Saturday, September 27, 2008

What don’t I like about my guy?

I am an Obama supporter. I think his election would go far to disrupt the sclerotic system of international relations that the U.S. has come to symbolize in the minds of much of the third world. It would give us a chance to undo the huge damage that the current administration has caused to our standing, both in the world and, for many of us, in our own minds.

I also believe that, where McCain and his party have come to view military action and the “might is right” world view that accompanies it as the most important lever when confronting a potential threat, Obama might have the moral authority to pull his party away from the Madeline “what good’s a fancy military if you can’t use it once in a while?” Albright wing of muscular foreign policy Democrats. [Note, concerning Albright, Bill Safire once wrote, while discussing Presidential succession, that she “was born in Europe, she thinks.” A classic, funny dig.]

More importantly, I think Obama’s domestic policies are much more likely than those of McCain to advance the project most dear to me: achieving a more just and more equal society here in the U.S. I really believe that our economy is in the hands of a plutocracy; that our health care system is a disgrace, that the benefits of citizenship are improperly distributed, and that the result has been the degradation of the U.S. to the point that we now have a lower standard of living, by many measures, than we did a generation ago, and that we are falling farther behind the rest of the industrialized world in the quality of life we can provide to the majority of our citizens.

Oddly, many of our citizens who enjoy a living standard well above the average seem to be among the angriest, out of all proportion to their lot in life, because they perceive themselves to be the victims of wrongs that often come to little more than not being adequately appreciated or respected. Many of those who have the most seem truly aggrieved at the prospect of giving some of it (via taxes) to those who have little, in spite of the demonstrable fact that our social welfare system provides much, much less than those of the countries with whom we otherwise compare ourselves.

I think Obama’s election would provide much greater opportunity than any alternative to fix these problems that I perceive. But reasonable people really can disagree; and in any case the arguments for my guy are almost always, in our current political discourse, ignored in favor of arguments (and slanders) against the other guy. So I thought I owe it to myself to think about what I don’t like about Obama’s policies. After all, no candidate is perfect, and in choosing one over another I am merely acknowledging the truth of a college roommate’s assertion (during the Humphrey/Nixon/Wallace election of a certain year) that presidential campaigns are not exercises in moral absolutes. I have to choose the best available alternative; and although I have voted the Socialist ticket before, I think I have probably grown out of that particular self-deception (I mean that voting Socialist will have an impact, not that Socialism itself is a worthy cause, which I still believe).

So here is one policy of Obama with which I disagree.

Afghanistan. We do not need more soldiers there. We need fewer, that is, no, soldiers there. Anyone who has read the histories of “the great game” or the Soviet experience there knows that the prize (assuming you can define it) is not possibly worth the expenditure. What are we trying to accomplish, anyway? I have a separate plan for that benighted country, and here it is (obviously it needs nuance and elaboration):

  • Convene a meeting of all the tribal leaders, warlords, provincial governors, etc. Be generous in who you include. And if they won’t all come, no matter; the meeting is just to reassure them all that they are all getting the same deal. You can do it one or two at a time, if you have to.
  • Determine who represents whom, at the meeting. This can be only approximate: the goal is to figure out very roughly what percentage of the population is represented by each person or group.
  • Announce that the US government will provide (say) a total of $10 billion or $20 billion or some such amount, per year, every year for the indefinite future. Payments will be made to the people in the room, in rough proportion to the percentage of the population they are going to assume responsibility for –but the payments will be made to the individuals themselves.
  • They can do anything they want with the money (exceptions below). But future payments will depend on:
    i. Our assessment of whether there has been progress in the condition of the people in their area (or for whom they are responsible). We can define this in lots of ways: literacy, health, paved roads, potable water, electricity, etc, or we can get cute and worry about whether women are bought & sold, and so forth (although I wouldn’t bother with these kinds of things). We don't care how they govern themselves: they can have a President, a Grand Mufti, a King, a Generalissimo, or whatever they want;
    ii. The extent to which inter-tribal violence, civil war, and so forth are controlled and suppressed, and foreign wars are avoided (they get to appeal to the U.N if they are victims of aggression, etc);
    iii. The degree to which the kind of unpleasantness we experienced in 2001 from their corner ceases –any problems here and they would lose a lot more than their dole.

Every January 1, if we are happy, they get the next installment.
Anyone who takes any of the money and buys a villa in Switzerland, etc. will be killed. You can certainly go to Switzerland, etc if you have the money and you want to retire; but you better inform us first, and let us know who your successor recipient is. And you better not do it for any reason during, say, the first 5 years.

This will be cheaper, in dollars and in lives, than the current policy or Obama’s plan. It is unlikely to yield worse results. We will still have the Strategic Air Command if we need it; but it is notoriously impervious to roadside bombs. Best of all, we stop doing things we are bad at (trying to manage little wars in far away places, deciding the merits of all sorts of arcane claims by opposing forces in cultures we have no clue about, etc) and start doing the thing we are best at: writing checks.

The Plan: Unnecessary or Not Large Enough?

