Mike's Neighborhood

THE MORE THINGS CHANGE . . .

2009-11-05T08:02:00.003-05:00

So three years ago (not to the day, but damn close) I pulled my head out of the hole in the wall into which I'd rammed it and fell into a fitful sleep. Visions of Yadier "Fucking" Molina's home run teased my mind, but I managed to get a few hours.

And when I woke up I tried to convince myself that with three young studs in Wright, Reyes, and Beltran, the Mets would be all right.

And they were until about 150 games through the 2007 season.

Anyway, this past season they sent their entire starting lineup, 4/5 of the rotation, 2/3 of the front office, and 16.3 million of their fans onto the DL before limping in at an abysmal 70-92.

But all that is sorta ok in the big picture. It sucks, but what are you gonna do? That's not what has me so damn exorcised that I'm actually posting for the first time in about 6 months. No, you know what really, really, REALLY blows?

The FUCKING YANKEES just added another goddamn title to their gaudy total. To recap: Mets suck for the umpteenth time in my life. Yet again, they rode the wave, won ungatz, and now suck balls. By way of contrast, the Yankees won their 7th World Series of my lifetime.

I will now stick my head back in the Yadier "Fucking" Molina hole and not remove it til opening day.

THE BRIEFEST UPDATE YET

2009-10-17T09:58:00.001-04:00

I'm alive.

I'm well.

That is all.

YET ANOTHER BRIEF UPDATE

2009-07-24T07:31:00.004-04:00

Just popping in to say hello.

Still very busy with work, and the case remains interesting. Pretty exciting actually. Lots of action, lots of contentious exchanges with opposing counsel, lots of fantastic evidence piling up. Should continue to be both busy and good.

On the non-work front, Mrs. Mike and I will be celebrating 10 years of nuptials early next month. Hard to believe it's been a decade. Amazing.

Finally, as to the world beyond work and marriage, I'm aware of it in theory, but that's about it. Apparently some famous people died last month and this Obama fella seems to be in the news every day about something. Health care, All-Star games, staring at chick's asses, what have you.

Think the guy needs to take a short summer break if you ask me. For his sake as well as everyone else's.

Til the next update . . .

BRIEF UPDATE

2009-06-23T08:21:00.004-04:00

Yes, I'm alive and actually doing quite well. I've been VERY busy at work. In fact, this is the busiest stretch I've ever had, at this or any other job. 12, 14 hour days, every day, and I've been putting in quite a bit of time over the weekend as well.

I also don't see this changing any time soon as the schedule in the case I'm on is expedited and aggressive. Plus, a lot of traveling should be in my near (and mid-term, and distant) future.

That said, I'm really enjoying the work. Very exciting, lots of action, constant battling over this and that. It's tiring and often stressful, but at its core it's what I signed up for when I got into litigation. I'm starting to get to the point where I'm senior enough that the amount of real "lawyering" starts to balance all the busy work, the shit work, the hierarchical stuff, and all the hours. We'll see how it keeps going.

IRONY ALERT

2009-05-19T06:12:00.003-04:00

So a writer from the New York Times plagiarizes a blogger. Nice.

If this damages Dowd's career -- or somehow harms the Times -- it'll certainly give credence to the idea that blogging is bad for reporting. Heh, heh.

What I wanna know, of course, is did Dowd sneak into Marshall's mother's basement to steal his words, or did she access them some other way?

COUSIN TIMMY'S STRESS(-FREE) TEST

2009-05-08T07:04:00.003-04:00

I'm sure by now we've all heard that -- surprise, surprise, surprise! -- all the banks "passed" the so-called "Stress Tests." They passed, huh? Was it a gentleman's C? An over-inflated B+? Did they make the ~~Dean's~~ Treasury Secretary's list?

Anyhow, Yves at Naked Capitalism has a nice take-down of not only Treasury, but the fawning and shamelessly pro-bank reaction of our good friends in the mainstream press. Or as she put it, "[t]he unduly charitable coverage of the stress tests." Some highlights, starting with a few facts the NTY did not cover:

1. The fact quite a few of the banks negotiated their fundraising requirements down, calling the integrity of the process into question

2. No mention that the purpose of this exercise from the outset was to prove the banking system to be solvent. What kind of a test is that?

3. No mention that asset sales (the reason Citi was able to negotiate its fundraising down from $10 billion, and presumably others as well) are almost certain to be a non-starter.

The WSJ joined in on the self-serving fun as well:

The Wall Street Journal , in "How the Stress Tests Stopped the Market Bleeding," depicts Geithner, the Fed, and Obama as saviors of the market:
Mr. Geithner successfully beat back criticism that the examinations were a political ploy, leaving much of the number-crunching to the Federal Reserve. The stock market regained its footing as consumer confidence crept back. And several major banks reported unexpectedly strong earnings for the first quarter, boosting confidence about their long-term health.
[] the only critics Geithner "beat back" were some of the bankers themselves. The stock market regained its footing because it was oversold and Citi and Bank of America said they'd had a good January and February. The consumer confidence numbers are stronger in no small measure because stock market movements are included in the computation! In fact, in the Conference Board's release, the stock market rally was the single biggest contributor to the improvement in sentiment.

As to the press' breathless prattling that Wall St. has been saved from the dangers and horror of "nationalization" or receivership, Yves noted:

The illogic is breathtaking. It has now become conventional wisdom that a bankruptcy is the only way to straighten out GM, yet there is no realistic plan for getting the banking industry into a configuration that reduces systemic risk or end incentives for banks to gamble with their now explicit government backstop or a realistic plan to clean up the bad assets (we do not believe the PPIP will succeed). Receivership for the weakest banks is a far better approach for taxpayers and the economy, yet the Journal is touting the line that what is best for incumbent bank management is surely best for America.

Finally, she observed that many of the real villains escaped notice, as usual:

And the other big shortcoming is that the securities and derivatives exposures at the big capital markets players (Citi, BofA, JP Morgan) were given the short shrift.

Nothing new here, huh?

Check out the whole piece. It'll put some of this in better perspective.

Have a nice weekend.

TOUGH WEEK FOR BURT REYNOLDS

2009-05-06T06:42:00.003-04:00

First Pontiac, and now Dom DeLuise. As that first link makes clear, Pontiac had some strong pop culture connections: the GTO, Knight Rider's Kit, and of course, Burt's black Trans-Am from Smokey & the Bandit. And, as some of you may recall, that's a car I talked about right here a little over two years ago.

Those ubiquitous mid-70's through mid-80's memories. We even owned an '84 Grand Prix.

And, of course, who seemed to be Burt's sidekick in many of his iconic movies (but not Smokey & the Bandit)? Dom DeLuise. DeLuise sits in my memories through two separate comedy franchises of my youth: the Burt Crew, with its fast cars and hot chicks and blooper outtakes as the credits roled. And also Mel Brooks. DeLuise seemed to be in every Mel Brooks movie. The obnoxious gay director at the end of Blazing Saddles. The hideous emperor, dispatching with food & lives in History of the World, Part I. Pizza the Hut in Space Balls. He was even in Silent Movie, right?

The franchise that made the black Trans Am, and the fat guy who made me laugh in Burt Reynold's movies. Both gone in the same week. The older you get, the more the icons of your youth pass along.

At least the memories remain.

THE INSIDERS' INNER SANCTUM

2009-05-04T06:49:00.005-04:00

Yves has a solid take on the continuing special relationship between Goldman Sachs and . . . well, everyone in power. A highlight or two:

The "all animals are created equal, but some are more equal than others" logic appears to operate in full force as far as Goldman is concerned. Violations of normal rules of conduct are not merely tolerated, but are asserted to be acceptable.

Now admittedly, the latest news tidbit, of former Goldman co-chairman Steven Friedman staying on as chairman of the New York Fed after Goldman became a bank holding company, isn't as troubling as when current Goldman chief Lloyd Blankfein was the only Wall Street denizen to meet with Hank Paulson when the Treasury was deciding what to do about AIG. Readers may recall that Goldman had the biggest exposure to AIG and thus had the most to benefit from a course of action that would be generous to counterparties (who had chosen of their own cognizance to enter into contracts with the big insurer).

What is disturbing [] is the moral blindness of too many of the key actors, namely Friedman himself and some Fed officials.

* * *
It's bad enough that Friedman owned Goldman shares while involved in policy discussions that would affect the bank. The fact that he went and bought more shares is breathtaking. Of course, this shows a huge deficiency in Fed procedures. Directors should be barred from trading stocks in any institution regulated by the Fed. While it is technically not inside information (you need to be an insider of the company in question, that is, have a fiduciary duty to its shareholders), it certainly raises the specter of trading on privileged information.

It would be a scandal if someone on the FOMC were to be found to be trading interest rate futures. Being party to discussions about regulatory policy (as in having advance knowledge of how things are likely to play out) means one similarly has advance knowledge of facts that investors would find important.

* * *
Recall that in the waning days of the Bush Administration, it wasn't clear how bank friendly the new Administration would be. Even thought Geithner was Treasury secretary designate, there was some discussion in the press as to the divergent views within the Obama economic policy team, and whether that would create creative friction or conflict. Conflict (or having Volcker, who is not a fan of innovative finance, have a strong voice) could have kept bank valuations at bay.

Thus while Goldman's stock was arguably cheap, cheap stocks can get cheaper. One of the important inputs to the wisdom of going long would be knowing how bank friendly the new Administration's policies would be. To think that Friedman didn't have some insight into that question by virtue of his advantaged position is naive.

Check out the whole piece. Another factoid in a continuing, and sadly consistent, story.

THE OUTSIDERS

2009-05-01T06:50:00.005-04:00

Too exhausted to post this morning, but check out this piece in Salon, titled "The Prophets Of Doom" (H/T Ritholtz), discussing 14 folks who've been the biggest critics of Obama's outrageous economic policies. I would imagine no small portion of these folks also tee'd off on Bush, so that should tell you that this ain't necessarily a partisan group.

A few clowns in the mix -- Michele Bachmann & Jim Cramer, notably -- and I'm certainly no fan of that big phony, Paul Krugman, but otherwise, there are some strong entries here, including many that I've either linked to, or focused on: Ritholtz, Yves, Jim Rogers, William Black, Simon Johnson, Roubini. Check it out. At very least, it'll give you some names and links if you're looking for more more sources to learn what's really going on.

THIEVES, LIARS, AND THE LIARS WHO ENABLE THE THIEVES AND LIARS

2009-04-30T06:45:00.004-04:00

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."

Hmmm.

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.

IF A SENATOR SWITCHED PARTIES IN THE WOODS AND NO ONE CARED WOULD IT MAKE A DIFFERENCE?

2009-04-29T07:24:00.005-04:00

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)

ICEBERGS AHEAD

2009-04-28T06:46:00.004-04:00

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.

ECONOMIC DISEASE CONTROL

2009-04-28T06:22:00.004-04:00

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.)

ONE DOLLAR IS WORTH A THOUSAND WORDS

2009-04-27T07:37:00.003-04:00

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.

NEW HAPPENINGS

2009-04-25T11:12:00.004-04:00

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.

THE FLOOD IS COMING (AKA, BUILD YOUR ARK WHILE THE LAND IS STILL DRY)

2009-04-24T07:08:00.009-04:00

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.

YET ANOTHER VOICE JOINS THE CHORUS

2009-04-23T07:51:00.005-04:00

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.

AT WHAT POINT DOES RESPECTABLE CRITICISM TIP THINGS?

2009-04-22T06:36:00.004-04:00

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.

SET UP THE GRANDSTANDS ON CAPITOL HILL

2009-04-21T06:17:00.007-04:00

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.

THE LANGUAGE OF THE INSIDERS (OF THE INNER PARTY?)

2009-04-20T07:12:00.004-04:00

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.

SIMPLE IDEAS TO SIMPLIFY A COMPLICATED MESS

2009-04-20T06:40:00.003-04:00

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.

ALL YOU NEED IS HOPE (AND IF WE DON'T HAVE ANY, MAYBE WE CAN JUST GO INTO DEBT AND BORROW SOME)

2009-04-18T10:34:00.005-04:00

This is great (H/T Ritholtz)

BLOGIVERSARY, EPISODE THREE

2009-04-18T09:56:00.004-04:00

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.

FROM WALL ST. TO PENNSYLVANIA AVE . . . AND BACK AGAIN (AKA, THE N.Y.-D.C. SHUTTLE)

2009-04-17T06:57:00.004-04:00

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.

WHAT IF THEY GAVE A TEA BAG PARTY AND NO ONE CAME (PUN INTENDED)

2009-04-16T06:05:00.005-04:00

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.

IT'S NOT A LIE IF THOSE WHO DEFINE "TRUTH" ARE DOING THE LYING

2009-04-15T07:27:00.006-04:00

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.

