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Instead of getting primary and main election donations, politicians could bet a prearranged fraction of their donations on their own nomination. An interesting feature is that long-shots get a huge funding boost (if Mike Huckabee had invested 25% of his funds into his own nomination contract at an average of $.05, his post-primary fund would be 500% of the original sum he raised).
I've always felt about Eliot Spitzer the way devout Republicans felt about FDR in about 1938, so the news that he had a Lucy Mercer of his own -- and that she was a professional, no less -- was good news to me. I never thought he had it in him. Spitzer seemed too reptilian to end his career this way.
From time to time, Forbes adds to its list of the 400 wealthiest an appendix of who added money the fastest (per hour) to their fortunes. Assuming a 40-hour workweek and a 40% average tax rate (okay, let's knock it down to 30% and assume she's dallying with members of the right committees), "Kristen" was earning up to $11,000,000 per year. Not quite Forbes 400 material, but if she puts the money into tax-free munis at 6% after working from ages 18 to 28, she'll be nearly a billionaire by the time she's eligible for Social Security. And that, of course, assumes that her sessions with Eliot didn't enhance her star power.
Here is The New York Times breaking the story.
The Smoking Gun has documentation.
Dealbreaker goes all dealbreaker on him.
At to why I dislike him so much, here's a summary: Spitzer's legal tactic (singular!) is and has always been to take a complicated industry, spot a small amount of fraud, and conflate it with a standard practice to get better headlines and bigger penalties. Thus, the practice of market-timing was treated as identical to fraudulent backdated trades, bad analysts at investment banks were turned into a conspiracy to hype IPOs at the expense of the investing public, and paying commissions to insurance brokers became synonymous with price-fixing. Eliot Spitzer (who buy the way invested money with admitted stock manipulator and clownish con artist Jim Cramer) slandered tens of thousands, and destroyed billions of dollars of investor savings, all in a pointless quest for better PR and more electoral victories. I'm thrilled that he got caught having sex with a whore, and wish him all the misery he deserves.
Nassim Nicholas Taleb runs a portfolio that makes outsize bets on low-probability events. This is a good way to be absolutely right and never make any money from it. The most recent specific article I can find is from 2005; it claims that he
is betting that the price of oil, now at $61 a barrel, will be at either $10 or $400 in three years. He admits that he does not know which one it will be, but he believes it's possible that it will reach either extreme. Since most traders don't think such extremes are possible, he can buy options ... that would profit from either scenario for a cheap price
The problem is, of course, that he paid cash up front in exchange for a promise that in the event of unprecedented economic upheaval, someone will give him substantially more cash back. What he's really doing is making a loan that the other party will only have to pay if it gets severely traumatized by the market. Six months ago, my instinct would be to wonder if he bought credit derivatives to account for this risk -- now I'm pretty sure that would be doubling down.
This is actually fairly similar to my dispute with the investment strategy of "Mencius Moldbug", who advocates investing in GoldMoney, GLD, and the like, but not in physical gold (too expensive) or gold futures (could be invalidated in the event of a crash). I suspect that if you rank political instability on a scale of 1 to 10 (where gold prices are something like 10 to the power of the ranking), gold contracts are invalidated at about 5.5, GoldMoney is shut down at about 5.7, and physical gold gets physically confiscated at maybe 5.8. So there's a very narrow window in which this is a good trade, after which you would have been better off accumulating directly usable goods and political influence.
More sensible: a 'portfolio insurance' system, in which you buy gold futures, roll the profits over into gold coins, and periodically sell those coins to buy canned food and shotguns.
(As far as objections to the gold standard itself, Nick Szabo's blog post covers about the same territory as an email I sent to Mr. Moldbug, but with more examples and less theoretical handwaving).
The New York Times reports that companies have more cash on hand than they have since the 60's and wonders what happened to all that debt. Two observations:
In the table they included with the article, it's astounding to see how overblown everyone's fear of leverage was in the 1980's. Leverage declined throughout! And apparently 1998 was a great year for getting rid of cash, and piling on debt -- it's the only year that sticks out as an aberration rather than part of a trend.
