Friday, February 27, 2009


Interesting piece over at Jesse's Cafe Americain the other day. Seems a UK newspaper reported on a FT/Harris poll of European public opinion in which a whopping 74% of respondents placed most, if not all, of the blame for the current financial crisis on central bankers. "Only" 60% blamed regulators or governments.

Now, in my opinion (and Jesse's, as you'll see), this is remarkable. For two reasons. First, to anyone with a basic understanding of modern economics, central banking policy, and institutional finance/banking, this is a no-brainer. Not even profound, really. Debates may exist over matters of degree, but it's not really controversial. That's why 3/4 of Europeans agree.

Which brings me to the second reason this poll is remarkable: how many Americans could even tell you what a central bank is? What one does? What the name of America's central bank is? Whether it's public, private, or quasi-public? How its charter works? When it was established? Why? What its official mandate is? Whether it's lived up to that mandate? Who heads the central bank? Who proceeded him? Who headed it during the depression? When we went off the gold standard? When we fought inflation almost 30 years ago? Who headed its (completely) private NY Branch which fed money straight to Wall St. as recently as early January?

Let alone know enough to offer an intelligent opinion as to its role in the current crisis?!

As Jesse said, quite comically:
A similar poll in the States, however, had very different results:
Q: Who is responsible for the financial crisis sweeping the world?

34% Whatever is wrong, Obama will save us.

33% Will they reschedule American Idol because of the President?

11% Sorry I'm in a hurry to buy 'supplies' and apply for a passport

22% Can I have a bite of your sandwich?
As he also said, suggesting that the role of central banking was so huge, it's amazing every American isn't demanding answers now:
Our interpretation of the poll is that the European public believes that the financial crisis was caused undoubtedly by the commercial and investment bankers, but that the central bankers promoted the environment that allowed it to occur and had the responsibility for preventing it.

That is rather surprising, because Trichet and his predecessors have been as Jacksonian stalwarts compared to Easy Al [Greenspan] and Zimbabwe Ben [Bernanke].

It would have been interesting to see the poll, and to have added a question about monetary policy and a return to 'hard money.'

* * *
One might infer that the Federal Reserve and Wall Street have a much closer relationship with the mainstream media, among other things.
As usual, I'm not gonna try to sum up in one short blog post the particulars of Federal Reserve banking, policy, lending, and stimulating under Greenspan and Bernanke (let alone under Volcker or William McChesney Martin). Poke around on Google for "Fed and housing bubble," or "Fed and tech bubble," or "acceptable rates of inflation," or "Chicago school" (plus Milton Friedman & Irving Fisher), or "discount window" (plus Federal Open Market Committee), or "fractional reserve banking" and start piecing it together. It's not easy, but it's not that hard either.

And if you really attempt to understand it, to acknowledge the Federal Reserve's dual policy of expanding and extending money & credit to a handful of privately-owned banks that are first in line, you'll understand exactly why banks and other institutions were able to engage in the practices that destroyed the financial system:

* Extend cheap credit
* Spend lavishly on risky "assets" and compensation
* Spin off derivatives and other creative financial vehicles with tenuous connections to reality

In other words, without cheap money and cheap credit -- from the Federal Reserve -- in a barely-regulated fractional reserve system, the banks & Wall St. could not have practiced their trade as loosely, riskily, and irresponsibly as they did. Why? Because they wouldn't have had either the upfront capital or the knowledge that the "lender of last resort" had their backs if they got into trouble.

And all of this went on before the crisis started, and none of it was hidden. Except for the parts that the American public, press, and congress willfully hid from their own eyes.

Fiscal policy is important. At the governmental, institutional, and personal level. We've lost our way in that area. We've lost our minds, as the $1.75 trillion deficit in the proposed budget demonstrates. But monetary policy -- as implemented by a quasi-governmental entity that doesn't have to answer to the democratic process -- controls everything. It has had undue control over the economy. And it drove that economy straight into the ditch for the benefit of a very small cadre of Insiders.

We need to wake up. We need to speak up. We need to fix things.

By the way, the answer to three of the questions I asked above are Ben Bernanke, Tim Geithner, and Paul Volcker. All three of whom are "in the mix" right now. You can guess how I'd like to see those three shifted in and out of positions of power.

