It Must Have Been Something I Ate

2011-11-13T10:19:00.000-08:00

Well, OWS has exposed many lies our society clings to. Of them, "Free Speech"

"We totally support the First Amendment rights of these individuals," police spokesman Randy Jackson told the station. "We just want them to do it in a law-abiding manner. The right-of-way enforcement is going to definitely be taken seriously. We can't afford for people to be injured, tripped, hurt, as they walk through the area."
CNN

So you have Free Speech, just make it between the hours of 8:00 a.m and 5:00 p.m. With a permit (2 weeks in advance, please), in the pre-approved area. Also, don't camp overnight. Take public transit to/from each day instead. And don't crowd public transportation mind you, or we'll start "keeping that safe" as well. Please limit your "free speech" to Public Areas, which consit of: the middle of the street (which you can't block, that would be a nuisance), sidewalks (ditto) and that small public park where no one can see you... if it hasn't been sold off to redevelopers already.

Oh, also: if you're demonstrating between the hours of 8 and 5: why aren't you at work? If you don't have a job, we don't have to listen to your concerns as you really no longer exist. Get a job.

As long as we're talking about the lazy, good-for-nothing losers... er the "unemployed: Please only exist where we can't see you. Please don't use a tent -- they're dirty and fetid. Please use a city homeless shelter (now closed due to budget cuts).

Thank you for exercising your "Free Speech(TM)"

Bill Moyers on the News

2011-06-08T23:06:00.000-07:00

Bill Moyers on The Daily Show:

The news is about what people want to keep hidden. Everything else is publicity. And people don't want to keep their opinions hidden but they want to keep the facts hidden. And it takes a lot of money and a lot of time and a lot of effort to go and explore the facts and bring them out.

Current US Political System, Explained

2011-06-07T22:10:00.000-07:00

kievite, at June 7, 2011 at 10:50 am in response to this posting at Naked Capitalism gives a wonderful synopsys of our current political system:

...Political parties are organizations composed of blocs of major investors who come together to advance favored candidates in order to control the state. They do this through direct cash contributions and by providing organizational support through the contacts, fundraisers and think tanks. Candidates are invested in like stocks. For them electoral success is dependent on establishing the broadest base of elite support. Candidates whom best internalized investor values see their political “portfolios” grow exponentially at the expense of candidates who have poor level of internalization.

So what you have is a filtering system in which only the most indoctrinated and business friendly advance to state power. Representatives of the major business groups are also often chosen to fill political appointments after a favored candidate is elected (GS is a nice example).

This is a poliarchy, a political-economic model in which the state by-and-large functions to advance elite business interests on the domestic and international fronts.

And that is what is meant in promoting “democracy abroad”. Like Mark Curtis said “Polyarchy is generally what British leaders mean when they speak of promoting ‘democracy’ abroad. This is a system in which a small group actually rules and mass participation is confined to choosing leaders in elections managed by competing elites.”

The Republican Ideal Nation

2011-06-05T10:04:00.000-07:00

Gahh! This is what I've been trying to put into words so many years! It's not just Pakistan. All of Central and South America, much of Africa, much of Central Europe. *They* are the result of "low taxes" and centralized wealth.

Kudos Nicholas D. Kristof!

Nicholas D. Kristof, New York Times

With Tea Party conservatives and many Republicans balking at raising the debt ceiling, let me offer them an example of a nation that lives up to their ideals.

It has among the lowest tax burdens of any major country: fewer than 2 percent of the people pay any taxes. Government is limited, so that burdensome regulations never kill jobs.

This society embraces traditional religious values and a conservative sensibility. Nobody minds school prayer, same-sex marriage isn’t imaginable, and criminals are never coddled.

The budget priority is a strong military, the nation’s most respected institution. When generals decide on a policy for, say, Afghanistan, politicians defer to them. Citizens are deeply patriotic, and nobody burns flags.

So what is this Republican Eden, this Utopia? Why, it’s Pakistan.

Now obviously Sarah Palin and John Boehner don’t intend to turn Washington into Islamabad-on-the-Potomac. And they are right that long-term budget issues do need to be addressed. But when many Republicans insist on “starving the beast” of government, cutting taxes, regulations and social services — slashing everything but the military — well, those are steps toward Pakistan.

The United States is, of course, in no danger of actually becoming Pakistan, any more than we’re going to become Sweden at the other extreme. But as America has become more unequal, as we cut off government lifelines to the neediest Americans, as half of states plan to cut spending on higher education this year, let’s be clear about our direction — and about the turnaround that a Republican budget victory would represent.

The long trajectory of history has been for governments to take on more responsibilities, and for citizens to pay more taxes. Now we’re at a turning point, with Republicans arguing that we need to reverse course.

I spend a fair amount of time reporting in developing countries, from Congo to Colombia. They’re typically characterized by minimal taxes, high levels of inequality, free-wheeling businesses and high military expenditures. Any of that ring a bell?

In Latin American, African or Asian countries, I sometimes see shiny tanks and fighter aircraft — but schools that have trouble paying teachers. Sound familiar? And the upshot is societies that are quasi-feudal, stratified by social class, held back by a limited sense of common purpose.

Maybe that’s why the growing inequality in America pains me so. The wealthiest 1 percent of Americans already have a greater net worth than the bottom 90 percent, based on Federal Reserve data. Yet two-thirds of the proposed Republican budget cuts would harm low- and moderate-income families, according to the Center on Budget and Policy Priorities.

For a country that prides itself on social mobility, where higher education has been a traditional escalator to a better life, cutbacks in access to college are a scandal. G. Jeremiah Ryan, the president of Bergen Community College in New Jersey, tells me that when the college was set up in 1965, two-thirds of the cost of running it was supposed to be covered by state and local governments, and one-third by students. The reality today, Dr. Ryan says, is that students bear 78 percent of the cost.

In fairness to Pakistan and Congo, wealthy people in such countries manage to live surprisingly comfortably. Instead of financing education with taxes, these feudal elites send their children to elite private schools. Instead of financing a reliable police force, they hire bodyguards. Instead of supporting a modern health care system for their nation, they fly to hospitals in London.

You can tell the extreme cases by the hum of diesel generators at night. Instead of paying taxes for a reliable electrical grid, each wealthy family installs its own powerful generator to run the lights and air-conditioning. It’s noisy and stinks, but at least you don’t have to pay for the poor.

I’ve always made fun of these countries, but now I see echoes of that pattern of privatization of public services in America. Police budgets are being cut, but the wealthy take refuge in gated communities with private security guards. Their children are spared the impact of budget cuts at public schools and state universities because they attend private institutions.

Mass transit is underfinanced; after all, Mercedes-Benzes and private jets are much more practical, no? And maybe the most striking push for reversal of historical trends is the Republican plan to dismantle Medicare as a universal health care program for the elderly.

There’s even an echo of the electrical generator problem. More and more affluent homes in the suburbs are buying electrical generators to use when the power fails.

So in this season’s political debates, let’s remember that we’re arguing not only over debt ceilings and budgets, but about larger questions of our vision for our country. Do we really aspire to take a step in the direction of a low-tax laissez-faire Eden ...like Pakistan?

The Current US Depression vs Egypt's Revolution

2011-05-23T21:41:00.001-07:00

Our woes are caused by an overconcentration of wealth. The
fundamental concept of Democracy is the theory that power is better
distributed amongst the many than concentrated in the few.

As we continue to concentrate all economic, political and social power
into fewer and fewer people, we fundamentally reject the very notion
of Democracy we claim to hold dear. Our continued concentration of
power is leading us into becoming what Egypt *was*, not into what
Egypt hopes to be.

You can always count on America to do the right thing (QE edition)

2010-10-27T19:32:00.000-07:00

You can always count on America to do the right thing...after she's tried everything else.

The latest "big response" to our current "recession" is "Quantitative Easing". In English, this means, "Printing gobs of money."

What is that supposed to do? Well, in *theory* it is to put more money into circulation, thus increasing inflation.

"Inflation?", you ask.

Yes! Inflation. Because there's nothing worse than something that's even wrong in theory, let alone in practice.

The theory is that people aren't spending money because prices are currently deflationary. (Note that this was visciously denied for over two years.) The thought is that people aren't spending money because they're sitting around the house waiting for prices to go down.

The answer to that "problem" is to cause inflation, thus prompting people to get off their duffs and go spend money before prices go up.

But everyone *not* bought and paid for by Wall St. realizes that we're not sitting around waiting for prices to go down -- WE'RE WAITING FOR A PAYCHECK BECAUSE NO ONE HAS ANY JOBS.

No, the problem isn't that "finance" accounts for 40% of our GDP and millions are being tossed out of homes they were duped into buying.

Nope, it because the lazy, no working motherf*ckers are sitting at home waiting for prices to go down.

So, what does inflation do to people who don't have money?

I'll let you ponder that one. Shouldn't be hard... unless your job is to protect Wall St.

More Lazy F*cking Americans

2010-10-26T19:58:00.000-07:00

NPR

Bob Brody, who has an apple orchard next door to Gebbers, says he thinks the visa system is too expensive, and the other alternative — hiring Americans — is a fantasy.

"They won't do it," he says. "Talk to any grower."

In the last 10 years, Brody says he's had only one American ask for a job as an apple picker, and he wanted too much money.

But now, the pay is inching up. Like most growers in the region, Brody says he needs more workers. He's offering an extra dollar per bin of apples picked; in his productive Red Delicious orchards, he's offering $15 per bin. At that rate, a fast worker can make $120 a day.

You'll have to listen to the piece to get this next part: for some reason they chose not to print it:

Brody: "What I like about the Hispanics is they'll work 7 days a week, 14 hours a day if you ask them to. And not once have I had anybody bitch."

Bitch? What's to bitch about? Read further down the page and see what it takes to earn your $15:

The bin holds half a ton of apples...

That's right. Pick a *ton* of apples... literally.. and they'll pay you $30.

This is how our slave class lives.

Lazy fucking Americans: welcome to your future.

New Old Restaurant

2010-07-24T19:59:00.000-07:00

So we went to dinner tonight at the Thai restaurant downtown -- you know, the one that's been at least a half-dozen restaurants in the past 3 years.

TLDR: After a dozen or so tries, this week's version of a Thai restaurant isn't that good either.

The only interesting part of this story happened just as we were finishing up. A new table arrived and sat beside us. Soon the waitress brought the guy sitting next to me a green drink. It looked exactly like a Thai iced tea, except, well green. On top, however, was the magic - a thick, brown layer of albatross vomit.

That stuff *reaked*. I had to turn my head and hold my nose *from another table away*. If I'd had a plate of 3-day old sun-ripened anchovies I could have stuffed them up my nose and still cut the smell coming off that guy's *drink*.

Now keep in mind this was an *iced* drink, one that I would suppose would have been a sweet one until the kitchen staff allowed three cats sick from rummaging in a canning factory dumpster to retch on top of it.

In two seconds, that guy managed to remove from me any desire to visit Asia.

"Progression" of Cancer Treatment

2010-07-20T22:39:00.000-07:00

Until circa 1800:

Relative: "What killed him?"
Doctor: "I dunno."

Circa 1860:
Relative: "What did he die of?"
Doctor: "Cancer"

Circa 1950:
Relative: "What did he die of?"
Doctor: "Lung cancer."

Circa 1970:
Doctor: "The lab results are back."
Patient: "What do they say?"
Doctor: "You've got lung cancer. You have 6 months to live."

Circa 2010:
Doctor: "Your genetic tests are back."
Parent: "What do they say?"
Doctor: "Your son will be 6'2", he'll be very successful but won't quite be able to get into Dartmouth, and he'll die of lung cancer at age 50."

We've made terrific advances in the diagnosis of cancer. That's fine and good, but wouldn't you agree it's way past time we:
- Learned to prevent it?
or
- Learned to treat it?
or
- Learned to cure it?

The Bells of the New Church

2010-07-04T17:53:00.000-07:00

It's 2 p.m. Those at work hear nothing. For those about and listening to the "airwaves", the bells of the new church are ringing. "The Dow is up ten points this hour on the announcement of Google's new ..." We may not understand the text, but we sure understand the sub-text: "Why aren't you at work? Aren't you a good Calvinist?"

The call from the temple is carried live across the land every hour. The news of the day, followed by the news from the church. The Dow is up. You should hope so, at least.

The new American puritans have given up on the old god... with his requirements for honesty, foregiveness and care for those less fortunate. Sure, they never held themselves to those ideals, but why embarass everyone be even bringing them up anymore? Let the old church fuck the choirboys. The new church has something better: money. The new church calls for only one thing: Greed. What can you do for yourself? Does it make money?

If you're poor, you must not be pleasing the new god. Please it and you'll be rich for life. Never have to work again. You weren't *lucky* you were *smart*. Or so the theory goes. Sure, you hear stories here and there of someone who knew someone who made it to the new nirvana. But for most, you're just not doing something right.

Obey the holy books. Profits for the shareholders! Remember your mantra: "It's only business". Please the new god and you're rich. We're all shareholders... right? Yeah! To Hell with everyone else!

The new church brings hell closer than ever. No more fire; no more brimstone incense in the back alcove to stoke the fear. With this new church you've already seen *your* future. You've seen the bills, the mortgage payments, the car loan, the food receits; all debts to the church. Fail your god now and Hell is as close as the nearest debtor's prison... (what is it called these days? Oh right, bad credit.. or homeless shelter... we forget which.

"Jobs"? "A home"? "A retirement plan"? Come on, that wasn't really working for you, was it? With the new religion, you'll be *rich*. You won't *have* to work. Just sit at home with your computer and wire us your funds. The old system of houses, jobs and decent retirement sounds pretty Socialist to us, anyway. The new holy books have all the answers. The books said to send the jobs somewhere else and we obeyed. It's only business. How could we make a living giving all the work to you guys? You're just too expensive. It just wouldn't have worked out. The Holy Market said so.

Don't question it... you'll just embarrass yourself. Why, you sound like a Socialist.. or a Marxist, or Communist or some other "ist" we don't really understand.

3 p.m. "The Dow is up this hour on news that unemployment numbers were down less than predicted by The Analysts. The Dow is up.... erm... 1 point." The sub-priests of the airwaves poke sticks into the entrails of the infotainment to ascertain what must be making god angry. Meanwhile, the true priests battle each other over the collection plate offerings of stock purchases and who will be saddled each other with the burnt offerings of mortgage market derivatives gone foul.

Socialism might be ok? What are you, an Elitist? Don't you know that no one really knows just what Socialism is? Even a little bit is a gift from Satan.. or Stalin or that other evil guy from the war we won. We won the holy World War II against the best evil reference of known history. Known history being very short these days. The true enemy of this church --education-- died quietly years ago... victim of continuous budget cuts. Cut Taxes! Was the battle cry. Teachers are stealing your money! Firefighters and nurses cost too much! Sure, history is written by the victors, but no one needs history anymore. Hitler was evil and he was a Nazi and that's the same as Socialism and Communism. Enough said.

4 p.m. "The Dow is up on news of the arrest of those suspected in the terrorist plot to blow up the...." How much to we have to torture people before they learn not to attack the new church? Those infidels! Hell, they were even infidels of the old one. How can these throwbacks believe the things their wacky religion teaches? Don't they have *education* for Wall Street's sake?

Let them fuck choirboys with the old church. The new church has its eye on the orifices on an entire nation. Investments, retirements, federal dollars, mortgages, dirivatives on mortgages, dirivatives on dirivatives and other confidence schemes. Entire Federal Treasuries and soon even Federal retirement funds will flow into the insatiable maw.

5 p.m. "The Dow closes even." rings across the fields. But the fields are empty. The jobs were sent elsewhere by order of the holy Books. Here lay the answer to every question. "Did we make a profit?" "Should we sell?" "Can our costs be passed to someone else? The taxpayer, perhaps?" "Will we get caught?" Leave the the media to the tea leaves and talking heads the prognosticators. We'll make our money in the private after-hours markets.. far from the eyes of prying commoners.

The only possible concern for The Future in the new church is where the money will come from then. But that will only concen those that are here *next quarter*. That's too far away to be of concern. After all, our golden parachute guarantees us money whether tomorrow comes or not.

Economy Will Not be Fixed

2010-02-08T14:13:00.000-08:00

I was wrong when I implied that our financial situation isn't going to be fixed because Republicans and Democrats are owned by Big Money.

Truth is, they apparently have to beg from Big Money.

I regret the error.

NY Times

WASHINGTON — If the Democratic Party has a stronghold on Wall Street, it is JPMorgan Chase.

Its chief executive, Jamie Dimon, is a friend of President Obama’s from Chicago, a frequent White House guest and a big Democratic donor. Its vice chairman, William M. Daley, a former Clinton administration cabinet official and Obama transition adviser, comes from Chicago’s Democratic dynasty.

But this year Chase’s political action committee is sending the Democrats a pointed message. While it has contributed to some individual Democrats and state organizations, it has rebuffed solicitations from the national Democratic House and Senate campaign committees. Instead, it gave $30,000 to their Republican counterparts.

The shift reflects the hard political edge to the industry’s campaign to thwart Mr. Obama’s proposals for tighter financial regulations.

Quote: The Average Person

2010-01-28T10:57:00.000-08:00

"The average person has one breast and one testicle." -- Watts Wacker

"Moral Hazards"

2010-01-22T12:23:00.000-08:00

When the whole "US Government will backstop Wall Steet" thing happened, all everyone could talk about was "Moral Hazard".

In short, Moral Hazard posits that if the government bails them out this time, then it increases the odds that the Banksters will make even more risky bets in the future, betting on yet another bailout.

What a wonderful mis-direction this is!

"Be careful! Doing this could cause the entire financial system to collapse next time."

"Next time"? WTF? WHAT THE HELL IS THIS?

Again, what a wonderful mis-direction! In essense, its saying, "Well, ok, this time, but not again." Don't punish anyone now, just make sure it doesn't happen again [sound of wrist being slapped].

BS!

It's not a "Moral Hazard" for the future, it is a complete breakdown of morals right now!

Principal: "Ms. Smith, your son has been setting fires in the classrooms and has caused the school to burn down."

Ms. Smith: "Oh, goodness! We should do something about this. One day he could wind up burning down the entire school!"

Principal: "Yes, Ms. Smith. That's very precient of you. He could burn down the school [again]. But in the meantime, WOULD YOU PLEASE STOP GIVING HIM MATCHES!?!?!"

Haiti: Water and Food in Crisis

2010-01-18T20:20:00.000-08:00

Will someone who has experience with distributing food and water in crisis areas please consider the following and tell me why it won't/doesn't work?

If there's anything we learned spending 3 days watching hundreds of Americans starve in the Convention Center area of the New Orleans Katrina aftermath, it is that Americans really have no idea of how to provide basic essentials after a disaster.

Well -- pending someone explaining to me why this won't work -- here is a way to make it work.

First year engineering students are often tasked with a competition: create an entry that will drop an egg 'N' feet to the ground without breaking the egg.

I posit that we're have and continue to waste engineering expertise on such a stupid goal. Why not change the challenge to: 'Drop water safely to the ground from 10,000 feet'?

In a widespread disaster, there are plenty of things in short supply (in order of severity): rescue, medical treatment, water, food, shelter, security, communication, transportation.

Unbeknownst to the US military (doesn't the US have any other organization to help people? Most other countries seem to be able to get these things done without toting machine guns.) there are ways to get at least some of these items to people fast. Here's what you do.

Make many different small kits:

A) Water: 5-gal cardboard "cubetainers" would be excellent for this. Fill each container only half-way to provide some crash-resistance. "Cube-tainers" stack well and the inner liner can be easily re-used to store water from other sources as/if it becomes available. If all else fails, strap a parachute on a 1-liter Desani bottle for Christ's sake.

B) "Food": Candy bars, granola bars, Lord knows the US if full of "sports bars". Pack 'em up and strap on a 'chute.

C) Shelter: Tents, battery-powered flashlights, water purification tablets, blankets.

D) Medical supplies: Basics, with instructions in 400 different languages.

E) One-way and Two-way radios: One-way to receive broadcasts such as "Sit tight, we're coming to deliver X in Y hours." A smaller number of two-way radios, hard-tuned to fixed frequencies to allow vicims to organize and radio authorities on their situations, their needs and what resources they have to contribute, if possible.

Now, the US military tries to deliver these things to ground-level in pallets and gets all wound up when starving people rush their helicopters (those damn poor people!)

The right way to do this is push this shit out the back of a C-5 at 10,000 ft. That's right, no 15 pallets of X. I'm talking 10,000 pieces each of A through E. Yes, it will land all over the place and yes, it will land in a lot of "wrong" places. But what this does accomplish is scatter people about. Scattered bits of food, water, clothing, shelter, med supplies, etc. don't get gobbled up by "greedy" people. There's no way to Bogart too much because it's all over the place. Also, it keeps rioting mosh-pits from forming at distribution points because their ain't any.

Yes, you're gonna have to make more trips to do this and yes, it's gonna be "inefficient". But you also are getting water, food, shelter and basic medicine to people *on the day of the disters* and not 2 weeks later after everyone has died from starvation waiting to fill out forms in triplicate.

So yes, the Haitians are rioting. Good on them. Lord knows we should have rioted when the US Gub took 3 days just to get a bottle of water to downtown New Orleans. In-fucking-excusible.

The American Dream -- You Have to be Asleep to Believe It

2010-01-18T15:34:00.000-08:00

George Carlin

2009-12-06T12:47:00.000-08:00

As I lie in a 33rd floor window of a New Orleans skyscraper hotel, I look out over Canal Street, into the French Quarter and over the Mississippi River... all while surfing Tom Fitzmorris' restaurant reviews on a mobile phone.
Some come to New Orleans for the music, some for the bared breasts of Mardi Gras and the rest for every other thing this heat city has to offer. We've come for the food.
Looking over The Quarter, I'm reminded of the televised images of the flooding, the devastation and the misery of Katrina. Reminded of how an entire nation sat still while one of her great metropolises slowly drowned.

I am grateful that she has mostly recovered, pushing Katrina into the past as she has done with all other storms, floods, fires and other tragedies.

At the time of Katrina, I was infuriated by those that suggested that we should abandon New Orleans, built as she is on such continually sinking ground. Now I see that New Orleans can be no other way. She hasn't been here over 300 years solely on the opinions of a few Internet pinheads.

Welcome back old girl. You didn't need my help, but I came back as fast as I could.

Now let's eat!

Cut Costs! Build it Overseas

2009-12-02T13:49:00.001-08:00

My response to Taunter Media's answer to GM's woes:

First-time caller, long-time listener. Love your stuff.

If I may, I would like to respectfully disagree with a few of your suggstions/conclusions.

Firstly,
"A great CEO would build better cars for less money..."

Why should the target be to be cheaper? Almost all other brands, Honda, Toyota, BMW, Mercedes, et. al. cost *more* than US makes, yet led the US makes in sales.

Apple is making a booming business in a near depression selling MP3 players for $400 when you can get them everywhere else for nearly free.

Why 'cheaper'? Why not just 'better'?

Secondly,
"You would place all of your new facilities in the cheapest place possible..."

Sure, this kills the unions, but now leaves us with the question "Who exactly, will be buying these cars?" Without jobs, GM's (and the world's) largest market is bankrupt. There's no money to buy cars. How does shipping one of the country's largest employers overseas put purchasing money into the hands of the world's largest consumer?

Germany is *filthy* with unions, but seems to be doing better than most, even in this "downturn".

I believe these and other similar memes have led us to where we are today. "Make it cheaper!" "Move jobs to where it's cheaper!" "Cut labor costs at any cost" has done but one thing: make recipients of such "savings" richer and the consumer poorer. We're now seeing the very predictable end of that process.

Everyone thought that buying Chinese products at Wal-Mart "saved money". Now, we can afford to shop nowhere else.

Everyone is a huge fan of "Democracy", but for some reason the common belief is that only the rich "know how to spend money properly". The "power of the ballot box" is supposedly reserved to the plebe, but the power of money is always directed to the top.

Who would (and has 1945-1990) make for the better economy? A relatively small few who "know how to spend money best" or 300M prosperous "plebes" who are well-off and spend money often?

US Pharma Racqueteering

2009-12-02T12:52:00.001-08:00

Capitalism for you, not so much for us:

TPM

Over the last few years, drug-makers have embraced a startlingly simple tactic for fending off competition from generic brands: paying them off. In a nutshell, the company that holds the patent on a profitable drug strikes a deal with the maker of the cheaper generic brand: you hold off on marketing your generic for several years, and in return, we'll give you a share of our profits on the drug.

So common have these deals become lately that they've been given a name: pay-for-delay. The approach -- a textbook anti-competitive tactic -- is worth billions to drug-makers, because it essentially allows them to buy more protection than their patent confers.

The Linux "Community"

2009-11-30T20:19:00.000-08:00

So what is the source of the conflict I'm having with Linux?

In short, I'm getting something for free and bitch that it doesn't work as well as I think it should.

Is that fair? No, it's not.

I can well imagine someone who toils for free year after year to manage, create and improve Linux, just to have some jackass come along and bitch that it doesn't have a GUI to make it easier. "Hey, either contribute or go away. This is a community, not a give-away."

