Spero Consulting

Archive for September, 2008

Has Pres­i­dent Bush, Sec­re­tary Paul­son, Chair­man Bernanke, or Speaker Pelosi taken a sin­gle action or spo­ken a sin­gle phrase dur­ing the past month to inspire con­fi­dence in their abil­ity – not to solve the prob­lem – but to sim­ply com­pre­hend it and char­ac­ter­ize it?

By “it,” of course, we mean the cur­rent liq­uid­ity cri­sis fac­ing cer­tain insti­tu­tions that seem to have lax boards and man­age­ments that encour­aged exces­sive risking-​taking behav­ior that led to over-​concentrations of hold­ings in cer­tain (nearly worth­less) asset classes.

Per­haps, that ques­tion is too harsh; so, we shall ask a dif­fer­ent one. Has Pres­i­dent Bush, Sec­re­tary Paul­son, Chair­man Bernanke, or Speaker Pelosi taken a sin­gle action or spo­ken a sin­gle phrase that has mit­i­gated, rather than exac­er­bated, the cur­rent crisis?

As reg­u­lar read­ers know, we often urge those with decision-​making author­ity to take a short­ened ver­sion of the Hip­po­cratic Oath and pledge to “do no harm.” Today we go beyond that and rec­om­mend: just shut up!

Of the most rec­og­niz­able national politi­cians – sorry most House mem­bers – the most intel­li­gent quote that we heard was from John McCain in an Obama, anti-​McCain ad. It’s the one with the bad cover of Sam Cooke’s “Won­der­ful World” with the lyrics “don’t know much about…”

In the quote, McCain admits to not know­ing much about eco­nom­ics. If he and the other national politi­cians could remain that hum­ble and thought­ful dur­ing the cri­sis, there is much less chance that they would exac­er­bate it and cre­ate a real panic. (Clearly, a for­mer “community-​organizer” would have a bet­ter grasp of sub­tle eco­nomic issues and con­cepts and thus be able to pro­vide such insights as – and we para­phrase–we’ll solve the prob­lem with com­mon sense solu­tions and, as a bonus for the envi­ous and spite­ful, we’ll screw the rich while we’re at it. (Reg­u­lar read­ers will recall our use of ital­ics to denote sarcarm.))

Today’s (Sep­tem­ber 30) Wall Street Jour­nal con­tains a front-​page arti­cle, Indus­try Is Remade in a Wave of Merg­ers, which reports that the three largest banks now con­trol over 30% of the nation’s deposits.

We’re writ­ing because we take issue with the paper edition’s blurb: “For the econ­omy and gov­ern­ment offi­cials, the very size of these banks means they should be bet­ter insu­lated from big shocks…” In our mind, there seems to be an implicit, but unjus­ti­fied, diversification-​benefit argu­ment behind such statements.

We see no evi­dence that mas­sive size has insu­lated any finan­cial firm in this cur­rent cri­sis or any pre­vi­ous cri­sis in this coun­try or any other coun­try. In fact, we argue that the oppo­site is quite pos­si­bly true.

As we’ve writ­ten in the past, e.g., two weeks ago Forced Merg­ers? Big­ger Is Not Nec­es­sar­ily Bet­ter! and reit­er­ated Sun­day in What Will Wachovia’s Pre­sumed Demise Mean for B of A?, per­mit­ting cen­tral­iza­tion (of asset allo­ca­tion) into the hands of fewer and fewer indi­vid­u­als cre­ates its own sys­tem­atic risk. Each senior decision-maker’s idio­syn­cratic (and pos­si­bly irra­tional) beliefs and judg­ments affect a larger and larger share of the economy’s resource deci­sions, and that can’t be a good thing. Thus, there is a trade-​off of the cost sav­ings (of con­sol­i­da­tion) ver­sus the addi­tional risk of such cen­tral­ized decisions.

Such idio­syn­crasies go beyond any sin­gle indi­vid­ual and include orga­ni­za­tional fac­tors, as well. For exam­ple they include the behav­iors both con­sciously and uncon­sciously induced by con­trol schemes, includ­ing per­for­mance mea­sures and reward schemes; cul­ture and ethics; his­tory; and even mod­el­ing tech­niques and assump­tions. All of these together cre­ate a firm-​specific, idio­syn­cratic com­po­nent to the prob­a­bil­ity of income and losses being real­ized, which could amplify vari­abil­ity and the prob­a­bil­ity or mag­ni­tude of bad outcomes.

When we have the time, we’ll try to graph an exam­ple of an effi­cient fron­tier as the num­ber of firms shrink. It is not sim­ply the con­sol­i­da­tion of past (or prospec­tive) uncor­re­lated posi­tions, which on aver­age would pro­duce real­ized diver­si­fi­ca­tion ben­e­fits, e.g., higher low out­comes. Instead, unlike much of tra­di­tional finan­cial the­ory, which assumes cer­tain dis­tri­b­u­tions and com­pletely ratio­nal decision-​makers, it is easy to imag­ine someone’s past suc­cesses unduly influ­enc­ing their decision-​making and cre­at­ing a con­cen­tra­tion of risk within a par­tic­u­lar indus­try, region, or asset class. Per­haps Wachovia and mort­gages is a good exam­ple of this behavior?

The sec­ond part of the blurb, which we did not repro­duce, con­tains a “too big to fail” state­ment, and the writ­ers cor­rectly note that this men­tal­ity inten­si­fies moral haz­ard prob­lems by pro­vid­ing a per­ceived lim­ited lia­bil­ity on the loss side, thus mak­ing such insti­tu­tions more likely to take risks and get into trou­ble. That’s not our argu­ment, but it does exac­er­bate the issue that we’ve identified.

On Mon­day in a post, A Bet­ter Solu­tion (than a gov­ern­ment takeover), we pro­posed a serious, alternative solu­tion to the finan­cial liq­uid­ity cri­sis that is decen­tral­ized and free-​market ori­ented. In addi­tion, it could quickly be imple­mented with a few changes to the tax code. The main idea: per­mit pri­vate buy­ers of dis­tressed secu­ri­ties to imme­di­ately expense the pur­chase price and pay low tax rates of sub­se­quent sales or recoveries.

At the end of that post, we men­tioned that we had a few details to work out, includ­ing the opti­mal (sub­se­quent) cap­i­tal gains tax rate, the appro­pri­ate tax basis, and any par­tic­i­pa­tion restric­tions, i.e., should sell­ers of dis­tressed secu­ri­ties also be per­mit­ted to buy them from others?

