Have you ever wanted to relax and "enjoy the silent majesty of winter's morn, and the cool clean chill of a Holiday air"? Me too.
Then you read about how bailed out Goldman Sachs not only set Wall Street pay record records but that their chief executive officer, Lloyd Blankfein, actually believes that his company "would not have failed" if they had just been left alone. Great. The people who created our economic mess and then dumped all their crap on the American taxpayer now think they did nothing wrong. In a few words, during this Holiday Season they get to keep their bonuses and walk away while we deal with the sh*t they created. It works something like this.
Lloyd Blankfein, as well as the other CEOs of financial America, are Randy Quaid. Happy Holidays.
- Mark
Saturday, December 5, 2009
Thursday, December 3, 2009
BofA RETURNING BAILOUT CASH ... IT'S SMOKE & MIRRORS
In an effort to get out from under the watchdog eyes of the federal government Bank of America is re-paying $45 billion in TARP bailout money. Sounds like great news, huh? The "road to recovery" others will argue. Well, hang on to your wallets. It's all smoke mirrors ...
QUICK OVERVIEW
BofA is saying that they will use $26.2 billion of its own money, and $18.8 billion in raised capital (for a total of $45 billion), to pay down what they borrowed from the Troubled Asset Relief Program (TARP). Where have they gotten the $26.2 billion? This is especially a good question since they were moving toward financial armageddon after purchasing the very toxic Merrrill Lynch just 9 months ago. BofA is getting the money from at least three developments:
I'll take each one in turn.
TAPPING RAINY DAY FUNDS
BofA, like all other FDIC-backed financial institutions, has reduced the amount of money they are putting aside for a rainy day (blue line on the chart; called Coverage Ratio). As The Pragmatic Capitalist points out (in "The Bank Profit Mirage"), this means that if things go bad in some client accounts banks will have less money to deal with the problem than they did before the market collapsed last year. How do we know this? Because the FDIC keeps track of this stuff. Again, look at the Blue Line on the chart.
But then it gets really bad. Every time somebody decides that they can't make payments on a home loan or a small business loan it becomes a non-performing loan. Look at the red line on the chart (Non-Current Loans & Leases). As you can see, things aren't going well for American debtors these days. When BofA (or any bank) decide they can't squeeze any more money out of a debtor they simply write the account off as a loss (or a "charge-off"). Things aren't going well here either. Look at the green line in the chart (Loan Loss Reserves).
You don't have to be a rocket scientist to see things aren't going well for FDIC-insured banks.
Most institutions are supposed to have money to cover accounts they anticipate will go bad. After last year - and given current economic conditions for Middle America - you would think that banks would be putting billions more into the Blue Line (Coverage Ratio, to cover anticipated losses). They're not. Instead of using billions as operational (rainy day) funds they're shifting them over to their bottom line and calling it a "profit."
And just like that, it looks like banks are doing better. See how easy that is?
In a few words, BofA is taking billions out of it's rainy day fund at precisely the time that they should be putting more into it. My guess is that they're confident that their current market bets will continue to pay-off because of government guarantees in other (non-TARP) areas. Here's why.
BAILOUT FUNDS TURN STRAW INTO GOLD
I'll try and make this as simple as possible. The once toxic derivatives, and other market garbage, that Merrill Lynch, Goldman Sachs, and AIG (among others) had were suddenly cleansed. Because of the fedeal government's bailout money, the Federal Reserve's gurantees and credits, and the Treasury Department's intervention, well over $5 trillion in watered stock, bad assets, and toxic securities were pretty much cleaned up by the U.S. government. I previously wrote about this in my "Iron Maiden" posts.
These financial cleansing activities by the Federal Reserve and the Treasury Department covered at least $1.9 trillion for new lending and $4.8 trillion for troubled asset purchases. They also explain why Goldman Sachs, Merrill Lynch, AIG, etc. were suddenly made "profitable" to the point that they could pay out 100 cents on the dollar. Everything they thought was toxic was suddenly turned into gold.
In a few words, banks are profitable because the American taxpayer has made them profitable through Federal Reserve and Treasury Department trillion dollar guarantees. If our financial institutions, like BofA, were really doing fine they would pay back the TARP money and then ask the Federal Reserve and the Treasury Department to rescind their trillion dollar guarantees. But they can't. They need the guarantees to make money off the toxic assets they're still flushing out of the system. This is not a sign of recovery.
CONTINUED GAMBLING
As I pointed out two posts ago one of the reasons financial institutions are starting to see profits is because they've gone back to the same derivative markets that helped get us into this mess. Rather than making loans to small businesses and entrepreneurs (who take longer to pay off) financial firms like BofA are betting on making a quicker buck on derivative contracts. This "recovery" strategy - as any half-wit should see - is only working because of the trillion dollar Federal Reserve guarantees and Treasury Department interventions.
Gambling with a continuous stream of the House's money does not make you a success ... no matter how much you make. In fact, it should make you the butt of the gambling den's jokes. But that's not the case for America's financial institutions. They actually believe they're the ones making things work.