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Thursday, February 26, 2009


An excellent post by Barry Ritholz on the "nationalization" issue. As someone said to me, this piece reads like a primer on the topic. But it's a very short, extremely readable primer, so there's no reason not to check it out. A highlight or two:
As Bloomberg’s David Reilly writes, “The nationalization debate is a smoke screen. We’ve already nationalized the big banks. Let’s just accept it and move on” — and I could not agree more.

* * *

why don’t we call it by a more accurate, precise, and less scary name: FDIC mandated, pre-packaged Chapter 11, government funded reorganization.

That is an accurate description of what occurred with Washington Mutual (WAMU) now part of JPM Chase, and Wachovia, now part of Wells Fargo. The Feds step in, seamlessly transfer control of the assets to a new owner, while simultaneously wiping out the debt, the shareholders, and giving a huge haircut to the bondholders.

* * *

What emerges is a clean bank, no debt, well capitalized, and free of deadly toxic assets.

If we do this correctly, we accomplish two or three things at once: re-capitalize the banks . . . but eliminate the moral hazard of bailing-out the banks' current management and shareholders and the moral unpalatability of throwing our money down the drain as we twittle our thumbs and await the inevitable.

Of course, the longer we wait to do this, the less we end up accomplishing, both in terms of positive outcomes and avoidance of the negative. And, most importantly, we need vigilence and oversight all the way to the end, which is something I really worry about. In other words, if we go to the goal line and then sell the re-capitalized banks right back to the same fucking shysters that drove us into the ditch in the first place -- and sell at a grossly discounted rate -- we will have completely rewarded the wrong people. At our own expense.

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Wednesday, February 25, 2009


You see, last November 10, after AIG went to Congress for the second time begging for taxpayer money to fund their profligacy and incompetence, I predicted that they'd get it, no problem.

And I was correct. They got it later that same day. But I also predicted that they'd be back to Congress in early 2009 asking for yet even more. But I was wrong in the timing, saying it'd be after April 15. I can't believe how wrong I was.

Because they waited only until yesterday. Seems they wanna "restructure" the deal yet again. And ya know what? Their slaves (that means you & me, though our representatives) will give 'em what they want.

Just remember people: when we finally come around to "nationalize" all these rancid institutions, you'll be sickened to think how much free money we threw at them (read: gave to the Insiders) to no avail as we watched them sink lower & lower. We're paying them to suck as we pretend not to be preparing to do what we're going to have to do in the end: nationalize them.

We're all suckers. How do you feel being bamboozled? I feel like shit.

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Let me preface this by saying that I didn't even know he was addressing the nation last night, and therefore I missed the beginning of the speech. So pillory me for my ideas, not for missing something that seems obvious. I also haven't reviewed the transcript.

Nevertheless, now that I've made clear that I'm shooting from the hip, here goes:

1. Obama sure said a lot of the right things. Now let's see if he can do it.

2. On a related note, here's what Mrs. Mike said last night as she half read a book, half listened out of one ear to what was coming out of the television: "This is exactly what he said when he was campaigning. Isn't it time for him to explain how he'll manage to do all these things?"

3. Here's a specific, only it's from me: Obama said he's gonna kick those bad banks to the curb. Make 'em pay, hold 'em accountable! "Accountability starts now!" But from what I've seen of the various "Plans" put forth by Geithner & Summers, that doesn't really seem to be the case, now does it?

Unless I missed something, and Chris Dodd joined the Administration.

4. And on another sorta' related note, I can't explain how irked I was to see Pelosi leap up to lead the standing O on that bank accountability note.

(Yeah, I know, she leapt up all night long. No wonder she has nice legs for a 68 year-old.)

But didn't she stand before Congress back in September, excoriating her colleagues about the urgent necessity to pass the TARP, which is the vehicle by which bankers received bonus money from taxpayers? Fucking lying, rotten-to-the-core, disgusting hypocrite. And since I'm sure Harry Reid and Barney Frank joined her by jumping up and applauding, let me say the same about them: lying, sneaky, pieces of shit.

Anyhow, back to where I was . . .

