Category Archives: greed

Voluntary Regulation

This is a really long one, but if you have the time and are interested in the current state of water quality, check out this frontline clip:
Poisoned Waters
Bottom line, it may have been 36 years since creation of the EPA, but in that time we’ve only had two administrations interested in doing anything substantive toward sustainability (‘voluntary regulation’ is the common buzzword throughout each Republican administration), and Bill was pretty much Republican Lite. We’ve done a lot with respect to municipal waste, and are now considering the possible impacts of things we can barely measure like endocrine disruptors, while any industry with some clout hasn’t done a damn thing. So fish keep going belly up with regularity, and while over-fishing is a problem the health of aquatic life in many places is very bleak due to poor waste management practices. Happy belated Earth Day!

Meet the New Deal, same as the Old Deal

Here’s an open question: now that the fascists are officially running the country, what is the best choice of second language for my 3-year old to learn?  I just want her to have options.  And please, don’t tell me “Chinese”.  I need to know: Mandarin or Cantonese?… is there another?… be specific!  Is Canada the future (parlez vous?) or India?  If India, which state is most hospitable to the carpetbagging white devil?  My provincial upbringing leaves me unequipped to deal with current realities, so any and all suggestions are welcome.

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James Galbraith’s reaction to Geithner’s plan to subsidize the purchase of toxic bank assets?  EXAMINE THE LOAN TAPES.  Contrary to the oft-repeated claim that the true value of the mystery toxic assets is unknowable (“these new-fangled financial instruments are so gosh darn complex, nobody really knows what they’re worth!”), Galbraith believes a comparison to the IndyMac portfolio will reveal “whether these loans or derivatives based on them have any right to be marketed in an open securities market”…

Note that even a small loss of capital, relative to the purchase price, completely wipes out the interest earnings on the Treasury’s loans, putting the government in a loss position and giving the banks a windfall.

If I’m right and the mortgages are largely trash, then the Geithner plan is a Rube Goldberg device for shifting inevitable losses from the banks to the Treasury, preserving the big banks and their incumbent management in all their dysfunctional glory. The cost will be continued vast over-capacity in banking, and a consequent weakening of the remaining, smaller, better- managed banks who didn’t participate in the garbage-loan frenzy.

This will not achieve the stated goal, of bringing on new lending, for reasons already explained at length.  It’s all about not-measuring true asset quality at the big banks, permitting them to escape a clean audit, and therefore preserving them as institutions, while forcing the inevitable shrinkage of the financial sector to occur elsewhere. In short, the plan seems to me to be a very bad idea.

But the way to determine whether Geithner’s and the banks’ stated view of the toxic assets has any merit, is to demand an INDEPENDENT EXAMINATION OF THE LOAN TAPES, particularly looking to establish the prevalence of missing documents, misrepresentation, and fraud.  This can be done by a sufficient sample.  If the tapes look bad, it will be very difficult to justify the bank/Treasury view that the RMBS actually have value, which is somehow not realizable on the marketplace today because of “liquidity shortages” or “fire-sale conditions.”  Maybe there actually was a fire.

What’s most enfuriating in all of this is the thought of how quickly they can shovel money at these greedy fuckers, when for years we’ve been told there’s no money to expand the social safety net, universal single payer health care, social security, what have you…

Wait, did I say most enfuriating?  That would be the absolute disinterest on the part of the Obama administration to treat this like a massive swindle.  What’s enfuriating is that the unfolding trainwreck of events compels me to spend my free time trying to understand the difference between a CDO and CDS, just so I can pretend to understand what crooked scheme brought down the republic.

Am I being alarmist?  Hey, it’s just money after all, right?

One more link I need to get out of my system.  This one to an article Matt Taibbi wrote during the election that really took the wind out of my sails at the time.  It’s all about the way Wall Street rallied bahind Obama (and vice versa) after he took the Democratic nomination.  I sincerely hoped Taibbi was being overly cyncial, that the army of small donors could overwhelm the monied interests once Obama was firmly in charge.  Now that seems doubtful.

Other companies are getting in on the ground floor with the new chief by stuffing money in his ears. Overall, Obama is flat-out kicking McCain’s ass when it comes to Wall Street contributions, raking in nearly $9 million from securities and investment executives, compared to $6.2 million for McCain. Obama has received more contributions from Goldman Sachs than from any other employer — more than $627,000 at this writing — not to mention $398,021 from JP Morgan Chase, $353,922 from Lehman Brothers and $291,388 from Morgan Stanley. Even among hedge-fund executives, who have an unequivocal interest in electing McCain, Obama is whipping the Republican, collecting $500,000 more than McCain. All of which begs the question: Why would corporate giants like these throw so much weight behind a man who promises to strip them of billions in tax breaks?

