1-2 Knockout

Well, now that Cox solved that problem...

Cox made his "no short selling" announcement at 12:51 (according to Bloomberg).  Expecting the end of the worst, investors bid up shares 9%, only to realize that maybe it wasn't the naked shorts 'who dun it'.

Well Thank God We Have the GSEs!

It seems to me that there are exceedingly few government entities that actually do what they were set up to do.  Whether through the law of unintended consequences, politically motivated 'drift', or just plain failing management, these agencies pervert their 'jobs' on a regular basis.  For a case in point I give you the Fannie Mae "who we are" write-up.  Emphasis is mine; my snide comments are in blue italics.

Fannie Mae provides stability, liquidity, and affordability to the nation's housing finance system under all economic conditions. Well, thank god we have the GSE's to provide "stability, liquidity and affordable houses".  Without them we may find ourselves in a housing/credit crisis, too few homes on the market (sarcasm), and expensive (yet declining) houses.  We are a shareholder-owned company with a public mission. "We privatize the profits, and socialize the risk just as Moussilini would have wanted."  We exist to expand affordable housing (unless congressional pressure tells us we can't let house prices fall) and bring global capital to local communities that give the most money to congress in order to serve the U.S. housing market help incumbents get re-elected.

Fannie Mae has a federal charter and operates in America's secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Seeing as how we had more money flowing into the RE sector than we knew what to do with (that's how you get a bubble), at rates too low to compensate for the riskiness of loans, what problem did this solve again? Our job is to help those who house America.

Fannie Mae was created in 1938, under President Franklin D. Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America.  This line should read "we now have the honor of being the first of the Socialist New Deal programs to fail, but you should expect the others to follow suit shortly.  Go us!"

The government established Fannie Mae in order to expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home. HAHA! "at all times, under all economic conditions"  Well, it seems like the GSE's lent when the private market was functional and lending, but now, when we "theoretically" (open to debate) need the new loans for stability FNM and FRE are unable to provide them.  Phew, what would we do without all their help.

In 1968, Fannie Mae was re-chartered by Congress as a shareholder-owned company, funded solely with private capital raised from investors on Wall Street and around the world. Unless they need my capital.

Fannie Mae has a unique duty to the public it serves -- and the private investors that fuel its service -- to be a model company focused on service, reliability, and value. No comment.

Like all who participate in the housing market, Fannie Mae has a responsibility to help home buyers, homeowners, and communities through market challenges. We believe in the long term health of America's housing market. The nation is growing and that growth will bring a renewed demand for housing and for responsible, sustainable mortgage lending. Fannie Mae will be there to help meet America's changing housing needs.  We'll see, won't we.

It's also important to note that, by definition, to provide "low cost" loans means providing loans that are not expensive enough to cover their risks.  If the loan rate was enough to cover those risks and a profit margin they loans would cost exactly what the market charged.  Suffice it to say, the GSEs are performing EXACTLY AS SHOULD HAVE BEEN EXPECTED.

Thanks, Comrade Paulson

Over at Naked Capitalism, Yves Smith laments over William Butler's "characteristically colorful" piece "Time for comrade Paulson to pull the plug on the Fannie and Freddie charade".  Yves regrets Mr. Butler beating him to the punch over the backdoor socialism movement underway here in America.  It is a topic i have opined on numerous times, but never with the clarity of thought Mr. Butler or Mr. Smith provide.

"But Buiter's beef isn't the operation of the GSEs but the philosophy behind them, the hydra-headed and not fully visible ways the US has socialized real estate (did you know about the Farm Credit Banks, for instance?). He provided a good summary of the history and dramatis personae."

Read both editorials.  They are incredible.

Enjoy your weekend and take a shot (or down a fifth) of Jack for me while you ponder the impending downfall of the American financial system--you've got a front row seat.

(hat tip - ep)

 

Setting the Record Straight: Taxpayers Are NOT Funding JPM's Buyout of Bear Stearns

Since news of its imminent collapse and the actions of the Federal Reserve to prevent it, much of the criticism heaped upon JP Morgan’s takeout of Bear Stearns has revolved around whether it amounts to a taxpayer-funded bailout of Wall Street. Countless media reports would have their readers believe that this is indeed the case, but I have yet to read a single compelling explanation of how exactly this is the case. It does not take much effort to stoke the populist fire by quoting anonymous sources or citing vague ‘reports’ supporting this conclusion. To date, not a single account I have read attacks the crux of the matter, which is to explain the mechanisms, or under what circumstances taxpayer funds were, or could be used to fund the transaction.