In a previous post, I asked the question: " Why have we put up any public funds whatever to financial firms?" In another post, I linked to Galbraith's op-ed, noting that there is not the investment banking industry left that the bailout plan was originally meant to rescue in the first place. Alas, many things have changed since then as described in this post on Naked Capitalism. The short and mid-term funding market has remained locked despite massive central bank liquidity injections. In fact, it has been well-argued that the massive injections may be having an opposite, or at least insufficient, effect.

Depository institutions are now experiencing serious problems and either failing, such as WaMu, or approaching a potentially deadly crisis, such as Wachovia. There are now concerns that with or without a bailout plan, especially the bailout plan being described, that the US auto manufacturers and other large corporations are being faced worldwide with a potentially lethal corporate funding market. In fact, the Financial Times, a journalistic source not generally prone to inflammatory language, is publishing an op-ed using the word 'Armageddon:'
Credit is the lubricant of a modern economy. A seizure now would probably lead to the bankruptcy of General Motors and Ford in short order, but it would not stop with the US car industry. Waves of job losses would set off a self-feeding spiral. Yet more people would default on their mortgages (and car loans), driving house prices down even further. That, in turn, would threaten the solvency of the best banks. That is the way to Armageddon.
Now, the question being faced may be a very different one than whether or not the bailout plan is necessary. The new question very well may be, is the bailout plan large enough? Or, are the proposed bailout plans aiming their guns at the right targets?

Roubini goes so far as to state:
Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown.
Is it possible that a coordinated international rescue plan to secure the world's 'reserve currency' will be necessary? The fact of the matter may be that the US will not actually be able to inflate its way out of an economic crisis of the size being described on its own. A massive multi-national effort may be necessary to avert a severe and prolonged world-wide economic failure that goes far beyond the credit markets.

The German finance minister has already claimed the death of the US as a financial superpower. Personally, I believe this claim to be wildly overstated, but it's not like it's coming from the Iraqi Minister of Information.

What would such an effort look like? Are the IMF or G7 capable of arranging such an effort? What concessions or demands would be required by the lenders? The largest IMF bailout yet so far has been the 1997 $78 billion bailout of South Korea. Such a sum is all but laughable in terms of what is being described. There were $85 put towards AIG alone. In fact, there are at least two well-noted and independent experts claiming $5 trillion will be necessary and HSBC, while not putting a number forward, definitely does not believe that $700 billion will be enough.

So, where now? What's next?

What are the outcome pathways with or without a bailout plan? How does a future with a bailout plan of any format, the international $5 trillion type or the $700 billion US Congress / Treasury type, or no plan at all look?

I'm back

With some SCIENCE!

Acid Tongue

Embrace your inner rolling cowgirl, light up a cigarette and listen to the beautiful, hollow thwap that is the sound of Jenny Lewis hitting your heartbreak and wretchedness on the head.

Superb Article Examining Sarah Palin in the Lense of Clarence Thomas

Dahlia Lithwick wrote a surprising and well composed piece for Slate. Through the two fine examples of Clarence Thomas and Sarah Palin, Lithwick utilizes Thomas's language of "beneficiaries" to re-examine affirmative action and its results. She nearly brings herself to excoriating 'liberals' (of which she is in many ways a self-identified member) away from a knee-jerk acceptance. The piece is provocative, thoughtful and careful:
Critics have scoffed at Thomas' tendency to view affirmative action exclusively through the narrow lens of his own life, but it's clear the "badge of inferiority" has tainted a lifetime of enormous achievement. He will never forgive America for the chances he was given, or for how small it has made him feel.

Like Thomas, Palin has been blasted for inexperience, and she has fought back with claims that she is not being judged on her merits, but on her gender, just as he felt he was inevitably judged on his race. While it's possible to assert that Sarah Palin is the most qualified person in America for the vice presidency, only approximately nine people have done so with a straight face.

Liberals inclined to blindly support affirmative action would do well to contemplate the lessons of Sarah Palin and Clarence Thomas. Although the former exudes unflagging self-confidence and the latter may always be crippled by self-doubt, both have become nearly frozen in a defensive crouch, casualties of an effort to create an America in which diversity is measured solely in terms of appearance.

Building a List of Questions for the VP Debate

Gender Issues:
Gov. Palin, while you were mayor of Wasilla from 1996-2002, your police staff was charging for rape kits. This threatened Alaska's federal grants as per a provision in Mr. Biden's 1994 Violence Against Women Act. In order to maintain their grant money, the state of Alaska's legislature passed Alaska's HB270, a bill in 2000 to stop this practice that threatened the state's financial well-being. Why did you charge for the kits, and why did this have to get to the state-level for you to stop the practice?
Credit / Economic Issues:
Sen. Biden, at a time of increasing hardships and an excess of consumer credit, why were you one of the few Democrats to side with credit card companies when they were (successfully, with your help) trying to make it more difficult for ordinary Americans but not businesses to declare bankruptcy in the Bankruptcy Abuse Act of 2005? Do you continue to support your 2005 position on this matter? Why or why not?
Foreign Affairs:
Both Sen. Biden and Gov. Palin:

According to a September 2006 CRS, "The extension of the Israeli-Palestinian conflict into the Lebanese arena created a multifaceted crisis that cut across a number of U.S. policy issues in the Middle East." As President, what is your plan for contending with the Hamas-Hezbollah-Israel triangle of conflict?

