Year: 2009

Media Consolidation

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Barry Righoltz’s book Bailout Nation has been dropped by McGraw Hill, largely because he refused to soft pedal the ratings agencies role in the financial crisis, and McGraw Hill owns the largest of the ratings firms, Standard & Poors.

They claimed stylistic issues with his first description, which called the ratings agencies, “Pimps to the fixed-income fund managers’ Johns,” which to my mind is a fairly accurate description. (He did come out with an alternate chapter, which, while slightly milder in language, was even more damning, because it was more extensively sourced)

As Mr. Ritholtz himself notes, “The problems came not from Legal, but from Corporate within McGH. Legal had not even finished reviewing the manuscript at this time.“

If you wonder why newspapers and magazines are “dying”, it’s because of crap like this, where conglomerates allow other corporate issues to water down their content.

Senate Committee Approves Hilda Solis

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If you recall the Republicans have been blocking a vote because they are demanding that she recuse herself from anything involving the Employee Free Choice act, even though a labor secretary is supposed to, you know, support labor, and passage of the bill is an explicit goal of Barack Obama.

After all this, she was approved by a voice vote in a meeting lasting perhaps 2 minutes.

The ‘Phants are really a bunch of dickwads.

Classier Than George W. Bush

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Chinese Premier Wen Jiabao, who after having a shoe thrown at him by Martin Jahnke, has, “requested British authorities dismiss charges against Jahnke and pardon him for his act of protest.”

Yes, the Chinese have the moral high ground over George W. Bush, who appears to think that the arrest, continued detention, torture, and threat of a long prison sentence against his shoe thrower, Muntazer al-Zaidi does not merit comment.

Not Enough Bullets: The Whole Damn Banking Industry

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Tom Randall, Alex Nussbaum and Peter Robison at Bloomberg News talk about how awful the Obama salary cap for bank executives on the Federal dole is. Their lede:

Eric Langan could run a U.S. bank, based on his $494,713 salary last year, according to President Barack Obama. Langan would rather stay in his job, overseeing 18 strip clubs as chief executive officer of Rick’s Cabaret International Inc.

Well, Mr. Langan actually made a damn profit in 2008.

So they are claiming that $½ million, “may not buy a seasoned executive for a major U.S. financial institution.”

These are the folks who bankrupted the United States, and continue to pay themselves obscene bonuses.

Wanting to hire one of them for your bank is like betting on the Washington Generals when they play the Harlem Globetrotters.

I would also note that Mr. Langan’s job is a lot harder than your senior bank executives. He has to deal with people who stalk the dancers, and how to handle security, and hiring responsible bouncers, etc.

Besides, who is hiring in banking right now.

House-Senate Stimulus Bill Reports Out

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That was fast, I think that the deal may have been negotiated on the way to the conference room.

Basic changes are (unless otherwise noted, changes are from the House):

  • Size, down from the $820 billion (House) to $838 billion (Senate) 50 789 billion.
  • Retains the AMT tax cut put in by the Senate. ($70 billion, not stimulative)
  • Cuts in grants for broadband build out in rural areas remains, but has been trimmed a bit.
  • The Senate tax provisions allowing losses to be carried further forward by businesses was limited to only small (under $5 million/year receipts) businesses.
  • The car purchase tax credit, proposed by my Senator* Barbara Mikulski which would allow consumers to write off interest on auto loans, was shrunk to just cover sales and excise taxes.
  • The house flipping tax credits were trimmed. Instead of a $15,000/10% tax credit, the existing $7500 tax credit, which is actually a loan, it has to be repaid over time, was extended a year.
  • Thank goodness, the house flipping tax credit was a really bad idea.)
  • Individual tax credits were reduced from $500/$1000 per person/couple to $400/$800.
  • Grants to state governments and grants for school repairs were trimmed from $95 bllion to $54 billion.
  • Extend and increase unemployment benefits.

I’m not particularly impressed, but it’s better than doing nothing.

*And I wish that she wasn’t.

Economics Update

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The budget deficit is exploding, with the annual total now looking to be around $1 trillion:

The excess of spending over revenue in January rose to $83.8 billion, compared with a $17.8 billion surplus in the same month a year earlier. Spending gained 30.6 percent, while revenue dropped 11.4 percent. Corporate tax revenue in the past four months is down 44.3 percent from a year earlier

, and if we weren’t at risk of entering a deflationary spiral, I’d be concerned about inflation.