Why, indeed?  Especially since, to a cynical observer, the financial panic triggered in September by the collapse of Lehman Bros was perfectly timed to allow the Bush Administration to bestow one last parting gift to Big Business (i.e. $700 billion of TARP funds).  I guess when you’ve lost trillions of dollars in careless speculation, it’s best to cover all your bases.  Well played, assholes!

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Lastly, some low budget econo-rock… (for the record, this guy’s got nothing on Jimmy Reefercake, though I liked the Turbo Tax line)

Sadly, I fear Krugman may have just jumped the shark…

Froggy went a-courtin’ (CRAMDOWN)

Last week the centrist Democrats, at the behest of their banker overlords, postponed a vote on a House bill that seeks to stem the ever-increasing rate of home foreclosures.  Among other things, the bill includes a “cramdown” provision that would allow people to renegotiate the terms of their primary mortgage.  That legislation is supposed to be re-visited today; it remains to be seen how they will attempt to water it down.

Needless to say, the financial geniuses at the lending institutions who approved these crappy loans are opposed to having their crappy investments devalued in bankruptcy court. They’d actually prefer to have these loans go unpaid and keep their inflated values on the books than to put the homeowner back into a position where they can continue to make payments.  In other words, they’d rather force people out of their homes than take a hit to their bottom line.  

Much like Willy Wonka’s squirrels, this foreclosure bill separates the “good” nuts from the “bad” nuts as far as Democrats are concerned.  Not to go all Nader on you, but the monied interests are just as cozy with the Dems as they are with the Repugs.  The only difference is the Democrats have an activist base that attempts to hold these swine accountable.  Jane Hamsher writes

[Head of the New Democrat Coalition, Rep. Ellen] Tauscher’s office also said she hasn’t met with any bankers or lobbyists on the matter, and that may well be true. She doesn’t have to. Adam Pase, the executive director of the New Democrat Coalition which Tauscher chairs, works directly out of her office.

Pase is a former lobbyist for the Twenty First Century Group, whose client, the Coalition for Fair & Affordable Lending, is an astroturf group, financed by the banking industry, that lobbied on behalf of. . . you guessed it. . . sub-prime lenders. Contrary to what you might hear on Morning Joe, it was national civil rights leaders who joined together tofight the Coalition’s predatory lenders as they tried to pass the Ney-Kanjorski bill, which would have enabled banks to get around predatory lending laws and make more bad loans. This they justified based on the oh-so-high-minded need to provide loans to low income and minority borrowers. It was true scumbaggery.

I’m very interested to see where this goes today.

Some quick notes:

  • The “cramdown” provision only applies to the mortgage of a primary residence… Why?  Because “people with vacation homes and investment properties, including flippers, can already go to bankruptcy court and have their loan terms modified.”  Ya got that?  It’s only the poor schmo who’s only got one house to lose that’s left squirming on the hook.
  • I’m sure I read somewhere that, if and when the value of the home goes back up, the bank could seek to recoup the original amount of the investment upon sale of the home.  (Or maybe I’m just mis-remembering the line of bull they feed us every time the Fed proposes we purchase Wall Street’s toxic assets at inflated prices.)
  • Up until 1993, the cramdown provision was law.  Not only did it help the homeowner in distress, but it also provided a (now obvious) check on unrestrained lending by banking institutions who had to fear writedowns on their investment if they made ill-advised loans.  Think that could have helped our present situation?  (See this excellent discussion of the importance of cramdown legislation over at Calculated Risk… in 2007, back before Congress killed it the last time… thanks, assholes!)…
In fact, I have some sympathy with the view that mortgage lenders “perform a valuable social service through their loans.” That’s why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you’re a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are “affordable” only for a year or two, if you face having that loan restructured in Chapter 13. If you are aware that your mortgage loan can be crammed down, I’m here to tell you that you will certainly not “forget” to model negative HPA in your ratings models, and will probably pay more than a few seconds’ attention to your appraisals. You might even decide that, if a loan does get into trouble, you’re better off working it out yourself, via forbearance or modification or short sale, rather than hanging tough and letting the BK judge tell you what you’ll accept. That would be a major bummer, right? 

I love the phrase “moral hazard”.  It neatly confers victim status upon the kindly mortgage lender, while forcing the rapacious homeowner, whom it would be “immoral” to help, out into the street.  Nevermind the predatory actions of the lenders, who were an equal (I would say more than equal) party in the failed transactions.  Cramdown seeks to stem foreclosure rates.  With increased foreclosures, the housing market is flooded with realtor-owned houses – and  I guarantee nobody is buying them at their previous loan prices.  So these banks are taking a hit regardless – and they want to drag everyone down with them.