WONDERING WHETHER TO LAUGH, CRY, SCREAM, OR ENGAGE IN SOME COMBINATION OF ALL THREE

2009-04-15T06:48:00.004-04:00

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.

Whoa.

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.)

THE NEIGHBORHOOD: FREE OF WEIRD DUBAI-BASED FETISHISTS SINCE 2009!

2009-04-14T06:37:00.008-04:00

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.

KNOWLEDGE IS POWER (WHICH IS WHY THE POWERFUL WANT TO KEEP US DUMB)

2009-04-13T06:34:00.005-04:00

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.

THE MASTER GETS EGG ON ITS FACE AND SUES THE HEN

2009-04-13T06:10:00.005-04:00

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 www.goldmansachs666.com, 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 www.goldmansachs.com."

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 www.goldmansachs666.com.

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.

AND YET MORE OF THAT "CHANGE" WE CAN ALL BELIEVE IN

2009-04-10T08:00:00.003-04:00

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.

YOUR MONEY IS NONE OF YOUR DAMN BUSINESS, PART II

2009-04-09T07:13:00.004-04:00

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?

CHANGE WE CAN BELIEVE IN SAME OLD BULLSHIT

2009-04-08T05:46:00.003-04:00

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.

WHEN GEORGE SOROS SPEAKS, PEOPLE SHOULD LISTEN

2009-04-07T06:19:00.003-04:00

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.

FOLLOW WHAT WORKS INSTEAD OF WHAT FAILS

2009-04-06T06:09:00.004-04:00

So Bill Moyers keeps on fighting the good fight. He's too much of a gentleman to come right out and say something like "Obama, Summers, and Geithner are a bunch of shady crooks," but his guests lately have come pretty close to saying as much. The economic sitatuation and the administration's questionable reactions to it have been one of his biggest topics for discussion.

And last week he interviewed William Black, professor or economics and law at University of Missouri. Black also has a long history as an expert on fraud prevention and regulation. A few highlights from a devastating interview:

BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?
WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined."
BILL MOYERS: So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention.
WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars' loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste.
BILL MOYERS: You're describing what Bernie Madoff did to a limited number of people. But you're saying it's systemic, a systemic Ponzi scheme.
WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn't even get into the front ranks of a Ponzi scheme...
BILL MOYERS: But you're saying our system became a Ponzi scheme.
WILLIAM K. BLACK: Our system...
BILL MOYERS: Our financial system...
WILLIAM K. BLACK: Became a Ponzi scheme. Everybody was buying a pig in the poke. But they were buying a pig in the poke with a pretty pink ribbon, and the pink ribbon said, "Triple-A."
* * *
BILL MOYERS: Why is it so hard to prosecute? Why hasn't anyone been brought to justice over this?
WILLIAM K. BLACK: Because they didn't even begin to investigate the major lenders until the market had actually collapsed, which is completely contrary to what we did successfully in the Savings and Loan crisis, right? Even while the institutions were reporting they were the most profitable savings and loan in America, we knew they were frauds. And we were moving to close them down. Here, the Justice Department, even though it very appropriately warned, in 2004, that there was an epidemic...
BILL MOYERS: Who did?
WILLIAM K. BLACK: The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle. And that they were going to make sure that they didn't let that happen. So what goes wrong? After 9/11, the attacks, the Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents. So even today, again, as you say, this crisis is 1000 times worse, perhaps, certainly 100 times worse, than the Savings and Loan crisis. There are one-fifth as many FBI agents as worked the Savings and Loan crisis.
BILL MOYERS: You talk about the Bush administration. Of course, there's that famous photograph of some of the regulators in 2003, who come to a press conference with a chainsaw suggesting that they're going to slash, cut business loose from regulation, right?
WILLIAM K. BLACK: Well, they succeeded. And in that picture, by the way, the other — three of the other guys with pruning shears are the...
BILL MOYERS: That's right.
WILLIAM K. BLACK: They're the trade representatives. They're the lobbyists for the bankers. And everybody's grinning. The government's working together with the industry to destroy regulation. Well, we now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.
BILL MOYERS: But I can point you to statements by Larry Summers, who was then Bill Clinton's Secretary of the Treasury, or the other Clinton Secretary of the Treasury, Rubin. I can point you to suspects in both parties, right?
WILLIAM K. BLACK: There were two really big things, under the Clinton administration. One, they got rid of the law that came out of the real-world disasters of the Great Depression. We learned a lot of things in the Great Depression. And one is we had to separate what's called commercial banking from investment banking. That's the Glass-Steagall law. But we thought we were much smarter, supposedly. So we got rid of that law, and that was bipartisan. And the other thing is we passed a law, because there was a very good regulator, Brooksley Born, that everybody should know about and probably doesn't. She tried to do the right thing to regulate one of these exotic derivatives that you're talking about. We call them C.D.F.S. And Summers, Rubin, and Phil Gramm came together to say not only will we block this particular regulation. We will pass a law that says you can't regulate. And it's this type of derivative that is most involved in the AIG scandal. AIG all by itself, cost the same as the entire Savings and Loan debacle.
BILL MOYERS: What did AIG contribute? What did they do wrong?
WILLIAM K. BLACK: They made bad loans. Their type of loan was to sell a guarantee, right? And they charged a lot of fees up front. So, they booked a lot of income. Paid enormous bonuses. The bonuses we're thinking about now, they're much smaller than these bonuses that were also the product of accounting fraud. And they got very, very rich. But, of course, then they had guaranteed this toxic waste. These liars' loans. Well, we've just gone through why those toxic waste, those liars' loans, are going to have enormous losses. And so, you have to pay the guarantee on those enormous losses. And you go bankrupt. Except that you don't in the modern world, because you've come to the United States, and the taxpayers play the fool. Under Secretary Geithner and under Secretary Paulson before him... we took $5 billion dollars, for example, in U.S. taxpayer money. And sent it to a huge Swiss Bank called UBS. At the same time that that bank was defrauding the taxpayers of America. And we were bringing a criminal case against them. We eventually get them to pay a $780 million fine, but wait, we gave them $5 billion. So, the taxpayers of America paid the fine of a Swiss Bank.

* * *
BILL MOYERS: Why are they firing the president of G.M. and not firing the head of all these banks that are involved?
WILLIAM K. BLACK: There are two reasons. One, they're much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they're outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, 'contracts, sacred.' But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.
BILL MOYERS: The cover up?
WILLIAM K. BLACK: Sure. The cover up.
BILL MOYERS: That's a serious charge.
WILLIAM K. BLACK: Of course.
BILL MOYERS: Who's covering up?
WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.
These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...
BILL MOYERS: What do you mean?
WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator.
* * *
BILL MOYERS: To hear you say this is unusual because you supported Barack Obama, during the campaign. But you're seeming disillusioned now.
WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.
BILL MOYERS: In other words, they could have closed these banks without nationalizing them?
WILLIAM K. BLACK: Well, you do a receivership. No one -- Ronald Reagan did receiverships. Nobody called it nationalization.
BILL MOYERS: And that's a law?
WILLIAM K. BLACK: That's the law.
BILL MOYERS: So, Paulson could have done this? Geithner could do this?
WILLIAM K. BLACK: Not could. Was mandated--
BILL MOYERS: By the law.
WILLIAM K. BLACK: By the law.
BILL MOYERS: This law, you're talking about.
WILLIAM K. BLACK: Yes.
BILL MOYERS: What the reason they give for not doing it?
WILLIAM K. BLACK: They ignore it. And nobody calls them on it.
* * *
BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
WILLIAM K. BLACK: Absolutely.
BILL MOYERS: You are.
WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, "We just can't let the big banks fail." That's wrong.
BILL MOYERS: But what might happen, at this point, if in fact they keep from us the true health of the banks?
WILLIAM K. BLACK: Well, then the banks will, as they did in Japan, either stay enormously weak, or Treasury will be forced to increasingly absurd giveaways of taxpayer money. We've seen how horrific AIG -- and remember, they kept secrets from everyone.
BILL MOYERS: A.I.G. did?
WILLIAM K. BLACK: What we're doing with -- no, Treasury and both administrations. The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.
Where Congress said, "We will not give you a single penny more unless we know who received the money." And, you know, when he was Treasury Secretary, Paulson created a recommendation group to tell Treasury what they ought to do with AIG. And he put Goldman Sachs on it.
BILL MOYERS: Even though Goldman Sachs had a big vested stake.
WILLIAM K. BLACK: Massive stake. And even though he had just been CEO of Goldman Sachs before becoming Treasury Secretary. Now, in most stages in American history, that would be a scandal of such proportions that he wouldn't be allowed in civilized society.
BILL MOYERS: Yeah, like a conflict of interest, it seems.
WILLIAM K. BLACK: Massive conflict of interests.
BILL MOYERS: So, how did he get away with it?
WILLIAM K. BLACK: I don't know whether we've lost our capability of outrage. Or whether the cover up has been so successful that people just don't have the facts to react to it.
* * *
BILL MOYERS: Yeah, and this week in New York, at this conference, you described this as more than a financial crisis. You called it a moral crisis.
WILLIAM K. BLACK: Yes.
BILL MOYERS: Why?
WILLIAM K. BLACK: Because it is a fundamental lack of integrity. But also because, if you look back at crises, an economist who is also a presidential appointee, as a regulator in the Savings and Loan industry, right here in New York, Larry White, wrote a book about the Savings and Loan crisis. And he said, you know, one of the most interesting questions is why so few people engaged in fraud? Because objectively, you could have gotten away with it. But only about ten percent of the CEOs, engaged in fraud. So, 90 percent of them were restrained by ethics and integrity. So, far more than law or by F.B.I. agents, it's our integrity that often prevents the greatest abuses. And what we had in this crisis, instead of the Savings and Loan, is the most elite institutions in America engaging or facilitating fraud.
BILL MOYERS: This wound that you say has been inflicted on American life. The loss of worker's income. And security and pensions and future happened, because of the misconduct of a relatively few, very well-heeled people, in very well-decorated corporate suites, right?
WILLIAM K. BLACK: Right.
BILL MOYERS: It was relatively a handful of people.
WILLIAM K. BLACK: And their ideologies, which swept away regulation. So, in the example, regulation means that cheaters don't prosper. So, instead of being bad for capitalism, it's what saves capitalism. "Honest purveyors prosper" is what we want. And you need regulation and law enforcement to be able to do this. The tragedy of this crisis is it didn't need to happen at all.
BILL MOYERS: When you wake in the middle of the night, thinking about your work, what do you make of that? What do you tell yourself?
WILLIAM K. BLACK: There's a saying that we took great comfort in. It's actually by the Dutch, who were fighting this impossible war for independence against what was then the most powerful nation in the world, Spain. And their motto was, "It is not necessary to hope in order to persevere."
Now, going forward, get rid of the people that have caused the problems. That's a pretty straightforward thing, as well. Why would we keep CEOs and CFOs and other senior officers, that caused the problems? That's facially nuts. That's our current system.
So stop that current system. We're hiding the losses, instead of trying to find out the real losses. Stop that, because you need good information to make good decisions, right? Follow what works instead of what's failed. Start appointing people who have records of success, instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today, as late as it is. Even though they've had a terrible start to the administration. They could change, and they could change within weeks. And by the way, the folks who are the better regulators, they paid their taxes. So, you can get them through the vetting process a lot quicker.

"Follow what works instead of what fails. Start appointing people who have records of success, instead of records of failure." The fact that such a suggestion seems profound in our world says a lot, doesn't it? Read the whole interview. Or follow the link back and watch the interview, and see for yourselves how bluntly Black puts this stuff.

Make no mistake about it. From top to bottom, criminals are among us. And most of them are still walking, still doing what they do. And if we don't reign them in, they'll do it again. There's still more loot for the looting.

JUST A BIT MORE ON THIEVERY, OLIGARCHY, AND ALL THAT GOOD STUFF

2009-04-03T07:58:00.004-04:00

Been working my booty off this week, so too tired to offer any thoughts of my own. Bringing corporate malfeasors to their knees (for justice, fun, and profit!) is a never-ending task. Nonetheless, Yves has a solid takedown of the Public-Private Boondoggle Of The Century, or whatever the hell they're calling the latest version of federal alphabet soup. Some highlights:

Despite bank and Administration smoke-blowing to the contrary, the problem with the so-called toxic assets on bank balance sheets is NOT that they cannot be priced, but that banks do not like the prices on offer from willing buyers. We have read anecdotes suggesting that the gap is as big as bank valuation 90-95 cents on the dollar versus market prices of 30 cents, but the typical example is bank holding price of 80 cents versus market of 30 cents. So let us repeat, the purpose of this program is NOT price discovery, and any claim along those lines is a lie. The purpose is to keep the banks from recognizing losses that already exist, by reversing them via unloading the paper at a fictitious high price and dumping the loss on the taxpayer.

