One of the topics we cover in “The Losing Game”  is the confusion surrounding derivatives, which Warren Buffett calls “financial weapons of mass destruction.” According to DK Matai, Chairman of the ACTA Open, worldwide outstanding derivatives amount to 1.114 QUADRILLION DOLLARS!! What that means, in simple terms, is that there are pieces of paper people are holding that have a published value of $1,114 TRILLION. Where is that money going to come from, and what will happen to these investors who are caught holding worthless pieces of paper?

Derivatives were created as a new revenue source for Wall Street, with very little understanding or oversight implemented. As long as the exchanges made their money, what happens when the bubble bursts is none of their concern.

That day is coming as well.

Silicone Valley Watcher.com says the derivative bubble equals 190,000 per person on the planet.

“According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland — the central bankers’ bank — the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion. The main categories of the USD 1.144 Quadrillion derivatives market were the following:
1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.

Quadrillion? That is a number only super computing engineers and astronomers used to use, not economists and bankers! For example, the North star is “just” a couple of quadrillion miles away, ie, a few thousand trillion miles. The new “Roadrunner” supercomputer built by IBM for the US Department of Energy’s Los Alamos National Laboratory has achieved a peak performance of 1.026 Peta Flop per second — becoming the first supercomputer ever to reach this milestone. One Quadrillion Floating Point Operations (Flops) per second is 1 Peta Flop/s, ie, 1,000 Trillion Flops per second. It is estimated that all the data found on all the websites and stored on computers across the world totals more than One Exa byte of memory, ie, 1,000 Quadrillion bytes of data.”

 

When it comes to any significant event or task, there are always various opinions and conspiracy theories. I was fortunate to get my hands on a book targeted to revealing why you just can’t beat Wall Street.

The book is called The Losing Game: Why You Can’t Beat Wall Street and aims at sharing why investing your money in Wall Street is just as good as throwing it away.

The author of the book, T.E. Scott, is a former employee of Eastern Airlines. The company eventually went bankrupt, and Scott ended up losing all his preferred stock that he was given by the airlines. He now sees Wall Street as the biggest con game in history.

One of the main arguments Scott pushes is that the stock market is a sum-minus game. Meaning that for all the money somebody makes another is losing it, so right off  the back the odds are against you for blossoming in the markets. He also looks at the “real” purpose of the regulatory commissions and how many of these so-called “experts” make more money selling their schemes and products than using their own advice themselves.

While the book brings up some interesting and valid points, it is important to remember that Scott is targeting the investment community as a whole rather than “eagle eyeing” on only the successful. So while you might have experienced some success, for all those gains, other people had to experience some losses.

Regardless of your current thinking or beliefs, The Losing Game is actually a pretty good read. When the book was first brought to my attention I was interested to see what Scott had to say.

Overall, it is a pretty easy yet informative read, and combines a little bit of humor with some eye opening data and ideas. I would recommend this book for those with any bit of interest in the stock market.

I know I’m about a month late to this, but those of you who haven’t seen this should read it and send it to all of your friends. Folks, it’s going to get worse, and unless you educate yourself and prepare for what’s coming, you’ll wake up and be caught up in something you never expected to see in your lifetime.

President-elect Obama has his economic team in place, but unless they’re willing to take on Wall Street and redistribute their wealth back to the people instead of giving them trillion-dollar bailouts, it’ll be nothing more than a paper towel in a tidal wave.

“Renowned economist Mikhail Khazin : U.S. will soon face second “Great Depression”

Yevgeniy Chernyx
KP. ru
Sunday, Nov 9, 2008

Five years ago, I ran the cultural section at Komsomolskaya Pravda. Publishing houses used to send me their new releases now and again for review. One day, after digging through the latest shipment of such literature, I stumbled upon a book titled, “Sunset of the Dollar Empire and the End of the Pax Americana.”

I remember reading the title over to myself several times in disbelief. Way back when, Soviet Americanologists loved to debate the collapse of the U.S. financial empire. But this book was published in 2003.

I flipped through the pages, skimming over the text. The conclusions of the author — an economist named Mikhail Khazin — seemed convincing enough. So I gave the book to our economics columnist at KP Jenya Anisimov, who wrote a review and interviewed the author later at our editorial offices.

