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Stories of the absurd

I have a hard time writing about the current financial problems afflicting this country. Every day I have been reading about a new company that is losing billions of dollars for some reason or other. Wake me up when somebody manages to lose a trillion dollars or a major bank goes bankrupt. The only thing that manages to keep me interested is the absurdity of it all.

For example, did you know that buying sweaters is a major part of US retail sales? This from Bloomberg story called “U.S. Retail Sales in October Trail Analyst Estimates”…

Sales at Wal-Mart Stores Inc., Macy’s Inc. and other U.S. retailers trailed analysts’ estimates last month after record-high temperatures in the Northeast reduced demand for jackets and sweaters.

In the past I have been told that sales were slumping because bad weather prevented people from going shopping. Now I find that good weather can cause people to stop shopping at Wal-Mart. Who knew that global warming was the only thing that could halt Wal-Mart from taking over the world? Yet another reason to drive an SUV with pride.

I am being cruel to the Bloomberg story. But the idea that Wal-Mart’s profits were hurt by people’s failure to buy sweaters when gas prices are high and sub-prime mortgages are blowing up everywhere was just too funny to pass up. That dang warm weather will get you every time.

Moving on to another Bloomberg story….

Part of the losses stemmed from derivative contracts the firm’s proprietary trading unit wrote earlier in the year, Kelleher said. The traders anticipated a decline in the value of subprime securities, and the contracts made money for the firm in the second quarter, he said. They started losing money when prices fell below the level the traders had anticipated, Kelleher said.

“These exposures did not come out of our client-facing activities, these were a proprietary position we put on,” Kelleher said in a conference call with analysts today. “As markets continued to decline our risk exposure swung from short, to flat to long.”

That is called outsmarting yourself big time. I wasted valuable minutes of my life trying to figure out how they managed to lose $3.7 billion betting that the value of subprime securities would go down. You would have thought that anyone could make money betting that subprime securities would go down. After all, the stuff has been dropping like a rock. But no, Morgan Stanly lost money because the securities went down by more than they thought they would.

What gives? How do you turn a bet that subprime securities are going to fall into something that cost you money if they fall too much? Felix Salmon takes a stab at explaining this but I still don’t really understand it.

More evil chuckles came when I saw this story on Naked Capitalism. You should really read it yourself, but I will give you the Cliff Notes version.

Remember how all the banks got together and pushed a new bankruptcy law through Congress? It was supposed to make it easier for banks to make money by making it harder for people to just walk away from their credit card debt. The banks figured that with the strong arm of law behind them they would not have to worry so much about whether people could actually afford to pay them back.

Supposedly, this is now coming back to bite them. Since people have a harder time getting a chapter 7 bankruptcy (which did away with all their non-mortgage debt) they are now giving up on paying everything (including their mortgage). Thus whatever they saved by making people pay back their credit card debt they are losing to increased foreclosures.

You can’t get blood out of stone. If you lend more money to people than they have any hope of repaying, you are going to lose money no matter what the law says.

Speaking of the law; New York State Attorney General Andrew Cuomo is causing a big stir by investigating Washington Mutual for inflating appraisals. Tanta over at Calculated Risk has a fascinating explanation of what is going on. It probably reflects my sick sense of humor, but I thought it was funny. Reminded me of Adam and Eve in the Garden of Eden when God came looking for them.

But what I did not find funny was the video clip from Cramer bad mouthing Cuomo and saying he was going to cause the end of the world. The first time I saw a clip of him going off his rocker, I thought it was hilarious. But then the Fed went and did what Cramer wanted. That is why we are going to have gas that costs $4 bucks a galleon before long.

Now I can’t get away from the sneaking suspicion that what Cramer says on television is what the rich and powerful are saying behind closed doors. Call me paranoid, but I would not be surprised to see Cuomo get slapped down. If your are a glutton for punishment you can watch the video of Cramer crying about Cuomo below.

I cannot find anything amusing in the fact that people like Cramer are setting fiscal policy in the US.

2 Responses to “Stories of the absurd”

  1. […] Yesterday, I said…. Now I can’t get away from the sneaking suspicion that what Cramer says on television is what the rich and powerful are saying behind closed doors. Call me paranoid, but I would not be surprised to see Cuomo get slapped down. If your are a glutton for punishment you can watch the video of Cramer crying about Cuomo below. […]

  2. […] _uacct = “UA-1202685-1”; urchinTracker(); Map of the Ethereal Land The Ethereal Voice Front Page – Politics – Money – Knowledge – Art – Food – Fun Masthead About Stories of the absurd By Ape Man | November 8, 2007 – 9:12 pm Posted in Category: Front Page, Money I have a hard time writing about the current financial problems afflicting this country. Every day I have been reading about a new company that is losing billions of dollars for some reason or other. Wake me up when somebody manages to lose a trillion dollars or a major bank goes bankrupt. The only thing Click Here to continue reading. […]

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