Jun 29, 2010 22:17 UTC

Some news to share with Option ARMageddon readers: After a great year writing columns and blogging for Reuters, I’m moving on.

My experience at 3 Times Square has been great. First with Reuters Commentary and lately with Reuters Breakingviews. The team here is absolutely first rate.

I’m headed to the Wall Street Journal, where I will join the team at Heard on the Street. So check for my byline on the back page of the Money & Investing section starting soon.

For those without a subscription to the Journal, you can still follow me via Twitter, where I’ll continue to share great links. My Twitter profile is @RolfeWinkler.

A special thanks to Felix Salmon without whom I never would have come to Reuters.

Thanks for reading!


Congrats Rolfe!


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Lunchtime Links 6-28

Jun 28, 2010 13:45 UTC

Corruption suspected in airlift of billions in cash from Kabul (Rosenberg, WSJ) $3 billion has left the country in three years. And that’s just the officially declared amount. Your tax dollars at work folks.

Will Obama make tough budget choices? (RealClearPolitics) Watch it to the end. Is Obama talking about austerity because he believes it’s necessary or because it’s de rigueur among G20 leaders these days?  We’ll see if he actually follows through. He has had some big economic policy wins of late that are commendable. China says it will let the yuan appreciate; Europeans are going to conduct stress tests; and he’s got a financial reform bill to sign. None of the above are panaceas, but they are progress.

PDFG-20 summit declaration (G-20) Wherein the Group of 20 nations agree to a timetable to reduce deficits by half by 2013 and “stabilize” debt-to-GDP by 2016. Not exactly lofty goals. And in any case, there’s plenty of emphasis that deficit cutting won’t happen until economic “recovery” takes hold. Ugh. Curring spending will cut growth. Seems to me there’s no way to de-lever without accepting that output is going to fall.

PDFFinancial reform bill summary (via Alphaville) Want to know what ended up in the financial reform bill? Here’s a helpful summary.

The cheap cost of cheating the lowest paid (Clines, NYT) This subject feels like it deserves a lot more than a few hundred words.

Counterfeit fashion, counterfeit personalities… (Economist)

YouTube adds a vuvuzela button! (YouTube) Click the soccer ball bottom right…

Grammar Nazi WIN (facebook)

Simba… (imgur)

Optical illusions (imgur) Never mind the Tevez goal that was bogus. All of this can be solved with very simple replay technology. And it’s not like it would take up any extra time. A reviewer in the booth could tell refs the correct call in seconds…


For the Grammar Nazi – why do people these days add an “h” when using any word with “st”?


Shtop instead of stop
Shtraight instead of straight

I know that many Yiddish words begin with the sh sound (schmuck, schlep, schpeel etc.) but how many Americans know Yiddish or the German from which it derives?

Most changes in pronunciation come from it being easier to say the new form than the old. I could of gone is easier to say than I could have gone. The SH sound is easier to create with the tongue than the ST (try it!). So that must be it.

How does this relate to things economic? Simple, it’s more economical for the tongue to produce SH than ST!

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Bank failure Friday

Jun 26, 2010 02:25 UTC


—Failed bank: Peninsula Bank, Englewood FL
—Acquiring bank: Premier American Bank, Miami FL
—Vitals: assets of $644.3 million, deposits of $580.1 million
—Estimated DIF damage: $194.8 million


—Failed bank: First National Bank, Savannah GA
—Acquiring bank: The Savannah Bank, National Association, Savannah GA
—Vitals: assets of $252.5 million, deposits of $231.9 million
—Estimated DIF damage: $68.9 million


—Failed bank: High Desert State Bank, Albuquerque NM
—Acquiring bank: First American Bank, Artesia NM
—Vitals: assets of $80.3 million, deposits of $81.0 million
—Estimated DIF damage: $20.9 million

Hasbro may not be most profitable LBO plaything

Jun 25, 2010 16:53 UTC

Hasbro may make some of the world’s most iconic toys, but it wouldn’t necessarily make a great plaything for private equity barons. True, the maker of G.I. Joe action figures and Play-Doh — which said it rejected a buyout approach — has great brands for the under-10 set. But the seasonal toy business would be expensive to finance with real — rather than Monopoly — money. Even with big cuts, the potential returns from a deal look meager.

