Tuesday, March 31, 2009

GM: "Thank you"

GM's new CEO made some prepared remarks this morning on CNBC and he thanked the Automotive Task Force for their work and President Obama for his confidence.  He seemed very sure in the "plan" and its execution...   blabbity, blabbity, blab.

He forgot something.  He forgot to thank the US taxpayers.  With all due respect, I would never have invested in GM stock or bonds, and have not driven a GM since the 1978 Malibu I drove 20 years ago which was a piece of crap.  

Now I have been forced to make a big investment in GM against my better judgement... and he forgot to thank me.  But what else should we expect from the Entitled Class?

Friday, March 27, 2009

GOP leaders should give their paychecks back

Whatever happened to the idea of the loyal opposition?  There used to be a time in Western civilization when politics thrived with competing thoughts and themes.  Newt Gingrich presented his Contract with America in 1993 which included a big serving of welfare reform flavored with his trademark condescension.  But welfare reform took hold and eventually won the Republicans the house in 1994 and arguably saved the US a few pennies on the margin.

I never thought I'd look back to those as the good ol' days.

The job of the opposition party is to offer opposing plans.  The international economy is at the precipice due largely to shenanigans in the US' capital markets, confidence is reeling, every type of debt is skyrocketing, unemployment and every economic metric is the within spittin' distance of the worst in history, and what do the Republicans have to offer?

They decry the large deficits in Mr. Obama's budget, but fail to present a viable alternative.  Sure they have broad general principles-- low taxes, cut spending, solve the crisis-- but the specifics are sorely lacking.

The fact is that the US entitlement system dictates almost half the budget outlays as non-discretionary spending, and another 40% or so goes to military spending which is tied up in two failing foreign wars, thus leaving the part of the budget that can be cut vanishingly small.  Add to these issues the reduced tax revenues from increased unemployment, lowered tax rates and the lack of capital gains over the last 12 months, and you have all the makings of a  spiraling uncontrolled budget deficit.

The Republicans know all this on some level, and I can understand why they would harumph at the President's current budget since it contains a lot of programs that are anathema to the Republican platform of small government and self-reliance.  So let's see what the loyal opposition can offer instead. 

I was not the only one waiting with baited breath for the "Republican budget alternative" that had been promised today, and I was not the only one who was disappointed.  Boehner and Cantor embarrassed themselves by going before the cameras with nothing to offer after excoriating the President over the last few weeks.  Furthermore, they let their country down.  If not working on economics and budgeting, then what have they been doing lo these past 64 days? Maybe the Republican leadership should give their paychecks back, or donate them to the starving AIG executives.
Good ideas would be nice, and the President strikes me as someone who would give any ideas some consideration.   To a person, critics of the administration are fresh out of viable alternatives to anything that has been done so far.  Even the usually disgruntled Nouriel "Dr. Doom" Roubini admits the Geithner Plan represents the best plan among very poor choices.

Mr. Gingrich is back on the scene, still with the same trademark condescension, but his only point of argument is to stir up dissension by warning that Obama is yearning for a "dictatorship" ,   which, coming from someone who is voluntarily signing up for the Papacy , seems like an odd complaint.

Frankly, I could not imagine what this nation would be like had McCain and Palin won and Phil Gramm was Treasury Secretary, but I do know that we'd at least have a loyal opposition. 


Wednesday, March 25, 2009

AIG Bonuses and the Age of Entitlement

Jake DeSantis, a trader in the Financail Products division of AIG, tendered his whiney resignation in today's NYT claiming to be a victim because he is being denied his $750,000 bonus.

Diane Brady of Businessweek offers a point-by-point takedown of the unapologetic mindset of entitlement portrayed in the piece.

My additional comment:
The average neurosurgeon in NYC makes $425,000, which seems like a reasonable ceiling for an executive paper pusher at a failed insurance company. 

Bachmann brings the stupid

Michele Bachmann from Minnesota uses her 5 minutes to jam in as much evidence as possible to show why she should not be in Congress, let alone on the Financial Services Committee.  To wit, Rep. Bachmann:

1. Does not understand the legislative process regarding legislative authority granted to the Treasury.

2. Does not know that the provision for the Federal Reserve was in the 20th century and not "the Constitution."

3. Needs the issue of "financial stigma" explained to her (remember, she sits on the financial services committee).

4. Needs an explanation regarding the authority of the Treasury to close banks versus insurance companies (remember again, she sits on the financial services committee).

