THE AMERICAN ECONOMY, COUNTRYWIDE & CARLO PONZI

Wow. It looks like the leaders at Countrywide who helped build and feed the sub-prime mess are going to walk away with additional millions of dollars after Bank of America finishes purchasing the company. This comes after Countrywide directors cashed out so many millions of dollars in options that the Securities & Exchange Commission started looking into insider trading (company directors selling company stock is exactly the opposite of what happened after the last major market meltdown occurred in 1987; but that’s another story).

So, what helped make Countrywide such a bargain for BofA? Primarily three developments:

1. EASY MONEY & ASSET INFLATION: The price of Countrywide (and its industry) had to be driven up. Thank you Alan Greenspan.

2. DEREGULATION allowed investors to enter the home mortgage market. Thank you Republican Party (who apparently couldn’t imagine that good investors would yield to speculators who, with enough easy money, would become Ponzi-like sharks, depending on asset inflation and creative credit instruments to keep the mania going).

3. MARKET SUBSIDY: After getting wrapped into the sub-prime mess Countrywide secured billions of dollars in government backed loans to help cover losses.

While easy money and deregulation helped Countrywide’s stock price soar in the 2000s, federal loans helped the company bury their financial “toxic waste” because the feds, incredibly enough, accepted Countrywide’s sub-prime debt as collateral.

That’s right. In spite of company directors selling company stock like rats jumping off a sinking ship, and a boat-load of bad debt, the federal government gave Countrywide billions of dollars in loans, and then took Countrywide’s financial garbage as collateral. BofA then swoops in and purchases the troubled company at a bargain price, knowing that the federal government now has a stake in Countrywide.

You know it seems that the more details we see in these rescues-bailouts, the more it appears the only real problem in the Pyramid Schemes of Charles Ponzi was that he never had Greenspan-like easy money, nor was he able to hook the federal government into underwriting his shady deals.

- Mark

ON TOXIC WASTE & TOXIC RELATIONS

Our national debt is $9.2 trillion. A little over $8.2 trillion of that has been accumulated over the past 28 years. Ronald Reagan began the deficit-spending binge. George W. Bush, interestingly enough (given his background), turned it into an addiction. Now, we’re faced with an economy that appears to be staggering in Bush’s final year, but the Federal Reserve refuses to issue “Last Call” – choosing, instead, to hand out more free drinks to those who irresponsibly bellied up to the Subprime Bar that sold instant highs in concoctions insiders called “toxic waste.”

So, as George Bush prepares to leave office – in the process, sticking us with the tab for his rotgut-filled, deficit spending binge – I’ve been reading a couple of books that help shed light on why things may get worse before they get better.

Want to know about the “toxic waste” produced by the market? Read The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash, by Charles R. Morris. It's perhaps the most accessible reading on what's been happening in markets that I've read.



If you want to understand why we won’t be escaping the political and military entanglements of the Middle East any time soon, read the appropriately titled Sleeping With the Devil: How Washington Sold Our Soul for Saudi Crude, by former CIA operative, Robert Baer.

Both of these books are highly readable, and non-technical (although the book by Charles R. Morris has to get into some jargon). At the end of the day, what we find is that the Saudis aren’t our worst nightmare … it’s the people in Washington who can’t seem to say no to Wall Street, and are captured by self-serving political and financial interests that keep us tangled up with a very corrupt and morally bankrupt Saudi regime.

- Mark

SEN. McCLINTOCK ... WARD OF THE STATE?

Yet another story of hypocrisy from those who preach from the Mountain Tops ...

State Sen. Tom McClintock, a fierce critic of government spending, has accepted hundreds of thousands of dollars in tax-free per diem payments from the state that are meant to help legislators who, unlike McClintock, live far from the capital ... The Republican lawmaker [who makes $116,000 a year] said he is entitled to the $170-a-day payments because his legal residence is a family home in his Senate district of Thousand Oaks, where he is registered to vote ... McClintock and his family live year-round in Elk Grove, 14 miles from the state Capitol ... His children attend Elk Grove schools and his wife works at a Baptist church there.