As some might put it, Linux is free as in speech, not as in beer.

Just keep that in mind the next time you decide you're gonna throw together a Linux system. Its an amazing thing, Linux. Despite all the Cum-By-Ya of Ubuntu -- its logo symbolizing people holding hands in a circle after all -- you will have to become not just a system administrator, but a member of The Community. You might not be contributing your time to write code, but more than likely you will be contributing your time to figuring out how to get it running again after each upgrade. Think of your contribution as being part of the Test Community... a lot like Microsoft products.

The wonder of Linux is that it is modern magic. Once you know the correct incantation, it is amazingly simple to do mind-bogglingly complex tasks. Learning the correct incantation, however, is gonna take you some time... and sometimes learning to drive a car without a steering wheel.

In that respect, Linux may always remain a "hobby" system. Sure, it can be used in "production" environments, but it will always require a dedicated Sys Admin to keep it running. This in a society where computers are moving from being specialized tools to being appliances.

Overheard in the Heart of Recycling Land

2009-11-30T19:39:00.000-08:00

Even here in the heart of Recycling Country, it can be hard to save the world without sounding priggish. I overheard the following conversation at a recent holiday get-together:

Guest: Where can I find the paper towels?
Host: Oh, we're not that kind of family. Here, use this wet cloth.
Guest: So it's ok to put my son's booger in it?
Guest: Oh, here, have a tissue.

Far away in the arctic, another polar bear cracks through the melting ice and drowns.

Linux in a Nutshell

2009-11-30T17:12:00.001-08:00

So I once again upgrade my Linux server and watch everything inexplicably stop working. I take out my fury and frustration on an old friend and co-worker:

"Why the frickety f*ck does Linux just randomly stop working any time you do an upgrade and require another 36 hours of forum-surfing before finding some hack way to get it working again?

Every time they change something, they frequently don't bother to create a GUI interface to replace the one the old version had. Hell, I'm a computer programmer with all the time in the world and I can't sum up enough Give A Sh*t to go sorting through the codespace every time somebody decides to change something and not document it. Why the f*ck do we have to rely on random people on the internet to explain to us how to fix things (that used to work) that were broken or changed by other random people on the internet in order to keep a server working?

Its like getting your car back from the mechanic and he's replaced your shifter, steering wheel and pedals with a bunch of cords with knobs tied to the ends. "What the fuck is this?", you'd ask, only for the mechanic to sneer, "Real drivers would figure out how to pull the cords correctly in order to drive."

Every time its the same cycle. Get things working, upgrade, something changes, spend 3 days surfing the web trying to find a way to get it working again, all the while with some jackass posting "read all the documentation and edit the config files. Real men don't use GUIs".

Reason given? "They slow things down."

Seriously. Apparently chewing up hours and hours of research getting the system to work again doesn't count as "slowing things down."

I love it how all these "He Men Don't Use GUI" trolls manage to post these messages to the internet using their CLI (Command Line Interface). Are they not using a browser? Do their computers not have a mouse connected? Of course not. Whoo hoo! They spent the time and effort to get Lynx running on their TRS-80s. Good for them. Meanwhile, the real world wants to get a job done and move on.

Its the technological equivalent of having to dig through a box of 50 remote controls to find which one works every time you power-cycle your TV. What would these nerds do in that situation? They'd go balistic and hurl their X-box through the screen. Oh, wait, they don't use X-boxes, do they? X-boxes aren't controlled by 8 toggle switches and a "load" button. F*ck."

To all of this, my old friend simply says,

"Linux exists solely for the self-aggrandizement of its contributors."
-- A. Petit

Strangely, that quote answers every question I've even had regarding why Linux works the way it does.

Fuck Linux

2009-11-28T18:32:00.000-08:00

I've been running a Linux server for 10 years and I'm tired of this shit.

Upgraded the server to Ubuntu 9.10 the other day. (I gave the new release a few months to shake out... long enough... I thought.)

Well, they've decided to change the way Ubuntu starts and stops services. Fine. I'm ok with that. As long as it works, I don't care.

Well, what do you know! While everyone was out there replacing the old sysv whatever method of starting and stopping services with "upstart" (whatever in the hell that is) no one ever thought that maybe a GUI interface might be needed. So I do what one does every time Linux stops working: I consult the documentation. You probably know it as "the internet". So what do we get?

1. Fifteen thousand posts to the 'tubes' of "Hey! I can't find the old GUI that allows me to change services. How do I get it to work again?"

2. They changed it to "Upstart".

3. Cool. How do I start the "Upstart GUI"?

4. There isn't one.

5. Ok, ummm.... (posting to Ubuntu bug lists) "Can we get a GUI for upstart"?

6. 50 thousand responses of "Why don't you learn to use the command line interface?" "Any *real* Linux user doesn't need a GUI to get things done. It only slows things down."

How many go-rounds of this do we need before we just start shooting these people in the face? Let's all repeat this together: "Not everyone wants to spend their life in front of a screen trying to figure out how to turn off a fucking Linux service or some other minor horseshit to get their system working." Make an easy GUI or spend the rest of your days wondering why Apple is taking over the world. And from one geek to another: go talk to a girl for once.

"Buy American" Bad for America

2009-11-11T23:09:00.000-08:00

I love these "truisms".

Similar ones are "Try to regulate Wall St. and it'll go somewhere else", "We pay huge bonuses to keep our (finance) executives from leaving our company", "The guys that got us into this mess (Wall St.) are the only ones who understand it and therefore can't be punished", "Jobs Americans don't want to do", etc.

This whole "Americans are too expensive" meme has got to be conquered before this economy can be rebuilt. Yes, I said "rebuilt" not "recover".

When we sit here and debate how impossible it is to spend American tax dollars *in America* we are *exposing the very problem*, not running into an unassailable problem whose only solution is to concede and send our tax money to other countries. Sending our incomes to China hasn't helped the economy... how will sending our tax dollars there turn out any differently?

http://www.greenbiz.com/blog/2009/11/11/buy-american-bad-america

Grateful Head

2009-10-24T16:31:00.000-07:00

Aren'tcha always?

Never-Ending Happy Hour

2009-10-24T16:26:00.000-07:00

MSM Reporting as Propaganda

2009-10-16T00:15:00.000-07:00

Naked Capitalism

I’m of two minds about taking up this theme, since stating what ought to be obvious but is nevertheless unpleasant and inconvenient is apt to get one branded as lunatic fringe.

Access journalism has created what is in many respects a controlled press. And that matters because people are far more suggestible than most of us wants to admit to ourselves.

Let us start with the cheerleading in the media over Wall Street, and in particular, Goldman earnings. Matt Taibbi, in “Good News on Wall Street Means… What Exactly?,” tells us why this is so distorted:

It’s literally amazing to me that our press corps hasn’t yet managed to draw a distinction between good news on Wall Street for companies like Goldman, and good news in reality.

I watched carefully the reporting of the Dow breaking 10,000 the other day and not anywhere did I see a major news organization include a paragraph of the “On the other hand, so fucking what?” sort, one that might point out that unemployment is still at a staggering high, foreclosures are racing along at a terrifying clip, and real people are struggling more than ever. In fact the dichotomy between the economic health of ordinary people and the traditional “market indicators” is not merely a non-story, it is a sort of taboo — unmentionable in major news coverage.

The press has been on a downslope for at least a decade, as a result of strained budgets and vastly more effective government and business spin control (and it was already pretty good at that, see the BBC series, The Century of the Self, via Google video, for a real eye-opener). I met a reporter who had been overseas for six years, opening an important foreign office for the Wall Street Journal. He was stunned when he came back in 1999 to see how much reporting had changed in his absence. He said it was impossible to get to the bottom of most stories in a normal news cycle because companies had become very sophisticated in controlling their message and access.

I couldn’t tell immediately, but one of my friends remarked in 2000 that the reporting was increasingly reminiscent of what she had grown up with in communist Poland. The state of the US media became evident to me when I lived in Australia during the run-up and the first two years of the Gulf War. I would regularly e-mail people in the States about stories I thought were important and I suspected might not be getting much play in the US. My correspondents were media junkies. 85% of the time, a story that had gotten widespread coverage in Australia appeared not to have been released in the US. And the other 15%, it didn’t get much attention (for instance, buried in the middle of the first section of the New York Times). And remember, Australia was an ally and sent troops to the Iraq.

Why does this matter? Because influence via the adept packaging of information and images is very effective. The creator of the public relations industry, Edward Bernays, was the nephew of Freud and set about to use the subconscious to shape public opinion. His books included This Business of Propaganda and Manipulating Public Opinion. But it doesn’t fit our self image of being masters of our own view to recognize that we might be swayed.

In his classic, Influence: The Art of Persuasion, Robert Cialdini describes how salesmen can adeptly use social conditioning and norms to elicit favorable responses. Cialdini, a social psychologist, notes that even though he is aware of these techniques, he is unable to resist them.

One experiment from cognitive bias research assembles a number of people in a room together, but all save one are actors. Everyone in the room is shown a series of lines and asked to say out loud which is the shortest (the background design makes it a bit difficult to discern without concentrating a bit). For the first five or six rounds, the actors (and the lone experiment subject) pick the shortest one. Then, the actors start calling the LONGEST line the shortest one. After a few round s of this (and inevitably, the one not in on the game looks puzzled) about one-third of the experiment subjects start agreeing with the crowd, even though that answer is clearly incorrect. And there is boatloads of other evidence of suggestibility. For instance, numerous studies have found that if a number of people tell an individual he looks tired or sick, he will start feeling tired or sick, as the case may be.

Back to the main theme: the media dares not say anything too negative about financial services firms or their government operatives lest they lose access. The private sector has learned the lesson of the Bush Administration, that the threat of freezing a reporter out is a powerful weapon. I have had some well connected readers tell of story ideas that they served up in some detail that the media would not touch out of fear of alienating their sources. This is the sort of thing that one associates with banana republics, but we have been operating on that level for quite some time.

Not surprisingly, the government and large corporations were firmly in charge of the message during the crisis (remember the gap between the MSM reporting and the anger in the populace over the TARP, which was finally noted ONLY when Congress responded to a barrage of calls and e-mails and voted down TARP v. 1.0?) and perhaps more important, in pushing the, “move past that car wreck, things are really better” message. From the Pew Research Center:

Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. Other topics related to the crisis have been covered much less. As an example, all the reporting of retail sales, food prices, the impact of the crisis on Social Security and Medicare, its effect on education and the implications for health care combined accounted for just over 2% of all the economic coverage.

Actions by government officials and business leaders drove much of the coverage. The White House and federal agencies alone initiated nearly a third (32%) of economic stories studied through July 3. Business triggered another 21%. About a quarter of the stories (23%) was initiated by the press itself and did not rely on an external news trigger. Ordinary citizens and union workers combined to act as the catalyst for only 2% of the stories about the economy.

Fully 76% of the datelines on economic stories studied during the first five months of the Obama presidency were New York (44%) or metro Washington D.C. (32%). Only about one-fifth (21%) of the stories originated in any other city in the U.S., and about a quarter of those emanated from two other major media centers: Atlanta and Los Angeles…

Once the economic situation showed some signs of improvement—and the political fights over legislative action subsided—media coverage began to diminish. After accounting for 46% of the overall news coverage in February and March, for instance, coverage of the economic crisis dropped by more than half (to 21% of the newshole studied) from April through June. And in July and August, it fell even further (to 16%). The clearest example came in cable news. Once the political battles subsided, coverage fell by about two-thirds from March to April.

Notice even Pew has fallen for the party line a bit. The stock market rally started in March. That is not a sign of economic improvement (Krugman has said something along the lines of “The stock market has predicted 20 of the past 9 recoveries.”).

So what do we have? A media that predominantly bases its stories on what it is fed because it has to. Ever-leaner staffing, compressed news cycles, and access journalism all conspire to drive reporters to focus on the “must cover” news, which is to a large degree influenced by the parties that initiate the story. And that means they are increasingly in an echo chamber, spending so much time with the influential sources they feel they must cover that they start to be swayed by them. It is less intense, but not dissimilar to the effect achieved when reporters are embedded in military units. The journalists often wind up adopting the views of the people they associate with frequently (I am sure readers will add more nefarious theories in comments, but the point here is a simple: an up the center description of what has happened to the media shows it has fallen under the sway of powerful interests).

Now how do we get to the propaganda part? Not only, per Taibbi, are we getting the view of the economy from the vantage of the bankers, as opposed to a broad swathe of the population, but we now we have the media (well, this example is that odd hybrid, an MSM blog) telling us there is no outrage. From the Los Angeles Times (hat tip JohnD):

Except for Michael Moore, whose new movie posits that capitalism is one big Ponzi scheme, the news Wednesday that banks are thriving and that Wall Street analysts are in line for big bonuses this year seemed to land with all the political weight of a dull thud.

Oh sure, the chairman of the House Oversight and Government Reform Committee said he’ll soon hold hearings on executive pay at firms that got taxpayer bailout money, like AIG and Bank of America….

But with the Dow Jones hitting 10,000 and the economy stepping back from the precipice of last fall’s collapse, there was little of that tea-party outrage that might have been expected.

Have we moved on? Arguing that the country is now more concerned with Afghanistan and healthcare, the Wall Street Journal said of bonus outrage: “That’s so last March.”

Maybe taxpayers have simply given up on Washington’s efforts to corral Wall Street.

Now why is this sort of thing (and the media was full of more subtle versions, of happy talk re Dow 10,000 and Goldman earnings) more pernicious than it might appear?

The message, quite overly, is: if you are pissed, you are in a minority. The country has moved on. Things are getting better, get with the program. Now I saw the polar opposite today. There is a group of varying sizes, depending on the topic, that e-mails among itself, mainly professional investors, analysts, economists (I’m usually on the periphery but sometimes chime in). I never saw such an angry, active, and large thread about the Goldman BS fest today. Now if people who have not suffered much, and are presumably benefitting from the market recovery are furious, it isn’t hard to imagine that what looks like complacency in the heartlands may simply be contained rage looking for an outlet.

But per the social psychology research, this “you are in a minority, you are wrong” message DOES dissuade a lot of people. It is remarkably poisonous. And it discourages people from taking concrete action. I was surprised that some people bothered to comment on a post I put up yesterday, calling on people in the Chicago area to attend some peaceful demonstrations against the banking industry during the American Bankers Association national meeting, October 25 through 27. Some people weighed in, saying (basically) “don’t bother”.

I suppose it makes a difference whether one is old enough to remember the 1960s. Because people in large numbers got out and protested, two sets of changes that seemed impossible came about: civil rights for blacks and an end to the US involvement in Vietnam (if you read the histories, the military and intelligence experts were on the whole persuaded it was an unwinnable war, but it was seen as too costly to US prestige for America to withdraw).

And even if the effort you make narrowly is not successful (does any one person’s effort have much impact?) it breeds apathy and cynicism to suggest that doing nothing is the best course of action. If nothing else, it is better for one’s psyche to do what one can, however small, to make a difference.

Now America does not have a tradition of taking to the streets; demonstrations and rallies historically are working class affairs. But the middle class is on a path of downward mobility while the elites continue to take the cream. The widening gap might waken some impulses that have been dormant in the American psyche.

Sacrificing to the Volcano God

2009-10-13T10:50:00.000-07:00

Love this quote:

"Capitalism will never fail because Socialism will always bail it out."
- Nathra Nader

The Economic Populist

Hundreds of years ago the Incas would sacrifice virgins to appease their Volcano God.
The Gods and methods of sacrifice may have changed, but the tradition remains.

Like the Incas of old, we find ourselves helpless against forces we do not understand. The foundations of our economy shake and falter in terrifying ways.
In o The High Priests of Economics tell us that "globalization cannot be stopped," just like the wrath of the Volcano God. We've been told that there is no alternative to neoliberal globalization other than utter ruin.
The High Priests tells us that the destruction wrought by "Globalization is good" and should be embraced, and those that denounce multinational corporations are not just wrong, but dangerously wrong.

There is no shortage of politicians and media outlets who will tell you that free trade agreements are a "win-win" proposition, and that they will always create more jobs than they will destroy.
Yet history shows otherwise.ur desperation for answers we turn to High Priests of Economics who tell us these evils have befallen us because of our sins. We must sacrifice the innocent to the Volcano God or it will destroy us all.

The High Priests of Economics never explain exactly how these sacrifices will fix the economy, nor do they mention that the sins in question might be their own. Yet we still rush to offer up our children's futures through unpayable debts while never considering that there might be better alternatives.

...

A good example is NAFTA. Despite predictions that NAFTA would create 170,000 American jobs in just the first two years, Congress set up the NAFTA-TAA (Trade Adjustment Assistance) program for displaced workers. Between 1994 and the end of 2002, 525,094 specific U.S. workers were certified for assitance under this program. Because the program only applied to certain industries, only a small fraction of the total job losses were covered by this program.

...

And it wasn't just the wages of Americans that fell. The wages of manufacturing workers in Mexico have done nothing but go down in relative terms. In 1993, Mexican hourly compensation costs for production workers in manufacturing were 14.5% of those for their counterparts in the United States. By 2001 they had fallen to 11.5% of U.S. costs.
This shouldn't surprise anyone. David Ricardo, legendary economist and free-trade proponent, explained how this dynamic worked nearly two centuries ago.

How Wars "Cure" Depressions

2009-10-11T10:52:00.000-07:00

Long post with lots of insights into other aspects of the current US economy.

Le Café Américain

By far this presents the most compelling case for a deflationary episode. As the money that is created flows into financial assets, it is 'taxed' by Wall Street which takes a disproportionately large share in the form of fees and bonuses, and what are likely to be extra-legal trading profits.

If the monetary stimulus is subsequently dissipated as the asset bubble collapses, except that which remains in the hands of the few, it leaves the real economy in a relatively poorer condition to produce real savings and wealth than it had been before. This is because the outsized financial sector continues to sap the vitality from the productive economy, to drag it down, to drain it of needed attention and policy focus.

The monetary stimulus of the Fed and the Treasury to help the economy is similar to relief aid sent to a suffering Third World country. It is intercepted and seized by a despotic regime and allocated to its local warlords, with very little going to help the people.

...

Those who have taken a huge share of the last three bubbles would like to stop the bubble now, keep their gains, and return to a system of fiscal restraint with light taxation on their windfall of assets.

So why does this not just simply happen? Because the political risks become enormous. It is difficult to reduce a population of free men into debt slaves, without risking a significant reaction. Therefore, it seems most likely that the government and the Fed will try to 'muddle through' for the time being, and look for an exogenous event to break the stalemate.

The traditional solution has been a military conflict, which stifles dissent against the government while generating artificial demand sufficient to energize the productive economy. It is a means of exporting your social misery, official corruption, and fiscal irresponsibility to another, weaker people.

Makin' it Rain

2009-10-09T21:52:00.000-07:00

After watching this video, my thought was, "Wow! All that money and all you look forward to is impressing a bunch of hookers?"

But after thinking about it for a while, how is what Slim Thug does any different than a day at Congress?

The Daily Show, Oct 7, 2009

Slim Thug: "There's definitely not as many video ho's as there used to be... and now they bring their kids with them."

Really, how's this different than the health care industry, the energy lobby or any of the rest when they show up to the strip club...er 'Congress' to buy some favors and throw money around. So many Representatives and senators yelling, "Make it rain, Boss, Make it Rain!"

The Meaning of Information

2009-10-08T14:58:00.000-07:00

"There is no inherent meaning in information. It is what we do with that information that matters."

http://www.ted.com/talks/beau_lotto_optical_illusions_show_how_we_see.html

American Colonialism

2009-10-04T04:44:00.000-07:00

Some have predicted that the American Empire will soon go the way of the British Empire. I wonder, did Britain's Colonialism turn inward on itself like American C0lonialism has? George Orwell's description of colonialism sounds very much like Wall Street's view of America in the late 2000s.

Satyajit Das

... is a view of the emerging world best captured by the term ‘Orientalism’, associated with Edward Said. A Palestinian academic, Said’s writings on colonialism explored the caricatures, cliches and pre-conceptions that shaped Western perception and therefore relationships with Eastern nations. Said’s argument was that the West’s view of the East was shaped by political power and unequal commercial exchange.

Said’s work built on George Orwell’s criticism of colonialism. Writing in 1939, Orwell provided a vivid and stark view of the developing world that has rarely been equalled: “When you walk through a town like this – two hundred thousand inhabitants, of whom at least twenty thousand own literally nothing except the rags they stand up in – when you see how the people live, and still more, how easily they die, it is always difficult to believe that you are walking among human beings. All colonial empires are in reality founded upon the fact. The people have brown faces – besides they have so many of them. Are they really the same flesh as yourself? Do they even have names? Or are they merely a kind of undifferentiated brown stuff, about as individual as bees as coral insects? They arise out of the earth, they sweat and starve for a few years, and then they sink back into the nameless mounds of the graveyard and nobody notices that they are gone. And the graves themselves soon fade back into the soil.”

Exaggeration of Wall Street's Ethics

2009-10-04T04:39:00.000-07:00

Many have alleged that Wall Street's ethics can be best summed up as "Willing to sell their mothers for a nickel."

This is exaggeration. The more accurate assessment would apparently be "Willing to sell everyone else's mother for a nickel."

Please make a note of it.

Still Masters of the Universe!

2009-10-04T04:14:00.000-07:00

Brilliant!

Still The Masters of the Universe
Posted At : October 4, 2009 3:40 AM Posted By : Satyajit Das
Related Categories: Traders

Tom Wolfe writing in Bonfire of the Vanities created the term – ‘Masters of the Universe’: “He considered himself part of the new era and the new breed, a Wall Street egalitarian, a Master of the Universe, who was only a respecter of performance.” Wall Street bond trader Sherman McCoy, the original Master of the Universe, came to personify the avariciousness and self-aggrandisement of financiers.

Human history is a sequence of “ations” – civilisation, industrialisation, urbanisation, globalisation interspersed with actual or threatened “annihilation”. The most recent “ation” is “financialisation” - the conversion of everything into monetary form (also known as another “ation” – “monetisation”).

New paper economies emerged directly from the demise of the gold standard that removed restrictions on the ability to create money, especially debt. Finance inexorably displaced industry with trading and speculation becoming major activities as financial engineering replaced real engineering. In an earlier age, Heinrich Heine, the German poet, too had identified the change: “Money is the God of our time….” The rise of financiers is intimately linked to this financialisation of the global economy.

Financial innovations such as securitisation (the packaging up and sale of loans) and derivatives (effectively risk insurance) enabled banks to extend more credit. Banks could literally by increasing throughput, making more loans and selling them off to eager investors, magically increase returns to their investors. Bankers had invented a ‘money machine’.

Bank also began to trade more actively with their shareholders money, following the advice of Fear of Flying author Erica Jong: “If you don’t risk anything then you risk even more”.

All of this, of course, meant increased earnings for the bank and its star performers. As people who work in financial institutions know, it is primarily an enterprise that is run for the employees with an afterthought for shareholders.

Sherman McCoy could with a single phone call make $50,000 and, even better, a share of that was his and his alone. At the height of the boom, top hedge fund and private managers could make more in 10 minutes than the average worker earned in an entire year. In 2007, James Simons of Renaissance Technologies earned $1.5 billion and David Rubinstein of The Carlyle Group earned $260 million in the ethereal “economic stratosphere.” In Australia, Macquarie Bank employees rejoiced in the sobriquet – the ‘Millionaires factory”.

The ability to earn high rewards only becomes a problem where the promise of a share of profits encourages excessive risk taking and a focus on short-term earnings. It also becomes a problem where the basic measure of performance is ambiguous and can be systematically manipulated. Unfortunately, ‘earnings’ proved to be the result of wildly inaccurate models, accounting tricks and risks that had not been accurately captured.

Finance is also problematic when it comes to dominate the economy. In the U.S.A., financial services’ share of total corporate profits increased from 10% in the early 1980s to 40% in 2007. The combined stock market value of these firms grew from 6% to 23% over the same period.

It is now conventional wisdom to accept the central role of financial services. Gordon Brown, the Chancellor of the Exchequer under Tony Blair and then Prime Minister, harboured secret dreams of a Scandinavian-style social welfare state with low taxes funded by the growth of the City. In 2007, he told bankers: “What you have achieved for the financial services we … now aspire to achieve for the whole of the British economy.” Alistair Darling, Gordon Brown successor as Chancellor, was no less loquacious describing financial services as “absolutely critical” to the economy.

The golden age seemed to come to an end with the GFC. Initially, the world viewed the destruction of storied financial institutions in Global Financial Crisis as an entertaining blood sport.

Some bankers lost their jobs by the thousands. Others lived with the psychological fear of firing by text message.

In New York, bankers confessed it was hard to live on less than $500,000 – after all, the children’s private school fees, the maid, the Pilates lessons etc all cost money. They economised by buying cheaper cuts of meat. In London, families deferred moves to more expensive suburbs. The latest Gordon Ramsay restaurant was no longer a must have.