* * *
The broader point is that private investors have higher return expectations than Uncle Sam, who is generally happy to get out whole (meaning you tell the public you took no loss, but it would be nice if the government recovered its cost of funding). Merely providing them with non-recourse debt is not sufficient if their investment is still expected to produce a loss. And given their high return expectations, it is more costly to subsidize their participation rather than have the government bear the full cost.

We now see the absurdity of this program and the Treasury's position. the program is by design a gimmie to the banks, who can dump their dodgy paper on to Uncle Sam. In fact, they are now pretty ham-handedly trying to game the system. And rather than condemning their actions, the Treasury is lamely trying to defend them.

* * *
The Treasury can and bloody well ought to rein in this kind of thing, but instead it will fob its duty to make sure the program works as promised (ie gets bad assets off the balance sheets of banks that NOW own them, as opposed to those who decide to load up on them for fun and profit). But no, they pretend this isn't a problem of due to their negligence. More important, it show very clearly that their first and only loyalties are to the banking industry. The public is a mere goose to be plucked.

* * *
[T]he very biggest lie is that this is merely "rearranging" the counters within the moneyed classes. This is massive dumping of losses from the investing class onto taxpayers, many of whom have little in the way of retirement savings. The costs the average taxpayer is absorbing is well in excess of what his bank related investments.

The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.

Check out the whole piece, it's pretty short and easily understood. Sorry to be slack in offering my own thoughts, but as I said, I'm exhausted and I have to keep my grey matter ready to fire on the fraudsters who've already gotten into trouble. Lemme tell you, it's never been so damn rewarding being a securities law class action plaintiff attorney as it is now! Let me at 'em!

GIVING IT ALL AWAY, GLOBAL STYLE

2009-04-02T07:19:00.004-04:00

In case you were wondering about the G20 plans to "fund" the IMF, this lil' quotation from an early morning AP piece should explain it:

Stock futures surged about 2 percent Thursday as the world's finance leaders discussed the global economy. Investors were enthusiastic about word from the London meeting of financial regulatory changes and increased funding for the International Monetary Fund

You'll recall that a couple weeks ago when Timmy rolled out his "Big Privately Owned Banks Will Win, And Win Big" plan, the markets "surged." And spewed and drooled and whooped from the rooftops.

Because, you know, those gosh darn businesses and big-ticket investors like free money. They're just crazy that way!

Now, it looks like the Obama-Geithner-Bernanke-Summers Plan -- Taxpayer Money for Wall St., Now, Tomorrow, and Always . . . or at least til there's nothing left to give away -- is going international! I haven't figured out the details yet, but it seems like the governments of the world's largest economies will give tax payer money (or debased fiat currency) to the IMF so it can "loan" that money to choice institutions, projects, what have you.

Some will say that those IMF loans will go to "developing nations" or "infrastructure projects" to "get people to work." Yeah, right. If that were true, you really think investors would be "enthusiastic," sending stock futures "surging"?

Anyone who's been watching for the last six months (let alone the last six years) knows exactly what's going on here. Don't be fooled again.

MONOPOLIZING DEMOCRACY

2009-04-01T06:52:00.003-04:00

Bill Moyers sat down and talked with William Greider on Sunday night. Interesting chat. Moyers has really given voice to media and academic semi-outsiders on the economy, politics, and philosophy as to what's been going on in the financial/governmental world since last fall. I don't agree with everything Greider said -- notably he misunderstands the Federal Reserve's role since it was established through banking industry pressure in 1913 -- but he made lots of sense in other areas. Here's the transcript of the entirety of Sunday night's show. The interview with Greider starts a bit past the midway point. A few highlights:

BILL MOYERS: Government will be lazy, and everybody else will...
WILLIAM GREIDER: Will fair badly.
BILL MOYERS: Right. Right.
WILLIAM GREIDER: Well, yeah, and Democrats, not all of them, but in many ways-
BILL MOYERS: Not all Republicans, either.
WILLIAM GREIDER: Nor all Republicans, but both parties, on the whole, bought into this. And we- no need to question their sincerity. They bought into it. You might observe, in passing, that it also matched the desires of their patrons.
BILL MOYERS: Well-
WILLIAM GREIDER: Who were the big financial contributors to their campaigns. But even leaving that aside, this logic was, you know, compelling to lots of people. Some of us are, were sort of bag ladies on the street corner, waving our placards, "No, no, no, don't do this."
BILL MOYERS: As I listen to Secretary Geithner, I heard him say, well, Treasury's going be a tough cop on the beat. We're not just turning to the Fed. We're going to make this Treasury Department a champion of the people's interest, of the public interest. And we're going be a really tough cop on the beat. Do you believe him?
WILLIAM GREIDER: Unfortunately, Secretary Geithner, has a record- which we know about. When he was President of the New York Federal Reserve Bank. And he was at the table, in many of the bailout transactions. First Bear Stearns then A.I.G. and others. And this is, again, not my opinion, but people on Wall Street talk about it all the time. He got spun around again and again by the big Wall Street players. The bailout of Bear Stearns was really about protecting J.P. Morgan Chase.
The story was told backwards in the press, basically, because it's a story the government told that J.P. Morgan came in to buy Bear Stearns at the behest of the government. But in fact, if Bear Stearns had gone down, J.P. Morgan Chase was vulnerable itself to a wave of derivative crashing crisis. When they bailed out A.I.G., the chief executive of Goldman Sachs was in the room. Why was he in the room? Well, because he had big exposure to- through derivatives, to A.I.G. So, when they pump money into A.I.G., it sends the same dollars out and buys back these derivative contracts at par value, not even discounted, to the banks and others who hold them. Goldman Sachs gets $12 billion out of that transaction. This is another scandal waiting to surface. And I trust good, smart reporters are already on the case. And following the dollars that moved around among the leading financial institutions in ways that politicians could not have not known about it. It defies reason to think that Washington didn't know this was happening.
* * *
BILL MOYERS: What do ordinary citizens do about this? How do they break this grip that money has- the patrons have on the politicians?
WILLIAM GREIDER: They trust themselves. I read a wonderful book about the Civil Rights Movement and SNCC and others in the South, in Mississippi, the most treacherous, backward place you could go, bring the issue of racial equality.* And they said the organizers first goal was to learn to listen to these people, that they were poor blacks in Mississippi. The second goal was to convince themselves and these poor people to act like citizens even if- even though they knew they weren't citizens. And you think about that. That's kind of the mystery of democracy. People get power if they believe they're entitled to power.
* * *
BILL MOYERS: I hear that. But I also read your piece on "The Washington Post" last Sunday, in which you wrote, "Obama told us to speak out. But is he listening?" You ask. Well, is he?
WILLIAM GREIDER: I think he's... And I've been very enthusiastic about his opening as President. He did the stimulus package and a number of other things that's fulfilling his promise. On this, he does seem absolutely committed to restoration of the old order. There's no other way to say it. And this- these things Secretary Geithner is saying this week and others have been putting out, all confirm that.
I think that's A) a huge mistake, financially. I don't- because I think these things are not going to work. And will, in fact, blow up in his face. Maybe a month from now. Or maybe six months, I don't know. But the handing out of government guarantees and capital to hedge funds and private equity funds. Financial institutions founded on secrecy, by the way. They're don't even pretend to be transparent. They're closed shops. Hands out that money, and then somewhere down the road people are going to learn that the investors, so called, are reaping 20 double digit returns on this money with almost no risk at all to themselves. And whether that works or not, people will be outraged. Again, as the returns come in. And I think should be. And outrage right now might just get the Congress to slow down a bit, calm down, we want reform, but we want it done right. And we want it done for the public interest, not for the old order.
BILL MOYERS: So, Obama, this week, has opened the hotline, one might say, the online hotline, to the White House. And said, give me your questions and we'll answer them. As of now over 100 thousand people have responded. Do you take that as an indication of what?
WILLIAM GREIDER: Popular anger.
BILL MOYERS: Popular anger?
WILLIAM GREIDER: Yeah. People get confused about this. Americans overwhelmingly want our President to succeed. And so do I. But that's not- the nature, is not, of democracy, authentically, is not simply supporting from the bleachers, and saying, gee, we hope you win the game. It's being on the field, engaged in whatever small or large way is possible. And expecting those elected representatives, including the President, to at least hear what you're saying, and if, and rightly, responding to it in some ways. That's the dynamic of a democratic society. And we know everybody knows in this country that this has now been, for some years not exclusively, but mainly a top down society. And you go into workplaces and hear the same things said as you hear about politics. Well, I know what's wrong here, but they won't listen to me. I don't have any voice in the matter. Or investors, small investors, putting their money in mutual funds. Well, they're not listening to me. Look who they're giving this money to. You know, you can go on and on. And that's what democracy is- would break.
BILL MOYERS: And I know that one of your deep concerns about the Fed, turning so much power over to the Fed, is that it is cozy with the big institutions. And that the smaller, entrepreneurial organizations and businesses that do not have access to the inner circle are excluded.
WILLIAM GREIDER: President Obama and if the Democratic leaders in Congress follow along, he'll put the Democratic Party on the wrong side of history. At this critical moment. What we ought to be seeking, the goal of reform, and government aid, is creating a new financial and banking system, of many more, thousands more, smaller, more diverse, regionally dispersed banks and investment firms. That's first obligation is to serve the economy and serve society. Not the other way around. What the administration's approach may be doing is consecrating too big to fail, for starters. Which, of course, everybody in government denied was the policy until the moment arrived. And secondly, and this will sound extreme to some people, but I came to it reluctantly. I fear what they're doing, not intentionally, but in their design is setting the crown for a corporate state.
BILL MOYERS: A corporate state?
WILLIAM GREIDER: A corporate state. And by that I mean a rather small but very powerful circle of financial institutions the old Wall Street banks, famous names. But also some industrial corporations that bought banks. Or General Electric, which is already half of big financial capital, GE Capital. And that circle will be our new Wall Street club. Too big to fail. Yes, watched closely by the Federal Reserve and others in government, but also protected by them. And that's a really insidious departure. To admit that and put it into law. And then think of all those thousands of smaller banks. How are they going to perform against these behemoths that have an inside track to the government spigot? And for just ordinary enterprise in general? Before you even get to the citizens. How are citizens supposed to feel about that? And I-- my point is, in this situation, with if the leading banks and corporations are sort of at the trough, ahead of everybody else in Washington, they will have the means to monopolize democracy. And I mean that literally. Some of my friends would say, hey, that already happened.
BILL MOYERS: Yeah, the corporate state is here.
WILLIAM GREIDER: The corporate state is here. And I'd say, let's not argue over that. The fact is, if the Congress goes down the road I see them going down, they will institutionalize the corporate state in a way that will be severely damaging to any possibility of restoring democracy. And I want people to grab their pitch forks, yes, and be unruly. Get in the streets. Be as noisy and as nonviolently provocative as you can be. And stop the politicians from going down that road. And let me add a lot of politicians need that to be able to stand up. Our President needs that to be able to stand up.

As I suggested at the top, I'm not really sure that Greider gets it at a fundamental level. He really sees the Fed as a potential regulatory body, able to step in to form balance between banking and the rest of us. That's not true, unfortunately. The Fed is a private organization with quasi-governmental privileges. Whether regulation is a good idea or not, the Fed will "regulate" the only way it ever has -- by inflating and shifting the benefits of that largesse only to those first in line. And by that I mean the 20-or-so-odd banks that have access to the discount window and other Fed perks.

But I come to praise, not to criticize, so I'll end by saying that Greider really nails the whole concept of the corporate state, of the Oligarchy forming. Of the role and power of the Insiders. Every voice in the mainstream or semi-mainstream that talks about this stuff is a good thing.

THE CORPORATE STATE, AKA CORPORATE FASCISM, AKA FASCISM

2009-03-31T06:30:00.005-04:00

Tough talk from Obama about America's failing auto industry. Fix yourself or die! No more easy bailout money! We're making the rules now! Day-um.

Now let me be real clear: I'm not in favor of bailing them out with one more penny, and frankly I'm not even looking for any form of "nationalization," or government-sponsored unwinding, or any of that jazz. They wanna declare Chapter 11, let 'em. They wanna go out of business, that's fine by me. Nevertheless, something strikes me as juuuuuuuust a tad inconsistent about Fauxbama's tough talk here. I can't quite put my finger on it, but this doesn't jibe with some of his other public statements lately.

Very briefly, let's review:

1. Detroit better get its shit together or we're gonna let it fail. Wall St. and the banking industry, on the other hand, are "too big to fail."

2. If the Big Three can't fix themselves, we're forcing them into Chapter 11! On the other hand, we will never "nationalize" Wall St. and the banking industry.

3. Extending on that theme, Detroit's creditors can basically go fuck themselves. Wall St.'s creditors, on the other hand, will be protected. Since many of them are banks themselves, they too are too big to fail.

