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Friday, October 31, 2008

The Windfall Profits Tax - A Massive Lost Opportunity


As the oil majors report records, consider what the opportunity cost to having done nothing while oil spiked.

The companies paid out or returned huge amounts of cash to their shareholders, only to see that return of capital "go up in smoke" as the market's fall trimmed over 25% of that, if it were re-invested in Exxon, and maybe 40% or more if it went into a broader basket of stocks. All that payout, "compounded negatively".

How much? $124 billion over the years 2005-2008 (through June - add another $10 billion for this quarter). This is all cash that the company said it didn't need, that it was returning to shareholders.

For perspective, that would be 2.2 million mortgage foreclosures that could have been addressed directly, steps that might have clipped the spiral of events that have led to today's panic mode.

Even if the public shared half with shareholders, that would still be a super-large sum, right?

The Mavericks' Coattails: Convicted "Wealth Distributor" Ted Stevens


Who will John McCain take to "Warshington" with him to fulfill his mavericky hallucinations?

Why none other than Alaska's Ted Stevens, who cannot even admit that a jury has entered a verdict against him. Palin, for her own Marvericky part, won't say whether she will vote for Party-pal Stevens.

The good people of Alaska? Half of them like their gravy-train Senator.

Vote for real change.

"They are depressed"


Somehow, we can do better than leave this to the banks to sort out, via the "free markets", even if the outcome is still foreclosure.

It's easy to blame people for "too much house". But, what were a lot of people supposed to do? Rent? There is no hedging of house price risk, so were they supposed to sell their house, when prices rose more than 30%, out of fear they could fall 50%? Stay in something smaller - the prices of those went up too, yes? Should you sell immediately, if your home price drops 15%, in case it drops 30%? With home price variation this high, the whole idea of "fixed-mortgage" has to be re-conceptualized, yes?

With a "default" on their record, some of these people may never own a home again (and perhaps much else, besides). Is that the "right" punishment for their "crime"?

Luckily, the most severe home price variations have been in select markets (Florida, L.A., Arizona, Nevada), with others much less.

n.b. contrary to the contractor, there is no evidence that any of these homes were on "subprime" underwriting, just an oft repeated assertion of the same. Maybe 11% of subprime loans were for new housing.

Pay No Attention to the Asymmetrical Plumber, Joe

Vote Your Pocketbook

In the seven periods when Democrats had complete control of U.S. political power, the S&P 500 rose 14.7 percent on average while in the eight times a Republican was president and Democrats controlled Congress, the benchmark index rose 7.4 percent, according to data compiled by research firm Bespoke Investment Group, in Harrison, N.Y. - Reuters, yesterday

Be sure to ignore CNBC "contributors" too, as well as their little muffin-stump, Dennis (even Donnie Deutsche had to waive him down the other night for quizzing a 'guest' like he was riding a horse).

Thursday, October 30, 2008

Voters Start To Pay for ... GOP / Rovian Electioneering


Clinton - raised taxes (politically costly), did Congressional pay-go, and ended with surpluses and a boom.

Bush - cut taxes, trashed pay-go (even before the wartime supplementals), and ended with both a massive deficit (deferred taxes) and a recession.

Country First

Shelia Bair, rapidly closing in on a people's choice award for a Medal of Freedom, for services rendered during the Great Financial Panic of 2008.

You know she is being fair minded, when Bush's hacks are out attacking her.

Wednesday, October 29, 2008

Oh, Captain, My Captain!


Hero of the day: Stan O'Neal (and his Board?)

As you know, Merrill Lynch's Board just declared a quarterly $0.35 dividend, as if they aren't a national embarrassment enough.

Here's how it breaks down, based on last available figures:

Holder Shares Reported $0.35
MONTAG THOMAS K. 1,049,997 4-Aug-08 $ 367,499
ONEAL E STANLEY 987,522 6-Feb-07 $345,633
KIM DOW 794,042 13-Feb-07 $ 277,915
THAIN JOHN A 791,068 29-Jul-08 $ 276,874

Remember, those are quarterly. (Also the holdings info are quite a bit stale dated, so maybe not fully indicative).

From Wikipedia, the man who could do no wrong (on the Board of GM, too, our next bailout):

By 2003, he was CEO and chairman.[1] O'Neal earned US$48 million in 2006 and rund 46 million in 2007.[2]

During August and September 2007, as the sub prime crisis swept through the Global financial market, Merrill Lynch announced losses of $8 billion. In October of the same year, he announced his retirement and walked away with a compensation package valued at $161.5 million.[3]

This is why your eyes should glaze over when you hear ... all about Joe-The-Plumber.


From Merrill:

John A. Thain
Chairman and Chief Executive Officer. Former CEO, director and member of Management Committee of NYSE Euronext, Inc.; 52 years old; Director of Merrill Lynch since 2007.

Carol T. Christ
President, Smith College; former executive vice chancellor and provost, University of California, Berkeley; 63 years old; Director of Merrill Lynch since 2007.

Armando M. Codina
President and Chief Executive Officer, Flagler Development Group; Chairman Emeritus of the Board of Trustees of Florida International University; 60 years old; Director of Merrill Lynch since 2005.

Virgis W. Colbert
Retired Executive Vice President of Worldwide Operations for Miller Brewing Company; 68 years old; Director of Merrill Lynch since 2006.

John D. Finnegan
Chairman of the Board, President and Chief Executive Officer of The Chubb Corporation, a property and casualty insurance company; former Executive Vice President of General Motors Corporation, and Chairman and President of General Motors Acceptance Corporation, a subsidiary of General Motors Corporation; 58 years old; Director of Merrill Lynch since 2004.

Judith Mayhew Jonas
Member of the U.K. government's Commission for Equality and Human Rights; former Provost of Kings College, Cambridge; former Special Adviser to the Chairman, Clifford Chance, Solicitors; former Vice Chair of the London Development Agency; 59 years old; Director of Merrill Lynch since 2006.

Aulana L. Peters
Retired Partner in the law firm of Gibson, Dunn & Crutcher LLP; former Member, Public Oversight Board of AICPA; former Commissioner of the U.S. Securities and Exchange Commission; 65 years old; Director of Merrill Lynch since 1994.

Joseph W. Prueher
U.S. Ambassador to the People’s Republic of China from 1999 to 2001; Consulting Professor to the Stanford-Harvard Preventive Defense Project; U.S. Navy Admiral (Ret.), Commander-in-Chief of U.S. Pacific Command from 1996 to 1999; 64 years old; Director of Merrill Lynch since 2001.

Ann N. Reese
Co-Founder and Co-Executive Director of the Center for Adoption Policy, a not-for-profit corporation; former Principal, Clayton, Dubilier & Rice, a private equity investment firm; former Executive Vice President and Chief Financial Officer of ITT Corporation, a hotel and leisure company; 54 years old; Director of Merrill Lynch since 2004.

Charles O. Rossotti
Senior Advisor to The Carlyle Group, a private global investment firm; former Commissioner of Internal Revenue at the Internal Revenue Service; former Chairman of the Board and Chief Executive Officer of American Management Systems, an international business and information technology consulting firm; 66 years old; Director of Merrill Lynch since 2004.

The Real Credit Crunch?

