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At yesterday’s Congressional hearings, the risk management practices that Jon Corzine instilled at MF Global continued to take hits. 

Chief among the negative items that came out of the hearing was that Michael Rossman was fired in January 2011 because he viewed CEO Corzine’s bets on European sovereign debt as too risky (via Reuters):

“My views on risk certainly played a factor in that decision,” Roseman told a House Financial Services subcommittee, about why he was asked to leave the firm…

“I do think the strategy maybe exceeded the ability of the resources,” he said

Lawmaker’s then pressed Roseman’s replacement, Michael Stockman, on whether he thought that had been brought in specifically to act as a ‘yes man’ and approve the trades. Stockman replied that he did not think that was the case. 

Rep. Michael Capuano (D-MA) hammered home the clear implicaiton of Roseman’s dismisal (via Bloomberg):

“It appears Mr. Roseman was the chief risk officer until he stopped telling Mr. Corzine what he wanted to hear.”

MF Global and Jon Corzine’s poor risk management has, of course, been the subject of scrutiny ever since the collapse of the firm.

Here’s a quick sampling of some of the worst examples of risk management we’ve seen from the firm:

5 Things That Should Never Happen At A Brokerage Firm

The Collapse Of MF Global Basically Started On Corzine’s Day 1

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See Also:

• Here’s The ‘Break The Glass’ Report Everyone Was Talking About At The MF Global Hearings
• Two MF Global Chief Risk Officers Will Be Testifying In Congress Next Week
• MF Global’s Missing Money Has Been Traced, But That Doesn’t Mean Customers Will See A Dime

Update: Added quotes from Robert Shiller.

Like most measures of the economy, the S&P/Case-Shiller home price index is not perfect. However, it has a critical shortcoming that almost no one talks about.

We already know that the data comes on a bit of a lag.  Today’s Case-Shiller numbers reflect home prices that were recorded back in November.

But are they really the November home prices?

The short answer is a resounding NO.

Business Insider spoke to Kevin Caron, strategist for Stifel Nicolaus:

The data doesn’t hit the database until the public filing after closing. But the closing may be months after the agreement between buyer and seller (and the banks that provide financing). Ultimately, the lag can be a long time (maybe six months) between when a price is agreed upon, the mortgage is secured, the closing occurs, and the sale is recorded and available for public use.

David Blitzer, Managing Director and Chairman of S&P’s Index Committee, told Business Insider that there is indeed a lag between the time a price is agreed on and when the sale closes.  However, he thinks a six month lag may be on the high side.  We asked Blitzer about Caron’s assessment. Here’s how he responded:

The analyst is correct about one point — prices for S&P/Case-Shiller (SPCS) are based on public filings. However, these are the only consistent, reliable and accurate source of price data. Further the time from contract to closing is more like 4 to 8 weeks, not 3 to 6 months. Also, many sales collapse before the sale closes and the only way to be sure the sales is arms length is through the public records of closings.

We also spoke to Professor Robert Shiller, co-creator of the Case-Shiller index, who shared Blitzer’s sentiment:

Our indices are based on closings. But I think that is the right thing to do. Many purchase and sales agreements are never consummated. Those that are away from the market are less likely to be completed. Using purchase and sales agreements to construct an index would be like taking limit orders on the stock exchange to compute a stock price index as if they were transaction prices.

Blitzer and Shiller both make good points about practicality.  Like Blitzer said, “these are the only consistent, reliable and accurate source of price data.”

We won’t argue that the Case-Shiller data is certainly robust in terms of its consistency, breadth and depth.  Over long periods, useful trends reveal themselves in the Case-Shiller data.

However, four to eight weeks from contract to closing is major lag.  Based on Blitzer’s estimate, today’s November home price data reflects September or October prices at contract, which is the more relevant measure for a home buyer or seller.  In other words, it would be inaccurate for users of the Case-Shiller data to assume that the monthly index data reflects monthly market prices without some additional lag.

Furthermore, the time from contract to closing may vary depending on the city, which would make the Case-Shiller indices even more problematic.

Sure, no measure of the economy is perfect.  GDP growth and unemployment rates are revised frequently.  And no one will forget when the National Association of Realtors (NAR) unleashed the mother of all revisions when it slashed four years of existing home sales data by 14%.

However, those using any data should be aware of what the data is really saying.

SEE ALSO: ROBERT SHILLER: A Housing Bottom? What Are They Thinking?

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See Also:

• Case-Shiller Home Price Index Falls 3.7% From A Year Ago, Which Was Worse Than Expected
• Greece And Its Private Creditors Say They’re Close To A Debt Swap Deal, Expect To Iron Out Details Next Week
• ROUBINI: Advanced Economies Face A U-Shaped Recovery

NEW YORK (AP) — Remember Greece?

It’s been two years since a financial crisis erupted in the birthplace of drama, and the final act is still unfinished. A second week of talks in Athens ended Friday with no deal between the country, the European Union and private holders of Greek bonds.

