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Opening Bell: 12.15.08

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A Palm Beach Enclave, Stunned by an Inside Job (NYT)

"He just didn't make mistakes," said Richard Spring, 73, from Boca Raton. "He was just a sound, smart, reasonable guy."
Mr. Spring recounted meeting Mr. Madoff in the early 1970s when they shared a helicopter each day commuting from Long Island to Wall Street.
He said he vividly recalled one commute when Mr. Madoff "bawled out" one of his traders for sloppy work, not protecting against a downturn.
Impressed, he later invested with Mr. Madoff, over time putting more than $11 million into the firm, virtually every cent of his savings, he said.

BofA Holds On To Construction Bank, Keeps Plans To Shed People (Reuters)
Shares of Construction Bank fell 4% in trading as Bank of America announced it was going to hold on to it: a sure sign that the Chinese markets completely appreciate BoA's position. Had the move gone through, it would have raised approximately $3B in capital for the firm, whereas the shedding of 35,000 jobs over the next 7 years is going to effectively save the firm $7B. There's a further argument that by dumping the shares now, BoA would be opting out of any downside that the Chinese market will offer in the next couple of years - something that should be considered and then dismissed.
Hedge Fund Industry Downsizing (Bloomberg)
While we all saw it coming, Bloomberg is running a story calling for about a third (roughly 3300) fund failures/mergers in coming years. Generally speaking (and when it doesn't strike so close to home) we all know that consolidation can be healthy for an industry, I just wish it had been coupled with rock bottom bourbon prices and severance packages that lasted for a couple of years.
Work Slowing For China's Children (AP)
Human Rights mogul China is showing signs of a waning economy, as is evidenced by factory output falling to its lowest levels in the better part of a decade.
You Paid Too Much (Reuters)
"U.S. home values lost $1.9 trillion from the first of the year through the end of the third quarter, and will probably fall further in the fourth quarter. One in seven of all homeowners, or 14.3 percent, were "underwater" by the end of the third quarter, the reports showed."
Nationally, I would think it's fair to say people paid about 20% too much for their houses. I know there was talk of a mortgage bailout in days past - I think a better idea is just to let these people write it down on their taxes (much like a bank would write down an asset). Amortize it over 5 years, take the offset in taxes owed and allow the consumer to apply it towards the principal of the loan.
Oil Climbs On OPEC Meeting (FT)
Oil's pushing $50 a barrel in trading ahead of the OPEC meeting scheduled for this week. While the days of $150 barrels aren't likely to return for a while, there's a serious concern here that interests in the middle east (like survival) could push prices higher, effectively knee capping the manufacturing/shipping sectors - not to mention the cascading effect through everything else. What's more worrisome, however, is that I can see congress instituting price control measures in order to protect the American consumer. Don't worry consumer: your government will protect you.

Waking Up To Nothing (Reuters)
A compilation of banks and their exposure to the cluster fuck of losses presented by Mr. Madoff - what's truly sad about this is that the banks failed to do any in depth due diligence. It also makes you wonder how thoroughly they've examined the rest of their holdings (in re: funds), and whether we're set up to see this again?

--William Richards