Saturday, October 11, 2008


The NYT reports:
Mr. Cantrell readily acknowledges concocting the crime. But what has drawn little scrutiny are his activities leading up to it. Thanks to important allies in Congress, he extracted nearly $350 million for projects the Pentagon did not want, wasting taxpayer money on what would become dead-end ventures.

...Mr. Cantrell’s division was a small part of the national missile defense program, an effort that has cost the United States more than $110 billion since President Ronald Reagan unveiled his Star Wars plan 25 years ago. Today, the missile defense effort is the Pentagon’s single biggest procurement program.
If, these are the schemes that have been uncovered so far, what type of filth and bile remains? These are the people and the system we are trusting to spend at least $1 trillion or so wisely in saving the economy. My confidence is not high.


This crisis is on the path of surreality. I understand Dadaism in an entirely new way after this week.
  • Switzerland (1291 - 2008?), as an independent nation, may be in danger. Naked Capitalism, in Why European Banks Look Precarious, reports:
    Many are fearful of the consequences should UBS capsize. Switzerland's gross domestic product totals 512 billion Swiss francs (€332.1 billion). UBS's balance sheet adds up to 2 trillion Swiss francs (€1.3 trillion) -- four times as much. Even Switzerland's second biggest bank, Credit Suisse, oversees assets totalling 1.2 trillion Swiss francs (€778.4 billion). Together UBS and Credit Suisse have over 640 billion

    Swiss francs (€415.1 billion) in outstanding loans.

    "We owe this crisis an uncomfortable revelation: UBS and Credit Suisse are too big for Switzerland," wrote the ex-editor-in-chief of the German weekly Die Zeit, Roger de Weck, last week in the Swiss periodical Das Magazin. "If they went bankrupt, a flourishing country would be ruined."
  • In other surreal news, things have gotten so bad that former President Carter felt comfortable slamming another president for his handling of the economy. Seriously, I'm not joking:
  • Former President Jimmy Carter said on Friday the "atrocious economic policies" of the Bush administration had caused the worst global financial crisis since the Great Depression of the 1930s.

    Carter told reporters on a stopover in Brussels that "profligate spending," massive borrowing and dramatic tax cuts since President George W. Bush took office in 2001 were behind the market turmoil and economic crisis.

    "I think it's because of the atrocious economic policies of the Bush administration," said the 84-year-old Democrat, who served in the White House from 1977-1981 during a period of high inflation and energy crisis.

  • North Korea is no longer a member of the "Axis of Evil." Oddly, this raises serious theological questions of theodicy and redemption. If we posit that evil exists, is it possible to go from evil to no longer evil?

  • The NSA actually admits to both its existence and its suspect conduct.

  • President Bush is 'relieved' that is presidency is almost over. Really, this is not the Onion. Truth trumps fiction.

  • Our Cook County Sheriff insisted that he will no longer be serving eviction notices to renters, as banks have failed their obligation to identify building occupants prior to service.

  • The ethics of koshrut and the 'ethical koshrut movement' are actually examined as opposed to assumed after terrible conditions have been uncovered in kosher slaughtering facilities.

  • The New York Review of Books published a competent piece about George Soros.

  • A major political party in the United States has broadcast its scorn of 'words' and actually managed to bring the sophomoric solipsism, 'book knowledge,' into a competition for the highest office in the land as an epithet.

  • An experienced writer has actually composed a non-satirical nor hysterical piece seriously labeling the United States a 'banana republic.'
Where is the world I grew up in, the world we all once knew? This week has changed our lives in material ways, whether we are able to recognize it yet or not. How is there such a lack of seriousness in such serious times? Jon Stewart composed a piece showing 'news' channels and programs using cartoons, oversize dominoes, and childish language to 'explain' the crisis.

I remember, as a child the Challenger disaster. News programs were somber, informative, and substantial. Now, Jim Lehrer, a guy usually referenced in accordance with his 'high-brow' style, has some shmuck on laying down sheets of paper with zeroes onto a coffee table.

Has anyone felt compelled by a strong sense of 'leadership?' Not just from the US, but from anywhere? The closest I came was hearing the UK Finance Minister speak rather frankly about the scenario. Alas, that was comforting simply because at least someone in power appeared to be contending with reality, not because of any great leadership demonstrated. Now, there are actual discussions and preparations taking place for the possible failure of Switzerland.

I am caught; a strange stasis straddling outburst and shrivel.

Uncommon Decency

My Fellow Prisoners!

He's losing it...

McCain Vs. S&P

McCain’s Fall

October 10, 2008 ·

From John Taplin's Blog

This correlation between the S & P 500 and McCain’s polls is all you need to know about what went wrong for the Republicans.

