A Recounting of Recent History

Yes, I’m alive! I’m terribly sorry for the extended silence, but I’ve had some big changes going on in my personal life and have been out of the loop for a while (honestly, my feed reader needs to start reading itself–I have over 1,000 unread posts when looking at just 4 financial feeds). So, here’s what I haven’t had a chance to post…

1. I totally missed the most recent trainwreck of a P.R. move at Citi. There is so much crap going on around Citi… I really intend to write a post that is essentially a linkfest of Citi material that stitches together the narrative of how Citi got into this mess and how Citi continues to do itself no favors. There was also a completely vapid opinion piece from Charlie Gasperino that said absolutely nothing new, save for one sentence, and then ended with a ridiculous comparison that was clearly meant to generate links. I’m not even going to link to it… It was on the Daily Beast, if you must find it.

2. I haven’t really had the opportunity to comment on the Obama administration’s overhaul of the financial regulatory apparatus. Honestly, it sucks. It doesn’t do much and gives too much power to the Fed. You’d think that after that recent scandal within the ranks of the Fed there would be a political issue with giving it more power. Even more interestingly, all other major initiatives from the Obama administration have been drafted by congress. Here, the white paper came from the Whitehouse itself. That won’t do too much to quiet the critics who are claiming that the Whitehouse is too close to Wall St. Honestly, if one is to use actions instead of words to measure one’s intentions, then it’s hard to point to any evidence that the Obama administration isn’t in the bag for the financial services industry.

3. The Obama administration did an admirable job with G.M. and Chrysler. They were both pulled through bankruptcy, courts affirmed the actions, and there was a minimal disruption in their businesses. Stakeholders were brought to the table, people standing to lose from the bankruptcy, the same people (I use that word loosely–most are institutions) who provided capital to risky enterprises, were forced to take losses, and the U.S.A. now has something it has never had: an auto industry where the U.A.W. has a stake and active interest in the companies that employ its members. Perhaps the lesson, specifically that poorly run firms that need to be saved should cause consequences for the people who caused the problems (both by providing capital and providing inadequate management), will take hold in the financial services sector too–I’m not holding my breath, though.

4. Remember this problem I wrote about? Of course not, that is one of my least popular posts! However, some of the questions are being answered. Specifically, the questions about how and when the government will get rid of its ownership stakes, and at what price, are starting to be filled in. It was rather minor news when firms started paying T.A.R.P. funds back. However, the issue of dealing with warrants the government owns was a thornier issue. Two banks have dealt with this issue–Goldman purchased the securities at a price that gives the taxpayers a 23% return on their investment and JP Morgan decided that it would forgo a negotiated purchase and forced the U.S. Treasury to auction the warrants.

On a side note: From this WSJ article linked to above, its a bit maddening to read this:

The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth, these people said. That has prompted complaints from some top executives. […] James Dimon raised the issue directly with Treasury Secretary Timothy Geithner, disagreeing with some of the valuation methods that the government was using to value the warrants.

(Emphasis mine.)

If I were on the other end of the line, my response would be simple: “Well, Jamie, I agree. The assumptions we use to value securities here at the U.S. government can be, well … off. So, we’ll offer you what you think is fair for the warrants if you’ll pay back the $4.4 billion subsidy we paid when we initially infused your bank with T.A.R.P. funds.” Actually, I probably would have had a meeting with all recipients about it and quoted a very high price for these warrants and declared the terms and prices non-negotiable–does anyone really think that, in the face of executive pay restrictions, these firms wouldn’t have paid whatever it would take to get out from under the governments thumb? As long as one investment banker could come up with assumptions that got the number, they would have paid it. Okay, that’s all for my aside.

