Saturday, February 28, 2009


So I was getting my haircut and listening to the conversations going on around me. It's your standard "manly man" barber shop, so you can imagine the topics.

Sure enough the discussion found it's way to the "socialist" tyrants who are now in charge. Things really got going, however, when the topic turned to guns ... "Yeah, baby, don't no one dare take my guns o you be dead." (Correct me if I'm wrong, but wasn't Bill Clinton supposed to have taken everyone's guns when he was president?)

I especially liked how the testosterone got going in the room when the story was told of a law enforcement officer who's "not gonna let anyone take his guns" and that when "they do show up he's gonna blow them away before they even get their hands on the door." Heads nodded in approval, and a couple of "yups" followed.

After pondering the paranoia, it suddenly occurred to me: I'm living in a world of Dale Gribbles.

Those of you who have seen King of the Hill know what I'm talking about. If you're not sure what living in world of Dale Gribbles means for those of us living in the real world you might want to check out these posts here, here, here, and here.

I've checked with my colleagues in the Department of Psychology and they have a clinical term for these guys: They're nuts.

- Mark

Friday, February 27, 2009


For years now the republicans have been making reference to the "Democratic" Party as the "Democrat" Party because their pollsters told them that there is a higher negative connotation with the term "Democrat" Party. The reference is really pretty childish, and shows just how cute the republicans think they are with the American voter.

Well, Chris Matthews finally called out Rep. Darrel Issa (R-CA) on the practice.

Good for Matthews. The republicans have been pulling this stunt for some time now. Instead of trying to "stay on message" or promoting "subliminal" images the republis (oops) need to start thinking about how 8 years of putting ideology above the facts has put this country in a hole.

- Mark

Thursday, February 26, 2009


This is not good. In 2008 we saw ...

* The earnings of the commercial banks and savings institutions insured by the FDIC decline 83.9%.

* 25 FDIC insured institutions fail.

* The number of banks on FDIC's watch list -- the ones regulators are most concerned about failing -- jump from 65 in 2007, to 171 in 2008, and to 252 today.
So, get ready for it: More bank failures are around the corner, no matter what we do.

Again, we are faced with the following dilemma: Do we let the banks go under and have Uncle Sam pick up the pieces, and get nothing in return? Or do we nationalize, secure assets, gain some control, and make some money when we sell the banks back to the market? Those of you who read this blog regularly know my opinion on this ... we need to nationalize the failing institutions.

There is, however, one piece of good news coming out of the FDIC: Total deposits rose 3.5 percent to $307.9 billion -- the largest percentage increase in 10 years. The reasons for this are many, but are primarily tied to people drawing money out of the stock market, only to put it in banks. As FDIC Chair Sheila Bair put it: "Clearly, people see an FDIC-insured account as a safe haven for their money in difficult times."

Or we can put it another way, "Clearly, when the going gets tough people don't trust the private sector with their money."

- Mark

UPDATE: I just ran across this from Naked Capitalism, which they got from the Financial Times. Of the $450 billion in "securities" (CDOs) written from 2005 through 2007 - which banks bought as investments - around 70% of these securities are formally in default (which means no one is paying). Because banks once thought these securities were worth $450 billion - because "really smart people" with computer models told them they were - banks are now facing big losses, which helps explain why they're in trouble. They are essentially holding ghost assets. These ghost assets, my friends, are why the American homeowner, and taxpayers, will get screwed. Mark-to-market provisions in TARP will make sure of this. It's late, and the details aren't fun, so I'll call it a night, for now. But stay tuned.


I can't believe I missed this last week ...

I stumbled upon this piece of 90 year-old retireee, Ian Thiermann, who was forced to go back to work for $10 an hour because he was wiped out by Bernie Madoff. But Mr. Tiermann was not a multi-millionaire; he lost his life savings, about $700,000.

I was especially interested because he's now working at a grocery store just down the street (there's only one street) where I use to work schlepping drinks as a bartender in Ben Lomond, California (during summer 1985). The story was also profiled on the CBS Evening News.

Why we separate the white collar criminals from the blue collar criminals is beyond me. There's no doubt in my mind that Bernie Madoff has caused more damage than the 3-time loser serving life for robbing the corner liquor store with a gun. And if anyone deserves to be with the regular robbers and thieves of this nation, it's Bernie Madoff.

- Mark

P.S. For those of you unfamiliar, Ben Lomond lies in the Santa Cruz mountains, which is about 20 minutes from the city of Santa Cruz (which sits across the bay from Monterey) ...

... and 10 mintues from Boulder Creek, where I grew up. What a great place.

Still, Madoff should be locked up with the regular criminals. No Country Club prison for him. I'll discuss this on Saturday's program.

Wednesday, February 25, 2009


Here's an abbreviated round up of myths peddled by the media, brought to you by Media Matters.

O'Reilly Lies: Bill O'Reilly falsely claimed that "the Democrats in charge of the finance committees" resisted efforts by the Bush administration to regulate the mortgage industry. Two points: (1) The Democrats didn't gain control of both "finance committees" in Congress until 2007; (2) Dems who opposed legislation did so because of republican "poison pills" that were added late to the legislation. Read more here ...

O'Reilly Lies (again): On his radio and television shows, Bill O'Reilly advanced the falsehood that "the average autoworker now makes 70 bucks an hour" with pay & benefits. In fact, a recent Barclays Capital analysis reportedly found that the average U.S. autoworker is paid "an average of $55 an hour in wages and benefits." Read more here ...