Remarkably, even after the crisis became such an international worry last year that the leaders of France and Germany were actually referred to as “Merkozy,” the European debt bomb could still explode, with Greece as the fuse.

Economists and investors see a Greek default as the biggest test of the world financial system since the crisis that followed the collapse of Lehman Brothers investment house in 2008.

It is also the biggest threat to what has been a successful start to the year in the U.S. stock market. The Standard & Poor’s 500 index has gained 4.7 percent, roughly half its average for a full year, in just four weeks.

“If talks break down next week and it looks like they can’t reach a deal, it raises all sorts of risks,” says Jeffrey Kleintop, chief market strategist at LPL Financial. “The stock market could probably lose half its gains for the year.”

On paper, it’s hard to see how Greece could take down financial markets in the U.S., the world’s biggest economy, with $15.2 trillion in goods and services churned out every year.

Consider:

— Greece’s economy weighs in at euro220 billion, according to the International Monetary Fund’s estimates. That translates to $285 billion, which puts Greece’s economy on par with Maryland’s. The U.S. sells about $1.6 billion in weapons, medicine and other products to Greece each year, a minuscule 0.07 percent of exports.

— U.S. banks say Greece on its own poses no danger to them. Unlike European banks, they’re not major lenders to Greek businesses and aren’t saddled with Greek government debt. In its most recent report, JPMorgan Chase, the largest bank in the U.S., said it had just $4.5 billion at risk in Greece, Ireland and Portugal combined. That’s about what the bank makes in revenue in two and a half weeks.

— Many worry that U.S. banks would struggle to cover the insurance contracts they sold on Greece’s euro350 billion, or about $460 billion, in government debt. But the amount of insurance taken out on that debt totals $68 billion, according to the clearinghouse for the contracts. That’s hardly enough to pull down the banking system. And the banks have offset all but $3.2 billion of those contracts with other contracts. In other words, pocket change.

“The direct impact of a Greek default is almost zero,” Jamie Dimon, CEO of JPMorgan Chase, told CNBC on Thursday.

So what’s everybody — well, everybody but Jamie Dimon — worried about?

A breakdown in talks could trigger steep losses in stock markets in Europe and the U.S. Just as in 2008, banks could stop lending to each other, and the credit freeze could cause a market panic.

More importantly overseas, it could cause borrowing rates for Portugal and Italy to jump, pushing those much larger countries closer to defaults of their own.

That’s only the beginning. A Greek default could unleash a host of larger problems. Some are already anticipated while others are likely to blindside even the closest observers, says Nick Colas, chief market strategist at ConvergEx Group. “In any complex system, you’re going to have unintended consequences,” he says.

He compares it to the collapse of Lehman Brothers: Analysts saw it coming, but the fallout in still caught them by surprise. A money market mutual fund found that it couldn’t redeem its customers’ money. Money market funds, which many considered as safe as savings accounts, suddenly looked suspect until the Federal Reserve backed them up.

At a conference on sovereign debt this week in New York, Steve Hanke, professor of economics at Johns Hopkins University, predicted that even commodity prices would plunge in response to a messy Greek default.

If Greece goes under, traders seeking safety would immediately sell euros and buy dollars, Hanke said. The dollar would soar and prices for commodities like oil and wheat, which are bought and sold in dollars around the world, would collapse. A single dollar would buy much more oil or wheat.

“If the bomb is set off by Greece, commodity prices will collapse,” Hanke said.

Hanke, who has advised governments around the world on managing their currencies, argued that Greece appears bound to collapse under its debts as its economy shrinks. “Greece is doomed,” he said.

So investors will be watching what happens this week in Athens. At the sovereign debt conference, Hans Humes, president of Greylock Capital Management, said this week could bring “the precedent-setting moment.” He warned that if the banks and investment funds that hold Greek bonds take steep losses, then Portugal, Italy and other countries shouldering heavy debt burdens can be expected to follow Greece’s lead.

It’s comparable to a messy default. Traders will respond by immediately selling government bonds from those countries, Humes said. Borrowing costs will rise, and Europe’s debt crisis will turn much worse.

Humes has been involved in the negotiations on the side of creditors holding Greek bonds so he has a stake in the game. But it’s a scenario other money managers often cite.

“There’s a fear that other countries won’t negotiate at all. They’ll just say, ‘We’ll pay you back at 50 percent or maybe less,” Kleintop says.

To Colas, the deepest concern isn’t how the S&P 500 reacts or whether the dollar rises if Greece drops the European currency. It’s the possibility for panic, especially a run on European banks.

What if people across France and Germany crowd into banks to pull their deposits? Banks, after all, are some of the largest buyers of government debt.

“Human emotions can drive things off the rails,” Colas says.

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See Also:

• Ken Rogoff: It’s Not Just Greece
• The ECB Is Despairing About How To Deal With The Greek Debt Debacle
• THE ADVENTURES OF NIKOS KASSIMATIS: The Man Who Owes $1.23 Billion To The Greek Government

Obama’s approval rating has been averaging about 44 percent this month. Not exactly lighting the world on fire.

