Posts Tagged ‘daily show’

Symbiotic twin killings

11 June 2009

What caused the crisis?  It seems like most of the plausible answers I’ve heard come down to one of two basic explanations:

(1) “We were living beyond our means” — Congressman Dan Maffei (D-NY), in a WRVO Community Forum in Syracuse last week that included, um, me.  Sounded very reasonable coming from Congressman Maffei, less so coming from stockbroker/ investment advisor/ author Peter Schiff on the other night’s “Daily Show”, probably because of the diametrically opposite policy prescriptions the two draw.  Maffei backs the stimulus bill and wants to see the economy recover as soon as possible; Schiff is an adherent of the Austrian school and thinks a good old bloodletting (oops, “liquidation” or “correction”) is just what the doctor ordered.  Either way, this explanation has a lot going for it, as it explains the rash of subprime mortgage borrowing, home equity loans, maxed-out credit cards, etc.

(2) A “global savings glut” led to stock and housing bubbles, which finally burst — Fed Chairman Ben Bernanke, Nobel economist / NYT columnist Paul Krugman.  The idea here is that while we spendthrift Americans were running up huge debts, people in other countries, notably China and Japan, as well as the minority of wealthy Americans with high savings rates, had large pools of savings seeking a good risk-adjusted return.   And they invested much of it here, in Treasury bonds, thereby keeping U.S. interest rates low; in the stock market, reinflating the late 1990s bubble; in the corporate bond market, lowering rates on all bonds, even junk bonds; and in real estate, largely through securitized collections of other people’s mortgages.  (By some accounts, demand created its own supply of mortgage-backed securities — after the 2001 stock debacle, investors were looking for an alternative to stocks and thought real estate looked promising.)  A particular problem here seems to be that many investors opted for wildly risky investment vehicles, like investing in “diverse” portfolios of dodgy mortgages or blindly handing their money over to a Bernie Madoff or a Robert Allen Stanford, without realizing they were risky.


Jon Stewart is a national treasure

6 March 2009

Jon Stewart’s takedown of Rick Santelli and CNBC on “The Daily Show”

Hat tip: Terry.

UPDATE, 13 March 2009:  CNBC’s answer to Dick Vitale, Jim Cramer, returns fire, opening the door for another hilarious Stewart takedown (don’t miss the “Dora” clip at the end).  And last night’s “Daily Show” included what sounds like a hard-hitting interview with Cramer (I haven’t watched it yet); the much longer unedited version is available on Comedy Central’s website.

Don’t eat anything that your grandmother wouldn’t recognize as food

17 January 2009

The title is courtesy of Michael Pollan and his back-to-basics food manifesto. I’d been thinking that there’s an analogous tip for personal investing:  Don’t invest in anything that you can’t understand.  So I was pleased to see award-winning writer Bethany McLean (co-author of Enron: The Smartest Guys in the Room), in a terrific interview on last night’s “Daily Show,” make just the same point:

“If you don’t understand how it’s making money, maybe it’s not making money.”

Had Bernie Madoff’s investors followed this advice, they might be $50 billion richer.  (Had all the buyers of securitized subprime mortgages followed this advice, the world might be several trillion dollars richer.)  One thing about the Madoff scandal that has me wondering was the comment from an industry participant about how it was obviously a Ponzi scheme, based on Madoff’s claim that his fund returned 8 to 12 % every year, come rain or come shine.  The participant said that was impossible, given the volatility of the markets.  Which has me thinking a few things:

(1) Isn’t that what hedge funds attempt to do — earn high returns while hedging away most of the risk?  8-12% is about what the stock market averages, and it seems like a fund could find a way, by setting excess gains aside or using put options or something much fancier (which, yes, I wouldn’t understand) to deliver a strong, steady return.  It would probably average a couple points less than the stock market averages (say, 8% versus 10%), but investors would surely flock to such high risk-adjusted returns.

(2) If, in fact, this is near-impossible to do, as the market participant said, then what sort of returns are hedge funds actually earning?  How much of that information is made public?  (Not too much, I’m guessing, since hedge funds are basically unregulated.)  How many of these funds are actually Madoff-type Ponzi schemes that haven’t been exposed yet?  Even if they’re not engaged in anything terribly crooked, shouldn’t there be more transparency as regards their holdings and returns?  Even five of the world’s biggest hedge fund managers seem to think so, based on their appearance before Congress last November.

(3) I need to learn a lot more about hedge funds.  Next on my reading list:  Roger Lowenstein’s When Genius Failed: The Rise and Fall of Long-Term Capital Management.