I would suggest that the moral hazard here is indeed heavy on the hazard, though low on morals.  How deep does this hole have to get before we have some responsible action?

Still not convinced about cramdown?  Here’s some more facts, courtesy of Anita Hill (via FireDogLake):

Women borrowers are overrepresented in the subprime lending market…Across the economic spectrum, women receive less favorable terms than similarly situated men on home purchase, refinance, and home improvement loans….

Elderly women are prime targets of refinance and home improvement subprime lenders….Rising property taxes and medical expenses make older women on fixed incomes particularly susceptible to lenders who promise money for necessary repairs, but instead exact huge fees and charge inflated interest rates….

A former loan officer testified about how she marketed subprime mortgages: “If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the [additional costs] CitiFinancial offered.”

And lastly, for the heartbreak…

(thanks again to FireDogLake who has been all over this issue)

* * *  UPDATE  * * *

The House continues with suspensions today, apparently delaying consideration of H.R. 1106 at least another day. That gives us another day to contact your Representatives and Senators in support of the bill and in opposition to further weakening amendments. Mortgage modification keeps families in homes, and keeps banks getting paid. Tightening the noose any more just means more homeowners will give up and throw the keys back in the bank’s face — and then the banks will come to the rest of us eventually, anyway, only this time for a bailout check.

Something Smells Phishy

Last week I was having one of those Frank “The Tank” Ricard moments…we had a nice little saturday planned. Home Depot, Sears. Phish tickets? I don’t know! I don’t know if we’ll have enough time! I had it in the back of my mind that I would have to hit the box office based on the near impossiblity of getting through by phone or online. But we needed to get some drapes for the new bedroom and look at new washers. Suddenly, I had a moment of clarity. I could drop the wife and kids off at nearby Ikea and I could go stand in line for the tickets. My earlier indecision almost ruined it though, because by the time I hauled the family in the car and started out, the gps was telling me the arrival time to Ikea was 9:52 and tickets would go on sale at 10:00. There was no way I was going to make it in time so we agreed that I would be dropped off first. We pull up to the Comcast Center, formerly Great Woods (back in the day before corporate America took over), about 9:56 and I get in the back of a line of about 300 plus. It was a pretty good scene considering the temps were in the 20’s. There was a buzz in the air about the band getting back together and people were sharing stories of past shows. Apparently those with their shit together that arrived at or before 9:00 got a some kind of raffle or lottery ticket, that seemed to ensure them that they would get real tickets. I was behind these folks, so the situation was dicey. Every second or so you would hear, “Buy tickets” as people were trying to get through on cell phones and being prompted by Live Nation’s voice activated system. As time dragged on and the line didn’t seem to move, I was starting to lose hope because I’m thinking that this thing is going to sell out in minutes. But then rumors start in the crowd about a certain allotment of tickets at the box office that the phone and online system can’t touch. Someone says about 2,000 are at the box office. That would only make sense, those who came down and waited in the cold weather would be rewarded. I guess we’ll see. Then suddenly the girl in front of me gets through on the phone. Then a couple more people. Then a couple more. I’m thinking this is statistically impossible based the number of times I’ve tried and failed in the past to get through by phone. The agents on the line say it is ok to pass the phone off to another person and process his or her order. Sweet! Phans start giving their info and then shortly after their look of elation turns to dejection. The computers are crashing and most people are just on hold for fear if they hang up they won’t get through again. Cell phone batteries are dying….hopes are dashed. One girl starts up some small talk with the agent while on hold. Apparently these Live Nation agents take calls from home and process orders on their own computers! They don’t even really know who they are working for, they just use this special access code to log in and secure the tickets. People around me are just in this state of limbo because only partial information has gone through and so they don’t know if the order will be successful. So this fiasco and the fact that my hand would be warmer if I just keep it in my pocket convinces me to give up on the phone. Supply is dwindling as one guy who phones in can only purchase one seat. Folks in line start bitching about Ticketmaster and it’s subsidiary TicketsNow, where you are directed by Ticketmaster after a show is sold out and somehow there a plethora of tickets at four times the cost. I take a stroll up to the front and there is only one window open and the line is crawling. I return to the line and a random guy gives me his lottery ticket because he got through on the phone. Again, sweet! Word reaches the back that the box office is having trouble getting through to Live Nation. I move up and try to find my new spot in line and am not having too much luck so I turn to the event staff. They might as well have replaced the “Event Staff” on the back of their jackets with “Masshole”. “583? That numbah went through the line long ago!” I ask another, ” 583? You ah behind nine twenty fouwah.” “Wha?” I reply. “Back neah the end of the line!” I’m beginning to realize how poorly organized this whole thing is…nothing makes sense. A few minutes later one of the massholes yells, “Sold out! We’re all sold out!” Phans are pissed. Some yell, “Fuck you! This is bullshit!” But most are just disappointed and leave. Probably about 100 or so were turned away, most of whom had a lottery ticket. I get on the phone and call the wife and kids to come pick me up. One by one people clear out…I seem to be the only one waiting for a ride. Eventually it’s just me and the event staff. I start my long trek to the gates looking back occasionally, hoping for a miracle or that Trey would suddenly appear from behind a tree and feel pity for me (maybe the cold was getting to my brain). The snow covered parking lots are like the frozen tundra they spread so far and then just trees beyond that. Quiet and desolate. I’m amazed at how fast the area cleared out and wondered why there weren’t more stragglers. About 20 minutes after the sell out a jeep pulls up along side me and I recognize the event staff guy who told me I was behind 924. He unbuttons his plastic window and tells me they may have found a couple more tickets back at the box office. I jump up and race back to the box office. Jackpot, I get 4 lawn seats! Two hours of waiting and freezing my ass off. The car pulls up quite late. Apparently the gps took them on some circuitous route and allowed enough time for me to be the last one standing. I must say I felt young again. My son rolls down his window, “Daddy, are you done fishing yet?”