5. I’m dreadfully behind on my reading… Seriously. Here’s a list of articles I haven’t yet read, but intend to…

• The Science of Economic Bubbles and Busts — A scientific look at bubbles, specifically the psychology.
• Sheila Bair, FDIC, and the financial crisis — A profile of Sheila Bair. I find the New Yorker profiles very good and nearly impossibly long.
• Rich Harvard, Poor Harvard: Vanity Fair — An interesting look at Harvard and how its fortunes interplay with its endowment and its in-house money manager.
• Prophet Motive — A profile of Nouriel Roubini. My gut tells me he’s a case study in being more lucky than right, but I haven’t read it, so who knows.
• The Way We Live Now – Diminished Returns — A NY Times article whose title makes too much sense to pass up!
• Confessions of a Bailout CEO Wife — As close as I’ll ever get to US Weekly.
• What Does Your Credit-Card Company Know About You? — Ugh. My gut tells me too much. As a Consumerist reader, I think I know what this is, but we’ll see.
• At Geithner’s Treasury, Key Decisions on Hold — An article that got a lot of play as a good case study.
• Paulson’s Complaint — Paulson claiming Lehman didn’t cause the huge problems in the markets and economy that followed its bankruptcy. I don’t buy it.
• The Crisis and How to Deal with It — A weird multi-person article in the New York Review of Books.
• The New York Fed is the most powerful financial institution you’ve never heard of. Look who’s running it — A Slate article by Eliot Spitzer. I admit to not really get the Fed system.
• Tracking Loans Through a Firm That Holds Millions — A look at a servicer, I believe.
• Flawed Credit Ratings Reap Profits as Regulators Fail — Wow. Based on the title, I must have dangerously low blood pressure that needs boosting!
• The formula that felled Wall St — Another look at Gaussian Copula, I think. Felix, also looked at this.
• Peter Orszag and the Obama budget — Another New Yorker profile.
• Geithner, Member and Overseer of Finance Club — A NY Times profile of Tim.
• HMC Tax Concerns Aided Federal Inquiries — Interestingly, an article that got national press, is an investigative piece, and deals with finance from a college newspaper!
• Treasury Chief Tim Geithner Profile –Portfolio profile of Tim. I’ll know everything about him by the end of this list.
• Lewis Testifies U.S. Urged Silence on Deal — I really don’t know about this situation. I want to read up and understand all the details.
• The Wail of the 1% — Honestly, not sure. Talking about the plight of the rich?
• Economic View – Why Creditors Should Suffer, Too — The title makes me want to read this. Confirmation bias, perhaps?
• How Bernanke Staged a Revolution — A profile of Ben Bernanke by the WaPo.
• 5 Ways Companies Breed Incompetence — Just five?
• Ten principles for a Black Swan-proof world — An opinion piece from the FT by Nassim Nicholas Taleb.
• A New Era for Financial Regulation — Megan McArdle looks at the proposed regulatory structure. Honestly, I don’t read her, so I’m skeptical about this piece.
• U.S. Plan to Stem Foreclosures Is Mired in Paper Avalanche — Not sure. One of the longer NY Times pieces.
• Bill Gross of Pimco Is on Treasury’s Speed Dial — A profile of Pimco’s role in fixing the financial problems, conflicts, etc.
• Congress Helped Banks Defang Key Rule — Another fix for low blood pressure.
• Timothy Geithner and Lawrence Summers – The Case for Financial Regulatory Reform — OpEd by Geithner and Summers.
• SEC Chief Strives To Rebuild Regulator — An article on the problems at the S.E.C.
• A Daring Trade Has Wall Street Seething — A writeup of how a small firm worked the system to make money. Should be interesting.
• President’s Economic Circle Keeps Tensions at a Simmer — An interesting case study on how Obama’s economic team works.
• Back to Business – Banks Dig In to Resist New Limits on Derivatives — Hey! We’re paying banks to spend money to lobby ourselves to not regulate them so they can profit off of our money! Sweet!

I hope to get more time to post in the coming days. Also, I am toying with the idea of writing more frequent, much shorter posts. On the order of a paragraph where I just toss out a thought. Not really my style, but maybe it would be good. Feedback appreciated.