Could our ongoing Healthcare Catastrophe also be at the root of a credit crunch? What happens to the credit access of families that have to declare bankruptcy, because of the lack of a single-payor system?

February 3, 2005
Illness and medical bills caused half of the 1,458,000 personal bankruptcies in 2001, according to a study published by the journal Health Affairs.

The study estimates that medical bankruptcies affect about 2 million Americans annually -- counting debtors and their dependents, including about 700,000 children ...

First in Business?

So Charlie Gasparino of CNBC gets paid today for going on national television to report

  • (a) Citibank has its back up against the wall and wants to do a deal to stay size-competitive, but has no idea when or who or any opinion on the size of the deal that Citi could swing ...
  • (b) Felix Salmon is jealous of the lockeroom moments of the CNBC guys

Yeah, that's first in business, Charlie. You go, girl!

I wish Bloomberg News were carried more widely. It's time to write the Cable Company, right? CNBC looks set to rush-to-the-bottom to compete with FOX Business opinion/worship channel.

Update: The day after is ... well, all the shouting on CNBC appears to be taking its toll. Bloomberg folks, on the other hand, appear calm, cool, and collected. They don't have nearly as many interesting guests, though.

Tuesday, October 28, 2008

Richard Nixon

uh, oh, AS writes:

Is it now the McCain campaign's assertion that anyone who isn't for a flat tax is socialist? I should add that if Obama is a socialist, Richard Nixon must have been a commie.-AS

To answer Andrew's question, however, is easy*. To believe in the characterization that it is "punishment", one has to buy into the notion that income is reflective of "just rewards", for lack of better term.

There is little evidence of that on the big scale. I mean, do you really think that Dick Fuld was worth $500 million? C'mon, Andrew.

I have a question for Andrew: Are Biblical teachings "socialist"? How do GOP-captured evangelicals ignore, say, the Jubilee Year?

Put another way, just how much of a godless athiest is Joe-the-Plumber? [Sorry, ignore that, the boomer wars are ... goodbye to all that].

[*btw, the persuasive part of a flat-tax isn't some high-minded notion of ideological fairness. It's that people spend less trying to avoid taxes and just pay them ...]

What's the matter with Texas?

Of all the Senate races that could have switched, this is one long-shot that I had hoped quite a lot.

No answered prayers, sadly. What happened to the Hispanic vote that Hillary was able to turn out so boldly, so auspiciously?

More on Media Bias...

... check out Senator Bernie Sanders getting slammed ... Hannity-style?

CNBC slams Bernie Sanders

Check out Caruso-Cabrera starting out with an O'Reilly type name-calling / labeling, after making wild assumptions about whether her viewership is restricted to people who share her radical (and discredited?) views of what shareholder protection is all about.

What's up with condescending Dennis?

Perhaps he could explain how a stock goes down if a dividend isn't paid? It wasn't too long ago that Microsoft had _never_ paid a dividend.

If all we wanted to do was inject our 401(k)s, why wouldn't we do that directly, Dennis?

Media Bias: CNBC

Not everyone there is so happy about Paulson's lender-bailout-first plan.

Still, yesterday, they had one - just one - 3-5 minute segment with guests who favor doing more to slow/stop foreclosures.

The poor host couldn't stop from continuously brow-beating the guests with the unproven assertion that such a plan would just be helping speculators and deadbeats (both of which were said to be quite a bit overblown worries by 2 guests, with the third voicing no opinion, as best I recall without a transcript).

Today, it is not much better. Caruso-Cabrera has morphed into a Kudlow clone ...

Indeed, only days ago, she was just beside herself, visibly, when John Mack said on national television that it was time for a single, Global Regulator, so that global firms faced a uniform or reasonably uniform set of guidelines and restrictions ... Today, she's saying that John McCain isn't talking like a Republican, if you needed any further proof that ideology is still a large component of the mess that we are in...

I wonder why Larry and Michelle think $100 billion for AIG, who wrote checks they couldn't cash, is morally better than changing the mortgage terms for someone who took a teaser rate or stated an income too high so that they could... I wonder how they defend taking taxpayer money to give to companies who pay out dividends to shareholders?


Someone should take Larry aside and ask him to drop his political chants against Iran ("Don't you think that low oil prices will hurt them?", etc.).

A lot of people have done a lot of work so that "oil is not a weapon", can be a refrain in the global markets. We ought to support that approach, not slash and burn it on National Television.

Single Payor System Comes Too Late ...

... for General Motors.

The Joy of Gay Irrelevance

For the first time in 20 years, the electorate at election time may actually be more concerned about "CEO lifestyle" than "gay lifestyle".

Quote of the Day

LOL line of the day:

The International Monetary Fund, the ambulance service for the global economy, announced late last night ... - BBC

Monday, October 27, 2008

"Diva" replaces "Maverick"

She won't recover ...

The old order changeth

Sadly, it comes too late for some important policy initiatives, like open access, maybe ...

"Straight in the gut"

Smoke and mirrors at the house that Jack built, as it goes to the Fed for lending/liquidty, today. The company is in the announced process of rethinking their strategy of so much short-term funding (primarily in the financing arm of the business, as best I can tell) ...

In it for the money?

Mankiw says he's in it for the money.

At least he's frank.

Well, that's a little unfair, to be sure (he was just doing a fashionable, Joe-the-Economist example), ...

but ... $7,500 at the margin for a single income earner in the $250,000 range is not ... "incentive". It's "gravy". (Estimates from the Obama plan's cutoff of $250L and 36%->39% effective marginal rate shift).

For "incentive", one could argue that most of those people in that income range are trying to play for a "bonus" of some kind, half an order of magnitude larger - a book advance, a promotion, a pay-off from a risky investment, a deal fee, a new small-business contract, a bumper harvest (or sell through), a large billable-client, etc..

Anyway, I wish he'd answer this question, instead: what do you do for tax policy when one tries certain fiscal policies, like cutting tax rates, yet ends up after eight years with a sizable deficit?

What does economic theory say about "catch-up", if you will? A one-time tax on wealth (i.e., the flows that should have been taxed during prior periods to create a reasonable fiscal balance?)

A Vote For Bob Rubin

After reading Larry Summers, who supported tax-cuts with almost the gusto of a Republican in the last round of stimulus, a pundit could be convinced more than ever that going with someone who has markets experience is a better vote.

Rubin, if he's willing to do it, may be a better choice, for a crisis. Sadly, the bench is not full (that I know - and I don't know much).

If we are headed toward 10% or greater unemployment, then a labor economist would be a better choice, as well.

[Nothing personal - there is a big set of qualified people, including those above, obviously.]

Footnotes To History

When the history of the Great Financial Panic of 2008 is written, the smart economists will focus on how ideology influenced the early choices that were made on how to deal with the housing "crisis".

In Thursday's testimony, we learned that the FHA has a good track-record with 'workouts', because lenders through the FHG's program face treble-damages if they do not go through loss mitigation steps...

Meanwhile, by almost all accounts, "Hope Now", the voluntary paper tiger, constructed by the Bush Administration, has fallen behind, despite the work they have done. My last read of their figures was that about 80% of their workouts were for ... prime loans (could that be their alt-a category?).

more ...

