Wednesday, August 27, 2008

The Future of Fannie and Freddie (in a nutshell)

I wrote about the destruction of Fannie Mae and Freddie Mac and the meaning of moral hazard. Right on cue came this statement from Jason Furman, the economic policy director for Obama campaign, in an interview with The Financial Times:

Mr. Furman indicated that Mr Obama could back further intervention to support Fannie and Freddie, but said “there must be no bail-out” of “shareholders or management”. Fannie and Freddie had a “problematic business model – heads they win, tails the taxpayer loses”. He said: “Any fix for their problems needs to be part of a longer term solution that revises that business model.”
The 38-year old Mr. Furman is a protégé of Bob Rubin.

There you have it.

Know-nothings and the Current Systemic Crisis

Reporting from Jackson Hole, Wyoming, where the “leading banking policymakers” were concluding their annual meeting, The Financial Times wrote:
More than a year into the credit crisis, the world’s top central bankers admit that they are still in the dark as to what its ultimate impact on the global economy will be.
The governor of the Bank of Israel, presumably one of the world’s top central bankers, had this to say: “There is an enormous amount of uncertainty about where we stand at the moment”. A former deputy governor of the Bank of Japan, upped that and spoke of “exceptional uncertainty”.

So once again it was confirmed: the world’s top central bankers – and top fund managers and top regulators and top academics, in short all those who were top enough in finance to be invited to Jackson Hole – have absolutely no idea whatsoever as to what is taking place around them.

How do you proceed then, when you do not know where you are and what lies ahead? What guides you?

The answer, I suppose, is common sense that is rooted in the experience. Like this one, for example:
“If you’ve got a squirt gun in your pocket, you probably will have to take it out. If you have a bazooka in your pocket and people know it, you probably won’t have to take it out”.
The speaker is Treasury secretary Paulson in front of the Senate banking committee, making the point that to successfully manage the Fannie-Freddie crisis, he needs virtually unlimited resources (bazooka), as opposed to a finite sum (squirt gun). He then added:
The more flexibility we have on the credit facility [to make investments and loans to Freddie and Fannie], the more confidence you have in the market and the greater protection to the taxpayer because the less likely it will be used.
Note the two close-knit streaks underlining this practical wisdom. One is the Prussian “peace through strength” philosophy that is now the guiding principle of every military strategist and street-corner thug. It is the pulling-a-gun-when-the-other-side-pulls-a-knife philosophy, so that no one would “mess” with you. Peace through strength!

The other is the element of bluff: if you have no gun and no stomach for a fight, you pretend to be the madder and the “badder”. If your opponents believe that you have a bigger gun, or a bazooka, or no control over your car (in the game of “chicken”), they might back off. That is the subject of the so-called “game theory”: how to win against an opponent who reacts to your moves.

That Secretary Paulson thinks of Fannie-Freddie problems in terms of the chicken game is not surprising. This border-line fraudulent nonsense has so encroached economics and “modern finance” that its perpetrators are given the Noble Memorial Prize in economics. See how The Financial Times is using the same game-theory framework to report on the failure of Paulson's “bazooka” strategy:
By the start of last week, Mr Paulson’s theory was increasingly being undermined by the markets, as investors essentially called the Treasury’s bluff, not just by bringing down the equity prices but also by showing limited appetite for debt and preferred stock issued by Fannie and Freddie.
This is not the place to discuss the futility of resorting to escalating force. (That was the main point of the Rambo movie that many people missed, thanks to Hollywood’s perversion of the original script).

Let us also not dwell on the technical point of fitting a bazooka in a pocket. But I must absolutely insist on one critical point. The subject of finance is not people. It is capital in circulation. The capital in circulation, furthermore, has its own laws that operate independent of the will of the individuals in financial markets. More accurately, the sum total of self serving actions of individuals set in motion a force that has its own, independent laws of operation which, for that very reason, tends to frustrate the individuals’ efforts. That is why seemingly common sense “practical” solutions do not work. The problems in financial markets are real. No one needs to be aware of them for them to exist. They will not, likewise, disappear with bluff and threat.

Take, for example, this front page story from The New York Times, under the heading “U.S. and Global Economies Slipping in Unison”:
Economic trouble has spread far beyond the United States to major countries in Europe and Asia, threatening American businesses with the loss of foreign sales ... Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed down ... Now, high energy prices, financial systems crippled by fear, and the decline of the trading partners have combined to choke growth in many major economies.
Why do global economies move synchronously with the US economy? Can we offer an explanation in terms of finance, one that would not involve “people”?

Here is what I wrote in Vol. 1 of Speculative Capital in 1999:
After arbitrage opportunities in the home market have been grazed, speculative capital sets out to find virgin markets outside the original national boundaries. This excursion begins with more developed markets. That is partly because they can more easily accommodate the large size of speculative capital. Also, the primary tools of speculative capital–derivatives–are more likely to be found in these markets. Gradually, even in these markets, the profit opportunities are arbitraged away ... So speculative capital sets out to seek even more virgin territories outside the developed markets and economies. When these markets are found, they become the “emerging markets.”

The specifics of how speculative capital links various international markets are, again, quite technical and vary from one case to another ... In all events, though, the end result of cross-border arbitrage is a replay of what takes place in national markets: the markets become coupled and their price movements synchronized.

Monday, August 25, 2008

The Meaning of Moral Hazard

The dictionary definition of moral hazard is “the possibility of loss to an insurance company arising from the character, habits or circumstances of the insured”. In the parlance of modern risk management, that is called reputation risk.

But being vacated by a modern equivalent has not meant the demise of moral hazard. On the contrary, the term has been usurped for use in an ideological war. Its new meaning is “the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to risk”. This modern meaning is deceiving on two levels.