Jamaican Fed Steps In To End Financial Crisis

It's a great time to invest!

Interesting side note...

Two bear markets ended on October 10th. One in 1990 (at 2365) and again in 2002 (at 7,181.47).

The latter one ended at 10:10 am on 10/10.

Posted by edelfenbein at October 10, 2008 10:52 AM

Friday, October 10, 2008

"Support the Troops," Juden

This is the army whose troops we are all 'supposed' to blindly 'support:'

The Army later acknowledged one drill sergeant had ordered Handman to remove his yarmulke, which he wore with his uniform, as he ate in a dining hall. Another drill sergeant had called him "Juden" — the German word for Jews.

...Handman began basic training Aug. 29 and soon wrote a letter to his parents in which he said, "I have just never been so discriminated against/humiliated about my religion." He said he feared some of his fellow trainees "wanted to beat the (expletive) out of me... And the only justification they have is because I'm Jewish."

Handman's parents contacted U.S. Sen. Saxby Chambliss, R-Ga., who forwarded their concerns to the Army. Four days after commanders interviewed Handman about being harassed, he was beaten.

Sherry and I watched an intriguing movie about the fundagelicalizing of the armed forces known as Constantine's Sword that this news story forced me to recall. Frightening stuff.

Death, Bioethics & Religion

This topic is far more complicated than allowed for in this piece, but the letter is written in such a straightforward and glaring way that it is difficult to avoid or ignore. There are so many issues at play: justice, religion, life / death, suicide, and modernity that it was meant for this group to discuss, and I am suprised to think it has not come up sooner. I found this here, at PZ Meyers's great blog, Pharyngula. I am going to reprint the letter, originally published here, for purposes of easing quotes, etc.
People must accept death at "the hour chosen by God," according to Pope Benedict XVI, leader of the Catholic Church, which is pouring money into the campaign against I-1000.

The hour chosen by God? What does that even mean? Without the intervention of man--and medical science--my mother would have died years earlier. And at the end, even without assisted suicide as an option, my mother had to make her choices. Two hours with the mask off? Six with the mask on? Another two days hooked up to machines? Once things were hopeless, she chose the quickest, if not the easiest, exit. Mask off, two hours. That was my mother's choice, not God's.

Did my mother commit suicide? I wonder what the pope might say.

I know what my mother would say: The same church leaders who can't manage to keep priests from raping children aren't entitled to micromanage the final moments of our lives.

If religious people believe assisted suicide is wrong, they have a right to say so. Same for gay marriage and abortion. They oppose them for religious reasons, but it's somehow not enough for them to deny those things to themselves. They have to rush into your intimate life and deny them to you, too--deny you control over your own reproductive organs, deny you the spouse of your choosing, condemn you to pain (or the terror of it) at the end of your life.

The proper response to religious opposition to choice or love or death can be reduced to a series of bumper stickers: Don't approve of abortion? Don't have one. Don't approve of gay marriage? Don't have one. Don't approve of physician-assisted suicide? For Christ's sake, don't have one. But don't tell me I can't have one--each one--because it offends your God.
I am aware that I hold an extreme position on suicide. I believe that all humans (especially those in free and advanced societies) should have all of the means available to them at their choosing, in sickness or in health, happiness or sadness, to end their own lives as they wish--legally, safely, and with as little pain as possible, if they so desire. Are there competing opinions or differing thoughts on this blog? I am curious.

CNN: "All the Signatures Look Exactly the Same."

"The volume [of fraudulent registrations] is just incredible."

Obama campaign has donated $800,000 to Acorn.

Oh, I almost forgot.  While serving together on the Woods Fund board (notably, not when he was 8 years old!), Obama and Ayers oversaw grants totaling nearly $200,000 to ACORN.

GOOD NEWS! (Please Pardon the Sarcasm and Hyperbole in this Post)

The war in Iraq has been a success and the stock exchange in Baghdad is booming! Lower violence, improving economic conditions, and "hopes of a reconstruction windfall" are driving stock prices higher. All of this for the low, low, price of the entire global economy (yes, I am aware of the overstatement in this sentence).

"Roubini Misreads Goldman"

From Forbes:


Nouriel Roubini offers no evidence to support his curious assertion that most of Goldman Sachs' (nyse: GS - news -people ) lines of business are losing money ( "Next: The Mother Of All Bank Runs?" Oct. 2, 2008). As a result, we're left to assume that it's a gut reaction. Unfortunately, it appears that Mr. Roubini did not look at our recent earnings release, which shows that we reported a quarterly profit in a very difficult environment. In fact, we've reported a profit in each quarter since the credit crisis began more than a year ago.