Unfor­tu­nately, we must now defer con­sid­er­a­tion of these issues to inves­ti­gate a more press­ing the­o­log­i­cal one: is our dog’s eter­nal hap­pi­ness at stake now that he has bit­ten the priest’s elderly dog? (To be clear, the dog is old, not the priest.) We’re guess­ing mor­tal sin, not venal.

You see, Our Poster Boy for the Credit Cri­sis bit the poor old dog on the head when the duo vis­ited this evening. So, is Bootsy doomed? And are we per­son­ally doomed for our fail­ure to con­trol our Basenji’s trans­gres­sions against the church Lab?

In other words, will Boots and I be forced to spend a hel­la­cious eter­nity lis­ten­ing to the insipid prat­tlings of Mike Tirico, Ron Jaworski, and Tony Korn­heiser, ESPN’s Mon­day Night Foot­ball announc­ing crew?

We’re both sorry: very, very sorry.

Update: the House failed to pass the first bailout bill. Here is a seri­ous and effi­cient alter­na­tive that could be imple­mented very quickly…

But first a bit of our usual crit­i­cism: while dis­mayed, we were not sur­prised by the polit­i­cal response to the finan­cial cri­sis sur­round­ing the issuance and hold­ing of sus­pect mort­gages and mortgage-​related securities.

We’re peeved at Repub­li­cans because many of them claim to be con­ser­v­a­tives, yet pro­pose no seri­ous free mar­ket solu­tions. Their insur­ance plan seemed lame and lit­tle dif­fer­ent than sub­si­dized, under-​priced flood insur­ance offered to hur­ri­canes vic­tims – some­times after the fact. It exac­er­bates moral haz­ard problems.

We are upset with the Democ­rats, too, who claim that it is a cri­sis of free mar­kets, when many know that a sub­stan­tial part of the inter­twined set of prob­lems was the result of Con­gres­sional med­dling and the usual (and expected) inef­fec­tive regulation.

In addi­tion, we are espe­cially annoyed with many, so-​called con­ser­v­a­tive com­men­ta­tors and investors who claim to be for free­dom and free mar­kets, but run to the fed­eral gov­ern­ment when­ever times get tough: “Mama, Mama, do some­thing, I’m scared.” (That’s one of our gen­eral crit­i­cisms of baby-​boomers; many whom seemed to have never grown-​up, par­tic­u­larly the older ones.)

The Wall Street Jour­nal has failed us: Unfor­tu­nately, our crit­i­cism extends to that for­mer bea­con of free mar­kets, The Wall Street Jour­nal’s edi­to­r­ial page. Its pub­lished prin­ci­ples seem to dis­solve when the staff becomes afraid of pos­si­bly lower ad rev­enue, cir­cu­la­tion, or home val­ues.¹ See today’s A Main Street Res­cue, for an exam­ple of their inconsistency.

In that respect, we agree with many of the let­ter writ­ers on today’s edi­to­r­ial page, who com­plain about the bailout and the journal’s recent lack of free-​market prin­ci­ples. (We par­tic­u­larly like James Lang’s let­ter, which states that $700 bil­lion is enough to buy out­right the equity in the top 11 banks by mar­ket cap­i­tal­iza­tion.) Of course, that may have changed over the week­end to include, say, the top twenty.)

Reg­u­lar read­ers know that we’ve spent much of our blog­ging effort dur­ing the past week crit­i­ciz­ing the bailout and gov­ern­ment offi­cials, pri­mar­ily Mr. Paul­son and Mr. Bernanke, but to date we haven’t offered a solu­tion of our own.

As always, we do think that the best start to solv­ing a com­plex prob­lem is to do noth­ing and think. (We do offer more than that below.) That strat­egy tends to min­i­mize neg­a­tive, unin­tended con­se­quences and fol­lows from our motto of “thought before cal­cu­la­tion,” which in this case would gen­er­al­ize to “thought before action.” That’s why we often admon­ish read­ers to take the cru­cial part of the Hip­po­cratic Oath in all such activ­i­ties: do no harm.

Our Pro­posed Solu­tion goes beyond the pre­vi­ous paragraph’s rec­om­men­da­tion of thought­ful iner­tia, but does not require cen­tral plan­ning by fed­eral bureau­crats or con­stant over­sight by a myopic and expe­di­ent Congress.

Change the tax code to moti­vate pri­vate investors and invest­ment man­agers (and other firms) to solve the prob­lem with­out fed­eral assis­tance. How?

By allow­ing (new) pri­vate pur­chasers of cer­tain classes of mort­gages and secu­ri­ties to imme­di­ately expense the item’s his­tor­i­cal cost or take an unre­al­ized loss for the full pur­chase price (with­out the usual loss-​limiting, gain-​offsetting rules for cap­i­tal losses that lead to loss carry-​forwards, etc.).

The upfront tax sav­ings would be at the buyer’s mar­ginal rate. Does the reader think this would pro­vide sub­stan­tial liq­uid­ity for these dis­tressed assets? We do! Do you think that hedge funds, pri­vate equity funds, and other finan­cial firms would be will­ing to pur­chase these assets, orga­nize funds, and dis­trib­ute own­er­ship rights to other investors, includ­ing indi­vid­u­als? We do!

We believe this imme­di­ate tax ben­e­fit would induce investors to bear the risks of loss asso­ci­ated with valu­ing and buy­ing these difficult-​to-​understand secu­ri­ties, and it would require a sub­stan­tially smaller invest­ment by the US gov­ern­ment – this time in terms of tem­po­rary oppor­tu­nity cost of lost tax rev­enue, rather than as a direct investment.

We also pro­pose to tax the real­ized cap­i­tal gains when these items are resold or real­ized at some min­i­mal rate, say, 5%. We have no the­o­ret­i­cal jus­ti­fi­ca­tion for the 5% rate, but we want it low enough to reward the pur­chasers for bear­ing the risk, but high enough to recoup some of the lost rev­enue of per­mit­ting the imme­di­ate tax write-​offs.

In that regard, we need to deter­mine the opti­mal tax basis for such sales, as well as par­tic­i­pant eli­gi­bil­ity, i.e, who would be allowed to par­tic­i­pate? Could cur­rent dis­tressed hold­ers be buy­ers, too?