All these years, I kept Khazin in the back of my mind, and followed his career as he spoke at various conferences throughout Russia. He seemed certain the U.S. was teetering on the verge of an economic collapse, while other analysts were quick to refute his theory. Now, as his once unfathomable prognosis begins to come true, KP contacted Khazin for an interview.

Fired from the Kremlin!
KP: Mikhail Leonidovich, how did you end up predicting the current financial crisis?
Khazin: In the spring of 1997, the Kremlin established the Presidential Economic Department. I was made the deputy head of the unit. Our first task was to prepare a report for [former President Boris] Yeltsin about the economic situation. We realized an economic crisis was pending in Russia and would take place in the late summer or early fall of 1998 if the country’’s economic policies weren’t changed.

KP: What view did the higher echelons take of your report?
Khazin: They didn’t really take any view at all. No one read the text except for the deputy head of the administration and Yeltsin himself. In the summer of 1998, we were fired from the presidential administration for trying to stop a business project titled, “State Treasury Bills— Exchange Rate Corridor.” This was the biggest financial scheme of the post-Soviet era. Just as we had predicted, an economic crisis gave way that August. Together with my colleagues, I continued researching the reasons behind the crisis.

After becoming seriously consumed in our studies of the U.S. financial system, we found an unprecedented parallel. Just as our T-bill market had sucked all the juices out of the Russian economy, the U.S. financial market was sucking the resources out of the entire planet. We realized a similar fate awaited the U.S. financial system. Our article was published in the summer of 2000 in the “Ekspert” magazine, titled, “Is the U.S. Digging for an Apocalypse.” We concluded that it was just as impossible to avoid an economic crisis in the U.S. as the financial collapse in Russia.

Playing the idiot
KP: The U.S. obviously didn’t listen to the song written by [the renowned Russian rock group] LUBE during perestroika, “Don’t Play the Fool, America!” Seriously, though, what’s the real reason for the economic collapse? Let’s try to do this without any heavy duty financial terms…
Khazin: I’ll try! The economic model that led to the collapse was the result of a crisis in the 1970s. This was a terrible financial crisis that was the result of surplus capital. Even the 19th-Century classics in economics literature concluded that capital grows faster than labor provides compensation. As a result, there is a lack of demand. In traditional capitalism, this problem is solved on account of crises in excess production. And in an imperialistic system, the problem is solved on account of capital outflow. But by the 1970s, these solutions had run their course. However, the internatinoal situation demanded the U.S. either make a great scientific and technological leap forward or lose the Cold War to the USSR. The administration of [President Jimmy] Carter and the head of the Financial Reserve System Paul Walker developed a very tricky concept. For the first time in the history of capitalism, capitalists began helping others, issuing new currency in an effort to stimulate aggregate demand .

KP: They decided to switch on the printing press?
Khazin: Exactly. In the early 1980s, they started to stimulate demand through state support. For example, they launched the “Star Wars” program. As of 1983, they placed an emphasis on the household economies.

KP: You mean, they relied on the average citizens?
Khazin: Yes. For an entire quarter century, households received funds as a result of issuing new currency in larger and larger quantities.

KP: In other words, credit?
Khazin: Yes. The U.S. was able to make the next step in technological progress as a result of this excess demand. They accomplished the collapse of the USSR and numerous other significant fears. But… The boom took place thanks to resources that were supposed to provide for future growth. The country ate its own resources two generations ahead of time. The U.S. built up tremendous debt. This is clearly seen if we compare the growth of debt in U.S. households with the entire U.S. debt and GDP. The economy is growing at an annual rate of 2-3, or at a maximum 4 percent. But debt is increasing at a rate of 8-10 percent.

KP: Well, let the debt keep growing… The U.S. lived fine up until now without a problem… Better than we did!
Khazin: Yes, the U.S. did create a very high standard of living by stimulating consumer demand. Generations lived without having to experience poverty. But it’s impossible to live forever in debt. Household debt has now surpassed the national economy — more than $14 trillion. Now it’s time to pay up. Of course, Wall Street tried to postpone this collapse. I won’t go into detail about derivatives and other such financial assets, but this was just a gasp for air before an inevitable death.

Another problem in the U.S. is that powerful industries were built around this growing demand. Whatever decision Wall Street takes right now, the demand is going to fall. What will happen to these industries? In 2000, we estimated that 25 percent of the U.S. economy would disappear. Today, we think the number is closest to one-third — if not more.

