The Crackdown

            In the late 1960’s a colleague started up a hedge fund, one of those then spanking new investment vehicles with the dual objective of 1) obviating stock market risk through unconventional strategies to make money when prices fall on Wall Street by finding equity returns in strange new ways that unwind any correlation with the vagaries of public equity markets, and 2) offering participation only to the wealthy.

            Long a most curious quirk in the investment management game, securities laws hold that the wealthy, solely by virtue of that wealth, are “sophisticated investors”, meaning they can’t sue you.   That explained the second objective.

            None of us ever knew quite what any of these guys meant by the first.

            That was nearly half a century ago.  Recently the Wall Street Journal reported that only now has the Securities and Excuses Commission decided to try and look into the kind of hanky-panky that might be going on here.  Our intrepid watchdogs have finally devised a method of highlighting hedge funds whose balance sheets never seem to suffer no matter how rocky the market gets.

            Holy Calamari, subscribers.  That’s Objective Number One.  Excuse us for thinking it’s about time.

Bank Capital Cushions

            The difference between managing your typical too-big-to-fail bank and running a casino is not at all what you’d think it would be.  The casino is founded on a sure thing, probability theory, and never loses - over the long haul anyway - as long as there are enough wagers taking place to satisfy the “large number of occurrences” condition underlying that important branch of mathematics.  Bankers, on the other hand, are like the guys lurking around the craps table.  They win some and lose some, but do come up short now and again, and can drop enough to wipe out their entire bankroll when Lady Luck drops the hammer on them real good.

           

As any high roller will tell you, success at gambling is all in the cash management.

That’s where yesterday’s headline comes in.  Financial regulators in Washington and Basel are working hard to increase the stash our crap shooters are required to bring to the tables, and, more importantly, trying to figure out just what the dickens the game is they’re now playing.

As subscribers know, Wall Street hires the dumbest people in the world, and the last batch of nincompoops created financial weapons of mass destruction, the nature of which can never be understood because, as everyone outside of Government can see, the dumbest people in the world have no idea what they’re doing.

Financial regulators across the globe have been trying to disassemble what, owing to a total lack of understanding about the true nature of these moronic contracts, financial “professionals” have come to refer to as “derivatives”, but financial regulators across the globe have had no reported success at that to date.  As a result, financial regulators across the globe have turned to increasing bank capital requirements as a way of fooling themselves into thinking everything's going to be all right in the Post Financial Apocalyptic Era.

We see Basel wants the institutional gamblers to keep a bankroll of 10.5% at the derivatives tables, and Washington wants 5%.

The MacDougal Post calls for waterboarding the entire staff of the Federal Reserve Bank until they tell us what’s going on with that, and asks subscribers to join our Occupy Your Bank’s Vault movement and head to your banking institution immediately to make sure your safe deposit box is still there.

Sons of $!#&%$s are screw!#$ with everything you’ve got.

The GSE Follies

            Recently, the Securities and Excuses Commission (SEC) brought civil fraud charges against six former top executives at the Federal National Mortgage Association (Fanny Mae) and the Federal Home Loan Mortgage Corporation (Freddy Mac).

  Each outfit is a government-sponsored enterprise (GSE), quasi-corporations financing Federal policy with capital from public investors, who had always assumed GSE securities to be relatively safe due to some wantonly perceived opaque Washington connection, hilarious as that may seem by 2011 standards.

           The GSE 6 are accused of not reporting the truth to investors.  Nobody on Wall Street has been charged with anything, and how many SEC staffers are angling to launch their multi-million dollar Wall Street careers from the Agency was not reported either.

Mouthpiece Math

            Since American companies stopped paying Federal Income Taxes, tricky hypesters have found sensationalism here, deploying wildly inappropriate numbers to promote their agendas.  Just now some “nonpartisan reform” group came out with a report that 30 big American corporations spent more on lobbying than they did on taxes, and the electronic press is actually covering it as news.

            “Of course they did,” the report failed to add, “because 29 of the companies didn’t pay any taxes at all.  They spent more on paper clips than they did on taxes.  On toilet paper for the executive bathrooms.  On every single line item in the corporate books.”

            Getting to the point, according to this pathetic version of surreality anyway, amounts these outfits slipped to lobbyists ranged from $710 thou to $84 mil, totaling almost half a bil over 3 years (translation: averaging something over $5 mil annually per company for 3 years).

Talk about your proverbial drop in your proverbial bucket.  $5 mil a year.  Check out an Income Statement, why don’t you?  Any major corporate Income Statement will do.

            The problems we face are difficult enough without fibbers throwing in all their fibs about them.  In addition to nonpartisan reform, maybe we need laws regulating the use of arithmetic by nonpartisan reform groups too.

Look for misrepresentation wherever corporate taxes get mentioned.  We’ve noted this kind of accounting outrage in our face before.