Both Sen. Biden and Gov. Palin:

While seeking the presidential nomination, Sen. Biden suggested the best way to bring Iraq to peace was via a partitioning of that nation. Today, what are your respective plans for the best ways to end the war in Iraq, how long will those plans take, how much do you expect them to cost, and why are they the best plans available?

Disney's Head of Skate

Disney is making people laugh in fear everywhere:

Friday, September 26, 2008

Following The Case

Some thoughts:

US credit markets are in turmoil;

The government is forced to raise a lot of new money all at once;

US Treasuries, the primary vehicle for raising this money, are still well bought as a 'safety vehicle' and continue to be held (if anxiously) by our largest investors (China, Japan, et al);

A confidence crisis arises as to the US's ability to repay as credit conditions worsen and the Treasury requires significantly more money than is currently has;

In order to muster sufficient incentive to raise the new money, investors begin to demand higher reward for their risk;

Higher interest rates are offered for new and necessary debt, flooding the market with ever more supply of increasingly questionable quality;

Interest rates on US Treasuries increase rapidly.

Where are the holes in this? Clearly, this can be more specific, but this is a rough outline. Please poke.

Happy Friday!

Maybe Deficits Do Matter?

Recall when Dick Cheney claimed "Reagan proved deficits don't matter?"

With the failure of the entire investment banking industry, and now, the largest bank failure in US history, and the Treasury / Fed running out of serious funding options, and the FDIC in a critical state with an insurance pool that's too small, and two wars still raging, and the most expensive Congress ever:

Maybe deficits do matter, and the neo-con statement of principles clamoring for American might and exceptional-ism has actually generated the opposite of American superiority and dominance? Maybe.

Thursday, September 25, 2008


Is this the type of coherence we can expect from a 'Palin/McCain' presidency?

In her interview with Katie Couric, Palin claims that the $700 billion bailout of heavily distressed debt 'helps those who are concerned about healthcare.'

Also, WSJ is reporting that Sen. Dodd has reached 'fundamental agreement' on the proposed bailout and will be presenting the plan to the White House later today. Keep in mind that McCain is speaking in New York today at the Clinton Global Initiative, so he hasn't made it to Washington yet to peronsally help finalize the details.

Book Review

I'd like to gauge interest in beginning a book review on this blog. If anyone is interested or opposed, I'd like to hear all opinions and thoughts on the matter, so please comment.

The Cato Conflict

Let me just point out that Commentary was edited by Norman Podhoretz for 35 years.

During that time he was a profligate discounter upon civic discourse as he frequently compared various situations of assorted danger or perceived danger to the Jewish Holocaust and Munich 1938, thereby making him in the running for an all-time Godwin's Award, if there was one. Certainly not the bedrock of sober and careful speech.

Podhoretz, via the magazine and other media used extraordinarily hyperbolic speech such as World War IV (he even wrote a book with this term in the title), and coined the term "Islamofascism" without ever defining it. I hope this adds just a touch of perspective and evidence of my familiarity with the magazine.

That being said, my comment about the magazine was a joke, in reference to Cato's funny, witty, and successful attempt at mocking me by threatening to purchase me (a left-leaning progressive) a subscription to Commentary and a seat at the Federalist Society Dinner in a private email chain.

It is sad that he could not see the humor in my wholly unrelated post about utilizing HTML tags and I am sad to see him go from this blog. Cato added value, insight, and perspective. He is welcome back if he so chooses.

Yours truly,



Is cato gone?

Who was that masked man?

Three great posts you must see

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Tuesday. “We just wanted to choose a really large number.”


Mr. McCain had not planned to devote large blocks of time to debate practice as did Mr. Obama … . Mr. McCain had a preparatory session on Wednesday afternoon at the Morgan Library in Manhattan, but advisers said it was interrupted by his decision, announced immediately afterward, to suspend his campaign.

— AMAZING TIMELINE. Is it possibly as simple as one of these: 1) McCain got bored/sick of practicing or 2) McCain’s dudes realized he was SO TERRIBLE at talking that they couldn’t go through with it? Which is more likely? Which makes McCain seem worse?

UPDATE: jumco fixed the links and reformatted this post without changing any content (Although he wanted to because of the weird and inexplicable use of fundiespeak. I will post a link to how to use the blogger posting box for such things as bold, italic, justify, and hyperlinks).


Jumco writes: "commentary is a silly magazine full of people pretending to be serious while saying preposterous things."

Either he has read this periodical and believes this to be true or he has not and says so anyway.

Either way, it's absurd. I'm off this Blog. It has betrayed it's purpose.



UPDATE Cato's request means he is no longer an author on this blog.

Wednesday, September 24, 2008


For those who prefer email, it is possible to have this blog come to your email box, and it is possible to post and reply via email. A step by step guide on how to do these things is provided by Blogger, here.


How is it that the same guy who has missed 109 of the past 110 votes in the Senate, and has the worst attendance record therein, who 10 days ago insisted that the 'fundamentals of the economy are strong,' and who 'knows how the world works' and 'can fix it,' now can not talk about his knowledge of the world and how he plans to fix it with his opponent as scheduled for months?

Is John McCain actually trying to lose his bid for the Presidency?

An Ounce of Prevention . . .

