Archive for September, 2010


September 28, 2010

“Bernie Madoff ended up behind bars when the regulators finally figured out he was making up numbers and stealing money from his investors.

It appears the government was simply getting rid of the competition.”

Jeff   Clark



September 28, 2010

Time Magazine Cover Certified !


September 24, 2010

Hello Mish,

Bankers have an enormous, unjustified, sense of entitlement. These people work for failed institutions, yet they feel they are entitled to bonuses that far exceed those of bankers and investment bankers of one or two decades ago.

Note that Berkshire Hathaway owns a big chunk of Wells Fargo, which bought Wachovia, which in turn bought Golden West, the very seat of a lot of fraudulent lending.

Of course, we bailed out Wells Fargo and relaxed accounting rules, so no one knows the true size of the hole in that balance sheet. Charles Munger’s remarks are all the more bizarre in this context.

Here in Illinois, people were lied to and deceived with phony docs. Among many other frauds, people would show up at a closing for a fixed rate loan and be presented with docs for an option ARM. All sorts of variations occurred.

Lisa Madigan, the Illinois Attorney General was first to file the suit against Countrywide, and beat California by minutes. Countrywide settled for $8+ billion on the combined suits, but that was way too low. Madigan publicly stated: “Borrowers didn’t break the law; Countrywide broke the law.”

Of course, some borrowers committed fraud, overreached, or got in over their heads, and there are certainly cases of irresponsibility. However, the reality of the mortgage lending market is that it was rife with fraud by mortgage lenders–from even before the first huge Ameriquest fraud.

I was on CNBC a few months ago and Kudlow, Santelli, and others shouted me down when I brought up predatory lending. Columbia Journalism Review and others took CNBC to task. Widespread predatory lending is well documented. This isn’t a matter of opinion, it’s a matter of fact.

You’d think Munger had been living under a rock. Yet, he hasn’t been, and I believe he knows better. Buffett knows better, too. Unfortunately, instead of using their positions to tell the truth, they are using their positions to propagate what Elizabeth Warren calls “the myth of the immoral debtor.”

I’m no bleeding heart; I’m all about the cash flows.

Investment banks knew the cash flows from these loans wouldn’t be there, but they went ahead anyway. Thus, they are responsible for widespread securities fraud. To keep it going, they created more complex securitizations and got more people involved to cover up the mounting losses that were coming down the pike. This was all known and knowable in advance.

I didn’t “forsee” anything. I have no psychic ability. I’m not prescient. I am, however, an analyst, and I know my stuff. So did they. It was fraud.

So, just what sort of “civilization” is Munger trying to preserve?

Warren Buffett has made statements that he doesn’t see the purpose of going after people. That’s ridiculous.

I am in complete agreement with William K. Black that thorough investigations are long overdue. The crimes aren’t in doubt, but one has to go through the arduous task of collecting evidence even though delays have made the trail cold. That was deliberate.


Janet Tavakoli (in response to an Amazing Arrogance)


September 21, 2010

Gun control is the best way to be sure that only criminals (and policemen, but when they intervene you don’t need them anymore) are armed.


September 19, 2010

A lawyer and a senior citizen are sitting next to each other on a long flight.

The lawyer is thinking that seniors are so dumb that he could get one over on them easy.

So the lawyer asks if the senior would like to play a fun game.

The senior is tired and just wants to take a nap, so he politely declines and tries to catch a few winks.

The lawyer persists, saying that the game is a lot of fun. ‘I ask you a question, and if you don’t know the answer, you pay me only $5. Then you ask me one, and if I don’t know the answer, I will pay you $500,’ he says.

This catches the senior’s attention and to keep the lawyer quiet, he agrees to play the game.

The lawyer asks the first question. ‘What’s the distance from the Earth to the Moon?’

The senior doesn’t say a word, but reaches into his pocket, pulls out a five-dollar bill, and hands it to the lawyer.

Now it’s the senior’s turn. He asks the lawyer, ‘What goes up a hill with three legs, and comes down with four?’

