Archive for the 'business' Category

How it worked

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Consider the Bear Stearns Alt-A Trust 2006-7, a $1.3 billion drop in the sea of risky loans. Here’s how it worked:

As the credit bubble grew in 2006, Bear Stearns, then one of the leading mortgage traders on Wall Street, bought 2,871 mortgages from lenders like the Countrywide Financial Corporation.

The mortgages, with an average size of about $450,000, were Alt-A loans — the kind often referred to as liar loans, because lenders made them without the usual documentation to verify borrowers’ incomes or savings. Nearly 60 percent of the loans were made in California, Florida and Arizona, where home prices rose — and subsequently fell — faster than almost anywhere else in the country.

Bear Stearns bundled the loans into 37 different kinds of bonds, ranked by varying levels of risk, for sale to investment banks, hedge funds and insurance companies.

If any of the mortgages went bad — and, it turned out, many did — the bonds at the bottom of the pecking order would suffer losses first, followed by the next lowest, and so on up the chain. By one measure, the Bear Stearns Alt-A Trust 2006-7 has performed well: It has suffered losses of about 1.6 percent. Of those loans, 778 have been paid off or moved through the foreclosure process.

But by many other measures, it’s a toxic portfolio. Of the 2,093 loans that remain, 23 percent are delinquent or in foreclosure, according to Bloomberg News data. Initially rated triple-A, the most senior of the securities were downgraded to near junk bond status last week. Valuing mortgage bonds, even the safest variety, requires guesstimates: How many homeowners will fall behind on their mortgages? If the bank forecloses, what will the homes sell for? Investments like the Bear Stearns securities are almost certain to lose value as long as home prices keep falling.

from the NYTimes

Robots can be mush-brained, too

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Meet Gordon, probably the world’s first robot controlled exclusively by living brain tissue.

Stitched together from cultured rat neurons, Gordon’s primitive grey matter was designed at the University of Reading by scientists who unveiled the neuron-powered machine on Wednesday.

Their groundbreaking experiments explore the vanishing boundary between natural and artificial intelligence, and could shed light on the fundamental building blocks of memory and learning, one of the lead researchers told AFP.

from Breitbart.com

Some days our brain feels as though its been stitched together. These developments raise a number of interesting questions. Will a robot with an organic brain be an android? Will organic carbon-based computers replace inorganic silicon-based ones? Will organic processors be susceptible to sunspots, moon tides, or seasonal affective disorder? Won’t upkeep be messy?

Mercedes High-Bred Announced

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mercedes
The automotive world is abuzz over the latest entry into the hybrid auto market, the Mercedes Benz High-Bred. Available this fall in Sedan, Sportster and SUV version, the High-Bred reportedly gets over 75 miles per gallon of petrol on the highway.

The move is seen as a response to the runaway success of the Toyota Prius.

“Obviously, energy efficient cars are the wave of the future,” according to Otto von Schwineherter, director of corporate confabulation at Mercedes, “but going green needn’t mean you have to forgo a superior driving experience.”

He added, “There are many unsatisfied customers walking around with serious cases of Priapism.”

What Inflation?

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As the Dowbrigade has been noting for some time now, it is clear that the Federal Office of Management and Budget has been cooking the nation’s books for years.

We noted almost four years ago that prices at the pumps, checkout counters, showrooms and e-Sites have been going up a lot faster than the officially recognized 3-4% per year. We wrote then,

Although we don’t have an advanced degree in economics, it is obvious to any fool with half a brain and less than a million dollars to spend that prices in the US are rising faster than the officially reported 1.1%. Gasoline is almost two dollars a gallon, the T just went up 25%, we spend more at the supermarket every week (when did milk get so expensive?) and the hidden surcharges and stealth fees in our bills are gutting our budget every month. (Dowbrigade, March 2004)

Now, although we still don’t have an advanced degree in economics, we DID take courses in the field as an undergrad AND as a grad student, as we have long been convinced that no one can really hope to understand what’s going on in the modern world without a sound understanding of basic economic principles.

Despite that fact, and the intuitive certainty that some statistical prestidigitation was taking place, we didn’t have a clue as to the actual mechanisms being employed until we read Kevin Phillips article Hard Numbers: The Economy is Worse than you Think, from the current issue of Harper’s Magazine. He explains, in language anyone with a sound understanding of basic economic principles can understand, the different statistical scams that successive administrations have instituted to downplay inflation and unemployment, both of which, according to a number of neutral economists, are actually hovering between 8 and 10%.

Ever since the 1960s, Washington has gulled its citizens and creditors by debasing official statistics, the vital instruments with which the vigor and muscle of the American economy are measured.

The effect has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed.

St Petersburg Times

The scams range from computing the value of homes by asking homeowners to estimate how much rent they could charge rather than taking real estate market rates (rents rose half as fast as house prices over the past decade) to leaving people who had “given up looking for work” from the unemployment statistics.

Meanwhile, the current elephant in the living room is credit card debt. As Americans absorb the increases at the gas station and in the supermarkets, they are not adjusting their spending accordingly – they are accumulating the resulting monthly deficits on their credit cards. The limits on these cards, lifted regularly during the boom times, will eventually be reached, and the resultant insolvencies will be a devastating one-two punch to ordinary citizens already reeling from depreciation and or loss of homes and investment portfolios.

Most of those affected are still in denial, or hoping that the empty bank accounts at the end of the months are temporary abberrations soon to disappear. But they have a nagging feeling bogging down their brains which is reflected in the historically low consumer confidence numbers being reported in the past few weeks. What happens when millions of cards start popping back out of ATM’s or being refused at Wal-Mart or Piggly Wiggly is anybody’s guess, but it isn’t going to be pretty.

Toilet Museum Moving to Watertown

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WATERTOWN – The newest addition to Pleasant Street certainly doesn’t stink.

What was once a tourist attraction in Worcester is now heading through the pipelines to Watertown. The American Sanitary Plumbing Museum, aka “the toilet museum,” is moving to the West End with a promise to “bowl” people over.

The largest plumbing contractor in New England, J.C. Cannistraro LLC, has inherited the collection. It plans to expand the museum at the company’s headquarters on Rosedale Road, off the Pleasant Street corridor. The museum will be relocated to a 150-year-old former icehouse located on the property.

John Cannistraro Jr., president of J.C. Cannistraro LLC, said the
visitors in Watertown can expect an expanded display of the collection
— antique commodes, wooden pipes, water heaters, chain-pull toilets and
ornate porcelain thrones dating back to the early 19th century —
portraying a “progression of the industry” from the 1700s through today.

from the Watertown Tab

The Dowbrigade has a long-standing interest in toilets in general and urinals in particular, and so the news that a world-class collection is moving to our own town has filled us with excitement and civic pride. We can’t wait to call our brother-in-law in Flushing, NY to crow.

In fact, we have documented several possible additions to this valuable collection, including the candy-apple red open-mouthed urinal and the anti-drunk driving talking urinal from New Mexico. We definitely will have to give Mr. Cannistraro a call…..

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Market Hits High – What Are They Smoking?

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The Dow Jones industrial average opened the fourth quarter by soaring more than 200 points at one point, putting the index well above its previous high set in July. At the close, the Dow was up 191.92 points, or 1.4 percent, at 14,087.55. The Standard and Poor’s 500-stock index rose 1.3 percent to 1,547.04, trading just beneath record levels, and the Nasdaq rose 1.5 percent, to 2,740.99.

from the New York Times

They were the best of times, they were the worst of times. The fact that the Dow Jones Industrial Average, the single most watched measure of the US economy, has hit an all time high at this particular moment defies all of our obviously imperfect understanding of hte underlying economic imperatives in operation.

As we constantly tell our business students, especially those questioning their choice of concentration, an understanding of the principles of business and economics is essential today for every thinking adult, regardless of their vocation or profession. For that reason our focus in grad school at the Institute of Latin American Studies at the University of Texas, many long years ago, was International Economics.

We must have been sleeping in class the day they explained how huge deficits, a credit crisis and the collapse of the almighty dollar are good for America’s businesses. Everything we thought we understood about living beyond one’s means, the balance of trade, the strength of the dollar, the flood of foreclosures, the dangerous exposure of US banks and financial institutions, the decline in real wages, the wanton accumulation of consumer debt as a motor for consumption, the effects of quadrupling the price of a barrel of oil and the transformation of consumer confidence into consumer cynicism is daily being proven a Casandrean fantasy or evidence of brain damage.

The New York Times article quoted above goes on to say, in the very next paragraph, “The advances came as Citigroup and UBS, two of the world’s largest banks, predicted steep declines in third-quarter earnings and announced billions of dollars in losses and write-downs related to subprime mortgage-backed securities and loans.”

Not to worry. It now costs EIGHT dollars to get on the subway in London. No problem, stay at home. From our RSS stream: “More Banks may join red-flag parade” Hey, my deposits are guaranteed by FDIC; “Toll mounts as more LBOs crater” Who needs leverage?; “Beware Big Oil stocks” They’re only making more than anyone else in the history of money; “Bye bye easy money” There’s always Tony Soprano. And the market loves it.

To a simpleton like the Dowbrigade, its enough to make our head spin. Our logic AND our gut tell us this can’t go on for long. It violates too many basic laws of economics and common sense. Of course, there is no denying the sheer size and dynamism of the American Economy. Its huge motors of production and consumption, and the incredibly complex capital prestidigitation needed to grease its gears, may keep gobbling up resources and excreting consumer goods for years on sheer momentum and inertia. It is the greatest, most complex system ever created by man, and it continues to set new records and reach new highs even as some of the basic assumptions which form its superstructure come into question.

It appears to us that the current continuing expansion of the domestic US economy and the stratospheric levels of US stocks are founded on five factors:

  • The enduring paradigm of capitalism in which rich, powerful nations dominate the global exchange system, extracting raw materials and, increasingly, manual labor, from the poor countries and producing financial derivatives. As the richest and most powerful player at the table, the US is shooting craps with loaded dice.
  • Authentic, technology-driven increases in productivity. Innovation and creativity in pursuit of profit produces results. This is the only honest and real improvement among the five.
  • The increasing laborial treadmill on which the American worker is being drawn and quartered. Two, even three jobs per couple is becoming the norm. More workers are working more hours, with less vacation and less benefits, just to keep up with modern lifestyle demands. This is true throughout the econony, from the boardrooms of successful executives to the Yemeni immigrant down at the Quiki-Mart.
  • As mentioned above, financial prestidigitation. The global economy is so gigantic and complex that it is rife with opportunities for local manipulations to create “investment opportunities” so arcane and opaque (see: derivatives) as to be impenetrable to common civilians. To most of us, these “opportunities” are as understandable and accessible as a David Blaine escape act or Daisuke Matsuzaka‘s Gyro Ball. Perhaps because of our primitive belief that anything beyond our comprehension must be magic, and therefore evil, the entire financial sector smells of smoke and mirrors, and sulpher smoke at that.
  • Finally, and most significantly, America’s economic miracle is built and based on debt. National debt. Corporate debt. Consumer debt. Mortgage debt. Credit card debt. Leveraged debt. Personal debt. Public debt. Bonds, promissory notes, derivatives. Most of the people in the country owe money to the government, and the government owes money to most of the rest of the world. As well as bad business, this is a vast moral morass, which will be treated in a separate posting as soon as we get sufficiently outraged.

In the meantime, our advice is as follows: enjoy the good economic times and borrow as much money as possible. After all, the dollars you need to pay them back may be worth only half as much as the ones they give you, by the time the loan comes due.