Some liberal activists handed out 1.2 million copies of a New York Times spoof dated July 4, 2009 to commuters in New York, L.A., San Francisco, Chicago, D.C. and Philadelphia. You can see the web version of the spoof here.
Among the "stories" in the 14-page paper:
Them crazy liberals.
David Hoggard is a small business owner in Greensboro who also happens to be a blogger. He recently posted his insurance costs for the last year and asked how it is that insurance companies need a bailout. Here are the numbers:
All told, that is a whopping $69,443.00 paid to insurance companies by me and my little business within just the past twelve months. And they are the ones in need of a bail out?????? Puleez.
Now add the amount in bailout money we individual taxpayers are on the hook for and you'll get the true number. If all were right with the world the people who perpetrated this mess would end up wearing bracelets and eating institutional food for years to come, rather than being allowed to scurry to their 12 bedroom second homes to lament the fact that they're now worth millions instead of billions. Obviously it ain't gonna happen.
Meanwhile to pay for this fiasco the true business builders in this country, like Hoggard, will be facing premiums and deductibles in the future that will make today's numbers look positively reasonable by comparison. Happy, happy, joy, joy!
I'm not the sharpest knife in the drawer, especially when it comes to things related to money, so its taken me a while to get my head around this whole credit default swap thing and how it led to the big government bailout. I began to understand when I was in San Francisco and I heard a speaker describe the market as a game of poker and CDS as everyone who was watching the game betting on the outcome on the side. The game itself is worth $1,000,000 and the side bets are worth $80,000,000. That analogy helped, but it didn't quite get me all the way to comprehension and I couldn't quite put my finger on the reason why.
Then yesterday I was watching 60 Minutes and they did a story on CDS, the second story on the subject they'd done just this fall which has to be some sort of sign about how big this mess is. Anyway, one of the people interviewed used the side bet analogy, but he also pointed out that the bets were made by people who didn't have any money. AHA! Now I've got it.
So let's stick with the analogy. Say you went to play in a poker tournament and you lost early in the night, but instead of going home to get nagged about losing you decide to stick around and see if you can make up some of your losses by betting on the side with the other losers. You've got $50 in your pocket, but you're so sure you know that your best buddy who's won every basement game you've ever played is going to win the thing that you bet the chump next to you $1,000 that your buddy's gonna win. The very next hand your buddy goes all in with three of a kind and gets hammered by an inside straight. He's done and you now owe the guy next to you $1,000 and all you have in your pocket is $50. You're looking at getting a severe ass-whooping if you don't come up with the other $950. What do you do?
Well, you could sell your car but you just lost it in a game last week. You could sell your house, but you've already used it for collateral on several dozen work-at-home ventures. You could borrow it from your buddy, but he's tapped out along with every other friend you have. Besides, you borrowed money from him last week and now he's worried that not only will he not see any money he gives you now, but he has serious reservations about the money he gave you last week. In fact your whole group of friends is in hock to each other but nobody knows who has what, or who owes whom, so no ones lending any money at all.
What's left is your parents. They've always been good for a bailout, and if you ever needed one now's the time. So you call up Mom and Pop and they ain't happy. They're still paying down the second they took on the house to pay for your lousy college education and now you're asking them to go dipping into their home equity one more time. Luckily they have an open line of credit at the bank that even came with a convenient little check book. So they ask you to come over and sit at the kitchen table while they bitch slap you for 15 minutes, call you all kinds of dirty names and then ask you how much you need. You think on it for a minute and decide that instead of aiming low and asking for $1,000 you'll see if you can't get them to give you $5,000 so you can pay off your debt and then have some left over for expenses. They think about it for a while, and they say something about giving it to you if you'll agree to some conditions that they'd like to have their lawyer put into a contract, but you tell them that if you don't get the money tonight the guy you owe is going to kneecap you. They think a little longer and then say they'll write you a check for $5,000 if you agree to sell them a stake in your house and if you "cross your heart and hope to die" promise that you'll take whatever is left over to help your buddies out. After all they've always thought your buddies were fine young men, and if you help them out then maybe they'll pay it forward and everyone will start doing better.