FINAL THOUGHTS
The additional $18.8 billion that BofA says it will use to pay it's TARP loan back will come from selling more of it's stock. This means BofA will dilute the value of current shareholder stock in order to raise capital. This is not good news for their shareholders. But the goal isn't to appease shareholders today. It's to get the U.S. government off of its back so that BofA can pay bigger bonuses (so richly "deserved") and to find another CEO (who will, no doubt, want more money than the current CEO earns). They can't do both while they owe TARP money.
At the end of the day, that anyone buys into the idea that the major financial institutions are healthy is dumbfounding. Toxic assets were spun into gold by the U.S. government. Money (or "profits") used by BofA to pay back the federal government is really operational capital that should be used for the rainy day around the corner. Instead, BofA, like other financial institutions, is banking on the Fed's trillion dollar guarantees to make anticipated losses whole. But this is understandable. Federal Reserve trillion dollar guarantees don't have TARP-like conditions attached to them (thank you Tim Geithner and Ben Bernanke).
Finally, that BofA and other financial institutions continue to bet on interest rate and foreign currency derivative markets - which have been made whole by government money - should be a red flag. The fact that the media wants to talk about the "recovery" of BofA, instead of asking why they're so healthy, tells me one thing: We've learned nothing from the previous years of smoke & mirrors.
Stay tuned.
- Mark
QUICK OVERVIEW
BofA is saying that they will use $26.2 billion of its own money, and $18.8 billion in raised capital (for a total of $45 billion), to pay down what they borrowed from the Troubled Asset Relief Program (TARP). Where have they gotten the $26.2 billion? This is especially a good question since they were moving toward financial armageddon after purchasing the very toxic Merrrill Lynch just 9 months ago. BofA is getting the money from at least three developments:
* TAPPING RAINY DAY FUNDS
* BAILOUT FUNDS TURNED STRAW INTO GOLD
* CONTINUED GAMBLING
I'll take each one in turn.
TAPPING RAINY DAY FUNDS
BofA, like all other FDIC-backed financial institutions, has reduced the amount of money they are putting aside for a rainy day (blue line on the chart; called Coverage Ratio). As The Pragmatic Capitalist points out (in "The Bank Profit Mirage"), this means that if things go bad in some client accounts banks will have less money to deal with the problem than they did before the market collapsed last year. How do we know this? Because the FDIC keeps track of this stuff. Again, look at the Blue Line on the chart.
But then it gets really bad. Every time somebody decides that they can't make payments on a home loan or a small business loan it becomes a non-performing loan. Look at the red line on the chart (Non-Current Loans & Leases). As you can see, things aren't going well for American debtors these days. When BofA (or any bank) decide they can't squeeze any more money out of a debtor they simply write the account off as a loss (or a "charge-off"). Things aren't going well here either. Look at the green line in the chart (Loan Loss Reserves).
You don't have to be a rocket scientist to see things aren't going well for FDIC-insured banks.
Most institutions are supposed to have money to cover accounts they anticipate will go bad. After last year - and given current economic conditions for Middle America - you would think that banks would be putting billions more into the Blue Line (Coverage Ratio, to cover anticipated losses). They're not. Instead of using billions as operational (rainy day) funds they're shifting them over to their bottom line and calling it a "profit."
And just like that, it looks like banks are doing better. See how easy that is?
In a few words, BofA is taking billions out of it's rainy day fund at precisely the time that they should be putting more into it. My guess is that they're confident that their current market bets will continue to pay-off because of government guarantees in other (non-TARP) areas. Here's why.
BAILOUT FUNDS TURN STRAW INTO GOLD
I'll try and make this as simple as possible. The once toxic derivatives, and other market garbage, that Merrill Lynch, Goldman Sachs, and AIG (among others) had were suddenly cleansed. Because of the fedeal government's bailout money, the Federal Reserve's gurantees and credits, and the Treasury Department's intervention, well over $5 trillion in watered stock, bad assets, and toxic securities were pretty much cleaned up by the U.S. government. I previously wrote about this in my "Iron Maiden" posts.
These financial cleansing activities by the Federal Reserve and the Treasury Department covered at least $1.9 trillion for new lending and $4.8 trillion for troubled asset purchases. They also explain why Goldman Sachs, Merrill Lynch, AIG, etc. were suddenly made "profitable" to the point that they could pay out 100 cents on the dollar. Everything they thought was toxic was suddenly turned into gold.
In a few words, banks are profitable because the American taxpayer has made them profitable through Federal Reserve and Treasury Department trillion dollar guarantees. If our financial institutions, like BofA, were really doing fine they would pay back the TARP money and then ask the Federal Reserve and the Treasury Department to rescind their trillion dollar guarantees. But they can't. They need the guarantees to make money off the toxic assets they're still flushing out of the system. This is not a sign of recovery.
CONTINUED GAMBLING
As I pointed out two posts ago one of the reasons financial institutions are starting to see profits is because they've gone back to the same derivative markets that helped get us into this mess. Rather than making loans to small businesses and entrepreneurs (who take longer to pay off) financial firms like BofA are betting on making a quicker buck on derivative contracts. This "recovery" strategy - as any half-wit should see - is only working because of the trillion dollar Federal Reserve guarantees and Treasury Department interventions.