From the Guardian, no less:

 People who believe they have the greenest lifestyles can be seen as some of the main culprits behind global warming, says a team of researchers, who claim that many ideas about sustainable living are a myth.
. . .

 Stewart Barr, of Exeter University, who led the research, said: "Green living is largely something of a myth. There is this middle class environmentalism where being green is part of the desired image. But another part of the desired image is to fly off skiing twice a year. And the carbon savings they make by not driving their kids to school will be obliterated by the pollution from their flights."

 Some people even said they deserved such flights as a reward for their green efforts, he added.

 . . .

 Questioned on their heavy use of flying, one respondent said: "I recycle 100% of what I can, there's not one piece of paper goes in my bin, so that makes me feel less guilty about flying as much as I do."

NYT: "The Issue is Payback, Not Bailout"

David Leonhardt's column on the first business page today is an optimistic, if not entirely unreasonable, review of the choices confronting Congress and the consequences of those choices. But two things he mentions seem to me to be naive, and to ignore them would be to countenance what has become the culture of accepting the inevitable about the entire financial mess.

The first is his sympathy to the individual congressmen and women: "Most members of Congress have no expertise in the byzantine details of mortgage finance --or even have aides on their staff with such expertise." How terrible! Did any of these august members worry about that when they were accepting the thinly-disguised bribes as inducements to remove any realistic restraints on the perpetrators of "mortgage finance?" Sorry, but you can't bemoan how complex all this is now, when you never worried about it when it was your responsibility to police the game. And, by the way, the Wall Street legions could legitimately complain about you guys that, once bought, you are supposed to stay bought. What's all this resistance now that we are coming to get back our campaign contributions, with interest?

Second, Leonhardt addresses briefly, near the end of the article, the notion of limiting the pay of Wall Street executives who waddle up to the public trough. Good Luck: I bet the tax lawyers and accountants are salivating at the prospect (hell, having previously been one such tax accountant, I know they are): please, please accept McCain's wrathful insistence that compensation for such types be limited to $400,000 per year (because nobody who has screwed up so much should get paid more than the President of the US --really, that's his position! How would you like to be held to that standard?). Anyone who couldn't end-run such a limit has long since been put out to pasture. What with options, deferred compensation, severance packages, etc. that $400,000 could be used entirely to buy the little umbrellas that go in the drinks served on the corporate jet, and no one would feel any squeeze at all. If you want to address the problem of obscene compensation, which anyway is as American as secret prisons, just pur the tax rates back to where they were during Eisenhower's administration --indexed, maybe.

Finally, and I guess this is a third thing, Leonhardt says of the government bailout, " would ... help shore up firms' balance sheets (which some economists think is actually a bigger problem than the bad assets)." Unless things have changed since I left Ernst & Young, assets are on the balance sheet, and exchanging one asset for another of equal value leaves the balance sheet the same. Oh, wait: they're not of equal value? Then will the companies recognize the difference as profits, or losses? Of course: if profits, they'll be used to justify higher stock prices, bigger bonuses, and on and on; if losses, they they'll be deducted, and the resulting tax refunds will constitute a second trip to the federal drinking fountain.

Leonhardt's overall point seems to be that the Congress is completely unequal to the task before them. Is anyone surprised?


A Refresher On Not Getting Screwed

All of this bailout business has reminded me of this comedic and informative slide show I came across many months ago:

The Sub-prime Primer

Let us hope that members of Congress watch this primer and don't get caught as the last buyer on the line.

Developing: New Blog Hacked!

CHICAGO -- A new Blog, "No, You're Hyperbolic," founded by left-leaning evolutionary biologist and trader Jumco, and nominally dedicated to providing a forum for "precise" and moderate conversation regarding topics too frequently discussed in shrill tones and hyperbolic excess elsewhere in the Blogosphere, has been hacked within the last 12 hours by someone impersonating the esteemed contributor ROGA, and who has posted a diary about how Republican greed and cronyism will cause the end of days and frustrate the future good works of Mr. Obama (blessed be he) to bring everlasting peace, equality, and prosperity to all the Milky Way galaxy.  Jumco was not immediately available for comment.  

American Default?

Not likely, but traders have increased their bets to a record high likelihood that the US Treasury is heading towards default.

UPDATE: LIBOR jumps, Bloomberg reports:
The corresponding euro and pound rates also rose, and yields on Treasury bills tumbled as investors fled all but the shortest-maturity government debt.
The market is continually showing signs that it is decreasing its trust in the US's ability to gainfully repay longer dated paper. Banks are hoarding the cash they have, and lending simply is not occurring:
``There's no real term funding markets except for central banks,'' said Meyrick Chapman, a fixed-income strategist in London at UBS AG. ``The Libor is meaningless. It's for unsecured lending and there is no unsecured lending as far as I can see.''
In many ways, current attempts to unlock the markets are not working. Roubini is expecting a mass unwinding in hedge funds and PE as linked to earlier. What is next? Any thoughts?

How Timely Was That?

I posted this article late last night / early this morning. Then, Naked Capitalism goes and reports that my suspicions are confirmed a few hours later. Awesome!
One of the premises of the bailout bill is that the banking industry must have government help to get back on its feet.