Mr. Roubini does not distinguish between the differing performances at various firms. As a result, he fails to acknowledge that the difference in performance is clearly a function of different business models, risk management practices and decision making.

For example, Bear Stearns had a narrower business model, concentrated in fixed income, particularly in mortgage-related businesses. Lehman Brothers (nyse: LEH - news people ) also had a business model more focused on fixed income and had a real estate portfolio that was very significant in relation to its capital.

Both had very different funding and liquidity profiles from Goldman Sachs and Morgan Stanley (nyse: MS - news people). He also doesn't explain why Merrill Lynch (nyse: MER - news -people ) decided to merge. His readers might have been interested to know that, in addition to significant concentrated exposure to the mortgage market, the firm had a large amount of debt to be refinanced this year.

Mr. Roubini asserts that Goldman Sachs needs to raise more capital. Has he looked at any of the relevant capital metrics that demonstrate that Goldman Sachs has one of the strongest balance sheets in the financial services industry? Has he compared the quality of our balance sheet to those of the banks with whom he thinks we should merge?

Insightful opinion plays an important role, particularly in disrupted markets, but Forbes readers deserve more than a "fire, aim, ready" approach.


Lucas van Praag 
Managing Director 
Goldman Sachs & Co. 
85 Broad St. 
New York, N.Y. 10004 

The Limits of Contract Law

In the past, Pericles has made statements to the effect (I may have this wrong as it may have been couched) that all law (at least his branch of law) has economic resolution. I am hoping Pericles or other fine readers of this blog are willing to discuss, what I found to be an interesting point:
Morgan Stanley's stock is now trading at 40% of the level Mitsubishi agreed to pay ($25). There has to be an "material adverse change" clause in the investment agreement, and a potential ratings downgrade is certainly a material adverse change. So is a 60% collapse in the stock and a major loss of clients (per the WSJ, 40% of Morgan's hedge-fund clients have bolted in the last few weeks).

Even if Mitsubishi decided it needed a legal defense for backing out of the deal, therefore, there are almost certainly provisions in the investment agreement that it could fall back on. And even if there is no legal defense, it's hard to see what Morgan Stanley could really do if MUFG just decided not to send the money. [Sue? With what?]

If a company is in jeopardy, and a timely investment deal comes along to reduce the likelihood of that jeopardy, the deal is now the linchpin to the former company's success. If the investing party decides it no longer wants to take part, it appears that they have a significantly reduced litigation risk and economic exposure from a similar deal between two healthy (ier?) companies, as one of the two parties would no longer have the means or the value to fight over if the deal does not close. I am certain there are more precise legal understandings of what I'm trying to get at, and I bet there are at least a few people who read this blog who can speak to them.

Thank you in advance for any enriching of my understanding.

David Brooks Fleshes Out His Thoughts On Contemporary Conservatism

Brooks begins:
Modern conservatism began as a movement of dissident intellectuals. Richard Weaver wrote a book called, “Ideas Have Consequences.” Russell Kirk placed Edmund Burke in an American context. William F. Buckley famously said he’d rather be governed by the first 2,000 names in the Boston phone book than by the faculty of Harvard. But he didn’t believe those were the only two options. His entire life was a celebration of urbane values, sophistication and the rigorous and constant application of intellect.
What follows is a devastating attack upon contemporary Republican politics. It is possible that Brooks is doing his best to stave off the 'conservatism is dead' argument with a 'conservatism is not dead; the practice of American conservatism deviated from its roots.' Given his employ as a conservative commentator, I would say this is not only possible, but likely: Far better to be the advocate than the eulogist.
What had been a disdain for liberal intellectuals slipped into a disdain for the educated class as a whole. The liberals had coastal condescension, so the conservatives developed their own anti-elitism, with mirror-image categories and mirror-image resentments, but with the same corrosive effect.
Of course, the originally conceived American conservatism was fatally flawed. The fact that there will never be sufficient numbers of elites (by definition) to win sweeping victories within a Democratic Republic without a mass populist appeal ironically bound the movement to death by anti-intellectual populist zeal. Whatever Brooks's inspiration, the text delivers a blow. Oddly, his words are a well-dressed version of the comedic and intentionally crass piece by Taibbi mentioned here.
The political effects of this trend have been obvious. Republicans have alienated the highly educated regions — Silicon Valley, northern Virginia, the suburbs outside of New York, Philadelphia, Chicago and Raleigh-Durham. The West Coast and the Northeast are mostly gone.