Speaking of deflationary spirals, the trade deficit hit a 6 year low, not because we are exporting more, but because no one is buying anything.

No one is borrowing to finance, or refinance their homes either, with U.S. mortgage applications falling to an 8-year low.

Overseas, we have the Bank of England predicting that inflation in the UK will be ½% two years from now. Me, I’m expecting deflation, and the stagnant GDP that goes along with it.

The UK economy is even more heavily underwater, than that of the US, so it’s likely to get even worst there.

Further east we have the Russian bond market completely seizing up.

In energy and currency, we have oil down on reports of diminishing demand, and the dollar up on reports that the conference committee has cut a stimulus deal. (More on that later)

Maybe Because She Didn’t Want Someone Ratting Out Bath Iron Works

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It appears that one of the sticking points on the stimulus package was that Senator Susan Collins insisted on stripping whistleblower protections from contractors from the conference report.

Considering the history waste, fraud, and abuse at BIW, the largest private employer in the state, I could see how the distinguished gentlewoman from Maine might not favor transparency.

New York Dems to Gov. David Paterson: Drop Dead

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Well, it’s clear that New York Governor David Paterson is in trouble.

First, he gets outed as releasing personal information about Caroline Kennedy in order to derail her Senate bid, and now Democrats are rebelling against his budget, because they think that it is stupid to slash services for 90% of the population to the bone in order to keep income tax rates on the rich low.

They are proposing an increase in state tax rates on earnings about $¼ million a year, from 6.85% it goes to 8.25% for $250-500K , 8.97% for $500k-1m , and 10.3% above $1M.

I think that the conflict here is that, following the support after Spitzer left office, Democrats are unsatisfied with Paterson, who has seemed to spend his time cozying up to the state ‘Phants and to Wall Street with his plan or draconian cuts and tax increases or new taxes on sweet drinks and music downloads.

Why? Because he is either a liar or an idiot:

Another question mark concerns Governor Paterson. He has sent mixed signals in private and in public on the matter, saying on the one hand that he thinks raising taxes would cause wealthy people to move out of New York, and on the other hand that all options to plug the budget gap have to be on the table.

Rich people live where they want, and New York City and its environs, and this is where the high-rollers live, already live in one of the most expensive places in the world.

If they wanted to move to save a few bucks, they already would have done so.

Seriously, what are they going to do, move to New Jersey?

My theory is that he wants to have an enormous war chest when the primary rolls around to scary away opponents, and enormous war chest means Wall Street bucks.

Considering the performance of Wall Street in the public mind, and the fact that leading rival, New York State Attorney General Andrew Cuomo, just announced in investigation of Merrill’s recent bonuses, which both makes Paterson look like a turd, and Cuomo look like a hero.

Just Shoot Me!

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It looks like executive pay caps in the stimulus will be dropped because the so-called fiscal hawks think that they will cost too much:

Unfortunately, [Representative Brad] Sherman told me that he believes the executive compensation limits added to the Senate’s stimulus are going to get removed during conference talks with the House. The reason: a new Congressional Budget Office estimate that the pay caps will cost the government $10.8 billion in lost tax revenue over the next 10 years.

“The plan is to take out the executive compensation provisions … and blame the Republicans for setting out the level [of $800 billion]” for the final version of the stimulus, Sherman said.

Gaah!!!!!!!

Another Prediction Goes South: Israeli Elections

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The projected results have Kadima out-polling Likud by one vote, 28 to 27, with Yisrael Beitenu next at 15 seats, and Labor in 4th place at 13 seats, Shas (ultra-orthodox Sephardic party) at 11, with the remaining 26 seats divided amongst 7 other parties who got between 3 and 5 votes.

While I am pleasantly shocked (and once again wrong in my prediction) that Livni out-polled Netanyahu, it’s still even odds that Bibi will be the next PM, as the bloc generally considered right wing numbers 62-63.

In any case, we are now well into coalition politics, which is less clear than an airline’s frequent flier program, as the graphics below hint:

Timothy “Eddie Haskell” Geithner Wins, We Lose

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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.

Genitals Sliced With a Scalpel; Irritating Liquids Poured in the Wounds

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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.

Economics Update

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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.

Israel and the Overton Window

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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.