My title is King of All Kings..

My name is Muammar Muhammad al-Gaddafi. I am badass. 
http://en.wikipedia.org/wiki/Muammar_Gaddafi


I am a close supporter of Ugandan President Idi Amin. In gratitude,  he even married my daughter while in Libya, but she then divorced him.

What exactly is the NCAA?

The NCAA is the National Collegiate Athletic Association, created to profit and exploit the individual rights of young adults at colleges and universities in United States of America. The problem of the NCAA would be easily solved with the creation of a minor league system that pays athletes according to the services they provide.  The cartel collects monies, imposes punishment, and violates the privacy of the members whose services they exploit.

The 14-year 11-billion dollar contract is evidence of the money that is involved in college athletics:
http://www.ncaa.org/wps/portal/ncaahome?WCM_GLOBAL_CONTEXT=/ncaa/NCAA/NCAA+News/NCAA+News+Online/2010/Association-wide/NCAA+signs+new+14year+TV+deal+for+DI+mens+basketball_NCAANews_04_22_10

ABC, CBS, ESPN, BIG10 NETWORK, COMCAST, TIME WARNER (I cold go on) provide services by broadcasting college athletics on television. They collect advertising revenue from NIKE, REEBOK, PEPSI, BUDWEISER, MILLER LITE, PG, GEICO, COCA COLA, and other sponsors to market their products to the public.

Some athletes are compensated fairly by receiving the free education, while others are clearly not. Do people believe we truly have free markets?

What is your favorite cartel?
OPEC
BCS
NCAA
NFL
GULF
SINALOA
TIJUANA
EUROPEAN UNION
FEDERAL RESERVE
IMF
WORLD BANK

The Gap Between Government and Private Securitizaton

The Gap Between Government and Private Securitizaton

Tom Toles' piece in the Washington Post today (<http://www.washingtonpost.com/wp-dyn/content/article/2011/02/12/AR2011021203363.html>)  neglects any mention of the gap between Public and Private Securization, as defined by the GSEs and FHA role in the secondary market vs. the private market.  The government dominates the secondary market today with over 90% of all securitization.  The gap between the two is what needs to be fixed.  During the Housing Crisis of 2007, the GSEs generated less than half  (HMDA, 2007, Loans Sold by Purchaser Type) of all  loans sold.  One of the differences was the standards for loans originated by the GSEs and private market. The securization function of buying whole subprime loans versus subprime securities also offered different results.  Although the GSEs leverage ratios were too high, they insure around half of all loans, they represent a much smaller portion of delinquent loans, and enable the market to provide lower interest rates with their funding advantage.  The creation of a government entity such as the FDIC acts to insure bank deposits would go a long way and play an important role in bridging the gap between the public and private market.

The gap between the public and private market could be bridged over a time horizon of 7-10 years, with the ultimate goal of reducing government involvement to less 50% of all insurance and new production of home purchase and refinance loans. The Consumer Financial Protection Bureau created standards for qualified mortgages to be insured by the public and private market.  Deviation from these standards would invite cream-skimming and cherry picking by private insurers (Calem, et. al), whose risks could become opaque over time, positively correlated with the rate of change in house prices. The trade off between government and private securitization is the insurance risk, counterparty credit risk, transparency, and funding costs involved in a given transaction.

Currently the funding costs are determined in bond auctions by FHLMC and FNMA securities. Liquidity considerations would need to be considered, given the function represented in the price.

http://www.washingtonpost.com/wp-dyn/content/article/2011/02/12/AR2011021203363.html

Information Asymmetries exists between counterparties in the securitization of mortgages.   These risks could be mitigated with additional transparency and information provided in the TBA market.  Complete transparency could be established in a bond trading over public exchanges providing details of a security. For example, a generic ticker symbol could represent all 30-year fixed rate mortgages with FICOs above 700 originated by entity Z in the state of NY.

All mortgages meeting this criteria would be packaged into this bond and traded in the open market, just like any other stock.  The securities would be grouped with similar loan amounts and other characteristics as deemed necessary and serve as a future proxy for the credit characteristics of new househoulds or U.S. consumers in a specific geographic region (U.S. national, Census region, State).