KP: That’s a lot!
Khazin: That’s an incredible amount! But what exactly does this mean — the destruction of one-fourth of the U.S. economy? It means an uncontrollable increase in unemployment, a horrible depression, a sharp increase in the effect of social services on the budget… Now, the U.S. is jumping all over the place doing everything its can to rescue this fraction of the economy. The government is stimulating banks and manufacturing… But regardless, in 2-3 years, the U.S. will face a crisis similar to the Great Depression.

Who is Who
Mikhail Leonidovich Khazin was born in 1962. He studied mathematics at the Yaroslavl University and Moscow State University. In 1984-1991, he worked at the Soviet Academy of Sciences. In 1993-1994, he worked at the State Working Center of Economic Reforms. In 1995-1997, he was the head of the Credit Policy Department at the Economics Ministry. In 1997-1998, he was the deputy head of the Presidential Economics Department. In June 1998, he left state service. At the moment, he is president of the consulting firm, Neokon.

BusinessWeek magazine takes a look at the financial “crisis” and attempts to assign blame for the mess we’re in right now. What I don’t understand is the insistence of the MSM to assign blame to average Americans who received mortgages that they didn’t previously qualify for. A large part of the American Dream is owning your own home, and if you are given that opportunity, a majority of us would take it. The fact that these same people asked for loans they couldn’t possibly repay is certainly their fault in hindsight, but at the time, maybe they didn’t know better. It certainly was the fault of the lender who did know better and saw it as another commission…damn the consequences.

“Congressman, I had no idea those foxes would eat ALL the chickens.”

In the article, several things are pointed out that verify our arguments in “The Losing Game: Why You Can’t Beat Wall Street,” for example:

“Wall Street had become increasingly sophisticated in the past few decades, and this complexity made the entire system extremely fragile. In addition to securitizing mortgages and other assets, financial firms created a vast array of other products, called derivatives. The buying and selling of these obligations, such as credit default swaps, was supposed to be “a way of reducing risk, not adding risk[.]”

However, “there was a lot of smoke and mirrors,” says Bob Ried, president of Ried Thunberg ICAP, a financial research firm. For example, because the products were highly complex, there was no central marketplace, making it difficult to know how much they were worth.

Ironically, the huge number of derivative contracts between institutions actually increased the chances that problems at one firm would ripple through the financial system, causing a chain reaction of losses. That’s what prompted Berkshire Hathaway (BRKA) Chief Executive and legendary investor Warren Buffett to call derivatives “financial weapons of mass destruction” in 2003.”

When Warren Buffet doesn’t understand derivatives and pulls out of the market, what does that say about their necessity? They are just another revenue generator from Wall Street firms to trade real money for paper. There are approximately $575 TRILLION in derivatives in the market. Wrap your head around that one for a minute. There is no money there, there was never any money there, nor will there be. And when that house of cards falls, that’ll make this current crisis pale in comparison.

“Why did Wall Street ever take such dangerous risks?

The big reason, obviously, is greed. Wall Street bankers were taking home a lot of money by making these gambles. The chief executive of Lehman, Richard Fuld Jr., for example, earned $34.4 million in 2007. “Once this business model gets going, it’s very hard to stop,” Tabb says. Firms had hired risk managers who should have spoken up, but they were not supposed to “get too much in the way of generating revenue.”

Many also have criticized the way Wall Streeters are paid. “People [were] compensated on the returns they got, and so there was a motivation to take more risk,” Aggarwal says. In the record year of 2006, Wall Street executives took home bonuses totalling $23.9 billion.”

Once you realize the entire function of Wall Street is to get your money into their pockets by fees and commissions generated by trading, then you see why they will give out loans to unqualified people, sell junk bonds and mortgages, and generally do whatever it takes to keep your money in motion.

“Wall Street also made it worth Congress’ while to look the other way. According to the Center for Responsive Politics, the securities and investment industry, including donors at Goldman Sachs (GS), Morgan Stanley (MS), Merrill Lynch (MER), Lehman, and Bear Stearns, gave $97.7 million to federal political candidates for the 2004 election, and another $70.5 million for the 2006 congressional election.”
“A big reward for Wall Street came in 1999, when Congress passed, and President Bill Clinton signed, legislation loosening New Deal-era bank rules, including the Glass-Steagall Act creating strict separation between investment banks and commercial banks. Commercial banks, which rely on deposits for funding, were allowed to encroach on investment banks’ turf. That, in turn, spurred investment banks to take on even more leverage and risk to survive.”