Who could have foreseen?

As the Bush Administration winds down, the Big Money Boys have just about finished cleaning us out. Per Think Progress, CNBC has a nice chart detailing all the various bailout monies that’ve been lavished on corporate America… and the total is over 4 trillion dollars:

Financial Crisis Balance Sheet
Government Entity Sum in Billions of Dollars
Federal Reserve
(TAF) Term Auction Facility 900
Discount Window Lending
Commercial Banks 99.2
Investment Banks 56.7
Loans to buy ABCP 76.5
AIG 112.5
Bear Stearns 29.5
(TSLF) Term Securities Lending Facility 225
Swap Lines 613
(MMIFF) Money Market Investor Funding Facility 540
Commercial Paper Funding Facility 257
(TARP) Treasury Asset Relief Program 700
Other:
Automakers 25
(FHA) Federal Housing Administration 300
Fannie Mae/Freddie Mac 350
Total 4284.5
Note: Figures as of Nov. 13, 2008

Allow me to ask a rhetorical question or twelve:

How did this happen? Was this economic crisis an accident? The cost of doing business? A simple but inevitable downturn on the great cycle of prosperity? An unfortunate confluence of economic forces, caused by the ripple effects of a far off butterfly, flapping its wings to the (temporary!) detriment of our glorious DOW?

Could this have been avoided? In other words, who the hell can we blame for this mess? Because for something to be avoidable, it must be knowable in advance. And if it was knowable, and there were people sounding the alarm, then it surely follows that there were those who heard that alarm and cynically ignored its warning.

Ladies and Gentlemen, I give you Exhibit A: Peter Schiff. This video is a compilation of Peter’s greatest hits from 2006-2007, before the shit was even near the fan, when various cable outlets would routinely trot him out as the token pessimist to be ridiculed like the town simpleton in a medieval passion play. Watch in amazement as poor Peter’s clear-eyed prescience is rewarded with howls of derision from his fellow Fox News “analysts” (anal-cysts?).

When I saw the length of the video, I figured there was no way I’d watch to the end, and yet there was super genius Ben Stein braying like an ignorant jackass and I couldn’t look away.

Exhibit B is the remarkable true story of Steve Eisman, an investor who for years has been short selling all manner of stocks and bonds related to the the housing market, on the basis that the emperor has no clothes. [Note to you Fantasy Wieners, the article is written by noted Moneyball author, Michael Lewis.]

He and his team set out to find the smelliest pile of loans they could so that they could make side bets against them with Goldman Sachs or Deutsche Bank. What they were doing, oddly enough, was the analysis of subprime lending that should have been done before the loans were made […]

“You have to understand this,” he says. “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. “I cannot fucking believe this is allowed—I must have said that a thousand times in the past two years,” Eisman says.

Even if you have no idea about any of this (especially if you don’t) I recommend reading the whole piece. You come away with the distinct impression that high finance is nothing more than an elaborate Ponzi scheme.

Kurt Vonnegut wrote about the Money River (God Bless You Mr. Rosewater). How if you were lucky enough or smart enough, you could get one of the guardians to show you the river so that you yourself might “slurp”. I think nowadays the proper metaphor is not a river, but rather a Money Vortex – I’m just not sure if it’s a tornado, funneling money up and out of our pockets… or a swirling eddy, siphoning it down the drain. Nothing about the last 8 years has been an accident. Sure, there has been “collateral damage”, and that’s been regrettable. But in the end, everybody in charge got more or less what they wanted.

The question is, will they get what they deserve?