Thursday, April 30, 2009


Yesterday I noticed that a couple folks writing under the by-line, "AP Business Writer," headed an article under this gushing lede: "The Fed confirmed what Wall Street has already concluded: The recession is starting to ease." And in support of this bold statement they cited the fact that the Fed observed that the state of economic decline "appears to be somewhat slower."


Now I'm not looking to defend the FMOC, but in looking at the Fed's announcement yesterday, I ain't really seeing the optimism that our glorious financial press seems so desperate to see:
Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
Now, I'm the first to posit that any Fed optimism in the face of what's really happening is irresponsible and ludicrous. But it just amazes me how desperately the mainstream financial press wants to paint a rosy picture that justifies ever more money seeping away from saving, in order to shunt it over to Wall St. and debt-financed consumerism. And as we know, this gilding of a wilting flower seems to work: Wall St. rallied yesterday.

Anyway, apart from the press' foolishness and the Fed's cheerleading (or is it the other way around), let's take a look at the substance of what the FOMC said yesterday:

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
Maybe I should have characterized this as part of the "cheerleading" section, because I'm not seeing anything here that makes sense. Inflation (and they're talking about price inflation, since they've already inflated the money supply) will remain subdued . . . because the economy is retracting. The same economy that's slowing down more slowly than before. Ok (I guess). So the Fed will keep rates low . . . to promote price stability? Huh?

I think we can translate this as, "More money coming!" Why? Because that's what central banks do. They inflate. But, of course, the Fed says there won't be any "inflation," meaning price inflation. Ostensibly because it can just sop up all that money by selling its assets back into the economy when prices start to rise. And as we've addressed here before, what will it sell back, since the composition of the Fed balance sheet gets more and more questionable as time goes on. Well, let's look at what it says:
to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.
Hmmmmm. Let's do the math, shall we? $1.45 trillion of agency mortage-backed securities and agency debt. And who are these "agencies," you might ask? Oh, just Fannie Mae and Freddie Mac and those sorts of bankrupt governmentally-supported entities. And a mere $0.3 trillion worth of treasuries. They ain't too solid an investment either, but at least there's some tradition there of purchasers.

But all-in-all, I ask the same question I always ask: who the fuck is gonna buy $1.45 trillion worth of shit? In addition to all the shit that's already parked on the Fed's balance sheet? And if your answer is "no one," or "not many folks" or "hell, I dunno," please remember that any un-repurchased shit will remain on the Fed's balance sheet. Which means that $1.45 trillion worth of newly-printed Federal Reserve Notes (those would be the unsecured debt instruments the Fed issues, known to most of us as "Dollars") remain in the general economy.

Which will raise prices somewhere, sometime. Food? Medical care? Rent? Fuel? Take a guess, spin the spinner. But the spinner will stop somewhere.

And let me then ask the other question I often ask? Does anyone in power have a clue what he's doing? If not, how do they keep their jobs? If so, how do they stay out of prison?

More debt, more fiat currency, more lies and double-speak. Yet we're supposed to believe that good times are just around the corner. If only so.

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Wednesday, April 29, 2009


I've been swamped, crushed, buried, and overwhelmed at work lately. But I have a job, so trust me, I ain't complaining. I'm also a bit numbed by the constant barrage of lies and stupidity of Obama's Crack (-smoking) Economic Team. Add to that living within a couple miles of the United States' swine flu ground zero, and I'm at a bit of a loss to rev up my usual outrage & commentary.

And then along comes the news that Arlen Spector is switching parties! "Yea," the hopeful masses shout, "we is saved!" Apparently the fact that the Dems -- who already have a sizable Senate majority yet have done nothing of consequence except shovel money to the world's largest banks, and send the exhausted troops from Iraq over to Afghanistan -- may now have a non-Constitutionally-significant super-majority of 60 is gonna save us from cynical leadership, cronyism, and incompetence.

Well, count me among those who couldn't give a shit. First of all, note the word "may" above. Unless Al Franken final wins his never-ending election battle against Norm Coleman, it'll be 59. And that also assumes no Dem goes over to the GOP.

It also ignores the fact that because of weak leadership (looking at you, Harry), cynical party policies (looking at you, Barry), and a crew of 59 clumsy, foolish, & self-serving legislators (looking at you, Mo, Curly, & Larry), the Dems haven't been able to accomplish a damn thing.

Why the hell does anyone suddenly assume that because the Dems can defeat the GOPers threatened (but not to my knowledge, never implemented) filibusters, they will? Because Snarlin' Arlen is suddenly on-board they're gonna grow a pair? Now they'll fight? Hmmm.

And most importantly, assuming this exciting super-majority leads to a spate of affirmative legislation, so what? I repeat what I've said over-and-over: it doesn't matter. There's been no substantive change of policy from the last administration to this one, and no change in legislative direction since the election of 2006. And there won't be, whether we have 59 Dem Senators, or 60 or 75 or 100. The follow the money. Their masters. The real policy-makers. And that ain;t us, folks.

Before peole get their panties in a twist, let me say, yes, there are a few subtle distinctions between the parties. Similarly, a rabid crocodile and a polar bear with a bad case of jock itch are different. One will maul you while the other spins around and rends your flesh from your bones. They. Are. Different.

But they're both pretty undesirable outcomes, no? This Arlen Spector switch-a-roo means nothing. Well . . . almost nothing.

Because Spector is up for re-election in 2010. In a country that voted Dem in 2006, and elected a Dem prez in 2008. In a state that went for Obama last November. Perhaps this move does mean something.

(Cross-posted at Agitprop)

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Tuesday, April 28, 2009


Check out this short post from iStockAnalyst (H/T Ritholtz) about the composition of the Fed's balance sheet, as discussed here last week. A highlight or two:
[A]ll of this garbage paper that’s going bad — the troubled residential mortgage backed securities (RMBS), the commercial mortgage backed securities (CMBS), the asset backed securities (ABS), the Fannie Mae bonds, the corporate loans, and so on — hasn’t just gone “Poof.”

Instead, more and more of it has been landing on the Fed’s doorstep — either through direct ownership or as collateral against Fed loans that keep getting rolled over.

The result? The Fed’s once pristine balance sheet is starting to look more and more like the balance sheet of a troubled financial institution.

What do I mean? Well, take a look at this April 26, 2007, Federal Reserve Statistical Release. Table 2, the Consolidated Statement of Condition of All Federal Reserve Banks, shows the breakdown of the Fed’s assets back then. You’ll see that the Fed banks listed total assets of $883.5 billion at the time. The lion’s share of those assets — $787.1 billion, or 89 percent — were “AAA” quality U.S. Treasury bills, notes, and bonds. There were a few other assorted line items (gold, bank premises, etc.) … but that’s about it.

Now compare that two-year old balance sheet, to this multi-headed hydra of a balance sheet that came out a few days ago. The equivalent table (number 9) shows that total Fed assets have exploded to $2.19 TRILLION. And those plain-vanilla, risk-free Treasuries? They make up just $526.1 billion, or 24 percent, of Fed assets!

The Fed now also owns more than $355 billion of mortgage backed securities and $61 billion in debt issued by Fannie Mae, Freddie Mac, and Ginnie Mae. Term auction credit comes to $455.8 billion. Those are short-term loans against just about anything and everything — from auto loans and credit card receivables to Brady Bonds and CMBS.

The Fed is also holding $238 billion in commercial paper as part of an October 2008 program to help corporations fund short-term debt obligations.

And it has $111 billion in so-called “other loans.” This all-purpose category includes loans made to primary dealers ($12.9 billion), bailout baby AIG ($45.1 billion), and loans made as part of the Fed’s Term Asset-Backed Securities Loan Facility ($5.1 billion).