On the face of it, Hasbro looks like an attractive addition to private equity’s toy chest. Its iconic products range from Mr. Potato Head figurines and Nerf footballs, to classic board games like Scrabble and Candy Land. But the toy business has its many ups and downs. Children are fickle customers, after all, and two-thirds of sales typically come in the third and fourth quarters alone.

As a result, any buyer of Hasbro would need to stump up a big equity check. Tag on a 30 percent premium to Wednesday’s closing stock price — before revelations of a deal appeared in the Wall Street Journal — and that’s around $53.50 a share, or $8.4 billion including debt. If banks are willing to extend debt of around six times EBITDA, a buyer would need to come up with around $3.8 billion in equity.

That’s doable, but would almost certainly require a consortium of private equity firms or outside investors. And even with all that capital, bankers say a Hasbro with so much leverage would have to pay a relatively rich 9 percent interest rate to its creditors. The combination of expensive debt, plus lots of equity, would dampen returns.

Of course, under new, disciplined private equity ownership, Hasbro might be able to squeeze out more profits, perhaps growing its operating margin to, say, 19 percent from the 16 percent analysts currently forecast. But assuming an exit at the same multiple of earnings the company traded at before a bid emerged, the annualized returns would still be shy of around 10 percent. Given the risks, that’s hardly a reason to shout Yahtzee!


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Lunchtime Links 6-23

Jun 23, 2010 15:08 UTC

91% of Harvard grads get honors (Kofol, Harvard Crimson…ht Nick Gogerty) Seriously? Apparently the faculty has put its foot down, so only half will get honors.

IAF planes spotted in Saudi Arabia (Jerusalem Post, ht Jim Rickards) The Saudis hate the idea of the Persian bomb every bit as much as the Israelis. They’ve given Israel flyover rights to take out Iranian nuclear facilities. If Israel attacks, that could send oil and gold skyrocketing.

Buffett wins bet on World Cup (Frye/Son, Bloomberg) Berkshire Hathaway had written an insurance policy that would have paid out if France won the cup. Among the favorites going in, France turned out to be one of the worst performers in the tournament.

Mortgage purchase applications at 13 year low (CR) Lots of demand was pulled forward by the tax credit.

CHART — Technically, the S&P 500 doesn’t look so good (Culp, Reuters)

The UK has its Hoenig (Alloway, Alphaville) By that I mean a monetary policy dissenter who appears not to buy the output gap argument.

Blankfein on Oprah? (NY Post) Awkward! And probably not gonna happen. Speaking of Oprah….

Is she rigging the vote in her reality TV contest? (HuffPo) Screenshot evidence?

BP brings the big gun: Bob Dudley (Mason, Telegraph) Having faced down Russian oligarchs, one would think Dudley can handle the stressful situation he’s about to get into…

Spill, from space (Discover Mag) This never gets old…

Italian soccer training (Youtube) And what Rugby fans think.

Lunchtime Links 6-22

Jun 22, 2010 17:00 UTC

In law school, grades go up, just like that (Rampell, NYT) Grade inflation to help grads get jobs…and pay off debt….

Must Read — A colossal fracking mess (Bateman, Vanity Fair…ht Yves)

UK government delivers “unavoidable budget” (WSJ) Keynesians will decry the spending cuts, but common sense says they have to happen. Governments can try to borrow forever, but eventually unforgiving credit markets would jack up rates, necessitating far deeper cuts.

Home sales weak despite tax credit (Mutikani, Reuters) Bad omen for the housing market….CR called it a very weak report.

Elon Musk is broke (Sorkin, Dealbook)

Greatest Rube Goldberg device ever? (Youtube, ht CSQT)


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Lunchtime Links 6-21

Jun 21, 2010 17:04 UTC

Must ReadDysregulation nation (Warner, NYT)

Yuan soars to post-revaluation high (Reuters) On Saturday China said it would let its currency appreciate. Though U.S. consumers may face higher prices, this is absolutely necessary to help rebalance the world economy.

SEC turning up the heat on CDO cases — suing ICP Asset Mgmt for CDO fraud and investigating Magnetar

Don’t gut proxy access (Bebchuk, Dealbook)

Basel trading reforms delayed (Reuters) Ugh. The best fix for the global financial system is to make banks hold more capital. Postponing the rules for holding more capital against trading assets could delay the bigger reforms scheduled  for 2012…

Americans think soccer is boring (imgur) Some of us Yanks love the World Cup, but isn’t it ridiculous that every other match is determined by something besides quality play? Blown calls. Missed calls. Fake injuries. What solves this? More refs on the field? Some form of instant replay?

