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Throwing the Baby Out with the Bath Water!!

Posted by Larry Doyle on March 20th, 2009 3:12 PM |

I questioned a Wall Street friend of mine this morning whether Washington in general and the Obama administration and Democratic Congress specifically could be so myopic or actually are so calculating in attempting to enact legislation that would impose tax rates of 70-90% on certain Wall Street employees. My friend quickly responded that the Washington crowd is not that smart.

Make no mistake, the proposed legislation of taxing certain Wall Street employees at 70-90% rates is targeted at addressing public outrage over improperly allocated compensation. However, Washington is utilizing a bazooka when in fact they need a laser.

In so doing, the politicians pushing this legislation are showing themselves to be misinformed and misaligned in understanding the basic tenets of capitalism and free market principles. Read the rest »


Closer to Home: Let’s Talk About Municipal Finance

Posted by Larry Doyle on March 20th, 2009 12:29 PM |

It appears that almost every financial road lately leads to Washington. Wall Street banks, Detroit based automotive companies, and large insurance companies have all come to Washington to find the financial support that private markets will not provide. Although these large behemoths have attracted the bulk of the media’s attention, the financial health and well being of our state and local municipalities has an equal, if not greater, impact on our personal lives and financial standing.

With municipal pensions rocked by the selloff in the stock market and tax revenues declining as incomes plummet, what will happen to our state and local budgets? Virtually every municipality in the country is faced with the same predicament – that is, rising liabilities and declining asset values and revenues. How do they handle that widening budget deficit? Increased layoffs and rising tax rates both put a greater burden on our communities but they are a reality. Read the rest »


Gimme Credit

Posted by Larry Doyle on March 20th, 2009 8:56 AM |

In the midst of all the wrangling in Washington, Wall Street, and literally all around the world, the biggest concern for everyday Americans is the accessibility of credit. I am sure everybody reading this post has either had issues gaining credit or knows of people who have had issues gaining credit. The knee jerk reaction for this lack of credit is to lash out at those big, bad banks. Well, those big, bad banks along with their smaller counterparts only provide approximately 50% of the consumer credit in our economy.

Where did the other 50% of credit emanate and where did it go? Welcome to the world of asset-based financing and in turn Asset-Backed Securities. I highlighted back on November 12th that the Wall Street Model is Broken…and Won’t Soon Be Fixed. Well, the breakdown and discontinuation of the ABS market is truly the equivalent of the total collapse of one of your lungs. Try to go about your daily business and all of your activities with access to only half the oxygen supply as normal. Might get a little winded? Might struggle to perform? Might tire rather quickly? Might be less efficient and productive? Well, folks, given the shutdown of the ABS market that is exactly what our economy has been experiencing. Read the rest »


Kangaroo Court . . . MUST READ!!

Posted by Larry Doyle on March 19th, 2009 4:20 PM |

The kangaroo court on Capitol Hill just passed a bill to tax bonus payments at a 90% rate for employees (with family incomes in excess of $250,000) of AIG and other firms that received $5 billion or more in government bailouts.  In my opinion, kangaroo-courtthis piece of legislation is a poorly constructed means of recapturing government funds.

I have previously stated that firms which were truly bailed out by the government should be subject to strict government compensation controls. A number of firms – such as Northern Trust, JP Morgan, Wells Fargo, and Goldman Sachs – were compelled to take government funds. If employees of these firms are subject to this tax, it will be a travesty and injustice of unprecedented proportions. I believe that Congress is unknowingly escalating class warfare amidst a facade and charade of protecting the public. I believe we will see public outrage from employees at these firms (JP Morgan, Northern Trust, Goldman, Wells Fargo) that can only be rivaled by our forefathers back in the 1770s. This tax is another means of promoting the income redistribution upon which Obama ran his campaign. Taxation without representation is tyranny!!!  Read the rest »


FDIC . . . For Doing It Correctly

Posted by Larry Doyle on March 19th, 2009 2:41 PM |

Sense on Cents is very judicious in selecting our Economic All-Stars (highlighted in the left sidebar). These individuals continually display a level of professionalism, maturity, consistency, and integrity which are not commonly found in our financial or political spectrum. I deeply appreciate their insights and perspectives and enjoy sharing them with our audience at Sense on Cents and No Quarter USA.

I thank Susan and Andy for tipping me off to remarks made earlier today in which Sheila Bair Says “Too Big to Fail” Strategy for Financial Institutions Must End. The administration and other political pundits  are trying to make the case that the Federal Reserve should serve as the systemic risk regulator. In my opinion, Sheila Bair should occupy that role. There is a major political battle developing over this turf.  Make no mistake that how this battle plays out will have deep and longstanding implications for our financial system as a whole and for individual consumers. Read the rest »


Friends Like This…Who Needs Enemies

Posted by Larry Doyle on March 19th, 2009 12:36 PM |

Senator Dodd did not exactly fall on the sword for the Obama administration as Bloomberg reports, Senator Chris Dodd Blames Obama Administration for Bonus Amendment.