As it stands we would argue that the tax basis to cal­cu­late real­ized gains should be zero, rather than the orig­i­nal pur­chase price. We need to think about how this rate-​basis com­bi­na­tion affects incen­tives to buy and hold or sell these mort­gages and issues, as well as the effect of such a plan on val­ues of other asset classes, e.g., CMBS. Sim­i­larly, our ini­tial impulse would be exclude the major, cur­rent hold­ers, i.e., the likely largest sell­ers, from also buy­ing, but see argu­ments both ways.

We con­jec­ture that such rewards would gen­er­ate suf­fi­cient inter­est from investors and fund man­agers to quickly orga­nize and invest thereby (pri­vately) mit­i­gat­ing the liq­uid­ity cri­sis in a market-​based solution.

Nei­ther our pro­posal nor any other pro­posal – short of nation­al­iza­tion – will elim­i­nate liq­uid­ity issues. The cri­sis has taught banks and investors that cer­tain insti­tu­tions are not as capa­ble or safe as was once thought. Those dimin­ished firms and orga­ni­za­tions will con­tinue to suf­fer from a lack of will­ing lenders and investors, but isn’t that the way it is sup­posed to be?

There is more to write on the issue, but we’d pre­fer to pub­lish the idea and per­form a few after­noon activ­i­ties that gen­er­ate cur­rent – rather than poten­tial future – rev­enue. More­over, we need to think more about some of the details men­tioned above. (Look for revi­sions to this post and new, related posts tonight and tomorrow.)

So, dear reader, what do you think? Should the fed­eral gov­ern­ment imple­ment its a new, House-​approved ver­sion of its cur­rent plan. Or should it step aside and sim­ply pro­vide an envi­ron­ment for entre­pre­neurs and investors to bear the risk and solve the prob­lem them­selves? We fre­quently quote Austin Pow­ers: “It’s freee­dom baby, yeah,” which we pre­fer to some squares in the gov­ern­ment run­ning the show. So, unsur­pris­ingly, we’re all for our plan.

Dur­ing the past week, we have crit­i­cized the President’s and Congress’s pro­posed finan­cial bailout on prin­ci­ple and for what we will call strate­gic and tac­ti­cal rea­sons. The title of this post per­tains to some of the tac­tics, which we’ll men­tion later in the post. How­ever, we’ll take a moment to reit­er­ate our pri­mary opposition.

First, we dis­agree in prin­ci­ple with the pro­posed bailout/​subsidization of finan­cial firms that either (1) reck­lessly lent money for mort­gages to unqual­i­fied bor­rows or (2) reck­lessly pur­chased mort­gages, mortgage-​backed secu­ri­ties, or CDOs with­out suf­fi­cient analy­sis. By “reck­lessly” we mean that lax man­age­ment per­mit­ted exces­sive risk-​taking, and by “exces­sive risk-​taking” we mean both (1) the elim­i­na­tion of lend­ing stan­dards and (2) the deter­mined igno­rance the envi­ron­ment by employ­ees and man­agers about all of the bad things that could hap­pen, par­tic­u­larly the sys­tem­atic com­po­nents of real-​estate val­ues in com­mu­ni­ties and regions, which they tend to be highly related. (There’s a domino effect when prices are going up or down.)

We could make a tech­ni­cal argu­ment, which would use a model sim­i­lar to Moody’s cor­re­lated, bino­mial expan­sion tech­nique, but doubt that most read­ers care about the details. So, we refer inter­ested read­ers to a post from April, Trad­ing, Incen­tives and Orga­ni­za­tional Struc­ture and Risk Man­age­ment, which explains how we see home prices being set. See the sec­tion enti­tled Thinly-​traded “mar­kets,” but we think the entire post is worthwhile.

Sec­ondly, we don’t like the strate­gic deci­sion to over­es­ti­mate of the neg­a­tive impli­ca­tions of not pass­ing the bailout. We view the wolf-​crying, sky-​is-​falling bureau­crats at the Fed and the Trea­sury with deep sus­pi­cion. We think that many of our fel­low mem­bers of the hoi pol­loi har­bor sim­i­lar sus­pi­cions. We think those sus­pi­cions (and the implicit lack of respect for the audience/crowd) is one rea­son why most opin­ion polls have shown that majori­ties of respon­dents are against the bailout.

Thirdly, from what we’ve read this evening, we also dis­agree with the devil in the details. An arti­cle on The Wall Street Jour­nal’s web site tonight, Cri­sis Hits Europe’s Banks As U.S. Seals Bailout Deal, has empha­sized the reverse auc­tion aspect of the pro­posed pur­chase plan. If that is the case, then for a par­tic­u­lar mortgage-​related secu­ri­ti­za­tion issue – MBS or CDO – the Trea­sury will buy at the low­est ask­ing price. Pre­sum­ably, this mech­a­nism is being empha­sized to min­i­mize com­plaints (from peo­ple like us) about sub­si­diz­ing irre­spon­si­ble behavior.

Unfor­tu­nately, as we men­tioned Fri­day in Moral Haz­ard and Another Prob­lem with Illiq­uid Assets…in a Mark-​to-​Market Account­ing Régime, the prob­lem with illiq­uid assets is that there are few – if any – prices to observe. 

So, the Treasury’s pur­chase price will set the mar­ket price (and the mark) for all the other hold­ers of the issue. And, that price is the low­est ask­ing price; so, all else equal, every firm that doesn’t sell now has an unre­al­ized loss, and hav­ing banks rec­og­nize addi­tional unre­al­ized losses is not the way to regain finan­cial sta­bil­ity in the industry.

We’re not an expert on auc­tions, but maybe some type of second-​price, reverse auc­tion is would work out best. We need to think more about it, and – as always – are will­ing to enter­tain com­ments and other perspectives.

Is from an arti­cle, Bailout Plan Gains Key Sup­port, at The Wall Street Jour­nal’s web site today, Sun­day, Sep­tem­ber 28. U.S. Rep­re­sen­ta­tive Mark Udall speak­ing about his con­stituents’ phone calls regard­ing the pro­posed finan­cial bailout: “My calls are mixed between peo­ple who say no and peo­ple who say hell, no.”

We’re not a con­stituent of the rep from Colorado, but we think that we fall into both groups.

We’d bet that Bank of Amer­ica is too busy swal­low­ing Mer­rill Lynch and attempt­ing to iden­tify its own prob­lem assets to ask (and answer) our ques­tion, but we really hope that is not the case.

