This is way cool. Turn up the volume and put it on Full Screen.
Canon 5D Mark II Slow Motion + Jaws ( Peahi ) 12-7-09 from iamkalaniprince on Vimeo.
- Mark
Thursday, January 14, 2010
PAT ROBERTSON: TODAY'S VILLAGE IDIOT
Pat Robertson got so many things wrong when he suggested that Haiti is to blame for their many problems, which includes their recent earthquake. Cenk Uygur from The Young Turks nails it, on so many levels.
Napoloeon III? In 1804? Pact with the Devil? As if slavery under the French was an angelic Caribbean retreat ... Who made the deal? Why does this pact condemn an entire population in perpetuity?
Look, if Pat can unilaterally claim that Haiti - a virtual slave colony at the time of it's independence - made a pact with the devil then he needs to explain the role of the United States in the devil's work.
People forget that we (i.e. Thomas Jefferson) helped foment revolt in Haiti because we wanted to make things difficult on Napoleon Bonaparte (not Napoleon III, his nephew, who was born four years after the slave/devil's pact revolt Robertson refers to). Our goal was to get the French out of the Americas so we could make a move on the Louisiana territory. It's also why we encouraged the Indians to rebel in the areas in and around the Louisiana territories at the time. We wanted to harass Napoleon Bonaparte out of the Americas (the Louisiana Purchase was completed in 1803).
On another level, pointing to the Dominican Republican (Haiti's neighbor) as some kind of dream enclave is simply nuts. Has Robertson ever read the history of the Dominican Republic? It was no swim party under General Rafael Trujillo. Anyone who's seen the film In the Time of the Butterflies, with Salma Hayek, understands this (the film does a good job of portraying the Dominican Republic's past under Trujillo, who was the "inspiration" for the UN's International Day for the Elimination of Violence Against Women ).
In all cases, if Haiti made a pact with the devil, Robertson needs to think through our role in fomenting the devil's work. Does that make us the complicit angels of the devil?
What an idiot.
- Mark
Napoloeon III? In 1804? Pact with the Devil? As if slavery under the French was an angelic Caribbean retreat ... Who made the deal? Why does this pact condemn an entire population in perpetuity?
Look, if Pat can unilaterally claim that Haiti - a virtual slave colony at the time of it's independence - made a pact with the devil then he needs to explain the role of the United States in the devil's work.
People forget that we (i.e. Thomas Jefferson) helped foment revolt in Haiti because we wanted to make things difficult on Napoleon Bonaparte (not Napoleon III, his nephew, who was born four years after the slave/devil's pact revolt Robertson refers to). Our goal was to get the French out of the Americas so we could make a move on the Louisiana territory. It's also why we encouraged the Indians to rebel in the areas in and around the Louisiana territories at the time. We wanted to harass Napoleon Bonaparte out of the Americas (the Louisiana Purchase was completed in 1803).
On another level, pointing to the Dominican Republican (Haiti's neighbor) as some kind of dream enclave is simply nuts. Has Robertson ever read the history of the Dominican Republic? It was no swim party under General Rafael Trujillo. Anyone who's seen the film In the Time of the Butterflies, with Salma Hayek, understands this (the film does a good job of portraying the Dominican Republic's past under Trujillo, who was the "inspiration" for the UN's International Day for the Elimination of Violence Against Women ).
In all cases, if Haiti made a pact with the devil, Robertson needs to think through our role in fomenting the devil's work. Does that make us the complicit angels of the devil?
What an idiot.
- Mark
Wednesday, January 13, 2010
MOVE YOUR MONEY ...
Watch this clip before scrolling down. If your computer can't support the piece click here.
I've done a couple of book signings since The Myth of the Free Market was released. One of the questions I've been asked at these signings is "What can we do?" Apart from suggesting that we pound on the doors of Congress I urged those in attendance to take their money out of the large commercial/investment banks and move it into local community banks and credit unions.
I've been meaning to write about this for some time now. As it turns out, someone's not only beaten me to the punch, but there is now a national movement. It's called "Move Your Money" and can be accessed at http://moveyourmoney.info/. The idea behind the movement is simple: If our government won't discipline or break up our bungling but "bailed out-bonus sucking-Too Big To Fail" banks then we should do what we can to punish them on our own.
