Monday, December 20, 2010

Quotes of the day: from the Anonymous Fund Manager

There’s still a tremendous interest in the rest of the world to build up [US] dollar reserves. That desire to buy dollars buys us time. There’s still a tremendous demand for Treasuries; that buys us time. And in some way the fact that households in the US are kinda risk averse in plowing their money into bond funds, that actually buys some time for the US, where we’re actually able to roll over our debts at very cheap levels. So it gives the country time to adjust. Other countries don’t have that time.-AFM 

I do think there’s something to be said for rising inequality in the US being somewhat tied to the crisis because the demand for credit was a way for people who were falling behind to keep up their consumption. And politicians probably friendly to the idea of credit growth—and politicians were very involved in credit growth, saying, “We need to make more credit easier to get”—as partly a way to cushion the impact of rising inequality by allowing consumption inequality not be as stark as income inequality. Although, we talked about rising inequality in the US, if you look at global inequality, global inequality is shrinking because people in China and Brazil are getting involved.

... when you look at our manufacturing base, manufacturing as a percentage of our GDP hasn’t decreased that much over time. Employment in manufacturing as a percentage of all employment changed. That’s just because we’ve become more efficient. Labor has become much more efficient in manufacturing, and low value-added manufacturing has gone offshore. It’s not like we don’t manufacture anymore; we manufacture a lot. One of the sectors that’s been the most vibrant in bouncing back in the recovery is manufacturing.

... the legal infrastructure in the US for starting a hedge fund, and for clients of hedge funds to be able to make sure their money isn’t stolen, is better in the US. It’s harder to start a hedge fund in China, and as for the legal infrastructure for starting a manufacturing concern, the US doesn’t really have an advantage—or has a decreasing advantage over these other countries who’ve reformed their labor markets, who’ve reformed their customs regimes, reformed a lot of the legal and infrastructural issues that in the past have given the US an advantage in those sectors. They lag in the area of finance.

... Goldman, of all the banks, always seemed like they were the most careful about following the letter of the law, especially when they were violating the spirit of the law. And in this situation it’s not clear to me that they had any duty to disclose who the other side of the synthetic CDO was to a buyer of risk.  The idea that it’s now shocking that somebody was short? I mean, that’s the definition of a synthetic CDO—that somebody is short on the other side. In a sense they’re finding somebody who’s going to supply that risk by going short. So I don’t understand what it is they would disclose. It’s inherently the definition of the trade.

... Goldman’s decision to settle [with the SEC], I think it’s very strategic. I think they know that they probably observed the letter of the law. Most scrupulously. And they know many of the big banks were involved in this kind of trade. So Goldman is like, “Why am I going to be the guy to go die on the hill to defend everybody else? I’m going to settle, because I can get an OK deal.” It’s probably, you know, “Maybe we would win, and it would cost us a little bit less. But in fact with all the legal fees, if we lose it would be a lot more. We have the best fact pattern of all the big banks, but even so, we could still lose. But if we win, everyone else is probably spared; the SEC would probably be embarrassed and give up. But if we settle, it sort of validates the idea that the SEC should be looking into these. And they’ll go and dig up every other bank, and their fact pattern is going to be worse.” So in a way, if you’re concerned about your relative performance with other banks, why not settle if you can get a good deal and all those other guys go die on the hill?

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