Thursday, September 30, 2010


Back in 2004 Wall Street investment giants Bear Stearns, Lehman Bros., Merrill Lynch, Goldman Sachs, and Morgan Stanley were in trouble. Major losses and big debt was on the horizon, as they were on the hook for trillions of dollars in toxic mortgages and securities.

So Wall Street's biggest banks sent then Goldman Sach's CEO Hank Paulson to the Securities and Exchange Commission (SEC) to work out a deal (it wouldn't be his last).

Paulson wanted to get the SEC to allow the biggest investment banks to borrow more money.

Specifically, he wanted to more than double the amount of debt Wall Street's biggest investment banks could carry on the books. Wall Street's strategy was to borrow and bet invest more in the market, so they could grow their way out of trouble.

After their special exemption was granted, the investment industry's debt limit (net capital rule) was lifted from 12:1 and reached more than 30:1 for several firms by 2008 (and more than 40:1 for Merrill Lynch). We all know what happened in 2008. Wall Street's "let's borrow more to get out of debt" plan was a bust because they were borrowing big so they could bet invest big on market garbage.

Fast forward to the present ...

Remember the 110 billion (Euro) package for Greece, and the 750 billion (Euro) “safety net” for all Euro zone members? The amounts were so large because the European Union (EU) wanted to "shock & awe" market players. They wanted to show the world that the EU knew how to deal with Europe's financial problems ... by borrowing more money.

The EU's financial rescue plan is starting to be exposed for what it really is ... a real mess.

Satyajit Das, a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives has much to say about how Europe plans to fund it's bailout program. Here are some of the highlights (lowlights?):

* In order to finance EU member countries as needed the EU - through the European Financial Stability Facility (EFSF) - needs to issue debt, which will be backed by EU member states. The major rating agencies have already awarded the fund the highest possible credit rating AAA [didn't this happen before? you know, on Wall Street.].

* The measures are not designed to assist Greece or the other troubled countries. In reality, they are designed to support banks that have lent heavily to them [in plain speak this means the plan is more political than economic].

* If an individual nation-state fails to supply its share of funds it's share will be covered by a surplus “cushion” which requires participating EU countries to guarantee an extra 20% beyond their shares.

* A cash reserve will provide additional support (Greece is not included in the EFSF program because no one believes they can cover their commitment).

Got that? Europe is going to cover it's member countries' debt by issuing more debt.

With the amounts we're talking about, isn't this Wall Street deja vu all over again? Seriously. It doesn't matter that the real goal of propping up the banks (instead of individual countries) is to make sure every one's got some skin in the game. The end result is that Europe is borrowing more to prop up a weak system.

And the system is slowly crumbling because no one really wants to confront the world's financial markets - like we failed to do with Wall Street in 2004 - and  make them pay for their greed and stupidity.

Sigh ...

- Mark

Wednesday, September 29, 2010


Oh, what a tangled we we weave,
When first we practise to deceive!

- Sir Walter Scott, Marmion (1808)

Earlier this week I posted on how a culture of lies developed in our real estate markets to such a degree that Wall Street and other market insiders:

* Knew the real estate industry was producing toxic mortgage loans.
* Purchased insurance for these toxic loans and/or the toxic securities (that the toxic loans were thrown into), knowing that the underlying loans would likely fail.
* Are reacting to the irregularities and fraud now being discovered (in the loan origination process) by ignoring basic and legally mandated procedures in an effort to foreclose on as many homes as possible.

This is what makes the following so interesting ...

Today, courtesy of Zero Hedge, we learn that not only are financial servicers for the mortgage industry foreclosing on mortgages which nobody apparently owns the title, but (according to a letter from Congress sent to Fannie Mae) the industry is now outsourcing their foreclosure avoidance obligations to legal firms and lawyers "who specialize in kicking people out of their homes." 

So much for doing what's in the best interest of the homeowner, and the consumer. But wait. It gets better.

From the same letter signed by Reps. Frank, Grayson, and Brown, we also find out that some of these firms have been accused of "fabricating or backdating documents, as well as lying to conceal the true owner of the document."

And why not? If the industry had to go by the book, and tried to establish ownership and follow proper due diligence procedures, they wouldn't make as much money.

This might help explain why the financial service industry now seems willing to counterfeit court summons in an effort to create more efficient foreclosure mills. As Rep. Grayson's office points out:

"Apparently what’s happening is that private process servicer companies may not be serving people with summons, and are simply counterfeiting the documents so they can keep the fees without doing the work. That means that you could theoretically be foreclosed on without ever knowing there was even a foreclosure case against you."

There's more, but you get the picture. Fraud, deceit, and a culture of lies - and not simply over leveraged borrowers - are the primary culprits behind our current real estate and mortgage mess.

However you look at it, none of this bodes well for home owners.

- Mark

Tuesday, September 28, 2010


Worse than traitors in arms
are the men who pretend loyalty
to the flag, feast and fatten on the
misfortunes of the Nation while patriotic
blood is crimsoning the plains of the South
and their countrymen moldering the dust.

- Abraham Lincoln, Discussing Greed in America

During the Cold War, when the United States and the Soviet Union competed with each other for Geo-strategic turf, consecutive U.S. presidents regularly encouraged U.S. firms to ship jobs overseas. The argument was that it was better to have Italians and Scandinavians making shoes and working on their docks than to have high unemployment, where socialist parties could gain a foothold.

It was a legitimate argument, given the stakes.

To be sure, where jobs had been lost congressional representatives complained regularly, but to no avail. The executive branch and national security concerns won out.

Today, rather than the executive branch leading the way, it's members of Congress working for specific corporate interests who are OK with shipping jobs overseas. Senate Republicans blocked a Democratic plan which would have encouraged companies to bring jobs back from overseas. The GOP caucus voted unanimously today against a motion to debate the measure on the Senate floor (the motion failed 53 to 45).

So much for Country First.

Specifically, the proposed bill would have:

(1) ended tax deductions for businesses when they close a U.S. firm and then shift the work abroad,
(2) imposed a new tax on products once made in the United States but now manufactured by foreign workers and shipped to the U.S., and
(3) enacted a payroll tax holiday for firms that brought jobs back to the U.S.