Sean Hannity Lies (too): Sean Hannity repeated the false GOP talking points that the American Recovery and Reinvestment Act spends money to protect the salt marsh harvest mouse and a high-speed rail line between Southern California and Las Vegas. When his guest Rep. Joe Sestak noted that the bill does not contain any language for salt marsh mice or for a specific line between Southern California and Las Vegas Hannity simply replied "Yeah, of course, because you hide it" and threw in a gratuitous remark about Bill Clinton. Incredible. Read more here, or watch it here ...

- Mark


From Dailykos we get this analysis of Louisiana Gov. Bobby Jindal's response to President Obama's outstanding presentation last night:

Ethnic Packaging – The Republicans are like a company selling a beverage no one likes and instead of reformulating decide to change the package color and logo ...

For those of you who didn't see it, Jindal's response was simply horrible. I'm not in the habit of helping republicans, but whoever wrote Jindal's response and helped prepare him should be fired.

Seriously, if Jindal, Palin, and the writers of Jindal's speech are what the republicans have for 2012 they are in trouble.

- Mark


President Obama has extended his own time table for taking combat troops out of Iraq. He also plans on leaving between 30,000 and 50,000 of our military personel for training and other purposes. Some have expressed disappointment that we're not pulling out entirely. The disappointment is misplaced. Here's why.

President Obama is not President Bush. Unlike President Bush, who reacted like Homer Simpson pursuing a couple of hornets through the woods, President Obama isn't going to simply take a whack at the hornet's nest that is the Middle East. He's thought this trough. He's no Homer Simpson.

This is what President Obama sees, and understands ...

* The al Qaeda nutjobs in Iraq - who were NOT there before the war - are predominantly Sunnis.

* Iran, which is predominantly Shiite, has helped out Shiite extremists in Iraq (which John McCain didn't know).

* Many of the Sunnis are coming from states that are supposed to be our allies, like Saudi Arabia (which is predominantly Sunni).

* Sunnis think Shiites are apostates.
What all of this means is that if we leave Iraq, and take out all of our military personnel, the Iranians would step in to help the Shiites. The Saudis have told us that they would then have to help the Sunnis in Iraq (in part because the Saudis know that by keeping the Sunni nut jobs in Iraq they aren't going after their corrupt and kleptocratic regime). We might then see a full scale regional conflagration, which the Saudis have suggested would happen.

And I haven't even mentioned the Kurds in northern Iraq who have been perhaps our best allies in Iraq, but have few friends in Turkey (and Iraq).

Now do you understand now why I made the George-Bush-Homer-Simpson-hornet's-nest reference? What a mess.

Look, at the end of the day there are no good options in Iraq. We can't afford to stay there with present troop levels for 100 years, like John McCain suggested on the campaign. President Obama's best option lies simply with keeping a lid on things until we're on the path towards energy independence ...

- Mark

Tuesday, February 24, 2009


Have you ever wondered what unbridled paranoia looks like? It has a face. Check out what convicted felon and acknowledged gun for hire G. Gordon Liddy's been up to here ...

- Mark

Monday, February 23, 2009


Yet another excellent op-ed piece from Paul Krugman. This one explains why we need to nationalize failing financial institutions, which are now being called Zombie Banks. In a few words he's saying what I've been saying all along: We already own their losses so we might as well make it official.

The other upside to nationalization is that we put the fear of God into shareholders across our economy. With nationalization we're sending the message: Do your jobs and watch what the people with your investments are doing or suffer the consequences; no more socializing the losses, while you privatize profits ... you, know, the way capitalist markets are SUPPOSED to perform.

- Mark

Friday, February 20, 2009


Economist Nouriel Roubini has been getting republicans to buy into the idea of bank nationalization. Here's his argument in the Wall Street Journal.

- Mark


OK, this is probably the thousandth time I've seen or heard this nonsense repeated, so let's set the record straight (again).

MYTH: Making home loans available to poor communities and poor people created toxic mortgages and caused the financial markets to collapse.

REALITY: Only the morally bankrupt and the truly clueless make this argument.

Here are the goods on the poor-people-caused-the-meldown myth, as drawn from Media Matters:

On MSNBC, Pat Buchanan perpetuated the myth that government efforts to expand affordable housing to underserved communities caused the financial crisis, a charge that has frequently taken the form of attacks on the Community Reinvestment Act. In fact, as Fed chairman Ben Bernanke has stated: "Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties."
Got that? Poor people did not cause the market meltdown!

If you want to know what caused financial markets to collapse look no further than (1) the the financial sectors willingness to lend to anyone with a heartbeat, (2) their efforts to package and sell these loans to anyone looking for a quick buck (which generated significant fees), and (3) their decision to "insure" these packaged loans with "insurers" who had neither the means nor the intention of following through if the market collapsed (this is what happens when you have no one regulating "insurers").

In real simple terms, it was greed and stupidity on the part of the financial sector that got us into this mess. Conservatives need to leave the poor out of this ...

- Mark

UPDATE: As if on cue, here's former Senator Phil Gramm blaming the poor for the market meltdown in the Wall Street Journal. The deregulation policies he spearheaded, incredibly enough, had nothing to do with the market collapse. Imagine that ...