The Republicans have alienated whole professions. Lawyers now donate to the Democratic Party over the Republican Party at 4-to-1 rates. With doctors, it’s 2-to-1. With tech executives, it’s 5-to-1. With investment bankers, it’s 2-to-1. It took talent for Republicans to lose the banking community.
The piece goes on to conclude:

She [Sarah Palin] is another step in the Republican change of personality. Once conservatives admired Churchill and Lincoln above all — men from wildly different backgrounds who prepared for leadership through constant reading, historical understanding and sophisticated thinking. Now those attributes bow down before the common touch.

And so, politically, the G.O.P. is squeezed at both ends. The party is losing the working class by sins of omission — because it has not developed policies to address economic anxiety. It has lost the educated class by sins of commission — by telling members of that class to go away.

We are all worse off for this reincarnation, as 'teh dumb' is winning, entrenching, and becoming ever harder to turn back.

Thursday, October 9, 2008

If only I would have read this sooner!

The Facts

Trying my best not to fear monger in these desperate and serious times, I am going to do my best to compile some pertinent and indisputable facts and then highlight some of the potential silver lining elements:

Indisputable Facts
Silver Lining Possibilities:

No Help From Europe

As written yesterday, the help the US (and the world) needs will not be coming from Europe. Quite frankly, they are not in a position to help, as there crisis is just as bad and possibly worse than ours. In fact, the Economist last week reported that for every dollar of deposits, US banks have lent 92 cents while for every euro of deposits, European banks have lent 1 euro 40. France, arguably the best off (thereby, with the most to lose) of the significant players in this mess just nixed the UK's plan to offer medium-term interbank lending:

French officials on Thursday said Paris would not follow a British proposal to provide medium-term guarantees for interbank lending, casting fresh doubts on the ability of the world’s seven richest nations to present a common front when their finance ministers meet in Washington on Friday.

The Group of Seven finance ministers are keen to correct the impression of ­disarray caused by unco­-ordinated government action to tackle the international financial crisis. However, both a persistent transatlantic rift and continued inter-European squabbling on how to forge ahead are threatening to undermine their efforts.

Bank Question

Someone at work heard about a website that is keeping tabs on the health of the banks. She wanted to know about hers, Fifth Third Bank in Charter One. Can anyone help?

Not your ordinary sandwich.

To "flip off Market meltdown", Boston-based Persephone's put a $100 sandwich on its lunch menu (does not seem to appear at dinner time).

The "millionaire’s sandwich" is comprised of jamon iberico de bellota, sherried onions, manchego & membrillo mustard and comes with arugula, green olive & marcona almond salad. I tried to find pictures, but failed.

To flip off Persephone's millionaire's sandwich I now go stand in line at the Shake Shack for a couple of hours and enjoy a $10 dollar burger.

UPDATE: jumco found an image of the sandwich and added it, hoping katya does not mind
UPD2: thanks. katya doesn't mind :)

Wednesday, October 8, 2008

David Brooks, Of All People, Agrees With Me

In previous posts (here, here and here), I lamented the choice of Sarah Palin and the blatant anti-intellectualism the choice represented. Today, David Brooks, the conservative commentator, voiced his agreement with that position:
[Sarah Palin] represents a fatal cancer to the Republican party. When I first started in journalism, I worked at the National Review for Bill Buckley. And Buckley famously said he'd rather be ruled by the first 2,000 names in the Boston phone book than by the Harvard faculty. But he didn't think those were the only two options. He thought it was important to have people on the conservative side who celebrated ideas, who celebrated learning. And his whole life was based on that, and that was also true for a lot of the other conservatives in the Reagan era. Reagan had an immense faith in the power of ideas. But there has been a counter, more populist tradition, which is not only to scorn liberal ideas but to scorn ideas entirely. And I'm afraid that Sarah Palin has those prejudices. I think President Bush has those prejudices.
Man, I never really thought I could honestly look to David Brooks for political backup. Alas, the world is melting, so who knows what's next?

For those of you interested in seeing the way that politics, religion and other topics of the times used to be discussed on television, I present to you one of the most fascinating locations on the internet:

Mike Wallace

Mike Wallace interviews some of the greatest minds in a most compelling manner. All of these interviews are worth a watch, but the ones with Reinhold Niebuhr and Frank Lloyd Wright are particularly compelling. Whatever happened to nationally televised dialog like this? Charlie Rose and Jim Lehrer, arguably the best we have to offer, simply don't cut it by these standards.

Yom Kippur 5769

Good Yom Tov!

Bush Teaches Cheerleading?

A soon to be released Judo instructional video will feature scenes with Mr. Putin. Can you image Bush staring in a cheerleading instructional video?

Who is Going to Lend?