6. Claims ignorance of the committee rules regarding time alottment provisions.

That averages out to more than one shit-for-brains idiotic comment per minute-- makes Maxine Waters look like a piker.

But I do like the stylish Sarah Palin/librarian glasses.  Nice touch.

Monday, March 23, 2009

Cheney gets pwned on 60 Minutes

In my view, Mr. Obama gives the final word. Any further rebuttal in this debate of the management of terror suspects should be done with Mr. Cheney under oath and preferable indicted.

Who knows Finance better than Suze?

See what she thinks of the financial meltdown.

I cannot disagree with her.

AIG and the Crisis: Links to Learn

1.  Matt Taibbi's must-read in the Rolling Stone.

2.  Washington Post's Carol Loomis series:  Investigating AIG: The Washington Post

Sunday, March 22, 2009


From Barry Ritholtz:

This from a friend of mine. There is lots of anger out there.

When a fireman sees a house on fire, he sounds an alarm, dons his turnout gear, bravely rescues the occupants and puts out the fire.

When an investment banker sees a house on fire, he quietly sells the burning house short, uses the proceeds to buy a larger house for himself and, when someone suggests that his taxes be raised to help the homeless, he rails against the dangers of socialism.

Saturday, March 21, 2009

Obama's Masterstroke on Iran:

Appeal to the Iranian moderates to attempt to undermine the extremist leadership.  

The word is that Obama, unlike the previous US president, is extremely popular among the Iranian people
which has put Ahmedinajad on tenterhooks. In his recent castigation of the US, Ahmedinajad was still invoking 
George W. Bush to garner anti-American sentiment. With addresses like the one below, I wonder how long
the Iranian moderates will continue to buy into the extremist leadership's bullshit.

Friday, March 20, 2009

Stock market sentiment read...

Today, I asked my good friend Barry Mylo what he thought of the stock market and, since he has always been tuned into the capital markets from his perch in midtown Manhattan, did he think it was time to maybe tiptoe back into the stock market.  Here is his missive:

OK, so here it is another Friday, this time at the end of a "winning" week, but we are still flirting with the November lows and assuming that the most recent shitstorm is just short-sellers wreaking havoc when the reality is that nobody is buying into this Ponzi scheme any more.

You want some sentiment? I'll give you some sentiment: I'm pretty much done. The only thing that has worked for months is yellow and white metal that has no inherent value or dividend and is mined to the detriment of helpless indigenous people throughout the world.

I hate go all Hobbes and Malthus here, but the world economy is fucked up beyond all repair with no end in sight. Dow 5000? Shit, try Dow ZERO. Name one company that deserves my investment.

To quote Jon Stewart:
"These Wall Street guys were on a Sherman's March through their companies financed by our 401ks and all the incentives of their companies were for short-term profit. And they burned the fucking house down with our money and walked away rich as hell and you guys knew that that was going on."

Their minions who commentate on CNBC defend the sanctity of the "contracts" that have allowed executives to steal taxpayers' hard-earned money so they can ski Europe and travel the world on their yachts.

You want my portfolio? Here it is: Cash, gold, silver, Spam, firewood and ammo-- not necessarily in that order.
Signed, Barry

Thank you, Barry.  I knew I could count on your unvarnished opinion.  

My question to myself:  Should I fade this, or not?

This is not whining about bonuses...

Listening to CNBC this morning and the topic of the AIG bonuses came up yet again for the 50th time in the last 24 hours.  I hesitate to comment, but feel compelled because of the not-so-subtle defense by the business media.  The arguemtn is that the high salaries are necessary in order to keep the talent on Wall Street in order to clean up the mess.  This whole "talent" thing is outrageous.  I know "talented" neurosurgeons and ob/gyns who seem to scrape by on a tenth of what the 15th administrative VP of some failed bank or a salesman at an insurance company makes.  And there are tens of thousands of these executives who make millions.  The average ob/gyn in New York state (to compare more accurately with NewYork bankers who argue about the higher cost of living) makes $174,000 per year, probably works 60 hrs week, on-call 10 times per month, top of their HS and college class, 12 yrs training post-college, no real income until age 33, etc.  I'm not whining, just pointing out what it takes to make $174,000 here in the real world.  That's a lot of money.  

But a bank executive with 2 or 3 years of post-college education can make six figures by age 26 and millions before the average physician has gotten his or her first paycheck.  They need a come to Jesus moment here.  These negligent executives are now govt employees and where are they going to go?  Back to med school?