Cigarette tax will mean $10 packs in NY (Carrasquillo, myfoxny)

Funny church sign


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Bank failure Friday

Jun 19, 2010 01:21 UTC

Slow Friday….


–Failed bank: Nevada Security Bank, Reno NV
–Acquiring bank: Umpqua Bank, Roseburg OR
–Vitals: assets of $480.3 million deposits of $479.8 million
–Estimated DIF damage: $80.9 million

Lunchtime Links 6-18

Jun 18, 2010 14:02 UTC

Germany says will publish bank stress test results, but only if banks give the ok! (McGroarty/Kissler, DowJones) The healthy banks should encourage their own results to be published.

Calpers to have directors on call (Chon, WSJ) Later this year, the SEC is expected to finalize so-called “proxy access” rules to make it easier for invetsors to nominate their own directors. They can do it now, but they have to run their own proxy campaign, which can be expensive and difficult. The SEC proposal would allow investors to put director nominees on the company’s proxy card. The one investors get every year. Corporate boards and their lawyers are apoplectic about this new rule, fearing their clubby boards will be invaded by unions and pension plans. This move by Calpers looks to solve another issue facing investors that want to nominate directors: where do you find them? Guys like Carl Icahn have a healthy bench of would-be directors. Now Calpers wants one.

Greenspan warns on deficits (Greenspan, WSJ) Don’t be fooled by today’s low interest rates. The government could very quickly discover the limits of its borrowing capacity. Hey Alan, thanks for warning about unsustainable debts, but it would be helpful if you admitted that your famous put inflated the country’s largest ever private credit bubble…and that Bernanke is repeating your mistake…

Housing market slows as buyers get picky (Streitfeld, NYT)

Lenders go after money lost in foreclosures (El Boghdady, WaPo)

Time lapse analemma (johndlowell) Very cool.

Not impressed… (imgur)

How is this even possible? (reddit)

TARP starts grooving like bad ’80s remix

Jun 17, 2010 20:50 UTC

TARP was in a groove but it’s now turning into a bad ’80s remix.

After a string of profitable paybacks from Goldman Sachs, JPMorgan and 59 others, the list of deadbeats is growing. In May, 91 banks missed their dividend payments to taxpayers, up from 55 in November. With hundreds of banks still trapped in the $700 billion bailout program, it’s growing reminiscent of the savings and loan crisis.

Back in the late 1980s, the Fed routinely lent to insolvent institutions, compounding the losses. Reforms were passed in 1991 to prevent it from happening again. Yet after losing $2.6 billion of bailout cash in the failures of CIT, Pacific Coast National Bancorp and UCBH Holdings, Treasury looks poised to lose still more, some in banks that should never have been given money in the first place. About $3.5 billion is tied up in the 91 current delinquents.

Part of the problem is conflicting goals. Some lenders, like Saigon National, want to pay back TARP, but their primary regulator — in Saigon’s case the Office of the Comptroller of the Currency — won’t let them. Concerned with balance sheet soundness, the regulators are rightly focused on forcing banks to hold more capital.

Taxpayers, however, shouldn’t be the ones supplying the stockpiles. Treasury said TARP was intended for viable institutions. If after nearly two years since TARP was set up, banks can’t find private capital, it suggests they probably weren’t healthy enough to be rescued in the first place.

Two big banks already look like serious zombies. Pacific Capital Bancorp, with $7.4 billion of assets, and Anchor Bancorp Wisconsin with $4.5 billion, have each missed five dividend payments and appear incapable of surviving without taxpayer cash.

Anchor Bancorp’s tangible common equity, a key capital measure, is negative, meaning TARP money is propping up the bank. Meanwhile, Pacific Capital is having trouble completing a private capital hike.  Even if it comes off, Treasury will be forced to write down a substantial portion of the investment.

It’s time to let the terminally ill ones go — and face the reality, however belatedly, that some TARP banks are beyond saving.