First, moral hazard always refers to the government rescue/bailout of a private business. So in bringing up moral hazard, it is the involvement of the government that is being criticized. In this way, the populace is conditioned to reject or, at least, grow distaste for, government “paternalism”. Needless to say, when the going gets tough, the government does what it has to do, moral hazard or not. Secretary Paulson discussing Bear Stearns bailout, as reported in The New York Times:
In Washington, the Treasury secretary … signaled strong support for the Fed’s role in supplying a lifeline to Bear Stearns during crisis negotiation, saying his priority was to stabilize the financial system and to worry less right now about the problem of avoiding a “moral hazard” by bailing out errant institutions. “We’re very aware of moral hazard,” Mr. Paulson said in a television interview … “But our primary concerns right now – my primary concern – is the stability of our financial system, the orderliness of the markets. And that’s where our focus is.”
Second – and this is the more critical point – the focus, central point and raison d’etre of any government bailout is rescuing the creditors, not the shareholders; shareholders do not count.

So if the news reports that Treasury secretary Paulson pressured JPMC to low ball the Bear Stearns price to $2 to avoid the appearance of moral hazard are true, either Paulson himself was fooled/indoctrinated by the definition of moral hazard, or he put it out as a red herring.

If the former case is true, then the Bear employees really got the most unjust and unjustified of shafts. If the latter case is true, it is a testimony to what we already know: the critical issues that count are not even on the agenda; they are beyond discussion.

Just wanted to clear the air, now that the news of Fannie and Freddie’s bail-out is in the air.

Monday, August 18, 2008

Mission Accomplished: The Destruction of Fannie Mae and Freddie Mac (Epilogue)

The destruction of Fannie Mae and Freddie Mac is an example of the self-destructive tendency of speculative capital materialized in the actions of its blind agents. The agents are blind in the sense of being concerned only with facilitating the movement of speculative capital to and from arbitrage relations, no matter what the consequences. If the consequences are ever contemplated, they are shooed away like a fly.

Were we to magically turn into spirits, travel back in time to early 2001 and warn the members of Financial Services Forum by playing a tape of the events that unfolded, each one of them would echo Lady Macbeth who asked the spirits “to stop up the access and passage to remorse, that no compunctious visitings of nature shake my fell purpose”.

It is not a murderous resolve, however, but the instinct to go “with the flow” that would cause the financial executives to dismiss our warnings. The instinct is a practical one. It is a realization of the subjugation of the individual to the social forces, of the kind that create economic and financial activities. In the “advanced” financial markets, the role of the individual is diminished to the insignificance. All CEOs, being practical organizational men, know the limits of their power – as individuals within an organization or an organization within the system.

Chuck Prince’s much maligned comment about dancing as long as music played spoke to that fact. What could he do, in say, summer ‘06, if he had foreknowledge of events? Could he order Citi to dissolve the SIVs and stop buying CDOs?

Such an order would be akin to a general ordering his units to stop fighting in the midst of war. There would serious and certain personal consequences and uncertain systemic implications.

On a personal level, let us keep in mind that the SIVs and the CDOs existed because they generated profit. The prospect on Wall Street is gloomy these days precisely because there is no substitute on the horizon for the lucrative money machine that came to a halt.

If a CEO – always under the gun to deliver better results – so much as hinted at shutting down this business, with all the implications of lost jobs, lost profits and lost bonuses that it implied, he would hauled out of the office. No, better to be hanged with others than singled out and dismissed as a fool.

Then, there would be the question of cause and effect. If, on our imaginary trip, an executive demanded proof that the destruction of Fannie and Freddie would cause a systemic crisis, we would be at a loss to offer one. As a matter of fact, no such cause and effect relation exists, else it would imply that had Fannie and Freddie continued business as usual, there would be no crisis. And that is a fallacy.

Despite the absence of a cause and effect relation in this particular case, however, we are not in a Beckettian labyrinth of disconnects where every event could be said to have “proved nothing, refuted nothing.” On the contrary. Armed with the theory of speculative capital, we recognize the driving force behind the changes taking place in the world of finance and the direction of that change. The current crisis is a systemic shock, the system being the sum total of all the business models and relations, laws, regulations, policies, products and, of course, the financial institutions active in the milieu. Fannie and Freddie, however large, are mere two entities in this complex web.

Their destruction, in accordance with the self-destructive movement of speculative capital, exacerbated the crisis. It gave the system another black eye; it made it more vulnerable. Vulnerabilities are the necessary conditions of collapse. That is the central point of the two-part “Destruction” series.

The nemeses of Fannie and Freddie are rubbing their hands with pleasure. In the mean time, Fannie and Freddie are not the only ones whose future will be different from the past.

Friday, August 15, 2008

Mission Accomplished: The Destruction of Fannie Mae and Freddie Mac (Part 2 of 2)

The lucrative business of Fannie Mae and Freddie Mac had attracted the attention of the private financial firms. They had created Structured Investment Vehicles (SIVs) that approximately mimicked the business model of the GSEs. The SIVs borrowed at the lower rates in the commercial paper market and purchased higher yielding assets, mostly mortgage-based CDOs. Between 1998 and 2001, the CDO assets of the SIVs more than doubled to $85 billion.

Rising home prices and low interest rates had kept the mortgage supply line going. Naturally, Fannie Mae and Freddie Mac also benefited from this market. Their balance sheets, too, expanded as they kept issuing bonds and purchasing mortgages.

But while the demand continued to grow, the supply began to flatten; even in a strong housing market there were only so many qualified buyers. “Qualified” is the key. Because Fannie and Freddie guaranteed the mortgages, they naturally wanted to limit their exposure to potential default. So they had put in place strict requirements in terms of the borrowers' income and the “loan to value” ratios. Only such loans that met the established criteria were “agency eligible” – fit to be purchased by Fannie and Freddie.

To SIV’s, this constraint was a choke point. Their CP-CDO arbitrage machine needed the constant flow of mortgages. As the mortgage lenders ran out of qualified borrowers, the CDO supply line was affected. One obvious way – the only way, really – of maintaining the production line was loosening the lending standards. But the Fannie-Freddie requirements stood in the way.

