An Unbroken Series of Successful Gestures

Pain Is Greater if Harm Seems Intentional

2008-12-22T20:15:00.000-08:00

December 23, 2008

Vital Signs
http://www.nytimes.com/2008/12/23/health/23beha.html?_r=1&partner=rss&pagewanted=print

Behavior: Pain Is Greater if Harm Seems Intentional

It hurts plenty when someone, say, bonks you on the head with a badminton racket. But it hurts even more, researchers have found, if you think the bonking was no accident.

Earlier studies have found that the perception of pain can change with how it is experienced. That is why giving people sugar pills and saying they are medicine can make them feel better, the researchers note.

But in this case, the perception made the pain worse, the researchers report in the current issue of Psychological Science. The authors are Kurt Gray, a Harvard graduate student, and Daniel M. Wegner, a psychology professor.

For the study, the researchers told more than 40 volunteers that they were going to do a series of tasks, including color matching, number estimation and “discomfort assessment.” This last task involved their receiving a brief electric shock to the wrist.

They were told that a partner, sitting in another room, would choose which task they would do, and a computer screen alerted them to their partner’s choice.

In some cases, the volunteers were told their partner had chosen the pain tolerance test. In others, they were told the computers would select the pain tolerance test regardless of their partner’s choice.

When volunteers were under the impression that their partners were inflicting the shocks on them on purpose, they rated them as more painful, even though they were the same.

The end of the hedge fund?

2008-12-19T12:46:00.000-08:00

Sebastian Mallaby
The Washington Post
December 18, 2008

For sheer toe-curling embarrassment, it may be a while before Wall Street does better than the Bernard Madoff scandal. Here was a rogue who practically telegraphed his unreliability by hiring a tiny, no-name audit firm, by reporting monthly investment results that never fluctuated and by claiming a trading strategy that could not possibly have been implemented given the billions of dollars he managed. And yet, despite these warnings, the rich, the famous and the supposedly sophisticated entrusted their money to Madoff, who defrauded them with the most laughably crude of methods — an old-fashioned Ponzi scam.

The question this prompts is not really about regulation, though some argue otherwise. Even if you define Madoff’s investment outfit as a hedge fund, which for various reasons is debatable, there’s nothing in this saga that supports clamping down on the industry.

Those who favor regulation of hedge funds start by insisting that they must register with the Securities and Exchange Commission. Well, Madoff had registered with the SEC voluntarily, and a fat lot of good it did. Those who support regulation also say that hedge funds should disclose more of what they do. Well, Madoff did make some disclosures; it’s just that they weren’t true. As SEC Chairman Chris Cox has all but admitted, the scandal doesn’t show that his agency lacked the power to regulate; it shows that it failed to exercise it. Responding to this scandal with more regulation would be like thrusting more pills on a patient who refuses medication.

The real question posed by this episode concerns the market’s response. Madoff illustrates a problem with investment outfits that claim to have some special sauce that is too valuable to discuss. People who entrusted their money to Madoff thought he had a clever options trading strategy; they were wrong. Worse, people who entrusted their money to respected banks and investment advisers had no idea that their savings were being passed out the back door to Madoff. On Monday, I happened to be visiting one of the most famous traders in Manhattan. He had invested with a hedge fund that had in turn invested with Madoff, hot-potato style.

The good news is that Madoff’s fraud was so brazen that any future imitators may be spotted. A newly chastened wealth management industry will be warier of people who hire bucket-shop auditors; the “fund of funds” industry, which gets paid to do due diligence on hedge funds, will feel appropriate pressure to redouble its efforts. Even though hedge fund managers may legitimately refuse to disclose their trading strategies, there are some things they can be open about. Do they trade through a respected external broker? (Madoff apparently didn’t.) If their returns clock in at 1 percent per month with eerie consistency, can they explain why? (Madoff could not have.)

But the bad news is that less-brazen fraudsters may be impossible to detect. As the economists Dean Foster and H. Peyton Young have elegantly demonstrated, hedge funds can fake brilliance by taking a small risk of implosion, and since implosion would hurt them less than their customers, some will rationally decide that faking is the way to go. A fund can take in $100, stick it in the S&P 500 index, then earn, say, $5 by selling options to people who want to insure themselves against a market collapse. If the collapse occurs, the hedge fund’s value will go to zero. But, over a five- or even 10-year time frame, the odds are good that a collapse won’t happen. So each year the fund manager will beat the S&P 500 index by 5 percentage points. He will be hailed as a genius.

Foster and Young suggest that this Achilles’ heel could eventually kill hedge funds. Because it is possible to commit undetected fraud, the industry will attract fraudsters; eventually, investors will realize that they can’t tell the good guys from the bad and yank their money out. If this is going to happen, the Madoff scandal could be the catalyst, especially because it has hit at a time when hedge funds are in trouble for other reasons. Hedge fund strategies depend on borrowing, or “leverage,” which is hard to come by now. They often depend on “shorting” stocks — that is, betting that they’ll fall in value — but regulators have restricted that practice. Even before the Madoff scandal, there were estimates that hedge fund assets might shrink from just under $2 trillion a few months ago to perhaps $1.4 trillion.

But it would be wrong to count the hedge funds out. Perhaps half of all funds use strategies about which there is no great secret, so disclosure is possible: The Foster-Young argument does not cut so sharply here. The other half can find ways to signal their honesty without disclosing their tactics: The most obvious is for managers to keep a serious amount of their own money in their funds. Good hedge funds really do know how to make money out of market inefficiencies. After the past 18 months of mayhem, it should be painfully obvious that there is plenty of inefficiency around.

SEBASTIAN MALLABY is a fellow for International Economics with the Council on Foreign Relations.

NYC Man Charged With Insider Trading Scam - Dec 08

2008-12-19T12:45:00.000-08:00

NYC Man Charged With Insider Trading Scam

Today, December 19, 2008 : Permalink

New York (HedgeCo.Net) - Former Lehman salesman Matthew Devlin was charged on Thursday with participating in an insider trading scheme, after the New York City resident tipped off friends about 13 soon-to-be mergers. According to the complaint, Devlin got the information from his wife Nina, a public relations executive.

James J. Benjamin Jr., who is a lawyer for Nina said that she was “completely unaware that confidential information about her job was being used as the basis for securities trading. She is devastated by this terrible situation.” Nina is employed by the firm Brunswick Group, and was not charged in the case.

Miami Beach day traders Jamil Bouchareb and Daniel Corbin, however, were among those charged, in addition to fellow former Lehman employee Frederick Bowers and a New York City attorney Eric Holzer. They were arrested yesterday and charged with securities fraud and conspiracy.

In addition to the criminal charges, the Securities and Exchange Commission filed its own complaints yesterday against the same alleged ring which included seven individuals and two companies, stating that they made more than $4.8 million in illegal profits dating back to March 2004.

The SEC also alleges that Devlin, who was referred to by some traders as the “golden goose,” was given cash and other luxury items in exchange for the valued information.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

Affluents Anonymous

2008-12-19T12:36:00.001-08:00

HedgeCoNet - 2008 Dec 20 – Affluents Anonymous
http://bit.ly/7Nk

RICH PICKINGS: Affluents anonymous
By James Thomson

As the holiday season settles in, a sombre mood is descending on mansions from Melbourne to Mumbai, from Mayfair to Manhattan, from Monte Carlo to Moscow.

As we have documented throughout 2008, this has been an ugly year for the world’s wealthiest entrepreneurs. Tumbling share prices, lost bonuses, corporate collapses, plummeting house prices – the relentless bad news doesn’t just hurt a wealthy person’s corporeal self, it can damage their very psyche.

You probably don’t have much concern for the mental well-being of the rich – let them cry themselves to sleep on their giant pillows of money, I hear you say. But provision of specialist psychological services for wealthy investors has grown strongly over the last decade, in line with the entire wealth management industry.

Before 2007, the challenge for professionals working in this field was helping the wealthy deal with the enormous piles of money they had made, often extremely quickly.

In the last few months, the focus has switched to helping the rich cope with loss – of money, and identity.

Dr Hugh Joffe, a clinical psychologist based in the leafy Sydney suburb of Vaucluse, regularly consults to wealthy individuals.

He says the speed with which the downturn has torn through global financial markets has been, for many of his wealthy clients, particularly hard to deal with. After 15 years of watching the economy grow and their fortunes rise, Joffe’s clients have been forced to face up to a new reality.

“People had an illusion of certainty, and that’s all been taken away,” Joffe says.

While sweeping generalisations about the inner workings of a group of people’s minds are dangerous, it’s pretty safe to say that most entrepreneurs are extremely driven people.

While money might not be their primary driver – the thrill of building a business or leading a team or creating new product may motivate certain individuals – the size of your fortune does provide a basic measure of success. And besides, the notion of wealth remains closely tied to power, security, freedom, success, prestige and, for many people, happiness.

So how are the wealthy dealing with the psychological scarring from this downturn?

Psychologists and therapists are one way to go, but an increasingly popular option for high-net-worth individuals in the United States is “wealth peering” – a sort of group therapy for the rich that has been compared with Alcoholics Anonymous.

There are several organisations running wealth peering in the US, including Tiger 21, CCC Alliance and Family Office Exchange. Laird Pendleton, co-founder of CCC Alliance, told Dow Jones recently that the level of interest from prospective members during the past two months has been two to three times greater than usual.

Tiger 21, which describes itself as the premier wealth peering organisation in America, has 170 members who meet in 10 to 12 person groups. Membership fees are $44,000 a year and members must have at least $US10 million to gain admission. Tiger 21 has seven offices across the US and plans for six more next year. The organisation even claims to have fielded inquiries from Australia in recent months.

The peer-to-peer groups usually meet once a month and are also able to attend special presentations on investing, lifestyle, family and economics. More recently Tiger 21 has started holding bi-weekly conference calls for members, to discuss issues such as the state of the hedge fund market, the best places to park cash in the falling market and the potential impact of threats to hedge funds.

Tiger 21 co-founder and chairman Michael Sonnenfeldt says the conference calls have quickly become the most popular venue for members, with 50 to 70 members sharing their informed financial crisis views and experiences.

“This has been especially helpful at the time when most high-net-worth individuals are evaluating their portfolios and those who manage them,” he says. “These calls, along with our private web forums, and the monthly meetings, are often the only places where are our members can come for unbiased advice – advice from peers with the sole agenda of sharing personal insights and knowledge – and even opportunities.”

Another thing that makes Tiger 21 unique is the once-a-year “portfolio defence” sessions that each member is required to go through. The sessions involve the member presenting the personal investment portfolios to the group for an in-depth review.

“Financial results are presented in writing, and the presenting member will need to “defend” the stated objectives and demonstrate how the portfolio’s composition and performance reflect these objectives,” the Tiger 21 website says.

The idea is the member can then “harness the collective intelligence of the group by identifying potential problems or opportunities”.

Given the extraordinary events of the last year, it’s a fair bet that these portfolio defence sessions would involve a fair deal of collective soul-searching.

On Wall Street, Bonuses, Not Profits, Were Real

2008-12-19T10:32:00.000-08:00

December 18, 2008

The Reckoning

On Wall Street, Bonuses, Not Profits, Were Real

By LOUISE STORY

“As a result of the extraordinary growth at Merrill during my tenure as C.E.O., the board saw fit to increase my compensation each year.”

— E. Stanley O’Neal, the former chief executive of Merrill Lynch, March 2008

For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million.

The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill’s mortgage business.

Mr. Kim’s colleagues, not only at his level, but far down the ranks, also pocketed large paychecks. In all, Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.

But Merrill’s record earnings in 2006 — $7.5 billion — turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.

Unlike the earnings, however, the bonuses have not been reversed.

As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle. Scrutiny over pay is intensifying as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money. While bonuses are expected to be half of what they were a year ago, some bankers could still collect millions of dollars.

Critics say bonuses never should have been so big in the first place, because they were based on ephemeral earnings. These people contend that Wall Street’s pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino — and let them collect their winnings while the roulette wheel was still spinning.

“Compensation was flawed top to bottom,” said Lucian A. Bebchuk, a professor at Harvard Law School and an expert on compensation. “The whole organization was responding to distorted incentives.”

Even Wall Streeters concede they were dazzled by the money. To earn bigger bonuses, many traders ignored or played down the risks they took until their bonuses were paid. Their bosses often turned a blind eye because it was in their interest as well.

“That’s a call that senior management or risk management should question, but of course their pay was tied to it too,” said Brian Lin, a former mortgage trader at Merrill Lynch.

The highest-ranking executives at four firms have agreed under pressure to go without their bonuses, including John A. Thain, who initially wanted a bonus this year since he joined Merrill Lynch as chief executive after its ill-fated mortgage bets were made. And four former executives at one hard-hit bank, UBS of Switzerland, recently volunteered to return some of the bonuses they were paid before the financial crisis. But few think others on Wall Street will follow that lead.

For now, most banks are looking forward rather than backward. Morgan Stanley and UBS are attaching new strings to bonuses, allowing them to pull back part of workers’ payouts if they turn out to have been based on illusory profits. Those policies, had they been in place in recent years, might have clawed back hundreds of millions of dollars of compensation paid out in 2006 to employees at all levels, including senior executives who are still at those banks.

A Bonus Bonanza

For Wall Street, much of this decade represented a new Gilded Age. Salaries were merely play money — a pittance compared to bonuses. Bonus season became an annual celebration of the riches to be had in the markets. That was especially so in the New York area, where nearly $1 out of every $4 that companies paid employees last year went to someone in the financial industry. Bankers celebrated with five-figure dinners, vied to outspend each other at charity auctions and spent their newfound fortunes on new homes, cars and art.

The bonanza redefined success for an entire generation. Graduates of top universities sought their fortunes in banking, rather than in careers like medicine, engineering or teaching. Wall Street worked its rookies hard, but it held out the promise of rich rewards. In college dorms, tales of 30-year-olds pulling down $5 million a year were legion.

While top executives received the biggest bonuses, what is striking is how many employees throughout the ranks took home large paychecks. On Wall Street, the first goal was to make “a buck” — a million dollars. More than 100 people in Merrill’s bond unit alone broke the million-dollar mark in 2006. Goldman Sachs paid more than $20 million apiece to more than 50 people that year, according to a person familiar with the matter. Goldman declined to comment.

Pay was tied to profit, and profit to the easy, borrowed money that could be invested in markets like mortgage securities. As the financial industry’s role in the economy grew, workers’ pay ballooned, leaping sixfold since 1975, nearly twice as much as the increase in pay for the average American worker.

“The financial services industry was in a bubble," said Mark Zandi, chief economist at Moody’s Economy.com. “The industry got a bigger share of the economic pie.”

A Money Machine

Dow Kim stepped into this milieu in the mid-1980s, fresh from the Wharton School at the University of Pennsylvania. Born in Seoul and raised there and in Singapore, Mr. Kim moved to the United States at 16 to attend Phillips Academy in Andover, Mass. A quiet workaholic in an industry of workaholics, he seemed to rise through the ranks by sheer will. After a stint trading bonds in Tokyo, he moved to New York to oversee Merrill’s fixed-income business in 2001. Two years later, he became co-president.

Even as tremors began to reverberate through the housing market and his own company, Mr. Kim exuded optimism.

After several of his key deputies left the firm in the summer of 2006, he appointed a former colleague from Asia, Osman Semerci, as his deputy, and beneath Mr. Semerci he installed Dale M. Lattanzio and Douglas J. Mallach. Mr. Lattanzio promptly purchased a $5 million home, as well as oceanfront property in Mantoloking, a wealthy enclave in New Jersey, according to county records.

Merrill and the executives in this article declined to comment or say whether they would return past bonuses. Mr. Mallach did not return telephone calls.

Mr. Semerci, Mr. Lattanzio and Mr. Mallach joined Mr. Kim as Merrill entered a new phase in its mortgage buildup. That September, the bank spent $1.3 billion to buy the First Franklin Financial Corporation, a mortgage lender in California, in part so it could bundle its mortgages into lucrative bonds.

Yet Mr. Kim was growing restless. That same month, he told E. Stanley O’Neal, Merrill’s chief executive, that he was considering starting his own hedge fund. His traders were stunned. But Mr. O’Neal persuaded Mr. Kim to stay, assuring him that the future was bright for Merrill’s mortgage business, and, by extension, for Mr. Kim.

Mr. Kim stepped to the lectern on the bond trading floor and told his anxious traders that he was not going anywhere, and that business was looking up, according to four former employees who were there. The traders erupted in applause.

“No one wanted to stop this thing,” said former mortgage analyst at Merrill. “It was a machine, and we all knew it was going to be a very, very good year.”

Merrill Lynch celebrated its success even before the year was over. In November, the company hosted a three-day golf tournament at Pebble Beach, Calif.

Mr. Kim, an avid golfer, played alongside William H. Gross, a founder of Pimco, the big bond house; and Ralph R. Cioffi, who oversaw two Bear Stearns hedge funds whose subsequent collapse in 2007 would send shock waves through the financial world.

“There didn’t seem to be an end in sight,” said a person who attended the tournament.

Back in New York, Mr. Kim’s team was eagerly bundling risky home mortgages into bonds. One of the last deals they put together that year was called “Costa Bella,” or beautiful coast — a name that recalls Pebble Beach. The $500 million bundle of loans, a type of investment known as a collateralized debt obligation, was managed by Mr. Gross’s Pimco.

Merrill Lynch collected about $5 million in fees for concocting Costa Bella, which included mortgages originated by First Franklin.

But Costa Bella, like so many other C.D.O.’s, was filled with loans that borrowers could not repay. Initially part of it was rated AAA, but Costa Bella is now deeply troubled. The losses on the investment far exceed the money Merrill collected for putting the deal together.

So Much for So Few

By the time Costa Bella ran into trouble, the Merrill bankers who had devised it had collected their bonuses for 2006. Mr. Kim’s fixed-income unit generated more than half of Merrill’s revenue that year, according to people with direct knowledge of the matter. As a reward, Mr. O’Neal and Mr. Kim paid nearly a third of Merrill’s $5 billion to $6 billion bonus pool to the 2,000 professionals in the division.

Mr. O’Neal himself was paid $46 million, according to Equilar, an executive compensation research firm and data provider in California. Mr. Kim received $35 million. About 57 percent of their pay was in stock, which would lose much of its value over the next two years, but even the cash portions of their bonus were generous: $18.5 million for Mr. O’Neal, and $14.5 million for Mr. Kim, according to Equilar.

Mr. Kim and his deputies were given wide discretion about how to dole out their pot of money. Mr. Semerci was among the highest earners in 2006, at more than $20 million. Below him, Mr. Mallach and Mr. Lattanzio each earned more than $10 million. They were among just over 100 people who accounted for some $500 million of the pool, according to people with direct knowledge of the matter.

After that blowout, Merrill pushed even deeper into the mortgage business, despite growing signs that the housing bubble was starting to burst. That decision proved disastrous. As the problems in the subprime mortgage market exploded into a full-blown crisis, the value of Merrill’s investments plummeted. The firm has since written down its investments by more than $54 billion, selling some of them for pennies on the dollar.

Mr. Lin, the former Merrill trader, arrived late to the party. He was one of the last people hired onto Merrill’s mortgage desk, in the summer of 2007. Even then, Merrill guaranteed Mr. Lin a bonus if he joined the firm. Mr. Lin would not disclose his bonus, but such payouts were often in the seven figures.

Mr. Lin said he quickly noticed that traders across Wall Street were reluctant to admit what now seems so obvious: Their mortgage investments were worth far less than they had thought.

“It’s always human nature,” said Mr. Lin, who lost his job at Merrill last summer and now works at RRMS Advisors, a consulting firm that advises investors in troubled mortgage investments. “You want to pull for the market to do well because you’re vested.”

But critics question why Wall Street embraced the risky deals even as the housing and mortgage markets began to weaken.

“What happened to their investments was of no interest to them, because they would already be paid,” said Paul Hodgson, senior research associate at the Corporate Library, a shareholder activist group. Some Wall Street executives argue that paying a larger portion of bonuses in the form of stock, rather than in cash, might keep employees from making short-sighted decision. But Mr. Hodgson contended that would not go far enough, in part because the cash rewards alone were so high. Mr. Kim, for example, was paid a total of $116.6 million in cash and stock from 2001 to 2007. Of that, $55 million was in cash, according to Equilar.

Leaving the Scene

As the damage at Merrill became clear in 2007, Mr. Kim, his deputies and finally Mr. O’Neal left the firm. Mr. Kim opened a hedge fund, but it quickly closed. Mr. Semerci and Mr. Lattanzio landed at a hedge fund in London.

All three departed without collecting bonuses in 2007. Mr. O’Neal, however, got even richer by leaving Merrill Lynch. He was awarded an exit package worth $161 million.

Clawing back the 2006 bonuses at Merrill would not come close to making up for the company’s losses, which exceed all the profits that the firm earned over the previous 20 years. This fall, the once-proud firm was sold to Bank of America, ending its 94-year history as an independent firm.

Mr. Bebchuk of Harvard Law School said investment banks like Merrill were brought to their knees because their employees chased after the rich rewards that executives promised them.

“They were trying to get as much of this or that paper, they were doing it with excitement and vigor, and that was because they knew they would be making huge amounts of money by the end of the year,” he said.

Ben White contributed reporting.

Hedge Fund Tracking: Thiel's Clarium Capital, Q3 2008

2008-12-15T09:45:00.000-08:00

November 18, 2008
http://seekingalpha.com/article/106561-hedge-fund-tracking-thiel-s-clarium-capital-q3-2008

The second fund in the 3rd quarter edition of our 2008 hedge fund tracking series is Clarium Capital Management, LLC. Clarium is a $6 billion global macro hedge fund run by Peter Thiel, the co-founder of PayPal. 2008 has been a roller coaster year for Thiel and company. Earlier in the year, they were up over 45%. But, as market volatility increased, they began to give back their gains and now find themselves -2.8% for the year. This was in part due to a rough October, in which they were down 18% for the month, in part due to their recent shift into equities.

Assets under management had recently ballooned to the highest amount in Clarium's history and it will be interesting to see how effective Clarium will be at deploying this new capital going forward. Before reading this quarter's update, you might be interested in reading our coverage of Clarium's 2nd quarter portfolio holdings. And, to those who want a little more background on Thiel & his investment style, we first wrote about him here.

So, now that we've got a background on Thiel and Clarium, let's take a quick look at his portfolio highlights. Keep in mind that this is merely a brief summary of Clarium's top holdings. Due to the time sensitive nature of the 13F material, we wanted to get this information posted as soon as possible. The following were Clarium's holdings as of September 30th, 2008 as filed with the SEC.