Lunchtime Links 6-16

Jun 16, 2010 17:25 UTC

$250k deposit insurance limit to be made permanent, retroactive (Paletta/Luccetti, WSJ) Savers in IndyMac, which failed before deposit insurance limits were raised, can now put in a claim for lost deposits over $100k. I argued a year ago that this bailout never deserved the “temporary” moniker in the first place, that it would never go away. The problem is that deposit insurance, which is supposed to stabilize the banking system, can actually DEstabilize it by compounding moral hazard. That’s what this does.

Housing starts plummet in May (CR) This is good news folks. The economy can’t recover until housing recovers, and housing can’t recover — not sustainably — until supply declines…

Judge releases some Blago wire taps (Kozlov, CBS) Was chatting with a friend over the weekend who worked in Blagojevich’s office briefly. He told a story about how the IL governor refused to take a certain trip to Washington, that would have clearly benefited the state, because his wife refused to go. His wife refused to go because staff thought it a bad idea to grant her request to use state resources to turn the trip into a fun vacation for her and her friends.

Look who decided to show (flickr) For Tetris fans…

Swedish subway system (leenks) Pretty cool…

Stuck man cuts off own arm (MSNBC)

Seen at the Brazil – North Korea soccer match (imgur) Hilarious.

A German student created a major traffic jam in Bavaria when he ‘mooned’ a group of Hell’s Angels, hurled a puppy at them and then escaped on a bulldozer. (Orange News) This has to be a joke…

BP buys 32 of Kevin Costner’s oil cleanup machines (ABC) As Yves Smith remarked: “if you build it, they will come.”


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Lunchtime Links 6-15

Jun 15, 2010 18:06 UTC

Life insurers win capital reprieve (Scism, WSJ) This is a shame. On one hand, life insurers don’t appear as systemically risky as Wall Street banks, since their liabilities aren’t as unstable. You won’t see a run on life insurance policies the way you might on bank deposits, commercial paper or repos. But life insurers nevertheless dramatically overlevered themselves during the boom, and they invested in all sorts of dodgy paper rated AAA. To protect policy-holders, regulators should err on the side of demanding too much capital…

CFTC approves first movie futures contract (Doering/Rampton, Reuters) For “Takers,” starring Matt Dillon. I wonder: will they have to approve contracts for each individual movie? This also a shame

Leverage, Baby! (Kim/Opdyke, WSJ) No doubt the writers liked the idea of taking a contrarian view, but the analysis in this piece is quite awful. Their basic thesis is that rates are low so investors should lever up to buy assets or just to raise cash. Hmmm, last I checked, cash pays 0%. The reason to pay interest to hold cash is…what precisely? As for asset prices, they look too high whether deflation or inflation is on the horizon. A decade of debt deflation is the most likely scenario, in which case asset prices will fall and debts will be ever more burdensome to service. But even inflation would be problematic, contrary to popular opinion. Higher expected inflation would lead to two things that are toxic for asset values: higher interest rates and higher discount rates for future cash flow streams. Borrowing to buy assets only makes sense if they’re substantially undervalued; the writers don’t make any case for that.

What free Wi-Fi looks like in South Korea… (imgur) ….a lot more impressive than anything you can get in the U.S.!

Bin Laden hunter arrested in Pakistan (BBC) News story or Quentin Tarantino film?

Once just a site with funny cat pictures, now a web empire (Wortham, NYT) I Can Has Cheezburger now has 40 employees. Crazy.

Etch-a-Sketch Chicago (reddit) Pretty awesome. Chicagoans will note the sun is rising from an odd direction, but whatever.

He’s a novelist now?!? ( Wouldn’t want to be the ghost-writer that worked on this project…

You would if you could…





s_ _ _ happens: there was a run on AIG life policies in Hong Kong in 2008:

“..As Chan Akya reports in Asia Times Online on Wednesday panic-stricken policyholders lined up all day on Wednesday in Singapore to surrender their policies to secure redemption value”

This lifted from: chives/2008

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Bankers should be thankful for even meager M&A

Jun 12, 2010 02:58 UTC

Cross-posted from today’s NYT.

Rosy predictions of a big bounce-back in mergers and acquisitions may not be coming true, but bankers are fortunate that U.S. deal volumes are recovering as if the recession just endured was run-of-the-mill. After two down years, the value of American corporate match-making is flat in 2010. That’s no boom — but if history is any guide, it’s also nothing to complain about.