Gambling with a continuous stream of the House's money does not make you a success ... no matter how much you make. In fact, it should make you the butt of the gambling den's jokes. But that's not the case for America's financial institutions. They actually believe they're the ones making things work.
FINAL THOUGHTS
The additional $18.8 billion that BofA says it will use to pay it's TARP loan back will come from selling more of it's stock. This means BofA will dilute the value of current shareholder stock in order to raise capital. This is not good news for their shareholders. But the goal isn't to appease shareholders today. It's to get the U.S. government off of its back so that BofA can pay bigger bonuses (so richly "deserved") and to find another CEO (who will, no doubt, want more money than the current CEO earns). They can't do both while they owe TARP money.
At the end of the day, that anyone buys into the idea that the major financial institutions are healthy is dumbfounding. Toxic assets were spun into gold by the U.S. government. Money (or "profits") used by BofA to pay back the federal government is really operational capital that should be used for the rainy day around the corner. Instead, BofA, like other financial institutions, is banking on the Fed's trillion dollar guarantees to make anticipated losses whole. But this is understandable. Federal Reserve trillion dollar guarantees don't have TARP-like conditions attached to them (thank you Tim Geithner and Ben Bernanke).
Finally, that BofA and other financial institutions continue to bet on interest rate and foreign currency derivative markets - which have been made whole by government money - should be a red flag. The fact that the media wants to talk about the "recovery" of BofA, instead of asking why they're so healthy, tells me one thing: We've learned nothing from the previous years of smoke & mirrors.
Stay tuned.
- Mark
Wednesday, December 2, 2009
ARE WE KILLING THE MORAL JUSTIFICATION OF CAPITALISM?
In my book I wrote that "The moral justification of capitalism in America rests upon one very simple assumption: If you work hard you will get ahead." Are we killing the moral justification of capitalism for America's middle class? I think so. Here's how.
While the banks have gone back to their old irresponsible habits (see previous post) Elizabeth Warren, chair of the Congressional Oversight Panel for the bailout has an interesting take on what's been happening to the heart and soul of America. Specifically, she's worried about what's happened to America's middle-class. Warren writes:
Part of the reason for this is that middle-class Americans are now spending more money on health care, taxes, and on their homes than they did thirty years ago. Wages? They've dropped for both married couples and single men. Americans might be working more hours (i.e. those who have jobs) but the reality is middle-class America is in trouble in the areas of job security, job quality, and salaries (though the top 1% are doing just fine).
Here's the incredible point. These developments aren't tied to some mythical invisible hand in the marketplace. Nor is it tied to irresponsible consumers who brought debt loads upon themselves. Put more simply, none of Middle America's descent into debt, uncertainty, and pink slips is an accident.
As I pointed out in my book what's happening today is tied to favorable legislation that inflates profits and then protects inherited and ill-gotten wealth. Want proof? Take a look at (1) the logic behind the 2005 Bankrupty Reform bill, (2) the real beneficiaries of "Dead Peasant" Insurance, (3) how the politics behind the Estate Tax had nothing to do with saving the "family farm" and (4) why corporations really locate in off-shore havens. These developments have literally transferred trillions of dollars from Middle America to the top 1%. And this was before the bank bailout.
Middle-class America's descent is also tied to a state that's bought into the idea that financial institutions create wealth, even when they're busy sucking it out of the American middle class via bailouts and government enforced bankruptcies and foreclosures. And all for what? So the financial titans of America can continue gambling on interest rates and foreign currencies, as they are currently doing? Give me a break. This is wealth extraction, not wealth creation.
While I'd like to say that the real losers in this capitalist market charade are middle-class Americans, local community banks, small businesses and future entrepreneurs, I can't. To be sure, they're losing out. But the real loser here is the American ideal. More specifically, while Elizabeth Warren is correct to point out what's happening to America's middle-class it's more important to understand what's happening to America: We are slowly killing the moral justification of capitalism.
Simply put, the idea that you can work hard and get ahead is getting smothered by well-connected financial titans who believe they are entitled to government-escorted profits in an economy they wrecked ... It's being smothered by a political class that believes in free market fairytopias, where market players do the right thing (and must be left alone) because they're virtuous in the pursuit of profit ... Finally, it's going to get smothered by a middle-class that will one day balk at the idea of having to pick up the pieces in the form of higher taxes, more uncertainty, and a faded American Dream (an early sentiment captured in the photo below).
America became America because we figured out that financial reward shouldn't go only to those of social standing (aristocracies), protected networks (elites), or to those with royal bloodlines (monarchy). America became America because we learned how to create opportunities and reward for those who worked hard. Rather than believing in free market fairies we need to relearn how this happened.
- Mark
While the banks have gone back to their old irresponsible habits (see previous post) Elizabeth Warren, chair of the Congressional Oversight Panel for the bailout has an interesting take on what's been happening to the heart and soul of America. Specifically, she's worried about what's happened to America's middle-class. Warren writes:
Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can't make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.
