged with people from different parts of the world. I got a room up on the 8th floor with a big balcony but no furniture on it, and across the way there was an old dude who had a bed set up out on his covered porch area, sitting on the side of the bed reading, partially obscured by his laundry hanging there. It was pretty good living, though this morning I saw his son and realized the al fresco sleeping may have been motivated by space constraints too.

After the crowds died back, the neighborhood was pretty cool, with a variety of restaurants and bars (including Kurdish, though they were out of everything good). Sick of grilled meat and tourist menus, I had Chinese, then I watched Inter play Milan through the window of a bar with 6 seats. There were cheap, old school internet cafes everywhere, where people from Africa and the Middle East were busy keeping in touch with home.

By now I have been transported to the five star Hotel Pentelikon in the leafy (but still chaotic) suburb of Kifasia, where I prepare for tomorrow's meeting while trying to ignore the chaos in the markets and the freakish escalation of histrionics from various representatives of the enraged masses, eager for the head of Henry Paulson and anyone else who would take their hard-earned dollars. I.e. the blogosphere and message boards which I shouldn't read, but which are nonetheless so interesting as a window into the abyss of the long-pampered American soul.

Athens, day 1

Most importantly, I got some sleep on the plane with some pharmacological help, which is a new one for me. That's how I've been able to survive the day.

Took the bus in from the airport and had a good look at how it unrolls. It's surprising to think that Athens and Greece have been populated continuously for millenia, because so very little looks like it's been planned. It has all just happened.

Once in my hotel I discovered that it is indeed in a touristy area but also that, in Greece, it's either touristy and cute or it ain't neither. At least from what I've seen thus far. What's touristy has reason to be. The Acropolis is an intensely commanding space. I hadn't picture it as being such a fortress, way up there on the fortifications. It's easy to imagine why they thought in terms of gods living up on the hills around here.

But the hotel, despite their having told me it was quiet when I called from the States, concerned that the hostel atmosphere might be a bit much, is anything but quiet. They have a big flat panel TV in the courtyard onto which my room faces playing music videos (songs from Grease, no pun intended) for the amusement of American 2osomethings (why aren't they in college). Amstel is sold from the drink machine in the courtyard, and there's a liquor store across the way, so the kids sit in there and drink and smoke. I am quickly being cured of nostalgia for the days of my youth. Tomorrow I move to the Best Western and get a AAA discount. And the early bird special, for good measure.

An allegory

Lets imagine that a water utility, as a cost-saving measure, shortened a water-filtering cycle and started pumping out water that was harmful to downstream users. At the same time, homebuilders and homeowners decided to build more cheaply and leave a filter out of household plumbing. People start getting sick. An uproar ensues.

What should be done? Is culpability the big question here? Government should move right in and assure that people have clean water, by assuming the expense of doing so and figuring out a way to get paid back. It's not a moral question, but a practical one.

People have been getting really worked up about the moral side of the current crisis. The investment banks are easy to point fingers at, because they're opaque and mysterious, but at the end of the day people are mad at them because they earn a bunch of money.

There's a fair amount of anti-Semitism mixed in here too, especially when you start talking about Goldman Sachs. How many messageboard references have I seen to "throwing out the moneylenders from the temple."

Anybody to took out an aggressive loan or did a cash-out refi and got in over their heads was playing the same game as the investment bankers. And/or maxed out credit card debt and snatched up an F150.

I have a 30-year fixed mortgage, and 1996 car with 175000 miles on it, and a portfolio all in registered product, hostage to ERISA. I'm getting raped in this deal, and I ain't bitching. It is what it is.

What have I done with my money through all of this? I put a roof on my house, donated to a soup kitchen, and am getting my windows painted, and I'm tired of listening to red state day traders whine about freedom and taxes.

I'm going to Greece.

When it rains pennies from heaven, it pours

This morning, for the first time, Graham wiped his own butt after taking a dump. And then he said to Mary: "Thank you for letting me ride the bus." How bout them apples.