Thursday, February 19, 2009


When two of President Obama's nominees went up for confirmation and were found to have not paid certain taxes the Conservative Echo Chamber had a field day. How dare these people try and avoid paying taxes! Let's see if the Echo Chamber creates the same circus atmosphere with this one: financial conglomerate UBS has agreed to pay $780 million to resolve claims that its offshore accounts were used primarily to evade taxes. But it gets better. UBS will also identify American clients who used the bank to avoid paying taxes.

The Justice Department is now moving to force UBS to disclose the identities of 52,000 Americans — far more than the 19,000 names that UBS was originally going to share with the U.S. government. It's estimated that this group has $20 billion in assets with UBS and, over time, has avoided paying about $300 million A YEAR in taxes.

I wonder if FOX News will do a segment on a "Nation Swindled!" or bemoaning "The Return of the Plutocrats" in a video set to the ominous sounds of "O Fortuna" from Carl Orff's Carmina Burana, you know, like this one ...

- Mark

UPDATE: Of course, no discussion of UBS is complete without discussing former Texas Senator Phil Gramm.


I was going to attach this video as an UPDATE to the "Stimulus Scare-Mongering" story below, but this warrants it's own post ...

The people at FOX News, and Sean Hannity in particular, just might be the most irresponsible and stupidest people on the face of the earth. Watch the video in this piece and you'll understand why.

- Mark

UPDATE: What do you know ... there's more stimulus scare-mongering stupidity here and bailout double-standards here. Why these people have jobs is beyond me. Seriously, these people should be wearing helmets.

HELMET UPDATE: Here's FOX's Greta Van Susteren ...


From the world's largest credit insurer, Allianz, Euler Hermesa is telling us that a record number of companies will go bankrupt in 2009. Specifically, Allianz expects 200,000 insolvencies to occur in Europe while 'an explosion' of failed businesses will plague the US. What does this mean?

According to HSBC, corporate debt spreads are now implying cumulative default rates of 30 per cent for investment grade companies, as compared to 20 per cent during the Great Depression.
Got that? The percentage of businesses expected to file for bankruptcy in the United States during 2009 will surpass anything we saw during the Great Depression. Nope, this is not good ...

- Mark

Wednesday, February 18, 2009


If you spend money EVERY month like you do during Christmas or when you're on vacation you will end up spending more than you plan to at the end of the year, right? But who, in their right mind, budgets or plans like this? Apparently the right-wing Washington Times does.

The Washington Times is claiming that the $787 billion stimulus bill will balloon up to $3.2 billion because of the assumptions they asked the Congressional Budget Office to calculate and incorporate into the stimulus package. While obscuring the fact that they asked for the new scenario, the Washington Times then claimed that,

The nonpartisan Congressional Budget Office estimated that the full cost of this bill, including its $348 billion debt service and the out-year financing, will reach $3.2 trillion by 2019.
In layman's terms, they're asking you to belive that if you include interest payments on inflated debt (which republicans never did with Bush) and extend programs beyond their expiration date ("out-year financing") the "true cost" of the stimulus package will grow to $3.2 trillion.

Got that? If you spend throughout the year like you do during Christmas your expenses will grow like a hydra-headed monster. Boo!

This is pathetic. Still, the Washington Times' thinks mythical scenarios are perfectly OK to project. After all, we need to believe that spending is out of control under President Obama.

Here are the facts.

Media Matters checked with the CBO, and found that "the $787 billion bill can only explode to $3.2 trillion if Congress extends more than 20 provisions in the recovery bill" - which the bill does not do.

I wonder how long it will be before FOX News and Rush Limbaugh are running with the Washington Times' story ...

- Mark

UPDATE: It appears that it won't be FOX News or Rush the Comedian spreading the $3.2 trillion spending nonsense first, it's Lou Dobbs . . .

UPDATE, II: OK, now it's FOX's turn.


If you’re wondering why President Obama has had to introduce a $75 billion plan to encourage loan holders to renegotiate with distressed homeowners here’s a primer.

We know that financial institutions got themselves into trouble by making incredibly stupid loans. If you had a pulse and could fog a mirror you got a home loan. Financial institutions have suddenly got religion, and are now reluctant to make new loans and are opposed to readjusting existing home loans. They contend that they don’t have any money. What they don’t have is a moral compass, or a collective conscience. The reality is financial institutions aren’t renegotiating home loans because it’s not in their financial interest to do so. Here’s why.

• Home loans were bundled together and sold to financial institutions.

• Bundled loans sold as a package – with a total value of, say, $100 million – created new income streams (from the loan payments you and I make).

• Financial insitutions know that if they renegotiate loans the value of each group of bundled loans could drop between 20-40% (or more).

• Financial institutions would rather keep a set of loans valued at $100 million rather than $60-80 million – even if it means burning down the house.
So, this is what we have ...

Financial institutions, who currently have their hand out, and are living off of the American taxpayer, don’t want the value of their bundled loan packages to go down. They want their $100 million, as it were. They are betting that homeowners and other debtors will be held to their contracts and/or that the American taxpayer will end up making up the difference through a bailout program (made possible by Section 132 of TARP).

Unless we nationalize financial institutions and force renegotiations, or offer incentives through legislation, they will not renegotiate with homeowners who are distressed.

This explains why President Obama has had to introduce a new program to induce financial institutions to renegotiate with home owners who are underwater, or have seen their income situation deteriorate. Unless they are nationalized, forced by legislation, or induced with financial incentives the financial institutions will not renegotiate (as FDIC chair, Sheila Bair, found out). If this situation continues we will move from a situation where 10 million homes are underwater today to having more than 15 million underwater within one year. People will continue to walk away from homes, and housing prices will collapse even further. It’s that simple.