I won't go into details - primarily because this piece does a great job of explaining why you should move your money (with links) - but the links here provide you with the sites that grade regional banks (local banks here) and credit unions (our local Safe 1 is a four star) that are stable, safe, and (more importantly) are doing the right thing. I don't have my money in any of our big, Too Big To Fail, bailed out banks. I don't primarily because, in my view, they're run by parasitic sociopaths who continue to bet on the same market garbage (like CDOs and CDSs) that brought our economy down.
I encourage you to got to the links in this post. More importantly, if you haven't done so already, I hope you move your money.
- Mark
I've done a couple of book signings since The Myth of the Free Market was released. One of the questions I've been asked at these signings is "What can we do?" Apart from suggesting that we pound on the doors of Congress I urged those in attendance to take their money out of the large commercial/investment banks and move it into local community banks and credit unions.
I've been meaning to write about this for some time now. As it turns out, someone's not only beaten me to the punch, but there is now a national movement. It's called "Move Your Money" and can be accessed at http://moveyourmoney.info/. The idea behind the movement is simple: If our government won't discipline or break up our bungling but "bailed out-bonus sucking-Too Big To Fail" banks then we should do what we can to punish them on our own.
I won't go into details - primarily because this piece does a great job of explaining why you should move your money (with links) - but the links here provide you with the sites that grade regional banks (local banks here) and credit unions (our local Safe 1 is a four star) that are stable, safe, and (more importantly) are doing the right thing. I don't have my money in any of our big, Too Big To Fail, bailed out banks. I don't primarily because, in my view, they're run by parasitic sociopaths who continue to bet on the same market garbage (like CDOs and CDSs) that brought our economy down.
I encourage you to got to the links in this post. More importantly, if you haven't done so already, I hope you move your money.
- Mark
THEY'RE STILL IDIOTS
Senator Claire McCaskill calls it like it is. Last year, after hearing about Wall Street's billion dollar bonuses, she tells her congressional colleagues: "We have a bunch of idiots on Wall Street ..." (starts at 53 seconds).
She reminds everyone that executives at the 116 banks that were bailed out would receive an average of $2.6 million in bonuses and compensation in 2008. Sen. McCaskill also reminded America that Merrill Lynch paid out $3-4 billion in bonuses in a year (2008) that they lost $21 billion (and then turned to the American taxpayer for a bailout).
Well, guess what? Wall Street is preparing to do it again.
I guess that means they're still idiots.
- Mark
She reminds everyone that executives at the 116 banks that were bailed out would receive an average of $2.6 million in bonuses and compensation in 2008. Sen. McCaskill also reminded America that Merrill Lynch paid out $3-4 billion in bonuses in a year (2008) that they lost $21 billion (and then turned to the American taxpayer for a bailout).
Well, guess what? Wall Street is preparing to do it again.
I guess that means they're still idiots.
- Mark
Tuesday, January 12, 2010
THEY'VE LEARNED NOTHING ...
Back in March and July I wrote about how our non-regulatory and non-punitive responses to the 2008 market collapse effectively sets us up for an Extreme Do Over.
In a few words - and using ABC's Extreme Makeover Program as an example - I argued "that rather than demolish the commercial banking and investment infrastructure that got us into this mess - and then rebuilding everything with strong firewalls - the Obama administration has signed off on the old framework."
The point I made in both posts was that we've learned little to nothing from the market meltdown. The same people, the same thinking, and the same institutions that got us into this mess are still dominating our economy. In many respects, these developments create all the trappings for an Extreme Bailout Do Over.
This article from William Black offers additional insight into why we should not be surprised if we go through another 2008 market meltdown.
Black - who is a white-collar criminologist, a former senior financial regulator, and now an Associate Professor of Economics and Law - tells us that the epic regulatory failures at the Federal Reserve are the product of the continued intersection of a failed ideology with bad economics.
Specifically, Black points to five failures that are the stuff of legend:
Of these five developments, Dr. Parkinson's recent appointment is especially noteworthy because it shows that our regulatory mandarins have learned nothing from the past year.
Specifically, Dr. Parkinson was appointed largely because he shared Dr. Bernanke’s anti-regulatory ideology, a view that he hasn't changed even in the face of the Great Recession. Perhaps more importantly, as Black points out, Parkinson is an economist who has never examined or supervised. This is important because Parkinson is also known for naively claiming that credit default swaps (CDS, a.k.a the financial derivatives that destroyed AIG) should be unregulated because fraud was impossible among sophisticated parties! Huh?
Who believes crap like this? Oh, that's right. The same people who believe "invisible hand" pixie dust creates free markets where people magically become virtuous in the pursuit of profit.