Republicans voted the bill down, by promising yet another filibuster. Iowa Senator Chuck Grassley (R-IA) explained why he was going to vote no, claiming the issue was simply "a tool of political demagoguery."
Bringing jobs back to America is demagoguery? Seriously?
- Mark


It appears that someone didn't read my book, but likes to pretend that they did in this review:

The free market works, it is government that ruins our prosperity.

Don't waste your time with this garbage of a book.
That's it. No explanation. Just a simple belief in free market fairies. With this attitude, I'm sure Tibor Fischer would be proud ...
And you wonder why teachers say, "Show your work ..."
- Mark

Monday, September 27, 2010


It appears that President Obama's Home Affordable Modification Program (HAMP) has been an abject failure. Promising to modify 3-4 million home mortgages, to date the program has only modified a paltry 449,000 mortgage contracts (with Bank of America doing a particularly poor job). If you're wondering why, look no further than the many speed bumps that the private sector has been putting up, or is in the process of trying to cover up.  

The Washington Post is reporting that some of the "nation's largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork." It appears that 41-year-old Jeffrey Stephan - who was once head of Ally's (formerly GMAC) foreclosure document processing team - was required to review individual foreclosure cases to make sure the proceedings were legally justified, and that the information was accurate. He was also required to sign the documents in the presence of a notary.

In a sworn deposition, Stephan testified that he did neither.

Processing about 10,000 foreclosure documents a month, Stephan's volume means that for every eight-hour day he processed foreclosure documents he spent about 1 minute and 30 second reviewing and signing each one. That's a pretty quick pace to be sending someone elses American Dream down the toilet.

This is a significant development because we're learning (again) that ratings agencies charged with assessing risk levels in mortgage pools "dismissed conclusive evidence that many of the loans were dubious, according to testimony given last week to the Financial Crisis Inquiry Commission."

According to testimony from D. Keith Johnson, a former president of Clayton Holdings, "almost half the mortgages Clayton sampled from the beginning of 2006 through June 2007 failed to meet crucial quality benchmarks that banks had promised to investors." When he brought his information to officials at Standard & Poor’s, Fitch Ratings and to the executive team at Moody’s Investors Service he was brushed off because "it was against their [the ratings agencies] business interests to be too critical of Wall Street."

For those of you keeping score at home this means that (1) Wall Street insiders not only knew they were producing toxic loans but that (2) irregularities and possible fraud are now being ignored in the foreclosure process, in part because (3) the industry purchased insurance for the toxic loans they were signing off on, as I pointed out earlier this week.

Before the market collapsed in 2008 banks that held mortgages purchased insurance contracts in the event that they had to foreclose on a house (or had trouble with a mortgage backed security). We know this because Republic Mortgage Insurance Company (RMIC) sued Countrywide, Bank of America, and several other banks, claiming that either the borrowers or the banks lied during the mortgage origination process.

What's clear is that the mortgage fraud train doesn't begin with homeowners who never should have taken loans they couldn't afford (though this was a problem). It begins with an industry that could care less at the time if people could pay. All the industry was after were fees, up front bonuses, and to keep their money train chugging along.

- Mark

Sunday, September 26, 2010

Saturday, September 25, 2010


While the previous post outlines the lunacy behind the Republican's "pledge" to relive the Bush economic years, this post draws your attention to Paul Krugman, who does an effective job of walking us through the GOP's policy proposals here. In a few words, he makes it clear that after 30 years of wishful thinking (that tax cuts will pay for themselves) the Republicans are't even trying to make economic sense now:

... Ronald Reagan’s claim that cutting taxes would actually increase revenue was wishful thinking, but at least he had some kind of theory behind his proposals. When former President George W. Bush campaigned for big tax cuts in 2000, he claimed that these cuts were affordable given (unrealistic) projections of future budget surpluses. Now, however, Republicans aren’t even pretending that their numbers add up.

Thirty years of tax cuts for the rich, deregulation, and corporate bailouts have done little more than add $12 trillion to our national debt, subsidize corporate profits, and produce what may be the largest transfer of wealth in human history. The nation's richest have gotten even richer ...

Bankers in a limousine

... while the rest of America has seen it's wealth and economic security collapse (things aren't much different in other parts of the world either).

The Republican's Pledge for America says, "I'll see your record debt and increased wealth gaps (caused by our policies), and raise you a national bankruptcy."

The fact that a large chunk of the American public doesn't understand this helps explain why our nation is in trouble and, as Paul Krugman put it, has put our nation on the path to becoming a Banana Republic.

- Mark

Friday, September 24, 2010


The definition of insanity is
doing the same thing over and
over and expecting different results.

- Albert Einstein

This Jon Stewart piece is hilarious.

Jon Stewart pokes fun at the Republicans. Specifically, he reminds us how the GOP told the world they were going to do some soul-searching after their policies helped wreck the economy, and brought them electoral defeat in 2008. After almost one and a half years of contemplation, as Jon Stewart points out, their soul searching is finally bearing fruit.

Their Pledge for America is the result and, like their "Young Guns" roll out, is a complete embarrassment.

While "old wine in a new bottle" is an over-used cliche, in the GOP's Pledge case it's quite approriate. It definitely gives life to the Einstein quote noted above.

In all cases, watch the clip. It's to the point, and funny.

- Mark


Steven Colbert testified before the House of Representatives today. He discussed his experience participating in the United Farmworker's Take Our Jobs campaign. He was in-character during his opening testimony. I especially appreciated this comment:

"My great grandfather didn't travel across the ocean to see this country overrun by immigrants ... "

During the closing of his opening remarks, this comment drew laughs from those in the audience who understand Colbert's mocking humor (starts at 4:58):

I trust that following my testimony both sides will work together on this issue, in the best interests of the American people ... as you always do [laughter]."

When asked, of all the issues he could bring attention to, why did he decide to get involved in the migrant farmer issue, Colbert got serious and replied:

"I like talking about people who don't have any power...I feel the need to speak for those who can't speak for themselves....We ask them to come and work, and then we ask them to leave again. They suffer, and have no rights."

Later, he drew from Matthew 25:40:

"The King will reply, 'I tell you the truth, whatever you did for one of the least of these brothers of mine, you did for me.'"

Colbert's call that we either provide more Visas for farmworkers, or that we develop vegetables that pick themselves, was classic. But I especially liked it when Colbert, who discussed his one day experience as a cornpacker, told the very conservative Rep. Steve King (R-IA):

 "Sorry for saying cornpacker, I know it's an offensive term for gay Iowans."