5. Joe Biden just cracked me up. The fact that he can sit there and make faces, and do mimed "shout-outs" to former collegeagues in the chamber is comedy gold. He's got a few "did he really do that?" moments left in him over the next 4 years."

6. It was nice to watch a SOTU address and not have to listen to Bush inarticulately lie his way through a canned speech. I have to admit it's better to watch Obama articulately spin impossible-to-implement policy through a canned speech.

Small steps people. There's dishonesty and there's dishonesty. Obama's dishonesty is of the standard Clinton-Reagan-JFK-FDR-Lincoln variety. He falls short of that special, lofty territory inhabited only by Nixon & Bush.

7. In sum: I heard a lot of talk about plans that will increase spending, the deficit, and the debt. I believe him. Also lots of plans to reduce spending, deficits, debt.

I'd like to believe him, but I respect logic, math, reality, all that wacky stuff.

So I don't.

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Monday, February 23, 2009


The Depression comes to Hollywood, maybe? When Hyundai and JC Penney are the two main sponsors, you know it's bad. Anyhow, a couple thoughts:

1. Hugh Jackman??? Was every comedian in the Western Hemisphere busy? I thought he was awful.

2. I can't believe they managed to screw up the one thing that normally can't be screwed up: the "people who died this year" montage. It's like they couldn't decide whether to focus on Latifah or the screen showing the dead folks. So they sorta slid between the two options, half showing her and leaving the screens far enough in the background so you could barely read the graphics. Awful. They totally blew it with Ricardo Montalban and whoever was first.

You see, I can't even remember who it was, they messed it up so much.

3. The song and dance number for the three nominated songs? I couldn't even follow what was going on, what song was which. What the hell?

4. I liked the five presenters format for best actor, actress, etc.

In theory.

Nice to see DeNiro and Shirley McLain and all those folks together. But what was up with the extemporaneous "talk to the nominees" thing? "Gee Mickey. Nice to see you got nominated. You've always been a great actor. Now tell me, what the hell happened to your face?"

5. Where was Jack? The Oscars without a close-up on Jack's maniacal grin & sunglasses ain't no fun.

6. Finally, I liked when the French dude ran on stage and balanced the Oscar on his nose. That may have been the highlight of the evening for me.

That's it.

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Tuesday, February 17, 2009


Two years ago I posted on some of the reasons I hate Donald Trump. I didn't list all 467 reasons, but I alluded to a few. Most of my posts are long enough without going into such excruciating detail.

Reason 207 was: "he acts like some model of business success and brilliance although most of his projects go bankrupt and he got a multi-million dollar headstart from his father," with an explicit mention of "more bankruptcies than the worst Game Of Life player in history."

Well, seems he's upped the ante once again. The headline says it all: Trump Entertainment Files For Chapter 11. According to the article, "[t]he company missed a $53.1 million bond interest payment due on December 1," and Trump said he "decided to resign from the board of the company due to disagreements with bondholders who wanted the casino group to file for bankruptcy."

In other words . . .

(Yeah, you know I'm gonna say it, don't you?)

. . . Donald, you're fired.

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Monday, February 16, 2009


Seems that President Obama has dropped his plan to appoint a so-called "Car Czar" to oversee efforts to throw money out the window revamp the auto industry. Instead of appointing someone who actually knows something about the auto industry, the NY Times is reporting that Obama will place Tim Geithner and Larry Summers at the head of the presidential panel on the auto industry, to supervise distribution and monitoring of the $17.4 billion in loans already in place (H/T Naked Capitalism).

This makes sense because, as you surely know, Geithner worked a second job last summer as a welder on a Chrysler assembly line (withholding no taxes in the process as he desperately tried to supplement his paultry NY Fed income), while Summers taught a Harvard seminar called "How To Run A Detroit Industry From A Mexican Factory," when he wasn't insulting female faculty at his old university. So don't sweat it folks, we're in good hands here. If any duo can be trusted to do the right thing with seventeen billion, it's Tim and Larry.

Rumors that Obama will soon appoint Geithner as Ambassador to Iraq and Summers as Babysitter to Malia and Sasha have not been confirmed.

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Sunday, February 15, 2009


You'll recall that just a few days ago I referred to Tim Geithner as "The Insider." And I've also used the term to describe the cadre of governmental hacks that do the bidding of Wall St. in the name of the American economy. Of the American people.

