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Berkshire will buy International Lease Finance Corp from AIG.
Posted at 07:44 PM in Investors I Like | Permalink
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Or AIG's P&C business. That is the whale he has been waiting for.
September 14, 2008 at 10:46 PM
The Great Subprime “Babel”—A Modern “Tail” of Biblical Greed
Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes. - Jesse Livermore
The public’s annual loss to Wall Street has usually been estimated in former years at $100,000,000 per annum, but owing to the more recent enterprising methods of the “Street” in manipulating the game, this estimate is now far to small as we shall see.-Franklin Keyes (1904)
Conceit of the Street
Shortly after the explosion of the great “dot.com” bubble something happened that was to change the monetary affairs of all men on Earth.
The investment banking tribes had once again begun to proliferate and fill the Street. They spoke a new tongue--the lanauge of rampant financial innovation. They thought they understood one another well. It was a strange tongue with words like synthetic CDOs, conduiting, CLOs, SIVs, bespoke swaps, CDOs squared, negative default correlations, binomial expansions and stochastic modeling. A tongue curiously reminiscent of the tongue of the House of ENRON.
The generations of bankers before the “dot.com” bubble had been interested only in themselves; they thought of themselves as masters of the universe and lived each one for himself alone; they used fundamental investing and global muscle against their weaker competitors, paying attention to the fundamental laws and rules of securities analysis and diversification. They were believers in the book of Graham and Dodd.
But the new generation of investment bankers was different. They stressed an opposite code of investing. The smart investor did not count. Their game was a vast opaque pool of derivative counter-party risk. Had they confined themselves to this kind of financial life, all might have been well. But the obscene fee income that grew out of cheap leverage, complex financial engineering and securitization techniques made them cockey and their pride made them think they could beat the financial laws of thermodynamics.
They decided to build a great Tower of asset backed securities. The tower would allow them to pillage the housing markets and at the same time and make it possible for them to seemingly eliminate all risk for themselves. Heads we win, tails you lose; that was their credo. The symbol of their invincible wealth, as they thought, was to be built in the shadow of the Wall ruled by the House of Greenspan. It would once again be built with the blood and sweat of the average Joes long disdained and exploited by the Lords of the Street. This time they would build the Tower with the temptation of excessive mortgage loans in an “irrationally exuberant” real estate market.
According to the Lords of the Street, a new paradigm had emerged: financial risk could be sliced and diced into oblivion, cheap leverage was here to stay and housing prices would only go up. Many foresaw the folly of this enterprise. Buffet, the great chief of the House of Berkshire Hathaway, called the new instruments of invincible wealth, financial weapons of mass destruction. But the aging House of Greenspan was oblivious to the great folly unfolding before its jaundiced eye. The unbelievers were admonished to stay in Nebraska where they belonged.
Finally, the Market decided to punish the arrogance of the bankers by destroying their trust of one another. It, confused them by splitting them up into many greedy tribes, each with a tongue and agenda of its own, (hence the name Babel, meaning “confusion”). A new tribe, the Shorts, arrived and began to hunters soon became the hunted. Alas, they were forced to subjugate their vast pools of CDOs and CDSs to the divine force of the Market. This ultimate humiliation came to be known as the “great MTM slaughter.”
When this happened, the Tower had to be abandoned. The financial Babel had burst!
The Tower itself was partly burned and partly swallowed by the great Houses of Morgan and BOA, under the wise and knowing protection of Benjamin B, the new master of the House of Greenspan, who would later come to be known as “Father Moral Hazard”.
(Adapted by WilliamBanzai7 from the Biblical story of the Tower of Babel)
September 15, 2008 at 12:41 AM
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