Enterprising Investor Forum

Our regular readers know we like Barton Biggs and that we loved his book Hedgehogging (read review here).

In this clip he is talking about the current situation and the fact that he still feels a lot has to be done to solve this crisis…

Enjoy!

These guys are really not helping their case… they talk about saving jobs, their companies and the average go but the truth is that they have probably lost touch with reality a long time ago…

Things appear to be getting worse. First the banks, then the insurers, small businesses, the auto industry, etc … we seem to have reached the bottom in terms of negative sentiment - even though we feel that the actual situation in 2009 could end up being worse than most people believe, or at least, the consequences will be far more wide-spread…

In the midst of this, it always pays to be proactive and positive and that’s why we thought we should post these inspiring words from T. Boone Pickens:

“… the direction of success in never straight up … if … you reach a point where you think all is lost and there is nothing there. Most people, both in business and in life, surrender. As a result, they fall short of their dreams, opportunities, and potential. I learned that if you never give up, if you push through the resistance and keep driving for what you want, you will ultimately achieve rewards beyond any you had hoped for. Because deep down, just beyond the hard, tough spot we all have found ourselves in, there awaits the opportunity to become stronger, more successful, and more fulfilled than you have ever imagined. Never, never, never give up.”

Let’s hope that government says focused on the task at hand and that the key question of the normalization of credit is resolved as soon as possible… once we manage to get the money flow going again, then we can start to try and get things back on track!

Once again, Jim Rogers taking about how Paulson and Co. have no idea about what they are doing and that the American economy is doomed… the interesting thing about this clip is that as the interview takes place, the visuals show a number of financial cartoons that accompany the commentary - some of them are really good!

Enjoy!

Philip Falcone, Kenneth C. Griffin, John Paulson, James Simons and George Soros testified before Congress. The House was trying to  get a better idea of how they operate, their use of leverage and their overall take on the situation. There are a lot of controversial issues surrounding these hedge fund managers and calls for more regulation in this industry…

All-in-all, this issue is quite controversial as many feel that hedge funds are somewhat responsible for the situation we are in but many forget that they have been calling this crash for quite some time… at the end of the day, we feel that a lot of it is driven by a fundamental misunderstanding of the hedge fund world (which is by no means perfect but not responsible for the turn of events) and the search for guilty parties… and since these guys have made a lot of money in the markets, they are easy targets.

DealBook has a good write-up of the testimonies of each of the managers: here.

Enjoy!

Enspire Learning Network does it again! After their video on the explanation of the financial crisis (here), they have just released one on the mortgage banking meltdown.

They go through how mortgage banking has changed over the years with the move from banks lending to credit worthy clients to the new model where mortgage brokers acted as the middle men. Incentives changed, so did the terms, the fees, the repackaging and so on…. clearly even though the teaser rates ended after the first couple of years, as long as borrowers could refinance, they still had the illusion that the whole system was working but when things look to easy or too good to be true, it’s usually not sustainable!

Once again, they do an extremely good job at clearly explaining what actually happened and how we got to the current situation. Furthermore, apart from having distilled this issue to the real key points, their use of graphics is really great - it is a lot harder then you think to  make one of these videos.

Enjoy!

Well, we’d just recently finished our post on the ORNIGINAL TARP (here) and Mr. Paulson decided to shake things up a little!

“Our assessment at this time is that this is not the most effective way to use Tarp funds,” Mr Paulson said.

The new TARP will focus on:

• increasing capital injections in troubled institutions
• increased assistance to the frozen securitization markets
• foreclosure prevention

“I will never apologize for changing an approach or strategy when the facts change,” Mr Paulson said.

All-in-all, it looks like the focus will shift to helping consumers, which is probably a good thing. However, is this the last change under Paulson? Is it going to change again in January? We all know that the markets hate uncertainty…

To be continued.

Love him or hate him, it’s always worth listening to Mr. Soros. This is a speech he recently gave at Columbia where he discusses the current crisis and his theory of bubbles.

Mr. Soros highlights that financial markets never reflect the true financial picture but a biased or distorted picture of the current financial situation and that sometimes, this misconception can distort actual fundamentals.

We do not want to ruin the speech for you - it is worth listening too:

Very interesting… enjoy!

Chances are that we will be hearing more and more about TARP as the Treasury Department continues to try to improve financial stability and we thought that it might be useful to try and summarize what the program is all about.

TARP is short for Troubled Assets Relief Program and the passing of which effectively allowed the Treasury to create the famous 700 billion dollar package. However, the 700 billion are not all readily available. As far as we understand, there are 3 phases:

1. 250 billion available from the start
2. 100 billion second tranche to be signed-off by the President
3. 350 billion that are subject to Congressional sign-off

The program will be run by the Office of Financial Stability and will focus on the following areas:

• Buying Mortgage-backed securities
• The whole loan purchase program
• The insurance program to insure these assets
• Home ownership program to try and find a way to limit the number of foreclosures
• The Equity purchase program, mainly aimed for financial institutions, trying to define rules for these purchases and hopefully sparking a wave of new capital injections in these companies
• Tackling Executive compensation - very hot topic - basically ensuring that the government is not paying high-comp for executives that failed to save their companies
• Oversight, accountability and compliance program

We will no doubt be discussing this further in the near future…

Most of you might remember Peter Thiel from PayPal, which he founded and later sold for 1.5 billion dollars to eBay but Mr. Thiel is also the founder and manager of Clarium Capital Management, a San-Fransisco-based global macro hedge fund. We came across him in one of the Chapters of ‘Inside the House of Money’ which we recently reviewed: here. He is definitely worth listening to and here is a presentation where he discusses the most common theories behind bubbles and busts and offers his own view too.

We don’t want to spoil the video but for those of you who prefer a quick recap of the bubble and bust theories he discusses:

1. Traditional ‘left-wing’ view: they are basically driven by reckless lending, lack of regulation and greed, therefore leading to an escalation of unsustainable leverage
2. Traditional ‘right-wing’ view’: they are driven by the reckless behavior of the borrowers with greedy and shortsighted views on taking on too much credit
3. The truth could be somewhere in the middle > a combination of the above: common theme is probably greed…
4. Theil’s own view: there has not been enough real growth in the economy. Ultimately, the rate at which science and technology are progressing has not lived to to expectations and hype… we will need to tackle this and see real / sustained growth in productivity to be able to sustain the next ‘bubble’….

Enjoy!