Well, lest you think this is nothing more than the mad prattlings of an internet nobody looking for a few rich and famous folks to tee off on, think again. Please read what Simon Johnson, former IMF chief economist and current professor of global economics and management at MIT said on Bill Moyers this week when he discussed his grave concerns about the unchecked power and influence of "America's Oligarchs" (H/T Jesse):

SIMON JOHNSON: I think I'm signaling something a little bit shocking to Americans, and to myself, actually. Which is the situation we find ourselves in at this moment, this week, is very strongly reminiscent of the situations we've seen many times in other places . . . [we] somehow find ourselves in the grip of the same sort of crisis and the same sort of oligarchs . . . it's a small group with a lot of power. A lot of wealth. They don't necessarily - they're not necessarily always the names, the household names that spring to mind, in this kind of context. But they are the people who could pull the strings. Who have the influence. Who call the shots.

BILL MOYERS: Are you saying that the banking industry trumps the president, the Congress and the American government when it comes to this issue so crucial to the survival of American democracy?

SIMON JOHNSON: I don't know. I hope they don't trump it. But the signs that I see this week, the body language, the words, the op-eds, the testimony, the way they're treated by certain Congressional committees, it makes me feel very worried. I have this feeling in my stomach that I felt in other countries, much poorer countries, countries that were headed into really difficult economic situation. When there's a small group of people who got you into a disaster, and who were still powerful. Disaster even made them more powerful. And you know you need to come in and break that power. And you can't. You're stuck.

BILL MOYERS: . . . Rahm Emanuel and David Axelrod [] have pushed for tougher action against the banks. But they didn't prevail. Obama apparently sided with Geithner and the Treasury Department in using a velvet glove.

SIMON JOHNSON: What I read from that is that there is an unnecessary and excessive deference to the experts, or the supposed experts. And I think the view that a lot of people have in Washington -- I live in Washington, I follow this very closely -- the view is that you need to rely on the technocrats. And the technocrats are saying, "This is the way to go, and you mustn't be too tough on because banks, because that will have adverse consequences for credits, and for the economy, and for unemployment," and so on and so forth. Those technocrats, if that's what they're saying, are wrong. That is not the right way to deal with this crisis.

* * *

[B]eing nice to the banks, is a mistake. The powerful people are the insiders. They're the CEOs of these banks. They're the people who run these banks. They're the people who pay themselves the massive bonuses at the end of the last year. Now, those bonuses are not the essence of the problem, but they are a symptom of an arrogance, and a feeling of invincibility, that tells you a lot about the culture of those organizations, and the attitudes of the people who lead them.

BILL MOYERS: Geithner has hired as his chief-of-staff, the lobbyist from Goldman Sachs. The new deputy secretary of state was, until last year, a CEO of Citigroup. Another CFO from Citigroup is now assistant to the president, and deputy national security advisor for International Economic Affairs. And one of his deputies also came from Citigroup. One new member of the president's Economic Recovery Advisory Board comes from UBS, which is being investigated for helping rich clients evade taxes. You're probably too young to remember that old song, "Sounds like the Mack the Knife is back in town." I mean, is that what you're talking about with this web of relationships?

SIMON JOHNSON: . . . it's exactly a web of interest, I think, is what you said. And that's exactly the right way to think about it. That web of interest is not my interest, or your interest, or the interest of the taxpayer. It's the interest, first and foremost, of the financial industry in this country.

* * *

BILL MOYERS: When Tim Geithner said, earlier in the week, that the American people have lost faith in some financial institutions and the government, did it occur to you that this was the same man who was president of the New York Fed through much of this debacle?

SIMON JOHNSON: I have no problem with poachers turning gamekeeper, right? So if you know where the bodies are buried maybe you can help us sort out the problem. And I did think the first three or four minutes of what Mr. Geithner said were very good. As a definition of a problem, and pointing the finger clearly at the bankers, and saying that the government had been slow to react, and, of course, that included himself. I liked that. And then he started to talk about the specifics. And he said, "The compensation caps we've put in place, for the executives of these banks, are strong." And at that point I just fell out of my chair. That is not true. That is factually inaccurate, in my opinion.