Part of the reason for this is that middle-class Americans are now spending more money on health care, taxes, and on their homes than they did thirty years ago. Wages? They've dropped for both married couples and single men. Americans might be working more hours (i.e. those who have jobs) but the reality is middle-class America is in trouble in the areas of job security, job quality, and salaries (though the top 1% are doing just fine).
Here's the incredible point. These developments aren't tied to some mythical invisible hand in the marketplace. Nor is it tied to irresponsible consumers who brought debt loads upon themselves. Put more simply, none of Middle America's descent into debt, uncertainty, and pink slips is an accident.
As I pointed out in my book what's happening today is tied to favorable legislation that inflates profits and then protects inherited and ill-gotten wealth. Want proof? Take a look at (1) the logic behind the 2005 Bankrupty Reform bill, (2) the real beneficiaries of "Dead Peasant" Insurance, (3) how the politics behind the Estate Tax had nothing to do with saving the "family farm" and (4) why corporations really locate in off-shore havens. These developments have literally transferred trillions of dollars from Middle America to the top 1%. And this was before the bank bailout.
Middle-class America's descent is also tied to a state that's bought into the idea that financial institutions create wealth, even when they're busy sucking it out of the American middle class via bailouts and government enforced bankruptcies and foreclosures. And all for what? So the financial titans of America can continue gambling on interest rates and foreign currencies, as they are currently doing? Give me a break. This is wealth extraction, not wealth creation.
While I'd like to say that the real losers in this capitalist market charade are middle-class Americans, local community banks, small businesses and future entrepreneurs, I can't. To be sure, they're losing out. But the real loser here is the American ideal. More specifically, while Elizabeth Warren is correct to point out what's happening to America's middle-class it's more important to understand what's happening to America: We are slowly killing the moral justification of capitalism.
Simply put, the idea that you can work hard and get ahead is getting smothered by well-connected financial titans who believe they are entitled to government-escorted profits in an economy they wrecked ... It's being smothered by a political class that believes in free market fairytopias, where market players do the right thing (and must be left alone) because they're virtuous in the pursuit of profit ... Finally, it's going to get smothered by a middle-class that will one day balk at the idea of having to pick up the pieces in the form of higher taxes, more uncertainty, and a faded American Dream (an early sentiment captured in the photo below).
America became America because we figured out that financial reward shouldn't go only to those of social standing (aristocracies), protected networks (elites), or to those with royal bloodlines (monarchy). America became America because we learned how to create opportunities and reward for those who worked hard. Rather than believing in free market fairies we need to relearn how this happened.
- Mark
BANKS, BETTING THE HOUSE ... AGAIN
Remember how the derivative market helped get our financial institutions into trouble, and then helped collapse our economy? Well, after handing over trillions of dollars in taxpayer guarantees, loans, and credits to cover the derivative losses of our financial institutions derivatives are making a comeback.
After watching the value of derivative contracts drop to a little over $100 trillion at the end of 2008, our failed financial institutions are writing more derivative contracts than ever. According to the FDIC the total value of derivative contracts has now reached about $135 trillion. To give you an idea of what this means $135 trillion represents almost 10 times what America will buy and sell this year (2009 GDP Forecast for America = $14.26 trillion).
Check out this derivative graph (click on all the graphs to enlarge):
For those of you still having trouble with the concept of a derivative let me make this simple. They are contracts that derive their value from something that hasn't happened yet. I know, I know ... it's still kind of fuzzy. So, think of a scalper who buys tickets and creates a game package.
For example, scalpers who gamble and buy tickets and then rent hotel rooms for this year's Super Bowl are now hoping that the undefeated Colts and undefeated Saints continue the pace all the way to the Big Game. Every football fan will want to be there. But what if things sour for the Colts and the Saints? Let's say that the Houston Texans and the Carolina Panthers somehow stumble their way into the Big Game as 9-7 teams. Guess what? You're probably looking at a loss. You're especially in big trouble if you purchased lots of tickets and rented lots of rooms. But you're really REALLY screwed if you made purchases or made payouts with the anticipated profits from an undefeated Colts-Saints Super Bowl.
In the real world this is what happens when you spend money (make bets) on products (game tickets) that "derive" their value from events that must happen (Colts-Saints going undefeated all the way to the Super Bowl) for a payout.
But big finanical institutions and commerical banks don't live in the real world. They live in an Alice in Wonderland Economy, courtesy of you and me. They have learned that they don't have to worry about being criminally stupid. The American taxpayer will bail them out, with no penalty to alter behavior.
Must be nice.
Today the same commercial banks that helped bring this economic mess upon us are making bets on the direction of interest rate contracts and foreign currencies, once again anticipating big payouts. So what are they banking on, you ask? A couple of things. Here we see they're betting on $188 trillion in foreign currencies and future interest rates.
Let me say this again. Rather than try and make money by lending to small business and entrepreneurs who will create jobs our biggest commerical banks are upping the ante and making trillion dollar bets on the direction of interest rates and other currencies. And they're able to do this because Tim Geithner, Ben Bernanke, and Hank Paulson did not pushing for penalties and new guidelines for our bailed out financial incompetents when we handed them their cash.