This question is more fully, which nations have the wherewithal,the worth, and the poltical capital / desire to lend the massive amounts of money necessary to facilitate the US economy?

A discussion of the potential players:
  • Russia: Not that anyone really expected to US to explicitly borrow money from Russia (imagine?), but it is not likely they'll be able to participate even in some kind of G8 proposal. With oil no longer being seen as a store of value, and again being seen as a commodity, of which there will be significantly reduced demand with a global recession, Russia is no longer the strong hand it was a handful of months ago.

  • Germany: Germany's banks are being ravaged by the banking failures in that country and their economic allies within the EU. Hypo bank has failed, Commerzbank and Deutsche are being attacked, and Germany has taken the extraordinary step of insuring all of its bank deposits. This, from a country where deposit insurance was a weird and complicated combination of public and private efforts (unlike the US) prior to the crisis.

  • United Kingdom: With the failures of Northern Rock, Bradford & Bingley, and the call for funds from the Royal Bank of Scotland, and the forced takeover of HBOS, not to mention the delitirious political ramifications of the UK support for the Iraq and Afghanistan wars; the UK, quite simply does not have the political capital, even if it had the money, to write a very large check to the United States.

  • China: China already holds at least $519 billion in US Treasuries. Certainly the value of these Treasuries has temporarily sky-rocketed with this crisis, but they know how destabilizing a mass sale to raise fresh capital could be. China has purchased the US Treasuries, in many ways, to establish a strong currency base with its largest trading partners given its export heavy economy. Unfortunately, nearly half of it's USD based assets were in GSE mortgage backed securities that have rapidly declined in value. China's central bank reserves now may be woefully short as a result.

    With shrinking global demand as evidenced by the Baltic Dry Index, China will be weary to lend more money, as an increase in trade any time soon is improbable. Moreover, with the US constantly putting China's political head on the proverbial chopping block as a 'currency manipulator' and other epithets:
    One frequently hears that China’s banks, capital markets and investment systems are inefficient, technically insolvent, and in desperate need of foreign invigoration.

    But Chinese senior leaders, supported by China’s successful record, don’t accept this assessment. Decades-old claims that China’s financial system is broken have grown stale, despite their repetition by international agencies, Wall Street and some academics. Data show that China’s financial sector—reforming rapidly on multiple tracks—successfully channels funds to essential infrastructure, profit-oriented firms, home mortgages and consumer credit. Meanwhile, world-class financial market reforms need at least a decade to mature.

    China may take a stern tone to any willingness it may have in helping, possibly in the form of devastatingly high interest rates. An idea for Chinese intervention has been proposed at the Financial Times:

    The Chinese government could offer to lend up to $500bn (from its current stock of $1,800bn) to the US government for the rescue of its financial sector. Its previous assistance – buying US bonds – was indirect and unconditional. Not so in this case.

    China’s loan offer would be direct to the US government to be spent in the current financial crisis. More important, it would come with strings attached. Tied aid, the preferred mode of operation of western donors since the postwar period, would now be embraced by China.

  • Japan: Japan has seen a strengthened currency (a declining number represents an increasingly valuable yen relative to dollar, as fewer yen are required to purchase one USD) and has limited exposure (estimated to be a mere $8 billion) to the worst securities at the root of much of the present turmoil. They have seen banking / credit crises for nearly 20 years, and their largest trading partern was the United States (now second largest). Moreover, the Japanese economy is rich with an overabundance of savings to lend. If any of our trading partners are likely to facilitate a large US bailout, I believe it will be led by Japan.

Tuesday, October 7, 2008

Presidential Debate Open Thread

U. of C. Gets Another One!

Yoichiro Nambu, the Harry Pratt Judson Distinguished Service Professor Emeritus in Physics and the Enrico Fermi Institute, and one of the leading figures in the development of modern particle physics, on Tuesday was awarded the 2008 Nobel Prize in Physics.

In a citation posted after the award was announced shortly before 5:30 a.m. Chicago time, the Nobel Foundation credited Nambu with “the discovery of the mechanism of spontaneous broken symmetry in subatomic physics.”

Nambu, 87, shares this year’s prize with Makoto Kobayashi of the High Energy Accelerator Research Organization (KEK) in Tsukuba, Japan, and Toshihide Maskawa of Kyoto University in Kyoto, Japan.

Nambu has been a scholar at the University of Chicago since 1954.


It is official, all of the gains (from a straight equity perspective) of the past 4 years have been eliminated. The S&P below 1000 as of today. This chart reflects yesterday's close, but not today's. Do not forget that this is occurring while the short ban is still in effect and companies like Morgan Stanley and Bank of America that reside "comfortably" on the short-ban list lost roughly 35% and 25% today respectively. Clearly, the nonsense about the 'evil shorts' was the hogwash everyone knew it was. The economy is in crisis and it is not because David Einhorn figured out that Lehman was not worth anything and bet against them.

