Nouriel Roubini of RGE Monitor and Nassim Taleb, author of The Black Swan, who both predicted the credit crunch, and who were both mocked for doing so are interviewed on CNBC.
They are saying that our economy is broken and need to be reconstructed in a different model, and the so called “business reporters” are asking for Investment Tips?!?!?!?!?!
Un-dirtword-believable.
First, some context here, even before Geithner’s plan, we should note that the taxpayer exposure in all this is, “$9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages,” or about $30,000 for every man woman and child in the US.
For what Geithner is proposing, we are looking at as much as another $2 trillion.
By comparison, the 2006 US GDP was a bit over $13 trillion, so all of this is a serious chunk of change.
The short version of his plan is that he wants to go with the bad bank, with a fig-leaf of subsidies to bring in “private” money, so my report of the CNBC story was wrong:
Officials said the plan was fashioned after a spirited internal debate that pitted Mr. Geithner against some of the president’s top political hands.
Some of President Obama’s advisers had advocated tighter restrictions on aid recipients, arguing that rising joblessness, populist outrage over Wall Street bonuses and expensive perks and the poor management of last year’s bailouts could feed a potent political reaction if the administration did not demand enough sacrifices from the companies that receive federal money.
They also worry that any reaction could make it difficult to win Congressional approval for more bank rescue money, which the administration could need in coming months.
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.
So it’s more welfare for fat cat bankers, in this case backstopped by, “The Fed will use its balance sheet to provide the financing, and the Federal Deposit Insurance Corporation might provide guarantees to investors.”
Nemo at self-evident does the numbers on how this will screw the taxpayers, and I cannot do better than his numbers:
If the Plan involves convincing private equity firms to take “first loss” position on the assets they purchase, and merely limits their downside with some form of insurance, does that make it a good deal for the taxpayer?
Well, let’s see. Suppose some insolvent bank, like Citigroup or Bank of America, has 10 mortgages or MBSes or CDOs. Now, nobody knows what any of these things is worth. Most of them are worth nothing, but some of them are probably worth something, depending on who defaults on what. Suppose, just for the sake of example, that each of these toxic assets has a 10% chance of being worth $100 and a 90% chance of being worth zero.
Obviously, a rational investor would pay at most $100 for the entire pool of 10 assets, or 10 cents on the dollar.
Now, suppose the D.C. branch of Goldman Sachs the U.S. Treasury comes along and offers to insure every one of these investments to the tune of $45 for any private equity firm who purchases the entire pool for $50/asset. In other words, the private equity firm is in “first loss” position on each asset to the tune of $5, while Team Timmay is on the hook for the remaining $45.
Since one of the assets is probably worth $100 and the other nine are probably worth zero, the private equity firm expects to make $50 on one and lose only $5 on each of the remaining nine, for an expected profit of $5 on their $500 investment. (Which they can lever up via the Fed, if the NYT is to be believed. Not to mention that this is just an illustrative example…)
Meanwhile, the taxpayers expect to pay insurance to the tune of $45 * 9 = $405. Thus, despite private equity being in “first loss” position, the most likely result is for the private firm to profit even as the taxpayers get hosed.
Change units to trillions, rinse, lather, repeat.
Now, it appears that Geithner plans to set up some sort of triage, he is calling it a “stress test”, to ensure that banks are strong enough to be a part of the program.
I’ll believe it’s something more than a cute phrase when they seize Citi as insolvent and start a serious criminal investigation of Geithner’s protege Robert Rubin, because the former is insolvent, and the latter is a crook.
I still say that the best solution is seizing insolvent banks, and breaking up the rest so that they are “small enough to fail.”
This has epic fail written all over it.
This is what is alleged to have happened to Binyam Mohamed, and the British courts expunged the reports, because of threats from US intelligence that they would stop cooperating with UK intelligence if the information were released, and the is arguing to continue the complete and absolute privilege that Bush and His Evil Minions™ insisted upon:
“Is there anything material that has happened” that might have caused the Justice Department to shift its views, asked Judge Mary M. Schroeder, an appointee of President Jimmy Carter, coyly referring to the recent election.
“No, your honor,” Mr. Letter replied.
Judge Schroeder asked, “The change in administration has no bearing?”
Once more, he said, “No, Your Honor.” The position he was taking in court on behalf of the government had been “thoroughly vetted with the appropriate officials within the new administration,” and “these are the authorized positions,” he said.
(emphasis mine)
I Barack Obama decided that since he’s so awesome, we should just trust him.
We also have graphic depictions of what was done to the man (from the 2nd link):
The court papers describe horrific treatment in secret prisons. Mr. Mohamed claimed that during his detention in Morocco, “he was routinely beaten, suffering broken bones and, on occasion, loss of consciousness. His clothes were cut off with a scalpel and the same scalpel was then used to make incisions on his body, including his penis. A hot stinging liquid was then poured into open wounds on his penis where he had been cut. He was frequently threatened with rape, electrocution and death.”