One of the arguments McClintock uses to justify accepting $300,000 tax free dollars over the years - while living in his 4,090-square-foot Sacramento suburb home - is the expense of maintaining two homes. I think I could buy into this except for the following:

The Thousand Oaks house, where he grew up, is owned by a family trust controlled by his mother, who lives there ...

Insert your own punchline here______________.

- Mark

P.S. And for the record, Democratic state Sen. Darrell Steinberg and Assemblyman Dave Jones, both from Sacramento, do not accept per diem payments. Republican Sen. Dave Cox of Fair Oaks, who lives about 25 miles from the Capitol does accept per diem (but he pays taxes on them).

A CULTURE OF BUCK PASSING ...

Condoleeza Rice, who was National Security Advisor to George Bush when the war in Iraq started, explained in an interview that she didn’t think the Iraq War would be "this tough." Rice shifts blame for what's happened in Iraq by pointing fingers at UN sanctions, Saddam, etc.

Apparently, a Ph.D. in political science, a security stint in the first Bush White House, and access to the most detailed (and up to date) information in the world no longer means anything.

You know what would make this a lot easier? If these guys would simply tell us that Iraq is what happens when you put ideology above the facts.

- Mark

EXPLAINING THE McCAIN VOTE ...

So, I’m talking politics with one of my republican friends this afternoon (who I thanked for lunch). As usual, we got around to talking about George Bush: Record deficits, incompetence in Katrina, collapsing influence abroad, the worst jobs creation record since Herbert Hoover, financial meltdowns requiring “Depression Era” tactics, etc. … He understands all of this and doesn’t even try to defend Bush. He even acknowledges that, as Lou Dobbs put it,

… This president pursues a war without demanding of his generals either success or victory and accepts the sacrifice of our brave young men and women in uniform while asking nothing of our people or the nation at a time of war … Sadly, this president has diminished a great nation and may diminish it further ...

Pretty clear, don’t you think? Still, my republican friend informed me that when November comes along he’s voting for the one person who promises to keep Bush’s Caravan-of-Incompetence going: Sen. John McCain. (What was it that Albert Einstein said about doing the same thing over and over again and expecting different results? Oh, yeah … you’re nuts).

Now, keep in mind, my friend is an intelligent, successful individual. But somehow – like most republicans who will vote for John “100-years-in Iraq-is-OK-by-me” McCain – he allows logic to be taken into a back alley, where it can be mugged by ideology.

Then I had a deja vu moment. I start thinking, “The blind, comatose pursuit of proven dead-end fantasies is not new.” I just had to figure out where I’d seen this picture before. Hmmmm … and then it hit me: Hollywood already turned meandering, lifeless judgment into a movie ...



- Mark

McCAIN'S 5 YEAR REIGN OF ERROR ...

From Perrspectives.com ...

On foreign policy as well as domestic issues, John McCain has dumped past postures as part of his presidential quest. His amnesia regarding his past belittling of key American allies is just one case in point.

In Paris last weekend, McCain adopted what the New York Times called "soothing tones" in a "love-fest" with French President Nicolas Sarkozy. And in what his campaign billed as a major foreign policy address today, John McCain declared, "We need to listen to the views and respect the collective will of our democratic allies."

Sadly, the John McCain of 2008 seems unacquainted with the John McCain model of 2003. With his vitriolic France-bashing in the run-up to the war in Iraq, John McCain stood shoulder to shoulder with the Paris-hating purveyors of "freedom fries" and "old Europe."