Federal Housing Commissioner:

HUD’s Federal Housing Administration (FHA) has been at the forefront of many of the Agency’s efforts during these daunting economic times. Just in the last two years, FHA has seen its market share grow from 2 percent to 17 percent and its loan volume is running at three to four times last year’s level. FHA guaranteed more than $181 billion in mortgage loans in FY 2008. In the midst of all this, FHA has been a leader in contacting FHA-insured homeowners in trouble to work out solutions. In 2008, FHA servicers completed more than 100,000 loss mitigation actions. Of these actions, 96,500 are currently retaining homeownership. This represents an 11.5 percent increase in home ownership retention over 2007. Overall, the expected retention rate for these borrowers is 87 percent.

In fact, loss mitigation efforts by HUD have helped about 300,000 families keep their homes over the last three years. Over a year ago, HUD noted an alarming number of American homeowners heading toward foreclosure and took action. Specifically, on August 31, 2007, acting through the FHA, HUD launched FHASecure. This initiative offers certain homeowners with adjustable rate mortgages, current or delinquent, the ability to refinance into a FHA-insured mortgage.

I am pleased to report that, since FHASecure was launched, FHA has helped nearly 400,000 families, many of whom were facing the loss of their homes, refinance into a safe, more affordable FHA-insured mortgage. We believe a total of about 500,000 families will refinance into more affordable FHA mortgages by the end of the calendar year.

Welcome to Bizarro World

Psychosis-inducing juxtaposition of the day:

Paul Krugman writes: "The mother of all currency crises"

contrast with the near business-as-usual tenor/tone of Thursday's hearing:
Turmoil in the U.S. Credit Markets: Examining Recent Regulatory Responses

I don't want to bust on the Senators. Many are so obviously concerned. But, when I heard something about addressing some issue in the hoped-for, lame-duck session, one has to feel like they are living in a different reality, as if the world is waiting for decision-makers' ... schedule.

Saturday, October 25, 2008

The Way We Used To Be

My morning essay on The Great Financial Panic of 2008.

More ideas on what policy makers should be up to, in my humble opinion(s), on the sister blog.

Thursday, October 23, 2008

McCain will be taunted, not tested

We'll see if the McCain campaign or the right-wing blogosphere tries to make hay out of Biden's comments.

Truth is, McCain is easy for opponents and enemies to manipulate, because he's rigid, as badly as King George "The Decider".

For instance, all you have to do to get him to act is taunt him. Ahmadi-Nejad would just have to call Israel a name or two and McCain would be dispatching the sixth fleet to ... wherever.

Wednesday, October 22, 2008

Drug Industry - Premptive Moves?


Merck announced a multi-year round of massive cost restructuring, 40% reportedly centered on reductions and changes in the sales force.

The moves are anticipated by many observers to be at the leading edge of what other companies will also announce.

Anyway, the worst stories about how drugs are sold ... can now be dismissed as 'in the past', perhaps.

This may make it harder to get a Canadian-style Drug Pricing Transparency board set-up in the U.S. (and really, a little transparency can go a long way, even if you need a stick for the 'hard cases').

Patron Saint of "Hockey Moms" and "Joe Sixpack" on $150G Shopping Spree


The reports of Palin's Beautiful People lift, as she fights for every tax dollar to "go to our families", are just the kind of comedy that makes GOP hypocrisy so ... oddly familiar, like a phantom limb on the political corpus.

I say this, having myself remarked Hillary's growing and exceptionally nice jewelry collection.

At least Hillary was out there saying that she and Bill were "fine" and would be fine.

Meanwhile, the rhetoric around Joe-the-Plumber has come unhinged. A 3% tax rise, back to the Clinton-era levels, on a purported "small business man" who *nets* a quarter million, or $250,000 is $7,500.

Yet, this is getting spun as his avenue to "create new jobs". Unless they are talking about illegal workers, that would be 1/8th of a licensed plumber, based on average salaries for the profession in his state ...

Meanwhile, someone else (in Detroit?) can get a job if "Joe" is taxed, because that other employer won't have to pay health insurance the State may provide and if a single-payor ends up in a position to wring the excess costs out of that industry...

More Stimulus Ideas


Let's not all forget The Fifty Dirtiest.

No reason that transition money couldn't unclog that jam.

(And yes, perpetual preferred with warrants is just fine as a payback for some of it).

Bias in the Mainstream Media


One can only be glad that the notion that conservative views are somehow visibly quashed via a progressive media is taking blows at the highest levels of politics, now.


It's not just FOX.

Have a look at the financial press. Afterall, the WSJ is still the largest circulation in the world, correct?

Anyone else's stomach turn a bit when you have to watch CNBC commentators feigning or fainting, as they must do, presumably so that they can keep all their "pro business" contacts sweet?

One of their reporters is writing editorials in the NY Post. Kudlow has had a whole hour to himself to wing-flap, par excellence.

IBD, another popular creation, used to publish some of the most rabidly one-sided editorials and front-page policy "assessments" that you can write, without going plainly to the radical fringe.

There is no shortage of conservative views - or bias - in the financial press.

Tuesday, October 21, 2008

Will Americans Take Part in Discussion Over National Priorities?


So long as you are getting set to spend billions of dollars of your kid's money via a new "stimulus" program, will you get to say what legacy you would like to leave?

Here's another idea to fund "infrastructure": nuclear waste clean-up and storage.

Robert Fulghum said, "Clean up after yourself." We know how bad business is at doing that, to everyone's expense. Well, the government isn't much better.


Here's one project that looks good to me, first pass:

Hannaford Nuclear Cleanup

And, if it is not Yucca Mountain (I honestly don't know all the issues involved), then ... let's get going, on something else, eh?

Mini Battlefield Digest: Afghanistan, Week 43, Year OEF+7

Battlefield News, Afghanistan

The "news" from Afghanistan is almost all grim.

There are not enough boots on the ground to secure the country. In COIN-speak, that means that the battle will either be lost or fought to a standstill, right?

Al-qa'ida, elements of Pakistan ISI, and Iran are all implicated, alongside the flourishing drug trade, as enablers of the ongoing conflict. A political "resolution" seems well on the horizon, with both sides dug in deep, in hopes of the elusive "win".

Unlike Iraq, the modus of this conflict is "kill", not so much "capture" or "administrative detention", based on an ad-hoc reading of the reports.