Finally, the Fed has lent money to so-called “Maiden Lane” LLCs that acquired dodgy asset portfolios as part of the Bear Stearns and AIG bailouts. The grand total there comes to $72 billion.

* * *

I recommend you consider buying some gold and dump the heck out of any long-term U.S. bonds. Because some day, the trashing of the Fed’s balance sheet is going to matter, and in a potentially huge way.

Not sure there's much I can add to that.

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I thought "the Swine Flu" was a description of the day Geithner, Summers, and Bernanke resigned their positions and left town.

(Cross-posted at Agitprop.)

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Monday, April 27, 2009


Straight from the "Believe What They Do, Not What They Say" files, we get this dandy little nugget 'o news from Bloomberg (H/T Jesse): Insider Selling Jumps to Highest Level Since 2007. A highlight or two:
Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

* * *
While the Standard & Poor’s 500 Index climbed 28 percent from a 12-year low on March 9, CEOs, directors and senior officers at U.S. companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda, Maryland-based research firm, show. That’s a warning sign because insiders usually have more information about their companies’ prospects than anyone else, according to William Stone at PNC Financial Services Group Inc.

“They should know more than outsiders would, so you could take it as a signal that there is something wrong if they’re selling,” said Stone, chief investment strategist at PNC’s wealth management unit, which oversees $110 billion in Philadelphia. “Whether it’s a sustainable rebound is still in question. I’d prefer they were buying.”

Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 institutional clients.

That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992, data going back more than 20 years show. That drop preceded a 2.4 percent slide in the S&P 500 in August 1992.

* * *
“They’re going to say, ‘Thank you very much,’ and move on to cash or something else,” said David W. James, who helps manage about $2 billion at James Investment Research Inc. in Xenia, Ohio. “This is not a situation that suggests to us we’re seeing an economic recovery.”
Bottom line about the bottom line: when Wall St. Insiders who possess more information than you have (and possess a bit more money too) suddenly start selling everything that's not nailed down, it really doesn't matter whether they or their D.C. shills tell us recovery is on the way, does it?

Follow the money, not the words. It'll tell you all you need to know about where this is heading.

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Saturday, April 25, 2009


Long time Neighborhood reader & commenter, Comandante Agi has questionably (and foolishly, methinks) asked none other than yours' truly to join the ranks of posters at his recently re-taken-over blog, Agitprop.

In my shameless quest to be read by at least a dozen-and-a-half people stupid, bored, or lonely enough to actually pay attention to what I say, I accepted his invitation. Of course.

(I thought it over for all of . . . about 3 seconds. Which is as fast as my brain could process it.)

Anyhow, my loyalties will remain to the Neighborhood, and the small-but-steady core of readers I've maintained here. Therefore, what I suspect I'll do is cross-post a couple of pieces each week. I'll still try to post daily here (the key word, as always, being "try"), but perhaps I'll throw one or two of the better ones up over there.

At any rate, swing over there and check out what the others have to say. I've known Agi for a while now, and he and I have long seen eye-to-eye on our non-Republican, non-Democratic, independant brand of skepticism (if not cynicism) when it comes to the political arena. Libertarian? Anarchist? Who knows? Why label?

And Agi has a nice absurdish sense of humor that I've always liked.

So there you have it. Nothing new here, something new elsewhere. We'll see how it goes.

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Friday, April 24, 2009


This Bloomberg piece (H/T Ritholtz) highlights a very important issue: the changing (read: declining) composition of the Federal Reserve's balance sheet. The ostensible gist of the story is revolting enough, dealing as it does with the true state of what the Fed took on last year when it brokered the Bear Stears-JPMorgan Chase deal -- mostly California & Florida-based mortage holdings. But taking it to a deeper level, it makes us focus on a far-greater problem: the fact that the Fed has not only doubled the size of its balance sheet, but that much of this expansion has come in the form not of U.S. Treasuries, but with the very "toxic assets" that we've come to know as a root cause of the financial downturn. A few highlights, then I'll try to sum it up at the end:
The Federal Reserve released its most detailed breakdown to date on the types of assets it accepted from Bear Stearns Cos. a year ago and the cause of losses on the portfolio. The biggest losses in the $25.7 billion portfolio of Bear Stearns assets as of the end of last year came from commercial and residential mortgages, according to a report released by the Fed in Washington today. The central bank agreed in March 2008 to buy the assets so JPMorgan Chase & Co. would acquire Bear Stearns and avert the investment bank’s bankruptcy.

* * *

The Fed wrote down the value of former Bear Stearns commercial-mortgage holdings by 28 percent to $5.6 billion and residential loans by 38 percent to $937 million as of Dec. 31, the central bank said today. Properties in California and Florida accounted for 45 percent of outstanding principal of the residential mortgages.

“It’s just the tip of the iceberg when it comes to losses in the commercial real estate market,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Lenders “were over-optimistic about tenant occupancy rates and rents,” he said.

The emergency action to prevent the collapse of Bear Stearns started the Fed on an unprecedented path, which has led the central bank to more than double the size of its balance sheet. Bernanke has overseen an expansion of its efforts to include financing corporate debt, lending to securities dealers and the commitment to buy hundreds of billions of dollars of mortgage securities and Treasuries.

* * *

Today’s releases from the Fed also included information on its holdings of assets accepted from AIG, which reflect less of a change because of the shorter period that the central bank has owned the portfolios. The AIG rescue dated from September. Maiden Lane II LLC, formed to buy residential mortgage-backed securities from AIG, included subprime-loan assets valued at $10.8 billion and “Alt-A” or adjustable-rate loans valued at $5.23 billion as of Dec. 31. Maiden Lane III LLC was formed to buy from AIG collateralized debt obligations linked with residential and commercial mortgage securities. One-third of the $26.7 billion of CDOs in the portfolio have ratings below investment grade, the Fed report showed today.

AIG said last month that Societe Generale of France and Deutsche Bank AG of Germany led a group of 20 foreign and U.S. banks that received $22.4 billion in collateral payments after the Fed’s rescue.

Also in September, the Fed declined to rescue Lehman Brothers Holdings Inc., saying the firm lacked acceptable collateral for it to justify extraordinary aid.

Remember, by the way, that Geithner was involved in this decision. I'm not saying we should have rescued Lehman in exchange for its worthless assets. We shouldn't have. I just wonder what rationale existed to justify saving certain banks and institutions (with strong ties to Goldman Sachs & JPMorgan Chase) while letting others die. Anyhow, back to the piece:

The Bear Stearns holdings show new detail on the type of assets that JPMorgan didn’t want to accept as part of its takeover of Bear Stearns. The total amount of losses on the Bear Stearns holdings was previously disclosed by the Fed in January. The Fed said its commercial-mortgage loans had principal of $8.5 billion at the end of December, compared with the “fair value” assessment of $5.6 billion, indicating an assumption that about 35 percent of the debt won’t be paid back.

Keep in mind, that this article focuses on one very small part of the increase in the Feds balance sheet. There are hundreds of billions more.

The Fed has nothing to back its Federal Reserve Notes (what we call "dollar bills") except the full faith and credit of the United States government. And the United States government is deeply in debt, unable to pay its bills or its creditors unless it borrows ever more money. The world knows this, of course, which is why foreign governments -- like China -- have been buying far less US debt lately.

So where will the Treasury get the money to pay its bills and creditors? From the Federal Reserve of course! And where will the Fed get the money to lend to the Treasury? From thin air of course!

