A Greek Bondholder's New Haircut

To lessen the shame and defeat in it,
A bailout's got something to sweeten it,
So there's little regret
To sign away debt,
If, in any case, one would have eaten it.

Led by France and Germany, the euro zone has crafted the framework of an agreement to avoid a Greek default and provide a mechanism to stabilize the finances of its other overly indebted members. The announcement was greeted favorably by global equity markets, in spite of the provision that writes off 50% of Greece's foreign debt; proof that a certain loss is preferred to a general uncertainty. The "sweetener" in this case is an expanded European Financial Stability Facility, which is to be leveraged from €446 billion to €1 trillion. Such leverage would eventually require the participation of cash-rich outsiders such as China, but that is a crisis for another day.

An Allegedly Well-Placed Tipper

A Goldman director named Gupta
Was looked upta but turned out corrupta;
He tipped from inside,
Said the Feds, who then tried
To disrupt that which Gupta was upta.

Federal prosecutors have indicted Goldman Sachs director Rajat Gupta on charges of engaging in an insider trading scheme with hedge fund manager Raj Rajaratnam, who has already been convicted. In a novel twist, the prosecution acknowledges that Mr. Gupta did not directly profit from the tips he provided on Goldman Sachs and P&G (of which he is also a director); rather, Mr. Gupta's motivation was seen to be the cultivation of influence and favor with his far richer friend, with whom he also invested. For his part, Mr. Gupta found it serendipitous that his indictment coincided with Diwali, the Indian "Festival of Lights" and start of the new year, as he felt that this would offer a measure of divine protection.
Regardless of the outcome of this case, may all those kindling the festival lights have a Happy Diwali and a prosperous New Year!

Obama Harps on his Refi Program

"Since Congress won't do as they oughta
For folks who have homes underwater,
As Lender-in-Chief, I
Will back ev'ry refi
Allowed by executive order."

With an eye toward the 2012 election, President Obama has evidently decided that half measures taken on one's own are better than whole measures frustrated by House Republicans. Thus, the Administration announced with great fanfare a loosening of restrictions on its HARP (Home Affordable Refinance Program), which would actually benefit only one out of eleven underwater homeowners. For those mortgagors with loans taken out before May 2009 and guaranteed by Fannie Mae or Freddie Mac, the new HARP will allow a refi at any loan-to-value ratio, doing away with the former 125% limit. Indications are however that only about a million homeowners qualify for this "expanded" program, and it does not appear that the pace of refinancing will pick up, so the most telling impact of the new HARP may be on the campaign trail, when the President runs against the "do-nothing Congress."

Wage Index Report

The data on wages disclose
That the specter of joblessness grows,
Except for the few
Making mega-bucks, who,
In their number, substantially rose.

The Social Security Administration released its Wage Statistics for 2010, and - with one glaring exception - they tell a sorry tale.   Journalist and author David Cay Johnston crunched the numbers and found that

There were fewer jobs and they paid less last year except at the very top, where the number of people making more than $1 million increased by 20 percent over 2009. The median paycheck — half made more, half less — fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999. The number of Americans with any work fell again last year, down by more than a half million from 2009 to less than 150.4 million.

Hat tip to Barry Ritholtz, who notes the obvious statistical underpinning for the Occupy Wall Street movement.

Crowded Out by MasterCard

The thing that is most in the way
Of a really robust USA
Is the mountain of debt
On consumers who let
All their spending get carried away.

Joe Weisenthal points out in the Business Insider that the biggest impediment to American employment growth is a lack of demand for goods, which can be traced back to the enormous household debt burden (see graph). Though declining, it is still too high. The only ways around this problem are to develop more exports or substitute government spending until consumers get back on their feet. In a much-maligned conclusion, Weisenthal determines that, far from "getting in the way," government is failing to do its part.

Atlas Shrunk

If the strong want to lift up the weak,
As the Germans and French would the Greek,
It is best if such acts
Do not overly tax
The Teutonic or Gallic physique.

Plans to support the public finances of Europe's peripheral nations have been thrown into fresh doubt by the news that France's Aaa rating from Moody's is under pressure.  The rating agency's French analyst, Alexander Kockerbeck, noted that France has "a lot of additional risks we did not have in the past," pointing to "developments in the euro zone."  The €440 billion European Financial Stability Facility is designed to let the triple-A countries guarantee some of the debts of the shakier ones.  If France is downgraded, then the EFSF must either do without the €158 billion French participation, or accept a double-A rating.  Germany may be bracing for a heavier burden.

The Ideal Rate

"The taxation of capital gains,"
Said a student of John Maynard Keynes,
"Would ideally fall
Between 'nothing at all'
And the rate at which Buffett complains."

Writing in the Wall Street Journal on the "Three Policies That Gave Us the [Steve] Jobs Economy," Amity Shlaes cites the slashing of the capital gains rate from a confiscatory 49% to 25% in 1978. Building on this evidence, she reaches the silly conclusion that "taxes on capital should always be lowered, and dramatically." One might just as easily conclude that, because a diet improved one's physique, that mealtime portions should always be dramatically lowered, too. But what is the correct capital gains rate? Undoubtedly, it lies between encouragement of wild speculation and discouragement of capital formation.

To The Point

America's unequal strata,
As confirmed by definitive data,
Have made it quite plain,
On Wall Street and Main,
That something is deeply the matta.

Insider Trading: Is It Bad?

If A buys a company share
From B, who remains unaware
Of the info that A
May not give away,
Well then, this is rather unfair.

The sentencing of hedge fund manager Raj Rajaratnam to 11 years in prison for his insider trading conviction highlights once again the seriousness of this offense in the US legal system and, for some, revives the debate over whether it should be so.  Mr. Rajaratnam, who will soon rub shoulders with Bernie Madoff in the Butner, NC federal prison, used a network of experts in selected industries to "find an edge" in his investments.  Such experts really comprised a network of well-placed tipsters, US Attorney Preet Bharara convinced a Manhattan jury.  To those who would argue that insider trading is a victimless crime, one could point out that every inside trade has a counterparty unaware of the underlying material, non-public information, who is thus cheated out of the full value of the traded stock; in Mr. Rajaratnam's case, the defrauded values were in the millions.