The very legislators who rushed through the Stimulus Bill, which included provisions to prevent AIG-like bonuses, are now railing and pandering as never before.  Who are these politicians? Nancy Pelosi, Harry Reid, Barney Frank, Chuck Schumer, and many more. Treasury Secretary Geithner Vows to Recoup AIG Bonuses as Lawmakers Express Fury.  Geithner himself feigned ignorance of his knowledge of these AIG payouts. 

What do we learn from this sort of political circus? Read the rest »


Quantitative Easing? Welcome to Vegas!!

Posted by Larry Doyle on March 19th, 2009 9:07 AM |

rolling-diceThe Federal Reserve has ZERO room to maneuver on its interest rate policy given the fact that its interest rate tool, the Fed Funds Rate, is currently set at 0-.25%. Could that rate be set at a negative level? Well, let’s just say that it has never happened with any central bank in the world. With no more arrows left in its interest rate quiver, what is a Federal Reserve to do to manage an economy? Let’s enter the world of “quantitative easing.”

Quantitative easing by any central bank is a policy in which that bank grows its balance sheet to purchase assets (government bonds, mortgage securities, government agency debentures, etc). The purpose of purchasing these assets is to drive the prices for these assets higher which in turn brings the interest rates on these assets lower (bond prices and interest rates on those bonds have an inverse relationship). The hope the Federal Reserve holds is that in bringing rates down (government rates and mortgage rates dropped by .3% to .5% yesterday) consumer and institutional demand for money will go higher and spur the economy in the process. Read the rest »


The Fed Levers Up

Posted by Larry Doyle on March 18th, 2009 6:30 PM |

When the economy experiences a massive delevering process, the void in the economy needs to be filled. There has been and will continue to be ongoing debate about the effectiveness of the stimulus plan, Obama’s proposed budget, ongoing government bailouts of a variety of industries, and moves made by the Treasury and Federal Reserve. Has enough been done? Is too much being done? Are our global partners pulling their weight? Are protectionist measures likely to exacerbate our economic problems? The answers to these questions will not be known for years.

Today’s action, Fed’s New Steps Shake Up Markets, is a sign that as everybody is delevering (selling assets purchased with borrowed money), the Federal Reserve is levering up. The Fed has indicated they will purchase billions more than previously advertised in U.S Treasury securities, mortgages, and consumer related assets. Why? By making these purchases, the Fed will attempt to drive the rates for these products lower and reignite consumer and institutional demand for credit. The market responded in startling fashion as 10yr government rates dropped an unprecedented .50% !!  Equity markets responded by moving higher by 1-2%. Read the rest »


AIG and LTCM

Posted by Larry Doyle on March 18th, 2009 3:50 PM |

A precursor to the turmoil roiling our economy and markets today occurred on a smaller, but certainly very dramatic, scale in 1998. The meltdown of the hedge fund Long Term Capital Management brought the market to its knees at the time. LTCM was effectively taken over by a consortium of Wall Street banks at the behest of New York Federal Reserve Chairman, William McDonough. The firms injected approximately $3 billion dollars in order to stabilize LTCM and then unwound it in an orderly fashion.

The lessons learned in the LTCM crisis were obviously not learned well enough because we are experiencing them again a multiple hundred fold. The centerpiece of our current fiasco is AIG (known here at Sense on Cents as “Ain’t It Great”).

The dramatic story of Long Term Capital Management is captured in a book I strongly recommend for anybody interested in the history of the financial markets. When Genius Failed, by Roger Lowenstein, is a great read and truly captures the intrigue, egos, and tension of that period. As the current turmoil unwinds I look forward to the books published on this period as well. Read the rest »


Housing Index Revisited

Posted by Larry Doyle on March 18th, 2009 1:11 PM |

A week or so ago, I introduced two indexes that track the outlook for housing in our country. The S&P/Case-Shiller Index is released on a monthly basis. The ABX is an index that can be traded daily by institutional money managers and thus allows them to reflect their opinions on the outlook for housing. The ABX is a very broadly defined index that tracks housing by the underlying year of origination of the mortgage.

Yesterday, the monthly housing starts number surprisingly jumped 22%. The government program TALF (Term Asset-Backed Lending Facility) to restart the consumer finance markets is set to launch next week.  Hopefully that program will bring added liquidity to our consumer finance markets and support housing as well. The mortgage modification program to support housing is underway. Read the rest »


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Larry Doyle

Larry Doyle A Wall Street veteran's views and instincts on the markets, economy, and all things financial.







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