Now we begin to get deeper into the soup. Because traditionally, what does the Fed do to sop up all that newly-printed money it injected into the economic stream? In other words, how does it prevent this monetary inflation (known, simply, as "inflation" by economists I respect) from translating into general price inflation? How does it curb this massive increase in the adjusted monetary base (aka, the Fed's balance sheet)? Well, under normal circumstances it would unload from its balance sheet, selling the treasuries it has purchased back into the economy . . . thereby re-absorbing those newly-printed dollars.

But now folks, we come to Hamlet's proverbial "rub." Because -- based on the realities of April 2009 -- who the hell is gonna buy those treasuries? The very same treasuries the Fed had to buy because no one else wants them. Will the Chinese buy treasuries from the Fed that they wouldn't buy from the Treasury? They prefer Bernanke's well-trimmed beard to Timmy's shifty eyes? No.

And, even more importantly, over the last six or eight months, the Fed has already printed -- and given to the largest banks and Wall St. institutions -- enormous amounts of money . . . in exchange for all the garbage now parked on its own balance sheet. How on earth can it sop up that money? Who will buy back all the shit assets and toxic loans that caused the entire debacle in the first place?

This, folks, is the big question. The biggest we have. Because the very frightening bottom line is that the banks -- the banks who have received billions if not trillions in governmental largesse -- are sitting on a lot of money. And when they start lending it out -- and they will, because that's the only way they make money, other than via bailouts -- there's gonna be a lot of money flooding the economy. Flooding an economy in serious trouble, with decreased demand, low employment, high debt, bad credit ratings, and lots of fear.

Meaning prices will skyrocket. For all the things that we must spend that new money on: food, fuel, medical care, rent, insurance. The cost of living will become unmanageable ovenight.

And the Fed will be powerless to do anything about it, because it will have nothing of value to sell to remove that flood of money from the general economy.

Price inflation is coming, it's just a matter of when. Protect yourself . . . any way you know how.

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Thursday, April 23, 2009


In the continuing phenomenon of "Everyone except the Obama administration and it's committed core of true believers realizes that the Geithner/Summers/Bernanke economic plan is criminal," we now get a cogent analysis of the whole AIG debacle in . . . a football column.

Yes, that's right. Gregg Easterbrook takes a short detour in one of his typically long (and somewhat tedious) Tuedsay Morning Quarterback columns to explain, clearly and comprehensively, how the AIG "deal" was a disgrace from start to finish. I advise you to skip the column in full, and I'm going to re-print the entire "essay" within the column here:
[I]n February, after Barack Obama said he would act decisively to stop executives of bailed-out firms from receiving bonuses, TMQ cautioned, "If the new president stakes some of his prestige on what seems like a dramatic decision and it turns out a year later that CEOs easily evaded the seeming 'limits' and stuffed their pockets with tax money anyway, Obama will seem an ineffectual leader." It didn't take a year -- only a month! In mid-March, the No. 1 news item was tax-subsidized bonuses to the very executives who screwed up AIG. Obama said from the White House he was "deeply outraged." Speaker of the House Nancy Pelosi said she was taken by surprise and called for an investigation. Treasury Secretary Tim Geithner declared he had just absolutely no way on Earth of knowing the bonuses were coming. Wait -- they could all have read about the planned AIG bonuses in November in a football column. Anyone paying attention to the business pages knew in November 2008 that tax-subsidized bonuses for AIG were coming. Yet no national leader paused from the Washington ritual of round-the-clock self-promotion to do anything. When in March the AIG payouts were announced, Federal Reserve chair Ben Bernanke told "60 Minutes" he was "full of anger" about the bonuses. Bernanke was the one who, in the fall of 2008, decided to hand AIG up to $172 billion in taxpayers' money without imposing any accountability or conditions. This was a much worse business decision than anything any AIG executive did.

Beyond the irresponsibility with which Washington's Democrats and Republicans alike are mishandling taxpayers' money, my worry about Obama continues -- if he keeps theatrically denouncing tax-subsidized bonuses, yet does not actually do anything, he's going to make himself into an ineffectual leader.

What's the next AIG bonus scandal coming? The company's CEO, Edward Liddy, told Congress he is pure because he is "not getting a bonus and is only drawing $1 a year in salary." This is the classic statement that is literally true but intended to deceive. Liddy is likely to receive a "special bonus" from AIG in 2010. How do I know this insider fact? Because months ago, AIG announced it! Liddy claimed he found paying bonuses to AIG managers "distasteful" but had to honor bonus clauses in their contracts because "honoring contracts is at the heart of what we do in the insurance business." Liddy may be saying that because his contract calls for a "special bonus," and he wants to make sure he gets the money! If, after the AIG bonus hullabaloo goes right up to the White House level, the CEO of AIG stuffs his pockets with a taxpayer-subsidized bonus in 2010, Obama will look like a phony.

About the sanctity of contracts: For years, AIG raked in rich profits by signing contracts promising, in return for a fee, to make good any losses on securities defaults. Last fall many mortgage-backed securities defaulted -- and AIG refused to make good. The company would not honor its contracts, instead insisting taxpayers cover the losses. "Honoring contracts is at the heart of what we do" -- this AIG fib would be amusing if it weren't being used to expropriate money from average Americans. When AIG owed money to others, the company ignored the contracts it signed. When contracts could be used to justify taxpayer money to AIG executives, well then, we must honor the sanctity of the contract!

Now about AIG's small outrage ($165 million in bonuses) and its large outrage ($172 billion in taxpayer subsidies). White House economic adviser Lawrence Summers called the bonuses "outrageous" but then said they must be paid because AIG "has entered into a binding contract requiring the payments, and we are not a country where binding contracts get abrogated willy-nilly." Not only had AIG already shown itself eager to abrogate contracts willy-nilly, think of the situation in the fall of 2008, when AIG was days away from insolvency. Liddy could have put his senior staff on a conference call and said, "I know you have contracts promising bonuses. But if we go out of business you not only will never see those bonuses, you will lose your jobs, salary and benefits. I offer a compromise in which you keep your jobs and salary but forgo the bonuses. Do you want that, or nothing? Choose now." This is how smart business people run organizations -- it's called negotiating. Instead AIG's CEO took no action on the bonuses, then turned to taxpayers to cover his ineptitude.

On the big outrage, of the $172 billion taxpayer-funded giveaway, we now know much of it used to cover credit-default swap debts AIG refused to honor. Large amounts went to foreign banks, such as Deutsche Bank and Societe Generale of France. AIG simply handed over payment in full, without negotiating. When AIG was days from insolvency, it should have said to Deutsche Bank and others, "If we go bankrupt, you will stand in line with all the other creditors at the bankruptcy court and be lucky to get 10 cents on the dollar. Would you accept 50 cents on the dollar to settle instead?" Negotiating with creditors to avert bankruptcy is a standard business tactic; General Motors and Chrysler have been doing this for the past few months. As the Wall Street Journal recently reported, a year ago Merrill Lynch was owed credit-default swap payments by an insurer called XL Capital, and after negotiations, Merrill accepted 13 cents on the dollar.

But instead of negotiating a reduction of debt, AIG simply immediately handed over full value. After all, the money was coming from taxpayers' pockets, and when has anyone cared how much taxpayer money is wasted? Goldman Sachs was the largest single recipient of AIG's paid-in-full taxpayer-funded gift, receiving $13 billion. Merry Christmas! And now we learn that Liddy owns at least $3 million worth of Goldman Sachs stock -- whose price was shored up by the paid-in-full taxpayer gift. AIG's tax-funded gift to Goldman Sachs couldn't possibly have had anything to do with Liddy's stock, could it? The worst sin is that the Washington muckety-mucks running the tax-money giveaway team did not require AIG to negotiate down its counter-party obligations. Bernanke and Henry Paulson, who approved AIG's actions last fall, deserve to be run out of town on a rail for their irresponsibility in management of public funds. Meanwhile, can anyone imagine that if a French or Germany insurer owed money to an American bank, that the French or German governments would ever pay one single centime or pfennig, let alone cover the entire debt immediately?