After declines of 41 percent in 2008 and 22 percent in 2009, the $322 billion of U.S. announced deals so far in 2010 is off 1 percent compared to last year’s pace. That pattern is in line with the last two recessions, according to Thomson Reuters data. The downturn of the early 1990s saw three dry years, the dotcom bust two fallow ones.

But considering the depth of the latest recession compared to the prior two, one might think dealmakers would still be in hibernation. Consider: During the latest recession, five of six quarters from 2008 through the second quarter of 2009 showed negative real GDP growth; the other recessions had just two down quarters. Also: employment has fallen, and stayed, 6 percent from its pre-recession peak; the other recessions saw employment dip less than 2 percent below peak level, and hiring on the other end picked up more quickly.

Yet some on Wall Street had been predicting a more robust rebound. Goldman Sachs predicted “a perfect storm for M&A” late last year, pointing to cash-stuffed corporate coffers — now at a record according to the Federal Reserve — and also benign capital markets. Greenhill & Co also predicted 2010 would be big for dealmakers.

But while last year’s fourth quarter showed some promising return to dealmaking — including TPG’s buyout of IMS Health and Berkshire Hathaway’s  acquisition of Burlington Northern, the momentum hasn’t carried over.

Some may find that surprising. After all, while many companies achieved profit targets through cost cutting during the economic downturn, the juice has probably been squeezed from that lemon. Acquiring competitors is one way to find additional cost-cutting opportunities through synergies. For instance, while CenturyTel and Qwest have been cutting costs on their own, they now hope their merger will yield over $600 million more in fresh savings.

The trouble is that even though the U.S. economy has stopped contracting, big risks still weigh on the animal spirits of potentially acquisitive executives. Job growth is anemic and credit markets have seen renewed volatility in the wake of Europe’s sovereign debt crisis. That volatility may have helped scuttle Prudential’s bid for AIG’s Asian insurance business, and a $15 billion leveraged buyout of Fidelity National Information Services.

Put it all together, and dealmakers pining for more action should probably just consider themselves lucky.


Rolfe, This article has been posted twice, both above and below your bank closing note.

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Bank failure Friday

Jun 12, 2010 02:07 UTC

Just one tonight it appears…


–Failed bank: Washington First International Bank, Seattle WA
–Acquiring bank: East West Bank, Pasadena CA
–Vitals: assets of $520.9 million, deposits of $441.4 million
–Estimated DIF damage: $158.4 million

On another, far more important topic — the U.S. match against England tomorrow — a British friend suggests the stakes be increased. To wit:

IF THE US WINS: Britain officially becomes the 51st state; the queen becomes a charwoman at the White House and American rock stars are forbidden by law to affect English accents.

IF ENGLAND WINS: American Independence is revoked and you revert to being a colony with Her Gracious Majesty as your head of state. Frisbees, Rollerblades and Jerry Springer-type TV shows are then made illegal.

Lunchtime Links 6-11

Jun 11, 2010 16:11 UTC

Bill would extend home buyers’ deadline for tax credit (El Boghdady, WaPo) Really? Ugh.

BP plans to defer dividend (Pagnamenta, TimesUK) With the potential cost of the spill running into the tens of billions, it makes sense for BP to sequester as much cash as possible for cleanup/liability…

New estimates double rate of oil flowing into GoM (Gillis/Fountain, NYT) Says the amount spilling could be equivalent to another Exxon Valdez every 8-10 days

Klarman tops Cohen/Griffin as investors search for margin of safety (Stein, Bloomberg) I didn’t know SK had so much in assets under management. Kind of surprises me. He seems like the type that would prefer to keep the portfolio limited so that he could invest in small companies that might move the needle.

U.S. firms build up record cash piles (Lahart, WSJ) Just a thought, but seems to me that cash on one person’s balance sheet is debt on someone else’s. Yeah, the Fed’s Flow of funds report showed that corporate cash piles are up, but it also showed that total public/private debt is still growing!

Tax burdens highest in….? (ht Nick Gogerty)

Japan unfurls solar sail in space (Amos, BBC)

Adobe photoshop (reddit)

Fred Astaire once called this the “greatest dance number ever filmed” (YouTube) So says the poster of this video. I believe it.


This year’s Golden Globe Award was voted the deadline in November 15th, before the World Cup qualifying play offs, which makes the C, not by virtue of its performance in the play offs Shen Yong, the competition become golden weight