Tomorrow I head off for Athens, Greece for a weekend of jet lag and dragging my sorry ass around a bunch of archaeological sites and purveyors of grilled lamb in preparation for a meeting on Tuesday. If all goes, well, I'll be returning to the Balkans for further reconnoitering.

For the first couple of nights (the ones on my nickel) I will be staying in this backpacker's dive and will resist the temptation to be lured back to the room of a pair Norwegian-Australian girls to smoke clove cigarettes and drink home-brewed Ouzo bought in a ditch on the south shore of Corfu.

I have sewed a Canadian flag on my bag as subterfuge.

A big day

This morning the school bus came and got Graham for the first time. He didn't freak out at all. He liked it. After school, the bus brought him home.

Also after school, Graham went to the allergist, where the doctor informed him and Mary that he was outgrowing his allergy to dairy, and faster than expected. This means we will be able to go to restaurants and travel like normal people. If we can force ourselves to spend the money, that is.

Natalie, for her part, went with Vivian to the shelter to help her pick out a cat. Two cats.

And Natalie's Iowa test scores came back, and they were better than I am prepared to admit here on the blog. She is rather clever, it would seem.

Somebody help me out here

The Housing and Economic Recovery Act of 2008, signed into law in July, which authorized the recent takeover of Fannie and Freddy, also provided for the merger of the Office of Federal Housing Enterprise Oversight (OFHEO) with the Federal Housing Finance Board (FHFB) to join a new Federal Housing Finance Authority (FHFA). The new organization will have oversight over the 14 GSEs, which is to say F & F and the twelve Federal Home Loan Banks (FHLBs).

The FHFA will be run by the former head of OFHEO, which used to supervise F & F, during the period in which they brought lots of crap onto their balance sheets and ran themselves into the ground in an effort not to cede market share to the investment banks in the exciting new frontiers of mortgage risk.

The FHFB, chartered in 1989 during the S & L party as a successor to the Federal Home Loan Bank Board, formerly oversaw the FHLBs, which have remained a crucial lifeline of liquidity to mortgage lenders throughout the crisis.

In short, the reorg of regulatory agencies gives empowers management of the agency that failed at the expense of the one that succeeded.

What's all the fuss about?

Paulson and Bernanke are of one mind that they need $700 bln NOW. Like they'll be positioned to use it once they've got it. Dodd and the rest of the Main St. advocates hem and haw and burnish their populist credentials (Christopher Dodd? Trying to cleanse himself from the perceived taint of Arthur Anderson and Enron?) while providing some reasonable due diligence.

But we know we're gonna give Hank'n'Ben something, and it won't be less than $450-500 bln. Why not $150-200 bln up front to get RTC2 up and running while the rest of the package gets hammered out?

Where's Stan O'Neal?

The connection between Obama and Franklin Gaines ex-of Fannie imputed by the McCain ad below is thinly veiled racism, an unironic riff on the sensibility parodied by this Spring's New Yorker cover: If Obama's in the White House -- we are told between the lines -- black people will stick together, and who knows what they do when we pale folk are not around. They could get.... uppity! It could be the inverse of the classic Eddy Murphy sketch from SNL where he puts on whiteface and finds out what life amidst whitey is all about: free no-doc loans, cocktail parties on public buses. So I'm waiting for a round of ads showing Obama with Stan O'Neal or Richard Parsons. But not Morgan Freeman, as that would imply divine sanction.

Main St and Wall St

Main St is having a lot of trouble coming to terms with Paulson's package, thinking that it constitutes a big giveaway to the evildoers who put us into this mess. But lets put aside the moral questions, because right now it's not a moral question, but a practical one. Main St needs to ask itself who financed its construction? More often than not street construction is funded by bond issuance, and to do that you need working capital markets.