Making the Financial Networks Useful

Starting with the little spat between John Stewart and CNBC I started to think seriously about how the financial news stations are extremely broken. Now, I’ve mused on specific parts of this equation before. However, I’ve been writing this post, a more complete look, for a while. So, imagine my surprise when Barry Ritholtz beat me to the punch! Barry’s look, though, seems to focus more on the “low-hanging fruit” when it comes to improving CNBC. Personally, I think there is a massive overhaul needed. So, instead of taking the same approach as Barry (telling a network how to improve itself) I’ll focus on describing what my ideal financial news network would look like.

1. Make no buy/sell recommendations. Honestly, the shameless self-promoters that  go on CNBC are quite often wrong. There is no accountability for recommendations–obviously, the logistical issues are both important and daunting. However, there is a much larger problem that is most observable with Jim Cramer. I have no doubt Mr. Cramer is intelligent, just as I have no doubt that his show is useless drivel–he needs to make so many recommendations just to fill his airtime that no one ever sees his performance, CNBC doesn’t track it, and all the studies that look at his recommendations need to make huge assumptions. But, the easiest explanation of why recommendations are bad comes from a post entitled Lawyers vs. Detectives. Clearly, also, there doesn’t exist the air time or continuity to track and update recommendations correctly–the logisitical issues I mentioned earlier. And, to be frank, any idiot can just dump ticker symbols onto the screen and say a few sentences about why those ticker symbols are good or bad… and be completely wrong or stupid. The point of a good finance network should be to bring reporting and analysis to light. (Further evidence: look at Barron’s experts who, as a whole, underperform passive indices. And they are tracked and asked for analysis of their picks regularly.)

2. Emphasize investiagtive journalism. Financially literate, intelligent people can add a whole lot of value when it comes to explaining and digging into economic and financial stories. Think Kate Kelly and her three part tick tock of the Bear Stearns situation as a good example. Think of the deep look into the mortgage industry that NPR did. Think of the detailed profiles of various individuals at the center of the finance world. Clearly, there is a lot of value to be added merely by going beyond the puff piece. Right now what people get 90% of the time when it comes to finance reporting pertains to what the Dow Jones did or is doing for the day. Guess what? When stocks go up, it’s because there are more buyers than sellers. When they go down, vica versa. Trying to divine more than that from the market move on a given day is as useless and surface as it often is wrong.

3. Hire experts and not personalities. I’ll tell you a secret… Maria Bartiromo adds no value if you know anything about markets and finance to start with. I’ve seen her provide an outlet for executives to provide narrative versions of their press releases several times. There is never a question I’ve heard her ask that was probing or had an answer I didn’t already know from reading the NY Times or the WSJ. She doesn’t even understand journalism very well! The entire lineup of attractive and vacuous seat-warmers add no value. Remember this little episode with Fox Business news? Now, that’s a little different because it was live, breaking news. However, a thinking person probably would have stopped before talking about how great a move it was for Apple to buy AMD, despite the fact that such a purchase would have been “WTF?!” move for Apple–the current anchors just talk to talk. I even remember a CNBC anchor pulling up a guest’s chart on a segment (the network had been hyping this segment for a few hours–theoretically the anchor had prepared for it) and asked why, if things were so dire, the chart showed such a strong rally/uptrend. Well, the chart was showing spreads for a certain class of bonds–and, as we all know, when yield goes up, price goes down! She was anchoring a segment on fixed income (and had already been chatting about the topic for a few minutes!) and still couldn’t figure out what was going on in a very simple chart… Surely there’s room for improvement!

The model, though, for financial news anchors should really be an engaged, credentialed moderator. Thomas Keene, honestly, is a great example of this. I don’t catch his show (or podcast) as often as I would like, but whenever I do it’s clear he’s intelligent, familiar with the underlying issues, and that he views his job as getting his guests to make their case as well as expose the “other side” of the argument. A network should be able to create a lineup of intellectual experts (with relationships and enough personality to be interesting) in equity markets, corporate credit/finance, economics, macroeconomics, currencies, commodities, personal finance, etc. Networks haven’t seemed to figure out that, unlike human interest stories and traditional news, having some domain expertise is vital to being able to ask the right questions and get the underlying reasoning out into the open.