As a final insult to the American taxpayer, who financed the banking bailout - and who are now struggling to pay the bills - commerical banks have cut back on consumer credit. They've cut over a trillion dollars in credit card lines over the past year. Check this graph out ...
Worse - as if it could get worse - among the "derivative contracts" that our financial titans are betting on include the mortgage and credit card debt that you and I are now paying. In a few words, they are betting that you and I will keep paying our bills. They have turned our debt into "debt contracts" that they've bundled together (as CDOs) and sold to one another. They are now betting that we will pay no matter how much they raise interest rates (which they are confident about, in part, because of the 2005 bankruptcy law changes).
So, this is what we have: (1) You provide the reliable and secure debt contracts with your steady mortgage and credit card payments; (2) You provide the taxpayer money to guarantee bailouts on the stupid bets our financial institutions make; and (3) The banks continue betting like the greedy drunken fools that they are with no penalty for past stupidity. What could possibly go wrong?
There's more. Much more. So check out this FDIC site on "Commercial Bank Graphs and Data Points." It's not pretty.
- Mark
After watching the value of derivative contracts drop to a little over $100 trillion at the end of 2008, our failed financial institutions are writing more derivative contracts than ever. According to the FDIC the total value of derivative contracts has now reached about $135 trillion. To give you an idea of what this means $135 trillion represents almost 10 times what America will buy and sell this year (2009 GDP Forecast for America = $14.26 trillion).
Check out this derivative graph (click on all the graphs to enlarge):
For example, scalpers who gamble and buy tickets and then rent hotel rooms for this year's Super Bowl are now hoping that the undefeated Colts and undefeated Saints continue the pace all the way to the Big Game. Every football fan will want to be there. But what if things sour for the Colts and the Saints? Let's say that the Houston Texans and the Carolina Panthers somehow stumble their way into the Big Game as 9-7 teams. Guess what? You're probably looking at a loss. You're especially in big trouble if you purchased lots of tickets and rented lots of rooms. But you're really REALLY screwed if you made purchases or made payouts with the anticipated profits from an undefeated Colts-Saints Super Bowl.
In the real world this is what happens when you spend money (make bets) on products (game tickets) that "derive" their value from events that must happen (Colts-Saints going undefeated all the way to the Super Bowl) for a payout.
But big finanical institutions and commerical banks don't live in the real world. They live in an Alice in Wonderland Economy, courtesy of you and me. They have learned that they don't have to worry about being criminally stupid. The American taxpayer will bail them out, with no penalty to alter behavior.
Must be nice.
Today the same commercial banks that helped bring this economic mess upon us are making bets on the direction of interest rate contracts and foreign currencies, once again anticipating big payouts. So what are they banking on, you ask? A couple of things. Here we see they're betting on $188 trillion in foreign currencies and future interest rates.
Let me say this again. Rather than try and make money by lending to small business and entrepreneurs who will create jobs our biggest commerical banks are upping the ante and making trillion dollar bets on the direction of interest rates and other currencies. And they're able to do this because Tim Geithner, Ben Bernanke, and Hank Paulson did not pushing for penalties and new guidelines for our bailed out financial incompetents when we handed them their cash.
As a final insult to the American taxpayer, who financed the banking bailout - and who are now struggling to pay the bills - commerical banks have cut back on consumer credit. They've cut over a trillion dollars in credit card lines over the past year. Check this graph out ...
Worse - as if it could get worse - among the "derivative contracts" that our financial titans are betting on include the mortgage and credit card debt that you and I are now paying. In a few words, they are betting that you and I will keep paying our bills. They have turned our debt into "debt contracts" that they've bundled together (as CDOs) and sold to one another. They are now betting that we will pay no matter how much they raise interest rates (which they are confident about, in part, because of the 2005 bankruptcy law changes).
So, this is what we have: (1) You provide the reliable and secure debt contracts with your steady mortgage and credit card payments; (2) You provide the taxpayer money to guarantee bailouts on the stupid bets our financial institutions make; and (3) The banks continue betting like the greedy drunken fools that they are with no penalty for past stupidity. What could possibly go wrong?
There's more. Much more. So check out this FDIC site on "Commercial Bank Graphs and Data Points." It's not pretty.
- Mark
Tuesday, December 1, 2009
OBAMA'S AFGHANISTAN SPEECH
I just finished watching President Obama's Afghanistan speech. A couple of days ago I had these three questions.
After watching the speech I still have the same questions. The closest President Obama came to answering any of these was when he discussed the mission (kind of).
Apparently we're keeping troops in Afghanistan for two reasons. First, to help keep al Qaeda out. In essence we're President Karzai's (and the Saudi's) hired guns. I can't make it any simpler than this. Second, we're in Afghanistan because we're concerned about the border region between Afghanistan and Pakistan. Not only do we have other options here (e.g. the UN or the CIA) but it would be easier if President Obama just made the case that the border region is where we need to be. Explaining Pakistan's nukes falling into al Qaeda's hands is an easier sell.
Still, at the end of the day neither one of these reasons come close to formulating a broad based plan.
Count me as still unconvinced. With what I heard we should be leaving.
- Mark
UPDATE: Former National Security Advisor, Zbigniew Brzezinski, chimes in with his observations on putting an additional 30,000 troops in Afghanistan. I think he's spot on.