Don’t look at Congress to solve this mess, because they are as tied into Wall Street as if they had an office on the executive floor. Congress has bought into the myth of Wall Street, hook, line and sinker. And no amount of finger-pointing or rhetoric will change that. At the end of the day, they attend the same parties and share the wealth they don’t pass along to you.

The bottom line is that despite who is to blame, the truth of the matter is that the entire system itself is flawed. Until the people rise up and demand real, honest reforms and get their money out of the markets, then Wall Street will recover and continue to fleece billions each year from average Americans.

From an article on Smartmoney.com by Stacey L. Bradford, it points out that the gas surplus fees many industries charged when gas prices were $4.00/gallon and higher are still there as prices are dropping below $2.00 in some areas. As we discuss in The Losing Game, the price of crude oil was not determined by supply and demand (there is just as much oil as there was this summer) but the consensus of buyers and sellers of the commodities contracts based on an infinite number of factors. So, while Wall Street traders are gambling to make a profit on crude oil just as they would with Sunday’s NFL games, the difference is that you as a consumer doesn’t have to pay the price for this high-priced game in Vegas like you are when it occurs on Wall Street.

From the article:
When oil prices started skyrocketing, consumers didn’t just feel it at the gas pump. They felt it at the airport, the florist and even when they got their kitchen sink fixed, as businesses across a number of industries tacked on fuel surcharges. Now, since the price of crude oil has fallen more than 50% from its high last July, it’s only natural to assume those surcharges are on the way out, right?

Wrong. Yes, some businesses, such as New York-based grocery delivery service FreshDirect, have axed the extra fees. But plenty of others aren’t cutting consumers much slack. Their argument: Oil prices are still cutting into their profits. For consumers, it’s a tough argument to swallow. After all, they’ve seen prices at the pump fall from as much as $4.06 a gallon in July to a current $2.65 per gallon.

“As we feared, now that the price of gas and oil has gone down, we are not seeing the removal of the a la carte surcharges, which is an indicator of the fact that companies were using them as a way to raise prices,” says Jack Gillis, director of public affairs for the Consumer Federation of America, a consumer advocacy group.

Here are eight industries that aren’t passing on the cheaper cost of fuel to you:
1. Airlines
American Airlines (AMR: 10.21, +1.01, +10.97%). United Airlines (UAUA: 14.56, +1.38, +10.47%). Northwest Airlines (NWS: 10.62, +0.44, +4.32%). In fact, pretty much all the major legacy carriers continue to tack on a surcharge of $20 to $170 on many domestic flights, says Tom Parsons, CEO of travel web site BestFares.com. (Flights in markets that compete directly with Southwest Airlines (LUV: 11.78, +0.54, +4.80%) typically don’t carry a fuel surcharge since the low-cost carrier doesn’t charge the fee.) And so far, none of them have announced plans to lift these fees. Overseas, Lufthansa and British Airways
are discounting the fee on some routes, forcing a few U.S. airlines — including United and Northwest — to decrease surcharges on certain international flights.

2. Cruise Lines
Cruising the high seas will cost you. Most of the major cruise lines, including Disney, Norwegian Cruise Line and Regent Seven Seas, still charge passengers a hefty fuel surcharge of between $7 and $11 a day, per person. (Third and fourth passengers in a room are sometimes charged less.) Two of the largest U.S.-based cruise operators, Carnival (CCL: 25.40, -3.31, -11.52%) and Royal Caribbean Cruises (RCL: 13.56, -1.94, -12.51%), will soon drop fuel surcharges for newly-booked 2010 cruises. (Carnival passengers, however, may not see much of a savings since the company is also boosting prices for 2010.)

3. Shipping Companies
The shipping companies won’t be handing out any presents to customers this year. In November, Federal Express (FDX: 65.37, +4.36, +7.14%) and United Parcel Service (UPS: 52.78, +1.65, +3.22%) will tack on an 8.25% fuel surcharge for ground delivery and a whopping 28.5% for express service. The fuel surcharge is adjusted monthly based on the price of either diesel (for ground service) or jet fuel (for express service). (In October the ground shipping rate was 1% higher, and express service was actually 1.5% lower.) DHL hasn’t announced November fuel fees yet, but it currently charges 9.3% on ground shipping and 29% on express packages.

