Wednesday, December 31, 2008


Former Attorney General, Alberto Gonzales, is perplexed as to why he's still unemployed and roundly despised after leaving the nation's top law enforcement post. Here's one of his comments during an interview he gave to the Wall Street Journal:

What is it that I did that is so fundamentally wrong, that deserves this kind of response to my service?
Since Alberto Gonzales is still looking for answers, for a start he could look at his actions here:

* Firing 9 U.S. Attorneys because they didn't go after Democratic politicians, which deliberately politicized America's legal system.

* Signing off on torture and other dubious practices as White House counsel.

* Signing off on eavesdropping without a warrant.
In sum, as the U.S. Attorney General Alberto Gonzales was little more than a White House tool, who saw the law as something to be skirted rather than upheld. He was the stooge who helped pave the way for Bush, Rove, and Cheney to do their dirty work.

And he wonders why he can't find a job in the legal profession . . .

- Mark

Tuesday, December 30, 2008


It's been a week since I posted anything, so I might as well start back with what is sure to be Barack Obama's top priority throughout his presidency - the economy. An article from is stating: "The generally gloomy economic news is dramatically raising the stakes for President-elect Barack Obama, and for the future of capitalism."

This is pretty ominous sounding, especially since the guys at seem to believe "the market" is some kind of magical place that needs to be left alone. They are the last people you would think would be hyping the importance of Barack Obama to the nation's economic health. Here's what prompted the statement.

In the article on home mortgages the author makes it clear that deliquent payments are rising, even for modified home mortgages, where the lender renegotiates the terms of a homeowners loan in an effort to keep them in the house. Things look especially bad when we look at the dollar amount in adjustable rate mortgages that are set to readjust.

As the graph illustrates, we are now in the middle of a small reprieve (of sorts) for adjustable rate mortgages. Modified loans were supposed to help deal with the millions of adjustable rate mortgages coming around the corner. Rising deliquencies in modified home loans are troubling because it tells us that "consumers" and "workers" - rather than "homeowners" - are in real trouble. The housing market may be a red herring.

With unemployment projected to hit 9% by the end of next year, more people will no doubt be leaving their homes - even with creative modified loan programs. All of this tells us that what president-elect Obama faces is nothing short of an economic catastrophe.

So, how bad is it? quotes Fareed Zakaria, editor of Newsweek International:

"For Obama to be remembered as a great president, he has to do nothing less than rescue capitalism."
Is it really that bad? I think so. I'll explain why in my next post.

- Mark

Tuesday, December 23, 2008


A humorous take on how our taxpayer dollars are being used during this bailout ...

- Mark

Monday, December 22, 2008


The Associated Press contacted 21 banks that received at least $1 billion in taxpayer money. They asked how they were spending the money, and what plans they had for what was not spent. Their response, to date, has been a collective "It's none of your business ... now go away."

- Mark

Friday, December 19, 2008


Imagine you're at a holiday gathering of close friends and family. You're suddenly brought together at the end of the night to discuss the latest escapades of a well-meaning but ne'er-do-well friend. He's brazenly arrogant, shows up at every gathering, but fails to bring anything. He eats and drinks everything in sight. Worse, while he's fun at first, he's a lousy drunk.

This time, however, your friend has brought uninvited guests, who've made a mess of the place. It's going to take a while to fix everything, and it's going to be costly. John Belushi and his Animal House gang would have been better company. As you're talking they burst into the room and shout out, "Me and my friends need another drink ..."

Well, guess what? This is Hank Paulson & Friends. After running the economy into the ground, and then using the (undeserved) bailout money recklessly, they're now bursting through the door asking for more. Paulson & Friends want a financial night-cap.

Incredible. After allowing the banks and financial institutions to recklessly blow through the first half of the $700 billion in bailout money - by paying dividends, dishing out million dollar bonuses, foreclosing on homeowners, cutting credit card limits, and failing to release money into the economy - Paulson & Friends are now bursting through the door saying "We need the other half of the $700 billion" - no strings attached, of course.

I say we let them sober up first. Assholes.

- Mark

Thursday, December 18, 2008


This is an incredible story. The NY Times tells us how Wall Street investment banks handed out well over $100 billion in bonuses and salaries over the past five years to executives who effectively ran their companies into the ground.

Now that everything's gone up in smoke, do you think these incompetents - who should have seen this coming - will pay any of it back?

- Mark


This is too funny. It's from Rick Newman at U.S. News & World Report. I've cut the article, but you can read the entire piece here.