[see also, Casualty lists for September]

Political Developments and Major Campaign Resource Shifts

  • Roggio: The prime minister of Canada said he intends to pull all Canadian forces out of Afghanistan by December 2011. The Taliban said attacks have been stepped up to influence Canada's election. -Wednesday, September 10, 2008
  • Roggio: A senior Taliban commander said Iran is supplying EFPs to the terror group. -Monday, September 15, 2008
  • Roggio: The Taliban welcomed Canada's decision to withdraw by 2011. The Taliban have killed 720 police officers in the past six months. -Tuesday, September 16, 2008
  • Roggio: The US defense secretary said three more combat brigades will be available to deploy to Afghanistan by the spring of 2009. -Tuesday, September 23, 2008
  • Roggio: The Governor of Pakistan's Northwest Frontier Province said the US must negotiate with the Taliban, the Haqqanis, and Hekmatyar. Six policemen were killed in attacks in Kabul province. -Wednesday, September 24, 2008
  • Roggio: President Karzai requested Saudi Arabia assist with opening peace negotiations with the Taliban. -Tuesday, September 30, 2008
  • Roggio: The Taliban refused to negotiate with the Afghan government. "We reject an offer for negotiation by the Afghan's puppet and slave President Hamid Karzai," Mullah Baradar said. The US notified Pakistan of an airstrike near the Afghan-Pakistani border. -Friday, October 3, 2008
  • Roggio: The senior US general in Afghanistan said more troops are needed immediately. -Wednesday, October 1, 2008
  • Roggio: A leaked report by the British Ambassador in Kabul claims US strategy is wrong and the war is as good as lost. -Wednesday, October 1, 2008
  • Roggio: A leaked Spanish report said Pakistan's ISI provided arms, IEDs, and other support to the Taliban. -Wednesday, October 1, 2008
  • MCT: Though under-staffed, multi-national forces are making progress in Afghanistan, the former commander of NATO forces in Afghanistan told the Beaufort Rotary Club during a luncheon Wednesday. -Thursday, October 16, 2008

COIN: Actions, Reactions, Counteractions, etc.
  • Roggio: A 100-man Czech special forces team unit is operating outside of NATO command. -Thursday, September 4, 2008
  • Roggio: The US defense secretary apologized for recent airstrikes that caused civilian casualties. NATO seeks to implement rules to decrease civilian casualties. -Wednesday, September 17, 2008
  • Roggio: The US is re-evaluating its Afghan war strategy. -Thursday, September 18, 2008
  • Roggio: Russia warned it would cut off NATO's air bridge to Afghanistan if countries did not stop "hostile" policies toward Moscow. -Thursday, September 18, 2008
  • Roggio: Australian forces accidentally killed a district leader and several of his men in Uruzgan province. -Thursday, September 18, 2008
  • NPR: When a new administration takes over in January, it will inherit the challenging and overlapping problems of Afghanistan and Pakistan, two countries that are critical to U.S. national security. -Friday, October 17, 2008
  • RTTNews: In what could be disturbing news for the government of President Hamid Karzai, the former mayor of Afghanistan's Herat province is now the most powerful local Taliban commander, media reports said. -Friday, October 17, 2008
  • Canwest : Another senior government official has been shot dead in Kandahar city, fuelling a new fear in the troubled area as Taliban assassins increasingly target Afghans linked to the government and foreign organizations. -Wednesday, October 15, 2008
  • theherald: The ratio of dead to wounded for British soldiers fighting in Afghanistan is approaching loss levels not seen since the Second World War, The Herald can reveal. -Wednesday, October 15, 2008
  • Roggio: The Pakistani military fired on two US helicopters operating along the border inside Afghan territory in Khost province. Pakistan claimed the helicopters crossed the border, flew over a Paksitani outpost, "returned fire and flew back." -Thursday, September 25, 2008
VIOLENCE: Tactical Developments

  • Roggio: The Taliban freed 118 Afghan laborers who were kidnapped last week in Farah. -Friday, September 26, 2008
  • Roggio: A battalion of French troops reportedly oppose being deployed to Afghanistan. Germany's foreign minister wants the country's commandos withdrawn. -Saturday, October 4, 2008
  • Roggio: The Afghan government denied reports it conducted peace talks with the Taliban in Saudi Arabia last month. President Karzai's brother denied accusations that he is involved in Afghanistan's heroin trade and threatened to sue The New York Times. Spanish military intelligence said Iran offered to shelter Gulbuddin Hekmatyar. -Monday, October 6, 2008
  • AP: An Afghan official says a suicide bomber in northern Afghanistan has killed two German soldiers and five children. The governor of Kunduz province, Mohammad Omar, says two other German soldiers and two children were wounded... -Monday, October 20, 2008
  • IRNA: Taliban insurgents pulled some 50 passengers off a bus in southern Afghanistan and beheaded as many as 30 of them after accusing them of being soldiers traveling in civilian clothes, Afghan officials said. -Monday, October 20, 2008
  • AFP : A British aid worker was shot dead in the Afghan capital on Monday in a killing claimed by the Islamic Taliban militia which accused her organisation of "preaching Christianity" -Monday, October 20, 2008
  • Reuters: Taliban insurgents killed 25 Afghan civilians, including a child, after firing on one bus and seizing control of another in the southern province of Kandahar, a local police chief said on Sunday. -Sunday, October 19, 2008
  • BBC: A woman has been arrested on charges of kidnapping three children. Giving details to Afghan Islamic Press [AIP] about this, Mr Abdol Rauf Ahmadi, the spokesman for Security Command of police in west zone, said that the police detained... -Sunday, October 19, 2008
  • AFP: The car bomb exploded at the gates of a base which is run by Italian troops in the International Security Assistance Force (ISAF) with some Spanish soldiers also stationed there. "We did have casualties - just wounded,"... -Saturday, October 18, 2008
  • AFP: A suicide car bomb exploded outside a base of the NATO-led military force in Afghanistan's western city of Herat, wounding several troops, the alliance said. -Saturday, October 18, 2008
  • AP: Five Afghan immigrants enslaved a teenage girl they brought to the United States, with some forcing her to do chores and one beating and sexually assaulting her, according to a federal indictment unsealed this week. -Saturday, October 18, 2008
  • abc.net: Afghan locals say women and children were among civilians killed in an air attack by international forces in the country's south. Locals say that 25 civilians were killed in the attack in the Nad Ali district of Helmand province. -Thursday, October 16, 2008
  • Denverpost: In a bow to public outrage over a recent spate of U.S.-led airstrikes in Afghanistan that resulted in more than 100 civilian deaths, NATO officials have ordered commanders to try to lessen their reliance on air power in battles with insurgents... -Thursday, October 16, 2008
  • Reuters: Twenty-two Taliban insurgents and six Afghan policemen were killed in overnight clashes in the south of the country, provincial authorities said on Wednesday. -Wednesday, October 15, 2008
  • AP: Five Afghan scholars visiting the University of Washington to work on their master's theses were reported missing after failing to show up for training sessions, university officials said. -Wednesday, October 15, 2008
  • BBC: At least 18 Taliban militants have been killed while attacking a police checkpoint in the southern Afghan province of Helmand, officials say. Police say dozens of insurgents took part in the attack - the second major assault on Lashkar Gah this week. -Wednesday, October 15, 2008

Economic Developments, Reconstruction, and General Good News

[this space purposely left blank because of lack of de-classified, systematic data]

Monday, October 20, 2008

Elusive Fact of the Day

Number of people thrown into bankruptcy or foreclosed because of a rate-reset and pre-pay penalty combo, while Congress debates the size of a second stimulus, to help ... everyone else.

[my estimate: max of 10,130 per day or approximately a town of 71,000 each week.]

Fiscal Stimulus - For California

It's surprising that Californians haven't been in revolt, or something, given how much our Federal System penalizes the Golden State. Afterall, they get only 2 Senators ...