I’ve scoured information on the Federal Reserve’s website and spoken with respected authorities on the subject, none of which suggest that taxpayers are footing the bill for the transaction. The likelihood that taxpayer funds will every be used at all is slim-to-none. One source I spoke with, a respected Finance Professor (of Markets & Banking, among other subjects) went so far as to say that he doesn’t expect either JPM or the Fed to take any significant loss as a result of the Bear deal when all is said-and-done.

Before anyone jumps down my neck, let me elaborate.

Two weeks ago the Fed released its quarterly update of the collateral pledged against its loan to JPM was marked down to $28.9 Bn from ~$30 bn when the loan was first made. Maturities on the assets pledged extend out 10-20 years or more, according to what I’ve seen, although the Fed is relatively mum on the exact composition of the portfolio.

To illustrate what would happen in an extreme case, lets consider a semi-arbitrary situation in which the default rate on the pledged assets is 100% (which is very unlikely, baring global financial catastrophe or something on that scale), with zero recovery on any assets, spread out evenly over 15 years. In this example, these are not simply mark-to-market accounting losses (how they’ll actually show), but economic losses, just to illustrate the point. In this example, the Fed will have to absorb ~$2bn per year over that 15 year period, a figure which may seem extreme, but as I’ll explain, is relatively insignificant in the grand scheme of things.

In “Purposes & Functions of the Federal Reserve”, pp. 11, it states:

The income of the Federal Reserve System is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. Other major sources of income are the interest on foreign currency investments held by the System; interest on loans to depository institutions; and fees received for services provided to deposi­tory institutions, such as check clearing, funds transfers, and automated clearinghouse operations.

“Ok, BFD, so what?” you say. Relax my young padawan, for the truth shall set you free:

After it pays its expenses, the Federal Reserve turns the rest of its earn­ings over to the U.S. Treasury. About 95 percent of the Reserve Banks’ net earnings have been paid into the Treasury since the Federal Reserve System began operations in 1914. (Income and expenses of the Federal Reserve Banks from 1914 to the present are included in the Annual Report of the Board of Governors.) In 2003, the Federal Reserve paid approxi­mately $22 billion to the Treasury.

In 2007 this number was $38.7bn, up from $29.1bn in 2006 (pp. 360 of the report). Even if we take the low number from 2003, the $2bn annual loss from the above extreme example would only represent less than a 10% hit to the funds contributed to the Treasury by the Fed.

For those who still don’t get it, let me explain. While the Fed is funded and overseen by Congress, it is “private within the Government;” it is effectively a self-funded entity operating as a “private” organization within Government. The loan extended by the Fed to JPM (via Maiden Lane, LLC) was a direct extension of credit from the Fed’s balance sheet, not from an appropriate of taxpayer monies, which so far as I can tell, would have required specific Congressional action.

When this information is taken in its entirety the only possible “hit” to taxpayers would be a budgetary shortfall resulting from poor budgetary planning (e.g. if the budget was based on receiving X dollars from the Fed, only to actually receive X minus whatever “loss” the Fed absorbed from collateral losses in the Bear collateral). Even in this situation, taxpayers still are not actually funding any part of the transaction, only the foregone funds – which were never a certainty to begin with – of the difference between the estimated Fed contribution and its actual contribution in a given year.

May I be missing something (or potentially many things)? Absolutely. But all research I’ve done suggests that one thing is certain (or at least as certain as anything can be these days): Taxpayers are NOT funding the purchase (“bailout,” whatever) of Bear Stearns.  Until, or unless someone can provide clear, factual support that this is not the case, journalists, pundits, and even those of us on The Street need to resist the urge to propagate the unsubstantiated claims of those who cannot or will not back up such claims.

Taking Satire to a Whole New Level

We at 1-2 Knockout dabble in sarcasm, occassionally toying with satire and other witticisms, but its usually limited to words.  These folks have taken it to a completely new level, and if for nothing else, deserve a pat on the back.  Presented without further commentary:

The Official Website of the Predatory Lending Association

Kids: No Work For You (This week in Duh Special)

So, I was going to do a long winded post on this, but Paul Hickey at Bespoke Investment Group did a fine job in his Week in Review (subscription only).