It would be a shame because B of A should have asked it before the Mer­rill Lynch acqui­si­tion rather than now when, now, when its cap­i­tal is scarcer. We know that the pur­chase price of Mer­rill was rel­a­tively small com­pared to B of A’s mas­sive asset size, but that’s not our point today as we’ll explain below.

Of course, we can’t men­tion B of A and Mer­rill with­out also men­tion­ing our objec­tion to the “semi-​forced” merger in Forced Merg­ers? Big­ger Is Not Nec­es­sar­ily Bet­ter! So, please bear with us. (Was it really only two weeks ago?)

Our point in that post was that an indi­vid­ual senior man­ager – with any author­ity – brings idio­syn­cratic risk to asset allo­ca­tion deci­sions, e.g., any of the behav­ioral finance irra­tional­i­ties and irreg­u­lar­i­ties that have been doc­u­mented. That idio­syn­cratic risk becomes sys­temic as his firm con­trols more and more of the economy’s assets, and so the con­cen­tra­tion of deci­sions elim­i­nates or at least reduces any nat­ural (or text­book) diver­si­fi­ca­tion ben­e­fit that one would “nor­mally” expect. (That’s one of the many prob­lems with centrally-​planned economies, but it is often ignored.)

The idio­syn­crasies can go beyond tastes and risk pref­er­ences. In fact, all else equal, that per­sonal, idio­syn­cratic risk is most surely inversely-​related to the individual’s abil­ity and com­pe­ten­cies. That’s why we really, really wish more gov­ern­ment offi­cials, reg­u­la­tors, board mem­bers, and senior man­agers would have read and inter­nal­ized Nas­sim Nicholas Taleb’s book, Fooled By Ran­dom­ness. 

In it, Taleb describes one type of fool as the per­son who attrib­utes his suc­cess solely to his abil­ity rather than to his good for­tune or luck and is there­fore will­ing to take big­ger and big­ger bets, and does so until he “blows up” or loses more in one shot than he ever made. Sound familiar? 

If our reader is too busy to read Taleb’s entire book, per­haps he or she has time to read St. James’ admo­ni­tion on our quotes page. We think it is eight lines at most.

Now, we cer­tainly hope that Bank of Amer­ica is not gloat­ing as its crosstown rival, Wachovia, nears its end – fig­u­ra­tively or lit­er­ally – and we say that because moves and merg­ers made a mere two weeks ago to gen­er­ate “tem­po­rary sta­bil­ity” seem to have failed badly. More­over, the loss of one’s biggest rival isn’t a rosy out­come if both you and that rival are harmed by the same neg­a­tive fac­tors. Thus, we urge B of A to con­sider those impli­ca­tion­sof its rival’s demise (or takeover) to its own value. Unfor­tu­nately for Bank of Amer­ica, it is not a zero-​sum game.

In that respect, we’ve dis­cussed some of the rela­tion­ships between Wachovia and Bank of Amer­ica in cou­ple of posts dur­ing this past sum­mer. Clearly there are indus­try, national, and regional feed­back loops at work. 

Within the indus­try, many banks are hurt­ing. Sup­pos­ing that B of A had absolutely noth­ing to hide, it (and its assets) would (and will) cer­tainly suf­fer from guilt-​by-​association, regard­less of what it says. 

More­over, as we’ve been warned any num­ber of times by any num­ber of com­men­ta­tors, fail­ures in the bank­ing indus­try affect the econ­omy as a whole; thus, B of A’s future busi­ness prospects are dimmed as Wachovia’s (and oth­ers’) trou­bles affect the over­all econ­omy. It is a two-​way street, after all; despite what one may have heard, banks don’t drive the econ­omy.¹

Region­ally, B of A may gain mar­ket share, but the size of that mar­ket is likely to be sub­stan­tially smaller. So, the net gain in regional rev­enue may be neg­a­tive for a vari­ety of rea­sons. More impor­tantly, the Char­lotte area seems to be highly depen­dent upon those two firms, and the loss of either one will likely have a huge neg­a­tive affect on home val­ues (and busi­ness val­ues and cred­it­wor­thi­ness and, even­tu­ally the size of the pop­u­la­tion) within the region. That, too, will hurt the sur­vivor, and it is why we sub­ti­tled our June post, “Or how bank­ing in ‘08 in Char­lotte might be like steel in Pitts­burgh in ‘72,” i.e, the begin­ning of the end.

Remem­ber, none of our analy­sis depends upon any exist­ing, inher­ent prob­lems within Bank of Amer­ica. If such prob­lems exist, they will cer­tainly exac­er­bate mat­ters. How­ever, it does seems that Mer­rill and Wachovia share cer­tain prob­lems, e.g. expo­sure to bad mort­gage, and that will con­sume fur­ther capital.

In that way, B of A has just agreed to add some­thing that looks sim­i­lar to its fail­ing crosstown rival. In our opin­ion, there is no time to gloat. Its risks are more con­cen­trated than it may have thought.

Let us know what you think. Are we off-​base or pre­scient or on tar­get but lucky?

We view the huge sums spent on adver­tis­ing var­i­ous causes and issues to be a sign of the economy’s gen­eral health – or at least a sign that some folks have more money than they need. 

We’re not talk­ing about the politi­cians. We’re talk­ing about AARP and One and the rest of the groups and alliances that have sup­planted failed banks and fail­ing auto man­u­fac­tur­ers as major adver­tis­ers this fall.

The one we like best: the call, nay the demand, for the equiv­a­lent of a per­pet­ual motion machine within ten years. Hey, no one said the demands had to be rea­son­able or even make sense, and we’re sure that the broad­cast net­works don’t mind.

As a test of our will and dis­ci­pline, we attempted to watch tonight’s debate. We are weak, and we failed the test, or per­haps we weren’t suf­fi­ciently self-​loathing to fully appre­ci­ate the event. On the other hand, per­haps we place a unrea­son­ably high value on wit, and there­fore the dis­ap­point­ment was ours and ours alone.

Regard­less, we found all par­ties lack­ing, par­tic­u­larly the exe­crable Mr. Jim Lehrer. Did we hear him say some­thing about the next Pres­i­dent being the ruler of the coun­try? Yes, unfor­tu­nately, we did.

May we sug­gest a civics class before his next mod­er­a­tion attempt in 2012? Or bet­ter yet, per­haps he may con­sider retir­ing (or at least retir­ing that “talk to him, not to me” shtick). At this point we are unde­cided. We’re not sure if he reminds us of a very bad ther­a­pist or a stereo­typ­i­cal, TV, prison b*tch. (Yeah, The Longest Yard was on the other chan­nel.) Ah, let’s split the small dif­fer­ence and call it a draw.