One way to help ourselves, by helping California, might be to subsidize the creation of hydrogen gas-pumps. It's the future and the network of pumps is needed and a hurdle cost for the industry. Yes, the industry is just recently flush with cash, but they have dividends to pay out...(eyes roll). Anyway, CA has the potential to be a 'national laboratory', a place to dabble in helping industry, to see how it works out, rather than jumping in wholesale.

Afterall, the California economy is going to be reeling from the lending crisis, for a long time. Just look at how the foreclosures are disproportionately theirs, to date. It makes one wonder if the Washington GOP remains as reluctant to help the state as they were during the energy deregulation "crisis" (a term we put in quotes, because we now know some of it was induced).

Chart 1. Foreclosures, RealtyTrack data: California and Florida continue to be ... the eye of the storm.

Europe Throws Bone To Bush

It appears that he will be allowed to appear to be ... in front, as they let him host the first meeting. Clearly, it would be too plain if the ideas about what-to-do came from Europe in Europe.

Did you notice that, as part of the Netherlands "rescue" of ING, they will not be paying a dividend, by agreement... That, apparently, was just too much for Paulson to "ask", State-side.


The Art of The Deal:

WASHINGTON (AP) -- Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb. DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.

Sunday, October 19, 2008

A Less Unpleasant Tomorrow

One of the measures of the primary problem, the number of ARM re-sets (adjustable rate mortgage), is already falling, with greater than two-thirds of the "nightmare" behind, according to figures compiled by the Federal Reserve.

Ridiculous ARMs are one of the appalling structural excesses of the sub-prime grab-and-run, done by so-called 'mortgage brokers'.


Saturday, October 18, 2008

The O'Reilly "Factor"

Somehow I missed this one. Barney is intrepid. Even if I took the Lord's name in vain in front of the nation or something, I wouldn't go on O'Reilly to apologize (or even to explain), I don't think. Barney''s a better man than I for ... holding out hope for our national clown, O'Reilly ....

Lahde Goes Greek

In an ironic twist of fate, exiting private mega-wealth, fund-manager Andrew Lahde immortalized himself with the funniest flip of the bird on the way out the door in recent memory, that included the claim that everyone would be forgotten and that great minds would legalize marijuana.

Lahde left, intimating that he had amassed an '8 figure' fortune, gleaned off the backs of the ... well, to borrow an older phrase, "the smartest people in the room".

Anyway, for this blog, this is what is relevant:

First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it.

There are new winds blowing in the country, bigger than even Obama himself and his movement. They have a new force, because they run through a channel, the internet.

I think the Congress knows this; but, the old-grooves are worn deep, and I suspect that they have not adapted, yet.

Update: Just occurred to me that, in the context of Lahde's note and the punditry cries for a new Wall Street, that Nomura just hired back Lehman's I-bankers, many with a $1M signing bonus ... :

"Reuters: While Nomura was proceeding the process of moving people, UBS has hired four Lehman investment bankers covering oil and gas in Asia, while Lehman's power team jumped ship in favour of Merrill Lynch. (Reporting by Junko Fujita)"

Friday, October 17, 2008

Gnothi Seuton

AS aptly notices a passage about Obama's temperament.

If I have reservations left, it is still his thoroughness. With Bill Clinton, for instance, one had the confidence that he wouldn't get hoodwinked by the spin of the rightwing, that he could wonk a policy-issue down for himself figuring out the appropriate faultlines for a progressive politics, that he could explain that and lead an effort to build consensus for achieving his vision of the problem.

Accordingly, I'm still a tad worried that Obama might get ... pushed around, by his own party or otherwise. Of course, everyone does, to some degree. I don't yet have a sense for how well he will recover, personally, after he is.

Anyway, I'm hoping that the "fierce urgency of now" doesn't leave him for at least 48 months! (Dressed up in a white tie last night, despite tradition, was ... not good for me, overall, even though both candidates did superbly.)

Getting Progressive Values Under the TARP


As Paulson's go-to guy, Cash-n-Carry (Kashkari) gears up to make the first purchases, even by this month's end, I've put together some thoughts on why everyone is completely unprepared for the fact that the price they pay is political, ... just as political as the terms one might offer if the government made loan modification terms for those who got into these ridiculous mortgages.

As I say, there:

If they think they are going to pay a lot more to get ownership of mortgages, and then write-them down to some set of modified terms at taxpayer expense, then someone is going to see through that, fast, and raise a stink.


The TARP is late (obviously) and we have no idea of how well the "Hope Now Alliance" is doing relative to what could have been done. For instance, Chairman Dodd just yesterday said that 65% of sub-prime mortgages, on some figures, could have been done at conventional mortgage rates.

Well, can we ask if those have all been refinanced, already? Are the lenders holding that up? The odor of inaction still emanating from Washington as the stories of people pushed out of their homes of 25 years 'make news' is ... notable.


From one perspective, the big blow to "liberal values" occured when Senate and House progressives failed to get loan modification authority into the hands of bankruptcy judges (even the local conservative ones...). Not for every loan, but certainly for targeted classes of loans that have / had ridiculous provisions that just cry-out to be abrogated.

Barney Frank has ticked off the list of these misery creating provisions on more than one occasion, before the cameras. It's compelling, not just as good television. The question is then why the 'sanctity' of these contracts continues, even after at least two must-do Bills have been legislated in the past nine months.


Clearly, targeting provisions in this way, providing judicial leeway of this type, would not through the whole market for conventional loans or even for ARMs to the dogs, from an investor perspective or otherwise.

From an economic perspective, it can only clear the markets for real-assets (homes) in the best possible way, with the least human misery.

Anyway, there may be good answers to all this, but talking about what is coming from TARP can only be a good thing. God knows, we should have learned our lesson about the Bush Administration a long time ago, and how well thought-through their plans are and how much dissent is tolerated, in order to achieve the best possible decision making under uncertainty.

Sadly, in the time we have taken to have the full discussion, we've had a full blown financial crisis and the next round of people with ridiculous interest rate hike-ups are ... well, let's just say that we're all paying, via the stock market, etc., for our lack of attention to their plight, not obviously wholly of their own making. And all our "injections" haven't purchased an exit from the private market solution, which keeps potentially illiquid assets (foreclosed homes) on someone's balance sheet.

Elusive Fact of the Day


I'd give anything to know how many members of the G.O.P. Priesthood called John Mack to "counsel" him regarding his thoughtful observation, yesterday, that a global supervisor would make sense for a global, capital markets mega-firm, like his own, Morgan Stanley?

No matter how obvious that need is, given this month's market developments, no matter how much a public good would be served by cross-border supervision (of derivatives and highly-leveraged financial entities), it flies into the competitive-deregulation-is-the-best mantra of those who would use the weakest link in the chain to ... drag everyone into a hands-off regulatory posture.

Smart regulation, leading to transparency and orderly markets, has to be better than what the G.O.P.'s President offered this morning: saving "free markets" by periodically risking taxpayer money or making public choices about which companies to "save".

The More One Knows About What Happend...


...the more outrage you feel. I mean, the FBI found Sarah Palin's hacker withing weeks, yet we have yet to haul any defunct mortgage operators into court, to account for the net misery they wrought.

Check it out.

  1. Arthur Levitt ... slams the Bush SEC, as having lost its culture, image, force, and public role during the bush Administration. Strong words not spared.