December 17, 2008 08:44 AM ET | Rick Newman | Permanent Link | Print

To: Henry Paulson, Bailout Decider, U.S. Treasury

CC: Ben Bernanke, Bailout Buddha, Federal Reserve

CC: Tim Geithner, Bailout Inheritor, Obama Administration

CC: Santa Claus, just in case

Dear Sirs: Please be advised that I am changing my status from ordinary American consumer (OAC) to bank-holding company (BHC) in order to qualify for funds from the government’s Troubled Assets Relief Program. Since I couldn’t find the official application form, I’ve listed my qualifications below:

1. I qualify as a bank-holding company for the following reasons:

My balance sheet is a wreck.

I have posted a sign in front of my house that says “Newman Bank.”

I don’t actually lend money to anybody.

I can certify that I do not employ any unionized workers, only an illegal immigrant, occasionally. And I make her dress nice.

2. I have troubled assets. To wit:

My home. I suspect that other people in my neighborhood have received some kind of mortgage relief, even though I haven’t. This troubles me. If they've gotten something free from the government, then I should, too.

My car. I have a car loan and if I refuse to repay it, the bank will seize my car. Thus my car qualifies as a collateralized debt obligation (CDO) and is therefore eligible for relief under the Emergency Economic Stabilization Act of 2008 (EESA), specifically, the well-known “Citigroup provision,” which stipulates that if I say so, you have to believe me.

My 401(k). The trouble is, it’s hard to call it an asset anymore.
. . . Without bailout funds, I will be forced to make irrational decisions that will irreparably harm the economy.

This is no time to quibble over a few million dollars. It’s a time to show leadership and act. So come on, give me some money.


Again, you can see the entire article here.

- Mark


Goldman Sachs, which has received government debt guarantees and $10 billion in taxpayer funded bailout money, and saw it's effective tax rate drop to 1%. Why? Because it moved some of its money off shore to avoid paying taxes. Bloomberg News has the story here. But Rachel Maddow does a better job of explaining it here . . .

If the financial industry moving transactions off shore to avoid paying taxes - then asking for a taxpayer bailout - doesn't get your goat, check out this little noticed tax subsidy scam ...

So, I'm wondering ... How does bankrupting America and forcing Uncle Sam to borrow from the Chinese and Middle East make America safer? Why doesn't "America First" apply to Wall Street? Where are the "USA, USA" chanters now?

Just asking.

- Mark

Tuesday, December 16, 2008


With Obama elected president you had to see this coming. Those who support the practice of torture are digging up fear-drenched scenarios only the Cowardly Lion could embrace as policy. Check out this pre-9/11 nonsense from yesterday's NY Times ...

What would Mr. Obama do? After all, if we’d gotten our hands on a senior member of Al Qaeda before 9/11, and knew that an attack likely to kill thousands of Americans was imminent, wouldn’t waterboarding, or taking advantage of the skills of our Jordanian friends, have been the sensible, moral thing to do with a holy warrior who didn’t fear death but might have feared pain?

Hey, I have a better, more realistic set of pre-9/11 questions. And they actually lead us down a path where we have to consider sound analysis and sound judgment . . . you know, the policy stuff that's proactive and actually would have kept us safe.

* What would have happened if the Bush administration had not ignored the outgoing Clinton administration's warning to keep an eye on al Qaeda and bin Laden because they would be their number one concern throughout Bush's presidency?

* What would have happened if we had had a president and an administration that actually read and understood its National Intelligence memos?

* What would have happened if the Bush administration had not downgraded the National Coordinator for Counterterrorism away from Cabinet-level access?

* What would have happened if the Bush administration had listened to Richard A. Clarke, their top counterterrorism official, who was running Washington DC during the summer of 2001, telling agency heads to cancel summer vacations because something big was coming?

* What would have happened if Donald Rumsfeld, Paul Wolfowitz, and Condaleeza Rice had not locked Richard A. Clarke out of a Cabinet-level meeting until one week before 9/11?

* What would have happened if Paul Wolfowitz and Donald Rumsfeld had actually paid attention to Richard A. Clarke's warnings during the September 4, 2001 meeting, instead of wanting to discuss Iraq?

The point here is that REUEL MARC GERECHT's op-ed is asking the wrong set of questions. He's focused on scenarios that, while possible, are highly improbable. More importantly, his line of thinking exposes the U.S. to the world as a nation of bedwetters, so fearful that we compromise our values and institutions.

It almost seems that REUEL MARC GERECHT is unaware that we've already tried his approach. It's called the Bush years. And we all know how that turned out.

- Mark

Monday, December 15, 2008


This Frank Rich op-ed is an outstanding review of the lack of accountability - from the left and the right - that has permeated our political and economic cultures.

Here's the story in a nutshell: Gov. Rod Blagojevich, while incomprehensibly foolish, is little more than a convenient fool. The real Neros in our evolving theater of Roman-like corruption are still out there, fiddlin' away.