* What's the mission?
* What's the exit strategy?
* How are we going to pay for this?
After watching the speech I still have the same questions. The closest President Obama came to answering any of these was when he discussed the mission (kind of).
Apparently we're keeping troops in Afghanistan for two reasons. First, to help keep al Qaeda out. In essence we're President Karzai's (and the Saudi's) hired guns. I can't make it any simpler than this. Second, we're in Afghanistan because we're concerned about the border region between Afghanistan and Pakistan. Not only do we have other options here (e.g. the UN or the CIA) but it would be easier if President Obama just made the case that the border region is where we need to be. Explaining Pakistan's nukes falling into al Qaeda's hands is an easier sell.
Still, at the end of the day neither one of these reasons come close to formulating a broad based plan.
Count me as still unconvinced. With what I heard we should be leaving.
- Mark
UPDATE: Former National Security Advisor, Zbigniew Brzezinski, chimes in with his observations on putting an additional 30,000 troops in Afghanistan. I think he's spot on.
MAKING SENSE (kind of) OF THE BAILOUT & BONUS PAYOUTS
Perhaps Americans have simply given up when it comes to being outraged over bonuses and the amount of money given to each failed financial institution. I mean, think about it. We've gone from being shocked and pissed off 8-12 months ago to making little noise over the fact that failed financial institutions are now giving their executives record bonuses. We've essentially lost interest in making any real demands on the firms and executives that collapsed our economy (as I outline in a series of posts on the TARP bailout, AIG, and the Great Depression here, here, and here).
I don't know if it's "Outrage Fatigue" or if the transactions that our failed financial institutions made are simply too much for our increasingly ignorant society to grasp. Whatever it is you know something is wrong when the poster child of our nation's collective ignorance - Sarah Palin - is drawing record crowds for a self-serving book riddled with innuendo, campaign complaints, and other gossip that have people who once liked her rather unhappy (when does McCain finally throw her under the bus?).
Anyways, as I pointed out in March, it appears that we're using AIG as the front company to pay out billions in cash to firms who might otherwise have had to declare bankruptcy. This, in turn, has allowed them to pay 100 cents on the dollar for all the terrible contracts that they created and then insured. With contracts made whole by the U.S. taxpayer firms like AIG are now paying themselves the bonuses for their market genius.
Who's making this point, besides me? Try the Office of the Special Inspector General for the Troubled Assets Relief Program (SIGTARP; for a fun review of how this mess will come back to haunt us, click here). In their report, "Factors Affecting Efforts to Limit Payments to AIG Counterparties" (page 20; pdf page 24) SIGTARP makes it clear that after we made AIG whole they were able to fully compensate their partners in financial crime. The following list provides the total amount that AIG was able to pay several of their "counterparty" hooligans after they sucked the American taxpayer for over a hundred billion dollars.
Like I said, I'm not sure why no one seems indignant over these payouts but it seems to me that Sarah's book tour is much easier for Americans to focus on than the market criminality currently going on. I'm sure there's a WWE wrestling match I can go to where it will all make sense ...
- Mark
I don't know if it's "Outrage Fatigue" or if the transactions that our failed financial institutions made are simply too much for our increasingly ignorant society to grasp. Whatever it is you know something is wrong when the poster child of our nation's collective ignorance - Sarah Palin - is drawing record crowds for a self-serving book riddled with innuendo, campaign complaints, and other gossip that have people who once liked her rather unhappy (when does McCain finally throw her under the bus?).
Anyways, as I pointed out in March, it appears that we're using AIG as the front company to pay out billions in cash to firms who might otherwise have had to declare bankruptcy. This, in turn, has allowed them to pay 100 cents on the dollar for all the terrible contracts that they created and then insured. With contracts made whole by the U.S. taxpayer firms like AIG are now paying themselves the bonuses for their market genius.
Who's making this point, besides me? Try the Office of the Special Inspector General for the Troubled Assets Relief Program (SIGTARP; for a fun review of how this mess will come back to haunt us, click here). In their report, "Factors Affecting Efforts to Limit Payments to AIG Counterparties" (page 20; pdf page 24) SIGTARP makes it clear that after we made AIG whole they were able to fully compensate their partners in financial crime. The following list provides the total amount that AIG was able to pay several of their "counterparty" hooligans after they sucked the American taxpayer for over a hundred billion dollars.
Like I said, I'm not sure why no one seems indignant over these payouts but it seems to me that Sarah's book tour is much easier for Americans to focus on than the market criminality currently going on. I'm sure there's a WWE wrestling match I can go to where it will all make sense ...
- Mark
Monday, November 30, 2009
MORE TROOPS IN AFGHANISTAN
President Obama has decided to put more troops in Afghanistan. This decision is not a surprise. We have been hearing about this decision for weeks now. While the White House is making it clear that this is not an open-ended commitment I don't know that this is going to make things better. What's the mission? What's the exit strategy? How are we going to pay for this?
Without answering these questions, or at leat addressing them, more troops will only serve to transfer President Bush's Blundering Wars Project on to President Obama. We should be leaving Afghanistan rather than - as John McCain might put it - "muddling through." I don't like this.
