Saturday, October 31, 2009

THE CHENEY LIE MACHINE ...

Why in the world is Liz Cheney seen as a legitimate voice, on anything?



More on Liz Cheney's lies (and her dad's failed memory) ...



- Mark

NATIONAL HEALTH CARE & FOX NEWS

HR 3962, the Affordable Health Care for America Act of 2009, was assessed by the non-partisan Congressional Budget Office. It's conclusion? The total cost for the proposed health care legislation is $894 billion dollars. This is how FOX covered it ...



While FOX chose to focus on the total cost of the health care program they conveniently ignored that the bill would actually reduce the budget deficit by $104 billion over the 2010-2019 period. How does this happen? Because of "other spending changes" and "provisions" in the bill that increase revenue.

FOX News reporting tactics in the area of health care are akin to looking at future expenditures in a growing family but failing to look at salary increases, promotions, new income (from second jobs, over time, royalties, etc.), or investments paying off over time. Who does this? Apparently FOX News Corps.

Check out the CBO estimate here.

- Mark

Friday, October 30, 2009

A CONGRESSMAN WITH GUTS

We've been working on this for some time now (thanks Duane), so I'm happy to report that we've got Congressman Alan Grayson confirmed for tomorrow's (Oct. 31) program.


Unless something unexpected pops up, Congressman Grayson will be with us immediately after we open the program. We'll be discussing his site, congressmanwithguts.com, along with other topics that have helped propel Congressman Grayson into the national spotlight.

Here's a snippet of what has made Congressman Grayson a favorite among those looking for accountability in America.



- Mark

Thursday, October 29, 2009

WHERE'S THE "SANCTITY OF LIFE" CROWD?

Between the "What-Would-Jesus-Do?" crowd and the Republican Party's "Sanctity of Life" arrogance you would think that they would be the party that would be pushing for national health care and/or the public option. Especially after learning that more than 44,000 people die each year for lack of health coverage. Think again.

This is what makes the efforts of Rep. Alan Grayson (D-FL) so meaningful. Rather than focus on actuary accounting numbers or on death tolls alone he has put up a site - namesofthedead.com - dedicated to sharing the stories of those who have been affected by not having health insurance. This one is from "Jenny Fritts and baby girl Hailie" ...

Jenny our 24 year old daughter in-law and unborn baby died because she could not afford health insurance. In the richest country in the world our Jenny died. When she became ill she went to a for-profit hospital who was required to see her but they sent her away saying she had a cold, maybe a touch of bronchitis. 24 hours later she was much worse and my son was desperate. Sean took Jenny to the other hospital in town and lied saying they had insurance. She was examined and found to be very sick. She had respiratory failure, double pneumonia and sepsis. By that night she was on life support where she remained for 55 days, fighting for her life and the life of her baby. Jenny died 7 weeks ago. She leaves behind a 2 year old daughter who will never know her mother and her husband who is devastated. Jenny did not have to die. If there had been a public option Jenny would have been able to afford the care she so deserved. It's too late for Jenny but not for the countless others still out there fighting. Please read Jennys story. http://bit.ly/doUQR I am currently an activist fighting for health care reform. I can be contacted at 312 753-5510
There's plenty of other stories on the site. I guess my only question is, "Where's the sanctity of life" crowd in this debate?

- Mark

GREAT DEPRESSION ANNIVERSARY


Today is the 80th anniversary of the Great Crash in 1929. What have we learned? Plenty, if we understand what FDR's regulatory regime did for the country (the post-war economic boom was the strongest and most egalitarian in human history). But we started to forget those lessons by the 1970s, and pretty much got a collective case of amnesia by the time Ronald Reagan came to office. We are paying the price for forgetting those lessons today. The HuffingtonPost.com has a collection of articles on what we've learned from a number of writers (some good, some not so good) here. I've attached the piece done by Congressional Oversight Panel Chair, Elizabeth Warren, because it's succinct and spot on.

The Great Lesson
By Elizabeth Warren

Historians generally focus on the October 29, 1929 stock market crash as the triggering event for the Great Depression. But the story has a longer arc.

From 1792 through the Great Depression, booms and busts followed each other like day follows night. But President Roosevelt and the New Dealers had an innovative idea: regulation might tame the boom-and-bust cycle. So they created a new Securities and Exchange Commission to bring some discipline to the financial markets, established the Federal Deposit Insurance Corporation to make it safe to put money in banks, and passed the Glass-Steagall Act to separate ordinary banking from high-risk financial speculation.

America was protected from another financial crisis for almost 50 years. But in the late 1970s, we began to pull the threads from our regulatory fabric, overturning laws and cutting enforcement. The results were the S&L crisis, Long Term Capital Management, Enron, and now, the subprime mortgage meltdown.

There are signs that we may have learned our lesson. Last week, the House Financial Services Committee voted for a new Consumer Financial Protection Agency that would consolidate scattered and ineffective consumer credit regulations and establish a home in Washington for policymakers dedicated to rebuilding the middle class. Other reforms are also starting to move.

The banking lobby is as powerful and deeply entrenched as ever, but it was powerful in the 1930s, too. Nonetheless, the New Dealers learned the Great Lesson: Powerful insiders cannot be permitted to write the rules, and prosperity and security depend on a playing field that supports a vibrant middle class. Today, we face a similar set of questions as we faced then. Will the institutions that created the crisis continue calling the shots and writing the rules, or will Washington take the side of families? Have we learned the Great Lesson?


Elizabeth Warren is chair of the Congressional Oversight Panel created to oversee the banking bailouts and first proposed a new federal agency for consumer financial products in 2007.

- Mark

Wednesday, October 28, 2009

DARK POOLS AND 1929


One of the reasons that the stock market and the U.S. economy collapsed in 1929 was because of the sheer number of trades that were done without client knowledge. Many trades were done not because they were good investments but, rather, because market players got bigger and bigger commissions for each trade they made - whether the trade paid off or not. Because the market kept on rising clients didn't complain, so even more trades were made. Volume trades paid handsomely.

When market players weren't busy trading their client's shares - and raking in big commissions - commercial and investment banks often simply took bank deposits that they had in their institutions and used it to speculate and bet on the market. This was depositor - and not the bank's - money.

As you can imagine, with lax requirements, this often left banks with as little as $20-50 in their vaults when they opened up for business. But depositors didn't care because everyone was going to get rich. This shady and free-wheeling market environment eventually caught up with market players in 1929.

Incredibly enough, in spite of the market collapse last year, we may be doing the same thing (with taxpayer bailout dollars) all over again.