- Mark

Saturday, December 13, 2008


The numbers from the Federal Reserve are out, and they're not pretty. The only problem is that they are also buried in a bundle of numbers that only geeks like me try and keep track of. Here's the facts, in real simple terms: the Federal Reserve has lent out more than $1 trillion to U.S. banks.

This is not from the increasingly useless TARP money approved by Congress at the beginning of October. This is not money approved by Congress under committee secrecy. This is money the Federal Reserve has simply created and lent, without congressional approval.

Here it is, in black and white, from the just released (Dec. 11, 2008) Federal Reserve's "Flow of Funds Accounts of the United States."

It's kind of difficult to find, so here are the steps:

1) click here;

2) scroll down 54 pages (although it will say page #46 on the actual PDF file);

3) look at #11 on page 46, it will say "+ Loans from Federal Reserve banks"
And Congress says they can't find $14 billion for the auto industry. This economic mess is not anywhere close to being over. This is going to get uglier. Stay tuned.

- Mark


The sudden and devastating collapse of Bernard L. Madoff's investment firm has Wall Street abuzz. As the financial world ponders how someone could lose an estimated $50 billion I think it's safe to say that what blew the cover off of Madoff's "ponzi" scheme wasn't Madoff's confession to employees this past week, a lack of private "due diligence," nor enough federal oversight. While all of these played a role, what really brought Madoff down was the market's collapse.

Jittery investors, worried about continued exposure to a collapsing economy, began asking Madoff to take their money out of the market. Madoff was forced to face reality: he was running a scam operation. Madoff was using investors like regular folks use credit cards in today's economy - one was being used to pay off the other. In a collapsing market, with credit and investors drying up, he could no longer call on a once dependable line of investors, nor find a line of credit to keep his game going.

What's really disgusting is that Madoff was making plans to pay partners early bonuses this December. After that he was going to distribute the $300-400 million in assets he thinks he has left to family and friends who invested with him.

Investors are now getting lawyers and will try and sue Madoff, hoping they can get at the $300-400 million he has left. Some may get pennies on the dollar. Others will be left with nothing. Then they will, no doubt, demand reform and regulation.

Didn't we already do this before? And, no, I'm not talking about Enron or WorldCom . . .

- Mark

Friday, December 12, 2008


Yesterday I discussed how republican senators are acting like idiots and fools because they're bent on putting ideology (and a failed one at that) above the facts. Acting like the congressional fools of the 1930s (see Smoot-Hawley), senate republicans are using the current crisis to impose their vision of what labor standards and wages should be for U.S. auto makers. For them, what's wrong with Detroit can all be tied to unions in general, and the United Auto Workers in specific. So they want to set wage and benefit levels - from Washington.

Well, guess what? In Germany, where wages are higher than they are here in the U.S., the Germans are confronting some serious market challenges of their own (see graph below). But their political leaders and their auto executives aren't pointing fingers at workers who make too much money. Instead, if you read this article from Der Spiegel, auto executives are looking at the challenges they face as managers in a collapsing global economy.

That's right. German auto executives actually believe it's their responsibility to manage their company through this economic meltdown. Here's the real fun part: they also think they need to keep as many people employed as possible. If you read the article, there are no references to high wages or to going after organized labor. In fact, German automakers have made it clear that they need the German government to help provide some assistance so they can make it through this market meltdown. They see this as a team, or national, effort (take that, American flag wavers).

Opel is not the only German carmaker seeking government assistance. VW, Daimler and BMW have also submitted their requests. They want Berlin to issue government loan guarantees on the loans taken out by the carmakers' financing divisions. They are also asking the German government to pay a premium to anyone who replaces a car more than 10 years old with a new one. And they want to see Brussels cancel its plans to impose penalties on manufacturers for failing to meet their CO2 emissions targets.
What this article makes clear is that even if Detroit's automakers have been operating according to an outdated 20th century business model, our political system is mired in a 19th century mind-set.

Conservatives in Washington simply don't understand that their utopian market dreams of harmonious markets, where invisible hands exist, is a myth. Worse, they don't seem to understand that by going after labor they are artificially restraining one of the factors of production that Adam Smith made clear was key for market capitalism's success.

Like I said, they're idiots and fools.

- Mark

Here's a comparison of collapsing auto sales in the U.S. and in Europe.

UPDATE: Here's an article from the NY Times that debunks the "auto workers are making $73 an hour" myth. If you're not a republican senator, this graph from the article should help too.

Thursday, December 11, 2008


Senate republicans got their way and wrecked a pending agreement to get a bridge loan to Chrysler and GM. What wrecked the deal is that they wanted to impose their vision of wage and labor standards, while at the same time claiming that Washington doesn't know how to build a car.