The world was supposedly on the brink of destruction last fall and these AIG asshats were gaming the system to make sure their bonuses were not canceled... after all, they have "talent.".  And the destruction was directly-- directly-- related to their activities and decisions and "talent."  The bill had to be passed RIGHT NOW, or else... and the whole time the taxpayers were being played.

The government did not ask to take on all this debt, they were compelled to do it by the guys that drove the economic truck into the mud.  In fact, it smacked of extortion at the time, but now it's clearly apparent that the government was played by all this "talent" on Wall Street.

OK, not all the financial executives were complicit or at fault, I understand that item.  But let's look at the other industry that I know well.  Despite growing a practice by 6-8% in volume every year, physician salaries peaked 10 years ago in real dollars and have dropped versus inflation.  Beginning about 2004, real reimbursement levels have declined every year while overhead (mostly employees' health insurance-- how much do health insurance executives make?) has increased dramatically.  Regardless of competetence or "talent", doctors have almost universally taken salary cuts.  Furthermore, the current economic downturn has put a freeze on educational expense and bonuses at our particular institution.  No more conferences for employed physicians!  Is the downturn the fault of physicians in Michigan?  Hardly, but it seems we have made more of a sacrifice (however small) than the AIG executives!  And that say nothing for the millions of folks who have lost jobs over this.

Is the law to tax executive pay Constitutional?  No, it's an ex post facto bill of attainder and will likely wither away into the mist.  So all the media elite on CNBC can settle down and sleep soundly tonight knowing that their buddies on Wall Street are not going to have their precious bonuses taxed to death.  I don't fault Congress for calling attention to this issue even though it smacks of populism and does nothing to directly address the current crisis.

The fact is that it will take time, perhaps a generation, to burn through all this bad debt that has accrued.  Wall Street "talent" will have to acclimate to a different paradigm.  If you want to make millions of dollars, you won't be doing it with taxpayer money so you better learn a real talent like solving a real problem or performing a real service and not just dreaming up some bogus financial "product" that the world does not need.

Wednesday, March 11, 2009

Will Israel run Obama's foreign policy?

By all appearances, President Obama has bowed to the pro-Israel lobby and supporters of AIPAC and he has forced Charles Freeman to step down from consideration to head the National Intelligence Council.

Glenn Greenwald notes:  
In the U.S., you can advocate torture, illegal spying, and completely optional though murderous wars and be appointed to the highest positions.  But you can't, apparently, criticize Israeli actions too much or question whether America's blind support for Israel should be re-examined...
...Does anyone doubt that it's far more permissible in American political culture to criticize actions of the American government than it is the actions of the Israeli Government?   Isn't that rather odd, and quite self-evidently destructive?

Nobody is better than Greenwald on this issue.  I.F. Stone reincarnated.

For the record, the opposing view is presented by Jeffrey Goldberg.

Mortgages and morality

Alright get ready for a long post because this involves morality, economics, the stock market, my college education, mortgages and, just to make it complete, Google.

Let's go backwards and start with Google, which has a "Reader" that has changed my web surfing over the last couple years by compiling all the website feeds that I follow and I can sort them under various headings such as "trading" (Eric, Teresa Lo and Upsidetrader among others), "economics" (Barry and Macroman among others), "politics" (Glenn Greenwald, Rude Pundit, TPM among others), "news" (BBC, CNN, etc), "culture" (Vanity Fair, TED themes) , "sports" (White Sox, Bears, ESPN, what else is there?) and "science"(National Geographic, Evolutionblog, among others).  This makes following the 60 or so blogs on my list much easier.  Then there is the "fun" category for blogs from which I derive soem entertainment, but really fit no specific category, and Megan McArdle fits that description.  I used to put her in the "economics" category, but she really does not deserve that status, so now she is relegated to the merely "fun"  heading along with other brain candy like Strange Maps and Sarah Sizzle.

I can't remember when I began reading McArdle's posts, but the fact that she went to my old college was surely part of the attraction.  Her MBA is from University of Chicago and I figured she might be able to better explain the Milton Friedmanist ideology that I somehow never grasped during my undergraduate years on that campus.  Another ersatz ideologue, David Brooks from the NYT, was in my class and while I don't specifically remember him from the Political Order and Change curriculum, the meandering and erudite memories of discussing Burke and Hobbes three decades ago often rushes back to me whenever I weave my way through one of Brooks' columns.  Both Brooks and McArdle have been a disappointment and make me even more sure that transferring to the University of Illinois after two years was the correct choice.