The other two seemed to be as artic­u­late and clear-​headed as two very tired chil­dren at the end of a long and event­ful day that had involved lots of sugar.

They reminded us of our return from an amuse­ment park late one night last sum­mer. Each of the princesses had a friend in the car. The lit­tle one’s friend, who was five-​turning-​six at the time, was extremely tired but hun­gry. She kept ask­ing the chair­man, “Mrs. Spero, do you have any of those things in the car? You know, like the ones my mom has in her car? Do you have any of those lit­tle things in the box? I’m kind of hun­gry. Could I have some of them?” Later, we learned that her mother kept a cer­tain brand of cook­ies in their car, which were not what we had to offer thus the tired confusion.

Com­bine that level of speak­ing abil­ity with the two snap­ping at each other like two, very tired sib­lings, and we were quickly under­whelmed. Hey, we can get that at home from two real princesses on their pre-​dinner LBS (low blood sugar) dive. We don’t need to watch it on TV!

In sum, we found the debate to be unwatch­able, and have lit­tle hope for the remain­ing ones although Biden con­de­scend­ing to Palin might be worth seeing.

If the reader watched tonight’s debate, does he or she now under­stand why we pre­fer a very lim­ited fed­eral government, with min­i­mal reg­u­la­tion and inter­fer­ence by the equiv­a­lent of tired chil­dren? Per­haps they also now under­stand why we insist upon the fallen nature of man as the foun­da­tional prin­ci­ple upon which institutions are built.

Thank God that the Found­ing Fathers shared our per­spec­tive of mankind and the need for appro­pri­ate checks and bal­ances and incen­tives or one of those two might be an actual ruler. Ick!

in a Mark-​to-​Market Account­ing Régime.

Here’s a cou­ple of related issues that we can dis­cuss in the con­text of today’s The Wall Street Jour­nal arti­cle, Bailout Pro­posal Gets Hung Up Over Cen­tral Issue: Will It Work?

We’re deeply con­cerned about the moral haz­ard impli­ca­tions of any gov­ern­ment bailout, and we doubt that we are the only observer to har­bor such dark thoughts. How­ever, we also think that those impli­ca­tions could be real­ized imme­di­ately rather than, say, dur­ing the “next” down­turn in some far dis­tant time. Thus our pes­simism grows as does our annoy­ance with the fed­eral offi­cials who have pro­posed mas­sive snd expen­sive actions with­out suf­fi­cient lev­els of thought.

In that respect, can the reader say, “com­mer­cial real-​estate loans and CMBS?” And, does the reader know that illiq­uid CMBS – that’s redun­dant by the way-​is very dif­fi­cult to value, too? Not much dif­fer­ent than CDOs of MBS. We com­mented on some of those val­u­a­tion issues three months ago in this post: On Nedges and Sledges and Paving the Road to Hell.

We men­tion CMBS because we saw in the ref­er­enced arti­cle that many banks, not just the ail­ing ones, are try­ing to round-​up every­thing they don’t want, i.e., crappy loans and secu­ri­ties, to make it avail­able for sale to the government.

Can you, dear reader, blame the banks? We can’t. We’d cer­tainly like the feds to buy our Sub­ur­ban at its his­tor­i­cal cost, too. Mr. Paul­son are you listening? Can you help me, here?

As the arti­cle men­tions, it turns out that the banks would rather sell these items at their cur­rently marked val­ues than be forced to pos­si­bly devalue them at the end of the next report­ing period, which hap­pens to be next Tuesday.

It is prob­a­bly too late, so we doubt that it will hap­pen on Mon­day, but we could see a banker try­ing to con­vince a gov­ern­ment bureau­crat that the bank’s mark from June is still the best guess of where an item sells (if it were to sell to any­one in the mar­ket that doesn’t exist.)

We could also see the bankers’ expec­ta­tions of the sales (to the gov­ern­ment) to color their val­u­a­tions next week. As we wrote yes­ter­day in The Uncer­tain Value of Mort­gage Secu­ri­ties that expec­ta­tion will likely lead to greater adverse selec­tion prob­lems because of the pos­si­ble increase in the uncer­tainty regard­ing the value of each bank’s assets. In our view, this will exac­er­bate, not mit­i­gate, the cur­rent pan­icky behav­ior among banks as they deal with each other (until such exchanges with the gov­ern­ment actu­ally occur). How­ever, we could see it lead­ing to prob­lems after the bailout, too.

With that in mind, we ask the dear reader to guess the mul­ti­ple of $700 bil­lion that banks have iden­ti­fied as assets they’d like to sell? We’re guess­ing a mul­ti­ple of at least three – a few tril­lion dol­lars worth – with a sub­stan­tial amount of CMBS and inven­to­ried, pipelined, com­mer­cial mort­gages thrown into that mix. (Those are loans that con­duits made and planned to bun­dle into secu­ri­ties but are cur­rently stuck with because no one wants the CMBS that would be struc­tured from them.) Does the reader believe that only homes were over­built in for­mer boom towns?

So, for argument’s sake, and to be excru­ci­at­ingly pre­cise, let’s say that we are cor­rect that the bank’s col­lec­tively think that they’ll be able to sell $2.1 tril­lion worth of thin­gies to the gov­ern­ment at prices that the banks like. How will take affect next week’s third quar­ter val­u­a­tions, and what will hap­pen when they’re stuck with $1.4 tril­lion of stuff that they wish the gov­ern­ment had bought?

And that leads us to our sec­ond issue about the nature of dis­jointed and illiq­uid mar­kets and how a lit­tle infor­ma­tion can hurt a lot. You see, in social sit­u­a­tions, more infor­ma­tion is not nec­es­sar­ily better.

The fact that no one wants to buy the stuff doesn’t mean that there aren’t a lot of firms hold­ing sim­i­lar secu­ri­ties. So, let’s say that 20 firms are hold­ing a part of a par­tic­u­lar illiq­uid CDO issue or CMBS issue or what­ever it is that no one else wants.

If the thing is illiq­uid then – nowa­days – that means it’s not traded at all; so, there is no observ­able price; so, it is likely that the cur­rent marks vary across the 20 firms because they are all using slightly dif­fer­ent mod­els or all have slightly dif­fer­ent – albeit, likely inflated – expec­ta­tions of what a sale to the gov­ern­ment will bring.