This is really the first step of a broader program that is needed. Some may call it incrementalism. I call it a step forward – as long as President Obama does something about reducing expectations on the bundled loan payouts (called Collateralized Debt Obligations).

If President Obama’s program doesn’t do the trick, I say we nationalize the failed institutions and force home loan settlements. The financial industry is derisively calling this option a "cramdown." I like it already.

- Mark

Monday, February 16, 2009


This past Saturday we had a discussion on my radio program about privacy and personal information. In a few words I said I don't trust the private sector because it's hard to discipline them, especially when they screw up. I especially don't like when they sell my information to third parties.

My caller disagreed because he trusts the private sector more than he trusts the government (in the process ignoring our earlier discussion of how the federal government was the only institution that could vouch for and save the banks from the stupidity of the private sector). Here's why I don't trust the private players to do the right thing when it comes to my privacy.

Information wherehouse companies like ChasePoint, Inc. have either sold information or have had their computers compromised (broken into) by identity thieves, and other less than scrupulous scam artists. In one case, the private information of California nurse Elizabeth Rosen was compromised. Rather than have to pay a penalty, ChasePoint sent a form letter acknowledging that the nurses information had been compromised. But ChasePoint didn't send this letter out of the goodness of their hearts.

At the time California was the only state in the union that required companies to inform people on their lists (we are not clients) when their information is compromised. ChasePoint sent the letter because they had to. But wait. It gets better. ChasePoint followed it up with a sales pitch, offering to let Nurse Rosen see her own records. She needed - so went the sales pitch - to know what information had been compromised by the crooks. The fee to see her information, no doubt, was nominal (perhaps $24.95?).

Incredible. This is akin to someone throwing a brick into your window with a note attached that reads, "Instant Window Repairs: Call 555-1234".

There's much more to this story, which I will discuss during this Saturday's program.

- Mark


Watch this Bill Clinton clip posted on Dailykos. He's taking on republican talking points used to oppose President Obama's stimulus package.

Here's the money quote:

“He has reached across, and it takes two to tango. I find it amazing that Republicans, who doubled the debt of the country in eight years and produced no new jobs doing it — gave us an economic record that is totally bereft of any productive result — are now criticizing him for spending money. … This stimulus is our bridge over troubled waters. He did the right thing.”
- Mark


Paul Krugman has done the numbers and he makes a critical oberservation:

The bottom line is that there has been basically no wealth creation at all since the turn of the millenium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.
In real simple terms, all the wealth created during the Bush years was an illusion ... it was all smoke & mirrors. If that isn't depressing enough, you can read Krugman's comments explaining why the stimulus package isn't big enough here.

- Mark


Consistent with GOP spin, media reports ignore Sen. Judd Gregg's statement that the census was "not a major issue." Several media reports have noted that Gregg cited concerns about the census in a press release announcing that he was withdrawing his nomination for secretary of commerce. But those reports ignored Gregg's subsequent statement during a press conference that the census was "not a major issue" in his decision to withdraw. Read More ...

ABC's Stephanopoulos provides welcome forum for dubious GOP stimulus talking points George Stephanopoulos did not challenge Sen. Lindsey Graham's claim that "11 percent of the appropriated money in the [economic recovery] bill hits in 2009." In fact, according to the Congressional Budget Office, approximately 15 percent of the total spending in the bill and 23 percent of all spending and tax cuts included in the bill will take effect by September 30, 2009. Stephanopoulos also again advanced a discredited Republican calculation of the stimulus bill's job-creation costs. Read More ...

Of mice and misinformation: Sammon joins other Fox News personalities in spreading stimulus falsehood Fox News' Bill Sammon claimed that "[p]eople look at" the economic recovery bill "and see ... some mouses being protected in [House Speaker Nancy] Pelosi's district" -- echoing a falsehood previously forwarded by several other Fox News hosts and reporters. The bill, in fact, contains no language allocating funding to protect the salt marsh harvest mouse in San Francisco wetlands. Read More ...

- Mark

Friday, February 13, 2009


I've said it before and I'll say it again: Let's nationalize the failing banks. It's better than socializing their losses with less than transparent programs, which ultimately bails out incredibly stupid decision making on the part of the banks. Here's what the NY Times had to say about where we stand after having some economists and finance experts look at the numbers:

A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.
It doesn't get much clearer than this. Even after taking on more than $8.8 trillion of new debt because of the mess the banks created they are, according to the article, still like "dead men walking." The only thing keeping them afloat are FDIC guarantees and the American taxpayer. If taxpayers are going to take it on the chin financially (and we will) I want ownership.

And, please, no whining about creeping socialism. When it comes to guaranteeing payouts and profits, we're already there. We just have no control. It's time to grow up and face the facts.

- Mark


Two weeks ago, in "A Nation of Morons," I wrote that the republican plan is to say no to everything President Obama wants - no matter how far he sticks out his hand - so that they can put some distance between themselves and an American economy they helped George Bush destroy (I also discussed this with economist Marc Thoma on this past Saturday's program). Their plan is to blame President Obama for not doing anything about the economic mess, in the hope that they can turn the political tide and win back a few seats in 2010, like they did in 1994.

The republicans are banking on Americans forgetting that the republican party was the group that handed George Bush the flamethrowers he needed to burn through trillions of dollars, while setting our national house on fire. Simply put, republicans think we are a forgetful nation of morons.

It turns out that former Labor Secretary, Robert Reich, agrees with my premise. Check out his post here.

The larger point of my original post, however, still stands. Republicans don't understand how serious this mess really is. They're still playing political games, for no other reason than to gain political power. Like Nero, and George Bush, they prefer to fiddle while Rome burns.

- Mark

Thursday, February 12, 2009


Anyone who has taken any of my courses that deal with international relations and security issues will not be surprised by this statement:

... the U.S. intelligence community now says the failing global economy is a bigger threat to U.S. security than al Qaeda or the spread of weapons of mass destruction ...
It turns out that while we are still bogged down by two wars the Director of National Intelligence, Dennis C. Blair, who is also a retired Navy admiral, told Congress that "the longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests."

How does this happen? Real simple.

People who have no money, no jobs, and no hope become discontent with their lot in life. If there are no options, scapegoating begins. They look for convenient targets to cast blame for their predicament. Political extremism and race-baiting are not far behind. The darkness of despair breeds contempt and panic. People begin to doubt what they thought they knew and search for answers. Demagogues and emotionally bankrupt tyrants know how to play on these fears. It doesn't take a genius to figure out how this story has ended in other countries ...

It's really that simple.

- Mark

Wednesday, February 11, 2009


This legal decision (Lott v. Levitt) tells us the tide is truly turning. I'll explain why below, but first some background ...

If you’ve ever wondered why this country was going to Hell in a Handbasket under President Bush and his Order of the Inept we need look no further than the methods and evidence conservative "researchers" use versus what real researchers use to make their case.

Among the conservative "researchers" pushing an agenda was John Lott, who argued in More Guns, Less Crime that if more Americans carried guns there would be less crime in the streets. Hmmm, sounds intriguing. Maybe we should all start packing.

But what does the evidence say? The LA Times wrote this almost three years ago:
COULD IT BE that more guns cause less crime? Could it be that criminals who suspect their potential victims are armed would be deterred from committing crimes? That's what John R. Lott Jr. argued in his 1998 book, "More Guns, Less Crime." … If you Google "John Lott" and "research fraud," you get nearly 150 results, starting off with a 2003 article published in Science magazine by Donald Kennedy, the editor in chief, which criticizes Lott's "cooked data." …

The charges that some of Lott's research was "faked" or "cooked" refer to the first statistic cited in "More Guns, Less Crime," in which Lott says "98% of the time that people use guns defensively, they merely have to brandish a weapon to break off an attack." In Op-Ed articles in the Chicago Tribune and elsewhere, he said the source of the 98% figure was "polls by the Los Angeles Times" and other organizations. When critics noted that no such polls existed, Lott changed his story, and the second edition of "More Guns, Less Crime" gave a new source for the 98% figure: "a national survey I conducted." But when critics asked to see the data, Lott told the Washington Post and others that he had lost it all in a computer crash.
Imagine that. Inventing information to fit a preconceived conclusion. Now where has this happened before? Hmmmm.

But wait, the LA Times article gets better. According to the LA Times Lott couldn’t even provide evidence of the "false" surveys that he later claimed to have conducted after his initial "data" was proven to be non-existent. He couldn't produce phone records, tally sheets, pay stubs for employees who made the calls, etc. Ouch.

Why is all of this important? Because John Lott sued the author of Freakonomics, Steven D. Levitt, because of his suggestion in Freakonomics that John Lott's conclusions couldn't be replicated (because it was all made up). Guess what happened? Drum roll please ...

For the second time, John Lott has had his case thrown out of court. Finally, we are moving back into a world where the truth and facts matter. No more putting ideology above the facts.

Next up, Intelligent Design.

- Mark


It looks like the Pirates of the Bailed Out Institutions are in Washington getting grilled. The CEOs don't look like happy campers. But can you blame them? Pirates don't like the prospect of being held to account,or having to explain their loot.

I was watching some of their testimony this morning. It's clear these guys don't get it. They actually tried to claim that they deserved their big salaries because of the phenomenal profits they enjoyed during the Bush years. That's like Blackbeard saying he deserved what he pillaged because the times were good and, besides, nobody caught him.

I don't believe any of the CEOs arrived by private jet (I could be wrong). However, I wouldn't be surprised if they left Washington and crossed the Potomac like these Somali pirates ...

At the end of the day, the Pirate CEOs will get what they want. Why? Because to do otherwise will lead to a meltdown caused by their own stupidity. In real simple terms, this is what we're facing ...

- Mark

Tuesday, February 10, 2009


I've been meaning to post this ever since I saw it. I can't remember which rally this was at, but it's classic.

- Mark


From Dailykos ...

How bad are the problems we face in the economy? Watch Rep. Kanjorski (D-Penn) describe how close we came to a bank run back in September, and the problems that we face today:

Here's the money quote, about 2:10 into the clip:

... We were having an electronic run on the banks.

They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn't be further panic and there. And that's what actually happened.

If they had not done that their estimation was that by two o'clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it ...
Here's what Rep. Kanjorski (D-Penn) had to say 4:58 into the clip:

We're really no better off today than we were three months ago ...
Kanjorski's prognosis isn't much better:
We don't know.
This Welcome to Hooverville post from Dailykos is not encouraging either. We'll talk about this and more on Saturday's program.

- Mark

Monday, February 9, 2009


In spite of being recently divorced and taking it on the chin financially during the divorce, I continue to make monthly payments (on time) and regularly pay more than the "minimum payment" required on my credit cards. My credit score is not only excellent, but is better now than when I got a divorce. Go figure.

So what is my reward for being responsible?

My most recent credit report informs me that my credit limit on several of my credit cards was cut by at least 80%. I may be wrong, but I have to think that my credit score will suffer because my debt to credit ratio will go up next month.

But wait, it gets better.

Chase, one of the banks that's getting billions from us in the form of bailout TARP money, just sent me a letter informing me that "in response to market conditions and to maintain profitability" they will be "making some changes" to my credit card account. In real simple terms, my interest rate is going to almost double.

As if this wasn't enough, the letter also informs me that if I don't accept these terms I have to write a letter by Feb. 20th telling them I don't accept the terms. In response Chase will close my account and I will forfeit all of my accumulated reward points and miles.

You know, it used to be that if you obtained something by coercion or intimidation it was called extortion. Today we call it "favorable legislation" - which allows corporations to act irresponsibly and then have others pay for it.

For those of you keeping score at home, this is what we have: Financial institutions who acted irresponsibly and made incredibly stupid business decisions are getting bailed out with taxpayer money; People like me, who are responsible and have excellent credit scores, are going to get squeezed to insure "profitability" in a slumping market that the bailed out financial institutions helped drive into the ground.

I'll be discussing this on Saturday's program.

- Mark

Friday, February 6, 2009


Less bang for your buck. This is what republicans want to get out of the stimulus package. They claim that they want to eliminate government transfer and spending programs because, according to them, they don't generate enough bang for the buck. The republican proposal? More tax cuts.

Let's consider the general contours of 3 options, and what their impact would be on the economy:

1. GOVERNMENT SPENDING ON INFRASTRUCTURE: The federal government spends $1.00 on infrastructure and other goods & services, and generates between $1.00 and $2.50 in economic stimulus.

2. GOVERNMENT TRANSFERS MONEY TO YOU & ME: The federal government transfers $1.00 to you and me and generates between eighty cents to $2.20 worth of economic stimulus.

3. TAX CUTS FOR THE RICH: The federal government continues to do what it's been doing under George W. Bush. We grant more tax cuts for the rich. But for every dollar we spend we only generate between ten cents and fifty cents in economic stimulus.

How do we know this is what we get for every dollar the U.S. government spends? Because the Congressional Budget Office has been crunching the numbers and this is what they've told us we get in return for every dollar spent.

It's really pretty simple. What President Obama and the democrats want to do - transfer and spend money - will generate more bang for the buck. The republicans, however, have been holding out for more tax cuts, claiming government spending and transfers are a waste.

I have confidence that President Obama knows what he's doing, but at some point he needs to understand that the republican plan at this point is to stonewall and dilute the impact of his policies. They understand that if President Obama succeeds they will be banished to the political swamplands for a generation.

It's almost as if they want want Obama to fail. Oh, yeah. They do.

- Mark


OK, now I'm convinced more than ever that we need to get some of our money back by going after salaries and bonuses that were paid to executives of failed institutions. It appears that we overpaid the banks with TARP money by $78 billion.

How did this happen? The congressional oversight panel for TARP is telling us that the Treasury Department under Secretary Henry Paulson misled the public as to how it would price assets that the government would purchase. Specifically, Elizabeth Warren told Congress:

"Treasury simply did not do what it said it was doing ... They described the program one way, and they priced it another,"...
Warren also told the banking committee that after three months on the job, her panel is still not getting enough answers from Treasury. This is not good.

Is there enough wrongdoing to drum up some indictments? It seems so. Read the post from Naked Capitalism to find out why.

- Mark

Thursday, February 5, 2009


A week ago I posted the following: Let's RETROACTIVELY tax bonuses of executives who ran their companies into the ground and then asked for and received TARP aid. I was thinking we could tax the more than $18 billion in bonuses at a 90% rate, or something like that. Even my liberal colleagues here at the university thought I was nuts.

Then we got Sen. Claire McCaskill's call to limit CEO compensation. I became a happy camper. Now that I've (finally) read the specifics of Senate Bill 360 I'm an even happier camper.

Specifically, these are the parts I like:

(a) ... no person who is an officer, director, executive ... may receive annual compensation in excess of the amount of compensation paid to the President of the United States.

(b) Duration- The limitation [of CEO pay & bonuses] in subsection (a) shall be a condition of the receipt of assistance under the TARP, and of any modification to such assistance that was received on or before the date of enactment of this Act ...
In plain English, this says that the executives who received big bucks after TARP was enacted can keep $400,000 (what we pay the president) but will have to pay the rest of it back.

And I thought my 90% clawback tax proposal was far fetched. Go get 'em Claire McCaskill.

Maybe we'll finally bring some semblance of market reward back to the system, and save America in the process. And no, I'm not being overly dramatic with my last comment. Our system of compensation and reward is so out of whack that the moral justification of capitalism is in peril.

Like I said, SB 360 makes me a happy camper.

- Mark


Among the many investment newsletters I get every day (most of them offering garbage "investment" advise), the one that seems to provide consistently thoughtful and useful analysis is Agora Financial's "Rude Awakening." To be sure, many of their newsletters hyped the market before it crashed along with everyone else, but they were also very generous in providing an outlet for stuff like this:

Yesterday morning, a wonderful thing happened – an individual in a position of power made an attempt to separate incompetent corporate executives from lavish pay packages. President Obama announced plans to limit pay to $500,000 a year for the executives of any company that receives extraordinary government assistance ...

... The fact that ANYONE would defend generous pay packages for overtly incompetent corporate executives suggests to this stock market observer that America’s financial crisis is far from over. Even after all the wealth that Wall Street has destroyed during the last 18 months, some folks still believe that the raw, unalloyed incompetence that produced the current financial crisis deserves multi-million-dollar paydays, rather than ankle bracelets.

We don’t agree…and returning to one of our favorite themes, we would urge all investors to actively avoid investing alongside scumbags [my emphasis]. If a scumbag happens to produce a positive result for the minority shareholder, it will always be an accident. Seek out the CEOs and executives who align their interests directly with the minority shareholders and who behave like owners, rather than trust fund babies.
These guys get it. Obama gets it. If you're wondering when the incompetents on Wall Street will get it, my only advise is to hang on.

- Mark


From ...

Wow. In this YouTube clip Rep. Ackerman (D-NY) really goes off on SEC regulators who can't seem to explain why Bernie Madoff was able to pull off his $50 billion Ponzi scheme - after the SEC was handed all the information they needed to bring Madoff down by Harry Markopolos. The people at Southwest could probably use this clip for one of their "Wanna get away?" commercials.

At the end of the day, Rep. Ackerman is asking one simple question: "Why aren't you guys doing your jobs?"

- Mark

Wednesday, February 4, 2009


Harry Markopolos, the private investigator who tried to blow the whistle on Bernie Madoff, testified before Congress today and told the story of a Securities and Exchange Commission (SEC) that dropped the ball on its oversight functions.

Saying that the SEC had become "nonfunctional" because of agency officials who were "financially illiterate" Markolopos made it clear that the SEC's inability to do its job made the agency "harmful to our capital markets and harmful to our nation’s reputation as a financial leader."

Those are pretty tough words for an agency that was created by FDR to make sure that market players played by the rules and actually did what they said they were doing. The SEC is not supposed to fawn over and cover for industry.

But I especially liked the testimony of Markopolos because it supports what I say in in my book about the regulatory environment that has governed our nation's economy since the early 1980s ...

. . . In 1987 the Federal Reserve Board voted 3-2 to allow banks to handle a limited amount of underwriting for financial instruments like municipal bonds and mortgage backed securities. By allowing banking institutions to take on the risk of distributing these types of securities the Federal Reserve was effectively undermining one of the principal firewalls of the 1933 Glass-Steagall Act.

Specifically, one of the Acts goals was to keep commercial banks away from selling (underwriting) securities, or getting involved in investment banking. The thinking was that banks might get reckless and, because of their F.D.I.C. guarantee, force the federal government into a bailout situation. Before the collapse of 1929 commercial banks had done this by pushing faulty investment products, but with little concern for their client’s interests. Investors and bank depositors lost millions because, ultimately, the banks “overriding interest was promoting stocks of interest and benefit to the banks.”

The voting members of the Federal Reserve in 1987, however, had been convinced that this could not happen in the modern era. Then Citicorp vice-chairman, Thomas Theobald, argued that corporate misbehavior couldn’t occur like it did before 1933 because the economy had seen the emergence of: (1) a “very effective” Securities and Exchange Commission, (2) knowledgeable investors, and (3) “very sophisticated” rating agencies. Three members were convinced. Two were not.

One of the “nay” votes from the Fed Board came from Fed Chair, Paul Volcker. He believed if commercial banks were allowed to get back into underwriting securities (like mortgage backed securities) they would lower lending standards in an effort to gain lucrative fees from underwriting bonds, which would strengthen their securities market position and generate more profits. Still, without veto power Volcker’s nay vote didn’t matter. His argument lost the day.

Paul Volcker notwithstanding, the Fed board members who voted to allow commercial banks to underwrite securities failed to recognize the weakness in Theobald’s argument. The SEC could always be converted into a toothless tiger if its chair and staff were governed by ideology rather than the public interest. Greed can get the best of investors in an increasingly deregulated environment. Ratings agencies could be co-opted, and even consumed by market euphoria. A running with the market herd mentality could quickly swamp market players who, as John Kenneth Galbraith pointed out in A Short History of Financial Euphoria, are filled with fast-profits and a sense of their own genius because of what they see as their “novel” wealth generating skills.

With the walls between S&Ls, commercial banks, and investment banks crumbling in the 1980s, U.S. banks dove into lucrative mortgage and security instruments. Rather than learn from the intoxicating effects of previous periods of deregulation, speculation, and debt-driven growth, caution was thrown to the wind. The commercial banking sector slowly came to depend on mortgage backed assets as their primary earning’s tool, jumping from about 28 percent of bank earnings in 1985 to more than 60 percent in 2005 . . .
Worse, as I point out in my book, this lax oversight environment crept into all aspects of commerce in America, and led market players to assume that they could get away with playing fast and loose with the books. This helps explain Bernie Madoff. It will also help us understand the "mini-Madoff's" that seem to be crawling out of our financial floor boards.

I'll have more to say about this on Saturday's program.

- Mark

Tuesday, February 3, 2009


David Cay Johnston has an excellent article at Mother Jones. I especially like his call to end "socialism for the rich" by "in effect, reverse engineering the debacle." I like the suggestion to retrace our legislative steps because, well, it mirrors what I wrote for the Bakersfield Californian at the beginning of the year (I know, I know ... I'm tooting my own horn here. But it is my blog).