4. Rick Wagoner, you're gone! The CEOs and other executives of Wall St. institutions, on the other hand, can't be fired because we need their "expertise." This expertise, apparently, focuses primarily on making risky investments and using tax dollars to make themselves richer.

In general, this is so fucked up I can't even explain it without breaking into a smirk. The government can just step into a private company on one hand, nationalize it, fire its CEO, and dictate its business policy . . . while simultaneously giving away our money to the world's wealthiest bankers with no conditions or requirements attached. None of this takes place through any sort of public debate, none of it has a contingency plan more than two steps down the road, none of it makes a shred of economic sense, none of it even passes the smell test of constitutionalism or American political traditions.

What's the goddamn difference between Obama and Hugo Chavez on one hand? Or Mussolini on the other?

I'd say the biggest problem here is how arbitrary the decision-making is, except it's not arbitrary. There's one set of rules for the biggest bankers . . . and another set of rules for everyone else. It's clear who runs this country, and it ain't the auto industry, it ain't Congress, it ain't the press, and it sure as hell ain't you & me.

Bow down to Wall St., people. They're your bosses. You work for them. You pay your taxes to them. They make the rules. Just hope they're kind enough to let you live where you want and raise your children under your own rules. Because if they decide not to, there doesn't seem to be a damn thing we can do about it.

PAYING OUR FEUDAL DUES

2009-03-30T05:46:00.004-04:00

The more I think about Geithner's Public Private Partnership Investment Program, the more it makes me angry. Because it signals a shift a sorts. A clear demonstration -- in the open, as always, no "conspiracies" here -- that We, The People, will underwrite Wall St. . . . for Wall St.'s gain & profit. This is no emergency "bailout." This is the long-awaited "plan" to "clean up" the big banks' balance sheets, to rid them (and "us," we're told) of all those gosh-darn toxic assets that have been dogging us.

And what does the plan boil down to? We, The People, pay for all the garbage. Which stays in private hands. So that if, and when, that garbage regains any value, it remains in private hands. And the banks get above-market value to remove that garbage from their balance sheets. That's pretty much it. Socialized Risk & Privatized Profit at its most naked.

Think of it this way: I'm a rich guy in a rich town. Greenwich, CT. Or Malibu, CA. 5th Ave. For the Michiganers among us, think of Grosse Pt. or Bloomfield Hills. I've "come upon hard times lately," due to poor decisions, both personal & financial. Both of my luxury homes have fallen into embarrassing levels of disrepair, and my business -- the largest in town -- is in very bad shape. Laying off my workers, who no longer shop at the local stores, and the ripple effect is taking shape. Bad stuff.

So the town ombudsmen and muckety-mucks decide that they will shift your tax money away from local schools and parks and buses and paving . . . and use it instead for the following: Along with a consortium of nine-of-the-remaining-ten richest guys in town, they will buy my two enormous mansions for approximately 75% of their traditional "market value." You know, to ease my financial straits, so I can stop worrying and start focusing on my business again. Re-hire some of those workers I fired. Help the cycle of support for local business again (95% of which is owned by those nine guys).

But the nine guys will only put up about 10 or 15% of the money to buy my homes. They can't afford more because they have to "keep up with their businesses" (where they've been laying people off hand-over-fist) and "pay off their their homes" (which are already owned outright, just like mine). So the deal is as follows: In 2006, a board of "real estate experts" (all of whom worked for me or the other nine guys) determined that one of my homes was worth $20 million and the other was worth a cool $10 mill. But due to the current economic difficulties, today they tag them only at $13 m and $7 m. Tough times all around.

So, the nine private guys collectively agree to pony up $2 million while the ombudsmen & muckety-mucks scrape together the remaining $18 million to buy my homes so I can start to spend my billions on my businesses. About $6 million of the $18 million comes from current tax revenues & the remaining $12 million via municipal bonds they promise won't adversely affect the local budget. Actually, no one steps forward to buy the bonds, but the nine businessmen promise to buy them in six months if the town increases the yield. No deal is struck, but the town advances the funds anyway.

The other nine fellas (with the support of the town officials) are kind enough to let me stay in the $7 million home that they bought so long as I promise to pay back rent (of $3,000/month) once my business starts to hum again, which hasn't happened yet since I was disappointed to discover that the recovery is slow and I can't re-hire any of the workers I laid off, and in fact "have to" fire 5,000 more. And the other guys decide to hold onto the $13 million home, publicly making a big show out of waiting for the highest bidder to emerge.

And they, too, are terribly disappointed to see that the recovery to the local scene is slow to come and collectively fire 10,000 more workers.
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Skip five years ahead: The economy has slowly recovered after a dreadful downturn that saw 25% of the town's people out-of-work. Many left the town, never to return. Many others saw their dreams of retirement shattered. Others lowered their standards of living dramatically. And the town itself, saddled with tremendous debt from the municipal bonds, has no infrastructure or local business to speak of (the nine guys bought about $3 million worth after the town agreed to raise the yield, but the rest of the debt was just floated). Only the wealthy stretch of houses at the edge of town has retained any of its pre-downturn luster, with homes worth 85-125% of their 2006 value.

My "$7 million home" was worth $12 million when I sold it to an oil shiekh, thanks to the renovations I put into it. I never paid the back rent, since the town was so thankful for the baseball field I built on the site of one of my old businesses after I shut it down and made a nifty profit on the land and raw materials. And I bought back my "$13 million" home from the other nine guys for $7 million, which made them happy since they paid only $2 million for it. It's worth $23 million now, and my family is very happy to be living there again.

And we're all very thankful for the generosity of the little people who helped us out when times were so rough. We're even thinking of paying them back by re-hiring them at below-market wages. But not yet, since our overseas businesses are doing so well.

COCKTAILS (OF THE TOXIC VARIETY) ON THE HOUSE

2009-03-26T07:12:00.002-04:00

Well, well, well. Look who's taking advantage of the "Geithner Plan." Ritholtz has a short piece about Citi and BOA buying toxic assets lately:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market

* * *
both banks have been [aggressive] in their buying, sometimes paying higher prices than competing bidders are willing to pay.

This is the logical outcome of Timmy's "Plan." If you know the government is gonna broker a bunch of deals to buy garbage at above-market prices (through outright purchase, leveraging, guarantees, etc), why the hell wouldn't you buy up as much of that garbage as possible at the current market prices? That's good business, right?

Especially when you consider that the money they'll spend to make these market-rate purchases came directly from the taxpayers in the form of "bailouts."

I believe this is called playing with house money. And we're the house. But unlike Vegas (and Wall St.), in this example the house always loses.

THE LATEST PLAN: GIVE US YET MORE OF YOUR MONEY

2009-03-25T06:17:00.004-04:00

Last night Obama tried to suggest that Geithner's ability to actually propose a plan was some sort of step in the right direction. Me, I'd like to a see a plan that accomplish something without soaking the taxpayers. But hey, I'm so goddamn picky, demanding justice and fairness and democratic process and competence and all those silly abstractions.

Anyway, economist Willem Buiter of Maverecon breaks down some of the details of Geithner's Public Private Partnership Investment Program ("PPIP") (H/T Yves). He makes a lot of points, many of them very detailed, and not all of which I agree with at a policy level. Nevertheless, he explains some of the larger points of what Geithner's plan calls for, and who it really helps . . . and hurts. A few highlights:

The present and previous administrations have not helped themselves by failing to realise that it is possible to saving banking - the activities, that is, lending, deposit-taking and borrowing - without saving the existing banks. If they did realise this, they failed to act on the realisation.

The US Treasury is putting at most $100 bn into the PPIP pot. “Using $75 to $100 billion in TARP capital and capital from private investors, the Public-Private Investment Program will generate $500 billion in purchasing power to buy legacy assets - with the potential to expand to $1 trillion over time.” The programme is hoped to do up to $1000 bn worth of toxic and bad legacy asset purchases. Hope is good. Cash is better. Where is the remaining $900 bn going to come from?

The answer is loans or loan guarantees from the FDIC and the Federal Reserve and co-investment with private sector investors. The answer differs for the two components of the PPIP, the Legacy Loan Program and the Legacy Securities Program. I will take them in turn.
* * *
The total amount of money put at risk by the private investor [under the legacy loan program example of $84] is $ 6, the private equity investment. The Treasury would also be on the hook for $6, its 5o% share of the total equity investment. The FDIC would lend $72 or guarantee lending of that amount. That’s what meant by the FDIC being “…willing to leverage the pool at a 6-to-1 debt-to-equity ratio.”

First note that the public sector as a whole (Treasury plus FDIC) is at risk for $78 out of a total investment of $84. The public sector has the same upside as the private sector (through its $6 worth of equity). However, the private sector gets this upside by putting only $6 at risk, against the public sector’s $84 at risk. Small wonder the stock markets loved this. If there were a stock market for taxpayer equity, it would have tanked by a commensurate amount.

It must be recognised that the FDIC is in this picture only for cosmetic, window-dressing reasons. The FDIC has no resources of its own to spend on leveraging the PPIP. It cannot raise taxes and it cannot print money. It obtains revenue from the insurance premia paid by the banks whose deposits it insures, but that is hardly a secure source of income at the moment, let alone one that can be expanded drastically, should the need arise. What little money the FDIC has is earmarked to meet future claims of depositors insured under its Deposit Insurance scheme (Congress has temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor through December 31, 2009). The FDIC has no money to spare. Indeed, if any major deposit-taking bank were to go belly-up, the FDIC would have to rush to the Treasury for money.
* * *
Under the Legacy Securities Program, the Treasury will provide equity of $100 for every $100 of private equity put in. The Treasury will also lend up to $200 for each $100 of private equity. So the Treasury puts at risk $300 to gain the same upside that the private sector will only put $100 at risk for. Nice work if you can get it (if you work in the private sector). Again, the tax payers’ stock takes a hammering.

* * *
The Legacy Securities Program further enhances the quasi-fiscal role of the [Federal Reserve], and turns the Fed even more blatantly into an off-balance sheet and off-budget special purpuse vehicle of the US Treasury. It does this by extending the scope of the Term Asset-Backed Securities Lending Facility (TALF) to legacy asset-backed securities (especially mortgage-backed securities, residential and commercial and consumer debt-backed securities). The original TALF was created to lend up to $1000 bn to private institutions willing to invest in newly originated mortgage-backed securities. The US Treasury only guarantees up to $100 bn of this proposed lending, so in the worst-case scenario, the Fed could be in the hole for $900 bn, through its exposure to private credit risk.

* * *
The role of the Fed in the PPIP, through the expanded TALF, is deplorable. First, the main redeeming feature of the TALF was that it was focused on new securitisations of mortgages, in an attempt to revive the market for new securitised mortgages and through it new mortgage lending. Diverting these resources to the ex-post insurance of losses that have already been made on legacy MBS (commercial and residential) and legacy consumer debt-backed securities is a serious waste of scarce public resources.

* * *
None of this addresses the issue of the massive private sector credit risk the Fed is taking on its balance sheet, a risk greatly enhanced by the modification of the TALF to include legacy toxic assets. Even if the short-run consequences for the monetary base of enhanced Fed operations under the TALF are sterilised, the Fed will, should it suffer major capital losses on its investments in private sector securities, have no option but to expand the monetary base to maintain its solvency, unless the US Treasury comes to its rescue. The terms of the TALF (with the US Treasury guaranteeing only 10 cents on the dollar, if the full $ 1 trillion is lent by the Fed) suggest that the US Treasury cannot and will not come to the rescue of the Fed. Monetisation of the Fed’s capital losses and inflation will be the inevitable consequence of the lack of fiscal firepower of the US sovereign.

This threat of future inflation from Fed decapitalisation through losses on its portfolio of private assets is in addition to the threat of future inflation caused by doubts about the reversibility of the Fed’s forthcoming purchases of Treasury securities through its quantitative easing (QE) policy. The recent Chinese comments on finding/creating a substitute for the US dollar as the international reserve currency demonstrate that concerns about the medium-term and long-term inflation consequences of the Fed’s QE, its credit easing and its quasi-fiscal rescue efforts of large US banking and shadow-banking institutions, are growing.

That last point is especially important, as it explains why this is not just about "tax dollars." It's ultimately about the "hidden tax" of inflation that will destroy our wages, our savings, and our equity (if we're fortunate enough to have any of those things!). Not only are we paying now to save the banks, but we'll pay later for the privilege of having saved them.

And as to whether any of this will save the banking system, that remains to be seen. As does the larger question of whether saving the banking system will even help the economy.

Maybe I'm being overly reductionist, but as for Geithner Plan II (aka, Paulson Plan III), I ain't seeing it.