4. Go beyond soundbites and short on-air segments. I think finance is much more complicated than normal news, in the same way that political news usually is more complicated: there are lots of underlying dynamics, complex rules, and large parts of the process are hidden from view and established through precedent. Unlike a plane crash, terrorist attack, or story about some zany celebrity antic, financial news that focuses on the “what” instead of the “why” is dull, uninteresting, and useless. This is why financial news, in the first place, tries to explain what’s going on. So, it should only be natural that financial news, if it needs the “why” to be useful and is more complicated than garden-variety news, needs to allocate more than a few minutes to a given issue. No one is going to understand what’s going on with commercial real estate in five minutes. CDOs can’t even be explained in ten minutes, let alone covered in the context of the credit crisis in that time.

How can a financial news network, then, ensure that there is enough depth to a story or segment? Well, time is obviously a big piece of the equation. To revisit a prior example, Thomas Keene usually has guests on for 30+ minutes. However, media and a command of visual aides and interactive media online is also important. Some of the most compelling explanations of how CDOs work and different aspects of the credit crisis are graphics. Further, finance is based on data–models, data highlighted in charts and stories, and other material should all be made available online.

5. Embrace new media. As far as I can tell, no financial news station has a strong online presence. If a strong group of credentialed experts is the backbone of the network’s on-air talent (see #3 above) then they should have deeper, more valuable insights than what they can cover on the air. These thoughts should be blogged about, tweeted, and whatever else to make them as accessible as possible–more and more the “conversation” is online and to join it one must have their thoughts online. The NY Times does a good job at this–their columnists and reporters write all sorts of blog entries ranging from deep, researched pieces to random musings and clever one-line arguments.

Further, with my idealized network, all the content from on-air segments would be put on YouTube and made available to whomever wants to link or embed it. Openness and access would be key strategies for the network. A part of this is also making the on-air personalities and others who contribute regularly interact with the public as much as possible (currently, Twitter is a great medium for this).

6. Emphasize standards–make objectivity, fairness, and accountability the network’s core values. Barry talked about this in his list:

7.  Fact Check: An awful lot of things on air get stated with authority and confidence. Much of them are little more than junk or pop myths. Why is it that the more dubious a proposition is, the greater the confidence the speaker seems to muster? Consider fact checking as much of the statements that are made on air as possible, and making frequent corrections.

Now, this ties in with some of what I’ve said above. However, my point goes beyond this. Executives should not want to go one my idealized network when they need to “get out a statement”–the “narrative press release” as an interview is useless and doesn’t hold the subject of the interview accountable for their words. Similarly, when a guest comes on and makes an assertion that is incorrect it needs to be challenged at the time and corrected later–I clearly take a harder stance on this issue than Barry does. If people will be making their investment decisions based on information presented on the network and then they need to trust the network–viewers need to know the network strives to prove correct information and puts every effort into doing just that. Also, the rules of “journalistic engagement” for the network (things like policies on anonymous sourcing) should be public.

7. Make education a pillar of the network. Finance and markets, as I describe in multiples places above, are complicated and often counter-intuitive–a fair amount is “inside baseball.” Having a section of the website and some on-air time dedicated to explaining both terms and important but obscure facts and market dynamics is an important service. Simple things, like bond math, are important and static–these concepts (that subtly undergird all other topics–remember the anecdote about the misread chart above) should be revisited whenever absolutely necessary while being available at all times.

If these simple pieces were all followed, I believe there would exist a simple to follow, engaging financial network that would add a ton of value where there currently is a void. Then, maybe, the other networks would need to follow suit. I won’t hold my breath.