A 10% increase in the unemployment rate is never a good thing, even if a breakdown of the report shows that maybe things weren’t quite so bad. Breaking out the unemployment rate by its various categories shows that workers aged 16 to 19 years old were the primary driver of the increase. The unemployment rate among this sector rose by 21.4% (from 15.4% up to 18.7%). Workers from other categories (married men and married women), where pay is usually higher rose by much more modest amounts.

So why have teenagers become so much less attractive to employers? While the slow economy bears some of the responsibility, another factor in this increase is the result of last year’s legislation to increase the minimum wage. While most employees are paid more than the Federal minimum, the group which has the highest percentage of employees making that wage is teenagers. As college and high school kids looked to get work this summer, employers were less willing to pay them 27% more. (Emphasis Mine).

In short, as the price of a good (in this case labor) increases, the demand for that good decreases.  While employers may be willing to hire students/kids at $4, they don't need them at $6.  So, who loses?  The very people who congress claims to "protect" with minimum wage laws.   

NOPEC? Whatabout NOCOW

Yesterday, the House passed NOPEC: No Oil Producing and Exporting Cartels Act of 2007.

It is a laughable piece of legislature, both for its sheer chutzpah and for its blatant disregard of basic economics and international politics, in favor of scapegoating and non-binding legislating.  The entire text of the actual legislation is presented below, with minimal comment.

SEC. 7A. OIL PRODUCING CARTELS.

`(a) In General- It shall be illegal and a violation of this Act for any foreign state, or any instrumentality or agent of any foreign state, to act collectively or in combination with any other foreign state, any instrumentality or agent of any other foreign state, or any other person, whether by cartel or any other association or form of cooperation or joint action--

`(1) to limit the production or distribution of oil, natural gas, or any other petroleum product;

`(2) to set or maintain the price of oil, natural gas, or any petroleum product; or

`(3) to otherwise take any action in restraint of trade for oil, natural gas, or any petroleum product;

when such action, combination, or collective action has a direct, substantial, and reasonably foreseeable effect on the market, supply, price, or distribution of oil, natural gas, or other petroleum product in the United States.

`(b) Sovereign Immunity- A foreign state engaged in conduct in violation of subsection (a) shall not be immune under the doctrine of sovereign immunity from the jurisdiction or judgments of the courts of the United States in any action brought to enforce this section.

`(c) Inapplicability of Act of State Doctrine- No court of the United States shall decline, based on the act of state doctrine, to make a determination on the merits in an action brought under this section.

`(d) Enforcement- The Attorney General of the United States may bring an action to enforce this section in any district court of the United States as provided under the antitrust laws.'.

My favorite line is that no country can attempt "to set or maintain the price of oil, natural gas, or any petroleum product".  Why?  Because Congress also just passed the Farm Bill, which, you guessed, maintains the price of crops and grains for export! Actual passage (shortened for clarity) from the Farm Bill below:

(a) Minimum Price- Notwithstanding any other provision of law, effective October 1, 2007, the minimum price for Class I milk...shall be $15.58 per hundredweight during fiscal year 2008.

Also--and this is why the "law" is really goofy--what is the enforcement mechanism in place on a sovereign nation?  Let's say we sue OPEC, or a member, like Venezuela.  What are we going to do, confiscate profits from sovereign nations?  And when they don't pay?  We cut off their oil from import?  Raising oil prices as supply is constrained?

Ahhh, I love congressional economics.

Oil's a Witch: Burn Her!

Sir Bedevere: There are ways of telling whether she is a witch.
Peasant 1: Are there? Oh well, tell us.
Sir Bedevere: Tell me. What do you do with witches?
Peasant 1: Burn them.
Sir Bedevere: And what do you burn, apart from witches?
Peasant 1: More witches.
Peasant 2: Wood.
Sir Bedevere: Good. Now, why do witches burn?
Peasant 3: ...because they're made of... wood?
Sir Bedevere: Good. So how do you tell whether she is made of wood?
Peasant 1: Build a bridge out of her.
Sir Bedevere: But can you not also build bridges out of stone?
Peasant 1: Oh yeah.
Sir Bedevere: Does wood sink in water?
Peasant 1: No, no, it floats!... It floats! Throw her into the pond!
Sir Bedevere: No, no. What else floats in water?
Peasant 1: Bread.
Peasant 2: Apples.
Peasant 3: Very small rocks.
Peasant 1: Cider.
Peasant 2: Gravy.
Peasant 3: Cherries.
Peasant 1: Mud.
Peasant 2: Churches.
Peasant 3: Lead! Lead!
King Arthur: A Duck.
Sir Bedevere: ...Exactly. So, logically...
Peasant 1: If she weighed the same as a duck... she's made of wood.
Sir Bedevere: And therefore...
Peasant 2: ...A witch!

