Too Big to Fail

The concept of too big to fail is one that we all learned at once this fall and I think it is a lesson that we will not soon forget. Unfortunately for Lehman, it was not learned quickly enough. Time affords us the ability to look back with laser accuracy on the events of this fall and the demise of our banking system.
Looking back to the demise of Long Term Capital we should have learned a few very important lessons. Firstly, the question as to if an entity is too big to fail comes within a highly tense environment. This is one where fear, excitement, and uncertainty rule. It is somewhat analogous to the tension when a half clothed girl confronts a half clothed boy in the back of a car with the windows steamed up. Passions are running high and one asks the question, “Should we do it?” That question lingers in the thickness of the air until one is ready to answer. The answer is less with thought and more with emotion at that exact moment. At least one party to that discussion has clouded judgment. (Please, spare me, I am not condoning pre-marital sex, I am simply trying to make an analogy).
So too did the question hang in the thick air of those fateful days for Lehman, Bear Stearns, AIG and others. “Should we do it?” Apparently the federal government was not “in the mood” and still screwed Lehman in the process. I sit back on wonder if things had evolved differently, would the answers be the same. If the ordering was AIG, Bear, Merrill, and Lehman- would Lehman still be here today.
Obviously one can argue that the events that occurred all occurred as a dominoes falling in a particular order. Remove one domino in the equation and the others might not fall. Or, perhaps you can consider the idea that if the feds took quick, action on just saving Lehman and buying toxic assets from them, could they have prevented having to set aside $700 billion in the TARP in the first place. We’ll never know.
What concerns me the most right now is the very lack of discussion about how to prevent this from happening again in the future? I personally feel there must be an in-depth inquiry into what has occurred, the sequence of events and how to prevent this from happening again.
In order to diffuse the intense pressure of the decision making, would it be wise for the SEC to create a division that evaluates the size and breadth of a financial institution’s reach and deem them too big to fail each year they file their annual report and 10K? By doing this it will remove the appearance of the government is playing favorites as to who they save and who they let fail. I am sure that Lehman employees would have preferred to know that before the crisis that should there be a problem, the Us Government is ready and willing to step in and help.
You can argue that is the exact wrong thing to do. Any financial institution that is assured a safety net would have no incentive to effectively manage risk. They would simply put all of their chips on the table, hope for the best and if it all goes sideways, call Uncle Sam.
Regardless of how we view the lessons learned here, a concrete set of criteria needs to be established in order to understand the how a bank can get to be too big to fail. Those factors need to be agreed and then need to be referenced when there is a financial crisis.
My views on this subject are obviously impacted by the fact that I am a CPA. What are your thoughts on the issue?

Madoff made off with billions

Special thanks to my cousin Arlene for encouraging me to put pen to paper, or rather finger to keys on the Madoff scandal. It has been a while since I have set down to write so it’s good to be with you all again.
There is so much being said about Madoff, it is hard to come up with original material, stuff worth reading that is not a regurgitation of what others are saying. For me, the real story is the fact that Madoff did not discriminate on who he defrauded and it appears to be that Jewish philanthropies have suffered the most. I think that is the part that is so shocking to many people.
There is no formally written commercial code of conduct on business dealings between Jews written in the last thousand years. There is a wealth of information in the teachings of the Torah and how Jews should conduct themselves in business dealings in general. The Torah speaks specifically about forbidding the charge of usurious interest and other common sense issues. The Torah also extends from common sense to specific activities that are forbidden. However no where does it say, ‘Thou shalt not defraud another Jew’. G-d would clearly not delineate between Jews and any other nation. However, the unspoken code of conduct is what has been breached in this instance. And for me, that is what is most shocking. Over and above the writings 5000 years old there is common understanding that you just don’t do this.
The underlying story of Madoff is still unfolding . The early indications is that the public is blasé about the response to the scandal. They just see it as a number of super-wealthy people that have lost money. Some of which now have to live every day kind of lives. Boo hoo. The people that will be impacted the most will be those that depend on the charities to survive. That impact will be felt for decades.

CNBC and the eight person cage match

Is it me or is CNBC plumbing new depths in childish behaviors lately. Normally I am glued to the screen however I find it particularly painful to comprehend what they are saying these days.
Firstly, Joe Kiernan is a f*cking idiot. I was hoping that a business show could keep its head above water on the election. He felt inclined to spout his political drivel every morning. Now he just sits there and sulks like a little baby everyday. I hope that they find a way to replace him soon because he is just downright depressing. Eight years of his bad attitude will turn many people, including me away.
There are few people that have any credibility left on that show. I favor Steve Liesman. I think his analysis of the markets and the economy is sound and accurate. My problem is that yon virtually see the producers waving frantically at him to dummy down his spiel so that the alpha male Neanderthal day traders can actually figure out what stocks they can short that day. Steve, if you are reading, stay smart, stay sharp, and continue to explain how the economy works. It is becoming abundantly clear that the vast majority of willing to put their money in the markets lack the basic understanding of the economy and markets.
The other person I still respect is Becky Quick, although the name fails to match the persona. I see a shrewd journalist that has the whole package (brains and beauty), I cringe when I hear he called Becky, for some reason I picture a freckled kid with pony tails.
David Faber, The Brain, still has journalistic credibility. He has reverted to actually reporting on things which is much better than what the other do which is spout off whatever catch phrase comes to mind next.
The absolute worst creation is the eight person Power -Lunch -Hollywood -Squares presentation that they do. My favorite (not) is watching them all be so eager to say their piece that they completely talk over each other. Each one of them trying to squeeze in the next zinger and get the last word.
My sense is that I am not the only one deciding to switch CNBC off . Why else would they hype the melodrama of the competition between Maria Bartiromo and Erin Burnett. Sex sells. Women fighting sells more. About the only thing left that would increase viewership is to throw some Jell-o on them to see them finish each other off.
CNBC has failed the basic test of journalistic integrity. Never be so self absorbed that you stop reporting the news and become the news. Each of these characters, except the ones I called out specifically have so visibly had their egos inflated they actually relish the idea that what they say moves the markets and can create or destroy fortunes. I just want the news and for me, that means switching to Bloomberg.
They will surely credit their demise in ratings to a falling market- who wants to hear bad news? They’ll miss the boat. They will actually get crushed by the weight of their own inflated egos. The show still lacks any parental supervision.

(lame) Duck!

Despite having written about my complete disgust with how the Bush Administration ran this country for the last six years. I still was repulsed by how Bush was treated on his recent trip to Iraq. While I feel that the protest was legitimate, the method was downright wrong and a slap in the face to the American people. Bush may have been the worst President ever however he should not be subject to physical harm as the leader of our great nation. While things in Iraq are still in horrific shape, respect must be paid to the office of the president even if you don’t care for the person currently filling it.