Guest Post at Clusterstock

Hey, I wanted to let you, my loyal readers, know that I guest posted over at Clusterstock. The post, entitled “Investment Bank Scorecard” is my take on this past quarter as a whole. I think it’s worth clicking over and taking a look. I’d sum it up here, but, in all honesty, the value is in the nuances and small insights more than the general thesis.

Also, here is the chart attached to that post, in its orginal form.

I’ve Finally Done It

Ok, everyone, this will be quick. Sorry for the recent slowness in posting, I injured my hand and it’s difficult to type … should be back to normal in a month or so.

However, I’m now on Twitter. Find me on there at http://twitter.com/DearJohnThain. I’ll try to post there when I can–even I can muster 140 characters.

As Promised, Housekeeping

Okay, soon I’ll stop pestering people and go back to my much less frequent posting schedule. First, though, a few housekeeping details. I changed the look and feel of the site, so you’ll notice that immediately if you visit the actual site. Also, I decided to utilize FeedBurner for my RSS feed. The address is http://feeds.feedburner.com/DearJohnThain or use this link. I won’t (and can’t) get rid of the original feed, so, if you’re against changing, feel free to keep using that one. Another benefit is that getting posts by email is now an option.

I got the icon for the RSS feed from here, so if you like it then head over there.

Meta-Blogging

Well, it’s been a while since I’ve posted something, although not for lack of thinking about posts. I will say, I’m a bit annoyed at myself–because I’m so behind on my feed reading I see things that are interesting and have a thought about them, but it’s too late! I have some interesting posts in the works, though, but time seems to always slip away.

In any event, I’m three months into this grand experiment (more or less). So, probably a good time to evaluate how things are going. Here are my observations…

1. At least I know what I want to be. My goal when writing a blog wasn’t to state what was going on for that day. Plenty of blogs out there cover what’s going on as it’s going on or after it’s gone on… and better then I could have. Why add another? Do people really care what happened in the U.S. stock market or fixed income market? I wouldn’t read it, so I don’t write it. instead my inspirations were blogs like Going Private, Information Arbitrage, Accrued Interest, Jeff Matthews, and Steven Davidoff. Go peruse their sites. I’ll wait. Ok, back? They have some things in common… they write well, they have experience that breeds original thoughts and analysis, and they post relatively infrequently. Other great blogs are an excellent source for ideas and thoughts–blogs like Crossing Wall Street, Market Movers, The Stalwart, and Deal Journal. This is how I envisioned my flow, and it’s going that way.

2. Finding time to post is hard. When you’re striving to do what I’m hoping to do, it’s difficult to dig into something and be both good and frequent enough. Everyone is different, but my flow is usually as I’m reading something I have an idea for a post and I enter into Remember the Milk. I then search for other information, research the topic, and collect a body of links that help to makeup the progression of my thoughts that appear throughout the post I intend to write. Composing the post usually takes one to two hours and has about five hours of total work put into it. As all this is going on, the landscape changes, things come to light, posts become irrelevant. I was especially proud of my Bear Stearns posts and my Citi post. They were well thought out and topical, but they were hard to come up with enough material to post on.

3. Defining success is necessary to figure out if you are succeeding. Ok, don’t tell anyone I said this, but the one thing I admired about Yaser Anwar was his laundry list of citations from established news sources. So, when Portfolio linked to me, I was ecstatic (and they continue to be one of the main drivers of traffic to me). When the WSJ’s Deal Journal linked to me, I was also ecstatic. I could claim I was cited by both publications. However, in thinking about it, why is their affirmation of my ideas more or less valid than other bloggers? More to the point, why aren’t I more interested in readers expressing some kind of approval or appreciation? As comments and emails started coming in (not in great numbers, I’m not very popular on a relative basis) that become a more intense focus. I saw page views start to jump around and that was awesome. This blog just hit 4,100 hits. Is that good? I have no idea. Sure, when you look at Barry Ritholtz, who has around 100,000 feed subscribers, or Michael Arrington’s Techcrunch, which has nearly 1,000,000 feed subscribers it seems tiny. So, at the end of the day, what have I determined about measuring my success as a blogger and the success of my blog? Not much. I have figured out that the nebulous goal I will set for myself is to be respected, provide valuable content, and not to become a grubber for links or traffic.