The effects of belt-tightening were seen in a fall in bookings at luxury hotels, holiday resorts and sales of super yachts – some of the plutocrats were down to their last billion. Once rich hedge fund managers were back in court trying to renegotiate the terms of their divorce pleading ‘poverty’.

For some women, the aphrodisiac quality of a young unattached male purring “I’m an investment banker” in a certain type of bar lost its allure. Some professions – personal trainers, dog walkers, personal dressers, children's party organisers – were in danger of extinction.

There was a sense of Schadenfreude as the Masters of the Universe received their comeuppance. Unfortunately, the “financial” crisis quickly spread to the “real” economy – jobs, consumption, and investment- becoming everybody’s problem. “Too large to fail” financial institutions had to be bailed out by governments, that is the ordinary taxpayer. In a perverse piece of income redistribution, the less fortunate now were subsidising the masters of universe because it was in their best interest.

Commentators briefly dared hope that the power and influences of finance and financiers would be reduced. Finance would revert to being a facilitator rather than the central driver of the economy.

The Economist wrote: “Over the past 35 years it has seemed as if everyone in finance has wanted to be someone else. Hedge funds and private equity wanted to be as cool as a dot.com. Goldman Sachs wanted to be as smart as a hedge fund. The other investment banks wanted to be as profitable as Goldman Sachs. America's retail banks wanted to be as cutting-edge as investment banks. And European banks wanted to be as aggressive as American banks. They all ended up wishing they could be back precisely where they started.”

Unfortunately, those hopes are misplaced. Low or zero interest rates, heavily managed markets, reduced competition and state underwriting of solvency has helped surviving banks prosper.

Bank risk levels have increased to and in some cases beyond pre-crisis levels. The higher levels of risk taking reflect increasing comfort in central bank support of financial institution’s liquidity and their ability and willingness to intervene to limit price risks.

In 2008 in Canary Wharf, the financial district in London’s docklands, I meet two affable recruiters from the English Teachers Union who explained that there was “a bit of financial crisis”. Well-educated and highly motivated bankers who were losing their jobs by the thousands might like to consider a new career teaching. I questioned the adjustment in salaries that the change in careers would necessitate. One recruiter’s responded: “If you haven’t got a job then it’s not relevant is it? It was never real money and it wasn’t going to ever last was it?”

Over the last 30 years, talent has increasingly been lured from productive profession into finance and the speculative economy. The rewards available mean that the brain drain into these professions is unlikely to stop. The excesses of the financial economy are also unlikely to be easily tamed.

The Masters of the Universe that survived the carnage are back to their old tricks. The ‘fight for talent’ means that bonuses and remuneration guarantees for new employees are all back in vogue.

Government attempts to deal with the problems of the financial system, especially in the U.S.A., Great Britain and other countries, illustrate Mancur Olson’s thesis - small distributional coalitions tend to form over time in developed nations and influence policies in their favor through intensive, well funded lobbying. The resulting policies benefit the coalitions and its members but large costs borne by the rest of population.

The “finance government complex” (dubbed “Government Sachs” by its critics) and financiers have proved exquisite masters of the game of privatisation of profits and socialisation of losses. Many countries now practice Chinese socialism with Western characteristics.

A year after the collapse of Lehman, the near collapse of AIG and the grande mal seizure in financial markets, the Masters of the Universe are still firmly in charge. As Giuseppe di Lampedusa, author of The Leopard knew: “everything must change so that everything can stay the same.”

© 2009 Satyajit Das All Rights reserved.

Satyajit Das is a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall).

Where the Economy Went

2009-10-04T03:51:00.000-07:00

Feeling particularly irascible after celebrating my first year of unemployment, I figured I would sit down and pen a few notes for those in the "economic forecasting community".

So many people in the economic community -- particularly (but not limited to) Wall St., academia, and TV talking heads -- are scratching their heads wondering where the economy went. After yet another long, sleepless night of anger caused by wondering why so many people could be so highly educated yet so stupid in practical terms, I've decided to explain the current economy to people who don't understand why the economy hasn't recovered yet. In short, the economy hasn't recovered yet because you don't understand what happened to it.

Executive Summary: No, Virginia, there is to be no "V-shaped" Immaculate Recovery.

In Business Model Terms:
Great news boss! We laid off Research and Design. We also laid off Manufacturing and Purchasing! We've cut our costs completely to 0! Even better news! As a side benefit, we were able to completely eliminate Shipping! We now consist only of the Profit Centers of Marketing, Sales and of course, Upper Management. That's right, ZERO overhead!

(To Self) I'm sure its only a matter of time before we're able to optimize those. Just wait until the analysts hear how we've been able to cut costs! oooooohhhh I just can't WAIT until the next round of bonuses! I'm gonna CASH IT IN! Hello corner office!

In Semi-Allegorical terms:
You had a goose that laid golden eggs. Every quarter, like clockwork, your goose would plonk out a auric cackleberry worth $10,000. Good, true, but how to make it better? Hmmm.... how's about feeding it twice as much? Would that make even more golden eggs? Nahhh, that would make it cost too much. We're already spending $100 per quarter on feed already. How's about figuring out a way to cut the cost of feed? Instead of duck food, why not try dirt? Or better, why not air! That's cheap and provided by the government (or whoever... we're not really sure where air comes from, but at least it don't come from our pocket!)

Ok, output is down, but we're sure there'll be a rebound in 3Q12. After all, the sharper the downturn, the more dramatic the recovery!

For you Analysis/Quant types:
99% of the income-earners in the American economy (The Poor) get by on roughly $40k per year. 9/10th of 1% (The Middle Class) earn $100k per year and the remaining 1/10th of 1% (The Rich) earn upwards of that.
Eliminate the income stream of The Middle Class by destroying and/or outsourcing manufacturing (damn American autoworkers, they're expensive!), "in-sourcing" tech jobs (fucking electronics designers, they're expensive!) and shipping overseas every other fucking job that isn't nailed down. Who's that leave us with on the jobs front? Lessee... Wall Mart and bussing tables at Denny's (By the way, both of those jobs now employs the New Middle Class, who just pushed the poor out of all those cush jobs.) and The Rich -- who, when not raiding the Treasury -- mill about all day wondering why Wall St. investments aren't up. Nothing to worry about here... after all it's the Rich that drive this economy. Come on V-shaped recovery! (Don't forget to tip!)

For Fans of W-esque Republican Sloganeering:
That "Next Technology" that all of us were supposed to "retrain" ourselves to do.... well, it never happened because you sent all the fucking technology jobs to China and China ain't so hot on sending "New Technology" jobs anywhere other than... (I'll give you a hint: It ain't Taiwan.)

In Environmental Terms:
You strip-mined the economy and are now wondering why nothing's growing in the bare rock. Come back in a few hundred years.

In Biological Terms:
You stupid, idiotic, blood-sucking leeches. You sucked the host dry. It's dead. You're gonna either spend the next 30 years dodging vultures feeding on the carcass of your dead (former) host, or dry-hump it into the hinterlands and find a new victim. Hope you speak Chinese are a quick-study on Communist Party slogans.

In Geopolitical Terms:
China's version of Ronald Reagan demanded that America "tear down that (trade) wall!". We did. Now we have the economy of (the former) East Germany.

In Psychological Terms:
Maslow's Hierarchy of Needs: Food, Housing, Health, Education for their Kids, Big Screen TVs. The top four are shot in the ass. Guess what's left?

Executive Executive Summary: It's the jobs, stupid. You fucking destroyed them. 300 million people working at Wall Mart ain't an economy and they damn-sure couldn't afford to shop at the mall even if they wanted to.

Orwell: "Comes Invariably From People Who Are Not Fighting"

2009-09-01T13:35:00.000-07:00

"All the war-propaganda, all the screaming and lies and hatred, comes invariably from people who are not fighting." -- George Orwell

Herman Goering: "It works the same way in any country"

2009-08-25T14:06:00.000-07:00

We got around to the subject of war again and I said that, contrary
to his attitude, I did not think that the common people are very thankful for leaders who bring them war and destruction.

"Why, of course, the people don't want war," Goering shrugged. "Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece. Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship."

"There is one difference," I pointed out. "In a democracy the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars."

"Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy.

All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country."

First Death Panels, Now This

2009-08-20T11:22:00.000-07:00

I found this on World News Daily, but the link is not working, so I posted it here so people can see the *real* plan.

Obama health care bill to offer curbside recycling

In a closed-door town hall restricted to liberal Democratic partisan groups in San Francisco, Obama unveiled a proposal to further reduce the impact of catastrophic illness on American families.

"Studies show that Americans spend upwards of $10,000 for an average funeral. Costs are even higher if the family selects a non-cardboard casket option. This burden is simply unbearable for anyone but the wealthiest among us. Working families simply cannot afford the funerary burden brought about by the death panels, even if they save money in the long run by retiring their elderly early. We have to bring some of the death panel cost savings forward."

"With our plan, family members will be able put their dear departed in specially marked containers on the curbside for next-morning pickup, " adding, "After the grieving process is complete, of course."

The estimated 10,000+ audience at the San Francisco Convention Center seemed to be generally pleased. San Francisco after all has had an aggressive recycling program for several years, as California has imposed a requirement on municipalities to recycle at least 50% of their area's waste.

"These Death Panels are going to save us a lot of money, but in the short term, we'll have a lot of bodies stacking up
without an economical way to handle the load. This plan turns a problem into a solution by taking something seen only as a burden and turning it into rich, loamy compost." "Besides", he continued, "filling valuable land with dead people rather than empty commercial buildings hampers our ability to make optimal use of scarce real estate."
"Sometimes, complex problems really do have simple solutions!", he beamed.

San Francisco mayor Gary Newsom was generally supportive. "This will only help us meet the state's requirement for recycling of more than 50% of our current waste stream. Keeping departed family members out of landfills will be a big help in us continuing to meet that goal."

Secretary of Health Kathleen Sibelius is scheduled to deliver a presentation on the details of the proposal,
including pilot locations, proper labeling of remains for pickup and scheduled pickup days.

She is also expected to cover the delivery of memorials. Early information packets released to the media by Sibelius's office included photographs of the memorials. Our sources tell us that the memorials will be made partially of recycled aluminum as worldwide copper prices are forecast to remain prohibitive for the next several quarters.

Image of funerary urn prototype released today by Sibelius's' office

Insiders admit that prototypes of the memorials are suffering from early production problems due to the recycled content, but they see no reason that all the problems couldn't be ironed out by the time the program is finally rolled out.

"We're working closely with our Chinese manufacturers", said one source who wished to remain anonymous.

The Centainty of One's Convictions

2009-08-19T12:31:00.000-07:00

... is often inversely proportional to one's understanding of the problem.

How We Got Here: Management Nation

2009-07-13T17:40:00.000-07:00

We have become a nation of managers.

Perhaps it was the national fascination with "Being one's own boss". Whatever the reason that the nation accepted it, the truth remains that we have internalized the ideas being peddled by "The Rich", that is:

- American's don't want to work
- America doesn't have the talented X to do the job
- Unemployed Americans simply need to "retrain" themselves in the Next New (as of yet unspecified) Thing.

What has really happened is that the country's collective conscience has declared anything relating to labor as "icky" and to be dispensed with in the cheapest, most expeditious manner possible.

Follow for a moment the distribution of compensation today. It falls along a very bright line: people who "manage" things get compensated well (even in failure: see Wall St.), people who *do* things get paid relatively pitifully. Think plumber, teacher, fire fighter, engineer, laborer.

Any "doer" job that could be outsourced was. "It's cheaper in China" was the mantra. Any "doer" job that wasn't outsourced was replaced by flooding the labor market through immigration. Everyone was fine with immigrants (both legal and not) cutting grass and washing cars. When America ran out of "talented X", immigrants were called in to replace engineers, IT, customer service, you name it. Even doctors and nurses are feeling downward income pressure coupled with increasing education costs. (So far only lawyers have so far evaded this downward income pressure.) It is the commoditization of labor.

But there is a a downside. There simply aren't 300 million projects in America that need managing. Everyone that "saved money" watching Wal-Mart export their job slowly but surely watched Wal-Mart become their only shopping option as income, savings and yes, eventually the "Home ATM" dwindled.

Now the world wonders how America is going to pick itself up and once again become the world's favorite consumer. What America has yet to realize is that in order to consume (nay, to eat) one has to have an income.

The Rich has long contended that The Rich are responsible for the jobs in this country. They repeatedly demand that laws not impinge The Rich's ability to "create jobs". Curiously, The Rich are nowhere to be seen as we wait for a knight in shining armor to save us.

What *is* happening is the states and the country as a whole is looking at extreme tax income shortfalls as the bulk of the country go unemployed. When the bulk of the country's tax base loses jobs, the onus of tax payment has to go somewhere. People without a roof over their head are hard to coerce into tax payments. This leaves The Rich facing the outstretched hand of Uncle Sam without anyone else to shift that burden to.

How We Got Here: Lying Central Bank Head

2009-07-13T17:17:00.001-07:00

How We Got Where We Are

"Should we fault Chairman Bernanke for 'Green shoots'? Isn't it appropriate for a central bank to provide a rhetorial confidence? Aren't central bankers supposed to say things like 'green shoots'?"

Have we sunk so low that this is considered a valid question? Roughly re-worded, this question is, "Shouldn't the central banker cheerlead the economy and try to convince people that it is better than it is [in the hopes that this will make the economy better]?"

I can almost stomach this concept when applied to CEOs. Ok, so part of their job is as Marketeer in Chief. But our government officials? Our head of the Central Bank?

What happens when the cheerleading is revealed to be false? Where is his integrity and authority then?

Now we know.

http://www.ritholtz.com/blog/2009/07/shiller-roubini-discuss-anemic-economic-recovery/

What Journalism Has Become

2009-05-12T14:07:00.000-07:00

Why Journalism is Dying, Part 2x10^74

Irish student hoaxes world's media with florid but phony quote from dead French composer

DUBLIN (AP) -- When Dublin university student Shane Fitzgerald posted a poetic but phony quote on Wikipedia, he was testing how our globalized, increasingly Internet-dependent media was upholding accuracy and accountability in an age of instant news.

His report card: Wikipedia passed. Journalism flunked.

The sociology major's obituary-friendly quote -- which he added to the Wikipedia page of Maurice Jarre hours after the French composer's death March 28 -- flew straight on to dozens of U.S. blogs and newspaper Web sites in Britain, Australia and India. They used the fabricated material, Fitzgerald said, even though administrators at the free online encyclopedia twice caught the quote's lack of attribution and removed it.

A full month went by and nobody noticed the editorial fraud. So Fitzgerald told several media outlets they'd swallowed his baloney whole.

"I was really shocked at the results from the experiment," Fitzgerald, 22, said Monday in an interview a week after one newspaper at fault, The Guardian of Britain, became the first to admit its obituarist lifted material straight from Wikipedia.

"I am 100 percent convinced that if I hadn't come forward, that quote would have gone down in history as something Maurice Jarre said, instead of something I made up," he said. "It would have become another example where, once anything is printed enough times in the media without challenge, it becomes fact."

So far, The Guardian is the only publication to make a public mea culpa, while others have eliminated or amended their online obituaries without any reference to the original version -- or in a few cases, still are citing Fitzgerald's florid prose weeks after he pointed out its true origin.

"One could say my life itself has been one long soundtrack," Fitzgerald's fake Jarre quote read. "Music was my life, music brought me to life, and music is how I will be remembered long after I leave this life. When I die there will be a final waltz playing in my head that only I can hear."

Fitzgerald said one of his University College Dublin classes was exploring how quickly information was transmitted around the globe. His private concern was that, under pressure to produce news instantly, media outlets were increasingly relying on Internet sources -- none more ubiquitous than the publicly edited Wikipedia.

When he saw British 24-hour news channels reporting the death of the triple Oscar-winning composer, Fitzgerald sensed what he called "a golden opportunity" for an experiment on media use of Wikipedia.

He said it took him less than 15 minutes to fabricate and place a quote calculated to appeal to obituary writers without distorting Jarre's actual life experiences. He noted that the Wikipedia listing on Jarre did not have any other strong quotes.

If anything, Fitzgerald said, he expected newspapers to avoid his quote because it had no link to a source -- and even might trigger alarms as "too good to be true." But many blogs and several newspapers used the quotes at the start or finish of their obituaries.

He said the Guardian was the only publication to respond to him in detail and with remorse at its own editorial failing. Others, he said, treated him as a vandal who was solely to blame for their cut-and-paste content.

"The moral of this story is not that journalists should avoid Wikipedia, but that they shouldn't use information they find there if it can't be traced back to a reliable primary source," said the readers' editor at the Guardian, Siobhain Butterworth, in the May 4 column that revealed Fitzgerald as the quote author.

"It's worrying that the misinformation only came to light because the perpetrator of the deception emailed publishers to let them know what he'd done, and it's regrettable that he took nearly a month to do so," she wrote.

Fitzgerald said he had waited in part to test whether news organizations or the public would smoke out the quote's lack of provenance. He said he was troubled that none did.

And he warned that a truly malicious hoaxer could have evaded Wikipedia's own informal policing by getting a newspaper to pick up a false piece of information -- as happened when his quote made its first of three appearances -- and then use those newspaper reports as a credible footnote for the bogus quote.

"I didn't want to be devious," he said. "I just wanted to show how the 24-hour, minute-by-minute media were now taking material straight from Wikipedia because of the deadline pressure they're under."

Best AIG Bonus Analogy Yet

2009-03-28T08:54:00.000-07:00

"Tipping your rapist."

I can't take credit for this one, I'm just repeating it.

English Empire: Result of Bad Food?

2009-03-27T22:30:00.000-07:00

Paul writes:

There are advantages to not having a food culture. I have always claimed that the reason England conquered half of the world is that Englishmen were seeking a decent meal. The English sailor would sit down to a meal of overcooked and greasy meat and vegetables and think, I need to go conquer a country that knows how to prepare a decent meal.

The Italians, on the other hand, dined very handsomely and stayed at home.

Iron Chef, Family Edition

2009-03-26T14:30:00.001-07:00

We've all seen that cheesy Japanese TV show (and it's equally cheesy American spinoff) where top chefs compete to whip up amazing dishes in an hour.

That's all fine and good, but as a practical matter, Iron Chef is as valuable to a parent as trying to learn tire rotation tips by watching NASCAR pitstops.

So I propose a new spinoff: Iron Chef Family.

Same basic format, with the array of Iron Chefs and a weekly guest challenger, but from there the rules would be a bit different.

Instead of the mystery ingredient being rare Peruvian sea cucumber, eye of newt or whatnot, ICF would have everyday items like 'hamburger meat', 'broccoli' or 'whatever's on sale that day at Safeway'.

Then would come the *real* challenge: preparing in an hour a meal using everyday ingredients that one could serve to a typical family. No soux chefs, blast chillers, 5 megawatt electric skillets or 'mixologists'. Just a stove, knives, a sink, maybe on special occasions (if they've been good) a blender and a microwave. Oh, and did I mention that the chef has to also get the dishes washed and put away within the hour?

Then would come the judging. Two families of four. Mom, dad and the 2.2 kids would judge the meals. Scoring would be on taste, nutrition, balance (did the chef put out an entree, a starch AND a vegtable?) and most importantly: did the kids eat it?

Iron Chef is great for the fancy restaurant crowd with their huge fully-staffed kitchens. But you want to impress me? Make a great meal that everyone will eat in an hour. Hell, if it tastes good enough, I'll throw in an extra 30 minutes to let him square away the leftovers.

Heck, just watching the Chairman scream "Hamburger Helper!" while revealing the secret ingredient might make the entire show worthwhile.

The Fall of Empire

2009-03-15T11:35:00.001-07:00

Talk about reporting your own death:
http://www.nytimes.com/interactive/2009/03/12/business/20090312-papers-graphic.html

I find this another interesting example of the *huge* social changes that the internet has brought. Digital cameras have devastated (for now, at least) professional photography, all the way from High Fashion and Advertising to the mall photo booth. Job outsourcing has within a few years devastated domestic employment as any "information job" can be run from "anywhere". Finance and Wall St. have exploded with the ability to suck money from anyone with cash and an internet connection. Online sales have put major pressures on "Brick and Mortar" retailers. Medical, political, the list goes on and on.

We all remember the power of William Randolf Hearst. Strange how the seemingly unrelated invention of "The Internet" has brought these huge and powerful institutions to their knees. They can't even sell the newspapers now... the entire business or even the paper its printed on. Remarkable.

P.S. I predict TV will be the next media victim. In the next 10-15 years, we'll see broadcast TV and many "cable" TV shows go the way of the payphone. (Cue post on the remarkable social re-working brought about by the mobile phone!)

So... Do We Have Free Healthcare Now or What?

2009-03-12T16:26:00.001-07:00

For decades Republicans have warned that free healthcare for all would lead to economic collapse, the onset of high taxes, unemployment, frozen equity markets, just to name a few.

So.... we got all that. Where's my free healthcare? I'm still getting bills.

We're totally in the crapper. Did we lose a war or what?

Oh, right. We did. We lost to ourselves.

Saving the Rich

2009-03-12T14:49:00.000-07:00

On Thu, Mar 12, 2009 at 2:00 PM, XX wrote:
There needs to be a examination of the cost of government compared to the output of it's citizens. When Gov't expenses go to high, taxes go up, workers are likely to balk at improving their income.

It will cease to be an issue, because we are approaching 50% of our voters not paying any federal tax. That means they will decide to increase taxes on those who do pay. Notice how "the wealthy" are now paid less and less. Now it's about $250K. In a previous Democratic administration, a Millionaire was someone that earned a million dollars in their life time.

Ah, another Red Herring. "If you raise taxes too high, people will just refuse to work."

This reflects an *aggregious* mis-understanding of the tax code.

Let's say, for example that you make $100. Let's say that the tax rate is 40% up to and including $100, and 50% for $101 and up.

So, when you make $102, what is your tax?

A) $102 * 0.5 = $51
B) ($100 * 0.4) + ( $2 * 0.5 ) = $40 + $1 = $41

We have a *staged* tax system. The answer is 'B'.

I've not heard of a single extremely-rich person (we used to call them "millionaires") that's in it for the money. I doubt there's a single one that says, "You know, I've made enough money, why don't I stop for a while?" or "You know, if I make over X, it'll just send me into the next tax bracket. No thanks."

The only people we hear talking about this is A) Republican talking heads B) People who *want* to be millionaires, but don't even understand the basics of finance enough to become rich, let alone millionaires.

Show me one instance in which Warren Buffet said, "No more money for me! I don't want to be in the next tax bracket."

Rich people will turn all sorts of tricks to avoid paying taxes. They may *defer* income into "down" years or whatnot, but I'd like to see one case of a truly "rich" person refusing the opportunity to make money because it would kick them into the next income tax bracket.

I never cease to get amusement out of middle-class Republicans that will bend over backwards to screw themselves in order to save "the rich" money.

A much better avenue of attack would be chasing down that 50% that doesn't pay taxes.

Lemme propose a test:

Let's say someone approaches you on the street and says, "If you give me a nickel, I'll give you $250k, but you must give 75% of it to a random passer-by."

Do you accept or no?

A final point. I *used* to be in the $250,000 bracket. I'll *gladly* pay whatever tax Obama wants rather than continue to "save tax money" under the W administration. I'm tired of this "American's don't want to work (because taxes are too high)" bullshit.

2009-03-09T11:22:00.000-07:00

My thoughts exactly:

The Cunning Realist

That Would Have Worked Out Well

Anyone seen any recent calls for Social Security private accounts?

The stock market crash has shown how catastrophic private accounts would have been, and who would have really benefited from them. Would the government have allowed the Bear Stearns and Lehman outcomes had the Social Security system been chock full of those stocks? Remember, both were former blue chips, the sort of companies that proponents of private accounts insisted any new system would be limited to. The same for Citi, AIG, Fannie Mae, and others. How much pressure would the Fed and Treasury have felt -- and what more would have been done -- to keep those afloat and/or out of penny stock land?

That pressure would have been exerted by millions of unpaid but highly effective lobbyists: people emailing and calling Washington, demanding that their Social Security money -- and so the stocks, the companies, and the executives -- be saved. Corporate bondholders would have loved it, since the Social Security system effectively would have become a massive safety buffer. Would "nationalization" even be considered if it meant destroying part of Social Security?

Private accounts are dead now, so it's a bit of a moot point. But I wonder how many of those who both supported them and genuinely object to the prevailing bailout ethos ever thought this through.

Krugman: Nonrival and Nonexcludable

2009-03-07T23:36:00.000-08:00

Krugman at NY Times

What should government do? A Jindal meditation

What is the appropriate role of government?

Traditionally, the division between conservatives and liberals has been over the role and size of the welfare state: liberals think that the government should play a large role in sanding off the market economy’s rough edges, conservatives believe that time and chance happen to us all, and that’s that.

But both sides, I thought, agreed that the government should provide public goods — goods that are nonrival (they benefit everyone) and nonexcludable (there’s no way to restrict the benefits to people who pay.) The classic examples are things like lighthouses and national defense, but there are many others. For example, knowing when a volcano is likely to erupt can save many lives; but there’s no private incentive to spend money on monitoring, since even people who didn’t contribute to maintaining the monitoring system can still benefit from the warning. So that’s the sort of activity that should be undertaken by government.