In this MSNBC segment Dylan Ratigan points us toward yet another market niche that allows market players to make trades without the knowledge of their clients, or even their industry competitors: Dark Pools.


In a few words, Dark Pools are trades that are made without the market player advertising or alerting others about their activities. While one market insider argues that Dark Pools allow market players to "minimize information leakage, manage market impact and execute block trades at beneficial prices" what he's really saying is that "if no one knows what we're doing we can get a better price for the product we're buying because no one will rush in to bid up the price." Market players on the sell side benefit because they don't have to pay exchange fees.

Put more simply, Dark Pool market players like operating in secret because it makes them more money. Better yet (for the traders), it allows market players to used the "dark venue" to speculate and bid up demand (and prices) on products they may bought earlier on the open exchange.

So, how big is this Dark Pool market? Pretty big. At the beginning of 2007 Dark Pools made up 10% of total market trading. Today it makes up to 15% of total market trading.

At this time, free market purists might say, "What's the big deal? As long as trades are made and people make money, it's all good." Wrong.

Because the amount of Dark Pool trading has grown so strongly market players have complained that it has become increasingly complex and difficult to find and execute trades in open and regulated markets. Worse, market players who have expressed concern about Dark Pool trading have made it clear that they worry about "the potential loss of underlying functionality."

In plain English they think Dark Pool trading has the potential to collapse the logic of the market ... like in 1929

- Mark

REWRITING THE BIBLE?


Is this for real? A conservative project designed to eliminate the "liberal bias" in the Bible? Among the liberal infractions to be corrected or cast asunder include (my comments in italics):


* Remasculating the Bible.
..... Because God really wants women to know their place.

* Using "powerful conservative terms."
..... And Republican high priest / speech-master Frank Luntz smiles.

* Accepting the logic of Hell.
..... Why do something because it's the right thing to do when spiritual fear and biblical threats can guilt you on to the path of salvation? (no hypocrisy here)

* Express free market parables.
..... In reality Jesus not only loved the money changers but he only cured lepers who were current on their HMO policies.

* Exclude non-authentic liberal passages, like the adulteress story.
..... Because, conceptually, it really messes with Gov. Mark Sanford's (R-SC) trips to Argentina, Sen. David Vitter's (R-LA) liasons with prostitutes, and Sen. John Ensign's (R-NV) love affairs with staffer's wives.

* Credit Open-Mindedness of Disciples.
..... Because we all know how hard the disciples had to work to accept the preachings of a non-English speaking, foreign born, Jesus.


There's more, which you can access here and here. The interesting thing, as Paul Krugman points out, is that rather than go back to the original texts - which serious scholars would do - these guys are simply going to wordsmith the King James version until it says what they want it to say (isn't this just propaganda?).

I don't know, but it seems to me that if this group were really serious they would just eliminate the New Testament. Stoning sinners, gouging eyes, and selling others into slavery pretty much goes against all that human dignity nonsense liberals like to talk about.

I'm just saying ...

- Mark

Tuesday, October 27, 2009

FINANCIAL STABILITY IMPROVEMENT ACT OF 2009

It's here. The first draft of proposed legislation for financial reform is out. It's titled the "FINANCIAL STABILITY IMPROVEMENT ACT OF 2009."

Here's what I like:


* If the Secretary of the Treasury, the Board, and the FDIC (Council-Board members) determines that a financial company is in trouble, and that it must adhere to "heightened" standards, they can go to the President to alert and certify their concerns (SEC. 1103).
- I would like to think this means the buck stops with the President.

* Standards imposed by a primary financial regulatory agency can also include "other similar standards" that the Board deems acceptable (SEC. 1104).
- I'm pretty sure this means that the Council can draw from other agency standards to impose the law. I doubt this one makes it out of committee.


Here's what I don't like:


* The Council and the Board may not publicly release a list of companies that are identified as troubled institutions (SEC. 1103).
- Hey, what about transparency?


* Every federal or state agency represented on the regulatory council is to be compensated by each government agency represented, and not the industry (SEC. 1005).
- Federal and state employees are not only over worked, but the budgets of their agencies are stretched as it is. Full time staffers need to be available, and they need to be paid from a fund set aside by the financial sector. Why should the U.S. taxpayer pay for supervision that the industry has made necessary?

* The council "may request the production of, any data or information from members of the Council, as necessary" (SEC. 1101).
- What "request"? How about "may demand and receive" whatever the hell they want? Have we not learned anything from the indudstry's "propriety" hide and seek games from the past ten years? Hello ... Enron calling.

* A financial company's credit exposure to an "unaffiliated company" (i.e. a company that is not a subsidiary) cannot exceed 25% (SEC. 1104)
- Here's my question: How is this supposed to work with FASB's new 3-tiered category for financial instruments?


There's more, much more. The NY Times has this article, which suggests that the proposal is a good one because it puts the burden of paying for cleaning up future messes on firms with more than $10 billion in assets. What amounts to clean-up fees will be assessed on these companies. Here's my problem with this provision. First, fee assessments on companies "would be made only after the collapse of a large institution." Second, if we do nothing with the "too big to fail" firms, and do nothing to separate firms like we did with the Glass-Steagall Act, this stipulation is largely worthless.

I don't know. At first glance (and a very quick first glance at that), while there are a few good things in the proposed legislation, it seems an awful lot like we're rearranging deck chairs on the Titanic.

I may feel different after after I read the entire proposal, or after it comes out of committee.

Stay tuned.

- Mark

Monday, October 26, 2009

MSNBC's DYLAN RATIGAN ON OBAMA'S EXECUTIVE COMPENSATION "PLAN"

MSNBC's Dylan Ratigan minces no words when it comes to understanding how ineffective and toothless the Obama administration's executive compensation plan (for failed institutions) is going to be ...


Seriously, the executives who drove our economy into the ground and then asked for trillions of dollars in taxpayer funded bailout money are going to "voluntarily" adjust their income and bonuses down?

Hey, I have an idea ...

I need a new car. I think I'll go get drunk and drive my car off a cliff. Then I'll say that I was only trying to get home. I'm sure the police department, the fire department, and the insurance company will say, "Oh, that's OK. Your intentions were good. Good thing we rescued you. Go ahead, try it again in this newer (and faster) car that your insurance company bought for you. Drinks are on us ... Oh, and it doesn't matter that you didn't pay insurance premiums. We'll charge your neighbor instead because he's too lazy and stupid to understand the statements anyways."

Voluntarily curb their bonuses? This is insane.