Fast forward to this week:  McArdle discusses the moral imperative attached to paying off one's mortgage and her thesis is that folks who walk away from underwater mortgages are an affront to her well-honed protestant work-ethic and destroying the moral fabric of western civilization. She compares walk-away foreclosures to returning a used barbeque grill bought with a credit card.

McArdle takes issue with a criticism of a CNBC show that explores a specific case of "Felix" who calls in to Carmen Wong Ulrich's (how's that name for purposefully extolling your polyglot heritage?) show and asks for advice about his underwater mortgage.  He bought a home for $700,000 with a $300,000 down payment and now the home has decreased in value and is worth only $350,000 and he owes $400,000, and felix wonders if he should foreclose onthe house.  Poor Felix was castigated by the on-air personalities for threatening to shirk his "moral" obligation to honor the mortgage.  He is willing to walk away from his $300,000 investment in order to avoid losing even more on the home.  McArdle joins the pile-on with her own brand of insane logic and complete unknowledge of law and morality, despite her expensive scholastic pedigree.

Here's the problem with the legal line of reasoning which was pointed out in the comments section of her blog: mortgages in most, if not all, states are non-recourse loans which is much different than credit card debt.  If you do not pay your credit card, the law states that banks can garnish your wages, attach your assets and even force you into bankruptcy.  Mortgages are not covered by such onerous laws and thus there is no recourse for walking away from a mortgage other than losing any equity accumulated in the property.  If there is only negative equity, then a borrower would certainly be justified in handing the keys over to whichever idiot banker owns their mortgage.  Thus the second stanza of Mr. Franklin's admonition, neither a borrower nor a lender be.  

A home mortgage is really just a two clause contract: #1) The borrower agrees to pay the mortgage at a certain interest rate over a certain number of years.  #2) If the buyer does not fulfill the conditions of #1, then the lender may take possession of the property.

Banks know the law and they know the implications of accepting crappy mortgages on depreciating assets and I'm sure there is some reason for the different laws, and I will even go so far as to say that the non-recourse nature of these laws somehow benefits the banks over the borrowers. More loans would be taken, more homes would be built and lenders could more easily take that (usually) appreciating asset in foreclosure.  For decades mortgage lenders have enjoyed the simplicity of taking over foreclosures without going through arduous bankruptcy litigation; after a homeowner pays 15 years worth of mostly interest on a thirty-year loan, they lose their job at GM and the bank gets the house... the entire house, which has likely doubled in value and had been "paid-off" years ago anyway.  Simple and clean.  That worked well when houses always appreciated in value and homeowners were required to put 10% down.  That's the reason J.P. Morgan had the biggest estate on Long Island and Angelo Mozillo could afford all that skin tanning lotion.

But banks got sloppy and started accepting mortgages on property that was decreasing in value. Investors accepted the ratings of these securtized loans that were packeaged and sold as products, even thought the ratings agencies had huge conflicts of interests.  Neither banks nor investors did the proper due diligence when allocating assets, so now they want to shame mortgagees like Felix into paying more for the home than it is worth... when he clearly has no legal obligation to do so.

For some odd reason, the years McArdle spent at the midwest's greatest bastion of higher learning has not necessarily honed her critical thinking and has apparetnly prepared her only for carrying the water for the moneyed investor class.   Such humorous reasoning is why Megan McArdle is in the "fun" section of my Google Reader.  

McArdle and Wong Ulrich broach this aspect of morality into the mortgages debate, this idea that borrowers like Felix have a moral obligation to the bank.  Does he?  The contract is a clear statement of the legal obligation, but does the mortgage holder have a further obligation, a moral obligation, to the bank or his neighbors or society in general?  I would posit that Felix' primary moral obligation is to the well-being of himself and his family, and that may not include paying more for a house than it is worth.  Felix needs to weigh the advantages and disadvantages of paying another $400,000 for a property that is worth only $350,000 and decide if things like his credit rating, his lost downpayment and having to move his family to another place (rented, since not even an idiot banker would dare give him another mortgage now) are worth the extra cost. But moral obligation to the bank ot "the house" has nothing to do with it.  I'm not even sure that anonymous owners of an amalgamated asset back security qualify as a moral agents, and if they do, it's far far down on the list of priorities for Felix.