- Mark
Without answering these questions, or at leat addressing them, more troops will only serve to transfer President Bush's Blundering Wars Project on to President Obama. We should be leaving Afghanistan rather than - as John McCain might put it - "muddling through." I don't like this.
- Mark
Sunday, November 29, 2009
UNDERSTANDING THE C0NSERVATIVE FEAR MONGERER
I've been gone for a couple of days. Grading and turkey have kept me busy. So I'll start back with "This Modern World" cartoon.
Those of you who follow my blog know that I haven't written too much about the Attorney General's decision to try some of the 9/11 conspirators in New York. This cartoon captures the moment (click on the cartoon to enlarge).
Simply put - and as I have pointed out many times on my radio program - conservatives and Republicans have no other meme except for "be afraid because I am." I know, it's pathetic but they're the bedwetters ...
- Mark
Tuesday, November 24, 2009
OBAMA'S LABYRINTH, OR GRAND CHESSBOARD?
The Obama skeptics are bound to find comfort in these two articles.
These two articles - one from Germany's Der Spiegel and the other from the NY Times - suggest that President Obama's approach to world affairs isn't winning him any friends. Indeed, the Der Spiegel piece ("Obama's Nice Guy Act Gets Him Nowhere on the World Stage") suggests that President Obama is losing stature because of the "new limits" of the United States, which President Obama is just learning about. Our financial mess here at home, and the wars in the Middle East are draining both our capacity to influence and our moral authority, according to Gabor Steingart. Fair enough.
The Times' article, "Obama in his Labyrinth," written by Roger Cohen, points to a President that is on the verge of being overwhelmed by what Fareed Zakaria might call the "rise of the rest." Simply put, other nations have taken advantage of the relatively peaceful post-war world created by the United States and its allies to develop and become more assertive on the world stage. While the results of our post-war plans should be hailed, they also are now placing greater demands on U.S. relations around the world. In a world made less stable by President Bush's Blundering Wars Project, the rise of the rest was bound to place strains on any U.S. president in the 21st century.
So how is President Obama really doing? While I haven't always agreed with Henry Kissinger he makes a poignant observation about President Obama:
He reminds me of a chess grandmaster who has played his opening in six simultaneous games ... But he hasn’t completed a single game and I’d like to see him finish one.”
Simply put, you can't judge a grandmaster by his opening moves. I agree. Those of you who have taken my courses in international relations understand why. For those of you who don't, let me be clear: Politics on the world stage demands a grandmaster. Our previous president didn't understand the grand chessboard. President Obama is trying to dig us out of a checkers' player nightmare. If he succeeds he becomes the next Disaraeli, Bismarck, Metternich and perhaps even a Cardinal Richelieu.
If he fails, the Carter references will be loud and wide. I'll leave it at that for now.
- Mark
THE BEST WAY TO ROB A BANK? OWN ONE ...
In this post-article, the author of The Best Way to Rob a Bank is to Own One (and current Roosevelt Institute Braintruster), William K. Black, takes a look at the currrent state of our "finance economy" and what it has done to the long-term vitality of our nation.
I like what Black - who is a lawyer, an economist, and a former bank regulator - writes because it mirrors what I say in my book about the "financialization" of the American economy. Specifically, he makes it clear that easy money (Greenspan's cheap interest rates), favorable legislation (deregulation like Gramm-Leach), and growing debt loads (both consumer and national) have undermined our nation's economic health and our system of democracy over the past thirty years. Among the many points that Black makes include:
There's much more so I encourage you to read the article. If the article seems a bit long (or too technical) you might want to try this more recent one penned by Black at Huffington Post. It questions President Obama's decision to keep Tim Geithner and other Bush-era economic gurus around. Both make it clear, the banksters are winning the day because the economic Mandarins in our government are doing the bidding of the banks.
- Mark
I like what Black - who is a lawyer, an economist, and a former bank regulator - writes because it mirrors what I say in my book about the "financialization" of the American economy. Specifically, he makes it clear that easy money (Greenspan's cheap interest rates), favorable legislation (deregulation like Gramm-Leach), and growing debt loads (both consumer and national) have undermined our nation's economic health and our system of democracy over the past thirty years. Among the many points that Black makes include:
* Forty years ago, our real economy grew better with a financial sector that received only 2% of our nation's profits rather than the 40% it receives today.
* That the financial sector misallocates capital by encouraging financial firms to - as Joseph Schumpeter might have put it - play monopoly rather than loan the funds necessary for building monopolies.
* The financial sector produces and hyper-inflates bubbles that cause severe economic crises (think about the many bailouts over the past 30 years).
* Finance CEOs and those that they help to enrich adopt and spread the myth that they are smarter, harder working, and more innovative than the rest of us (they're not; favorable legislation makes them think they are).
* This Social Darwinistic approach not only contributes to accounting and control fraud, but is cancerous to our nation's moral fabric. Indeed, the CEO’s of our largest financial firms are so powerful that they now pose a critical risk to the financial sector, the real economy, and our democracy
There's much more so I encourage you to read the article. If the article seems a bit long (or too technical) you might want to try this more recent one penned by Black at Huffington Post. It questions President Obama's decision to keep Tim Geithner and other Bush-era economic gurus around. Both make it clear, the banksters are winning the day because the economic Mandarins in our government are doing the bidding of the banks.
- Mark
Monday, November 23, 2009
THE STATE OF OUR (DYING?) HEALTH CARE DEBATE
This Modern World pretty much sums up the health care debate as it currently stands. Not much on health care, but much ado about mindless (and paranoid) politics* and Joe Lieberman's real constituents: (1) The health care lobby and (2) his bruised ego (click on cartoon to enlarge).
And Lieberman's bruised ego speaks ...
I'd say the health care lobby has gotten their money's worth, especially if the health care vote goes into 2010.
- Mark
* After suggesting that the country would become dependent on the Democratic Party for everything, Utah Senator Orrin Hatch (R) squared his conspiratorial circle by referring to Democrats who support the proposed health care plan as "diabolical."
And Lieberman's bruised ego speaks ...
I'd say the health care lobby has gotten their money's worth, especially if the health care vote goes into 2010.
- Mark
* After suggesting that the country would become dependent on the Democratic Party for everything, Utah Senator Orrin Hatch (R) squared his conspiratorial circle by referring to Democrats who support the proposed health care plan as "diabolical."
Friday, November 20, 2009
WHY GEITHNER MUST LEAVE
If you're wondering why Washington DC is abuzz with talk about having Treasury Secretary Tim Geithner's job you need look no further than the incredibly pathetic jobs picture, and the fact that Wall Street has been laughing all the way to the (taxpayer funded) bank. People are not happy that after spending (or guaranteeing) trillions of U.S. taxpayer dollars on failed Wall Street institutions there's little to no good news (1) on the job's front, (2) in the area of commercial lending, or (3) tied to consumer confidence. Americans are pissed, and with reason.
So, how do you screw up a multi-trillion dollar bailout and expect a pat on the back? That's a good question. Unfortunately, Tim Geithner and Team Obama aren't prepared to answer this one.
It appears that things aren't going to get any better for President Obama. Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program (TARP), is going to issue a report on Tuesday. The report will say that while the New York branch of the Federal Reserve was under Tim Geithner's leadership it “refused to use its considerable leverage” to extract concessions from the failed institutions as it handed out hundreds of billions in the form of U.S. taxpayer dollars and other guarantees.
The New York Fed did several other things wrong when it was under Geithner's stewardship.
The end result? In spite of all the stupidity that Wall Street concocted we ended up using bailout money to pay the failed financial institutions and their creditors 100 cents on the dollar. More succinctly, we rewarded stupidity, greed, and failure.
Worse, as Paul Krugman points out, both President Bush and President Obama ended up bungling the rescue of an economy by throwing a lifeline only to the idiots who did their level best to sink our economic ship.
This, in turn, has soured Americans on additional bailouts that are necessary for getting money into small and local community banks, and for the infrastructure projects necessary for creating much needed jobs. The highest ranking person who spans this incompetence is Tim Geithner (first as head of the NY Fed, and now as U.S. Treasury Secretary).
It should not come as a surprise that people are now calling for his head.
- Mark
So, how do you screw up a multi-trillion dollar bailout and expect a pat on the back? That's a good question. Unfortunately, Tim Geithner and Team Obama aren't prepared to answer this one.
It appears that things aren't going to get any better for President Obama. Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program (TARP), is going to issue a report on Tuesday. The report will say that while the New York branch of the Federal Reserve was under Tim Geithner's leadership it “refused to use its considerable leverage” to extract concessions from the failed institutions as it handed out hundreds of billions in the form of U.S. taxpayer dollars and other guarantees.
The New York Fed did several other things wrong when it was under Geithner's stewardship.
* At the beginning of the first bailout the New York Fed saw itself a creditor of failed institutions like AIG, rather than a regulator.
* It treated foreign banks as if they were domestic banks because they didn't want to incur the retaliation of their host nations (anyone who continues to think "We're #1" and the "bad ass of the world" needs to let that one sink in).
* Because the New York Fed - again, then headed by Tim Geithner - was bailing out Wall Street, and refused to consider imposing bankruptcy terms on firms like AIG, other countries wouldn't consider intervening in the affairs of their banks. Nor would they ask their banks to consider reducing the amount owed to them by U.S. insititutions because of the legal implications.
The end result? In spite of all the stupidity that Wall Street concocted we ended up using bailout money to pay the failed financial institutions and their creditors 100 cents on the dollar. More succinctly, we rewarded stupidity, greed, and failure.
Worse, as Paul Krugman points out, both President Bush and President Obama ended up bungling the rescue of an economy by throwing a lifeline only to the idiots who did their level best to sink our economic ship.
This, in turn, has soured Americans on additional bailouts that are necessary for getting money into small and local community banks, and for the infrastructure projects necessary for creating much needed jobs. The highest ranking person who spans this incompetence is Tim Geithner (first as head of the NY Fed, and now as U.S. Treasury Secretary).
It should not come as a surprise that people are now calling for his head.
- Mark
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