And fairy tale market conditions exist too ... if you just close your eyes, click your heels together, and repeat the words, "There's no place like home ..."
Look, I'm all for creating useful myths and legends that help to build and unify a society (like George Washington never told a lie). But saying fraud is impossible among sophisticated parties in a market setting is like saying mingling among societies' power elites will turn ladies of the night into ladies of virtue. It doesn't happen.
At the end of the day, the anti-regulatory policies that Greenspan, Bernanke, Geithner, and now Parkinson champion are simply naive and reckless. Wishful thinking is no substitute for good policy.
- Mark
In a few words - and using ABC's Extreme Makeover Program as an example - I argued "that rather than demolish the commercial banking and investment infrastructure that got us into this mess - and then rebuilding everything with strong firewalls - the Obama administration has signed off on the old framework."
The point I made in both posts was that we've learned little to nothing from the market meltdown. The same people, the same thinking, and the same institutions that got us into this mess are still dominating our economy. In many respects, these developments create all the trappings for an Extreme Bailout Do Over.
This article from William Black offers additional insight into why we should not be surprised if we go through another 2008 market meltdown.
Black - who is a white-collar criminologist, a former senior financial regulator, and now an Associate Professor of Economics and Law - tells us that the epic regulatory failures at the Federal Reserve are the product of the continued intersection of a failed ideology with bad economics.
Specifically, Black points to five failures that are the stuff of legend:
1. Former Fed Chair Alan Greenspan believed that the Fed should not regulate fraud because the market would clean up fraud on it's own.
2. Current Chair Ben Bernanke also believed that the Fed should rely on self-regulation by “the market.”
3. Former Federal Reserve Bank of New York President Tim Geithner believed that he was never a regulator while he headed the NY Fed (a true statement as it applied to him, but not one he’s supposed to admit).
4. Bernanke gave key support to the Chamber of Commerce’s effort to gimmick bank accounting rules to cover up their massive losses — allowing them to report fictional profits and “earn” tens of billions of dollars in bonuses
5. Bernanke recently appointed anti-regulation crusader Dr. Patrick Parkinson as the Fed’s top supervisor.
Of these five developments, Dr. Parkinson's recent appointment is especially noteworthy because it shows that our regulatory mandarins have learned nothing from the past year.
Specifically, Dr. Parkinson was appointed largely because he shared Dr. Bernanke’s anti-regulatory ideology, a view that he hasn't changed even in the face of the Great Recession. Perhaps more importantly, as Black points out, Parkinson is an economist who has never examined or supervised. This is important because Parkinson is also known for naively claiming that credit default swaps (CDS, a.k.a the financial derivatives that destroyed AIG) should be unregulated because fraud was impossible among sophisticated parties! Huh?
Who believes crap like this? Oh, that's right. The same people who believe "invisible hand" pixie dust creates free markets where people magically become virtuous in the pursuit of profit.
And fairy tale market conditions exist too ... if you just close your eyes, click your heels together, and repeat the words, "There's no place like home ..."
Look, I'm all for creating useful myths and legends that help to build and unify a society (like George Washington never told a lie). But saying fraud is impossible among sophisticated parties in a market setting is like saying mingling among societies' power elites will turn ladies of the night into ladies of virtue. It doesn't happen.
At the end of the day, the anti-regulatory policies that Greenspan, Bernanke, Geithner, and now Parkinson champion are simply naive and reckless. Wishful thinking is no substitute for good policy.
- Mark
Monday, January 11, 2010
LEGACY ASSETS & TALF
OK, let's assume that you're upside down on your house. You owe more than your house is worth. Still, you walk into a bank and are able to get a government-guaranteed loan based on the promise that the house eventually will create enough wealth (equity) so that you can pay off the loan. Imagine, getting a $250,000 loan (it's market value today) on a house when you owe $350,000.
You can use the money for many things, until the market recovers. Better yet, since there's a government guarantee, you could even walk away and leave the bank with your house if the market doesn't recover. Heads I win, tails you lose.
Many of you who owe more than your house is worth are probably thinking, Wouldn't that be nice? Well, this is exactly what Wall Street's financial titans have access to with the Federal Reserve's $2.45 trillion legacy asset program (one of many such programs).
So, what's a legacy asset? In a few words, legacy assets are the fine sounding name that the financial sector and the Federal Reserve gave to debt investments that were not paying off after last year's market panic. In your world a legacy asset would be a house that is upside down. On Wall Street legacy assets are debt contracts (home loan mortgages, credit cards, or other debts) that were sold to market players as money making instruments, but are no longer being paid. They are bad debts.
