REPUBLICANS DOUBLING DOWN ON THE STUPID

Incredible. Senator John Kyl (R-AZ) asserts that we can afford George W. Bush's tax cuts for the rich, which will cost at least $1.3 trillion from 2012 through 2021. But we can't afford unemployment insurance that will cost $33 billion because it's too expensive. Proving that stupidity likes company, we got this from Oklahama Sen. Tom Coburn yesterday. He apparently agrees with the Senator from Fantasia ...  



Suggesting that tax cuts don't cost anything, after almost 30 years of evidence that tell us otherwise, is the essence of crazy stupid. Indeed, new data shows that legislation under President Bush not only increased the deficit by $539 billion in 2005 but that - as Ezra Klein points out - in the absence of Bush era policies, our nation would be running a surplus this year.

Let me repeat that. In the absence of Bush era policies, our nation would be running a surplus this year. 

How do we know this? Because instead of blindly staring at some mystical crystal ball that's clouded in a failed ideology ...

... some people actually look at the numbers. What happens when we do this? We find that if we continue the Bush era tax cuts for the rich they might not cost us just $1.3 trillion by 2021, as noted above. Instead they're more likely to cost us $3.28 trillion by 2018. Nice.

The Republican response to all of this? They stare harder at the crystal ball and say in their best, spooky, Vincent Price voice, "Don't tax the rich. Our failed ideology of tax cuts for the rich - followed by budget surpluses - has been blessed with our new super secret magic potion ... all you need to do is just need to give us another chance. The elixir will work this time ... ha, ha, ha, ha, ha ..." (click on the laugh, it's good).

The causes behind today's budget shortfalls are clear. And it has little to do with President Obama, the Democrats, or any of the other nonsense coming from the political right. Check out the numbers.

Failed wars in Iraq and Afghanistan? Bush's fault. Check ...

Bush era tax cuts? Bush's fault. Check ...

Recovery measures made necessary by Bush's failed policies? Bush. Check ...

TARP, Fannie and Freddie. Bi-partisan stupidity over many years. OK, we'll call it a draw ...

Economic downturn? Made possible by reckless deregulation. Accelerated under Bush. Check.


In a few words, because of the Bush train wreck our nation has been sunk into an economic and financial hole that ... and this is the incredible part ... republicans and conservatives want to blame on President Obama. Worse, they want to do it all over again by continuing President Bush's tax cuts for the rich.

This is not just insane. This is the essence of doubling down on the stupid, Republican style.

- Mark

REIN IN THE NEANDERTHALS

In what can only be described as an attempt to insure that they continue to be viewed as little more than a band of angry white males - who are ready to throw a political temper tantrum at the drop of a hat - a conservative group organized by Manuel Miranda and Mark Levin, a conservative talk show host, is urging Senate Republicans to filibuster (or hold up) Sonia Sotomayor's nomination to the Supreme Court. Miranda was an aide to former Tennessee Senator Republican Bill Frist.

For those of you who may have forgotten, Miranda is also famous for tapping into computers to gain access to Democratic political strategies concerning judicial nominees. He was dismissed from his post with Frist for doing so (actually, he was dismissed because he got caught). Other supporters from this Miranda-led group include evangelicals, gun-rights advocates, anti-tax leaders, anti-abortion groups, and libertarians.

The group say their intent is NOT to kill Sotomayor's nomination. Rather they want to provide time for lengthier debate on the merits of Sotomayor's nomination.

On the "merits"? If this is the case, and the group wants to be taken seriously, they need to start speaking up and ostracize those from the conservative wing who want to demean Sotomayor and the process by referring to her as "stupid," a "racist," an "affirmative action pick," and that "Hispanic chick lady."

Simply stretching out the process so the rants of their colleagues can get time to stick is not appropriate. If it's the merits of her qualifications they want to look into they need to start talking about the "merits" of her decisions, and not stand idly by as their ideological brethren call Sotomayor names and bring up quotes that are taken out of context.

Let me repeat, these guys need to shout down the Neanderthals and the knuckledraggers in their movement if they want their call to stretch out the process to be taken seriously.

If they start doing this talking about Sotomayor's qualifications for a few more weeks might even be enlightening. Her experience will carry the day. But something tells me that this isn't the political sideshow this circus act really wants to present. They want to taint and drag out the process. Senate Republicans need to ignore these people.

Stay tuned.

- Mark

YOU CAN'T FIX STUPID ...

It looks like Republican Representative from Minnesota, Michelle Bachmann, wants to establish the House Comedic Miss Piggy Award. Check this out ...



To make a long story short, the outbreak Bachmann is referring to started in early 1976, when Republican Gerald Ford was President!

However, Rep. Bachmann's "outbreak ignorance" pales in comparison to this lesson in historical stupidity ...