A banking industry expert, Bert Ely, who has a stellar track record in predicting crises and calling false alarms says that the banking industry can handle this mess internally and does not need subsidies.

the point is

From the point is blog

a theme

Matt Yglesias, 9/21/08, “The Crisis”:

Simply put, if congressional Democrats manage to acquiesce in a plan that spends $700 billion on a bailout while doing nothing for average working people and giving the taxpayer virtually no upside in a way that guarantees that even electoral victory would give an Obama administration no resources with which to implement a progressive domestic agenda in 2009 then everyone’s going to have to give serious consideration to becoming a pretty hard-core libertarian.

Ken Layne, 9/23/08, “New President Can’t Afford to Do Anything”:

Tax cuts for the rich will have to be cut. Tax cuts for the other 90% of us will have to wait. There will be no big health care or education programs, no huge government push towards renewable energy. Public education will continue to be mostly lousy. Bridges will keep collapsing, trains and planes will keep crashing.

In a bankrupt America, presidential decisions will be severely limited and potentially apocalyptic.

John Robb, 9/22/08, “Onward to a Hollow State”:

The modern nation-state is in a secular decline, made inevitable by the rise of a global market system. Even developed nations, like the US, are not immune to this process. The decline is at first gradual and then accelerates until it reaches a final end-point: a hollow state. The hollow state has the trappings of a modern nation-state (“leaders”, membership in international organizations, regulations, laws, and a bureaucracy) but it lacks any of the legitimacy, services, and control of its historical counter-part. It is merely a shell that has some influence over the spoils of the economy. The real power rests in the hands of corporations and criminal/guerrilla groups that vie with each other for control of sectors of wealth production. For the individual living within this state, life goes on, but it is debased in a myriad of ways.

The shift from a marginally functional nation-state in manageable decline to a hollow state often comes suddenly, through a financial crisis. This crisis typically has the following features:

  • Corporations and connected individuals systematically loot the nation-state of financial assets and natural resources through a series of insider/no cost deals. These deals are made to “save” the nation’s economy or financial system from collapse.
  • Once the full measure of the crisis is known, the nation-state’s currency falls precipitously, it’s debt becomes expensive, and it is forced to submit to international oversight/rules.
  • The services the state provides rapidly evaporate as its bureaucracy is starved for cash/financing. This opens up a window for the corruption of government employees unused to deprivation.

Free Sarah Palin

CNN's Campbell Brown:

Tonight I call on the McCain campaign to stop treating Sarah Palin like she is a delicate flower that will wilt at any moment...This woman is from Alaska for crying out loud. She is strong. She is tough. She is confident. And you claim she is ready to be one heart beat away form the presidency. If that is the case, then end this chauvinistic treatment of her now. Allow her to show her stuff. Allow her to face down those pesky reporters... Let her have a real news conference with real questions. By treating Sarah Palin different from the other candidates in this race, you are not showing her the respect she deserves. Free Sarah Palin. Free her from the chauvinistic chain you are binding her with. Sexism in this campaign must come to an end. Sarah Palin has just as much a right to be a real candidate in this race as the men do. So let her act like one.

Tuesday, September 23, 2008

Not Enough Money In the World

I was reading Roubini's post, listed here (registration required, but free), and it got me thinking about When Genius Failed and LTCM. For those who do not recall, in 1998 the NY Fed was able to arrange a de-leveraging of a large and complex hedge fund whose bets, um 'investments' (I hate this term for reasons to be described in another post), were threatening the global economy. They did so without direct usage of public funds or guarantees. Many of those involved profited.

In March, Jamie Dimon (CEO of JPMorgan Chase), knew the game and its new rules and umpires better than the bankers dared to speculate upon in 1998. He demanded a government backstop to his offer in purchasing the failed Bear Stearns and managed to secure a non-recourse loan of at least $29 billion against losses it may incur as a reuslt of the deal. Despite the fact that other bidders presented themself, Bear was shuffled off to slaughter. with a federally provided blood resevoir.

LTCM was just as intertwined and novel in it's day as Bear was in March, and the world had suffered at least two serious economic shocks in as many years at the time (1997 Asian Financial Crisis and the 1998 Russian Default). Yet, magically, the government didn't need to put up direct dollars. Certainly, there was some indirect quid pro quo for, along with increased lobbying efforts from, the banking industry. Investment banks (Bear refused to assist the Fed at the time) garnered new freedoms such as the repeal of the Glass-Steagall Act of 1933 and the Commodities Futures Modernization Act of 2000.

A strong argument can be made that the latter of these two acts is in may ways responsible for the current turmoil. The act specifically banned regulation upon credit default swaps, enabled single stock futures (an undoubtable positive), and in some significant ways led to the advancement of exchange-traded funds (also an overall positive). The point is, the market, in its contemporary dilemma does not appear to desire the assets or some of the companies in question at any price.

But, enough with the prelude: Why have we put up any public funds whatever to financial firms?
(Short answer: It is not clear.)

Bear Stearns, it was argued, was so integral to the global economy, that its failure would lead to an even worse global unraveling. If this is true, why weren't all the firms that were so very much at risk willing to keep it afloat? Why was the government relatively easily pressured into providing the backstop? We were told there simply was not enough time. On this, I call bullshit. There wasn't enough will, because the claim itself was not true.