New Positions (Brand new positions that Clarium initiated in the last quarter):
PIMCO Municipal Income Fund (PMF)
Oracle (ORCL)
PIMCO Floating Rate Strategy Fund (PFN)
Iron Mountain Incorporated (IRM)
Consolidated Edison (ED)
Kimberly-Clark Corporation (KMB)
T-3 Energy Services (TTES)
Natus Medical (BABY)
National Municipal Bond Fund (MUB)
United States Oil Fund (USO)
ishares Brazil ETF (EWZ)
Interval Leisure Group (IILG)
Exxon Mobil (XOM)
Mastercard (MA)
United States Natural Gas Fund (UNG)
Microsoft (MSFT)
Yahoo (YHOO)
Google (GOOG)
Financial Select Sector ETF (XLF)

Removed Positions (Positions Clarium sold out of completely last quarter):
Cabot Oil & Gas (COG)
Petroleo Brasileiro (PBR)
Honeywell (HON)
ITT Corporation (ITT)
Aircastle Limited (AYR)
Frontier Oil (FTO)
Marathon Oil (MRO)
ONEOK (OKE)
Royal Caribbean (RCL)
Berkshire Hathaway (BRK.B)
Foster Wheeler (FWLT)
Nucor (NUE)
Pinnacle Airlines (PNCL)
Sothebys (BID)
Black & Decker (BDK)

Top 20 Holdings (based on % of portfolio):

Financial Select Sector ETF (XLF): 38.5% of portfolio
Google (GOOG): 28.8% of portfolio
Yahoo (YHOO): 28.7% of portfolio
Hewlett Packard (HPQ): 0.4% of portfolio
Microsoft (MSFT): 0.3% of portfolio
McDonalds (MCD): 0.3% of portfolio
Procter & Gamble (PG): 0.3% of portfolio
Burlington Northern (BNI): 0.27% of portfolio
Philip Morris International (PM): 0.27% of portfolio
United States Natural Gas Fund (UNG): 0.1% of portfolio
Mastercard (MA): 0.1% of portfolio
Conoco Philips (COP): 0.1% of portfolio
Fairfax Financial (FFH): 0.1% of portfolio
Occidental Petroleum (OXY): 0.1% of portfolio
Exxon Mobil (XOM): 0.1% of portfolio
Schering Plough (SGP)
Altria (MO)
Interval Leisure Group (IILG)
Canadian Superior Energy (SNG)
NRG Energy (NRG)

First, we need to cover the odd construction of Clarium's portfolio, which may be puzzling some of you reading. Clarium employs a global macro strategy and therefore invests across multiple markets (commodities, currencies, debt, bonds, global markets, etc). And, due to the fact that SEC 13F filings only require equity holdings to be disclosed, we only get to see a small slice of their overall portfolio.

We track Clarium's equity holdings simply because Thiel is very intelligent and they could enter equity markets at any moment. For instance, in our 2nd quarter analysis of Clarium's holdings, we noted that they only had $93 million invested in equities as detailed in the filing. And, considering they had over $6 billion AUM (assets under management) at the time, the equities detailed in the filing were miniscule positions compared to their overall fund size.

But, as we recently noted, Clarium shifted to equities in late September. And thus, we see part of this reflected in the current 13F filing. In the 2nd quarter, they had $93 million invested in equities. But, this time around (3rd quarter), they had over $2.8 billion invested in equities.

This drastic jump in capital allocated to long positioned equities also helps to describe their lopsided portfolio. Keep in mind they also probably had equity short positions as well, which we cannot see. As you'll notice in the top 20 holdings listed above, the top 3 holdings make up a vast percentage (%) of the portfolio relative to their other positions. Those positions included: Financial select sector ETF (XLF), Google (GOOG), and Yahoo (YHOO).

Clarium definitely felt that the financials and specific tech names were vastly beaten down and due for a correction. The rest of the positions are small relative to their overall equity exposure at only 0.1%-0.3% of the equity portfolio. These smaller positions reflect the minimal equity exposure Clarium had in the quarter prior, where they were hardly invested in equities.

We will have to wait until next quarter to see whether or not Thiel was building up core positions in Google (GOOG) and Yahoo (YHOO), or simply trading them. We have a feeling though, that these position sizes will be reduced in size come next quarter. After all, they are a global macro fund and they will quickly allocate their money to the markets and positions they feel are poised to benefit. But, that is merely speculation on our part.

Keep in mind that we have not detailed every tiny maneuver they have made with their portfolio. In some of their holdings they added shares, and with others they sold some shares. We are essentially capturing the major moves Clarium has made over the past quarter with regards to their portfolio.

Further Adventures in GM Debt Dec 15, 2008
Fannie Mae Should Steer Clear of Renting Homes Dec 15, 2008
Preview from Europe: Bailout or Bankruptcy for the Big Three? Dec 15, 2008
Hedging Goldman's Earnings Report Dec 15, 2008
What Can We Learn from Greece's Problems? Dec 15, 2008

Related Stocks:

BNI, COP, FFH, GOOG, HPQ, IILG, MA, MCD, MO, MSFT, NRG, OXY, PG, PM, SGP, SNG, UNG, XLF, XOM, YHOO

Risks of Transferring Risk

2008-12-13T14:24:00.001-08:00

University of Chicago's Douglas Baird on the risks of transferring risk

Speaking at Crowell & Moring LLPs Credit Default Swaps conference on Thursday, Douglas G. Baird, a professor of law at the University of Chicago, talked about the somewhat problematic nature of the derivatives.

"The big risk with credit default swaps is the big difference between the party that holds the risk and the party with control of the underlying asset," Baird said.

"If you come to a bank and tell them you're going to have to file bankruptcy tomorrow if you don't get a waiver, previously they would say, 'Let's work something out.'

"Now they aren't holding the risk; the issuer of the credit default swaps is," he continued. "So you're telling the bank that if they don't give you the waiver, they'll be paid off in full right away and never have to talk to you again."

Baird continued, saying that the situation hasn't reached that point because issuers are there helping to keep the bondholders in check, but that it is a real concern. - George White

See Crowell & Moring LLPs Credit Default Swaps conference agenda
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Regulation of credit default swaps

2008-12-13T14:22:00.000-08:00

Inside The Deal: Paul Hastings' Robert Claassen on the regulation of credit default swaps

Entellium CEO pleads guilty to wire fraud - software company novel idea

2008-12-13T14:16:00.000-08:00

Entellium CEO Pleads Guilty, Faces 4 or 5 Years in the Hoosegow

Posted on: December 11th, 2008	Entellium

Posted on: December 11th, 2008

Entellium

That was quick. The former CEO of venture-backed Entellium, Paul Johnston, pleaded guilty today to one count of wire fraud under an agreement with federal prosecutors who are planning to drop all other allegations against him. Under the terms of the agreement, Johnston is looking at between a four- and five-year prison term and will likely be deported to his native U.K. afterward.

He’ll be sentenced in March in Seattle, where Entellium was based.

As readers may recall, Johnston and Entellium’s former CFO, Parrish Jones, were arrested in October for keeping two sets of books at the software company – one with the company’s real numbers, and another with inflated figures that it showed to everyone else, including its venture backers Ignition Partners, Intel Capital, Sigma Partners, and WestRiver Capital, which gave Entellium close to $50 million over an eight-year period. The fraud was initially discovered by an employee who stumbled across the financial information in the desk of a former sales VP.

TechFlash has many more details, including a bittersweet quote by the prosecuting attorney involved with the case, Carl Blackstone. Said Blackstone, “Mr. Johnston appeared to be — with the exception of lying about revenue — a respected businessman, and he was trying to make the company successful.”

Intuit has been said to be interested in the remaining assets of Entellium, which makes customer-relationship-management software and laid off pretty much everyone soon after Johnston and Parrish submitted their resignations. No formal announcement has been made yet, however.

The Moral Stage of Wall Street

2008-12-05T16:29:00.000-08:00

November 26, 2008

The Moral Stage of Wall Street

New Yorker blog

Swiss bankers are not known as paragons of transparency and moral accountability, so it’s a nice surprise to read that the top officials of UBS, the foundering financial institution recently bailed out by the Swiss government, will forgo twenty-seven million dollars in compensation and bonuses. It appears that these Swiss bankers have a faint pulse of shame.

It has not gone remarked upon enough that their American counterparts apparently have none. Having brought the American and global economy to its knees through their reckless, short-sighted, downright stupid investments, and then looked to the government for a very expensive lifeline, the leaders of Citigroup, A.I.G., Goldman Sachs, Morgan Stanley, Lehman, and other financial giants are maintaining a carefully nonchalant public posture. Andrew Cuomo, New York’s Attorney General, had to hold a threatening press conference on Wall Street in order to frighten A.I.G. into announcing that raises, bonuses, and lavish retreats will be suspended. But fear is not the same thing as shame. Morally speaking, it’s inferior.

The moral code of these Wall Street executives corresponds to stage one of Lawrence Kohlberg’s famous stages of morality: “The concern is with what authorities permit and punish.” Morally, they are very young children. The Swiss bankers are closer to stage four, most common among late teens, where a concern for maintaining the good functioning of society takes hold. Stage six, an elaboration of universal moral principles based on an idea of the good society, is a distant dream for the titans of global finance.

In private life, extreme indebtedness, bankruptcy, the ruin of those close to you, and dependence on the government dole are generally thought to be causes for anguish, self-denial, and a degree of shame. But if you’re a financial executive with an exalted title, a big enough salary, a deep enough debt, and a vast enough handout, these same disasters entitle you to go on living and feeling about yourself much as you did before. You even have a right to think that the taxpayers owe it to you—that it’s for their own good, not yours. You don’t have to explain yourself; you certainly don’t have to apologize.

I would like to see these malefactors of great wealth apologize to the country. I would like to see them organize their own press conference in a lineup on Wall Street and, in the manner of disgraced Japanese officials, bow low to the pavement, express contrition, and beg their countrymen’s forgiveness. Such a scene would go some way toward cleansing the smell of the financial crisis.

Of course, nothing like this is going to happen. So instead, like the parents of two-year-olds, the next Congress should summon them to Washington and publicly punish these executives who, in Kohlberg’s terms, “see morality as something external to themselves, as that which the big people say they must do.”

Happy Thanksgiving, everyone.

Posted by George Packer

Economists React: Employment Report ‘Almost Indescribably Terrible'

2008-12-05T11:00:00.000-08:00

December 5, 2008, 9:35 am

WSJ Blog: Economists React: Employment Report ‘Almost Indescribably Terrible’

http://blogs.wsj.com/economics/2008/12/05/economists-react-employment-report-almost-indescribably-terrible/

Economists and others weigh in on the substantially worse-than-expected decline in nonfarm payrolls, and the increase in the unemployment rate.

This is almost indescribably terrible. In the past six months the U.S. has lost 1.55 million jobs, almost as many as were lost in the whole 2001 recession, which included 9/11 and the two months after. The pace of job losses is accelerating alarmingly, as this report attests, with steep drops in most sectors but the biggest deterioration in services — down 370,000 in November after 153,000 in October. Note education/health and governmentt added 59,000, so core private payrolls even worse than headline. Desperate. –Ian Shepherdson, High Frequency Economics

Quite simply, there was nothing good in this report. Even though some might take comfort in the relatively modest uptick in the jobless rate (from 6.5% to 6.7%), this is actually quite misleading. In fact, the household survey’s measure of employment came in at -673,000, an even sharper plunge than seen in the payroll figures. The jobless rate was actually restrained by a large decline in the labor force — as we had suspected… It is worth noting that the November payroll figures would have been even worse were it not for a special factor. We estimate that the direct and indirect effects of the resolution of the Boeing strike probably added about 35,000 employees to manufacturing payrolls in November. –David Greenlaw, Morgan Stanley

The September-though-November period saw an average 419,000 average monthly job losses, as the recession deepened. More timely unemployment insurance claims data suggest no let up in the current pace of job losses. While the unemployment rate rose only 0.2 percentage point to 6.7% in today’s report, the labor force shrank by 422,000 in November and 237,000 over the September-November period. While this suggests a discouraged worker effect, the severe worsening in labor markets has been relatively recent, with employment declines in January-August deviating little from the -82,000 per month average. There is little doubt that labor slack is rising rapidly, and the unemployment rate will jump in the months ahead. –Steven Wieting, Citigroup

The November decline stands as the largest single month drop since December 1974, when employment plummeted by 602,000. With the latest revisions averaging nearly 100,000 per month, the November job loss could easily end up being the new post-World War II benchmark for severe job declines. The current job losses however are a much smaller share of total employment. For instance, the 535,000 decline represents a 0.39% drop in employment from October while the December 1974 drop was 0.77%. Nonetheless, the scale and speed of job losses over the last three months remains the worst since the 1973-75 recession. –David Resler, Nomura Securities

The bottom drops out of the labor market… History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while. We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline. The U.S. consumer, which for so many years was the global engine of growth, will remain a significant drag on economic activity in coming quarters. –Joshua Shapiro, MFR Inc.

These are god-awful numbers. The economy is headed downhill and the brakes are not working. There are so many layoff announcements that it is hard to keep track of. Some businesses are cutting jobs in anticipation of tougher times. This is especially true for retail, manufacturing and finance, which accounts for the bulk of jobs in the country. They want to trim fats and stay lean and mean for the tough times ahead. Also, business spending will be a drag on the economy in the foreseeable future. –Sung Won Sohn, Smith School of Business and Economics

A shockingly weak report that suggests the fourth quarter could see a drop in real GDP of 5% or more at an annual rate. The large downward revisions to employment in September and October suggest that the economy was even weaker than we thought when the credit crunch intensified (indeed the employment report for September, which now shows a larger than 400,000 decline in jobs, was surveyed in the week before Lehman Brothers failed).,, These data will spur the calls for a massive stimulus plan, increase the chances of a rescue package for the domestic auto industry. –RDQ Economics

Jobs plummeted again in November with deep and widespread job losses. Much of this collapse in jobs was due to the collateral effects of the credit crunch which is only slowly being repaired. So far this year, 1.91k jobs have been lost with half of those jobs being lost in the past 3 months as the downward spiral has accelerated. The recession is intensifying and the economy is rapidly shrinking. –Stephen A. Wood, Insight Economics

This was much worse than was expected and represents wholesale capitulation. The threat of a widespread depression is now real and present. –Peter Morici, University of Maryland

Compiled by Phil Izzo

Offer your reactions in the comments section.

Dig into an interactive summary of economists’ forecasts for the coming year from the latest WSJ.com survey.

Permalink | Trackback URL: http://blogs.wsj.com/economics/2008/12/05/economists-react-employment-report-almost-indescribably-terrible/trackback

Cornerville

2008-12-03T12:41:00.000-08:00

SEVENTH AVENUE AND WEST 23RD STREET Clockwise from top left: the northwest corner, northeast corner, southeast corner and southwest corner.

By JOSEPH O’NEILL
Published: November 28, 2008
New York Times

OUTDOOR corners may be instructively contrasted with interior ones.

SEVENTH AVENUE SOUTH, PERRY STREET AND WAVERLY PLACE From top: Seventh Avenue South and Perry Street, northeast corner; Seventh Avenue South, Perry Street and Waverly Place, west corner; Seventh Avenue South, Perry Street and Waverly Place, north corner; Seventh Avenue South and Perry Street, southwest corner; Seventh Avenue South and Perry Street, southeast corner.

A corner indoors is rarely fun and may even be a place of punishment: in my partly French-speaking childhood (long story), the maternal command “Au coin!” exiled me to the penitentiary of two walls, where, for an eternal minute, I’d ponder the paint job. (And, indeed, the concept of the naughty corner has now been popularized by that terrifying British nanny on television.) Inside a house, then, a corner is a sin bin, an impasse, the place where there’s no escaping the bore at the cocktail party, the spot into which you’ve idiotically painted yourself.

Outside, the opposite is true. There, a corner represents freedom.

Of course, I’m talking about urban corners, which means that I’m talking about the corners of the streets of New York. Corners are angles, angles are part of math, and this authorizes me to propose the following axiom: A New York City corner is > any other place’s corner. And since we’re on a mathematical roll, the freedom of corners may be expressed thusly: A corner is where travel options are multiplied, usually by two. (Rare is the New York corner that is not one of a quartet.)

The pedestrian traffic accordingly doubles at corners, and because corners are where pedestrians are held up by stoplights, corners are also where temporary groups of people form. The complexity of the flux is increased by bus stops, by subway stops — it’s at corners that you’ll see New Yorkers appear out of, and disappear into, the sidewalk — and by the popularity of the corner as a rendezvous spot. Corners are where we meet.

All of this translates into possibilities that are legitimate and, more interesting, shady. A corner boy is a loiterer up to no good, a brazen article (as my Irish grandmother used to say) who hangs around hoping for action. The action may be narcotic (remember, back in the ’90s, when even the most venerable corners might be frequented by a muttering ruffian?), it may be sexual (in the case of corner boys who are girls or, indeed, boy/girls), or it may be more innocently risqué.

I’m thinking of the old song my father sings in his bathtub about the joys of standing on the corner watching all the girls go by (“You can’t go to jail for what you’re thinking”), as sung by the long-defunct Four Lads. All of which gives corners and their denizens a passé flavor and makes me wonder: Does anybody still stand at corners? Is there anything left of corner culture?

On a warm and blue early October day, I walk half a block from my home and investigate this question at West 23rd Street and Seventh Avenue, an intersection I constantly but heedlessly use. I start at the northeast corner and linger in front of Chelsea Papaya. There are no other lingerers, and partly out of embarrassment I pay attention, for the first time ever, to the street furniture.

I see twin phone booths; a pole with those multiple parking signs that demand the application of advanced logic to figure out what the devil the parking situation actually is; and a pole with a yellow crosswalk sign showing a faintly Hitchcockian man and woman on foot (Why does each carry a kind of briefcase? Why do the figures look so weirdly lethargic? Most mysterious of all, which person looking at this sign has not already realized that there is a crosswalk here?). There are also a very cluttered pole on which are mounted two pedestrian lights and a vehicular traffic light; a one-way sign; a sign alerting us to the possible presence of blind persons; a no-left-turn sign; a chirping yellow gadget (presumably for the blind); and, at the pole’s overhanging extremity, a streetlight.

This corner is a paradise for semiologists, but not even they pause here. My fellow citizens are in a hurry and bolt as soon possible across the crosswalk’s fat stripes. (These white stripes form the rungs of a “ladder” crosswalk, where two parallel white lines serve as the side rails. A “continental” crosswalk, by contrast, is not bordered by rails, and its bands simply float on the blacktop. Some crosswalk markings have side rails but stripes that run diagonally: “zebra” crossings, according to the Federal Highway Administration.)

The rush is the same at the northwest corner, even though there are no fewer than eight brightly colored dispensers of free publications. I read The Onion, look into the window of Radio Shack, then wander (via a “standard” crosswalk, that is, one with nothing but two latitudinal lines) to the southwest corner. Nothing doing here, either.

I’m a tad disappointed. The fuming smokestack that was a fixture is gone. And though this is the place where you would normally find Vladimir, New York’s hardest-working and most passionate street guitarist, today, he’s nowhere to be seen.

It’s also the corner around which, once a year, the funniest people in the country form a long, long line in order to take part in a competition for comics held at the Gotham Comedy Club.

It’s a brilliantly sadistic idea: You force the stand-ups to lie down on the sidewalk for a freezing night and see who has a sense of humor in the morning. Over the years, I’ve walked several times past these clowns, wits and laughter experts. I’ve never seen a more desperate gathering.

FINALLY, I wander over to the southeast corner, the dominion of Spa Belles, a nail salon, and notice that two street merchants are doing business here. How come I never took in these guys before? Nearest the corner is a man of Senegalese origin selling sunglasses, electronic accessories and other stuff that’s displayed on a stand resting on cardboard boxes. He tells me he’s been here for three years. Otherwise, he won’t discuss his activities or his choice of location, not even in French.

The second merchant, from Sylhet, Bangladesh, is chattier. His name is Muhammed, and he operates a rather amazing fruit stand: In the shade of two parasols are peaches, pomegranates, plums, avocados, melons, apples, berries (straw-, blue-, rasp-), tomatoes, grapefruits. He sets up at 7 a.m. and packs up at 6 p.m. Bananas are his best sellers.

He has been here for at least five years: stunning and somewhat shaming news, since I’ve used the nearby subway for more than a decade and have never hesitated long enough to fully clock Muhammed’s presence.

It is Muhammed who points out two guys sitting on crates set against the corner building. I start talking to the one named Cornell, who lives in East New York, Brooklyn, but commutes to this intersection pretty much every day. He says he goes by “the Mayor,” as in “the Mayor of Seventh Avenue.”

His choice of corner will vary from time to time, depending on the weather. Today, the Mayor has positioned his crate on top of the building’s exhaust vents so that he can enjoy a constant source of heat. On warmer days, he sits by the intake vents, where it’s cooler. “We’re just sitting here,” he says, “looking and having our drinks.”

Years ago — 20 years, the Mayor reckons — he and his wife, Jery Harris, who recently died and is very much on his mind, came here to panhandle. That’s no longer necessary, since “now that people know me, they give me money, they give me the odd job,” he says. “Matter of fact, I should be working right now, handing out fliers, ’cept I don’t feel like it.” He says thoughtfully, “It adds up to a nice little lifestyle.”

A woman walks by, and he turns his head appreciatively. I ask him to talk about this corner. “It’s a money corner,” he says immediately. “I told these guys”— he waves toward Muhammed and his colleague — “I told these guys to put their stalls here.”

“He’s a very nice guy,” Muhammed confirms, re the Mayor. “He’s famous.” And it’s true that while we’ve been talking, at least two men exchanged nods with the Mayor.

I buy a banana, make a contribution to the Mayor’s fund and walk away with the satisfaction of knowing that this corner, at least, is old school. Funny how, once you’re topographically attuned, you start to run into fellow corner nuts. The next day, I run into a man at the junction of Perry Street and Seventh Avenue South who is painting, in his words, “the northeast aspect of that intersection.”

The artist is John van Rens, a New Yorker out of Ontario, who tells me that he couldn’t “find any other intersection to compete with this one,” and that it was about the fifth time he’d painted this “marvelous” subject. The avenue, he suggests, is a kind of valley in its relation to the mountainous, complexly ascending structures facing us. (His painting’s focus is the Empire Szechuan Village building and, looming behind it, St. Vincent’s Hospital Manhattan.)

He alerts me to the fact that at least five corners project into this intersection at different angles, which is unusual. Our particular corner is special, Mr. van Rens says, because it has a name: Max Gordon Corner, for the founder of the Village Vanguard jazz club. There’s the sign, up on the pole across the street.

Interesting. I head off down Perry. I’ll keep going west till I come to Greenwich Street, and then I’ll take a left and see what’s there.

Joseph O’Neill is author of the novel “Netherland.”