So the question is, how can we have sufficiently responsive and innovative capital markets to motivate a bunch of really smart people to work insane work weeks year in year out, without creating a race of arrogant, entitled, overpaid and sometimes downright evil investment bankers? Therein lies the rub.

Part of it is that a class of 27-year olds needs to get back to thinking that $300,000 is a lot of money.

Natalie in NY

On Saturday and I Natalie and I headed off alone into Manhattan while Mary and Graham headed over to Sadie's birthday party theatrical performance. Natalie had declared a need to go to FAO Schwarz, which I understand all too well, having a memory from childhood of a magical visit to the store in which it had all kinds of crazy over the top shit, gokarts and what not.

For starters, it was immensely gratifying that she held my hand very intently as we walked from the Public Library, where I showed her the main reading room (which I think impressed her a little). So we headed up 5th Avenue, hand in hand, past all manner of crap including the new Prada store, and I couldn't help musing to myself about what it might look like in two years -- H & M, Barnes and Noble and TGI Fridays might be the only things left in their current forms -- but mostly I just revelled in the fact that my independent and at times defiant 8-year old really wanted to hold my hand... in front of all these people. Even if our palms were getting sweaty so we had to switch sides.

FAO Schwarz, it would seem, has morphed from being a place of great magic to being just a really good toy store. Really, a toy department store, which is to say a glorified mall. Has this been the influence of its acquisition by DE Shaw in 2004, I dunno.

But Natalie was more than adequately entranced, especially by the Harry Potter store. And she didn't even beg for anything big, accepting a small treat and the idea of inventorying for the Xmas list.

Afterwards, I took her to Central Park, including a trip to the disco rollerskating area by Sheep's Meadow, but she declared the skaters to be "weird," and it's hard to argue with that, really.

The eternal perils of translation

This is from the Serbian Chamber of Commerce:

Thorny path through transition
Tue, 22 Jul 2008 13:29:01 GMT Rasina region once was the biggest exporter of baby-beef meat, but now this sector has the share of 20 percent. It has been said at the meeting of the directors of SCC Representative Offices abroad and business people from Krusevac...

...The Director of SCC Representative Office in Moscow Sasa Gmijovic talked to business people interested to launch their products on the Russian market and exhibition that is to be held in Krasnodar. He also said that Russian market is very demanding and that friendly relations of the two countries will not contribute to selling of bad quality goods.

It's good to know there are standards in place around the world.

Cult of personality

A lot of Democrats are issuing a call for Obama to keep Paulson on as Treasury Secretary, should our candidate find a way to keep it together (like put a muzzle on Biden about the freakin Buckeyes) and win. Although there are good Democratic candidates, I also think it's a bad time to change horses, at least in that stable. Chris Cox we can waterboard.

But there is a danger of a cult of personality emerging around Paulson, just like it did around Greenspan. By now, everybody's ready to kick the dapper little positivist gremlin and blame him for everything, but that is a mistake. Greenspan was empowered by our awe and reverence, and when he told us asset-price bubbles didn't require pricking, we believed him because we really wanted to believe and had become accustomed to doing so, despite the tech stock thing.

Paulson, we must remember, is one big tough dude and he's doing as good a job as could be hoped, but he's one guy. Bernanke, as we have said, is a shrinking violet, and maybe that's restoring the Fed to its place. In any case, Paulson needs to find a lieutenant, elevate him and share the lectern with him to build up cred, so that he won't have to do every press conference and be the sole voice of wisdom.

We know for damn sure the Bush holds no weight.

Bring back Moral Hazard

Since the big general bailout basically gives all banks and borrowers a free pass to be reckless, there should be some measure to assure that people worry. The government organ, whatever it is, should refuse to buy the crappy assets of roughly (randomized) every 5th bank, but should purchase from the unlucky banks' counterparties any toxic paper they have issued (or perhaps excluding every third counterparty to keep them on their toes). As long as the selection is random -- and administered by an external CPA -- banks will need to stay on their toes.

