Monday, September 19, 2011

Bad day at the office

UBS trader Adoboli held over $2bn loss
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email to buy additional rights.

The revelation that a trader in “Delta One” – an area of derivative trading activity that is one of the only remaining ways for banks to take big bets with their own money – could cause such a catastrophic loss has prompted calls for fresh restrictions on investment banks.

“Management doesn’t understand what’s going on in the Delta One desks,” said Terry Smith, chief executive of Tullett Prebon, the interdealer broker. “If you sat down with a CEO and asked them to please explain what happens they would try but they couldn’t give you an accurate answer because they don’t understand.”

Analysts at Goldman Sachs said the trading losses were a reason to “sharply scale back” investment banking at UBS.

“The key area of damage in our view is reputational and extends beyond the investment bank, into UBS’s private banking business,” the Wall Street bank said in a note to clients.

Analysts had forecast net profits of about SFr1.3bn ($1.5bn) for the quarter, but are now revising their outlook. UBS shares, down nearly 85 per cent in the past five years, fell 10.8 per cent to close at SFr9.75 in Zurich.

UBS’ investment banking division has only just begun to recover from near-disastrous losses during the financial crisis. Some stability has returned at the unit under Carsten Kengeter, the former Goldman Sachs executive who joined in 2009.

The bank’s last annual report said that “increased risk taking” had been authorised since 2010 “for incremental trading activity.”

How does this sort of thing happen? How can a 31-year old non-fiduciary expose a company to $2 billion in risk? Presumably the amount he could put in play was capped: $10 million, $20 million(?). Do derivatives carry that much leverage, or was he given just ridiculous amounts of money to play with? Even rinky-dink local governments and professional service firms nab employees for petty pilferage but the cream of international finance can't keep a leash on their traders.

These are the the institutions it's our patriotic duty to bail out, by the way. The rich are no longer allowed to become poor.

New tag: OPM (Other People's Money)

Good ol' Warren Buffett

Guy Somerset at Taki's takes him down a peg.
Buffett never tires of proclaiming he pays lower taxes than his employees. His constant exemplar of a secretary makes $60,000 annually—a respectable salary, yet not particularly generous as contrasted against running paperwork for one of the planet’s most active executives. Buffett himself makes approximately $46 million per year. And this is how the man who would care for all Americans provides for his own? Noblesse oblige begins at home, Warren...

Warren doesn’t state whether he is to assume any extraordinary liabilities of this country’s non-paying by utilizing the line on the American tax return whereupon one can voluntarily contribute beyond what is assessed. He is encouraged to make use of this assumption with all due haste so long as he donates his money and not our own.

Yet most infuriating about the entire debacle of debate is that in this Punch and Judy show in Washington, each continues to refer to the measure as making people “pay their fair share.” In this general notion, the author is in complete agreement. But we tend to disagree about who is not already paying that “fair share.”

What of the over 50% of American citizens who pay no income taxes whatsoever? Is zero percent their “fair share”? If so, one begs to differ. These are the very people who most avail themselves of social services of every kind. Not only do they pay nothing to begin with, they proceed to strip the system bare of the very things which those unpaid taxes so readily provide.

Like the author says, the problem is not that taxes aren't high enough, but that there are too many net tax consumers. Yet Buffett, a man of undeniable business acumen, seems unable to identify a single area of government waste.

Mike Krieger at Zero Hedge also puts the Buffster in perspective, commenting on his $5 billion stake in Bank of America. And make no mistake, the man is not running a charity.
So back to Buffett. The truth of the matter is, as I and other have exposed these last several years, is that he essentially runs a financial services company. When the system itself was threatened the status quo was threatened. Buffett stepped in and became a government agent once he saw the writing on the wall. He did not step up for America. He did not step up for the people. He stepped up for himself and his legacy. He stepped up to save the status quo because he is the status quo. All of this raises a very serious issue in America right now and one that needs to be dealt with in the next crisis (which has arrived) or we will never be able to recover into the world’s most vibrant and dynamic economy again. A lot of people lament the lack of upward mobility in the U.S. right now and I share those sentimentshare those sentiments. However, equally important is downward mobility. What makes the concept of America unique is not merely the concept that the poor can become rich but that the rich can become poor. It is this second part that is the most dangerous to social cohesion when it disappears. Unfortunately, the system that we have today of an unholy alliance between Wall Street, Washington D.C. and the multi-national corporations (including the military industrial complex of course) stands there holding onto all the levers of power to serve as gatekeepers of their own empires.

I've emphasized the money quote in Krieger's essay. What we euphemistically call "the system" has become unfair at a fundamental level, in that not only are the barriers to upward mobility so high but that the elite are insulated from their errors.

Thursday, September 1, 2011

Roissy's return

As Chateau Heartiste, and a look at Sinead O'Connor



Sinead drew some attention because she's apparently prepared to go the extra mile for sex at this point. Nubile looks and fertility having long since been overdrawn, her currency in the sexual marketplace is now kink.

Gnostic society tells women they are just like men: that they have the same choices as men; that they should be judged by the same standards as men; that they have the same biological timelines as men. Women therefore need not worry about capitalizing on their peak of attractiveness and fertility. Go to grad school, don't just get a job--get a career, hold out, maintain your standards: tall, wealthy, athletic, powerful, famous. There's plenty of time. Forty is the new twenty! You can always settle down with Mr. Right [i.e., George Clooney] once he gets tired of immature [i.e., younger, hotter] women [and he will, he will] and is ready to let you quit work and spend thousands of dollars trying to coax your aging eggs into a healthy brood. Right? Right?