Currently the funding costs of mortgages are determined in bond auctions by FHLMC and FNMA securities. Liquidity considerations would need to be considered, given the function represented in the price.  The transition to an entity that combines the FHLMC and GSE securities to one entity could take a significant period of time given the infrastructure, technology and resources that enable them to insure 30 year fixed rate mortgages at significant funding advantages in the bond market.  The price passes through to consumers when they obtain a mortgage because of the governments ability to tap bond markets and baseline funding cost advantages.  


Throughout history, governments have always stepped in when markets (and other governments) fail.  The investment in U.S. military resources is the ultimate provider of insurance in the event of a crisis (Ferguson, N., Ascent of Money: Financial History of the World) . 

Market Information Asymmetry (M.I.A.) Hypothesis

The Information Asymmetry Hypothesis is a form of counter-argument to the Efficient Market Hypothesis.  In economics, information asymmetry occurs in a transaction when one party is privy to more information than the other.  The information may be collected voluntarily or involuntarily, but markets do not adjust to equilibrium until the information is disposed to both sides of the parties involved in the transaction.  In an asymmetric market, one could achieve returns in excess of the market average if they possess knowledge of information that has not been accepted by the public.

This information could be possessed in common knowledge with insiders. The ex-post structure of private label securities sold by Wall Street investment banks is an example of an asymmetric market. The  collapse of Bear Stearns is an example of a bank that profiteered and failed because of information asymmetries during the boom and bust that transpired from the Financial Crisis of 2007-2008.

When a bank such as BS (pun intended) sells a PLS rated AAA to investors, they are able to produce a profit from the asymmetric market.

In a crowd mentality, it may be difficult at first to convince the insider that security is not truly what it appears to be on the surface.  Only when the cash flows fail to materialize for a large cohort of investors with access to capital, does the information become transparent, at which point the market may or may not adjust efficiently. A sufficient time lag may exist between the point that cash flows and information passes through to the investors. The time lag is correlated with the remittance cycle of the security and the share of their portfolio that the security represents.  An investor with large capital position in a PLS security may/may not liquidate immediately. They could choose to act on their new information and buy a put option or credit-default swap as insurance.  The investor cohort creates a liquidity run and the market adjust to the information as it dissipates through the economic system.

The Efficient Market Hypothesis assumes that all information publicly available is transparent.  The information can be publicly available and opaque until the investor cohort acts on the information with real capital.  This creates even greater information asymmetries because of the large position and access to liquidity of the investor cohort in the failed security. The investor cohort has first mover advantage resulting in a cascading effect as the information transforms from translucent to transparent through market pricing.

The investor cohort experienced information asymmetry when they purchased and liquidated the PLS.  The herd mentality piggy-backs off the liquidation creating a liquidity run as the bottom falls out of the infected markets.
http://en.wikipedia.org/wiki/Information_asymmetry
http://en.wikipedia.org/wiki/Efficient-market_hypothesis

Ranking the jurisdictions: Power Outages in Washington DC

Dominion 1,944
PEPCO 29,000
as of 1/29/2011 at 9:00am

Spreads and Sports stuff

Here are my Unwritten rules for sports spreads -

1)  if the underdog has a good chance to win I feel more comfortable taking the points
2)  psychological element for people to be predisposed to take the favorite - with this rule i believe the favorite generally receives about 1-3 pts more than they would otherwise
3)  expectations theory - some teams play better as underdogs because they are not expected to win. the converse- some teams play worse when they are expected to win - avoid the team that consistently loses when favored.
4)  obvious: spread builds in 2-3 pts for home team favorite
5)  the goal of vegas is to have equal betting on each side. the spread moves to engineer the 50-50 split. therefore the house makes all money on transaction basis, aka 'the juice' - just like goldman sachs.
6)  first half of the nfl season is anybodys guess. things are so crazy because there is no recent history to go from. everything is based on last years performance - which may or may not hold true for the current season.
7)  if you honestly don't have an intuition of what team to take, just take the points (i.e. - greenbay and pittsburgh)
8)  second half of the season you have players 'checked out' when they are essentially out of it for the playoff chase. this may lead to weeks where blowouts are common.
9) always always expect the unexpected.

