Tuesday, November 18, 2008

Down Jones

Dow Jones Industrial Average
Index Value: 8,273.58
Trade Time: Nov 17
Change: Down 223.73 (2.63%)
Prev Close: 8,497.31
Open: 8,494.84
Day's Range: 8246.89 - 8571.30
52wk Range: 7,773.71 - 13,850.90

The market has been up and down in daily 300 point swings for two months now, so most of those numbers don't mean much—it could be up 3% tomorrow. But that bottom row is pretty shocking though: The Dow Jones is worth HALF what it was a year ago. Half.

Michael Lewis (of Moneyball fame) has a great piece on the End of Wall Street in Portfolio. Lewis literally wrote the book on what is happening now—twenty years ago. From the article [emphasis mine]:
He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

That these fucking thieves are getting bailed out, but the auto industry is left to rot is—in context—a goddamn travesty.

[h/t Angelos for the Lewis link]


Smitty said...

"But the auto indistry made bad decision, built bad cars that nobody really wanted, and now want to be bailed out..." say some Senators and critics.

Oh, sure, but AIG and Goldman-Sachs made such great business decisions, right? I mean, backing loans with side bets? What could passibly have gone wrong?

Mr Furious said...

At the end of the day, at least there was a car to show for it. On the Wall Street side? Not so much.

Anonymous said...

So in summary, the firms that were too big to fail pulled the amateur daytrader move: They whipped out their credit cards to buy more stocks. Oddly enough, that's as sound a practice as taking all your earnings, savings, 401k, and kids' college money to the roulette table for one, big, doomed-from-the-start bet on black.

Oh, the monetary retard analogies could go all day with this one.

Missives From Suburbia said...

I simply don't envision the auto industry being left to die. I think they'll get their (our?) money, too. But the fat cats at the top need to be fired and the companies need to be reorganized until they're virtually unrecognizable, which will still mean a lot of unemployed auto workers.

I wonder... do you think all those people who voted "Country First" drive American cars? Yeah, I don't, either. I'd like to see those red-state nationalists put their wallets where their votes went.

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