AIG fiasco note No. 1: Treasury Secretary Geithner, who has taken Paulson's place on the giveaway team, said the AIG bonuses were justified because AIG "cannot retain the best and the brightest" without paying bonuses. Geithner and everyone at the Treasury Department have a personal self-interest in the notion that money managers should be paid huge bonuses even for screwing up. Treasury officials (and Summers) come from jobs in which they were paid millions of dollars a year for giving financial advice, and want to return to such jobs; it is critical to their own pocketbooks to maintain the illusion that executives on Wall Street and in banking are super-brilliant geniuses who deserve millions under all circumstances. Anyway, the phrase "the best and the brightest," the title of David Halberstam's great 1972 book, is derisive. The treasury secretary should know enough about the recent history of the United States to know what "the best and the brightest" means.

AIG fiasco note No. 2: Here is AIG's 2007 annual report, in which the company declares of its financial products division, "AIG believes any losses that are realized over time on the super senior credit default swap portfolio … will not be material to AIG's overall financial condition." Important false financial statements in annual reports often are viewed as securities fraud. Yet while former Enron executives are in jail, AIG executives keep rolling like pigs in taxpayers' money.

AIG fiasco note No. 3: How does the $58 billion in AIG funds given as a gift from American taxpayers to foreign banks compare with stimulus spending that will benefit American taxpayers? There is $28 billion in the stimulus bill for road and bridge construction and repair.

Easterbrook's a smart guy. He's well-educated and well-read. But nonetheless, as he points out, he wrote this in a football column. He points out that he knows these seemingly fascinating facts because they're public, and have been since last fall. It's the same reason a know-nothing like me has been aware of this stuff since last fall. Because it was never hidden, and anyone who wants to know about it can, and will.

Add Easterbrook's piece to all the respected economists and on-line commentators that have weighed in (negatively) about Obama's economic plan, and it really makes me wonder: what will it take for a savvy politician like Obama to hear the grumblings and pitch his insider interests aside in favor of political expediency. I suspect it will come when one of two "types" join the fray: a "left" voice, like Olbermann or Stewart; or a truly "mainstream" voice like Letterman or Brian Williams or Anderson Cooper.

I wonder if that time is coming. Because if it's not coming soon, I don't think it ever will. And short of that, Obama may not wish to annoy his Wall Street Masters by firing their chosen Insiders. I think if at least one (if not two) of the Geithner/Summers/Bernanke triumverite survives the next three months we've crossed the Rubicon for good. One of them must go by July 4th.

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Wednesday, April 22, 2009


According to Reuters, Thomas Hoenig, the president of the Kansas City Federal Reserve Bank, is speaking up against the continued policy of "Too Big To Fail." This is pretty remarkable for a central banker, and I think it demonstrates the continuing folly of the Geithner/Summers/Bernanke plans. Hoenig spoke out in March about this, but his comments yesterday were direct and unfiltered:
The United States currently faces economic turmoil related directly to a loss of confidence in our largest financial institutions because policymakers accepted the idea that some firms are just "too big to fail." I do not. Yes, these institutions are systemically important, but we all know that in a market system, insolvent firms must be allowed to fail regardless of their size, market position or the complexity of operations

* * *
Actions that strive to protect our largest institutions from failure [such as Geithner's indication that none of the 19 largest banks will fail the so-called "stress tests," see below] risk prolonging the crisis and increasing its cost. Of particular concern to me is the fact that the financial support provided to firms considered "too big to fail" provides them a competitive advantage over other firms and subsidizes their growth and profit with taxpayer funds. These "too big to fail" institutions are not only too big, they are too complex and too politically influential to supervise on a sustained basis without a clear set of rules constraining their actions. When the recession ends, old habits will reemerge.
Bravo. This guy is a voting member of the Federal Open Market Committee (the group primarily responsible for setting interest rates, and therefore monetary policy). Will we see some revolt within the Federal Reserve regarding Bernanke's lunacy? I have my doubts, but a wave of discontent is flooding over the Geithner/Summers/Bernanke policy from respected, mainstream quarters. It's too late to turn back the clock on what we've done over the last 8 months (and 25 years), but maybe we can stop some of the madness from continuing.

Anyway, what is the latest lunacy (hard to keep track)? As reported yesterday, Timmy's so-called "stress tests" will be more difficult for regional banks . . . meaning the tests will be easier for the national banking titans like Goldman Sachs and JP MorganChase. Check this out:
The federal bank stress tests rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press. That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases the results of the tests next month.

* * *
Under one scenario, the tests assume banks will see "no further losses" on the complex securities, according to the document obtained by AP. By contrast, it estimates that individual loans will lose up to 20 percent of their value. Regional banks are holding more individual loans and fewer of the securities Wall Street giants specialize in — complex derivatives backed by huge pools of mortgage-backed loans and other debt.
Every time a "respected" economist or a central banker speaks out against the Obama Administration's shenanigans, I suspect we get a step closer to stopping this trainwreck. maybe I'm wrong, but I'll hold out some sort of hope that maturity, sanity, and responsibility will win in the end. Again, it's too late to save a deeply corrupted system, but it may prevent utter ruin. We'll see.

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Tuesday, April 21, 2009


We've hearing a lot about "Stress Tests." Well, Timmy faces a congressionally-appointed panel today, and I fear that beyond the usual grandstanding, the questioning won't be too stressful. Yup, Geithner will testify before the Congressional Oversight Panel today, following the release of Inspector General Neil Barofsky's 250-page quarterly report to Congress in which he actually concludes that Geithner's idiotic private-public partnership favors private investors and creates "potential unfairness to the taxpayer."

The "Congressional Oversight Panel." Mandated under the TARP! Tough stuff, huh? Let's see, who are the members appointed by legislative luminaries Pelosi, Boehner, McConnell, and Reid:

Richard Neiman (Pelosi's Appointee) -- The Superintendant of Banks for the State of New York. A life-long . . . banker! Including a stint at . . . Citigroup.

Jeb Hensarling (Boehner's Appointee) -- Republican Congressman from Texas. Yee-haw. He'll step on those bankers . . . except that he served under Phil Gramm, architect (along with Rick Robert Rubin and Larry Summers among others) of the repeal of Glass-Steagal and other moves designed to allow the Insiders to take ownership of the country. He's also a member of both the House Budget and Financial Services Committees. The latter headed by Barney Frank, who's proven to be the banks biggest enabler through this debacle. In fairness, Hensarling led the effort to oppose the initial Paulson bailout.

Elizabeth Warren (Reid's Appointee) -- She's the chirperson of the committee, and I actually like plenty of what she's done through the years.

John Sununu (McConnell's Appointee) -- Former GOP Senator. Currently on the board of a Bank of New York subsidiary. BofNY received TARP funds. How is this not a conflict of interest? Oh that's right, it's Congress. No one cares if there are conflicts of interest.

Damon Silvers (Chosen by Pelosi & Reid after "consulation" with McConnell & Boehner) -- General Counsel for the AFL-CIO and member of the advisory boards of various accounting standards groups. You know, the ones who dig such a bang-up job over the last few years.

And there you have it, the crackerjack team in charge of making sure the TARP doesn't loot every cent of the U.S. Treasury. And I think the PPIP comes into play somewhere under their watch as well. Gee, we're in good hands, huh?

