DICK CHENEY: SUFFERING FROM "POLITICAL TOURETTES"?

MSNBC's Ed Schultz and Rep. Eric Massa (a former naval commander) go after Dick Cheney (and the Republican Party) for being cowards. Dick Cheney, according to Rep. Massa, suffers from political tourettes syndrome.



Rachel Maddow also goes after Dick Cheney for being the hypocrite and coward that he is.



Why Republicans respect and follow Dick Cheney is a mystery to me. Why Americans believe that Republicans have a handle on war and terror - after watching President Bush and VP Cheney wage war like the political incompetents they are - is simply befuddling.

- Mark

WHAT WENT WRONG ...

I wasn't going to post for a few more days but this article (by way of nakedcapitalism.com) caught my attention. It was written by Steven Keen, at Business Spectator, who was asked to contribute to a German journal. The discussion topic? The failure of the vast majority of mathematics-economic models to anticipate the Global Financial Crisis.

In a few words Keen argues that economists have created so many myopic models that they and our increasingly sycophantic media don't understand how our economic world really works. Keen looks specifically at two "modelling" areas that have led economists off track: (1) a continued belief in Milton Friedman's monetary theories, which don't adequately account for credit and debt creation, and (2) a disturbing belief that economies tend toward disequilibrium.

How did these two beliefs impact our (mis)understanding of the world before last year's meltdown? Keen responds:

Because neoclassical economists treated any economic variable generated by a market economy as being in equilibrium, they fantasised that stock and house prices were in equilibrium when clearly they were in a bubble, and they ignored rising levels of private debt in the belief that whatever level of debt applied was an equilibrium one – and therefore justified by market fundamentals.

In a few words what we have is market arrogance coupled with ideological blinders working to create - as I have described elsewhere - a fairytopian world of perfect competition and fluid decisions that somehow work themselves out ... as if some mythical and magical invisible hand make things work in harmony all the time.

What a bunch of crap.

I wrote about this in my book when I described how markets really work, whether through favorable legislation or money policies that benefit specific groups. Specifically, I pointed to economists like Hyman Minsky (who saw debt as both good and bad, and tried to make sure that we understood the difference too) and John Maynard Keynes (who saw disequilibrium). Both understood and saw the flaws Keens writes about. Still, modern economists try to explain away favorable legislation, or downplay disequilibrium, as aberrations because they don't fit the model.

This is why I especially like what commentator Raymond D'Hollander has to say about economists depending too much on mathematical models:

Mathematics is simply a tool to be used in engineering systems. Nothing more, nothing less. Every engineer knows that the world is not perfectly normal (in the statistical sense) so no engineer worth his salt would base his entire design on some untested mathematical formulas. Boeing or Airbus would never design an airplane in a computer, manufacture it from the computer-generated instructions, and then immediately load it up with 300 passengers on its maiden flight. On the other hand economists and the global financial sector appear to believe that this is a perfectly viable way of approaching the world's economy.

In my view, economists and market players believe in the models they create for two, self-serving, reasons.

First, models - especially in CDS, CDO, and other ABS markets - allow(ed) economists to believe that they are "scientific" and are in control of what they see. Second - and simply put - the models that have been created allow market players to get rich. They buy enough time to squeeze money and profits that don't really exist. The bailout funded counter party payouts (thank you Ben Bernanke and Tim Geithner) show this to be true. The money wasn't really there, unless you were always banking on a bailout.

Steven Keen does a good job of explaining what went wrong with the models and assumptions of economists (though some might find it somewhat technical). I encourage you to read it if you get the time. The comment section is especially good too.

- Mark

CHRISTMAS EVE POST

OK, I won't be posting for a couple of days. So here are a couple of Christmas favorites.

A reminder of what Christmas is about ...



This is the Peanuts' Christmas Dance (I dance like the guy in Orange) ...



Merry Christmas.

- Mark

WHY I SUPPORT THE HEALTH CARE BILL

Those of you who follow this site, or who have heard me speak on air or at  public functions, know that I support the Public Option (actually, I support a single-payer system, but that's for another day). You also know that I think if our gourmet health care deal included the Public Option what we've ended up with is the health care version of Hamburger Helper. But I support what Senator Reid and Speaker Pelosi have pushed through thus far.

