Sometimes courts get it wrong

...or do they?

"Illinois courts briefly ruled stop signs illegal in 1922 as a violation of the rights of individuals to cross streets."

Attack of the Hedgies

Today was held in the Frederick P. Rose Hall of Jazz at Lincoln Center in New York City the 15th Annual Ira Sohn Research Conference. This conference is the place for hedge fund managers to see and be seen and to give their take on the best way to make money in the upcoming year. This year's conference was not good news.

David Einhorn (upper left) of Greenlight Capital reiterated his opinion that in the great collapse of modern finance, the credit ratings agencies will be the next shoe to fall. At last year's conference, Einhorn announced that he was shorting Moody's and since that time Moody's stock has dropped 25% in value. Einhorn is still shorting the stock because he thinks it's not just going to go down a bit, but is set to totally collapse. Will in be the next big financial institution to come tumbling down? Stay tuned.

Bill Ackman (lower right) of Pershing Square Capital Management similarly repeated his view that the credit ratings agencies are broken and need massive overhaul. Anyone really believe Chris Dodd is going to accomplish that?

Daniel Arbess (lower left) of Perella Weinberg Partners helpfully informed the audience that the sun is setting on Western capitalism, and that the torch is passing to China. (Note to self: buy more Chinese stocks, consider learning Mandarin.) Granted, the West has been written off before.

Einhorn and Arbess are both making huge investments in gold. I don't totally know what this means, but it doesn't bode well.

The one positive thing from the event was David Tepper (upper right) of Appaloosa Management, predicted that Bank of America's stock, which today closed at $15.47 / share, would hit $27 / share. Maybe time to consider investing in Bank of America. That way, at least, when I get hit with their massive overdraft fees, I would have the consolation of knowing that I was really, in some way, just paying myself.

Eight other hedge fund managers also spoke, but I only had room for four in my picture, so if you want to know what the others said, you'll need to go look them up yourself.

I'm Thinking of Getting a Kickass "Free Adam Wheeler" T-shirt

It was 26 years ago when the Specials released that kickass song "Free Nelson Mandela". Given that song's success at getting Mandela freed after "twenty-one years in captivity", it's pretty obvious that the road to fame and fortune leads straight through getting somebody or other freed. So why not Adam Wheeler?

At any rate, Wheeler is not the most unlikely of posterboys for Generation Y. Of my friends who are now professors, they all have stories of catching dopey students in ham-fisted plagiarism attempts. Given the frequency of professors catching plagiarism, one has to assume that the numbers of students who aren't idiots who engage in plagiarism without getting caught is probably immense.

And then he polished his resume a bit? This is a generation that has been taught that it's only the resume that matters - not the work that goes into it. If you get the grade, what does it matter if you've actually learned anything or, you know, grown as a person through intellectual achievement, or whatever. (And if Adderoll is going to help you get that grade, might as well add it to the mix.) And I'm always shocked at the number of people who have joined a club or organization just to attend one or two meetings and then add their membership to their resumes. So Wheeler may be a little more extreme, but maybe he's really a mirror in which a troubled generation.

So, go ahead, Specials, write your song for Wheeler - I'm sure you'll have plenty of Gen Yers willing to buy it.

Dodd Springs Into Action; Nation Snoozes

Until recently, I've been aware of Sen. Chris Dodd (D-Conn.) mainly because of his presidential campaigns. Dodd is one of those senators who runs for president periodically largely on the grounds that they have been in the Senate forever, and thus, have nothing left to accomplish to round out their resumes except becoming president. Hence the moral clarity and inspirational tone of 2007's famous "Why not Dodd?" slogan. (If I ever run for president, it'll be under the slogan "Might as well vote for Ringguax.")

Most recently, I was excited by the possibility that Dodd might get defeated in his reelection campaign by WWE CEO Linda McMahon, but Dodd forestalled that by announcing his retirement. Bummer. (Though at least we got to see the power of McMahon's opposition research unleashed on Richard Blumenthal.)

But before he sails off in to the sunset, Dodd has one more trick up his sleeve: the Restoring American Financial Stability Act of 2010, now on the verge of becoming law. Here are my thoughts on the law:

The Dodd Bill purports to be a response to the financial meltdown of 2008. Now, in my humble opinion, the biggest cause of the 2008 financial crisis was the overleveraging of capital throughout the financial services sector. Firms should never have been allowed to leverage assets on a 30:1 or even 40:1 basis. Basically, there was excess debt in the American financial sector. (Now, unfortunately, rather than pursue a strategy of deleveraging the American economy, the Obama administration has simply chosen to replace irresponsible levels of private debt with equally irresponsible levels of public debt, but that's a topic for another post.) So, I do think there needs to be regulation, but I don't think that regulation needs to be anything more complex than imposing tighter capital requirements on the banking sector to prevent excess leverage.

So, what does the Dodd Bill actually do? With a nod to the Federalist Society, the bill has eight major features:

(1) Creation of a Consumer Financial Protection Bureau.
(2) Creates a Financial Stability Oversight Council.
(3) Expands the Fed's ability to regulate large banks and financial service organizations.
(4) Regulates derivatives.
(5) Expands the ability of the SEC to regulate hedge funds and the credit rating agencies.
(6) Minor Executive Compensation reform.
(7) Gives the Fed new power to monitor "systemic risk".
(8) Creates an Office of National Insurance.

I will comment on these features of the bill in follow-up posts.

BTJ is Back: Or, How the World Has Changed Since July 2008

Wow! Hard to believe that it is almost two years since my collaborator Publius and I decided that we needed to tone down the blogging amidst the final push of studying for the bar exam. By this point, I've moved from being an innocent, doe-eyed law student to being a jaded and irritable second year associate. What a difference two years makes!

But if a lot has changed for me, what about the world? Mama mia, how the world has changed. Looking back on my summer associate experiences in 2006 and 2007, all I can say is "Bliss was it in that dawn to be alive / But to be young was very heaven!" Ah yes, when starting associate salaries were raised from $115,000 to $125,000 to $135,000, to $145,000, to $160,000, all before I ever started at the firm. By comparison, check out the go that Publius's sister, a recent Brown graduate, has been having in the Greatest City in the World as we enter our second year of the Era of Obama.

Ah summer 2008, those halcyon days when the world was young. Remember the howls of outrage as the US budget deficit soared to $400 billion. It seems almost quaint, now that our budget deficits are four times that size and likely to remain so for the foreseeable future. Ah, June 2008, when the unemployment rate climbed 10%, from 5% to 5.5%, setting off waves of panic. A far cry from today, when Obamiacs tell us we should be elated that the unemployment rate is down to 9.5%. Who in 2008 would have predicted that the American economy would become permanently hobbled by a tax burden that makes relocating in the UK, Canada, or the Netherlands seem like a mighty attractive option? Who would have believed you if you had predicted that the eighth largest economy in the world was about to implode? Who would have questioned the received wisdom that the road to happiness and prosperity lay in imitating the cast and crew of Flip This House? Who would have guessed that even a party as obtuse as the United States Democratic Party would jam through a massive expansion of the welfare state against the loud and sustained opposition of a majority of the American populace? The run on Indymac Bank turned out to be the presagition for the collapse not only of larger financial institutions, but of entire economies. Yes, 2008 was truly the last age of innocence.

In short, we are cursed to live in interesting times. And now, when we must say collectively, "Midway through the journey of our life, I found myself in a dark wood, for I had strayed from the straight pathway to this tangled ground", BTJ: The Blog is back to cast light on the troubled way before us. Stay tuned...