- Mark

TRULY PATHETIC

In this NY Times' article, "Trying to Rein In ‘Too Big to Fail’ Institutions," K. Tarullo, an appointee of President Obama’s, is quoted saying that breaking up big the banks is “more a provocative idea than a proposal.” Why would he say this? Because any talk of doing anything that might upset market players "has provoked fears on Wall Street."

Simply put, Wall Street is afraid of how reforms would both regulate them and strip away bankruptcy protections now available to the "too big to fail" institutions.


Imagine that. Wall Street collapses the American economy ... then they tap into a taxpayer funded bailout to the tune of $23.7 trillion ... and policymakers are afraid of upsetting them by taking away their market guarantees?

Does this make sense to anyone? While it does here, apparently it doesn't in Europe.

The Europeans are moving to deal with their market meltdown - which was intricately woven into ours - by mandating and provoking changes like splitting ING, the Dutch insurance and banking firm, into two companies. One firm would focus on banking, the other would focus on insurance. The rationale is simple: Having two big like-minded firms under one roof can create a group-think environment that is both incestuous and uncompetitive.

The incredible thing is that we learned this lesson after 1929, when we saw how large financial firms had taken depositor, investor, and insurance funds and dumped them into markets with little or no concern for their clients. Disregard for client interests was encouraged by the immediate and reckless drive for more fees, commissions, market share, and profits. This is what brought us the Glass-Steagall Act in 1933.


In a few words, Glass-Steagall was the cornerstone of a larger regulatory wall that kept insurance, banking, and investment houses separated and regulated. What followed after WWII was the largest growth and wealth creation spurt in human history. This regulatory regime started to unravel in the 1970s, and was dragged down when Ronald Reagan became president. It was dismantled completely in 1999 by President Clinton (notice, no smiles in the FDR photo).


Mervyn King, governor of the Bank of England, argues that we need to bring these Depression-era common sense policies back to America. In a speech last week he said:

There are those who claim that such proposals [like Glass-Steagall] are impractical. It is hard to see why ... What does seem impractical, however, are the current arrangements. Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are.
What we have today is an Alice in Wonderland approach to markets that includes massive market guarantees, record bonuses to the executives of collapsed institutions, strangled credit for small business, government-sanctioned credit card rip-offs, the continued arrogance of Wall Street, and Wall Street fears that they will not have bankruptcy protections.

This is truly pathetic.

- Mark

"Mac vs. PC" MEETS "DEMS vs. GOP"

From Dailykos, "Mac vs. PC" spoof on "Dems vs. GOP" in the health care debate.



- Mark

Saturday, October 24, 2009

CALL CONGRESSMAN COSTA


Congressman Jim Costa (D-Fresno/Bakersfield) is one of our local representatives who thinks the public option is a bad idea because of budgetary considerations. Fair enough. Here's the real problem: Costs are expected to grow significantly without change that brings real competition. The projected costs without change or real competition - which the public option provides - should be the real issue.

PROJECTED COSTS: The Department of Health and Human Services is clear that by 2018 "national health spending is expected to reach $4.4 trillion and comprise just over one-fifth (20.3 percent) of Gross Domestic Product (GDP)" (updates here and here).


Worse, according to the non-partisan Congressional Budget Office, by 2025 health care is expected to consume 25 cents of every dollar our nation spends, and is expected to jump to 37 cents in 2050 and 49 cents in 2082! That means by 2082 as a nation we will spend almost 50 cents of every dollar we have on health care. Currently we are only spending about 17 cents of every dollar we have on health care (still not good when compared to other nations, and considering we get less bang for our buck).

ADMINISTRATIVE COSTS: Of the total amount spent on private health care in America, according to a 2003 New England Journal of Medicine study, over 30% went to cover administrative costs in the private sector. This, it would appear, includes marketing, profits, and commissions. Medicare administrative costs run about 2% of expenditures.

CALL COSTA: Looking at the budget today without looking at our economic costs tomorrow is no way to approach the issue. Simply saying no, and accepting the insurance industry's status quo is not acceptable. Call Congressman Jim Costa (CA-20) at 202-225-3341 (DC Office), 661-869-1620 (Bakersfield), and 559-495-1620 (Fresno) to let him know that we need the public option.

Don't bother with Congressman Kevin McCarthy. If you saw his health care town hall-political rally you know he's a lost cause.

- Mark

P.S. For another Private Insurance vs. Medicare administrative costs estimate, which suggests 17% (Private) versus 5% (Medicare) click here. I haven't looked at this closely, but it seems reasonable at first glance.

KERNVILLE'S "FREEDOM FESTIVAL"


If you're looking for something educational and fun to do this weekend, and you live around Kern county, head to Kernville. Here's the information.

- Mark

Friday, October 23, 2009

"I'M SHOCKED, SHOCKED ..."


Remember when American International Group (AIG) executives promised to return bonuses seven months ago? Well, Bloomberg is reporting that the highest-paid executives in the AIG unit responsible for insuring, gambling and then losing AIG's money have not returned the bonuses they paid themselves.

Who would have thought that people who gambled away their shareholders' wealth would stoop so low as to keep taxpayer funded bonus money they did not earn? As Casablanca's Captain Renault (and Alan Greenspan) might say, "I'm shocked, shocked ..."



Seriously, this is beyond ridiculous. Many of the people who helped collapse our economy should be in jail. At the very least, we should quit the game playing and simply impose clawback taxes on the bailed out industry.

- Mark

Thursday, October 22, 2009

BILL OF ATTAINDER POLITICS, 101

About seven months ago I wrote a piece describing how we could get some of our taxpayer-funded bonus money back from the financial parasites on Wall Street. At the time I noted that this might be difficult because of the Bill of Attainder provision in the Constitution (Art. I, Sec. 9 and Art. I, Sec. 10). In very simple terms it says Congress can't create a law that singles out and punishes an individual or a group because they don't like what they've done (like wrecking our economy) without a trial.

Put another way, Congress can't craft legislation that penalizes or criminalizes acts ex post facto simply because Congress doesn't like what the individual or group has done.

As I noted then, the Bill of Attainder provision in the Constitution was put there to prevent "trial by legislature" or, put more simply, to prevent our country from being taken over by a legislative lynch mob. A politicized, vengeful, and punishing Kangaroo Court mentality was not what the Framers wanted for our nation. This lies at the heart of our separation of powers principle.

