The Great Untangling – Capital Markets – CFO.com

I should stop reading this stuff …

The Great Untangling – Capital Markets – CFO.com.

Some fear that worse may be yet to come. The failure of another big actor in the market would send dealers and other counterparties scurrying to replace trades, almost certainly at a higher cost. Replacing those struck with Lehman, as spreads widened after its bankruptcy filing, is thought to have cost some dealers upwards of $200m each.

That risk remains, judging by CDRâ??s counterparty-risk index, which measures the health of CDS dealers (see chart 1). The next shock could be the failure of a hedge fund with a big swap book, given the spike in redemptions and margin calls many funds face, thinks Pierre Pourquery of the Boston Consulting Group. Hedge funds wrote almost a third of all credit protection last year (see chart 2).

econch1 econch2

Sellers of protection will be watching nervously for a wave of corporate defaults as big economies slip into recession. Standard & Poorâ??s expects the default rate on junk-grade debt to leap to 23% by 2010. Sovereign debt is looking wobbly too, especially but not exclusively in emerging markets. The cost of insuring against a default by the United States has quadrupled since January.

The full article is worth reading and not as dire as this section suggests. It is good to see that the market as well as regulators are looking to resolve the transparency issues with regard to credit default swaps. It seems that until transparency is installed, the financial system will remain on the brink.

Schwarzenegger: $4.4B in tax hikes to end deficit – Yahoo! News

Schwarzenegger: $4.4B in tax hikes to end deficit – Yahoo! News.

SACRAMENTO, Calif. â?? Gov. Arnold Schwarzenegger on Thursday proposed $4.4 billion in new taxes and a similar amount in spending cuts to deal with California’s worsening fiscal crisis, saying, “We must stop the bleeding.”

Much of the new revenue would come from a 1.5-percentage-point increase in the sales tax; the Republican governor described the hike as temporary but did not say how long it would last.

“We have a dramatic situation here and it takes dramatic solutions … and immediate action,” Schwarzenegger said as he called the Legislature back into session to deal with the budget shortfall.

The governor said $4.5 billion in cuts will be necessary across all state programs, including education, social services, health care and prisons.

If this goes through, sales taxes in San Jose will be 9.75% (8.25% currently + 1.5%). That might be a bit too much to handle for a lot of people, especially when one of the issues is lower consumption. This also just gives people more incentive to avoid taxes by purchasing through mail order. I think the state government will eventually need to ask for broad pay cuts – yikes – in addition to cuts to services and lay offs.

Total tax revenue | The Economist

I found this bit from the Economist interesting.

Total tax revenue | The Economist.

Tax revenues have risen as a share of GDP across the OECD over the past 30 years. In 2007 Denmarkâ??s government collected nearly half its GDP as taxes, making it the most heavily taxed among all the rich countries. … France, Norway and Italy also have tax revenues of more than 40% of GDP. At the other end of the spectrum, America and South Korea are relatively lightly taxed, with ratios of under 30%

Regardless of who wins the White House tomorrow, we will all pay higher taxes. How else can we afford two wars, bail outs, the Bush tax cuts, and everything under the sun politicians in all levels of government decide on to satisfy their/our fancies.

I should note that the national debt has risen $500 billion dollars since October 2 when it hit $10 trillion. Today, total outstanding public debt is at: $10,574,094,462,968.23.

Outraged Yet? Goldman Sachs ready to hand out £7BILLION salary and bonus package… after its £6bn bail-out

Goldman Sachs ready to hand out £7BILLION salary and bonus package… after its £6bn bail-out | Mail Online.

“Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses – despite asking the U.S. government for an emergency bail-out.

The struggling Wall Street bank has set aside £7billion for salaries and 2008 year-end bonuses, it emerged yesterday.

Each of the firm’s 443 partners is on course to pocket an average Christmas bonus of more than £3million.

The size of the pay pool comfortably dwarfs the £6.1billion lifeline which the U.S. government is throwing to Goldman as part of its £430billion bail-out.

As Washington pours money into the bank, the cash will immediately be channelled to Goldman’s already well-heeled employees.”


The gall of these bankers. The world will not crumble if they get ordinary pay, yet they believe themselves above it all. Talk about inviting regulation, especially if the Democrats sweep and get the magic 60 in the Senate (odds are good they will).

I sent the article to my congresswomen and wrote the following note:

“Goldman Sachs took money from the bailout and will use it to pay bonuses. This is outrageous! You need to do something to stop this waste of our money.

It is irresponsible for businesses to pay such big bonuses, particularly when those same businesses are at such high risk of collapse and losing gobs of money. It is likewise irresponsible for our government to prop companies up that have such irresponsible pay practices.”

I.B.M. loses its apples

I.B.M. Sues to Block Executiveâ??s Move to Apple – NYTimes.com

SAN FRANCISCO â?? I.B.M. sued one of its top executives on Thursday in an attempt to prevent him from taking a position at Apple.

The company said that the executive, Mark Papermaster, who until last week had been manager in charge of the companyâ??s blade server business, had signed a noncompete agreement with I.B.M. that would prevent him from accepting a job with a competitor until one year after leaving I.B.M.

From the article, it sounds like nothing more than posturing because I.B.M. does not have a leg to stand on if Mr. Papermaster works in California for Apple.

The California Supreme Court, this summer, affirmed longstanding public policy in the state not to allow such non-compete agreements.

“[I]n 1872 California settled public policy in favor of open competition, and rejected the common law â??rule of reasonableness,â? when the Legislature enacted the Civil Code. … Today in California, covenants not to compete are void, subject to several exceptions discussed briefly below. … Also, Noncompetition agreements are invalid under section 16600 in California even if narrowly drawn, unless they fall within the applicable statutory exceptions of sections 16601, 16602, or 16602.5.” Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, 945, 189 P.3d 285,288 (2008) (emphasis added).

Those exceptions are: (1) 16601 – with regard to selling a business (does not sound like he sold a business);16602 – with regard to a partnership (does not sound like he held a partnership with I.B.M.); and 16602.5 – applies to members of an limited liability company (L.L.C.).

I wonder if this is just a shot across the bow to make sure Apple is careful not to use any trade secret info its new employee might have gotten from I.B.M.