Market participants knew that the best Lehman value was a failed Lehman; they were shady about their books and organizations who saw their L3 / fuller books were turning their backs. There were few differences between Bear and Lehman. The arguments about the significance of Bear's involvement in the repo markets and as a significant player in the CDS market simply don't hold water. Again, if a Bear death would have been so significant to so many other market participants, said market participants would have had a clear and vested interest in keeping it afloat. The did not, and taxpayers were played the fool.

Freddie and Fannie's buyout details eliminated a short term financing option of significance for many financial firms, and may have contributed to Lehman's collapse. The government attempted a 1998 style brokering, but no private buyers could be found. The market new it could live without Lehman the same way it knew it could live without Bear. There are roughly 20 primary dealers and the market knew it did not need all of them to survive in order to function. A pain in the ass to switch? Yes. Potentially expensive? Yes. A market collapsing event if one fails? No.

AIG received $85 billion plus the market received hundreds of billions in short term lending made available and a loosening of collateral standards from the Fed's various lending facilities.

Why? The Fed action is understandable and within the realm of what it is that the Fed does. But why the AIG bridge loan? $85 billion, it could be argued, was simply too much money to be cobbled together in the time span necessary. Does this mean that the government had to go in for the full $85 billion? No, not at all. A public / private arrangement could have been reached, there were offers on the table totaling tens of billions of dollars. Why the government felt compelled to be the only lender, when other lenders were available and willing is hard to understand and yet to be explained. Also, if AIG had no other options and was threatening the global economy, why leave 21.1% of the equity behind? Why pretend that the government is not responsible for AIG's solvency and maintain the sherade that AIG is off the governmetn balance sheet but at least $700 billion is required RIGHT NOW!? The answer, may be, that it's simply not the case.

The government is arguing that there is not enough money in the world to save the economy. If this is the case, than the economy must get smaller. To print enough money to fill the void does not provide clear solutions to any of the markets' problems. Especially if said money comes with higher interest rates. The problem of over-leveraging is not solved. The problem of lax regulation and limited transparency is not solved. The problem mortgage borrower default / failure is barely addressed, never-mind solved. So, at the end of the day, there are many questions:

  1. What is this bailout getting the American people that the market is incapable of providing?
  2. What are taxpayers getting that the market doesn't want?
  3. Why should taxpayers be willing to take what is being sold, if no one else is interested?
  4. If no one else is interested (severely limited demand), why is there such an enormous price tag for these undesirable assets?
The answers, if honest, are likely to be mendacious. I'm interested to know what is thought by you.

What if Sara said this?

"When the stock market crashed, Franklin Roosevelt got on the television and didn't just talk about the princes of greed." (Joe Biden to Katie Couric.) Of course, the stock marked crashed in 1929--three years before FDR was elected—and there was no television. Imagine if Governor Palin had uttered this.  Is it unreasonable to assume the media would have made more out of it?  

Cultural Relativism?

If Tzipi Livni forms a cabinet, Israel will be the only country in the world with women heading all three branches of government - the executive, legislature and judiciary.

In the United Arab Emirates, where the Parliament is officially appointed, neither men nor women have the right to vote or to stand for election. In Saudi Arabia, men took part, in 2005, in the first local elections ever held in the country. Women however were not allowed to exercise their right to vote or to stand for election on that occasion.

" . . . giving them aid and comfort . . . "

Does it bother anyone to see Larry King sitting down with (and giving a national forum to) Mahmoud Ahmadinjad, a maniac by any standard, a sworn enemy of the United States, a man whose army fights (both directly and by proxy forces) American soldiers and civilians in Iraq and Israel, who is responsible for the most state-sponsored terrorism in the world, and who is frantically building a nuclear bomb for the express purpose of wiping another nation and all of its inhabitants off the map? 

Buffett Invests $5 Billion in GS

I wonder why Buffett is willing to accept less than the government demanded of AIG. The feds took 850 over prime, which at the time was 11.4%. Buffett is willing to take 10%, but it is on preferred shares, so, depending on how the stock performs, he could earn substantially more. Nonetheless, GS is still very heavily leveraged:

In return, they will submit themselves to greater regulation, including limits on the amount of debt they can take on. When it collapsed, Lehman had about a 30:1 debt-to-equity ratio, meaning it had borrowed $30 for every dollar in capital it held. Morgan Stanley currently has a debt-to-equity ratio of 30:1, while Goldman Sachs has one of about 22:1.

Bank of America, on the other hand, currently has about an 11:1 leverage ratio, while JPMorgan has about 13:1 and Citigroup about 15:1. Because they can borrow less, bank holding companies typically have lower earnings multiples.

A funny commnet on the calculated risk blog that I simply had to share

Caitlin writes:
Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transaction is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully Minister of Treasury Paulson

from the comments on the following blog post:

Debt to GDP

With all the news and talk on the hill of $700 billion this and $1 trillion that, it's not entirely clear that the US will be able to raise this money, or more precisely, be able to raise this money at rates that still make it sensible to borrow it for its stated purpose. Naked Capitalism takes an interesting look:

You can best see the magnitude of the forbearance from this chart, which shows debt to GDP through the end of the first quarter 2008 (click to enlarge). You can clearly see that it continued to grow on a hyperbolic curve. Despite the signs of a credit crunch, we had continued to increase rather than reduce our aggregate indebtedness...Will our creditors play ball and lend us the money? It isn't at all clear that they will, at least at current interest rates. They have become decidedly cool on buying agency paper. The man on the street in Asia and Europe is taken aback by the events of the last two weeks. Funding the US has become controversial in China, and may be in other major lenders. And a rise in interest rates would considerably undermine the supposed benefits of the program.

