Stock market or Ponzi scheme?

November 13, 2008

A Credit Crisis or a Collapsing Ponzi Scheme?

The Two Trillion Dollar Black Hole

By PAM MARTENS

Purge your mind for a moment about everything you've heard and read in the last decade about investing on Wall Street and think about the following business model:

You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you "stay invested for the long haul" you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses. The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface. And then, suddenly, you learn that many of these Wall Street firms don't have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme.

Now consider how Wikipedia describes a Ponzi scheme:

“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi...One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time...The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;

(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);

(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the 'assets' that should exist do not."

Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1. In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing, the promoters are standing at the elbow of the President-Elect in press conferences (Citigroup promoter, Robert Rubin); they are served up as business gurus on the business channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); they are put in charge of nationalized zombie firms like Fannie Mae (Herbert Allison, former President of Merrill Lynch); they are paying $26 million and $42 million, respectively, for new digs at 15 Central Park West in Manhattan, where their chauffeurs have their own waiting room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former CEO of Citigroup, who put his penthouse in the name of his wife’s trust, perhaps smelling a few pesky questions ahead over the $1 billion he sucked out of Citigroup before the Fed had to implant a feeding tube).

We are definitely seeing all the signs of outcome 2: the scheme is collapsing under its own weight; there are panic runs around the globe wherever Wall Street has left its footprint.

But outcome 3 is the most fascinating area of departure from the classic Ponzi scheme. Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later. They found worthless assets along with debts hidden off the balance sheet instead of real depositor funds. Instead of arresting the perpetrators and shutting down the schemes, Federal authorities have developed their own new schemes and pumped over $2 trillion of taxpayer money into propping up the firms while leaving the schemers in place. Equally astonishing, Congress has not held any meaningful investigations. This has left many Wall Street veterans wondering if the problem isn’t that the firms are “too big to fail” but rather “too Ponzi-like to prosecute.” Imagine the worldwide reaction to learning that all the claptrap coming from U.S. think-tanks and ivy-league academics over the last decade about efficient market theory and deregulation and trickle down was merely a ruse for a Ponzi scheme now being propped up by a U.S. Treasury Department bailout and loans from our central bank, the Federal Reserve.

Fortunately for American taxpayers, Bloomberg News has some inquiring minds, even if our Congress and prosecutors don’t. On May 20, 2008, Bloomberg News reporter, Mark Pittman, filed a Freedom of Information Act request (FOIA) with the Federal Reserve asking for detailed information relevant to whom the central bank was giving these massive loans and precisely what securities these firms were posting as collateral. Bloomberg also wanted details on “contracts with outside entities that show the employees or entities being used to price the Relevant Securities and to conduct the process of lending.” Heretofore, our opaque central bank had been mum on all points.

By law, the Federal Reserve had until June 18, 2008 to answer the FOIA request. Here’s what happened instead, according to the Bloomberg lawsuit: On June 19, 2008, the Fed invoked its right to extend the response time to July 3, 2008. On July 8, 2008, the Fed called Bloomberg News to say it was processing the request. The Fed rang up Bloomberg again on August 15, 2008, wherein Alison Thro, Senior Counsel and another employee, Pam Wilson, informed the business wire service that their request was going to be denied by the end of September 2008. No further response of any kind was received, including the denial. On November 7, 2008, Bloomberg News slapped a federal lawsuit on the Board of Governors of the Federal Reserve, asserting the following:

“The government documents that Bloomberg seeks are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression. The effect of that crisis on the American public has been and will continue to be devastating. Hundreds of corporations are announcing layoffs in response to the crisis, and the economy was the top issue for many Americans in the recent elections. In response to the crisis, the Fed has vastly expanded its lending programs to private financial institutions. To obtain access to this public money and to safeguard the taxpayers’ interests, borrowers are required to post collateral. Despite the manifest public interest in such matters, however, none of the programs themselves make reference to any public disclosure of the posted collateral or of the Fed’s methods in valuing it. Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding the kind of collateral received, how it was valued, or by whom.”

As evidence that Bloomberg News is not engaging in hyperbole when it uses the word “cataclysmic” in a Federal court filing, consider the following price movements of some of these giant financial institutions. (All current prices are intraday on November 12, 2008):

American International Group (AIG): Currently $2.16; in May 2007, $72.00

Bear Stearns: Absorbed into JPMorganChase to avoid bankruptcy filing; share price in April 2007, $159

Fannie Mae: Currently 65 cents; in June 2007 $69.00

Freddie Mac: Currently 79 cents; in May 2007 $67.00

Lehman Brothers: Currently 6 cents; in February 2007, $85.00

What all of the companies in this article have in common is that they were writing secret contracts called Credit Default Swaps (CDS) on each other and/or between each other. These are not the credit default swaps recently disclosed by the Depository Trust and Clearing Corporation (DTCC). These are the contracts that still live in darkness and are at the root of why the Wall Street banks won’t lend to each other and why their share prices are melting faster than a snow cone in July.

A Credit Default Swap can be used by a bank to hedge against default on loans it has made by buying a type of insurance from another party. The buyer pays a premium upfront and annually and the seller pays the face amount of the insurance in the event of default. In the last few years, however, the contracts have been increasingly used to speculate on defaults when the buyer of the CDS has no exposure to the firm or underlying debt instruments. The CDS contracts outstanding now total somewhere between $34 Trillion and $54 Trillion, depending on whose data you want to use, and it remains an unregulated market of darkness. It is also quite likely that none of the firms that agreed to pay the hundreds of billions in insurance, such as AIG, have the money to do so. It is also quite likely that were these hedges shown to be uncollectible hedges, massive amounts of new capital would be needed by the big Wall Street firms and some would be deemed insolvent.

Until Congress holds serious investigations and hearings, the U.S. taxpayer may be funding little more than Ponzi schemes while companies that provide real products and services, legitimate jobs and contributions to the economy are left to fail.

Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com

On torture

Reading this article about a new documentary entitled Torturing Democracy reminded me of one of the primary reasons I decided to broaden this blog from it's restricted focus on atheist issues. A few months ago, I began to question some of my long-held beliefs or assumptions about the world. I soon realized that the world was not the way that I had always believed it to be.

I, like most Americans, believed in the fundamental goodness and morality of governmental policy. Not always in its outcomes, but certainly in its intent. When problems (abuses?) cropped up, I didn't make the connection that the could be deliberate or pre-meditated. I thought they were probably isolated incidents, or a few "bad apples". After reconsidering my positions, I realized that I was wrong.