So what did Bobby Jindal choose to ridicule in this response to Obama last night? Volcano monitoring, of course.

And leaving aside the chutzpah of casting the failure of his own party’s governance as proof that government can’t work, does he really think that the response to natural disasters like Katrina is best undertaken by uncoordinated private action? Hey, why bother having an army? Let’s just rely on self-defense by armed citizens.

The intellectual incoherence is stunning. Basically, the political philosophy of the GOP right now seems to consist of snickering at stuff that they think sounds funny. The party of ideas has become the party of Beavis and Butthead.

Republicans Keep Forgetting Who Created This Mess

2009-02-20T17:18:00.001-08:00

Andrew Sullivan

Which party added over $32 trillion to future unfunded liabilities, turned a surplus into a trillion dollar deficit, and endorsed indefinite nation-building at a simply staggering cost in two of the most intractably divided non-countries in the world? Which party asserted "near-dictatorial" powers for the executive, the priority of the will of the leader over the rule of law, and a mantra, in the words of the most "conservative" vice-president in memory, that "deficits don't matter." Which party described prohibitions against torture "quaint" and presided over the most reckless, and irresponsible period in American finance since the 1920s?

Republicans Keep Forgetting Who Created This Mess

2009-02-20T17:18:00.000-08:00

Andrew Sullivan

Which party added over $32 trillion to future unfunded liabilities, turned a surplus into a trillion dollar deficit, and endorsed indefinite nation-building at a simply staggering cost in two of the most intractably divided non-countries in the world? Which party asserted "near-dictatorial" powers for the executive, the priority of the will of the leader over the rule of law, and a mantra, in the words of the most "conservative" vice-president in memory, that "deficits don't matter." Which party described prohibitions against torture "quaint" and presided over the most reckless, and irresponsible period in American finance since the 1920s?

Of Drug Dealers and Liars

2009-02-13T11:44:00.001-08:00

Both drug dealers and Liars put themselves in the most peril when they consume their own product.

Economic Depression - Republicans Blame Moon

2009-01-29T13:48:00.000-08:00

My racquetball coach (an ex Marine) used to "award" us penalties. When I asked why he was "awarding" me penalties, he replied, "You earned them."

I'm agnostic. I don't think Republicans are any better or worse than the Democrats. They're all politicians. A necessary evil.

BUT

The current batch of Republicans have had almost totally unopposed rule of this land for 6, arguably 8 years.

They fucked it up. Not only that, but they fucked it up *BIG* time.

The current batch of republicans and their sycophants, tin-hats and fan boys need to go sit in the corner and STFU.

They aired their ideas. They had 6 years to implement them. We're reaping what they sowed.

Everybody but the current batch of Republicans, their mouthpieces and their fan-boys know it. For those who don't realize who's responsible for the mess Republicans made, please continue to blame it on the moon or whomever else was there at the time... just do it quietly. Trust me, nobody wants to hear *why* Republicans failed. Nobody cares who they want to blame. Nobody.

We're living the results of the promised Republican economy. Path to hell being paved, whatever.

Republicans like military references. Here's one: it happened on the Republican watch. Man up, stop blaming others for Republican mistakes and please, STFU.

Sit tight, let the next group of idiots try their hands at it. Then you can pick up your cloak of virtue and start swinging the sword of righteousnous at whoever will listen. Until then, grow up, find some humility (you now, the "family values" kind) and sit in the corner quietly.

If there are any more Republican "ideas" , please don't include me on the distribution. I've still suffering the last batch of them.

What Reagan Actually Said About Government

2009-01-28T12:43:00.000-08:00

SJ Mercury News

Opinion: Ronald Reagan wouldn't recognize these conservatives

By Mickey Edwards
Posted: 01/27/2009 07:03:38 PM PST

In my mind's eye, I can see President Ronald Reagan perched on a cloud and watching all the goings-on down here in his old earthly home.

Rolling his eyes and whacking his forehead over the absurdities he sees, he's watching his old political party twist itself into complex knots, punctuated by pauses to invoke "the Gipper's" name.

It's been said that God would be amazed by what his followers ascribe to him; believe me, Reagan would be similarly amazed by what fervent admirers cite in their desire to be seen as true-blue Reaganites.

On the premise that simple is best, many Republicans have reduced their operating philosophy to two essentials: First, government is bad (it's "the problem"); second, big government is the worst and small government is better (although because government itself is bad, it might be assumed that small government is only marginally preferable).

Government is "... us

This is all errant nonsense. It is wrong in every conceivable way and violative of the Constitution, American exceptionalism, freedom, conservatism, Reaganism and common sense. In America, government is "... us.

What would Reagan think of this? Wasn't it he who warned that government is the problem?

Well, permit me. I directed the joint House-Senate policy advisory committees for the Reagan presidential campaign. I was part of his congressional steering committee. I sat with him in his hotel
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room in Manchester, N.H., the night he won that state's all-important primary. I knew him before he was governor of California and before I was a member of Congress.

Let me introduce you to Ronald Reagan.

Reagan, who spent 16 years in government, actually said this: "In the present crisis," referring to the high taxes and high levels of federal spending that had marked the Democratic administration of President Jimmy Carter, "government is not the solution to our problem; government is the problem."

Reagan then went on to say: "Now, so there will be no misunderstanding, it's not my intention to do away with government. It is rather to make it work."

Government, he said, "must provide opportunity."

He was not rejecting government, he was calling — as President Barack Obama did at his inauguration — for better management of government, for wiser decisions.

This is the difference between ideological advocacy and holding public office: Having accepted partial responsibility for the nation's well-being, one assumes an obligation that goes beyond bumper-sticker slogans. Certitude is the enemy of wisdom and, in office, it is wisdom, not certitude, that is required.

How, for example, should conservatives react to stimulus and bailout proposals in the face of an economic meltdown? The wall between government and the private sector is an essential feature of our democracy. At the same time, if there is a dominant identifier of conservatism — political, social, psychological — it is prudence.

If proposals seem unworkable or unwise — if they do not contain provisions for taxpayers to recoup their investments; if they do not allow for taxpayers, as de-facto shareholders, to insist on sound management practices; if they would allow government officials to make production and pricing decisions — conservatives have a responsibility to resist.

But they also have an obligation to propose alternative solutions. It is government's job — Reagan again — to provide opportunity and foster productivity. With the nation in financial collapse, nothing is more imprudent, and more antithetical to true conservatism, than to do nothing.

The Republican Party that is in such disrepute today is not the party of Reagan. It is the party of Rush Limbaugh, Ann Coulter, Newt Gingrich, President George W. Bush and Karl Rove. It is not a conservative party; it is a party built on the blind and narrow pursuit of power.

Not too long ago, conservatives were thought of as the locus of creative thought. Conservative think tanks (full disclosure: I was one of the three founding trustees of the Heritage Foundation) were thought to be cutting-edge, offering conservative solutions to national problems.

Rejection of ideas

By the 2008 elections, the very idea of ideas had been rejected. One who listened to Barry Goldwater's speeches in the mid-1960s, or to Reagan's in the 1980s, might have been struck by their philosophical tone, their proposed (even if hotly contested) reformulation of the proper relationship between state and citizen.

Last year's presidential campaign, on the other hand, saw the emergence of a Republican Party that was anti-intellectual, nativist, populist (in populism's worst sense) and prepared to send Joe the Plumber to Washington to manage the nation's public affairs.

Over the past several years, conservatives have turned themselves inside out: They have come to worship small government and have turned their backs on limited government. They have turned to a politics of exclusion, division and nastiness. Today, they wonder what went wrong, why Americans have turned on them, why they lose, or barely win, even in places such as Indiana, Virginia and North Carolina.

And, watching, I suspect Reagan is smacking himself on the forehead, rolling his eyes and wondering who in the world these clowns are who want so desperately to wrap themselves in his cloak.

Mickey Edwards, a former congressman from Oklahoma, is a lecturer at Princeton University"s Woodrow Wilson School and author of "Reclaiming Conservatism." He wrote this article for the Los Angeles Times.

Chrysler vs. $25B

2008-12-04T11:28:00.000-08:00

Just as a friendly reminder, the current CEO of Chrysler is Bob Nardelli. The same Bob Nardelli that actually got ran out of Home Depot a few years back for sending their business into the ground. He got a $210M severance for his troubles. Caused quite an uproar a few years back.

I'm sure that bailout money will be well spent, no?

Quotes on Truth

2008-12-01T22:57:00.000-08:00

Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.
Marcus Aurelius

The truth is incontrovertible, malice may attack it, ignorance may deride it, but in the end; there it is.
Winston Churchill

Proverbs are always platitudes until you have personally experienced the truth of them.
Aldous Huxley

The truth knocks on the door and you say, go away, I’m looking for the truth, and it goes away. Puzzling.
Robert M. Pirsig

One fool will deny more truth in half an hour than a wise man can prove in seven years.
Coventry Patmore

People say they love truth, but in reality they want to believe that which they love is true.Truth does not do as much good in the world as the semblance of truth does evil.
Duc de La Rochefoucauld

More at The European Rationalist

W as Cause of Mortgage Collapse

2008-12-01T20:56:00.000-08:00

Lots of you "dead enders" still deny W had any role in the Mortgage Collapse. For you and others that like things spelled out, the "liberally biased" AP goes the distance:

AP - US diluted loan rules before crash

By MATT APUZZO

WASHINGTON (AP) — The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.

The administration's blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

_Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

_Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

_Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.

_Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

_Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.

"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Federal regulators were especially concerned about mortgages known as "option ARMs," which allow borrowers to make payments so low that mortgage debt actually increases every month. But banking executives accused the government of overreacting.

Bankers said such loans might be risky when approved with no money down or without ensuring buyers have jobs but such risk could be managed without government intervention.

"An open market will mean that different institutions will develop different methodologies for achieving this goal," Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in a March 2006.

Countrywide Financial Corp., at the time the nation's largest mortgage lender, agreed. The proposal "appears excessive and will inhibit future innovation in the marketplace," said Mary Jane Seebach, managing director of public affairs.

One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes. Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans. But in 2006, banks said they shouldn't have to double-check the brokers.

"It is not our role to be the regulator for the third-party lenders," wrote Ruthann Melbourne, chief risk officer of IndyMac Bank.

California-based IndyMac also criticized regulators for not recognizing the track record of interest-only loans and option ARMs, which accounted for 70 percent of IndyMac's 2005 mortgage portfolio. This summer, the government seized IndyMac and will pay an estimated $9 billion to ensure customers don't lose their deposits.

Last week, Downey Savings joined the growing list of failed banks. The problem: About 52 percent of its mortgage portfolio was tied up in risky option ARMs, which in 2006 Downey insisted were safe — maybe even safer than traditional 30-year mortgages.

"To conclude that 'nontraditional' equates to higher risk does not appropriately balance risk and compensating factors of these products," said Lillian Gavin, the bank's chief credit officer.

At least some regulators didn't buy it. The comptroller of the currency, John C. Dugan, was among the first to sound the alarm in mid-2005. Speaking to a consumer advocacy group, Dugan painted a troublesome picture of option-ARM lending. Many buyers, particularly those with bad credit, would soon be unable to afford their payments, he said. And if housing prices declined, homeowners wouldn't even be able to sell their way out of the mess.
...

Sarah Palin's "Fear"

2008-10-28T11:41:00.000-07:00

Scott Horton at Harper's

In a speech in Des Moines, Iowa, on Saturday, Republican Vice Presidential candidate Sarah Palin told the crowd that an Obama presidency would present the specter of a socialist state in which fundamental American freedoms are undermined.

...

Does Sarah mean a state:

* That snatches its victims off the street, denies them all form of legal process and whisks them away to secret “blacksites” where they can be tortured using all the techniques described in Arthur Koestler’s Darkness at Noon?
* That arrests and prosecutes its political adversaries for imaginary crimes so as to eliminate them from the running in election cycles in which they could do some damage?
* That destroys the careers of professional military men because they got promotions under a prior regime and therefore considers them disloyal?
* That believes it can detain and hold its enemies forever without any charges or any evidence against them, denying them access to courts to prove their innocence?
* That constantly manipulates the population’s fear whenever its public popularity slips and elections begin to approach?
* That believes that it can make no errors, and that those who point to its errors are traitors?
* That systematically spies on millions of its citizens in direct violation of a criminal statute which forbids such surveillance?
* That signs new laws with its fingers crossed in the form of signing statements, so that no one knows whether the laws—or any part of them—will actually be enforced?
* That lies to its people about threats from abroad in an effort to build popular support for a series of wars and then cites the existence of those wars as a reason to suppress dissent?
* That nationalizes the debt of predatory capitalists so they suffer no punishment for their misconduct and then nationalizes major financial institutions, converting the nation’s free market system into a socialism in which crony capitalists are a privileged elite?

Sarah, you have no need to fear the future.

The Monkey Analogy

2008-10-28T11:26:00.001-07:00

Once upon a time, in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them.

The man bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort.

The man then announced that he would now pay $20 for each one. This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.

The man increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey, much less catch one.

The man now announced that he would buy monkeys for $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

While the man was away the assistant told the villagers, 'Look at all these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each.'

The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again, and once again there were monkeys everywhere.

Welcome to Wall Street

CodeWeaver Frustration

2008-10-27T19:57:00.000-07:00

Love this:

Codeweaver.com

Press Releases
CODEWEAVERS' SOFTWARE FREE FOR DOWNLOAD THANKS TO GEORGE W. BUSH AND FALLING GAS PRICES
Giveaway Triggered in CodeWeaver's Great American Lame Duck Presidential Challenge; "We take full responsibility for global economic collapse," says CEO

SAINT PAUL, Minn. (October 27, 2008) – The catastrophic cratering of the global economy, falling gas prices and President George W. Bush's recent executive activities have indirectly prompted Saint Paul gadfly software developers CodeWeavers, Inc., to provide free software for every American on Oct. 28, company officials reluctantly announced today.

In July, CodeWeavers – whose software lets Mac OS X and Linux users run Windows programs without having to Microsoft for a Windows OS license – launched the Great American Lame Duck Presidential Challenge (lameduck.codeweavers.com) to encourage President Bush to make the most of his remaining days in office by accomplishing a major economic or political goal by January 20, 2009.

The goals focused on President Bush making specific positive accomplishments in areas such as the economy, home values, the stock market, the war on terror and other key issues. Specifically, one goal called for President Bush to help down bring average gasoline prices in the Twin Cities to $2.79 a gallon.

On Monday, Oct. 14, gas prices in Minneapolis and St. Paul did just that.

"That morning, I was filling my tank at Big Steve's Gas Palace in St. Paul," said Jeremy White, president and CEO of CodeWeavers. "I had just finished my morning corn dog and 64-ounce Dr. Pepper when I looked at the pump and noticed gas was at $2.79. I screamed ‘Woohoo,' then I yelled ‘Oh, crap!' as I realized every American can now have my software for free. Kind of upsets my fourth quarter revenue projections..."

White admits this is not how he foresaw the Challenge unfolding.

"I launched the campaign to inspire President Bush to make the most of his final days in office. Who knew that our Challenge would have this kind of impact on the country?" White said. "On the other hand, who knew that the economy would implode, causing oil demand to drop into the abyss and gas prices to plummet as well. Clearly, investigating Bear Stearns, AIG and those guys is misplaced – CodeWeavers is responsible for this mess. So it's free software for all!"

How to Get the Free Software
On Tuesday, Oct. 28, 2008, any one visiting the CodeWeavers' Web site (www.codeweavers.com) will be given a deal code that will entitle them to one free copy of CodeWeavers' award-winning CrossOver software. Each copy comes complete with support.

"I realize that by giving away all my software, I've caused horrific damage to my company's bottom line," White said. "In fact, our vice president of sales wretched Starbucks all over his shirt when he learned the news. But, I figure, the way the economy is going, in a few months everyone might be out on the streets, wearing potato sacks and standing in line for squirrel soup, so why not?"

White also noted that if other Great American Lame Duck Presidential Challenge goals are met, CodeWeavers will once again provide free software. Goals include:

* Return the stock market to it's 2008 high
* Reduce the average price of a gallon of milk to $3.50
* Create at least one net job in the U.S. this calendar year
* Return the median home price to its Jan. 1, 2008 level
* Bring Osama Bin-Laden to justice

About CodeWeavers

Founded in 1996 as a general software consultancy, CodeWeavers today focuses on the development of Wine: the core technology found in all of its CrossOver products. The company's goal is to bring expanded market opportunities for Windows software developers by making it easier, faster and more painless to port Windows software to Mac OS X and Linux. CodeWeavers is recognized as a leader in open-source Windows porting technology, and maintains development offices in Minnesota, the UK and elsewhere around the world. The company is privately held. For more information about CodeWeavers, log on to www.codeweavers.com.

The Sanctity of Religion Amendment

2008-10-21T10:05:00.000-07:00

On the way to a ballot box near you:

California Proposition 3 - The Sanctity of Religion Amendment

Due to the popularity of Proposition 8, the Sanctity of Marriage amendment, California will be introducing next year the Sanctity of Religion amendment to the California constitution.

Proposition 3 is simple and straightforward. It states simply that "Judaism is the only religion that is valid or recongnized in the state of California."

Voting YES on Propostion 3 does 8 simple things:

It restores the definition of religion to what God originally meant.

It overturns the outrageous decisions of activist judges and politicians that ruled that other cults call themselves a religion.

It protects our children from being taught in public schools that other cults are the same as the one, original, traditional religion and prevents other consequences to Californians who will be forced to not just be tolerant of the other, newer cults but to face mandatory compliance regardless of their religious beliefs.

It will increase funding for math education in our schools.

Please vote YES on Proposition 3, coming to your town November 2009.

Sub-Prime Crash

2008-10-02T10:01:00.000-07:00

Remember when we all sat around and laughed when Japan invested in billions of dollars of US commercial real-estate? Remember how funny it was to watch the market decline and see the smug Japanese lose billions?

Weren't those the days?

Good times.

Of Canaries

2008-09-30T21:59:00.001-07:00

I've worked hard all my life. Went to school, studied hard, kept my nose clean.

I've been laid off twice in the last 8 years. Typical response? Go back to school. Re-train yourself to the "new economy". Outsourcing is the new reality. Get used to it. The economy's fine.

So please tell me why the hell I should get so worked up when dozens of $100M plus types fuck themselves and the rest of us out of all our money? Don't I understand the importance of this bailout?

Look Johnny-come-latelies, I've been at this for *years* and not a single one of you fuck managed to give a shit. Everybody was fine with our jobs being shipped to India. Everybody was fine that we were becoming a "service (servant?) economy".

Welcome to my world everyone. I screamed for years that this economy was going into the shitter and nobody cared.

Pardon the hell out of me if Wall St. sliced its own throat. What does it take to get you people's attention anyway? You elected this president *twice*? Once... everyone makes mistakes... but twice?

I've got an idea. Why don't we just outsource Wall St.? It worked for everyone else's jobs. I'm sure there's someone in India that will be willing to lose billions of dollars for a measly $100M paycheck.

Let Wall St. go back to school and re-train themselves.

Halloween Ice Cream

2008-09-26T22:15:00.000-07:00

I've heard of people making Liquid Nitrogen (LN2) Ice Cream. Since ice cream creaminess is a function of ice crystal size and ice crystal size is a function of how fast a liquid freezes, LN2 ice cream is theoretically about the pinnacle of ice-cream...um... creaminess.

So it's 8 p.m. tonight and the family and I are on our way back from running errands. Zacky had ice-cream for dessert and we got... to watch him eat it. (It came with his kid's meal for free and at the time we weren't interested enough to pay for it ourselves. At least until we watched him almost literally wallow in vanilla ice cream for nearly 10 minutes. It really is incredible the amount of pleasure a child can get out of ice cream.

Aaaannnnyhooo, so we're driving home and the thought of ice cream is popping into my head repeatedly. Of course any sane person would say, "Hey hon, let's drop by the store on the way home and pick up a quart of Bryers" and call it a night.

But the rest of us aren't satisfied with something so simple and want to "make it from scratch" because we know it will be "better". That's when I get an idea.

Like the rest of us, when I "get an idea" it is usually best kept to myself, as admitting I have an idea is akin to the proverbial redneck bellow, "Hey ya'll, watch this!"

Not so much out of intelligence or cunning, but more out of being afraid that the missus will be smart enough to put the kibosh on it immediately, I don't say, "I have an idea" but rather, "Would you like me to make some ice cream tonight?". She replies, "Isn't it kind of late?", to which I reply "don't worry". I can tell she's immediately starting to worry. Smart woman.

So liquid nitrogen is not exactly readily available near us, nor do I know where to find it unreadily available at 8 p.m. on a Friday night. I *do* recall, however, the local foodstore carrying dry ice. Frozen nitrogen, frozen carbon dioxide, what's the difference?

I'll skip to the chase. When you decide to make ice cream, there are two long waits: The first is waiting for the hot custard to cool enough to be put into the ice-cream machine. The second is the wait for the final ice-cream to harden in the freezer. We're talking *hours*. Dry ice should shorten both of those enough -- methinks -- to enjoy ice cream before bedtime!

I get the custard made and it's just hit 170F. Normally I would put it in an ice bath to cool enough before porting over to the fridge. I'm impatient, so I decide to pound the dry ice into bits (suprisingly easy, but don't do this while the kid's sleeping ... FYI) before pouring it into the hot custard.

Did I mention that one should not attempt this if the pot is over half full? Surely most of you would know better than that, so I didn't need to tell you. What I can pass along is that pouring a bunch of dry ice into an almost full pot at 170F is the equivalent of putting a jet engine under a pot of silly putty and turning it up to '11'.

The pot immediately starts boiling like crazy and sputtering (ok, spraying) hot custard all over the cooktop, the counter tops, the floors and the cook. Rather than resting on its laurels, the new devil custard then decides to deplay some sort of cloaking device in the form of gaseous CO2. The stove is immediately so full of fog I can't even see the custard boiling over and filling up the burners, which I had luckily already turned off. Turning off the flame (again) to lower the violence quotient has no effect as the cooktop has long since stopped putting energy into this little dynamo. No "off" button available there.

Eeek! Quickly, I think to pour the custard/dry ice combo out of the hot pot and into the ice cream mixer (which has been in the freezer overnight) and will be much cooler than the hot pan the custard's currently occupying. Mission accomplished. The demented custard calms down quickly.

Ok, everything's cool now (almost literally) and I decide to go ahead and put the beater in and start mixing. Everything's fine until some of the dry ice starts getting agitated again and now the custard is boiling over in the stand mixer. The little beater is blowing a steady column of smoke that circles the pot as the paddle spins. Think Thomas the Train Engine meets the Dementers from Harry Potter. The mix then solidifies enough to start climbing up the beater paddle. Somehow this iniquitous liquid is managing to take over the *top* of my mixer just as fast as the bottom. What the hell is this, some sort of superfluid?

After a while it calms down a bit and I build up the courage to approach it, using a spoon for defense. Take my word for it, having ice cream *hiss* at you like some pissed-off jungle lizard is not a pleasant experience. I screw up my nerve and take a spoonfull.

All I can say is "wierd". It has a built-in effervesence very similar in feeling and taste to a root beer float... only no root beer. The only good experience so far tonight.

Rather than lose what little soft-serve progress I have made, I dismantle the mixer and scoop what I can into a tupperware bowl. The beater itself has frozen into a solid mass and has to be chiseled off.

Ten seconds after popping the lid onto the tupperware, the possesed ice-cream pops it back off. Great, it's still trying to escape. It dawns on me that the escaping gas is pressurizing the contain enough to blow the lid. Fine. Whatever. Who needs a lid? I put it in the freezer, slam the door shut and retreat.

So, long story short, don't try to make ice-cream with dry ice unless you make a batch *way* smaller than your equipment can handle. And also do it when the family is out of town and you don't have to explain why the kitchen looks like a science fair project.

Firstly, read the instructions that come with the dry ice. Instruction number 40-something says, "Don't store in a working freezer". It gives no reason.

Great. Maybe the shit takes over freezers too. I'm afraid to go check. Maybe I'll let it have the fridge. We've been wanting a new one anyway.

Taxes are too high! (Diatribe)

2008-09-05T10:07:00.000-07:00

Jesus Christ! Will this red herring never die? Lower taxes! Lower
taxes! What do you idiots smoke?

Lowering taxes is no better than raising taxes. Stop the bullshit.

While Republicans have you ninnies running around screaming "lower
taxes" and "Libruls raise taxes" they're raping all of us blind.

If taxes are so Goddamned important, perhaps you should all sit down
and tell us unenlightened WHAT THE FUCKING CORRECT TAX RATE IS. Don't
say, "0" or "there is no level" or "no one knows" or "it depends".
GIVE US A FUCKING NUMBER OR SHUT UP. If you don't know what the
correct level of taxes is, then you can't say they're "too high".

And while all of you are running around parroting this fucking
Republican talking point, you're completely ignoring the idiots that
are in power and WHAT THEY'RE DOING WITH YOUR MONEY.