I mean, don't get me wrong, with this report in their hands, and public outrage stewing, there'll be lot's of speechifying and many superficially tough questions, but I strongly doubt anyone will dare ask Geithner why the hell he's doing what he is, or probing beneath the surface as to who he, Summers, and Obama are actually answering to.

(And don't expect a word about the Federal Reserve's role in any of this.)

Nonetheless, Barofsky joins the ranks of every respectable economist in pillorying the PPIP:

* creates "potential unfairness to the taxpayer"

* "The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives"

* Treasury should set tough conflict of interest rules on public-private fund managers to prevent investment decisions that benefit them at taxpayer expense.

* Treasury should disclose the owners of all private equity stakes in a public-private fund.

* Fund managers should have "investor-screening" procedures to prevent asset purchase transactions from being used for money laundering.

* Treasury not allow the use of Federal Reserve loans "unless significant mitigating measures are included to address these dangers."

In other words, Congress, through it's "Oversight Board," has the gun and it has the ammo. Yet I doubt it fires. We'll see.

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Monday, April 20, 2009


Get your Newspeak/Doublethink translation helmets on, folks. This one's gonna make your brains hurt (and then it'll get your blood boiling). The Financial Times reports (H/T Yves) that according to a senior Obama administration official:
Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest.
Do me a favor and read that one more time. You see what I see? The banks "will be allowed" to repay the money we doled out to keep them afloat in the wake of their endless irresponsible and fraudulent moves over the past decade. And then there's the other loaded phrase in there: only if paying back those "loans" is deemed to be "in the national economic interest," by some unnamed tester of the "move."

Wow. In other words, the Crack(pot) Economic Team of Timmy, Benny, Larry & friends will determine unilaterally whether the Insiders they propped up the first time around have to pay back what they owe. If they determine it's in the nation's economic interest. But after the events of the last year, don't we already know what they define as "in the national economic interest"?

There's more here:

“Our general objective is going to be what is good for the system,” the senior official said. “We want the system to have enough capital.” His comments come as Goldman Sachs, JPMorgan Chase and other relatively strong banks are pressing to be allowed to repay their bail-out funds.

Oh, where to begin? First of all, it makes complete sense that the Administration-that-talks-big-but-does-nothing would use the words of the big banks. I'm sure Goldman & Morgan are just clamoring, champing at the proverbial bit, to please, please, PLEASE be allowed to give back all the money they've received. If only the meanies in the government would let them.

Then, look at the language this "senior official" used: "good for the system." "We want the system to have enough capital." What system is this, I ask? The system that 99.99% of us toil under, or the system that has looted the U.S. Treasury? Small detail, hate to belabor it. Anyway, moving along:

The official, meanwhile, said banks that had plenty of capital and had demonstrated an ability to raise fresh capital from the market should in principle be able to repay government funds. But the judgment would be made in the context of the wider economic interest. He said the government had three basic tests. It needed first to “make sure the system is stable.” Second, to not create “incentives for more deleveraging which would deepen the recession.” Third, to make sure the system had enough capital to “provide credit to support the recovery.”

Look at all that linguistic gobbledeegook. Take out all the double talk and you're left with this: Geithner & Summers will make the banks pay back the money when they decide it's right. And if they decide the time isn't right, then it isn't. Move along.

There's nothing more at work here. And finally:

The debate over the respective funding needs of stronger and weaker banks comes as the Obama administration confronts deep political resistance to any further authorisation of federal funds to bail out the sector. On Sunday, Rahm Emanuel, Mr Obama’s chief of staff, told ABC that while some of the country’s biggest banks “are going to need resources,” the administration would not need to obtain more funding from Congress.

Exactly. So whattaya do? Let them keep the "loans" they're just dying to repay.

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Nasim Taleb, author of The Black Swan, has a short article in the Financial Times (you may need to register -- for free -- to view the article if you've already hit their link a few times lately) listing ten principles that will leave us less susceptible to unexpected phenomena that have the ability to mess up the economy. Or as he says, to create a "world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news. "

As is often the case with something worth reading, there's nothing terribly profound here, and nothing that we haven't seen over-and-over the past few months. But that doesn't change the fact that it's good to see it spelled out succinctly and clearly. The article in full (H/T Ritholtz):

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative.” Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

I'm going to jump in very quickly here. This last point is very important. In the wake of the mess, we hear endless prattling about the need for "more regulation." We don't need "more regulation." We need consistently-applied, correctly-implemented regulation. Simple, easy-to-understand, very limited rules that everyone has to live by. And a complete elimination of all the institutionalized favors and incentives that a very small cadre of banks & bankers receive at everyone else's expense. I know I'm being idealistic, but this whole post is about how things should be, as opposed to business-as-usual. Anyhow, back to Taleb:

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

As always, I don't necessarily agree with all his suggestions, most notably No. 6 and a few of his other ideas about "banning" certain investment vehicles. I still believe that in a world where the system ceased to be rigged in favor of those who peddle these exotic securitizations -- in other words, where they fully bear the risk of their financial ambitions -- we would all be ok, wild ideas or not.

But overall, there's an awful lot of sense in these 10 simple ideas.

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Saturday, April 18, 2009


This is great (H/T Ritholtz)



Yes, indeed, you read that correctly. Today marks three years since I started blogging. Here's where I said hello to the blogosphere. It's interesting to look back to April 18, 2007, where I celebrated the end of year one, noting that I had just started my then-new job and how I wasn't sure how things would change. And as many of you may recall, of course, things did change drastically, as I noted last April 18, the only post of the entire month! On that sad day I observed that in Year One I posted 560 times, versus only 94 times in year two. I was not being falsely dramatic was I said that I wasn't sure what Year Three would bring.

Well, as those of reading are aware, the financial crisis and the government's response has really reinvigorated me in a way I couldn't have foreseen. 134 posts in Year Three. Lately I've even gone back to posting daily. We'll have to see how that continues; work is set to get very busy again.

Anyhow, I want to express how thankful I am that a regular core of readers actually comes by every day to see what I have to say, often taking part in what has become an exceptionally enlightening give-and-take in the comments. Here's to one more year.

And, as a side note, I see that on Day Three of Year One (April 20, 2006), I had my first post about the economy, banking, interest rates, inflation, and that sort of thing. Only two comments to that one. And one was mine.


Friday, April 17, 2009


As seen in this piece from Bloomberg, Nobel Prize winning economist Joseph Stiglitz joins the growing ranks of mainstream voices criticizing Obama's handling of the economic crisis, along with a sharp attack on his economic team. (H/T Yves). What little I know about Stiglitz doesn't leave me among his supporters (and it's worth noting that he seems to have a personal grudge against Loathsome Larry Summers), but what he says sure has resonance. A highlight or two:
All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent."

* * *

The Public-Private Investment Program, PPIP, designed to buy bad assets from banks, “is a really bad program,” Stiglitz said. It won’t accomplish the administration’s goal of establishing a price for illiquid assets clogging banks’ balance sheets, and instead will enrich investors while sticking taxpayers with huge losses. “You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders.”

* * *

Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses. “The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks. “We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”

Stiglitz was also concerned about the links between White House advisers and Wall Street. Hedge fund D.E. Shaw & Co. paid National Economic Council Director Lawrence Summers, a managing director of the firm, more than $5 million in salary and other compensation in the 16 months before he joined the administration. Treasury Secretary Timothy Geithner was president of the New York Federal Reserve Bank.

“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”

Might as well read the rest of the article, though I repeat that I don't agree with at least half of what he says. Nonetheless, I wanted to note that yet another generally-respected voice weighs in against Obama's economic team & its policies, and still nothing changes.