In the real world, non-performing debts would be written off, and the lender (or the industry) would learn a very hard lesson about reckless lending. Not so in our Alice in Wonderland Economy.
Here's how we got to this point.
ROOTS OF "LEGACIES" ... ASSET BACKED SECURITIES
Starting about 25-30 years ago once-promising debt contracts were bundled up and sold to market players. Over time we would call these bundled up debt contracts "asset backed securities" (ABS). Market players purchased these ABS products because America's middle-class could always be counted on to make regular payments over the life of the loans they took out. Your credit card payment or your home mortgage payment are the real assets here.
Because of vigorous lobbying by the financial sector, bankruptcy and foreclosure laws were tightened up to help make sure this would happen (see especially the Bankruptcy Act of 2005). Over time market players got giddy and even started making big (and incredibly stupid) bets on these debt products paying off. These were trillion dollar bets that dwarfed the size of our national economy, and threatened our economic viability.
As we now know, things didn't work out too well. Credit and loans between financial institutions dried up. The market collapsed. People lost their jobs. Market players who made big stupid bets (called credit default swaps) didn't have the money to pay their bets.
Market players and financial institutions who thought America's middle-class would make their (ABS) investments pay off went nuts. They even blamed consumers for not paying their bills, even when they couldn't pay the stupid bets they had made.
No matter how you looked at it, the ABS markets were in trouble.
FROM ABSs TO "LEGACY ASSETS"
This explains, in part, why the Bush and Obama administrations swung into action. With the help of the financial sector and the Federal Reserve they created a nifty sounding name to deal with collapsed ABS markets. They called them "legacy assets." They were still worth crap, but at least "legacy assets" sounded better than "liability" or what they were, dying assets.
Legacy assets ... it's a nice name for a dying instrument. Kind of like euthanasia. Except instead of killing someone painlessly - especially someone suffering from an incurable illness - we put our tumor riddled and dying financial assets on life support. Here's how.
To put America's legacy assets on life-support we created something called Term Asset-Backed Securities Loan Facility (TALF). In real simple terms TALFs are government-backed loans. They can be accessed by those who hold financial crap, or non-performing ABSs. To better understand the concept let's use our home example from above.
If TALFs were available to America's home owners they should be able to use their homes to get a loan from the bank, even if they're upside down on the loan. Unfortunately, TALF loans are only made available to America's largest and most powerful financial players by the Federal Reserve of New York (and, no, President Obama's Making Home Affordable Program doesn't even come close to TALF; it's a joke).
Here's the real good part.
The big financial players don't need to put up any good collateral for the loans they get. They can use their poorly performing ABSs as collateral. If the collateral doesn't pay off then you and I are stuck with the bill (see "What happens if a borrower does not repay its loan?"). How much will this add up to? We don't know just yet. But we do know that the Federal Reserve has made at least $1 trillion available for these TALF (ABS) products, and another $1.45 trillion for non-performing assets in the housing market.
This is well above the $1.5 trillion that Presidents Bush and Obama made available via the Congress-approved bailouts.
WHAT WE'RE LOOKING AT ...
So, how well are things going? No one is quite sure, especially since there's no telling how bad markets really are because of our bailout-driven, re-inflated economy (not to mention the impact of mark-to-market garbage inflation). But we do know that the TALF terms are quite good for Wall Street, especially given the terms that the credit card and mortgage companies give middle-class America. Consider the following:
1. No Pre-Payment penalties (unlike many home loan contracts).
2. Principal rather than interest paid first.
2. TALF loans can continue if underlying product is paid off (TALF's % rate terms make this attractive).
Over 2009 we know that at least $50 billion has been lent out for "legacy assets" (via TALF) either in the form of mortgage backed loans or other debt-driven instruments (credit card debt, student loan debt, car loans, etc.). The Federal Reserve has already lent money for products that may not be worth the amount of the loan. Either way, market players have been able to generate cash for necessities - like their bonuses - and can walk away from the loan if the underlying product doesn't pay off.
Again, heads they win, tails we lose.
But the U.S. taxpayer is told not to worry about being taken for a ride. Somehow, rigged "stress" tests in a bailed out industry are supposed to give us confidence that "markets" will work and the Fed will get our money back. And besides, the only way these the product can fail - according to the NY Fed - is if "extremely unlikely economic circumstances" appear (you know, like in 2008).