THE UNITED STATES OF BAGHOLDERS

2009-03-24T06:48:00.005-04:00

John Carney of Clusterstock adds his take on the Geithner "Plan," arguing that it's "a budget dodge" by the Obama administration: (H/T Yves). A highlight or two:

Politicians love guarantees because they don’t require current expenditures. In fact, they often pretend a guarantee or a loan is free money—as if a guarantee something that probably won’t ever have to be paid off and all loans from the government will get paid back. As we’ve learned throughout this crisis, that’s a dangerous fiction. If you say you have a bazooka in your pocket, eventually the market will demand you produce it and start blowing things up.

* * *
[The administration] decrees the TARP money to be "equity", and then goes off to the FDIC to provide "debt". Both of these sources of funds are US government risk capital which will be used to buy up toxic legacy assets. There's no economic reason to make the debt/equity distinction. But there is a political reason: Congress would have to approve any more equity spending, but FDIC guarantees can be issued to an unlimited degree without Congressional approval.

* * *
Insurance provides a much more politically palatable way of bailing out the banks. Politicians won’t have to spend a dime on day one. They’ll claim that much of the insurance will prove unnecessary because the asset values will recover. We're sure someone will say that taxpayers could even make money on the insurance, if the premiums charged to banks wound up being higher than the pay outs on the insurance. The budget makers will come up with a rose-tinted estimate of eventually payouts, and that estimate will be based on the idea that the troubled assets will recover their value.

But he also explains why that's nonsense, with what he calls the Dislocation Ideology:

We’d guess that the program to purchase assets turned out to be horrifyingly expensive. Banks are unwilling to shed the assets at steep discounts. Many bankers still believe that a lot of their troubled portfolios will be worth more once the “market dislocation” clears up. That assumption that these debt linked securities will be worth far more than current market pricing indicates we’re calling the Dislocation Ideology.

But even if they were willing to give up on this Dislocation Ideology, they wouldn’t sell their bad assets to the government at market prices because this would render them insolvent. When the government got around to figuring out what it would cost to overpay enough for the troubled assets that banks would come clean, the number was almost certainly beyond anything they had contemplated.

Add to this the point that Applesaucer explained in the comments yesterday -- that "banks who sell into this program will find a way to buy the same assets coming out" -- and you begin to see the depths of the latest boondoggle.

Meet the New Paulson Plan, same as the Old Paulson Plan. We're paying. A lot. And the banks -- the same banks who got us into this mess -- survive, receive new injections of capital, and then get to keep whatever is of value at the end. Or they can just buy up what's worth buying, with the proceeds of the money we so generally "lent" to them.

And what do we get? The bag.

And it's empty. Except for the bill at the bottom.

FAUXBAMA'S MONEY MAN UNVEILS HIS "PLAN" TODAY

2009-03-23T05:57:00.003-04:00

So at some point today, Timmy "The Bagman" Geithner will roll out the "details" of the latest plan to shift trillions of dollars to the world's wealthiest and most powerful. You and I and our descendants are so generous.

By the end of the day, all the "specifics" will be available to make fun of, and folks who know a lot more than I do will have opined. Most of them -- and likely all of them who aren't beholden to The Insiders -- will rip the plan to shreds. Nevertheless, it won't surprise me if the market goes up. After all, this plan is for the benefit of the largest institutions; I suspect they'll be very pleased.

Anyhow, it looks like the basics of the plan will be a combination of Treasury and FDIC donations, low-interest loans, and guarantees for any private actor reckless/greedy/connected enough to step in and buy the worthless garbage that our government brokers the sale of. The key flaw is that the banks that own the garbage assets stay in business and receive money in exchange for their balance sheet bullshit. The other flaw is that if the garbage assets ever end up being worth anything, they'll be in private hands to a significant degree.

Our money. Our loans. Our guarantees. The bank's benefit: cleaned up balance sheets. The private "purchaser's" benefit: no-risk investments, whereby they at a steep discount for assets that they will own if the value goes up. Our benefit: not sure that's part of the plan.

And, of course, two other things to remember:

One, if no private buyer opts to buy this garbage, the government will end up buying all of it. That's another bailout. Explain to me the difference between giving money to a cancer victim, and buying the cancer and putting it inside of your own body.

Two, the Federal Reserve ultimately backs up the maneuverings of the Treasury and the FDIC, so this is another step in the direction of the complete destruction of the dollar through currency debasement. The end game is becoming clear: unless Fauxbama hears the mob coming with pitchforks and turns into the Obama that the American people and the world want, the Insiders will loot every penny they can get their hands on, and it won't stop until there's nothing left. When either the Treasury is completely insolvent and/or the dollar is so debased, so essentially valueless, that it ceases to be the world's reserve currency.

Whatever specifics Timmy gives us today, remember this: unless his "plan" involves the U.S. government taking complete control of the banks -- kicking their officers, directors, shareholders, and 99% of their creditors to the curb in the process -- it's yet another step in The Looting. So long as the banks remain in private hands, every dollar we give them is just another bailout.

Don't let Timmy's fancy alphabet soup program titles and disembling semantics get in the way of the facts. Ownership is ownership and bailouts are bailouts. Today's plan will be one but not the other.

J'ACCUSE REVISITED

2009-03-22T08:57:00.004-04:00

I'm sure many of you have heard the buzz about Matt Tiabbi's article in Rolling Stone about the AIG bailout & the roots of the financial mess. Well, it's a damn strong article, and it really sums up some of the things we've spoken about here. The Insiderism, the Oligarchy, the complicity of Paulson, Geithner, Bernanke. It's absolutely required reading. Read the whole thing -- some of it is frankly devastating -- but I especially like his takedown of the Federal Reserve on pp. 6-7:

In the pre-crisis days, the Fed used to manage the money supply by periodically buying and selling securities on the open market through so-called Repurchase Agreements, or Repos. The Fed would typically dump $25 billion or so in cash onto the market every week, buying up Treasury bills, U.S. securities and even mortgage-backed securities from institutions like Goldman Sachs and J.P. Morgan, who would then "repurchase" them in a short period of time, usually one to seven days. This was the Fed's primary mechanism for controlling interest rates: Buying up securities gives banks more money to lend, which makes interest rates go down. Selling the securities back to the banks reduces the money available for lending, which makes interest rates go up.
If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.

The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.

While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.
* * *

None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.

* * *
In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."
When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke.

Finally, as he closes the piece he gets to an essential understanding of how all this outrageous shit went down:

The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner — himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm — picked a former Goldman lobbyist named Mark Patterson to be his top aide.
In fact, most of Geithner's early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets — the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.
* * *
As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; values-wise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

Analyses of the roots of this disaster have bounced around the blogosphere for months now. Over the last month or so it's begun to hit the mainstream press. Anyone who sits quietly watching the business-as-usual "solutions" that Bernanke & Geithner (and yes, Obama too) are proposing without instantly seething in outrage is either an Insider himself, or a complete idiot. This shit has got to stop and the only way that'll happen is if we all make an effort to understand it, and then make so much noise they fear not only election day doom but the mob with torches and pitchforks.

This has to stop.

WHEN A GUY WHO PROMISES NOTHING BUT CHANGE INSTEAD CHANGES NOTHING

2009-03-20T07:18:00.005-04:00

Pretty busy with work, so I don't really have time to put together a full post. But Cunning Realist has a sharp -- and blunt -- take on Obama's first 50 days or so. It's a pretty short post, and it's always worth checking out what he has to say, but here's the core of it:

Since Inauguration Day it's been obvious that Obama either never really wanted to "fix" this, or was convinced by administration insiders and/or top Democrats to lay off. When I wrote in early February that I was losing confidence in him because of his sudden lassitude on executive compensation, I got a few nasty emails about how I needed to give him a chance. But presidents can be made or broken by symbolic, high profile issues early in their first term -- especially when "change" was the overarching issue that brought them to office.

We're waiting. But meanwhile, Geithner and Summers continue Paulson's policies, and the same hack heads the federal reserve.
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Update -- Here's his first big chance: seems that Geithner admits that he knew about the loophole in the "Stimulus" legislation that allowed AIG executives to receive bonuses from taxpayer money.

Guess what Mr. Obama? Time to make your first big administration "change." And all it takes is a quick request for Timmy to stop by the Oval Office on his way home today.

The second change would be putting someone with a little integrity into the position after you kick Geithner's ass to the curb (and make him pay his goddamn back taxes). Paul Volcker would be a nice place to start.

Replacing Summers and firing Bernanke would be nice places to continue.

INSIDERISM KNOWS NO POLITICAL BOUNDARIES

2009-03-19T06:52:00.006-04:00

Jesse posts on the level of knowledge, conflict-of-interest, and straight-out culpability of various D.C. insiders in the whole AIG bonus scandal. Just to remind you (in case you've lost sight of the issue), we're talking about the billions of dollars that AIG executives and institutional counter-parties received from the American people as a reward for making stupid, if not fraudulent decisions that already made them rich at the expense of everyone else. That scandal.

And among the names implicated? Apart from those we already know like Hank "Goldman Sachs" Paulson, "Helicopter" Ben Bernanke, "Heckuva Job" Timmy Geithner, and Larry "Winter of Our Discontent Turned to Inglorious" Summers? Well, this time it's just a couple fellas named Chris Dodd and Barack Obama. A few highlights, and then I urge to read Jesse's post, which is short and contains links:

while the Senate was constructing the $787 billion stimulus last month, Dodd added an executive-compensation restriction to that very bill. The provision, now called “the Dodd Amendment” by the Obama Administration, provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009.”

* * *
Obama may be grandstanding about AIG’s bonuses now, but it’s worth noting that Obama himself is the second biggest benefactor of AIG political contributions. Second only to Senator Chris Dodd, who is quietly trying to tip-toe away from legislation he inserted into Obama’s “stimulus” spending spree that protected AIG’s bonuses.

Meanwhile, Paul Kanjorski claims he alerted Treasury about this bonus issue six or seven times in the last few weeks. And finally, Jesse reminds us that last September was the key decision point on bailing out AIG -- when the only non-official present at the meeting where Treasury/The Fed decided to bail out AIG was none other than Lloyd Blankfein, the Chairman of Goldman Sachs. And as we knew then, and certainly know now, Goldman Sachs is a major counter-party at risk with the AIG Financial Products Division.

None of this is mysterious now, and it wasn't then.

AGE OF PYRAMIDS (PART II)

2009-03-19T06:35:00.004-04:00

Well, that didn't take too long, did it? Yesterday I noted that the Fed was wondering which of a number of options to take, and by midday they opted for a few of them, deciding to add an astonishing $1.2 trillion to its already burgeoning balance sheet. $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. These are, of course, "toxic assets," unlikely to retain anything close to their book value. And the Fed also announced it will purchase $300 billion in long term treasuries, thereby finally taking the long-awaited and long-feared leap into direct debt monetization.

This latter step is especially frightening for many reasons. One consequence is that the cost of treasuries will therefore rise, while the yield will drop. I can't see that China -- which has already expressed concern about the health of the American economy -- will like this. Yet we need them to keep buying US debt. It's too soon to say for sure but I think one part of the Fed's decision reflects a fear of on-going Chinese reluctance to purchase treasuries.

Apart from the more obvious strategy of artificially "stimulating" the economy. Which will eventually lead to nothing but price inflation.

Bernanke and friends just added another brick to the pyramid.
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Update -- Yves analyzes some of the economic causes and consequences of the Fed's decision.

THE AGE OF PYRAMIDS

2009-03-18T07:11:00.005-04:00

Following up a bit from yesterday's discussion, as the latest Federal Open Market Committee continues, the Fed is apparently wondering what to do (since it can't lower interest rates that are already at or essentially at zero, and it clearly sees "do nothing" as a non-option). Among the options it's bouncing around:

* hold its lending rate between zero and 0.25 percent for the rest of this year and for most -- if not all of -- next year

* buying long-term Treasury securities

* boost its purchases of debt issued or guaranteed by mortgage giants Fannie Mae and Freddie Mac

* spur lending for auto, education, credit card and other consumer loans. The Fed later this month will start providing up to $200 billion in financing to investors to buy up such debt

As Applesaucer explained so eloquently in yesterday's comments, all of these options amount -- in the end -- to nothing other than the creation of "money" from thin air. Some destroy the Fed's balance sheet more than others. Some "stimulate" the GDP more than others, but in the end they devalue the currency, and add nothing of value to the economy. If the government decrees today that at the snap of the finger everyone now has twice as many dollars as he had when he woke this morning you're not one cent richer.

But debtors -- including, of course, the U.S. Treasury and the Federal Reserve -- can pay their obligations in the watered-down currency that creditors (including you, as a holder of Federal Reseve Notes, also known as dollar bills) are legally required to accept as "tender for all debts, public and private."

Whatever the FOMC decides today, or in the near future, remember that they're just figuring out the best way to perpetuate the ponzi scheme. And robbing you blind in the process.

