Tuesday, October 21, 2008

What's Next For Wall Street?

Another rate cut? Another round of bank credit injections? Something new and exciting?

How about white collar perp walks?
Investors and taxpayers angry about the government bailout of seemingly mismanaged financial firms can probably count on a wave of criminal indictments in the months ahead, say white collar crime experts.

“I think we're going to see some ‘perp’ walks,” says Columbia Law School Professor John Coffee, referring to the law enforcement practice of having the accused appear in public wearing handcuffs.

“I think its coming” says securities lawyer Jacob Zamansky, predicting the “outcry for culprits and scapegoats” will be met.

Zamansky, Coffee and others say the government is now busy investigating likely wrongdoing that took place at dozens of firms and that it is just a matter of time before it yields results. But crisis management is taking precedence.

“The government and the private sector are focused on bailing out the ship right now, and rightly so," says former SEC enforcement official Marvin G. Pickholz, now a partner at the New York law firm Duane Morris.

“I think most resources are being channeled toward solving the current crisis,” adds Harvey Pitt, who chaired the SEC during the government’s crackdown on accounting fraud at the beginning of the decade. "I think it will be months before any prosecutions occur, if at all."

I'm gonna have to go with "sooner" rather than "later." Bush especially is going to want to end his legacy on being populist.

The McSame Negative Attacks Aren't Working

The latest NBC-Wall Street Journal poll is a disaster for McSame.
With two weeks to go until Election Day, Obama now leads his Republican rival by 10 points among registered voters, 52 to 42 percent, up from 49 to 43 percent two weeks ago.

Obama’s current lead is also fueled by his strength among independent voters (topping McCain 49 to 37 percent), suburban voters (53 to 41), Catholics (50 to 44) and white women (49 to 45).

McSame is getting killed across the board. Obama is now ahead in PA, VA, and CO...meaning he can win without Florida or Ohio. So what's killing McSame? 3 things: the economy, nobody cares about Bill Ayers, and Sarah Palin's massive negative numbers.
That doesn’t appear to be the case with McCain’s running mate, Sarah Palin. Fifty-five percent of respondents say she’s not qualified to serve as president if the need arises, up five points from the previous poll.

In addition, for the first time, more voters have a negative opinion of her than a positive one. In the survey, 47 percent view her negatively, versus 38 percent who see her in a positive light.

That’s a striking shift since McCain chose Palin as his running mate in early September, when she held a 47 to 27 percent positive rating.

Now, Palin’s qualifications to be president rank as voters’ top concern about McCain’s candidacy - ahead of continuing President Bush’s policies, enacting economic policies that only benefit the rich and keeping too high of a troop presence in Iraq.

Pause and reflect on that...voters think Sarah Palin is now a larger problem for McSame than President Bush is.

He's done. 10 points with 2 weeks to go? Not going to happen.

Zandar's Thought Of The Day

I got a fiver says somebody on the GOP (not a blogger or El Rushbo, but an actual state/national GOP party official or McSame campaign official) denounces Obama's trip to Hawaii as:

  1. a campaign stunt to elicit sympathy,
  2. something that proves just how out of touch Obama is for being able to fly to Hawaii at a moment's notice,
  3. proof that Obama is using all that "suspect campaign money illegally for personal reasons",
  4. some combination of the above.
Just sayin.

More LIBOR Fun

LIBOR rates took another sharp decline this morning, the overnight rate is down to 1.58% and both the 1-month and 3-month rates fell 22 basis points. Granted, there's still a lot further to fall, but at least for now the credit emergency does appear to be over.

Now the next emergency begins. Hyper-inflation? Credit card defaults exploding? There are still plenty of shoes left to drop.
So there is now a growing chorus saying that the stock market has bottomed out, that is oversold and this is the time to buy. The problem is that all the possible good news about policy makers doing everything necessary to avoid a meltdown were already priced in the 10% jump in global equities on Monday while, from now on macro news, earnings news for financial and non-financial firms and additional surprises from systemically important components of the global financial system, will mostly surprise on the downside with considerable further downside risks to financial markets. These systemic financial risks include: a major surge in corporate defaults rates and fall in recovery rates as the recession becomes severe thus leading to a further widening of credit spreads; the risk of a CDS market blowout as corporate defaults start to spike; the collapse of hundreds of hedge funds that, while being small individually, will have systemic effects as hundreds of small funds make the size of a few LTCMs in terms of their common deleveraging and selling assets in illiquid markets (as the Wednesday equity meltdown showed); the rising troubles of many insurance companies; a slow motion refinancing and insolvency crisis for many toxic LBOs once covenant-lite clauses and PIK toggles effects fizzle out; the risk that other systemically important financial institutions are insolvent and in need of expensive rescue programs while the $250 bn of recap of banks is way insufficient to deal with their needs; the ongoing process of deleveraging in illiquid financial markets that will continue the vicious circle of falling asset prices, margin calls, further deleveraging and further sales in illiquid markets that continues the cascading fall in asset prices; further downside risks to housing and to home prices pushing over 20 million households into negative equity by 2009; the risk that some significant emerging market economies and some advanced ones too (Iceland) will experience a severe financial crisis.
We're nowhere near done with this mess. Nowhere near.


Card-carrying neo-con Ken Adelman is voting for Barack Obama, his first ever vote for a Democrat for President.

Why so, since my views align a lot more with McCain’s than with Obama’s? And since I truly dread the notion of a Democratic president, Democratic House, and hugely Democratic Senate?

Primarily for two reasons, those of temperament and of judgment.

When the economic crisis broke, I found John McCain bouncing all over the place. In those first few crisis days, he was impetuous, inconsistent, and imprudent; ending up just plain weird. Having worked with Ronald Reagan for seven years, and been with him in his critical three summits with Gorbachev, I’ve concluded that that’s no way a president can act under pressure.

Second is judgment. The most important decision John McCain made in his long campaign was deciding on a running mate.

That decision showed appalling lack of judgment. Not only is Sarah Palin not close to being acceptable in high office—I would not have hired her for even a mid-level post in the arms-control agency. But that selection contradicted McCain’s main two, and best two, themes for his campaign—Country First, and experience counts. Neither can he credibly claim, post-Palin pick.

I sure hope Obama is more open, centrist, sensible—dare I say, Clintonesque—than his liberal record indicates, than his cooperation with Nancy Pelosi and Harry Reid portends. If not, I will be even more startled by my vote than I am now.

If THAT doesn't raise alarm bells about Obama's foreign policy, the fact that neo-cons are to the point where they are starting to publicly align themselves with Obama, and the fact they are expecting him to be "Clintonesque" (think Bosnia and Somalia), should scare the crap out of you.

If you think Obama will get us out of the quagmire, you need your head examined. Not going to happen. At best Iraq goes on the back-burner for a massive expansion of the war in Afghanistan and most likely into Pakistan as well.

We'll have a whole new quagmire to play with, and you're equally demented if you think Obama will have any more luck "capturing bin Laden."

Anyone bother to stop to wonder what he has in store for the Defense budget?

Not me. Take the one we have and make it bigger. Foreign policy under Obama won't be any different, other than which Muslim country we invade. It might be more competent. I doubt it will be.


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