Still, I want to make it clear that while I will support what I think will eventually make it out of committee I'm not naive about what's in the health care bills presented by the House of Representatives and the U.S. Senate. Much of it is not pretty, and down right stinks.  Here's why.

WHAT WE HAVE ...
There is absolutely no doubt that what we're looking at is health care legislation that perpetuates a broken system. It will continue a system that costs 50% more than any other nation in the world, while delivering far less in terms of health outcomes. This is what good lobbying (see Aetna), political extremism (see Sen. Jim Demint), and unethical elected officials (see Sen. Joe Lieberman) will get you in America.

So, let me get this out of the way: The health care bill is a windfall for the insurance and pharmaceutical industry. It insures price-fixing and price gauging long into the future. The Senate health care bill maintains the status quo in the following ways.

* REGULATORY SUBSIDY: The anti-trust exemption for the health care insurance industry, which allows the industry to create oligarchic market structures throughout the country, was maintained in the Senate health care bill. This undermines competition and guarantees price-fixing.

You can thank Senators Joe Lieberman (I-Connecticut) and Ben Nelson (D-Nebraska) and the Republican Party for this.

* NO HONEST BROKER: There is no government, or public, option available to keep this oligarchic industry from price-fixing and organizing the market to suit their needs (I'm still not convinced about the health exchanges). With no honest broker to provide a legitimate alternative to the health care insurance industry (like public universities provide an alternative to private universities) prices will continue to climb.

Again, you can thank Senators Joe Lieberman and Ben Nelson and the Republican Party for this.

* NO PRICE COMPETITION: Incredibly, Congress turned down an amendment that would have allowed imported drugs (from Canada, no less) to compete with price-rigged drugs sold here in the United States. The amendment was defeated.

There was bi-partisan stupidity on this one.

Still, in spite of all this I support what's coming down the health care pike (assuming the Conference Committee doesn't go nuts, or something). Here's why.

WHY SUPPORT THE HEALTH CARE BILL ...
1. As I tell my students, good legislation is a process, not a moment. We need to see this legislation as the first step on a long path. Social Security, Civil Rights, the Women's Movement, and Medicare - all involving long hard fought pieces of legislation - took decades, and even more than a century (in the case of Civil Rights and the Women's Movement) to get right. Think about Medicare. At first it covered only hospital visits. Then regular doctor visits. Then medicines were included. In many respects we're still working on Medicare.

Rome wasn't built in a day. A good health care system won't be either.


2. This is what seals the deal for me. We need to support the health care plan currently making its way through Congress (even without a public option) for one simple reason: The Republican Party is using health care to defeat President Obama.

Republicans could care less about helping ordinary Americans who have no health insurance. They're after political power. If they can kill the health care bill they believe they can wound President Obama politically. This, they believe, will help them win more seats in 2010 and, in their minds, the presidency in 2012. They know they can't run on their record, their past, or their failed ideology. So dragging President Obama down is their goal.

This is not governing. It's petty, vindicative, and childish.


3. There are some very good elements that need to be supported. No drops/denials for pre-existing conditions ... a $10 billion increase in funding for the health centers (thank you Sen. Bernie Sanders) ... expanded access to high quality primary health care for millions ... mental health counseling ... dental care ... more/stiffer regulations ... etc. There are too many to list.

The point is, significant progress is being made.


4. We need to keep in mind that if we do absolutely nothing health care costs are going to continue rising anyways. This country will go broke if we do nothing. Check this out.

Simply put, if we have to suffer through increased costs (and they will continue to rise because we've legislated market competition out of the market), we might as well as get something in return.

Now, some of you might have noticed that above I make it clear that costs and prices will continue to rise with the current piece of legislation too. This is true. Some of you may have also noticed that the health insurance industry has promised to raise rates so they can blame it on the health care legislation. This is probably true too.

What's clear though is that "out of pocket" expenses will not rise as quickly because of provisions in the bill. Sure, I don't like the fact that some union health plans will be taxed. But I do like that the industry must now dedicate 85% of their premiums to health care, instead of the current 68-70%.

Again, this is a process, not a moment. We need to support the President on this.

- Mark

HEY, WHERE'S OUR FINANCIAL TOILET?

Imagine you have a family member who has a gambling problem. But they don't call it a gambling problem. Instead they talk about "a system" that they have. It's guaranteed to break Las Vegas. In their minds they are not gambling. In their mind they are "investing" time and money (in their minds, they're not sociopaths either. But that's another story).

Their investments gambles, as we all know, require money. But the family doesn't have any money to spare. So the investor gambler has to find cash. If this is done legally they will go to a bank. Or they will draw money from a retirement account, or some similar pot of cash. Eventually their debt loads become unbearable and financial institutions either stop lending or require more collateral. Pretty simple, right?

Now imagine if your gambling family member is able to convince banks to lend money, no questions asked. A permanent line of credit. They can go to Las Vegas and stay until their bets pay off. Sweet.

So, which route would you follow if you were our gambling family member? (A) Put up more collateral, and go to Las Vegas, (B) Secure a permanent line of credit (no questions asked), and go to Las Vegas, or (C) Stop borrowing and actually work for your money?

I know. Tough call.

Our bailed out financial institutions chose Option "B." This is how they did it.

To gamble with a continuous stream of other people's money - with virtually no questions asked - our nation's financial institutions created a nice accounting gimick called Structured Investment Vehicles (SIVs). These SIVs were, in essence, legal shelters where financial institutions could dump all the toxic investments bets they made with borrowed money. In a few words, SIVs are no better than legal financial toilets.

These financial toilets were made possible because our nation's financial institutions convinced the experts at the Financial Accounting Standards Board (which the Securities and Exchange Commission oversees) that moving financial crap off of their books was a good thing.

Over time the financial sector was even able to convince naive market players and gullible media sycophants to refer to their debt-laden SIVs as "capital arbitrage." Creating and moving so much bad debt and toxic crap never sounded so sexy (though, it still looks like - fair warning, don't click if you're stomach's not up to it - this).

I bring all of this up because alot of the crap our nation's financial institutions created in their financial toilets (SIVs) is still not worth much. Much of it, if you will, still stinks. Think about it this way. If you bought a house for $300,000 in 2007 it might only be worth $150,000 today. You and I have to eat this kind of financial loss. The banks don't want to eat what they have in their SIV toilets. Part of the reason for this is that it amounts to hundreds of billions of dollars in losses, which means their balance sheets won't look as good as they're telling the world.

This is where it gets really fun.

Banks now want regulators to allow them to revalue the bad bets they made - which they shoved into their SIV industry toilets (or "trust preferred securities") - at the price they originally paid. This way, the fees and bonuses that are tied to these bets get paid off at full value. Banks win big (again). Incredibly enough, the regulators are actually considering the proposal.

Hey, I have an idea. Since the regulators are caving in on things like this, let's do the following.

I say let the banks revalue their SIV financial crap. But on one condition. You and I get to revalue our homes at the market value we saw between 2004 and 2007. And just like the financial clowns who are getting bonuses and fees from revaluing the toxic crap they created, you and I get to sell our homes back to the banks at 2004-07 prices.

What's good for the goose is good for the gander, right?

I know, I know. It will never happen. I just wanted to share with you how our market system has very little to do with accountability and competition, and more to do with favorable legislation, manipulated regulations, and bailed out financial toilets.

- Mark

P.S. As a point of reference, the revaluation of depressed assets that I've described above is referred to as "mark-to-market" accounting. Responsible industry insiders refer to the method as "market-to-make-believe." I discuss market-to-market in previous posts, and in my book. Click on the labels and themes below for more information.

SUPPORT THE SENATE HEALTH CARE BILL?

Super Numbers Geek, and all around smart guy, Nate Silver has a nice chart that helps to "uncomplicate" the current health care debate. That is, if you like charts. In a few words, Silver believes that if the Holy Grail for Liberals and Progressives was to get a single-payer system (everyone is covered by one payer) while the alternative is the status quo (a dysfunctional health care system that eventually bankrupts the nation) America could do a lot worse than what the Senate just passed.

Silver places the current Senate Bill just below a watered down public option, but significantly above the status quo. You can check out his reasoning here.