Yes, the deflationary "economic crisis" sucks.  No matter how wealthy or poor you may be, you will likely be affected in some way by the unwinding of the massive debt with which our society has encumbered itself.  Only those with no debt and a stable job will come out relatively unscathed.  If only one culprit could be named, my guess is that the ratings agencies would be near the top of any poll, with banks and investment houses who should have done some due dilly close behind.  The Felixes of the world bear some responsibility, but certainly not the brunt, and certainly a lot less moral obligation than the lenders.  After all, he was merely trying to buy a primary residence for his family-- not an investment property or a flipped-house-- in a housing market that was pumped up with years of easy money which increased the cost the all housing, rented or purchased.  Felix is surely going to lose a significant amount of his life savings regardless of his decision.  I find it extremely odd that TV commentators and educated bloggers are so willing to take off after one of the victims in this sordid drama.

Monday, March 09, 2009

When should we fix health care?

On CNBC today and the Sunday morning talk shows one of the memes was that President Obama should "slow down" and tackle "social issues like health care" after the current economic crisis.

The problem is that health care is not a social issue, it's an economic issue.  It's a small business issue, a big business issue, a personal finance issue...and it doesn't wait.  Every single day people without insurance are getting care and either flirting with bankruptcy and passing along the expense of that care to paying people.  Really.

We really do not have the luxury of tackling the banking crisis just to make sure the stock portfolios of Newt's "investor class" friends do not suffer any more before we go after the fundamental nuts and bolts issues of this economy.

Health care is a right in this nation whether you like it or not.  If someone gets sick, they get treatment.  If they have chest pain it's usually more cost-effective to have them seen by a physician before they have a grabber that lands them in the ICU on a ventilator, but if they have no insurance they'll take their chances.   

I don't trust that people will make the right decisions about their health and how to pay for it.  Many would rather go without insurance and buy a new flat screen TV with the money, and chance it.  I mean, heck, I'm healthy, what could possibly go wrong? 

Solution: Payroll tax for everyone who doesn't have a private policy, and everyone gets insurance.   Tax the crap out of tobacco and alcohol, too. The unemployed get Medicaid.  The insurance plans cover the gamut of usual and customary care.  Solved.

Newt Gingrich gets his colonoscopy without sedation.

Newsflash: Gingrich's friends don't like Obama

Newt Gingrich is the most articulate of the loyal opposition, and he's fairly inarticulate on this class warfare issue.

On MTP yesterday, Newt says that the investor class "doesn't trust" the Obama administration. Oh, but they trusted all their buddies who ran the economy into the ground.  I would think that someone who is smart enough to have a lot of money is also smart enough to know who destroyed the stock market and the job market.  

I'm all for conservatism and accountability; too bad we don't have any in this society.

Saturday, March 07, 2009

It's time to do something

Paul Krugman makes a couple excellent points critical of the Obama administration's handling of the the banking crisis.  If there are insolvent banks, then announce it, nationalize them and let's move on.

Gerry Seib makes the case that while most of Mr. Obama's constituency may not be investd in the stock market, the continuous draining of wealth from our capital markets is doing irreparable harm.  Broad market indices are down over 10% since Obama has taken office and are now down to 1997 levels.  Financial stocks are down 50% since January 1st !!!

Glenn Greenwald is critical of the Obama administration's use of anonymity to float controversial ideas, which has been a cynical tactic of previous administrations, and has factored into the Treasury Department's lack of a plan in the current crisis.

I realize that if President Obama had come in on day one and nationalized two of the world's largest banks we would have heard from the "I told you so" crowd about his socialist agenda, but at some point a president needs to do the right thing.  The stock market is suffering from the broad brush being used to paint all financial institutions as bankrupt.  Surely at least one bank is solvent, no?

Thursday, Northern Trust (NTRS) of Chicago announced that it will pay back the TARP  funds it received in order to remove the constraints placed on its operations.  Regardless, the stock dropped over 3% since that announcement.

The 'stress tests' that have been floated by Treasury to answer these questions about which banks are solvent need to be completed, like,  yesterday.  If all banks have engaged in destructive leveraging of assets and are inoperable as going concerns, then stockholders and taxpayers have a right to know as soon as possible.  If only some of the nation's banks are insolvent, then likewise we need to have that information.

By any measure Mr. Obama has accomplished a lot in his first 50 days as we all know how much has been neglected the last eight years, but I find it disheartening that Mr. Obama has spent an inordinate amount of time discussing how he will decrease home mortgage deductions while ignoring the lack of transparency in the capital markets.  The ongoing damage to the credibility of the stock market is real and long-lasting; do you really think Joe Sixpack is coming back to his 401(k) after this disaster? 

As Krugman intimates, dithering time is over.