The American government tortures people. Please stop and consider that for a moment- your government tortures people, and in your name. They degrade, they dehumanize, they inflict pain, they isolate, and they drive people insane. Not only in Abu-Ghraib (warning:graphic images), not only outsourced torture to other countries-- but also on American soil, and against American citizens. In violation of international law, the United States government has tortured-- and probably still is-- torturing people as I write this. Some of those in charge of these programs have sought advice (or absolution) from a priest for their despicable actions:

Vandeveld described a crisis of conscience over the prisoners' treatment and the ethical handling of cases that led him to quit last month as prosecutor.

"I am beginning to have grave misgivings about what I am doing, and what we are doing as a country," he wrote in the Aug. 5 e-mail, which the priest shared with The Associated Press on Monday night. "I no longer want to participate in the system, but I lack the courage to quit. I am married, with four children, and not only will they suffer, I'll lose a lot of friends."

And yet it's not front-page news, it's not a scoop, it's barely even acknowledged. Despite the fact that John McCain was a P.O.W., the issue was barely even visible during the most recent presidential campaign. The ACLU is worried that Obama will forget about his early campaign promises, and so has taken out a full-page ad in the New York Times to put pressure on him to fulfill those promises. People around the world danced and celebrated Obama's election, hoping that he's going to reverse these horrible actions. I hope they're right.

How did we get here? I thought we stood for truth, justice, the American way? I thought we were a "shining beacon on a hill". The media is complicit in keeping torture on the back pages, as are all of us. Every day that goes by and we don't try to stop it, means one more day that someone is getting tortured.

...People are imprisoned without charges or access to attorneys, and it's routine. People are surveilled, their reading habits studied, their telephone usage logged, and it's commonplace. People, including children, end up on a secret list of those who are not allowed to fly, nobody will tell you why, there is no appeal, and it's ordinary. We swallow lies like candy, nod sagely at babblespeak, and it's unexceptional.

Torture is inflicted with White House approval, the president lies about it and it's just another Tuesday.

Once upon a time, Americans were fond of looking upon backward nations, upon places where law was whatever the king said it was, and noting with pride that we do things differently in our country. But that was a day long ago and a country long gone.

If we miss the one or mourn the other, you'd never know it to look at us. We live through what feels evermore like a Joe McCarthy fever dream. We feel without feeling, hear without hearing, see without seeing and do not protest what we have become.

Because this is normal now.

Can you live with that?

Federal Election Commission won't audit Obama

As I argued here, the campaign finance system in this country is utterly broken, and Obama may have found the perfect way to skirt laws and raise a mind-blowing (and election-winning) amount of money. All you have to do is opt out of the public financing system, then raise as much as you can in small donations. If you're successful at it, apparently you don't even have to go through an audit. This is the first presidential campaign in which the candidates have raised more than $1 billion, led by Obama's $639 million- yet apparently the very fact that he opted out of the public finance system makes an audit less likely.

FEC Won't Audit Obama

The hundreds of millions of dollars that Barack Obama raised for his presidential campaign would seem to make him a perfect target for a full audit to account for the legality of every dollar he raised and spent. Yet, in part because Obama raised so much, the Federal Election Commission isn't likely to investigate, according to Politico. When the FEC determines whether an audit is necessary, it takes into account the amount the candidate collected--the more raised, the less significance each error carries, the commission reasons. Even an FEC complaint from the Republican National Committee raising concerns about fictitious donors and foreign addresses that snuck under the Obama campaign's radar probably won't trigger an audit.

If Obama had accepted public financing limiting him to $84 million for the general election, he'd be obligated to undergo such an audit. Instead, John McCain now faces a long and expensive accounting review that will analyze how he spent taxpayers' money after opting into the public financing system. McCain will use $9.4 million from his legal and accounting compliance fund to help pay for the investigation into how he spent his money.

The end of American capitalism?

President Bush isn't right very often, but he hit the nail on the head yesterday when he declared that "This is a decisive moment for the global economy." He may not even know how correct he is. I must confess, I feel very vindicated-I never thought I'd see sentiments like this one from the mainstream press, as today's Washington post argued that "there is also no denying that American-style capitalism has been undermined by its own success. In its present incarnation, it rewards manipulation over innovation and speculation over genuine value creation, resulting in massive misallocations of capital and the accumulation of unheard-of wealth in the hands of money managers and top corporate executives who are more lucky than they are skilled."

That's what seemed so comical to me about the recent presidential election. Amid all the talk of socialism and tax rates seemed to miss the fundamental point that none of that matters right now. The machinery of capitalism is falling down around ears, and the only thing we heard from the candidates were pithy talk about change and hope and blah blah blah. Gone unacknowledged is the simple fact that our bills are coming due, there will be no more money to fund grand social programs. You can promise the world on the campaign trail, but it's a whole different story when the world of high finance is imploding, albeit a slowly. Yesterday's rally will be a case in point, I'm sure the pundits have already begun saying that we've hit bottom, just as they have for all of the previous short-lived rallies.

You think I'm being too pessimistic? Who would you rather hear from? Yesterday, I posted Nouriel Roubini's grim assessment. Remember, he's one of the few that saw this coming. Who else do you want to hear from? Henry Paulson came from Goldman Sachs, you want a Goldman Sachs guy to say it? Former Goldman Sachs Chairman and former Deputy Secretary of State John Whitehead says "I think it will be worse than the Depression"

"Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds," he said. "Eventually U.S. government bonds would no longer be the triple-A credit that they've always been."

There are at least ten "trillion dollar problems," facing the United States, he said, including social security, expanding health insurance, rebuilding infrastructure and increased spending on green energy. At the same time, the public does not want to pay for it.

"The public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs -- all very costly and all done by the government," he said.

Large deficits can weaken the country's credit and increase its borrowing costs, which already constitute a significant part of funding to cover expenses. Whitehead said it could take "several years" for the current problems to be resolved.

Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes.

"I just want to get people thinking about this, and to realize this is a road to disaster," said Whitehead. "I've always been a positive person and optimistic, but I don't see a solution here."

How about a billionaire? So much was made of it when Warren Buffett spoke out a few weeks ago in favor of buying stocks. Here's George Soros:

"I fully anticipated the worst financial crisis since the 1930s,'' said Mr Soros, whose fund is flat this year.

"But frankly, what has happened in the last eight weeks exceeded my expectations.''

Don't feel badly George, you're not alone. We've heard that all the way down... and I expect to keep hearing it as things continue to worsen. The New York Times last month published an account of how Secretary Paulson has been behind the curve on this crisis all year.

“I could have seen the subprime problem coming earlier,” he acknowledged in the interview, quickly adding in his own defense, “but I’m not saying I would have done anything differently.”

Shocking in its own way, but sadly he's not alone. Here's Alan Greenspan (see here also):

In 2005, I raised concerns that the protracted period of the underpricing of risk if history was any guide would have dire consequences. The crisis, however, has turned out to be much broader than anything I could have imagined.