Well, guess what? The same Republican Party that said Congress couldn't single out an individual or firm, like AIG, and punish them with new "taxes" on bonuses - because they helped wreck the economy - has had a change of heart. They are now saying that Congress should be able to single out and punish ACORN after the fact because the Republican Party doesn't like that a few employees (since fired) advised a fake prostitute on how to make money. They also don't like ACORN's spending and accounting habits. It makes no difference to the Republican Party that the "crimes" that lit their fire for ACORN pale in comparison to the very real crimes and over billing charges made by firms like Halliburton.

Super Dem, Alan Grayson, calls them on it here. It's another classic.



Again, we should clone this guy.

- Mark

Wednesday, October 21, 2009

WHY FOX NEWS IS NOT CREDIBLE

In spite of what the professional punditry have been saying about the Obama administration picking battles with small cheese like FOX News Corps (FNC), I'm glad that they've done it. FNC is like that annoying fly that never goes away. FNC is there simply to bother and distract those who don't support their corporatist-free market lunacy agenda. Unfortunately, that little FNC fly also distracts others (who prefer to let FNC to do their thinking for them) from the bigger picture President Obama is trying to promote.

And just in case you don't know why the Obama administration decided to call FOX out, check out these recently compiled "Top 10 Most Egregious FOX News Distortions" videos here.

Those of you who have been following my site know that you can click on the FOX News label below this post (or on the left side of this blog) to find numerous FOX distortion/lie examples that I've compiled over the past year. And I wasn't even trying. Here's a short list from an earlier post.

1. LEGAL LIES: FOX News went to court and secured the legal right to distort the news.

2. MANIPULATING THE NEWS CYCLE: Rupert Murdoch admits FOX News tried to manipulate the news on Iraq.

3. FOX BILE-SPEWING FEST OVER DEMOCRATS: This FOX News piece on the economy turned into Wingnut bile-fest over Democratic candidates.

4. IGNORE FACTS: During their bile-fest, FOX deliberately ignored Wall Street’s record under Democratic administrations.

5. SMOKE & MIRRORS: FOX News incompetence, bias and/or deliberate attempts to obfuscate the truth. Check out these misleading headlines and rolling subplots, just like this one …


6. CHRIS WALLACE LIES SCRUBBED: John Kerry catches Chris Wallace in a lie, which FOX transcribers then scrub/edit from the transcripts.

7. IGNORE FACTS, II: Paul Begala explains how FOX News continued to run with a story even after the main figure (Paul Begala) informs them there’s nothing to the story.
In a few words FOX News is a joke. Worse, it has an agenda. The Obama administration is not only doing the right thing, they're doing us all a favor.

And the professional punditry's attempt to label it as an unnecessary battle with a "news channel"? It simply shows how much damage FNC has already done to the integrity of journalism. With the exception of a few things that Shepard Smith - and even Major Garrett - brings to the table, FNC is not credible.

- Mark

UPDATE: Here's a clip that helps illustrate why FNC is not credible.

Tuesday, October 20, 2009

THE WARNING

In the aftermath of the economic meltdown, many experts like Alan Greenspan said they didn't see it coming, or that it was a once in a lifetime event. Well, FRONTLINE has a program tonight that shows otherwise.

In The Warning, FRONTLINE makes it clear that there were plenty of clues, especially for those who had not drank the free market kool-aid that spilled out of the Reagan era.


It's slated to start at 10:00 ET (7:00 PT) on PBS.

UPDATE: According to my listing, the program will start at 9 pm this evening.

- Mark

Monday, October 19, 2009

WALL STREET CASHES IN, MAIN STREET SUFFERS ... and San Joaquin Bank is 99th bank failure this year

Amid all the "Wall-Street-Bonus-Dow-Hits 10,000" happy talk, there are too many uneasy developments on Main Street that suggest all is not well. More realistically, we may only be in the eye of the storm.


Again (as I did in August) I draw your attention to mortgage broker Michael White's New Observation's blog. Among the many problems staring us in the face include the fact that 7 million mortgage accounts are now delinquent. This amounts to roughly 13% of all homes in America being behind in their payments.


And the numbers aren't slated to get any better. Because of rising unemployment, stagnant wages, the fact that the American consumer is tapped out, and on-going difficulties with President Obama's home loan modification program, these developments don't bode well for the American economy ... unless you're part of the bailed out bunch on Wall Street.


Apart from the fact that the average drop in home values is about $54,000 per household unit in America, many home owners now owe more than their homes are worth. But no one really knows how many households are in this situation. To help get a hold on the housing scene Germany's Deutsche Bank put together this little chart, which tells us that between 14 and 25 million homes are now under water.

Put another way, people who owe more than their home is worth will make money by walking away from their homes. Here's some other interesting tidbits from White's presentation:

* DELINQUENT PAYMENTS: Mortgage payment performance is terrible and getting worse. Today, more than 13% of home mortgage holders (1 in 8) are behind on their payments.

* FORECLOSURES: More than 4% of mortgages are in foreclosure. This past Thursday it was reported that foreclosures in the third quarter were the "worst three months of all time." This is not good for the housing market because foreclosure sales perpetuate falling home values.

* HOME SALES, I: Do you like the home sale numbers you're seeing? Think again. Two-thirds of home sales are either foreclosures or banks taking a loss on a mortgage.

* HOME SALES, II: Only one-third of the remaining one-third — roughly 10% of overall sales — is a product of what me might call a normal selling process.

* BAD NEWS, WORSE NEWS ... HOME VALUES: Half of all mortgages issued since 2006 have a balance greater than the value of the home. Deutsche Bank issued a report in early August saying that 48% of ALL MORTGAGES would be worth more than their collateral by 2011.
There's much more to take from the numbers presented by Michael White. However, what we need to keep in mind is that while there is a lot of good news in the stock market today (especially if you're a Wall Street bonus recipient), our outlook would probably change if people realized that property values could fall another 30% over the next 2-3 years.

If we look at "normal" price projections ("y"), what the real estate bubble did ("x"), and where prices probably should be ("y") one thing becomes clear: While prices have already fallen 30% we still have a long way to go.


As Michael White put it, if values fall according to the estimates in this graph, "it is a certainty that banks and financial companies will fail en masse (again)." I couldn't agree more.

And the guys who brought us this mess? You, know. The people who created and pushed poorly vetted financial instruments (e.g. Collateralized Debt Obligations) backed by astonishingly Vegas-like bets on whether they would pay out (Credit Default Swaps) ... These guys are celebrating by paying themselves bonuses for putting all of this together, and then getting the federal government to bailout their stupid decisions.