    Levitt is a *strong* proponent of a registry/"clearing house" that is mandatory for all derivatives contract writers, whether they are regulated or unregulated, in the U.S. or organized legally elsewhere.

  2. Treasurer of Cuyahoga County, Ohio, lays it out with frightening clarity: early efforts to stop predatory and destabilizing business activity were rebuffed, scoffed at, and made illegal, even. Plain evidence that the CRA (comminity re-investment act) has almost wholly unrelated (over 90% of loans not from CRA-constrained depository institutions).

  3. President of the Urban League gets angry over the rightwing abject misrepresentation and internet smears that minorities are to blame.

  4. Eric Stein shows how 11% crippling re-sets ... are nothing that bankruptcy courts can address and illustrates with heart rending "real world" cases.

President to Speak At Length

8:45 a.m.

... brace yourself.

Thursday, October 16, 2008

I wish I could quit you

McCain gets all Mavricky, trying to hide his love for George Bush, last night.

How much fundraising has Bush done for Party pal, McCain, for his Presidential-pardon-ready partner?

McCain Health Plan

The McCain Healthcare proposal is ... nothing to be excited about.

However, he might unwittingly have proposed the best thing to get to Universal Care. His plan could make things worse, so that the political chances of a single-payer system ... rise.

I wouldn't recommend that risk, those means to that end, but I'm more than happy to pick up calling cards from the rightwing, for that struggle, if it ever occurs:

Because of McCain's idea to end employer subsidies:

"We are concerned that some employers, particularly in this economy, might be motivated to exit the system," said R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

Paging Ezra Klein. This is a partial answer to your old question of how to transition from one system to the other. The 'opposition' has just acknowledged it.

Wednesday, October 15, 2008

Boring Debate Happens

I vote we have Andrew Sullivan debate Rich Lowry, or something.

This is so ... zzzzzzz ... and that could be so much fun.

Besides, none of this will matter, much. It's like watching ... a version of what we used-to-be, of yesterday.

Why? Because the financial winds sweeping the Global *may* reshape and shape the whole first term of the next President, radically. The debate is like a sideshow to the main event.

Mental Break

The Onion:

Cost of Wrong Policy Actions - Beat This


It stimulus time, again!

I'd like to create a tally, a challenge.

Ben Bernanke has asserted that his way is cheaper, that his early action has avoided a cost.


Here is the bar for the $250 billion initial bank injection; the $85 billion to AIG; the $35 billion back-stop for Bear, Stearns; the pass-on premium increase for Deposit insurance to $250,000; the circa $150 billion April tax-rebate stimulus; and, now, the cost of another circa $150 billion stimulus. (That's before we get to the private costs, the failure of firms, the loss of jobs, the wealth effect of needless stock market decline and volatility, etc.).

The entire subprime and alt-A market may range from, say $750 billion to $1,800 billion (estimates vary, and it is completely in flux, as people refinance - maybe up to 50% of them, at regular-way, fixed mortgage rates).

We do a Brady plan for residential mortgage-backed securities.

Two steps:
1. You stop nearly all defaults and keep people in their homes (the government offers terms to lenders, borrowers).
2. You share in price declines

These two steps either stop or mitigate the asset-quality problems at every financial institution in the country that owns them, instantly, by putting a floor valuation under them, making them tradeable and liquid. No ridiculously fancy TARP, no scatter-shot injections.

Yes, it's politically hard to do, but it is *certain* to work and to work quickly, to restore the financial system, without stopping the housing market from full and complete adjustments at a normal pace.


Government's 50% share of a 30% home price decline on $1,800 billion, maybe, or $270 billion (plus $100 billion, for additional program expenses and estimation error).

I'm so for this plan, I'll even let it be done via "block grant", a format the Republican love to death.

If one just focuses on defaults, rather than the entire sub-prime and alt-a market, you can probably cut that figure, again, by 70%.

Banks, Banks, Banks on the Brain!


Of course, the Federal Reserve is the chief bank regulator and their source of information is the banks, themselves, mostly, but is that proximity creating a bank-bias in decision making? Or, is it ideology?


If the mortgage market is the "central element" in the current set of problems, then why choose to address it through the banking system, where the default-problem gets magnified by leverage and investor worry? That's like trying to balance a beer bottle on its top, rather than holding it from the bottom!

Why not go right to the housing market? Why not go right after the default problem, directly and surely? The rest will follow that, not the other way around.

Is it less costly to try to do it all by shoring up the banking system? No, no, no. And No!


Listen to Ben on "too big to fail". Boy, he's got that down. He just needs a little more understanding of the derivatives markets and he'll be picture perfect, IMHO.

He could have been a LOT more positive on long-term fundamentals and used the Greenspan term, "resiliency" at least three time or more.

I hate the TED spread

It seems like that darn spread can mean anything a pundit wants it to...

AS reproduces a chart, here.

I'll see your chart and raise you, 184 pages, just off the presses, from the IMF.


Cash-and-Carry, Paulson's go-to guy (Kashkari), hired Mellon Bank to be the custodian for the new Financial Empire of the U.S. Treasury (FEUST).

According to them, the law is such that we ... need to figure out how to insure distressed assets.

Not for nothing, but didn't we just fail in those calculations, when the assets were liquid and traded?

Tuesday, October 14, 2008

Mental Break

You have to see this. The LA Times.

Bush's SEC: Not Vigorous

heckavu job:

"WASHINGTON -- The Securities and Exchange Commission failed to "vigorously" enforce securities law when it closed an investigation into how Bear Stearns Cos. came up with values for certain debt, the agency's inspector general said in a report Friday. -WSJ"

This might just be a cheap shot report. It catches notice, because of some other stories about ... lax enforcement or uneven enforcement under Chairmen Cox. Time will tell. He may end up not with anything scandalous, just ... uneven.

The cost of doing business


GMAC, massive consumer financing arm, spent $740,000 in second quarter of this year to lobby on mortgages, banking, other issues

WASHINGTON (AP) -- Automotive and mortgage lender GMAC LLC spent $740,000 lobbying in the second quarter on legislation related to mortgage lending, banking and other issues, according to a recent disclosure report.

The Detroit-based company is majority owned by private-equity firm Cerberus Capital Management and several of its partners. General Motors Corp. owns a minority stake.

GMAC lobbied on legislation enabling hundreds of thousands of struggling homeowners to refinance into more affordable government-backed mortgages, specifically on a provision that would have allowed judges to alter terms of loans for homeowners in bankruptcy. That provision didn't survive in the final version of the measure signed into law by President Bush last month.

GMAC also lobbied on legislation that would bar industrial companies like General Motors from setting up or owning so-called industrial loan companies. ILCs are federally insured institutions that can issue credit cards, make loans and take deposits.

The company also lobbied on measures related to insurance regulation, consumer credit and information, financial literacy and taxes.

"98% of all accounts are below $100,000" on Deposit

...Shelia Bair, head of FDIC, on CNBC.

Kinda puts into perspective that rush to get deposit insurance for millionaires.

So, I'll ask the question again, who was the economist - if any - who advised Obama on that?

[Kudos, though, to Larry Kudlow and Lawrence Lindsey, who spearheaded a public ramp for the effort ...]