Registration woes

September 2002 - Katya becomes a US citizen, applies for passport
September 2004 - Katya registers to vote in Ann Arbor, MI
November 4, 2004 - Kerry concedes, Katya's MI absentee ballot finally arrives at her Philadelphia dwelling
March 2005 - Katya moves back to NJ
January 2008 - Katya registers to vote in NJ, but too close to February 5, does not get to vote in the primary
mid-September 2008 - Katya's father checks the MI Secretary of State website to discover that Katya is still registered in MI
September 23, 2008 - Katya checks the NJ Department of State website to verify that the is registered in NJ, Secretary of State insists Katya is registered in MI, claims that Katya is registered in MI and not in NJ, Katya's voter registration card screams NJ

November 4, 2008 - Where does Katya finally get to vote?

Can I vote in MI and not in NJ? As it will actually matter? Clearly it would be not so legal to vote in both. Is it my fault that I was not de-registered in MI? Chronologically the NJ registration should trump the MI one, as well as the NJ state id, taxes, and official residency as per IRS, PSE&G, Homeland Security and my Sephora shipments. Logically though, MI is swinging blue (must be all that protected water of Lake Michigan), but swinging nonetheless.

DHS Invests in Woo

I am in your brain, checking your terror:
Via BoingBoing: Hurrah -- the DHS is buying mind-reading machines that can tell you're a terrorist by examining the terrorist-thought-center of your brain. People with failing brains will be send for corrective surgery.

The Need For Corporate Protectionism

India is in shock after a mob of sacked workers bludgeoned to death the CEO who had dismissed them from a factory in a suburb of Delhi.

UPDATE: jumco reformatted this post without changing any of its content

Change You Can Pay For

Barack Obama is the second biggest recipient of political money from Fannie Mae and Freddie Mac in the last ten years. He’s been in Washington for four. Does it matter? Maybe. May not. But does it seem consistent with his rhetoric about reform and independence from lobbyists and PACs? Certainly not.

Senator Obama, you're being hyperbolic!

UPDATE: jumco reformatted this post without changing any of its content other than the typo of 'bring' to 'being'

The Always Great, PZ Meyers

Does anyone support this idea on any grounds? From a medical and ethical standpoint it seems dangerous, and even from a religious standpoint it seems tenuous and unnecessary.

Japan Elects Bush (No, not really)

Taro Aso has been elected leader of the liberal democratic party in Japan (the party which controls the lower house and thus appoints the PM). Does this description remind anyone else of someone?

"The party is counting on Mr. Aso, 68, to lead it out of its worst crisis in a half-century of rule, after two prime ministers stepped down in a year amid dismal approval ratings.

In a race that was his to lose, Mr. Aso (pronounced ah-so) focused on bread-and-butter economic issues, promising tax cuts aimed at increasing corporate and individual spending.

A self-proclaimed hawk who has sometimes angered Asian neighbors, Mr. Aso is widely seen here as a pragmatist who shuns a rigidly right-wing agenda. The scion of a wealthy industrialist family, he is also a fan of Japan’s manga cartoons and has regularly topped national surveys for prime minister."

UPDATE: I made the text below a working link to the article

Great Lakes Law


This is a law limiting the use of water from the great lakes beyond their immediate region. Of course I do not know the details of the bill, but this sounds like the worse sort of protectionism. I do know that in the last 20-30 years the American South and Southwest have undergone impressive economic and population expansion. These regions need water. This is the kind of bill no one wants to stop because its basic premise sounds like a good thing (like voting against "protect families" bills which ban gay marriage). My suspicion is that this is a democratic bill aimed at chocking off the growth of regions which support Republicans. But the broader point is that we should not be limiting our political vision.

Hugo Chavez: Comedian

However unfair and unfitting it may be, this is still funny.

Kiss With A Fist!

Mmm... domestic violence in the morning.

Sarah Palin: Embarrassment

Sherry and I were having a discussion late last week about the upcoming election. The conversation focused on the opinion that it will be an embarrassment to the nation of Palin is elected. The little sidewalk chat we were having generally revolved around how mendacious and sinister a pick for the VP / P she is and how her selection for this role, especially if elected, is indicative of so much that is wrong with the contemporary US within which we live. Then, what do you know, one of my favorite reporters / writers / journalists goes and writes nearly everything I was thinking far better than I was able to articulate the concept myself:
In the latest (Oct. 2) issue of Rolling Stone, on sale now but not yet available online, writer Matt Taibbi calls out the American electorate in a major new piece called 'The Lies of Sarah Palin.' A snippet:

What $1 Trillion Is

If you're having difficulty conceptualizing what $1 Trillion is and what it means to the country, consider this post:
It's [$1 trillion] 19% more than NASA's budget for the entire half century the space agency has been in existence.
That's right, according to this post, and if it is correct (I'm not sure how to verify such a claim) the amount the administration is currently seeking for it's most recent leg of spending is more than the amount of money required to get men to the moon multiple times, build the US contribution to the ISS, send multiple robots to Mars, build and service Hubble, develop hyperjets, and do all of the other amazing (and less than amazing) things NASA has done over its entire existence.

