Using Veritas to Construct the "Per…

29-04-2017 Hits:82208 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:77819 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:77393 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:82132 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:78726 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:81015 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:47896 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:79726 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:79243 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:79797 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:84797 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:81730 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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A commenter on a prominent internet financial site posed this hypothetical (I actually doubt it was that hypothetical, actually):

As a muni trader, my bonus is derived directly from my P/L which is accrued over the quarter and kept in a separate account. It does not go into the firms bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account in case I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50mm for the year my bonus is $5mm

What does my bonus have to do with the MBS trader who's sitting on losses? Did I or did I not show a profit of $40mm to the firm’s bottom line?

I am very happy this was put up for debate, and I also believe this anonymous commenter to be a big firm trader or banker. After all, it honestly does seem that many of the bankers and traders actually do not understand exactly what the issue is over this bonus thing.

The "mythical" muni trader above, assuming he works for Goldman Sachs, would not be entitled to a $5 mm bonus if he made $50 mm for the year. Why not? Because he generated that 10% return off of taxpayer capital, not firm capital. Goldman Sachs would have had the drawdown from hell had they not been rescued from that bad AIG deal. Let's assume that AIG would have negotiated a 40% payout (if  I would have been at the helm, I believe this is about where we would have settled for the litigation with an insolvent company that had many more contingent and direct claims probably would have resulted in lower net receipt). That would have been a 7.8 million dollar hole. Combine this with the TARP of $10 billion that Goldman said they didn't need yet had to raise capital to repay (that tells us all we needed to know about whether they needed it or not) and it is clear to see that Goldman was severely undercapitalized.

Now, Mr. Muni trader now would not have had $50 million to trade with if Goldman didn't get bailed out (twice). It really is as simple as that, thus there is no need to speculate whether he deserved his 10%. The issue is 10% of what. He could have been paid 10% of his own capital, but he is relying on a 10% vig of tax payer capital, and that is where the great misunderstanding lies. Even if somehow one could justify getting paid from taxpayer capital in lieu of one's own capital or the firm's capital, that capital would have (or at least should have, as a product of prudent business - if we can call it that) been pegged with a cost of capital that had a very, very high hurdle rate that the trader would have to earn over. In other words, management should say this $50 million cost 14%, thus you will not have positive ROI until you break that 14% mark. A simpler way of looking at this is just that Goldman wouldn't have had the $50 million to allocate to him in the first place, but more along the lines of $1o million. If the broker earned his requisite 10%, he would have made $1 million, not $5 million, and with the 14% hurdle rate, would not have received a bonus at all, and actual would have been negative 4% (clawbacks, anyone?). Of course these are random, nominal figures, and the cost of capital could have been 10%. To be realistic, the cost of capital should have been what Warren Buffet charged Goldman plus the firms own "vig", which sounds like it would have amounted to 14% anyway.

You see, not only has the government totally negated the concept of the "cost of capital" when handing out TARP (hence they got bent over when it was time to get repaid, and I warned several well placed politicos personally before the fact), but Goldman Sachs and the rest of Wall Street (not to pick on GS) fails to take this basic precept of business finance into consideration when paying bonuses as well. This capital neglect is good for banking employees in the short term, but it is literal rape of banking shareholders, for they are getting their capital used without charge.

Anyone who disagrees with this with argument using perspectives such as "well, each department is charged for capital" is free to debate this in the comments section.

After all if firms do charge inter-department, I doubt that charge is very realistic given they are getting taxpayer capital for relatively no charge.