Monday, March 30, 2009

Next Stop, Latin America: China's Effort to Reduce its Hefty Exposure to the Dollar

Though unlikely in the near-term, an alternative global reserve currency could greatly increase the cost of borrowing for the U.S. government forcing American debt into a zero-sum game.

Read more about a nascent, yet important trend noted in the the following article,  China, Argentina Reach Agreement on Currency Swap (Bloomberg).

Friday, March 27, 2009

As America Spends, Investors Scale Back Their Appetite for U.S. Debt

Borrowing becomes more expensive as the yield on a five-year note increases to 1.85% from an anticipated 1.8%. 

Thursday, March 26, 2009

The Geithner Plan in so many words (and pictures)

Click on the link to view an Interactive Graphic created by the Financial Times.

Wednesday, March 25, 2009

Step 1: Admitting There is A Problem (U.S. and Mexico Drug Trade)

Preventing a failed state at America's southern doorstep.

Click on the link to read Clinton admits U.S. demand feeds Mexico drug trade (San Jose Mercury News).

Sunday, March 22, 2009

Naked Short Selling and Lehman: A Failure-to-Deliver

To put it simply (comments and clarifications welcome):

Short Sale
  • Borrowing and selling shares of a particular stock.
  • Then locating and delivering those shares at a later date (usually within 3 days). 
  • If the price goes down, there is a profit -- price at time borrowed minus price at time delivered. 
  • Moral: A short sale drives down the share price of the stock because it is a sale. Supply and demand -- a sale increases supply, down goes price.
Naked Short Sale
  • A short sale where the shares sold are never located and delivered.
  • Equivalent of selling shares that have not been authorized by the issuer.
  • Moral: Acts as a dividend, increases supply and further drives down the share price.
The following article is fairly comprehensive, but worthwhile: Naked Short Sales Hint Fraud in Bringing Down Lehman (Bloomberg).

Friday, March 20, 2009

Redeeming Charles Ponzi

A rename may be in order.

Click on the link to read U.S. regulator probing "Ponzimonium" (Reuters).

Thursday, March 19, 2009

1929: Embezzling The Past, Repeating the Future

John Kenneth Galbraith's "The Great Crash: 1929" was first published in 1954. Below is a timely (or not so timely) excerpt...

In many ways the effect of the [1929] crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.). At any given time there exists an inventory of undiscovered embezzlement in -- or more precisely not in -- the country's business and banks. This inventory -- it should perhaps be called the bezzle -- amounts at any moment to many millions of dollars

It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. 

In depression all this is reversed.

Money is watched with a narrow, suspicious eye. The man who handles it is assumed dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.

...Just as the boom accelerated the rate of growth, so the crash [of 1929] enormously advanced the rate of discovery. Within a few days, something close to universal trust turned into something akin to universal suspicion. Audits were ordered. Strained or preoccupied behavior was noticed. Most important, the collapse in stock values made irredeemable the position of the employee who had embezzled to play the market.

He now confessed.