4. Trash Management
Considering that diesel garbage trucks get just three or four miles per gallon, it’s probably no surprise that waste management companies resorted to surcharges when fuel prices rocketed. They aren’t planning to trash those fuel fees anytime soon. Larger companies, such as Waste Management (WMI: 31.23, -0.21, -0.66%) and Allied Waste Industries (AW: 10.42, +0.23, +2.25%). however, tie their fuel fees to the price of diesel — so subscription customers should see some relief as prices fall.

5. Taxis
Taxi drivers in cities across the country, including Dallas, Las Vegas and Washington, D.C., charge an extra fuel fee of about a $1 to cart you around. (New York City is one of the few major American cities that prohibit taxi drivers from tacking on a fuel surcharge — but the drivers are fighting for it.) Riders in Chicago may see the fee there disappear — as long as gas prices remain below $2.70. Other cities may follow suit if prices continue to fall.

6. Water Delivery
Don’t expect water delivery companies, including Nestle Waters North America (which owns Poland Springs, Deer Park and Arrowhead) and DS Waters of America (which owns Sparkletts and Kentwood Springs), to eliminate their fuel surcharges anytime soon. Nestle Waters, for example, is adjusting the fee downward as fuel costs drop, but won’t abandon the charge altogether until the National U.S. Average On-Highway Diesel Fuel Price drops to $2 a gallon (from the current $3.28 a gallon). The last time prices were that low was back in January 2005.

7. Independent Contractors
Independent service contractors have also jumped on the fuel surcharge bandwagon. While some list the charge separately on invoices, others just incorporate it into their overall prices.

8. Flowers
Online florist ProFlowers charges $1 to $2 for fuel, depending on the delivery location, the amount of time allocated for delivery and the weight of the package itself. Should fuel prices continue to drop, the company says it will eliminate the fee. Calyx Flowers charges a $1 fuel service fee.

The NY Times editorialized on Wednesday what we here at The Losing Game already knew…the bailout is a scam, the banks aren’t using the bailout money to make loans, and Paulson doesn’t Care.
Here’s the entire editorial:

According to Treasury Secretary Henry Paulson, the chief proponent of the big bank bailout, flooding the banks with taxpayers’ money was supposed to get them to start lending freely again. And that, in turn, was supposed to stabilize the markets and prevent the downturn from being worse than it otherwise would be.
It was not entirely clear from the start exactly how Mr. Paulson would ensure that things would go that way. Indeed, earlier this month, shortly after the bailout was enacted, The Times’s Mark Landler reported that Treasury officials also wanted to steer the bailout billions to banks that would use the money to buy up other banks.

Now, lo and behold, with $250 billion in bailout funds committed to dozens of large and regional banks, it turns out that many of the recipients of this investment from taxpayers are not all that interested in making loans. And it appears that Mr. Paulson is not so bothered by their reluctance.

Mr. Paulson and the bailout recipients have some explaining to do. Congress should plan hearings as soon as possible — and take action to set a clear strategy.
In his column on Saturday, The Times’s Joe Nocera told about a conference call that he had listened in on recently between employees and executives of JPMorgan Chase. Asked how an infusion of $25 billion of bailout funds would change the bank’s lending policy, an executive said the money would be used to buy other banks.

“I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way,” the executive said. He added that the money could also be used as a backstop in case “recession turns into depression or what happens in the future.”
There was not a word about lending — not to businesses or home buyers or car buyers or students or other consumers. Just the opposite. In response to another question, the executive said that the bank expected to continue to tighten credit.

JPMorgan Chase is not alone. The Wall Street Journal reported on Tuesday that some regional-bank recipients of the bailout money had acknowledged that only a small portion would be used for loans and the rest for acquisitions and other purposes.