In other terms, we are presently eating a "McFear" sandwich. From Bill Gross:
So let me put it simply. Credit markets are based on trust and when there is no trust, markets can freeze up. My Co-CIO Mohamed El-Erian has a great everyday example. Imagine yourself at the drive-thru ordering a Big Mac. At one window you order and pay, at the other – 20 feet ahead – you pick up your lunch. What if you thought that after paying at the first window, your 1000 calorie sandwich might not be waiting for you a few seconds later. You might not pay; business as usual might not take place. That is what is happening in the credit markets. They are frozen in “McFear.”

Roubini was right

Oct 7 2008 11:38AM EDT

Roubini was Right

By: Felix Salmon

I asked Nouriel Roubini this morning whether there was any way of getting institutions to start lending to each other, rather than the Fed being the only game in town. I got this in response: savor it, it's probably the shortest thing by Nouriel you'll ever read.

We are near total financial and corporate meltdown dude.
At this point the ony institution able and willing to lend is the Fed. That is why I suggested last week the CPFF to avoid this meltdown.
First you avoid a systemic collapse that was literally a couple of days from occurring. Once things have calmed in a few weeks you can start thinking about ways to restore lending among private institutions.
Yep we have reached the point where the Fed is the only bank in the land or, better, in the globe as the huge swap lines now allow the Fed to lend dollars to non-US banks outside the US.
That means that the Fed will now lend to banks, to non-banks in the shadow banking system, to corporations and to state and local governments. There is no one else lending now as counterparty fear is extreme.
Read my February 12 steps to a financial disaster paper. We are now as I predicted at step 12
Sorry if I now say I told you so...
Feeling a little chastised for giving me so much shit on your blog for the last year and siding persistently with those who missed the boat and said all wil be fine? Should I expect a public mea culpa?
It would be useful if you would publicly admit you got it totally wrong for the last year.

I'm happy to oblige: Nouriel was right, and I was wrong. The more apocalyptic you were, the more correct you were. And there were precious few people as apocalyptic as Nouriel.

And so, at this point, I'm liable to trust Nouriel -- who has been right so far -- about the necessity of the CPFF, rather than trust someone like TED, who says that the non-financial CP market was just fine as of October 1, and that therefore there's nothing to worry about.

At some point, Nouriel will be too bearish. But that point hasn't arrived yet, and I'd much rather prepare for the worst and be pleasantly surprised on the upside, than hope for the best and get my legs cut out from under me. There's no doubt that Paulson and Bernanke have been consistently behind the curve so far, because they just couldn't conceive of things getting as bad as they did. So maybe it's long past time to start listening to someone who not only conceived such things, but went so far as to actually predict them.

How Bad Is It?

Did we just bailout GE?
As of June 30, GE had about $100 billion in short-term debt, the commercial paper that is becoming more and more expensive to issue. Commercial paper has to be rolled over everything three months or so. This means that, unless GE massively reduced its short-term debt load in Q3, the company will need to keep borrowing about $100 billion every three months. A bummer, then, that the commercial paper market has seized up...So, good thing the Fed just announced another massive bailout plan for the commercial paper market. Many tens of billions of that bailout money will probably be headed to GE.
$25 billion went to the auto manufacturers, $85 billion to AIG, up to $29 billion to Bear / JP, $700 billion to yet to be determined, at least $900 billion in short term TAF liquidity, and now an unspecified amount to the corporate debt market. A few questions:

  • Is this another way for corporates to move toxic assets off-balance sheet as they tried to do with SIVs, or is this an effective strategy for preventing mass roll-offs in the essential short-term corporates market?
  • What will be the metrics for success?
  • How much of the $700 billion intended for MBS, CDOs and other structured debt will go toward this more vanilla form of financing?
  • Will the Fed rely upon the ratings agencies that were so very effective in evaluating the structured debt market to evaluate the corporates, or will they build an in house team to do so independently?
  • Many questions appear to be either unanswered or vague. What will be the next move of the feds?
UPDATE 10/11: Situation getting worse for GE:

The locomotives-to-movies conglomerate said GE Capital, which accounts for about half of its earnings, would suffer pre-tax losses of up to $6.6bn this year and up to $9bn in 2009, largely because of consumers’ ailing financial conditions.

In the US, credit loss provisions would rise to between $800m and $1bn from previous estimates of $600m-$800m, it said.