With record bonuses continuing to occur, in a bailed out and undisciplined market, somehow this doesn't inspire confidence.
- Mark
UPDATE: For an overview of what productive, non-financial, legacy assets are supposed to look like click here.
Thursday, January 7, 2010
ROBBING PETER (You) TO PAY PAUL (Wall Street)
Imagine that you rent a room to relative - we'll call him Paul - who stops working and then stops paying rent. You let Paul stay because he means well, and promises to get a job and start paying "next month". Imagine, then, how you would feel if Paul started eating and drinking everything in the house, while jacking up your utilities and pay-for-view cable bills. In the real world you might call Paul a liability (or worse). You might even kick his free-loading butt to the curb.
Unfortunately, these dynamics don't apply to Wall Street ...
You see, if you're a financier on Wall Street who promised to be productive, and then became a free-loading couch potato, you don't get kicked to the curb. In fact, debt-laden deals that fail to pay out - and then threaten to drag the entire household down - are even given fancy or neutral sounding names like "capital arbitrage" or "credit default swaps". In a way, it's kind of like your free-loading relative telling you that his joblessness and couch potato habits are really a "leisure recharge" laced with "horizontal power naps".
This article from Bloomberg.com explains how and why this happened on Wall Street in 2008 and 2009.
In a few words, all the toxic crap that stopped producing money in 2008 and 2009 was re-energized by billions of dollars from the Federal Reserve of New York when Treasury Secretary Tim Geithner was still the boss. More importantly, while Geithner headed the NY Fed in 2008 and 2009, American International Group (AIG) was told by Geithner's Fed "to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis."
The impact of this financial muzzling was that AIG was able to pay its partners (in crime) 100 cents on the dollar for the debt-laden toxic instruments that weren't producing income.
This would be akin to one of your respectable relatives borrowing money from you - we'll call you Peter - and then handing it to your free-loading relative, Paul, so he could pay the rent ... and then telling Paul not to tell anyone where he got the money.
So, how do we know that AIG took money from the Fed and was then asked to stay quiet about what it was doing? Because e-mails between the company and it's regulator tell us the following: The NY Fed (incredibly, the "respectable relative") took money from the hardworking U.S. taxpayer (Peter), handed it to AIG (Paul), and then told them not to say anything about what was happening.
In the real world most of us would have figured what was happening and told our "respectable relative" to take a hike. Then we would have kicked our free loading relative (Paul) to the curb. But Wall Street's bankers don't live in the real world. They live in a world where Congress intercedes and guarantees that ambitous but irresponsible financial couch potatoes on Wall Street can take horizontal power naps all day long.
America's bankers have become wards of the state, plain and simple. This is the Peter Principle in the 20th Century.
- Mark
Unfortunately, these dynamics don't apply to Wall Street ...
You see, if you're a financier on Wall Street who promised to be productive, and then became a free-loading couch potato, you don't get kicked to the curb. In fact, debt-laden deals that fail to pay out - and then threaten to drag the entire household down - are even given fancy or neutral sounding names like "capital arbitrage" or "credit default swaps". In a way, it's kind of like your free-loading relative telling you that his joblessness and couch potato habits are really a "leisure recharge" laced with "horizontal power naps".
This article from Bloomberg.com explains how and why this happened on Wall Street in 2008 and 2009.
In a few words, all the toxic crap that stopped producing money in 2008 and 2009 was re-energized by billions of dollars from the Federal Reserve of New York when Treasury Secretary Tim Geithner was still the boss. More importantly, while Geithner headed the NY Fed in 2008 and 2009, American International Group (AIG) was told by Geithner's Fed "to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis."
The impact of this financial muzzling was that AIG was able to pay its partners (in crime) 100 cents on the dollar for the debt-laden toxic instruments that weren't producing income.
This would be akin to one of your respectable relatives borrowing money from you - we'll call you Peter - and then handing it to your free-loading relative, Paul, so he could pay the rent ... and then telling Paul not to tell anyone where he got the money.
So, how do we know that AIG took money from the Fed and was then asked to stay quiet about what it was doing? Because e-mails between the company and it's regulator tell us the following: The NY Fed (incredibly, the "respectable relative") took money from the hardworking U.S. taxpayer (Peter), handed it to AIG (Paul), and then told them not to say anything about what was happening.