That's right. While they claim Washington shouldn't stick it's nose into the market place, they think it's OK for them to determine wage and labor standards for the auto industry - from their free market perches in Washington.

Let me make this clear, again: these guys are blithering idiots.

Keep in mind that these are the same guys that have stood by as their states have handed hundreds of millions to foreign auto manufacturers to entice them into their states, in the form of subsidies and tax holidays. These are also the same guys that have no problem using the power of the state to impose and enforce anti-labor provisions to attract foreign manufacturers . . . you know, just like Adam Smith talked about when he discussed the role of the "invisible hand" in the market.

But here's the real kicker. Senate republicans are pointing to foreign manufacturers, like those in Japan and Germany, and pretending that their automakers have made it because of market forces alone. Have they never heard of Friedrich List? Of course not. If they had heard of him, they would not have complained years ago about unfair market practices in Japan and Germany ...

Did I mention these guys are blithering idiots? Oh, OK. Then let me add that they're ignorant fools too.


Anyways, here's a little story from economist Ha-Joon Chang, who takes "free-market guru" Thomas Friedman to task for ignoring, or not understanding, the long and storied history of the Japanese auto industry. Specifically Chang points out in his book (Bad Samaritans: They Myth of Free Trade and the Secret History of Capitalism, 2007) that Friedman doesn’t do his homework and, perhaps more importantly, doesn’t really know what he’s talking about when it comes to free trade:

Toyota started out as a manufacturer of textile machinery (Toyota Automatic Loom) and moved into car production in 1933. The Japanese government kicked out General Motors and Ford in 1939 and bailed out Toyota with money from the central bank (Bank of Japan) in 1949. Today, Japanese cars are considered as “natural” as Scottish salmon or French wine, but fewer than 50 years ago, most people, including many Japanese, thought the Japanese car industry simply should not exist.

Half a century after the Toyopet debacle, Toyota’s luxury brand Lexus has become something of an icon for globalization, thanks to the American journalist Thomas Friedman’s book, The Lexus and the Olive Tree. The book owes its title to an epiphany that Friedman had on the Shinkansen bullet train during his trip to Japan in 1992.

He had paid a visit to a Lexus factory, which mightily impressed him. On his train back from the car factory in Toyota City to Tokyo, he came across yet another newspaper article about the troubles in the Middle East where he had been a long-time correspondent. Then it hit him. He realized that that “half the world seemed to be . . . intent on building a better Lexus, dedicated to modernizing, streamlining, and privatizing their economies in order to thrive in the system of globalization. And half of the world—sometimes half the same country, sometimes half the same person—was still caught up in the fight over who owns which olive tree.”

According to Friedman, unless they fit themselves into a particular set of economic policies that he calls the Golden Straitjacket, countries in the olive-tree world will not be able to join the Lexus world. In describing the Golden Straitjacket, he pretty much sums up today’s neo-liberal economic orthodoxy: in order to fit into it, a country needs to privatize state-owned enterprises, maintain low inflation, reduce the size of government bureaucracy, balance the budget (if not running a surplus), liberalize trade, deregulate foreign investment, deregulate capital markets, make the currency convertible, reduce corruption, and privatize pensions.

According to him, this is the only path to success in the new global economy. His Straitjacket is the only gear suitable for the harsh but exhilarating game of globalization. Friedman is categorical: “Unfortunately, this Golden Straitjacket is pretty much “one-size fits all” . . . It is not always pretty or gentle or comfortable. But it’s here and it’s the only model on the rack this historical season.”

However, the fact is that, had the Japanese government followed the free-trade economists back in the early 1960s, there would have been no Lexus. Toyota today would, at best, be a junior partner to some Western car manufacturer, or worse, have been wiped out. The same would have been true for the entire Japanese economy. Had the country donned Friedman’s Golden Straitjacket early on, Japan would have remained the third-rate industrial power that it was in the 1960s, with its income level on a par with Chile, Argentina, and South Africa—it was then a country whose prime minister was insultingly dismissed as “a transistor-radio salesman” by the French president, Charles De Gaulle.

In other words, had they followed Friedman’s advice, the Japanese would now not be exporting the Lexus but still be fighting over who owns which mulberry tree.
There's more. But someone needs to tell Senate Republicans that they have no clue when it comes to understanding how the world really works.

- Mark


If the Far Right thought they could "taint" President-elect Barack Obama with this Chicago-mob headline, there's no doubt they would do what they could to find a way to make it real. This is one of the point's made by Bob Cesca, as he outlined the double-standard now being applied to Barack Obama. I would have to agree, especially after watching how giddy republican talk show diva Tucker Bounds was while he discussed Illinois Gov. Blagojevitch’s problems on FOX News this morning. He was "all smiles" as he contemplated the implications of the Obama-Blagojevitch connection – even if it doesn’t exist, of course.