Peter Schiff Predicts Recession in 2006

2008-12-02T08:36:00.000-08:00

Credit-card industry may cut $2 trillion lines: analyst

2008-12-01T19:20:00.000-08:00

Credit-card industry may cut $2 trillion lines: analyst

Reuters Mon Dec 1, 2008 4:06pm EST

(Reuters) - The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.

"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."

Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co represent over half of the estimated U.S. card outstandings as of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.

Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.

A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity, Whitney said.

Mortgages and credit cards are now dominated by five players who are all pulling back liquidity, making reductions in consumer liquidity seem unavoidable, she said.

"We are now beginning to see evidence of broad-based declines in overall consumer liquidity."

"Already, we have witnessed the entire mortgage market hit a wall, and we believe it will, for the first time ever, show actual shrinkage over the next few months," she wrote.

The credit card market will be 18 months behind the mortgage market and will begin to shrink by mid-2010, Whitney said.

Whitney also expects home prices to continue falling another 20 percent hurt by lower liquidity. They are down 23 percent from their peak, she said.

"In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices," Whitney wrote in a note dated November 30.

She also said credit lines to consumers through home equity and credit cards had been cut back from the second-quarter levels.

"Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view," the analyst said.

Most of the solutions to the situation involve government intervention, and all of them require more dilutive capital to existing lenders, she said.

"Accordingly, we continue to be cautious on our outlook on US banks."

SUGGESTIONS

In a column in the Financial Times, Whitney suggested four adoptable changes to make a difference.

The first would be to re-regionalize lending, which has gone from "knowing your customer" or local lending, to relying on what have proven to be unreliable FICO credit scores and centralized underwriting, due to the nationwide consolidation since the early 1990s, she wrote in the column.

Expanding the Federal Deposit Insurance Corp's guarantee for bank debt will also help as the banks need to know they can access reasonably priced credit for an extended period to continue to extend new credit lines, she wrote in the column.

Whitney also advised delaying the introduction of new accounting rules, which would bring off-balance-sheet assets back on balance sheet, until 2011 or 2012, as the primary assets that will come back are credit card loans.

Whitney suggested amending the proposal on Unfair and Deceptive Lending Practices that is set to be adopted in 2010, saying restricting lenders' ability to reprice an unsecured loan will cause them to stop lending or to lend less.

(Reporting by Neha Singh and Amiteshwar Singh in Bangalore; Editing by Vinu Pilakkott, Jarshad Kakkrakandy)

From Pickin’ Cotton to Pickin’ Presidents

2008-12-01T18:47:00.000-08:00

November 15, 2008

From Pickin’ Cotton to Pickin’ Presidents

Filed under: Uncategorized — strangemaps @

Both these maps show the same segment of the southern United States, and demonstrate a similar pattern. Yet each describes a wholly other era and a completely different process.

The bottom map dates from 1860 (i.e. the eve of the Civil War), and indicates where cotton was produced at that time, each dot representing 2,000 bales of the stuff. Cotton was King back then, and mainly so in the densely cultivated border area between Louisiana and Mississippi, and in an equally dense band of cotton cultivation starting west of the Mississippi-Alabama line, tapering out across Alabama, Georgia and South Carolina. Other cotton centres are the areas around Memphis and what appears to be Lawrenceburg in southern Tennessee.

The top map dates from 2008, and shows the results of the recent presidential election, on county level. Blue counties voted for Obama, red ones for McCain (darker hues representing larger majorities). In spite of Obama’s national victory, and barring Virginia, North Carolina and Florida, all Southern states (i.e. all states formerly belonging to the Confederacy) went for McCain. The pattern of pro-Obama counties in those southern states corresponds strikingly with the cotton-picking areas of the 1860s, especially along the Louisiana-Mississippi and Mississippi-Alabama borders (the pattern corresponds less strikingly and deviates significantly elsewhere).

The link between these two maps is not causal, but correlational, and the correlation is African-Americans. Once they were the slaves on whom the cotton economy had to rely for harvesting. Despite an outward migration towards the Northern cities, their settlement pattern now still closely corresponds to that of those days.

During the Democratic primary, many African-American voters supported Hillary Clinton, thinking it unlikely Barack Obama would win the nomination, let alone the presidency. When it became apparent that Obama had a good shot at the nomination (and thereafter at 1600 Pennsylvania Avenue itself), their support for Obama became near monolithic. As it turns out, president-elect Obama won with the an overall support of 53%, but that includes over 90% of black voters (1).

And while their votes did not swing their states towards ‘their’ (2) candidate, the measure in which black residents of Louisiana, Mississippi, Alabama and South Carolina voted for Obama is remarkable in that this particular voting pattern still corresponds with settlement patterns of almost a century and a half ago.

Many thanks to Paul Downey for sending in this map, found here.

UPDATE #1: I received an overlay of both maps from Mark Root-Wiley: “The borders do not line up perfectly but came closer than I thought they would. The top layer had to be made semitransparent in order to see the blue vs. red breakdown in Arkansas/Lousiana/Mississippi, but I think it’s pretty useful. The correlation was even stronger than I thought.” It looks great. Thanks, Mark!

UPDATE #2: The original juxtaposition of the two maps was the work of Allen Gathman (explained here, and done here).

UPDATE #3: In comment #96, C. Neal explains how the voting pattern can be related to even more antique antecedents than Antebellum agriculture - the Late Cretaceous Period, no less. Go to the comment for link to the post…

(1) Of white voters, only 43% voted for Obama; since Lyndon B. Johnson, no Democratic candidate for the highest office has ever garnered more than half the votes of European-Americans.

(2) Obama self-identifies as black, but with a white mother and a Kenyan father, shares no personal, historical bond with the issue of black slavery in the US.

Elsa Maxwell: original NYC party girl (hostess)

2008-12-01T18:38:00.000-08:00

Elsa Maxwell

http://www.manhattanusersguide.com/article.php?id=187

After returning home from a seriously dull party recently, we couldn't stop thinking about Elsa Maxwell. Here's why…

For many years, Elsa Maxwell was New York's number one party giver. When she turned up on the scene in 1915, she said, "New York's elite was a collection of pompous mediocrities occupied only with petty feuds and suffocatingly dull receptions. The 'young' Mrs. Vanderbilt — then a woman of fifty — was trying to prove to her jealous mother-in-law, the 'old' Mrs. Cornelius Vanderbilt, that she could pack more deadly bores into her drawing room than any other hostess on the North American continent."

Ms. Maxwell landed at the Waldorf, which at that time needed PR almost as much as she did. As she readily admitted in her book R.S.V.P., she didn't have any particular talent but drew her own conclusion about why society was drawn to her and her parties. She wrote, "…I honestly believe they were attracted by the gaiety I radiate as naturally as I breathe."

Her theory about parties was: "Serve the dinner backward, do anything, but for goodness sake, do something weird." Among her many do's in the 1930s-50s in New York were the April in Paris balls. The parties were ostensibly about French-American relations but Ms. M. decided to radiate a little gaiety and weirdness by introducing elephants into the event, which became a recurring feature. Ms. Maxwell, who was small, heavy, and not especially prepossessing, would arrive in the Grand Ballroom riding one of the elephants, prompting columnist Dorothy Kilgallen to write, rather infamously, that she knew Elsa and the elephant had arrived but couldn't tell which was which.

Animals played important roles in Ms. Maxwell's 'barnyard parties' in which the hotel's ballroom was transformed into an American farm, complete with chickens, pigs, cows, horses, and pigeons. The pigeons were invited only once because they ignored the Waldorf's checkout time. After they began making themselves comfortable in the hotel's chandeliers, they were finally evicted with BB guns.

Surely there must be some 2003-style Elsa Maxwells. If we could just score some invites to those parties.

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Same Old New Deal? Op-Ed Washington Post

2008-12-01T18:35:00.000-08:00

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Same Old New Deal?

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By George F. Will

Sunday, November 30, 2008; Page B07

Early in what became the Great Depression, John Maynard Keynes was asked if anything similar had ever happened. "Yes," he replied, "it was called the Dark Ages, and it lasted 400 years." It did take 25 years, until November 1954, for the Dow to return to the peak it reached in September 1929. So caution is sensible concerning calls for a new New Deal.

The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending -- President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt -- unemployment was 17.2 percent.

"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.

In "The Forgotten Man: A New History of the Great Depression," Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserve's tight money, deepened and prolonged the Depression. The policies included encouraging strong unions and higher wages than lagging productivity justified, on the theory that workers' spending would be stimulative. Instead, corporate profits -- prerequisites for job-creating investments -- were excessively drained into labor expenses that left many workers priced out of the market.

In a 2004 paper, Harold L. Cole of the University of California at Los Angeles and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages and then reduced employment and consumer demand. In a forthcoming paper, Ohanian argues that "much of the depth of the Depression" is explained by Hoover's policy -- a precursor of the New Deal mentality -- of pressuring businesses to keep nominal wages fixed.

Furthermore, Hoover's 1932 increase in the top income tax rate, from 25 percent to 63 percent, was unhelpful. And FDR's hyperkinetic New Deal created uncertainties that paralyzed private-sector decision making. Which sounds familiar.

Bear Stearns? Broker a merger. Lehman Brothers? Death sentence. The $700 billion is for cleaning up toxic assets? Maybe not. Writes Russell Roberts of George Mason University:

"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."

Barack Obama says that the next stimulus should deliver a "jolt." His adviser Austan Goolsbee says that it must be big enough to "startle the thing into submission." Their theory is that the crisis is largely psychological, requiring shock treatment. But shocks from government have been plentiful.

Unfortunately, one thing government can do quickly and efficiently -- distribute checks -- could fail to stimulate because Americans might do with the money what they have been rightly criticized for not doing nearly enough: Save it. Because individual consumption is 70 percent of economic activity, St. Augustine's prayer ("Give me chastity and continence, but not yet") is echoed today: Make Americans thrifty but not now.

Obama's "rescue plan for the middle class" includes a tax credit for businesses "for each new employee they hire" in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies -- labor costs not justified by value added.

Here we go again? A new New Deal would vindicate pessimists who say that history is not one damn thing after another, it is the same damn thing over and over.

georgewill@washpost.com

Credit Crisis Probes by Dept of Justice

2008-11-29T14:32:00.000-08:00

WSJ - October 22, 2008
http://online.wsj.com/public/resources/documents/st_creditcrisis_20081022.html

Faith, Risk, Repentance: Statement of Christian Beliefs

2008-11-28T23:11:00.000-08:00

Statement of Beliefs of the Church of God International

INTRODUCTION The doctrinal tenants, practices, teachings, and beliefs of the Church of God International are based on the Word of God, the Holy Bible. God’s people believe that they are to live by every word that proceeds out of the mouth of God (Matthew 4:4).

1. GOD God is the eternal, all-powerful, supreme creator and sustainer of the entire universe. God is one, composed of spirit and comprising a family presently consisting of God the Father and Jesus Christ the Son. God is a loving, kind, merciful being who wants to share His magnificent existence by reproducing Himself through man.Psalm 19:1; 50:1, 6–7; Isaiah 44:6; Nehemiah 9:6, 16–17; John 1:12–13; 3:16; 4:8; Romans 1:20; Colossians 1:16; Hebrews 1:1–2; 1 John 3:1–2

2. BIBLE The whole Bible is the divinely inspired Word of God containing His plan of salvation, and the record of His participation in history. The Bible is God’s revelation of knowledge that man cannot discover for himself. It is the foundation of knowledge, and the guidebook of life. The Old and New Testaments comprise God’s written Word, which forms the basis of Christianity as taught by the church and as practiced by the Christian. Deuteronomy 8:3; Matthew 4:4; Luke 4:4; John 17:17; Romans 8:16; 1 Corinthians 2:7–11; 2 Timothy 3:16–17; 2 Peter 1:20

3. JESUS CHRIST Jesus of Nazareth is the Christ, the Son of God, and the Son of Man. He was the prophesied Messiah of the Old Testament, and is described in the New Testament as being fully human and fully divine. As the second member of the God family, He has existed throughout eternity as the “Word.” He divested Himself of this power and His majesty, and became a human being to die for the sins of all mankind as our loving and merciful Savior. He was then resurrected, and ascended to heaven to become our High Priest. Jesus Christ shall return to establish the Kingdom of God on earth, and rule as King of Kings with His saints forever.Deuteronomy 18:15; Matthew 17:15–17; John 1:1–14; 3:16; Acts 2:32–33; Romans 5:8; Philippians 2:7; Hebrews 4:14–15; Revelation 1:13–16

4. THE HOLY SPIRIT The Holy Spirit is the essence, power, mind, and spiritual extension and presence of God. God begets Christians as His sons and daughters through this Spirit. It strengthens a Christian spiritually, converts his mind, and serves as an earnest or guarantee of eternal life. Acts 1:8; 2:38; Romans 8:9, 14; 1 Corinthians 2:16; Ephesians 1:13–14

5. MANKIND Humans are physical beings with no inherent immortality, but they can receive eternal life as a free gift from God. Man was created by God to be wholly flesh and blood, yet in God’s image, and with a spiritual component added to his brain to compose the human mind. Genesis 1:26–27; Job 32:8; 1 Corinthians 2:11; 1 John 5:11–13

6. SPIRIT IN MAN When God formed man from the dust of the ground, and breathed into his nostrils the breath of life, man became a living being. But man also was given a spirit that made him far superior to the animal world, which operates solely on instinct and conditioned response. The human mind, coupled with the human spirit, gives man intelligence far above the animal kingdom. When a human is converted and is given the Holy Spirit from God, that Spirit combines with the human spirit to begin the formation of a new spiritual creature. Then, when a person dies, his spirit returns to God until the resurrection. In analogy the human spirit may be compared to a master recording device that records all of a man’s characteristics, intelligence, and experiences. If God so chooses, He can rebuild that man either from new physical material or from spirit (depending on which resurrection) from all the information contained in the human spirit. Scripture clearly speaks of two types of spirit a man can have: The spirit of man, “which is in him,” and the Spirit of God, which is given to him during the conversion process. Genesis 2:7; Job 32:8; Ecclesiastes 3:21; 12:7; Daniel 45:28–37; Zechariah 12:1; Romans 8:16; 1 Corinthians 2:11–15

7. ANGELIC REALM God has created powerful spirit beings as His agents and messengers. Since man’s creation, these spirit beings have functioned as ministering spirits to help mankind attain salvation. Like man, angels have free moral agency. Although created to help God, some of them—led by Satan the devil—rebelled against God’s government, transforming themselves into demons. Psalm 91:11–12; Ephesians 6:12; Hebrews 1:7

8. SALVATION Salvation is the means by which God, through Christ, saves man from the penalty of sin and gives him eternal life. This process includes one’s calling, repentance, baptism, justification, receiving of the Holy Spirit, life of faith and obedience, and final birth into God’s Kingdom as a spirit being. Salvation is a freely given gift from God through grace, with our ultimate reward given according to our works. Matthew 16:27; John 3:16–17; Romans 6:23; Ephesians 2:8–9; Hebrews 6:1–2

9. FAITH Faith is the sure knowledge that God exists, and that He will accomplish those things He has promised. Faith is necessary for salvation. The basic elements of faith are courage, action, and risk. Romans 1:17; 10:17; Ephesians 3:17; Hebrews 11:1–2; James 2:22–24

10. REPENTANCE Repentance is the act of acknowledging one’s sins, and resolving to fully obey God. It begins when God opens one’s mind to see himself in comparison with God and His law. True repentance is the first step toward reconciliation with God, and thereby toward ultimate salvation. Acts 2:38; 3:19–21; 8:22; 1 John 3:4

11. BAPTISM The ceremony of water baptism is performed by immersion, for the forgiveness of sins, upon true repentance and acceptance of Christ’s sacrifice. After this ceremony, and as a result, one receives the baptism of the Holy Spirit through the laying on of hands. Baptism symbolizes the renunciation of the past sinful way of life, the burial of the old man in a watery grave, and the emergence of a new, Spirit-led man living with Christ’s mind and following in His footsteps. Matthew 3:13–16; Acts 2:38; Romans 6:1–8; Colossians 2:12

12. LAYING ON OF HANDS The laying on of hands is an act performed on special occasions, such as for the receiving of God’s Holy Spirit after baptism, at ordination, anointing of the sick, or for other special purposes. Matthew 19:13–15; Acts 6:5–6; 8:17–18; 13:3; 1 Timothy 4:14; Hebrews 6:2

13. KINGDOM OF GOD The Kingdom of God is the family of God ruling as the government of God. It is a future world-ruling government to be set up on earth by Christ at His return, with Jesus as King and the resurrected spirit-composed saints in positions of co-rulership with Him. The Kingdom of God—referred to as a “mystery” in the New Testament—was first preached and explained by Christ, then by His church; it shall be established on earth for a thousand years following Christ’s return, and shall be completely fulfilled when New Jerusalem and God the Father come down out of heaven to dwell on the New Earth. Mark 4:11; Revelation 5:10; 20:4; 21:1–3, 7, 10

14. GOSPEL The gospel is the message preached by Christ and by His church about God’s coming Kingdom, the restoration of His government on earth, and how mankind can enter that Kingdom and government. It includes the message of what Jesus has done, is doing, and shall do—and ultimately is the message of the entire Old and New Testaments. The primary purpose and commission of the church is to “Go ye therefore, and teach [make disciples of] all nations, baptizing them in the name of the Father, and of the Son, and of the Holy Spirit.” Matthew 3:2; 24:14; 28:19–20; Mark 1:15; Luke 24:47

15. PROPHECY Prophecy is God’s testimony to his people, revealing His purpose and plan for mankind. God’s Word points out obstacles, mistakes, and potential mistakes along the way. God boldly states that He has a definite plan and purpose. He declares that there is none like Him, that He declares the end from the beginning, and that He will accomplish His purpose. Much of God’s plan and purpose is revealed in the Holy Bible. God’s people are called upon to be faithful and honest with the Word of God, “rightly dividing the word of truth,” and informed that no prophecy is subject to personal or private interpretation. Down through the ages, many self-proclaimed “prophets” (false prophets) have come, and there is no shortage today. A false prognostication attributed to God is a violation of the Third Commandment and will have to be accounted for. Fulfilled prophecy, or prophecy in progress of being fulfilled, builds faith in God and His Word. God’s testimony and revelations are more positive than negative. The majority of the prophecies in the Bible are good news, not bad news. Isaiah 46:9–11; Matthew 12:36–37; 2 Timothy 2:15; 1 Peter 1:20; Revelation 19:10

16. RESURRECTIONS The hope of all mankind and the promise to the Christian is the resurrection from the dead. The Bible refers to (1) the resurrection of Jesus Christ, the firstborn from the dead and the pioneer of our salvation; (2) the resurrection of the saints—called the “first resurrection”—at the return of Christ when the true believers shall become spirit-composed members of God’s family; (3) the resurrection back to physical life of all who have ever died without having understood God’s way, for their first opportunity for salvation; (4) the resurrection of the incorrigibly wicked—those who have refused to repent and have rejected God’s way—to be consumed in the lake of fire (called the “second death”).John 5:28–29; Acts 2:32; Romans 8:11; 1 Corinthians 15:20; 1 Thessalonians 4:13–17; Revelation 20:4–6, 13–14.

17. JUDGMENT The time of one’s judgment is the time of his opportunity for salvation, extending from one’s calling by God until his death (or the resurrection at Christ’s return). Those who shall qualify for God’s Kingdom—the overwhelming majority—shall inherit eternal life, and those who deliberately reject God’s way shall be consumed in the lake of fire. Matthew 13:49–50; 25:34; 1 Peter 4:17; Revelation 20:15; 21:8

18. FORGIVENESS Forgiveness is the state of being whereby one’s sins are removed, blotted out, or covered. “Blessed is he whose transgression is forgiven, whose sin is covered.” It is obvious from Scripture that sin is a condition that separates us from God. It also divides us from each other and breaks down relationships. Thus, forgiveness comes to us in two spheres: (1) forgiveness from God towards us, and (2) forgiveness from us to each other. The example prayer given to us by Jesus Christ summarizes the full scope of the issue of forgiveness. The forgiveness we obtain from God depends largely on the forgiveness we offer to others. Those who refuse to forgive will not be forgiven. However, forgiveness in no way removes or negates all the consequences of sin, as can be seen in the scriptural account of the life of David. Psalm 32:1; 2 Samuel 11–12; Matthew 6:12, 14–15

19. LAW OF GOD The law of God as revealed in the Bible is a good, right, and perfect system of eternal directives and principles that reflects God’s character and serves as a means of expressing His love toward man. God’s law teaches man how to properly worship God, how to love his fellowman, how to live life abundantly, and, at the same time, how to prepare for an eternal spiritual life in the family of God. The law of God is represented in both the Old and the New Testaments, and is expressed by both physical actions and spiritual motivations. John 14:15, 21; Romans 7:12; 1 John 5:2–3

20. BIBLICAL COVENANTS Both testaments record that God made certain promises in the form of specific contracts or agreements with man. These are called “covenants,” and define the terms of God’s relationship with individuals or groups in various circumstances and eras. Of these covenants, the best known are the covenants made with physical Israel and the New Covenant established on “better promises,” which will be fully confirmed with spiritual Israel after the return of Jesus Christ. The New Covenant, which also applies to the New Testament church from the time of the original apostles, makes God’s law even more relevant by expanding it to include one’s mental attitude and spiritual intent. Matthew 5:21–22; 2 Timothy 3:15–16; Hebrews 8:6–13

21. TEN COMMANDMENTS The Ten Commandments, as revealed by God, codified by Moses, and ratified and magnified by Christ, are the perfect expression of God’s love. They are the foundation of all biblical teaching, showing man how to express love toward God and fellowman, and are consequently the focal point of Christian life. Exodus 20; Deuteronomy 5; Matthew 5:17–19; Romans 13:10; 1 Corinthians 7:19; Revelation 12:17; 22:14

22. DESTINY OF MAN Man’s awesome destiny is revealed in the very first chapter of Genesis. Unlike the animals, man was made in the image and after the likeness of God. God created all creatures to reproduce after their kind, but when He made man He began His plan of reproducing Himself after His kind. But in this initial phase of God’s plan, man was made from red mud, not from spirit, but with the potential of building the right character so that he could eventually be changed at the resurrection into spirit as a son of God, just as God’s Son Jesus Christ has been changed back to spirit to live eternally in the family of God. Genesis 1:26–28; John 17:1–5; 1 Corinthians 15:50–54; 1 Thessalonians 4:13–17; Romans 8:18–23; I Corinthians 15:12–23

23. SABBATH The seventh-day Sabbath is to be taught and kept holy in accordance with the biblical instruction. Instituted at creation, reaffirmed to Israel as a part of the covenant at Sinai, and taught by Jesus Christ, who is the Messenger of the New Covenant, the observance of the Sabbath is basic to a Christian’s relationship with God. Genesis 2:2–3; Exodus 16; 20:8–11; 31:12–17; Mark 2:27–28; Luke 4:16