Don't like "high" taxes? THEN STOP GIVING TAX BREAKS TO OIL
COMPANIES, HALIBURTON, FARMERS WHO GROW NOTHING, DEADBEAT ON WELFARE,
etc. Most importantly, STOP POURING MONEY BILLIONS INTO THE SAND.

Jesus fucking Christ, always with the "lower taxes", "libruls raise
taxes" horseshit while never uttering a peep of "oh, maybe *my*
politician is one of the thousands who are building bridges to
nowhere, paying Congress a huge retirement fund or giving money away
to every croney he can find through outright corruption". Gosh, why
do we need such high taxes to begin with, huh?

If you want to talk about our politicians, what they are doing wrong
and how we can work together to fix it, please share. If you're just
gonna bellyache about how all of our problems are due to some
fictional rival political group, save it for the Rush call-in hour or
sod off.

Coercion Via Mob

2008-06-23T11:08:00.000-07:00

These tactics are not limited to the domain of dictators.

The Times Online

On Saturday night the radio sprang to life in the kitchen. It was my father-in-law. “There's a chanting mob outside the pack-house,” he said.

My heart was throbbing already. I pushed the transmit button: “OK. Keep us informed,” I replied.

Laura, my wife, went to try to phone people and get them to pray. Why had our workers not told us about this pungwe, I thought? It must be a mob from outside our area. I could hear them chanting a mile down the road from our house. I wondered, as I had done so many times before, if this was it.

The mob moved on towards us and then past. We were given another night's grace.

Last weekend we had a big pungwe - a political indoctrination meeting - on the farm. It was after Mugabe had come to our little town of Chegutu, southwest of Harare, and addressed the crowd with threats of “war”. A pungwe starts when the shadows lengthen and the sun goes down and darkness falls over the land. It does not stop till after the sun has risen again.

All our workers had to go, as well as all their wives with babies and any children over the age of 12. Some of them didn't go; so the mob sent little bands of chanting youth militia with sticks to fetch the absentees, drag them out of their houses and beat them for non-attendance. Through the night we heard the chanting and the slogans and the re-education speeches ringing out into the cold darkness for hour after hour after hour. On and on it went, striking fear into my heart. I got up and paced around in the cold night, listening.

When the first birds began to sing, I thought: “How can these birds sing after such a night as this?” Then the birdsong was drowned out. There was a terrible noise like a swarm of bees. I knew the beatings had begun again and I listened helpless, tormented, in fear but praying fervently.

I spoke to our workers later. “Mount Carmel workers were all made to stand to one side,” Amon said. “We were shaking because we were so afraid of what was to happen to us. Those that had been polling agents for MDC had water poured over them.”

It was a frosty morning. “The major [Major Tauye, brought in from the Army to run pungwes in Chegutu district] was waving his gun around everywhere,” he went on.

I learnt that the MDC polling agents were made to put their forehead on the ground and lift their whole bodies up on their toes and then hold the position as they shook in the cold. After some time they were given sticks and had to beat each other.

The Major then said: “You say we beat you! We don't beat you! You are the ones that beat!”

“Will the people vote?” I asked.

“We are in pain but we cannot speak because we do not know who will tell. Even if we make a report the police will not help,” Amon said.

I had seen the hope for a better future draining out of him. He had been kicked off one farm already and I sensed he was worried we would throw in the towel too.

“I will not leave,” I said. “They must shoot me if they want me off.”

I remembered another friend whose workers were sobbing when she was forced to pack up a couple of weeks ago after three generations on the farm. They knew they were on their own then, voiceless in the wilderness.

On Friday morning I went to see James Etheridge. He had been evicted in the darkness earlier in the week by Senator Madzongwe's men and the local hit man, Gilbert Moyo, with a large mob. James was in a borrowed shirt because all his clothes had been stolen. We were trying to see if there was anything that hadn't been looted left in the houses.

We drove through the gate and down the drive. Straight ahead there was a line of large rocks blocking the road. As we got closer, men wielding sticks got up and started coming menacingly towards us. Our presence had the effect of a stone thrown into a hornets' nest. Soon the rocks started to fly in our direction. I saw figures running through the bush to try to get around behind us and cut us off. “OK, let's get out of here,” I said and reversed as fast as I could.

Between the Etheridges and ourselves we have spent nearly 30 hours at the police station this week making reports and failing to get a reaction.

Yesterday we finally saw our first observers. We met them at the police station. Having the observers there worked like magic: police reacted and even moved quickly after we reported that all the Etheridges belongings - the ones that had not yet been stolen - had been dumped on the side of the main road.

When the observers left to come to my house, James's wife Kerry and his brother were ambushed and started getting beaten with sticks. The police stood by because they had not brought bullets for their guns and the senator's men were armed. They had to run for it and managed to get away.

While I was on the way back to my family with the observers, our workers were rounded up by youths with sticks going to the pungwe. They started demanding that Laura come out of the house and they beat one of our dogs with a stick at the gate. Then before I got there they headed off again, running across the veldt like a pack of wild dogs seeking their next prey.

The observers didn't know about pungwes; and they have been advised not to go out after dark, so I suppose they will never see them. Almost all Mugabe's campaigning goes on after dark. The pungwes have spread like a great cancer even to town.

Owen, one of our workers in Chegutu, said he has had to go to all-night pungwes for the past three nights.

“Will you be an MDC polling agent again?” I said to Lorence, another worker, this morning.

“Ah no.” he said. “We are too afraid for that. We need to get out of here before the pungwe tonight because they are going to beat us.”I got them into town and gave them fifteen billion dollars each for their bus fares to a “safe” house 80km away.

As I went around town I talked to people. It was tense. They were full of fear and terrible stories about atrocities taking place; but we were together. I could sense a strong undercurrent of solidarity in the common load of suffering that we are all bearing.

None of us knows what will happen next. Dictators like Mugabe do not step down. Like Hitler, they go on till their country is in ruins and their people are in rags. World leaders tut-tut as the crimes against humanity go on unhindered; but their perpetrators live on and travel the world with impunity.

A Species Immersed in Fantasy

2008-05-13T10:54:00.000-07:00

Homo sapiens is a bizarre literary ape - one that, outside of working and sleeping, may well spend most of its remaining hours lost in landscapes of make-believe. Across the breadth of human history, across the wide mosaic of world cultures, there has never been a society in which people don't devote great gobs of time to seeing, creating, and hearing fictions - from folktales to film, from theater to television. Stories represent our biggest and most preciously varied repository of information about human nature. Without a robust study of literature there can be no adequate reckoning of the human condition - no full understanding of art, culture, psychology, or even of biology. As Binghamton University biologist David Sloan Wilson says, "the natural history of our species" is written in love poems, adventure stories, fables, myths, tales, and novels.
Jonathan Gottschall

I would argue that this is a big reason why humans so often get detracted into (nay, even manytimes demand) forays of folly. It's a species that enrobes itself in fatasy every day, so it is easily duped into believing that the current dubious scheme will magically solve its problems where other (or perhaps even the same one) has failed every time before.

People's Response to the Approach of Great Danger

2008-05-12T10:29:00.000-07:00

"With the enemy's approach to Moscow, the Moscovites' view of their situation did not grow more serious but on the contrary became even more frivolous, as always happens with people who see a great danger approaching.

At the approach of danger there are always two voices that speak with equal power in the human soul: one very reasonably tells a man to consider the nature of the danger and the means of escaping it; the other, still more reasonably, says that it is too depressing and painful to think of the danger, since it is not in man's power to foresee everything and avert the general course of events, and it is therefore better to disregard what is painful till it comes, and to think about what is pleasant."

--Leo Tolstoy, "War and Peace"

Orwell: When a False Belief Bumps Up Against Solid Reality

2008-04-10T15:01:00.001-07:00

". . .we are all capable of believing things which we know to be untrue, and then, when we are finally proved wrong, impudently twisting the facts so as to show that we were right. Intellectually, it is possible to carry on this process for an indefinite time: the only check on it is that sooner or later a false belief bumps up against solid reality, usually on the battlefield."--George Orwell, In Front of Your Nose

Airlines Closed for Maintenance

2008-04-10T09:52:00.001-07:00

Here we have yet another example of how BushCo's "deregulation" has in reality been exposed as simple "you donate to us and we won't enforce any regulation on your industry"-style corruption.

For the fifth(? Really, who counts instances of Bush Admin corruption anymore?) time in less than two weeks, another airline cancels thousands of flight to perform inspections that had been skipped before they were exposed. Reuters: American Airlines cancels over 900 flights
Whistleblowers tell of airlines failing to perform required inspections and when the inspectors attempt to report this up the chain of command, they are threatened with losing their jobs.

John Stewart had an interesting observation:

"It’s all sort of ironic, when you think about it. When you fly, you are inspected quite thoroughly. Whereas the plane itself is perhaps occasionally vacuumed. See, with this administration, if a passenger blows up a plane, it’s a failure on the War on Terror. But if a plane just blows up on its own, eh, that’s the market self-regulating."

Derivatives Not Worth Re-Possessing?

2008-04-10T09:49:00.000-07:00

The Big Picture posits an interesting question: What if the amount of money required to determine the value of all these derivatives makes it to expensive and thus not worthwhile to do? Will they just be discarded as unsaleable?

There is an elephant in the room that I haven't yet seen discussed: The UnTradeables.

In our discussion last week on SFAS 157, there was a subtext not articulated: The broad category of items that are actually too illiquid to trade. These include "one offs" such as Dry Cleaning stores, non-chain restaurants, Mom & Pop shops.

They are untradeable because the amount of research into each item, relative to their market cap/size, makes it too inefficient. No one will spend $100k for the due diligence on a $200k store.

For a while, Pez candy dispensers were an UnTradeable -- until eBay created a market where these can be effectively bought and sold. However, the total value of all the Pez dispensers in the world wasn't measured in the trillions, or even 100s of billions. Even tho they are relatively illiquid, their small capitalization makes it viable. And don't forget, there is no leverage involved in any of the eBay items. Hence, no margin calls.

Now consider the size of the derivative marketplace based upon mortgages: Everything from RMBS to CDOs to CDC. It runs into the trillions.

If they cannot be effectively priced, are these products essentially untradeable?

Consider these factors:

• The price relative to the requisite cost of research/due diligence;

• The size of the market relative to the overall regular and ongoing demand for that investment product;

• The buyers and sellers with an expertise and knowledge of this paper.

This may be the crux of the issue with subprime/derivative problem: The paper is, or at least should be, Untradeable . . .

Presidency 2008 As Political Cartoon

2008-04-08T17:31:00.000-07:00

Geez, I wish I had drawing skills. I don't, so I will have to rely on the 1,000 words.

The following scene came to me this weekend as I attempted to go back to sleep between bouts of cramps from a stomach flu. (I'm sure that had no bearing on the subject.)

Imagine that you are adrift in the ocean.

Rescue Option 1: USS Obama - US Coast Guard-ish vessel, moving slowly at first, but more swiftly by the minute. As she gets closer, you see that she's an old girl, with lots of recent battle wounds, but her decks are manned by your countrymen. They work steadily and eagerly to repaint the hull and decks, to repair battle damage, neglected parts and replacing outmoded equipement. As she nears you, a well-organized crew hurls a life-preserver your way. You're hauled aboard, given medical treatment and returned to shore swiftly.

Rescue Option 2: USS Clinton - The same vessel as above, but not much repair is taking place. Actually, most of the crew that's not involved in bickering, backstabbing or outright fistfights have relegated themselves to opposite sides of the vessel. On a bright note, there is one attractive deckhand that seems above the fray. It's the Chief Officer, Bill! He's expressing his desire to help you, but somehow gets distracted by a female deckhand and fails to do anything to help you as the vessel lumbers by.

Rescue Option 3: USS McCain - The hind-most portion of the vessel is a modern ship, but for some reason deckhands from every country seem to be fitting strange, wooden appendages marked "Made in China" all over the ship...they seem to be converting it to an 18th-century British Man O'War...

The few Americans you can see are manning the guns, which are firing madly in all directions while ship changes course erratically, giving a sense of having no clear target in mind. A few of the shells whiz by and you hope out loud that their firing doesn't kill you before they can rescue you.

As the ship occasions closer, you can see that the decks are lined with fat, white businessmen, lounging, telling jokes and smoking cigars. Occasionally, a business man will pick up a flaming $100 bill that has flown from the ship's stacks and uses it to light a new Havana Gold. The businessmen don't seem fazed by either the blasting of the guns or the smouldering mess of burning currency that flies from the stacks and litters the decks.

Large holes keep appearing in the hull. More businessmen, only smaller and thinner than those lounging on deck busily cut holes through the hull and have formed a thriving market of selling the pieces of hull to each other.

The ship's PA alternates between describing the yet invisible land ahead (a paradise to hear him tell it!) and telling you not to worry as God is going to save you.

As the ship draws near, you can that the bridge is lined with pictures of George W. Bush in royal attire. You hear someone mutter a profanity from the rear engine room ("So"?) but the figure disappears before you can make out his identity.

As the ship passes, the deckhands raise what appears to be an anchor, its top portion painted into the shape of a golden cross. They yell something to you, but you can't make it out (Spanish? Chinese?). Before you can deduce their meaning, they drop the anchor on you and the ship continues on.

Food & Energy Volatile

2008-04-01T14:17:00.000-07:00

The reasons cited as to why food and energy are so often excluded when calculating inflation usually include "they're too volatile".

According to Jeff Matthews, they're correct:

Now that the Federal Reserve has grudgingly begun to acknowledge inflation—and how could it not, with oil over $100 a barrel, “beans in the teens,” and gold near $1,000 an ounce?—a different contingent of the Powers That Be may be forced to likewise pay attention to what’s happening with the food supply around the world.

That’s because rice is now in short supply. And that’s not even the bad news. The bad news is that a shortage of rice, unlike the recent shortage of corn in our Midwest, can, and is, causing political unrest.
Here are a few excerpts from the New York Times’ report this weekend.

High Rice Cost Creating Fears of Asia Unrest

By KEITH BRADSHER
Published: March 29, 2008

HANOI — Rising prices and a growing fear of scarcity have prompted some of the world's largest rice producers to announce drastic limits on the amount of rice they export.

The price of rice, a staple in the diets of nearly half the world's population, has almost doubled on international markets in the last three months. That has pinched the budgets of millions of poor Asians and raised fears of civil unrest.

Shortages and high prices for all kinds of food have caused tensions and even violence around the world in recent months. Since January, thousands of troops have been deployed in Pakistan to guard trucks carrying wheat and flour. Protests have erupted in Indonesia over soybean shortages, and China has put price controls on cooking oil, grain, meat, milk and eggs.

Food riots have erupted in recent months in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen. But the moves by rice-exporting nations over the last two days — meant to ensure scarce supplies will meet domestic needs — drove prices on the world market even higher this week.

There’s more—much more—to the story, including political panic in the Philippines and export reductions by Vietnam, India, Egypt, and Cambodia.

Good thing our Consumer Price Index excludes food as well as energy. Unfortunately, you can't adjust hunger for food, too.

The Analysts

2008-03-24T09:45:00.000-07:00

One of the major players in the 2001 Dot Com bust were "The Analysts". These were people who made and broke Silicon Valley stock prices by changing their "valuations". Silicon Valley (and those elsewhere) companies dared not risk "meeting analysts expectations" in doing whatever was necessary to meet those "expectations".

During the boom, when everyone was giddy with thoughts of internet profits, meeting or exceeding those expectations proved relatively easy. Later, as more people began to realize that lots of hard cash was being turned into even harder losses, more financial chicanery was needed to meet those lofty expectations.

But all was not lost as many companies could still win glowing analyst evaluations by... well, who can really postulate how without opening themselves up to libel suits? But as anyone familiar with WorldCom, Enron and the host of others knows, *somehow* some evaluations seemed to rise forever.

It should not be surprising then, to see the role that ratings agencies such as S&P, et. al. have played in this current financial crisis. With S&P downgrading the "creditworthiness" reports of Goldman Sachs and Lehman Brothers, once again the typical investor is made aware of how little these ratings reflect reality.

Do they not know what has been going on for the last fifteen months, since HSBC first signified something might be dreadfully wrong in the mortgage world by writing off billions of dollars of sub-prime loans that it had only recently written?

Apparently they do not, for only now, even as the seeds of a recovery are being planted and watered by an eager Federal Reserve, does this particular rating agency start to worry about what might be lurking inside Goldman Sachs and Lehman Brothers, two of the bigger mortgage players in existence. -- Jeff Matthews

The (formerly) 5th largest Wall St. investment bank collapses into a financial heap, requiring a government guarantee of $30B just to get a single competing offer to buy to send the Dow up 4% in a single day. Problem's over, Yay! $2 per share. Strange how no other competitors even squeaked for a chance at the "great deal", even with a $30B backstop. The silence speaks volumes.

No doubt the other banks were too busy putting the final flourishes on their latest "keep the government out of business/we don't need to regulation" oratories.

But these are not the only enablers. A quick look around the "news" (I use that term *very* loosely) channels reveals that despite the panic, downturns and financial meltdown on Wall St., everything is dandy! Buy! Buy! Buy!

Are You Ready for Dow 20,000?
Insiders, at Least, See Reason to Smile
-- courtesy The Big Picture

Just like everyone else in this chain, they don't get paid to make money... they get paid to make *customers*.

Credit Crunch Explained

2008-03-20T10:58:00.000-07:00

Courtesy Interfluidity

Credit Crisis for Kindergarteners

David Leonhardt notes that it's pretty hard to explain what's going on in the financial world these days (ht Felix). Here's how I'd tell the tale to a child:

Alice, Bob, and Sue have ten marbles between them. Whenever one kid wants another kid to take over a chore, she promises a marble in exchange. Alice doesn't like setting the table, so she promises Bob a marble if he will do it for her. Bob hates mowing the lawn, but Sue will do it for a marble. Sue doesn't like broccoli, but if she says pretty please and promises a marble, Bob will eat it off her plate when Mom isn't looking.

One day, the kids get together to brag about all the marbles they soon will have. It turns out that, between them, they are promised 40 marbles! Now that is pretty exciting. They've each promised to give away some marbles too, but they don't think about that, they can keep their promises later, after they've had time to play with what's coming. For now, each is eager to hold all the marbles they've been promised in their own hands, and to show off their collections to friends.

But then Alice, who is smart and foolish all at the same time, points out a curious fact. There are only 10 marbles! Sue says, "That cannot be. I have earned 20 marbles, and I have only promised to give away three! There must be 17 just for me."

But there are still only 10 marbles.

Suddenly, when Bob doesn't want to mow the lawn, no one will do it for him, even if he promises two marbles for the job. No one will eat Sue's broccoli for her, even though everyone knows she is promised the most marbles of anyone, because no one believes she will ever see those 17 marbles she is always going on about. In fact, dinnertime is mayhem. Spoons are placed where forks should be, and saucers used for dinner plates, because Alice really is hopeless in the kitchen. Mom is cross. Dad is cross. Everyone is cross. "But you promised," is heard over and over among the children, amidst lots of stomping and fighting. Until recently, theirs was such a happy home, but now the lawn is overgrown, broccoli rots on mismatched saucers, and no one trusts anyone at all. It's all a bit mysterious to Dad, who points out that nothing has changed, really, so why on Earth is everything falling apart?

Perhaps Mom and Dad will decide that the best thing to do is just buy some more marbles, so that all the children can make good on their promises. But that would mean giving Alice 19 marbles, because she was laziest and made the most promises she couldn't keep, and that hardly seems like a good lesson. Plus, marbles are expensive, and everyone in the family would have to skip lunch for a week to settle Alice's debt. Perhaps the children could get together and decide that an unmet promise should be worth only a quarter of a marble, so that everyone is able to keep their promises after all. But then Sue, the hardest working, would feel really ripped off, as she ends up with a much more modest collection of marbles than she had expected. Perhaps Bob, the strongest, will simply take all the marbles from Alice and Sue, and make it clear than none will be given in return, and that will be that. Or, perhaps Alice and Bob could do Sue's chores for a while in addition to their own, extinguishing one promise per chore. But that's an awful lot of work, what if they just don't want to, who's gonna force them? What if they'd have to be in servitude to Sue for years?

Almost whatever happens, the trading of chores, so crucial to the family's tidy lawns and pleasant dinners, will be curtailed for some time. Perhaps some trading will occur via exchange of actual marbles, but this will not be common, as even kids see the folly of giving rare glass to people known to welch on their promises. It makes more sense to horde.

A credit crisis arises when many more promises are made than can possibly be kept, and disputes emerge about how and to whom promises will be broken. It's less a matter of SIVs than ABCs.

Mission Accomplished!

2008-03-11T11:01:00.000-07:00

The Fed makes $200B in loans to US banks, secured by sub-prime debt: The Big Picture

This effectively transfers $200B (not counting similar loans in the recent past as well as future ones that are undoubtedly on the way) of worthless debt on the shoulders of the US government.

Grover Norquist infamously stated, "My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub."

Old Grover must be already printing the next "Mission Accomplished!" banner.

Who knew that he wanted to include world financial markets as well?
BBC: Northern Rock Get Bailout
IHT: IKB Bailout

We Have Arrived

2008-03-10T10:06:00.000-07:00

The Republicans have now had complete control of the government (for all practical purposes) for 6 of the past ~8 years and since November have been challenged only by the most Milquetoast of congresses.

Arguably, we now stand ready to receive the full glory promised to us by the blessed Republican theology.

What do we have?

- An economy is shambles and headed further downward quickly.
- An unregulated lending market for housing has resulted in ~20% drops in housing prices with no end in sight. Foreclosures approaching levels from the Great Depression.
- Oil is trading for $104 per barrel and increasing every day.
- The dollar is dropping like a rock with $1000 gold and rising.
- A unnecessary quagmire of incompetence financed by debt. [Which one? Ed.]
We lost Vietnam, but we'll get 'em this time! [Oh, that one. Ed.]
- A former American metropolis still reeling from catastrophic losses.
- A paranoid Decider searching our mail, tapping our phones and smirking endlessly while pushing for the One More Tax Cut that will land us in glory. (Here's $300, go spend it on something nice!)

(Cue Blondie) Raaapture!

Airport "Security"

2007-12-30T22:10:00.001-08:00

Agreed in spades. If it so urgent to intercept potential bombs being smuggled onto our aircraft, why do we hire $5/hour TSA agents to do the job rather than highly trained bomb detection and disposal agents? New York Times

December 28, 2007, 6:52 pm
The Airport Security Follies

By Patrick Smith

Six years after the terrorist attacks of 2001, airport security remains a theater of the absurd. The changes put in place following the September 11th catastrophe have been drastic, and largely of two kinds: those practical and effective, and those irrational, wasteful and pointless.

The first variety have taken place almost entirely behind the scenes. Explosives scanning for checked luggage, for instance, was long overdue and is perhaps the most welcome addition. Unfortunately, at concourse checkpoints all across America, the madness of passenger screening continues in plain view. It began with pat-downs and the senseless confiscation of pointy objects. Then came the mandatory shoe removal, followed in the summer of 2006 by the prohibition of liquids and gels. We can only imagine what is next.

To understand what makes these measures so absurd, we first need to revisit the morning of September 11th, and grasp exactly what it was the 19 hijackers so easily took advantage of. Conventional wisdom says the terrorists exploited a weakness in airport security by smuggling aboard box-cutters. What they actually exploited was a weakness in our mindset — a set of presumptions based on the decades-long track record of hijackings.

In years past, a takeover meant hostage negotiations and standoffs; crews were trained in the concept of “passive resistance.” All of that changed forever the instant American Airlines Flight 11 collided with the north tower. What weapons the 19 men possessed mattered little; the success of their plan relied fundamentally on the element of surprise. And in this respect, their scheme was all but guaranteed not to fail.

For several reasons — particularly the awareness of passengers and crew — just the opposite is true today. Any hijacker would face a planeload of angry and frightened people ready to fight back. Say what you want of terrorists, they cannot afford to waste time and resources on schemes with a high probability of failure. And thus the September 11th template is all but useless to potential hijackers.

No matter that a deadly sharp can be fashioned from virtually anything found on a plane, be it a broken wine bottle or a snapped-off length of plastic, we are content wasting billions of taxpayer dollars and untold hours of labor in a delusional attempt to thwart an attack that has already happened, asked to queue for absurd lengths of time, subject to embarrassing pat-downs and loss of our belongings.

The folly is much the same with respect to the liquids and gels restrictions, introduced two summers ago following the breakup of a London-based cabal that was planning to blow up jetliners using liquid explosives. Allegations surrounding the conspiracy were revealed to substantially embellished. In an August, 2006 article in the New York Times, British officials admitted that public statements made following the arrests were overcooked, inaccurate and “unfortunate.” The plot’s leaders were still in the process of recruiting and radicalizing would-be bombers. They lacked passports, airline tickets and, most critical of all, they had been unsuccessful in actually producing liquid explosives. Investigators later described the widely parroted report that up to ten U.S airliners had been targeted as “speculative” and “exaggerated.”