Two weeks later you call call your parents from the Caribbean. You've paid off your debt, filed for bankruptcy protection for your non-gambling creditors and now you're getting a little R&R on your favorite beach in the whole world and you just wanted to thank them.
Glossary:
You and your buddy = Investment Banks
Your house = Mortgage Backed Securities
Your side bet = Credit Default Swaps
Your parents = US Government
Your parents house = US Treasury
Your parents' debt = The US Debt
Well it’s almost over. In a couple of weeks we’ll have survived what will surely be remembered as one of the crazier election years in memory. However the election turns out the winners will be dealing with deeper systemic problems than any incoming administration/Congress has had to deal with in at least a generation if not two. It seems to me that they will be confronted with some hard questions that have not really been addressed in a long time. Those include:
Unfortunately we’ve spent decades with people screaming at each other about the role of government, yet in reality we as a society haven’t had an honest conversation about it. We hear talking heads spouting catch phrases like "government is the problem, free markets are the solution" but never discuss how a free market can exist without government or at least within the governed society.
Ironically if you start to get down and dirty in a debate with folks from either side of the ideological aisle they almost immediately begin to moderate themselves. For people who want to trim government to the bone just find the government program that they value and offer to cut it and all of the sudden they’re advocating for "smart government." For people who want the government to provide for every need simply say that it’s no problem but they will have to use the services as the government dictates and all of the sudden they start arguing for limited government.
The reality is that we need to have a long, painful discussion about what America’s priorities are. To have a civil society we must have government. I’d say with the exception of our friendly neighborhood anarchists we can all agree with that. The differences come in what we ask the government to do. We need to remember that much of what we take for granted in terms of government hasn’t always existed. We didn’t start paying income taxes until WWI (well we paid them during the Civil War but then stopped in 1872). On the other hand we didn’t have Social Security until the 1930s or Medicare until the 1960s.
My point is that there is no reason for us to limit our conversation to making incremental changes to government programs. Right now we have a unique opportunity to make radical changes because we all know that the system we have now is royally effed up although we can argue all day about the reasons why they are. So what to do? Personally I think we should put those four basic questions I listed above to the populace and find out what this country really wants for the future.
So what role should our government play? My personal preference is that the government limit itself as much as possible to the role of referee. While certain jobs should always be fulfilled directly by the government (i.e. defense), for most the government should provide a safe environment for private enterprise to fulfill those roles. A difficult part of this discussion will be deciding which programs fit the bill for government delivery. Energy? Transportation? Health care? Education? Parks?
For arguments sake who says that public schools are the best answer? With today’s technology isn’t it possible that distributed education regulated by government might be better and more cost effective? Isn’t it possible that it would be more effective to take public school funding and have private enterprises compete for the dollars? I can almost guarantee that if you had a bunch of companies competing for students in Washington, DC the kids would be getting a better product than what they’re getting now. On the flip side look at the craziness we’ve begot with Medicare. That’s a program paid for with government dollars and administered by private enterprise and it’s looking like an absolute boondoggle.
Once we decide on the programs we’re going to keep under the government’s control we’ll have to decide how much to spend on them. In other words we’ll need to decide how big the military should be, how much money should be provided to state and local law enforcement agencies, how much to spend on building and maintaining roads or if more money should be spent on mass transit, what kind of energy generation projects should we pay for (solar, nuclear, coal, etc.) and the list goes on.
For those industries we decide to regulate we’ll need to determine how far regulations should go. We’ve seen in the financial sector that too much regulation can stifle growth, but not enough regulation can lead to meltdown. Most likely we’ll only determine the appropriate levels of regulation through trial and error, but it’s crucial that we allow private enterprise to provide as many services as possible in a competitive environment so that we keep the cost of delivery down.