In the real world most of us would have figured what was happening and told our "respectable relative" to take a hike. Then we would have kicked our free loading relative (Paul) to the curb. But Wall Street's bankers don't live in the real world. They live in a world where Congress intercedes and guarantees that ambitous but irresponsible financial couch potatoes on Wall Street can take horizontal power naps all day long.
America's bankers have become wards of the state, plain and simple. This is the Peter Principle in the 20th Century.
- Mark
Wednesday, January 6, 2010
BANKRUPTCY IN AMERICA
In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act. It was a gift to the financial sector in that it made it more difficult for debtors (especially credit card debtors) to discharge their obligations through personal bankruptcy filings.
According to the industry - who was making record profits at the time - the BAPCPA was necessary because so many debtors were abusing bankrutpcy proceedings. More specifically, because debtors were "irresonsible" they needed to be held accountable with new laws that would force them into structured repayment plans instead of simply writing off their debts. According to the industry free markets couldn't operate properly if people were allowed to act financially irresponsible and then hide behind legal protections.
(I know, I know. The irony of it all. The facts behind the 2008 market collapse and the subsequent industry bailout makes the financial sector even more hypocritcal and ethically challenged on the BAPCPA than we thought. Anyways ...)
Focusing on personal irresponsibility would have been a good industry story-line except for one thing. It wasn't true. In fact, well over 90% of all personal bankruptcies in America were being filed for primarily three uninvited life altering reasons: (1) Catastrophic Illness, (2) Job Loss, or (3) Divorce. Little has changed today.
The real reason the industry wanted the BAPCPA was because they are simply too lazy to do their own due diligence. It was easier to get Congress to do their bidding. What they really wanted was to make it more difficult for Americans to discharge their debts because the longer someone had to sit on debt the more fees, penalties, interest rate hikes, etc. could be tacked on to that debt.
Well, guess what? It looks like the favorable legislation backfired on the industry (and the American taxpayer). It appears that, because of the industry's stupidity and greed, Americans are once again filing for bankruptcy at a staggering pace. Personal bankruptcy filings in America hit 1.41 million last year, up 32% from 2008.
The difference between today and 2005 is that more and more Americans are using Chapter 7 to file for bankruptcy (which allows debts to be discharged once assets are sold off) instead of Chapter 13 (which simply restructures debt if you can afford to make some payments under the 2005 BAPCPA). The indsutry didn't really anticipate this development. As well, in addition to divorce, catastrophic illness, and job loss, bankruptcies today are also being driven by home foreclosures (brought on by industry greed and bi-partisan stupidity).
Why is all of this important? Because in spite of getting Congress to write them favorable legislation the financial sector still shot themselves in the foot. In real simple terms they did this because they're too damn greedy and myopic for their own good.
More specifically, the financial sector shot themselves in the foot because they believed they would have a stronger and continuous stream of income because the 2005 BAPCPA was supposed to force more and more Americans into court-enforced bankruptcy repayment plans (which it appears to have done for a while). Confident that the courts would enforce indentured financial servitude on America's debtors the financial sector irresponsibly sent out more credit card offers (for example) with teaser rates, and then went out and sold more and more consumer debt to other entities. All of this helped fuel confidence in the CDO markets that would tank in 2008 and 2009.
There's more to this story. The point is you do not attack bankruptcy in America by writing favorable legislation that allows the financial sector to extract wealth from America's middle-class. The industry is too myopic, greedy, and stupid to do the right thing. Instead, Congress should be doing something about limiting the effects of uninvited life events like divorce, catastrophic illness (hello, public option), and job loss. Otherwise, all we end up with is a massive transfer of wealth in America.
This is not rocket science.
- Mark
According to the industry - who was making record profits at the time - the BAPCPA was necessary because so many debtors were abusing bankrutpcy proceedings. More specifically, because debtors were "irresonsible" they needed to be held accountable with new laws that would force them into structured repayment plans instead of simply writing off their debts. According to the industry free markets couldn't operate properly if people were allowed to act financially irresponsible and then hide behind legal protections.
(I know, I know. The irony of it all. The facts behind the 2008 market collapse and the subsequent industry bailout makes the financial sector even more hypocritcal and ethically challenged on the BAPCPA than we thought. Anyways ...)
Focusing on personal irresponsibility would have been a good industry story-line except for one thing. It wasn't true. In fact, well over 90% of all personal bankruptcies in America were being filed for primarily three uninvited life altering reasons: (1) Catastrophic Illness, (2) Job Loss, or (3) Divorce. Little has changed today.