No one likes or supports the current economic policies except the Wall St. Masters and their servants in D.C., yet they continue unabated. With the deeply-conflicted core of individuals making the same rotton decisions over-and-over again. It's exactly the same arrogant combination of “we know best, shut your mouth” and “yeah, well what are you gonna do about it” that we saw from the Bush Administration for 8 years.

The field of “battle” switched from Iraq to Wall St., but the game is the same. A constant reminder of who runs the show . . . and who doesn't. I only hope that with every day that passes, one more person joins the ranks of those who see what's happening. It's our only hope, and even that may not be enough.

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Thursday, April 16, 2009


Not much time to post this morning. Interestingly (or not), on this two year anniversary of my starting date at my "new" firm, I have a presentation to conduct this morning, and I have to get my ass into work earlier than usual. Cool stuff actually, but no time to crank out a full-blown post.

That said, the Cunning Realist has a post this morning that perfectly encapsulates how I feel about the whole tea bagging phenomenon.

{Snicker & giggle break. You got it all out of your systems? Ok, me too. Now back to it}

I have more than a little sympathy -- in theory -- for protests against taxes & wasteful spending, let alone the unconscionable bailouts. I also like to see someone, anyone, holding His Holiness' feet to the fire a bit. That's democracy in action, and I dig it.

But as the Cunning Realist so accurately points out, where the fuck were these people the last 8 years?!?! And why the hell should we listen to a word they're saying now? When even the least cynical among us knows its just a rotten, GOP political stunt, all about electioneering, with nothing to do with any forward-looking policy.

I guess I hope the tea baggers keep doing what they're doing, but deep down I wish a real protest movement started to form. And as long as these Soldiers-of-Newt keep dominating the headlines with their latest grandstanding version of "America, Fuck Yeah," won't that just block the light of the sun from shining on what's really going on? On who's really running the show? What needs to be done to fix a rotten-to-the-core systemic problem?

I assume the crowd here will be pretty heavily anti-tea bagging (and I will stop snickering about that in . . . ohhhh, let's say 3 years), but I'd love to hear folks' thoughts beyond the usual Olbermann-Maddow out-of-hand dismissiveness.

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Wednesday, April 15, 2009


I'm sure by now most of you know that yesterday Goldman Sachs reported the bestest, stupendousest, wonderfulest, profitingest 1st quarter results in the history of financial reporting.

(Of course, they conveniently decided to change from their usual December through February reporting period, instead implementing one that encompassed January through March.)

And what happened to December, a month where the bank decided to write-down lots of really big losses. Well . . . they just ignored it. And the financial press lapped up their overwhelmingly big, and dishonest, numbers.

Jesse has a solid take on this latest move from our Masters. Read the whole post -- which is very short -- but this paragraph sums it up nicely:
Goldman did nothing illegal in their management of their earnings, both in the way in which they parsed the losses into a 'stub month' which was ignored, or in their decision to time an early announcement of 'exceptional profits' with a stock offering. But the financial press handled this badly, and considering the huge debt and forebearance Goldman owes to the government and the public it was not befitting a major institution with strong ties to the Obama administration.
It's the Insiders' country. We only live in it. Unless a sea change comes.

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From the "Laughably Crazy Ideas That Are So Laughable I Really Can't Laugh" Files, we get this nugget from Bloomberg (H/T Ritholtz): Fannie Mae -- the quasi-governmental entity that holds a huge portion of the shit mortgages dragging down the economy and still stands only because we pumped billions of dollars of bailout money onto its balance sheet -- is exploring the possibility of acquiring Freddie Mac -- the other quasi-governmental entity that holds a huge portion of the shit mortgages dragging down the economy and still stands only because we pumped billions of dollars of bailout money onto its balance sheet.


After giggles and chuckles and head-shaking, I'm left only with a strong sense of dismay and shock at the incomprehensible levels of stupidity, hubris, tone-deafness, and sense of entitlement of the various Insiders running the country (into the ground). A short highlight or two from the Bloomberg article:
Executives at Washington-based Fannie, the larger of the two, have discussed internally the possibility of taking over McLean, Virginia-based Freddie’s operations, according to people familiar with the matter. A formal approach isn’t imminent, said the people, who asked not to be named because the discussions are private.
Private discussions. Hmmm, where have we seen that before? Could one of those Sunday meetings with Bennie and Timmy be in our future?
Fannie, created by the government in 1938, and Freddie, formed in 1970 to be a competitor, ensure that banks have cash available to make loans by buying mortgages or guaranteeing securities they help create from the debt. Together they own or guarantee about 56 percent of all U.S. home loans.
Just read that highlighted portion again. They were not able to ensure that banks had enough cash available to do anything. (How could they?) And even with each other in place to act as "competitors," they fucked it all up in historic fashion.

So what are we gonna do? Let them continue on their idiotic course . . . and remove the ostensible "competition" that theoretically keep costs down and leads to good decision making! Yeah, baby. Who needs good ideas when you can just keep doing the same stupid things that got you into trouble in the first place!

You know, in the battle of snickering and chortling versus sputtering outrage on this one, I think the laughter faction is winning. Sometimes something is so ludicrous you can't even get angry. Anyhow . . .
Barney Frank, a Massachusetts Democrat, is exploring ways to separate the companies’ private and public missions, said Steve Adamske, a Frank spokesman.

A government trust fund would assume the companies’ responsibilities to subsidize rental housing and a remaining company would continue to do business in the private mortgage market, according to Adamske, who said it’s too soon to say what the final structure would look like.
Well there's the standard Congressional legerdemain we're so used to seeing, ain't it. Barney Frank, the tireless crusader for The American People the humongous banks that flood his coffers with campaign money, looking out for the ability of incompetents and crooks to "continue to do business in the private mortgage market."

I'm putting that in the outrage column.

All-in-all, this shit is just so ridiculous I don't even know where to begin. Except to say that since we've taken them over and injected billions of dollars, that means we own these suckers now. So we should put them both into receivership, wind them down, tell their creditors to take a walk, tell their stockholders to continue the walk they've been on for months, and place a giant gravestone over the stinking corpses of both these dead entities, and leave an epitaph reading, "Here Lie The Remains Of Two Really Stupid Ideas. May We Never See Their Kind Again."

R.I.P. (And whether that refers to Fannie or Freddie, or the American -- and global -- economy, remains to be seen.)

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Tuesday, April 14, 2009


Just a brief diversion from all that angers & outrages me in 2009 America, as I update y'all about the smallest, and least perceptible, of changes to this here blog. I have decided to rename a post from September of 2006.

Yes, that's right. One of the earliest Friday Silly Movie Of My Youth Of The Day Posts, discussing none other than the mid-70's "classic" Escape To Witch Mountain, has been the source of many a mixed feeling or two. Before I changed the name, I called it "Escape To Pre-Te*n Fantasy," a reference to my own pre-teen wonderment at the beauty that was the equally pre-te*n Kim Richards.

(Yeah . . . and so what, you're all asking. And meanwhile, what the fuck's up with the goddamn asterisks, you also may be asking. When'd you go all PG on us?)

Well, you see, it's just this. As many of you fellow bloggers obviously know, the little blogtracker doohickey at the bottom of the page tracks not only how many hits I receive, but the hows and wherefroms and all that sort of stuff of those who come here. And for years now, a non-negligible percentage of those hits have come from folks google searching for "pre-te*n fantasy." Often at weird hours. Or from Dubai. Or from the offices of Goldman Sachs or the U.S. Treasury.

(I had to get a dig in, c'mon.)

At any rate, I used to be a serious blog-hit whore, so I welcomed visitors no matter what. Now? No, I'd rather not have these slobbering pedophiles coming here to look for . . . uhhh, whatever it is they're looking for.