This is especially painful to watch because not only do I teach about the Smoot-Hawley Tariff Act in my International Political Economy class but I mark students down considerably if they get this basic history stuff wrong (in a few words, the Smoot-Hawley Trade Act slowed international trade and cost Americans jobs).












Here's what Airhead Bachmann also ignores, or gets wrong:

1. The representatives who sponsored the anti-trade bill, Reed Smoot and Willis C. Hawley (pictured above) were both Republicans.

2. The President who signed the anti-trade measure into law in 1930 was Republican President Hoover Hoover (how can you get this wrong?).

3. FDR's administration worked to reverse the effects of "Smoot-Hawley" with the Reciprocal Trade Act of 1934 (which set the stage for one of the institutional pillars in the post-war Bretton Woods trading order, which brought trade roaring back).

No wonder Alan Specter left the Republican Party. How do you defend this level of ignorance?

The people that Bachmann represents in Minnesota should be embarrassed. But, I'm sure, they're not. They watch FOX News ... and they're republicans.

- Mark

HOW WE ENABLE WALL STREET

Imagine that your teenager wrecks the family car. Then imagine saying to your teenager, "That's alright ... if you pay the first month I'll pay the rest of the new car & insurance costs because ... well, because you need to be out on the street impressing your friends." This, in essence, is how our bailout of Wall Street works.

This NY Times article by economist Joseph Stiglitz helps explain it, and is probably the best review of Treasury Secretary Tim Geithner's bail out plan that I have seen. Stiglitz offers a very accessible explanation of a complex program that tells us something that most of us already suspect: the American taxpayers foots the bill for Wall Street's stupidity, and their future profits.
The mechanics are rather simple.

1. Market players put up only what they can afford, or a fraction of the total cost of a (toxic) market instrument.

2. The government provides taxpayer money to help pay for this same instrument.

3. The government ALSO provides insurance in the form of loans that don't have to be paid back by the private sector.

So, if a market instrument costs $150.00 and the market player pitches in $12.00, the government matches it with $12.00 (our "equity" stake). But the government then has to provide a taxpayer guaranteed loan of $126.00!

And the market trash that's out there? It stays out there (albeit at a new price) and - unless we have some new and stiff regulations - the game begins anew.

- Mark

MORE ROVE-FOX NEWS SMOKE & MIRRORS

From Media Matters ...

On Fox & Friends Saturday, Karl Rove understated the debt run up by George W. Bush, asserting that there were only "$2.9 trillion in deficits under eight years of Bush."



Here's the problem with Karl Rove's math. The national debt really increased by at least $4.9 trillion during the eight years Bush was in office. But Rove doesn't see this figure because he ignores the costs of Bush's Blundering Wars Project. Rove also ignores the hundreds of billions in Clinton surpluses that the Bush administration burned through, and the trillion-plus dollar mess he handed President Obama. If we add this in we're now talking about at least $6 trillion in debt that the Bush administration buried us with over 8 years. And we haven't even begun to calculate the VA bills coming down the pike. Incredible.

Here's how Rove gets his $2.9 trillion figure.

Every year the Bush administration sent a budget to Congress after 9/11 they ignored the costs of war, preferring to put this in as "emergency" or "supplemental" expenses. They did this every year even though they knew we had to pay for the war every year. They did the same with Katrina funds. If you want to do this at home, add up your yearly normal expenses and forget to add in vacations, birthdays, special events, emergency expenditures, etc. Then think about how your budget would look like if you had vacations, birthdays, special events, and emergency expenditures every month. Your anticipated deficits (called "on-budget" deficits in DC) will not come anywhere near to what your real budget (padded by "off-budget" deficits) amounts to.

But we shouldn't be surprised. The Bush administration dedicated itself to creating a smoke & mirrors environment about what it did in Washington. Karl Rove and FOX News are dedicated to perpetuating the same smoke & mirrors today.

- Mark

THE TWISTED LOGIC BEHIND FAILURE

Barron's did a review of 14 of the biggest and most prestigious brokerage (trading) firms. Their review covered 6 months, 1 year, 3 years, and 5 years. What did they find? Every one of the firms lost their clients money by failing to see the market meltdown coming. Click for larger image.

Keep in mind, these guys are supposed to be the experts. Yet they didn't generate net positive returns for their clients during any of the time periods tracked. Even a broken clock gets it right two times a day.

Why do I bring this up? Am I just pointing out the obvious? No, I'm pointing this out because we now have market experts telling us that we need to allow AIG's executives to keep their bonuses. As Devilstower tells us, the same people who didn't see the meltdown coming now believe that handing out million dollar bonuses for failure is a good idea.

