Saturday, October 25, 2008

Chinese Gambit

The Chinese are making a move. No doubt about it. It's more a gambit than a committed offensive. Think of it as a test for weakness, easily abandoned if it fails in the first couple of steps, or reinforced with additional commitment and resources if it's initially successful.

I don't think they have a strategy. It more opportunistic.

Many, many words are being devoted to analyzing it. But the conceptual framework for that discussion is unfortunately economic, rather than drawn from game theory.

Hate to say it, guys, but this is more about game theory than anything else. Temporary positional advantage than can be permanently solidified given a favorable correlation of forces (that's a midtwentieth century Soviet construct). If things turn against them, abandon the gambit, publicly disgrace its advocates, and resume play, next inning.

Ah, the new entrant's freedom to manoever . . .

Wanted--Inarticulate CEO

Was anyone else disconcerted by this guy Pandit (CEO of Citicorp) describing his company's chance to buy Wachovia for a song, and with heavy duty taxpayer support, as a winning lottery ticket? In this atmosphere, it's a horrible metaphor, what with the Wall Street casino becoming daily more detestable to the public on whose indifference its continued existence depends. (Pandit made the comment while he was whining about Wells Fargo coming in grabbing Wachovia by outbidding Citi after Wachovia and Citi had struck a deal--basically, there is something called a fiduciary out, which let Wachovia renege on its first bargain, but that's neither here nor there).

I believe last year his predecessor, the Prince formerly known as CEO, described Citi's (non)risk management policy with words to the effect that Citi intended to keep on dancing til the music stopped. They've been paying the piper ever since.

If ever there was a group that need dour rather than glib leadership, I believe it can be found on East 53rd Street.

Friday, October 24, 2008

two little factoids

one, two, three little injuns . . .
how about two factoids?
in the B of A earnings release some Ken Lewis minion mentioned that mortgage loans out of Socal were at 65% loan to value. You want to borrow money from Bank of America to buy a house in a Southern California neighborhood? Not a problem. The bank expects a 20% down payment. Oh, wait a minute, that doesn't mean you can borrow 80% of what the property is worth today. You can borrow 80% of what their model says it will be worth next year. Factor in a 20% decline in real estate values, and, well, we'll lend you 80% of 80%, or, in the interest of customer good will, 65%.
Ouch, and good luck Hank Paulson.
Double ouch. A high end real estate agent in Manhattan reported in the blogosphere as commenting that the better stuff was down a quarter since the middle of summer. Nobody is buying . . .
not sure exactly what the better stuff is, but I imagine its the kind of property that would interest somebody who's gotten a seven figure bonus more than once.