As President Bush prepared to pull the trigger on the Iraq war in February 2003, John McCain was at the forefront of those browbeating the Chirac government for France's refusal to back the U.S. at the United Nations. On February 11, 2003, McCain co-sponsored a Senate resolution praising 18 European nations backing U.S. enforcement of UN demands for Saddam's disarmament and echoed Defense Secretary Donald Rumsfeld in thundering at the France and Germany of "old Europe:"

"The majority of Europe's democracies have spoken, and their message could not be clearer: France and Germany do not speak for Europe...most European governments behave like allies that are willing to meet their responsibilities to uphold international peace and security in defense of our common values. We thank this European majority for standing with us."

McCain's venom towards the French was on full display two days later during a speech at the Center for Strategic and International Studies. On February 13, 2003, McCain warned of "new threats to civilization [which] again defy our imagination in scale and potency" portrayed Iraq as "threat of the first order." He proclaimed that "the United States does not have reliable allies to implement a policy to contain Iraq" and pointed the finger squarely at France:

"Compare our great power allies in the Cold War with those with whom we act today in dealing with Iraq. France has unashamedly pursued a concerted policy to dismantle the UN sanctions regime, placing its commercial interests above international law, world peace and the political ideals of Western civilization. Remember them? Liberte, egalite, fraternite."

Just days later on February 18, 2003, the Australian Broadcasting Corporation's Lateline program showed a furious McCain foaming at the mouth over France:

"They remind me of an aging movie actress in the 1940's who is still trying to dine out on her looks but doesn't have the face for it."

That the American media seem to have overlooked McCain's turnabout comes as no surprise. They have yet to hold John McCain to account for a five-year reign of error on Iraq in which he had everything - Saddam's WMD, the needed U.S. troop strength, Americans being greeted as liberators, the safety of Baghdad streets and so much else - completely wrong.

... Like I said, McCain is not fit to lead.

- Mark

WE'RE IN THE "3rd or 4th INNING" OF MELTDOWN ...

Here's a link to a pretty level-headed interview on our economic situation from noted value investor, Whitney Tilson. There's some jargon but, in my view, Tilson gets it: There's no confidence, and we're only in the "third or fourth inning" of the housing market meltdown. Tilson (following Warren Buffet's lead) sees "hundreds of billions" more to be lost in the market, and even sneaks in the threat of "depression" for good measure.

Here's some of the interest rate reset problems that's coming down the pike - and leading people to abandon their homes - in the housing market.

This is not good news for the financial firms (that are exposed) and the economy, which absorbs the ripple effects. I'll touch on this before Saturday's show.

- Mark

WHY “THE SURGE” IS NOT WORKING …

Here’s “the surge is working” logic in a nutshell: Declining U.S. military deaths in Iraq since August, 2007 means the “the surge” is working.

What the “surge is working” crowd seems to (conveniently) ignore is that the surge was designed to provide stability for national reconciliation so that specific political benchmarks could be met. Let me reiterate. the goals are national political reconciliation and meeting political benchmarks.

National reconciliation is not on the horizon. The benchmarks have not been met. Ergo, the surge has failed. And to the extent that we have seen U.S. casualties decline, we need to understand why …

1. The Moqtada al-Sadr ceasefire. The al-Sadr ceasefire began August, 2007. Let's keep in mind that al-Sadr’s father was roughed up pretty good by Saddam’s henchmen. Al-Sadr has much to seek revenge about. Don’t count on a permanent ceasefire.

2. The “Low-Hanging-Fruit-of-Death” Peak: Simply put, early and vicious ethnic cleansing in Baghdad caused Shi'a and Sunni to separate and move out of old neighborhoods by August 2007. The early low hanging fruit of death – as it were – were no longer hanging out in the old neighborhoods waiting to be shot. As a result, American soldiers no longer have to be in the middle of this mess.

3. The Wall(s) of Love: The physical separation of the Sunni-Shia combatants in Baghdad with 12 ft. high walls. Completed just in time for the surge.

4. The Anbar Awakening: In September 2006 – long before President Bush’s “surge” was implemented – a federation of Sunni tribes came together as the Anbar Salvation Council. They opposed the fundamentalist militants of Al Qaeda. The Sunni dominated council needed-wanted money and security. In return the council volunteered hundreds of tribesmen to serve as police officers and have permitted the construction of police and military outposts.