Take Columbia University Professor of Financial Institutions, Charles Calomiris, for example. He believes we should just let AIG figure it out because, you know, they did such a standout job the last time. After telling us that we don't know what's going on in the financial trenches, he writes:

This illustrates the importance of avoiding government micromanagement of these institutions, since it is very hard for taxpayers, politicians, or bureaucrats to make such judgments ... Nevertheless, as a country we need to find the courage and strength of character to put the national interest above our own desires to punish financial institutions. Withholding effective support [for things like bonuses] will delay our recovery.

Calomiris offers the following advice: "What we need is, we need to compensate them so they stop losing money for us."

So if I got this right, we need to pay people not to lose money ... after they paid themselves a ton of cash (with bonuses) to lose money and wreck our economy. This is like saying we need to pay bonuses to the crew "Heckuva a job Brownie" left behind after Katrina laid waste to Louisiana because without the bonuses they might do a worse job then they did during Katrina. Huh? Does this make sense to anyone? Not to me it doesn't.

Let's make this simple: What Calomiris is advocating represents the logic that drives failure.



But what else would you expect from someone who moonlights as an analyst for the right wing, and uncritically "free market" oriented, American Enterprise Institute.

- Mark

STEWART MAKES WALL STREET 'ANALYSTS' LOOK LIKE A PARADE OF FOOLS (as if they needed his help)

I think this is Jon Stewarts best piece ever (yes, even better than his smackdown of Tucker Carlson).

Stewart deserves a medal for this STFU to market "analysts" Rick Santelli, Jim Cramer, and everyone else tied to Wall Street who missed the meltdown, and STILL act like they know what they're talking about.

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

If Comedy Central unembeds this clip click here.

- Mark

WALL ST. BONUS RECIPIENTS SAY BONUSES TOO SMALL

When a national chain went out of business a few years back the service contract that I had purchased for my car went down the drain. My fully paid contract, in effect, was voided. When I asked about having my service contract transferred to another shop I was told it wasn't going to happen. Tough luck for me.

Recently, auto workers and airline employees were asked to renegotiate their contracts because the times "demand" concessions and sacrifice from everyone. They are expected to take it on the chin, and move on. Tough luck for them.

When it comes to our nation's financial sector, however, there's another set of expectations. Executives who were either incompetent or criminally negligent (or is that "criminally stupid"?) don't have to live by the same moral code that you and I are expected to stoically absorb through rough times. As reported on Keith Olbermann's Countdown, AIG executives who sold the empty insurance products that helped to bring our national economy to its knees are getting $450 million in bonuses for selling these destructive products. Their contract says they have to get paid.

But wait. It gets worse. If you recall, AIG is the same firm that blew through $85 billion of bailout money and then had the gall to pay its executives at least $450 million in "retention" bonuses back in November of 2008 - after saying they wouldn't pay bonuses. Nice.

Incredibly, our Bonuses for Incompetent Financial Executives story doesn't end here. The NY Times is reporting:

A poll of 900 financial industry employees released on Wednesday by eFinancialCareers.com, a job search Web site, found that while nearly eight out of 10 got bonuses, 46 percent thought they deserved more.

Nearly one-half of bonus recipients believe they deserve more bonus money? You know, I'm not convinced about the eternal damnation story-line. But if there is a fire & brimstone place called Hell, these guys should have reservations (after Hitler and his goons gets in, of course).

Is there even a word in the human vocabulary adequate enough to describe the kind of behavior we're witnessing? Sheesh.

Here's my suggestion: If Congress can grant individual immunities, personal exemptions and specific subsidies to individual market players why can't we get a specific wage and bonus tax for these payouts? Just a thought.

- Mark

THE DEFENSE: "I'M JUST CRIMINALLY STUPID"

I was out this weekend but a colleague sent me a couple of articles that fit into what I've been posting or commenting on over the past year . . .

First up is this article ("The Failure of Our 401(k)s") from the LA Times, which outlines how the 401k program that we were sold back in the late 1970s became the financial smoke & mirrors that corporate America needed to start defunding corporate retirement plans. Their argument ran something like this: "Hey, you already have a 401(k), why do we need to fund you again?". The real stroke of genius lay in how the 401(k) plan allowed industry executives to shelter income (which reduced their tax load) while funneling money into the financial sector that otherwise would not have gone that way.

Moral of the Story: Wall Street got a free injection, which made them feel like masters of the universe; today we get less purchasing power, and a perilous private retirement system.

The next LA Times article ("Financial Scoundrels Have Little to Fear from the Law") makes it clear that, whatever the final outcome of the current economic mess, few of the perpatrators will actually be fingered and/or sent to jail. The reason is quite clear. Unless you were really reckless (like Enron's Ken Lay or Bernie Madoff) there really is no law against being greedy or criminally stupid.

Moral of the Story: White Collar crime pays, especially if it's tied to being criminally stupid.