So it was that in a late February ’01 meeting of the chief executives of some of the largest financial institutions in the U.S., a plot was hatched to finally take out the two agencies. The previous, less coordinated attacks on Fannie and Freddie had failed due to the strong support the agencies enjoyed in Congress and among the advocacy groups. Now, it was time to get serious. Under the heading “Finance CEOs to Press for Overhaul of Fannie, Freddie” the Wall Street Journal reported the plot on March 9, 2001:
A coalition of chief executives from more than a dozen large financial institutions has decided to press for reform of Fannie Mae and Freddie Mac … The decision to seek a review of the way the government-sponsored mortgage giants conduct their business was made two weeks ago at a meeting in Amelia Island, Fla., of the Financial Services Forum … The group, an intentionally low-profile organization of chief executives from the country’s biggest financial companies, backed the successful effort to repeal laws separating the banking and securities industries … Tensions have risen in recent years between the mortgage companies and other financial-service concerns amid fears that rapidly growing Fannie and Freddie would diversify and take business away from other companies.
What followed is a fascinating tale of media and perception control that touched upon the epistemological issue of the relation between the narrative and truth. In Vols. 4 and 5 of Speculative Capital I will at look at them in some detail. Suffice it to say that the whole affair was a stunning display of the falling-into-the-line of the media, academia and the regulatory agency in charge the moment the marching order was given. No dissent was allowed. Certainly no dissent was given any “air time”. The conformity that was initially forced and then internalized and “freely” expressed would make any commissar green with envy.

Three weeks after the fateful meeting, the Wall Street Journal led the charge with an editorial calling for the “investigation” of Fannie and Freddie for “threatening” their opponents. This was a reference to the agencies’ spirited resistance to previous attacks.
Perhaps the allegations of threats against political opponents will be investigated by Congress, and, if found to be true, will change the equation in Washington. Perhaps responsible members of Congress will realize that GSEs (government sponsored enterprises) – and Fannie and Freddie in particular – are uniquely problematic institutions that can do great harm to a market economy.
Why and how Fannie and Freddie “can do great harm to a market economy” was left unsaid. The smear campaign had begun.

A few months later, when a planted question raised the issue of Fannie and Freddie, the plainspoken Treasury secretary Paul O’Neill hinted at the plot (WSJ, July 5, 2001):
In a recent appearance, Mr. O’Neill fielded a question about the companies [Fannie Mae and Freddie Mac]. There were people who “in good faith” wanted to curb Fannie and Freddie’s privileges, he responded. But “most of them,” he added, “would not want to walk out here and stand with me and say that.”
The baton was then passed on to the executive branch which added a new warning about the dangers of Fannie and Freddie. The Wall Street Journal reported (February 5, '02):
The Bush Administration said Fannie Mae and Freddie Mac have funded their rapidly growing asset portfolios by increasing their debt outstanding and warned that the two companies may be taking on more risk with subprime loans.”
This was a curious criticism. Buying mortgages with the money borrowed on the strength of their credit rating was the very business model of Fannie Mae and Freddie Mac. True to the plot line, their raison d’etre was now being questioned.

Two days later, the Journal opened a new front, questioning the strength and reliability of the agencies’ earnings:
An accounting rule implemented by the companies last year has highlighted a highly volatile aspect of their business. … Companies must [now] record quarterly changes in the value of their derivatives. At Fannie Mae and Freddie Mac, the value of those derivatives has swung, and, as a result, they have reported unprecedented volatility in earnings and shareholder equity.
The new accounting rule and the “unprecedented volatility in earnings” that resulted were going to play a critical role in bringing down the agencies.

Meanwhile, the incessant negative coverage continued. The New York Times seized upon the collapse of Enron to make some not-so-subtle associations and level new charges:
Now, in the wake of Enron collapse, the argument over the companies has taken a new turn. Instead of taking on Fannie and Freddie over subsidies, their critics are arguing that the companies ... do not give enough information to regulators or investors ... Alan Greenspan, the Federal Reserve Chairman, expressed related concern in a speech ... “The broader risk for financial markets and economy result from the perception of government support for these corporations,” Mr. Greenspan said. ... Fannie Mae and Freddie Mac respond that they already disclose huge amounts of information about their portfolios and derivatives exposure, and that the fuss over the implicit government support and the companies’ used of derivatives is a red herring.
Note how Fannie and Freddie are hopelessly outmatched. Their defense sounds like the ridiculous denial of someone caught in the act. Who would you believe, after all, a functionary at a quasi-government enterprise or the Chairman of the Board of the Federal Reserve?

The “Maestro”, by the way, dishonored himself by being the most persistent besmearer of the agencies. His attacks carried extra weight because his utterances were given wide coverage, even when, as generally was the case, he uttered drivel. In the above paragraph, for example, he is saying that the “broader risk” – the more serious risk – facing the U.S. economy and the U.S. financial markets is that people believe Fannie and Freddie are safe and sound! Private finance never had a more mindlessly destructive errand boy.

Not that his intentions and actions were difficult to read. Here is the enfant terrible of the mortgage market, Angelo Mozilo, the CEO of Counterywide, in an interview with the New York Times:
Particularly irksome to [Angelo R. Mozilo] are calls by Alan Greenspan, the Federal Reserve Chairman, to shrink Fannie Mae ... “Fannie and Freddie are threats to his banks,” Mr. Mozilo said of Mr. Greenspan, whose agency regulates big bank holding companies. By buying his mortgages and thus freeing up his capital to solicit even more business, Fannie and Freddie are a big reason Mr. Mozilo has driven Countrywide past the Citigroups and Wells Fargos to the top of the mortgage heap. “If it wasn’t for them,” he said of Fannie and Freddie, “Wells knows they’d have us.”
Then in 2004 came the “accounting scandal”.