SIMON JOHNSON: That this $500,000 limit, and deferred stock, is some kind of restriction on what they do? It's deferred stock, Bill. It's not restricted. You can get as much stock as you want, as soon as you pay back the government, you can cash out of that. That's one. Second, you can, sorry to get technical, but reset the strike price. This is something you and your and your viewers, you need to hear this one out. Just look for these words, okay, follow them through the press. When you get into trouble, when your company goes down, and you have massive amounts of stock options that aren't worth much anymore, because the stock price has gone down, you say, "Oh, well, we're going to reset our option prices."

And, basically, it means that, at the end of the day, these people are going to walk away with tens if not hundreds of millions of dollars paid for by basically, insurance policy that you and I are providing. Think of it like this, our taxpayer money is ensuring their bonuses. We're making sure that companies, that banks survive. And eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money. And they will cash out. And we will be paying higher taxes, we and our children, will be paying higher taxes so those people could have those bonuses. That's not fair. It's not acceptable. It's not even good economics.

BILL MOYERS: Are we chumps?

SIMON JOHNSON: We'll find out. Yes, we may be. Okay. It depends on how we play this politically. It depends on what our political system does. It depends, I think, on the level of reaction. The financial system is playing us for chumps, okay? The bankers think we're chumps. We'll find out. We have leadership that can handle this. We'll find out what they do.

* * *

BILL MOYERS: Geithner says . . . the board of Goldman Sachs, will have to decide [whether to fire Lloyd Blankfein, the CEO of Goldman Sachs]. But aren't we all ipso facto stock holders now?

SIMON JOHNSON: We should certainly have a big say over critical matters like this. Like the CEO. Because, two things. First of all, it's our money that kept these banks in business. Not just the treasury recapitalization money, that's relatively small. It's the financial support provided by the Federal Reserve. Make no mistake about it, if the Federal Reserve hadn't stepped in late September, in dramatic fashion, to prop up organizations like Goldman Sachs, they would be out of business, okay?

It was our money that did that. The Federal Reserve acting on behalf of the American taxpayer. And secondly, Senator Sanders is exactly right. That a CEO, like Lloyd Blankfein, made mistakes, and led his company into deep trouble. Now, other companies are in deeper trouble. His company was in deep trouble and had to be rescued at that moment. It's absolutely the right way to pose the question. And the answer to Senator Sanders' question is, in my opinion, yes. We should change the leadership of these major banks.

BILL MOYERS: And, yet, Secretary Geithner's chief-of-staff is the former lobbyist for Goldman Sachs. How -- serious question -- how do they make a dispassionate judgment about how to deal with Goldman Sachs when they're so intertwined with Goldman Sachs' mindset?

SIMON JOHNSON: I have no idea. Of course, the administration, the new administration, has a lot of rules about lobbying. And they have rules that basically say, I think, as understood the rules, when they were first presented, I was very impressed. They basically said, "We're not going to hire lobbyists into the administration. There has to be some sort of cooling off period."

BILL MOYERS: And the next day Obama exempted a number of people from that very rule that he had just proclaimed.

SIMON JOHNSON: Yes. It's a problem. It's a huge problem.

As always, I urge you to read the entire transcript. And, more importantly, I urge you to come to grips -- intellectually, emotionally, politically -- with the facts that are sitting right in front of you, staring you in the face. Namely, that a small cadre of Washington Insiders is enabling an even smaller Oligarchy of Wall St. Insiders to accomplish one thing, and one thing only: the naked looting of the United States Treasury.

It started last fall with Paulson, Bush, Cheney, Bernanke, and Barney Frank, and it's continuing with Geithner, Bernanke, Larry Sommers, Barney Frank and yes, even Obama.

The Insiders are robbing us blind. And they're laughing at us for letting them do it so brazenly.

Wake up.