Finally we need to figure out how to fund the government. Is an income tax really the best way to go? Other industrial countries seem to be having success with VATs, so might it be a better way for us to go? Also, and not insignificantly, we need to remind ourselves that as members of this society it is in our interest to pay taxes. Those taxes pay for our security and welfare, so the issue isn’t whether or not to pay taxes but determining how much is fair to pay and what those taxes should fund.
These are huge and important issues but we have not been asked to confront them. Our leaders pay them lip service, but in reality the vested interests debate these issues among themselves and we the people rarely get asked for our take on it. I’m sure the powers that be think that the average citizen isn’t interested in the details and will only sit still for sound bites, but I think that if we were provided with the information in plain English and allowed to see for ourselves exactly how things have been working lo these many years, they might be fairly well surprised at the response they’d get. Let’s put it this way: we the people seemed to have pretty good instincts when the Bush administration tried to cram that bailout package down our throats.
Hopefully whoever wins this election, Presidential and Congressional, will engage our country in this kind of fundamental conversation. If not I truly worry about the country I’ll be living in during my old age, and I don’t even want to think about what my kids and grandkids will be facing.
I think the McCain/Palin folks have settled on a tactic for their last push of this election: trot out hard core Republican attack dogs who happen to be brunette women and have them spout crazy accusations with the flimsiest thread of logic to try and damn Obama by association. First you have Palin accusing Obama of consorting with terrorists and now you have a Congresswoman from Minnesota who frankly comes off looking bat-shit crazy in this interview on MSNBC (also pasted below). Pay close attention to the robo-call the McCain campaign is running and is played during the interview. These folks are turning rabid:
This woman makes my Congresswoman, the right honorable Virginia Foxx, look mild by comparison. The Republicans do seem to love their crazy white women.
Hat tip to Ed Cone for the lead.
Last night I made sure I didn’t watch the last presidential debate of 2008. Ostensibly I had other, better things to do but the reality is that even if I’d had to choose between watching the debate and cleaning the lint out of my navel the navel would have won. That leaves me with just one question: Who the hell is Joe the Plumber, and why on Earth were they talking about him?
Just. Shoot. Me.
Those who have been skeptical of the big bailout, or The Splurge as some call it, had more reasons to be skeptical than they thought. Congress puts us on the hook for a bazillion bucks and the schmucks on Wall Street may say, "Thanks, but no thanks." From The Guardian:
Last Monday, after the bill was thrown out by the House of
Representatives, more than $1 trillion was wiped off the value of US
stocks as the market was gripped by panic. The bill was passed on
Friday afternoon, however, after the inclusion of $149bn of tax breaks
and strict rules for participating banks.But Wall Street analysts, believe the addition of so many terms to the bill might deter potential participants.
One
of the least attractive elements is a section designed to curb
executive pay at banks that participate in the bail-out package. These
include limiting stock-related pay and banning ‘golden parachutes’ for
executives.‘I think this hodge-podge of regulations and rules
will be enough to put many [chief executives] off participating,’
Caldwell said.Sources close to Goldman Sachs and Merrill Lynch
indicated the banks might choose not to participate in the bail-out as
there is a growing view on Wall Street that the market may be bottoming
out.
Analysts also believe that the mere presence of the government as buyer
of last resort will be enough to get credit markets moving again, and
that a large number of banks would not need to take part for the
legislation to succeed.
In other words there’s the possibility that the pinstripe and wing tip set might find their balls and actually figure out a solution to the "impending financial doom" if their gilded lifestyle is seriously threatened. Am I the only one who fantasizes about seeing these goobers seated around Al Capone’s conference table like in The Untouchables? Forget taking away golden parachutes, let’s start playing baseball with these jerks.
I just finished watching 60 Minutes’ latest piece on the financial crisis. The focus was mostly on credit default swaps (CDS) and why and how they caused most of the problems in the financial markets. I still think the best description I’ve heard of the role CDS’s play in the grand scheme of things is something I heard at the Frost & Sullivan event in San Francisco a couple of weeks back. It was part of a presentation by James Anderson, President of SVB Analytics (SVB stands for Silicon Valley Bank) and I think it’s good enough that I want to post it again here:
Credit default swaps: Think of the market as a $1
million Texas Hold ‘Em game being held in a Vegas casino with a room
full of spectators. All of the spectators start placing side bets on
which player will win, and eventually the amount of money in the side
betting is $70 million vs. the $1 million that’s at stake in the actual
game. Credit default swaps are the side bets.
