{ "docId": "019dd923-622b-71dc-a6da-dbf423e51730", "docSlug": "dd4273fe6263", "documentTitle": "US/Japan Sovereign Debt & Fiat Currencies (Macro)", "authorId": "04_Greenlight_Capital", "authorName": "David Einhorn", "documentKindSlug": "conference-presentation", "documentKindLabel": "Conference presentation", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2009-10-19 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 4, "pageCount": 10, "prevPage": 3, "nextPage": 5, "slideType": "villain_critique", "function": "name_villain", "density": "overcrowded", "nDataPoints": 0, "notes": "The slide uses a strong, argumentative tone to frame the current financial system and proposed reforms as inadequate or harmful.", "elementsJson": [ "paragraph" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622b-71dc-a6da-dbf423e51730/4", "deckHref": "/decks/019dd923-622b-71dc-a6da-dbf423e51730", "deckJsonHref": "/decks/019dd923-622b-71dc-a6da-dbf423e51730.json", "deckAnchorHref": "/decks/019dd923-622b-71dc-a6da-dbf423e51730#slide-4", "components": [ { "bbox": null, "kind": "callout", "text": "I think that trying to make safer CDS is like trying to make safer asbestos.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-78b4-70ad-b398-58cebe018bc8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.8, "x": 0.1, "y": 0.85 }, "kind": "paragraph", "text": "The reform proposal to create a CDS clearing house does nothing more than maintain private profits and socialized risks by moving the counter-party risk from the private sector to a newly created too-big-to-fail entity. I think that trying to make safer CDS is like trying to make safer asbestos. How many real businesses have to fail before policy makers decide to simply ban them?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "02a6e867-4bd3-4522-9a28-51b65170c38d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.8, "x": 0.1, "y": 0.45 }, "kind": "paragraph", "text": "In addition, the now larger too-big-to-fails are beginning to take advantage of developing oligopolies. Even as the government spends trillions to subsidize mortgage rates, the resulting discount is not being passed to homeowners but is being kept by mortgage originators who are earning record profits per mortgage originated. Recently, Goldman upgraded Wells Fargo partly based on its ability to earn long-term oligopolistic mortgage origination spreads.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "0b7c9c49-edee-47b6-bcd1-8f166e157876", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.8, "x": 0.1, "y": 0.1 }, "kind": "paragraph", "text": "Twenty-five years ago the government dismantled AT&T. Its break-up set forth decades of unbelievable progress in that industry. We can do that again here in the financial sector and we would achieve very positive social benefit with no cost that anyone can seem to explain.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3cb8cf5d-be7d-4c7d-9c33-328fdec1fbbd", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.8, "x": 0.1, "y": 0.2 }, "kind": "paragraph", "text": "The proposed reform takes us in the polar opposite direction. The cop-out response from Washington is that it isn't \"practical.\" Our leaders are so influenced by the banking special interests that they would rather declare it \"impractical\" than roll up their sleeves and figure out how to get the job done.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "6c5975f0-c62c-44a6-9b0f-960c75e62d5e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.8, "x": 0.1, "y": 0.3 }, "kind": "paragraph", "text": "The bailouts have installed a great deal of moral hazard, which in the absence of radical change will be reinforced and thereby grant every big institution a permanent \"implicit\" government backstop. This creates an enormous ongoing subsidy for the too-big-to-fails, as well as making it much harder for the non-too-big-to-fails to compete. In effect, we all continue to subsidize the big banks even though we keep hearing the worst of the crisis is behind us.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bbe71004-7ce3-4100-bc14-c7a46fa76c31", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.8, "x": 0.1, "y": 0.6 }, "kind": "paragraph", "text": "The proposed reform does not deal with the serious risks that the recent crisis exposed. Credit Default Swaps, which create large, correlated and asymmetric risks, scared the authorities into spending hundreds of billions of taxpayer money to prevent the speculators who made bad bets from having to pay.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "eae7880c-ec3b-4541-a5c7-e88a26114a52", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.8, "x": 0.1, "y": 0.7 }, "kind": "paragraph", "text": "CDS are also highly anti-social. Bondholders who also hold CDS make a bigger return when the issuing firms fail. As a result, holders of so-called \"basis packages\" – a bond and a CDS – have an incentive to use their position as bondholders to force bankruptcy triggering payment on their CDS, rather than negotiate traditional out of court restructurings or covenant amendments with troubled creditors. Press accounts have noted that this dynamic has contributed to the recent bankruptcies of Abitibi-Bowater, General Growth Properties, Six Flags and even General Motors. They are a pending problem in CIT's efforts to avoid bankruptcy.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f16b5b53-f37b-49b5-bf4e-5c6ec870ba4d", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 4, "from": 4, "beatId": "0e416fa3-215a-4760-ad7b-8d4aeb5ca684", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Agitate", "beatSlug": "problem-agitate-solution-agitate-make-it-worse", "evidence": "The bailouts have installed a great deal of moral hazard", "position": 1, "confidence": 0.8, "parentBeatName": "Development", "parentBeatSlug": "development" }, { "to": 7, "from": 3, "beatId": "96072d59-48c3-4d23-8c5d-ebe47b6ddd9b", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Key Messages", "beatSlug": null, "evidence": "do we bail them out? 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