4. The blogging community is very responsive. When I write a post, I ensure that I email bloggers that I read and think would be interested. When I started the blog I sent emails, with some repeated langauge, but tailored for each blogger announcing my blog and what I hoped to do with it. You know what? Not a single one responded. Not one. Take a moment, let it soak in. None. So why is this particular section about how responsive the blogging community is? Well, I did get links. Established bloggers linked to me and started using my posts in their posts. I might not have gotten an email back but I became part of the ecosystem. And, when sending a quick note to various bloggers on specific posts, I got responses. That was great. IM’ing with various bloggers and sharing thoughts was great. The lesson I learned was that, simply put, bloggers DO read their email, they will read the site, and they don’t always respond in the way you think. Oh, and do your best to comment and trackback. It’s important.

5. Don’t be afraid to change it up. If you read The Stalwart, you’ll see, essentially, the exact opposite of Information Arbitrage or Going Private. That site, specifically most recent posts, could be easily distributed via Twitter, wheres IA and GP posts could be chapters in a textbook (Accrued Interest is in that category too). Is one better than the other? Nope. The shorter posts are great for thoughts and other brief things, tend to be read (I bet) with higher frequency, and are quick to write. Shorter posts, however can’t convey many of the complex topics I hope to write about. Longer posts are more time consuming, most likely read less frequently, and can be packed with more information. I tend to use longer posts, and have not used shorter posts. This is something I regret. I have thought about posting, once a week, what I call the “Post Pipeline”–the ideas I have for posts and a sentence or two about them. I’ll probably do this at some point, it’s a good compromise, although I am much more open to shorter posts now. Probably will see some more of that here soon.

Well, these are some of my thoughts and some self-feedback (is that valid?). This has been an idea of mine to write for a while, but a two part series on financial blogging was the catalyst. Please, please, dear readers (I’m not even sure a plural is appropriate… OK, I’m kidding) email me and tell me what you want to hear about. Give me post ideas! I’m game. Let’s go.

One last thing, I’m extremely frustrated with my inability to find a good WordPress.com theme… expect the look and feel of the site to change. It’s so hard to find a theme that is visually appealing, has clear links for RSS feeds, and all the other anatomy of a good blog.

UPDATE: Okay … Barry Ritholtz has around 17,000 subscribers… misread the number. I left the original (w/error) in the post.

Sorry For the Delay

Hi all, due to some tumult in my personal life I haven’t posted in a while, as you know. I have a few posts I’m working on and they will be ready shortly. Sorry again for the delay!

Thanks to you all!

Me, being both a bit of a non-sleeper and mildly obsessive on certain things, just checked the stats for my blog. 1,017 hits! Thanks to you all for reading. Sometimes this is difficult when the only feedback is seeing those numbers. Please email, comment, or send a homing pigeon and let me know what you think. I’m intensely interested as to what is on people’s minds and what I can do to better this blog. In the meantime, here’s to the next thousand!

Thank you very much!

I’d like to welcome everyone who found me via Felix Salmon’s Market Movers blog. Please look around, I have about 10 more posts either ready or in the works. I would encourage you to subscribe to my feed and comment on whatever you find either interesting, absurd, useful, or irrelevant. Please feel, not just free, but encouraged to email me about things you would like to read about, suggestions, or tips.

Inaugural Post

Hello all. Please read my “About” page. Hopefully this will be the beginning of a fun and informative ride. I really hope that something will be garnered from these pages that’s both valuable and provides some insight that can be taken to other parts of one’s life. I hope to bring things out that help people understand finance better and understand themselves better. And now, on with the show.