On the other hand, one reason companies are less leveraged could be that the leveragable ones are going private faster. One of the advantages of public equities is that you don't need fixed cashflow because you haven't promised investors fixed income. Perhaps the companies that can consistently report EBIDTA minus capex of within 5% of where it was last quarter are all owned by Blackstone and Cerberus. The best evidence for this would be to look at volatility of EBIDTA (not earnings -- too easy to fudge) compared to cash on hand for the average public company. We'd probably see wilder swings even though the economy is not so swingin'.
Goldman Sachs, along with J. P. Morgan, Deutsche Bank, Citadel Investment Group, and others, is funding a shadowy, nameless consortium that will not even disclose who, if anyone, is running it. I guess in a world where subprimes aren't an easy short and LBOs can't raise $20 billion overnight, they have to be sinister on a smaller budget.
After a couple days of persistently collapsing stock prices, MF Global (remember them? They touted the wheat market on Tuesday and lost $141 million in the wheat market on Wedensday) has bounced back, up about 13% so far this morning.
And here's why: every conceivable insider has been buying shares in the mid teens. Their recent filings list shows no fewer than sixteen sets of transactions -- their CEO alone bought about $800,000 worth in a single day. Good news: the executives believe in the company. Bad news: 1) how did they have that much extra money lying around, and 2) a few days after the company lost more than 10% of its equity due to a single trader, did their CEO really have nothing better to do than make 30 separate trades in his company's stock?
I don't have an MBA (or a BA, for that matter), but it still strikes me as weird that United Technologies is buying Diebold, and for 66% above market value at that. Who wants to own a company that millions of people consider the main actor in a coup?
I would expect the opposite trend to be true: don't companies spin off divisions with bad reputations, and try to buy out tiny companies that make shareholders smile? BP did it with their 'greenwashing' campaign, in which they spent more money rebranding themselves as a green power company than they did investing in green power assets.
I'm just left asking what the United Technologies board was thinking -- my best guess:
United Technologies Corp., the maker of Otis elevators and Chubb security systems, said today it offered to buy Diebold Inc. for $2.63 billion, taking its bid public after the automated-teller machine maker's board declined to discuss a combination for two years.
This probably started out as someone's good idea five years ago, and it's since acquired consultants and bankers and committees and research reports and enough momentum to be unstoppable, however foolish it may actually be.
Let's say a smart, avaricious, amoral person wound up as chairman of a major investment bank. Let's say that on his first day at work, his CFO carefully explains that the company has made some obscene arcane bet on the correlation between Thai mortgage refinancing and Idaho soybean plantings, which -- whoops! -- whiped out all the company's equity, and then some. The amoral chairman doesn't want to hurt his options, and figures this happened under his predecessor's watch, anyway. The question: given access to all the SIVs, VIEs, prop traders who can mark anything to market, and Level III assets -- how long can they keep up the appearance that everything is normal? I'd bet that the answer is 'at least a decade'. Jerome Kerviel was ahead by up to $2 billion for a while; if SocGen had been the company in question, how hard would it be to convert that massive fraud into earnings? Paying Jerome a $2 million bonus and sending him on his way would be more than enough, and there can't be just one Kerviel Cookie Jar waiting to get raided.
The odds of this situation being anything like true are probably tiny -- 1% or less. But the derivatives market is based on a chain of perfectly reliable counterparties -- when JPM makes a trade with MS, but cancels it out by talking to GS, and they hedge their bets with RBSGC, etc., etc., etc., the fact that one of those parties might be only 99% reliable can really foul things up, especially if you don't know which bank it is. If the derivative market becomes a derivative-and-credit-to-the-nth market, it would be as jarring as when the market in US government debt turned from a pure interest rates game to a rates and ratings problem.