Oh, did I mention that the 99th bank of the year just went belly up? It's a local one too: San Joaquin Bank, which is based in Bakersfield. Including SJB, total bank failures have reduced the FDIC's insurance fund to just about $10.4 billion ... which is $6.3 billion less than what bailed out Goldman Sachs is paying out in bonuses this year.

- Mark

P.S. One MarketWatch source has Wall Street paying out roughly $140 billion in bonuses this year (about enough to buy 29 million Americans insurance).

IS HARRY REID STRONG ENOUGH?

Another reason for the public option ...



- Mark

Friday, October 16, 2009

NO SACRED COW'S HERE

Fair warning. If you like animals you might not want to watch this ...



- Mark

CSU ACADEMIC INTEGRITY UNDERMINED?

Did corporate money trump California State University's academic integrity? Check out this LA Times' article on Cal Poly's (San Luis Obispo) upcoming food policy panel.

- Mark

Thursday, October 15, 2009

YOU CAN'T TURN A PINTO INTO A MUSTANG

In our wonderful world of finance market players have been able to create and bet on garbage. Then they have been able to get the U.S. taxpayer to pay for their stupidity and greed in the form of bailouts and market guarantees. We're looking at more than $20 trillion so far. This is what makes the following so intriguing.

It turns out that because of the different types of financial instruments market players created, that the U.S. Financial Accounting Standards Board (FASB) decided to create three separate levels of accounting to separate and grade the good financial instruments from financial crap that was produced over the past 10 years.

Level I is for basic financial instruments that you can buy and sell. Everyone agrees who owns it, and agree on what it’s worth. It’s like your car. You own it. Everyone has an idea of what it’s worth because it's pretty much a standard automobile. And if you want a second opinion, you can go to Kelly’s Blue Book.


Level II is for financial products whose value are less known because they’re not traded as often. But the products are part of real markets that are known and (mostly) respected by financial players. It’s like the car collector who has a rare car whose value is indeterminable, but everyone knows they’re worth something. If you want a second opinion, you go to an expert.


Finally, Level III is for financial products that are not worth what market players paid. They're toxic and worth crap in the market. Everyone knows it, but the owners are hoping that it will be worth something one day. It’s like owning a Pinto. You may have purchased it for a good chunk of change but, ultimately, it’s worth crap - and everyone knows it. Still, there’s hope that in the future (like in the next Ice Age) it might be worth something (as a form of shelter).


But, today, it’s worth crap. Especially since you know that it could blow up in your face at any time.


Pretty simple, huh? OK, on to the next point.

Apparently, the number of financial - and very toxic - crap at Level III accounts for about 15% of all the financial instruments out there (up from 9% last year). That's alot of Pintos. But it's still only 15%, so what’s the problem, right? This is the wrong question.

We should be asking How much is this 15% is worth?

It turns out that while all of these financial instruments (in Level III) have a combined book value of about $610 billion their real market value has plummeted. No one knows how low the value of these instruments are because no one wants to purchase them (especially since home prices and foreclosures are moving in opposite directions). It’s like you bought a “classic” Pinto for $10,000 only to find on delivery that “classic” meant you purchased a used beat up Pinto that’s really worth $250.00 (even with the aerodynamic luggage rack).


Why is this important? Because, according to one account, $610 billion in Level III crap is “many times bigger than the market cap of the banks.” Put another way, all the crap that’s on the books at Level III has the potential to bust these banks in the future because their value is more than the banks are worth.

This explains why market players want to change the accounting rules. They want to revalue the toxic financial instruments according to non-market prices. In Finance Speak they want to abolish "mark-to-market" accounting methods. In our car market, one could say they want '65 Mustang value, for their piece of crap Pinto.


The accountants who follow and understand this stuff have another take on this. They say what the financial sector is really asking for is that “mark-to-make-believe” accounting standards be applied to their industry.

Whatever they call it, Wall Street's financiers want to be reimbursed by the federal government full book value for the toxic financial instruments that they've created. They want another subsidy. Mark-to-Make-Believe will help them do this.

As Yogi Bera would say, "It’s déjà vu all over again."

- Mark

P.S.: For a somewhat humorous take on the financial sector's blood-sucking ways, check this out.

GOP, PRO-RAPE? (but only if it's in the fine print)

Guess which political party supports rape? As long as it's in the fine print, of course. According to Jon Stewart - and voting records - it appears to be the Republican party. Check this out ...



But then again, what can you expect from a part that says domestic abuse can disqualify you from health care coverage because it's a "pre-existing" condition.

- Mark

Wednesday, October 14, 2009

FILIBUSTER & RECONCILIATION, 101

Many people seem confused about the health care debate and why the Democrats need 60 votes. Others are also unsure about the reconciliation process. Here's a quick review.

Simply put, if a group is opposed to a piece of legislation they can literally talk it to death. They simply get up and talk.

They can read out of Federal Registry logs.


They can read from the Bible.


It doesn't matter. All they need to do is talk, endlessly.


This is called a filibuster. To end a filibuster you need 60% (3/5) of the Senate to call for closing "discussion" (cloture). If you can do that you can then vote on a proposed piece of legislation. Voting on legislation - rather than on ending a debate on a topic - only requires that you get a simple majority in the Senate (50 + 1). Today that means you need 60 members from the Senate to call for closing discussion on a piece of legislation, which will then allow the Senate to vote on that same piece of legislation.

But don't the Democrats have 60 members, you ask? Sure, they do. But this doesn't mean that they have 60 votes. Several Senate Democrats are what we call Blue Dog Democrats. They are conservative Democrats, and will often vote with Republicans. This means they will not necessarily vote with the Democrats to end a filibuster.

How do we avoid this mess? Simple. A process called reconciliation. Click here to listen to a nice synopsis - and a brief history - of reconciliation.

At the end of the day, reconciliation might not be such a bad thing if the Obama administration really wants to get the public option into the health care bill.

- Mark

UPDATE: See this "Reid Can't Lead a Prostitute to Bed" post for a review of what's going on in the Senate, and why Henry Reid (D-NV) and Joe Lieberman (I-CT) are two of the biggest problems to getting a public option in the health care bill. One's gutless, the other's clueless.

PUMPED UP PROFITS


Have you ever had a friend or an acquaintance that strutted around, announcing to the world that he was a "self-made" man? You know the kind. Their parents paid for tutors, paid their college expenses, and then lined up jobs and money for their investments after they got out of college. Even when they fell on their face, family friends and contacts looked the other way and gave them a chance because "he's really a nice kid" who comes from a good family.

If this sounds like George W. Bush, it's not coincidental.