Cesca’s piece points out that, while George W. Bush openly embraced indicted Congressman Tom DeLay (R-Texas), and even gave him a ride on Air Force One to show his support, Barack Obama is already being hounded by nutcase consipiracy theorists. Incredibly, they want Obama to “explain all he knows” – even if he doesn’t know anything. The denial is all they want.

In a related note of partisan stupidity rearing its ugly head, Senate republicans are planning to torpedo the auto bailout because they’re worried about “the American taxpayer” and whether the money will be paid back. Huh?

After bailing out virtually every hiccup and sneeze thrown our way by the financial sector over the past 25 years (with taxpayer money), and then supporting President Bush’s $5 trillion budget deficit spending orgy, these guys want to quibble over $14 billion? Where’s their or outrage over the $300 billion that the financial sector has essentially shot down a rathole?

I’ve said it before, and I’ll say it again: these guys are idiots.

- Mark

Wednesday, December 10, 2008


People are so scared of collapsing markets that they are now taking their money and "investing" it in U.S. treasury notes that pay a return of zero. That's right, for many investors a 0% return on investment is seen as a better bet than corporate America.

This is the functional equivalent of stuffing money into a mattress.

This "investment" logic is not only tied to investor concerns that they will lose money by leaving it in the market, but that a deflationary cycle is just around the corner. This is a defensive strategy, and does not bode well for our future.

Worse, the last the time this happened was during the Great Depression.

- Mark


This is an excellent conversation between Mike Huckabee and Jon Stewart. It's both civil and educational. It's worth taking 7 minutes to watch.

- Mark


Nobel prize winner in economics Joseph Stiglitz writes about "Capitalist Fools" in this month's Vanity Fair. He hits almost all of the points that I bring up in the last two chapters of my book. Incredible. Here's the money quote:

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.
It's relatively short, so check it out.

- Mark

Tuesday, December 9, 2008


For the conservative pundits, ill-informed talk show hosts, and the remaining Flat-Earth republicans still clinging to the idea that "free markets" are the path to prosperity, this comic offers a nice response to those still hanging on to the magic of the "invisible hand" argument.

In brief, the "free market" approach is based on a theory that argues that if we allow "rational" market players to do what they want that all of the needs of society will be taken care of, as if an "invisible hand" were moving people and events to a harmonious end. No government intervention will be necessary if we allow "free markets" to work their magic (or so goes the argument).

In this world, Bambie's mother doesn't die, love conquers all, and George Bush is a man of integrity.

In the real world, what we got instead, as we have seen since the middle of September, were a bunch of very stupid and greedy people creating an incredibly complex web of toxic market garbage that few people understood (or understand, even today). To be sure, a few people got rich in the process. But the "free market" of deregulation, debt, and bailouts has ended up giving America (and the world) a very "visible" back hand. This comic captures the events nicely.

- Mark

Monday, December 8, 2008

$1 TRILLION IN NEW DEBT (in less than 60 days)

You'll be happy to know that since the market collapsed in the middle of September the federal government has created over $1 trillion in new debt, in an effort to bailout Wall Street (yet, we can't seem to find $34 billion for Detroit, where they actually produce something of value).

To provide some perspective, our nation did not reach $1 trillion in debt until 1980. It took 40 U.S. presidents over two hundred years to spend $1 trillion we don't have. President Bush has done it in less than than 3 months.

Under President Bush we have added over $5 trillion in new debt. As of today, we now owe $10.653 trillion.

- Mark


In one of my previous posts, “Market Stupidity: An Act of God?” I made it clear that we had solid evidence that private market players were cheating FDIC-backed institutions as far back as 1998. The primary method for cheating these taxpayer-backed institutions was tied to complex financial instruments (CDOs) that were really nothing more than bets. These bets were then backed by insurance-like products (CDSs) that accepted money but offered little to no insurance.

If we’re looking for an analogy think about betting on a football team. You don’t own the team, but you have a vested interest in how the team does. But you become a gambling addict and start betting on all the college games too. You've got a problem. Then imagine going out and getting insurance for your bets. Your bookie encourages it all. Sounds kind of shady, right? It is/was.

So, how did we get to this point? While there’s enough blame to go around, I’ve made it clear in previous posts that on a general level we can start with a business and political culture that supported debt, bailouts, and deregulation. I’ve discussed the history of debt and bailouts elsewhere. In this post I’ll focus on four deregulation "developments" that paved the way for America’s private players to destroy the American economy.

