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

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.

ONE DOLLAR IS WORTH A THOUSAND WORDS

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.

COCKTAILS (OF THE TOXIC VARIETY) ON THE HOUSE

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.

J'ACCUSE REVISITED

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.

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

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.

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

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?"

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.

WELCOME TO THE U.S. OF AIG

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.

I'LL ADMIT I WAS WRONG

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.

PELOSI & FRANK HAVE GOT SOME 'SPLAININ' TO DO

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.