Today's congressional witch hunt against "Big Oil" (framing issues 101: if you want a group to be hated name them "Big X", people hate anything "Big") once again proves that congressmen are either willfully ignorant, liars, or sheer idiots.  Following the same logic as Sir Bedevere, and the rest of the Monty Python crew, congress has determined that Big Oil is a witch...now they have to defend their logic ex post facto. 

Some of the highlights below:

Patrick Leahy, D-Vt., told the executives there's "a disconnect" between normal supply and demand and the skyrocketing price of oil — surpassing $130 a barrel even as the oil leaders testified — that the industry has yet to explain.

Well, Pat, why don't you then explain what the disconnect is...and remember, you need evidence from primary sources (wikipedia doesn't count) for this paper.  I would begin by looking at your own closure of almost all new sources of oil production in this country (continental shelf, ANWR, etc). 

J. Stephen Simon, executive vice president of Exxon Mobil Corp., said profits have been huge "in absolute terms" but must be viewed in the context of the massive scale of the industry." He also said high earnings are needed "in the current up cycle" to pay for investments in the long term when profits will be down.

"'Current up cycle,' that's a nice term," replied Leahy with sarcasm, "when people can't afford to go to work" because gasoline is costing close to $4 a gallon.

Pat, love the cynicism.  However, this actually is an "up cycle", and people can't not (hate double negatives) get to work because of oil prices alone.  People chose to live outside urban areas for what they believed were non-economic reasons ("honey, isn't it just breathtaking out here instead of in the city"), unfortunately now they must realize no choice is completely non-economic.  Just because you could afford to live 30 miles away from work when gas was $1.50/gl doesn't mean you should be subsidized when the price rises.  Whether you realize it or not, you made a decision to be short energy.  By this logic, congress should be yelling about how SUV owners are getting hosed by the oil companies, because it costs so much to fill up their tank (someone challenge me on this one...please!).

[Leahy] asked Simon what his total compensation was at Exxon, a company that made $40 billion last year. Simon replied it was $12.5 million annually.

He obviously went on to link the oil companies' record profits, and executive compensation, to the price of oil.  I hate to break it to Senator Leahy, but, short of anti-competitive tactics (none of which have been successfully pinned on the oil companies) commodity-based corporations are price takers, not setters (again with the econ 101).  You could mandate that all oil executives could be paid nothing and the price of oil wouldn't fall a dime...in fact it may rise because incompetent CEOs would make worse investment decisions for future production.

Sen. Arlen Specter, R-Pa., said Exxon's annual profits increased from $11.5 billion to $40.6 billion in the past five years and there was no explanation for "why profits have gone up so high when the consumer is suffering so much."

Not even worth a comment.  Go back to torturing the NFL, Specter.

Senate Democrats recently announced an energy package that would tax "windfall" profits of the five companies. That might have public appeal, Lowe told the senators, but oil companies should not be viewed as "a scapegoat" for high prices.

That was not what many senators wanted to hear.

You have "just a litany of complaints that you're all just hapless victims of a system," Sen. Dianne Feinstein, D-Calif., told the executives. "Yet you rack up record profits ... quarter after quarter after quarter."

Ahh, Diane, I was wondering where you were hiding.  Apparently your net worth of between $60-90m doesn't qualify for "Big" status.  I would like to personally thank you for donating your money to the poor who can't support themselves.  As you and your cohorts love to tell us, "the rich don't need the money anyways".  Ok, back on topic.  This idea of a "windfall profits tax" is ludicrous on a multitude of planes.  Where to begin:

• 1) As Senator Leahy (sarcastically) noted, commodities are a cyclical business, and, perhaps more importantly, commodities are fungible goods.  Anyone who has taken Econ 101 knows that suppliers of fungible goods are price takers, not price setters.  I don't know if you've noticed, but the oil companies don't get to set their prices--the market does.  Their profits are a function of aggregate supply/demand, level and yield of prior investments (ie, firm-specific quantity), and substitution costs (ability for consumers to switch to another, similar good).  We are not talking about the finance department of a company picking their prices, the oil industry has to take what the market is giving them.
• 2) If you are going to tax "windfall" profits, then you will need to subsidize "windfall" losses.  Where was congress when oil was $10.76 in 1998?  Did they go and offer subsidies then?  Did they guarantee payments regardless of output/prices, like they do with farms (more on that in a later post)?  No.  Of course not. Obviously, though, if you go with a tax/subsidy system whenever the price hits a tail you create a massive disincentive to manage a company correctly--and production would fall precipitously--leading to, say it with me now, higher prices.
• 3) However, the biggest question mark is how do you define "windfall" profits.  Gross dollar value? Margins? Delta price over delta time?  Each of these metrics provides its own set of complications. 
  • Sure the dollar value of the profits is high, but not auspiciously so when you realize that oil may be the most important single commodity in the world.  In our current global set-up, without oil there would be no electricity, cars, plastics, etc.  Just like GE has exceptionally high revenues because it produces so much "stuff", oil companies produce a lot of the most vital "thing" in the global economy. 
  • So you want to define windfall profits by margins? Well XOM's operating margin was only 19% last quarter; far from "high".  And this is at the peak oil prices ever. If we chose to tax exorbitant margins we should probably impose even higher levies on GOOG (30%), MSFT (31%), POT (44%), etc.  Even at the highest prices ever oil is by no means a massively profitable business.  They don't make a lot on each barrel, but make up for it in volume...and the world has asked them to provide a lot of volume.
  • Delta P / Delta T (or price increases that seem too deviate too far too quickly from "normal"), well then why don't we haul in ADM, MON, et al (the farmers) for "making food so expense at the expense of the poor".  If we are looking for "equitable" profits (ie, whatever Leahy wants them to be) that "appear" to be from "fundamentals" and not "speculation", then we need look no further than our own grain belt for extortionist, profiteering, no gooders: farmers! 

In closing, Pat commented:

"The issue is simple," said Leahy. "People we represent are hurting, the companies you represent are profiting."

Ah, yes, I love the "companies aren't people" argument. Please, Pat, tell me what is the difference between a constituency and a company?  Both are aggregated populations aiming to maximize their own utility. 

But you're right Mr. Leahy, we should: defend people but hate those that employ them; encourage risk-taking, but penalize when it pays off; decrie corporate mismanagement, but confiscate any profits accumulated through wise decision-making; and push consumers to consume less oil, but not allow the very mechanism that would do so to work--that should put us right on track!

A closing thought: with all the rhetoric about "getting off of oil" these price increases should be the hallelujah moment for congress.  People are beginning to drive less, purchase more efficient vehicles, and investing in alternative energy sources because it now makes economic sense to do so.  While it would be nice to live in a world where we could just tell everyone to "drive less" and they would, they don't.  High oil prices are facilitating the move to energy efficiency.  I thought that was the whole point.

UPDATE: In the latest example of congressional rocking-chair legislature (rocking chair=looks like you're doing something when you're not) the House passed a bill allowing government agencies to sue OPEC.

WASHINGTON (Reuters) - The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure...

..."This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.

Rep. Kagen, it would "guarantee supply and demand reflect economic rules" you clearly don't understand the difference between speculation, investment, and trans-national litigation.  First, prove that the price is not reflective of supply/deman.  Second, if we sue OPEC where does our oil come from (they're a cartel, remember)? Third, in what jurisdiction can you sue sovereign nations?  I've watched enough Law and Order to know that Briscoe and Green can't just go arresting people in Jersey...wish they could though.

Media Myths, Economics, and Politics

By 1-2

As someone who grew up in an intimate relationship with the media--both familial and professional--I must admit they (the media) are not evil, deceptive, barons sitting around plotting the fall of the Republican party; ok some are, but only in as much as their counters on the left.  They are however liberal in nature, and bias is difficult to remove from ones psyche. 

Behavioral finance tells us that biases (systematic ways we absorb, retain, recall, and use information) affect nearly all decisions individuals make.  We have these biases to simplify the world we live in to manageable chunks of data in a sea of information. I will be posting on specific psychological biases on this blog in the future, but you can get a brief introduction here, and an in depth portal here.  However, I digress.