1. 1980s, THE “GENIE ACTS”: In the early 1980s the financial industry received what amounted to 3 wishes from Congress. Among these wishes were legislation that allowed the Savings & Loan industry to sell the home mortgage contracts they had on the books at both a loss, and a profit. How can this be, you ask? Simple, by allowing S&Ls to write-off their losses the U.S. Congress effectively stuck the American taxpayer with industry losses. IMPACT: This propped up the secondary market, where many of the messy mortgage loans that plague our economy today picked up steam.

2.1987, THE “LET-THE BANKS-DO-WHAT-THEY-WANT” ACT: In 1987 the Federal Reserve granted commercial banks – which are FDIC insured – the authority to invest in (“underwrite”) new municipal and mortgage-related securities. In effect they said, “Sure, go ahead and invest your money … it’s not like you’re playing with taxpayer money.” Ooops. IMPACT: The commercial banking sector slowly came to depend on mortgage backed assets – which many blame for this current economic mess – as their primary earning tool, jumping from about 28 percent of bank earnings in 1985 to more than 60 percent in 2005

3. 1999, “LET’S-DO-1929-ALL-OVER-AGAIN-ACT”: Also known as the Financial Services Modernization Act (FSMA). After the stock market crashed in 1929 federal officials learned that commercial banks were “investing” depositor’s money as if they were investment banks, and with little regard for their client’s financial security. Insurance companies got into the act too. So Congress enacted the Glass-Steagall Act in 1933 to forever banish commercial banks and insurance companies from acting like investment banks in the future. IMPACT: By allowing insurance companies, commercial banks, and investment banks to get into each others business, the Financial Services Modernization Act killed Glass-Steagall, and helped heat up a financial feeding frenzy.

4. 2004, HANK PAULSON DOES A NUMBER ON AMERICA: In 2004 Goldman Sach’s then CEO, Hank Paulson, led a then powerful group of financial players into SEC’s offices. They were looking for a break. They wanted the SEC to allow them to “invest” beyond a debt-equity ratio of 12 to 1. They needed to become more competitive, so they said. Their request was granted. When Bear Stearns and Merrill Lynch collapsed they had debt to equity ratios of 33: 1 and 40: 1. Is it any wonder that Hank Paulson wanted a free hand to distribute taxpayer money? He’s also trying to clean up his role in the mess.IMPACT: When the SEC said "yes" to Paulson's request they effectively said it was OK to run up debt on market bets on dubious (and largely unregulated) products. We now have a new market equation: Deregulation + Debt = Bailout.
So this is what we have. America’s secondary markets get a deregulatory shot in the arm from favorable legislation in the early 1980s. Commercial banks see this and want to try their luck in the Mortgage Backed Securities market. The feds oblige them. Other financial institutions see that more profits can be made with more deregulation. So they get Congress to repeal Glass-Steagall. This eliminates fire walls and effectively takes us back to 1929. Hank Paulson and friends then get the SEC to allow them to borrow, gamble and run up debt like drunken sailors (the CDS market grew from about $1 trillion in 2000 to between $45-65 trillion by 2006).

There’s more. Lot’s more (which I discuss in my forthcoming book, The Myth of the Free Market). But the point here is that the financial mess we see before us was caused by greedy people acting like idiots.

On the positive side this tells us that Alan Greenspan's contention that the US has been hit by some kind of uncontrollable "once-in-a-lifetime" event is way off-base. We do have control over this stuff. Greenspan is only trying to absolve himself when he makes statements like this.

It will be expensive, but we can fix this.

- Mark

Friday, December 5, 2008


George W. Bush has to be the most self-absorbed petulant people walking the face of this earth. From Bill in Portland Maine, here's Bush's exchange with ABC's Charlie Gibson during his "exit interview" tour.

Charles Gibson: You're only 62. Is there one more thing you really want to achieve?

George W. Bush: Um, that's interesting question... Wouldn't it be interesting for baby boomers not to retire in, y'know, nice places, but to retire during their retirement to go, y'know, help people deal with malaria or AIDS? ... In other words, I'm not suggesting that is what I'm gonna do. It is the kind of thing that intrigues me.
Fortunately, we have Jon Stewart to put Bush's comment in perspective.

Jon Stewart: That's like walking up to a homeless guy and going, "Hey, imagine if I just gave you thousands of dollars...I bet that would totally change your life! Intriguing to think about, isn’t it? Alright, See ya later!"

- Mark


- Mark

Thursday, December 4, 2008


In Australia, James Bidgood, a first-time Member of Parliament (under investigation for selling pictures of a protester attempting to set fire to himself outside Parliament House), has made it official: the global financial crisis is an act of God.

Funny, but it seems to me that cheating and lying to each other in America's financial markets were acts of stupidity and greed. God may have had a good laugh at all of this, but I have to think that God - or whoever you look up to - is kind of having a good time watching us make fools of ourselves. Check this out ...

Back in Feb. of 1998 the Federal Registry of the United States told the world that the Federal Deposit Corporation (the FDIC) issued a set of new "guidelines" telling its member banks that private market players were cheating and gaming the system with incredibly complex financial instruments. The FDIC warned member banks to be on the look out.

Put another way, the federal government had an idea - and the private sector knew - that the US financial system was sitting on a profitable but explosive financial powder keg, at least ten years before the 2008 market meltdown began. Here's one of the stories I tell in my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy ...
One year before the Financial Services Modernization Act (1999) was passed into law, the FDIC issued a set of guidelines for member banks that managed transactions involving collateralized securities. Concerned that deposit-taking institutions had not exercised sufficient risk management, the FDIC distributed a “Statements of Policy”(SOP) document at the beginning of 1998, making it clear that collateralized security transactions were on its radar screen.

Although it set out to reacquaint institutions with basic due-diligence procedures, it also listed ways that private firms could defraud FDIC-backed institutions. The SOP guidelines said that private financial institutions weren’t always playing fair with FDIC-backed institutions, especially when it came to complex financial instruments.

Included among the embarrassingly basic rules of caution covered were “know your counterparty,” credit analysis, and credit-limit reviews. The guidelines were so simple that it was difficult to tell whether they were issued for seasoned FDIC-affiliated banking institutions or were really geared to the new finance guy at the local car dealership. Still, one thing stood out: in the wake of the 2008 market collapse, the 1998 SOP offered a crow’s nest view of what went wrong.

Pointing to the tactics of subsidiaries belonging to “financially stronger and better-known firms,” the SOP warns that larger corporations “may not be legally obligated to stand behind the transactions of related companies,” so the subsidiary may not be credit worthy. What is the FDIC’s advice? Don’t trust the other guy’s “character” or “integrity” until you get “the stronger firm’s” signature. That this needed to be said should have raised red flags back in 1998. Incredibly, the guidelines get even more basic.

We all know when we purchase a new car that we have to deal with the sales staff, and then with the finance and credit team, who also want to sell us stuff. There’s a reason why the owners of car dealerships keep these two positions separate. Apparently these auto dealer insights have not always been prevalent within the FDIC. Burned by too many conflict-of-interest transactions involving sales and finance pulling double duty, the FDIC found it necessary to remind banking institutions that credit evaluations for CDO-affiliated purchases, for example, should be done by “individuals who routinely make credit decisions” and not by those involved in sales. Incredibly, the SOP then advised institutions to be on the lookout for buyers who were already overextended.

Perhaps the greatest words of caution are saved for institutions that are inclined to believe that CDO instruments could be used as market collateral. The FDIC guidelines make it clear that because a bank has a CDO-affiliated instrument it doesn’t mean that it’s sitting on an asset for which the book value is equal to the market value. The 1998 guidelines suggest, for example, that, if a $100 million CDO transaction has occurred, “experience has shown” that the underlying product or contract “will not serve as protection” if the subsidiary fails or if the firm does not have control over the security.
While Christian fundamentalists, like James Bidgood in Australia, may believe that God gets his jollies from watching us suffer through market collapse, the reality is what's happening now is a product of greed and stupidity (which God, no doubt, gets a chuckle out of).

It's really that simple. We can fix this.

- Mark

Tuesday, December 2, 2008


Could we be on the verge of another Andrew Jackson-like showdown with America’s principal money and credit institutions? I hope so. Stay with me here while I set this up . . .

With America’s financial institutions continuing to sit on trillions of dollars in bailout money, the credit card industry is now saying they’re looking to cut $2 trillion in credit lines. It may be happening already. This is both mind-numbing and a slap in the face to the American taxpayer.

The financial industry’s threat is a big problem, for two reasons.

First, the financial institutions that are threatening to cut credit lines are the same institutions that the federal government is bailing out – with taxpayer dollars.

Think about it. At the same time the federal government is throwing a life raft to a greedy and inept set of financial institutions – with the goal of injecting money into the system – we have Bank of America, Citigroup, and JP Morgan-Chase threatening to act like Titanic lifeboat survivors (who wouldn’t row back to save others in the water) by closing accounts, cutting credit lines, and raising interest rates (and, no, just because the credit card companies are “subsidiaries” does not make them independent firms in this mess).

Second, credit cards are the second key source of money for American consumers, right behind jobs. Millions of Americans are up-side down on their home loans (they owe more than they're worth), and millions more will soon be unemployed.

In this environment not having access to credit will only make things worse. How bad, you ask? As Meredith Whitney, credit analyst for Oppenheimer & Co, noted, "… we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent." This is akin to throwing those in the water an anchor.

The industry’s rationale is simple - and self-serving. They want protection from themselves (they don’t trust each other) and they want protection from an unemployment rate that’s expected to hit 9% (they fear future bankruptcies).