More rumblings

When I wrote the first "rumbling in markets' tummy" post back in March, it was kind of funny. Today, when a however much liquidity was injected today was injected (it all starts to run together), the markets went up, but have come back down by lunchtime, hungering for more. I think a deal (Morgan Stanley/Somebody, Wamu/Somebody, Berkshire Hathaway picking from the carcass of AIG, Steven Schwartzman on a black horse) might sate the markets for half an hour or so. But then that gnawing hunger will return, and the markets will poke at the little red spot on Paulson's beak like baby gulls begging mama for regurgitated goodness.

The other interesting thing is that, back in March, Bernanke was still a player, but now it's the Hank show all the time. Was Bernanke cast aside as too bookish? Perhaps he's holed up in the bunker with Cheney alternately playing poker and conferring with the Trilateral Commission, the Council on Foreign Relations, and the Elders of Zion.

Birthday!

Today was Graham's fifth birthday, and both kids have been bouncing off walls since 7am. Cupcakes. Presents. Party to follow over the weekend. Textbook. What's striking is how stoked Natalie is.

The buzzards of Bentonville

Might this be the moment when Walmart could be allowed entry into banking as such? Bank lobbyists have fought it because they fear the big retailer, but now they're kind of hurting.

Like the Chinese Treasury, they have money. I'm no balance sheet wizard, so I can't really assess Walmart's financial condition, and I'm no M & A person, so I don't know synergies, but they could probably swoop in and snap up WaMu. Just getting the licenses and the franchise would be good, no? They could unwind the real estate portfolio over time and fall back to an in-store model.

Rumors are flying

Apparently Sarah Palin has flown to Washington work with her lobbyists towards some "earmarks" to purchase Lehman Brothers for the town of Wasilla, along with the proceeds of a bond issuance to be underwritten by the crack Lehman team. We will post further updates as they become available. She was quoted as saying: "The East Coast elite doesn't think towns like Wasilla really merit an investment bank of their own, but we're shaking up their whole way of thinking. We've really come together as community on this one."

Hope things eternal

In the course of a day's work, stopped by the OFHEO website and saw that they have a house price calculator. Took it for a test drive. Input quarter of purchase and state and quarter of valuation, and it told me that since 2Q '03 my house has appreciated 49%.

Well, we haven't done badly here in Princeton, but that's hyper-optimistic, a legacy of the boo-ya days. You would think the organization charged with overseeing the terrible twins Fannie and Freddy might be more careful. Perhaps the calculator was coproduced with the NAR.

Two ways in which it doesn't feel like a recession

1. Supermarkets have not cut back on giving samples
2. Cable operators do not appear to need to source ad revenue from local advertisers. I.e. national accounts are holding up, even with all those channels

Both of these are -- anecdotally at least -- dramatically different from the last recession.

Joe Biden's hair

If the upcoming vice-presidential debates were conducted on the basis of hair, Sarah Palin would surely win. What's up with Biden's do? It can only be termed a patrician mullet. I've seen this hair on the heads of Wall St eminence grises before. What it means is: "I'm old, rich, and powerful and I can wear whatever hairstyle I like." Much like not matching shirts and ties, the wearer is above fashion. If Biden really wanted to play up his man of the people credentials, he would have to commit to a much more drastic, purer mullet. Personally I think he should get a short haircut like a normal person. Otherwise people throughout this great land of ours will keep looking at him and thinking subconsciously: where is this guy from?

A few questions and observations

Was just watching C-Span dedication of Pentagon Memorial to 9/11.

1. Turns out, 9/11 is "Patriot Day." Who knew?
2. Why doesn't W join in when the national anthem is being sung? Does he not know the words? Strikes me that not singing along is at least as bad as not having a flag pin on your lapel.
3. Most importantly, how could having the Chief Chaplain of the armed services lead the whole fucking cabinet and war apparatus of the United States in prayer with heads bowed -- how does that not violate the separation of church and state?

