The State of New York wishes to regulate credit default swaps as “insurance” instruments, limiting their distribution to authorized insurance companies. This would be a horrible mistake and is typical of the misguided political overreaction that emerges from crises. The New York Federal Reserve has been working with banks to develop a clearinghouse structure, similar to that used for financial futures, that would virtually eliminate counterparty risk, diminish the systematic risk of bank failures, and create a more standardized and transparent market for these valuable derivative instruments. It would be wise for the Governor of New York to avoid front-running more sensible reforms that will inevitably emerge as banks and regulators work towards a solution.
House Democrats have dropped their opposition to offshore drilling as they have finally come to the realization that public opinion DOES matter. Sarcasm aside, their sudden change of heart is likely a gamble on an Obama Presidency and the inevitable reinstitution of the ban. In exchange, they have secured a $25 billion bailout for Detroit as the automakers have demanded low interest loans to develop more fuel efficient cars. There is nothing like rewarding those that spent millions lobbying against greater fuel economy and reforms that may have prevented the need for taxpayer funded life support.
On a final note, the Senate testimony and interrogation of Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson confirm that most Senators, even those on the Finance Committee, possess little more than an elementary knowledge of capital markets and securities. With the fate of the global economy resting upon the intellectual equivalent of a teenager, one can only hope that their individual ignorance subordinated to the guidance of more informed advisors. Properly structured, the $700 billion bailout package could provide opportunities to inject much needed liquidity into the financial system while exposing taxpayers to little risk. Legislators must demand that competitive “bidding” in the reverse auction process be conducted such that the lowest market clearing price is obtained. If the Treasury provides pricing guidance based on overly optimistic projections of mortgage defaults and prepayments, we will be repeating the mistakes that brought about the credit crisis in the first place. Additionally, attempting to mandate that mortgages are written down or “re-worked” will debase the collateral that support’s the taxpayer’s securities. In both cases, the outcome will be little more than income redistribution from taxpayers to the banks and homeowners that both entered into risky gambles with other people’s money. The potential for a sensible outcome, however, seems bleak.
Tuesday, September 23, 2008
Tuesday, September 16, 2008
Let the Blame Game Begin!
In the midst of the worst credit crisis since the Great Depression, House Speaker Nancy Pelosi appeared on CNBC, not to provide insightful commentary on how we will overcome the challenges that confront us, but instead to cast blame on President Bush for failing to mandate sufficient regulation to prevent the implosion of the housing bubble. She claimed that he, and implicitly all Republicans, promoted the growth of “irresponsible” sub-prime lending and single handedly destroyed the U.S. financial system. This disingenuous slander fails to be corroborated by historical evidence. President Bush, in fact, demanded reforms of Fannie Mae and Freddie Mac following the accounting scandals that plagued the two firms in 2002 – 2003. The corrupt executives of the GSEs pocketed millions in bonuses by managing earnings and cooking the books. The following New York Times article sets the record straight.
“The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.”
- New York Times, September 11, 2003, “New Agency Proposed to Oversee Freddie Mac and Fannie Mae”
Clearly President Bush sought to reign in the GSEs abuse of their implicit government guarantee, shore up their capital, and limit their expansion into more risky products. The legislation was squashed by Democrats leading to unfettered growth by Fannie Mae and Freddie Mac, eventually including the purchase and guarantee Alt-A and sub-prime loans. The influential lobbying machine of Fannie and Freddie, which spent over $120 million in the past decade trying to influence Congress, swayed the Democrats to preserve the status quo and use the GSEs to promote their social agendas. According to the New York Times article, “supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families.”
I would suggests that a decoupling of risk and return, facilitated by excessive global liquidity, lead to the growth of complex securities that were marketed as low credit risk by manipulative financiers. It was these few bad actors, and their co-conspirators at the rating agencies, that orchestrated the ultimate scheme to magically compile risky securities into complex financial instruments that investors, even the most experienced and sophisticated, clearly didn’t understand. Many have now paid the price through the evaporation of their personal fortunes and the loss of their jobs. Conversely, Nancy Pelosi and her cohort of sellouts have collected hundreds of thousands from the GSEs while blocking the reforms necessary to protect the American financial system. Her actions, as well as those of other prominent Democrats, have contributed greatly to the turmoil that threatens the stability of the global economy.
“The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.”
- New York Times, September 11, 2003, “New Agency Proposed to Oversee Freddie Mac and Fannie Mae”
Clearly President Bush sought to reign in the GSEs abuse of their implicit government guarantee, shore up their capital, and limit their expansion into more risky products. The legislation was squashed by Democrats leading to unfettered growth by Fannie Mae and Freddie Mac, eventually including the purchase and guarantee Alt-A and sub-prime loans. The influential lobbying machine of Fannie and Freddie, which spent over $120 million in the past decade trying to influence Congress, swayed the Democrats to preserve the status quo and use the GSEs to promote their social agendas. According to the New York Times article, “supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families.”
