Wednesday, February 14, 2007

Reader Contest #1

Who's Tetyevsky and why did he just proclaim:

There's ``an ideal economy, no defaults, fewer downgrades and plenty of liquidity with a broadening investor base,'' Tetyevsky said.

Hint: He's talking his own book.

Correct answers win signed photos of Goldilocks.
Most creative answer gets to have dinner with Goldilocks - only warm porridge served, sorry.


  1. Arthur Tetyevsky is the "chief U.S. credit strategist" (whatever that is) at the international banking firm HSBC Holdings plc headquartered in Europe, with 125 million customers worldwide. HSBC acquired the venerable old American consumer credit firm Household Finance Corp. in 2003, then left it free to write to write risky mortgage loans to non-creditworthy real estate buyers.

    But Arthur Tetyevsky apparently isn't such a great "U.S. credit strategist" (whatever that is) after all. On Thursday HSBC said that, thanks to their new HSBC Finance Corp. division, they have $1.75 billion in bad debts that they hadn't previously anticipated.

    Because of that announcement and a similar one at New Century Financial Corporation, the ABX-HE-BBB-+06-2 index, which had been falling sharply anyway, took a substantial additional nosedive on Friday and Monday, recovering slightly on Tuesday.

    Arthur Tetyevsky is now sweating bullets, trying to say that things really aren't so bad after all. What's interesting about his statement to Bloomberg today is that it reveals that he's taking one strategy and avoiding another.

    And when I say strategy, I mean what he's telling his bosses at HSBC in order to save his own skin and his (likely) million dollar plus salary and bonuses.

    He could have told his bosses, "Look, I didn't really screw up because the whole real estate market is tanking. So blame them, not me. We've already taken steps to recover, and restating earnings is part of that." If he had used that strategy, he would have told Bloomberg, "The real estate market is tanking, but we're staying ahead of the game and getting out."

    But his Bloomberg statement seems to indicate that he used a different strategy: "Look, I didn't really screw up because we just got caught up in a temporary market glitch. I take full responsibility for that, but now we're back on track to take advantage of the market recovery. You'll soon see what a great, fantastic 'U.S. credit strategist' I really am."

    That's why he downplayed the market problems, saying that the subprime mortgage market problems won't "boil over" into other markets, that they "do not constitute a wider financial liquidity problem" in the marketplace, and that there's "an ideal economy, no defaults, fewer downgrades and plenty of liquidity with a broadening investor base."

    This is another example of what I refer to as "The Principle of Maximum Ruin," which says that the financial crisis will ruin the maximum number of investors possible, and that each such investor will be ruined to the maximum extent possible.

    One major actor in bringing about Maximum Ruin is Mr. David Lereah, the chief economist at the National Association of Realtors.

    One can google his name find that he's increasingly becoming the butt of many jokes because, no matter how bad things get in the real estate market, he always predicts that they're going to get much better, and that now is the time to buy that expensive home of your dreams. The problem is that he's been wrong, month after month, for over a year, but that hasn't stopped him.

    Now we can add the name Arthur Tetyevsky to the list of perpetrators, people who would rather tell people what they want to hear, rather than what they need to know.

    People like Arthur Tetyevsky and David Lereah are the people who are convincing unsophicated investors to invest more and more of their money in assets that are only going to fall further. Thus, they're extending the bubble for their own gain, at the expense of perhaps millions of investors who are taken in by them.

    The Principle of Maximum Ruin.

    Please e-mail me my porridge.



    John J. Xenakis
    Web site:

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