Not Getting It

In the old days, the Republican Party knew their own plan. Rich people would put together their money to buy influence over people who were not rich with appeals to the fact that they were not rich. These people took the form of Nixon's 'silent majority' and the "Reagan Democrats" among others all pulling their doting Horatio Agliers up from their respective boot-straps. Once in power on the wave of populist nonsense, these politicians would then go about their business restructuring the system ever more into the favor of the wealthy.

The game, however, always required some insight and knowledge of its rules and intent by the players. Reagan was a savvy player of this game. On the one hand he reinvented American religiosity for his own gain. He, for example, used the religiously loaded term "evil" in his "Evil Empire Speech" to the evangelical union down in Florida and courted the likes of Jerry Falwell et al. On the other hand, he sent the country on a union busting, deregulating, regressive tax shifting spree of a decade that saw the rebirth of the American plutocracy (kleptocracy). Bush, with his brush clearing, folksy ways was able to disguise his aristocratic heritage and education in the Northeast from all of those who had been trained towards distaste of heritage, education, and the Northeast.

With Sarah Palin, the Republican Party has apparently forgotten the rules of this age-old and effective system for getting their interests into power. This year, this election cycle, they are actually putting one of "them" into the hot seat and people are confused. Especially the rich folk:

"If you turn on the news tonight when you get home, you're gonna see that, yah, this is another woeful day in the market, and the other side just doesn't understand -- no!" she said at an afternoon fundraiser at the home of mutual fund giant Jack Donahue. "Especially in a time like this, you don't propose to increase taxes. The phoniest claim in a campaign that's full of them is that Barack Obama is going to cut your taxes."

Of course, Obama never promised to cut taxes for people at $10,000-a-plate lunches in air-conditioned tents on waterfront compounds. And the crowd -- among them New York Jets owner Woody Johnson -- reacted without applause to Palin's Joe Six-Pack lines. After they didn't strike up the usual "Drill, baby, drill" or "USA" chants, Palin, rattled, read hurriedly through the rest of her speech.

Granted, the vast majority of these rich folk will vote for McCain anyway, but not all, and even those who do are holding their noses and are confused. The people the wealthy put into power are supposed to know the rules of the game and have the capacity to distinguish between their audiences.

In many ways, this was one of the 'appealing' traits of W. Bush. He had been playing the game for a long time, and he knew when he was speaking to crazy fundagelicals and when he was speaking to actual powerbrokers. The results of course, pleased everyone looking to be pleased. Actual power brokers saw capital gains taxes slashed, income taxes at the top slashed, and more than $1 trillion of the peoples' money funneled directly to them without the usual and annoying masks of 'tax reform' or reductions in 'government waste.' and, most shockingly, while decrying insufficient 'government regulation and oversight.' Fundagelicals got abstinence only eduction, an elimination of condoms to Africa, at least one supreme court judge, if not two, a 'parial birth abortion ban,' and a world closer to 'end times' with one war in the Middle East and one in Central Asia against the wrong types of brown people.

Alas, Sarah Palin is incapable of this distinction. To her unblinking, every newspaper and magazine reading, winking self, the world is uniform (maybe even flat). All political interests are the same to her. Rich powerbrokers, poor fundagelicals, rich fundagelicals, 'joe-six pack,' to her, it does not matter. The message stays the same and the reasoning remains elusive.

Now (also, too), some rich people, are coming out against her bold and bald confusion of 'how the world works' (which only McCain knows, of course).

The former Chairman and CEO of Bank of America, Hugh McColl Jr. has come out in favor of Obama:

In 49 years of living in Charlotte, I've seldom offered my opinion in writing and never submitted a piece such as this. The condition of our country compels me.

The economic disarray threatening our community and nation poses critical challenges but also presents opportunity. We can observe the presidential candidates in the crucible of crisis.

Only one of them demonstrates the needed intellect, fortitude and temperament. That is why I have decided to publicly support Barack Obama.

Today, is a new day. We have reached the point where the faithful Republican alliance between powerbroker and working stiff (come religious whacko) that Nixon and Reagan built, Clinton unwittingly strengthened, and Bush crafted into artform, has exploded. The wealthy are having a more difficult time stomaching the anti-intellectual nonsense of the religiously stupid and the religiously stupid are now actually feeling the effects of handing their country over to the most select and richest few in exchange for 'partial birth abortion bans.'

What we have now, are rich powerbrokers calling for, or even working on the campaign of (I'm looking at you Warren Buffett), the election of an educated meritocratic social democrat (kind of) because they are concerned that the people they've put into power in the past may actually endanger the country where their power lies, and thereby make their powerbroker status significantly less valuable.

Read My Game?

We'll call this reason 549728 to die.