So I re-named that old post, and in an abundance of caution, the asterisks in the body of this post. I wish these late night travelers to cease finding me. Let them find their questionable kicks somewhere else.

The perversion I've been commenting on lately is purely of a political and economic nature. Done by and with grown men, not young girls.

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Monday, April 13, 2009


Kevin Phillips has a strong piece at TPM about some of the hows and whys of where we are . . . and how rough it'll be now that we're here (H/T Jesse). He also suggests, in an inditect manner, the only way we'll ever make it out. Some highlights:
My 2002 book, Wealth and Democracy, in its section on the "Financialization of America" noted that the "finance, insurance and real estate (FIRE) sector overtook manufacturing during the 1990s, moving ahead in the national income and GDP charts by 1995. By the first years of the next decade, it had taken a clear lead in actual profits. Back in 1960, parenthetically, manufacturing profits had been four times as big, and in 1980, twice as big." Hardly anyone was paying attention. By 2006, the FIRE sector, its components mixed together like linguine by the 1999 repeal of the old New Deal restraints against mergers of commercial banks, investment firms and insurance, had ballooned to 20.6% of U.S. GDP versus just 12% for manufacturing. The FIRE Sector, now calling itself the Financial Services Sector, lopsidedly dominated the private economy.

* * *

This represented a staggering transformation of the U.S. economy - doubly staggering now because of the crushing burden of its collapse. You would think that that opinion molders and the national media would have been probing its every aperture and orifice. Not at all.

Thus, it was pleasing to read MIT economics professor Simon Johnson's piece in the April Atlantic fingering financial "elites" who captured the government for the latterday financial debacle. This is broadly true, and judging from my e.mail, even some conservatives accept Johnson's analysis and indictment. After the furor over the AIG bonuses, the public and some politicians may be ready to start identifying and blaming culprits. This would be useful. Having an elite to blame is a often prerequisite of serious reform.

* * *

The backstop to avarice provided by a wealth culture and market mania from the late 1980s through the Clinton years to the George W. Bush administration, prompted another set of indictments that still resonate: William Greider's Secrets of the Temple: How the Federal Reserve Runs The Country (1987), Robert Kuttner's Everything For Sale (1997), Thomas Frank's One Market Under God (2000) and John Gray's False Dawn (1998). More recently, Paul Krugman's books have been equalled or exceeded in timeliness by his New York Times columns blasting the perversity of the Obama-Geithner financial bail-out and the malfeasance of the financial sector. James K. Galbraith, in his 2008 book The Predator State, has elaborated the valid point that too many conservatives over last few decades betrayed their free market rhetoric by supporting a relentless use of state power and government financial bail-outs to advance upper-income and corporate causes. On the other hand, some conservative economists of the Austrian school make related indictments of liberal bail-out penchants.

This could be a powerful framework. All of these critiques have merit, and ideally they might converge as earlier indictments of elite and governmental abuse did during the Progressive and New Deal eras. But I have to return to whether the public will ever be given full information on the fatal magnitude of financialization, who was responsible, and how it failed and crashed in 2007-2009. So far, political and media discussion has been so minimal that the early 21st century American electorate has much less readily available information on what took place than did the electorates of those earlier reform eras.

* * *

[T]he principal building blocks that the [FIRE] sector used to enlarge itself from 10-12% of Gross National Product around 1980 to a mind-boggling 20.6% of Gross Domestic Product in 2004 involved essentially the same combination of credit-mongering, massive sector borrowing, highly leveraged speculation, reckless, greedy pioneering of new experimental vehicles and securities (derivatives and securitization) and mega-trillion-dollar abuse of the mortgage and housing markets that became infamous as hallmarks of the 2007-2009 disaster. During Alan Greenspan's 1987-2006 tenure as Federal Reserve Chairman, financial bubble-blowing became a Washington art and total credit market debt in the U.S. quadrupled from $11 trillion to $46 trillion.

To try to put 20-30 pages into a nutshell, the financial sector hyped consumer demand - from teen-ager credit cards to mortgages for the unqualified - to make credit into one of the nation's biggest industries; nearly $15 trillion was borrowed over two decades to leverage de facto gambling at 20:1 and 30:1 ratios; banks, investment firms, mortgage lenders, insurers et al were all merged together to do almost anything they wanted; exotic securities and instruments that even investment chiefs couldn't understand were marketed by the trillions. To achieve fat financial-sector profits, the housing and mortgage markets might as well have been merged with Las Vegas.

The principal inventors, hustlers , borrowers and culprits were the nation's 15-20 largest and best known financial institutions - including the ones that keep making headlines by demanding more bail-out money from Washington and giving huge bonuses. These same institutions got much of the early bail-out money and as of December 2008 they accounted for over half of the bad assets written off. The reason these needed so much money is that they government had let them merge, speculate, expand and experiment on dimensions beyond all logic. That is why the complicit politicians and regulators have to talk about $100 billion here and $1 trillion there even while they pretend that it's all under control and that the run-amok financial sector remains sound.

* * *
But for the moment, let me underscore: the average American knows little of the dimensions of the financial sector aggrandizement and misbehavior involved. Until this is remedied, there probably will not be enough informed, focused indignation to achieve far-reaching reform in the teeth of financial sector money and influence. Equivocation will triumph. This will not displease politicians and regulators leery of offending their contributors and backers.
I don't agree with much of what Phillips believes, and I think he misses some easy fly balls, yet he and I completely agree that "[a]ll of these critiques have merit, and ideally they might converge as earlier indictments of elite and governmental abuse did during the Progressive and New Deal eras."

We need more critique. We need more citizens striving to understand what's happening and demanding ever more analysis from the financial press and from the mainstream press. And from its elected officials.

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Not sure what it means, exactly, but it says something. Seems that someone has established a blog called Info, Comments, Opinions and Facts About Goldman Sachs (H/T Ritholtz). The URL address is, and it contains a prominantly displayed disclaimer stating, among other things that "[t]his website has NOT been approved by Goldman Sachs, nor does this website have any affiliation with Goldman Sachs. This website was designed to provide information about Goldman Sachs direct from the public, and NOT from Goldman Sachs's marketing and public relations departments. You may find the Goldman Sachs website at"

Nevertheless, seems that Obama's Lord & True Master the investment bank has retained a law firm to try to force him to shut down the website. According to Ritholtz, the cease-and-desist letter claims that the blog
“'violates several of Goldman Sachs’ intellectual property rights' and also 'implies a relationship' with the bank itself.”

Despite the fact that it disclaims any connection.

And has a URL address of

And the author writes: "Yes, I am short Goldman Sachs stock. I believe this company is evil and should not exist. We need to begin to break up companies that have as much control over world finances as Goldman Sachs."

This piece of shit suit should be dismissed. Swiftly. But let's see if it even gets that far, or will they bully and oppress him into shutting it down before it gets there.


Friday, April 10, 2009


From today's AP:
President Barack Obama wants Congress to act quickly on his $83.4 billion request for U.S. military and diplomatic operations in Iraq and Afghanistan

* * *
Obama also requested $350 million in new Pentagon funding for counternarcotics and other security activities along the U.S.-Mexico border, with another $400 million in counterinsurgency aid to Pakistan.

* * *
It also would finance Obama's initiative to boost U.S. troop levels in Afghanistan to more than 60,000 from the current 38,000. And it would provide $2.2 billion to accelerate the Pentagon's plans to increase the overall size of the U.S. military, including a 547,400-person active-duty Army.