OK, now back to the Andrew Jackson-U.S. Bank showdown …

Arthur M. Schlesinger, author of The Age of Jackson, points out that when Andrew Jackson entered the White House (1829-1837) he was appalled by the amount of power that the premier money creating institution in the land, the Bank of the United States, had accumulated. Run by Nicholas Biddle, the Bank of the United States pursued policies that reflected his views. Specifically, the Bank of the United States operated its affairs as if it did NOT have an obligation to either the U.S. government or its citizens. The Bank’s obligations, according to Biddle, lied with its shareholders.

As a result, the Bank of the United States used its authority to create money (or “issue notes”) to speculate, to challenge the authority of the U.S. government, and to help investors and the “moneyed aristocracy” systematically exploit the “humble members of society.”

With this, the Bank’s power was at once economic, political, and social. This, in part, explains why Andrew Jackson decided to close the Bank of the United States.

Naturally, Nicholas Biddle was upset with Jackson for going after his bank. So he induced an economic panic by deliberately withholding credit between 1833 and 1834. Biddle claimed his policies had nothing to do with politics, but history (and common sense) prove otherwise. By holding the nation's economy hostage Biddle's actions also proved that Jackson was correct about the banks power, and its capacity to abuse its power.

This is important for us today because financial institutions are sitting on money provided to them by the U.S. taxpayer, and are now threatening to pull back on credit precisely when it is needed most. Because we have done little to curtail or regulate their power we are allowing them to act like Biddle’s bank. In fact, by providing bailout money with no strings attached, we have created a hydra-headed financial monster that President Andrew Jackson feared most of all: an institution that could both lend and create money at will, while drawing on the resources of the state to make itself bigger and stronger.

Today, financial institutions are drawing on state resources while maintaining previous authorities and protections. In the process, they are leaving the American consumer (and taxpayer) out in the cold. Nicholas Biddle would have been proud.

Worse, the credit card industry – in Nicholas Biddle-like fashion – is now telling the world that they don’t have to maintain credit lines in spite of the fact that the U.S. government and the U.S. taxpayer are the genesis of their life support system. They must protect their shareholders first.

I say if we are going to hand over trillions of dollars to save the financial system they should be forced to help the government fix the mess they helped create. While I don’t see president-elect Obama recreating the financial system like Jackson did when he closed the Bank of the United States, he should at least pursue a Jackson-like confrontation. He should begin by forcing the financial institutions who benefit from the U.S. taxpayer bailout to renegotiate mortgage loan contracts, and/or reduce credit card interest rates.

I’ll have more to say about both of these proposals in future posts.

- Mark

Monday, December 1, 2008


It's taken almost one year, a market collapse, record bailouts, really ugly job loss forecasts, global crisis, and presidential incompetence only a Third World dictator could hope to rival but the the National Bureau of Economic Research has finally been convinced that we're in a recession. To quote my 11 year old daughter, "Ya think"?

And the news gets better. We've officially been in a recession since December of last year! What the heck have these guys been waiting for, soup lines and street riots?

Now, I'm not going to point out that I called this a recession almost one year ago (I know, I just did; I can't help myself). But it should be noted that waiting almost one year to point out developments that others saw happening a long time ago is not very encouraging. What good are the experts if we can't trust them to give us timely information? To paraphrase John Maynard Keynes, "I don't know that we're served by an agency that can only tell us we're in a storm only after the seas have tossed our boat."

It seems to me that we also need new adjectives. Somehow, "incompetence" begets "negligence" are no longer sufficient.

Sheesh. I sure hope these guys get better at forecasting "market hurricanes." Although - if we're using the Bush administration as a gauge - and to continue our analogy, we're not too good at dealing with hurricanes either.

- Mark


- Proverbs, 18: 2.

Unfazed by record levels of unpopularity and a stunning rebuke of his failed policies (with Obama's election), President Bush is allowing his administration to make last minute changes to federal rules and regulations. According to the NY Times, among the rules federal agencies have enacted or are rushing to enact include:

* Allowing coal companies to dump rock and dirt from mountaintop mining operations into nearby streams and valleys.

* Granting states sweeping authority to charge low-income people higher co-payments for doctor’s visits, hospital care and prescription drugs provided by Medicaid (issued last week by the HHS).

* Health and Human Services is working on another rule to protect health care workers who refuse to perform procedures (like abortions) on religious or moral grounds.

* The Labor Department wants to make it much harder for the government to regulate toxic substances and hazardous chemicals to which workers are exposed on the job.
It's one thing to promote a legacy that's worked in your final days. It's quite another to promote one that's been an unabashed disaster, like President Bush's.

The man, quite simply, is a tone-deaf fool.

- Mark