It astonishes and astounds me at times that I live in the same country as those people. It is surely not the country in which I was raised.

Big boy

Graham went in for a blood test today for his milk allergy. Mary had been rather apprehensive about taking him there, thinking that he would have a big fit, as he has in the past, and on this occasion I didn't think she was exaggerating anything. I didn't want to take him, I'll tell you that. I'm sure you see where this is headed: it went just fine. He got his blood taken quite bravely.

The biggest risk point was perhaps afterwards, at the house, when Natalie saw that he had gotten a Tofutti Cutie for a snack, whereas she had gotten squat... aside from the trip to the library and quick book check out yesterday -- without and concealed from Graham -- that we took when we were getting Mary's surprise birthday treat. That might as well be ancient history. In any case, the moment of snack jealousy passed, and peace reigns within our household. For the moment. Stay tuned...

A strange form of lust

Saw this fine old Mercedes sports car at my garage when I was out snagging chicken khatti rolls for Mary's birthday lunch today. We had just decided that I wouldn't drive out to the sushi place because there's no way to mentally justify driving 8 miles to get food when the whole point of living where we do is you can walk. And here I am vaguely lusting after an old car.

I not rarely have this internal conflict, knowing that I'm basically post-car but nonetheless getting fired up about something smooth and elegant with four wheels. It says a couple of things about me, I know. First off, I'm getting old, if this kind of car gets me worked up. It's like a Mr. frickin Magoo car. Secondly, that despite my atheist "East Coast elite" ways, I'm downright pious at times.

More on American Funds

Since I see that I am receiving visits from a server named [host020.lao.capgroup.com (The Capital Group Inc)] in Newport Beach, CA (A hearty Grouse welcome to you!), let me note that my 401k contribution was processed this month on the 8th, the 5th business day of the month, despite having been deducted from payroll on the last business day of the previous month.

Now, markets moved in my favor this month, and NAVs (unit prices) declined, so my money bought more units, but generally that seems like an unconscionably long lag. I'm not sure how 401k Service Level Agreements are typically written, but from project work I've done T+3 (clear and settle by three days after a transaction) is a generally accepted target for exchange-traded securities when they are purchased through a broker-dealer and settled and cleared by outside agencies . Our case should be a direct payroll transfer to a 401k administrator which is captive to the fund manager. There should be fewer handoffs, so T+3 should be plenty of time to get my money where it belongs, instead of sitting out there somewhere in a money-market account accruing.

Perhaps our friends out in Newport Beach would care to comment.

The Mouse that Roared, the Sequel

The clever amongst you will recall the classic Peter Sellers film The Mouse that Roared, wherein our hero plays multiple roles in the saga of the Duchy of Grand Fenwyck, a small principality whose livelihood is imperiled by the post-war import of Australian wine, and therefore decides to attack America in the hopes of losing, so as to secure Marshall Plan like financing from our magnanimous land. So it sends an army in chainmail on its one ship to New York, only to land while everyone is underground while a scientist is dealing with some problems with his master nuclear bomb. They take the bomb and the professor and his very pretty blonde daughter back to Grand Fenwyck, and hilarious hijinks ensue.

Our new version would feature a bank that sets out to fail, in order to assure a rescue by the Fed. This time the Peter Sellers characters -- played by Alan Cummings -- would contrive to engineer a portfolio so contrarian and bad it would have to fail... but the market turns and great riches befall them.

OK, so it's hard to spin this plot out into more than an SNL skit. Unless, unless, we could use Woody Allen to enlist Scarlet Johansen in the role of the very pretty blonde daughter, such that hilarious hijinks could ensue.

Cmon back, yall

Analyzing my recent traffic statistics, I can't help to think that I must have alienated my core audience with my endless ramblings on Wall Street this and election that. So here's a picture, admittedly a couple of years old, so close to home that you just have to love it. Leslie and Graham having a good old time at the crisib.