All things equal, it would seem to us that the most des­per­ate firm would accept the low­est price offered by the Trea­sury. Again, all else equal, that’s usu­ally how its works; oth­er­wise, we have to add an adverse selec­tion argu­ment, too.

If that is true, then depend­ing upon how much of the issue the Trea­sury pur­chases, that low­est price is now an observ­able “mar­ket” price for the other 19 firms, and that’s not good with mark-​to-​market account­ing where a lit­tle bit of infor­ma­tion, based pos­si­bly upon one firm’s des­per­a­tion sale to the gov­ern­ment set the new (likely lower) mark for the other 19 firms. It might be infor­ma­tion and it might be the truth, but it cer­tainly wouldn’t help soci­ety. More infor­ma­tion isn’t always better.

That means addi­tional write-​downs may be forth­com­ing from, say, the other 19 firms. If that issue is part of our hypoth­e­sized $1.4 tril­lion above, then those write-​downs in the future after the gov­ern­ment pur­chase will be larger than they would have oth­er­wise been with­out the bailout. Of course, that’s based upon our argu­ment that the book val­ues of the issues would be higher than they oth­er­wise would have been (due to each bank’s antic­i­pa­tion of sell­ing to the gov­ern­ment at an inflated price). Such a sce­naroi would lengthen the dura­tion of the cri­sis and neg­a­tively influ­ence the behav­ior of the firms when they lend to each other in the near term. There will be more pan­ics that occur far­ther into the future.

Is this all idle spec­u­la­tion? Of course, we were a the­o­rist in col­lege. Are we wrong? It is quite pos­si­ble – the chair­man men­tions that it often hap­pens – but we doubt it in this case. Let us know what you think.

Oh, what a party we’d have. We used that title once before and got a decent num­ber of hits from it, and we’re noth­ing if not an oppor­tunis­tic – albeit neo­phytic – SEOer, which is why we men­tion Lip­stick Jun­gle, too.

Since August, when we began pay­ing closer atten­tion to our daily hits and the rank­ings of var­i­ous posts, our silly lit­tle post dur­ing the Olympics, What Do They Want From Us?, about NBC’s pro­mos for Lip­stick Jun­gle remains among our most viewed articles

Actu­ally, for new read­ers we’d like to men­tion that our reuse of the title is part of Spero Consulting’s green strat­egy of recy­cling still valu­able mate­r­ial so as not to harm the envi­ron­ment. Per­haps we’re more gen­tle and car­ing because we’re majority-​owned by a woman, or per­haps it’s because we are lazy, er, efficient.

Regard­less, it is an apt title to intro­duce our crit­i­cism of Lucian Bebchuk’s op-​ed piece in today’s (the Sep­tem­ber 26) edi­tion of The Wall Street Jour­nal, enti­tled How to Pay Less for Dis­tressed Finan­cial Assets.

Mr. Bebchuk’s entire essay sum­ma­rizes to a sin­gle point: the gov­ern­ment should pay only the fair mar­ket value for the dis­tressed, illiq­uid mort­gage assets and secu­ri­ties that finan­cial insti­tu­tions own (that don’t have mar­ket). Now, why didn’t any­one else think of that? Clearly, it takes a Har­vard Law prof with, as the arti­cle men­tions, a “white paper” to reach such a heady conclusion.

Pre­sum­ably, the white paper’s argu­ment goes some­thing like this: let’s ignore for the moment that there is no mar­ket for these items, and let us assume that one exists. In that case, the gov­ern­ment should pay no more than fair mar­ket value. Hmm, very clever. (Reg­u­lar read­ers may recall that we occa­sion­ally use ital­ics to sig­nify deep and mean­ing­ful sarcasm.)

Now, we must admit that up to this point, we’ve been a tad bit unfair. See, Mr. Bebchuck’s essay actu­ally makes three points, not just one. The sec­ond one is very sim­i­lar to the first: pay fair mar­ket value for other stuff, too. So there is no need to dwell on it.

The third rec­om­men­da­tion goes beyond either of the first two has to do with sell­ing the illiq­uid secu­ri­ties that the gov­ern­ment buys. We would neg­li­gent and mis­lead­ing if we didn’t men­tion it. See, Mr. Bebchuk rec­om­mends that the gov­ern­ment design opti­mal incen­tive schemes to sell the inven­tory of illiq­uid, mortgage-​related secu­ri­ties at the high­est pos­si­ble price. Again, bril­liant.

He rec­om­mends, plac­ing the secu­ri­ties with man­agers who do not have con­flict­ing inter­ests – any good eco­nomic the­o­rist could have con­tin­uüm of them in a flash – and he con­cludes that com­pe­ti­tion will pro­duce prices at fair mar­ket val­ues in a jiffy. Bril­liant, indeed. So, assume away conflicts-​of-​interest and have the gov­ern­ment design opti­mal incen­tive schemes because we all know that the fed­eral gov­ern­ment is a very effi­cient designer of incen­tive schemes: see The Gov­ern­ment Will Save Us! Not! for a recent exam­ple of the fed­eral government’s effi­ciency at induc­ing cost-​saving behav­ior. We’re sure that you could sup­ply your own, too.

Inter­ested read­ers are also encour­aged to read a few posts from yes­ter­day: The Uncer­tain Value of Mort­gage Secu­ri­ties dis­cusses the fact that no one seems to know how to value the secu­ri­ties and The Cri­sis and Free Mar­ket Crit­ics pro­vides a bit of detail about the nature of the val­u­a­tion prob­lem – see the aside towards the end, which is about CDOs. We also have a few other posts about the bailout in which we crit­i­cize the plan’s likely effi­cacy and oppose it for a vari­ety of rea­sons. (Note that our argu­ment against sub­si­diza­tion, or hav­ing the gov­ern­ment pay more than the thin­gies are worth does not pre­sume a mar­ket for them but does pre­sume that they can be val­ued in some man­ner. Despite the upcom­ing dou­ble neg­a­tive, we’re not being incon­sis­tent or hyp­o­crit­i­cal by accus­ing Mr. Bebchuk of doing some­thing and then doing it ourselves.)

Like most posts, we’ll prob­a­bly revise this slightly in the next day or two.

Wolf! Wolf! Wolf!

The sky is falling! The sky is falling! The sky is falling!