BTW, one of the people interviewed in the 60 Minutes piece said that the CDS "shadow market" is estimated at somewhere between $50-60 trillion, but that estimate is based on information garnered from a voluntary survey. Since the CDS market is unregulated no one really knows for sure exactly how big the market is, which of course is scary as hell.
Finally, I need to tip my hat to Fec. I first heard of credit default swaps when he started looking into them earlier this year. Here’s a link to the 9 (so far) posts that he has on the subject, beginning in January, 2008.
I have a perfect example of why I don’t consider myself a very good writer. Last week I spent lots of bytes trying to explain why I thought that the bailout proposal should be questioned because the administration, a.k.a. The Powers That Be, has spent the last eight years submarining the public trust in America. Well, if I wrote worth a damn I’d have come up with a paragraph similar to The Cunning Realist’s:
Part of the
public’s skepticism is a natural reaction to the now-transparent
language of deception and hysteria. When you’ve trafficked in mushroom
clouds and Persian Hitlers for eight years, "imminent financial
Armageddon" loses a bit of its edge. Hearing the administration and its
media flacks suddenly and in concert (almost as if a memo went out,
eh?) warn of a latter-day Great Depression and push this as "it’s not a
bailout, it’s a buy-in" sets off alarm bells for anyone who’s been
sentient in recent years. Orwell’s revenge, maybe. Also, I don’t think
the plan’s Goldilocks-invoking supporters help their cause by trying to
convince the public it doesn’t understand the financial system well
enough to know what’s at stake. Somehow they had faith that people were
"smart enough to reject the pessimists" on the way up.
Hat tip to Ed Cone for the link.
One of the advantages of working at home is that when I take a lunch break I can whip up a quick bite to eat in my own kitchen and then plunk myself down and read the paper or watch the news on TV. Today I took a late lunch around 1:40 and snapped on CNBC to see what was going on in the market and with the government bailout. What I saw was fascinating on multiple levels.
First, I saw the bailout vote appear to fail which caused the DJIA to plummet 300 points in about five minutes. It was nuts and it was something I’ve never seen before, but I was even more interested in watching and listening to the Wall Street pundits react.
What became apparent very quickly is that as smart as these people were about markets they were equally dense in the ways of Washington. They had no clue how Congressional votes worked. Luckily they had a reporter that could explain what it meant to leave the vote open and how it was possible for votes to change even after they’d been cast. That news caused the Dow to recover a couple of hundred points.
Then it got really good. They decided to listen to the House vote live and they came in just as a member of the House asked a parliamentary question and asked the Chair for guidance. Well I think that caused the commentators’ heads to spin off because when the vote was actually closed a few moments later and the House moved on to another bill they didn’t realize it. They had to wait for an explanation from the reporter and once they got it and relayed it to the audience at large and the Dow and other equity markets took an instant plunge.
I don’t expect people who normally don’t cover government to know every intricate detail or parliamentary procedure, but if I knew I was going to be covering one of the most important stories of the day as it affects my area of expertise I’d make sure I understood at least the fundamentals of how things proceed on the Hill. It’s pretty obvious that didn’t happen in this case.
I don’t want to be too critical of the financial pundits. Their day-to-day existence requires they be highly versed in finance, not in government. However, I do find it interesting that they were temporarily flummoxed by things they should have learned in high school civics class.
For what it’s worth I’ve found CNBC to be some of the best television news going these days. It’s not perfect by any stretch of the imagination, but it’s head and shoulders above the rest of the "news" channels. Watching CNN gives me nausea, MSNBC and Fox should drop any reference to news since they’re essentially televised versions of the Daily News, and the networks are pretty much DOA. I like public television for the overall news, but CNBC seems to be the best for business and finance.
Befuddled 