Well, guess what? We have the same dynamics working in the banking industry today.

JP Morgan Chase just announced quarterly "profits" of $3.6 billion. Representatives from JP Morgan Chase pointed to increased trading, income from fixed-income markets, and other jargon-laced market developments as the motor behind growing profits. What JP Morgan Chase left out is that their profits - and their existence - are really the result of more than $20 trillion in taxpayer funded bailouts and other government guarantees.

Think about it. Without his family name, their friends, and their financial networks our former president would have been, at best, an asterisk in American history. Similarly, without government subsidies, bailouts, and legislated protections for the industry, JP Morgan Chase and other banks would be headed for history's ash heap.

Even if JP Morgan Chase were the best run financial institution in the world (they're not) their existence and profits today are completely dependent on taxpayer money making other financial institutions whole. Without this, their incredibly stupid bets and poor investments would be paying perhaps 35 cents on the dollar (if it paid out at all), instead of the full value they're getting now.

Still, we get this nonsense from what is supposed to be a respected market analyst:

“[JP Morgan Chase's] revenue growth was very impressive,” said Anthony Polini, an analyst at Raymond James & Associates. “They’re benefiting from a turn in the economy and they’re asserting their dominance.”
If Anthony Polini were to tell the truth (or had a clue) he would have said the following:

The market bailout was great for JP Morgan Chase. Having the federal government use taxpayer money to fund the industry's stupidity and greed really benefited every player in the industry. With guaranteed bailouts, JP Morgan Chase not only looks healthy but they will be able to make big profits well into the future.
Market players like Anthony Polini, however, don't understand what's going on so they couch their "analysis" in superficial market lingo, which makes it appear that they have a grip on what's happening.

But he's not the only one in the industry doing this. Take this snippet from the CEO of JP Morgan Chase, James Dimon:

“While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue ... Despite the near-term uncertainty about the path of the economy, our strong capital position and underlying earnings power will enable us to continue to invest in our businesses, creating a lasting franchise for many years to come.”
If I run this through my "Truth-O-Meter" this is what Dimon is really saying:

After the first big wave of foreclosures and employee pink-slips the federal government did little to nothing to protect America's middle class. This was great for us because it told us which side the government was going to take in this mess. We can only hope this continues ... As well, the trillion dollar guarantees that our industry got will go a long way in covering both our bad bets and the stupid decision-making of others in our industry. This will allow us to continue making big profits at taxpayer expense, no matter how much money we actually lose, long into the future.
With taxpayer dollars and other market guarantees totaling almost $24 trillion there's a certain Alice in Wonderland quality to Wall Street crowing about revenue growth and their investments paying off, as if they're legitimate "market" developments. They're not. They are subsidized and pumped up profits paid for by the American taxpayer.

This is corporate welfare, plain and simple.

- Mark

Tuesday, October 13, 2009

GEORGE W. BUSH'S FOREIGN POLICY ... BEFORE & AFTER

This reminds me of George Bush's "Shock & Awe" / Flight Suit Carrier Landing approach to foreign policy ... before and after.



False bravado is always humbled.

- Mark

Monday, October 12, 2009

ARE THE RICH PAYING THEIR FAIR SHARE?

A few years back (in 2000) Republicans were howling about how much California's wealthy were paying to the state in taxes compared to what the wealthy in other states paid. And, guess what? They were right. California's wealthiest 1% were paying 7.2% of their income to the state tax man compared to their wealthy "Monopoly Man" brethren in other states, who paid only 5.2%.

California's Monopoly Man was going broke. The horror of it all.


As you can imagine, this helped keep the Republican anti-tax jihad going full force politically. But the claims were a shell game.

You see, there are several states that don't have state income taxes. Alaska, for example, doesn't collect income taxes because they've got their hand out for oil (welfare) checks, which the state makes sure the oil companies pay for. Because of this corporate tax bonanza, every year Alaska can hand out $2,000 government checks to Alaska's wilderness loving rugged individualists who, ironically enough, hate "big gubmint." The Palin family cashes out about $12,000 of these checks annually. (Insert wink here ; -) ).

Other states simply choose to reduce, or do without, services in the areas of health and education. This reduces tax demands significantly, but it also helps keep states (especially those in the south) ranked at the bottom when it comes to education and health scores.

Other states simply ignore infrastructure projects. Bridges in Minnesota don't fall down by themselves you know. That takes real negligence.


Where am I going with all of this? Simple. While Republicans regularly complain about paying taxes in California, the state's richest pay less in state taxes (as a percentage of income) than does California's middle class and working poor.

In this LA Times article, "Are the rich paying their fair share?" (hat tip to Richard C.) it turns out that California's richest are not paying their fair share. This helps explain our budget deficits, and why our infrastructure and education levels are in such dire straits in many areas around the state.

If we take a look at figures from 2000 and 2009 it turns out that California's wealthiest paid less as a percentage of their income in 2009 (7.1%) than what they did in 2000 (7.2%). More importantly, they don't come close to paying what the bottom 40% pay in taxes (11.7% and 10.5%) to the state of California.

GROUP . . . . 2000 NATION . . CA. 2000 / 2009

Bottom 20% . . . . 11.4 . . . . 11.3 / 11.7
Next 20%   . . . . . 10.3 . . . . 10.2 / 10.5
Middle 20%   . . . . 9.6 . . . . 9.2 / 9.5
Fourth 20%    . . . . 8.8 . . . .  8.7 / 8.7
Next 15%    . . . . . 7.7 . . . . . 8.1 / 8.0
Next 4%      . . . . . 6.5 . . . . . 7.6 / 8.0
Top 1%     . . . . . . 5.2 . . . . . 7.2 / 7.1

And things are slated to get worse. According to the Franchise Tax Board (California's IRS), the 2008 tax deal cut in the state legislature will cost California more than $3 billion over the next eight years.

Guess who's going to benefit from this?

- Mark

HEALTH CARE EXTORTION?

America’s Health Insurance Plans (AHIP), the health insurers’ lobbying arm, is promising higher rates if they don't get what they want from health care reform.

For example, the analysis shows that the cost of the average family policy is approximately $12,300 today and will rise to:

* $15,500 in 2013 under current law and to $17,200 if these provisions are implemented.

* $18,400 in 2016 under current law and to $21,300 if these provisions are implemented.

* $21,900 in 2019 under current law and to $25,900 if these provisions are implemented.

In fact, between 2010 and 2019 the cumulative increases in the cost of a typical family policy under this reform proposal will be approximately $20,700 more than it would be under the current system.
Didn't we use to call this extortion?