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Friday, February 13, 2009


Keeping it short because . . . well, what analysis do you need? Here's the headline:
Congress Kills Plan To Recover Wall Street Bonuses
What explanation can congressional Dems possibly have for why they removed the Wyden-Snowe Amendment -- "without explanation in closed-door talks" -- from the "Stimulus Bill"? That amendment, proposed by Senators Ron Wyden (D-Ore.) & Olympia Snowe (R-Maine), would have:
penalized companies that paid bonuses greater than $100,000 to executives after receiving government rescue funds last year. The companies would have had to repay within four months any portion of the bonus above $100,000 or face an excise tax of 35 percent on the portion of the bonus above $100,000 [and] would have raised as much as $3.2 billion.
But The Insiders, presumably Nancy Pelosi and Barney Frank and Harry Reid and all the other muckety-mucks who care more about their friends on Wall St. than about the American taxpayer stripped the Amendment out.

Behind closed-doors.

And, of course, I think it's legit to ask where Obama was while this backroom dealing was going on. Assuming he wasn't with them behind that closed-door.

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Wednesday, February 11, 2009


On November 10, I referred to then-potential Treasury Secretary Tim Geithner as another "entrenched Wall St. guy" who would use his position at Treasury to "ask for more money that the banks can horde. And use for executive bonuses. And distribute as dividends to their shareholders."

Then on November 24, I wrote that the so-called necessity to bailout Citibank was largely the fault of Robert Rubin, as well as his "protege[] Tim Geithner, your soon-to-be Treasury Secretary," who "worked over the weekend with such luminaries as Hank Paulson & Ben Bernanke to let this latest boondoggle go down. More of the same . . . and lots more to come."

So why am I mentioning this? Mostly because a lot of people have been willfully naive, keeping themselves in the dark as to who Tim Geithner really is. Believing that since Obama picked him, he must be a good guy.

He's not.

He was the head of the N.Y. Fed when it brokered last spring's sale of Bear Stearns to Morgan-Chase (read: he gave Morgan the money to buy Bear for pennies on the dollar). He played a key role in deciding not only to bail out AIG (which insured a large proportion of Goldman Sachs' trashy investments), but also to let Lehman go under, yet never felt the need to explain this inconsistency.

He's a tool of Wall St., he's always been a tool of Wall St., and from what we've seen in his short stint at Treasury, he will remain Wall St.'s biggest tool. From yesterday's NYT, discussing the back-room dealings that led to the announcement of Treasury's plans for all the bank's bad assets:
Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials. Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid. He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.
* * *
Abandoning any pretense about limiting the moral hazards at companies that made foolhardy investments, the plan also will not require shareholders of companies receiving significant assistance to lose most or all of their investment. Some officials had suggested that the next bailout phase not protect existing shareholders. (Shareholders at most banks that fail will continue to lose their investment.)
Nor will the government announce any plans to replace the management of virtually any of the troubled institutions, despite arguments by some to oust current management at the most troubled banks.
Finally, while the administration will urge banks to increase their lending, and possibly provide some incentives, it will not dictate to the banks how they should spend the billions of dollars in new government money.
In sum, Geithner went to the mat, and won, in an effort to insure that Wall St.'s biggest will continue to receive our money, yet not be constrained in any way as to what they do with our money once they receive it. Of course. This is what Tim Geithner has spent his entire career doing.

And this is the man Obama tabbed to oversee his economic policies.

Tim Geithner is a very important man in the big picture for those who are really setting policy -- both inside D.C., and on Wall. St. That's why, unlike Daschle and Killefer, no one withdrew Geithner's nomination for failing to pay his taxes.

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Thursday, February 05, 2009


I voted for Obama last November. Not really a hard decision either. I don't normally vote for Dems or GOPers, but with Johnnie "Four More Years" McCain & third-party frauds like Bob Barr and Cynthia McKinney presenting the alternative, it was easy to pull the lever for a likable, intelligent guy like Obama.

And so far it looks as though he'll do much of what I hoped and assumed he'd do: not be Bush in the foreign policy & civil liberties arenas. You know, basically not be a Constitution-destroying, executive-overreaching, gutter patriot. Conversely, I had little hope for him in the economic arena (nor did I with McCain) and so far he's lived up to that expectation as well.

What I did not expect, however, and what I'm very disappointed to see, is the sort of "Do This NOW Or The World Will End" demogoguery that marred the Bush administration and led us not only to the Iraq War, but last Autumn's abomination, the National Loot The Treasury Act Troubled Asset Relief Program, or TARP.

