Daily Links: Inaugural Pre-Christmas Edition!

Reading that will scare the crap out of you about our economy:

• How India avoided the financial crisis.
• $1.6 billion of TARP money went to pay bonuses to the people who are raping the economy.
• Mary Schapiro, Obama's new SEC Cheif gave Madoff's son a job...
• ...oh, and his niece too.  (Can we replace Schapiro already?  It's clear this was a whiff by Obama.)
• An oil company, Flying J, files for bankruptcy.  (How does that happen?  Seriously, how do you go out of business as an oil company these days?)
• Toyota's first loss ever.  Welcome to the club, Toyota-san!  Can we begin the inevitable decline from industry leader to has been now?
• As an example, please see:  Credit Suisse calls B.S. on G.M. -- $1 price target for shares. Although, given the track records of analysts, it probably means you should buy the hell out of the stock.

It had to happen: Green Biz vs. Save Your Ass Biz

I was wondering when the natives would begin to turn on each other.  There has been a lot of repositioning of companies behind "green" initiatives lately.  Most of the efforts are little more than cosmetic (i.e. Bank of America's statement that their reduced paperwork is "green".  It's smart business and green is a side-effect.)  But some companies have changed fundamental pieces of their business in an attempt to be green.

As we hit a downturn, however, I wonder about the companies that have hired "green" experts or are commiting resources in the pursuit of being green.  Especially as energy prices come down, how feasible is it to sustain these expenses.

Now a blogger at SeekingAlpha has pointed out the conflict that companies must navigate in difficult times.  He focuses on Sun where some key engineers are arguing that helping the world should be a corporate goal.  It should be interesting to watch this dynamic play out.

This seems analogous to what is happening in the newspaper industry.  Newspapers were known as the "Fourth Estate" and they believed they had a moral imperative to ignore financial considerations because their efforts served a larger good.  However, in this latest cycle, one where Bush made capitalism king and societal concerns the court jester, newspapers are being decimated by financial concerns.

Smoking Gun: FannieMae Knew Exactly What it Was Doing

So, it's one thing to think that our country's major financial institutions pursued flawed lending strategies because they did not understand the risks.  It's another if they pursued those strategies knowing that they were increasing the risk profiles to unacceptable levels.  That would be criminal, right?

Wait until you read this PowerPoint presentation.  I've seen something like this for a long time as it's your standard executive board briefing on the state of a business.  And this one is actually very well done.  And that is exactly the problem.  The executives at FannieMae knew what they were doing and did it anyway.

Is anyone listening?  Has our governmental and regulatory system gone insane?  Are we becoming a puppet third-world society?  Unfortunately, the evidence is adding up to one answer:  Yes, yes and yes.

Here's the presentation.

"Fog a mirror, get a loan..." CalculatedRisk Nails It

CalculatedRisk nails the issue of why the current Treasury programs and proposals are designed to fail when it comes to the real estate market.  TARP, TALF, 4.5%, etc... they won't have the impact on the RE market that everyone is hoping for (Hope is not a strategy!).  Why?  Credit is not the issue.  Lending standards are.  Deleveraging is not occuring because of the rate levels.  It is occuring because we are withdrawing from an era of excessively loose lending without regard to repayment ability.

My favorite passage:

One of the tragedies of the housing bubble was that some people were enticed to buy a home before they were really ready to be homeowners, and others to extend themselves too far. Many of these people are now soured on the wonders of homeownership, and they will not be buyers for an extended period of time.

Amen, brother!  Interesting read here.

Intellectual side-road: Brooks on Gladwell on Nature v. Nuture

Gladwell does a great job questioning existing paradigms and through inventive illustrations showing that a different, counter-intuitive scheme may actually be at work.  He did it with Blink, a book that discusses the source of intuitive understanding and decision-making and Tipping Point, another book discussing the idea of social networks and finding those ideas which reach critical mass.

Now he has a new book called Outliers in which he explores the root of success in certain people.  One of his conclusions is that much success can be attributed to a combustible mix of environmental factors, rather than the heroic archetype that is commonly mythified today.

Yes, Gladwell has a cookie-cutter to his insights (or at least the delivery thereof), but it's a good one.

Brooks' take on the Outlier argument is that it undervalues foundational characteristics that allow people to exploit the opportunities in front of them.  As part of his rationale, he points to the fact that many successful people talk about how they wanted to challenge all the people that "said it couldn't be done".  As a former investment banker who has advised and worked alongside some of these people, I would say that particular driving force is often one that is created after the fact as an easy to summarize the toil they went through in the early years of their struggle.  I'm more in agreement with Gladwell's initial assertion as I've seen a lot of people just be lucky enough to be in the right place at the right time.  How many times have I heard:  "I'd rather be lucky than right!" from successful business people?  Too many.

Gladwell's blog discussing Outliers here.  Brooks' analysis of Gladwell's book here.  Gladwell's response to Brooks' analysis here.

Spitzer Takes Second Step to Salvation

Eliot Spitzer is now blogging at Slate.com.  As I noted earlier, this is part of a campaign to rejuvenate his image and try and restore him to a position in government (IMHO).  And I think it's a great idea that will work.  Spitzer has a very good understanding of how Wall Street manipulated its way into defrauding everyday consumers.  I'm not sure that his remedies were all that great, but I don't think there are very many government regulators who understand the systems that financiers use.  And if you don't understand how the theif is taking from you, then you can't catch the theif.  Unfortunately, Spitzer is going to be burnt on the cross by neo-conservatives and religious zealots for his personal weaknesses.  Which will be too bad because he might be a great weapon against the injurious greed of Wall Street.

His article is here.  It's another damning piece about how our lovely political leaders are treating the symptoms instead of the disease.  Very similar to the ideas promoted by Fareed Zakaria in The Post-American World.

I have to give Meridith Whitney her due...

Apparently no one on Wall Street is willing to state the obvious because Meridith is making a big splash today talking about how credit to consumers will contract significantly as they start to enforce credit standards and restore sanity to the consumer lending situation.  (The horror!)

Why this is a surprise to anyone is beyond me.

Relevant quote:

"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."