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.

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.

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?

Economists – Useless by Their Own Admission

When it comes to the economics of public finance, surely the economists at the Federal Reserve are some of the best and brightest our nation has to offer. And certainly one of the things economists do is to keep an eye on the economy; especially economists at the Federal Reserve, who have responsibilities relative to the health of the national economy.

So it may come as a surprise when the economists at the Boston Federal Reserve Board recently issued a white paper saying that the huge housing bubble which was at the center of the recent economic disaster, was not just unseen, but was UNSEEABLE.

Never mind the fact that there were economists out there who rang the alarm well in advance of the meltdown, and who did so by looking at literally decades of historic data on the housing market. That doesn’t matter. This piece of self-serving sophistry not only excuses them from blame for completely and utterly failing at their jobs, but it actually says they didn’t really even fail, because what they the bubble simply couldn’t be detected.

Let’s think of some of the ramifications of this:

1. These people are absolutely not to be listened to in the future. That’s a safe conclusion, right? They said that they don’t have the tools to do what they’re supposed to do, so let’s not burden them with the task in the future.

2. These people are hopelessly incompetent. Again, nothing controversial in this statement. They’ve actually made the case for us. If you asked a Federal Reserve economist, “hey, are you guys keeping an eye on trends in our economy?” they would’ve said yes. Since they totally blew it, they fucked up.

3. Economics is the sociology of business, buttressed with statistics, big titles and money. There is a complete and total lack of consistency or agreement among economists on nearly every pressing issue. There are economists on the “right” and on the “left” whose opinions on a given topic can be predicted in advance, regardless of the evidence before them.

Why is this important? DON’T LET THEM BUFFALO YOU INTO THINKING THEY’VE GOT ANSWERS. When you hear an economist say the government is about to go bankrupt, don’t be afraid to call bullshit. When you hear a business commentator say things that don’t seem to make any sense, call him out. He’s most likely full of shit and just laying down a party line.

For example, yesterday I heard a highly regarded columnist being interviewed on the Nightly Business Report. He was going on about the value of free markets for trade. He said China doesn’t have a free market because of how they manipulate their currency. CHECK. I’m with you so far. Then he said that this was bad for the Chinese economy. WHAT? Hundreds of millions of people have gotten out of poverty in China because of the growth of their economy. Every economy that has experienced the kind of growth we’re seeing in China and India (and Japan earlier, and the US before that) protected their domestic market. And, every economy that opened up their domestic markets before they were fully developed (I’m looking at you South America) was eviscerated by the more highly developed and competitive economies of the first world countries.

The guy was full of shit.

Don’t be fooled. These people have an agenda, and they are dressing it up as science. Stay tuned and we will continue to bring examples.

The goal here is to let you go to the next cocktail party and have plenty of ammunition when some douche bag is saying that [insert political opinion here] is essential or right because of some economic theory. That person is most likely an idiot.

originally posted 9-21-2010