It is prudent for government officials to encourage healthy banks to acquire weak banks. Doing so prevents bank failures and avoids the taxpayer costs and economic disruption that accompany such collapses.
The problem is that the Treasury has refused to put conditions on the banks’ use of the bailout funds, allowing them, in effect, to make purchases of banks that are not on the verge of failure. That could help to maximize the banks’ profits — a worthy goal when the capital they are using is from private investors.
However, when they’re using taxpayer-provided capital, as they are now, Congress and the public have every right to require that the money be used to benefit the public directly, even if doing so crimps the banks’ profits. If Treasury won’t impose conditions, Congress must, including a requirement that banks accepting bailout money increase their loans to creditworthy borrowers and limit their acquisitions to failing banks, such as those listed as troubled by the Federal Deposit Insurance Corporation. The bailout should not be an occasion for banks to make a killing.

An even bigger problem is that the bailout was sold as a way to spur loans. If that never was — or no longer is — the primary aim, Congress and the public need to know that. Lawmakers should not release the second installment — $350 billion — until they have answers and guarantees that the bailout money will be spent in ways that put the public interest first.

A version of this article appeared in print on October 29, 2008, on page A30 of the New York edition.
So, YOUR Congress just voted to give private businesses over a TRILLION dollars of your tax money with no oversight as to how to spend it.

Confident?

In a lengthy article in the new Forbes Magazine, former Republican Presidential Candidate Steve Forbes take us through the origins of the Financial Crisis of 2008 and how poor government policies and overreaching by the Federal Reserve led us to this point. While we at The Losing Game have a great deal of respect for Forbes, in our humble opinion, we also disagree with him on certain points he makes:

• He dismisses the rampant greed on Wall Street as part of the process and not a root cause of why so many Americans have lost money in the market and will continue to lose money in the markets;

• He recommends several “reforms” to stabilize the markets without addressing the key issue that the system itself is fatally flawed;

• He dismisses the predatory lending practices that allowed a new revenue stream that took advantage of average Americans who wanted nothing more than to experience the American dream of owning a house.

• He puts too much emphasis on the practice of “naked short-selling,” which has passionate support on either side of the issue, but is a small part of a broken system.

A common misconception people may have of The Losing Game is that it’s “anti-capitalism,” and nothing is further from the truth. We love the entrepreneurial spirit of Americans and hate to see that dissipated by the greed of Wall Street and the heavy-handedness of publicly traded companies pushing out private companies.
Read the article and decide for yourself if Forbes is offering a solution, or is part of the problem.

http://metapunditedgytheanticlown.blogspot.com/2008/10/what-warren-buffett-didnt-say.html

Metapundit Edgy the Anticlown bills himself as “your ally in the struggle for self-awareness, which requires not only understanding ourselves, but also understanding the reality that influences us. Edgy holds no institutional loyalty in his mission to undress and expose the “clowns” that confuse and twist reality for their own selfish ends.”

To that end, he makes a point that we make in “The Losing Game” that the rich get investment advice and deals that average Americans never get. Warren Buffett pumps millions into the market, and you know those stocks will increase because it creates (false) confidence in those stocks. Buffett takes his money out, makes a profit, the stock drops and the average investor is screwed once again.

Here’s Edgy’s blog about the subject,
In the New York Times, Warren Buffett says he’s buying American stocks, and he urges others to do the same. His argument for this recommendation is rather vague, saying that over time, stocks will go up, and the time to buy is when everyone is afraid. (Frankly, I think everyone has been afraid for some time now.) Buffett’s statement doesn’t sit well with some folks, who point out that he has much to gain from improved investor confidence. He’s already heavily invested in stocks, and therefore some of his fortunes depend on whether Americans decide to invest themselves and boost (or rescue!) Buffett’s investments.

Buffett’s editorial is particularly misleading because he fails to mention that his stock investments are often different from those that ordinary people would make. When Buffett buys billions of dollars of stocks, you can bet that he gets a better deal than you or I would.

For his $5 billion investment in Goldman Sachs, Buffett receives preferred shares, which means that if Goldman ever goes bankrupt, he stands ahead of ordinary stockholders in the line to pick up the pieces (assets). Buffett also gets a 10% annual dividend on his shares. (Wouldn’t that be nice?) Furthermore, he has the option to buy more stock at a fixed price in the next few years; a no-lose situation for him. Finally, Buffett knows that Goldman has a lot of connections in the US Treasury department, and Obama has mentioned that Buffett is one of his financial advisors. It therefore seems likely that Goldman will be on the inside track to get any further government assistance it may need.