I would suggests that a decoupling of risk and return, facilitated by excessive global liquidity, lead to the growth of complex securities that were marketed as low credit risk by manipulative financiers. It was these few bad actors, and their co-conspirators at the rating agencies, that orchestrated the ultimate scheme to magically compile risky securities into complex financial instruments that investors, even the most experienced and sophisticated, clearly didn’t understand. Many have now paid the price through the evaporation of their personal fortunes and the loss of their jobs. Conversely, Nancy Pelosi and her cohort of sellouts have collected hundreds of thousands from the GSEs while blocking the reforms necessary to protect the American financial system. Her actions, as well as those of other prominent Democrats, have contributed greatly to the turmoil that threatens the stability of the global economy.
Tuesday, September 9, 2008
Surfers Guide to Baja California: Cabo San Lucas
The sunny, warm, south facing shores of Cabo San Lucas and San Jose del Cabo in Baja California, Mexico lay claim to some great structured breaks for surfers of all abilities. On a recent vacation to the southernmost tip of the Baja peninsula, I had the opportunity to explore a few of the breaks between the party town of Cabo San Lucas and the more relaxed San Jose del Cabo. Some of my insights along with directions to the surf spots and tips are presented below.
Monuments
The closest surf spot to Cabo San Lucas is Monuments. A very rocky left break that bends around a rocky point into a small cove, Monuments is named after the view of the distinctive large rocks that protrude from the ocean and create the mellow swimming beach and port of Cabo just a few kilometers down the road. To reach Monuments, take the frontage road as apposed to the highway until you reach approximately the km-6 marker. If coming from Cabo, you will go up and over a newish overpass that enable you to cross from one side of the highway to the other. As you come down the other side, you will see an adobe sign for Misiones del Cabo and possibly some signs for Olamar, the new condo development right in front of Monuments. Turn down this road until you reach the guard gate. Like most prime stretches of coastline in Baja Sur, development has claimed the ocean frontage relegating surfers to parking off the beach and walking to the surf. As you pass the guard gate, follow the road down to the right and you will find Monuments in the cove in front of the new Olamar condos.
Monuments is a challenging break that should only be surfed by experienced surfers. The abundance of exposed rocks in the take-off zone and throughout the cove threatens inexperienced surfers with bodily injury and equipment damage. Monuments can easily hold size, but is a fast racy break that has the potential to close out with more size.
Playa el Tule
Playa el Tule is a beach break located in front of two long bridges at km-16. If you are looking for a relatively secluded break with low crowds, Puente de Tule may be your best bet. Pull off the highway and drive along the dirt paths, which some may characterize as “roads”, down to the beach where you can park. The break is a seemingly mellow beach break, but it does have the tendency to close out. On most swells, however, it has a well defined peak that rolls off in either direction. This is a good break for both long and short boarders.
Costa Azul (Zippers, The Rock, and More)
By far one of the more famous stretches of surfing beach in the area, Costa Azul can be found between km-28 and km-29 closest to San Jose del Cabo. Home to Zippers, the Rock, Old Man’s, and more, Costa Azul has a break for just about everyone, with many national surf competitions held at Zippers or the Rock every year. A convenient surf shop, Costa Azul Surf Shop, is located on the other size of the highway.
Old Man’s
Old Man’s is located right in front of the Cabo Surf Hotel on the western part of Costa Azul. Primarily a long board spot, Old Man’s has long mellow lines that resemble Cabo’s version of the historic Surfrider Beach in Malibu. The long right breaking lines enable long boarders to cruise across a small bay in front of the hotel. It seems that the hotel provides lessons and possibly foam board rentals for beginner surfers (I did not stay there so I can’t certify this as fact).
The Rock
Possibly my favorite break in Cabo, the Rock is a great A-frame break resembling Wind-n-Sea in La Jolla, CA. The Rock, named for the large rock outcropping that marks the peak and ideal takeoff zone, is created by shallow rocks that litter the ocean floor. There is a vista off of the highway where you can pull off the road to check the conditions or just watch some of the best local surfers shred this great wave. The vista also provides a unique perspective of the break and terrain enabling you to identify significant rock positions and critical parts of the wave. From the vista, take the exit off the highway just before the bridge and park in the sandy parking lot near the beach. From there, walk to the right past Middles / Pescadito, a beach break created by yet again more rocks, and paddle out around the break from the end of the beach. Be courteous to the locals who have this spot dialed in and they will show you the same respect. The Rock is a better right, but you may be able to catch more waves by going left. On a decent swell, however, you can catch a right off the rock and ride all the way in to the beach as the swell bends around the point.