Fannie and Freddie were regulated by The Office of Federal Housing Enterprise Oversight (Ofheo), a regulatory backwater par excellence, if there ever was one. A regulatory body could be useful in attacking the GSEs. As luck would have it, in the person of Ofheo’s managers, the plotters found natural-born weathermen who knew which way the wind was blowing. So, starting with 2001, when it forced Fannie and Freddie to adopt fair value accounting as a prelude to what was to come, this cream puff of a regulatory agency was gradually transformed into a Rottweiler.

In 2004, Ofheo issued a strongly worded report criticizing Fannie Mae for using improper accounting methods. It further accused the agency of fostering a “culture” that had allowed the accounting and risk management system to deteriorate and become dysfunctional.

The details of the accusations are too technical to discuss here. More to the point, they are irrelevant; spending any time on them would be missing the main point. Floyd Norris, an old hand in business reporting in the New York Times, came closest to describing it fairly:
The accounting issues confronting Fannie Mae concerned two accounting rules. Neither is simple, and results from both can be changed if the company changes its assumptions. But the fact that a range of numbers might be appropriate did not give the company the right to pick numbers based on what figure would look best on its financial statements. Still, that is what the Ofheo report concluded happened.
The report got extensive coverage, especially because it charged that the earnings were “manipulated” to boost the bonuses of Fannie’s CEO and other executives. Franklin Raines, the CEO, was savaged in business talk shows and newspaper commentaries.

The proof is in the pudding. If there were any merits to the charges, Raines would be hung from the nearest tree. He was never charged, merely forced to resign retroactively – a puzzling concept until you realized that he was forced to return $50 million bonus he had received in the previous 5 years. That was a payback for the “arrogance” of the uppity black man who had ticked off his detractors by fighting back.

After the report, the Ofeho increased the regulatory capital on the agencies by an unheard-of 30 percent, the financial equivalent of a military blockade. That effectively ended the agencies’ active participation in the markets.

With Fannie and Freddie thus sidelined, mortgage underwriters had the field to themselves. The halcyon, anything goes days of mortgage lending began. Every day a new word entered into the lexicon of mortgage lending: alt A loans, no-doc loans, stated-income loans and “ninja” loans. What all these loans had in common was the suspect capacity of the borrower to pay back. A New York Times story described the frenzy::
[William D. Dallas, the founder of a mortgage brokerage] recalls being asked to make more “stated income” loans, in which lender do not verify the information provided by borrowers and brokers with tax returns, pay stubs or other documentations. The message, he said, was simple: You are leaving money on the table – do more of them.
In the summer ‘07, the value of mortgages in the U.S reached $12 trillion, a large portion of which had found their way into the CDOs. In the latter category, the ’05, ’06 and ’07 vintages stood out.

The rest, as they say, is history. The signs of the trouble appeared early in the ’07 as the indexes corresponding to mortgages fell. In April '07, a Fitch report sounded the alarm, highlighting the troubles of ‘05 and ’06 CDO vintages:
As the U.S. subprime market stresses continue to materialize, 2005 and 2006 vintage structured finance (SF) CDOs will be under greater ratings pressure as they have substantially larger concentrations of subprime RMBS, according to Fitch analysts.
In June ‘07, two mortgage funds managed by Bear Stearns folded. By late August, the hopes for a quick market rebound had faded.

Could Freddie and Fannie help stabilize the market by large scale purchasing of mortgages?

We will never know. The idea was proposed but rejected :
As the ominous drumbeat of bad news in the US subprime mortgage market continues, investors and politicians this week pinned hopes on government-sponsored mortgage groups Fannie Mae and Freddie Mac to come to the market’s rescue. Word that the US housing agencies had asked their regulator to raise caps on the size of their mortgage portfolios helped lift bond and equity markets on Monday as investors bet that the agencies could provide relief. But some analysts and Bush administration officials questioned the value of that relief in spite of support for action on Capitol Hill.
Losses mounted. The crisis intensified. Now even the good quality mortgages were affected. In November ‘07, Freddie Mac reported 3rd quarter losses of about $2 billion, mostly due to the deterioration in the mortgage market. Freddie’s CEO used the occasion to appeal for a sympathetic hearing:
Mr Syron [Freddie Mac’s CEO] tacitly blames US regulators for Freddie’s problems, highlighting the complex politics when troubles hit Freddie and its larger rival, Fannie Mae. …“We have the opportunity to put profitable business on the book but we are constrained by capital requirements. That is a major factor,” Mr Syron said.
The Financial Times begged to differ. It said that the loss showed that “ “tough stance on Freddie and Fannie was vindicated” ” and made its pages available to Ofheo to say just that. The agencies were not to be given a break.
James Lockhart, Ofheo director … takes issue with some analysts’ belief that by being capital-constrained, the GSEs might no longer provide the financial lifeline to private-sector mortgage lenders such as Countrywide. He says: “They have a lot of flexibility. That’s why I think some of the market has overreacted, if I may say that.” … He rejects suggestions that the GSEs should be temporarily allowed to securitize loans of more than $417,000. He says … they don’t have the risk management system.
All this meant that the tough stance on Freddie and Fannie was vindicated!

As John Wayne would say, like hell it was.

By early ‘08, a full blow crisis was at hand. A January ‘08 report by the S&P pointed to the vulnerable areas.
We believe U.S. RMBS transactions backed by subprime loan collateral of all vintages could be adversely affected by our pending assumption changes, especially those transactions issued in 2005, 2006, and 2007.
Still, Fannie and Freddie remained in shackles.

On the evening of Friday, March 14, Bear Stearns employees went home. Someone should have warned them of Ides of March. On Monday, March 17, they returned to the news that their firm was gone, given away to JPMC at $2 per share. This was a financial 2x4 that hit the collective head of all “participants in the financial markets”. Even the thickest of the thick got the message: things were spinning out of control.