Something in the water

I had been thinking that mutual funds should be having a day in the sun, simply by virtue of the fact that there haven't been any big blow-ups (until Bill Miller of Legg Mason hoovered up all those Freddie Mac shares), and I had thought it should Vanguard and Pimco soaking up the most rays. And indeed Pimco has been growing its assets and also aggressively seeking to hire hundreds of choice investment bankers getting pink slips. Perhaps the water has special nutrients, as it seems to encourage not just investment acumen but luxurious facial hair in a curious formation.

Here's Pimco's superstar portfolio manager Bill Gross



And there's also Paul McCulley, on CNBC this morning doing the talking head thing.



The question, obviously, is whether Wall Streeters who find their way to Pimco's Newport Beach digs will have to cultivate moustachioes of similar lushness. Only time will tell.

Four words about Georgia

For all of Dick Cheney's expostulations on our role in Georgia, let me say four words: "Monroe Doctrine, Roosevelt Corollary." If we have historically considered ourselves justified in laying down the law on what goes on in our backyard, we have to understand that Russia wants to do the same. The idea that putting Georgia in NATO will enhance anybody's security (save for job security at DOD, Bechtel and Lockheed-Martin) is -- we now see -- foolhardy. WTO, yes, EU, conceivably, NATO, no.

Angels of invigoration

The Times ran another cover photo of John and his cohort of younger women on stage in Colorado. I think it's rather atypical to run around with your wife and VP on stage at the same time, though I have a limited empirical base. I think bringing them out on stage is meant to demonstrate McCain's virility and youth: "look at all these young honeys I'm hangin with!"

But we certainly wouldn't want this to eclipse McCain's main qualification for the presidency: that he was a POW in Vietnam and was tortured. Don't forget that, anybody.

Executive experience? He doesn't even have experience managing household finances. His wife and he have separate accounts.

Charley's Angels, the presidential campaign

I can't find a good still, but I swear that John McCain up there on stage with his youngish blonde wife Cindy and his even younger brunette veep pick Sarah Palin just takes me back to the days of Charley and his gals. But who is Palin in this scenario: Jacqueline Smith or Kate Jackson (i.e. the brainy one)? Time will tell, though she does not project stupidity, even if she appears to make hasty and ill-considered judgments (no longer in the family? Hell, get him off the state payroll).

Another day, another schwarma

Not much report from my desk today. Powerpoint and schwarma with both white sauce and hot sauce. A phone call to a once and present nemesis. A market bottom? Once more did not get the haircut I should have.

Heat. To be followed by wind and rain.

Sarah Palin

What is it with Sarah Palin's scowl and intonation? She sounds like something out of one of those dreams on Twin Peaks with dancing dwarves.

So she's a pit bull in lipstick? Well, hell, that qualifies her to be Vice President for sure.

She had a fifth baby at the age of 43-44. Hmm. Lets check the odds: "At 40, your chance of carrying a child with Down syndrome is one in 82; at 45 it's one in 30. " And lo and behold she had a Down syndrome baby. Now I'm sure he'll be a fine person and will bring the family together, but he's going to have limited fun during his time on this planet. Did she do him a service by conceiving him? Might they not have considered a little basic birth control?

She's a skilled orator, but a demagogue par excellence. Does she have anything to say about the biggest problem facing the country now, i.e. the credit implosion? I don't think so, but then again I can't stay up to watch.

But one thing must be said in her favor. She receives applause well. When Obama was greeted at the Democratic Convention, he said "Thank you" and variants thereupon over and over and over again, in this tone of voice that said that it was he who was in fact Destiny's Child. He acted as if by trying to still the applause he was being modest, but it came off that he wanted to act upon the crowd and bestill it. I don't want to be too negative, but it wasn't his best moment.

For Palin it in many ways was. She came onto the stage, everybody cheered for a long time, and she nodded appreciatively, said thank you a few times, but graciously let them cheer to their hearts content.