I think that's perspective. Don't let the big numbers confuse or obfuscate what this very real money can actually do. And to think that Hank Paulson originally wanted control and discretion over 19% more money than NASA's budget for its entire existence without being "reviewed by any court of law or any administrative agency?" Seriously?

We should all, most definitely have a problem with this. From the left, from the right, I don't see how anyone other than the bankers and Paulson could possibly be satisfied with such a plan.

Where The Money Has Gone

With many of you, between January and April of this year, there was an ongoing discussion regarding, "Where will the money go?." The answer, appears to be nowhere. Losses have been generated and write-downs taken and money printed by the government to fill in gaps.

We, however, know that this is not the only place money has gone. As discussed earlier this year, a lot of the money has gone to the European banks. The United States no longer has investment banks, and the strongly regulated depository institutions with investment banking arms based in Europe have done well. From Bloomberg:

``Those are definitely winners of the financial crisis,'' said Lutz Roehmeyer, who helps manage about $21 billion at Landesbank Berlin Investment, including shares of BNP, Barclays and Deutsche Bank.

Shares of the three European banks outperformed their U.S. competitors during the turmoil last week.

Barclays has risen 13 percent, BNP is up 6.2 percent and Deutsche Bank is little changed since Sept. 12, the last trading day before Lehman's bankruptcy. By comparison, Morgan Stanley and Goldman Sachs, both based in New York, dropped 20 percent and 18 percent, respectively.

So, the question remains, where will money go from here?

Monday, September 22, 2008

The War On Christmas Starts Earlier and Earlier

Now Presenting To You The Red State Store

Taking A Stand

One of the 799 companies listed on the financial securities short selling ban list, a company named Diamond Hill, has opted out of the protection offered.

USA Trading Corp., LLC

From WSJ:
Sen. Dodd's plan wouldn't allow the Treasury Department to purchase any assets "unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased."

Although this idea seems both fair and reasonable, it also happens to defeat the core purpose of the proposed action. The whole idea is to take assets so toxic that they run the risk of sinking otherwise large, well financed companies; if the government takes the assets and equivalent equity they may as well allow the assets to fail, as it is said assets causing failure risk in the first place. If the companies had enough money to finance these assets, they would not be toxic and would not require government intervention.

UPDATE: I was unwittingly making an argument similar to one posted earlier on Naked Capitalism.

UPDATE II: Paul Krugman does a nice job of simplifying the (il)logic involved here:
...the prices of many assets, not just those the Treasury proposes to buy, are under pressure. And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital.Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense.
UPDATE III: George Will asks:
The political left always aims to expand the permeation of economic life by politics. Today, the efficient means to that end is government control of capital. So, is not McCain's party now conducting the most leftist administration in American history?

Kinda just trying this out

But here's a link about Opus Dei getting their feet wet in neuroscience.

Gee, I hope their "spiritual" research really contributes to the field.

Hitchens Reviews Book on French Politics

George Will (of all people) Slams McCain

Sunday, September 21, 2008

Say What !!!

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
the bailout law (via Naked Capitalism &c.)

Next Week is Banned Book Week

From The Nation:
As we commemorate Banned Books Week September 27-October 4, we are reminded of the many attempts to restrict our right to read. Over 400 challenges filed at schools and libraries were reported last year alone, most probably constituting a fraction of incidents nationwide. The culprits, whether public officials, private interests or "decency" groups, employ a variety of techniques to control free expression. Our best defense against these censors is the vigilance and activism of people concerned with protecting free expression. Those on the front lines of these battles have learned to arm themselves with sound policies and procedures that ensure a fair and transparent review process.

McCain's Economic Plan Vs. Obama's

This gem and others from Frank Rich's always worth reading NYT op-ed:

Whatever blanks are yet to be filled in on Obama, we at least know his economic plans and the known quantities who are shaping them (Lawrence Summers, Robert Rubin, Paul Volcker). McCain has reversed himself on every single economic issue this year, often within a 24-hour period, whether he’s judging the strength of the economy’s fundamentals or the wisdom of the government bailout of A.I.G. He [McCain] once promised that he’d run every decision past Alan Greenspan — and even have him write a new tax code — but Greenspan has jumped ship rather than support McCain’s biggest flip-flop, his expansion of the Bush tax cuts. McCain’s official chief economic adviser is now Douglas Holtz-Eakin, who last week declared that McCain had “helped create” the BlackBerry.

But Holtz-Eakin’s most telling statement was about McCain’s economic plans — namely, that the details are irrelevant. “I don’t think it’s imperative at this moment to write down what the plan should be,” he said. “The real issue here is a leadership issue.” This, too, is a Rove-Bush replay. We want a tough guy who will “fix” things with his own two hands — let’s take out the S.E.C. chairman! — instead of wimpy Frenchified Democrats who just “talk.” The fine print of policy is superfluous if there’s a quick-draw decider in the White House.