A Lincoln Portrait: Paulson's Man Friday

WSJ does a portrait. It's as bad as I feared. I'm sticking with the nick, "Cash-and-Carry".

Bush - Everything in Iraq is Going According to Plan


Bush this morning, on this White House's prodigious ability to make decisions covering all the bases ...:

(paraphrase) "...these steps have been carefully planned."

Carefully planned?

The Plan sounds like something someone blurted out, after raising their hand ... soon, we'll find a power-point, with phase-three of this crisis ... unarticulated, with a Rumsfeld note, "democracy is untidy".


Here's the Paulson conundrum.

If the system is really in trouble - I mean seriously in trouble, like avoiding Great Depression II, then giving $20 billion to mega banks and $10 billion to investment banks is ... peanuts.

If the system needs only a little capital or no capital at all, then Paulson looks like a hero.

Why did Paulson do it?

Why would JP Morgan Chase need more capital?

They just raised $10 billion, $2 billion more than they said they would, in the most choppy and difficult markets in decades, a week ago or so.

No wonder their shares were ... down in today's up trading day. They just got "involuntarily injected".

Does he think the market will not eventually see through this cloak-and-dagger routine and wonder why $10 billion more is enough for Morgan Stanley and Goldman, presently, but the $11 billion equity raise that Lehman did months before their downfall was ... not enough.

I'll bet Citigroup is pissed that they didn't try to bid more, now that the taxpayers are subsidizing BOA's purchase of Wachovia (with an "extra" $5 billion "injection").


This is what happens when you hired investment bankers. They do deals.


What would you do if someone forced you to take capital?

I'd buy back either high-yielding debt or common shares.

update: it appears that you cannot buy common shares, while the government is involved.

Or, I'd write down the worst of my assets, like my commercial real-estate portfolio, my buyout loans ...

I'd hang onto my sub-prime junk. Why? I might get to sell it to Paulson's Cash-and-Carry guy for an above-market price.

To be charitable, maybe there is something we don't know. Maybe they need the money, so they can comply we conservative accounting principles for assets? ... this is still the Bush Administration. Would you put a high probability on that?

update: a second possibility - the government is setting up a few large players to consolidate the industry's laggards, the ones the FDIC is expected to "process" in the upcoming quarters.

Monday, October 13, 2008

"HOPE NOW ALLIANCE" Didn't Make the Final Cut

Beggars at the feast:

Among the banking chiefs attending the meeting were Richard M. Kovacevich (Wells Fargo), Kenneth D. Lewis (Bank of America), John J. Mack (Morgan Stanley), John A. Thain (Merrill Lynch), Lloyd C. Blankfein (Goldman), James L. Dimon (JPMorgan), Vikram S. Pandit (Citi) and Robert P. Kelly (Bank of New York Mellon)

TARP goes to WARP speed, to avoid scrutiny


Instead of owning plain, old real-estate, by buying up defaulted mortgages and stemming the problem at its source, we're going to own financial institutions, all kinds of exotic securities that no one understands widely, and ... all the bank management that we've come do love, over these days.

I love my AIG. Those guys have got it going on!

I'm sure all these guys will work overtime to reduce "systemic risk" for all of us.


It even lands on the front pages of the New York Times.

Savor this. Dividends don't count, because they are not ... paid out of earnings.

The goal is to inject massive liquidity into the banking system. The government will purchase perpetual preferred shares in all the largest U.S. banking companies. The shares will not be dilutive to current shareholders, a concern to banking chief executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings.


It it too soon to start calling Paulson's go-to guy (Kashkari), by his new nickname, "Cash-and-Carry"?

Why TARP without Upfront Regulatory Fix Is Dangerous

I still find some of the best stuff in comments on great blogs.

Here's one that made my day, from a poster named barry (hang in there until the end, on E.F. Hutton):

I seem to have lived in some alternative universe. The essence of Reaganomics was use of government resources opportunistically to help advance GOP interests and to help select firms.

We can start with the nationalization of Continental Illinois Bank in 1984 (in the middle of an election) and use of government funds to bailout all depositors for the full amount (not just the FDIC limit).

We can continue with the seizure of Franklin Savings and Loan (a healthy financial instituion with never a losing year) on the grounds of improprer ‘hedge accounting’. The assets of the institution were sold at a discount to connected Wall Street firms.

We can go onto the ’sale’ of a bunch of Texas banks to Nationsbank for a pittance and with a put option. The government gave Nationsbank a free call option (an option that belonged to the shareholders of the Texas banks and the taxpayer).

E. F. Hutton is an amusing diversion. Here was comapany charged with everything from check kiting to wire fraud. The Reagan Justice Department was reluctant to move against them. State Attorney Generals in NY and PA were about to get indictments in state court. The Feds moved with amzaing rapidity. E. F. Hutton (the company) pleaded guilty to various crimes in a court room in Wilkes Barre, PA (not Philly or NYC where there would have been media). Not a single officer of E. F. Hutton was charged. E. F. Hutton should have lost its broker/dealer license but the SEC swiftly came in with an exemption. The CFTC should have debarred E. F. Hutton but another exemption was forthcoming. E. F Hutton’s President, one Scott Pierce was happy. He called his sister Barbara and thanked her. She said that she would pass on the good news to her husband, George Bush.

We could go on and on. But the statement that Ronald Reagan had something to do with free markets seems divorced from reality.

I wonder if Barry followed the amusing case, during this era under Bush-fils, of how aggressively SEC Chairmen Cox looked into that matter of insider trading, Pequot, and John Mack, Chairman of Morgan Stanley. Maybe there was nothing there - I certainly have no reason to think one way or the other. Still, we'll never know.

Thought for the Day

True or false: you can get by with $1 in capital, if everyone believes in your assets/investments.

[much more today at sister blog, on 2008 Financial mess]

It pays to have an Exchequer

Sometimes the best prep is to be Chancellor of the Exchquer for ... gosh, it seems like it was forever.

Krugman gushes.

Krugman Annoited


Congratulations to Krugman-sensei.

I hope he doesn't start to believe in theory, even more, because of this.

The Face of TARP

"I'M FROM THE GOVERNMENT AND I'M HERE TO HELP YOU" - Cue 'em Up, October 13, 2008

What's that old saying that there is no problem too complex that it cannot be made worse?

Now we have to listen to Paulson's go-to guy trumpeting how the government is quickly contracting with law firms, asset managers, and ... otherwise setting itself up as a mega financial manager.

Were your eye's rolling back in your head?

Truly, we are very near the point at which the Bush Treasury should ... stop talking.


I have just one, two sentences that would accomplish more, more quickly:

"I can announce today that the government will begin to offer terms to lenders on defaulted mortgages, of the sub-prime and alt-a category, and those terms will share, probably 50/50, in home price declines, where negative equity exists. We expect this activity will exist within the framework of existing real-estate law."

Two, three more, and I've got just about the whole thing:

"For now, we are encouraging the Fed to continue to expand its use of special facilities, on a temporary basis, so that firms can manage their liquidity across a spectrum of asset classes and, thereby, meet short-term calls for collateral and the like.