(again, emphasis mine)
Note that the precedent here, US v. Reynolds, is in fact based on a lie. There were no state secrets involved, the B-29 which crashed was not, as was claimed, on a secret mission or testing secret equipment.
They claimed privilege because the report indicated that the aircraft was in poor condition because of inadequate maintenance, and the USAF wanted it covered up. It was all a lie.
I’m not going to be writing about Geithner’s bank bailout plan here, it needs it’s own post, but I have some graph pr0n, a little update from last night’s Pelosi scary employment graph courtesy of Justin Fox (top) and William Polley.
The first goes back 6 recessions, and the 2nd covers all of the recessions since WWII, which makes a bit busy, but they are at least as scary as last night’s graph.
On to the update:
It appears that the Asian economies are melt down down, with Japan’s economy is deteriorating in a way that has not been seen in 50 years, China’s exports falling by double digits, the Taiwan dollar and Malaysian Ringgit falling, and the IMF predicting a 4% contraction in the South Korean economy in 2009.
Meanwhile, there is a report that Russia is attempting to restructure its debts, which is a polite way of saying that they are threatening to default.
Meanwhile, Geithner’s plan, and the Senate’s approval of a stimulus, does appear to be having an effect on the markets, with oil falling, which indicates that the oil traders do not expect to see a rapid economic turn around, and the dollar rising, on the same information.
In this case it appears to be cross purposes, but I think that the reason that the dollar is up is because people realize that the bailout makes US investments more attractive, albeit at taxpayer expense, but that is another post.
Here, with Kennedy showing up to cast his vote.
First, a definition: The Overton window is a theory first voiced in this form by Joe Overton, which states that ideas, can be classifies as being either inside of or outside of the bounds of conversation in a group. It further notes that this window is not fixed, but rather it moves, and through the application of resources over a long term, can be made to move significantly.
Ideas can generally be classified as unthinkable, radical, acceptable, sensible, or popular, with the latter generally moving toward policy.
Israeli elections are today, and it is likely that the racist Yisrael Beitenu party will be the 3rd largest party in the Knesset, displacing Labor to 4th place.*
What I think people don’t realize is how much of a shift this is in Israel’s Overton window.
If one were to suggest at a party an expulsion of Israel’s Arab population in 1966, or an expulsion of the Palestinians in the territories in 1968 at a party, the response would have been stunned silence, with people looking at the speaker like they had just admitted to eating children, and that person would be ostracized at the party, and not invited back.
In fact, it could be argued that this was the societal norm well into the 1st Intifada, and possibly up to some time after the Oslo accords were implemented, and the PLO returned to Israel.
Now, we have a party which endorses ethnic cleansing without the movement of people, by redrawing the Israeli border to excise most of its Israeli Arab citizenry, on a path to have the third highest number of seats in Parliament.
This idea has already moved from unthinkable to acceptable for discussion for much of the Israeli population, and the desired political outcome for over 10% of the population, and likely exceeds the vote totals of YB will get, because of the dynamics of the Israeli proportional representation system and the fact that their party leader, Avigdor Lieberman† is stridently secular.
Needless to say, this marks a significant change in Israeli society, and to my mind, this is a profoundly negative change, and I do not see its trajectory changing in the foreseeable future.
*Much of their anemic performance in recent elections has to do with the fact that “big L” Labor has largely abandoned the concerns of “small L” labor in favor of a new Thatcherite economic consensus, but that is another post.
†It seems to be a constant that politicians named Lieberman are complete asswhipes.
An analyist is suggesting that this will be the number of bank failures over the next 3-5 years.
This compares to 534 banks being closed in 1989, the height of the S&L debacle, but the banks are now much larger with broader reach, so multiply that number by 2, or 3, or 10, or 20, to get the real effect.
Just go and read the shrill one’s latest:
What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?
A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.
Good writing. Go Read.
So Nancy Pelosi, or actually her staffer Karina, shows us what 3.6 million jobs lost looks like.
It’s falling off a cliff, with no signs of bottoming.
We’ve lost 3.6 million jobs, as opposed to 1.6 in the early 1990s recession, and 2.7 million jobs following the dotbomb bust.
I heard all of it, but I was multi-tasking, helping my son buy algae for the science fair, so you may want to read the Rude Pundit’s version….He’s is a better writer than I am anyway.
Ghod! It’s nice not having a drooling moron (mostly) dry drunk there anymore.
One thing that the Rude One missed though: Chuck Todd is a complete fracking moron.
Seriously. He asked if maybe now it’s the time for Americans to save, as opposed to spending.
Does this man even read the paper, and listen to even the most conservative economists, who say that right now paying down debt is the kiss of death?
Jeebus….This guy makes Jonah Goldberg sound like Albert Einstein (the actor, not the physicist*).
*Albert Lawrence Einstein the actor changed his last name to Brooks when he went into acting, to avoid confusion.