Among first to express serious skepticism about the bombers’ readiness was Thomas C. Greene, whose essay in The Register explored the extreme difficulty of mixing and deploying the types of binary explosives purportedly to be used. Green conferred with Professor Jimmie C. Oxley, an explosives specialist who has closely studied the type of deadly cocktail coveted by the London plotters.

“The notion that deadly explosives can be cooked up in an airplane lavatory is pure fiction,” Greene told me during an interview. “A handy gimmick for action movies and shows like ‘24.’ The reality proves disappointing: it’s rather awkward to do chemistry in an airplane toilet. Nevertheless, our official protectors and deciders respond to such notions instinctively, because they’re familiar to us: we’ve all seen scenarios on television and in the cinema. This, incredibly, is why you can no longer carry a bottle of water onto a plane.”

The threat of liquid explosives does exist, but it cannot be readily brewed from the kinds of liquids we have devoted most of our resources to keeping away from planes. Certain benign liquids, when combined under highly specific conditions, are indeed dangerous. However, creating those conditions poses enormous challenges for a saboteur.

“I would not hesitate to allow that liquid explosives can pose a danger,” Greene added, recalling Ramzi Yousef’s 1994 detonation of a small nitroglycerine bomb aboard Philippine Airlines Flight 434. The explosion was a test run for the so-called “Project Bojinka,” an Al Qaeda scheme to simultaneously destroy a dozen widebody airliners over the Pacific Ocean. “But the idea that confiscating someone’s toothpaste is going to keep us safe is too ridiculous to entertain.”

Yet that’s exactly what we’ve been doing. The three-ounce container rule is silly enough — after all, what’s to stop somebody from carrying several small bottles each full of the same substance — but consider for a moment the hypocrisy of T.S.A.’s confiscation policy. At every concourse checkpoint you’ll see a bin or barrel brimming with contraband containers taken from passengers for having exceeded the volume limit. Now, the assumption has to be that the materials in those containers are potentially hazardous. If not, why were they seized in the first place? But if so, why are they dumped unceremoniously into the trash? They are not quarantined or handed over to the bomb squad; they are simply thrown away. The agency seems to be saying that it knows these things are harmless. But it’s going to steal them anyway, and either you accept it or you don’t fly.

But of all the contradictions and self-defeating measures T.S.A. has come up with, possibly none is more blatantly ludicrous than the policy decreeing that pilots and flight attendants undergo the same x-ray and metal detector screening as passengers. What makes it ludicrous is that tens of thousands of other airport workers, from baggage loaders and fuelers to cabin cleaners and maintenance personnel, are subject only to occasional random screenings when they come to work.

These are individuals with full access to aircraft, inside and out. Some are airline employees, though a high percentage are contract staff belonging to outside companies. The fact that crew members, many of whom are former military fliers, and all of whom endured rigorous background checks prior to being hired, are required to take out their laptops and surrender their hobby knives, while a caterer or cabin cleaner sidesteps the entire process and walks onto a plane unimpeded, nullifies almost everything our T.S.A. minders have said and done since September 11th, 2001. If there is a more ringing let-me-get-this-straight scenario anywhere in the realm of airport security, I’d like to hear it.

I’m not suggesting that the rules be tightened for non-crew members so much as relaxed for all accredited workers. Which perhaps urges us to reconsider the entire purpose of airport security:

The truth is, regardless of how many pointy tools and shampoo bottles we confiscate, there shall remain an unlimited number of ways to smuggle dangerous items onto a plane. The precise shape, form and substance of those items is irrelevant. We are not fighting materials, we are fighting the imagination and cleverness of the would-be saboteur.

Thus, what most people fail to grasp is that the nuts and bolts of keeping terrorists away from planes is not really the job of airport security at all. Rather, it’s the job of government agencies and law enforcement. It’s not very glamorous, but the grunt work of hunting down terrorists takes place far off stage, relying on the diligent work of cops, spies and intelligence officers. Air crimes need to be stopped at the planning stages. By the time a terrorist gets to the airport, chances are it’s too late.

In the end, I’m not sure which is more troubling, the inanity of the existing regulations, or the average American’s acceptance of them and willingness to be humiliated. These wasteful and tedious protocols have solidified into what appears to be indefinite policy, with little or no opposition. There ought to be a tide of protest rising up against this mania. Where is it? At its loudest, the voice of the traveling public is one of grumbled resignation. The op-ed pages are silent, the pundits have nothing meaningful to say.

The airlines, for their part, are in something of a bind. The willingness of our carriers to allow flying to become an increasingly unpleasant experience suggests a business sense of masochistic capitulation. On the other hand, imagine the outrage among security zealots should airlines be caught lobbying for what is perceived to be a dangerous abrogation of security and responsibility — even if it’s not. Carriers caught plenty of flack, almost all of it unfair, in the aftermath of September 11th. Understandably, they no longer want that liability.

As for Americans themselves, I suppose that it’s less than realistic to expect street protests or airport sit-ins from citizen fliers, and maybe we shouldn’t expect too much from a press and media that have had no trouble letting countless other injustices slip to the wayside. And rather than rethink our policies, the best we’ve come up with is a way to skirt them — for a fee, naturally — via schemes like Registered Traveler. Americans can now pay to have their personal information put on file just to avoid the hassle of airport security. As cynical as George Orwell ever was, I doubt he imagined the idea of citizens offering up money for their own subjugation.

How we got to this point is an interesting study in reactionary politics, fear-mongering and a disconcerting willingness of the American public to accept almost anything in the name of “security.” Conned and frightened, our nation demands not actual security, but security spectacle. And although a reasonable percentage of passengers, along with most security experts, would concur such theater serves no useful purpose, there has been surprisingly little outrage. In that regard, maybe we’ve gotten exactly the system we deserve.

Bankers Trying to Avoid Mortgage Fraud Suits?

2007-12-11T12:12:00.000-08:00

Sean Olender in SF Chronicle:

New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.

Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.

The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.

I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."

Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?

The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.

Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?

What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back. The time to look into this is before the shredders have worked their magic - not five years from now.

Those selling the "freeze" have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures. But with fast-depreciating collateral, the last thing investors in mortgage bonds ought to do is put off foreclosures. Rate freezes are at best a tool for delaying the inevitable foreclosures when even the most optimistic forecasters expect home prices to fall. In October, Goldman Sachs issued a report forecasting an incredible 35 to 40 percent drop in California home prices in the coming few years. To minimize losses, a mortgage bondholder would obviously be better off foreclosing on a home before prices plunge.

The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"

The key is to refinance borrowers whose current loans involved fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn't involve fraud.

The government is trying to accomplish wide-scale refinancing by tricking bond investors, or by tricking U.S. taxpayers. Guess who will foot the bill now that the FHA is entering the fray?

Ultimately, the people in these secret Paulson meetings were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time.

As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006.

Paulson became the U.S. Treasury secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know. Goldman Sachs achieved recent accolades in the markets for having bet heavily against the housing market, while Citigroup, Morgan Stanley, Bear Sterns, Merrill Lynch and others got hammered for failing to time the end of the credit bubble.

Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.

If a mortgage bond investor sues Goldman Sachs to force the institution to buy back loans, could Paulson be forced to testify as to whether Goldman Sachs knew or had reason to know about fraud in the origination process of the loans it was bundling?

It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.

I suspect that such a group first sat down and tried to figure out how to protect their financial interests and avoid criminal liability. And then when they agreed on the plan, they decided to sell it as "helping working families stay in their homes." That's why these meetings were secret, and reporters and the public weren't invited.

The next time that Paulson is before the Senate Finance Committee, instead of asking, "How much money do you think we should give your banking buddies?" I'd like to see New York Sen. Chuck Schumer ask him what he knew about this staggering fraud at the time he was chief of Goldman Sachs.

The Goldman report in October suggests that rampant investor demand is to blame for origination fraud - even though these investors were misled by high credit ratings from bond rating agencies being paid billions by the U.S. investment banks, like Goldman, that were selling the bundled mortgages.

This logic is like saying shoppers seeking bargain-priced soup encourage the grocery store owner to steal it. I mean, we're talking about criminal fraud here. We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers. At stake is nothing short of the continued existence of the U.S. banking system.

Sean Olender is a San Mateo attorney. Contact us at insight@sfchronicle.com.

Insider Insight: Mortgage Crisis

2007-12-11T12:08:00.000-08:00

Herb Greenberg:

Even before this mortgage mess started, one person who kept emailing me over and over saying that this is going to get real bad. He kept saying this was beyond sub-prime, beyond low FICO scores, beyond Alt-A and beyond the imagination of most pundits, politicians and the press. When I asked him why somebody from inside the industry would be so emphatically sounding the siren, he said, “Someobody’s got to warn people.”

Since then, I’ve kept up an active dialog with Mark Hanson, a 20-year veteran of the mortgage industry, who has spent most of his career in the wholesale and correspondent residential arena — primarily on the West Coast. He lives in the Bay Area. So far he has been pretty much on target as the situation has unfolded. I should point out that, based on his knowledge of the industry, he has been short a number of mortgage-related stocks.

His current thoughts, which I urge you to read:

The Government and the market are trying to boil this down to a ’sub-prime’ thing, especially with all constant talk of ‘resets’. But sub-prime loans were only a small piece of the mortgage mess. And sub-prime loans are not the only ones with resets. What we are experiencing should be called ‘The Mortgage Meltdown’ because many different exotic loan types are imploding currently belonging to what lenders considered ‘qualified’ or ‘prime’ borrowers. This will continue to worsen over the next few of years. When ‘prime’ loans begin to explode to a degree large enough to catch national attention, the ratings agencies will jump on board and we will have ‘Round 2′. It is not that far away.

Since 2003, when lending first started becoming extremely lax, a small percentage of the loans were true sub-prime fixed or arms. But sub-prime is what is being focused upon to draw attention away from the fact the lenders and Wall Street banks made all loans too easy to attain for everyone. They can explain away the reason sub-prime loans are imploding due to the weakness of the borrower.

How will they explain foreclosures in wealthy cities across the nation involving borrowers with 750 scores when their loan adjusts higher or terms change overnight because they reached their maximum negative potential on a neg-am Pay Option ARM for instance?

Sub-prime aren’t the only kind of loans imploding. Second mortgages, hybrid intermediate-term ARMS, and the soon-to-be infamous Pay Option ARM are also feeling substantial pressure. The latter three loan types mostly were considered ‘prime’ so they are being overlooked, but will haunt the financial markets for years to come. Versions of these loans were made available to sub-prime borrowers of course, but the vast majority were considered ‘prime’ or Alt-A. The caveat is that the differentiation between Prime and ALT-A got smaller and smaller over the years until finally in late 2005/2006 there was virtually no difference in program type or rate.

The bailout we are hearing about for sub-prime borrowers will be the first of many. Sub-prime only represents about 25% of the problem loans out there. What about the second mortgages sitting behind the sub-prime first, for instance? Most have seconds. Why aren’t they bailing those out too? Those rates have risen dramatically over the past few years as the Prime jumped from 4% to 8.25% recently. seconds are primarily based upon the prime rate. One can argue that many sub-prime first mortgages on their own were not a problem for the borrowers but the added burden of the second put on the property many times after-the-fact was too much for the borrower.

Most sub-prime loans in existence are refinances not purchase-money loans. This means that more than likely they pulled cash out of their home, bought things and are now going under. Perhaps the loan they hold now is their third or forth in the past couple years. Why are bad borrowers, who cannot stop going to the home-ATM getting bailed out?

The Government says they are going to use the credit score as one of the determining factors. But we have learned over the past year that credit scores are not a good predictor of future ability to repay. This is because over the past five years you could refi your way into a great score. Every time you were going broke and did not have money to pay bills, you pulled cash out of your home by refinancing your first mortgage or upping your second. You pay all your bills, buy some new clothes, take a vacation and your score goes up!

The ’second mortgage implosion’, ‘Pay-Option implosion’ and ‘Hybrid Intermediate-term ARM implosion’ are all happening simultaneously and about to heat up drastically. Second mortgage liens were done by nearly every large bank in the nation and really heated up in 2005, as first mortgage rates started rising and nobody could benefit from refinancing. This was a way to keep the mortgage money flowing. Second mortgages to 100% of the homes value with no income or asset documentation were among the best sellers at CITI, Wells, WAMU, Chase, National City and Countrywide. We now know these are worthless especially since values have indeed dropped and those who maxed out their liens with a 100% purchase or refi of a second now owe much more than their property is worth.

How are the banks going to get this junk second mortgage paper off their books? Moody’s is expecting a 15% default rate among ‘prime’ second mortgages. Just think the default rate in lower quality such as sub-prime. These assets will need to be sold for pennies on the dollar to free up capacity for new vintage paper or borrowers allowed to pay 50 cents on the dollar, for instance, to buy back their note.

The latter is probably where the ’second mortgage implosion’ will end up going. Why sell the loan for 10 cents on the dollar when you can get 25 to 50 cents from the borrower and lower their total outstanding liens on the property at the same time, getting them ‘right’ in the home again? Wells Fargo recently said they owned $84 billion of this worthless paper. That is a lot of seconds at an average of $100,000 a piece. Already, many lenders are locking up the second lines of credit and not allowing borrowers to pull the remaining open available credit to stop the bleeding. Second mortgages are defaulting at an amazing pace and it is picking up every month.

The ‘Pay-Option ARM implosion’ will carry on for a couple of years. In my opinion, this implosion will dwarf the ’sub-prime implosion’ because it cuts across all borrower types and all home values. Some of the most affluent areas in California contain the most Option ARMs due to the ability to buy a $1 million home with payments of a few thousand dollars per month. Wamu, Countrywide, Wachovia, IndyMac, Downey and Bear Stearns were/are among the largest Option ARM lenders. Option ARMs are literally worthless with no bids found for many months for these assets. These assets are almost guaranteed to blow up. 75% of Option ARM borrowers make the minimum monthly payment. Eighty percent-plus are stated income/asset. Average combined loan-to-value are at or above 90%. The majority done in the past few years have second mortgages behind them.

The clue to who will blow up first is each lenders ‘max neg potential’ allowance, which differs. The higher the allowance, the longer until the borrower gets the letter saying ‘you have reached your 110%, 115%, 125% etc maximum negative of your original loans balance so you cannot accrue any more negative and must pay a minimum of the interest only (or fully indexed payment in some cases). This payment rate could be as much as three times greater. They cannot refinance, of course, because the programs do not exist any longer to any great degree, the borrowers cannot qualify for other more conventional financing or values have dropped too much.

Also, the vast majority have second mortgages behind them putting them in a seriously upside down position in their home. If the first mortgage is at 115%, the second mortgage in many cases is at 100% at the time of origination — and values have dropped 10%-15% in states like California — many home owners could be upside down 20% minimum. This is a prime example of why these loans remain ‘no bid’ and will never have a bid. These also will require a workout. The big difference between these and sub-prime loans is at least with sub-prime loans, outstanding principal balances do not grow at a rate of up to 7% per year. Not considering every Option ARM a sub-prime loan is a mistake.

The 3/1, 5/1, 7/1 and 10/1 hybrid interest-only ARMS will reset in droves beginning now. These are loans that are fixed at a low introductory interest only rate for three, five, seven or 10 years — then turn into a fully indexed payment rate that adjusts annually thereafter. They first got really popular in 2003. Wells Fargo led the pack in these but many people have them. The resets first began with the 3/1 last year.

The 5/1 was the most popular by far, so those start to reset heavily in 2008. These were considered ‘prime’ but Wells and many others would do 95%-100% to $1 million at a 620 score with nearly as low of a rate as if you had a 750 score. No income or asset versions of this loan were available at a negligible bump in fee. This does not sound too ‘prime’ to me. These loans were mostly Jumbo in higher priced states such as California.

Values are down and these are interest only loans, therefore, many are severely underwater even without negative-amortization on this loan type. They were qualified at a 50% debt-to-income ratio, leaving only 50% of a borrower’s income to pay taxes, all other bills and live their lives. These loans put the borrower in the grave the day they signed their loan docs especially without major appreciation. These loans will not perform as poorly overall as sub-prime, seconds or Option ARMs but they are a perfect example of what is still considered ‘prime’ that is at risk. Eighty-eight percent of Thornburg’s portfolio is this very loan type for example.

One final thought. How can any of this get repaired unless home values stabilize? And how will that happen? In Northern California, a household income of $90,000 per year could legitimately pay the minimum monthly payment on an Option ARM on a million home for the past several years. Most Option ARMs allowed zero to 5% down. Therefore, given the average income of the Bay Area, most families could buy that million dollar home. A home seller had a vast pool of available buyers.

Now, with all the exotic programs gone, a household income of $175,000 is needed to buy that same home, which is about 10% of the Bay Area households. And, inventories are up 500%. So, in a nutshell we have 90% fewer qualified buyers for five-times the number of homes. To get housing moving again in Northern California, either all the exotic programs must come back, everyone must get a 100% raise or home prices have to fall 50%. None, except the last sound remotely possible.

What I am telling you is not speculation. I sold BILLIONs of these very loans over the past five years. I saw the borrowers we considered ‘prime’. I always wondered ‘what WILL happen when these things adjust is values don’t go up 10% per year’.

Always Expect the Worst

2007-11-27T13:43:00.000-08:00

James May, president of the Air Transport Association is speaking of modern search and seizure at our airports. But it seems to apply to this current administration especially well:

“Always expect the worst,” he said. That way, “you’ll be pleased when you have a great experience.”

But they do so excel at lowering expectations, don't they?

The Definition of Optimism

2007-11-26T14:44:00.000-08:00

via The Straight Dope:

Regarding Transcendental Meditation:

The contestants weren't continuously airborne; rather, they proceeded by a series of hops--all this, mind you, in full lotus, the familiar yogic sitting position.

A skeptic might say it's ridiculous to call hopping levitation, but Thom says it's merely the first stage of a three-stage process. Stage two, which apparently no one has achieved yet, is hovering, and stage three is full-scale flying.

(Iraq) War in 100 words or less

2007-11-19T14:01:00.000-08:00

Matthew Baldwin on Catch-22 by Heller:

Yossarian is shaping up to be a pretty great antihero. Craven, carnal, self-absorbed, and downright dangerous at times, he often reflects on and epitomizes the ridiculousness of the war. The central problem, of course, is that every character is looking out for himself alone, and therefore butting heads with all the other vain and self-serving characters strewn throughout the book. By getting us to sympathize with one, Heller demonstrates that, individually, everyone is acting sanely, insofar as their only aim to to advance their own interests. It's only when you look at the "Big Picture" that you see that the whole is much, much less than the sum of its parts--a bunch of rational actors to collectively make up the enormous clusterfuck of war..

Columnists Current Role

2007-11-13T15:02:00.000-08:00

"You're misunderstanding the role of the [NYT] columnists. You think that they are supposed to inform and provoke. They do that occasionally, but their main role is to comfort and confirm people in their prejudices - by helping readers fit the news into pre-existing narratives. Repetition and familiarity are more important than interesting ideas. Think of the op-ed page as the comics without pictures,"

Commenter at MatthewYglesias

Is Waterboarding Torture?

2007-10-29T23:28:00.000-07:00

This guy thinks so. He should know.

Small Wars Journal

I’d like to digress from my usual analysis of insurgent strategy and tactics to speak out on an issue of grave importance to Small Wars Journal readers. We, as a nation, are having a crisis of honor.

Last week the Attorney General nominee Judge Michael Mukasey refused to define waterboarding terror suspects as torture. On the same day MSNBC television pundit and former Republican Congressman Joe Scarborough quickly spoke out in its favor. On his morning television broadcast, he asserted, without any basis in fact, that the efficacy of the waterboard a viable tool to be used on Al Qaeda suspects.

Scarborough said, "For those who don't know, waterboarding is what we did to Khalid Sheikh Mohammed, who is the Al Qaeda number two guy that planned 9/11. And he talked …" He then speculated that “If you ask Americans whether they think it's okay for us to waterboard in a controlled environment … 90% of Americans will say 'yes.'” Sensing that what he was saying sounded extreme, he then claimed he did not support torture but that waterboarding was debatable as a technique: "You know, that's the debate. Is waterboarding torture? … I don't want the United States to engage in the type of torture that [Senator] John McCain had to endure."

In fact, waterboarding is just the type of torture then Lt. Commander John McCain had to endure at the hands of the North Vietnamese. As a former Master Instructor and Chief of Training at the US Navy Survival, Evasion, Resistance and Escape School (SERE) in San Diego, California I know the waterboard personally and intimately. SERE staff were required undergo the waterboard at its fullest. I was no exception. I have personally led, witnessed and supervised waterboarding of hundreds of people. It has been reported that both the Army and Navy SERE school’s interrogation manuals were used to form the interrogation techniques used by the US army and the CIA for its terror suspects. What was not mentioned in most articles was that SERE was designed to show how an evil totalitarian, enemy would use torture at the slightest whim. If this is the case, then waterboarding is unquestionably being used as torture technique.

The carnival-like he-said, she-said of the legality of Enhanced Interrogation Techniques has become a form of doublespeak worthy of Catch-22. Having been subjected to them all, I know these techniques, if in fact they are actually being used, are not dangerous when applied in training for short periods. However, when performed with even moderate intensity over an extended time on an unsuspecting prisoner – it is torture, without doubt. Couple that with waterboarding and the entire medley not only “shock the conscience” as the statute forbids -it would terrify you. Most people can not stand to watch a high intensity kinetic interrogation. One has to overcome basic human decency to endure watching or causing the effects. The brutality would force you into a personal moral dilemma between humanity and hatred. It would leave you to question the meaning of what it is to be an American.

We live at a time where Americans, completely uninformed by an incurious media and enthralled by vengeance-based fantasy television shows like “24”, are actually cheering and encouraging such torture as justifiable revenge for the September 11 attacks. Having been a rescuer in one of those incidents and personally affected by both attacks, I am bewildered at how casually we have thrown off the mantle of world-leader in justice and honor. Who we have become? Because at this juncture, after Abu Ghraieb and other undignified exposed incidents of murder and torture, we appear to have become no better than our opponents.

With regards to the waterboard, I want to set the record straight so the apologists can finally embrace the fact that they condone and encourage torture.

History’s Lessons Ignored

Before arriving for my assignment at SERE, I traveled to Cambodia to visit the torture camps of the Khmer Rouge. The country had just opened for tourism and the effect of the genocide was still heavy in the air. I wanted to know how real torturers and terror camp guards would behave and learn how to resist them from survivors of such horrors. I had previously visited the Nazi death camps Dachau and Bergen-Belsen. I had met and interviewed survivors of Buchenwald, Auschwitz and Magdeburg when I visited Yad Vashem in Jerusalem. However, it was in the S-21 death camp known as Tuol Sleng, in downtown Phnom Penh, where I found a perfectly intact inclined waterboard. Next to it was the painting on how it was used. It was cruder than ours mainly because they used metal shackles to strap the victim down, and a tin flower pot sprinkler to regulate the water flow rate, but it was the same device I would be subjected to a few weeks later.

On a Mekong River trip, I met a 60-year-old man, happy to be alive and a cheerful travel companion, who survived the genocide and torture … he spoke openly about it and gave me a valuable lesson: “If you want to survive, you must learn that ‘walking through a low door means you have to be able to bow.’” He told his interrogators everything they wanted to know including the truth. They rarely stopped. In torture, he confessed to being a hermaphrodite, a CIA spy, a Buddhist Monk, a Catholic Bishop and the son of the king of Cambodia. He was actually just a school teacher whose crime was that he once spoke French. He remembered “the Barrel” version of waterboarding quite well. Head first until the water filled the lungs, then you talk.

Once at SERE and tasked to rewrite the Navy SERE program for the first time since the Vietnam War, we incorporated interrogation and torture techniques from the Middle East, Latin America and South Asia into the curriculum. In the process, I studied hundreds of classified written reports, dozens of personal memoirs of American captives from the French-Indian Wars and the American Revolution to the Argentinean ‘Dirty War’ and Bosnia. There were endless hours of videotaped debriefings from World War Two, Korea, Vietnam and Gulf War POWs and interrogators. I devoured the hundreds of pages of debriefs and video reports including those of then Commander John McCain, Colonel Nick Rowe, Lt. Dieter Dengler and Admiral James Stockdale, the former Senior Ranking Officer of the Hanoi Hilton. All of them had been tortured by the Vietnamese, Pathet Lao or Cambodians. The minutiae of North Vietnamese torture techniques was discussed with our staff advisor and former Hanoi Hilton POW Doug Hegdahl as well as discussions with Admiral Stockdale himself. The waterboard was clearly one of the tools dictators and totalitarian regimes preferred.

There is No Debate Except for Torture Apologists

1. Waterboarding is a torture technique. Period. There is no way to gloss over it or sugarcoat it. It has no justification outside of its limited role as a training demonstrator. Our service members have to learn that the will to survive requires them accept and understand that they may be subjected to torture, but that America is better than its enemies and it is one’s duty to trust in your nation and God, endure the hardships and return home with honor.

2. Waterboarding is not a simulation. Unless you have been strapped down to the board, have endured the agonizing feeling of the water overpowering your gag reflex, and then feel your throat open and allow pint after pint of water to involuntarily fill your lungs, you will not know the meaning of the word.