Three days later, came a U-turn, presented as a “break for Freddie and Fannie
With the blessing of Bush administration, the regulator of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies, eased a major restriction on the companies on Wednesday in an effort to unfreeze credit markets and stabilize housing prices. By reducing the extra cushion of capital the two companies have been required to hold since 2004, the regulator, the Office of Federal Housing Enterprise Oversight, is enabling the companies to invest $200 billion more in home loans.
The risk management systems were now fine.

But it was too late; the meltdown was already under way. Fannie and Freddie’s shares kept drifting downward until in July they collapsed. The end of the mission was in sight.

Now it was time to save the agencies!

But how and why would you save entities that you sought to destroy?

Fannie and Freddie have upwards of $5 trillion mortgage-related exposure either in the form of straight agency bonds or the MBSs. Their bonds, especially, are held by virtually every financial institution in the U.S. and many others concerns around the world. So there never was – simply could not have been – a question of allowing them to fail. The seemingly frantic “rescue” efforts that involved the Treasury Department, Federal Reserve and Congress were mere theatrics. The end result, which was a blank Treasury check to Fannie and Freddie, was a foregone conclusion from the start, palm-on-forehead and head-in-hands poses of grave looking officials notwithstanding.

“Saving” meant bailing out the bondholders only. Now it also had to include a “regime change” of sort in Fannie and Freddie – ensuring that they would never regain their previous position.

The Wall Street Journal, which had fired the opening salvo against Fannie and Freddie in ’01, led the way in calls to dismantle them. In a July 10 editorial, it called for shrinking “these monsters to a less dangerous size,” and went on to say:
These columns have warned about Fannie Mae and Freddie going back to 2002, and our fate has been to climb a wall of denial and hostility.
Observe the journalistic standards. First, there is the claim of climbing “a wall of denial and hostility” while the truth is exactly the opposite: one way, coordinated assault on Fannie and Freddie without any response, a public relations version of shooting fish in a barrel. Also note the reference to 2002 instead of 2001, which is probably intended to hide any potential link with the Financial Services Forum.

At this point, though, it did not matter. Unless you had been paying very close attention – and I am not aware if anyone outside the maligned management at Fannie and Freddie did – it was impossible to make heads and tail of the situation. The failure and dangers of Fannie and Freddie were established as historical facts, beyond doubt and dispute. Scripta manent.

Naturally, the grand names of economics and finance were heard from: Joseph Stigler, the people’s economist, Larry Summers, the ex wunderkind, El-Erian, the all purpose commentator and, of course, George Soros, all wrote on their volition and with free will to say the same exact things about Fannie and Freddie. Soros, writing in the Financial Times, typified them:
The companies have been plagued by accounting problems and other irregularities; their management have spent enormous sums lobbying Capitol Hill. This is not a business model that deserves to be perpetuated.
The philosophical-intellectual trader had swallowed the bait, hook, line, reel and rod.

The game was over. One half trillion dollar losses later, the mission was accomplished. The New York Times spelled out what had to be done now – what was expected.
The government would have to take control of Fannie and Freddie until the housing crisis passed, and then debate how best to sever the links between the government and the companies.
That was the plan all along: for the government to cut loose Fannie and Freddie and turned them into private enterprise. Their success, like Medicare, might have given people ideas.

Still, like a B-movie monster that refuses to die, there were concerns that Fannie and Freddie might not be completely out of the picture. So the Times ended the editorial with a statement that had the elements of threat, wish, prophecy and promise. It said:
Fannie and Freddie may yet muddle through without an explicit bailout … But there is no return to the old normal. The future of Fannie and Freddie will be different from their past.

I will return shortly with the epilogue. (Shortly, I promise.)

Friday, August 8, 2008

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Silver Price

more formulas

Other than the common formula and also rule of 72, these are useful formulas too ...

Compound Interest Future Value

FV = PV * ( 1 + i )N

PV = present value

FV = future value (maturity value)

i = interest rate in percent per period

N = number of periods



Annuity

FV = PMT * [ ( ( 1 + i )N - 1 ) / i ]

FV = future value (maturity value)

PMT = payment per period

i = interest rate in percent per period

N = number of periods



Simple Interest Amortized Loan Formula

PV * ( 1 + i )N = PMT * [ ( 1 + i )N - 1 ] / i

PMT = the payment per period

i = interest rate in percent per period

PV = loan / mortgage amount

N = number of periods



Online Calculators

Calculation sample for Gold Pawn story : Case 2 & 5

Capital $10,000
Buying Unit Pirce : $1.00


Purchased Units = 10,000 x 1 = 10,000 units


Pawn to get 65% cash = 10,000 x 65% = $6,500
Use the money to buy again = 6,500 x 1 = 6,500 units


========= CASE 2


When unit price goes up 10% in one month to $1.10
Sell 6,500 units to take profit = 6,500 x 1.1 = $7,150
Use the money to pawn back : 7,150 - 6,500 = $650
Pay the pawn safe keeping fee, assuming the calculation is 6,500 x 0.75% / 12 = $4.06*note1
Sell the 10,000 units to take profit = 10,000 x 1.1 = $11,000


Total Earning is 11,000 + 650 - 4.06 = $11,645.94
Net Profit = 11,645.94 - 10,000 = 1,645.94
Profit Percentage : 1,645.94 / 10,000 = 16.46%


========= CASE 5


When unit price goes down 10% in one month to $0.90
Sell 6,500 units to take profit = 6,500 x 0.90 = $5,850
Use the money to pawn back : 5,850 - 6,500 = -$650
Pay the pawn safe keeping fee, same as above
Sell the 10,000 units to take profit = 10,000 x 0.90 = $9,000


Total Earning is 9,000 - 650 - 4.06 = $8,345.94
Net Profit = 8,345.94 - 10,000 = -1,654.06
Profit Percentage : -1,654.06 / 10,000 = -16.54%


16.46% vs 16.54% carries a 0.08% gap.


note1 : A more probable calculation method for the safe keeping fee is as followed :
10,000 x 0.75% = $75 per month


If we use this fee, then the differences are 15.75% vs -17.25% = 1.5% difference, not just the 0.08% small difference.