The biggest bank­ing col­lapse in US his­tory, and, as far as we can tell, Chicken Lit­tle, despite all the noise noth­ing much has hap­pened. Oh, cer­tainly some folks, includ­ing a pri­vate equity firm, lost a good deal of money, but that seems to be the nature of pri­vate equity and spec­u­la­tion, espe­cially dur­ing highly volatile times. We don’t make light of their losses, but we’ve lost lots on par­tic­u­larly invest­ments in the past, and we sus­pect that most of our read­ers have, too. So, we say join the crowd and try to repress your bad expe­ri­ence like the rest of us.

JP Mor­gan was able to sub­stan­tially increase its retail net­work – at what seems to be a rel­a­tively low cost. Good for them. If all of WaMu’s bad stuff is now Morgan’s respon­si­bil­ity – and it seems to be – then that merger should remove a sub­stan­tial amount of bad mort­gages and mort­gage secu­ri­ties from the bailout pot, and that seems to be good for all of us.

We’ll be inter­ested in see­ing whether the Trea­sury and the Fed reduce the ask­ing size of the pro­posed bailout now that Mor­gan stepped up to cover Wash­ing­ton Mutual’s losses. (Var­i­ous reports sug­gest that WaMu expects to lose about $19 bil­lion on its mort­gage port­fo­lio.) We’re not sure of the esti­mated size of WaMu’s assets that the Fed and Trea­sury planned to pur­chase, i.e., the sup­posed mar­ket value or non-​loss por­tion of those mortgages.

The $700 bil­lion had to include some of those mort­gages, right? So, shouldn’t the $700 bil­lion be smaller now? By the way, how was that $700 bil­lion esti­mated? Does any­one know? Mr. Paul­son? Mr Bernanke? We have a sneak­ing sus­pi­cion that no one quite knows for sure, but it cho­sen because it seemed rel­a­tively big – more than half a tril­lion but less than a whole trillion.

We doubt it.

But maybe cicadas or Gen­eral MacArthur.

With Gold­man Sachs and Mor­gan Stan­ley becom­ing com­mer­cial banks, many com­men­ta­tors are not­ing the demise and extinc­tion of invest­ment banks. We’re not so sure.

This is clearly a highly-​speculative and long-​term pre­dic­tion but we think pri­vate invest­ment banks, circa the 1980’s, will be back. Why? They pro­vide con­trol mech­a­nisms and lev­els of over­sight and scrutiny that seem dif­fi­cult to dupli­cate in pub­lic cor­po­ra­tions. So, yeah, we could see relatively-​large, lim­ited part­ner­ships return via spin-​offs, merg­ers of bou­tique firms, or, pos­si­bly, muta­tions of hedge funds and pri­vate equity funds and con­sult­ing firms.

Of course, the even­tual valid­ity of our idle spec­u­la­tion depends upon future changes in the law and the reg­u­la­tory envi­ron­ment, and that is highly uncer­tain at this stage, but we could see it hap­pen­ing in less time than it takes cicadas to normally return.

(And a long aside about the nature of CDOs.)

The Wall Street Jour­nal has an incred­i­bly inane arti­cle in today’s (Sep­tem­ber 25) edi­tion. It is enti­tled Cri­sis Stirs Crit­ics of Free Mar­kets. Actu­ally, the cri­sis has stirred advo­cates of free markets, including the entire senior man­age­ment at Spero Consulting.

The three writ­ers of arti­cle don’t seem to under­stand that the US is hardly a pure free mar­ket econ­omy, and many of the cur­rent finan­cial prob­lems were either caused or exac­er­bated by gov­ern­men­tal reg­u­la­tions or author­i­ties or pol­i­tics. In fact, it almost seems that the troika doesn’t read its own paper.[1. As we’ve writ­ten a few times over the past cou­ple of days, it is quite pos­si­ble that the government’s pro­posed bailout will exac­er­bate the prob­lem, espe­cially if it attempts to stretch-​out the term of the bailout. That’s one of the rea­sons that we’re against it.]

For exam­ple, in Tuesday’s jour­nal, Blame Fan­nie Mae and Con­gress For the Credit Mess Con­gress the authors of that col­umn explain that Fan­nie Mae and Fred­die Mac are gov­ern­ment spon­sored enter­prises – not quite free enter­prise star­tups – and their recent, hard push into sub-​prime and Alt-​A mort­gages was clearly polit­i­cally moti­vated. It is right there in the jour­nal (and prob­a­bly 10,000 other places) that the writ­ers could not find.

In addi­tion, reg­u­la­tions and laws per­mit­ting only investment-​grade pur­chases – e.g., for pen­sion plans etc. – created a demand to “highly-​rated” credit prod­ucts, and that was a major impe­tus for the cre­ation of CDOs (or secu­ri­ti­za­tions of secu­ri­ti­za­tions). Those rat­ings were man­dated by fed­eral law and the pro­vi­sion of such rat­ings is highly-​regulated, includ­ing entry into the indus­try. The jour­nal has had any num­ber of arti­cles and op-​ed columns on those top­ics, too. 

More­over, most CDOs were designed to meet par­tic­u­lar rat­ings guide­lines, i.e., the objec­tive was to seg­ment the cash flows from the mort­gages (or mortgage-​backed secu­ri­ties or CDOs) into dif­fer­ent tranches with dif­fer­ent prob­a­bil­i­ties of default and losses given default. The idea was to take bunch of rel­a­tively aver­age things (mort­gages or MBS) and syn­er­gis­ti­cally cre­ate a lot of really good, invest­ment grade, stuff and a lit­tle bit of bad stuff, known as the equity tranche. The ratio of these good-​to-​bad tranches depends cru­cially on assump­tions about collateral’s inter­re­la­tion­ships and depen­den­cies. So, opti­mistic assump­tions – mean­ing inde­pen­dent or uncor­re­lated col­lat­eral val­ues – gen­er­ated more good stuff than bad stuff, and unfor­tu­nately, more good stuff than recent his­tory shown to be the case.

Aside: these esti­ma­tions are per­formed via some type of Monte Carlo sim­u­la­tion and as men­tioned above require mak­ing assump­tions about those rela­tion­ships, i.e., the joint dis­tri­b­u­tions of randomly-​distributed cash flows. That’s very hard to do with­out mak­ing many, many sim­pli­fy­ing the­o­ret­i­cal assump­tions, and because so many of those assump­tions were vio­lated in prac­tice, no one hon­estly knows how to value those securities today. 