So can we acknowledge that the current crisis is worse than anything that the smartest guys in the room ever saw coming? If so, then what are the implications for dealing with this? Hard choices are coming our way fast; Congress is unwilling to bite the bullet, and Obama appears unable or unwilling to rock the boat. All I know is that we need to radically re-evaluate our strategy in attacking this crisis or things are going to be totally out of hand in short order. Nothing they've tried so far is having the slightest impact. The Fed can only drop interest rates another 1%, then they're pretty much out of options. If the textbook solutions aren't working, it's time to throw the textbook out the window and start getting serious about saving this ship.

I have a fear of heaven....

And this is why.

The New York Times - Breaking News, World News & Multimedia

Wouldn't it be nice?

The (fake) New York Times - Breaking News, World News & Multimedia

Maximum Wage Law Passes Congress

Salary Caps Will Help Stabilize Economy

By J.K. Malone
Published: July 4th, 2009

WASHINGTON — After long and often bitter debate, Congress has passed legislation, fiercely fought for by labor and progressive groups, that will limit top salaries to fifteen times the minimum wage. Tying the bill to a plan of overall reform of the U.S. economy, the bill echoes a similar effort enacted by President Franklin Roosevelt in 1942, which was followed by the longest period of growth for the middle class in U.S. history.

“When C.E.O. salaries remain stable thanks to high taxation of high salaries, there’s little incentive to take big risks with shareholders’ money, and the economy remains in a steady growth mode,” said Senator Barney Frank, one of the bill’s co-sponsors. “But when C.E.O. salaries can fly through the roof, there’s a very strong incentive for C.E.O.s to rake in massive dividends, often at the cost of the company’s, and the country’s, stability.”

The first time the U.S. implemented a maximum wage was in 1942, when President Roosevelt said that “no American citizen ought to have an income, after he has paid his taxes, of more than $25,000 a year,” the equivalent of $315,000 today.

Some version of a maximum wage law was in effect until 1980. Before 1964, income over $400,000 in today’s dollars faced a 91 percent federal tax rate, and the top-bracket tax rate never dipped below 70%. Under Reagan, the top tax rate slid down to 28 percent — a shift that is now understood to have been one of the prime contributors to the mortgage meltdown and other market failures.

The current minimum wage is $5.85 ($12,168 annually) making the new maximum wage $182,520/year. Any amount over that will be taxed at a rate of 100 percent.

The Center on Executive Compensation is an industry-backed group based in Washington whose goal is to tell corporate America’s side of the executive pay story. Richard Floersch, the center’s chairman and the chief human resources officer at McDonald’s, defended high salaries. Most companies, he said, are “dedicated to a very strong executive compensation program with very strong principles around pay for performance.”

In the two days since Mr. Floersch made these comments to a reporter, the Center on Executive Compensation has dissolved. A statement on their website now reads: “We have decided that in light of recent changes in economic policy, and the failure of hedge fund managers and banks to prevent massive losses despite their astronomical pay, our Center has lost its relevance.” The statement also acknowledges the problems caused by Fannie Mae and Freddie Mac executives falsifying profits of $9 billion so their firms would appear attractive to investors and then, instead of being fired, receiving retirement packages upwards of $10 million.

House Speaker Nancy Pelosi celebrated the bill’s passage with an impassioned speech. “The struggle on behalf of human dignity continues. We need investment in productive enterprises and public services. The era is over of C.E.O.s who receive millions in bonuses as their employees go without health care and the company fails.”

In her speech, Ms. Pelosi extensively quoted Treasury Undersecretary E. Merrick Dodds, who stated, shortly after passage of the first maximum wage under Roosevelt: “The modern period has been one in which a new impulse towards regulation has gathered strength as a result of our experience of the evils to which unlimited freedom of contract gives rise in a postindustrial society characterized by extreme inequalities of wealth and bargaining power and by sudden oscillations between booms and depressions.”

Dr. Doom speaks again

Nouriel Roubini, has been known as Dr. Doom. Probably because of predictions like this one-

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

Now do you want to hear what he sees for the road ahead? Read on...

The Worst Is Not Behind Us
Nouriel Roubini

It is useful, at this juncture, to stand back and survey the economic landscape--both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:

--The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.

--The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.

--Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging.

--The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth--at market prices--to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.

--The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009.

--Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs.

Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand--and given a very severe credit crunch.

--For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls--as is most likely--to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels). If the P/E falls to 10--as is possible in a severe recession--the S&P could be down to 600, or 35% below current levels.

And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%). Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news.

--Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions.

--Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion.

--Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies.

--Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.

--In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads--especially for the speculative grade--may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings.

Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets. So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that--in due time--may reduce interbank spreads and credit spreads).

Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action.

In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis--as I have consistently predicted over the last year--became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone.

A reality check is needed to assess risks--and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets.

I'll stop now.

Yesterday, I argued that bankruptcy is a better option for carmakers than a bailout, especially since they're already proven failures. This article disagrees, my comments are interspersed.

Why GM can't survive bankruptcy

Some companies use the courts to reorganize and come out stronger. That would be difficult for GM, experts say.

NEW YORK (CNNMoney.com) -- It worked for the airlines, but it might not work for General Motors. Saving the company through bankruptcy is probably not a viable option for the troubled automaker.

The reasons go deeper than the belief that consumers would shun a vehicle being sold by a bankrupt automaker. Some leading experts said that GM would find it exceedingly difficult to raise the billions in financing it would need to stay in business during a bankruptcy reorganization.

The bottom line: Unlike the experience of United, Delta and Northwest airlines, a GM (GM, Fortune 500) bankruptcy could spell a quick end to the company's operations.

Good, they've been losing money for years.

The question of whether GM can survive is crucial to the growing debate in Washington over whether the government should put up $25 billion or more to bail out automakers.

GM on Friday, while saying it was working to avoid a catastrophic bankruptcy, disclosed that it has almost run out of cash and said it needs federal assistance before the end of the year. President Bush, who will be in office until Jan. 20, remains wary of a bailout.

Bailout advocates, including President-elect Barack Obama and the Democratic leaders of the House and Senate, argue that the collapse of a major automaker would be too great a shock for an already struggling U.S. economy to absorb. It is estimated that a GM bankruptcy alone would cascade widely throughout the economy and cost as many as 2.5 million jobs.

So how do you want to play it? At the rate they've been losing money, even if you give a whole $25 billion to GM alone they'll burn through that inside of 6 months. Then what? We'll be in the second quarter of '09, deeply into the worst global recession or depression the world has ever seen. Are we supposed to come up with another $25 billion to keep going another 6 months?

Some critics of a bailout have suggested that the automakers would be better off filing for bankruptcy to to get out of obligations and contracts they can't afford and become competitive again without putting taxpayer dollars at risk.