As you can imagine, it didn't go over too well with Rep. King. Check out additional commentary here.

- Mark

Addendum: I forgot to mention, Colbet noted how only 16 people in America have taken up the UFW's offer to work in their Take Our Jobs campaign. Here's the complete video.

Thursday, September 23, 2010


We were discussing this in class, so I'm posting on it ...

In The Wealth of Nations (1776) Adam Smith told us that competition can lead to the best possible outcome for everyone. He believed that by rationally pursuing their own selfish ends producers and merchants, in the pursuit of profit, could enhance both production and quality in the market place. This much is true.

Unfortunately, many of the people who like to focus on this aspect of Adam Smith completely ignore - or never learn - what he had to say about maintaining the laws of justice (equality of opportunity is key here), the impact of unrestrained market greed (not good), and why we really needed to keep government away from the market (it's not what free market conservatives claim). Rather than developing these arguments here, I'll selfishly (and rationally) say read my book for more on this.

Still, the governing dynamics of John Nash help us understand why the assumptions modern conservatives make about competition and rationality in the modern era are incomplete, and need revision ...

- Mark

Wednesday, September 22, 2010


In debt?

No job?

House underwater?

Can't seem to get ahead?

Well, after you pay your bills (of course), you shouldn't worry. If you can just ignore the economic uncertainty their greed and stupidity helped create, this is how Wall Street expects Main Street to react, as we carry the cross of their subsidized bonuses and profits ...

- Mark

Tuesday, September 21, 2010


Does "homo economicus" exist?

The idea that market players are the dominant actors that drive and shape society, and should be left alone to pursue their ends because their activities lead to better societal outcomes, has it's roots in the 18th century. But the idea persists to this day. There are many reasons for this. All too often people will believe something simply because it's convenient, or because it's what they were told growing up. Worse, they may not know any better.

This is one of the reasons why I wrote The Myth of the Free Market: The Role of the State in a Capitalist Economy. In my book I take a look at the idea that market players should be left to pursue their own ends. Specifically, I review the arguments made by one of the economic icons of market capitalism, Milton Friedman. What follows below are some of the issues that I discuss in my book, and some of the concepts we will be discussing in class this week (I've listed page numbers where the topic can be found in my book throughout the text below).

Did Milton Friedman "Get it Wrong"?
In my book I begin my discussion of market capitalism by taking a look at the arguments made by economist Milton Friedman. I make it very clear that I think he not only got some very basic assumptions wrong, but that his approach to economics has caused some real damage to our society because of how his arguments have encouraged many people to believe that people in the pursuit of profit become rational and virtuous in a market setting.

To understand how Nobel Laureate Milton Friedman got it wrong I start by looking at what Adam Smith, the patron saint of modern capitalism, said about markets and trade in 1776. Adam Smith made it clear that a level playing field, or what he called the "laws of justice" should not be undermined. Custom, tradition, privilege, market conspiracies, favorable legislation, and affronts to human dignity (e.g. the violation of individual rights) all work to undermine the market's playing field by shifting resources to those that don't necessarily work for their reward (15-17, 26).

The interesting thing is that Adam Smith wasn't the only one who saw how the laws of justice could be violated in 1776. James Madison and the Founding Fathers spoke about the need to reign in merchants and other "factions" because the "most common and durable source of factions has been the various and unequal distribution of property" (17-19).

These considerations, according to the Founding Fathers, inflamed "passions" in post-revolutionary America to such a degree that they threatened to tear apart the new union. Worse, according to Madison, is how "the latent causes of factions are thus sown in the nature of man." Simply put, we're not necessarily good people, especially in a trading environment. Madison understood this and wrote: "If men were angels, no government would be necessary."

Guess what? We're not angels. So we can't trust one another, even in a market setting.

This is why we ditched the Articles of Confederation, which gave market players at the time free rein, and created a Constitution that gave the federal government broad authority in the market (see especially Art. I, Section 8). The fact that we can't trust one another in a market setting (see this) is why we create laws and regulations. Human nature demands it.

Friedman's Unicorn View of Human Nature
All of this is something Milton Friedman passed over, or simply got wrong, when he discussed the power of "the market" to transform the passions of merchants. More specifically, Friedman placed so much faith in people doing the right thing in a market setting that he virtually ignored what the Founding Fathers, and Adam Smith, said about the human condition.

The Founding Fathers, in particular, had seen in real time what a weak central government could produce, and did not want to re-visit the Articles of Confederation. Like it or not, they believed merchants can't always be trusted in a market setting. For his part, Adam Smith believed that merchants, left to their own devices, would work against the interests of the consumer, and would use the state to secure their positions if necessary. If  Adam Smith, James Madison, and the Founding Fathers understood this, why not Friedman?

Part of Milton Friedman's problem can be traced to his position on freedom, and how he assumes liberty is kind of like air ... it's just there for everyone. This is why he suggests an "umpire model" for society. Let the state call balls and strikes in the market, and leave it at that.

What Friedman ignored is how umpires call games differently (ideological extremism can get in the way). He also ignored how strike zones can be changed (deregulation & favorable legislation). Worse, he ignored how some people never get to the plate (women and people of color). Finally, he ignored how umpires can get dirt thrown in their faces (yes, market players can and will collude with government regulators and members of Congress ... as Wall Street in 2008, and a trail of bailouts illustrate).

The Moral Justification of Capitalism
All of this can undermine our level playing field. It can also destroy the moral justification of capitalism. We need to remember that the moral justification of capitalism, which is the cornerstone of our market economy, rests on one simple principle: If you work hard you will get ahead.

Personal responsibility and a strong set of moral obligation for middle America has grown out of this simple principle.

Once you undermine the conditions that make the moral justification of capitalism work we're all in trouble. Stagnating incomes, record bankruptcies, and homeowners walking away from their mortgages, among others, are not good signs today.

Still, in spite of crashing our market in 2008, market players on Wall Street continue to invoke what Adam Smith referred to as our system of "natural liberty" to pursue their own selfish ends. Ironically, while they channel the spirit of Adam Smith to justify their efforts in the market, their activities not only undermine the laws of justice (by influencing how reward and resources are distributed) but violate what Adam Smith called "the order of nature and reason" (which leads to market imbalances and societal disconnect; 37-45).

Because of his belief that market players will do the right thing in a market setting was so strong Milton Friedman grafted his assumptions on to his policy analysis, and his policy prescriptions. This is where he got it wrong, big time.

Men aren't angels. Men pursuing profits and wealth aren't much better. To believe otherwise is to embrace Unicorn theories of the human condition.

Embracing the Unicorn
Milton Friedman didn't simply get the human condition wrong. He embraced the Unicorn.

Specifically, he went beyond promoting an umpire model of markets (i.e. we can be trusted in a market setting while we're pursuing profits) by deliberately distorting the debate, and the facts. While there are many things that Milton Friedman missed when it came to understanding human nature, below is a partial list of what Milton Friedman got wrong, ignored, or misrepresented in his work(s) (which I discuss in chapter 2 of my book).

FALSE DICHOTOMY: Throughout his writings Friedman consistently warns about the collectivist tendencies he saw in western democracies. Seeing socialist ghosts in every corner, Friedman constantly warned about creeping socialism, and how market capitalism was threatened by a state that promoted civil liberties and civil rights.

What Friedman ignored is that markets aren't an either/or proposition. A state can't embrace either complete freedom for all, or be on the march to socialism. This is a false dichotomy (10). Saying you either do it my way or we're going down a socialist rat hole does not represent what happens in the real world, and is not sound analysis (especially for jump starting a debate).

IGNORES ECONOMIC GROWTH: For all of Milton Friedman's dire warnings about America, and the west, going to hell in a hand basket because of the creeping socialism, Friedman missed one important fact: Post-war America and the west experienced the greatest, and widest, degree of economic growth and prosperity in human history (5-13). We avoided the threat of major market collapse, or economic depression too.

Warning about the dire effects of an evolving "collectivist" regime when growth and stability are high and widespread is simple fear-mongering. Global confidence in the sturdiness of the world's financial center, New York, evolved for one simple reason: Transparency was at the heart of sensible regulations, which were tethered to a viable system of justice (something to think about today).

PLAYING POLITICAL GAMES: One of Milton Friedman's key assets (and problems) is that he understood he could ride on the back of the field of economics, which maintains an elevated - but undeserved - position in the political world, and in the social sciences. This position was a powerful tool politically. Milton Friedman understood this and deliberately sought to discredit his opponent's arguments by:

(1) Conflating government regulations and the push for civil liberty protections with socialism and collectivism (his influence is so great that those in the Tea Party movement today still don't seem to understand the difference between these categories),

(2) Marginalizing the efforts and duties of government as wasteful, when we all know that state functions are distinct from those performed by the market,

(3) Derisively dismissing other, competing, disciplines as "speculative philosophical discourse" that are less rigorous than economics (which studies homo economicus), and

(4) Denigrating his opponents arguments by making references to the "bubbly emotionalism" of their position(s).

To be sure, all intellectual battles require that you distort, marginalize, dismiss, and deride the efforts of your opponents if you can't defeat them on the merits. But think about it. How many professional economists saw the market collapse coming in 2008? (I'll try and link a short list here later.) How many understand it's roots today? (And, no, it's not Fannie Mae's fault, or the fault of all those people who took out loans they couldn't afford, or the fault of government spending alone ...)

Milton Friedman understood the political climate of the day, and took advantage of it to irresponsibly push a world view that does not adequately capture the human condition (see esp. the intro to Ch. 4).

DOWNPLAYS DEMANDS OF MODERN WORLD: If you create an automobile we know that we need the DMV, the CHP, the DOT, and ... the list goes on. Or do you trust other motorists to do the right thing? Do you trust the states to build and maintain highways?

Similarly, do you trust Wall Street to do the right thing now that the overly dramatic fears of the economic crisis of 2008 have passed (for now)? Do you really trust that British Petroleum will make things whole in the Gulf of Mexico? Do you care if your medical doctor is certified? Complex industrial societies require rules and regulations. As Hernan de Soto would argue, unlocking the mystery of capital demands it.

Milton Friedman, however, seemed to believe that creating a complex and interdependent society across a continent is it's own achievement. It's not. You might want the government off of your back, but I can assure you that you want the government on your neighbor's back.

DOWNPLAYS HISTORIC ROLE OF THE STATE: Manifest Destiny ... Land grant colleges ... Our Indian land policy (someone had to kick them off for you to invest in it) ... Land acquisition policies (war/purchase) ... Market subsidies ... Mass market purchases (starting with the Civil War) ... Infrastructures (Erie Canal, RR, etc.) ... The creation of America's middle-class (yeoman farmer, blue collar workforce, and the social wage earner) ... Education policies ... Tariff policies ... Civil Rights legislation ... All of these developments make it clear that the state has had a dominant role in creating the conditions for freedom and liberty to prosper, and for wealth to grow in America (30-35, plus Ch. 6). There are no invisible hands here.

IGNORES WHAT MAKES MORAL JUSTIFICATION OF CAPITALISM TICK: Work hard and get ahead? Not if you were a woman, black, or even white male without land (initially). The state has worked hard to open and guarantee opportunities for those who were once relegated to second class status in America. Access wasn't provided by enlightened market players. There was too much money to be made keeping the field tilted in their favor. It was fought for and taken by those who were excluded from the liberties and freedoms granted by the Constitution.

Later, when child labor laws, family wage laws, and Jim Crow/Civil Rights's laws were required, the state once again stepped in. Industry, for the most part, fought the state every step of the way. Markets didn't magically open up opportunities for everyone in America. It was democracy in action. It was people making demands on the state, and then having the state act. Political movements and the state made the moral justification of capitalism work in America, not market players.

There's more, but this is enough (for now).

- Mark

NOTE: I presented an earlier version of this for another class five months ago.


Want to know one of the reasons why banks - but especially Countrywide and Bank of America - have been foreclosing on homes instead of negotiating with distressed borrowers? They're foreclosing, in part, because it pays. Or it's supposed to pay. Check out this interesting turn of events between the banks and the insurance companies.

Before the market collapsed in 2008 banks that held mortgages purchased insurance contracts in the event that they had to foreclose on a house (or had trouble with a mortgage backed CDO). How do we know this? Because on the last day of 2009, Republic Mortgage Insurance Company (RMIC) sued Countrywide, Bank of America, and several other banks because, RMIC claims, either the borrowers or the banks lied during the mortgage origination process. Their pattern of lies is what produced toxic mortgage, so the argument goes. 

In simpler terms, RMIC is claiming that Countrywide, BofA, and other banks were defrauding them as they sought insurance for mortgages that they knew were toxic. RMIC filed suit in New York saying that they were not going to pay out on the banks' insurance claims because there was:

... either a material misrepresentation by the borrower or a material misrepresentation or negligence by the insured, correspondent lender, mortgage broker, intermediary underwriting or processing the loan on behalf of the insured, escrow agent, closing agent, or any other agent or broker for the insured or other person which originated or processed the loan or acted with respect to the loan, or appraiser or other person providing a valuation of the property that is used in the underwriting, processing, or origination of the loan.

Got that?

RMIC says that fraudulent activities were so wide spread that pretty much everyone in the mortgage financial train could have had a hand lying about the mortgage contract that was created. Worse, the banks knew or encouraged it. Ergo, RMIC claims they don't have to pay foreclosure insurance claims.

For their part, Countrywide turned around and sued RMIC, arguing that not only did RMIC compete with other insurers for Countrywide's mortgage insurance needs but that RMIC knew about Countrywide's shady business practices and that they might be insuring toxic crap. To be sure, Countrywide's suit doesn't claim anything about their "shady" business practices, but if you read between the lines it's easy to see the reference. Specifically, Countrywide's suit claims:

In addition to having a sound understanding of how Countrywide operated it's mortgage lending business ... RMIC understood first hand the risks associated with the mortgage lending business.

Reading between the lines, Countrywide is saying ,"RMIC knew we were insuring crap, but they still took our money."

But wait, it gets better.

Triad Guaranty Insurance - one of the companies who also sold forecosure insurance (called "flow insurance") - is so miffed at Countrywide and BofA for misrepresenting their toxic mortgage contracts that they are now denying foreclosure insurance claims too. And just like with the RMIC case, when Triad filed suit in New York, Countrywide and BofA turned around and filed suit in Los Angeles, claiming Triad owes them $111 million for breach of contract and bad faith.

And on it goes ...

All of this makes one thing clear: Not only did market greed and stupidity get out of control before 2008's market collapse, but it appears that many market players in corporate America no longer want to assume responsibility for anything. What this is doing to the integrity of the market and the moral justification of capitalism can't be calculated (yet). But rest assured, none of this is good for America.

Even if it did "save the system" (a dubious argument to begin with), bailing out the banking system, and then paying them 100 cents on the dollar for their toxic contracts, is increasingly looking like the wrong decision.

- Mark

Monday, September 20, 2010


Want to know how Wall Street makes money? Courtesy of The New Economy Revisited, this is kind of funny ...

Young Chuck moved to Texas and bought a donkey from a farmer for $100.

The farmer agreed to deliver the donkey the next day.

The next day the farmer drove up and said, “Sorry Chuck, but I have some bad news. The donkey died.’”

Chuck replied, “Well then, just give me my money back.”

The farmer said,” ‘Can’t do that. I went and spent it already.”

Chuck said, “OK, then, just bring me the dead donkey.”

The farmer asked, “What ya gonna do with a dead donkey?”

Chuck said, “I’m going to raffle him off.”

The farmer said, “You can’t raffle off a dead donkey!”

Chuck said, “Sure I can. Watch me. I just won’t tell anybody he’s dead.”

A month later, the farmer met up with Chuck and asked, “What happened with that dead donkey?”

Chuck said, “I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $898.00.”

The farmer said, “Didn’t anyone complain?”

Chuck said, “Just the guy who won. So I gave him his two dollars back.”

Chuck now works for Morgan Stanley.

- Mark

Saturday, September 18, 2010


QUESTION: What do abysmal employment numbers, rising poverty levels, collapsing home prices, evaporating middle-class wealth, a forgotten Main Street, white pity rallies and, finally, the emergence of a whiny elite class have in common?

ANSWER: They all help us understand why the Democrats have a hill to climb this November, and why this nation's troubles may be just beginning.

Let's take a closer look ...

ON THE JOBS FRONT, former Labor Secretary Robert Reich reports:

The Labor Department reports [in June] that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.

The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record. More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.) Of the small number of jobs created by the private sector in May, many came from temporary help services ...

... The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories) ...

ON THE POVERTY FRONT, via the NY Times, the Census Bureau reports:

Forty-four million people in the United States, or one in seven residents, lived in poverty in 2009, an increase of 4 million from the year before, the Census Bureau reported on Thursday.

The poverty rate climbed to 14.3 percent — the highest level since 1994 — from 13.2 percent in 2008. The rise was steepest for children, with one in five residents under 18 living below the official poverty line, the bureau said ...

... For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050.

Things could be worse, except for ...

Given the depth of the recession, some economists had expected an even larger jump in the poor. Expanded unemployment insurance and a rise in the number of families doubling up helped temper the trend, said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin.

“A lot of people would have been worse off if they didn’t have someone to move in with,” said Mr. Smeeding, noting that in a typical case, a struggling family, like a mother with a child, stays with more prosperous parents or other relatives. The Census study found an 11.6 percent increase in the number of such multifamily households last year.

ON THE HOUSING FRONT, Michael David White is reporting:

Data from predicts a nine percent fall in property prices nationwide in 2010. is making this prediction "despite positive signals of higher prices including a gain of seven percent nationwide by Case-Shiller 10-City index from its post-crash bottom in April 2009."

So, why all the doom and gloom for the housing market? Part of the story is explained because of the lagging jobs and poverty picture painted above. But the real key is tied to historical projections that were broken by the bubble market starting in 2000. By using pre-bubble trends that predate 2000 it follows that housing prices will continue to fall.

This is especially since government sponsored home ownership programs are either ending, or not going so well (the Making Home Affordable Program, is especially a disaster because the details were left in the hands of the banks).

ON THE COLLAPSING NET WORTH FRONT, via Huffington Post we see that the Federal Reserve is reporting:

Americans' net worth plunged in the second quarter of this year, new data from the Federal Reserve show, erasing the gains of the previous two quarters and adding evidence to the argument that the economy has entered a double-dip recession.

The net worth of households and non-profit organizations dropped $1.52 trillion during the period from April 1 to June 30 of this year, according to the report released Friday. The new figure, $53.50 trillion, represents a 2.8 percent decline from the previous quarter.

The net quarterly loss, the data suggests, came from Americans' losses in the sagging stock market. Equity shares owned by households and non-profits tanked in the second quarter, dropping $1.88 trillion or 11.2 percent to $14.87 trillion from the previous quarter. The second quarter figure went down past the territory of 2009's third quarter ($15.32 trillion), almost to the range of the 2009 second quarter ($13.06 trillion), when equity was just starting to rise from its low of $10.94 trillion in the first quarter of that year.

ON THE "FORGETTING" MAIN STREET FRONT, as I pointed out after the Democrats lost the U.S. Senate seat in Massachusetts, Main Street is rightfully pissed off because:

1. President Obama rewarded Wall Street for their incompetence, while doing little to nothing for Main Street.

2. President Obama didn't push Congress when it came to allowing cheaper medicines in from countries like Canada (there goes the elderly independent vote).

3. President Obama made it look like he didn't really want a single payer system, or a public option, both of which he pushed for on the campaign trail. The base is uninspired.

4. Unemployment is hovering around 10% after the Obama administration said it wouldn't hit 10%. 

5. After the House passed foreclosure legislation, which would have helped stem record foreclosures by allowing bankruptcy judges to rewrite mortgages, it died in the Senate. After going to bat for Wall Street, President Obama did nothing to help push it through the Senate ... The message is clear, "You're on your own Main Street."

6. President Obama's Making Home Affordable plan is being undermined by banks, who have Federal trillion-dollar guarantees and aren't in any hurry to negotiate with distressed homeowners. Sitting by as homeowners get kicked out of their homes by the very banks that created our mess is no strategy for winning votes.

ON THE WHITE PITY / "WHINY" BILLIONAIRE FRONT, David Frum and Les Leopold report:

Former Bush speechwriter David Frum called attention to the comments of Chris Hitchens, who referred to  Glenn Beck's recent rally in Washington DC as the Waterworld of White Pity.

At the last “Tea Party” rally I attended, earlier this year at the Washington Monument, some in the crowd made at least an attempt to look fierce and minatory. I stood behind signs that read: “We left our guns at home—this time” and “We invoke the First Amendment today—the Second Amendment tomorrow.”

But Beck’s event was tepid by comparison: a call to sink to the knees rather than rise from them. It was clever of him not to overbill it as a “Million”-type march (though Rep. Michele Bachmann was tempted to claim that magic figure). The numbers were impressive enough on their own, but the overall effect was large, vague, moist, and undirected: the Waterworld of white self-pity.

Then we have Les Leopold pointing out how our bailed out billionaires think they deserve more tax breaks (or a medal) for their greed and stupidity. They are now whining about being asked to pitch-in some of their government escorted (or taxpayer subsidized?) profits so that the larger American economy can recover.

While 43.6 million Americans live in poverty, the richest men of finance sure are getting pissy. First Steve Schwartzman, head of the Blackrock private equity company, compares the Obama administration's effort to close billionaires' tax loopholes to "the Nazi invasion of Poland."

Then hedge fund mogul David Loeb announces that he's abandoning the Democrats because they're violating "this country's core founding principles" -- including "non-punitive taxation, Constitutionally-guaranteed protections against persecution of the minority, and an inexorable right of self-determination." Instead of showing their outrage about the spread of poverty in the richest nation on Earth, the super-rich want us to pity them?

Why are Wall Street's billionaires so whiny? Is it really possible to make $900,000 an hour (not a typo -- that's what the top ten hedge fund managers take in), and still feel aggrieved about the way government is treating you? After you've been bailed out by the federal government to the tune of $10 trillion (also not a typo) in loans, asset swaps, liquidity and other guarantees, can you really still feel like an oppressed minority?

Soaring unemployment, rising poverty levels, collapsing home prices, evaporating middle-class wealth, broken promises, pathetic white pity rallies, and a whiny elite class that think they've suffered enough ... All of these developments help to explain why the Democrats find themselves facing a pissed off electorate in November.

To be sure, this is exactly how the Republican Party wanted this electoral season to play out. Why else would they have become the Party of No? The GOP clearly understands that it's hard to reward a party when their policies helped bail out Wall Street, but had the effect of pretty much leaving Main Street to fend for itself.

At the end of the day, President Obama deserves much of the blame for trying to negotiate with a political party that told the country at the beginning that 60 vote filibusters would be the norm in the Senate, and then acted in a way that confirmed Rush Limbaugh's wish for him - and, by definition, for the country - to fail (whatever happened to Country First?).

With George W. Bush and his failed policies still a recent memory, this is the only strategy the GOP had. They knew it. People like me knew it. Unfortunately for the country, President Obama is still figuring this out ... and it appears this may cost him big in November.

- Mark

Friday, September 17, 2010


This helps explain why Fox News is a joke ...

They take a simple unsubstantiated assumption, and then claim "most economists" think tax cuts for the rich are an effective way for stimulating the economy ... because, you know, they worked out so well for George W. Bush.

In reality, as I've pointed out before, Republicans seem hell bent on supporting the wealth of the Paris Hilton's of America, even if it doesn't make economic sense for the nation.

If Fox News bothered to do a little homework they would have found a January report from the Congressional Budget Office (CBO), which is respected on budgetary matters by both political parties. The CBO studied how various policy measures would affect growth and employment across the nation. They found "that putting money in the hands of lower-income earners by boosting aid to the unemployed or lowering payroll taxes is a significantly more efficient way to stimulate growth."

This is especially the case when "compared to putting more funds in the hands of those already well-off."

In order to understand why, let's consider what happens to the economy when America pursues two distinct policy options in the short term:

TAX CUTS FOR THE MIDDLE CLASS: Every time the federal government cuts taxes for the middle class, or otherwise transfers $1.00 to you and me (or the states), the policy generates between eighty cents to $2.20 worth of economic activity. Merchants benefit, communities benefit, states benefit. Again, $1.00 in tax cuts for the middle class and government transfer payments get us about this much ...

TAX CUTS FOR THE RICH: If the federal government continues to follow the policies of George W. Bush, and maintains tax cuts for the rich, it will generate between ten cents and fifty cents in economic activity. Yeah, that's right. We actually lose economic activity (as the rich pad portfolios and/or bet on derivative products). But the Paris Hilton's of our nation do quite well, as do our bailed out Wall Street bankers. Again, for every $1.00 in tax cuts we grant to our Wall Street buddies and the Paris Hilton's of our nation we get this ...