Let’s be clear here. None of the above - with the possible exception of the Wall of Love - have anything to do with the surge (which, again, has not met its goals).

LOCATION, LOCATION, LOCATION ...
But here’s another problem with “the surge is working” fairytale. While reduced GI killings in Baghdad has happened, and regular violence against Iraqis has remained relatively flat (but it’s still higher today than in ’03, ’04, and ’05), our surge has not reduced overall violence in Iraq.

One of the reasons we don’t know this is because of the way we have counted sectarian violence and civilian deaths. Check this out. It seems that if you are an Iraqi shot in the front of the head you are simply a victim of violent crime. This is a victory for the surge. To be counted as part of the sectarian violence, and to get Gen. Petraeus’ sectarian-death-stamp-of-approval, you need to be shot in the back of the head. This is not good for the surge.

So, essentially, declining sectarian violence in Iraq is a product of bullet hole location. Nice.

- Mark

i,ROBOT ... AROUND THE CORNER?

Will Smith's I Am Legend came out for purchase last week. My son loved the movie - as did I - so I will probably end up purchasing it. If you haven't seen it, and liked Road Warrior and Dawn of the Dead, check it out.



However, the Will Smith movie that I really enjoyed was i,Robot, a futuristic look at robots who are programed to live with humans. The story turns when the robots get out of control and start killing people, something they're not supposed to be programmed to do.


It looks like a future with robots embedded into our every day lives may come about quicker than we think. Check out what DARPA has been working on.

DARPA is the acronym for Defense Advanced Research Projects Agency, and is responsible for funding the development of new weapons technology. DARPA was developed in 1958, in response the the Soviet's launching of Sputnik in 1957. Its mission is to keep the U.S. technologically ahead of the enemy. And keep in mind that the DARPA robot video is a couple of years old.

- Mark

4,000 AMERICANS KILLED IN IRAQ

The 4,000th American soldier was killed in Iraq yesterday. Below is the letter of condolence President Lincoln wrote to the parents of Colonel Elmer Ellsworth. Colonel Ellsworth was shot in Alexandria, VA while removing a rather large Confederate flag from a small hotel. The flag was visible throughout Washington, including from Lincoln's second-floor White House office.

Lincoln's letter is pure eloquence.

To the Father and Mother of Col. Elmer E. Ellsworth:

My dear Sir and Madam, In the untimely loss of your noble son, our affliction here, is scarcely less than your own. So much of promised usefulness to one's country, and of bright hopes for one's self and friends, have rarely been so suddenly dashed, as in his fall. In size, in years, and in youthful appearance, a boy only, his power to command men, was surpassingly great. This power, combined with a fine intellect, an indomitable energy, and a taste altogether military, constituted in him, as seemed to me, the best natural talent, in that department, I ever knew. And yet he was singularly modest and deferential in social intercourse. My acquaintance with him began less than two years ago; yet through the latter half of the intervening period, it was as intimate as the disparity of our ages, and my engrossing engagements, would permit. To me, he appeared to have no indulgences or pastimes; and I never heard him utter a profane, or intemperate word. What was conclusive of his good heart, he never forgot his parents. The honors he labored for so laudably, and, in the sad end, so gallantly gave his life, he meant for them, no less than for himself.

In the hope that it may be no intrusion upon the sacredness of your sorrow, I have ventured to address you this tribute to the memory of my young friend, and your brave and early fallen child.

May God give you that consolation which is beyond all earthly power. Sincerely your friend in a common affliction --

A. Lincoln

This is a timeless piece of poetry. Lincoln’s letter could be sent to the parents of our fallen U.S. soldiers today. It really is a lesson in human dignity and eloquence.

It’s a shame that Bush had to pull this stunt - from the deck of the USS Abraham Lincolon, no less.


















- Mark