To arrive at this point Silver looks at some of the key components in the Senate Bill and finds some real positive nuggets: (1) a ban on denying coverage for people with pre-existing conditions, (2) additional and much stronger regulations on insurers, (3) the creation of health insurance exchanges, and (4) mandating that insurance companies spend between 80-90% of all the premium money they take in on health care (currently they only spend about 70%). These are significant advancements.

Still, progressives like Jane Hamsher at Firedoglake.com are opposed to the current bill for the following (good) reasons:

1. It forces you to pay up to 8% of your income to private insurance corporations -- whether you want to or not.

2. If you refuse to buy the insurance, you'll have to pay penalties of up to 2% of your annual income to the IRS.

3. After being forced to pay thousands in premiums for junk insurance, you can still be on the hook for up to $11,900 a year in out-of-pocket medical expenses.

4. Massive restriction on a woman's right to choose, designed to trigger a challenge to Roe v. Wade in the Supreme Court.

5. It's partially paid for by taxes on the middle class insurance plans you have right now through your employer, causing them to cut back benefits and increase co-pays.
 
6. Many of the taxes to pay for the bill start now, but most Americans won't see any benefits -- like an end to discrimination against those with preexisting conditions -- until 2014 when the program begins.

7. Allows insurance companies to charge people who are older 300% more than others.

8. Grants monopolies to drug companies that will keep generic versions of expensive biotech drugs from ever coming to market.

9. No reimportation of prescription drugs, which would save consumers $100 billion over 10 years.

10. The cost of medical care will continue to rise, and insurance premiums for a family of four will rise an average of $1000 a year -- meaning in 10 years, you family's insurance premium will be $10,000 more annually than it is right now.

Both Silver and Hamsher make very good points. But this chart from Nate Silver (from his post "Why Progressives Are Batshit Crazy to Oppose the Senate Bill") helps to explain why what's in the Senate Bill is still better than sticking with the status quo. In a few words, up-front out of pocket expenses are much lower under the current Senate Bill (about $9,000) than under the projections for the current system ($19,576).

I'll have more to say about this tomorrow. I'll also explain why I think we may have to support the bill that will emerge from the Senate & House Conference Committee.

- Mark

UPDATE: Here's a link that uses Jane Hamsher's 10 reasons to oppose the Health Care Bill as the rationale for supporting the bill. I like it.

HEALTH CARE UPDATE

It looks like the health care bill in the Senate will come up for a vote in a couple of hours. If you want a Starter-Kit for understanding why our health care debate has gone off track check this out. As Paul Krugman put it, the U.S. Senate appears to be seriously "dysfunctional." What this means is that influence peddling in America is alive and well.

Incredible as this sounds, as lousy as the bill is, it may still be better than the status quo.

Still, keep in mind that this morning's vote (scheduled for 1 A.M.) won't be the final vote. The Conference Committee will have their say too.

- Mark

SEN. FRANKEN SHUTS SEN. LIEBERMAN DOWN

I like this. Senator Al Franken (D-Minnesota) pretty much tells Joe Liebermann (I-Aetna) to STFU. Good for him.

Still, Sen. John McCain (R-Arizona) is shocked at what Franken's actions will do to the "comity" in the Senate. He should be more concerned about what the Party of No is doing to democracy in America, or what his bringing Sarah Palin to our nation's political stage has done to the level of our political dialogue (she lowers it).



Look, Lieberman's been all over the place on health care for years. His position changes every time he wants more media attention. Except for carrying the health insurance industry's water, Lieberman brings nothing to the table when it comes to our discussion on health care.

- Mark

MR. PRESIDENT, MEET THE MANSON CLAN

President Obama had a meeting with bankers on Monday. Several bankers didn’t make it. Classy. Their absence and the tone of the meeting made it clear who’s in charge. It isn’t President Obama.

At the meeting President Obama pressed bankers to lend more money and reminded them that, given what occurred last year, they need to understand that we’re all in this together.

That should teach them. Maybe next time he’ll really get tough and force a group hug on them.

Predictably, in what can only be termed a lame PR moment, the bankers (who were present) smiled on cue and agreed that we should all work together. It was quite the Kumbaya Moment.

