Randomly Noted

In the Financial Crisis Inquiry Report issued today, there is a fair amount of criticism lobbed at Wall Street and the complicated securities it created that fueled the explosion of toxic mortgages. It also notes that there were quite a few hedge funds that figured this out and entered trades that would make them profitable if “the entire market crashed.”

The FICC report says it surveyed more than 170 hedge funds and a found a common strategy to be one where they went long the equity (extremely risky) portion of a collateralized debt obligation but used credit default swaps to take offsetting positions in different ranches of the same CDO.

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Here’s a great quote from the Financial Crisis Inquiry Commission report that  was released earlier today:

“It didn’t take Sherlock Holmes to figure out this was bogus.” That’s from Prentiss Cox, then an assistant attorney general with the state of Minnesota. He was talking about loan applications he reviewed from a mortgage lender who later went bust,

Cox received 10 boxes of applications from the mortgage lender and began to pull out random files. Here a pretty healthy mortgage was given to a disabled borrower in his 80s who used a walker and was described in the loan application as being employed in light construction.

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Kinder Morgan, the largest refined petroleum products operator in North America, filed new documents with regulators today giving a little more color on its upcoming initial public stock offering. It set the size of the deal at 80 million shares and is telling us there will be 707 million shares outstanding after the offering. It didn’t give us a range yet for the size of the offering but this will clearly be a deal that places a market cap on the company at more than $10 billion. This blogger surmises that because one number the company did give was its expected dividend payout: $1.16 a year or a total of $820 million in dividend payouts.

If the market cap was $10 billion, that would be an 8.2% dividend payout – and we shouldn’t expect a dividend yield that high.

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(Neal Lipschutz is live blogging from the World Economic Forum in Davos).

There’s little doubt India will increase its presence and influence at the annual meeting of the World Economic Forum to get under way Wednesday in Davos, Switzerland. A much-noticed theme at last year’s meeting was the growing role and confidence of business and government leaders from emerging giants India, China and Brazil.

The Confederation of Indian Industry is this year offering a substantial number of events parallel to the official program. The organization calls it “india !nclusive” and programs range from a breakfast session titled “India and Indonesia: Implications of the inclusive growth paradigm on business” to a Bollywood Night starting one evening at 11 p.m.

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(Neal Lipschutz is blogging live from the World Economic Forum in Davos).

Green is in at the World Economic Forum’s annual meeting in Davos, Switzerland. As participants register and are handed their black conference bags emblazoned with the immodest slogan “Committed to Improving the State of the World,” they are asked if they want to go paperless. That means eschewing the looseleaf binder that holds the details of the multi-day program and the small but thick books of “members and “constituents” in favor of a small flash drive. An organization spokesman said it’s too early to tell the take-up on the digital offer, but that given the effort to go paperless and such things as Ipad applications containing the voluminous documents there definitely will be less paper used this year than last at the yearly global get-together.

If the battle over U.S. government spending and what to do about outsized federal deficits were decided by which side has the best quotes, score a point for the deep-budget-cut-now types.

The quote is from Tim Pawlenty, former governor of Minnesota, who is considered a possible Republican presidential hopeful for 2012. I read it this morning in an email roundup from Mike Allen of POLITICO. A quick search shows Pawlenty had been using the thrust of the quote often as he speaks publicly, sometimes promoting his just published book.

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A quote from Jeffrey R. Immelt, the chairman and chief executive of General Electric who was just tabbed by President Obama to lead a government council on job creation, sums up quite well a key aspect of the  American economic dilemma.

“The assumption made by many that the United States could transition from a technology based, export-oriented economic powerhouse to a services-led, consumption-based economy without any serious loss of jobs, prosperity or prestige was fundamentally wrong,” Immelt wrote in an “op-ed” piece in today’s Washington Post.

I’ll take issue with one aspect of the quote: the implication that someone planned it that way, that someone thought this was a good idea. The transition, which threatens the long-standard American advantage of a broad and robust midlle class, was the result of market forces. Globalization works all sorts of ways.

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One of the interesting little tidbits in the Goldman Sachs earnings report today – the company took a $305 million impairment write-down against its “Designated Market Maker” rights at the New York Stock Exchange.  What that’s referring to is the old specialist business that Goldman owned through Spear, Leads & Kellogg.

Once upon a time, before technology became such a big part of our lives, traders called specialists made markets in a stock. He/she matched buyers and sellers from orders over the phone. If someone wanted to buy but no sellers were available, the specialist became the seller. Or vice versa. But as technology became more prevalent, it became apparent you didn’t that brokers to so the matching of orders.

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One of this bloggers favorite newsletters is one put together by John Mauldin. Not only does he have his own interesting economic insights, but he flags his readers to insights from others. His most recent newsletter focuses on a year-end review by Hoisington Investment Management. The area of the review that caught my eye were some of the remarks about the municipal fiscal mess we continue to face.

For starters, Hoisington notes that the rise in municipal bond yields significantly increased borrowing costs – which is not something good for already cash-strapped municipalities. That makes it more expense to fund capital projects that were planned, which could place some of those plans in peril. The firm notes that through history, state and local governments don’t undertake big projects when they have huge cyclical deficits. What’s not said here but is another consequence – the fewer capital projects underway, means fewer jobs for the employed and unemployed.

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It wasn’t a good day for Chinese stock markets on Monday. And unless U.S. companies unleash some positive earnings news on Tuesday, stock markets in the U.S. could be under pressure as well.

The Shanghai Composite Index closed down 3.0% while the Shenzhen Composite Index fell 4.3%. Both were reacting to Friday’s news from the People’s Bank of China, which said it will raise the share of deposits that banks must keep on reserve by half a percentage point. this is the seventh time in a year the bank has done so and follows two interest-rate hikes since October.

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