24. ANNUAL HOLY DAYS The annual holy days were ordained by God, kept by the ancient Israelites, and continued by the early New Testament Christians. These seven annual “appointed feasts” picture God’s plan of salvation for man. Leviticus 23; Zechariah 14:16; John 7:8–10; Acts 2:1; 12:3; 20:6, 16; 27:9; 1 Corinthians 5:8; 16:8

25. HEBREW CALENDAR The Church of God International uses the Hebrew calendar to establish God’s holy days. The book, The Comprehensive Hebrew Calendar, by Arthur Spier, lists all the holy days of the Jewish calendar from 1899 to 2100 A.D., and thoroughly explains all the rules the Church has consistently used for these many years. The New Testament affirms that the Jews were entrusted with the “oracles of God.” We believe that those oracles included not only the Old Testament Scriptures, but the maintenance of the calendar given by God, with its rules and regulations. This calendar is designed to deal with the lunar-solar nature of the heavens and God’s holy days, and has been in existence since early Old Testament times. It seems logical that calculations developed as a reliable standard to be used when the new moon could not be observed. A special committee of the Sanhedrin, with its president as chairman, had the mandate to regulate and balance the solar with the lunar years. This calendar council calculated the beginning of the seasons on the basis of astronomical figures, which had been handed down as a tradition of old. In the fourth century, when oppression and persecution threatened the continued existence of the Sanhedrin, the patriarch Hillel II took an extraordinary step to preserve the unity of Israel by making public the system of calendar calculation. Hillel II formally sanctified all months in advance, and intercalated all future leap years until such time as a new, recognized Sanhedrin would be established. Romans 3:1–2

26. TITHING Tithing is an act of worship; it is a private matter between the individual and God. The church does not “enforce” or “police” tithing, but simply teaches the responsibility to tithe. Each individual has the responsibility to “honor the Lord with his substance and with the firstfruits of all his increase.” Tithing is a method by which the message of Jesus Christ is proclaimed to the world. Malachi 3:8–10; Matthew 6:21; 23:23; 2 Corinthians 9:7

27. BIBLICAL DIETARY LAWS Biblical dietary laws, including the prohibitions of Leviticus 11 and Deuteronomy 14, are among the many health laws God gave to Israel. Jesus, the apostles, and the early New Testament church observed them, and they remain in effect today. Scripture indicates that laws pertaining to “clean” and “unclean” animals were recognized and observed from earliest times. Genesis 7:2–3; 8:20; Leviticus 3:17; 11; Deuteronomy 14:3–21; Matthew 5:17–19; Acts 10:9–15, 28

28. SIN Sin is the transgression of God’s law—the falling short or missing the mark of the character of Jesus Christ. Although the penalty for sin is death in the lake of fire, all sin can be completely forgiven by God, who desires that all men be saved. (The unpardonable sin is a sin for which the sinner asks no pardon.) God forgives sin upon repentance of the individual who accepts the shed blood and sacrifice of Jesus Christ as payment in full for the penalty of his sins. Romans 6:23; Ephesians 4:32; Colossians 1:14; 1 John 3:4

29. THE CHRISTIAN A true Christian is one in whom the Holy Spirit dwells. Romans 8:9; 1 Corinthians 12:13

30. MAN’S SPIRITUAL RELATIONSHIP WITH GOD Man’s spiritual relationship with God begins with repentance and faith. When these criteria are met, God “begets” us with His Spirit; He becomes our Father and we become His children. A family relationship has begun. To maintain this family relationship, a bond is formed as we fellowship with each other, and with God the Father and Jesus Christ. Communication as we fellowship is the tool that builds this family relationship. The tool of communication with God is nourished through four basic components: prayer, Bible study, meditation, and fasting. As we use the tool of communication, a warm personal relationship is established that gives us peace of mind, spiritual confidence, and faith that comes from knowing the Designer, Sustainer, and Ruler of the entire universe. Matthew 6:5–13; Acts 2:38; Romans 8:15–16; 1 Timothy 2:15; 3:16; Hebrews 1:1–2, 24–25; 1 John 1:3; Daniel 6:10

31. MAN’S RELATIONSHIP WITH HIS FELLOW MAN First, we must realize that we are a family—we all have the same roots. As a family we need to live in peace with one another as much as is possible, as amplified in the last six of the Ten Commandments. Jesus Christ gave us the principal discipline that would make it possible to live in peace with our fellowman. He said to love our fellowman as ourselves, and gave specific instructions for settling problems with our fellowman. Scripture urges us to consider the needs of others, and offer help to those in need when possible. Exodus 20:12–17; Deuteronomy 22:1–4; Matthew 18:15–17; 22:39; 25:34–40; Philippians 2:2–4; Luke 10:29–37; Hebrews 12:14; James 2:8

32. THE CHRISTIAN FAMILY The marriage relationship is the basis of the family, which in turn is the core of a stable society. As the primary physical analogy of God’s plan for mankind, marriage, child rearing, and the family are given a preeminent place in the teachings of the Bible and the church. Although roles are defined, men and women have equal spiritual potential before God. Exodus 20:12; Malachi 4:5–6; Ephesians 5:22–29; 6:1–3; 1 Peter 3:7

33. HEALING Divine healing is a miracle that God in His mercy and love may extend to those who call upon Him in time of need, according to faith. The healings of Jesus Christ demonstrate and represent His power to express compassion, to forgive sin, and ultimately, to resurrect the dead and establish the Kingdom of God on earth. Matthew 9:1–7; James 5:14–15

34. THE CHURCH OF GOD The church is the spiritual body of Christ, a group of persons called out by God and impregnated with His Holy Spirit. As a spiritual body, the church is made up of baptized, Spirit-led individuals who are scattered around the world.1 Corinthians 12:12–14, 27; Colossians 3:15

35. THE MISSION OF THE CHURCH The church has a mandate to continue with the witness and message of Jesus Christ initiated through His life, teachings, and sacrifice for every person and all nations. This will be accomplished by the resources available to the “body of Christ” and furthered through the spiritual gifts bestowed by our Heavenly Father. As the “body” consists of individual members, it is each person’s privilege to follow the Savior and “repent…and believe the good news.” Living as new creatures in Christ, it then becomes evident that a devoted membership will carry on the work begun by Jesus to announce “in all the world” that the “Kingdom of God is at hand.” Furthermore, Christ’s promise of vitality to His church for all ages will be evident in the love of each member for their “brothers and sisters in the faith,” and their fellow man, regardless of gender, race, or social status. Through spiritual design, the body of Christ will extend beyond a local community as members support one another, taking care of their “own,” visiting the fatherless and widows in their affliction, and keeping themselves unspotted from the world. Matthew 28:19–20; Mark 1:15; 16:15–16; Acts 1:7–8; Matthew 16:18–19; Luke 24:44–47; Luke 4:18–19

36. THE MINISTRY The ministry of Jesus Christ and the New Testament church is a ministry of service to God and His people, and a continuation of the earthly ministry of Jesus Christ. The ministry has the responsibility of teaching, edifying, and overseeing the Church of God. The ministry of Jesus Christ is a team effort and not subject to one-man rule. The Bible outlines the offices and job functions for the ministry of the Church of God, and dictates high moral and ethical conduct for all members of the ministry. Matthew 4:23; Luke 4:18–19; 1 Corinthians 1:24; 12:28; Titus 1:5–9; 1 Timothy 3:1–13; 5:17–21; 2 Timothy 2:24–26; 1 Peter 5

37. FELLOWSHIP The prevalent use of the term “fellowship” appears throughout the New Testament. It is a necessity and requirement of the believer. Fellowship connotes the following concepts: communion, sharing in common, communication, partaker, partnership, and contribution. The Spirit of God facilitates all of these as they are expressed in the body of Christ. The apostle John tells us that fellowship with the Father and the Son produces the ability to fellowship with members of Christ’s church, even across regional and national boundaries, and across organizational lines also.1 Corinthians 1:9; 10:20; 2 Corinthians 6:14; Ephesians 4:1–6; Philippians 2:1; Hebrews 10:24–25; 1 John 1:3, 6– 7

Gore Vidal quotation

2008-11-28T22:08:00.000-08:00

"The genius of our ruling class is that it has kept a majority of the people from ever questioning the inequity of a system where most people drudge along, paying heavy taxes for which they get nothing in return."

-Gore Vidal

2008-11-28T20:51:00.000-08:00

http://www.afpr.com/2008/11/great-debtpression.html

Thanksgiving 2008 - Mumbai Terrorists Kill 150

2008-11-28T20:18:00.000-08:00

NOVEMBER 29, 2008

Indian Official: Siege at Taj Hotel Over

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP

MUMBAI – Commandoes killed two remaining militants making a last stand at the Taj Mahal hotel Saturday, Police Chief Hasan Ghafoor said, marking the end of one of the most brazen terror attacks in India's history.

The fight was marked by sporadic gunfire and grenade blasts and culminated in a burst of fire and smoke from the landmark hotel. It came less than a day after elite troops stormed a Jewish outreach center and found six hostages dead.

"The Taj operation is over. The last two terrorist holed up there have been killed," Mr. Ghafoor told The Associated Press.

The violence started Wednesday when assailants attacked 10 sites across Mumbai, India's financial capital. More than 150 people were killed, including at least 22 foreigners, at least three of them Americans. Another 370 were reported injured.

Authorities are working to find out who was behind the attacks, claimed by a previously unknown group of suspected Islamic militants calling itself the Deccan Mujahideen.

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Getty Images

Smoke and flames billow out from The Taj Mahal hotel.

Commandoes had started on Friday afternoon moving through the stately Taj Mahal Palace & Tower hotel and the luxury complex that houses the Oberoi and Trident hotels, flushing out militants and trying to rescue hostages. At least 93 hostages were released from the Trident complex. Twenty-four others were found dead inside.

Late in the day Friday, commandoes made a final move on the Jewish center. They blew a gaping a hole in one of its walls before killing the last two militants barricaded in the building. Five hostages were found dead there, including the rabbi and his wife.

The final throes of the crisis exposed the huge challenges India faces in trying to deal with terrorism. Many key questions about the attacks were unanswered.

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Discussion: Share Your Views

Share your thoughts on the attacks or offer your first-person observations.

Complete Coverage: Terror in Mumbai

The assaults were unusual not only because of their meticulous planning and sophisticated execution, but because the attackers took hostages yet didn't make any formal demands. Experts said they seemed intent on a lengthy, crippling siege that occupied attention -- and instilled fear -- around the world for days. That contrasts with the hallmark of other recent Islamic terrorist attacks: a bomb blast or suicide rampage that caused maximum devastation in a short time.

"This was designed to go in, capture and hold," said Vikram Sood, former chief of India's external intelligence arm, the Research and Analysis Wing. "This could be replicated in any number of places."

Pakistan offered the help of its spy service, Inter-Services Intelligence, to help New Delhi investigate, an unprecedented move, as Indian officials continued to suggest Pakistani involvement.

A senior Pakistani official said Indian Prime Minister Manmohan Singh called Pakistan Prime Minister Yousuf Raza Gilani to make the request, telling him the attackers may have come from Karachi, a port on Pakistan's Arabian Sea coast.

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Reuters

Indian army commandos took up position around Chabad House Friday as they prepared to enter the Jewish center to free hostages.

Indian officials said they had found a boat on which ammunition for the attacks was allegedly smuggled from Pakistan. A dead body also was found in the boat, said Commandant A.K.S. Panwar, a spokesman for India's Coast Guard.

The home minister for Maharashtra state, where Mumbai is located, told reporters that a captured militant had provided evidence of foreign links. "From his statement, it's clear that they are from Pakistan and other countries," said Shriprakash Jaiswal, without elaborating. Two assailants, from the Jewish center and a hotel, were recorded calling Indian television stations with their complaints, with one described in Indian news reports as having a Pakistani accent.

Pakistan's President Asif Ali Zardari said "non-state actors," meaning people without any state backing, were trying to disrupt Pakistan's efforts to normalize relations with India.

Investigators also were pursuing the possibility that citizens from other countries were involved, as well as locals who provided support. One identity card found in a rucksack abandoned by the terrorists at the Taj hotel was issued by the government of Mauritius. Commandoes also recovered seven credit cards from a number of Indian and international banks that operate in India, as well as dollars and Indian currency.

Britain dismissed reports that some of the attackers were British, saying it was too early to make conclusions. "There is no evidence that those who were involved in the terrorist attacks are British," a spokesman for the Foreign and Commonwealth office said.

A U.S. counter-terrorism official said the U.S. is sending Federal Bureau of Investigation investigators to Mumbai since some of the victims were American. The official said Friday that the investigation is turning up evidence that supports the U.S. government's "working assumption" that Pakistani militant groups Lashkar-e-Taiba and Jaish-e-Mohammed are behind the attacks. He added that it remained early. "What you have not heard is any sort of suggestion at this point of Pakistani government collusion," the official said.

Both groups are believed to have links to al Qaeda. They rose to prominence fighting in an Islamic insurgency in the Indian-controlled region of Kashmir, a predominately Muslim region divided between India and Pakistan.

Associated Press

Indian forces take their positions around the Taj Mahal hotel on Friday, seeking to rout the last of the militants who have terrorized Mumbai.

Indian officials have blamed both groups for past attacks in India, such as the July 2006 commuter-train bombings in Mumbai.

Both groups say their ultimate aim is to reestablish Muslim dominion over the subcontinent, which ended with the arrival of British colonizers two centuries ago. Among their more immediate aims is to disrupt the India-Pakistan peace process.

A previously unknown group, the Deccan Mujahideen, claimed responsibility for the Mumbai attack, describing itself as hailing from the south Indian city of Hyderabad, which is about 40% Muslim.

Indian security officials have cast doubt on whether the claim was genuine, however.

Mumbai residents, accustomed to floods and large-scale terrorist attacks, were nevertheless shaken by the siege.

"I was very keen that we not get cowed down by these terrorists, so I insisted we open our offices and go back to work," said Tina Tahiliani-Parikh, owner of Ensemble, a retail chain of designer clothes.

But by early afternoon, rumors of fresh gunfire at a hospital, a train station and elsewhere erupted around the city. Residents scurried home.

The rumors later proved to be false. Still, "Everyone got into a fearful frenzy, so I had to close the office," Ms. Tahiliani-Parikh said.

Where the Attacks Took Place

Gunfire was reported at luxury hotels, a restaurant, police headquarters and a train station.

Streets of the city, which usually are chaotic with traffic, bicycles, buses and scampering pedestrians, were deserted even far from the southern tip of the island where the assaults were taking place.

Deepika Mehra had opened her Vanilla Moon shoe store in Mumbai's trendy Kemps Corner. She closed her store in the afternoon, as well. "I was just so freaked out. I figured it's better that they're safe than that we take a stand and refuse to let these terrorists terrify us," she said.

One reason for the fear was how hard it was to separate fact from rumor. Residents complained that the government kept them in the dark. "They don't have any crisis-management program in the country," said Trupti Bellad-Hermans, 36, a Mumbai entrepreneur.

Security experts say the crisis also highlighted India's disjointed response to terrorist attacks and its meager resources for countering terrorist threats.

In the attack that began Wednesday night, many of the few hundred men in Mumbai's anti-terror squad -- the main force first deployed against the terrorists -- had only handguns meant to be used against common criminals. The militants carried assault weapons and grenades.

Though they were outgunned, the officers did take on the attackers. The squad's chief and two of its top officers were killed in the first few hours of fighting.

India has 126 police officers per 100,000 people compared to the United Nations" recommended standard of 222. Many of those, says Sanker Sen, an ex-police official, "guard VIPs all day or work at traffic stops."

India's elite domestic investigative agency, the Intelligence Bureau, has about 3,500 agents who cover everything from corporate crime to terrorist outfits for the country of 1.1 billion people.

"We have been unable to crack the major terror cells, to find the main leaders, and this is limiting what we know," said an official with the Home Ministry, which oversees domestic security.

He said that homegrown militants were likely involved, explaining that the attackers knew too much about Mumbai for all of them to be foreign. "But there is a foreign angle."

Hotline Numbers

The U.S. State Department has established a Consular Call Center for Americans concerned about family or friends who may be visiting or living in Mumbai, India. The number is (888) 407-4747.
The U.K. government has set up hotlines for people worried about the safety of friends and family. The U.K. number is 44 (0)20 7008 0000. The number in India is (0091) 1124192288.

Mr. Singh, the prime minister, pledged Thursday to create national counterterrorism agency.

Even when India's crack troops took over -- and ultimately brought the siege under their control -- they appeared ill-prepared at times. Hundreds of commandoes and paramilitary troopers arrived with little more than their guns, old body armor and fiberglass helmets "that are for riding motorcycles, not fighting terrorists," said Ajai Sahni of the South Asia Terrorism Portal, a New Delhi-based research outfit.

When elite Marine commandoes stormed the Taj hotel Wednesday night, they were outmaneuvered by the terrorists, according to an account given to reporters by one commando whose face was masked by scarves and sunglasses.

The commando said his force at first had sought to reach the room of the hotel where the closed-circuit security monitors were housed, but had been unable to access it. Then a firefight ensued and it became clear that "these people were very, very familiar with the layout of the hotel, they knew all the entries and exits."

When the terrorists moved to another room, in a different part of the hotel, there was more gunfire. But "because the room was absolutely dark and they were accustomed to the darkness there, one of our commandoes was injured," the commando said. He didn't say why his troopers didn't have lights.

After 6 a.m. Thursday, the two sides exchanged more gunfire. The commando said the troops eventually entered the room.

They found hundreds of rounds of ammunition, some grenades, and dried fruit, but no terrorists. They appear to have left through a terrace that the troops hadn't realized was there until it was too late.

—Peter Wonacott, Matthew Rosenberg, Krishna Pokharel, Eric Bellman, Siobhan Gorman, Alistair MacDonald and the Associated Press contributed to this article

Why We Believe

2008-11-28T17:44:00.000-08:00

"Why We Believe"
Newsweek
http://www.newsweek.com/id/165678

Excerpt:

Letting hope run roughshod over the evidence of your eyes, as Lady Tichborne did, is surprisingly easy to do: the idea that the brain constructs reality from the bottom up, starting with perceptions, is woefully wrong, new research shows. The reason the grieving mother did not "see" the claimant as others did is that the brain's sensory regions, including vision, are at the mercy of higher-order systems, such as those that run attention and emotions. If attention is not engaged, images that land on the retina and zip back to the visual cortex never make it to the next stop in the brain, where they would be processed and identified and examined critically. If Lady Tichborne chose not to focus too much on the claimant's appearance, she effectively blinded herself. Also, there is a constant back-and-forth between cognitive and emotion regions of the brain, neuroimaging studies have shown. That can heighten perception, as when fear sharpens hearing. But it can also override the senses. No wonder the poor woman didn't notice those missing tattoos on the man from Wagga Wagga.

The pervasiveness of belief in the supernatural and paranormal may seem odd in an age of science. But ours is also an age of anxiety, a time of economic distress and social anomie, as denizens of a mobile society are repeatedly uprooted from family and friends. Historically, such times have been marked by a surge in belief in astrology, ESP and other paranormal phenomena, spurred in part by a desperate yearning to feel a sense of control in a world spinning out of control. A study reported a few weeks ago in the journal Science found that people asked to recall a time when they felt a loss of control saw more patterns in random noise, perceived more conspiracies in stories they read and imagined illusory correlations in financial markets than people who were not reminded that events are sometimes beyond their control. "In the absence of perceived control, people become susceptible to detecting patterns in an effort to regain some sense of organization," says psychology researcher of the University of Bristol, whose upcoming book "Supersense: Why We Believe in the Unbelievable" explores the mental processes behind belief in the paranormal. "No wonder those stock market traders are clutching their rabbit's feet"—or that psychics and the paranormal seem to be rivaling reality stars for TV hegemony ("Medium," "Psychic Kids," "Lost" and the new "Fringe" and "Eleventh Hour"). Just as great religious awakenings have coincided with tumultuous eras, so belief in the paranormal also becomes much more prevalent during social and political turmoil. Such events "lead the mind to look for explanations," says Michael Shermer, president of the Skeptics Society and author of the 1997 book "Why People Believe Weird Things." "The mind often takes a turn toward the supernatural and paranormal," which offer the comfort that benign beings are watching over you (angels), or that you will always be connected to a larger reality beyond the woes of this world (ghosts).

Novel quote for female character

2008-11-28T12:14:00.001-08:00

A neg for a female character (e.g., Marin) to say to a short(ish) yet semi alpha character (or a male character who is somewhat insecure about his height):
"Good things come in small packages." Smile, walk away, leaving male character wondering if it was a compliment/turn on or a put down. Confusion.

Brilliant.

The End of Wall Street's Boom - Michael Lewis

2008-11-14T12:15:00.000-08:00

Conde Nast
November 11, 2008
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

The End

by Michael Lewis Nov 11 2008

The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar's Poker, returns to his old haunt to figure out what went wrong.

Photoillustration by: Ji Lee

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn't the first clue.

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I'd never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people's money, would be expelled from finance.

When I sat down to write my account of the experience in 1989—Liar's Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they'd be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn't expect was that any future reader would look on my experience and say, "How quaint."

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, "I hope that college students trying to figure out what to do with their lives will read it and decide that it's silly to phony it up and abandon their passions to become financiers." I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar's Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They'd read my book as a how-to manual.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents' world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

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Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It's never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup's C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of borrowed money, and imagine what they'd fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You're wrong. You're still not facing up to how badly you have mismanaged your business.

Rivals accused Whitney of being overrated; bloggers accused her of being lucky. What she was, mainly, was right. But it's true that she was, in part, guessing. There was no way she could have known what was going to happen to these Wall Street firms. The C.E.O.'s themselves didn't know.

Now, obviously, Meredith Whitney didn't sink Wall Street. She just expressed most clearly and loudly a view that was, in retrospect, far more seditious to the financial order than, say, Eliot Spitzer's campaign against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they'd have vanished long ago. This woman wasn't saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didn't even know how to manage their own.

At some point, I could no longer contain myself: I called Whitney. This was back in March, when Wall Street's fate still hung in the balance. I thought, If she's right, then this really could be the end of Wall Street as we've known it. I was curious to see if she made sense but also to know where this young woman who was crashing the stock market with her every utterance had come from.

It turned out that she made a great deal of sense and that she'd arrived on Wall Street in 1993, from the Brown University history department. "I got to New York, and I didn't even know research existed," she says. She'd wound up at Oppenheimer and had the most incredible piece of luck: to be trained by a man who helped her establish not merely a career but a worldview. His name, she says, was Steve Eisman.