Waterboarding is a controlled drowning that, in the American model, occurs under the watch of a doctor, a psychologist, an interrogator and a trained strap-in/strap-out team. It does not simulate drowning, as the lungs are actually filling with water. There is no way to simulate that. The victim is drowning. How much the victim is to drown depends on the desired result (in the form of answers to questions shouted into the victim’s face) and the obstinacy of the subject. A team doctor watches the quantity of water that is ingested and for the physiological signs which show when the drowning effect goes from painful psychological experience, to horrific suffocating punishment to the final death spiral.

Waterboarding is slow motion suffocation with enough time to contemplate the inevitability of black out and expiration –usually the person goes into hysterics on the board. For the uninitiated, it is horrifying to watch and if it goes wrong, it can lead straight to terminal hypoxia. When done right it is controlled death. Its lack of physical scarring allows the victim to recover and be threaten with its use again and again.

Call it “Chinese Water Torture,” “the Barrel,” or “the Waterfall,” it is all the same. Whether the victim is allowed to comply or not is usually left up to the interrogator. Many waterboard team members, even in training, enjoy the sadistic power of making the victim suffer and often ask questions as an after thought. These people are dangerous and predictable and when left unshackled, unsupervised or undetected they bring us the murderous abuses seen at Abu Ghraieb, Baghram and Guantanamo. No doubt, to avoid human factors like fear and guilt someone has created a one-button version that probably looks like an MRI machine with high intensity waterjets.

3. If you support the use of waterboarding on enemy captives, you support the use of that torture on any future American captives. The Small Wars Council had a spirited discussion about this earlier in the year, especially when former Marine Generals Krulak and Hoar rejected all arguments for torture.

Evan Wallach wrote a brilliant history of the use of waterboarding as a war crime and the open acceptance of it by the administration in an article for Columbia Journal for Transnational Law. In it he describes how the ideological Justice Department lawyer, John Yoo validated the current dilemma we find ourselves in by asserting that the President had powers above and beyond the Constitution and the Congress:

“Congress doesn’t have the power to tie the President’s hands in regard to torture as an interrogation technique....It’s the core of the Commander-in-Chief function. They can’t prevent the President from ordering torture.”

That is an astounding assertion. It reflects a basic disregard for the law of the United States, the Constitution and basic moral decency.

Another MSNBC commentator defended the administration and stated that waterboarding is "not a new phenomenon" and that it had "been pinned on President Bush … but this has been part of interrogation for years and years and years." He is correct, but only partially. The Washington Post reported in 2006 that it was mainly America’s enemies that used it as a principal interrogation method. After World War 2, Japanese waterboard team members were tried for war crimes. In Vietnam, service members were placed under investigation when a photo of a field-expedient waterboarding became publicly known.

Torture in captivity simulation training reveals there are ways an enemy can inflict punishment which will render the subject wholly helpless and which will generally overcome his willpower. The torturer will trigger within the subject a survival instinct, in this case the ability to breathe, which makes the victim instantly pliable and ready to comply. It is purely and simply a tool by which to deprive a human being of his ability to resist through physical humiliation. The very concept of an American Torturer is an anathema to our values.

I concur strongly with the opinions of professional interrogators like Colonel Stewart Herrington, and victims of torture like Senator John McCain. If you want consistent, accurate and reliable intelligence, be inquisitive, analytical, patient but most of all professional, amiable and compassionate.

Who will complain about the new world-wide embrace of torture? America has justified it legally at the highest levels of government. Even worse, the administration has selectively leaked supposed successes of the water board such as the alleged Khalid Sheik Mohammed confessions. However, in the same breath the CIA sources for the Washington Post noted that in Mohammed’s case they got information but "not all of it reliable." Of course, when you waterboard you get all the magic answers you want -because remember, the subject will talk. They all talk! Anyone strapped down will say anything, absolutely anything to get the torture to stop. Torture. Does. Not. Work.

According to the President, this is not a torture, so future torturers in other countries now have an American legal basis to perform the acts. Every hostile intelligence agency and terrorist in the world will consider it a viable tool, which can be used with impunity. It has been turned into perfectly acceptable behavior for information finding.

A torture victim can be made to say anything by an evil nation that does not abide by humanity, morality, treaties or rule of law. Today we are on the verge of becoming that nation. Is it possible that September 11 hurt us so much that we have decided to gladly adopt the tools of KGB, the Khmer Rouge, the Nazi Gestapo, the North Vietnamese, the North Koreans and the Burmese Junta?

What next if the waterboarding on a critical the captive doesn’t work and you have a timetable to stop the “ticking bomb” scenario? Electric shock to the genitals? Taking a pregnant woman and electrocuting the fetus inside her? Executing a captive’s children in front of him? Dropping live people from an airplane over the ocean? It has all been done by governments seeking information. All claimed the same need to stop the ticking bomb. It is not a far leap from torture to murder, especially if the subject is defiant. Are we willing to trade our nation’s soul for tactical intelligence?

Is There a Place for the Waterboard?

Yes. The waterboard must go back to the realm of SERE training our operators, soldiers, sailors, airmen and Marines. We must now double our efforts to prepare for its inevitable and uncontrolled use of by our future enemies.

Until recently, only a few countries considered it effective. Now American use of the waterboard as an interrogation tool has assuredly guaranteed that our service members and agents who are captured or detained by future enemies will be subject to it as part of the most routine interrogations. Forget threats, poor food, the occasional face slap and sexual assaults. This was not a dignified ‘taking off the gloves’; this was descending to the level of our opposition in an equally brutish and ugly way. Waterboarding will be one our future enemy’s go-to techniques because we took the gloves off to brutal interrogation. Now our enemies will take the gloves off and thank us for it.

There may never again be a chance that Americans will benefit from the shield of outrage and public opinion when our future enemy uses of torture. Brutal interrogation, flash murder and extreme humiliation of American citizens, agents and members of the armed forces may now be guaranteed because we have mindlessly, but happily, broken the seal on the Pandora’s box of indignity, cruelty and hatred in the name of protecting America. To defeat Bin Laden many in this administration have openly embraced the methods of by Hitler, Pinochet, Pol Pot, Galtieri and Saddam Hussein.

Not A Fair Trade for America’s Honor

I have stated publicly and repeatedly that I would personally cut Bin Laden’s heart out with a plastic MRE spoon if we per chance meet on the battlefield. Yet, once captive I believe that the better angels of our nature and our nation’s core values would eventually convince any terrorist that they indeed have erred in their murderous ways. Once convicted in a fair, public tribunal, they would have the rest of their lives, however short the law makes it, to come to terms with their God and their acts.

This is not enough for our President. He apparently secretly ordered the core American values of fairness and justice to be thrown away in the name of security from terrorists. He somehow determined that the honor the military, the CIA and the nation itself was an acceptable trade for the superficial knowledge of the machinations of approximately 2,000 terrorists, most of whom are being decimated in Iraq or martyring themselves in Afghanistan. It is a short sighted and politically motivated trade that is simply disgraceful. There is no honor here.

It is outrageous that American officials, including the Attorney General and a legion of minions of lower rank have not only embraced this torture but have actually justified it, redefined it to a misdemeanor, brought it down to the level of a college prank and then bragged about it. The echo chamber that is the American media now views torture as a heroic and macho.

Torture advocates hide behind the argument that an open discussion about specific American interrogation techniques will aid the enemy. Yet, convicted Al Qaeda members and innocent captives who were released to their host nations have already debriefed the world through hundreds of interviews, movies and documentaries on exactly what methods they were subjected to and how they endured. In essence, our own missteps have created a cadre of highly experienced lecturers for Al Qaeda’s own virtual SERE school for terrorists.

Congressional leaders from both sides of the aisle need to stand up for American values and clearly specify that coercive interrogation using the waterboard is torture and, except for limited examples of training our service members and intelligence officers, it should be stopped completely and finally –oh, and this time without a Presidential signing statement reinterpreting the law.

Credit Cards Follow Sub-Prime Mortgages in Downturn

2007-08-29T12:39:00.000-07:00

Seems in addition to defaulting on mortgages, people are now "defaulting" on their credit card payments.

via The Big Picture:

"US consumers are defaulting on credit card payments at a significantly higher rate than last year, raising the prospect of problems in the stricken US subprime mortgage market spreading to other types of consumer debt.

Credit card companies were forced to write off 4.58 per cent of payments as uncollectable in the first half of 2007, almost 30 per cent higher year-on-year. Late payments also rose, and the quarterly payment rate - a measure of cardholders' willingness and ability to repay their debt - fell for the first time in more than four years."

But one "analyst"/columnist doesn't seem fit to worry:

"But it is not clear that the borrowers defaulting on their credit cards are the same people defaulting on their subprime mortgages, it added. This is in part because underwriting standards in the credit card sector have been more robust than in the mortgage industry.Also, many highly leveraged subprime borrowers, with little or no equity in their homes, may choose to default on a mortgage before losing their credit cards."

Yes, you read right: "underwriting standards in the credit card sector have been more robust than in the mortgage industry."

How many of us have received pre-approved credit cards in the mail? How many people have successfully gotten credit cards for their dogs?

Propaganda 101

2007-08-20T16:30:00.001-07:00

Bob Wallace

How Propaganda Works
by Bob Wallace

"Once you base your whole life striving on a desperate lie,
and try to implement that lie,
you instrument your own undoing."

- Ernest Becker, The Denial of Death.

It's not hard to understand how propaganda works. You don't need a college degree, or to even to read any of those thick textbooks everybody hates. Everything relevant can be explained in one not-particularly-long article. And, I guarantee you, you must understand how propaganda targets you, to immunize yourself against the attempts.

Propaganda works by appealing to our most base, animalistic instincts. It does not appeal to our better nature, although one of the purposes of it is to convince us it does. It pretends to appeal to our reason, when in fact it appeals to our most primitive emotions. There is good reason for this: perception travels through the emotional brain first, to the rational brain last.

Specifically, propaganda works by appealing to three things: emotionalism, tribalism and narcissism.

I just mentioned perception travels first to the emotional brain, then the rational brain. This happens to everyone, including people who con themselves they are the most rational and intelligent of intellectuals.

As for tribes, we share with every nearly every animal in the world the instinct to form tribes, arranged in a hierachy, with a leader. We are group animals. The fact we look to a leader to take care of us is one of the most firmly established principles in psychology (if you don't remember anything else, remember that).

When anyone transgresses the taboos of a tribe, they can, and often are, ostracised or even expelled. An example? Say some people oppose a war. What happens? They are often called cowards and told to leave the country. Who hasn't heard the insult, "You're a coward! If you don't like it here, get out!" People who say such things think they're being patriotic; in reality they're acting like animals. Emotional, irrational, herd animals, prone to the fear and flight activated by propaganda. Individuals think; groups do not, and cannot.

Narcissism is our inborn tendency to see everything as grandiose or devalued, good or bad, with nothing in-between. It's why nearly every tribe in the world -- and nations are just tribes writ large -- called itself "the People," "the Humans," "the Chosen," "the Motherland," "the Fatherland," or "the greatest nation on earth," relegating everyone outside the tribe to a devalued non-people, non-human status (aka "collaterial damage"). No wonder it's so easy to kill the outsiders -- they're just not quite human.

When you combine those three concepts, you have the basis for all propaganda. If a leader of a tribe tells the people their goodness is under attack by insane, evil people who want to destroy them, they will react just like animals and attack. The Nazi propagandist Herman Goering noticed all you had to do to get people to march off to war is for the leaders to tell them they were under attack, denounce protestors as traitors exposing the tribe to danger, and the people would slander, ostracize and expell the protestors, and then tramp straight off to be slaughtered. He said this technique worked in every country of the world.

The Bush administration used exactly this technique to start two wars. Essentially they told the public that our goodness was under attack by insane and evil people who wanted to destroy us. See how it works? Tribalism, emotionalism, and narcissism.

Supporter of the war responded by attacking protestors as traitors -- trying to expell them from the tribe -- and marching off to war. It's altogether too simple, and too easy.

One man everyone should know is Edward L. Bernays, the American disciple and nephew of Sigmund Freud. He was for all practical purposes the founder of modern propaganda techniques.

Bernays despised most people and regarded them as his inferiors, especially because of intellectual or social claims. (See how it works? I just appealed to your emotions, and convinced you Bernays was attacking you. You fell for it, right?)

Bernays not only pretty much founded modern propaganda techniques, but was also the father of modern PR. Although, you could say they are same thing, and that there's really no difference between them.

In his 1928 book, Propaganda, Bernays wrote, "The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country…"

Remember that quote. Burn it into your memory. Bernays thought people should be ruled by an extremely small elite, who should manipulate them through propaganda. That means you. People who believe in the wonders of government, and that it is their friend, should think twice about it.

In another book, In Crystallizing Public Opinion, Bernays wrote how governments and advertisers can "regiment the mind like the military regiments the body." This can be imposed, he said, because of "the natural inherent flexibility of individual human nature," and suggested the "average citizen is the world's most efficient censor. His own mind is the greatest barrier between him and the facts. His own 'logic-proof compartments,' his own absolutism are the obstacles which prevent him from seeing in terms of experience and thought rather than in terms of group reaction."

Bernays also thought "physical loneliness is a real terror to the gregarious animal, and that association with the herd causes a feeling of security. In man this fear of loneliness creates a desire for identification with the herd in matters of opinion."

Bernays claimed that "the group mind does not think in the strict sense of the word…In making up its mind, its first impulse is usually to follow the example of a trusted leader. This is one of the most firmly established principles in mass psychology." What Bernays called the "regimentation of the mind" is accomplished by taking advantage of the human tendency to self-deception [logic-proof compartments], gregariousness [the herd instinct], individualism [exalting their vanity] and the seductive power of a strong leader.

Bernays also expressed the opinion people "have to take sides...[they] must step out of the audience onto the stage and wrestle as the hero for the victory of good over evil." This also means appealing to our narcissism, our inborn tendency to see everything as either good or bad, with little or nothing in-between.

He also noted the need for people to feel as if they belong to something larger than themselves. Again, this also means appealing to our narcissism, such as people claiming they belong to "the greatest nation on earth."

When people consider themselves as part of the Humans (by whatever name they call themselves), they exalt themselves. Still again, those outside the tribe are non-people, "collateral damage."

"Mental habits create stereotypes just as physical habits create certain definite reflex actionism," Bernays wrote. "...these stereotypes or clichés are not necessarily truthful pictures of what they are supposed to portray." Perception is everything, the truth matters little or not at all.

Now, let's boil all this down and see what we have:

Mass Man, the herd, cannot think, and is instead ruled by its feelings. The herd will look to a leader to save it. The best way to accomplish this is for the herd to feel it is under attack. The herd will draw together, expell those who see the truth and protest, and then march off to war.

The full quote from Hermann Goering? "Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country."

Tell the herd they are the Humans, or the People, or best of all, have God on their side. Paint their enemies as insane and evil. Again, this is appealing to people's narcissism, the tendency to see everything as either good (us) or evil (them). Evoke paranoia and hysteria in them by convincing them the insane evil ones want to conquer and destroy them. What will happen? You can get them to march off to war by the millions, just as Goering noticed. The truth doesn't matter, only the manipulation of perception.

To make it as simple as possible, everything that is needed for a successful propaganda campaign can be summed up in those three aforementioned words: emotionalism, tribalism and narcissism.

We con ourselves we are so advanced. In reality, the human race is stuck in One Million Years BC, except there's no Raquel Welch in a two-piece fur bikini.

I forgot -- there is one another component to sucessful propaganda: keep repeating the message over and over.

Financial Auditors - What are They Good For?

2007-08-20T09:53:00.000-07:00

Deloitte & Touche gives American Home Mortgage a clean bill of health three months before it declares bankruptcy. Auditing's new battle cry - 'Remember the Enron'?

Bloomberg

Aug. 15 (Bloomberg) -- You think your job is tough? Think about the poor schlimazels from Deloitte & Touche LLP who blessed the books at American Home Mortgage Investment Corp., mere months before it went belly up.

The Deloitte accountants faced a crucial decision as they finished their audit work in March. Deloitte could resign and walk away. The firm could qualify its audit opinion by saying there was ``substantial doubt'' about American Home's ability to continue as a ``going concern'' through the end of the year -- as many short sellers already had concluded. Or it could give the company a clean opinion, expressing no doubt, which is what Deloitte did.

Five months later, on Aug. 6, American Home filed for Chapter 11 bankruptcy-court protection, still brandishing the firm's clean audit-opinion letter.

There's a reason why you don't see auditors pursuing second careers as tarot-card readers. They wouldn't be very good at it. Yet every time an accounting firm renders an opinion on a client's financial statements, the auditing standards say it must evaluate the company's ability to continue as a going concern, and warn the public if it concludes there's ``substantial'' doubt, a term the rules don't define.

The home-mortgage industry's growing casualty list is a reminder: They're not very good at that either.

You almost have to feel sorry for the Deloitte accountants who drew this thankless task. While in hindsight it looks like they made a bad call, they also were in a pickle.

Dreaded Language

Tucked inside American Home's credit-facility agreement was a clause that said the Melville, New York-based company would be in default with lenders if its auditor tagged it with the dreaded going-concern language.

For the accountants, if they thought for even a second about this, it must have felt like staring into a house of mirrors. Had they made what proved to be the right call, they probably would have inflicted a mortal wound on American Home. Then again, looking back, a self-fulfilling prophecy would have spared investors from the company's April 30 public offering of 4 million shares at $23.75 each, the prospectus for which incorporated Deloitte's audit opinion. American Home's shares closed yesterday at 22 cents.

The auditing standards stress that auditors are ``not responsible for predicting future conditions or events,'' and that a company's sudden failure without any going-concern warning ``does not, in itself, indicate inadequate performance by the auditor.''

Auditors' Judgments

Even so, financial statements depend heavily on auditors' judgments about a company's forecasts. Look at almost any balance sheet, and the asset and liability values hinge on the company's ability to remain in business. Those numbers would look far different if the company were preparing for liquidation, with holdings listed at fire-sale prices.

That's why going-concern evaluations by outside auditors are a necessity. Auditors may not be particularly skilled at making them. When they do bark, though, you can bet shareholders will skedaddle, because then it's clear the problems lack plausible deniability.
...

The State of Newspaper Research

2007-08-20T09:28:00.000-07:00

John Marshall details how he was singled out by the LA Times as someone who doesn't do his research:

Annals of Reporting
For a variety of reasons I try to stay out of the debates over blogs as such, what they're good or bad at and the rest. But this morning I was alerted to an opinion column in the Los Angeles Times by Michael Skube, a journalism professor at Elon University. The sum of the piece is that the blogosphere is as rife with disputation as it is thin on information, or more specifically, reporting, writing that demands "time, thorough fact-checking and verification and, most of all, perseverance."

Now, fair enough. There's certainly no end of blog pontificating fueled by puffed-up self-assertion rather than facts. But Skube's piece reads with a vagueness that suggests he has less than a passing familiarity with the topic at issue. And I will confess to you that what really caught my attention was that in a column bewailing how blogs don't do any real reporting one of the four bloggers he mentioned was me.

Now, whether we do any quality reporting at TPM is a matter of opinion. And everyone is entitled to theirs. So against my better judgment, I sent Skube an email telling him that I found it hard to believe he was very familiar with TPM if he was including us as examples in a column about the dearth of original reporting in the blogosphere.

Now, I get criticized plenty. And that's fair since I do plenty of criticizing. And I wouldn't raise any of this here if it weren't for what came up in Skube's response.

Not long after I wrote I got a reply: "I didn't put your name into the piece and haven't spent any time on your site. So to that extent I'm happy to give you benefit of the doubt ..."

This seemed more than a little odd since, as I said, he certainly does use me as an example -- along with Sullivan, Matt Yglesias and Kos. So I followed up noting my surprise that he didn't seem to remember what he'd written in his own opinion column on the very day it appeared and that in any case it cut against his credibility somewhat that he wrote about sites he admits he'd never read.

To which I got this response: "I said I did not refer to you in the original. Your name was inserted late by an editor who perhaps thought I needed to cite more examples ... "

And this is from someone who teaches journalism?

Perhaps I'm naive. But it surprises me a great deal that a professor of journalism freely admits that he allows to appear under his own name claims about a publication he concedes he's never read.

Actually, if you look at what he says, it seems Skube's editor at the Times oped page didn't think he had enough specific examples in his article decrying our culture of free-wheeling assertion bereft of factual backing. Or perhaps any examples. So the editor came up with a few blogs to mention and Skube signed off. And Skube was happy to sign off on the addition even though he didn't know anything about them.

I grant you that the blogosphere needs better bloggers. But, as usual, the need for better critics seems even more acute.

--Josh Marshall

What the Credit Crunch Looks Like On the Inside, Pt III

2007-08-15T10:07:00.000-07:00

Ritholtz

Way back in the late 1990s into the early 2000s, a previously well regarded group -- stock analysts -- subtly shifted the objectives of their work. Previously, they plied their skills looking for stocks their clients and trading desks could make money buying and selling.

But things change, commissions shrunk from 10 cents per share to 6 to 3 to mere half pennies today. The old business model no longer applied. What rose in its place was a new model that emphasized not the trading of equities, but the investment banking fees that accompanied IPOs. Many analysts compromised their objectivity on the altar of banking fees. This was especially true in the Internet/Technology/Telecom space.

Thus, they went from being somewhat valued allies of the investor class to the guys helping to dump the dogs into an unknowing public's portfolios. Since then, many of this crowd has been vilified (Jack Grubman, Henry Blodgett, etc.), and the securities industry got Spitzerized to the tune of some $$1,387.5 Million dollars in fines (a deal I suspect they would do all over again if they could).

Fast forward to the early 2000s. Interest rates are at 46 year lows, and this time around, another group of shameless whores analysts are following the same playbook: The ratings agencies that gave their AAA blessings to the now defaulting alphabet soup of RMBS, CDOs, CLOs, ABX structured products that has so recently seized up the credit markets.

It was a simple case of pay-to-play to get rated. Portfolio's Jesse Eisinger goes into the ugly details of a surprisingly familiar story:

"Moody’s and S&P dominated for decades, and their business model was straightforward: Investors bought a subscription to receive the ratings, which they used to make decisions. That changed in the 1970s, when the agencies’ opinions were deemed a “public good.” The Securities and Exchange Commission codified the agencies’ status as self-regulatory entities. The agencies also changed their business model. No longer could information so vital to the markets be available solely by subscription. Instead, companies would pay to be rated. “That was the beginning of the end,” says Rosner.

It might come as a surprise, but rating credit is a heck of a business to be in. In fact, Moody’s has been the third-most-profitable company in the S&P 500-stock index for the past five years, based on pretax margins. That’s higher than Microsoft and Google. Little wonder that Warren Buffett’s Berkshire Hathaway is the No. 1 holder of Moody’s stock.

McGraw-Hill’s most recent financial report shows that S&P has profit margins that would put it in the top 10. Fitch Ratings, owned by the French firm Fimalac, is a distant third in market share but nevertheless has an operating margin above 30 percent, about double the average for companies in the S&P 500.

In 2006, nearly $850 million, more than 40 percent of Moody’s total revenue, came from the rarefied business known as structured finance. In 1995, its revenue from such transactions was a paltry $50 million. . ."

The entire article is well worth your time to read in full.

Yes, Moody's, S&P, and Fitch were complicit in what is slowly coming to be viewed as widespread fraud. However, there is more than enough blame for the failure of the credit markets to spread around. The ratings agencies fraudulent ratings -- I won't even bother with the word alleged -- are merely the tip of the iceberg.

As much as the whores credit agencies have a large share of responsibility in this mess, do not forget to save some blame for an even greater ethically challenged industry: those clever folks who work at Wall Street's biggest iBanks. As related by Reuter's Patrick Rucker, it seems that Wall Street often shelved damaging subprime reports. (Sweet!) Here are the details:

"Investment banks that bundle and sell home mortgages often commissioned reports showing growing risks in sub-prime loans to less credit-worthy borrowers but did not pass on much of the information to credit rating agencies or investors, according to some of those who prepared the reports.

The mortgage consultants, known as due-diligence firms, were hired by investment banks to make sure blocks of mortgages conformed to the mortgage seller's own standards. The studies provided a first glimpse of loan quality for ratings agencies and investors who do not normally see the full reports.

As the U.S. housing boom reached its crescendo in 2006 and investors showed a strong appetite for mortgages, lenders relaxed their underwriting standards, and millions of borrowers with poor credit records were able to obtain subprime mortgages as a result.

Default rates on many of those subprime mortgages are now rising, some borrowers face foreclosure on their homes, and investors in the mortgages face losses." (emphasis added)

At this point, we should expect to see a flurry of investigations into the rating agencies and the same slew of Wall Street firms that were involved in the last analyst scandal.

The saving grace for Wall Street maybe (emphasis maybe) that this was less of a "systemic fraud" than the 1998-2002 scandal. They may perhaps escape by merely jettisoning these bad actors, throwing them under the bus to save their own skins. Perhaps.