I understand it is not wise to ignore new social trends, but the next time our society needs a James Madison or a Winston Churchill he simply won't exist.

Bored, grab a Zeitgeist

check it out if your bored, it's entertaining if you've got 2 hours to kill and the addendum just came out this weekend so it's brandy new.

Worse of two evils . . .

End of a Noble Season

Rays 6, Sox 2.  Rays win ALDS 3-1. 

They weren't supposed to be there .  

They shouldn't have been there.

Except for heart, which was proven to be there.

Congratulations on a longer season than the "Best-Team-In-Baseball" Cubs, who puked in each other's mouths.

Monday, October 6, 2008

Martial Law?

We must ask ourselves what, exactly was in this bill that inspired such hyperbolic language. Certainly, a trillion dollars is not sufficient to warrant such speech, as evidenced when the market lost more than that amount with the first failure of the bill in the house. What quantity of money, if any, is sufficient to warrant the type of language Rep. Brad Sherman (D-CA) claims was used to push for the bill?

What They Said, Part II

Watch the whole thing.

Say Anything

Finally, for all you Joe Six - Packs out there playing a drinking game, I would just like to add...maverick!


This Just Requires a Link, Nothing More to Be Said


Fed Pumps $900 Billion With TAF To No Avail

Today, we are seeing the beginnings of the true failure of the banking system. The Federal Reserve has transitioned from the lender of last resort to the central bank. In fact, the Fed has now attempted to lend to banks in one day a sum greater than its entire balance sheet--and failed. Naked Capitalism and others reported that the Fed lending facilities have actually become counterproductive, and today's evidence significantly substantiates their hypothesis. Here, I will attempt to construct a quick time line of the most recent events over the weekend, so as to get a sense of how we got here:
So, my analysis, in keeping with the non-hyperbolic traditions of this fine blog: The world is melting.

In Soviet Rasha ve hav tanks in amerika you hav fainanshl kraisis.

Sunday, October 5, 2008

More Wandel Jugend

Cubs Lose, Sox Win

What were the odds the Sox, who were predicted to finish fourth in their division, would have a 2008 season that lasted longer than the Cubs, who were predicted to win their division and, in fact, ended the regular season with the best record in baseball?  The Cubs choked harder than any other moment in their 100 year World Series drought, and that's saying something.  (I would describe my amusement, but I have neither the vocabulary nor the malice, well, maybe the malice.) Suffice it to say to the Cubs, "Happy anniversary." Anyway, here's to the Chicago baseball team that did not throw a rally simply because it won its division. Rather, the last time the Sox threw a rally it involved ticker tape and a World Series trophy.  Go Sox!

Sox 5, Rays 3.  Rays lead ALDS 2-1.  Jenks closes the 9th with a called third strike. 

Iceland: When Too Big To Fail Becomes Too Big To Rescue

By: Felix Salmon
Oct 3 2008 5:50PM EDT

We know that credit ratings agencies made enormous errors over the past few years when it came to rating structured products. And of course it's never easy to rate leveraged institutions, like banks, which are susceptible to runs. But what about the more conventional credits, like sovereigns?

Last year, Moody's briefly gave all of Iceland's major banks, including Glitnir, a triple-A rating, on the grounds that if they ever got into trouble, the Icelandic government would bail them out. After much ridicule, Moody's changed its mind. Clearly, it was silly to treat Iceland's banks as though they were just as creditworthy as the sovereign.

Fast-forward to today, and Iceland has indeed bailed out Glitnir. But here's the thing: Iceland's credit default swaps are now suggesting that the sovereign itself is a distressed credit.

Contracts on Iceland's debt jumped to 17.5 percent upfront and 5 percent a year to protect 10 million euros ($13.8 million) of bonds.

This is not how triple-A sovereigns behave. It's as though the analysts at Moody's were only able to see one step ahead, and not two: they could anticipate that Iceland would bail out its banks, but they couldn't anticipate that when a tiny country bails out a bank whose assets vastly exceed the country's own GDP, then the sovereign itself loses much creditworthiness. One scary datapoint: the assets of Kaupthing Bank amount to 623% of Iceland's GDP, which is possibly why its own credit default swaps are trading somewhere over 2500bp.

How bad can things get in Iceland? Here's what one local emailed Tom Braithwaite:

They are fighting powers that they are powerless to fight. It's like tackling a storm raging in the sea with a teaspoon.
The main supermarket can't get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We're running out of oil. And winter came last night - about a month early.

Received opinion has it that if Iceland backstops the Icelandic banks, then the other Nordic countries, or someone, will backstop Iceland. Which might be true: we'll find out "very soon". But there's no news yet.