Desiderata

Wikileaks: Coming to a Bank Near You – Over on the Premise page, we make it clear that we don’t believe in conspiracies; except the ones designed to stick up liquor stores. So, it will be interesting to see what comes out of the next set of Wikileaks which are apparently going to target a major US bank. One comment from Julian Assange, Wikileaks’ founder, is that the documents will illustrate the unethical policies and lack of regulation that are common at US banks. We look forward to the release of internal documents that support our contention that the sort of bad behavior we talk about here is in fact going on, and is actually the POLICY of some (read “all”) major financial institutions.

Insider Trading – A quick update here from an utter shill name of Halah Touryalai at Forbes. This a breathtaking example of bad writing, muddled thinking and just plain stupidity. Halah’s hard nosed take on all of this? When you play a rigged game, you’ve got to expect this kind of stuff AND she’d be shocked if anyone was put in jail (it’s not clear but I think she’d be shocked as in outraged, not shocked as in surprised). Hey Halah, the stated premise of EVERY company that sells stocks to the public is that it ISN’T a rigged game. And of course, in case you forgot, it shouldn’t be. You’re not hard bitten and cynical, your a moron and a shill for the big boys. BUT, keep in mind, that is the way many, many people who write about Wall Street view the matter.

Your Job is Gone…Forever – You may have seen last week that US businesses posted record profits (and you thought we were in a recession!). One way they’re doing this is by asking workers to find every way possible to save money (great) and to do so with existing technology so the company doesn’t have to buy new or upgrade (hmmmm). What this translates to in many cases is that there really will be persistent unemployment even when the economy does start to rebound. Too bad your 401(k) was decimated in the recent crash or you’d be cashing in on the rising stock prices.

Just a Thought – I keep hearing talk about how our economy is going to crash and go the way of Greece and Ireland because we have such a consumer focused economy and don’t have adequate exports. Here’s a thought: to start to turn that around, let’s devalue our currency (just like China does) and encourage manufacturing and exporting. Any takers? Sure, all the people who would get jobs would love it. And, since pretty much every country in the world manages its currency rate to some extent, it wouldn’t be anything new. But any thoughts along these lines will ALWAYS be railed at as protectionist. Anyone with a good answer as to why this would be so bad, let us know. Mind you, we only want real answers. Any answer that is based upon the sanctity of free trade, the need for global trade etc. will be put in the spam folder.

Desiderata

Ireland, or, What Not to do With Your Economy – Ireland adopted a fairly strong version of the supply side/trickle down approach to their national economy. The cornerstone to this approach is to gut taxes. A common accompaniment is lax regulation, especially in the financial sector. Two results were achieved. First, lots and lots of foreign multinationals showed up to take advantage of the low tax rates. They hired lots of well educated locals and were a major contributor to the “Celtic Tiger”. Second, the banks went on a rampage and pretty much did whatever they wanted. One thing they apparently wanted to do was to loan way too much money to real estate developers.

Wait, three things happened. The third being that the economy hit a wall, even harder than everyone else, and the country is on the verge of bankruptcy. And here’s a great quote from one of the multinational companies that showed up: “HP is very clear,” Lionel Alexander, head of Hewlett-Packard’s Irish operations, told Bloomberg Television. “If the tax rate increased, we would be relooking at our investment in Ireland.” The standard business press mantra when faced with quotes like this is that HP has an obligation to its shareholders. True. And if Ireland is the cheap whore, rider her. But I wonder if Lionel Alexander said something like, “we don’t give a fuck about Ireland or the Irish people, but if we can locate a facility this close to Europe AND pay almost no taxes (12.5% v. approx. 28% in other parts of Europe), we’re in. No, he didn’t

The point: Every time you hear someone talking about how we have to keep lowering taxes here, ask them how it worked in Ireland. This is also relevant to the Bush tax cuts.

$100 Million Here, $100 Million There…It Starts to Add Up – Goldman Sachs trader Fabrice Tourre is facing additional charges in an ongoing battle with the SEC over Goldman misleading investors in products related to subprime mortgages. For its part, Goldman settled for $550 Million. Put another way, Goldman settle for $550,000,000! You don’t do that if you’re innocent. I know it’s a big organization. I know they don’t want bad press. I know they make a lot of money. But you don’t willingly part with more than HALF A BILLION DOLLARS unless you thought you might be compelled to part with more.

The point: Goldman was ripping off everyone they could during the height of the real estate bubble. They may not have broken too many laws, but they were fucking everyone they could. They were lying to anyone they had to. They were doing anything at all to make obscene amounts of money. They are NOT just sophisticated players in a major international marketplace. They are parasites.

Corporate Profits – Logged in at $1.66 trillion. Yes, trillion. That’s on an annualized basis. Unemployment hovers just below 10%. Suck it.

The point: I thought Obama was killing business (I’m not a fan of the current Chief Magistrate for what it’s worth). I thought the economy was teetering on the brink of the abyss. I thought the huge government debt was sucking the life out of the economy. No, the economy, as measured by profits, is soaring. Don’t believe any macroeconomic argument you hear from a politician on the left OR the right.

Ben Bernanke is a Drug Dealer – This is the takeaway from an utterly moronic column written by Shaun Rein at Forbes. See, Shaun had a friend (“Johnny” was his name…surprise, surprise) who was a junkie. When his parents ran out of love, all they could give him was money. But Johnny was an addict, so THAT DIDN’T HELP. Similarly, Bernanke “giving money” to US businesses won’t help (yes, Shaun’s boiled QE down to that). Why won’t it help? Here’s why: “Low interest rates and an increased money supply are worthless tools if companies don’t think there are ways to make money.” Maybe Shaun didn’t see that US businesses just clocked in with record profits.

The point: this really doesn’t have anything to do with business. The point is that when a column purporting to be serious is so poorly conceived and so stupidly written, you should just ignore whatever it’s saying. If someone else provides a reasonable basis to disagree with QE, give them a listen. But if it’s this clown, don’t bother.

Insider Trading (cont.)

As predicted, the business press is trotting out the expected comments on the brewing insider trading scandal. I may have been a bit imprecise with my three categories, but they pretty well cover the water front.

One view that I missed entirely is the unrepentant one voiced very clearly by John Carney from CNBC http://finance.yahoo.com/news/The-SECs-Absurd-War-Against-cnbc-1773887254.html?x=0. The fancy name for this point of view is the Efficient Market Hypothesis (“EMH”).

EMH says there shouldn’t be ANY rules against insider trading because the market should be totally transparent, and only by letting insiders trade freely in a stock will the market accurately reflect all the available information on that stock. Let me guess, this guy just loves Ayn Rand and thinks the Atlas Shrugged is a great piece of literature. I thought this kind of nonsense went out with Greenspan’s public recanting. That was where former Fed Chair Alan Greenspan owned up to his profoundly naive belief that markets would regulate themselves. At least Greenspan had the balls to look at the wreckage his outlook helped create and say that he was terribly wrong.

The only way someone can continue to believe this nonsense is that they’re just naive. Carney read this theory, probably in business school, and bought it hook, line and sinker. It makes sense, in a vacuum, especially to young people and people with little or no real world experience. If insiders have information others don’t they’ll use it to their advantage and to your disadvantage. I don’t think the owners of a business would like it if their employees started buying stock based on a positive development the company wanted to keep under wraps until a specific point in the future. When you hear this theory or arguments that sound like it, just laugh at the proponent. They’re wrong. Tell them Alan Greenspan had the same idea and look where that got us.

Personally, I have a comic vision of guys like Carney and Greenspan being conned into believing this nonsense by people with real money who are just using them as shills.

So let’s dismiss Carney. He’s a shill. But remember, this is an outlook that ruled the business press roost for years, and won’t go away quietly.

Todd Harrison brings another perspective. Todd says it’s just terrible that people are viewing big finance as a bunch of thieves. He even pats himself on the back for not being acrimonious as he throws in a link comparing people who disagree with him to the idiotic supermodel in the movie Zoolander. He also casts those who disagree with him as conspiracy theorists. At the end of his article, Todd tells us that hedge funds are essential and that without them (if this makes sense to anyone, please send me an email explaining it) “the specter of free market capitalism will be forced to endure an entirely more profound pathway.”

Does profound mean bad? Will the specter be forced to endure such profundity, or will capitalism itself be forced to endure it? Even your humble decoder is left wondering what this means.

Calling these people to the carpet doesn’t make you a conspiracy theorist. Pointing out that the hedge funds have structural advantages that ordinary investors can’t compete with isn’t bad or wrong. Todd’s made good money in the business and is paid to defend it. That said, I agree with him that there aren’t any conspiracies at work here; that most people in this industry haven’t broken the law; and that people shouldn’t be found guilty before a trial.

The big press will probably have stories over the holiday weekend. There’s a lot of digging to do and no one wants to go off half-cocked on this one. There’s a LOT of life left in this one! I think the “overzealous prosecutor” angle will get some play, but less than in the past, given Bernie Madoff et. al. I’m still hoping for some “this stuff is too complicated” stories.

Stay tuned!

You CANNOT be Serious

Not too long ago the US Government (that’s you and me, dear reader) paid billions of dollars to the vampires at Goldman Sachs to ensure that they would be made whole on some exotic financial instruments they were involved in. Seems like the company guaranteeing the value of those instruments (AIG) was going belly up, and wouldn’t be able to completely fulfill their obligations. That meant that Goldman, Citi and others would – GASP – lose money on their investments.

But for some reason, the US Government, Bush was still in power at the time, but Clinton or Obama would’ve done the same, PAID FULL PRICE for these toxic assets. We had to make sure that the contracts which were in place were honored to the letter.

But now, as the Great Liquidation (a nifty little term coined by the Trustafarians at Fortress Investment Group) gets underway, hedge funds are buying impaired assets from banks for pennies on the dollar. One of the biggest classes of financial assets that are being bought are Collateralized Debt Obligations (CDOs) the nasty things that we bailed Goldman out of for FULL VALUE when everyone in the world knew they were worthless.

A couple of points to take from this:

1. Banks sell assets for far less than their book value all the time. It’s a common practice. It’s called getting a hair cut. The Fed didn’t give Goldman and the rest of the gang a hair cut because former Goldman execs ran and run the Fed. Simple conflict of interest. Not a conspiracy.

2. At the time, Goldman and others put up fancy arguments for why they should be paid in full. Never believe that kind of crap. For all the complexity of any given financial instrument or any particular deal, financial markets are wonderfully simple in this respect: the golden rule is in force. The party with the gold makes the rules. Never, EVER, believe a fancy justification. It is always a lie.

3. Wallow in the over arching hypocrisy of Wall Street. They storm around telling everyone that it’s a hard world, and you have to take your losses, but when they are faced with losses, they get made whole. They deserve scorn and contempt.

Republicans Disagree With the “Free Market”

Turn on the radio and you’ll hear one thing in common from the Republican talk shows: Quantitative Easing is wrong, will lead to rampant inflation and is obviously bad for the economy.

Wait, there are two things you’ll hear from every Republican talk show. The second one is that the free market, embodied by the stock market, is always right. It is the perfect reflection of rational choices made by people’s wallets and so has to be right. That’s nonsense, but that’s what you’ll hear.

What to do about the big runup in the stock market since the Fed’s $600 Billion purchase of treasury bills (the purchase of treasury bills by the Fed is one example of Quantitative Easing)? The stock market has gone up more than 10% since the Fed’s move, and the move up was widely seen as related to the repurchase, which was larger than expected.

How could the stock market respond positively to something that is so fundamentally and obviously bad for the economy? Good question. Maybe someone on talk radio will look at this problematic fact.

Allan Sloan and Foreclosures

Sloan has an article in today’s (10/26) Washington Post about the BIG trouble with the foreclosure crisis. But before he tells us the biggest threat, he tells us what it’s not: communists, community activists or left-wing academics. By saying they’re not the BIGGEST threat, this gasbag makes it clear that in his mind they are a threat.

In other words, when big business creates horrendous problems for nearly ever person in the country, the threat is from commies and liberals. It’s a great head fake. Remember, though, the problems we are dealing with were created by a decades long near total lack of systemic oversight. Let me be even clearer: holding people accountable for their mistakes and making changes to prevent them from recurring DOES NOT make you a commie or a liberal, much as one of the high priests of the business press would want you to think.

Anyway, Sloan goes on to say that the real disaster in this mess is that people will become even more cynical about big business once big government bails out the big banks. If a normal person makes a mistake when dealing with a bank, he has to pay up. When a big bank fucks up, it goes to the government and gets off the hook, and still gets to put the screws to you.

He’s right, of course, that this is exactly what’s going to happen. He’s also right that the banks will go to the Obama administration and/or Congress and get off. (More on that later.) And he’s also right that if any normal person doesn’t sign his closing documents right, he gets the shaft.

The two major problems with this nonsense article are:

1. Big banks are going to let themselves off the hook. The government is going to do nothing, and in so doing, the government is going to let them off the hook. The commie, liberal Obama administration is going to actively facilitate the ass rape of the common mortgage holder.

2. If what he describes really is a problem, and it is, then what do we do about it? In Hungary recently when a massive pollution spill wreaked havoc on the Danube and surrounding areas, the CEO of the company did time. Yes, TIME. As Sloan correctly states, the CEOs of big banks are going to do a show trial before a Congress they’ve bought and paid for and get off scott-free.

So Allan, how about jail time for these people? And not just the robo-signers. How about Jamie Dimon and Ken Burns doing some time? They’re not violent, so a low security facility would be fine.

My guess: Allan thinks that’s going too far.

How about regulating banks so this can’t happen again?

My guess: Allan thinks that’s going too far.

What you need to remember is simple: To call for tight regulation of lending is not a commie plot, it’s a good idea.

Do I Hear $1 Billion? Sold to the Woman in California

I don’t think Meg Whitman’s spent a billion dollars yet, but if she could, I’m sure she would. She even had the stones to say that it was a good thing that she’s spent over $100 million of her own money because it shows she’s committed.

The havoc that Citizens United is going to wreak on this election will pale in comparison to what it will do in 2012, when everyone’s comfortable with the guidelines and it’s not just scumbags like the Koch brothers and Mellon Scaife who are willing to pour hundreds of millions of dollars into electing their candidates to office to do their bidding.

So in order to get this issue on the front burner and keep it there, this will be the first of several similarly titled posts examining the new stories about illegitimate money being poured into campaigns due to the elimination of effective campaign finance regulation per the Citizens United decision.

Grab your wallet brother, it’s going to be a very rocky ride.

If you want more detail on Citizens United, check out the long post titled They’re Openly Buying Elections from earlier today.

If You Don’t Get in Line They’ll Lock You Away

Since the financial meltdown, we’ve all heard of Moody’s. It’s one of the two largest credit rating agencies in the world. The other is Standard & Poors. Each has about 40% of the market for these services.

The most relevant services they provide are rating the credit worthiness of financial instruments. Boring, you say. Maybe, but highly relevant. It was Moody’s, along with S&P, who rated so many derivative backed securities as triple A debt. You know, rock solid. The kind of debt that just cannot fail. Of course, billions or trillions of dollars of derivative backed securities either failed or were bought up by you and me before they could fail.

At a minimum, these organizations failed miserably in their primary function. If you or I performed so miserably, we’d be canned. Immediately. Probably shown the door by security.

So, Moody’s analyzes and then rates securities which are then offered for sale to the public. A high degree of trust and independence are involved in that, right? Let’s put aside trust for the moment and look at independence. Who pays for the ratings? The companies whose securities are being rated.

Think about that for a moment. You’re a major issuer of debt, say Enron or Wachovia, and you want a good rating on your next debt offering so the public will buy it (and yes, I mean the public, corporate debt makes up a large portion of many 401(k) portfolios). You can go to either of two places for the ratings. Let’s say you think the guys at Moody’s are too harsh on debt offerings such as yours. What do you do? Maybe you suggest to the guys at Standard & Poors that you’d like to shift your million dollars of business to them. And maybe to keep the business, the guys at Moody’s agree to relent a little.

This is the way business works. It’s not a conspiracy.

So this guy, Kolichinsky, starts to point out that this sort of compromising activity went on in the process of rating securities which had a lot to do with destroying our economy. If you don’t think it did, then you’re left with the alternative that Moody’s is wholly, completely incompetent.

Here’s the kicker. Guess who is the primary owner of Moody’s? None other than that avuncular finance wizard Warren Buffet himself!

Warren Buffet, a man who makes his billions through ownership of publicly traded companies, and whose company is publicly traded itself, owns one of the two largest firms that rates public debt.

A system set up by the rich, for the rich, that led to a major financial setback for nearly everyone in the country.

The current system is rigged. You should know that and act accordingly.

Congress For Sale…But For a Good Cause

Congressman Joe Baca has a private foundation that gives out hats and sponsors local kids’ teams. WHO CAN POSSIBLY BE AGAINST THAT?!?!

Congressman Baca is a Representative from California. He was one of fifteen kids and his dad worked like a dog. He and his wife started a travel agency in 1989. He has a sociology degree from a community college. I don’t know anyone with that exact profile, but I know plenty of people who come from challenging backgrounds.

What I don’t know is anyone who never did anything more in the private sector other than a travel agency, and yet has the money for a private foundation. Do you? I don’t know anyone personally with a private foundation. So how did Joe get one?

Easy…he got it from the businesses and wealthy individuals who put money into it. What do they get out of it? Of course, I don’t know exactly, but it’s not real hard to figure out. They get influence and votes and favors from a congressman who’s on some very important committees.

It would be difficult to come up with a more blatantly corrupting mechanism than this. A poor boy works his way up through politics and now gets to give money out to people in his community…money that was given to his FOUNDATION by businesses and people who want him to cast certain votes in his role as a Congressman.

Here’s the link at the NY Times http://tinyurl.com/352zcdy.

If I had asked you, before you read this, if there was a law against a congressman having a private foundation that was funded by companies who have a direct stake in the legislative matters before his committee; you would have thought “of course there is.” It’s obvious corruption. GARDEN VARIETY GRAFT.

originally posted 9-8-2010