The lawyer uses his laptop and searches all references he could find on the Net.

He sends e-mails to all the smart friends he knows; all to no avail. After an hour of searching, he finally gives up.

He wakes the senior and hands him $500. The senior pockets the $500 and goes right back to sleep.

The lawyer is going nuts not knowing the answer. He wakes the senior up and asks, ‘Well, so what goes up a hill with three legs and comes down with four?’

The senior reaches into his pocket, hands the lawyer $5 and goes back to sleep.


September 18, 2010

I’d like to address a few things mentioned in the comments as opposed to the article, which I thought was very good if not comprehensive enough.

Firstly, to the gentleman, Jim, who argued using Aristotle’s teaching on infinite divisions of a line: I believe he taught that a line is “potentially” divisible ad infinitum, but NOT “actually” divisible. It seems to me that you’ve fallen into Zeno’s paradox, an error which Aristotle refuted. By the logic you’ve thus stated, we could not move from point A to point B a mile away because I would have to divide this distance in half, and again in half, and again… ad infinitum. But we cannot cross infinity, and thus we don’t move. But the distance is only “potentially” divisible, but in actuality is finite and therefore can be crossed. It would seem that the same applies to time: “potentially” infinitely divisible, but actually finite, and thus its magnitude can actually be determined, much like the distance between points A and B can actually be determined.

Using this same distinction between potentiality and actuality, I can address most other doubts here in a general sense. To do this, I’ll first examine what exactly exists in the universe. Now, I am no expert on potential universes, but I will try my best to offer some account of them. According to Aristotle, all things are composed of two principles: matter and form, which correspond to the principles of potentiality and actuality. He uses these principles to refute those who think that change is impossible, or that stability is impossible. Namely, Aristotle sees the universe populated by actually existing things. But these things can be changed into other things if the right causes effect the changes. It is by reason of some underlying substratum that one thing can become another, for in any change, it is clearly seen that, although item A is changed into the completely different product B, something of A persists in B. In fact, how can we say that A changed into B if there is not some thing that remains (that which is changed into something else). And as modern science would agree, there is some ultimate substratum that would theoretically allow anything to change into anything else. Thus matter can become energy. It is clear that all things are made of matter and form, potentiality and actuality. But things only exist in virtue of their actuality, or their form. Matter by itself is nothing, and so potential things (and presumably potential universes) are “nothing” in the sense that they do not actually exist. They only exist insofar as another, different, form can be drawn out from the same matter which is already actually something else. Since potentiality is “nothing” in itself, it cannot exist as such. Thus, this ultimate substratum, what Aristotle calls “prime matter,” does not exist in and of itself, but always exists as a correlative principle with the form. In fact, all things in the universe are composed of matter and form, neither existing by itself. This is evident from experience.

If you would like to disprove this assertion, you would have to come up with an alternative explanation of change and stability, namely that some things become other things and yet some things are actual things which often persist for a long time. If you wish to deny that matter can exist without form, try to think of something purely potential. You’ll probably run up against the principle of non-contradiction. If a thing is not actually (for form is the principle of actuality) anything, then it is not a thing (a contradiction). Or if this one “blob” of prime matter has no form, then why is it not this other “blob” of prime matter? What is to distinguish them? In fact, some form must distinguish them, even if it is extension in space (a form) or number (another form), thus the formless “blob” is not without form… another contradiction. Though I would be interested in hearing alternate theories on the matter (pardon the pun).

Thus, what is at issue in the creation of the universe is where this “prime matter” came from, not simply where “things,” “all things,” or “anything” came from. It must be seen that prime matter by itself cannot account for its own existence. The alternatives are that prime matter either always existed or it was “created” from “non-matter,” or “nothing.” Now I could argue against prime matter always having existed, but, as Jim has already stated (and Aquinas agrees), it is rationally consistent to think up a universe or total order of things where matter always existed, namely, one where God, being absolutely sovereign, made it so. Therefore, we must focus instead on the fact that (1) everything in the universe exists as a composite of matter and form, (2) to cause something is to give that thing its form, and thus (3) everything is caused by something other than itself. The proof here also deals with the principle of non-contradiction. If A caused A, then A gave A the form of A, and thus A has the form of A. But to receive the form of A is not to have the form of A, thus A both had and did not have the form of A. In more concrete terms, if the fire warmed my hand, then the fire imparted some form of heat to my hand, but if my hand warmed my hand, then my hand was both hot and cold at the same time… a contradiction.