Cash troubles

There is precedent for bankruptcy turnarounds. But those companies, filing under Chapter 11 of the bankruptcy code, were able to secure what is known as debtor-in-possession, or DIP, financing.

Lenders make such loans in part because bankruptcy law allow them to go to the front of the line of the company's creditors if the company is not able to stay in business. In turn, the bankrupt company uses the cash to make changes and return to profitability.

Without DIP financing, liquidation -- usually under bankruptcy Chapter 7 -- may be the only option left.

Experts in the field and even GM itself say that DIP financing might not be available for GM.

"The state of the capital markets does make the prospects for DIP financing a much bigger question mark than would have been the case in other times," said Bob Schulz, Standard & Poor's senior auto credit analyst. "To reorganize does require financing."

Others question if GM would be shut out of DIP financing entirely. But even they say it would come at a steep price.

"I would say it is likely that they would find some financing," said bankruptcy attorney Ronald Silverman, a member of the American Bankruptcy Institute who recently spoke on the outlook for the auto sector. "It may not be inexpensive financing. But there are investors with cash interested in investment opportunities, and DIP loans are among the most attractive investment opportunities."

OK, so either they get DIP financing or they don't. Seems like the market ought to make that determination, not Congress. I mean, if "DIP loans are among the most attractive investment opportunities" then they should have no trouble attracting financing. Oh wait, they could only do that if people believe they've got good long-term prospects. Does anyone still believe that?

Still, the fear that car buyers won't want to buy cars from a bankrupt automaker may preclude GM from financing. For example, a recent survey of car buyers found that as many as 80% wouldn't even consider buying from a bankrupt automaker.

"You don't qualify for DIP if you don't have certainty about your revenue base," said Tony Cervone, a GM vice president.

Some question whether sales in fact would drop following a bankruptcy. University of Maryland economics professor Peter Morici believes automakers could assure buyers by offering warranties backed by third parties, the way bankrupt electronics retailer Circuit City is now doing.

But Mike Jackson, CEO of Autonation (AN, Fortune 500), the nation's largest chain of dealerships, said bankrupt automakers would have a hard time selling cars.

"I deal with consumers every day. They have their investor's hat on when they spend $30,000. They're making a calculation about resale value," Jackson said. "They have so many choices -- why take a gamble on a manufacturer who is in bankruptcy."

And so how would government bailout make any difference to the consumer's perception... US automakers are bankrupt in all but name already. Even if we give them billions, they're still bankrupt. Do you want to buy a car from GM, even if they receive a $25 billion injection?

Change in the market

Most experts, even some of those who believe that GM would ultimately be able to find the financing it needs, agree that there is far less DIP financing available today because of the credit crisis.

"A year ago we had 30 DIP lenders; you could count on about 20 of them showing up in any big case. It was a buyer's market from a debtor's perspective," said Jack Williams, a bankruptcy law professor at Georgia State University and an ABI resident scholar. "Now we have three or four, maybe five, and they're all very careful."

Still, there are some who believe that GM should use bankruptcy to reorganize. And to them, a lack of financing to reorganize is just another argument against a federal bailout.

"If they can't get financing, then they should just sell the assets and go out of business," said Morici. "That means that bankruptcy reorganization is impractical; it means they can't be viable under any circumstance."

Finally, someone gets it right. GM, Ford- they're not viable under any circumstances. Here's the big elephant in the room: consumers aren't looking to buy cars right now. They're not looking to buy much of anything. So how do you return these automakers to profitability with no customers? If they haven't been able to sell enough cars to make a profit since 2004, how can they sell enough amid the largest global recession ever? Can anyone answer me that?

Colbert Report on Omaha!

You get a great two-for-one when you watch this video from the Colbert Report.
1- Omaha, the city in which I live, goes Democratic for the first time since LBJ in 1964.
2- Stephen Colbert mocks the same Wall Street Journal editorial that I mocked last week.

10 commandments vs. 7 Aphorisms- PART II

Sometimes I'm so brilliant, it scares me. Here's what I said this morning on the case:

The city is arguing that once they accepted the first monument, the city adopted it as part of it's own free speech, and therefore are under no obligation to accept competing messages. As far as I can tell though, you can't have it both ways. Either this is free speech or it's not; either it's an unconstitutional establishment of a state religion or it's a public park open to other messages. The city's kind of in an impossible situation here- they have to argue that the 10 commandments display is not an establishment of state religion while also denying competing religions the right to a similar public forum.

Here's the big issues in court today:

Though not directly at issue in the case, the establishment clause question lurked close to the surface in today's argument. Roberts said a declaration that the Pleasant Grove monument was government speech would make it harder for the city to argue that it wasn't favoring one religion over another.

``You're really just picking your poison, aren't you?'' he asked the town's lawyer, Jay Sekulow.

Justice David Souter said a high court ruling forcing the city to adopt the Ten Commandments message as its own would be fatal to the town's defense under the establishment clause.

``Isn't that what is driving this?'' he asked Summum's lawyer, Pamela Harris.

Harris said the city was trying to avoid having to formally subscribe to the particular version of the Ten Commandments on the park monument. She said the town ``wants to have it both ways.''

Too big to fail? I say already failures!

Note this from the article below: GM hasn't made a profit SINCE 2004. And yet now it's a crisis, now we're supposed to save them? Fuck 'em. There's not enough money in the world to save all the companies that need saving. We've got to draw the line somewhere, how about we start with a company that hasn't turned a profit in the last 4 years??? Check out this chart, anything jump out to you? Of course, all the major automakers have been hit hard lately, but which automakers are the only ones below the line? Ford and GM. American automakers have lost almost 100% of their value over the past 5 years. Now, explain to me what throwing $25, $50, $100 billion at them is supposed to solve? Too big to fail? They've ALREADY failed, just nobody has informed management yet.

TARP's $700 Billion Can't Meet `Phenomenal' Spending, Reid Says

By John Glover

Nov. 12 (Bloomberg) -- The U.S. Treasury's $700 billion Troubled Asset Relief Program will have to be increased to meet the `phenomenal' demand for government bailouts, according to Deutsche Bank AG strategist Jim Reid.

The extra $150 billion pledged to support insurer American International Group Inc. this week and the prospect of a financial package to rescue General Motors Corp., the largest U.S. automaker, from bankruptcy may drain the TARP fund, Reid wrote in a note to investors today.

``It does feel that the $700 billion TARP fund is going to have to be increased at some point in the not-too-distant future,'' wrote Reid, head of fundamental credit strategy at Deutsche Bank in London. Either that, ``or another acronym will have to be formulated to deal with the phenomenal amount of government spending that's still likely as this crisis escalates.''