Eisman had moved on, but they kept in touch. "After I made the Citi call," she says, "one of the best things that happened was when Steve called and told me how proud he was of me."

Having never heard of Eisman, I didn't think anything of this. But a few months later, I called Whitney again and asked her, as I was asking others, whom she knew who had anticipated the cataclysm and set themselves up to make a fortune from it. There's a long list of people who now say they saw it coming all along but a far shorter one of people who actually did. Of those, even fewer had the nerve to bet on their vision. It's not easy to stand apart from mass hysteria—to believe that most of what's in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane. A handful of people had been inside the black box, understood how it worked, and bet on it blowing up. Whitney rattled off a list with a half-dozen names on it. At the top was Steve Eisman.

Steve Eisman entered finance about the time I exited it. He'd grown up in New York City and gone to a Jewish day school, the University of Pennsylvania, and Harvard Law School. In 1991, he was a 30-year-old corporate lawyer. "I hated it," he says. "I hated being a lawyer. My parents worked as brokers at Oppenheimer. They managed to finagle me a job. It's not pretty, but that's what happened."

He was hired as a junior equity analyst, a helpmate who didn't actually offer his opinions. That changed in December 1991, less than a year into his new job, when a subprime mortgage lender called Ames Financial went public and no one at Oppenheimer particularly cared to express an opinion about it. One of Oppenheimer's investment bankers stomped around the research department looking for anyone who knew anything about the mortgage business. Recalls Eisman: "I'm a junior analyst and just trying to figure out which end is up, but I told him that as a lawyer I'd worked on a deal for the Money Store." He was promptly appointed the lead analyst for Ames Financial. "What I didn't tell him was that my job had been to proofread the documents and that I hadn't understood a word of the fucking things."

Ames Financial belonged to a category of firms known as nonbank financial institutions. The category didn't include J.P. Morgan, but it did encompass many little-known companies that one way or another were involved in the early-1990s boom in subprime mortgage lending—the lower class of American finance.

The second company for which Eisman was given sole responsibility was Lomas Financial, which had just emerged from bankruptcy. "I put a sell rating on the thing because it was a piece of shit," Eisman says. "I didn't know that you weren't supposed to put a sell rating on companies. I thought there were three boxes—buy, hold, sell—and you could pick the one you thought you should." He was pressured generally to be a bit more upbeat, but upbeat wasn't Steve Eisman's style. Upbeat and Eisman didn't occupy the same planet. A hedge fund manager who counts Eisman as a friend set out to explain him to me but quit a minute into it. After describing how Eisman exposed various important people as either liars or idiots, the hedge fund manager started to laugh. "He's sort of a prick in a way, but he's smart and honest and fearless."

"A lot of people don't get Steve," Whitney says. "But the people who get him love him." Eisman stuck to his sell rating on Lomas Financial, even after the company announced that investors needn't worry about its financial condition, as it had hedged its market risk. "The single greatest line I ever wrote as an analyst," says Eisman, "was after Lomas said they were hedged." He recited the line from memory: " 'The Lomas Financial Corp. is a perfectly hedged financial institution: It loses money in every conceivable interest-rate environment.' I enjoyed writing that sentence more than any sentence I ever wrote." A few months after he'd delivered that line in his report, Lomas Financial returned to bankruptcy.

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Eisman wasn't, in short, an analyst with a sunny disposition who expected the best of his fellow financial man and the companies he created. "You have to understand," Eisman says in his defense, "I did subprime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn't give a shit what it sold."

Harboring suspicions about people's morals and telling investors that companies don't deserve their capital wasn't, in the 1990s or at any other time, the fast track to success on Wall Street. Eisman quit Oppenheimer in 2001 to work as an analyst at a hedge fund, but what he really wanted to do was run money. FrontPoint Partners, another hedge fund, hired him in 2004 to invest in financial stocks. Eisman's brief was to evaluate Wall Street banks, homebuilders, mortgage originators, and any company (General Electric or General Motors, for instance) with a big financial-services division—anyone who touched American finance. An insurance company backed him with $50 million, a paltry sum. "Basically, we tried to raise money and didn't really do it," Eisman says.

Instead of money, he attracted people whose worldviews were as shaded as his own—Vincent Daniel, for instance, who became a partner and an analyst in charge of the mortgage sector. Now 36, Daniel grew up a lower-middle-class kid in Queens. One of his first jobs, as a junior accountant at Arthur Andersen, was to audit Salomon Brothers' books. "It was shocking," he says. "No one could explain to me what they were doing." He left accounting in the middle of the internet boom to become a research analyst, looking at companies that made subprime loans. "I was the only guy I knew covering companies that were all going to go bust," he says. "I saw how the sausage was made in the economy, and it was really freaky."

Danny Moses, who became Eisman's head trader, was another who shared his perspective. Raised in Georgia, Moses, the son of a finance professor, was a bit less fatalistic than Daniel or Eisman, but he nevertheless shared a general sense that bad things can and do happen. When a Wall Street firm helped him get into a trade that seemed perfect in every way, he said to the salesman, "I appreciate this, but I just want to know one thing: How are you going to screw me?"

Heh heh heh, c'mon. We'd never do that, the trader started to say, but Moses was politely insistent: We both know that unadulterated good things like this trade don't just happen between little hedge funds and big Wall Street firms. I'll do it, but only after you explain to me how you are going to screw me. And the salesman explained how he was going to screw him. And Moses did the trade.

Both Daniel and Moses enjoyed, immensely, working with Steve Eisman. He put a fine point on the absurdity they saw everywhere around them. "Steve's fun to take to any Wall Street meeting," Daniel says. "Because he'll say 'Explain that to me' 30 different times. Or 'Could you explain that more, in English?' Because once you do that, there's a few things you learn. For a start, you figure out if they even know what they're talking about. And a lot of times, they don't!"

At the end of 2004, Eisman, Moses, and Daniel shared a sense that unhealthy things were going on in the U.S. housing market: Lots of firms were lending money to people who shouldn't have been borrowing it. They thought Alan Greenspan's decision after the internet bust to lower interest rates to 1 percent was a travesty that would lead to some terrible day of reckoning. Neither of these insights was entirely original. Ivy Zelman, at the time the housing-market analyst at Credit Suisse, had seen the bubble forming very early on. There's a simple measure of sanity in housing prices: the ratio of median home price to income. Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1. "All these people were saying it was nearly as high in some other countries," Zelman says. "But the problem wasn't just that it was 4 to 1. In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren't real buyers. They were speculators." Zelman alienated clients with her pessimism, but she couldn't pretend everything was good. "It wasn't that hard in hindsight to see it," she says. "It was very hard to know when it would stop." Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. "You needed the occasional assurance that you weren't nuts," she says. She wasn't nuts. The world was.

By the spring of 2005, FrontPoint was fairly convinced that something was very screwed up not merely in a handful of companies but in the financial underpinnings of the entire U.S. mortgage market. In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Eisman couldn't understand who was making all these loans or why. He had a from-the-ground-up understanding of both the U.S. housing market and Wall Street. But he'd spent his life in the stock market, and it was clear that the stock market was, in this story, largely irrelevant. "What most people don't realize is that the fixed-income world dwarfs the equity world," he says. "The equity world is like a fucking zit compared with the bond market." He shorted companies that originated subprime loans, like New Century and Indy Mac, and companies that built the houses bought with the loans, such as Toll Brothers. Smart as these trades proved to be, they weren't entirely satisfying. These companies paid high dividends, and their shares were often expensive to borrow; selling them short was a costly proposition.

Enter Greg Lippman, a mortgage-bond trader at Deutsche Bank. He arrived at FrontPoint bearing a 66-page presentation that described a better way for the fund to put its view of both Wall Street and the U.S. housing market into action. The smart trade, Lippman argued, was to sell short not New Century's stock but its bonds that were backed by the subprime loans it had made. Eisman hadn't known this was even possible—because until recently, it hadn't been. But Lippman, along with traders at other Wall Street investment banks, had created a way to short the subprime bond market with precision.

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Here's where financial technology became suddenly, urgently relevant. The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts' BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.

But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.

The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. "What Lippman did, to his credit, was he came around several times to me and said, 'Short this market,' " Eisman says. "In my entire life, I never saw a sell-side guy come in and say, 'Short my market.' "

And short Eisman did—then he tried to get his mind around what he'd just done so he could do it better. He'd call over to a big firm and ask for a list of mortgage bonds from all over the country. The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They'd be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada. The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.

More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. "The price was absurd, and they were giving her a low-down-payment option-ARM," says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he'd hired back in 1997 to take care of his newborn twin daughters phoned him. "She was this lovely woman from Jamaica," he says. "One day she calls me and says she and her sister own five townhouses in Queens. I said, 'How did that happen?' " It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. "By the time they were done," Eisman says, "they owned five of them, the market was falling, and they couldn't make any of the payments."

In retrospect, pretty much all of the riskiest subprime-backed bonds were worth betting against; they would all one day be worth zero. But at the time Eisman began to do it, in the fall of 2006, that wasn't clear. He and his team set out to find the smelliest pile of loans they could so that they could make side bets against them with Goldman Sachs or Deutsche Bank. What they were doing, oddly enough, was the analysis of subprime lending that should have been done before the loans were made: Which poor Americans were likely to jump which way with their finances? How much did home prices need to fall for these loans to blow up? (It turned out they didn't have to fall; they merely needed to stay flat.) The default rate in Georgia was five times higher than that in Florida even though the two states had the same unemployment rate. Why? Indiana had a 25 percent default rate; California's was only 5 percent. Why?

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Moses actually flew down to Miami and wandered around neighborhoods built with subprime loans to see how bad things were. "He'd call me and say, 'Oh my God, this is a calamity here,' " recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.

The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn't figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. "I didn't understand how they were turning all this garbage into gold," he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. "We always asked the same question," says Eisman. "Where are the rating agencies in all of this? And I'd always get the same reaction. It was a smirk." He called Standard & Poor's and asked what would happen to default rates if real estate prices fell. The man at S&P couldn't say; its model for home prices had no ability to accept a negative number. "They were just assuming home prices would keep going up," Eisman says.

As an investor, Eisman was allowed on the quarterly conference calls held by Moody's but not allowed to ask questions. The people at Moody's were polite about their brush-off, however. The C.E.O. even invited Eisman and his team to his office for a visit in June 2007. By then, Eisman was so certain that the world had been turned upside down that he just assumed this guy must know it too. "But we're sitting there," Daniel recalls, "and he says to us, like he actually means it, 'I truly believe that our rating will prove accurate.' And Steve shoots up in his chair and asks, 'What did you just say?' as if the guy had just uttered the most preposterous statement in the history of finance. He repeated it. And Eisman just laughed at him."

"With all due respect, sir," Daniel told the C.E.O. deferentially as they left the meeting, "you're delusional."
This wasn't Fitch or even S&P. This was Moody's, the aristocrats of the rating business, 20 percent owned by Warren Buffett. And the company's C.E.O. was being told he was either a fool or a crook by one Vincent Daniel, from Queens.

A full nine months earlier, Daniel and Moses had flown to Orlando for an industry conference. It had a grand title—the American Securitization Forum—but it was essentially a trade show for the subprime-mortgage business: the people who originated subprime mortgages, the Wall Street firms that packaged and sold subprime mortgages, the fund managers who invested in nothing but subprime-mortgage-backed bonds, the agencies that rated subprime-mortgage bonds, the lawyers who did whatever the lawyers did. Daniel and Moses thought they were paying a courtesy call on a cottage industry, but the cottage had become a castle. "There were like 6,000 people there," Daniel says. "There were so many people being fed by this industry. The entire fixed-income department of each brokerage firm is built on this. Everyone there was the long side of the trade. The wrong side of the trade. And then there was us. That's when the picture really started to become clearer, and we started to get more cynical, if that was possible. We went back home and said to Steve, 'You gotta see this.' "

Eisman, Daniel, and Moses then flew out to Las Vegas for an even bigger subprime conference. By now, Eisman knew everything he needed to know about the quality of the loans being made. He still didn't fully understand how the apparatus worked, but he knew that Wall Street had built a doomsday machine. He was at once opportunistic and outraged.

Their first stop was a speech given by the C.E.O. of Option One, the mortgage originator owned by H&R Block. When the guy got to the part of his speech about Option One's subprime-loan portfolio, he claimed to be expecting a modest default rate of 5 percent. Eisman raised his hand. Moses and Daniel sank into their chairs. "It wasn't a Q&A," says Moses. "The guy was giving a speech. He sees Steve's hand and says, 'Yes?'"

"Would you say that 5 percent is a probability or a possibility?" Eisman asked.

A probability, said the C.E.O., and he continued his speech.

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Eisman had his hand up in the air again, waving it around. Oh, no, Moses thought. "The one thing Steve always says," Daniel explains, "is you must assume they are lying to you. They will always lie to you." Moses and Daniel both knew what Eisman thought of these subprime lenders but didn't see the need for him to express it here in this manner. For Eisman wasn't raising his hand to ask a question. He had his thumb and index finger in a big circle. He was using his fingers to speak on his behalf. Zero! they said.

"Yes?" the C.E.O. said, obviously irritated. "Is that another question?"

"No," said Eisman. "It's a zero. There is zero probability that your default rate will be 5 percent." The losses on subprime loans would be much, much greater. Before the guy could reply, Eisman's cell phone rang. Instead of shutting it off, Eisman reached into his pocket and answered it. "Excuse me," he said, standing up. "But I need to take this call." And with that, he walked out.

Eisman's willingness to be abrasive in order to get to the heart of the matter was obvious to all; what was harder to see was his credulity: He actually wanted to believe in the system. As quick as he was to cry bullshit when he saw it, he was still shocked by bad behavior. That night in Vegas, he was seated at dinner beside a really nice guy who invested in mortgage C.D.O.'s—collateralized debt obligations. By then, Eisman thought he knew what he needed to know about C.D.O.'s. He didn't, it turned out.

Later, when I sit down with Eisman, the very first thing he wants to explain is the importance of the mezzanine C.D.O. What you notice first about Eisman is his lips. He holds them pursed, waiting to speak. The second thing you notice is his short, light hair, cropped in a manner that suggests he cut it himself while thinking about something else. "You have to understand this," he says. "This was the engine of doom." Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a "particularly egregious" C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. "I cannot fucking believe this is allowed—I must have said that a thousand times in the past two years," Eisman says.

His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.'s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, "the equivalent of three levels of dog shit lower than the original bonds."

FrontPoint had spent a lot of time digging around in the dog shit and knew that the default rates were already sufficient to wipe out this guy's entire portfolio. "God, you must be having a hard time," Eisman told his dinner companion.

"No," the guy said, "I've sold everything out."

After taking a fee, he passed them on to other investors. His job was to be the C.D.O. "expert," but he actually didn't spend any time at all thinking about what was in the C.D.O.'s. "He managed the C.D.O.'s," says Eisman, "but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.'s—as if this moron was helping you. I thought, You prick, you don't give a fuck about the investors in this thing."

Whatever rising anger Eisman felt was offset by the man's genial disposition. Not only did he not mind that Eisman took a dim view of his C.D.O.'s; he saw it as a basis for friendship. "Then he said something that blew my mind," Eisman tells me. "He says, 'I love guys like you who short my market. Without you, I don't have anything to buy.' "

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That's when Eisman finally got it. Here he'd been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren't enough Americans with shitty credit taking out loans to satisfy investors' appetite for the end product. The firms used Eisman's bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn't create a second Peyton Manning to inflate the league's stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. "They weren't satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn't afford," Eisman says. "They were creating them out of whole cloth. One hundred times over! That's why the losses are so much greater than the loans. But that's when I realized they needed us to keep the machine running. I was like, This is allowed?"

This particular dinner was hosted by Deutsche Bank, whose head trader, Greg Lippman, was the fellow who had introduced Eisman to the subprime bond market. Eisman went and found Lippman, pointed back to his own dinner companion, and said, "I want to short him." Lippman thought he was joking; he wasn't. "Greg, I want to short his paper," Eisman repeated. "Sight unseen."

Eisman started out running a $60 million equity fund but was now short around $600 million of various subprime-related securities. In the spring of 2007, the market strengthened. But, says Eisman, "credit quality always gets better in March and April. And the reason it always gets better in March and April is that people get their tax refunds. You would think people in the securitization world would know this. We just thought that was moronic."

He was already short the stocks of mortgage originators and the homebuilders. Now he took short positions in the rating agencies—"they were making 10 times more rating C.D.O.'s than they were rating G.M. bonds, and it was all going to end"—and, finally, the biggest Wall Street firms because of their exposure to C.D.O.'s. He wasn't allowed to short Morgan Stanley because it owned a stake in his fund. But he shorted UBS, Lehman Brothers, and a few others. Not long after that, FrontPoint had a visit from Sanford C. Bernstein's Brad Hintz, a prominent analyst who covered Wall Street firms. Hintz wanted to know what Eisman was up to. "We just shorted Merrill Lynch," Eisman told him.

"Why?" asked Hintz.

"We have a simple thesis," Eisman explained. "There is going to be a calamity, and whenever there is a calamity, Merrill is there." When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman's logic—the logic of Wall Street's pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.

There was only one thing that bothered Eisman, and it continued to trouble him as late as May 2007. "The thing we couldn't figure out is: It's so obvious. Why hasn't everyone else figured out that the machine is done?" Eisman had long subscribed to Grant's Interest Rate Observer, a newsletter famous in Wall Street circles and obscure outside them. Jim Grant, its editor, had been prophesying doom ever since the great debt cycle began, in the mid-1980s. In late 2006, he decided to investigate these things called C.D.O.'s. Or rather, he had asked his young assistant, Dan Gertner, a chemical engineer with an M.B.A., to see if he could understand them. Gertner went off with the documents that purported to explain C.D.O.'s to potential investors and for several days sweated and groaned and heaved and suffered. "Then he came back," says Grant, "and said, 'I can't figure this thing out.' And I said, 'I think we have our story.' "

Eisman read Grant's piece as independent confirmation of what he knew in his bones about the C.D.O.'s he had shorted. "When I read it, I thought, Oh my God. This is like owning a gold mine. When I read that, I was the only guy in the equity world who almost had an orgasm."

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On July 19, 2007, the same day that Federal Reserve Chairman Ben Bernanke told the U.S. Senate that he anticipated as much as $100 billion in losses in the subprime-mortgage market, FrontPoint did something unusual: It hosted its own conference call. It had had calls with its tiny population of investors, but this time FrontPoint opened it up. Steve Eisman had become a poorly kept secret. Five hundred people called in to hear what he had to say, and another 500 logged on afterward to listen to a recording of it. He explained the strange alchemy of the C.D.O. and said that he expected losses of up to $300 billion from this sliver of the market alone. To evaluate the situation, he urged his audience to "just throw your model in the garbage can. The models are all backward-looking.

The models don't have any idea of what this world has become…. For the first time in their lives, people in the asset-backed-securitization world are actually having to think." He explained that the rating agencies were morally bankrupt and living in fear of becoming actually bankrupt. "The rating agencies are scared to death," he said. "They're scared to death about doing nothing because they'll look like fools if they do nothing."

On September 18, 2008, Danny Moses came to work as usual at 6:30 a.m. Earlier that week, Lehman Brothers had filed for bankruptcy. The day before, the Dow had fallen 449 points to its lowest level in four years. Overnight, European governments announced a ban on short-selling, but that served as faint warning for what happened next.

At the market opening in the U.S., everything—every financial asset—went into free fall. "All hell was breaking loose in a way I had never seen in my career," Moses says. FrontPoint was net short the market, so this total collapse should have given Moses pleasure. He might have been forgiven if he stood up and cheered. After all, he'd been betting for two years that this sort of thing could happen, and now it was, more dramatically than he had ever imagined. Instead, he felt this terrifying shudder run through him. He had maybe 100 trades on, and he worked hard to keep a handle on them all. "I spent my morning trying to control all this energy and all this information," he says, "and I lost control. I looked at the screens. I was staring into the abyss. The end. I felt this shooting pain in my head. I don't get headaches. At first, I thought I was having an aneurysm."

Moses stood up, wobbled, then turned to Daniel and said, "I gotta leave. Get out of here. Now." Daniel thought about calling an ambulance but instead took Moses out for a walk.

Outside it was gorgeous, the blue sky reaching down through the tall buildings and warming the soul. Eisman was at a Goldman Sachs conference for hedge fund managers, raising capital. Moses and Daniel got him on the phone, and he left the conference and met them on the steps of St. Patrick's Cathedral. "We just sat there," Moses says. "Watching the people pass."

This was what they had been waiting for: total collapse. "The investment-banking industry is fucked," Eisman had told me a few weeks earlier. "These guys are only beginning to understand how fucked they are. It's like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: 'Holy shit, I'm wrong!' " Now Lehman Brothers had vanished, Merrill had surrendered, and Goldman Sachs and Morgan Stanley were just a week away from ceasing to be investment banks. The investment banks were not just fucked; they were extinct.

Not so for hedge fund managers who had seen it coming. "As we sat there, we were weirdly calm," Moses says. "We felt insulated from the whole market reality. It was an out-of-body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs. Who was going to rent these buildings after all the Wall Street firms collapsed." Eisman was appalled. "Look," he said. "I'm short. I don't want the country to go into a depression. I just want it to fucking deleverage." He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it. "That Wall Street has gone down because of this is justice," he says. "They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience."

Truth to tell, there wasn't a whole lot of hand-wringing inside FrontPoint either. The only one among them who wrestled a bit with his conscience was Daniel. "Vinny, being from Queens, needs to see the dark side of everything," Eisman says. To which Daniel replies, "The way we thought about it was, 'By shorting this market we're creating the liquidity to keep the market going.' "

"It was like feeding the monster," Eisman says of the market for subprime bonds. "We fed the monster until it blew up."

About the time they were sitting on the steps of the midtown cathedral, I sat in a booth in a restaurant on the East Side, waiting for John Gutfreund to arrive for lunch, and wondered, among other things, why any restaurant would seat side by side two men without the slightest interest in touching each other.

There was an umbilical cord running from the belly of the exploded beast back to the financial 1980s. A friend of mine created the first mortgage derivative in 1986, a year after we left the Salomon Brothers trading program. ("The problem isn't the tools," he likes to say. "It's who is using the tools. Derivatives are like guns.")