In a few words, in the current environment we're flushing our money down a rat hole by cutting taxes for the rich. Worse, we're generating more budget deficits. How do we know this? Because the CBO 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. President Obama and the Democrats want to transfer money by maintaining tax cuts for ordinary Americans hit hard by Wall Street's stupidity and greed. The big payoff is that it will generate more bang for the buck. The Republicans, however, are holding out for more tax cuts for the rich because, as Sen. Mitch McConnell (R-KY) argued on the Senate floor, the rich have been hit the hardest by this recession (seriously, check out the video).

Ignored by McConnell is how the GOP's failed "tax cuts for the rich" ideology has consistently given us more debt, which you and I have to pay for.

But let's not let the facts get in the way of Fox News' disinformation party ... and a group of people who want nothing more than to see President Obama fail.

- Mark

Thursday, September 16, 2010


What makes America great is how we took our cue from the Renaissance and the Enlightenment, and then embraced the principles of human dignity and equality of opportunity. The notion that hereditary privilege (monarchy), social position (aristocracy & the church), and political networks (palace sycophants) should determine who ends up on top in society was rejected by our Founding Fathers.

To insure that everyone had an opportunity to make something of themselves we created a novel political and economic system that embraced equality of opportunity.

Now, to be sure, because of social, racial, and gender beliefs at the time our Founding Fathers originally limited opportunities to those with property (which eventually was dropped for all white males, and amended as the years went by). The point is that our nation was founded upon the principle that the opportunity to make something of ourselves – if it was sufficiently spread across society - would strengthen this country politically, and make it prosperous economically.

Similarly, our nation's founders also understood that the wealthy could, as William H. Gates, Sr. and Chuck Collins put it, “privatize” their needs. Whether it was private armies (more like private thugs), private libraries, private clubs, private tutoring, transportation, etc. they understood that powerful economic aristocracies could pursue and acquire what they needed quite easily. They didn’t need any help.

Ordinary folks, on the other hand, would need public systems of justice, public libraries, public parks, public education, public roads, infrastructures, etc. in order to take advantage of the opportunities promised by the Constitution.

They also understood that if we let the economic aristocracies of America run the show that they would stifle and undermine the democratic impulse in this country.

For this reason, over the years our nation has embraced progressive social movements that enhanced personal freedoms (civil rights, women’s movement, child labor laws, etc.) and created the ladders of opportunity, which we see in public education, public libraries, public infrastructures, public transportation, etc. These opportunity granting developments, however, cost money – which means taxes.

To deal with these needs over time we've developed a progressive tax system designed to maintain public balance and bolster the principle of equality of opportunity (what Adam Smith, the godfather of capitalism, referenced as the "laws of justice"). And, at least until the end of the 20th century, this system has served America well.

Unfortunately, many Americans now feel they no longer have to participate in our progressive tax system. Worse, many more seem to believe that they are the best judge of how much they should contribute to the American experience.

This has become the mind-set of many Americans. And it has happened in spite of the fact that Adam Smith believed that wealthy riders in luxury carriages should be made to pay higher road tolls because the “indolence and vanity" of the rich should be made to pay for the general needs of society.

Today, if it were left up to many segments of society, we might even be left with the functional equivalent of this …

I’ll be discussing this, and other aspects of our nation’s founding in today’s class, The Myth of the Free Market. If all goes well, I’ll be posting periodically on the themes that will be covered in class lectures over the next ten weeks.

- Mark

Wednesday, September 15, 2010


I'm receiving annoying robo calls from a major car company who's trying to collect a late payment from one of their clients. I'm given the name and the amount that's due.

I have no clue who the person is, but knowing the amount, the name, the brand, and the area code they're dialing has given me some good information. Calling the car company's center made it clear that I can get more information rather easily. In fact - with the idea of letting the consumer know what I know - I have a good idea who to call because I pulled up a list of similar names with one simple search, which took all of 15 seconds.

So, here's my question. Are these type of robo calls an invasion of privacy? Do they lend themselves to greater ID and consumer fraud? I find it hard to believe that they don't.

- Mark


So I'm sitting in the barber's chair and getting my hair cut this morning. The talk turns to what's happening in the markets, and who's to blame. The standard Fox News meme emerged: "It's the fault of everyone who couldn't afford to buy a home."

My, my, where to begin ...

Why Wall Street Is At Fault ...
Let's start with this. The money had to come from somewhere. Fox News and their Republican friends may get political mileage pointing at irresponsible borrowers and Fannie Mae as the problem. But the real issue lies with people in the private sector who were creating and insuring shady mortgage contracts, as I've posted on here and here.

On this front, Wall Street knew what they were doing. Their models told them they would make money on their activities, so they pushed for more mortgages. Ability to pay wasn't really an issue. Creating marketable securities that they could bet on was.

Irresponsible borrowers? No doubt there was a problem. But we have to ask ourselves, Why was Wall Street and their financial mandarins so eager to lend to "irresponsible" borrowers?

The simple answer is that Wall Street's market players were becoming irresponsible lenders. They became irresponsible lenders because they had created a sweet ponzi mortgage scheme, built around a fraudulent insurance system.

In the first part of the scheme, as Nomi Prins outlined, between 2002 and 2008 about $1.4 trillion in subprime mortgages were issued. Out of these mortgages Wall Street created ("derived") about $14 trillion in securitized bets. In part because the underlying contracts were subprime mortgages, Wall Street needed insurance for their bets.

I'm over simplifying, but the second part of the scheme worked something like this.

* I tell you I will provide insurance for your mortgage backed securities.
* You must pay me premiums for my insurance.
* If the market collapses, "tough goat cookies ... we won't pay" (this wasn't actually said).
An illusory sense of security (insurance) plus record profits (for Wall Street) made for a euphoric market mood. So more mortgage contracts were sought, written up, and sold off to security slavery. Wall Street created it's own demand. It didn't matter who the mortgage holders were. As long as they could fog a mirror they were going to get a mortgage contract, which was going to be insured (wink, wink) somewhere down the line.

(At the time no one really knew or cared whether the insurer had the money to pay out claims. There were three reasons for this. First, Wall Street's market models said everything was OK. Second, the insured mortgage contracts were labeled as "derivative" contracts which, at the time, were largely unregulated. Finally, everyone was making lots of money).

Ben Bernanke Feeds the Fire
It was like handing the car keys to a teenager, and then being assured that everything will be fine by their loser friends, who are all carrying bottles of booze out the door as they wave good bye.