Treasury Secretary Henry Paulson's TARP fund was created to help shore-up banks' balance sheets by buying toxic mortgage- linked securities. Neel Kashkari, who heads the program, said last week the government is open to all options in expanding the use of the funds.

Political pressure for a bailout of GM is mounting with House Speaker Nancy Pelosi throwing her support behind the premise the automaker is too big to be allowed to fail. Bankruptcy would trigger a ``devastating'' domino effect that would cost millions of jobs, she said.

``Basically it appears to be bailout or bankruptcy,'' Reid wrote in his note. ``The exact outcome is near impossible to predict with any certainty as it's now highly political.''

U.S. sales of GM, Ford Motor Co., and Chrysler, now owned by Cerberus Capital Management, are headed toward a 17-year low, overwhelming cost-cutting efforts including elimination of 46,000 U.S. jobs at GM since 2004, when the company last posted an annual profit.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

Too big to fail = too big

Dave Lindorff nails it. I think so many of us are unhappy with the explanations we've been getting- that these companies are simply "too big to fail". To me, that begs the question, why should the taxpayer be helping them to get bigger?????? The media and Congress is acting as if once these companies go bankrupt, they are completely vaporized, no trace. It's simply not true; bankruptcy would allow an orderly restructuring which is sorely needed especially in the case of the automakers. I mean, the airlines are pretty big companies, and they've been going bankrupt on and off for years.

Published on Wednesday, November 12, 2008 by CommonDreams.org

'Too Big To Fail' Has an Easy Answer: Anti-Trust or Public Control

by Dave Lindorff

The one thing we are not hearing from Congress or from incoming president Barack Obama in the current economic crisis facing the country are the words "anti-trust" and "public ownership."

From the moment the crisis first struck, with the near collapse of AIG, the mantra has been that companies like AIG, Morgan Stanley, Merrill Lynch, Citibank, etc.--and more recently General Motors Corp. and Ford--are "too big to fail." That is, it is argued that these companies are so huge that if they were to collapse into the rubble they deserve to be, it would damage the nation irreparably.

The question is, if that is genuinely the case, why were they allowed to be that big in the first place, and why aren't we rethinking that policy?

It's not as though they got that way through organic growth by being successful at what they did. Hardly. GM was the quintessential result of a merger of smaller automakers. Ford grew too, by acquiring the competition, most recently Volvo. Most, if not all of those acquisitions were first vetted and approved by the Federal Trade Commission and found to be acceptable as a matter of economics and public policy.

In the banking industry, which is regulated, the picture is even worse, with the government first opening the door to the creation of national banking companies, and then routinely approving the gobbling up of one after another regional or even national bank by another. At some point we reached the point where the giants in the industry--Citibank, JP Morgan Chase, Bank of America, Wells Fargo, etc.--were able to say, when they ran into trouble, that allowing them to fail would have dire consequences for the national economy. This kind of extortion should never have been allowed to happen.

First of all, the argument for national banks never made sense for ordinary people, and wasn't necessary for large customers either. Large corporate fundings have always been done by bank consortia, and this could have been accomplished with the nation's banking industry fragmented into small state-chartered institutions. Meanwhile, small businesses and individuals always lose when a bank is national in scale. It is much more costly to handle the banking business of small enterprises and individual families than it is to handle the business of huge corporate clients, with the result that the major banks have made it costlier and costlier for small customers to do business with them.

The answer is clear. Bigness is fundamentally bad when it comes to capitalism. There is a point where any company in any industry becomes too big for it to be socially acceptable. Big companies not only attempt to behave in a monopolistic fashion by destroying or buying up the competition, both nationally or, as in the case of a retailer like WalMart or a bank like Citibank, locally, using their huge financial power to locally underprice the competition and drive them out of business (after which they are free to gouge the local customer base). They also ride roughshod over local political interests, demanding tax breaks, zoning waivers, etc. This being the case, the government should simply not be allowing corporations to achieve such scale and market dominance.

Companies, whether banks, car makers, or media companies, should never be allowed to grow to a point that they become "too big to fail." If that can be said about any company, whether because of the assets it holds, or because of the number of people it employs, it is time to break it up.

Think of GM. If GM were ripped up into six or seven competing companies, it is certain that at least one of those smaller entities would be producing electric cars by next year. The Saturn plant already made one, the Impact, that was wildly popular (see the excellent documentary "Who Killed the Electric Car"), and if left to its own devices to sink or swim, could probably be cranking those out in volume for the 2010 model year.

Some companies would certainly fail. But that's what is supposed to happen in a capitalist system.

This piece is not meant to be a paen to capitalism. But having said that, if you're going to have capitalism, which is the ruling ideology here in the US of A, you have to let it function as intended. As soon as the government comes in and starts encouraging the establishment of monopolies or quasi-monopolies, and preventing the failure of poorly managed enterprises or dying industries, as it is doing in the case of the banking and automotive sectors, it is no longer true capitalism.

That could work, too. Many democratic countries, including Japan, Sweden, France and Germany, have the concept of shared governance of corporations, in which large corporate entities are partially owned and run by government, and of planned economies, in which certain sectors are deliberately protected and promoted by government policy. The US has moved in that direction with the investment by the government in nine of the country's largest banks, and in discussions to provide $25-50 billion in financial assistance to the major US auto companies. But in the US case, the government is studiously avoiding demanding a role in running those companies. It is by design only a "passive" investor.

This is the triumph of ideology over rationality and the public interest. I recently interviewed a number of investment strategists in the course of working on an article for an investment magazine. They all had the same advice for worried investors: invest in shares of the "magic nine" banks that are recipients of tens of billions of dollars in bail-out money from the federal government. As they all point out, the government's stake in these banks means that they will not be allowed to fail, and moreover, they are in a unique position to use their flush capital reserves to acquire, at fire sale prices, the assets of smaller banks that are being left to sink or swim in the current credit crisis and recession. That is not a free market. It's a government program to reduce the competition in the banking sector and hand all the business over to a favored few giant banks.

Now that would be okay if the government, in return for its investment, were taking a management role in those favored banks. But it is not. Congress, the Bush administration, and, so far at least, the incoming administration of Barack Obama, have not been demanding a management stake in any of the companies that are getting bail-out funding. If the government takes ownership positions at all, it is taking non-voting shares in those companies, solely in the hope of someday getting some of the invested money back by selling those shares.

This is not just a rip-off of the taxpayer. It is a craven program to enrich big investors in the bailed-out enterprises, while putting control of the nation's economic destiny increasingly into a smaller number of hands of people whose interests are not even aligned with the national intereest (these are, after all, all transnational corporations only nominally headquartered in the US).