On a side note, since the health care insurance industry was going to raise rates anyways, shouldn't we take their none to veiled threat/promise to jack up costs as evidence that what's coming out of the senate (no public option) isn't strong enough? For the actual "report" go here. For some analysis go here and here.

- Mark

UNDERSTANDING THE HEALTH CARE DEBATE

If you want to understand how this applies to health care ...


Watch this ...



- Mark

Sunday, October 11, 2009

GOOD TIMES IN 2008, LET'S DO IT AGAIN ...


Imagine that you wanted to get insurance for your house. Then imagine paying for that insurance, but then learning that the company you had been paying couldn't pay out on a claim that you filed because they didn't have enough funds, or went bankrupt. Would you be upset?

This is essentially what happened in our financial markets when Wall Street's giants couldn't pay out financial (i.e. "derivative") claims in 2008. Companies that had been paying premiums to insure their financial products got the shaft (at least until the U.S. taxpayer stepped in). It's also what the "derivative lobby" is asking for (again) in the new financial reform legislation proposed by President Obama.

More specifically, President Obama's proposed reforms essentially says, "If you're going to get the premiums, you had better be prepared to pay out." At the other end of the scale, the financial sector wants to operate with virtually no oversight (Fair Warning: Clicking and reading the above links may be mind-numbing for all but those who are truly market anal; the derivative market is a logical mess).

At the end of the day the derivative lobby wants Wall Street's financial giants to be able to sell financial insurance contracts for everything from currency contracts to financial bets without adhering to traditional insurance industry oversight or standards. What kinds of standards, you ask? How about making sure that the companies who put together financial insurance contracts actually have the money, or collateral, to pay out on insurance claims? The derivative lobby says this is too much to ask for.

How would all of this would work in real life? You need look no further than at the firms involved in the private insurance Credit Default Swap (CDS) "insurance" market before the 2008 market collapse. They didn't have to prove they actually had the funds to pay out on financial claims. They only had to look like they were responsible. For Congress this meant showing up in a $2,500 suit and saying "I'm from Wall Street [do you need a campaign contribution]."


The derivative lobby wants this to continue. You know, because it worked out so well the last time.

As an aside, and in case you're wondering ... JPMorgan Chase, Goldman Sachs, Bank of America and Citigroup - the biggest recipients of U.S. taxpayer bailout money - control over 90 percent of the $592 trillion derivative market. Yes, that $592 trillion. And it's part of a growing $1.14 quadrillion global derivatives market (that's 15 zeroes).

This isn't about reform. Can you say Bonus Bonanza?

- Mark

Saturday, October 10, 2009

NO RADIO PROGRAM TODAY


Due to scheduling conflicts there will be no radio program today. We're preempted for football next week, but we'll be back Saturday, October 24. I'll continue posting in the meantime.

- Mark

Friday, October 9, 2009

GRAYSON TO REPUBLICANS: "America doesn't care about your feelings"

Another inspiring moment in the evolving new series, "A Dem Finally Shows Some Spine" ...



Grayson comments on what America understands:

"They understand that if Barack Obama were somehow able to cure hunger in the world the Republicans would blame him for overpopulation"

"They understand that if Barack Obama could somehow bring about world peace they would blame him for destroying the defense industry."

"In fact, they understand that if Barack Obama has a BLT sandwhich tommorrow for lunch, they will try to ban bacon."
I have a feeling that the Republicans will soon come out asking for an increase in their meal money. You know, because Grayson is eating their lunch ...

- Mark

WE'RE SCREWED

Roaming through Barry Ritholtz's blog I ran into this clip. Apparently it's some kind of financial "Lost Tapes" because market players have heard about it, but have not been able to find it. It illustrates the "genius" behind market player Paul Tudor Jones, who called the 1987 market collapse before it happened. I like it.

However, I'm not sure it convinces me that market players like Paul Tudor Jones are geniuses, or simply good gamblers. They're probably a little of both. You be the judge.

Here's the problem. The aggressiveness and rapaciousness of market players like Paul Tudor Jones are fine when you're playing only with the money under your charge (as Paul did). Unfortunately, the market players who gave us our current market collapse have effectively been playing with our money. They now have bailout guarantees which insure payouts, even for their bad days. With $14 trillion guaranteed, and with regulations gutted, there's no end in sight. The bankers and finance guys literally can't lose.

Watch the clip (I know, it's 55 minutes long). You'll understand why, without meaningful reforms, we're screwed.

- Mark

Wednesday, October 7, 2009

IT TAKES A VILLAGE

The Wall Street Journal is reporting that economist Jeffrey Sachs is placing much of the blame for the economic meltdown on Alan Greenspan, former Chair of the Federal Reserve. According to Sachs:

The essence of the current downturn is finance ... It’s a Wall Street crisis. A crisis made down the block ... if you look under the rubble you can figure out what happened and why.
While Sachs is simply the latest among many to place the blame for our current economic mess on Alan Greenspan's shoulders, it should also be noted that giving tax cuts to the rich to grow the economy also played a crucial role. For this reason part of the blame must also go to Greg Mankiw.

So who's Greg Mankiw?

At the time he was hired by the Bush administration to sit on his Council of Economic Advisors he was a Harvard economist. For me this was an interesting choice because in one of his textbooks he had written that depending on tax cuts for the rich to grow the economy - a.k.a. supply-side economics - was a "crank theory." Still, as a member of President Bush's Council of Economic Advisors Professor Mankiw had a change of heart and provided some of the intellectual muscle for President Bush to ... drum roll please ... push for tax cuts for the rich to grow the economy, and create jobs (Mankiw's also known for making comments about "good genes" and success, but that's another matter).

So, how did the tax cuts work out? Check out this tax cuts-jobs chart:

After President Bush signed off on the first round of massive tax cuts for the rich (EGTRRA, enacted in mid-2001) and then the second round (EGTRRA, enacted in 2003; see analysis here) it's clear that tax cuts did nothing for job growth (red line) in America. All it did was wipe out projected budget surpluses, and transfer projected trillions in surplus wealth to America's wealthiest class.

Indeed, Mankiw was among the experts - which included Alan Greenspan - who said that the surpluses left by President Clinton might actually make things worse in the long run, especially if we paid down the debt too fast. Imagine that.

Jeffrey Sachs might be correct in pointing to Alan Greenspan as the maestro behind our economic mess. Still, it took a village, which included people like Greg Mankiw, to really screw things up.