You know what I mean, as to both shameful episodes, as well as the passage of the so-called Patriot Act and other anti-democratic measures. A rush to ram through generally complex bits of legislation or executive action . . . without time for debate, analysis, national pulse-taking, or reasoned thought. No, just a barrage of "Do This NOW Or The World Will End" demogoguery.

Colin Powell at the U.N. telling the world that Saddam's WMDs were poised to burn civilization to chalk. Ashcroft explaining that without grossly expanded police powers "the terrorists" would bring down western civilization as we know it. Hank "Goldman Sachs Is My Middle Name" Paulson telling frightened Americans that if they didn't hand $700 billion of their hard-earned tax dollars to a cadre of rich, corrupt bankers the economy would collapse.

And now, with a president -- an intelligent, thoughtful, charismatic man from all I can tell -- who promised a return to reason, to courage, to democratic processes, we get this beauty as he excoriates America to pass a $900 billion "Stimulus Bill" that includes tax rebates for car buyers, research grants for NIH doctors, yet only $25 billion for the "infrastructure" rebuilding he's been promising since the election (from The Official White House Release):
A failure to act, and act now, will turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery, and a more uncertain future. Millions more jobs will be lost. More businesses will be shuttered. More dreams will be deferred.
That's an appeal to fear. Pass this bill now. Not tomorrow, not next week, not following a debate, not after a two week recess to allow legislators to speak to the American people and discover what they think about the bill's particulars, but now.

Because if you don't pass it now, you will lose your job, your business will go under, and all your dreams of retirement, of college for your kids, of owning a house without a zero-down mortgage will die. You will have guaranteed the recession that will break you!

I have my own opinions about this stimulus plan as I'm sure you can tell. But that's not even what bothers me, and that's why I waited until today to write about it. I didn't vote for Obama's policies, I voted for a return to the American process, after Bush & Cheney derailed it for nearly a decade.

But this -- this "Do This NOW Or The World Will End" demogoguery -- is not what I voted for, and it pisses me off. And regardless of what you think of the substance of the stimulus bill or the modified version that will surely pass, this should piss you off too.

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I'm sure many of you have heard about the latest proposal being tossed about by Obama's Wall St. Crew Economic Team: The "Bad Bank." Yeah, that's what it's called.

The "Bad Bank" will buy all the crappy assets no real investor would ever buy, so as to get all those "bad assets" off the banks books. So they can therefore relax, and find themselves with nice, positive balance sheets and start lending again.

Lending to the imaginary hordes of real investors who wouldn't touch the garbage if it was wrapped in sheets of gold leaf.

Anyway, I think this idea is moronic and wrong for a zillion reasons, but Yves Smith at Naked Capitalism does a far better job than I ever could explaining why this idea is moronic and wrong. A few highlights, though as always, I recommend reading the whole thing:
The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting).

Why is this a bad idea? Let's turn to a study by the IMF of 124 banking crises. Their conclusion:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
In case you had any doubts, propping up dud asset values is a form of forbearance. Japan had a different way of going about it, but the philosophy was similar, and the last 15 year illustrates how well that worked.
* * *
The concept of "triage" recognizes that resources are limited, tough decision need to be made, and some are beyond any hope. But in Team Obama Newspeak, triage means everyone can be saved because resources are presumed to be unlimited:
The basic problem confronting the government is that banks hold large quantities of assets that they value on their books for much more than investors are willing to pay
Yves here. The spin is so thick I have to interject after one sentence. Note how the problem is that the investors don't want to pay enough, not that the assets are in most cases fetid? Back to the article:
Since the early days of the financial crisis, officials have struggled to unwind that knot. If the government buys the assets at prices that banks consider fair, the Treasury would take a huge loss when it ultimately sells the assets for much less. If, instead, the government insists on paying market prices, the banks may not survive their losses.
Yves here. See how saving the banks in their current form is presumed to be necessary? This is the phony policy constraint that is leading to all the distortions. The savings and loan crisis' Resolution Trust Corporation is touted as a good "bad bank" model (it's far from the only one). But guess what? It got those bad assets from banks that died. That little detail seems to be neglected in modern accounts.
* * *
As John Paulson pointed out, a lot of poor quality paper is trading. The idea that it is illiquid is a myth.

The problem is not a lack of price discovery, as the discussion above pretends, it's a lack of investor willingness or ability to take losses. And readers have said if a particular piece of paper doesn't fetch a bid, that's because its real value is not materially above zero. But per above, that's the sort of dreck that Team Obama would buy.

And what, pray tell, is the point of the guarantee? The loss exposure on a guarantee (versus a purchase) at the same nominal price is the same, although the initial cash outlay is considerably different. Ah, but if the paper is guaranteed, then your friendly bank welfare recipient can bring the junk to the Fed and get nice cash back.

So we the taxpayers are going to eat a ton of bank losses that should instead be borne first by stockholders and bondholders This program should be labeled the Pimco bailout plan, since the giant bond fund holds a lot of bank debt. That shows what a fiction Obama's populism is. It's mere posturing and empty phrases. Look at where the dough goes, and it is going first and foremost to the big money end of town.
* * *
But Team Obama is taking the cowardly approach of distributing the costs among the most disenfranchised group in the process, namely the taxpayer, when there far more obvious and logical groups to take the hits. Shareholders and bondholders bought securities KNOWING there was the possibility of loss. A lot of big financial institutions have been on the ropes for over a year. A security holding is not a marriage. When conditions change, prudent investors reassess and adjust course accordingly. If anyone is long a lot of dodgy bank paper now, they have only themselves to blame. Any why are rank and file bankers still exempt from pay cuts when the workers in another failing US industry, autos, expected to take big hits?

This is the most roundabout and probably the most costly way to not solve this problem. Another warning from the IMF paper:
All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.
The most amazing bit is the government acts as if it has no leverage. Look how Paulson sent teams in to inspect the accounts of Fannie and Freddie and put them into conservatorship. The reason it is obvious that this program is a crock is that it has been cooked up in the complete and utter absence of any serious due diligence on the toxic holdings of the big banks.
Check out the whole piece.

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Monday, February 02, 2009


1. That Harrison pick-six was the key play in the game, no matter how exciting and clutch the last drive was. Instead of 10-10 or 14-10 'Zona, it was 17-7 Steelers at the half.

Amazing runback.

2. How the hell did the Steelers allow a 64-yard TD catch right up the gut while protecting a late lead? I know Fitzgerald is great, but that was a stunning mistake. Unless the idea of letting the Cards score quickly to leave time on the clock for a comeback was planned. Then it was brilliant.

Yeah, right.

3. Worst set of commercials I've ever seen. And not only were they bad, they were mean. How many times do you have to see a guy kicked in the nuts, or a woman get her clothes blown off in public (not that I object to that in theory), or a young employee tossed out of 3rd story window, or a fat lady thrown off a horse? How about the Teleflora commercial with dead flowers in a box and a nasty message? Jeez.

4. A re-make, or a sequal to Escape To Witch Mountain (and one of the very first FSMOTDOMYs, at that)? With The Rock? Is this really what we need?

5. The Troy Polamalu "re-make" of the Mean Joe Coke commercial? Oh my, that was an abomination. The original may have been too sappy, but I'll take it over that irony-drenched, pomo piece of shit from last night. Let today's kids have their iconic commercials to reminisce about some day.

Think of the children, goddamn it!

6. Two decent commercials: Alec Baldwin in the ad. Something about an evil plot to turn your brain to mush. Now that's the sort of pomo irony I can deal with.

And the Castrol ad, the one with "Innagoddadavida" playing in the background, and the guy making out with a chimp? I don't get it, but it was delightfully demented and bizarre, so I give it a thumbs-up.

7. Bruce's set was pretty solid. Although I thought his choice of "throw that hail mary by ya'" in the change of lyrics from baseball to football was a perfect 10 on the cheese-o-meter (though perhaps not as much as the going to Disney World comment). But before Warner fumbled on that last drive, as they got within range of the endzone and Larry Fitzgerald ready to leap 35 feet into the air, man I thought The Boss may have been prescient.

8. Overall, very exciting game, lots of fun.

9. But waaaaayyyyyyyyy too much influence by the refs. Too many penalties on too many key downs. Even the holding that gave the Cards the safety -- I mean, how do you throw the flag in that situation?

10. That's it. No rule there have to be 10 thoughts, is there?