The real reason the industry wanted the BAPCPA was because they are simply too lazy to do their own due diligence. It was easier to get Congress to do their bidding. What they really wanted was to make it more difficult for Americans to discharge their debts because the longer someone had to sit on debt the more fees, penalties, interest rate hikes, etc. could be tacked on to that debt.
Well, guess what? It looks like the favorable legislation backfired on the industry (and the American taxpayer). It appears that, because of the industry's stupidity and greed, Americans are once again filing for bankruptcy at a staggering pace. Personal bankruptcy filings in America hit 1.41 million last year, up 32% from 2008.
The difference between today and 2005 is that more and more Americans are using Chapter 7 to file for bankruptcy (which allows debts to be discharged once assets are sold off) instead of Chapter 13 (which simply restructures debt if you can afford to make some payments under the 2005 BAPCPA). The indsutry didn't really anticipate this development. As well, in addition to divorce, catastrophic illness, and job loss, bankruptcies today are also being driven by home foreclosures (brought on by industry greed and bi-partisan stupidity).
Why is all of this important? Because in spite of getting Congress to write them favorable legislation the financial sector still shot themselves in the foot. In real simple terms they did this because they're too damn greedy and myopic for their own good.
More specifically, the financial sector shot themselves in the foot because they believed they would have a stronger and continuous stream of income because the 2005 BAPCPA was supposed to force more and more Americans into court-enforced bankruptcy repayment plans (which it appears to have done for a while). Confident that the courts would enforce indentured financial servitude on America's debtors the financial sector irresponsibly sent out more credit card offers (for example) with teaser rates, and then went out and sold more and more consumer debt to other entities. All of this helped fuel confidence in the CDO markets that would tank in 2008 and 2009.
There's more to this story. The point is you do not attack bankruptcy in America by writing favorable legislation that allows the financial sector to extract wealth from America's middle-class. The industry is too myopic, greedy, and stupid to do the right thing. Instead, Congress should be doing something about limiting the effects of uninvited life events like divorce, catastrophic illness (hello, public option), and job loss. Otherwise, all we end up with is a massive transfer of wealth in America.
This is not rocket science.
- Mark
Monday, January 4, 2010
A LOOK INTO AMERICA'S LOST DECADE
No matter how you slice it, the aughts - or the first decade of the 21st century - were an economic bust for Middle America. In fact, the Washington Post's Neil Irwin called it the "lost decade" (click on graph to enlarge).
How bad was it? Whatever jobs we thought had been created were wiped out by the market collapse that occurred between 2007 and 2009.
The primary reason for this development is that market analysts and media pundits drank the free market Kool-Aid that was being peddled at the time (incredibly, this same Kool-Aid talk is now making a comeback). In a few words the free market happy talk works like this: Trust market players, they will do the right thing.
Ooops.
What people missed was how all the free market happy talk was really the delusional babble of analysts and media pundits who ignored how a bubble economy had been built on growing consumer debt, favorable legislation, and deregulation. Worse, the bubble economy had been super-charged by market players who operated as if they were in a casino rather than as real investors in a capitalist economy.
Why did the market experts ignore this? Because they don't know how markets really work in today's casino economy. In a few words our casino economy works like this: You're on your own, market players can do what they can to take your money. They own the House.
A bit harsh? Perhaps. But I don't think so. Here's why.
In a wonderful (if somewhat overly technical) review of how some of America's biggest institutional players gamed the system, Yves Smith outlined how companies like Goldman Sachs and Morgan Stanley deceived market players into buying certain market products. The problem was that Goldman Sachs and Morgan Stanley were betting that these same products would fail.
The details of the deals are somewhat complex, but it would be akin to me selling you a car but then delivering you a lemon. Or, as I wrote about in October, it would be akin to me selling you a Classic '65 Mustang but sending you a piece of crap Pinto. Your argument would be "It's not the model I want." My argument (or Goldman Sachs' argument) would be "Hey, a Ford's a Ford." In the real world, unless you're seriously clueless - or just plain stupid - this wouldn't be tolerated. And if it were, the seller could still be charged with fraud.
But in today's Alice in Wonderland Economy companies like Goldman Sachs and Morgan Stanley think that they are not only entitled to sell you crap, but that if you lose money you should have known better because everyone can lose if they go through the wrong door.