- Mark

MARKET STUPIDITY: AN ACT OF GOD?

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

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

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

Put another way, the federal government had an idea - and the private sector knew - that the US financial system was sitting on a profitable but explosive financial powder keg, at least ten years before the 2008 market meltdown began. Here's one of the stories I tell in my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy ...

One year before the Financial Services Modernization Act (1999) was passed into law, the FDIC issued a set of guidelines for member banks that managed transactions involving collateralized securities. Concerned that deposit-taking institutions had not exercised sufficient risk management, the FDIC distributed a “Statements of Policy”(SOP) document at the beginning of 1998, making it clear that collateralized security transactions were on its radar screen.

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

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

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

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

Perhaps the greatest words of caution are saved for institutions that are inclined to believe that CDO instruments could be used as market collateral. The FDIC guidelines make it clear that because a bank has a CDO-affiliated instrument it doesn’t mean that it’s sitting on an asset for which the book value is equal to the market value. The 1998 guidelines suggest, for example, that, if a $100 million CDO transaction has occurred, “experience has shown” that the underlying product or contract “will not serve as protection” if the subsidiary fails or if the firm does not have control over the security.

While Christian fundamentalists, like James Bidgood in Australia, may believe that God gets his jollies from watching us suffer through market collapse, the reality is what's happening now is a product of greed and stupidity (which God, no doubt, gets a chuckle out of).

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

- Mark

PROFILE OF THE CRIMINALLY STUPID ... AIG

AIG, which received $60 billion in taxpayer funded bailout money, for making incredibly stupid business decisions, has now decided that it will give "retention" bonuses to 130 managers as "cash rewards." Included in these cash awards is a $3 million bonus to the head of AIG retirement services, Jay Wintrob.

This announcement came 1 day after AIG said it would not give annual bonuses to executives. Nicholas Ashooh, spokesman for AIG, explained: “We’ve said they aren’t eligible for annual bonuses, and they’re not ... What we’re talking about are retention agreements ..."

How can you disagree with logic like this?

I think I'll play this game with all my creditors. "Hey, I'm not going bankrupt ... I'm just not going to pay you anymore."

- Mark

SIN CITI ... AND THE CRIMINALY STUPID

I had lunch this afternoon with a friend. A very conservative friend. We rarely agree on anything, and are polar opposites when it comes to politics and religion. I still remember a heated "exchange" we had in a restaurant, only to stop long enough to see the people seated around us staring, with one of them finally blurting out: "Go on ... this is better than Cross Fire."

Today we agreed on several things (and no one was staring). We agreed on what needs to be done to fix the economy. But we were especially in tune when it comes to this: there should be punishment and accountability for the big players who contributed to the economic mess we're in.

In a flash of serendipity, when I came home today I found this article, "Sin Citi", which called for exactly the same thing. The rationale for punishing financial stupidity was simple.

Homeowners who made ... bad judgments, by taking on mortgages that they could not afford, are being thrown out on the street. Thousands of Citi employees will be gracing the unemployment lines this holiday season, not because of anything they did but because the people who run their company are, and were, incompetent.

The author of "Sin Citi" is arguing that homeowners and Citigroup employees - those at the bottom of this financial food chain - shouldn't be the only ones held to account here. This is especially the case since homeowners simply took what was offered, while Citigroup employees did their jobs. Someone had to set the game up. And they need to be held to account.

While the "Sin Citi" piece makes a good argument for going after those who helped create the conditions for the market's collapse, this article from Michael Lewis - author of Liar's Poker - explains how we got into this mess by pointing out just how clueless Wall Street Bankers really are. But Lewis' article also tells us something else. There may not be any legal wrongdoing for us to pursue. Incredibly, most of what Wall Street did was legal.

OK. New Christmas wish. Is there any way we can punish the criminally stupid? Just asking.

- Mark

P.S. If you want to understand the individual logic that got us into this market mess you need to read Liar's Poker. Not only is it informative, but it's the funniest book on market players there is. Lewis is a very good writer.

AIG's $85 BILLION EXECUTIVE RETREAT

Insurance giant A.I.G., who foolishly jumped into mortgage mess and then went to the government for an $85 billion bailout, has just given the American taxpayer the middle finger. Barack Obama made reference to this last night, and the LA Times:

Just days after the federal government committed $85 billion of taxpayers' money to a bailout of insurance giant AIG last month, senior execs from the troubled company headed to Southern California's ultra-swanky St. Regis Resort in Monarch Beach for a week of wining and dining top salespeople.

The total cost for the retreat was $440,000. Keep in mind that we now know that in the days before it filed for bankruptcy protection last month, "AIG tried to hide negative information about its condition from auditors."

Obama's right. The government needs to sue to get our money back, and someone needs to be fired.

- Mark