There is, of course, another reason that companies should never be allowed to become "too big to fail." That is political clout. The US political system is already largely an owned-and-operated subisidiary of corporate America. When companies become as large as AIG or GM or Bank of America, they also gain a disproportionate influence over the political apparatus that is an order of magnitude larger than their share of the national GDP. It's not just that they have limitless money to donate to political campaigns. They also, by their size, are able to dispense political favors in virtually every congressional district, much as the Pentagon has been doing for the past half century, and also to threaten national havoc if they don't get their way.

Don't expect much in the way of scrutiny of this bailout process from the corporate media, by the way, which has been engaged in the same process of national consolidation for the past few decades. But clearly, the public needs to wake up and start demanding that if our money is going to be used to bail out these corrupt and horrifically managed enterprises, we the people need to have a controlling interest in running them, so that they are run in our interest. Better yet, we should be demanding that these bumbling colossuses be broken up into little pieces, and then left to sink or swim on their own like the rest of us.

Dave Lindorff is a Philadelphia-based journalist and columnist. His latest book is "The Case for Impeachment" (St. Martin's Press, 2006). His work is available at www.thiscantbehappening.net

Face off: 10 commandments vs. 7 Aphorisms

The Raw Story | Supreme Court to hear Ten Commandments companion monument case

I heard about this story on NPR on my way into work this morning, and it made me laugh. Basically, some crazy cult was not allowed to donate a monument to the "7 Aphorisms" for placement in the city park alongside a monument of the "10 Commandments", which were allowed to be donated and placed in the park by some other crazy cult. The first group of crazy cultists sued, alleging a free-speech violation, a position that the Tenth Circuit Court of Appeals agreed with. Now its on the way to the U.S. Supreme Court. Here are my favorite things about this story, in no particular order:

• It's coming from the state of Utah, well-known for their religious tolerance and acceptance of alternative lifestyles. LOL
• The "cult" is named "Summum" and "was founded in 1975 by Summum Bonum Amon Ra (or Corky Ra), née Claude "Corky" Nowell, after an encounter with 'Summa Individuals'." OK, two things here: 1) the guy's name is Corky and 2) all of the names of everything in their cult just sounds like somebody mumbling.
• The first cult, Summum, actually sounds pretty cool:

Summum's one-acre compound sits 33 miles north of Pleasant Grove, in an industrial section of Utah's capital, surrounded by a graffiti-strewn building and a metal scrap center.

It's a tranquil spot, with fruit trees and peacocks. Dominating the site is a 27-foot-tall, 40-foot wide copper-shelled pyramid. An automatic door opens to a central space where members meditate.

Scattered about are preserved animals encased in bronze, Egyptian symbols, sofas, candles and bright murals adorning the walls. Off to the side is a large, stainless-steel fermentation tank, where sacramental "nectars" or "liquid knowledge" are produced for meditation sessions.

Oh yeah, those "sacramental nectars"? They're wine.

The city is arguing that once they accepted the first monument, the city adopted it as part of it's own free speech, and therefore are under no obligation to accept competing messages. As far as I can tell though, you can't have it both ways. Either this is free speech or it's not; either it's an unconstitutional establishment of a state religion or it's a public park open to other messages. The city's kind of in an impossible situation here- they have to argue that the 10 commandments display is not an establishment of state religion while also denying competing religions the right to a similar public forum.

They might have had a chance if they would have chosen to argue it based on the idea that it was part of the history of the area, and not part of government speech at all. Those types of arguments have been viewed sympathetically by the court, but I don't see how the city can win the case based on these arguments. Discussing a Texas case a few years ago

"No exact formula can dictate a resolution in fact-intensive cases such as this," Rehnquist read. "The determinative factor here, however, is that 40 years passed in which the monument's presence, legally speaking, went unchallenged.

"And the public visiting the capitol grounds is more likely to have considered the religious aspect of the tablets' message as part of what is a broader moral and historical message."

In a dissenting opinion, Souter wrote, "If neutrality in religion means something, any citizen should be able to visit [the capitol grounds] without having to confront religious expressions clearly meant to convey an official religious position."

So clearly, the court could be persuaded that the history of the monument should be taken into account, and the city may have won based on that argument. However, once the city began arguing that the 10 commandments were part of it's own free speech, then they are forced to admit that it is an establishment clause violation.

40 kick-ass versions of Jesus

Holytaco: awesome Jesus versions

To be fair, not all of them are awesome. Some are hilarious, some are disturbing. Probably only about 63% of them are truly "awesome". But, it's worth checking out anyway!

Justice Brandeis on wealth inequality

Justice Louis D. Brandeis:

We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.

AIG- (again)

Ok, I know you're getting tired of reading about this, as much as I'm getting tired of writing about this. But you know what? They keep getting more money, so until we stop them, I guess I'll keep writing about it. Despite the money AIG already received, they still are leading the insurance industry in losses, globally approaching $1 trillion. Yesterday, Treasury agreed to renegotiate loans and gifts to AIG, to the tune of $152 billion.

Taxpayers are ``keeping the zombie alive,'' said Robert Eisenbeis, chief monetary economist at hedge fund Cumberland Advisors and former director of research at the Atlanta Fed. ``We keep getting deeper and deeper into these holes.''

Now, think about all you know about how AIG has behaved since they got the first batch of cash. Do you think they were smart? Do you think they cancelled any high-profile resort vacations that they may have been sponsoring? When they got caught with the first luxury spa excursion, do you think that they cancelled the next one? When they said that they would stop "all non-essential conferences, meetings and activities that do not clearly maximize value and service given the current conditions", did you believe them? Do you think they cancelled the next luxury spa vacation? If you think that, you're wrong.

Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.

At least they're trying not to rub in in our faces:

"AIG made significant efforts to disguise the conference, making sure there were no AIG logos or signs anywhere on the property," KNXV reported.

A hotel employee told KNXV reporter Josh Bernstein, "We can't even say the word [AIG]."

A company spokesperson, Nick Ashooh, confirmed AIG instructed the hotel to make sure there were no AIG signs or mention of the company by staff.

"We're trying to avoid confrontation, keep our profile low," said Ashooh. "Some of our employees have been harassed."

Chomsky on Obama: Action vs. Rhetoric

Noam Chomsky on Barack Obama

By Noam Chomsky • November 10, 2008 @20:18

What He Said:

“I’m looking forward to co-operating with the President-elect in building a new global society in which the advancement of people - their homes, jobs, savings and pensions - is always put first.”

Gordon Brown, November 9th 2008.

What He Means:

We have two sources of information: actions and rhetoric — more accurately, “soaring rhetoric,” to borrow the standard phrase. The most important actions are selection of staff. The first selection was for vice-President: Joe Biden, the strongest supporter of the Iraq invasion among Senate Democrats, putting aside his record as Senator for Delaware, a favored corporate headquarters. The second was the crucial position of chief of staff: Rahm Emanuel, the strongest supporter of the Iraq invasion among House Democrats, at the right-wing of the party on most other issues. Both are long-term Washington insiders. The transition team is headed by John Podesta, Clinton’s chief of staff. Leading figures in the economic team are Robert Rubin and Lawrence Summers, who had a substantial role in creating the current financial crisis. The rhetoric is “change” and “hope.”