THERE'S A GOOD REASON THE DOLLAR BILL FEATURES A PICTURE OF A PYRAMID

2009-03-17T07:04:00.004-04:00

I just want to throw out an idea out for discussion. A few days ago, Neighborhood regular and frequent commenter Applesaucer & I were discussing the nature of the federal reserve system & central banking in general. More specifically, Applesaucer threw out the idea that the federal reserve system is just a gigantic ponzi scheme.

I agree.

In brief, that dollar bill in your wallet is described as a "federal reserve note." A debt instrument. In other words, the federal reserve issues these notes, with the implied promise to pay the bearer what that debt instrument is worth. In this case, US$1. Or US$100, what have you. Easy so far.

But here's where it gets dicey. What backs that debt instrument? Another currency? No. A tangible asset like land or cattle or crops? No. Gold or silver? Hell no! That's clearly not the case, as the federal reserve -- while hording a sizable chunk of the world's gold reserves -- doesn't have nearly enough gold to cover its debts.

None of the above. The federal reserve's debts are backed by the full faith and credit of the U.S. government. Meaning that the U.S. government backs and covers these debts should we all decide to make a run on the federal reserve banks. And where does the U.S. government get the "money" to cover those debts. Well . . . uhhhhh . . . it borrows money to generate its own debt instruments -- U.S. Treasury bonds, T-bills, Treasury notes, each varying by maturity. And from whom does the US government borrow that money? Let's see, we have the U.S. citizenry, whose worth is measured in the amount of federal reserve notes it holds.

And then there's China, who have shown a recent reluctance to keep lending money to the US government. And if things get really tight, the US government can get the "money" to back the debts of the federal reserve banks by borrowing money from . . . the federal reserve.

And where will the federal reserve get the "money" to lend to the US Treasury? Easy! It'll create federal reserve notes from thin air. Which is cool, because after-all, the US government -- with its full faith and credit -- will back those federal reserve notes that the federal reserve is lending to the US government.

And on and on it goes. Get the idea? The inevitable end result? Insolvency & Default. Or Currency Devaluation & Inflation. That's it. There are no other possibilities. This is what constitutes an economy in 21st century America. I have a different name for it:

A Ponzi Scheme.

Anyhow, as I said, this is the fruit of an e-mail discussion. I may well have made some errors here in my description, and I'm sure Applesaucer will correct me. Please, everyone join in. Questions, comments, thoughts, disagreements, suggestions.

SLEIGHT OF HAND (LEAVING SLIGHTLY LESS IN ALL OUR HANDS)

2009-03-17T06:25:00.003-04:00

Today's WSJ reports that in the face of recent populist anger over bonuses paid from governmental bail-out money, Wall St. firms are examining the possibility of increasing base salaries for executives and "top-producing employees." (H/T Yves)

(For the moment let's just behave ourselves and ignore the fact that rewarding Wall St.'s "top level employees" for 2008-09 is tantamount to giving Kevin Smith a raise because he led the 2008 Detroit Lions in rushing.)

A few highlights if I may:

In response to expected bonus restrictions, officials atCitigroup Inc., Morgan Stanley and other financial institutions that got government aid are discussing increasing base salaries for some executives and other top-producing employees, people familiar with the situation said. The crackdown, part of the economic-stimulus package passed by Congress and signed into law by President Obama last month, limits bonus pay for the top five executives of any recipient of taxpayer capital through the Troubled Asset Relief Program, plus the 20 next-highest-compensated employees.
* * *
As banks and securities firms wrestle with growing regulation of compensation practices, substantially increasing the base salaries of top employees could become a popular response, some industry officials say. A larger salary would reduce the relative importance of bonuses but also help financial companies increase those payments, since they usually are calculated as a percentage of total annual compensation.

"The trend is to increase the base pay in light of the reduced bonuses," said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable. "Without the revenue" that top performers provide, he adds, "these companies can't survive."

Let's again behave ourselves and ignore the fact that they aren't surviving but-for governmental largesse. Back to the sordid tale:

Under the forthcoming rules, bonuses could come to no more than one-third of the total annual compensation paid to employees covered by the restrictions. Some compensation experts view the bonus limits as a mistake that turns the notion of pay for performance on its head, despite Wall Street's culpability for the recession and credit crisis.

"These are not bureaucratic positions where you're paying individuals high salaries," said Michael Karp, chief executive of Options Group. "How can you pay a banker a really high salary without knowing what kind of revenue that person generates?"

Uhhhh, we know they did not generate any revenue. In fact, we know they generated historic, unprecedented, hard-to-fathom losses. Which is why they probably don't deserve anything. Especially since the American taxpayers are paying it! I know I'm but one lone voice in the vast wilderness, but I'm gonna take a wild stab and say I'm a decent proxy for the other citizens. And my decision on their compensation is: Nada. Want a raise? Don't wanna answer to populist demands for a haircut? A got a swell idea: don't accept public money. Otherwise, I'm your boss, I think you suck, and I'll pay you accordingly. Back to the article:

Raising base salaries would play into "a long and dishonorable tradition of responding to any attempt to curb pay excess by just putting it in a different pocket and calling it something else," said Nell Minow, editor of the Corporate Library, a research firm focusing on corporate-governance issues.

Well-put.

Citigroup has received $45 billion in taxpayer-funded capital do far, while Morgan Stanley has received $10 billion. The latest U.S. rescue of Citigroup will leave the federal government holding as much as 36% of the company's common stock.

These firms still stand only because we've propped them up. The money they'll pay to the 25 highest-ranking parasites comes directly from us.

Inside banks and Wall Street firms, some executives are hopeful that the Treasury Department will water down the curbs on bonuses, inserted into the stimulus bill by Sen. Christopher Dodd (D., Conn.), during the department's rule-making process.

With bagman Timmy in charge, who could blame them for their optimism.

The Dodd provision sent shockwaves across Wall Street. Some bankers and compensation experts contend that top revenue-producers could bolt to non-U.S. banks or hedge funds that aren't subject to TARP-related restrictions. "It's possible we will lose some people," J.P. Morgan Chase & Co. Chairman and Chief. "I'll be very sorry if that happens."

He'll be very sorry. I'm sure he will. Anyhow, note the subjunctive tense of those statements. Top-revenue producers could bolt. But franky, at this point, so what if the morons who caused the mess lose their job? Lots of American have lost their job due to nothing more than bad luck. No one bailed them out.

Enough is enough. We have to keep making noise about this.

CONTRACTUALLY BOUND TO ROB YOU BLIND

2009-03-16T05:40:00.006-04:00

I'm sure by now you've all heard about AIG doling out $165 million in bonuses to the same useless executives who drove the company into the ditch with their risky investments and failed policies.

I'm sure you've also heard the Oscar-worthy hand-wringing of enablers Summers, Geithner, and Bernanke: If only we could undo those inviolable contracts between AIG and its employees, we would. We're just so outraged by this miscarriage of justice against the American people. I was so mad when I heard about this I tore my hair out and screamed in anger!

Bullshit, I yell. Yeah, they just found out about this over the weekend. Please.

Maybe if these brilliant, powerful, all-knowing leaders of the American economic recovery had done a shred of due-diligence into AIG's contractual obligations they could've chosen not to loan the $170 billion to the failing company. Or, more accurately, since the Three Stooges obviously did their due diligence and knew full-well about the bonus plan, they could have -- gasp! -- attached contingencies to the $170 billion and demanded that AIG award no bonus money after the bail-out. Make no mistake -- they knew about this bonus money and bailed out AIG anyway. It's too big to fail!

If AIG had said, we'd love to tell all our incompetent executives they'll receive no bonus money, but we're contractually obligated, then Timmy, Larry, and Benny could've informed the failing company that they're contractually bound to the American people not to give away money to thieves, bums, fools, and gamblers.

The bullshit storm grows stronger. It's up to Cat 4 and blowing harder. Whatever we're hearing out of The Three Stooges' mouths ain't the truth. Up is down, black is white, war is peace. And billions of dollars of corporate charity with taxpayer money brings "outrage" and "shock" to the very people who gave it away.

We're being bamboozled, and they're not even trying to hide it.

DIGGING A HOLE ALL THE WAY TO CHINA

2009-03-13T06:54:00.004-04:00

Fairly interesting post from Yves about China's posturing regarding its holdings in, and future purchases of, US Treasuries.

As many of you know, China holds astonishing amounts of US debt. A debt that we will never be able to pay back, should China and other creditors "call" for repayment. Even more frightening, in a sense, and certainly more important in the short term, is China's continuing commitment to buy more treasuries. If they don't, how can we continue to pay our bills? Service our ever-growing debt?

One way, of course, is to raise taxes to the roof. Apart from any questions about the undesirability of doing so, it's unlikely you'll see anyone in DC do that, for purely political reasons. Another is to slash spending. That ain't happening. A third possibility would be for US businesses and citizens to buy treasuries themselves. They have been for a while now. But -- especially with the market experiencing bear market rallies like the one we're seeing this week -- who's gonna loan money to an insolvent borrower for less than 1% interest? Knowing that the borrower can pay you back only in its reserve currency, which it has grossly devalued over the past 6 months (and will likely continue to do)?

Maybe I'm missing something here, but the only scenario I see going forward is for the Federal Reserve to start buying US treasury debt. Monetizing the debt, as they say. And when that happens, that means trillions of dollars worth of brand-new, created out of thin air, fiat currency will start to seep into the economy.

Can you say Inflation?

Anyhow, check out the post.

INTERESTING HAPPENINGS IN THE WORLD (BEYOND AMERICA'S FINANCIAL COLLAPSE)

2009-03-12T05:48:00.005-04:00

I just read that Jack White is forming another group. In addition to the White Stripes and the Raconteurs, hard workin' Jack will soon release an album with The Dead Weather, a new band including Raconteurs' bassist Jack Lawrence, Queens of the Stone Age member (and erstwhile touring Raconteur) Dean Fertita, as well as Alison Mosshart of the Kills (pictured at right with Mr. White).

I eagerly await.

PILLORYING THE HEADS OF AMERICAN BUSINESS

2009-03-11T06:55:00.007-04:00

Funny cartoon (H/T Ritholtz)

BAD BANKS, BAD ANALYTICS, BAD CABINET OFFICERS

2009-03-10T07:41:00.011-04:00

Here's a very short video of Chris Whalen from Institutional Risk Analytics discussing Geithner, "nationalization" of the banks, the so-called "stress tests," and a few other issues. Institutional Risk Analytics seems to monitor and analyze banks. As to Whalen, his resume is long -- having worked for the House of Representatives, the Federal Reserve, Bear Stearns and Prudential Securities -- and impressive. Impressive in the sense of knowing what's happening on the inside. I leave it to you to judge it otherwise. The whole video is less than two minutes long. (H/T Jesse)

As you'll see, Whalen asserts that the only reason Obama appointed Geithner as Treasury Secretary was to "protect Goldman Sachs." Hard to argue with that based on the AIG deal. Or based on Geithner's stellar performance while head of the NY Fed.

Why would Obama have made such a choice? I guess we all have to supply our own explanations to that one.

Meanwhile, I think anyone who's followed this story the last couple weeks can agree that Geithner won't last much longer. Time to start turning the weaponry on to Summers.

I'M WAITING FOR THE CHANGE I WANT TO BELIEVE IN

2009-03-09T06:43:00.004-04:00

A friend sent me the link to a blog post by Karl Denninger at The Market Ticker. I've read a few of his posts before, but not many, so I'll admit I don't know that much about him. He seems a bit more voluntarily marginalized than the folks I normally prefer to link to, but he's really talking sense here so I'll give it a whirl.

He responds -- forcefully -- to Obama's recent conversation with The New York Times in which he “urged Americans not to 'stuff money in their mattresses,'” also explaining that he “do[es]n’t think that people should suddenly mistrust all of our financial institutions.”

I think such a suggestion is grossly irresponsible and borderline reprehensible. Denninger apparently thinks is well over the borderline of the latter, and lets loose. I don't agree with everything he says, and have selected quoted to reflect that. Nonetheless, I think his overall message is sound, and is well worth a quick read. A few highlights (and the various emphases, in the form of ALLCAPS and underlines are his):

You want Americans not to "stuff money in mattresses" and "not suddenly mistrust all of our financial institutions"? Fine. START LOCKING UP THE EMBEZZLERS AND THIEVES, MANY OF WHOM ARE YOUR CRONIES AND DONORS TO BOTH POLITICAL PARTIES. Until you do that, anyone with half a brain in their head will head to The Mattress^tm, because it is the only place where one can be certain their money is safe.
* * *
If you think that the market is collapsing because people are worried about "socialism", you're wrong. Yes, that's a concern, and yes, people are worried that you're going "hard left" - but there are winners in such a marketplace.

No, the market is being beaten to a pulp because you have inherited a financial system that has for the last twenty years, under both Democrats and Republicans, been comprised of one fraud after another, starting with "the Internet is growing 50% a quarter" and now winding up with "home prices never go down."

You have inherited this President Obama, but you have also refused to change it. Let's tick it off, shall we?

You have refused to step on the neck of the CDS monster by declaring the uncovered writing of these swaps contrary to public policy and thus void, suspending all ability to collect until they are on a public exchange with nightly margin supervision.
You have refused to claw back the nearly $50 billion that our government paid to the bankers who caused the mess via bailing out AIG, and attempted to conceal same.
You have refused to compel The Federal Reserve to disclose the full details of who it is lending to and on what collateral.
You have refused to demand that the banks (and all other firms) produce accurate balance sheets showing the impairment on their so-called "assets".
* * *
We need a banking system Mr. President. We do not need these banks who gamed the rules, demanded unlimited leverage, colluded with one another to create unreasonable and systemic risk and fomented the great economic and financial collapse since the 1930s. You've done nothing to solve this problem Mr. President, instead choosing to continue trying to paper over it, as President Bush and Henry Paulson did.

What do we have left President Obama if not "The Mattress"?

You own this problem now. It is your responsibility. Either act - it is within your power to do it today - or watch our economy and markets implode. Pleading will not get it done; all that does is confirm that you either lack the balls to do the right thing or are personally complicit in the corruption and embezzlement.

This problem is systemic. Maybe, like a lot of people, I want to believe that Obama is not in bed with the Insiders and Oligarchs. But his actions -- starting last fall when he favored the TARP, along with Bush and Cheney and Paulson and Barney Frank and Bernanke -- have suggested that he is under the covers with them. Or he's in waaaaaaaaaayyy over his head.

And I'm not sure which one frightens me more.

But if he's not complicit in this looting and thievery (and I, like most of us, wish desperately to believe he's not), and he's as smart as we all think he is, then he must start acting appropriately. Fire Geithner. Fire Larry Summers. Fire Bernanke, or at least do not re-appoint him when his term ends later this year. Bring in folks who know what they're doing. Who are not former Goldman Sachs executives. Not former NY Federal reserve chairmen. Not former authors of the repeal of Glass-Steagle. Not fucking crooks.

Let's see some of the change he promised us. Because so far it's been business as usual -- Wall Street's business.

----------------------------------------------------------------------

Update - This short post at The Business Insider (H/T Naked Capitalism) shows that all the internet chirping about the disastrous Obama/Geithner/Summers policies is starting to hit its target.

Let's keep it noisy.

WE NEED TO TELL THOSE WHO SAY OUR MONEY IS NONE OF OUR BUSINESS THAT THEY'RE WRONG

2009-03-08T11:24:00.006-04:00

For those interested in some understanding as to why a seemingly decent fella like Obama is continuing to oversee the looting of the treasury that began under straight-out criminals like Bush, Cheney, and Paulson (with the help of full-time hacks & lackeys like Barney Frank, Nancy Pelosi, and Chuck Schumer), Jesse quotes from Robert Weissman:

The entire financial sector (finance, insurance, real estate) drowned political candidates in campaign contributions, spending more than $1.7 billion in federal elections from 1998-2008

* * *
During the decade-long period:

* Commercial banks spent more than $154 million on campaign contributions, while investing $383 million in officially registered lobbying;

* Accounting firms spent $81 million on campaign contributions and $122 million on lobbying;

* Insurance companies donated more than $220 million and spent more than $1.1 billion on lobbying; and

* Securities firms invested more than $512 million in campaign contributions, and an additional nearly $600 million in lobbying. Hedge funds, a subcategory of the securities industry, spent $34 million on campaign contributions (about half in the 2008 election cycle); and $20 million on lobbying. Private equity firms, also a subcategory of the securities industry, contributed $58 million to federal candidates and spent $43 million on lobbying.

* * *
A great many of those lobbyists entered and exited through the revolving door connecting the lobbying world with government. Surveying only 20 leading firms in the financial sector (none from the insurance industry or real estate), we found that 142 industry lobbyists during the period 1998-2008 had formerly worked as "covered officials" in the government. "Covered officials" are top officials in the executive branch (most political appointees, from members of the cabinet to directors of bureaus embedded in agencies), Members of Congress, and congressional staff.

Nothing evidences the revolving door -- or Wall Street's direct influence over policymaking -- more than the stream of Goldman Sachs expatriates who left the Wall Street goliath, spun through the revolving door, and emerged to hold top regulatory positions. Topping the list, of course, are former Treasury Secretaries Robert Rubin and Henry Paulson, both of whom had served as chair of Goldman Sachs before entering government. Goldman continues to be well represented in government, with among others, Gary Gensler, President Obama's pick to chair the Commodity Futures Trading Commission, and Mark Patterson, a former Goldman lobbyist now serving as chief of staff to Treasury Secretary Timothy Geithner.

All of this awesome influence buying has enabled Wall Street to establish the framework for debates in Washington, and to obtain very specific deregulatory actions, with devastating consequences.

As Jesse also added:

The problem continues . . . . The carriers of the infection are still at work. The system is distorted, sick, incapable of self-cure. Feeding intravenous liquidity to obtain the appearance of health will not work, only allow the disease to progress. Strong medicine is required. We will have no recovery until we have reform. We will have no reform until the banks are restrained, and balance is restored. The looting of the public Treasury will continue while the Congress and the Executive take their direction from Wall Street.

The problem is frighteningly simple, though the solutions will be very difficult, both in terms of implementation as well as commitment. In a nation where moneyed interests can influence politicians, those with the most money will have the greatest influence. And we're seeing that right now. A series of outrageous policies, all of them financed by the American people to bail out a microscopic sliver at the very top of the demographic pyramid, carried out daily without any concern for the opinion of the population.

We're no longer dominated by the military-industrial complex, but by the Financial Complex. And just as (relatively) recent history has shown that a grassroots movement can eventually end unpopular wars, or remove especially loathsome political regimes from power, we have to educate ourselves as to what's happening. We have to understand and admit what's happening.

And then keep making noise. A lot of it. If this issue continues to catch fire at the rate it has lately, Obama is gonna fire Geithner and maybe Summers too. If we really stay loud, maybe Bernanke goes too. And if that goes down, I suspect Obama will replace them with adults. Volcker and others of his quality and responsibility if we're really lucky.

At bottom, all the elected officials know that if & when the American people finally get wise and get angry, no amount of lobbyist money will buy the votes to prevent them from getting tossed out on their asses. Think '32. '80. '94. '06 and '08. We all need to get wise and stay loud.

There's nothing else to do.

I GUESS THEY CAN CALL IT SHITTYBANK

2009-03-08T10:53:00.004-04:00

Funny video from Funny Or Die. (H/T Barry Ritholtz)

The New F***ing Citibank - watch more funny videos

YOUR MONEY IS NONE OF YOUR DAMN BUSINESS

2009-03-07T11:10:00.010-05:00

Barry Ritholtz continues his uncharacteristic rage over what's happening right under our collective noses:

[W]hat was misleadingly described as systemic risk turned out to be in large part little more than a counter-party bailout — money for the very same people who helped cause the problem. Only the $25 billion figure I mentioned was off by 100% — the WSJ is reporting this morning it was $50 billion dollars, almost a third of $173 billion total AIG loot.

* * *
Now you know why the Fed was so reluctant to reveal who the counterparties were.

This is a giant FUCK YOU to the American taxpayer. Isn’t there some Congressmen (besides Ron Paul) who are morally offended by the Paulson plan, which is slowly becoming the Geithner plan? Isn’t there anything that can be done?
* * *
This is simply unconscionable . . .

This isn't some sort of marginal tinfoil hat thing. The smartest, best-informed (and honest) Wall St. experts are expressing nothing short of screaming, ranting, sputtering outrage over this.

Those who refuse to acknowledge what's happening in the clear light of day are insane. Truly insane, in that they deny reality in favor of their wishes.

-----------------------------------------------------------------------

Update - Yves at Naked Capitalism also posts on this same topic. Good one, as usual. A highlight or two:

Bottom line: covert subsidies were given to bank via AIG. Remember, Henry Paulson, who had perilously few inhibitions about shoveling money at banks, even when the pretexts were often dubious and the checks non-existent, nevertheless was afraid to overpay openly for dud assets, which is why he retreated from his original conception of the TARP as as way to hoover up bad debt.
* * *
Wake up and smell the coffee. The public purse is being looted and we the great unwashed are being fed pablum. Just because the perps work for once esteemed institutions and are typically treated with deference does not change the nature of the undertaking.

THE FED TO THE AMERICAN PEOPLE: YOUR MONEY IS NONE OF YOUR FUCKING BUSINESS

2009-03-06T06:32:00.008-05:00

This issue relates somewhat to what I've talked about recently: the seeming paradox of the Federal Reserve, its constituent banks, its board of governors, and the 22 or so-odd institutions first in line for its money. As mentioned, the Fed is private (though it has quasi-governmental features), and the NY Fed, responsible for much of the various bailout money over the last six months, is completely private.

The paradox, of course, comes from the fact that the President appoints the chairman of this private institution. And that the private institution has a monopoly over the right to issue the currency all American citizens are bound to use as legal tender. A monopoly despite the fact that it isn't required to own anything of value backing that legal tender. Which means it can inflate, and thereby devalue, that currency. And has inflated it at a 95% rate in the 96 years of its existence.

So what's the issue I'm talking about today? Well, as you may know, Bloomberg News sued the Federal Reserve last fall under the Federal Freedom of Information Act ("FOIA"), seeking an injunction forcing the Fed to disclose the identity and amounts of TARP money it "lent" to various banks and institutions. And without wading into all the details, one of the Fed's defenses asserts that the NY Fed (which "lent" the money and houses most of the documentation) is not a federal agency, and therefore doesn't fall under the reach of FOIA.

They put forth other defenses, all of them equally nauseating, but that's the one that really gets me boiling. Anyhow, do a search for Bloomberg LP v. Board of Governors of the Federal Reserve System, and prepare to wretch if not rave.

Have a nice weekend . . . until you remember that most Treasury/Federal Reserve shenanigans have gone down over weekends. When you wake up Monday morning, don't be surprised to learn that we've bailed out Citibank to the tune of hundreds of billions of dollars.

And don't be surprised if that private bank that destroys your currency tells you it's none of your goddamn business what it's done with your money in an effort to dole it out to its friends. Nah, don't do any of that Monday morning.

Just Wake Up.

WHEN IT'S TIME TO ASK "WHY?"

2009-03-05T07:04:00.006-05:00

Wow. The normally calm, measured, and rational-to-the-point-of-being-unemotional Barry Ritholtz lets loose on the AIG bailout. Damn, check some of this out:

When AIG first faltered, there were two companies jammed under one roof. One was a highly regulated, state supervised, life insurance company. In fact, the biggest such firm in the world. The other firm was an unregulated structured finance firm, specializing in credit default swaps and other derivatives. The first firm was Triple AAA rated. They had a long history of steady growth, profitability, excellent management. They made money (as the commercial goes) the old fashioned way: They earned it. This half of the company held the most important insurance in many families’ financial lives: Their life insurance.
* * *
The other part of the firm was none of the above. It was neither regulated nor transparent. It existed only in the shadow banking world, a nether region of speculation, and of big derivative bets. This part of the company engaged in the most speculative of trading with hedge funds, banks, rank speculators, gamblers from around the world. Huge derivative bets were placed, with billions of dollars riding on the outcome. It served a far more limited societal function than the Life insurance portion, other than a legal pursuit of profit. This part of AIG was nothing more than a giant structured finance hedge fund.
* * *
It was exempt from any form of regulation or supervision, thanks to the Commodities Futures Modernization Act. This ruinous piece of legislation was sponsored by former Senator Phil Gramm (R), supported by Alan Greenspan (R), former Treasury Secretary (and Citibank board member) Robert Rubin (D), and current presidential advisor Larry Summers (D). It was signed into law by President Clinton (D). It was the single most disastrous piece of bipartisan legislation ever signed into law.
* * *

Here is the question that every single taxpayer should be asking themselves: WHY AM I PAYING $1000 TO BAIL OUT THIS GIANT HEDGE FUND? Of all the many horrific decisions that Hank Paulson made, this may be his very worst. That is a very special description, given his track record of incompetence and cluelessness. What should have been done?
Simple: When we nationalized AIG, we should have immediately spun out the good, solvent life insurance company. It is a highly viable standalone entity. The hedge fund should have been wound down in an orderly fashion. Match up the offsetting trades, the rest go to zero. End of story.
* * *

Right now, we are into this clusterfuck for $166 billion — every last penny of which is a needless waste. Taxpayers should not be bailing out hedge fund trades. This insanity must cease immediately.

