In forecasting the future, it is useful to study the past and
July 12, 2000
"...With Jean-Claude Van Damme as Henry Blodgett. . . I received an absolutely
jaw-dropping e-mail from a friend of mine who happens to be
one of the live fish [meaning an honest analyst in Fleck's lingo]
on Wall Street. I've quoted him in the past but, as always, I need
to keep him anonymous because he couldn't tell me what's really
going on if I included his name.
He sent me an e-mail regarding Salomon Smith Barney's recent
downgrade of four semiconductor stocks, which he titled,
"Bloodsport." [Note: He doesn't work at Salomon.] It follows:
Subject: Re: SSB semi call
You might be interested to learn that they
received seven death threats and body guards have been hired.
The analysts have been told to take a break from coming into the office.
Investing in the U.S. has become a bit like an international soccer
match. Not only are sides taken based on team affiliation
(long/short, bull/bear), but players and spectators can be subject
to uncivilized behavior, including violence.
So, that's what this environment has come to. We've talked about
the fact that spin and charts are all that matters, and that
bubblevision [CNBC] whips the troops into a frenzy. Now folks that
actually make a stab at pointing out things that might be flaws
in the bullish spin have to worry for their lives. And folks
really believe all this is healthy? "
Somebody Turn on the Lights
Derivatives Strategy, November, 1999
By Martin Mayer, Guest Scholar, Economic Studies Program
"...The literature has failed to consider the extent to which
market practitioners, with their great weight of money, influence
both regulatory decisions and academic theory.
[It is refreshing to see this most crucial issue aired. Paid economists in
the US are rewarded for embelishing the epicycles of monetarism, similar
to their career paths in the old Soviet Union.]
Since the mid-1990s, the Basle committees have approved
the use of internal value-at-risk analysis as the determinant of the amount of
capital banks must hold to cover derivatives activities. This abdication of
supervisory function followed JP Morganís publication of its RiskMetrics
methodology, which supposedly enabled banks to measure the extent of their
risks looking forward into the realm where uncertainty -- not probability --
reigns. In 1998 and 1999, the pressure from banks was to permit the use of
Morganís CreditMetrics as a forecaster of the credit risk in a portfolio. The
expertise of the banking industry is presumably in information-intensive
lending, but CreditMetrics rests on published ratings of corporations and
countries by Moodyís, Standard & Poorís and Fitch/ICBA. It is not an
accident, as ideologists like to say, that these operations proceed from
"...Derivatives markets guarantee a winner for every loser, but they will over
concentrate the losses in vulnerable sectors. Nature obeys Mayerís Third
Law, which holds that risk-shifting instruments will tend to shift risks onto
those less able to bear them, because them as got want to keep and hedge
while them as ainít got want to get and speculate. The logic behind margin
requirements in stock markets and capital requirements in banking also holds
in the derivatives markets. Permitting highly leveraged institutions to hold
private parties behind closed doors is the political version of selling
the predictable likely gains will one day be overwhelmed by an equally
predictable disastrous loss."
[The OTC derivatives market is an unknowable contributor to the current era of
rolling currency collapses. Notional values are somewhere above $100 trillion.
US OTC (principly interest swaps, some exotics) bank exposures appear to
average several times assets.]
FRAUD: ANOTHER SIGN OF A MANIA IN ITS TERMINAL
11 July 2000
"The histories of market manias and their ensuing panics all tell a similar
story: manias give rise to frauds, manipulations and swindles and their
unwinding contributes to the bursting of the bubble... "
"...But, as we have seen with Russia, if the
ethical basis of free markets degenerates sufficiently, all that we have left
is a form of kleptocracy. A pattern of such ethical disintegration, as
evidenced by the Canadian stock manipulation scandal, or the widespread
abuse of accounting principles, usually emerges at the peak of manias
where greed predominates and fraud becomes pervasive. Just from the
numerous examples out there in the public domain today, we appear to be
at that juncture today. And the outcome may prove to be just as grave,
but far more widespread, ... "
"The caveman won't leave you alone."
-- Forrest Bishop Manager, Interworld Productions, LLC Chairman, Institute of Atomic-Scale Engineering http://www.speakeasy.org/~forrestb
This archive was generated by hypermail 2b29 : Mon Oct 02 2000 - 17:34:27 MDT