When I published my book, the 1980s were supposed to be ending. I received a lot of undeserved credit for my timing. The social disruption caused by the collapse of the savings-and-loan industry and the rise of hostile takeovers and leveraged buyouts had given way to a brief period of recriminations. Just as most students at Ohio State read Liar's Poker as a manual, most TV and radio interviewers regarded me as a whistleblower. (The big exception was Geraldo Rivera. He put me on a show called "People Who Succeed Too Early in Life" along with some child actors who'd gone on to become drug addicts.) Anti-Wall Street feeling ran high—high enough for Rudy Giuliani to float a political career on it—but the result felt more like a witch hunt than an honest reappraisal of the financial order. The public lynchings of Gutfreund and junk-bond king Michael Milken were excuses not to deal with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street's trading culture. The surface rippled, but down below, in the depths, the bonus pool remained undisturbed. Wall Street firms would soon be frowning upon profanity, firing traders for so much as glancing at a stripper, and forcing male employees to treat women almost as equals. Lehman Brothers circa 2008 more closely resembled a normal corporation with solid American values than did any Wall Street firm circa 1985.

The changes were camouflage. They helped distract outsiders from the truly profane event: the growing misalignment of interests between the people who trafficked in financial risk and the wider culture.

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I'd not seen Gutfreund since I quit Wall Street. I'd met him, nervously, a couple of times on the trading floor. A few months before I left, my bosses asked me to explain to Gutfreund what at the time seemed like exotic trades in derivatives I'd done with a European hedge fund. I tried. He claimed not to be smart enough to understand any of it, and I assumed that was how a Wall Street C.E.O. showed he was the boss, by rising above the details. There was no reason for him to remember any of these encounters, and he didn't: When my book came out and became a public-relations nuisance to him, he told reporters we'd never met.

Over the years, I'd heard bits and pieces about Gutfreund. I knew that after he'd been forced to resign from Salomon Brothers he'd fallen on harder times. I heard later that a few years ago he'd sat on a panel about Wall Street at Columbia Business School. When his turn came to speak, he advised students to find something more meaningful to do with their lives. As he began to describe his career, he broke down and wept.

When I emailed him to invite him to lunch, he could not have been more polite or more gracious. That attitude persisted as he was escorted to the table, made chitchat with the owner, and ordered his food. He'd lost a half-step and was more deliberate in his movements, but otherwise he was completely recognizable. The same veneer of denatured courtliness masked the same animal need to see the world as it was, rather than as it should be.

We spent 20 minutes or so determining that our presence at the same lunch table was not going to cause the earth to explode. We discovered we had a mutual acquaintance in New Orleans. We agreed that the Wall Street C.E.O. had no real ability to keep track of the frantic innovation occurring inside his firm. ("I didn't understand all the product lines, and they don't either," he said.) We agreed, further, that the chief of the Wall Street investment bank had little control over his subordinates. ("They're buttering you up and then doing whatever the fuck they want to do.") He thought the cause of the financial crisis was "simple. Greed on both sides—greed of investors and the greed of the bankers." I thought it was more complicated. Greed on Wall Street was a given—almost an obligation. The problem was the system of incentives that channeled the greed.

But I didn't argue with him. For just as you revert to being about nine years old when you visit your parents, you revert to total subordination when you are in the presence of your former C.E.O. John Gutfreund was still the King of Wall Street, and I was still a geek. He spoke in declarative statements; I spoke in questions.

But as he spoke, my eyes kept drifting to his hands. His alarmingly thick and meaty hands. They weren't the hands of a soft Wall Street banker but of a boxer. I looked up. The boxer was smiling—though it was less a smile than a placeholder expression. And he was saying, very deliberately, "Your…fucking…book."

I smiled back, though it wasn't quite a smile.

"Your fucking book destroyed my career, and it made yours," he said.

I didn't think of it that way and said so, sort of.

"Why did you ask me to lunch?" he asked, though pleasantly. He was genuinely curious.

You can't really tell someone that you asked him to lunch to let him know that you don't think of him as evil. Nor can you tell him that you asked him to lunch because you thought that you could trace the biggest financial crisis in the history of the world back to a decision he had made. John Gutfreund did violence to the Wall Street social order—and got himself dubbed the King of Wall Street—when he turned Salomon Brothers from a private partnership into Wall Street's first public corporation. He ignored the outrage of Salomon's retired partners. ("I was disgusted by his materialism," William Salomon, the son of the firm's founder, who had made Gutfreund C.E.O. only after he'd promised never to sell the firm, had told me.) He lifted a giant middle finger at the moral disapproval of his fellow Wall Street C.E.O.'s. And he seized the day. He and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. It didn't, in the end, make a great deal of sense for the shareholders. (A share of Salomon Brothers purchased when I arrived on the trading floor, in 1986, at a then market price of $42, would be worth 2.26 shares of Citigroup today—market value: $27.) But it made fantastic sense for the investment bankers.

From that moment, though, the Wall Street firm became a black box. The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.'s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.'s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit.

No partnership, for that matter, would have hired me or anyone remotely like me. Was there ever any correlation between the ability to get in and out of Princeton and a talent for taking financial risk?

Now I asked Gutfreund about his biggest decision. "Yes," he said. "They—the heads of the other Wall Street firms—all said what an awful thing it was to go public and how could you do such a thing. But when the temptation arose, they all gave in to it." He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. "When things go wrong, it's their problem," he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. "It's laissez-faire until you get in deep shit," he said, with a half chuckle. He was out of the game.

It was now all someone else's fault.

He watched me curiously as I scribbled down his words. "What's this for?" he asked.

I told him I thought it might be worth revisiting the world I'd described in Liar's Poker, now that it was finally dying. Maybe bring out a 20th-anniversary edition.

"That's nauseating," he said.

Hard as it was for him to enjoy my company, it was harder for me not to enjoy his. He was still tough, as straight and blunt as a butcher. He'd helped create a monster, but he still had in him a lot of the old Wall Street, where people said things like "A man's word is his bond." On that Wall Street, people didn't walk out of their firms and cause trouble for their former bosses by writing books about them. "No," he said, "I think we can agree about this: Your fucking book destroyed my career, and it made yours." With that, the former king of a former Wall Street lifted the plate that held his appetizer and asked sweetly, "Would you like a deviled egg?"

Until that moment, I hadn't paid much attention to what he'd been eating. Now I saw he'd ordered the best thing in the house, this gorgeous frothy confection of an earlier age. Who ever dreamed up the deviled egg? Who knew that a simple egg could be made so complicated and yet so appealing? I reached over and took one. Something for nothing. It never loses its charm.

Wall Street’s Pay Is Expected to Plummet

2008-11-06T22:10:00.000-08:00

New York Times
November 6, 2008

By BEN WHITE

The first clues are emerging that Wall Street pay will plummet this year — but perhaps not enough to satisfy the financial industry’s critics.

Bonuses, which soared to record heights in recent years, could drop by 20 to 35 percent across the industry, according to a private study to be released on Thursday. Bonuses for top executives could plunge by 70 percent.

But to some, those figures, from the consulting firm Johnson Associates, demand the question: Why should Wall Street executives get any bonuses at all? Banks’ profits have plunged, and the government is spending hundreds of billions of dollars to shore up the industry and prevent its problems from dragging down the economy.

A report on Wednesday from the New York State Assembly said Wall Street bonuses could tumble 41.3 percent next year, which could further widen a budget deficit.

The annual Johnson study, a closely watched analysis based on a survey of banks and money management firms, as well as on compensation figures disclosed in corporate filings, arrives as the industry is under growing political pressure to hold down pay.

Nine of the nation’s biggest banks began handing over data on Wednesday to Attorney General Andrew M. Cuomo of New York on how much they plan to pay in bonuses this year, as well as how much they paid in 2006 and 2007. Several of the banks have asked Mr. Cuomo for more time to provide the figures.

In an interview on Wednesday, Mr. Cuomo suggested that even 70 percent declines for top executives might not be enough, given a financial blowup that culminated in a $700 billion federal rescue for the industry. Many critics, Mr. Cuomo among them, contend that outsize pay encouraged bankers to take outsize risks in the first place. The crisis that followed led to the bankruptcy of Lehman Brothers, the emergency sales of Bear Stearns and Washington Mutual and federal rescues for the insurance giant American International Group and the mortgage companies Fannie Mae and Freddie Mac.

“Given this economic situation, how do you justify any performance bonus at all, is my initial point,” Mr. Cuomo said.

Bankers and traders have been rewarded for taking risks that Wall Street clearly failed to manage. “When you incentivize that type of behavior, you shouldn’t be surprised when you find very risky, overly creative, short-term, highly leveraged products,” he said.

Mr. Cuomo added that he would closely examine the books of the nation’s biggest banks to ensure that no government money went into bonus pools. Henry A. Waxman, the California Democrat who heads the House Committee on Oversight and Government Reform, has asked for similar pay information from banks.

Wall Street executives, even at banks like Goldman Sachs and Morgan Stanley, which produced decent profits this year, are increasingly aware that large bonuses could set off an enormous public reaction.

Many executives and top bankers and traders gorged on huge bonuses during the boom years earlier this decade, in many cases on profits that later disappeared as the subprime mortgage meltdown bloomed into a crisis. Last year, financial groups paid out about $33.2 billion in bonuses, according to the New York State Comptroller.

For instance, Richard S. Fuld, chief executive of Lehman Brothers, received about $34.4 million last year, though much of that was in stock that later became worthless. Mr. Fuld will leave as chief executive at the end of the year, with no bonus or severance payments, the firm said.

Lloyd Blankfein, Goldman Sachs’s chief, received a package worth $68.5 million last year.

Nothing like that is expected this year, given the industrywide plunge in profits.

According to Johnson Associates, top executives are expected to be hardest hit, partly because their payouts are disclosed in corporate filings and executives want to avoid a public outcry.

Alan Johnson, managing director of Johnson Associates, said chief executives at banks were likely to get the bulk of any bonus in stock, a method that would probably trickle down.

“Whatever you get paid is likely to be in paper,” Mr. Johnson said. “There is not going to be much cash.”

That is not likely to please bank employees, who have watched their companies’ shares plunge.

Among different areas of banking, the study suggests that fixed-income traders will see bonuses decline 40 to 45 percent.

Investment banks typically pay out about 50 percent of revenue as compensation, and year-end bonuses can account for a large percentage of employees’ pay. In the past, fat bonuses led to big spending on lavish apartments and other luxuries, and leaner times are expected to hurt New York’s economy.

In previous lean years, Wall Street banks justified large payouts by arguing that top employees would flee for higher-paying jobs. But with tens of thousands of Wall Street jobs disappearing, that argument may no longer hold. “Where are people going to go?” one senior banking executive asked.

Bleak Reports Keep Markets in Free Fall

2008-11-06T22:08:00.000-08:00

New York Times
November 7, 2008

By MICHAEL M. GRYNBAUM

The political world shifted on Tuesday, but the change did little to ease the anxiety on Wall Street.

Despite stabilization in the credit markets and lower interest rates around the globe, the last two days were the worst in the American stock market since 1987. In 48 hours, the Dow Jones industrial average dropped nearly 1,000 points, and the Standard & Poor’s 500-stock index, a broader measure of stocks, lost nearly 10 percent of its value.

“Normally markets are driven by fear and greed,” said Brian Gendreau, a strategist at ING Investment Management in New York. “Now it’s fear and fear.”

There were no clear catalysts that spurred the sell-off — which dragged the Dow lower on Thursday by 443.48 points — beyond the regular drumbeat of poor earnings from the corporate sector and bleak data on the economy. Those reports have been arriving almost daily for the last few weeks, signs of a recession that many fear will be darker than anyone imagined just a year ago.

But the mantra on Wall Street was that the pain was being “priced in” — that is, investors had sold stocks in anticipation of weaker earnings and stingier spending. The cataclysmic losses of October, the worst month on Wall Street since 1987, were supposed to reflect the defensive moves of an investor class buckling down for the pain to come. With that out of the way, it was time for the market to stabilize.

Instead, investors appear to be betting that the worst is yet to come. Stocks that rallied after hitting a year-to-date low on Oct. 27 are heading south again, veering toward a new bottom. The trends suggest that investors remain remarkably skittish. Shares of banks fell on Thursday by 7 to 10 percent, single-day swings that would have been unthinkable a short time ago. These days, fleeting headlines can move the market just as much as interest rate cuts and major economic data.

On Thursday, the bad news came in the form of slumping sales at the nation’s retailers, a harbinger of a holiday shopping season that could be the worst in years, according to industry analysts.

Not helping matters: a bleak forecast from Cisco Systems, the networking giant, and comments from an executive at General Motors that suggested the company was struggling to survive.

Investors may also have been selling ahead of Friday’s report on the job market, which economists say will be grim. The Labor Department is expected to report that employers cut hundreds of thousands more jobs in October, bringing the simmering problems in the labor market to a full boil.

The Dow Jones industrial average closed at 8,695.79, down 4.9 percent, its lowest finish since Oct. 28, after swinging in a 518-point range. The S.& P. lost 47.89 points, or 5 percent, to 904.88, and the Nasdaq composite index fell 72.94 points, or 4.3 percent, to 1,608.70.

“The market already knows the economy is pretty sick,” Meg Browne, a currency strategist at Brown Brothers Harriman, said. “But there is attention being paid to tomorrow’s jobs numbers. We think they’ll be much worse than the market forecast.”

The declines on Wall Street came despite sharp reductions in foreign interest rates by central banks seeking to further ease the tight credit markets. The Bank of England lowered its benchmark rate by 1.5 percentage points, more than analysts had expected, and the European Central Bank cut rates by half a percentage point.

Credit markets also showed some improvements. The amount of outstanding commercial paper — short-term i.o.u.’s used by businesses and banks for daily expenses — were up for a second week, rising $50.5 billion, to $1.6 trillion. That is down from the peak in July 2007, but a significant improvement from last month, when the market for such financing virtually froze up.

The Treasury’s benchmark 10-year bill rose 4/32, to 102 17/32, and the yield, which moves in the opposite direction from the price, was at 3.69 percent, down from 3.70 percent late Wednesday.

The South Korean central bank joined in the rate activity on Friday morning, cutting its benchmark rate by a quarter point, its third reduction in a month.

Nevertheless, the Kospi stock index in South Korea was down more than 3 percent in early trading. Other Asian indexes also fell. The Nikkei in Japan was down 5 percent, and the S.& P./ASX index in Australia fell 3.8 percent.

Oil prices dropped $4.53, to $60.77 a barrel.

The Labor Department said on Thursday that new claims for unemployment benefits declined last week by 4,000, to 481,000; readings above 400,000 are considered recessionary. The agency also said that worker productivity grew at an annual rate of 1.1 percent in the third quarter, down from a 3.6 percent growth rate in the second quarter.

Bettina Wassener and Julia Werdigier contributed reporting.

In Modeling Risk, the Human Factor was left out

2008-11-06T22:05:00.000-08:00

New York Times

November 5, 2008

In Modeling Risk, the Human Factor Was Left Out

By STEVE LOHR

Today’s economic turmoil, it seems, is an implicit indictment of the arcane field of financial engineering — a blend of mathematics, statistics and computing. Its practitioners devised not only the exotic, mortgage-backed securities that proved so troublesome, but also the mathematical models of risk that suggested these securities were safe.

What happened?

The models, according to finance experts and economists, did fail to keep pace with the explosive growth in complex securities, the resulting intricate web of risk and the dimensions of the danger.

But the larger failure, they say, was human — in how the risk models were applied, understood and managed. Some respected quantitative finance analysts, or quants, as financial engineers are known, had begun pointing to warning signs years ago. But while markets were booming, the incentives on Wall Street were to keep chasing profits by trading more and more sophisticated securities, piling on more debt and making larger and larger bets.

“Innovation can be a dangerous game,” said Andrew W. Lo, an economist and professor of finance at the Sloan School of Management of the Massachusetts Institute of Technology. “The technology got ahead of our ability to use it in responsible ways.”

That out-of-control innovation is reflected in the growth of securities intended to spread risk widely through the use of financial instruments called derivatives. Credit-default swaps, for example, were originally created to insure blue-chip bond investors against the risk of default. In recent years, these swap contracts have been used to insure all manner of instruments, including pools of subprime mortgage securities.

These swaps are contracts between two investors — typically banks, hedge funds and other institutions — and they are not traded on exchanges. The face value of the credit-default market has soared to an estimated $55 trillion.

Credit-default swaps, though intended to spread risk, have magnified the financial crisis because the market is unregulated, obscure and brimming with counterparty risk (that is, the risk that one embattled bank or firm will not be able to meet its payment obligations, and that trading with it will seize up).

The market for credit-default swaps has been at the center of the recent Wall Street banking failures and rescues, and these instruments embody the kinds of risks not easily captured in math formulas.

“Complexity, transparency, liquidity and leverage have all played a huge role in this crisis,” said Leslie Rahl, president of Capital Market Risk Advisors, a risk-management consulting firm. “And these are things that are not generally modeled as a quantifiable risk.”

Math, statistics and computer modeling, it seems, also fell short in calibrating the lending risk on individual mortgage loans. In recent years, the securitization of the mortgage market, with loans sold off and mixed into large pools of mortgage securities, has prompted lenders to move increasingly to automated underwriting systems, relying mainly on computerized credit-scoring models instead of human judgment.

So lenders had scant incentive to spend much time scrutinizing the creditworthiness of individual borrowers. “If the incentives and the systems change, the hard data can mean less than it did or something else than it did,” said Raghuram G. Rajan, a professor at the University of Chicago. “The danger is that the modeling becomes too mechanical.”

Mr. Rajan, a former chief economist at the International Monetary Fund, points to a new paper co-authored by a University of Chicago colleague, Amit Seru, “The Failure of Models That Predict Failure,” which looked at securitized subprime loans issued from 1997-2006. Their research concluded that the quantitative methods underestimated defaults for subprime borrowers in what the paper called “a systematic failure of default models.”

A recent paper by four Federal Reserve economists, “Making Sense of the Subprime Crisis,” found another cause. They surveyed the published research reports by Wall Street analysts and economists, and asked why the Wall Street experts failed to foresee the surge in subprime foreclosures in 2007 and 2008. The Fed economists concluded that the risk models used by Wall Street analysts correctly predicted that a drop in real estate prices of 10 or 20 percent would imperil the market for subprime mortgage-backed securities. But the analysts themselves assigned a very low probability to that happening.

The miss by Wall Street analysts shows how models can be precise out to several decimal places, and yet be totally off base. The analysts, according to the Fed paper, doggedly clung to the optimists’ mantra that nominal housing prices in the United States had not declined in decades — even though house prices did fall nationally, adjusted for inflation, in the 1970s, and there are many sizable regional declines over the years.

Besides, the formation of a housing bubble was well under way. Until 2003, prices moved in line with employment, incomes and migration patterns, but then they departed from the economic fundamentals.

The Wall Street models, said Paul S. Willen, an economist at the Federal Reserve in Boston, included a lot of wishful thinking about house prices. But, he added, it is also true that asset price trends are difficult to predict. “The price of an asset, like a house or a stock, reflects not only your beliefs about the future, but you’re also betting on other people’s beliefs,” he observed. “It’s these hierarchies of beliefs — these behavioral factors — that are so hard to model.”

Indeed, the behavioral uncertainty added to the escalating complexity of financial markets help explain the failure in risk management. The quantitative models typically have their origins in academia and often the physical sciences. In academia, the focus is on problems that can be solved, proved and published — not messy, intractable challenges. In science, the models derive from particle flows in a liquid or a gas, which conform to the neat, crisp laws of physics.

Not so in financial modeling. Emanuel Derman is a physicist who became a managing director at Goldman Sachs, a quant whose name is on a few financial models and author of “My Life as a Quant — Reflections on Physics and Finance” (Wiley, 2004). In a paper that will be published next year in a professional journal, Mr. Derman writes, “To confuse the model with the world is to embrace a future disaster driven by the belief that humans obey mathematical rules.”

Yet blaming the models for their shortcomings, he said in an interview, seems misguided. “The models were more a tool of enthusiasm than a cause of the crisis,” said Mr. Derman, who is a professor at Columbia University.

In boom times, new markets tend to outpace the human and technical systems to support them, said Richard R. Lindsey, president of the Callcott Group, a quantitative consulting group. Those support systems, he said, include pricing and risk models, back-office clearing and management’s understanding of the financial instruments. That is what happened in the mortgage-backed securities and credit derivatives markets.

Better modeling, more wisely applied, would have helped, Mr. Lindsey said, but so would have common sense in senior management. The mortgage securities markets, he noted, grew rapidly and generated high profits for a decade. “If you are making a high return, I guarantee you there is a high risk there, even if you can’t see it,” said Mr. Lindsey, a former chief economist of the Securities and Exchange Commission.

Among quants, some recognized the gathering storm. Mr. Lo, the director of M.I.T. Laboratory for Financial Engineering, co-wrote a paper that he presented in October 2004 at a National Bureau of Economic Research conference. The research paper warned of the rising systemic risk to financial markets and particularly focused on the potential liquidity, leverage and counterparty risk from hedge funds.

Over the next two years, Mr. Lo also made presentations to Federal Reserve officials in New York and Washington, and before the European Central Bank in Brussels. Among economists and academics, he said, the research was well received. “On the industry side, it was dismissed,” he recalled.

The dismissive response, Mr. Lo said, was not really surprising because Wall Street was going to chase profits in the good times. The path to sensible restraint, he said, will include not only better risk models, but also more regulation. Like others, Mr. Lo recommends higher capital requirements for banks and the use of exchanges or clearinghouses for the trade of exotic securities, so that prices and risks are more visible. Any hedge fund with more than $1 billion in assets, he added, should be compelled to report its holdings to regulators.

Financial regulation, Mr. Lo said, should be seen as similar to fire safety rules in building codes. The chances of any building burning down are slight, but ceiling sprinklers, fire extinguishers and fire escapes are mandated by law.

“We’ve learned the hard way that the consequences can be catastrophic, even if statistically improbable,” he said.

As economy melts away, so does N.Y. sculpture

2008-11-06T22:00:00.000-08:00

USA TODAY

NEW YORK (AP) — The economy is melting — literally.

Two artists on Wednesday installed a 1,500-pound ice sculpture that spelled the word "Economy" in Manhattan's financial district.

The "Main Street Meltdown" was to remain in Foley Square until it melted — about 24 hours. By Wednesday evening, the E and the C had already thawed and vanished.

The backdrop to the sculpture — the wide stairs and row of pillars fronting the state Supreme Court building — is instantly recognizable to millions of viewers of TV's "Law & Order."

"To see the word 'economy' melting down is representational of an extreme time," artists Nora Ligorano and Marshall Reese said on their website.

Ban on Gay Marriage Leads in California

2008-11-05T07:47:00.000-08:00

Wall Street Journal
NOVEMBER 5, 2008, 10:28 A.M. ET

California Votes for Prop 8

By TAMARA AUDI, JUSTIN SCHECK and CHRISTOPHER LAWTON

California voters overturned same-sex marriage rights in a vote that stands to affect how the issue plays out elsewhere in the nation.