I have nothing against Buffett; in fact he seems to be a rational, no-nonsense investor. I do have a problem with the New York Times editorial he published. I have no idea whether the market is about to rise from its lows, but I am certain that my monthly paycheck won’t be able to buy stocks on the same favorable terms that Warren Buffett receives.

Our friend, Gary Weiss has been way out front of this whole Wall Street scandal and I want to direct those of you new to our site to check out Gary’s. He does a fantastic job of exposing how companies use the excuse of short-selling in order to cover up poor and often fraudulent business practices. His book, “Wall Street vs. America” was released two years ago, and was a foundation for “The Losing Game.”

Here are a couple of relevant articles from his site:

How the SEC (And Media) Failed Abysmally

The New York Times today has a blow-by-blow account of how the SEC knuckled under to pressure from the major investment banks and threw capital requirements out the window — planting the seeds for the ongoing financial meltdown. An unanswered question, only briefly dealt with in the article, is this: where was the financial press?

CJR Audit asks that same question: “Where was this story years ago?” The answer is “right in front of us.” After all, the Times article was based on the public record, including open meetings of the commission that were not covered by the media.

A pivotal SEC meeting, the Times reports, “was sparsely attended. None of the major media outlets, including The New York Times, covered it.”

In Wall Street Versus America I lament the media’s coverage of the SEC, and it’s sad to be proven so dramatically right.

The financial press, I think, needs to correct its neglect now, by giving the SEC’s actions in this crisis critical scrutiny. With some exceptions, that is just not happening.
Root Out Corruption on Wall Street? How?
For the past few days I’ve been looking for the basis of John McCain’s assertion that he will “fight corruption” on Wall Street. Sarah Palin took an even harsher line in the debate with Joe Biden, saying she and McCain would “get rid of the greed and corruption on Wall Street.”

Sounds to me like “getting rid of the salt in the oceans” but… whatever. I went to the McCain-Palin website and found nothing. Can someone help me out and point me to specific proposals on how this will be carried out? ProPublica says there there ain’t no specific proposals, but I have an open mind.

Barack Obama, for his part, has been flailing away at “eight years of deregulation” under the W. administration. But I think he is being modest. As the New York Times story today on Alan Greenspan (and Wall Street Versus America, I modestly add) point out, deregulation was just as strong under the Clinton administration.

P.S. For the thousands of people who get all their news from this blog: the market collapsed today, and the sky is falling.

In “The Losing Game,” we take a look at Blaine Lourd as the “honest truth-teller” about the realities of Wall Street that brokers are only in to make a fortune, and they don’t care about investors. In yet another example, another Hedge Fund millionaire spits out the truth about Wall Street.

And to be honest, these guys are not the exception, they are just honest enough to tell the truth.
http://www.guardian.co.uk/business/2008/oct/18/banking-useconomy

Andrew Clark in New York
• The Guardian,
• Saturday October 18 2008
• Article history

The boss of a successful US hedge fund has quit the industry with an extraordinary farewell letter dismissing his rivals as over-privileged “idiots” and thanking “stupid” traders for making him rich.
Andrew Lahde’s $80m Los Angeles-based firm Lahde Capital Management in Los Angeles made a huge return last year by betting against subprime mortgages.

Yesterday the 37-year-old told his clients that he had hated the business and had only been in it for the money. And after declaring he would no longer manage money for other people, because he had enough of his own, Lahde said that instead he intended to repair his stress-damaged health; he made it clear he would not miss the financial world.

“The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking,” he wrote. “These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government,” he said.

“All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

Lahde became one of the biggest names in the investment industry when one of his funds produced a return of 866% last year, largely by forecasting the US home loans industry would collapse.

In his farewell letter, which concluded with an appeal for the legalisation of marijuana, Lahde said he was happy with his rewards and did not envy those who had made even more money.

“I will let others try to amass nine, 10 or 11 figure net worths. Meanwhile, their lives suck,” he wrote, citing a life of back-to-back business appointments relieved only by a two-week annual holiday in which financiers are still “glued to their Blackberries”.

Lahde’s retirement came amid an implosion among the hedge fund industry – some 350 of the funds have liquidated this year, according to Hedge Fund Research.

His final words of advice? “Throw the Blackberry away and enjoy life.”

My words to Lahde? Give your money back to the “idiot investors” and get a real job.