All told, I think that she is excellent fodder for a heartwarming Julia Roberts role in a future biopic.

Bouncing balls and confidence

Graham has recently taken to bouncing a soccer ball excitedly, even commanding me to do it "hand to hand," i.e. dribbling one-handed. I cannot tell you how much glee this fills me with. Mastery of balls is everything for guys. It is the form and emblem of confidence.

Women just don't get it, so much of the time. They decry sports as a waste of time, but they don't get that, through several thousand reps of different muscle movement combinations, learning to control balls with hands, head, feet, racket, what have you, is all about decision-making, trust, learning to accept and react to uncertainty, all in the blinkling of an eye. Muscular memory becomes magic, as the case of one Earvin Johnson will attest, but equally Zidane.

And then you add crowds to the picture, the added pressure of people watching you while all this magic is taking place, and you see why sports are such great preparation for life. How what really great athletes bring to the table is supreme composure and comfort (though surely there are plenty of flakes like Allen Iverson to blow that theory).

That's why nerds without ball sense -- Bill Gates springs to mind immediately -- have to work at times so hard to project confidence. The world's richest man and he's defensive and passive-aggressive on camera. He should have been out back working on his handle.

Products we need

Public libraries should put RFID or other signal tags in books (esp children's books) and then sell little devices to help patrons find books. For instance, James Marshall's Speedboat, which lurks in some dark corner of our chaos-ridden home.

Revulsion

Watching the Republican National Convention and just saw the video about Medal of Honor winner Michael Monsour, and all I can say is that it sickens me, this continuing glorification and aggrandisement of war, these dudes now rising Rambo-like from water in silhouette, now crouching with hi-tech weapons pointed at whatever's out there, these chants of "U-S-A," all this macho bullshit. Michael Monsour was undoubtedly selfless and brave, and McCain and his fellow POWs were tough, but lets not make a fucking pep rally out of it, and lets not act as if it's about freedom. It's about war, it's about oil, and it's about penises.

Who was watching, watchmen?

I remember working on a project for a private mortgage insurance company in 2003 and learning the difference between conforming and non-conforming loans and how loans were underwritten and submitted to Fannie and Freddy through their respective browser-based tools (Desktop Underwriter and Loan Prospector) and processed in a matter of minutes, and I thought: if conforming loans go to the GSEs, then where's the secondary market for all this other stuff?

The graph at right, taken from a very informative OFHEO whitepaper, gives us the answer we already knew: to the various banks. Just look at how they gobbled up sweet, sweet market share.

Now, I read a lot of financial press, and in the years 2005-7 I read a lot of articles about how the traditional 30-year fixed was faltering and everybody was taking out ARMs and no-income no asset and negative amortization and other exotics, thereby making ill-advised interest rate bets and somehow it didn't all add up. How could it work, the journallistic world asked? How could the whole world refi at just the right moment to get out of this pickle?

The question I didn't hear asked is: who's buying all this debt? Where are the secondary markets? Post-Refco there was a lot of catastrophic talk of counterparty risk and the crazy notional numbers of the CDS market, and some talk of CDOs and securitization this that and the other, but there was very little focus on the fact that mortgages of any sort had become a huge chunk of the banks' balance sheets. And I doubt it's because there weren't better journalists much better informed than I was, but instead because they bought in to the way the numbers were being crunched.

So where were the irreverent and inquisitive journalists and bloggers? Why so little skepticism and investigative vigor? Was everybody drinking the same quant kool-aid, is there a general deficiency in financial reporting, or are banks just that opaque?

Experience comparison

On Larry King this evening a Republican shill is claiming that Sarah Palin has more experience than Barack Obama by virtue of her time as governor of Alaska. It's worth noting that the population of Obama's State senatorial district in Illinois is bigger than the population of Alaska.

Sarah Palin as VP is an embarassment to the United States, a good reason to move abroad.