* * *
Obama was a harsh critic of the Iraq war as a presidential candidate, a stance that attracted support from the Democratic Party's liberal base and helped him secure his party's nomination. He opposed an infusion of war funding in 2007 after Bush used a veto to force Congress to remove a withdrawal timeline from the $99 billion measure. But he supported a war funding bill last year that also included about $25 billion for domestic programs. Obama also voted for war funding in 2006, before he announced his candidacy for president. The request includes $75.8 billion for the military and more than $7 billion in foreign aid. Obama also warned lawmakers not to succumb to the temptation to use the must-pass war funding bill as a vehicle for other spending. And he said they should act quickly on the request.
That's it. I'm done. It's taken him all of 100 days to prove that he's completely full of shit. I defy anyone to explain to me how he's any different than Bush. Go for it; I wanna hear the explanations.

Meanwhile, from my perspective, congratulations Mr. Obama. Step up and join Bush II, Bush I, Clinton, Reagan, Carter, and the rest. You suck.

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Thursday, April 09, 2009


Sorry if this post rambles a bit, but I've hit another of my anger overload thresholds. You'll remember that "stress tests" of banks' financial health is part of the Public-Private-Geithner-Throw-Money-Down-The-Shithole program, or whatever this crappy plan is called these days. Well, a couple days ago Reuters explained how Timmy & the Treasury plan to handle the results of these tests. (H/T Yves):
The U.S. Treasury Department is planning to keep the results of any completed bank stress test under wraps until after the first-quarter earnings season to avoid complicating stock market reaction.
Whataya know. Another version of the favorite catch phrase of Obama, Geithner, and Bernanke: "Your money is none of your fucking business. Just give it to us and let us give it the banks. We and they know what's the best use of your hard-earned money. Suckers." Wait, there's more!

The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said.

Banks could reveal their own results, but Treasury is hoping they will hold off until after the earnings season ends for most U.S. banks on April 24, said the source who sought anonymity because the Treasury has not made a final decision on what to disclose.

* * *

Officials realize it may be hard to keep the results under wraps, and are looking for ways the banks could disclose some details without unduly disturbing the markets. They are also looking at providing some summary information about how the banks fared.

* * *

The stress tests at the biggest banks are part of a wide-ranging effort to restore stability to a sector hit by huge mortgage-related losses.

The tests are designed to determine the depth of banks' capital shortfalls if conditions deteriorate further. After the tests are completed, the banks will have six months to either raise private capital or accept government funds.

But officials are worried about how the market will react to the stress test results if there is not a clear recovery path for a bank that is deemed to have a large capital need.

The last thing Treasury wants to do is set off a panic, the source said.

Make no mistake what all that Newspeak means. "Stability." Fear of "setting off a panic." Don't want to "disturb the markets." It means -- in no uncertain terms -- that our administration cares more about the huge institutions that dominate Wall St. than it does about its citizens. The Insiders in Washington who've already given the banks offensive amounts of money and will give them additional money in the future are hiding the true condition of the banks from the people who will continue to shell out this money.

"We can't tell you where your money will go . . . or why. Or even how it'll work," they're saying. "It's none of your business really. And we don't want to cause them to lose anymore or you'll just have to give us more to bail them out again."

And why this doesn't cause more outrage is completely beyond me.


Update -- And also a H/T to Yves on this one, but the NY Times reports that:

For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.

What they are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.

That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government. After receiving many millions, and in some cases, many billions of taxpayer dollars, banks still need more capital, these officials say.

Let's translate the Reuters and NYT pieces into English and sum up what our own government is telling us, shall we?

Hey folks, how you doing? We've been conducting stress tests. Workin' real hard, baby! Hours and hours of work. Or, sometimes we just used the numbers the banks gave us. Anyway, the numbers are actually pretty good. Damn good, we tell ya. But we can't show you the numbers just yet. We mean, they're good, but . . . you know, someone could misinterpret them as bad . . . even though, trust us, they're real good. But that misinterpretation could cause a panic. Or something like that. Something that could threaten stability.

Or cause the banks to lose more. Even though they're actually in very good shape. Really, they are.

But just in case, we're probably gonna need a couple trillion more to bail them out again. Thanks.

What is the sum of Outrage + Absurd? For me it's more outrage. But I fear for many it's something else. What is it?

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Wednesday, April 08, 2009


I'm sure some of you saw Constitutional Law professor Jonathan Turley on Olbermann, discussing Obama's defense of the Bush administration's wire-tapping shenanigans. I'm having a hard time embedding the video for some reason, but it's on this link.

Turley has some devasting things to say about Obama's clearly-lacking Civil Liberties bona fides:
It is impossible to have a Constitutional right that can never be enforced. And that's what we have here - and it's a terrible moment, I think for many people, but, you can not any longer suggest President Obama is advancing the civil liberties and privacy interests that he promised to advance. This is a terrible roll-back. It's a terrible decision. And the Obama people seem to be arguing that the Bush people were bad people doing bad things, but you know what? It doesn't matter if you say you are a good person doing bad things, you're doing bad things and that what this is.
That last sentence is really the perfect summary of the Obama presidency: wonderful words that are oh-so-soothing after the wounds inflicted by Bush & Cheney.

But Obama's actions so far? Well, to put it bluntly, they suck.


Tuesday, April 07, 2009


Reuters has an interesting (and pretty short) piece regarding George Soros' take on the current state of the financial crisis, the effects of the Private-Public-Geithner Bullshit Plan or whatever it's called, and the short-term future of the U.S. & world economy (H/T Yves). A few highlights:

"I don't expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown." ... The recovery will look like "an inverted square root sign," Soros said: "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shape recovery or anything like that. You settle down -- step down."

* * *

"What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy.

"Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive."

He also had a few very sharp (and important to understand) words about the future of the U.S. dollar as the world's de facto reserve currency. This is essential to understand not only for the standard macro-economic/political/moral reasons I usually bandy about here, but because it's something we each need to understand so we can protect our savings, incomes, and livelihoods going forward:

He also said the U.S. dollar is under selling pressure and one day could be replaced as a world reserve currency, possibly by the International Monetary Fund's Special Drawing Rights, a currency basket comprising dollars, euros, yen and sterling.

"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.

"Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."

Soros said there was a risk of a "tipping point" for the dollar which would see it slump, triggering higher interest rates and choking growth.

"This leads you to what used to be stagflation -- stop, go. And I think that is what's probably in store, rather than . . . hyperinflation."

China recently proposed greater use of SDRs, possibly as an eventual global reserve currency.

"In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge -- you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said.

In short, remember some of the stuff we talked about a couple weeks ago in posts and comments: Here, here, and here. The US monetary system -- whereby a private bank with quasi-governmental privileges issues debt instruments backed only by future issuances of those same debt instruments along with the full faith and credit of the debt-addled government that mandates that all debts private and public must be settled with those debt instruments -- is a gigantic ponzi scheme. And like all ponzi schemes, the jig is up when the bagholders can't find new buyers (i.e., new suckers).

The jig isn't yet up, but it's a whole lot closer than it's ever been. Take a look at the final highlighted sentence in the Soros piece. China has gone on record suggesting a switch away from the dollar as the reserve currency. China has been the biggest buyer of dollars and dollar-denominated debt. Mostly so they could keep it high against its own currency, so we Americans could keep buying the cheap shit it was peddling. But if the U.S. is in a depression, and folks stop buying China's goods (throwing its own tenuous economic growth into danger), why will it bother continuing to purchase a weak currency that will never be worth its supposed face value?

The answer is, China won't.

Right now it's good to have your savings in the dollar or dollar-denominated notes. But sooner than you think -- maybe tomorrow, maybe five years, maybe somewhere between those points -- the house of cards is gonna fall on you. And if all your savings and income are in dollars, you'll be broke. The Age of Pyramids is coming to a close.

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