Proposition 8, which would establish marriage as a union between a man and a woman, passed with 52.1% of the vote, against 47.9% opposed, with 94.6% of precincts reporting. The approval marks a stunning upset in a $70 million campaign that just weeks ago looked to be running in favor of preserving gay marriage rights.

The passage of Prop 8, as it is known, would be a major victory for religious conservatives seeking to ban gay marriage in other states, and a crippling setback for the gay rights movement nationwide.

"This is a critical vote,'' said Carrie Gordon Earll, spokeswoman for Focus on the Family, a conservative group that supported the proposition.

The proposition seeks to reverse a ruling from the California Supreme Court, which earlier this year declared that banning same-sex marriage was discriminatory. The proposition would change the state constitution to define marriage as only between a man and a woman.

Massachusetts Votes to Maintain Income Tax

Even amid a heated presidential election, the contest over Prop 8 emerged as one of the dominant political issues in the state this year, and was a big driver of voter turnout. Observers believe the losing side will suffer a serious blow in the national debate over gay-marriage rights. The winning side will have the momentum and also be able to claim a popular mandate as judges and voters across the country are poised to weigh the issue in other states.

Same-sex marriage is legal in Massachusetts and Connecticut. But California's vote on the issue is expected to have a far greater impact on how same-sex marriage will be received elsewhere.

"No one can underestimate the impact of the largest state in the nation treating all of its citizens equally," said Lorri Jean, head of the Los Angeles Gay & Lesbian Center and a leader of the campaign to protect gay marriage rights, speaking before the polls closed. On the other hand, she said, the losing side would be "seriously wounded."

Getty Images

Supporters of Proposition 8, which would outlaw same-sex marriage throughout California, rally during at St. Frances X Cabrini Church on October 24, 2008.

Jeff Flint, the campaign manager for the effort to ban gay marriage, predicted that the result in California would show that both Democrats and Republicans support Prop 8. "I think the message will be very clear in a state that even Barack Obama looks to win by a large margin that the importance of marriage is still very strong,'' he said Tuesday, while voting was still under way.

Prop 8 supporters were relying Republican voters in rural areas, but also urban African-American voters like Christopher Miracle of Oakland, a 19-year student at nearby California State University Hayward. Mr. Miracle voted for Barack Obama, but voted to support Prop 8. "Look at the bible." he said. "It's not a man and a man."

The issue has become a rallying cry nationally for both causes, with tens of millions of dollars pouring into the campaign from outside of California.

The amount of money raised-- $38 million to support gay marriage and more than $32 million to ban it -- has fueled a fierce campaign marked by rallies, boycotts, celebrity endorsements and a constant rotation of television ads on both sides.

Many religious leaders implored their congregants to support Prop 8. Cash has poured in from church members. The global head of the Church of Jesus Christ of Latter-day Saints, or the Mormon Church, issued a letter in June calling on followers to "do all you can" to back the measure, and Mormons have emerged as some of the biggest Prop 8 fundraisers.

Meanwhile, gay rights activists boycotted the businesses of Prop 8 donors, and trumpeted support from celebrities like Brad Pitt and Samuel L. Jackson.

As voters headed to the polls Tuesday, few appeared to be on the fence about how they would vote.

"Marriage is between a man and a woman," said 67-year-old Marie Barbagelata from Linden, a farming town about 100 miles inland from San Francisco. She voted in favor of Proposition 8, but added she's not opposed to same-sex civil unions.

A few miles away in Stockton, 41-year-old David Qualls said he plans to vote against Proposition 8, saying, "It doesn't affect my marriage."

Gay rights activists have cast their campaign to defeat Prop 8 as a civil rights battle, making comparisons to the fight for racial equality. Conservatives have said it is not a matter of equal rights, since gays and lesbians could still have domestic partnerships.

Prop 8 advocates have warned in ads that schools would be required to teach gay marriage to young children -- a position gay marriage advocates have dismissed as a scare tactic.

If Prop 8 passes, as early results seem to augur, it is unclear what would happen to the status of gay marriages performed in California in the last several months. Thousands of same-sex couples rushed to alter this summer to take advantage of the few months leading up to the vote when gay marriage's legal status was not in question.

The state attorney general, Jerry Brown, has said those marriages would remain valid. But gay rights activists said they fear lawsuits could be filed to dissolve them.

Ms. Jean, who married her partner of 17 years in September, when same-sex marriage was legal, said she would remind supporters that all civil rights struggles face setbacks. "We've got to pick ourselves up and go on. We'll be bloodied for sure but unbowed."

Mr. Flint, the manager of the Prop 8 campaign, said that he hoped Tuesday's outcome would end the debate in California with a decisive victory. But if the proposition were to lose narrowly, he said, "We would consider revisiting the issue."

Redistricting Proposition Gains Ground

A ballot proposition to overhaul California's redistricting practices looked likely to win approval from the majority of state voters, with 54.6% of votes cast in favor of the measure, with 12.6 percent of the vote reporting.

Proposition 11, also known as the Voters First Act, was designed to overhaul a California law that lets the state legislature determine the boundaries of political districts. That law has been the subject of increased criticism, as political organizations accuse legislators of mapping districts to their political advantage.

The proposition was opposed by many state legislators and backed by Gov. Schwarzenegger. Under the plan, redistricting will be decided by a 14-member independent committee. The next redistricting will occur in 2011, according to current state laws.

The ballot initiative received particular attention in the wake of a three-month-long battle between California's Democratic-led legislature and Republican Gov. Schwarzenegger over the $104.3 billion state budget. Many blamed the budget gridlock on entrenched incumbents who had little incentive to compromise with one another.

Polls indicated the measure was gaining support amongst voters. According to a poll earlier this month from the Public Policy Institute of California, 41% of Californians favor the proposition, with 34% against and 25% undecided. That compares with 38% in favor and 33% against in September.

Days before the election, supporters had expressed concern that a large number of voters polled were still undecided on the measure, indicating that they had not done a good enough job of explaining the Voters First Act and why it mattered. At the same time, the proposition was overshadowed by more contentious battles such as Proposition 8, which would ban gay marriage.

Voters on the ground also indicated that they didn't know much about Proposition 11 putting it low on their list of voting priorities.

Shannon Miller, a 24 year old assistant front desk manager at a San Francisco hotel, abstained from voting for Proposition 11, because she says she didn't know enough about it to make an educated choice and thought there were other more important issues to vote on.

"Redistricting. We need to do more immediate things," she said.

Separately, California has set many a social trend. Now voters in the Golden State may start setting trends in a new area: animal care. A ballot measure called Proposition 2, which would prohibit ranchers from keeping chickens, veal calves and breeding pigs in pens or cages that are too small for the animal to move, was approved with 60.9% of the vote cast in favor of the measure with 100% of the vote reported.

—Bobby White and the Associated Press contributed to this article

Write to Tamara Audi at tammy.audi@wsj.com, Justin Scheck at justin.scheck@wsj.com and Christopher Lawton at christopher.lawton@wsj.com

Eight Weeks of Financial Turmoil

2008-11-04T16:54:00.000-08:00

September 27, 2008

Eight Weeks of Financial Turmoil

Multimedia graphic with sound, photos, and video

Stocks Rally as Americans Vote

2008-11-04T16:32:00.000-08:00

New York Times
November 5, 2008

By SHARON OTTERMAN

Wall Street built on recent gains Tuesday as reduced volatility and easing in the credit markets helped give stocks their strongest Election Day rally in 24 years.

The Standard & Poor’s 500-stock index closed above 1,000 for the first time since Oct. 13, gaining 4 percent, and the technology-heavy Nasdaq had its sixth consecutive daily rise. At the close, the Dow Jones industrial average was up 3.2 percent, or 305.45 points, to 9,625.28. The broader S. & P. 500-stock index was up 39.45 points, to 1,005.75, and the Nasdaq was up 3 percent, to 1,780.12.

Crude oil settled at $70.44 a barrel, up $6.53 in New York trading on speculation that the world’s largest oil exporter, Saudi Arabia, had cut supplies to some buyers.

The euro rose about 3 cents Tuesday, to $1.29. The dollar lost ground to the yen, the pound and other currencies as well.

Historically, Wall Street has enjoyed a bounce in the fourth quarter after a presidential election as investors breathe a sigh of relief that the long election cycle, with its accompanying uncertainty, has ended. Some analysts said investors seemed to be trying to get a jump on the expected rally by buying on Election Day.

“We don’t know if it’s the end of the bear market yet, but it looks as though the bear has taken a nap,” said Sam Stovall, chief investment strategist at Standard & Poor’s equity research. “So investors are thinking, let’s enjoy a bit of a relief, both from the market’s lows and from the endless pre-election rhetoric.”

Other analysts said they believed the elections only had a peripheral effect on the market, as there had been no major surprises. More important to the rally, they said, were a continuing round of coordinated interest rate cuts worldwide, the continuing thaw in the credit markets and the increasing resiliency of the markets to the daily drumbeat of bad economic news. The extreme volatility of recent weeks has calmed, though trading volume remained light.

The Chicago Board Options Exchange’s volatility index — or VIX — dipped below 50 for the first time since Oct. 14. Wall Street has rallied 18.3 percent since the close on Oct. 27, including the 10.8 percent gain on Oct. 28.

“Investors are starting to look ahead of some of these numbers to 2009, and they are starting to see a bit of recovery,” said Ryan Larson, head equity trader at Voyageur Asset Management. “Some of the volatility is coming out of the marketplace.”

Underlying the market’s new-found stability, the stock markets showed little reaction as the government reported that new orders for manufactured goods in September dropped $11.2 billion, or 2.5 percent, to $432 billion, a larger-than-expected loss. This followed a 4.3 percent August decrease.

It was the second negative manufacturing report in two days. On Monday, the Institute for Supply Management’s index of manufacturing activity in the United States fell to 38.9 in October, from 43.5 in September, the worst reading since September 1982. The markets also seemed to take that news in stride, spending the day trading in a narrow range before eventually ending the day flat, indicating that much of the bad news had been already priced into stock prices.

The rally that unfolded on Wall Street was broad-based. All industry sectors in the S.& P. index rose, led by telecommunications and energy stocks. Among the 30 blue-chip stocks that make up the Dow, General Electric, Verizon Communications and Caterpillar were among the strongest performers.

The stock exchange first opened for trading on Election Day in 1984. That year, the Dow rose 1.2 percent, a gain not topped since, as Ronald Reagan was re-elected.

Shares in MasterCard, the world’s second-biggest credit card company after Visa, jumped 18 percent after the company said that higher overseas revenue had helped bolster profit.

Still, the company warned that the economic slowdown would affect profit in the near term.

Archer Daniels Midland, the world’s largest grain processor, was up 15 percent as earnings more than doubled on rising commodity prices.

Building on a trend from the last several days, the credit markets eased further on Tuesday, with interbank and corporate borrowing rates declining significantly. The London interbank offered rate, or Libor, a benchmark that banks charge one another, fell to 0.375 percent.

The Treasury’s 10-year bill rose 1- 17/32, to 102- 7/32, and the yield, which moves in the opposite direction from the price, was at 3.72 percent, down from 3.91 percent late Monday.

The rate corporations pay for short-term loans known as commercial paper, a part of the market that had seized up in recent weeks, making it hard for businesses to borrow, dropped to 2.88 percent for three-month loans, down from 3.31 percent on Monday. It was the lowest the rate has been since mid-September.

Last week, the Federal Reserve began lending directly to corporations through commercial paper. Those efforts and many others from central banks around the world appear to be helping restore a degree of normalcy to the debt market after weeks of tumult.

Still, in some important parts of the market, conditions remain far from normal. Yields on mortgage securities, which determine mortgage interest rates, remain at elevated levels though they have fallen somewhat in the last couple of days. Last week, the average interest rate on 30-year fixed-rate mortgages was 6.46 percent, up from 6.04 a week earlier, according to Freddie Mac.

Excluding transportation like aircraft and autos, demand for manufactured goods decreased 3.7 percent in September, the largest decrease since the start of record-keeping in 1992.

Still, the news remained in line with weeks of economic data indicating that the economy took a sharp downturn beginning in the third quarter as ripples from the subprime mortgage crisis began to constrain access to credit severely. Stock markets were also higher in Europe and Asia. The Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 5.5 percent, while the FTSE 100 index in London rose 4.4 percent. The CAC 40 in Paris gained 4.6 percent, and the DAX in Frankfurt was up 5 percent.

In Tokyo, the Nikkei 225 stock average jumped 6.3 percent, as investors returned from a holiday Monday. The Hang Seng index in Hong Kong rose 0.3 percent.

In Sydney, the S.& P./ASX 200 index closed 0.2 percent lower, after the Australian central bank surprised the markets on Tuesday with a larger-than-expected interest rate cut. The bank cut its main interest rate target by three-quarters of a percentage point, to 5.25 percent, rather than by the half-point that had been widely expected.

“International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well,” the Reserve Bank of Australia said in a statement.

Policy makers worldwide are racing to prop up banks, calm volatile stock markets and inject steam into their flagging economies by trying aggressively to reduce the cost of borrowing.

The Federal Reserve Board in Washington last week lowered its benchmark interest rate by half a percentage point, to 1 percent, its second big rate cut this month. The Bank of Japan last week cut its main rate target to 0.3 percent from 0.5 percent. The European Central Bank and the Bank of England are expected to cut rates on Thursday.

Following are the results of yesterday’s Treasury auction of 238-day cash management bills and four-week bills:

David Jolly, Bettina Wassener and Vikas Bajaj contributed reporting.

So long, suckers. Millionaire hedge fund boss thanks 'idiot' traders and retires at 37

2008-11-02T16:14:00.001-08:00

Andrew Clark in New York
The Guardian,
Saturday October 18 2008
Article history

The boss of a successful US hedge fund has quit the industry with an extraordinary farewell letter dismissing his rivals as over-privileged "idiots" and thanking "stupid" traders for making him rich.

Andrew Lahde's $80m Los Angeles-based firm Lahde Capital Management in Los Angeles made a huge return last year by betting against subprime mortgages.

Yesterday the 37-year-old told his clients that he had hated the business and had only been in it for the money. And after declaring he would no longer manage money for other people, because he had enough of his own, Lahde said that instead he intended to repair his stress-damaged health; he made it clear he would not miss the financial world.

"The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking," he wrote. "These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government," he said.

"All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."

Lahde became one of the biggest names in the investment industry when one of his funds produced a return of 866% last year, largely by forecasting the US home loans industry would collapse.

In his farewell letter, which concluded with an appeal for the legalisation of marijuana, Lahde said he was happy with his rewards and did not envy those who had made even more money.

"I will let others try to amass nine, 10 or 11 figure net worths. Meanwhile, their lives suck," he wrote, citing a life of back-to-back business appointments relieved only by a two-week annual holiday in which financiers are still "glued to their Blackberries".

Lahde's retirement came amid an implosion among the hedge fund industry - some 350 of the funds have liquidated this year, according to Hedge Fund Research.

His final words of advice? "Throw the Blackberry away and enjoy life."

Oil up one day, down the next, up again! Commodies trading riding second wave of Wall Street tsunami

2008-09-23T00:06:00.000-07:00

Crude Oil Drops After $25 Gain on Final Day of October Contract
Bloomberg
By Margot Habiby

Sept. 23 (Bloomberg) -- Crude oil for November delivery fell as the dollar rebounded from a one-month low and after the October contract climbed more than $25 a barrel in its final trading day yesterday, a record one-day gain.

Oil rose to its highest since Aug. 21 yesterday as traders scrambled to unwind positions on the October contract, the dollar declined the most against the euro since January 2001 and on speculation a proposed $700 billion U.S. bailout package for the finance industry may bolster the economy and shore up demand.

``The dollar will be the focal variable in the coming days because the Treasury proposition and the bailout plan could have a significant impact on the dollar,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta.

Crude oil for November delivery fell 74 cents, or 0.7 percent, to $108.63 a barrel at 9:13 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, the contract rose $6.62, or 6.4 percent, to $109.37 a barrel.

Oil has risen 20 percent since Sept. 16 as lawmakers pledged fast consideration of the Treasury's plan to buy devalued mortgage-related securities.

The October contract rose $16.37, or 17 percent, to expire at $120.92 a barrel yesterday on the Nymex. It touched $130 in intraday trading, as traders who sold the October contract last week, when oil dipped close to $90, had to buy the futures back.

Traders `Squeezed'

In a squeeze, a trader has gone short by selling contracts betting that the price will decline. In the last days before the contract expires the trader must buy back the same number of futures or be forced to deliver the underlying oil.

The Commodity Futures Trading Commission is ``closely monitoring'' yesterday's gain in oil prices on Nymex for potential manipulation, the agency's acting chairman said.

``We are working closely with Nymex compliance staff to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain,'' Acting Chairman Walter Lukken said in a statement.

The dollar was little changed at $1.4793 per euro at 8:35 a.m. Sydney time, from $1.4774 yesterday. It has rebounded since dropping 2.1 percent yesterday to $1.4866, the weakest level since Aug. 22, on concern the U.S. bailout package, which would buy assets from financial firms, would inflate the budget deficit.

``Traders are trying to figure out what this bailout and stimulus package is and what it means,'' Edmonds said. ``To say that it means the consumer is alive and well and energy demand is going to pick up to pre-dip levels is way, way premature. At some point in the not-too-distant future, this package has to be paid for, and the economic repercussions are pretty significant for the taxpayer.''

`Economic Slowdown'

Crude oil prices are ``too high'' because the global economic slowdown may spread and cut consumption, the International Energy Agency's deputy executive director said yesterday.

``The economic slowdown in the U.S., Europe hasn't gotten into China, India much, but at some point you have to presume it will,'' William Ramsay said in an interview in Bangkok yesterday.

The Paris-based IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo.

Brent crude oil for November settlement rose $6.43, or 6.5 percent, to settle at $106.04 a barrel on London's ICE Futures Europe exchange yesterday.

Gasoline for October delivery fell 0.38 cent to $2.70 a gallon in New York. Yesterday, it increased 10.41 cents, or 4 percent, to settle at $2.7038 a gallon in New York. Regular gasoline, averaged nationwide, declined 1.8 cents to $3.739 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

The Rage of the Previously Rich

2008-09-22T23:54:00.000-07:00

A Lehman trader copes with the sudden onset of income shrinkage.

New York Magazine
By Gabriel Sherman Published Sep 21, 2008

The ’97 Barbaresco was not supposed to be opened for this. Stashed under a desk on the third floor of Lehman Brothers’ Seventh Avenue headquarters, the bottle awaited an appropriate victory. Like food, wine pairs well with vast sums of money.

But on Friday, September 12, as Lehman’s stock flatlined at $3.65 per share, the Trader knew it was time to uncork the Santo Stefano. He was in his late thirties, at the prime of his earning potential, a standout in one of Lehman’s profitable trading divisions. When the stock price had fallen below $20 a share in July, the Trader knew things were bad but took solace in the prospect of one more bonus cycle. Things are bad; things will be bad for a while. We’ll hunker down and survive, he had thought then.

But the fact that the Trader’s desk met its targets in August meant nothing at Lehman, where cascading losses from a few epic bets on commercial real estate triggered a firmwide meltdown. As one recently laid-off Lehman staffer said, in characteristic Wall Street vernacular, “These assholes on another floor completely dropped our pants.”

Around 5:30 p.m. on Friday, as the reality sank in, the Trader assembled his staff. With the weekend looming, this would likely be the last time they would gather at Lehman as a team. The eight colleagues, friends really, stood around glowing Bloomberg terminals as the $700 Barbaresco was poured into paper cups. A crowd formed. Champagne was brought out. What they didn’t know was that upstairs, Lehman lawyers and bankers were negotiating with counterparts at Barclays, Bank of America, and the Fed, piecing together a deal. After a few minutes, the Trader was called over to open the books for the counterparties. He brushed his teeth, scrubbing the scent of wine from his breath. Leaving work at nine that evening, the Trader knew that Lehman Brothers, as he’d known it, was at an end. The culture would change, inevitably. But at that moment, he couldn’t conceive of the firm’s actually going bankrupt.

The Trader had come to Lehman only a year ago, after being recruited from a rival firm. He’d studied physics as a grad student, then come to Wall Street as the tech bubble and the aggressive gentrification of the Giuliani years remade Manhattan into a banker’s playground, a place where a $2 million salary could seem like the norm.

Like many on Wall Street, the Trader’s career was moving along briskly. By 2006, he had settled into a new $2 million house in Connecticut with a pool, and kept a pied-à-terre in Manhattan. With two young children, he had private-school tuition to cover. He had recently completed a home renovation, and now there was talk of a new porch with a built-in stainless-steel barbecue. The Trader estimated that he was two years from making enough money to retire and never have to work again.

But by Saturday, September 13, Lehman Brothers teetered on the precipice of bankruptcy after Barclays and Bank of America walked away from a deal. The Trader was certain of little, except that he was a lot poorer. The unvested stock from his previous year’s bonus, once worth $3 million, was now reduced to a scant $6,000. And on Wall Street, self-worth and net worth can amount to the same thing. “The hardest thing in my mind is to have your compensation cut,” a veteran Wall Street executive says. “It’s almost like you’re a bad person.”

At a dinner party in Darien that evening, the conversation was a mix of denial and panic. An executive from UBS lamented what the Lehman meltdown would mean for Wall Street. “This is going to be a disaster,” the executive said. The executive’s wife nervously tried to steer the topic toward lighter subjects. She kept talking about summer vacation. And then she turned to the Trader and asked, “What do you do?”

The collapse of the world’s most powerful wealth-creating engine required everyone to take stock of their financials. One Lehman executive in Rye Brook, fretting about paying off a Hamptons summer house and a ski chalet in Vermont, panicked on Monday morning and laid off her nanny, who had been with the Westchester family for nine years. “The nanny called me crying,” says Marla Sanders, who runs Advance Nannies and staffs Lehman homes. “One of the children she had brought home from the hospital.” Sanders knows more cuts for her clients are on the way. “They’re going to have to sell homes. The question is, will the homes sell? They’re cutting some of the children’s activities out, dance class, acting class. Are they going to have flowers delivered every day to their homes? I don’t think so!”

Of course, this is one of the meanings of moral hazard, that term that’s been used so much in recent months. At this level, it’s not a tragedy so much as the end of a specific vision of the American good life, one that’s helped to define the city and its suburbs for more than a decade.

Pain was relative. “One of my managers, he’s a guy who is a little bit older,” one low-level Lehman staffer said on September 16. “He has an $800,000 mortgage, a wife who can’t work, and two kids. That gives you a little perspective.”