And so, Andrew Sullivan and Tina Brown have teamed up to anger everyone with Newsweek’s cover story, “Why Are Obama’s Critics So Dumb?“ 

Basically, Sullivan is charging conservatives with being insane. Similarly liberals that expected Obama to actually close Guantanamo Bay, not fight any new wars, and rout the American right, are being Utopian dreamers. 

Here is the key line: 

But given the enormity of what he inherited, and given what he explicitly promised, it remains simply a fact that Obama has delivered in a way that the unhinged right and purist left have yet to understand or absorb.

But Sullivan overstates the case. By just the seventh paragraph, he says something very misleading: 

The job collapse bottomed out at the beginning of 2010, as the stimulus took effect. Since then, the U.S. has added 2.4 million jobs. That’s not enough, but it’s far better than what Romney would have you believe, and more than the net jobs created under the entire Bush administration.

Here he is comparing “gross jobs” under Obama during the recovery, to the “net jobs” number under Bush. Bush left while the economy was shedding jobs. But Obama’s recovery has added jobs, but at a slow rate and with a shrinking workforce. 

Sullivan makes some claims that are just bizarre. “You’d think, listening to the Republican debates, that Obama has raised taxes,” he writes.

Why would you think that? They’re all against tax increases, but having watched all the Republican debates, I can only remember them saying that Obama has done a lot of spending. And without cutting spending there will need to be tax increases. 

Sullivan isn’t entirely wrong either. Critics of Obama on the right have been wrong when they’ve said he has “apologized” for America or appeased its enemies. The guy sent planes into Pakistan and deep-sized Osama Bin Laden. He approved a war on Libya (even if they dressed it in humanitarian clothes). He surged in Afghanistan.  And he kept to the timeline of withdrawal in Iraq that had been set by George W. Bush and Nouri al Maliki. 

Fundamentally Sullivan simply takes the most exaggerated complaints about Obama and makes them contradict each other. It is true that Obama can’t be completely an empty-suit who is totally incompetent, while at the same time being a malicious figure working effectively to destroy America. 

But someone can be incompetent at some tasks, and too ideological in other tasks. 

And if you filter out the most insane things said about Obama there is a line of criticism that seems pretty smart. Here’s how it goes:

Barack Obama has always wanted to fit in. And has partially treated his journey to the presidency not as a political venture but one of personal discovery. 

Upon entering office, instead of focusing on a jobs issue, he ditched all of his bipartisan rhetoric in order to get his health-care reform passed. To do so, he essentially threw out his promise to keep lobbyists from power and he cut deals with the insurance and drug industries that guarantee them customers and near monopoly pricing. His deal included all number of gimmicks to “juice” the savings numbers and hide the costs. It introduced almost no price competition into health-care meaning that health-care will continue to consume more and more of the economy. 

The same kind of cronyism that poisoned his health-reform also invaded his handling of the financial crisis. This led not just to bailouts but the increasing concentration of financial power in the big six banks, setting up the system for another round of bailouts in the future.

At some point, the top players in lots of sectors in the American economy, in education, finance, military-industry, or health-care are operating less and less in a free market, and more and more in government licensed cartels. 

In one sense there is a reason why critics of Obama on the right and left seem to contradict each other. At times we really do seem to be getting the worst of both worlds. The middle and working classes get the heartless layoff notices of capitalism, while the richest see their losses “socialized” away. 

It’s a problem Obama did not invent, but one he has intensified. And it isn’t “dumb” to say so. 

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See Also:

• SCENES FROM NEW HAMPSHIRE: This Is What It Looks Like When Campaigns Invade
• THE TRUTH ABOUT NEW HAMPSHIRE: Does Ron Paul WANT Mitt Romney To Win?
• EXCLUSIVE: Ron Paul Has A Secret Plan To Win America

The Miami Heat avoided an ugly collapse last night against Boston with some clutch shooting from an unlikely source: rookie point guard Norris Cole.

The 23-year-old didn’t start for Miami. But he was in there down the stretch, and for some reason he was taking the big shots that LeBron and D-Wade should have been taking.

Luckily for the Heat, Cole buried two jumpers with the Heat up three points in the final minutes, and Miami escaped with a 115-107 win.

He finished with 20 points on 8/16 shooting — taking more shots than anyone else on the team.

These shots won’t always fall for Cole. But he’s talented and poised for a rookie, and he’ll make Miami an even bigger juggernaut if he can keep it up all year.

Here’s his two biggest jumpers (the second one comes 30 seconds in):

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See Also:

• An NBA Player Almost Got Carjacked, But The Thief Recognized Him So They Went To McDonald’s Together
• Kevin Garnett Tried To Grab The Throat Of A New York Knicks Player Following Sunday’s Loss
• Here’s Why The Toronto Raptors Have A 1,300-Pound Boulder Sitting In Their Locker Room