The reason I mention systemic biases in information coding is to explain what I believe the liberal media are.  As a general rule, we have a strong aversion to cognitive dissonance. We incorporate and remember data and ideas that are similar to what we believe, and disregard information that is contra to our pre-existing concepts of the world.  It is not intentional.  It is simply a way we keep from having to deal with internal conflict, which would lead to angst, discomfort (unless you're goth), and an inability to make decisions easily.   Media reporters are generally liberal in nature going into their profession, and they stay that way by subconsciously remembering only information that fits your liberal dogma.  It's not evil--it's evolution. 

All of this is a really long winded way of segueing into a recent post by John Lott, which is certainly worth a read.  The opening says it all:

During the 2000 election, with Bill Clinton as president, the economy was viewed through rose-colored glasses. According to polls, voters didn’t realize that the country was in a recession. Although the economy started shrinking in July 2000, most Americans through the entire year thought that the economy was fine.

But over the last half-year, the media and politicians have said we were in a recession even while the economy was still growing.

John Lott pontificates more here. 

Sorry for wasting your time in the open.

Barneynomics Part Deux

Apparently Barney Frank didn't get my memo this morning about Barneynomics.   According to Reuters/DJ he has asked Chris Cox to expand the SEC probe into the final days of Bear Stearns to find those meddling short sellers who obviously manipulated the market, forced Bear to the edge of bankruptcy, and profitted unfairly. 

Barneynomics can be easily summed up as "Chairman Barney should control the economy".  If housing is expensive Barneynomics says that more subsidies are needed to help the poor; if prices decline then subsidies are necessary to keep home prices "stable". 

Pretty much Rep. Frank is doing nothing more than greenmailing companies with threats of litigation in an effort to divert finite resources wherever he wants themm regardless of actual economic impact.  This is typical rent-seeking behavior.   

Today's call to Cox for action highlights Mr. Frank's mastery of Barneynomics, and the blatant disregard for accepted economic principles.  First, he calls the "unusual" level of short sales "manipulation".  While he is not the first person to claim "the short sellers did it" (see Patrick Byrne) he is certainly the most prominant in recent memory.  This line of reasoning rears its ugly head almost any time a company goes under, or simply doesn't perform.  It is frought with holes though:

In any market transaction there is both a buyer and a seller.  In short sales there is also a lender, but that's not important now.  What is important is that there was someone willing to buy shares at the levels shorters were selling them at.  The short sellers can't just flood the market with shares to depress their value (there are a finite number) without somone willing to take the opposite side of the trade.  Furthermore, the short sellers have to cover at some point, which will reflate the share price back to 'normal' levels if (as is insinuated) it was mass collusion.  People have tried to corner markets before and it generally doesn't work out well.  You have to replace what you purchased/borrowed at some point thereby returning share prices to their original level.

In the release Rep Frank states there are "strong indications of similar market activity in the stocks of other major investment banks," and allegations by some of a coordinated effort by market participants who spread rumors that the banks were in trouble in an effort to drive down share prices.  So what happened at the other banks?  If all the banks were shorting all the other banks then why is LEH, C, or ML still around?  Also, I hate to break it to Barney, but the banks actually were/are in trouble--those weren't rumors.  BSC didn't go under because its share price was low, its share price was low because it wasn't going to be able to continue as an ongoing concern.  One could make the argument that their depressed equity base made it more difficultfor BSC to find or extend financing, but when they got to $2 it was too little too late.

Where was Barney when the banks share prices were running through the roof a year ago.  No one ever blames increasing share prices on rumors or manipulation.  I haven't  seen anyone go after investors who melted the market up through manipulation (keep in mind "manipulation" is nothing more than buying or selling shares).  It's only when the tide goes out that you see who's swimming without board shorts.

Lastly, the short sellers didn't: leverage BSC 30:1; sell trillions of dollars (notional) of derivatives; blow up two in-house hedge funds; hurt BSCs prime brokerage; or anything of the like.  They just profitted from a poorly managed company that was run into the ground.

OK...this was a last minute rant.  I apologize for any typos or poor grammar.  I'm out of here...enjoy the weekend.

Disclaimer: 1-2  was short BSC at $144 and covered at $145 after a BS analyst convinced him everything was great going into 2Q07 numbers.  F!