But in this Gold Pawn story, the key message is actually educating on the right way to determine if a Leverage technique should be adopted or not. How to compare 2 different leverage strategies etc. So the actual calculation is not that critical. Remember malpf's preaching ? ... you should run your own numbers and not just based on any other people's concept, not even malpf's.


Hope this helps ....

references

Trainings on Personal Finance in high school, 12 parts video
http://www.youtube.com/watch?v=BDWnmocgS2A&feature=player_embedded#!

Introduction to Personal Finance in 10 minutes
http://www.youtube.com/watch?v=BtbfbuFkuE8&NR=1

KLSE Stock Picks - Log

KNM - good buy below RM 0.49

Traded low break out of converging triangle, next support line is 0.40

19Feb support is at 0.41 and may gap over 0.43

20Feb side 0.41 0.425



HUAAN - good buy below RM 0.54

Downtrend with support at RM 0.220

19Feb support at 0.210 and may gap over 0.245

20Feb up0 0.225 0.235 gap



eyeing on

SCOMI - RM 1.02

20Feb down0 gap 0.325 0.350



HUBLINE - RM 0.96

20Feb side 0.195 0.220



WCT - RM 0.47

20Feb noVol up0 1.090 1.14



PBBANK - RM 3.35

20Feb side 9.050 9.25



KLK - RM 2.92

20Feb noVol 9.900 10.200 gap



CNI - RM 0.07

20Feb noVol side 0.185 0.210

Recommended Books

























Buy it HERE !

What could M A L P F stands for ?

Other than

.

.

Malaysia Personal Finance ... ... ...

Multiple Attitude and Leverage Personal Finance ... ... ...

毛 Personal Finance ... ... ...

没 Personal Finance ... ... ... (hakka)

My A grade Long lasting Personal Finance

.

What could possibly MalPF stands for ?
.
.
.
sacarstism also welcome, but if receive complains from other readers then I will keep the offending comments in private ...

Current Gold Price MYR per gram

old stuff









all the old stuff here ...



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check your credit in Malaysia

source


Self-Check

  1. CTOS Self Check : Do a "CTOS Self Check" and see what information has been collated in CTOS about you.
  2. Record/Settlement Update : If there are cases where you have made settlement but are not reflected in CTOS, you can have them updated by providing the necessary documentary proof. CTOS will insert a remark fo settlement/conclusion after receipt and verification of the proof submitted.
  3. Subject Comments : This is a facility that allows you to 'tell your side of the story'. Please contact us as to how you can do this. This facility is usually used by those who want the enquirer to know more about the cases listed and want to give more explanation to them. Your comments will be also shown to the enquirer upon an enquiry being made on you.
  4. CTOS Self Check is free.
  5. Procedure for doing Self Check :

    For Individual
    1. Download and complete Self Check Form - Individual
    2. Get copy of IC and have form verified by the Commissioner of Oaths
    3. You can come to CTOS office personally to conduct self-check

      Self Check Form

      PDF File | GIF File
    For Company
    1. Download Self Check Form - Company
    2. Complete the form and affix Company stamp
    3. Provide IC of Director doing the Self Check
    4. Provide certified copy of company Form 9 and Form 49
    5. Provide Company Authorisation Letter signed by Director to conduct company self-check.

      Self Check Form

      PDF File | GIF File

CTOS Sdn Bhd (209649-U)

Unit A-8-4, 8th Floor, Megan Avenue 1,

No 189, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia

Tel: 603-2770 8833 Fax: 603-2770 8834

E-mail: gen@ctos.com.my

Map





Obtaining Your Credit Report

With effect from March 2002, the Credit Bureau can upon request, disclose any credit information to any individual. In the past the Credit Bureau was empowered to disclose credit information only to the financial institutions.



The credit report can be obtained from Bank Negara Malaysia at no cost by following the steps below:



Request by individual

1) If you are from the Klang Valley , you may obtain the credit report from the Customer Service Centre, Laman Informasi Nasihat dan Khidmat (LINK) of Bank Negara Malaysia , Head Office at the following address:

LINK

Jabatan Komunikasi Korporat

Tingkat Bawah, Blok D

Bank Negara Malaysia

Jalan Dato' Onn

50480 Kuala Lumpur



LINK operates daily from Monday to Friday, 9.00 am - 5.00 pm (including lunch time ) except for public holidays .



Please bring along your MyKad and any other supporting documents that can verify your identity such as your driving licence or passport. The credit report will be given to you during the visit.

2) If you are from outside of Klang Valley , you may apply for the credit report by completing and sending us the following:

Please complete and send us the following:

  • Credit Report Request Form (CRR);
  • Loan Declaration Form;
  • A clear photocopy of your MyKad (both sides); and
  • Any combination of two other documents (with your name and address stated clearly on each copy) from the following:
    • Driving licence;
    • Passport;
    • Water bill;
    • Electricity bill; or
    • Telephone bill.

However, if the above documents are not available, you may provide alternative documents such as:

    • Bank account statement;
    • Credit card statement; or
    • EPF statement.

The Credit Report Request Form and Loan Declaration Form are available either by:-

  • Click here to download the form [PDF, 26K]; or
  • by requesting it from any of the Bank Negara Malaysia branches (Johor Bahru, Kuala Terengganu, Pulau Pinang, Kota Kinabalu and Kuching). Click here[PDF, 10K] for list of branches.

Please mail or fax the completed forms and supporting documents to BNMTELELINK, Bank Negara Malaysia at:



BNMTELELINK

Jabatan Komunikasi Korporat

Bank Negara Malaysia

Jalan Dato' Onn

P.O Box 10922

50929 Kuala Lumpur

Fax No: +603 2174 1515

Request by a business entity

Company

Only employee who is authorised by the company could collect the credit report. The authorised personnel should fill in the CRR and submit it together with a copy of the following documents:

  • a copy of identity card (MyKad) or passport (if you are a non-Malaysian) of the authorised person;
  • an authorisation letter (with letter head of the company) from the company to authorise the person to collect the credit report. The letter should be signed by the company secretary and two directors of the company ;
  • a certified true copy of Certificate of Registration of Company (Form 9) by company secretary;
  • a certified true copy of Certificate of Registration of Change Name of Company (Form 13) by company secretary, if applicable; and
  • a certified true copy of latest List of Directorship of Company (Form 49) by company secretary

* Please take note that the certified true copy must be at least two weeks (14 days) before the submission date of credit report request form.

Partnership/Sole Proprietor



It you are a sole proprietor or partnership, the credit information will reflect in the individual personal credit report. The application procedure is the same as obtaining the credit report for an individual.



Request for credit information of a deceased



The person who is authorised to collect the credit report should be an immediate next-of-kin i.e. wife, husband, children, parents or siblings ( if married, the 'next-of-kin' is always the spouse and if that person is not available, the order moves through children, parents and siblings). The request must strictly be accompanied with a CRR supported with a copy of the following documents:

  • a copy of death certificate;
  • a copy of identity card (MyKad) of the authorised person (next-of-kin); and
  • a copy of birth certificate / marriage certificate of the next-of-kin as proof of the relationship.

Request for credit information of a bedridden / medically invalid individual



The person who is authorised to collect the credit report should be an immediate next of kin i.e. wife, husband, children, parents or siblings ( if married, the 'next-of-kin' is always the spouse and if that person is not available, the order moves through children, parents and siblings) . The request must strictly be accompanied with a CRR form supported with a copy of the following documents:

  • a copy of identity card (MyKad) of the applicant;
  • a copy of identity card (MyKad) of the authorised person (next-of-kin);
  • a medical report verified by the doctor and hospital; and
  • a copy of birth certificate / marriage certificate of the next-of-kin as proof of the relationship.

If you are from outside of Klang Valley, please note that it will take 2 to 4 weeks to process your request. We will notify you via letter for the collection. The credit report can be collected from:

  • Bank Negara Malaysia branches; or
  • Financial institution as specified in your application form .

Thursday, August 7, 2008

Malaysia old Taxi Fares 2003-2008

Tambang Teksi Premier Lembah Klang| Premier Taxi Fares in Klang Valley


Meter (Jarak)

2 km Pertama

Setiap 200 meter berikutnya



Meter (Distance)

For the first 2 km

For every subsequent 200 meter


RM 4.00

RM 0.20





RM 4.00

RM 0.20
Meter (Masa)

2 Minit Pertama

Setiap 45 saat berikutnya



Meter (Time)

For the first 2 Minutes

For every subsequent 45 Seconds



RM 4.00

RM 0.20





RM 4.00

RM 0.20
Penumpang Tambahan

Melebihi 2 penumpang setiap seorang

(3 kanak-kanak dibawah 12 tahun

bersamaan 2 penumpang dewasa)



Additional Passengers

Exceeding 2 Passengers, each

(3 children below 12 years is

equipvalent to 2 adult passenger)



RM 1.00









RM 1.00



Surcaj Selepas Tengah Malam

(12.00 tengah malam hingga 6.00 pagi)

50% tambahan tambang meter



Surcharge after midnight

(12.00 midnight 6.00 pm)

50 % extra to the metered fares

Panggilan Teksi Melalui Telefon

Setiap Panggilan Telefon



Telephone/ Radiophone charges

for every taxi call



RM 2.00





RM 2.00



Ke KLIA Surchaj

Meter + Surcaj



To KLIA Surcharge

Meter + Surcharges

RM 15.00





RM 15.00

Barang-Barang Penumpang

Bagi Setiap Barang diletakkan

dalam bahagian Bagasi Luggage



For Luggage placed in the luggage

compartment


RM 1.00





RM 1.00



Dari Hentian Duta Surcaj

Meter + Surcaj



From Hentian Duta Surcharge

Meter + Surcharges


RM 1.50





RM 1.50

Tol Lebuhraya

Dibayar oleh Penumpang



Highway Toll charges

Paid by Passengers





Tambang Teksi Lembah Klang | Taxi Fares in Klang Valley


Meter (Jarak)

2 km Pertama

Setiap 150 meter berikutnya



Meter (Distance)

For the first 2 km

For every subsequent 150 meter


RM 2.00

RM 0.10





RM 2.00

RM 0.10
Meter (Masa)

2 Minit Pertama

Setiap 45 saat berikutnya



Meter (Time)

For the first 2 Minutes

For every subsequent 45 Seconds



RM 2.00

RM 0.10





RM 2.00

RM 0.10


Penumpang Tambahan

Melebihi 2 penumpang setiap seorang

(3 kanak-kanak dibawah 12 tahun

bersamaan 2 penumpang dewasa)



Additional Passengers

Exceeding 2 Passengers, each

(3 children below 12 years is

equipvalent to 2 adult passenger)



RM 0.20









RM 0.20



Surcaj Selepas Tengah Malam

(12.00 tengah malam hingga 6.00 pagi)

50% tambahan tambang meter



Surcharge after midnight

(12.00 midnight 6.00 pm)