It’s that inter­re­la­tion­ship that is par­tic­u­larly tricky to know: look up “cop­u­las.” Folks gen­er­ally define them in ways that they can solve them, regard­less of whether the solv­able cop­u­las rep­re­sent real­ity or not, and that empir­i­cal valid­ity is dif­fi­cult to deter­mine because there isn’t as much data and his­tory as one would think, and recent his­tory hasn’t been that favor­able or rep­re­sen­ta­tive. There’s a file in On Nedges and Sledges and Paving the Road to Hell that illus­trates how to relate three inde­pen­dent vari­ables to cre­ate to cor­re­lated ones.

So, a demand for invest­ment grade secu­ri­ties com­bined with some clever – but ulti­mately inac­cu­rate math and sta­tis­tics – per­mit­ted the man­u­fac­ture of more invest­ment grade CDOS. Kind of reminds us of Chi­nese baby for­mula, and in that respect makes in seem less like bad luck and more like the lax man­age­ment and exces­sive risk-​taking that we criticize.

Our crit­i­cisms are fair and jus­ti­fied. Com­plain­ing that the US is too much of a free econ­omy is not, and falling for inter­na­tional polit­i­cal rhetoric is just plain stu­pid. We don’t expect much from three reporters – were they Moe, Larry, and Curly? – but edi­tors of The Wall Street Jour­nal should know bet­ter. Shame on them.

A few days ago we read an arti­cle – it was likely in The Wall Street Jour­nal–where a trader from Chicago com­plained about a ques­tion that Ohio Sen­a­tor Sher­rod Brown asked of either Mr. Paul­son or Mr. Bernanke; we don’t recall to whom it was directed.

Sen­a­tor Brown had asked some­thing to the effect of: at what price will these secu­ri­ties sell, i.e., be pur­chased by the Trea­sury? The trader com­plained that it was a stu­pid ques­tion because Sen­a­tor Brown should know that no one knows the price. We chuck­led. We know noth­ing about Sen­a­tor Brown, other than he is from Ohio and is prob­a­bly a Demo­c­rat, but we thought: dear trader, that is EXACTLY why he asked the ques­tion so that appointee would have to pub­licly admit as much.

In that spirit, yes­ter­day we asked, Could a “Bailout” Pro­long the Finan­cial Cri­sis? because the prospect of sell­ing mortgage-​related secu­ri­ties to the gov­ern­ment intro­duces addi­tional uncer­tainty into pos­si­ble val­u­a­tions (and there­fore into the “mar­ket­place”). Uncer­tainty that could be par­tially elim­i­nated – at least for the com­mer­cial banks – via their third quar­ter marks next week.

More­over, this afternoon’s news that Con­gress has agreed – not voted, yet, but agreed – to pro­vide the funds in stages will not help mat­ters and, per our think­ing, should worsen them. Such a long, drawn-​out process will cre­ate addi­tional uncer­tainty and dis­trust among lenders – not to indus­trial firms or con­sumers but to each other – so, expect more pan­icky days and mini-​runs and Chicken Littles.

In today’s (Sep­tem­ber 25) The Wall Street Jour­nal, we see that Peter Eavis and David Reilly make a sim­i­lar point about uncer­tainty in the Heard on the Street Finan­cial Analy­sis and Com­men­tary Sec­tion: Bailout’s Flaw of Large Num­bers.

In addi­tion, they make the same point that we have made about the nature of the bailout. If it is a fair exchange, the banks are only mar­gin­ally better-​off because they have a more liq­uid asset – cash – rather than one of those thin­gies (that most board mem­bers can’t explain). If it is an unfair exchange, the banks may be bet­ter cap­i­tal­ized, but then the gov­ern­ment is over­pay­ing: see last night’s post in response to the President’s speech: Sorry Mr. Bush, We Respect­fully Dis­agree. As they note, the banks need pri­vate cap­i­tal, and as we note it is not in short sup­ply: look at Mr. Buf­fet, pri­vate equity’s inter­est in com­mer­cial banks, hedge funds, etc., and also look at the low lev­els of Trea­sury yields. (Yeah, we know about flights to “qual­ity,” too.)

Lastly, in any num­ber of posts, we’ve dis­cussed how the losses in this cri­sis seem to be highly con­cen­trated within cer­tain seg­ments of the finan­cial indus­try. Two other columns in today’s issue pro­vide fur­ther sup­port for our conjecture.

In the same Heard on the Street sec­tion, Liam Den­ning writes in Earn­ings Reports: The Audac­ity of Hope that con­sen­sus, expected growth of cumu­la­tive S&P 500 earn­ings will be flat for 2008 (over 2007) and 25% higher in 2009. In fact, ana­lysts esti­mate that finan­cial sec­tor should make more next year than in 2007, which wasn’t a bad year. (Of course, we know that these ana­lyst esti­mates needs to be taken with a grain of salt the size of Lot’s wife.)

On the edi­to­r­ial page, Andy Kessler makes a sim­i­lar point about the con­cen­tra­tion in his essay, The Paul­son Plan Will Make Money for Tax­pay­ers: “Even­tu­ally and stu­pidly, these insti­tu­tions owned them for them­selves – lots of them, often at 30-​to-​1 lever­age.” That’s the prob­lem with hubris. Some­times you can’t help falling in love with your­self, eh, Nar­cis­sus. (Of course, we don’t care that on a time-​value of money basis, the plan makes money for tax­pay­ers. If that is true, it could make money for pri­vate investors, too, who are more will­ing than even the democ­rats to extract a proper pound of flesh, er, we mean a dilu­tion in own­er­ship (per Gold­man and War­ren Buffett.)

He goes quite a bit far­ther than we have in our oppo­si­tion to the bailout, but then we must admit that Craig Ferguson’s mono­logue last night (Sep­tem­ber 24) was much fun­nier than our posts on the topic. Here is a link to the entire mono­logue on YouTube. It’s about eight min­utes long.

As we’ve briefly remarked before, Mr. Fer­gu­son seems to be the only remain­ing come­dian to host a late night show. (Even his ver­sion of the daily, req­ui­site “McCain is old” joke was funny last night.) The oth­ers have either not been funny for decades (Leno and Let­ter­man and Conan) or never were: like those other two clowns, who­ever they are.

If your cor­po­rate cen­sors don’t per­mit a visit to YouTube, you might be able to view it through this embed­ded object, but please don’t need­lessly waste our pre­cious band­width. We’re just a small firm on a medium-​sized host­ing plat­form (with the excel­lent, English-​speaking and help­ful folks at www​.Fused​Net​work​.com).