Noam Chomsky

What bailed-out banks spend on lobbying

What bailed-out banks spend on lobbying

THE BALANCE OF INFLUENCE Lobbying expenses for the first nine months of 2008 by some banks receiving government help: Company Lobbying amount Government investment Merrill Lynch{*} $4.6 million $25 billion Bank of America{*} $4.7 million $25 billion Citigroup $5.6 million $25 billion JPMorgan Chase $5 million $25 billion Wells Fargo $2 million $25 billion Goldman Sachs $4.2 million $10 billion Morgan Stanley $2.4 million $10 billion PNC Bank $320,000 $7.7 billion U.S. Bancorp $290,000 $6.6 Capital One $920,000 $3.6 * — Merrill Lynch is being taken over by Bank of America, and the merged bank will receive $25 billion Sources: Lobbying disclosure reports, U.S. Senate Office of Public Records, Financial Services Roundtable

Sickening. Disheartening. How can we the people compete with these types of resources? It appears that lobbying "investment" of at least $4.5 million nets a bank about $25 billion worth of bailout money. My math may be off, but I think that calculates to a return on investment (ROI) of a staggering 555456%. Unsurprisingly, members of both houses of Congress that received more money from Wall Street towards their campaigns also tended to support bailout legislation. (see here, here, here, and here).

Kevin Zeese, director of Democracy Rising and co-founder of Voters For Peace, asks:

What do Americans get in return? The deals Paulsen is making with his former Wall Street colleagues do not ask for much. Paulsen is evidently no Warren Buffet when it comes to negotiating deals but maybe that is because Paulsen is not using his own money but the taxpayers. While Buffett received a 10% dividend on his $5 billion investment in Goldman Sachs, Paulsen only got 5% for his. While the UK was able to get a seat at the board table for their injection of cash into banks, Paulsen didn’t. Nor did Paulsen demand any more stringent banking regulations or greater transparency going forward.

Nor did Paulson ensure that banks would do any lending with the money, which was the stated aim.

On top of all of this, Bloomberg reported yesterday that multiple-bailout recipient AIG will be unable to repay their bailouts under current circumstances:

``It may make sense and be pragmatic for the government to renegotiate,'' said David Havens, a UBS AG credit analyst in Stamford, Connecticut. The loan's interest rate ``makes it extraordinarily difficult for AIG to fix itself,'' he said.

What's the crippling interest rate, you ask? A whopping 14%. Boo-fucking-hoo. So you can see why they'd have problems making their payments. Of course, in 2005 this great nation of ours also passed the bankruptcy reform bill, which now protects hapless credit card issuers from well-off consumers who were taking advantage of loopholes to rack up large balances and walk away from them, at least if you believe the industry's line of bullshit. Tamara Draut, director of the economic program at Demos think tank, saw it differently and argued that "The legislation would do nothing to rein in credit card solicitations or put caps on interest rates or late fees, over-the-limit fees and other penalties" which were some of the biggest reasons consumers were forced into bankruptcy to begin with.

So to recap: if you're a consumer and have not spent millions of dollars lobbying Congress, you get no bailout, no help if you're facing foreclosure, and it's now harder for you to declare bankruptcy if you need to get a fresh start. If you're in the finance and banking industry and DID spend millions lobbying Congress, you get billions in bailout money, you get to keep issuing outsized bonuses and dividends, you get to use taxpayer money to fund your mergers and acquisitions, you get to write new "regulations" to prevent this from happening again, plus help in recouping balances from those deadbeat consumers who are having a hard time repaying your usurious loans at 30% interest. Absolutely sickening.

'Bong Hits 4 Jesus' case finally settled

'Bong Hits 4 Jesus' case finally settled: Juneau | adn.com

Coincidentally, I just watched "A/k/a Tommy Chong" last night. The point that we should take away from both of these cases is that marijuana policy and rhetoric can be used to silence dissent. The First amendment does not place limits on what you can say, and I'm glad that this student stuck up for that.

Palin: The right thing for America will be done on Nov. 4

Sarah Palin: “And it also strengthens my faith because I know at the end of the day putting this in God’s hands, the right thing for America will be done, at the end of the day on Nov. 4.”

LOL!!! Where's your God now????? HAHAHAHAHA

h/t: Project for the Old American Century

The Treatment of Bush Has Been a Disgrace - WSJ.com

The Treatment of Bush Has Been a Disgrace - WSJ.com

I had a choking fit as I read this editorial in yesterday's Wall Street Journal. I could almost agree with a more generic point that, as Americans, we ought to show respect to the office of the presidency. But this editorial goes far beyond that, arguing that Bush's record low approval numbers are "the price Mr. Bush is paying for trying to work with both Democrats and Republicans... Those bipartisan efforts have been met with crushing resistance from both political parties." Mr. Shapiro (who bears the credentials of "investigative reporter and lawyer who previously interned with John F. Kerry's legal team during the presidential election in 2004", not to mention total idiot) then brings up several issues on which either Democrats or Republicans (or both!) have disagreed with Bush: Supreme Court nominees, immigration reform, as well as "his refusal to retreat in Iraq [that] has enraged liberals who have unrealistic expectations about the challenges we face there."

Oh yes, poor hapless George W. Bush. He's tried so hard to reach across the aisle and work together, always making sure not to alienate those that may disagree with him. Is this guy kidding?????? In what world does he live? Here are a few of Bush's other bipartisan initiaves, stretching all the way back to the start of his presidency:

• torture
• the Iraq war
  
• indefinite detention & suspension of habeas corpus rights
  
• warrantless wiretapping of American citizens
• Telco immunity
  
• asserted that the office of the Vice-president resides in the legislative branch in order to avoid reporting and inspection requirements in the handling of classified information.
• establishment of 100-mile "constitution-free" zone inside the U.S. borders.
• Ignored warnings about the danger posed by Hurricane Katrina
• domestic deployment of the military in violation of Posse Comitatus
• The bailout
• Bailout funds bonus payouts to executives, despite bipartisan outcry
• Failure to join Kyoto protocol
• Extraordinary rendition
  
• and because it bears repeating, torturing people until they go insane.

I'm sure there are plenty more, you're welcome to play the home game. Is it really so hard to understand why he's universally hated? The term "worst president in history" has been bandied about by historians since 2006. I really cannot fathom how there are still Bush apologists out there. Let's try this: name things that Bush has done well. (Cue the crickets chirping).