- Mark

BAILOUT (AND DEBTOR) NATION

In my Introduction to American Politics class I assigned this book, Bailout Nation, by Barry Ritholtz.


In his book Ritholtz argues that not only are Wall Street's biggest market players accustomed to letting the U.S. government pay for their mistakes, but that they have been banking (literally) on the Federal Reserve propping up asset prices. Put another way, the federal government both bails out market stupidity and guards the accumulated wealth of those who already have lots of it.

The primary culprits here are Alan Greenspan and, today, Ben Bernanke and Tim Geithner. Their crime? Manipulating interest rates which helps pump money into Wall Street. The end result is that market players - and their media sycophants - believe things are better than they really are. Today, estimates of how much we've committed to Wall Street bankers and financiers sits around $14 trillion.

Yes, that's $14 trillion.

This is more than our current national debt. And it's far more than we've spent on other projects (even accounting for inflation adjustments) that actually contributed something to our nation.


How bad are things? Here's what Thomas Jefferson said would happen if we let what's happening now - the bankers taking control of government policy - were to occur:

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
There's more to this. But, for now, take a look at what Ron Paul has to say about why the Federal Reserve is fighting audits by Congress. I don't always agree with Paul's politics, but his take on the economics is usually spot on. Check out what he has to say here. Here's the money quote:

Under the guise of currency control, they are able to help out powerful allies on Wall Street, in exchange for lucrative jobs or who-knows-what favors later on. An audit would expose the Fed as a massive fraud perpetrated on this country, enriching a privileged few bankers at the top of our economic food chain, and leaving the rest of us with massively devalued dollars which we are forced to use by law. An audit would make people realize that, while Bernie Madoff defrauded a lot of investors for a lot of money, the Fed has defrauded every one of us by destroying the value of our money. An honest and full accounting of how the money system really works in this country would mean there is not much of a chance the American people would stand for it anymore.
I'll have more to say about this later.

- Mark

Monday, October 5, 2009

SOCIALIZED PROFITS FOR WELLPOINT?

Wow. From this Dailykos post we find that Anthem, a provider of health care insurance, is suing the state of Maine to guarantee their profits.



In a court filing Maine's Superintendent of Insurance explained that there is no statute mandating that Maine provide Anthem with guaranteed profits.

One argument made was that just as any family does during a recession Anthem must also look to cutting costs. Maine's Superintendent argued that the state is under no obligation guarantee their profit margins because doing so would be akin to creating an environment of "socialized profits" as opposed to competitive, market-driven, profits.

- Mark

P.S. It should be noted that in a congressional hearing it was revealed that WellPoint (or their subsidiary, Anthem) was sued in California. WellPoint was forced to reverse over 4,500 decisions to drop policyholder (i.e. rescissions) and made to pay a fine of $30 million for their rescission decisions. It was also learned that WellPoint had 1,400 different conditions what would trigger a rescission investigation (which ranged from high blood pressure and pregnancy), and that their employees were rewarded for finding ways to drop policyholders who developed expensive conditions.

MUSINGS ON THE RIGHT

Two excellent articles on what's happened to conservatives and the right wing of America. From the left, we have this op-ed from Paul Kruman. From the right, we have this op-ed from David Brooks. Good stuff.

- Mark

HOUSE FLIPPERS & PRIVATE EQUITY FIRMS: WHAT'S THE DIFFERENCE?

Have you ever had a bunch of credit cards with zero balance and then thought about doing a cash withdrawal for the maximum amount on each one, and then walking away? If you have then you've got the heart of a private equity fund manager.

In this excellent video interactive "How Private Equity Dealmakers Can Win While Their Companies Lose" (which is divided up into 1-2 minute segments) the NY Times presents a nice introduction to private equity markets that could also be called The Roots of Debt & Wealth Extraction in America

In a few words, private equity fund managers are individuals who manage money provided by wealthy market players. They then purchase (invest in) a firm with the idea of improving the company's performance and/or market share. As the video points out, the idea is similar to someone who purchases a house, with the goal of selling (flipping) it within a year after they've made improvements.


For example, in the housing market we know that there are many house flippers who took out cash advances on their credit cards, or borrowed against the value of their primary residence, to make home improvements. The idea was to enhance the value of the homes they bought. On a general level, this mentality is not only good for the individuals involved, but for markets too. But then greed and stupidity raises it's ugly head.

In the housing market, house flippers are losing big time today because they got in over their heads. Simply put, most were under-capitalized borrowers betting they could make a killing and get out before the market collapsed. President Obama's $75 billion bailout for homeowners acknowledged this, and excluded debtor-speculators and Ponzi-like house flippers from gaining access to federally-backed bailout funds.

Their mistake was that they should have become private equity fund managers, rather than house flippers. Here's why.

Unlike individual house flippers private equity managers don't have to pay back what they borrow. Pivate equity fund managers not only get paid for making a purchase but they work out arrangements where they can receive "special dividends" before the company they purchased shows any improvements or new profits.

What makes special dividend payments (which run into the millions) especially odious is that they are usually paid out with money borrowed from banks who helped fund the purchase, or takeover, of a company. As a point of reference, think about what Danny DeVito's character did in the movie, "Other People's Money" (1991).

For you romantics out there think about Richard Gere's character in "Pretty Woman."


For a modern version of how Devito and Gere's characters operate see today's NY Times' article on the Simmons Mattress Company here. According to the NY Times article, "Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of 'Flip This House'." Over this period the various private equity owners of Simmons have made about $750 million in salaries, bonuses, dividends, and fees. You do the math.

Simmons' performance was improved so much during this period that it is now declaring bankruptcy.

If this seems a bit confusing think of it this way. Imagine that you purchase a house that you want to flip within a year. Then imagine that you max out the credit cards you have because you can legally tie the credit card debt into the house you are going to sell (legally, you can't do this, but play along here). You borrow more and pay yourself big "management" fees, but only make superficial (if any) repairs on the house. You then declare bankruptcy, or sell the house to someone else who might also declare bankruptcy (for the tax write-off). Under both scenarios you walk away richer, and debt free.

Now imagine that you can do this over and over again. In many respects, this is what the private equity market players have done over the years.

At the end of the day, when we bailed out the banks we were also bailing out the deals and bets that were made by private equity firms who destroyed firms like Simmons by dumping hundreds of millions in debt on the company. When President Bush and President Obama pushed for and guaranteed trillions of dollars for the financial and banking sector they propped up the debt creating deals of private equity firms. In effect they sanctioned the activities of a small group of financial parasites who do little more than extract rather than build wealth.

What a racket.

- Mark