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.

Desiderata

The Value of the Dollar

– It’s nice to see something on this topic that clearly highlights the relevance of this issue. A piece in the NYTimes contrasts two companies with different outlooks on the value of the dollar versus the remnimbi. PS Brands, an importer of socks from China, wants the dollar to stay high so they can continue to import socks cheaply. Staco Systems, a manufacturer of aerospace electronics, wants the dollar to go lower so their products are more attractive to Chinese buyers. What’s better: an artificially low remnimbi which helps import cheap socks for people without jobs or a higher dollar that supports exports and high-value manufacturing jobs? Hmmmmmm.

Champerty

– That’s a strange old word from the common law. It is the act of an attorney footing the bill for the cost of a lawsuit and taking part of the settlement in return. Champerty was forbidden because – you guessed it – it encouraged lawsuits. There’s a place in the world for contingency agreements (the modern word for legalized champerty), but surely things have gone too far when hedge funds are investing in lawsuits. There’s actually a company called Ardec Funding whose business is to fund lawsuits for a cut of the award. Ardec, in turn, is bankrolled by a hedge fund. God only knows which one. I’m sure they’ve funded some cases with wonderful plaintiffs, but this has got to be the ultimate example of bottom feeding lawyers.

QE2

– This is the cheeky nickname given by the business press to the Fed’s second round of quantitative easing. For the most part the business press said QE2 would lead to the END OF THE FUCKING WORLD in the form of rampant inflation and a swoon in the value of the dollar. So far: “QE2 was supposed to send the dollar down. Instead it’s going up. Interest rates were supposed to go down. Instead they’ve gone up.”

Another example of the business press pushing its own agenda thinly disguised as analysis. But this is an even better example of the fact that economists are making well informed guesses. Keep that in mind the next time you hear an economist saying this or that policy is terrible and will have horrible results, or is great an will have terrific results. They’re just guessing (see our earlier post where they admit that they’re just guest).

Foreclosure Update

– Maybe champerty ain’t so bad after all! Banks are being hit with class action suits targeting their foreclosure processing: you know, robo-signing, bad documents, botched evictions, the usual. The icing on the cake is the RICO suits. Yes, RICO suits against the banks. Couldn’t happen to a better group of people. RICO is a statute that was designed to go after the mob, but was twisted into a way to go after everyone. Why? Because it lets the plaintiff ask for treble (TRIPLED) damages. RICO stands for Racketeering Influenced and Corrupt Organizations, so using it against banks in this instance probably isn’t too much of a stretch.

Remember, the business press is there to support big business so don’t be afraid to question it!

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.

Banks and Foreclosures

This is the first of what will undoubtedly be several posts on this topic.

If you’ve ever been to a closing for a home loan, you know that every single document is scrutinized, signed and verified to be accurate. As it should be. And if you’ve ever been to a closing where a document was out of order, you almost certainly didn’t consummate the loan.

The idea that a bank would take it on faith that the documents you supplied to them were ok is absurd. No bank would take your word on how much you make without a W-2 form, or agree that you would own the property free and clear without a title search. And they shouldn’t.

So the idea that any bank anywhere should be allowed to foreclose on a property without a complete and accurate set of documents is equally absurd. If the banks can’t process a particular foreclosure due to bad documents – or if the banking industry takes losses because of a systemic lack of proper documentation – that is too bad for the bank and/or the banking industry.

In her ridiculous article in the Atlantic (http://tinyurl.com/33gzjth), Megan McCardle says that since the end result would be the same, just let the banks ignore the requirements of proper documentation and run roughshod over homeowners. The industry won’t be able to sell all the homes that come out of foreclosure, she says. No one’s buying homes if you haven’t noticed. The title insurance industry will break down, she says. This is a multi-billion dollar segment of the insurance industry that runs single digit loss ratios year after year. It won’t go away, trust me.

Here’s an even more preposterous quote from the NYTimes:

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

So why not be obligated to repay it in full immediately? Where do you draw the line on this kind of thinking? I’ll tell you. Right at the closing table. No documents, no foreclosure. Period.