Now here’s the kicker: even if prime matter always existed, nonetheless, the cause of prime matter existing (having an actuality, a form) cannot be the prime matter itself, especially considering that prime matter as such cannot exist. But instead, take anything composed of prime matter and form, supposing even that such composites have always existed: still, their having any form must be explained, and cannot be explained ad infinitum. Thus, here we need to see that while it is possible (in a world where God made it so) to have infinite time and matter existing for an infinite amount of time, we CANNOT have an infinite amount of causes, or explanations, for then we really would get nowhere. Instead, we have to posit that some being caused everything else without itself having being caused: the uncaused cause. This is the same as calling him the unmoved mover, for while he causes motion, or change, in other things, he cannot be changed himself, lest we fall into an infinite causal chain. Now, if this mover is to be essentially unmoved, it cannot have the principle of matter in it, for if it had matter, then it could potentially be something else, and therefore is moveable. At which point we would ask, and what moved its matter to receive its present form? Thus the unmoved mover is pure form. And it is for this reason that we CAN stop the infinite chain here, for clearly this being is by no means part of the universe, every item of which is composed of matter and form. Furthermore, since time is a measure of change, this being is outside of time, and unmeasured by time since it is not even possible to change this being. Since it is pure form, and the form gives us a thing’s essence, this being’s essence is to exist, and must necessarily be so since it is not possible for it to be otherwise (for then it would have to have matter). In fact, it is only by this matterless mover that we can comprehend how matter could even have existed for an infinite time, since this being is outside of time he can create infinite time just as easily as finite time. Otherwise, it must be admitted that an infinite amount of time is irrational, if considering only of things in the universe.

Going back, then, to our two alternatives: if the measure of time is infinite, than we need a matterless being who is outside of time to explain this situation; if the universe had a beginning, then we need a matterless being outside of time to explain how time came to be. Either way, the unmoved and prime mover is necessary to account for all things having prime matter as one of its principles (which all together make up the universe).

Now, it is true that this does not prove the existence of God as worshiped by Catholics, Christians, and many other religions, but it does provide a reasonable basis for belief in Him. For if He is all-powerful, and moreover the Creator of the universe, then He must be the same as this first mover, uncaused cause, in whom it is not irrational to believe.

Lastly, if it is proven that a first cause of all material things exists, then it is proven that a creator exists, outside of faith and revelation. In fact, it is a dogmatic assertion of the Catholic Church (for this point, I refer readers to Dr. Ludwig Ott’s book, Fundamentals of Catholic Dogma) that God can be proven to exist by human reason from His creation. Thus, it is wrong to assert, as a Catholic, that science (in the broad sense meaning “knowledge based on reason”) cannot prove that “God” (albeit in a limited sense) exists. In fact, it does; it’s just that it doesn’t prove that the Triune God exists.

I hope this clarifies some issues. I know that was long and complicated (it usually takes a whole semester class to go through all this point by point) but I tried my best to present the views, particularly, of Aristotle and Aquinas, both of whom I believe proved these points far better than I ever could. In any case, I’m glad that this debate is happening as there are a lot of misunderstood concepts out there that need to be clarified.

See also Much Ado About Nothing.


September 17, 2010

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September 14, 2010

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September 11, 2010


September 10, 2010

Every January buy the Natural Gas December Future and short the equivalent in UNG shares, the ETF that should give exposure to Natural Gas.

P.S. – When someone proposing financial instruments like UNG will go to jail for an extended period of time, instead of collecting fees managing something that is CERTAIN to lose money for investors, you’ll know we are back to a normal world.