Monday, November 5, 2007

Ben Stein, My Trading Floor Be-atch

On August 12th Ben Stein wrote an Op-Ed for the New York Times,
"Chicken Little’s Brethren, on the Trading Floor"

Three days later CI posted in Ben Stein and the Markets (nutshell: Ben's wrong):

Mr. Stein is glossing over, at minimum, three issues that the sub-prime mess raises.

...1) To the extent that sub-prime losses are held by publicly traded companies or their affiliated funds, the amount that should be subtracted from their market capitalization is not the recognized loss but the loss times their P.E. multiple (I shouldn't have to make an argument by definition, Ben knows this stuff). This gives you a much larger number.

2) The banks are reporting that they can't quantify the extent of their losses. What? Who are these guys?...

...Short version on modeling errors? As Alfred Korzybski said "The map is not the territory"

3) With the lifting of the curtain, investors are able to take the measure of the Great and Powerful Oz.

A lot of these Wall Street types are revealed as arrogant windbags. See "hubris" (or see David Gaffen's MarketBeat post yesterday. He skewers 'em like a Canadian guide gutting fish. Very efficient.)
Goldman, Bear, Paribas are the peak of the finance world (and paid like it)
This revelation was not re-assuring to the markets and worthy of a P.E. haircut on the market all by itself.
I'd like to see Senator Levin get these guys under oath and ask "What were you thinking?"

I like Ben. He's usually a sharp straight-shooter.
I'd have liked to have the chance to win his money.
All of it.

The estimable Mr. Gaffen just posted, at MarketBeat,
Erasing $120 Billion in Market Cap

The credit-market turmoil of the last several months has taken a large bite out of the market capitalization of most major banks and securities. But substantial losses have occurred in these names since Bear Stearns and Goldman Sachs announced earnings on Sept. 20.

Combining eight of the major banks and brokerages, $120 billion in market cap has been wiped out in less than seven weeks...