50 % extra to the metered fares

Panggilan Teksi Melalui Telefon

Setiap Panggilan Telefon



Telephone/ Radiophone charges

For every taxi call



RM 1.00





RM 1.00

Ke KLIA Surchaj

Meter + Surcaj



To KLIA Surcharge

Meter + Surcharges

RM 15.00





RM 15.00



Barang-Barang Penumpang

Bagi Setiap Barang diletakkan

dalam bahagian Bagasi



Luggage

For Luggage placed in the luggage

compartment


RM 1.00







RM 1.00




Dari Hentian Duta Surcaj

Meter + Surcaj



From Hentian Duta Surcharge

Meter + Surcharges


RM 1.50





RM 1.50

Tol Lebuhraya

Dibayar oleh Penumpang



Highway Toll charges

Paid by Passengers


Tambang Teksi Luar Negeri | Taxi Fares Oustation
    SELANGOR
    City

    Jenjarum

    Beranang

    Banting

    Batu ArangBatang Berjuntai

    Dengkil

    Kuala Kubu Baru

    Kuala Selangor

    Kerling

    Kuang

    Morib

    Tanjung Malim
    RM

    54.00

    72.00

    60.00

    60.00

    48.00

    72.00

    72.00

    60.00

    84.00

    49.00

    72.00

    96.00
    City

    Sepang

    Salak Tinggi

    Sabak Bernam

    Sekinchan

    Semenyih

    Sungai Besar

    Tanjung Karang

    Tanjung Sepat

    Teluk Panglima Garang

    Ulu Langat

    Ulu Yam

    Rawang
    RM

    85.00

    85.00

    108.00

    86.00

    61.00

    96.00

    72.00

    97.00

    48.00

    48.00

    60.00

    48.00
    City

    Batu Laut

    Batu Tunggal

    Teluk Datok

    Serendah

    Kampar

    Behrang

    Kuala Langat

    Kelompang

    Kampung Suharto

    Jeram

    Rasa

    Bangi
    RM

    72.00

    72.00

    60.00

    60.00

    48.00

    108.00

    84.00

    84.00

    96.00

    54.00

    72.00

    49.00

    Back to top


      PERAK
      City

      Bagan Serai

      Bagan Datuk

      Batu Gajah

      Bidor

      Grik

      Ipoh

      Kuala Kangsar

      Kampar
      RM

      253.00

      145.00

      157.00

      145.00

      336.00

      169.00

      205.00

      157.00
      City

      Lumut

      Parit

      Parit Buntar

      Sungai Siput

      Setiawan

      Selama

      Slim River

      Malim Nawar
      RM

      253.00

      196.00

      287.00

      193.00

      228.00

      313.00

      21.00

      170.00
      City

      Taipin

      Teluk Intan

      Tanjung Tualang

      Tanjung Rambutan

      Tapah

      Manjung

      Lenggong
      RM

      229.00

      145.00

      169.00

      170.00

      145.00

      241.00

      264.00
      Back to top


        Negeri Sembilan
        City

        Air hitam

        Bahau

        Batu Kikir

        Gemas

        Gemenchih

        Johol

        Kuala Kelawang
        RM

        162.00

        124.00

        122.00

        160.00

        136.00

        136.00

        112.00
        City

        Kuala Pilah

        Manung

        Nilai

        Port Dickson

        Rantau

        Seremban

        Seri Meranti
        RM

        112.00

        61.00

        76.00

        112.00

        97.00

        76.00

        97.00
        City

        Simpang Renggam

        Tampin

        Rembau

        Senawang

        Jelebu
        RM

        136.00

        112.00

        88.00

        76.00

        112.00
        Back to top


          Pahang
          City

          Bentong

          Genting Highlands

          Bukit Ibam

          Benta

          Gambang

          Jerantut

          Kuantan
          RM

          100.00

          106.00

          302.00

          133.00

          211.00

          172.00

          220.00
          City

          Kuala Lipis

          Raub Pahang

          Cameron Highlands

          Karak

          Fraser Hill

          Mentakab

          Temerloh
          RM

          196.00

          148.00

          198.00

          112.00

          120.00

          136.00

          160.00
          City

          Cherating

          Rompin

          Awana

          Bukit Tinggi

          Taman Negara

          Pekan
          RM

          268.00

          300.00

          106.00

          106.00

          220.00

          230.00
          Back to top


            Melaka
            City

            Alor Gajah

            Merlimau

            Sungai Udang
            RM

            111.00

            135.00

            123.00
            City

            Melaka

            Durian Tunggal
            RM

            123.00

            111.00
            City

            Masjid Tanah

            Jasin
            RM

            123.00

            135.00
            Back to top


              Johor
              City

              Muar

              Segamat

              Mersing
              RM

              148.00

              172.00

              304.00
              City

              Air hitam - Johor

              Johor Bharu
              RM

              292.00

              304.00
              City

              Batu Pahat

              Keluang
              RM

              184.00

              292.00
              Back to top


                Terengganu
                City

                Besut

                Kemaman
                RM

                479.00

                315.00
                City

                Kuala Terengganu

                Marang
                RM

                485.00

                383.00
                City

                Kuala Dugun

                Kertih
                RM

                432.00

                455.00
                Back to top


                  Pulau Pinang
                  City

                  Butterworth
                  RM

                  326.00
                  City

                  Bukit Mertajam
                  RM

                  300.00
                  Back to top


                    Perlis
                    City

                    Kangar
                    RM

                    456.00
                    Back to top


                      Kedah
                      City

                      Alor Setar

                      Kulim
                      RM

                      455.00

                      325.00
                      City

                      Baling

                      Sungai Petani
                      RM

                      403.00

                      364.00
                      City

                      Jitra
                      RM

                      417.00
                      Back to top




                        Kelantan
                        City

                        Kota Bharu

                        Pasir Putih
                        RM

                        536.00

                        485.00
                        City

                        Kuala Krai

                        Rantau Panjang
                        RM

                        549.00

                        614.00
                        City

                        Pasir Mas

                        Tumpat
                        RM

                        588.00

                        549.00


                        Last Updated : June 2003

                        Intellectual Property of Aistein Systems Enterprise