Well, in terms of the stuff I put here, there was very little today. My guess is that everyone is waiting on Timothy “Eddie Haskell” Geithner’s bank bailout plan.
We do have a rumor on the plan though, and it’s that Geithner has dropped the federally funded bad bank, and instead any disposal of the financial dioxin out there will be handled by encouraging private money to drain the cesspool, which, when I last checked, was paying about 35¢ on the dollar for the top tranches of this.
Good luck with that.
He was supposed to release it today, but he put it off a day, which pushed the dollar down and it also pushed oil down, despite OPEC talking about more supply cuts.
I will post a bit about Nancy Pelosi’s scary graph.
Hmmmm….It appears that his 2006 Senate campaign paid $37,000 to Brown Sugar Unlimited, a catering company run by his sister.
OK, that is unseemly, why is it likely illegal? Because the company had filed to dissolve 11 months before the payment.
There also appear to be questionable money transfers, which pissed off the Maryland Republican Party, and significant payments to a law firm for work never done.
How did the Washington Post find out about this?
The U.S. attorney’s office inadvertently sent the confidential document, a defense sentencing memorandum filed under seal [for Alan B. Fabian who was being prosecuted under unrelated fraud charges], to The Washington Post after the newspaper requested the prosecution’s sentencing memorandum.
Which seems to me to be a hit job, and the motivations could be:
Note, however, that the US Attorney is still a Republican appointee, so if it’s a hit, it’s an internecine affair.
It’s only a one paragraph blurb (paid subscription required), but it appears that Robert Gates is moving toward more cooperation with Russia on missile defense, “In his first appearance before Congress as a member of President Barack Obama’s cabinet, he says mutual missile defense projects with Moscow are not as far-fetched as recent events would suggest.”
When this is juxtaposed with the fact that the Czech parliament has placed an indefinite delay on a on a vote approving the missile defense radar, it would appear that using BMD to poke Russia in the with a stick is no longer the order of the day.
It appears that the F-35 cost overruns have already placed the program in Nunn-McCurdy breach in all but name, and a lot of the problem is that the program was poorly managed from the very beginning:
The Pentagon’s top weapons buyer says the huge cost increases and delays incurred on the F-35 joint strike fighter program were inevitable because the Defense Department didn’t spend enough money upfront to build realistic prototypes.
….
For the JSF program, the Pentagon contracted with Boeing and Lockheed to build “technology demonstrators” and not “true prototypes.”
As a result, Young said, “the future of JSF cost growth was largely written in 2001 when budget and pricing decisions were made . . . based on inadequate knowledge gained from the JSF technology demonstrators.”
I’m so not shocked. In fact, I think that the DoD in general, and the USAF in particular do this on purpose to conceal the true cost of a program until it is too far along to cancel.
I’m beginning to think that the Pentagon needs to have its contracting authority pulled like the Coast Guard’s authority was late last year.
So, the Navy is looking at a ‘future surface combatant’ (FSC) to replace the DDG-1000 Zumwalt.
It appears to be an improved version of the DDG-51 Arleigh Burke, with possibly a hull stretch and a new engineering plant, and definitely a new radar, the the Air and Missile Defense Radar (AMDR), which was originally intended to be first fielded on the nuclear powered CG(X) cruiser, which now looks to be pushed back a couple of years.
The idea that they are doing this to the DDG-51 implies that part of the problem with the Zumwalts was insufficient robustness to battle damage.
What is shows however, is that the Navy really does not have a coherent path forward.
Well, NASA is big on them to improve efficiency, and the Boeing’s sub scale demonstrator, the X-48B continues apace, with the development team looking at stall characteristics, and the Europeans are conducting validation studies on a BWB with 1000 passengers. (paid subscription required for all links)
It will require rather a lot of validation and test in both structures and control surfaces.
In any case, here is some picture pr0n:
More advanced serpentine duct arrangement.
Structural Test Item
X-48 B
Rachael Maddow on the stimulus.
Visit msnbc.com for Breaking News, World News, and News about the Economy
So, based on my not so informed analysis, what the Senate now has a deal on sucks. It appears that the only criteria used by those “wise people” in the middle was what had extensive lobbying support.
Cuts:
Kept or increased:
Total spending is down by around ¼, and tax cuts are up.
Without some Republican style shenanigans in the conference committee (how about stripping out all the tax cuts?) this will really suck.
That’s 9 for the year, a pace that would put us at 59 failed banks. There were 26 failures in 2008, and just 3 in 2007.
As you can clearly see, after a few months of testing with the aircraft powering just the coaxial rotors, they are not ramping up power to the tail propulsor.
The plan is to put drag-reducing fairings on the rotor, and then slowly transition to higher speeds, which would put more and more power toward the tail thruster, with the retreating blade stall being handled by offloading the blade as it moves aft.
They want to hit about 250kts by year’s end.
Video pr0n below: