Desiderata

Insider Trading Probe

– The SEC and the Manhattan DA are in the midst of a massive insider trading probe. It’s early in this one, so we can follow it from the beginning. Initial focus is in part on “expert networks” that trading companies put together to bolster the information they have on certain industries and companies. No charges yet. Let’s guess how the story is cast in the B-press: 1) overzealous prosecutors with some anti-Obama administration angle; 2) the ever changing face of insider trading rules; 3) insider trading rules are so complex even sophisticated investors don’t understand them. This should be fun. Stay tuned.

War of the Worlds (brought to you by a moron)

– Some clown at Yahoo wrote a piece about how the world would end if the Chinese stopped buying US Treasuries. Presumably, this is part of the rhetoric being put up to slow down QE2. Not mentioned by this moronic fear monger is what happens if the US stops buying Chinese goods, why the Chinese would benefit from total chaos in world financial markets, why others wouldn’t buy US Treasuries or the fact that these same stories were written 20 years ago, only then the villain was Japan, not China. Japan, with a structurally fucked up economic system went down. China will too, but it will take some time.

The World Isn’t Going to End

– Meanwhile, back at the ranch, or in this case the Cleveland branch of the Federal Reserve, a report says that inflation will stay low for the next couple of decades. OK, we have a bias against professional economists, but it is fun to see a group of economists saying inflation isn’t a big worry when there is a constant drumbeat from politicians that the Fed’s program of buying Treasuries to put money into the economy to increase investment (and thus economic activity) is going to turn the US into the Weimar Republic. The only group less dependable than economists is politicians. Particularly any group or politicians which includes the dumbest, most consistently wrong person alive today Billy William Kristol of the National Review. Whatever this gas bag says…bet on the opposite.

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.

Today’s Edition of Free Market Nonsense

Let’s take today to focus on bullshit related to the FREE MARKET.

First, remember that the business press takes it as a matter of faith that there is a free market and that it is the best and strongest force in the world. Both ideas are total bullshit, which makes the nonsense you read in the business press that much more interesting.

Take One: Obama and Korea. We tried to get the Koreans to agree to some sort of arrangement relating to importing US autos into Korea. Naturally Korea, an exporting nation, politely told us to fuck off, and they’re happy to continue protecting their domestic auto market. So much for the freedom to import into the Korean market.

Take Two: The Japanese continue to massively subsidize their rice farmers. Hmmm, rice production is part of their national heritage and they don’t want to open it up to imports and see the market decimated. Shocking.

Take Three: Germany says the US is engaged in currency manipulation by engaging in quantitative easing. An exporting power, Germany will describe ANYTHING the US does to boost exports as either protectionism or currency manipulation. So much for one of our leading economic “partners.”

Take Four: Just a reminder…the US and the EU were both found guilty of subsidizing Boeing and Airbus, respectively. Shockingly, each political entity thought it was a good idea to spend some money to protect a high value-added manufacturing segment that generates thousands of jobs. The good news according to Boeing: Airbus was MORE protected.

The next time someone says there is such a thing as global free trade, smack them. There isn’t. And there never will be.

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.

All Politics is National – A Very Dangerous Concept

A recent NYTimes article talks about how Christine O’Donnell, the Tea Party candidate for Senate in Delaware, represents a phenomenon that politics is becoming increasingly national in the age of the internet and 24 hour mass media.

Depending on where you get your news, this might not seem like much of a revelation. Much of what we see about politics has to do with the federal government, not state or local government. However, the federal government is made up of representative from the various states, who come together representing their state’s best interests. Compromises which take into account the best interests of all of us are forged from the coming together of all these diverse points of view.

So it might come to pass that Senators from the farm states have to work with Senators from urban states in order to put together the voted needed to pass something the farm states view as important. In working together, these Senators have to treat each other with civility and, more importantly, have to be mindful not just of their own agenda, but the agendas of others whom they will have to work with in the future.

That’s how the legislative branch of the federal government was designed to work. That’s how we all hope to deal with our friends, families and co-workers. That’s how we treat our children to act.

What happens if politics do become national? Before we look at that, let’s consider what that means.

In the context of Christine O’Donnell, and several other candidates throughout the country, it means that candidates for political office are less worried attuned to local issues, and more attuned to issues of a national scope. This approach is possible only if enough people in the state can be contacted and persuaded through mass media and the internet. So, what it means to be a “national” candidate in a state election is to be able to generate enough attention and publicity through mass media and internet that one can be successful without paying the kind of attention to local issues and events as is traditionally the case.

There is a huge problem with this. Specifically, ordinary people do not have the ability to access and influence the national media and internet in significant and/or meaningful ways. Wealthy people, such as the Koch brothers or Mr. Melon Scaife, have the ways and the means necessary to do this. They can bring to bear tens of millions of dollars necessary to run very effective campaigns for local candidates, when they have nothing to do with the state in question. Of course, such campaigns won’t come out and say “we’re from out of state, but we want you to vote for our candidate.” They’ll cloak themselves in the issues that are relevant to the state.

So if a candidate in Iowa was able to win election due to financial backing from people in, say New York, would that candidate be most interested in the issues that are important to the people of Iowa or to the issues that are important to the backers in New York? Ok, that was a rhetorical question. They would, of course, be more beholden to the people who paid for the advertising and PR to get them into office than the ordinary people and local issues which have traditionally driven our electoral system.

Now, fast forward to after the election, when you have a Senator from Iowa who’s been elected by people who aren’t particularly concerned about the issues that affect Iowa. Will that Senator honestly and accurately represent the interests of the state of Iowa? Will that Senator fight hard to achieve a compromise that helps urban states only if the interests of the farm belt are adequately represented in the deal? NO!

If the creation of national politics and politicians truly comes to pass, we lose one of the most basic and important elements of our representative democracy: the positive impact that diverse representative have on the process of governing. This imperative to find workable compromises works as a natural check on extreme solutions. It requires that our elected representatives listen to one another and treat one another with civility. These are great things.

Our politics are quickly becoming national. And as this process continues, the interests of the wealthy people who have the money to buy national media and internet campaigns will be represented to an ever greater extent to the detriment of ordinary people.

What can you do? Don’t vote for national candidates who are not beholden to local issues. Don’t vote for billionaires who spend hundreds of millions of their own dollars to buy an office. (We have no problems with billionaires per se. However, someone who spends millions of their own dollars on campaigning simply is NOT required to listen to local interests is not to be trusted with your vote.) Don’t vote for single-issue candidates who don’t care about the broader issues which will effect you on a day to day basis.

The concentration of power, or the ability to influence power, into a smaller group of people goes hand in hand with the concentration of wealth.

Conflicts of Interest + Billion Dollar Deals = Fraud and Corruption

An earlier post looked at the conflicts of interest that exist with rating agencies. The ratings agencies are paid for their services by the companies whose commercial paper and other securities they rate. It’s an obvious conflict of interest. Now, as Congress continues to investigate the causes of the financial meltdown, this is getting some attention.

The information provided is vitally important, and someone has to get paid to develop it. But the current system is obviously flawed, and this flaw helped us lose billions of dollars in the bailout of banks.

Hmmmm, let’s see, what’s an alternative? How about government regulation?

Finally Some Good Economic News

Lawrence Summers has left the Council of Economic Advisers. That, dear reader, is great news. If you were to come up with a caricature of all of the worst ideas that led to the current crisis, it would look like this clown.

The crowning glory of his idiotic ideas was his support for the Commodity Futures Modernization Act. This allowed credit default swaps – among other derivatives – to be traded without regulation. Those items, in turn, had a big role in the recent economic meltdown.

My personal theory is that the big money boys at Goldman use people like Summers and Timothy Geithner, Alan Greenspan and Phil Gramm to give their obviously self serving ideas intellectual cover. What do I mean by that? If you’ve ever seen the documentation associated with a publicly traded stock, you know that there is a regulatory scheme in place that is based on disclosure and regulation that works pretty well, and has done so for decades. So if someone said, “hey, let’s introduce a huge new class of securities without regulation,” the common sense response would be to laugh them out of the room.

Everyone knows that if you let Wall Street firms issue securities without loads of disclosure and regulation, they’d instantly be selling all sorts of trumped up bullshit as reliable securities. And of course, that’s exactly what they did. So how did they ever get the authority to do this? They let fools like Greenspan and Gramm go on and on with their ideas that the markets are perfect and the participants have a self interest in seeing to it that there is full disclosure and transparency. Phil Gramm and Summers pushed the Commodity Futures Modernization Act (who could be against modernization) and Greenspan pushed the idea that players in a market have a self interest in transparency.

These ideas are so childishly wrong as to be suspect from the very start. But when Treasury Secretaries like Robert Rubin and Henry Paulsen can rely on the research and theories of the Chicago school of economics, Alan Greenspan, Lawrence Summers and Senator Gramm (himself a PhD), to say that such non-regulation isn’t really an example of the fox guarding the henhouse, then all of a sudden these naive ideas get taken seriously.

I think it goes like this:

Goldman Banker #1: “If we could get a couple of academic types to go along with the idea that the market self regulates, then maybe we can pass some legislation that let’s us issue securities without regulation.”

Goldman Banker #2: “Sure, but that’s such a preposterous idea, no one would EVER go along with it.”

GB #1: “I’ll bet they would if we put them on our board and paid them a little.”

GB #2: “You’ve got a point there.”

Anyway, as Johnny Rotten once said, good riddance to bad rubbish.

btw: for the readers with daughters, Summers is the same asshole who once said women are genetically incapable of being good at science.

originally posted 9-22-2010

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

Media Bias?

This is a controversial subject. As it relates to politics and business, we’re addressing the idea of a bias as it relates to news and opinion. We’re not talking about entertainment programming. Let’s start with whether it exists.

If you’re on the right, a common mantra for the past thirty years has been that there is a liberal bias in the media. Everyone has heard that many times. If you’re on the left, you think Fox news is the right wing response to that.

The point is simple: both sides are comfortable with the idea that media can be and is controlled or manipulated in such a way as to provide a deliberately skewed view of the news that is presented. Several important points flow from this observation.

First, the idea that media is controlled by its owners is not at all controversial.

Second, the idea that the owners perceive this as useful and effective in furthering their interests follows directly.

Third, it is sound to assume that the biases presented reflect the interests of the owners of media.

Originally posted 9/10/2010