And why not? Ben Bernanke (the trusty father of the "loser friends" in this scenario) was confident that "market fundamentals were strong" and that bank regulators were doing the right thing. And, besides, national housing prices don't fall, right? Here's Bernanke making these claims before the market collapsed ...

A Ponzi Insurance Scheme + the sage (albeit, wrong) words of Fed Chair Ben Bernanke  =  a sense of market security.

This market chemistry was so soothing that Wall Street and the financial titans of America actively went out and looked for more home mortgages to issue, bundle up (CDOs), and then insure (CDSs) right up to when the market collapsed. Bonuses, sweet fees, and juicy commissions made this a win-win for everyone involved, but especially Wall Street.

"Don't Blame Me ..." Wall Street's Lack of Accountability
At the end of the day, as I pointed out here, when people stopped paying their debts and mortgages - which once gave value to the market securities that Wall Street created - what should have happened is that those who insured the securities should have paid up. Instead, they blamed irresponsible borrowers for ruining their ponzi-scheme.

Let me be clear here. When people stopped paying the debts and mortgages that made security contracts worth something, the people and institutions who provided the insurance for these contracts should have paid up.

But they didn't have to. The American taxpayer did, and will continue to do so long into the future.

MORAL OF THE STORY: Don't count your chickens before they hatch.

MORAL OF THE STORY, II: But especially don't blame Main Street for your own stupidity and greed when you create and feed a mortgage and insurance ponzi-scheme that produces profits for you but undermines the integrity of the market.

- Mark

Addendum: Congress held hearings on Fannie Mae and Freddie Mac today. It was covered by C-SPAN. As expected there were Republicans who wanted to direct blame away from Wall Street. So they tried to blame Fannie Mae and Freddie Mac for the market collapse because of how they backed reckless borrowers. Fortunately, Congressman Brad Miller (D-NC) was there to set the record straight.

He reminded Republican committee members that they once praised subprime lending as the type of innovative lending that comes from deregulated or "unfettered" markets, and because of how it contributed to a spike in home ownership. Among the points Congressman Miller brought up included:

1. When Republicans criticized Fannie Mae and Freddie Mac after 2003, they were essentially using the talking points of Fannie and Freddie's unregulated private insurer competitors (AIG, Goldman Sachs, Lehman Bros., Merrill Lynch, etc), who had financial axes to grind.

2. The private insurers were "running rings" around Fannie and Freddie in lending to and insuring affordable - or "subprime" - housing mortgages (which the data makes clear).

3. The Bush administration pressured Fannie and Freddie to purchase and insure the toxic assets of the private insurers (which constitutes a market subsidy).

There's more, but you get the point. While Wall Street is to blame, Congress had a helping hand in making the mess worse than it should have been. Miller's comments, and the complaining that led to Miller's comments, begin at 1:42 and 15 seconds here.

Tuesday, September 14, 2010


Today is September 14th. It was Sunday two years ago. Oh, and it was also one day before the market began it's collapse, which sent our country into a national tailspin that we're still experiencing.

I rarely blog on Sundays. But on that Sunday I did.

I had been following our slow motion market collapse (which I discussed throughout 2008 here, here, here, here, here, here, here, here, here, here, here, here, here, here ... well, you get the point) and suspected that the impending market collapse that I had been discussing was upon us. So I blogged about what was happening in the market, on a Sunday no less. I haven't blogged that many times on a Sunday since.

Later I discussed the possibility of Golden Parachutes (which turned out to be a serious understatement), how global markets were responding (not well), and other market ugliness, which we're still living with, the following day.

To be sure, I didn't think that the collapse would be so big as to put the U.S. taxpayer on the hook for at least $20 trillion in bailout cash and other market guarantees. But then again, I didn't think our government - especially if Barack Obama reached the White House - would fill up the tank and turn the keys over the people who ran the nation's car into the ditch. But this is exactly what happened.

Today, banks are flush with bailout cash and corporate America is sitting on trillions in cash as a result of government's decision to make them whole. But Main Street sees no end in sight to the effects of Wall Street's greed and stupidity. What we're seeing in the polls is evidence of this ...

I'll have more to say about all of this in the coming weeks. In all cases, Happy Anniversary (eve).

- Mark

Monday, September 13, 2010


"Two things are infinite:
the universe and human stupidity;
and I'm not sure about the universe."

— Albert Einstein
- Mark

Saturday, September 11, 2010


 "The opportunity of defeating the enemy
is provided by the enemy himself."

- Sun Tzu, approximately 500 B.C.

Ted Koppel has an interesing article in the Washington Post that wraps a couple of thoughts together. First, it prompts us to consider what the following have in common.

* Saddam Hussein has developed weapons of mass destruction.

* Saddam Hussein has developed, or is in the process of developing, nuclear weapons.

* There's a connection between Saddam Hussein and al-Qaeda.

* The rise of a national security state and a swollen national security apparatus.

* Overblown hysteria  over a proposed Islamic center in Lower Manhattan.

* A minister in Florida threatening to burn copies of the Koran, which alienates even our friends in the Muslim world.

They are all tied together because they are the product of a fear and hysteria-drenched mind set that has engulfed large segments of the American population, including much of our political leadership. Some of it is warranted in a post-9/11 environment. Much of it is also political pandering.
Still, as I pointed out in 2003, this may also be playing right into what Osama bin Laden wants for America - the gradual unwinding of our social, moral and political fabric. Fear, paranoia, and petty grandstanding all serve this agenda. So does the creation of an inward-looking national security state that seems to care little about what over-hyped security, and ill-advised war, really costs.
Indeed, as Ted Koppel points out, in a 2004 video message bin Laden boasted about leading America on the path to self-destruction.
All we have to do is send two mujaheddin . . . to raise a small piece of cloth on which is written 'al-Qaeda' in order to make the generals race there, to cause America to suffer human, economic and political losses.

Koppel adds that after spending of a few hundred thousand dollars, then training and sacrificing 19 of his best foot soldiers, that bin Laden:

... has watched his relatively tiny and all but anonymous organization of a few hundred zealots turn into the most recognized international franchise since McDonald's. Could any enemy of the United States have achieved more with less? ... Could bin Laden, in his wildest imaginings, have hoped to provoke greater chaos? It is past time to reflect on what our enemy sought, and still seeks, to accomplish -- and how we have accommodated him.

I couldn't have said it any better.

- Mark