As a professor who regularly watches students struggle and take on debt that they can't afford, I especially like what Johnston had to say about rewinding the legal subsidies congress has legislated for the credit industry here ...

Over the past 40 years, the cost of public colleges has doubled, and financing tuition is an $85 billion a year business for credit companies. Sallie Mae, the biggest of the private student loan companies, earns an average 48 percent annual return, three times the return of commercial banks. Students who sign up for loans with what appear to be low fixed rates may discover upon graduating that they face an 18 percent rate; if they make a single late payment, late fees will be tacked on every month until the debt is paid off. And the law makes no allowance for students who can't find a job in a bad economy, or can't work because of illness, or choose to serve their communities by, say, joining Teach for America. Albert Lord, Sallie Mae's chief executive, has become so rich from student lending that he built his own private golf course just outside the nation's capital.

Profiteering off students is not just an obscenity; it ultimately weakens the economy. The abuses at Sallie Mae and other student lenders deserve exposure via congressional hearings. Then perhaps lawmakers will find the spine to make the rules fairer. Indenturing the brightest young minds in an information society is the equivalent of eating your seed corn in an agrarian one. In the long run, you're doomed.
I couldn't have said this better. Reading this brought back bittersweet memories of when I finally got a full time job 13 years ago. I then began making payments on my student loans which were bigger than my car payment, and as big as my mortgage.

For those of you wondering, my first year as a full time university professor netted me a whopping $36,000 per year. Things were so bad I almost left the university for several lucrative offers in the private sector. I would have made mint. I also would have sold my soul. Selling your soul for an education should not be a choice imposed on anyone. Some time down the road we need to fix the legislated subsidies that we've worked out for the student loan & credit industry.

- Mark

Monday, February 2, 2009


Last week I had a post explaining "How We Got Here" and made reference to how economists and other academics dropped the ball when it came to holding policymakers to account. I ended by promising to post something that would show how Nobel prize economist Milton Friedman got things wrong too. Then I failed to post it. Ooops.

A day late, and a dollar short, here's the post I promised. What follows is an excerpt from my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy (click on the book's icon located on the left side of this blog).

In Free to Choose: A Personal Statement, Milton Friedman took care to review the causes of the Great Depression. With characteristic bravado he declared that “the independent Federal Reserve System was to blame for the mistaken monetary policy that converted a recession into a catastrophic depression.” He also claimed “[w]e now know that the depression was not produced by a failure of private enterprise, but rather by a failure of government.”

Speaking of failures, Friedman failed to say anything about the well documented market schemes, market myopia, speculative euphoria, and structural weaknesses in the overall economy at the time. Friedman’s greatest failure, however, was to falsely suggest – with his “We now know …” claim – that there’s scholarly consensus on the causes of the Great Depression. Nothing could be further from the truth.

Nobel Laureate Paul Samuelson, for example, argues there could be “dozens” of explanations for “cycle theories” that explain business slumps and economic depression. Looking at the claim that the Federal Reserve encouraged speculation early on John Kenneth Galbraith dismisses the argument as ‘formidable nonsense.’

Another Nobel Laureate, Kenneth Arrow, questioned Friedman’s focus on monetary policy, warning “the sole emphasis on incompetent monetary policy as the cause of the Great Depression is disputed by serious scholars.” He adds that “really bad turns in monetary policy did not come until the end of 1930” when the recession was already “severe.”

Friedman also ignores that before the creation of the Federal Reserve System capitalist history is rife with market failures on a grand scale, suggesting “instability” is “endemic in the free enterprise system.” Indeed, standard history texts of the American economy point to easy lending by industry (margin purchases, easy credit, shady loans, etc.), structural weaknesses in the banking industry, and slowdowns in the agriculture and housing markets, among other issues.

In sum, it’s clear the causes behind the Great Depression are far from decided, and the manias that lead to destructive herd mentalities in markets may be more common than we want to believe. More importantly, it tells us that Milton Friedman was prone to making broad statements that aren’t supported by the facts . . .

- Mark


Barney Frank explains his position on the stimulus package. He also takes a swipe at those who claim to stand on principle against excessive spending, while saying nothing about the wasteful spending going on in Iraq.

- Mark

Sunday, February 1, 2009


It used to be that companies in the U.S. sought H-1B visas (which allows temporary employment of foreign workers) when they had specialized needs that only a foreigner could address. Whether the need was tied to a specific skill or a language didn't matter. The goal behind securing an H-1B visa was to fill a gap that U.S. workers could not. This is no longer the case. The Associated Press is reporting:

The dozen banks now receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers over the past six years for positions that included senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists. The average annual salary for those jobs was $90,721 ...
I find it difficult to believe that banks can't find corporate lawyers, junior investment analysts, or human resource specialists in this country. But here's the money quote from the AP report ...

During the last three months of 2008, the largest banks that received taxpayer loans announced more than 100,000 layoffs ... Foreigners are attractive hires because companies have found ways to pay them less than American workers.
I'm not even going to speculate here. Let's be blunt. By lowering costs the guys at the top can also pay themselves more bonus money. They also get a more pliant and servile workforce too. Just the threat of having your job handed to an "H-1B" is good enough to induce conformity. It's that simple.

They may not realize it just yet, but it appears that white collar executives could benefit from the assistance of organized labor. Or do we just let "the market" work it's magic?

- Mark