Also of Interest: Surfers Guide to New Jersey: Ocean City
Monuments
The closest surf spot to Cabo San Lucas is Monuments. A very rocky left break that bends around a rocky point into a small cove, Monuments is named after the view of the distinctive large rocks that protrude from the ocean and create the mellow swimming beach and port of Cabo just a few kilometers down the road. To reach Monuments, take the frontage road as apposed to the highway until you reach approximately the km-6 marker. If coming from Cabo, you will go up and over a newish overpass that enable you to cross from one side of the highway to the other. As you come down the other side, you will see an adobe sign for Misiones del Cabo and possibly some signs for Olamar, the new condo development right in front of Monuments. Turn down this road until you reach the guard gate. Like most prime stretches of coastline in Baja Sur, development has claimed the ocean frontage relegating surfers to parking off the beach and walking to the surf. As you pass the guard gate, follow the road down to the right and you will find Monuments in the cove in front of the new Olamar condos.
Monuments is a challenging break that should only be surfed by experienced surfers. The abundance of exposed rocks in the take-off zone and throughout the cove threatens inexperienced surfers with bodily injury and equipment damage. Monuments can easily hold size, but is a fast racy break that has the potential to close out with more size.
Playa el Tule
Playa el Tule is a beach break located in front of two long bridges at km-16. If you are looking for a relatively secluded break with low crowds, Puente de Tule may be your best bet. Pull off the highway and drive along the dirt paths, which some may characterize as “roads”, down to the beach where you can park. The break is a seemingly mellow beach break, but it does have the tendency to close out. On most swells, however, it has a well defined peak that rolls off in either direction. This is a good break for both long and short boarders.
Costa Azul (Zippers, The Rock, and More)
By far one of the more famous stretches of surfing beach in the area, Costa Azul can be found between km-28 and km-29 closest to San Jose del Cabo. Home to Zippers, the Rock, Old Man’s, and more, Costa Azul has a break for just about everyone, with many national surf competitions held at Zippers or the Rock every year. A convenient surf shop, Costa Azul Surf Shop, is located on the other size of the highway.
Old Man’s
Old Man’s is located right in front of the Cabo Surf Hotel on the western part of Costa Azul. Primarily a long board spot, Old Man’s has long mellow lines that resemble Cabo’s version of the historic Surfrider Beach in Malibu. The long right breaking lines enable long boarders to cruise across a small bay in front of the hotel. It seems that the hotel provides lessons and possibly foam board rentals for beginner surfers (I did not stay there so I can’t certify this as fact).
A View of Old Man's (aka Acapulquito) from the Vista on the Highway
The Rock
Possibly my favorite break in Cabo, the Rock is a great A-frame break resembling Wind-n-Sea in La Jolla, CA. The Rock, named for the large rock outcropping that marks the peak and ideal takeoff zone, is created by shallow rocks that litter the ocean floor. There is a vista off of the highway where you can pull off the road to check the conditions or just watch some of the best local surfers shred this great wave. The vista also provides a unique perspective of the break and terrain enabling you to identify significant rock positions and critical parts of the wave. From the vista, take the exit off the highway just before the bridge and park in the sandy parking lot near the beach. From there, walk to the right past Middles / Pescadito, a beach break created by yet again more rocks, and paddle out around the break from the end of the beach. Be courteous to the locals who have this spot dialed in and they will show you the same respect. The Rock is a better right, but you may be able to catch more waves by going left. On a decent swell, however, you can catch a right off the rock and ride all the way in to the beach as the swell bends around the point.
A View of The Rock from the Vista on the Highway
Beach Breaks
There are many beach breaks that can be found along Costa Azul. Most break close to the shore and aren’t that great, but are ideal for beginners and casual surfers that don’t want to fight the crowds. There are lots of rocks around, though, so be careful when riding the waves all the way to the shore.
Additional Advice
It would be best to rent a car (an SUV if you wish to pursue more remote locations such as Shipwrecks), but you can take a bus up and down the coast for relatively little cost. Costa Azul Surf Shop (appx between km-28 and km-29) rents quality fiberglass boards for $20 per day or $25 for 24 hours and includes a roof rack if you need one. Sea Urchins are common given the rocky terrain so consider bringing reef shoes or booties to prevent an embarrassing and painful experience. Unlike many U.S. beaches, lifeguards are not common so use appropriate caution.
A little exploration will lead you to find that Cabo San Lucas has some great surf to go along with the warm sun and blue water. South swells are ideally situated for Cabo’s surf breaks, creating ideal conditions during the summer and early fall. The water is warm and the sun is hot so a rash guard and board shorts should be sufficient most of the year. Enjoy the surf and share your experiences!
Also of Interest: Surfers Guide to New Jersey: Ocean City
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