While the banking system, including the finance-arms of companies that drive consumer credit availability, adjusts until it is fully repaired, we will engage in a certain amount of making sure that financing is available to the business sector, by providing such capital relief, in a variety of forms*, as allows asset qualities to be conservatively accounted for, until investor confidence is restored.

G7 finance ministers are working with central banks to reduce and neutralize many off balance-sheet exposures, efficiently and quickly, so that the system is no longer burdened by these uncertainties and burdened by systemic risk factors magnified, in the current environment, by instruments outside the control of regulators."

*there are various forms of capital requirement relief. off hand, there is the obvious capital-injection. There is also the possibility of lower regulatory capital requirements (cf Japan, 1990s). Last, there is consolidation, in which some investors lose their capital so that others can offer a 'stronger hand' behind risky assets management.

Update: I forgot. The Federal Reserve is now paying interest on so-called "reserves" held at the Fed. That may not seem like a lot, but, over the course of a year, it really adds up, for the banks!

Moving ....

FYI, for regular readers, I've moved most of the running punditry comments and analysis on the ongoing financial crisis to the sister blog.

This blog, here, will probably atrophy, over time. Who knows. It seems like Andrew needs less bootstrapping than ever, these days.

Saturday, October 11, 2008

Bush has 100 Days Left in Office


Of course, there is still a LOT of time. Remember, Napoleon didn't *start* his retreat from Moscow, until 19 October ...

America's three-branch conservatism, 2000-2008, mapped out as Napoleon's campaign to Moscow:

Von Hoffman

AS finds a quote that defined the last market peak, in 1999. I looked for it earlier this week, but could not find it, so I just did a Dow 10,000 post, instead.

I recall making prognostications, on the heels of Glassman and Haslett's opus, at the beginning of this decade (from memory):

"...loss looms to the downside, threatening an end to the cult of equity.'

Oh, dear.

Anyway, if you believe in the Glassman and Hassett thesis (it's a theory which you cannot prove wrong...), these are the times of your life: Buy, buy, buy!

The End of Unsecured Lending?


The spice is flowing (see pic). There has been a reduction in the amount that businesses can place directly, but it is in line with recent dips and the slack has been picked up by dealer placements.

The price of this unsecured lending has gone up, but the spice is flowing.

How much and why the price has gone up requires more data. A few data points and a survey summary statistic ... are insufficient.

Whatever the case, the oft-repeated line about companies not meeting payroll appears to be, as I mentioned, urban legend, repeated to the highest levels of government, even. Is that Orwellian, or just par for the course?

To the extent that it is simply balance-sheet capacity that is driving up the cost of CP or investor skittishness (money market funds getting spooked?), then the Fed has done a very smart thing to insulate the non-financial sector, the real-economy, if you will, from the ongoing vagaries of Wall Street banks and mutual fund complexes...

CP Spice

source: Fed's weekly CP release (h/t to CalcRisk) The "Currency" (in the chart title) is USD - it got cut off the chart, sorry.

Lehman Redux


One scary figure is that there were some $400 billion in Lehman CDS to sort out (still looking for confirmation of that notional / face amount). Felix Salmon reports, however, that nets down to a mere $5 billion. In other words, after all the you-owe-me-what-I-owe-you-back, the "real" figure 'at risk' for pay-up was circa $5 billion (some portion of which may or may not have been collateralized or hedged, already).

Now, I know there are people who think that Lehman should not have been allowed to fail. Frankly, my eyebrows raised. Lehman was no Bear, Stearns, afterall.

Still, from a systemic perspective, if the system cannot handle $5 billion in off-balance sheet exposures, if the financial system that supports our $14 Trillion dollar economy cannot handle that, then we are ... worse than Banana Republic. We are a Kumquat Republic.

It's true, nevertheless, that that $5 billion might have not been spread around "evenly" among financial institutions, with some having net amounts far greater than that. In that case, we'd be on pins and needles waiting, as we do seem to be, to find out who was ...a "winner" and who was a "loser", who was lopsided or ridiculously lopsided, since no one is forced to disclose their ... lopsidedness to investors.

Of course, the chief worry, I suppose, of those more disturbed about Lehman's failure was its impact on confidence, the blow it may have made to an already weakened system, a cascading blow, even, to the credit markets.


The jury is still out and that verdict is not in yet, I don't think. Clearly, there was a problem with Lehman top management. It cannot be a bad thing that their business and business risks are now concentrated in stronger hands, with managements who, presumably, are still standing because they have a better grip (and understanding) of the overall risks they are running...

Besides, we're learning from this failure, perhaps, how to set up a new financial system, one in which the overseers have a real-time picture of the 'systemic risk' in the system, including off balance-sheet risks, like swaps and so forth, and one that covers non-bank financials (i.e. AIG).

Friday, October 10, 2008

Palin Implodes - Does McCain Get His 11th Hour Game Changer

My only question about troopergate is, if Palin steps aside, is Mitt Romney back in the picture?

Problem Misspecification - If We Had Only Had Hearings, Expert Testimony


Well, Paulson just came out and said he was going to use a Class A fire extinguisher on a Class D fire. In other words, we're throwing water on an oil fire ...

Let's hope he's right ... he certainly didn't say what he would do if he was ... wrong, if the problem with mortgages keeps getting bigger, for instance.

Altogether, I interpret it that Morgan Stanley - or other large investment banks - will not be allowed to fail. (At least, as far as one can tell, reading the tea leaves, that's the institution that they have in mind - do you know who else they are talking about?).


Lots of people want the inter-bank market backstopped. Here is my write-up on that, if you missed it.

Be careful what you wish for ... (Not surprisingly, there are folks on CNBC "convinced" that it is now the "number one" thing to do - until next week. Oy!)


Here's what may be the problem, in terms of process, of why it is taking so long for the "collective conscience" to figure out what to do?

People go and talk to CEOs and accountants. They don't understand the problems, because many of them do not have markets experience and don't understand the financial products they sell, from a risk perspective, so they give prescriptions that make sense to them. We need this, we need that. We need capital. We need price-discovery, so we can get liquidity. We need to stop mark-to-market. It's the short-sellers.

So far, this theory of what is going on accounts for the piecemeal approach we've seen so far, including the inability to size up the scope of the problem initially.


They need to get past the top-layer (and lobbyists?) and start talking to the people who value, trade, and invest in the securities that are "distressed".

It's the best way to get to a robust policy prescription.

What's more, it's easy to figure out and easy to explain. No one will like it, politically, conservative or liberal, but that's the way it is ... with "medicine".

Friends of Angelo

WSJ has a riff about a club of people helped by Countrywide's Angelo Mozilo.

I'm not against government involvement/ownership/warrants in principle.

It's just experience that leads me to want ... separate boxes for politicians and businessmen.

The temptations are just ... too strong.

McCain's Exit Strategy

I remarked a long while ago that today's Conservatism was not going to go quietly into the night, but would go kicking and screaming. (I think it was in reference to a particularly virulent Hewitt comment).

Krugman notices it too, now.

My question is, consciously or not, is this part of McCain's exit strategy?

Is he appeasing "the base", by throwing flaming arrows and his Willie-Horton worst, because that is what they want, what they are comfortable with and want to do, so that the Party doesn't lose them and so that he, himself, has ... a future, of some kind?