As Yves Smith points out this kind of thinking is "irrelevant" when you consider many of the institutional investors who got taken for a ride (like union or state pension funds) were not equal partners in setting up the deals, nor were they given access to the same models that companies like Goldman and Morgan had for assessing deals. Worse, most of the deals were managed, "meaning they were effectively blind pools."
What does all of this mean in plain English? Goldman and Morgan were effectively selling crappy Pintos and getting Classic '65 Mustang prices. Their argument? Not that it was good business. Because it wasn't (collaborating with rating agencies is not good business). Instead, they're banking on the "it was legal" argument.
They knew they would get away with it because pension fund plans (for example) had neither the expertise, personnel, nor the models to assess the games firms like Goldman and Morgan were playing. Pension funds and the American taxpayer were effectively played as suckers.
As I point out in my book, what we have today is an economy based on wealth extraction, not it's creation. Worse, it's being extracted in a casino economy built on bubbles, industry lies (see esp. the rating agencies), favorable legislation, and debt.
In the next few months we're going to hear some good news on the economic front. Don't be misled by the Kool-Aid talk sure to follow. Think about it, $10-20 trillion in market bailouts and other guarantees should buy us some good news. But with consumer debt, favorable legislation, and deregulation continuing unabated what we're actually going to see is more smoke & mirrors.
Stay tuned.
- Mark
How bad was it? Whatever jobs we thought had been created were wiped out by the market collapse that occurred between 2007 and 2009.
The primary reason for this development is that market analysts and media pundits drank the free market Kool-Aid that was being peddled at the time (incredibly, this same Kool-Aid talk is now making a comeback). In a few words the free market happy talk works like this: Trust market players, they will do the right thing.
Ooops.
What people missed was how all the free market happy talk was really the delusional babble of analysts and media pundits who ignored how a bubble economy had been built on growing consumer debt, favorable legislation, and deregulation. Worse, the bubble economy had been super-charged by market players who operated as if they were in a casino rather than as real investors in a capitalist economy.
Why did the market experts ignore this? Because they don't know how markets really work in today's casino economy. In a few words our casino economy works like this: You're on your own, market players can do what they can to take your money. They own the House.
A bit harsh? Perhaps. But I don't think so. Here's why.
In a wonderful (if somewhat overly technical) review of how some of America's biggest institutional players gamed the system, Yves Smith outlined how companies like Goldman Sachs and Morgan Stanley deceived market players into buying certain market products. The problem was that Goldman Sachs and Morgan Stanley were betting that these same products would fail.
The details of the deals are somewhat complex, but it would be akin to me selling you a car but then delivering you a lemon. Or, as I wrote about in October, it would be akin to me selling you a Classic '65 Mustang but sending you a piece of crap Pinto. Your argument would be "It's not the model I want." My argument (or Goldman Sachs' argument) would be "Hey, a Ford's a Ford." In the real world, unless you're seriously clueless - or just plain stupid - this wouldn't be tolerated. And if it were, the seller could still be charged with fraud.
But in today's Alice in Wonderland Economy companies like Goldman Sachs and Morgan Stanley think that they are not only entitled to sell you crap, but that if you lose money you should have known better because everyone can lose if they go through the wrong door.
As Yves Smith points out this kind of thinking is "irrelevant" when you consider many of the institutional investors who got taken for a ride (like union or state pension funds) were not equal partners in setting up the deals, nor were they given access to the same models that companies like Goldman and Morgan had for assessing deals. Worse, most of the deals were managed, "meaning they were effectively blind pools."
What does all of this mean in plain English? Goldman and Morgan were effectively selling crappy Pintos and getting Classic '65 Mustang prices. Their argument? Not that it was good business. Because it wasn't (collaborating with rating agencies is not good business). Instead, they're banking on the "it was legal" argument.
They knew they would get away with it because pension fund plans (for example) had neither the expertise, personnel, nor the models to assess the games firms like Goldman and Morgan were playing. Pension funds and the American taxpayer were effectively played as suckers.
As I point out in my book, what we have today is an economy based on wealth extraction, not it's creation. Worse, it's being extracted in a casino economy built on bubbles, industry lies (see esp. the rating agencies), favorable legislation, and debt.
In the next few months we're going to hear some good news on the economic front. Don't be misled by the Kool-Aid talk sure to follow. Think about it, $10-20 trillion in market bailouts and other guarantees should buy us some good news. But with consumer debt, favorable legislation, and deregulation continuing unabated what we're actually going to see is more smoke & mirrors.
Stay tuned.
- Mark
Sunday, January 3, 2010
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
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
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