On Friday, September 12, the Wall Street Journal reported that Lehman’s former president, Joe Gregory, who was demoted along with former CFO Erin Callan in a management shake-up in June, was listing his Bridgehampton house on Surfside Drive for $32.5 million. The collapse of Lehman’s stock is a blow to Gregory’s lifestyle. He reportedly used to travel by helicopter to midtown from his $3.5 million mansion in Huntington, which was recently renovated, according to a Sotheby’s broker. According to one source, Gregory’s financial adviser was in negotiations with Lehman’s attorneys at Simpson Thacher & Bartlett, working to avert his filing for bankruptcy, after he borrowed money against his Lehman stock to pay for the renovation. “He owes a lot of money for it. They called the margin loan” late last week, the source said. (Gregory and attorneys didn’t return calls for comment.)

And some around the city met the crisis with a kind of glee. “What do you think just happened to the lifestyles of all the guys who girls want to meet?” one hedge-fund analyst wondered. “This is the best time ever to maintain ten girlfriends. You could be an African tribal leader!”

“Wall Street is like the auto industry in the seventies, which had a product that exploded on impact.”

In the days after the fall of Lehman, Craigslist attracted several posts from people who said they were Lehman employees, becoming a kind of clearinghouse for the detritus of the Wall Street male ego. On September 17, one banker put his East 91st Street apartment up for rent and with it, his bachelorhood. (“I can no longer afford my apartment seeing as Lehman Brothers felt the need to steal my money and my soul … I am moving in with my girlfriend.”) Another headline read, “Should I leave my fiancé? … I guess I already know the answer. My boyfriend … rather fiancé, is/was employed by Lehman Brothers,” the posting stated. “In less than a week we went from being millionaires to just having a couple of 100K … I suppose this means it’s over. I am who I am. I personally blame all this on [Lehman CEO] Dick Fuld. I blame him for ruining my happiness.”

Riding the Metro-North into Grand Central on Monday morning, September 15, the Trader stood out in his jeans and T-shirt among the rows of suits. A few passengers on the early-morning banker train were similarly dressed, and it was clear to all the commuters to what office guys in jeans, but reading the Journal, were headed.

Like Bear Stearns, Lehman’s culture was built on fierce loyalty to the firm. Senior staffers were granted bonuses that would be paid with 50 percent or more in Lehman stock, which they couldn’t unload for five years. In July, Dick Fuld approved a move to guarantee staffers a part of their bonuses midyear. But the plan backfired when staffers learned that they’d be assured only 20 percent of their previous year’s bonus and would receive restricted stock at $21 per share (“Great, so you basically shorted my own compensation,” one Lehman staffer groused).

At the Seventh Avenue headquarters, the Trader watched it all unfold like a nightmare. Managers instructed the staff not to trade. The company blocked outgoing e-mails with attachments. A colleague frantically called human resources to find out if his wife, who was due to give birth any day now, would be covered by Lehman’s benefits plan. With no instructions from the top, the Trader took his colleagues down to a lunch at Pastis. The next day at around 3:30 in the afternoon, Bart McDade, Lehman’s president and COO, roamed the trading floor with Barclays president Robert Diamond, who traveled from London to inspect his new prize. The men told staffers they had agreed to a deal for Barclays to acquire Lehman. They had set aside a bonus pool for this year, and it would be paid 75 percent in cash.

Even if the Barclays deal would save many jobs, staffers were outraged at Fuld. Since Friday, September 12, Fuld’s domineering presence had all but disappeared from Lehman’s headquarters, and he was assigned a security detail. “They are sneaking him in and out of this place,” a senior Lehman staffer said. “They wouldn’t let him near this deal. It was for his own safety.” Asked what Fuld could do at this point to make it up to his company, the Trader said, “Stand naked in Times Square while I Tase you.”

Lehman staffers in London felt particularly stung. Barclays acquisition includes only Lehman’s New York operations, meaning that the employees at Canary Wharf are going to be jettisoned. On the morning of September 17, one London managing director sent a terse e-mail to Lehman’s president, and cc’d the entire London office. The message—subject line: “To Tom, Michael and Bart: The Email that Never Came”—complained bitterly that New York never expressed gratitude for London’s efforts even while they were thrown under the bus.

Then, just before 10 p.m. on September 16, Fuld finally sent a memo to the staff. “I know that this has been very painful on all of you both personally and financially,” he wrote. “For this, I feel horrible.”

It was the apology the staffers had sought for days.

On September 17, word filtered through the office that Barclays would keep people on for only several months as they figured out whom they wanted to retain. One staffer remarked that he was glad he had decided not to enroll his kid in private school. “It’s sinking in how much money people have and what they can afford going forward,” the Trader said.

On Saturday, September 13, the Trader took his 8-year-old son to his first Yankees game, against Tampa Bay. “My 8-year-old is asking me questions about the economy. And I’m thinking, You should really think about baseball,” the Trader said.

The Trader paid for great seats. They sat fieldside in the languid summer afternoon, six rows from the Yankees dugout. When the Yankees took the field, the Trader’s son erupted in cheers.

“Jeter! Jeter! Jeter!” he yelled, but the players jogged out to the field, with scarcely a glance toward the stands.

“Daddy, why doesn’t he answer?” the son asked.

And suddenly, the Trader boiled with anger. He had done his part, put in the sixteen-hour days to buy his kid the best seats in the stadium. Lehman, and the career he signed up for, was disappearing in front of his eyes. Yet the Yankees were losing, and Derek Jeter was still going to take home his $21 million, and he couldn’t even bother to show some gratitude. It was a fantasy world, out of touch.

“Those guys have the easiest job,” the Trader thought, “when it’s clear they don’t care. Fuck, in my next life I want to be a baseball player.”

Transcript from David Foster Wallace's 2005 commencement speech at Kenyon College

2008-09-20T16:24:00.000-07:00

(If anybody feels like perspiring [cough], I'd advise you to go ahead, because I'm sure going to. In fact I'm gonna [mumbles while pulling up his gown and taking out a handkerchief from his pocket].) Greetings ["parents"?] and congratulations to Kenyon's graduating class of 2005. There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says "Morning, boys. How's the water?" And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes "What the hell is water?"

This is a standard requirement of US commencement speeches, the deployment of didactic little parable-ish stories. The story ["thing"] turns out to be one of the better, less bullshitty conventions of the genre, but if you're worried that I plan to present myself here as the wise, older fish explaining what water is to you younger fish, please don't be. I am not the wise old fish. The point of the fish story is merely that the most obvious, important realities are often the ones that are hardest to see and talk about. Stated as an English sentence, of course, this is just a banal platitude, but the fact is that in the day to day trenches of adult existence, banal platitudes can have a life or death importance, or so I wish to suggest to you on this dry and lovely morning.

Of course the main requirement of speeches like this is that I'm supposed to talk about your liberal arts education's meaning, to try to explain why the degree you are about to receive has actual human value instead of just a material payoff. So let's talk about the single most pervasive cliché in the commencement speech genre, which is that a liberal arts education is not so much about filling you up with knowledge as it is about quote teaching you how to think. If you're like me as a student, you've never liked hearing this, and you tend to feel a bit insulted by the claim that you needed anybody to teach you how to think, since the fact that you even got admitted to a college this good seems like proof that you already know how to think. But I'm going to posit to you that the liberal arts cliché turns out not to be insulting at all, because the really significant education in thinking that we're supposed to get in a place like this isn't really about the capacity to think, but rather about the choice of what to think about. If your total freedom of choice regarding what to think about seems too obvious to waste time discussing, I'd ask you to think about fish and water, and to bracket for just a few minutes your skepticism about the value of the totally obvious.

Here's another didactic little story. There are these two guys sitting together in a bar in the remote Alaskan wilderness. One of the guys is religious, the other is an atheist, and the two are arguing about the existence of God with that special intensity that comes after about the fourth beer. And the atheist says: "Look, it's not like I don't have actual reasons for not believing in God. It's not like I haven't ever experimented with the whole God and prayer thing. Just last month I got caught away from the camp in that terrible blizzard, and I was totally lost and I couldn't see a thing, and it was fifty below, and so I tried it: I fell to my knees in the snow and cried out 'Oh, God, if there is a God, I'm lost in this blizzard, and I'm gonna die if you don't help me.'" And now, in the bar, the religious guy looks at the atheist all puzzled. "Well then you must believe now," he says, "After all, here you are, alive." The atheist just rolls his eyes. "No, man, all that was was a couple Eskimos happened to come wandering by and showed me the way back to camp."

It's easy to run this story through kind of a standard liberal arts analysis: the exact same experience can mean two totally different things to two different people, given those people's two different belief templates and two different ways of constructing meaning from experience. Because we prize tolerance and diversity of belief, nowhere in our liberal arts analysis do we want to claim that one guy's interpretation is true and the other guy's is false or bad. Which is fine, except we also never end up talking about just where these individual templates and beliefs come from. Meaning, where they come from INSIDE the two guys. As if a person's most basic orientation toward the world, and the meaning of his experience were somehow just hard-wired, like height or shoe-size; or automatically absorbed from the culture, like language. As if how we construct meaning were not actually a matter of personal, intentional choice. Plus, there's the whole matter of arrogance. The nonreligious guy is so totally certain in his dismissal of the possibility that the passing Eskimos had anything to do with his prayer for help. True, there are plenty of religious people who seem arrogant and certain of their own interpretations, too. They're probably even more repulsive than atheists, at least to most of us. But religious dogmatists' problem is exactly the same as the story's unbeliever: blind certainty, a close-mindedness that amounts to an imprisonment so total that the prisoner doesn't even know he's locked up.

The point here is that I think this is one part of what teaching me how to think is really supposed to mean. To be just a little less arrogant. To have just a little critical awareness about myself and my certainties. Because a huge percentage of the stuff that I tend to be automatically certain of is, it turns out, totally wrong and deluded. I have learned this the hard way, as I predict you graduates will, too.

Here is just one example of the total wrongness of something I tend to be automatically sure of: everything in my own immediate experience supports my deep belief that I am the absolute center of the universe; the realest, most vivid and important person in existence. We rarely think about this sort of natural, basic self-centeredness because it's so socially repulsive. But it's pretty much the same for all of us. It is our default setting, hard-wired into our boards at birth. Think about it: there is no experience you have had that you are not the absolute center of. The world as you experience it is there in front of YOU or behind YOU, to the left or right of YOU, on YOUR TV or YOUR monitor. And so on. Other people's thoughts and feelings have to be communicated to you somehow, but your own are so immediate, urgent, real.

Please don't worry that I'm getting ready to lecture you about compassion or other-directedness or all the so-called virtues. This is not a matter of virtue. It's a matter of my choosing to do the work of somehow altering or getting free of my natural, hard-wired default setting which is to be deeply and literally self-centered and to see and interpret everything through this lens of self. People who can adjust their natural default setting this way are often described as being "well-adjusted", which I suggest to you is not an accidental term.

Given the triumphant academic setting here, an obvious question is how much of this work of adjusting our default setting involves actual knowledge or intellect. This question gets very tricky. Probably the most dangerous thing about an academic education -- least in my own case -- is that it enables my tendency to over-intellectualize stuff, to get lost in abstract argument inside my head, instead of simply paying attention to what is going on right in front of me, paying attention to what is going on inside me.

As I'm sure you guys know by now, it is extremely difficult to stay alert and attentive, instead of getting hypnotized by the constant monologue inside your own head (may be happening right now). Twenty years after my own graduation, I have come gradually to understand that the liberal arts cliché about teaching you how to think is actually shorthand for a much deeper, more serious idea: learning how to think really means learning how to exercise some control over how and what you think. It means being conscious and aware enough to choose what you pay attention to and to choose how you construct meaning from experience. Because if you cannot exercise this kind of choice in adult life, you will be totally hosed. Think of the old cliché about quote the mind being an excellent servant but a terrible master.

This, like many clichés, so lame and unexciting on the surface, actually expresses a great and terrible truth. It is not the least bit coincidental that adults who commit suicide with firearms almost always shoot themselves in: the head. They shoot the terrible master. And the truth is that most of these suicides are actually dead long before they pull the trigger.

And I submit that this is what the real, no bullshit value of your liberal arts education is supposed to be about: how to keep from going through your comfortable, prosperous, respectable adult life dead, unconscious, a slave to your head and to your natural default setting of being uniquely, completely, imperially alone day in and day out. That may sound like hyperbole, or abstract nonsense. Let's get concrete. The plain fact is that you graduating seniors do not yet have any clue what "day in day out" really means. There happen to be whole, large parts of adult American life that nobody talks about in commencement speeches. One such part involves boredom, routine, and petty frustration. The parents and older folks here will know all too well what I'm talking about.

By way of example, let's say it's an average adult day, and you get up in the morning, go to your challenging, white-collar, college-graduate job, and you work hard for eight or ten hours, and at the end of the day you're tired and somewhat stressed and all you want is to go home and have a good supper and maybe unwind for an hour, and then hit the sack early because, of course, you have to get up the next day and do it all again. But then you remember there's no food at home. You haven't had time to shop this week because of your challenging job, and so now after work you have to get in your car and drive to the supermarket. It's the end of the work day and the traffic is apt to be: very bad. So getting to the store takes way longer than it should, and when you finally get there, the supermarket is very crowded, because of course it's the time of day when all the other people with jobs also try to squeeze in some grocery shopping. And the store is hideously lit and infused with soul-killing muzak or corporate pop and it's pretty much the last place you want to be but you can't just get in and quickly out; you have to wander all over the huge, over-lit store's confusing aisles to find the stuff you want and you have to maneuver your junky cart through all these other tired, hurried people with carts (et cetera, et cetera, cutting stuff out because this is a long ceremony) and eventually you get all your supper supplies, except now it turns out there aren't enough check-out lanes open even though it's the end-of-the-day rush. So the checkout line is incredibly long, which is stupid and infuriating. But you can't take your frustration out on the frantic lady working the register, who is overworked at a job whose daily tedium and meaninglessness surpasses the imagination of any of us here at a prestigious college.

But anyway, you finally get to the checkout line's front, and you pay for your food, and you get told to "Have a nice day" in a voice that is the absolute voice of death. Then you have to take your creepy, flimsy, plastic bags of groceries in your cart with the one crazy wheel that pulls maddeningly to the left, all the way out through the crowded, bumpy, littery parking lot, and then you have to drive all the way home through slow, heavy, SUV-intensive, rush-hour traffic, et cetera et cetera.

Everyone here has done this, of course. But it hasn't yet been part of you graduates' actual life routine, day after week after month after year.

But it will be. And many more dreary, annoying, seemingly meaningless routines besides. But that is not the point. The point is that petty, frustrating crap like this is exactly where the work of choosing is gonna come in. Because the traffic jams and crowded aisles and long checkout lines give me time to think, and if I don't make a conscious decision about how to think and what to pay attention to, I'm gonna be pissed and miserable every time I have to shop. Because my natural default setting is the certainty that situations like this are really all about me. About MY hungriness and MY fatigue and MY desire to just get home, and it's going to seem for all the world like everybody else is just in my way. And who are all these people in my way? And look at how repulsive most of them are, and how stupid and cow-like and dead-eyed and nonhuman they seem in the checkout line, or at how annoying and rude it is that people are talking loudly on cell phones in the middle of the line. And look at how deeply and personally unfair this is.

Or, of course, if I'm in a more socially conscious liberal arts form of my default setting, I can spend time in the end-of-the-day traffic being disgusted about all the huge, stupid, lane-blocking SUV's and Hummers and V-12 pickup trucks, burning their wasteful, selfish, forty-gallon tanks of gas, and I can dwell on the fact that the patriotic or religious bumper-stickers always seem to be on the biggest, most disgustingly selfish vehicles, driven by the ugliest [responding here to loud applause] (this is an example of how NOT to think, though) most disgustingly selfish vehicles, driven by the ugliest, most inconsiderate and aggressive drivers. And I can think about how our children's children will despise us for wasting all the future's fuel, and probably screwing up the climate, and how spoiled and stupid and selfish and disgusting we all are, and how modern consumer society just sucks, and so forth and so on.

You get the idea.

If I choose to think this way in a store and on the freeway, fine. Lots of us do. Except thinking this way tends to be so easy and automatic that it doesn't have to be a choice. It is my natural default setting. It's the automatic way that I experience the boring, frustrating, crowded parts of adult life when I'm operating on the automatic, unconscious belief that I am the center of the world, and that my immediate needs and feelings are what should determine the world's priorities.

The thing is that, of course, there are totally different ways to think about these kinds of situations. In this traffic, all these vehicles stopped and idling in my way, it's not impossible that some of these people in SUV's have been in horrible auto accidents in the past, and now find driving so terrifying that their therapist has all but ordered them to get a huge, heavy SUV so they can feel safe enough to drive. Or that the Hummer that just cut me off is maybe being driven by a father whose little child is hurt or sick in the seat next to him, and he's trying to get this kid to the hospital, and he's in a bigger, more legitimate hurry than I am: it is actually I who am in HIS way.

Or I can choose to force myself to consider the likelihood that everyone else in the supermarket's checkout line is just as bored and frustrated as I am, and that some of these people probably have harder, more tedious and painful lives than I do.

Again, please don't think that I'm giving you moral advice, or that I'm saying you are supposed to think this way, or that anyone expects you to just automatically do it. Because it's hard. It takes will and effort, and if you are like me, some days you won't be able to do it, or you just flat out won't want to.

But most days, if you're aware enough to give yourself a choice, you can choose to look differently at this fat, dead-eyed, over-made-up lady who just screamed at her kid in the checkout line. Maybe she's not usually like this. Maybe she's been up three straight nights holding the hand of a husband who is dying of bone cancer. Or maybe this very lady is the low-wage clerk at the motor vehicle department, who just yesterday helped your spouse resolve a horrific, infuriating, red-tape problem through some small act of bureaucratic kindness. Of course, none of this is likely, but it's also not impossible. It just depends what you what to consider. If you're automatically sure that you know what reality is, and you are operating on your default setting, then you, like me, probably won't consider possibilities that aren't annoying and miserable. But if you really learn how to pay attention, then you will know there are other options. It will actually be within your power to experience a crowded, hot, slow, consumer-hell type situation as not only meaningful, but sacred, on fire with the same force that made the stars: love, fellowship, the mystical oneness of all things deep down.

Not that that mystical stuff is necessarily true. The only thing that's capital-T True is that you get to decide how you're gonna try to see it.

This, I submit, is the freedom of a real education, of learning how to be well-adjusted. You get to consciously decide what has meaning and what doesn't. You get to decide what to worship.

Because here's something else that's weird but true: in the day-to day trenches of adult life, there is actually no such thing as atheism. There is no such thing as not worshipping. Everybody worships. The only choice we get is what to worship. And the compelling reason for maybe choosing some sort of god or spiritual-type thing to worship -- be it JC or Allah, bet it YHWH or the Wiccan Mother Goddess, or the Four Noble Truths, or some inviolable set of ethical principles -- is that pretty much anything else you worship will eat you alive. If you worship money and things, if they are where you tap real meaning in life, then you will never have enough, never feel you have enough. It's the truth. Worship your body and beauty and sexual allure and you will always feel ugly. And when time and age start showing, you will die a million deaths before they finally grieve you. On one level, we all know this stuff already. It's been codified as myths, proverbs, clichés, epigrams, parables; the skeleton of every great story. The whole trick is keeping the truth up front in daily consciousness.

Worship power, you will end up feeling weak and afraid, and you will need ever more power over others to numb you to your own fear. Worship your intellect, being seen as smart, you will end up feeling stupid, a fraud, always on the verge of being found out. But the insidious thing about these forms of worship is not that they're evil or sinful, it's that they're unconscious. They are default settings.

They're the kind of worship you just gradually slip into, day after day, getting more and more selective about what you see and how you measure value without ever being fully aware that that's what you're doing.

And the so-called real world will not discourage you from operating on your default settings, because the so-called real world of men and money and power hums merrily along in a pool of fear and anger and frustration and craving and worship of self. Our own present culture has harnessed these forces in ways that have yielded extraordinary wealth and comfort and personal freedom. The freedom all to be lords of our tiny skull-sized kingdoms, alone at the center of all creation. This kind of freedom has much to recommend it. But of course there are all different kinds of freedom, and the kind that is most precious you will not hear much talk about much in the great outside world of wanting and achieving and [unintelligible -- sounds like "displayal"]. The really important kind of freedom involves attention and awareness and discipline, and being able truly to care about other people and to sacrifice for them over and over in myriad petty, unsexy ways every day.

That is real freedom. That is being educated, and understanding how to think. The alternative is unconsciousness, the default setting, the rat race, the constant gnawing sense of having had, and lost, some infinite thing.

I know that this stuff probably doesn't sound fun and breezy or grandly inspirational the way a commencement speech is supposed to sound. What it is, as far as I can see, is the capital-T Truth, with a whole lot of rhetorical niceties stripped away. You are, of course, free to think of it whatever you wish. But please don't just dismiss it as just some finger-wagging Dr. Laura sermon. None of this stuff is really about morality or religion or dogma or big fancy questions of life after death.

The capital-T Truth is about life BEFORE death.

It is about the real value of a real education, which has almost nothing to do with knowledge, and everything to do with simple awareness; awareness of what is so real and essential, so hidden in plain sight all around us, all the time, that we have to keep reminding ourselves over and over:

"This is water."

It is unimaginably hard to do this, to stay conscious and alive in the adult world day in and day out. Which means yet another grand cliché turns out to be true: your education really IS the job of a lifetime. And it commences: now.

I wish you way more than luck.

Heightened Sensitivity to Hope

2007-03-12T10:16:00.000-07:00

"If personality is an unbroken series of successful gestures, then there was something gorgeous about him, some heightened sensitivity to the promises of life, as if he were related to one of those intricate machines that register earthquakes ten thousand miles away. This responsiveness had nothing to do with that flabby impressionability which is dignified under the name of the “creative temperament.”—it was an extraordinary gift for hope, a romantic readiness such as I have never found in any other person and which it is not likely I shall ever find again."

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Wall Street’s Pay Is Expected to Plummet

Bleak Reports Keep Markets in Free Fall

In Modeling Risk, the Human Factor was left out

In Modeling Risk, the Human Factor Was Left Out

As economy melts away, so does N.Y. sculpture

Ban on Gay Marriage Leads in California

California Votes for Prop 8

By TAMARA AUDI, JUSTIN SCHECK and CHRISTOPHER LAWTON

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Eight Weeks of Financial Turmoil

September 27, 2008

Multimedia graphic with sound, photos, and video

Stocks Rally as Americans Vote

So long, suckers. Millionaire hedge fund boss thanks 'idiot' traders and retires at 37

Oil up one day, down the next, up again! Commodies trading riding second wave of Wall Street tsunami

The Rage of the Previously Rich

New York Magazine By Gabriel Sherman Published Sep 21, 2008

Transcript from David Foster Wallace's 2005 commencement speech at Kenyon College

Heightened Sensitivity to Hope

New York Magazine
By Gabriel Sherman Published Sep 21, 2008