Are Fears About an ETF Bubble Warranted?

We have a problem in this country. We aren’t suffering like the rest of the world. At least that seems to be the way the rest of the world views us…

They are waiting for us to slide into the same kind of doldrums they’re experiencing.

A number of financial commentators are talking about the coming stock market crisis in the U.S. Gillian Tett, the editor of the U.S. edition of the Financial Times for example, says “The next crash is hiding in plain sight”. Continue reading →

Bookmark and Share

Of SUVs and SIVs

Sent out by newsletter October 30, 2008

It’s great to see the price of gas at $2.45! When was the last time we saw that? And it looks like we are finally beginning to pull out of the freeze on short term borrowing (short term meaning a day to 3 months) between banks. Ever wonder why bank to bank borrowing froze up in the first place? Why money market funds that traded “commercial paper” became so shaky they had to be bailed out by the government’s guarantee that their holdings of a dollar would return you a dollar?

The fancy term for what happened is “flight to quality.” What that means is smart investors (like money market funds) didn’t want to buy commercial debt because they realized those were risky, bad investments. They fled in droves from the banks and financial institutions who were selling them. Commercial paper became so worthless banks wouldn’t even buy it from each other. How on earth did that happen?

Because banks and financial institutions created trusts called “structured investment vehicles” (SIVs) by tossing together the loans and complex debt of lots of different companies. These “vehicles” then sold “commercial paper” to investors who had little idea what was behind the paper, but trusted their banks.

In addition, SIV investments were highly rated. Standard and Poor’s once said in a remark that’s come back to haunt it, that it would rate a deal “structured by cows.” SIV assets were what backed commercial paper. As subprime borrowers and other borrowers began defaulting, smart investors realized their danger. SIV assets were likely to be far less than they cost.

In the beginning SIVs were a terrific deal for banks because the commercial paper being sold just “passed through” the banks. The banks never owned the SIVs. That means banks didn’t have to report them on their books. SIVs were invisible—until they failed! Continue reading →

Bookmark and Share

Snakes in Suits – When Psychopaths Go To Work – a book review

Snakes in Suits – When Psychopaths Go To Work (by Paul Babiak and Robert D. Hare 2006)

Snakes in Suits

Once upon a time, I was employed to run a department within a non-profit organization funded by grants.

The other department heads along with the director often worked away from our office.

Moreover, the director lived in a far away town. He only came into work two times a week and slept overnight in the building. He needed an Administrative Assistant to take over day-to-day operations, and quickly.

I was on the hiring committee along with another department head. My job was to check out applicant references.

When “Cynthia” was being considered, I reported to my boss, “They liked her, but they all said they didn’t work directly with her. That’s a red flag, you know.” He grunted and said nothing.

Charmed by this tall elegant-looking woman, he and the other department head hired her. She became the bane of my life, not only my life but the lives of all of the other employees.

The director gave Cynthia unlimited power over purchasing as well as day-to-day operations. Starting with an expensive silver pitcher on her desk Cynthia spent money like water…

Within a couple of weeks, Cynthia took the organization’s credit card and went to Europe for a month, claiming she couldn’t come back because she had picked up a disease that’s only found in tropical areas of the world. Continue reading →

Bookmark and Share