Trade with China: How Iraq Should Have Been Handled?

2007-08-14T11:56:00.000-07:00

China's new revolutionaries: U.S. consumers,
by Nathan Gardels, Commentary, LA Times:

Who would have thought that tainted pet food and toys would threaten to unravel the authoritarian export model of Chinese growth that the brutal Tiananmen Square crackdown in 1989 was partly meant to secure? China's then "paramount leader" Deng Xiaoping, who had been purged during the Cultural Revolution, could well imagine how political upheaval would derail China's stable path to prosperity. But it surely never entered his mind, nor that of his descendant comrades, that the fickle American consumer would one day become, as the students in the square wanted to be, the agent of revolutionary change in China.

In the name of sovereignty, China's leaders for a long time have gotten away with suppressing their own citizens while ignoring the get-gloriously-rich-quick corruption that has thrived in the absence of the rule of law. But, thanks to globalization, China's export reliance on the U.S. market has imported the political demands of the U.S. consumer into the equation. Americans won't hesitate to cut the import lifeline and shift away from Chinese products that might poison their children or kill their pets.

Unlike organized labor or human rights groups, consumers don't have to mobilize to effect change; they only have to stop spending. And their bargaining agents -- Wal-Mart, Target, Toys R Us -- have immensely more clout than the AFL-CIO and Amnesty International in fostering change in China.

Ironically, the United States' "most favored nation" trade treatment for China (and its later entry into the World Trade Organization), which labor and human rights groups so virulently opposed in the past, has become a Trojan horse. China's future is now so linked to the American consumer that Beijing will be forced to curb corruption and strengthen regulation through the rule of law or face the certain doom of its export-led growth. ...

For consumers to trust Chinese products, they must trust regulation of those products. And regulation cannot be trusted without the rule of law, which doesn't bend to bribery, fraud and quanxi (connections). ...

[T]he ultimate paradox of Deng's soft totalitarianism is that privatizing people's lives will ultimately deprive the authorities of their power. As more people come to enjoy private freedom, fewer will abide it being taken away. Globalization, it seems, has accelerated this process by forging a kind of objective coalition of the growing Chinese middle class and the American consumer in favor of the rule of law. ...

Savvy consumers are not likely to buy China's response of prosecuting or executing high-level officials -- "killing the chicken to scare the monkey." They simply want the lead removed from their children's toys or they will take their purchases elsewhere.

Of course, a move toward the reliable rule of law is not democracy, but it is a big step on the long march in that direction.

Some years ago, the once-famous but now forgotten dissident, Wei Jingsheng, lamented how the attention of global public opinion and that of most Chinese had shifted "from Democracy Wall [where Wei was arrested for putting up posters calling for democratic political reforms] to the shopping mall."

Now, especially as the spotlight of next summer's Olympics approaches, it seems the tables may be turning again.

Exit Rove: What Was His Strategy?

2007-08-14T11:51:00.000-07:00

Joshua Green forNY Times

THERE is a paradox at the heart of Karl Rove’s tenure in the White House, and it is a key to understanding why he failed to remake American politics, despite ambitious plans to do so. In seeking to establish a lasting conservative majority, Mr. Rove violated one of the central tenets of modern conservative ideology: the idea that government cannot effectively refashion American society.

For decades, conservatives have inveighed against what they consider to be the hubris of liberals — the belief that regulations, laws and bureaucrats can contend with deep cultural forces. Daniel Patrick Moynihan, the New York senator and a chastened veteran of the Great Society, liked to warn about government overreach by citing Rossi’s Law, so named for the sociologist Peter Rossi, who had declared that “the expected value for any measured effect of a social program is zero.”

Conservatives believe the Great Society programs that liberals pushed in the 1960s demonstrated that government engineering doesn’t work. Lyndon Johnson’s War on Poverty failed, this critique goes, because liberals simply didn’t understand the limits of government’s power to transform culture.

Whether or not one accepts Rossi’s Law, there can be little dispute that Mr. Rove pursued his vision of a new political order with the activist zeal of a 1960s Great Society liberal. From the outset of the Bush administration, Mr. Rove aimed to create a “permanent majority” for Republicans, just as Franklin Roosevelt did for Democrats in the 1930s, and as William McKinley and his campaign manager Mark Hanna — Mr. Rove’s hero — did for Republicans in the 1890s.

As Mr. Rove sought a political realignment that would create a durable Republican majority, he seized on government as his chief mechanism. He tried to realign American politics principally through the pursuit of major initiatives that he believed would reorient a majority of Americans to the Republican Party: establishing education standards; rewriting immigration laws; partially privatizing Social Security and Medicare; and allowing religious organizations to receive government financing.

The only thing that united these government actions was the likelihood that they would weaken political support for Democrats. Social Security privatization would create a generation of market-minded stockholders. Pork-barrel spending on religious organizations would keep evangelical Christians engaged in the political process — and pry loose some African-American voters by funneling money to black churches. No Child Left Behind would appeal to voters who traditionally looked to Democrats as the party of education. And generous immigration policies would persuade Hispanics to vote Republican.

Mr. Rove’s entire vision for Republican realignment was premised on the notion that he could command government to produce the specific effects that he desired. But as a conservative could have predicted, his proposed policies unleashed a series of failures and unintended consequences.

Mr. Rove had extraordinary power within the administration to shape domestic policy. But pushing through many of his programs proved difficult. On Social Security and immigration reform, Congress and the country weren’t prepared to embrace his vision. Like a 1960s liberal in love with the abstract merits of a guaranteed income, Mr. Rove misread the mood of the country and tried to do too much.

Mr. Rove married a liberal’s faith in the potential of government to a conservative’s contempt for its actual functioning. This was the contradiction at the heart of “compassionate conservatism,” and it helps explain the tension between the president’s fine words about, say, helping those hurt by Hurricane Katrina, and his actions.

Conservatives don’t have a lot to celebrate these days. Mr. Rove’s attempt at a Great Republican Society has left his party in tatters and, in this sense at least, his influence will be felt long after George W. Bush has left the White House.

Of course, there is a bright side. If nothing else, Mr. Rove has strengthened the conservative critique of what happens when you try to engineer great societal changes through government policy. Perhaps conservatives can find some solace by telling themselves they were right all along.

Joshua Green is a senior editor for The Atlantic.

What the Credit Crunch Looks Like On the Inside, Pt II

2007-08-14T09:29:00.000-07:00

Ritholtz

August 13, 2007
Dear Client:
As you undoubtedly know, the credit markets, along with most other markets, have experienced
a liquidity crisis in the past several weeks. Investor fear has overtaken reason and has induced a period
in which most securities have simply ceased to trade. We’ve all read the stories about one hedge fund
or another suffering losses related to subprime exposure and closing down or being rescued. This fear,
while warranted in some cases, has spilled over into the rest of the credit market and liquidity has dried
up all over the street. In addition, investment banks and securities firms are stuck with LBO deals
they’ve already entered into but cannot find buyers for the bonds so must inventory them themselves.
This liquidity crisis has caused bids to disappear from the market and makes it virtually impossible to
properly price securities or to trade them. High grade securities are trading like junk bonds as panicked
investors dump names like General Electric at Tyco‐like prices.
We have carefully monitored this situation for the past several weeks and have met regularly to
discuss the potential impact it may have on our clients. We had previously thought that the market
would return to some semblance of order and that our clients would not join in the panic.
Unfortunately, this has not been the case. We are concerned that we cannot meet any significant
redemption requests without selling securities at deep discounts to their fair value and therefore causing
unnecessary losses to our clients. We contacted the CFTC today and asked for their permission to halt
redemptions until we can honor them in an orderly fashion.
Sentinel has always sought to protect your interests and since our inception in 1980, we have
never experienced a situation quite like this one. We will continue to monitor the markets and we will
raise cash as opportunities present themselves.
We understand that this will obviously cause inconveniences on your part however, at present,
we do not see an alternative and we don’t believe it is in anyone’s best interest if a run on Sentinel took
place and we were in a forced liquidation mode.
We value your trust in us these past 28 years and this has been a very difficult decision for us
and we understand the implications of this decision both on you and on Sentinel. We feel, however,
that this is the best way to assure you the best possible value on your investment.
We will remain in contact with you and update you as things progress.
Sincerely,
Sentinel Management Group, Inc.

What the Credit Crunch Looks Like On the Inside

2007-08-14T09:28:00.000-07:00

Jeff Matthews

Monday, August 13, 2007
What’s Happening at Barclay’s?

It began innocently enough.

A few odd stocks started collapsing—falling really hard for two or three or four days in a row—on no apparent news.

The first such stock I noticed was Teleflex (TFX), a fine, New York Stock Exchange-listed industrial conglomerate whose share price hit a 52-week high of $85 one fine day in July, and then dropped almost 25 points in the next two weeks on absolutely no news.

Now, Teleflex happens to be buying a medical products company called Arrow International, with which I am quite familiar.

And reasonable people might argue that Teleflex is paying an exorbitant price for Arrow, given the fact that Arrow’s core product line (something called central venous catheters—basically fancy straws that allow doctors to inject fluids into the body) are losing share to other types of catheters, thus calling into question Arrow’s ability to grow revenue in line with other medical products companies.

Furthermore, Teleflex plans to sell one of its existing businesses to help fund the Arrow transaction. Given the seize-up in the credit markets and the swift reduction in the number of private equity firms able to buy businesses on margin the way people used to buy houses in Orlando, Vegas and Sacramento, reasonable people might worry that Teleflex will get a less-than-super price for its existing business.

Thus, the market might be spooked into thinking that Teleflex was buying high and selling low, simultaneously.

At least, that was my best guess as to why shares of Teleflex had begun to crater.

But along came more Teleflexes—stocks suddenly dropping as though somebody’s life depended on it.

Ashland, Computer Sciences, Office Depot, CIT and Robert Half, among others, all experienced sudden, sharp drops under relentless selling pressure—most of them on absolutely no new news.

Sure, Office Depot had missed earnings, and yes Computer Sciences had been juiced upwards on private equity takeover speculation. But the decline in these and the others was quite sudden, in tandem and without let-up.

What on earth, then would a chemical company have in common with a high-tech computer services outfit, an office products retailer, a finance company, a headhunter and a diversified conglomerate?

In every case, their single largest publicly disclosed investor is identified as Barclay’s Bank.

Now, Barclay’s is as big as a bank can get—a little volatility in the credit markets is not likely going to cause a problem leading to the wholesale liquidation of assets, and certainly not assets that presumably belong to investors in Barclay’s equity funds, not the bank itself.

Still, Barclay’s is seeking to buy ABN Amro for what is widely considered to be a ridiculous price. And it would appear that Barclay’s has been selling stocks out of its funds in a get-me-out fashion.

Is it all an innocent coincidence, or is it one of the following:

1) Some trader on Barclay’s equities desk hit the wrong button on their computer;
2) The portfolio managers at Barclay’s all decided to sell stocks they had owned in size for a long time into a weak tape.
3) Something else is going on at Barclay’s that hasn’t come to light.

I’m willing to bet the answer is Number 3.

Any informed observations would be most welcome.

Our Biggest Iraq Enemy: Ourselves

2007-08-10T14:21:00.000-07:00

Cincinnati Post

Helping enemies in Iraq
By Martin Schram

For years, the list of enemies targeting U.S. troops in Iraq has included Sunni insurgents, Shiite militia and, more recently, a group that calls itself al-Qaida of Mesopotamia. The enemies list in Iraq also includes outsiders such as Iran and Syria, who President Bush and Vice President Cheney have blamed for providing those combatant enemies with weapons that are used to kill U.S. troops in Iraq. Now there is one more, according to infuriating new intelligence.

An investigation by the U.S. Government Accountability Office identified a new culprit who has been shipping into Iraq massive numbers of weapons that U.S. officials now fear are being used to kill American troops. It is our Pentagon.

The Defense Department has no clue about what happened to at least 190,000 guns - 110,000 AK47s and 80,000 pistols - that it gave Iraqi security forces in 2004 and 2005, according to a GAO report released Monday. And U.S. officials now concede that at least some of the missing weapons are now being used to kill American troops.

"One senior Pentagon official acknowledged that some of the weapons probably are being used against U.S. forces," the Washington Post reported Monday. "He cited the Iraqi brigade created at Fallujah that quickly dissolved in September 2004 and turned its weapons against the Americans."

The statistics are both shocking and enraging. The Pentagon cannot account for 110,000 of the 185,000 AK47 rifles it gave the Iraqis; 80,000 of the 170,000 pistols; 135,000 of the 215,000 items of body armor; 115,000 of the 140,000 helmets.

According to the GAO, these security-assistance programs are traditionally overseen by the State Department. But during the reign of then-Defense Secretary Donald Rumsfeld, his department insisted it could provide the flexibility that could best do the job. Those were the days when nobody said no to Rummy, so it came to pass.

But the GAO report chronicled haphazard and often nonexistent property-accounting procedures as the Pentagon rushed to create, arm and equip Iraqi security forces. Pentagon officials told GAO investigators they didn't have enough personnel to keep track of the weapons they were handing out in Iraq and that their computers were inadequate for the task. Defense officials didn't create central records to track the weapons until December 2005.

Responsibility for the massive failure of accountability lies with the general in charge of creating and equipping the Iraqi security forces. It was Gen. David Petraeus, who is now in command of the entire U.S. military effort in Iraq. Petraeus, who until this finding has always enjoyed an excellent reputation in military circles, will be providing that much-awaited Sept. 15 report on the status of the U.S. military effort in Iraq.

The GAO report of the Pentagon's failure to account for the weapons reads like a classic in witless bureaucracy. "During our review, DOD officials expressed differing opinions about whether DOD regulations applied to the train-and-equip program for Iraq," the report said. The officials were unable to decide which set of procedures applied to their mission - so they basically used none of them and got no guidance from superiors. As of last month, the report said, defense officials still had not identified which set of procedures to use.

No wonder the final two recommendations in the GAO report are so pathetically obvious that, written in officialese, they could pass for comic-strip satire. Hardly "Pogo," but maybe "Doonesbury Meets Stephen Colbert": "Determine which DOD accountability procedures apply or should apply to the program. After defining the required accountability procedures, ensure that sufficient staff, functioning distribution networks, standard operating procedures and proper technology are available to meet the new requirements."

But the bottom line is no laughing matter. It is tragically infuriating and sadly ironic. This was a war that began to go badly when the Bush administration disbanded the Iraqi army but never thought to guard that army's arsenals, which were looted for later use against our troops by insurgents and militia.

Now this. We may never know how many of our courageous men and women fighting in Iraq were killed or maimed by unfriendly fire from friendly weapons, guns that were made in, and supplied by, the U.S.A.

Separate But Equal

2007-08-10T10:21:00.000-07:00

Today both Barack and Hillary were reported as supporting "Civil Unions" of gays but not marriage. Barack all but conceded that since in his view "civil unions" would differ from marriage in name only, that his stance dissolved into a semantic debate.

Separate But Equal?

Liquidity Collapse: The Shareholder Letter You Won't See

2007-08-10T10:11:00.001-07:00

From Jeff Matthews:

The Shareholder Letter You Should, But Won’t, Be Reading Next Spring

Dear Shareholder:

Well, it seemed like a good idea at the time.

I am referring to your board’s decision to approve a massive share buyback and huge special dividend last summer, when the buzzwords going around Wall Street were “returning value to shareholders.”

Why we did it was this: a smart banker from Goldman Lehman Lynch & Sachs came in, all gussied up and looking sharp, and made a terrific PowerPoint presentation to the board with multi-colored slides that showed how paying a special $10 a share dividend, plus buying back a bunch of our stock at the 52-week high, would “return value to our shareholders.”

We should have thrown the fellow out the window, along with his PowerPoint slides, but what happened was, my fellow board members and I were so busy deleting emails from our Blackberries that we just didn’t notice the last slide showing (in very tiny numbers) the “Trump-style” debt we would be incurring to do so.

We also missed the footnote showing the fees that would go to Goldman Lehman Lynch & Sachs for the courtesy of their showing us how to wreck our balance sheet.

Those fees, I am embarrassed to say, amounted to more money than we made the quarter before we “returned value to shareholders.”

But the fact is, we’d been getting so much pressure over the last few years from the hedge fund fellows who own our stock for ten minutes tops, not to mention the so-called “analysts” on Wall Street (around here we call them "Barking Seals"), to do something with the cash...well, the truth is we just couldn’t stand answering our phones any more.

So, in order to finally start getting things done instead of spending all day explaining to these hedge fund fellows and the Barking Seals on Wall Street why we weren’t “returning value to shareholders,” we decided to do the big buyback and the big dividend.

And for a few weeks there, it was pretty nice.

The stock jumped, the phones stopped ringing, and the Barking Seals started congratulating us on the conference calls instead of asking us when we were going to get rid of our cash.

Unfortunately, not only did getting rid of our cash and taking on a huge debt load NOT “return value” to you, our shareholders, it actually crippled the company for years to come.

For starters, as you know, the aftermath of last summer’s sub-prime debt crisis is forcing perfectly fine companies to liquidate businesses at fire-sale prices…but we can’t take advantage of those prices, because we have no cash. And thanks to the debt we incurred “returning value to shareholders,” the banks won’t loan us another dime.

Secondly, as you also know, we’ve had to lay off hundreds of loyal, hard working employees to pay the interest expense and principal on all that debt, because unlike Donald Trump, we actually repay our debts.

Furthermore, as you probably don’t know, we’ve also scaled back some interesting research projects that had great long-term potential for the company, but were deemed too expensive to continue in light of the fact that we have no cash.

Now, I’d feel a heck of a lot worse about all this if we were the only company suckered into buying our stock at a record high price and paying a big fat dividend on top of it.

But I’m happy to report there were others who also did the same stupid thing.

For example, Cracker Barrel, the restaurant chain that depends on people having enough money for gas to get to its stores along Interstates across America, spent 46 bucks a share for 5.4 million shares of its stock early last year to “return value to shareholders.”

Cracker Barrel’s stock now trades at $39.

And Scott’s Miracle-Gro, whose business is so seasonal it loses money two quarters out of four, put over a billion dollars of debt on its books with the kind of special dividend and share buyback we did.

Health Management Associates—a healthcare chain that can’t collect money from about a quarter of the patients it handles—paid shareholders ten bucks a share in a special dividend to “return value to shareholders” and then missed its very next earnings report because of all those unpaid bills and all that new interest expense it was paying.

Oh, and Dean Foods, a commodity dairy processor with 2% profit margins, returned all sorts of value to shareholders early last year—almost $2 billion worth—just before its business went to hell in a hand basket when raw milk prices soared.

So, you see, everybody was doing it.

And boy, do I wish we hadn’t.

Liquidity Collapse: Advice for Rich Uncles

2007-08-10T10:10:00.001-07:00

From the Big Picture:

I am going to relate an anecdotal tale that, as far as I can tell, is true. The actual story matters much less than the lessons it teaches, clearly enunciated at the end of this post.

Several years ago, I helped a firm develop a new Distressed Debt/CDO department. The history of the group that I brought in was a strong ability to trade distressed paper, and the expertise to package and resell it institutionally.

Initially, this worked out well for the firm. They managed to do a number of deals, getting their names on the offering books as co-leads with the likes of Merrill Lynch and Goldman Sachs. Very prestigious, huge fees, all good stuff.

After I left, I kept hearing all sorts of sketchy tales about the group: big turnover amongst staff, disagreements about costs, fights with the bond desk, issues with compensation. I chalked this angst up to the usual Wall Street "eat what you kill" philosophy.

Then I heard several stories: That the CDO desk was pitching their product to retail brokers, that this debt was getting placed in the accounts of individual investors where it had absolutely no business going into. Distressed debt and CDOs are sophisticated complex instruments that require a great of expertise in understand, and I was sure neither the retail brokers nor the clients knew these things.

Then, I hear tales that a retail broker from a rather disreputable shop joins the firm. He takes to the CDOs like a fish to water, placing them everywhere and earning huge fees. The rumor I keep hearing is that he even placed a $10 million block with a family member.

You can see where this is going: The $10 million dollar investment is now worth, best as anyone can figure, about $3 million -- assuming anyone can find a bidder. The commission on that one placement was a cool $700,000. The relative/client has gone postal, litigation threatened, all manner of ugliness. You just know this is going to end badly . . .

Now, its time for your 3 lessons to learn from this misadventure:

1. Advice for Investors: Never buy anything you do not understand. This is a very simple rule, regularly ignored by all too many people. If you don't understand what a company does, DO NOT BUY IT. If aan offering doc comes with a 157 page set of disclosures, unless you understand all the risks it contains, stay far far away.

2. Advice for Brokerage Firms: Never place institutional products with retail investors: As a rule, they do not have the sophistication to understand the product (see rule #1). More importantly, when this stuff gets offered to retail clients, it likely means INSTITUTIONAL CLIENTS HAVE REJECTED IT. Hence, the need to stick it somewhere other there where its supposed to go is likely proof that its got some bad mojo attached.

3. Special Advice for Rich Uncles: Don't give money to relatives, instead buy them a new Rolex. This sounds like a quite odd bit of advice, but follow my logic. When you give, say $10M ,to a relative, you are making a major financial decision based not on the merits of their skill set and experience, but rather, on a coincidence of blood relations.

This is not the basis for making a significant financial planning decision.

However, you then must speak to your nephew/niece/relative, with their parents (one of whom is likely to be your sibling). In front of these relatives, explain that your money has been carefully placed in the hands of professionals you have very painstakingly selected after great study of their long term track record (which the kid obviously does not have).

But in order to help them get started on their chosen career, here is a small present: This Rolex Watch (I suggest this one).

Tell them to wear it with pride: It will subtly convey how successful they are to their employers, peers and most importantly of all, their sales prospects. It reeks of their soon-to-be inevitable success.

Wish the best of luck in their new career! And walk away knowing that the $5,000 you just blew saved you untold millions in losses, and no end of grief at all future family gatherings

You'll thank me . . .

Important Finace Quotes to Remember

2007-08-08T14:56:00.000-07:00

Culled from The Big Picture

"Markets can remain irrational longer than you can remain solvent."
— John Maynard Keynes

"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."
— JP Getty

"You try to be greedy when others are fearful, and fearful when others are greedy."
— Warren Buffett

"A gold miner is a liar standing beside a hole in the ground."
— Mark Twain

Language as Philosophy: Proscriptive vs Descriptive

2007-08-06T18:03:00.001-07:00

I received the following from a friend:

Let's face it - English is a crazy language.
There is no egg in eggplant, nor ham in hamburger;
neither apple nor pine in pineapple. English muffins
weren't invented in England or French fries in
France . Sweetmeats are candies while sweetbreads,
which aren't sweet, are meat. We take English for
granted. But if we explore its paradoxes, we find
that quicksand can work slowly, boxing rings are
square and a guinea pig is neither from Guinea nor
is it a pig.

And why is it that writers write but fingers
don't fing, grocers don't groce and hammers don't
ham? If the plural of tooth is teeth, why isn't the
plural of booth, beeth? One goose, 2 geese. So one
moose, 2 meese? One index, 2 indices? Doesn't it
seem crazy that you can make amends but not one
amend? If you have a bunch of odds and e nds and get
rid of all but one of them, what do you call it?

If teachers taught, why didn't preachers
praught? If a vegetarian eats vegetables, what does
a humanitarian eat? Sometimes I think all the
English speakers should be committed to an asylum
for the verbally insane. In what language do people
recite at a play and play at a recital? Ship by
truck and send cargo by ship? Have noses that run
and feet that smell?

How can a slim chance and a fat chance be
the same, while a wise man and a wise guy are
opposites? You have to marvel at the unique lunacy
of a language in which your house can burn up as it
burns down, in which you fill in a form by filling
it out and in which, an alarm goes off by going on.

English was invented by people, not
computers, and it reflects the creativity of the
human race, which, of course, is not a race at all
That is why, when the stars are out, they are
visible, but when the lights are out, they are
invisible.

The methods by which a language evolves to me serves as an analogy to many other ideas, especially the concept of "top-down" vs "bottom-up" control.

Take dictionaries, for example. The fall into two broad types - I'll call the "Proscriptive" and "Descriptive".

Proscriptive dictionaries describe language as it "should be" used. Descriptive dictionaries describe how a language *is* used. Which is right?

At one extreme we can reject all change and mercilessly hammer the dogmatic: words should be used/spelled as described. All variations are unwelcome. While this in theory would lead to a "stale" language over time, the real result is that it will never happen. People will speak however they like, dictionary be damned.

But the other extreme, the Descriptive dictionary is just the opposite, it intends to report on how language is used in real life. When this is taken to extreme, then no variation would be "incorrect". By simply speaking a word or spelling it however one likes, then the usage would be "correct" by deign that it was just "used" that way. With each person speaking/spelling however one likes, communication would break down.
(I'm obviously glossing over the approach used by Descriptive dictionaries, in that they tend to document the most common usages, not every variant.)

Strangely, society seems to slowly rock forward by mediating between these two extremes. Thus language tends to be a very "democratic" creation and as the example above illusrates, continue to appear to be a product of a committee of madmen.