Online gambling ban in the U.S.
The brilliant lawmakers think that banning online gambling in the U.S. actually acts in the moral best interest of our citizens - we all know how prohibition worked out for Al Capone. Passing laws does not curb demand, it creates black markets. Markets that exist for activities the government has shunned because they do not act in the best interest of their constituents.  How much tax revenue could be made from online gambling in the U.S.? Not only does legalization allow regulation, but it will bring in billions of dollars in tax revenue, that would otherwise not exist (not to mention create jobs).  In England you can bet on the soccer (football) game, at the stadium!!!! Drugs are illegal, but that doesnt stop people from using. Alcohol used to be legal, but that didnt stop people from drinking. The markets exist, just not for the taxation and regulation purposes of the Federal Government.  The government can refuse to allow an service or industry to be a legal operator - but the government can only deter demand on the margin - the margin that would probably not be participating if it were legal. My reasoning is that many people who choose to gamble or do drugs only do so for the thrill.  Turning drugs or gambling into a legally sanctioned government regulated industry will more than likely strip away some of the glamor that exists. Just a hunch, but very obvious in certain industries that are exploited in movies, music, and media.

<http://sportsdirect.usatoday.com/odds/usatoday/odds.aspx>

Stocks I'm currently holding:
XOM Jan 2012, 60 strike Call option ( this will increase in value as pump price increases)

Stocks I like:
MO, PM, RSG, WM, TEVA, AVB, V, BAC

Economic trends:
asset price inflation
interest rates creeping up as recovery strengthens
double dip not probable until oil reaches 130+
slow and steady
pent-up demand for housing begins
house prices depend on rent, jobs, income, and demand

natural and adverse selection

Why hasn't the FHA received bailout money from treasury?

During the 2005-2006 housing boom, a government loan was simply not necessary because the private markets were allocating resources to crowd out their government mortgage product.  The banks provided lower cost alternatives with 100% financing, so it simply was not economical to use a government loan.  There was adverse selection among banks to cream skim the 'opaque loans'.

FHA's market share increased dramatically as house prices crashed an private capital fled.   The private markets were essentially acting perfectly cyclical to the economy, that I will argue is the opposite of capital flows from efficient allocators were doing. Because money was chasing the high returns creating a self fulfilling prophecy of higher and higher returns on capital, the most efficient capital with the best possible outcome is allocated at the bottom of the market.

If you had used leveraged (much like a home buyer uses leverage in obtaining a mortgage) your returns would have significantly outperformed some of the best corporations in the world, simply because your timing was right, while all corporations were teetering on the verge of bankruptcy.  

If  the Federal Reserve had not  provided emergency liquidity measures to banks, companies, and foreign countries, the fallout would have been catastrophic.  The crash of 2008 could have been (arguably) exponentially worse, and (arguably) more similar to the 'flash crash' of 2010; of course this hypothetical scenario occurs in theory only.

The rate of change in prices during the flash crash occurred over an insanely shorter time period, and buying opportunities were limited to those with super-computers and GTC orders in the system.  The pyschological effect was not felt because of the speed of the flash crash.  On the other-hand, the recession was analogous to the flash-crash but drawn out more slowly as banks reported flawed earnings and recognized the depreciated assets over a longer period of time.  

Corporations should always behave similarly to FHA and take the most risk (FHA is always taking the riskiest traunch) at the bottom of the economic cycle.  Banks and companies pulled back and caused the credit crunch because they had too much capital allocated at the top of the cycle.  Psychological factors contribute to buy/sell decisions and do not always allocate capital efficiently.  The government provides insurance liquidity as a last resort and arguably the most efficient capital flowing through the system is being cherry picked at the bottom.

Figure 1:
<http://economix.blogs.nytimes.com/2011/01/10/federal-reserve-worlds-most-profitable-bank/>