Again, wow. Not much to add, since Ritholtz says it better than I ever could. At the core of my opinion (since I have different thoughts from him about what "deregulation" is, what it means) is the belief that if you get governmental protection, if you're first in line for cheap loans, if your industry is subject to loopholes and access the rest of us schmucks don't get, then we damn well have the right to make the rules that you play under.

But from what I understand about what Clinton and Gramm and Greenspan and Rubin and Summers did, huge banks and other companies got to have it both ways: all the perks with none of the rules.

And the acolytes of these enablers (Geithner learned his craft at the lap of Rubin, Bernanke served on the Fed Board of Governors under Greenspan), if not the active perpetrators (the utterly loathsome Larry Summers), are continuing to roll out the gravy train.

At our expense.

And as Ritholtz says, "every single taxpayer should be asking themselves: Why am I paying $1000 to bail out this giant hedge fund? ... Taxpayers should not be bailing out hedge fund trades. This insanity must cease immediately."

--------------------------------------------------------

Update (Of sorts): This post by Steve Randy Waldman at Interfluidity (H/T Naked Capitalism) is somewhat on-point with the concept I tried (clumsily) to explain at the tail end of this post. I haven't thought enough about what he's actually advocating, and the post is a bit arcane for non-financial types like me. That said, he makes the larger point that:

Private-sector banking has not existed in the United States since first the Fed and then the FDIC undertook to insure bank risks. There is no use getting all ideological about keeping banks private, because they never have been.
* * *
I don't think we should give much deference to traditional banking, on the theory that we know it works. On the contrary, we know that it does not work. Banking crises are not aberrations. They are infrequent but regular occurrences almost everywhere there are banks. I challenge readers to make the case that banking, in its long centuries, has ever been a profitable industry, net of the costs it extracts from governments, counterparties, and investors during its low frequency, high amplitude breakdowns. Banking is lucrative for bankers, and during quiescent periods it has served a useful role in financial intermediation. But in aggregate, has banking has ever been a successful industry for capital providers? A "healthy" banking system is arguably just a bubble, worth investing in only if you're smart enough or lucky enough to get out before the crash, or if you expect to be bailed out after the fall.

Again, I haven't thought about this enough to say I agree with whatever it is that Waldman favors (assuming he has something in mind). I'm just throwing some kindling on the fire I'm trying to stoke: that our collective understanding of "free markets" and "laissez faire" and "deregulation" will forever be skewed unless we come to grips with the fact that, in America, because of the Federal Reserve system and the financial industry's leverage on Capital Hill, the banking system is subsidized, guaranteed, favored, and ultimately rigged.

And if it wants continued largesse, we need to extract some real concessions.

NATIONALIZATION BY ANY OTHER NAME WOULD SMELL AS SWEET

2009-03-03T06:42:00.005-05:00

Yves over at Naked Capitalism addresses some of what we talked about in yesterday's comments thread. In other words, what "nationalization" really means in the context of all that's going on:

Bernanke and Geithner believe that the current lousy state of financial markets is the result of irrational pessmimism. If the government throws enough liquidity at the market, animal spirits will return and all will be well.

Nationalism arrived at this way, call it reluctant nationalism, could well make reprivatization more difficult than the more traditional kind (think the FDIC receivership, except the government can't dispose of the assets by Monday, so it has to keep them for a while, perhaps as long as a few years, to figure out what the highest and best exit strategy is for the various components)

* * *

Nationalization as takeout, by contrast, puts the government officialdom in charge and ought to involve changes in top management and the board.

Similarly, reluctant nationalization keeps the behemoth financial firms intact, while the "nationalization as takeout" version assumes stripping out of bad assets, and a possible breakup of the firms. One or both would reduce the size of the remaining entities, which would make it easier to find new management candidates.

This is all a work in process. As long as the ideas keeping flowing, some of them will reach the ears of those who actually wanna do something good for the economy. So long as they're loud and constant, to get through the noise of those who have other goals in mind.

WELCOME TO THE U.S. OF AIG

2009-03-02T06:59:00.006-05:00

In the latest report from the "Not Even Remotely Surprising Unless You Haven't Been Paying Attention, Or Haven't Wanted To" Files, we learn that the U.S. government (uhhh, that'd be "You & I") will bailout AIG for the 4th time in less than six months. A few "highlights":

The Treasury Department and the Federal Reserve announced jointly early Monday that they will supply another $30 billion on an "as needed" basis to facilitate "the orderly completion of the company's global divestiture program" and "help stabilize the company and in doing so help stabilize the financial system," in light of the "significant challenges" due to the rapid deterioration in certain financial markets in the last two months of the year.

Where to begin? Before even getting into the substance of what a mistake this is, let's examine the actors, shall we? The Treasury Department and the Federal Reserve.

One a division of the executive branch and the other a quasi-governmental, privately-owned bank headed by an unelected chairman. And, since we're doing this lil' Q&A thing, let's ask who heads that division of the executive branch? Only the former head of the completely private NY facility of that quasi-governmental, privately-owned bank. This isn't Democracy. Now let's ask why these unelected thieves are doing what they're doing:

AIG has been unable to find buyers for pieces of its company that it hoped to sell to repay the government on its existing aid package, which totals some $150 billion.

Read that carefully. AIG is Looking for buyers to raise capital to repay the government that already "lent" it over a hundred billion dollars because it couldn't find any buyers the first time around. Before it added an additional $150 billion to its balance sheet.

And why can't AIG can't "find buyers"? Because it had nothing to sell except a rancid mound of rotting garbage. Who the hell buys rotting garbage? The answer is, of course, "no one." Which is why the enablers in D.C. are fostering this deal, laying the bill onto citizens and taxpayers who have no recourse to remove these gentlemen from their positions because they neither hired nor elected them.

And why would these unelected gents do this? I mean, they must have a good reason to engage in such a shameless expropriation of the nation's wealth, no? For whom would they do such a thing? Who benefits from the survival of AIG as a private institution? Why not nationalize it, wipe out its debt, clean out its worthless "assets" and start over, right?

perhaps the biggest concern about AIG is the dizzying array of complex financial instruments it structured for commercial banks, investment banks and hedge funds around the globe.

"The biggest concern." Yet, the question we need to ask is whose biggest concern? I'm not concerned, are you? Any of your neighbors staying up at night worrying about this? Know anyone who knows anyone that shares this concern that "commercial banks, investment banks and hedge funds around the globe" are gonna lose their shirts due to idiotic investments they made in a "dizzying array of complex financial instruments"?

This article from Bloomberg last fall explains why this is really going on. If AIG went into bankrupcy, it's biggest creditors would get the shaft, receiving (literally) pennies on the dollar for what the insurance company owed them. If they were that lucky; they might get zero. And among those creditors: Goldman Sachs, Morgan Stanley, Merrill Lynch (recently acquired by Bank of America).

As I said at the start of the post, none of this is even remotely surprising unless you haven't been paying attention, or haven't wanted to.

Wake up.

ON DEMOCRACY, FINANCE, AND DEBT

2009-03-01T11:54:00.003-05:00

This is a great video (H/T Barry Ritholtz). It features an interview with Michael Hudson, a professor at University of Missouri, Kansas City. He's a former Wall St. insider, and he served as Chief Economic Advisor for Dennis Kucinich’s 2008 presidential campaign, also holding the same position in Kucinich’s Congressional campaign. Hudson speaks about debt, oligarchy, democracy, and historical antecedents to our economic woes.

THE CENTRAL PROBLEM

2009-02-27T06:48:00.011-05:00

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.

YOU SAY NATIONALIZATION, I SAY BANKRUPTCIZATION, AS LONG AS WE CALL THE GEITHNER "PLAN" OFF

2009-02-26T08:04:00.005-05:00

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.

I'LL ADMIT I WAS WRONG

2009-02-25T08:43:00.003-05:00

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.

A FEW BRIEF THOUGHTS ON OBAMA'S SPEECH LAST NIGHT

2009-02-25T08:08:00.003-05:00

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.

EXTREMELY BRIEF THOUGHTS ON AN EXTREMELY CRAPPY OSCAR BROADAST

2009-02-23T06:50:00.007-05:00

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.

MAYBE WE SHOULD APPOINT HIM TO HEAD THE U.S. TREASURY

2009-02-17T06:05:00.003-05:00

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.

LET'S JUST ESTABLISH A FOURTH BRANCH OF GOVERNMENT AND PLACE IT COMPLETELY OUTSIDE THE CHECKS AND BALANCES SYSTEM

2009-02-16T09:15:00.010-05:00

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.

THE INSIDERS

2009-02-15T09:40:00.006-05:00

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.
BILL MOYERS: That?
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.

PELOSI & FRANK HAVE GOT SOME 'SPLAININ' TO DO

2009-02-13T06:17:00.009-05:00

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.

THE INSIDER

2009-02-11T06:01:00.006-05:00

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.

SCARE TACTICS: THEY'RE NOT JUST FOR REPUBLICANS ANYMORE

2009-02-05T06:58:00.004-05:00

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.

BAD BANK: BAD POLICY, BAD ECONOMICS, BAD IDEA, BAD NEWS

2009-02-05T06:33:00.006-05:00

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.

SUPER BRIEF THOUGHTS ON A SUPER SUPER BOWL

2009-02-02T08:27:00.005-05:00

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 Hulu.com 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?

ONE SMALL STEP FOR THE NEIGHBORHOOD, ONE GIANT LEAP FOR BLOGGERDOM

2009-01-29T06:29:00.006-05:00

Not sure anyone really cares (not sure I do either), but I note that the silly looking counter on the right side of this-here blog just rolled over the 50,000 mark.

Yay!

The interesting part -- to me, at least -- is that I think it reached around 33,000 in April 2007, the one year blog-versary of my starting this thing. That means in the 21 months since the one-year point, I've gotten roughly half the hits I got in the first year.

Of course, I post roughly one-tenth as often since that time (if that often), so at least I can feel good that my hits-to-post ratio is actually increasing as the years go on.

(Or something like that.)

EIGHT YEARS WE'LL NEVER GET BACK

2009-01-20T06:50:00.004-05:00

I can't convince myself to feel excited about today's inauguration. The triple combination of concerns about Obama's economic policies, his dubious squad of cabinet officers, and the real emotional high I felt last November when he actually won the damn thing is leaving me a bit . . . meh about the whole thing.

Nevertheless, I'm half giddy that in a few hours Bush & Cheney & the rest of their disgraceful crew will slink away to their date with history as the worst executive team the U.S. has seen. Good riddance, you bastards.

(Don't forget to wave dramatically as they fire up the 'copter.)

A FEW RANDOM THOUGHTS ON BASEBALL AS THE WEATHER GROWS EVER COLDER . . .

2009-01-13T07:04:00.002-05:00

Actually, a (very) few thoughts on the Hall of Fame vote (and no links cause I'm too lazy to dig them up -- anyone who cares about this dorky shit already knows the results):

1. Jim Rice gets in. Whatever. I don't think he deserves it (relatively low OBP, numbers inflated by Fenway, hit into approximately 9,000 double plays), but he's not an egregiously bad choice. I mean, everyone keeps saying how he was such a "feared" hitter, whatever the hell that means since his IBB numbers are not all that high.

2. He deserves it more than Andre Dawson does! He of the .323 lifetime OBP should not be allowed entry into the hallowed hall unless he pays admission. I know everyone says he was such a "classy" guy, which I think means he was a Black guy who spoke "good English" and never got arrested, but I'm open to other definitions. Anyway, he didn't deserve his one MVP and the OBP is too damn low.

And why am I talking about The Hawk, you may ask, since he did not get elected? Because he got 67% of the vote, which is about 66% too many.

3. Unlike Tim Raines, who got only about 22%. Gun to my head I'd probably vote for Raines (or at least I'd tell the guy holding the gun to my skull, "Hey dude, no need to bring the heat! I'll let you count my votes for the HOF without threats. That's how I roll."). But I could be convinced not to. He wasn't really that much of a force outside his incredible 1981-1987 period.

But I'm fairly certain he was better than Rice and Dawson. Better hitter, better baserunner, better fielder. Not that those things matter in the calculus.

I guess his problem was that he was neither feared (even though he drew almost twice as many IBB as Rice did) nor "classy" (guys who dabbled in coke early in the Reagan administration when they were 22 years-old can't come to Cooperstown. Sorry, it's an exclusive club open only to whoring drunks and prescription pill-poppers).

4. Dale Murphy (who always struck me as pretty much in the Rice and Dawson mold) got about 13%. Maybe he, like the other two, doesn't deserve admission either. But the difference in votes??? Is anti-Mormonism spreading to the baseball writers?

5. And finally, the 28 fucking idots who didn't vote for Rickey should just turn in their BBWAA credentials right now, since there is no reason I can think of why they should be allowed to ever vote for the HOF again. Morons.