I know I feel better.

BACK IN THE REAL WORLD …
Meanwhile, in the real world, the banker’s lobbyists have been marching on Washington. While President Obama is asking the industry for favors, and looking to hand out good citizenship medals, the industry's lobbyists are busy fighting tooth and nail so the industry can avoid paying their fair share. They're also working to dilute proposed regulations which would help prevent what happened last year from occurring again.

Effectively what happened on Monday is that the bankers smiled, and publicly agreed to be good neighbors. At the same time their operatives were working so that the industry could tell President Obama and the American taxpayers to f@#k off.

It's really that simple.

And why not? They kept their jobs. They got their money. They got their $38 billion tax breaks. They got their trillion dollar Federal Reserve guarantees. So it’s business as usual. Consider the following.

* The derivatives market that got us into this mess is now bigger than it was before last year’s meltdown (around $140 trillion).

* Bonuses and salaries for Wall Street’s biggest players, most of it a product of business and accounting fraud, are still going through the roof.

* Many of these guys are now arrogantly telling the world that they’re largely independent of last year’s economic meltdown, or that the government is to blame for the collapse and the now laggard recovery.

* Some of them feel it’s OK not to plan ahead for a meeting with the President of the United States.

If chutzpah is killing your parents and asking the court for leniency because you’re now an orphan, bankers are now on an entirely different family tree. In fact, in many ways they're looking more and more like the lost siblings of the Manson Family.

What a bunch of pricks.

- Mark

MARKET CHEERLEADERS LIVING IN FAIRYTOPIA

Back in March I got into a rather interesting e-mail discussion with one of the economists at Merrill Lynch (in New York). It came after I read one of their monthly newsletters, where the authors presented the world with what they thought was sound market analysis. It was garbage, and I let them know.

Well, hang on to your hats. We're now getting more and more of the same garbage, as you can see in this "It's Not the Government's Recovery" piece by Brian S. Westbury and Robert Stein. The authors do their level best to show the world that people in the bailed out financial sector (like them) know what they're doing when, in fact, they don't get it. In my view, they have no idea about cause and effect relationships when it comes to our current market environment.

Check this out.

The authors first claim that accounting gimmicks like "mark-to-market" - which allows the financial sector to reprice garbage - have made things better. And it did ... for market players on Wall Street.

What the authors don't mention is that the freedom to reprice their garbage came in the bailout language signed by President Bush after Newt Gingrich and the financial industry lobbied Congress extensively (here's what I think about mark-to-market), while others worked on FASB rules. This means that the federal government altered the rules for the industry to help revitalize collapsed market prices. There were no invisible hands here as the authors suggest.

Then the authors argue that "easy money and the the normal tendency for free markets to heal from panic" created the conditions for recovery. This is truly pathetic.

Look, I voted for President Obama and genuinely want him to succeed. But the recovery isn't real (no matter what Larry Summers says). Those of you who read this blog regularly know why. To the extent that things may have stabilized, the "easy money" policies (via low interest rates) that made this possible were mandated/facilitated by the Federal Reserve. This occurred with the cooperation of the White House and the Treasury Secretary. This is government policy.

Finally, the authors also hide behind industry junk terminology ("V-Shaped recovery", "monetary velocity," etc.) that, I'm sure, impresses gullible family members and drunk neighbors. But it does little more than camouflage reality. It completely misses the multi-trillion dollar guarantees that the Federal Reserve, the FDIC, and the Treasury Department created for Wall Street's market garbage. This along with mark-to-make believe are what is creating the illusion that things are picking up on Wall Street (by facilitating counterparty payoffs). 

At the end of the day, what Westbury and Stein present is stunningly superficial and myopic. It really belongs in the Irving Fisher School of Permanent Plateaus. More to the point, to suggest that markets are "healing" because of some kind of Magical Market Pixie Dust is simply delusional.

There's more from the authors (including the incredibly ignorant suggestion that the "economy would be doing even better ... if government had stayed out of the way") but it's clear that Westbury and Stein really have no clue what's happening in the economy. These guys are living in a free market fairytopia.

That they're writing this stuff, and people take them seriously, should be a Red Flag. They're cheeleaders, not analysts.

- Mark