Mr Shapiro ends up:

The treatment President Bush has received from this country is nothing less than a disgrace. The attacks launched against him have been cruel and slanderous, proving to the world what little character and resolve we have. The president is not to blame for all these problems. He never lost faith in America or her people, and has tried his hardest to continue leading our nation during a very difficult time.

Our failure to stand by the one person who continued to stand by us has not gone unnoticed by our enemies. It has shown to the world how disloyal we can be when our president needed loyalty -- a shameful display of arrogance and weakness that will haunt this nation long after Mr. Bush has left the White House.

No, the only "shameful display of arrogance" over these past 8 years has come from the Bush White House. He's the fucking disgrace, and there's nobody else TO blame for all these problems, unless you want to argue that it's Cheney or Rove's fault! Shameful indeed.

Thomas Friedman: Vote for ( )

Although I disagree with many of his conclusions, Thomas Friedman does get this election contest partially correct in an op-ed from 11/1/08.

Here’s what strikes me this election eve: I can’t remember a presidential campaign that was so disconnected from the actual challenges of governing that will confront the winner the morning after. When this election campaign began two years ago, the big issue was how and for how long do we continue nation-building in Iraq. As the campaign comes to a close, the big issue is how and at what sacrifice do we do nation-building in America.

Unfortunately, you’d barely know that from the presidential debates. Watching them in the context of the meltdown of the financial system was like watching a game show where the two contestants were kept off-stage in a soundproof booth and brought out to address the audience without knowing the context.

Isn't that exactly what I've been saying??

Since the last debate, John McCain and Barack Obama have unveiled broad ideas about how to restore the nation’s financial health. But they continue to suggest that this will be largely pain-free. McCain says giving everyone a tax cut will save the day; Obama tells us only the rich will have to pay to help us out of this hole. Neither is true.

We are all going to have to pay, because this meltdown comes in the context of what has been “perhaps the greatest wealth transfer since the Bolshevik Revolution in Russia in 1917,” says Michael Mandelbaum, author of “Democracy’s Good Name.” “It is not a wealth transfer from rich to poor that the Bush administration will be remembered for. It is a wealth transfer from the future to the present.”

Mr. Friedman, I don't think anyone can argue that we've seen a transfer of wealth from rich to poor. Not only have we destroyed the economic foundation for future generations, under Bush we've ALSO seen the biggest transfer of wealth from the lower and middle classes to the upper classes, leading to record income inequality and shocking lack of class mobility. The rich certainly haven't been paying their share. And you don't really believe that corporations are going to pitch in and pay taxes to help out, do you??

Never has one generation spent so much of its children’s wealth in such a short period of time with so little to show for it as in the Bush years. Under George W. Bush, America has foisted onto future generations a huge financial burden to finance our current tax cuts, wars and now bailouts. Just paying off those debts will require significant sacrifices. But when you add the destruction of wealth that has taken place in the last two months in the markets, and the need for more bailouts, you understand why this is not going to be a painless recovery.

No, indeed, this will not be a painless recovery. And "significant sacrifices" is an understatement. In an economic blood-letting like this, many are saying it could be the "end of prosperity". Period.

The Bush team leaves us with another debt — one to Mother Nature. We have added tons more CO2 into the atmosphere these last eight years, without any mitigation effort. As a result, slowing down climate change in the next eight years is going to require even bigger changes and investments in how we use energy.

Hmm, I wonder if that's due to the fact that Bush's talking points on the environment have been "deny, deny, deny". Or maybe that's because it's part of a wider Republican strategy to attempt to discredit environmental warnings? And now that peak-oil concepts are proving true, the question has become "Can we do anything fast enough to avert disaster?"

More foxes in charge of bigger henhouses

I swear, some days I think I'm in bizarro world. And not the generic bizarro world either, the specific Seinfeld bizarro world, where George is an expert in Risk management. And then, some other days, I think that the world is being run by people who have truly run out of ideas, and so resort to TV scripts as guidance for actual real world events. How else do you explain the latest move at the New York Fed? Apparently, Michael Alix is such a colossal failure at Risk Management that he's helped drive Bear Stearns AND Merrill Lynch out of business. That's exactly the kind of skill-set that screams for a job supervising banking regulations for the New York Fed.

Another thing: whenever someone points out that there are massive conflicts of interest, not to mention the (now) horrible track records these guys have, the standard Treasury apologist response is that nobody other than top Wall Street guys know enough about these financial instruments of mass destruction to be able to suggest effective regulations. I disagree. I say that nobody INCLUDING Wall Street guys understand them. Trillions of dollars in losses later, maybe everyone's starting to get it?

From Seinfeld:

George: Alright. Listen, I gotta get some reading done. You mind if I do this
here? I can't concentrate in my apartment.

Jerry (checking out George's textbook): Risk management?

George: Yeah. Steinbrenner wants everyone in the front office to give a
lecture in their area of business expertise.

Jerry: Well what makes them think you're a risk management expert?

George: I guess it's on my resume.

NY Fed's Bear Stearns hire draws fire:

By Pedro Nicolaci da Costa
NEW YORK, Nov 4 (Reuters) - The New York Fed has hired the former 'chief risk officer' of fallen investment giant Bear Stearns as a top bank regulation adviser, prompting outrage among investors.
Numerous analysts say the government is effectively rewarding Michael Alix, an individual deeply involved in fomenting the worst credit crisis in generations, with a taxpayer-funded salary.
At Bear Stearns, the investment bank that collapsed in March and has become hallmark of the global credit crisis, Alix served as chief risk officer from 2006 to 2008 and global head of credit risk management from 1996 to 2006.
'It's like putting the fox in charge of the hen house,' said Malcolm Polley, chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania.
The appointment goes to the heart of a growing problem that has cropped up along with the myriad rescue efforts aimed at reviving the financial system: few people actually know what was in the risky mortgage bonds that brought the system to a halt.
Analysts say this makes efforts at resolving the problems ripe for conflict of interests, or impropriety at the very least. This certainly seems to be the case in the New York Fed's new hire.

The New York Fed declined to comment on Alix's appointment.

The Fed made the announcement on Halloween, with little in the way of fanfare or alerts to the press. Alix will serve as a senior adviser to William Rutledge in the Bank Supervision Group. His appointment is effective Nov. 3.

Before working at Bear Stearns, Alix spent eight years at Merrill Lynch, the investment bank that faced massive losses and was subsequently purchased by Bank of America.

The Fed would not immediately disclose how much Alix would earn in his new post. But many investment strategists around the country said giving him even a single penny would be too much.

"He should at least do it pro bono," said Beth Malloy, bond market analyst at Briefing.com in Chicago. (Reporting by Pedro Nicolaci da Costa; Editing by Dan Grebler)