Andy Kessler

Radio, Radio: NPR and Rush

Doesn't get much different than these two radio outlets!

NPR Morning Edition September 16, 2008

http://www.npr.org/templates/story/story.php?storyId=94658913

Investors Feel the Pain of Lehman Bros. Collapse by Chris Arnold

At 2:00 mark:

“This happens every cycle and I used to work on Wall Street and I competed against Drexel Burnham and Shearson and Dean Witter and EF Hutton and they’re gone. Each of them made one mistake or another along the way. This is nothing new. I don’t think we’ve entered a new era of the 1930’s and the Depression.”

 

“At the end of the day, no one really misses them. Because someone else steps up and takes over their business. And quite frankly, a lot of the people that work at these firms, the better of them get jobs across the street.”

NPR Morning Edition September 19, 2008

http://www.npr.org/templates/story/story.php?storyId=94795760

Financial Sectors' New Buzzword Is Deleverage by Chris Arnold

At 2:05 mark:

“Wall Street was borrowing at 30 or 35 to 1 so all you needed was a slight little downtick in home prices, which were backing up these sub-prime loans, and you completely wipe firms out.”

Who Do You Trust? Conservatism.
September 25, 2008

http://www.rushlimbaugh.com/home/daily/site_092508/content/01125108.guest.html

RUSH: Now, I went and grabbed a piece today in the Wall Street Journal, and it happens to end up being one of the most persuasive pieces I have read in all of this.  It's by Andy Kessler, a former hedge fund manager, and he's the author of How We Got Here, published in 2005.  Let me join his column in progress: [Quotes from column]

Now, I have some thoughts on this because this piece makes it clear this is not a bailout.  It's a rescue.  Now, these things still have some value.  I don't know what the value is, and they haven't been foreclosed on.  They're pretty close to worthless, but it's not technically a bailout.  And of course you're hearing all these warnings if we do this then there's not going to be any credit.  Okay, now, what does that mean?  ...  Okay, here we go. The piece I just read to you, Andy Kessler, I should give you the headline.  "The Paulson Plan Will Make Money for Taxpayers."  He's a former hedge fund manager, and that's how he analyzes this. He's one of these economists that has commuter models and he's run some projections.  Now, if this guy is right -- and who knows?  See, we don't know who to trust, and we don't know who's going to end up being right.  Our experienced is, "I'm from the government and I'm here to help you," means we're going to get screwed.  And we know there's not one single person involved in this I trust with that prediction. There's not a Ronald Reagan here.  If a Ronald Reagan was saying, "We gotta do this," I would believe it.  There isn't one of those.  So you've gotta scrounge around.  It's actually a great educational process.  
 
Snerdley came in today and said, "I have never worked harder in my life trying to understand this financial thing.  I've been spending more time this past week working on trying to understand this. 'Cause this is all Greek, all this lingo jingo they use, talking about these derivatives and the credit swaps," but it has been an amazing educational exercise.  But if this guy, Mr. Kessler, is right; it underscores points made prior to today by me on this program. Number one: that the federal government is nationalizing the financial markets.  I don't care what anybody says, this is nationalizing the financial markets.  Number two: these loans (he makes it clear in this piece) have not yet defaulted, even if they are risky.  Number three: when the market recovers, the federal government will be able to make lots of money selling the undefaulted loans back to the private sector. Even if they're sold below their original value, it will be more than the government paid to take them off the hands of the financial institutions today.
 
It's made clear by Mr. Kessler in his piece.  Also we can conclude since he's a former hedge fund manager and he likes this, that Wall Street's desperate for this to happen so that these financial institutions that are in need of cash can get it and get it fast, whatever price they have to sell their loans for.  Cash is king right now, they don't have any, and they need it.  They can't borrow. They can't lend. They can't do diddlysquat.  The federal government, as Mr. Kessler makes clear, will have a windfall of potentially trillions of dollars -- which, experience tells me, will be used to expand the size of government.  ...   Does it contain a lot of golden opportunities for people to take some of this stash and enrich themselves personally?  Now, these are the kind of rules there are going to have to built into this.  I'll tell you, as you go through this and you understand it, what becomes clear to me -- and I said at the beginning of this hour, "Who do you trust?"  I trust conservatism.  Conservatism and free market economies work.  It is based on growth.  ... The federal government, as Mr. Kessler, Andy Kessler of the Wall Street Journal today makes clear, the federal government will have a windfall of potentially trillions of dollars if his computer models are accurate -- which they will, I think, use to massively expand the federal government.  I have yet to see a massive pile of money show up that was unexpected that's either given back to us or used to reduce debt.  ...  We have far too many people who are becoming rich from government policy rather than the give-and-take of the free market.  So put simply, based on this article I read in the last hour from Andy Kessler in the Wall Street Journal, the federal government appears to be the only entity capable of coming up with the enormous amount of money it's going to take to take over these loans -- which have not failed yet but which the government itself requires these banks to devalue as assets.  Now, they are required to base their value on current prices.  This is what mark to market is. 

Read entire transcript here.

WSJ: Clean Up Print

http://online.wsj.com/article/SB122230704116773989.html

In 1992, hedge-fund manager George Soros made $1 billion betting against the British pound. In 2007, John Paulson's Credit Opportunities fund correctly bet against subprime mortgages, clearing $15 billion for the year and $3.7 billion for him. Warren Buffett is now hoping to make big money on Goldman Sachs.

What pikers. These are small-time deals. My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury.

 

Here's what's happened so far. New technology like electronic trading meant that Wall Street's bread-and-butter business of investment banking and trading stocks stopped making much money years ago. So investment banks took their enormous capital and at first packaged yield-enhanced, subprime mortgage loans into complex derivatives such as collateralized debt obligations (CDOs). Eventually and stupidly, these institutions owned them for themselves -- lots of them, often at 30-to-1 leverage. The financial products were made "safe" by insurance products known as credit default swaps, a credit derivative from companies such as AIG. When housing turned down, the mortgages and derivatives were worth a lot less and no one would lend Wall Street money anymore.

Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars

Then the piling on started. Hedge funds could short financial stocks and then bid down the prices of CDOs stuck on Wall Street's balance sheets. This was pretty easy to do in an illiquid market. Because of the Federal Accounting Standards Board's mark-to-market 157 rule, Wall Street had to write off the lower value of these securities and raise more capital, diluting shareholders. So the stock prices would drop, which is what the shorts wanted in the first place. It was all legit.

Forbes.com: Lehman = Pan Am

Not to sound harsh, but Lehman Brothers reminds me of Pan Am Airlines. No one (well, beyond their employees) is going to miss them. There are plenty of others to take their place.

In the '70s and '80s, a deregulated airline industry grew beyond its means, was stuck with bad assets, prices dropped and consolidation became inevitable. Pan Am was an early innovator, flying seaplanes into previously unreachable Caribbean Islands. They eventually flew everywhere, competed with everyone, stretched their balance sheet so it was as inedible as the mystery meat they served on flights and then one day went ... Poof!

The true money-makers on Wall Street all find jobs elsewhere. The worker bees in the middle tier see disruption, but are eventually absorbed. The bottom tier goes to work at Foot Locker

Analogies only go so far, but Wall Street got caught in the same wringer. Deregulated since 1975, balance sheets grew and grew as money got thrown at the profitable business of trading stocks and bonds, investment banking and money management. In the cheap-money period of 2002 to 2007, Wall Street’s thirst for capital saw no limits.

Inevitably, too many players and a bit of technology in the form of electronic trading squeezed the profitability of Wall Streets bread-and-butter businesses.

Forbes.com: Google's Offensive Strategy

Back in 1983 on the hit TV show The A-Team, George Peppard's Hannibal said to Mr. T's Bad Attitude Baracus, "There's an old saying: 'The best defense is a good offense.'"

Mr. T replied,"You got that wrong, man. A good offense is the best defense."

Then they wrestled pythons or something.

Make no mistake: This is not about browsers

On Tuesday, Google  let word slip--while showing off a comic book, of all things--about its new browser technology, code-named Chrome.

Was it offense against Microsoft's  Internet Explorer? Defense against Apple's  iPhone browser, Safari? A fight for the great network operating system in the sky? All of the above?