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Friday Morning at The Confluence: News and Views

Another rainy day in Boston

Another rainy day in Boston

Good morning Conflucians! It’s another cold, rainy day in the Boston area. I’ve gone through the stages of grief, from denial to anger, and so on, and I think I’ve almost reached acceptance. Summer is just not coming to New England this year. It’s 57 degrees on July 3. So what? I should be grateful it’s raining and not snowing, right? The local papers have started publishing snarky little articles like this one about the “bright side” to all this rain and cold.

OK, it’s wet. OK, everyone’s miserable. OK, the sun shines on every other city in the country and Mother Nature is spitting on Boston.

But instead of thinking of this weather front as a personal affront, why not grab onto that silver lining and recognize the rainfall for what it is: a respite from the rat race known as summer.
Yes, summer, the ultimate setup for personal and recreational failure, when every day is supposed to be a mini-vacation….

But now, thanks to unremitting clouds and drizzle, it’s off.

No need to squeeze into the bathing suit. Or do your hair (it’ll frizz up faster than a flash flood). Or sport a tan. Or go for that walk or run or bike ride or show up for bootie boot camp at 6 a.m. It’s pouring!

As for the beach, no wonder everyone’s lying down, exposing themselves to deadly UVB rays. Getting there is exhausting. Lewis and Clark had an easier time looking for the Northwest Passage.

Oh hardy har har. Don’t get me wrong. I’m really happy for all of you Conflucians who don’t live up here in the Northeastern corner of the country. Who knows? Maybe God is punishing us for our sins or something.

The Boston Globe reports that there is one genuine positive to all this ghastly weather.

While the onslaught of miserable June weather played havoc with people’s plans and psyches, it has also provided a quiet benefit to many city neighborhoods. Fatal and nondeadly shootings in Boston have plunged, and police acknowledge the weather has been a key factor.

Well I’m glad there really is one positive effect of the horrible weather…. So let’s see… what’s happening in the rest of the country this morning?

You’ve probably heard the Washington Post did a quick reversal yesterday on its plan to sell access to politicans and Post writers and editors. It was all just a big misunderstanding, according to Howard Kurtz.

Washington Post Publisher Katharine Weymouth yesterday canceled plans for a series of policy dinners at her home after learning that marketing fliers offered corporate underwriters access to Post journalists, Obama administration officials and members of Congress in exchange for payments as high as $250,000.

“Absolutely, I’m disappointed,” Weymouth said in an interview. “This should never have happened. The fliers got out and weren’t vetted. They didn’t represent at all what we were attempting to do. We’re not going to do any dinners that would impugn the integrity of the newsroom.”

Sure Katharine, we believe you. Some guy in marketing is taking the fall for the public relations nightmare:

The fliers were approved by a top Post marketing executive, Charles Pelton, who said it was “a big mistake” on his part and that he had done so “without vetting it with the newsroom.”

I’d just love to know if the Post actually had an agreement with the White House to participate in these “salons.” It really does sound like something this administration would do, but we’ll probably never know for sure, since investigative journalism is dead.

It looks like the Washington Post still has at least one real reporter on staff though. R. Jeffrey Smith read some recent court filings and found some interesting background on the Valerie Plame case showing that Dick Cheney was in control of the Bush administration’s revelations about Plame’s status with the CIA in order to minimize the damage caused by her husband Joseph Wilson’s critique of the case for war in Iraq. Surprise, surprise, the Obama administration is trying to keep Cheney’s activities secret.

A list of at least seven related conversations involving Cheney appears in a new court filing approved by Obama appointees at the Justice Department. In the filing, the officials argue that the substance of what Cheney told special prosecutor Patrick J. Fitzgerald in 2004 must remain secret.

No such agreement was reached between Fitzgerald and Cheney at the time of their chat, according to a 2008 Fitzgerald letter to lawmakers. But the Bush administration rejected requests by Congress and a nonprofit group for access to two FBI accounts of the conversation, saying the material was exempt from disclosure under subpoena or the Freedom of Information Act.

The Obama administration has since agreed that the material should not be disclosed. A Justice Department lawyer at one point last month argued that vice presidents and other White House officials will decline to be interviewed in the future if they know their remarks might “get on ‘The Daily Show’ ” or be used as fodder for political enemies.

Gasp! Heaven forbid! You mean politicians could be laughed at? Or their actions might be used to defeat them in an election? I can certainly see why our Department of Justice would be fighting hard to prevent that. Seriously, do we live in anything event resembling a free country anymore? Continue reading

Friday: Now, let me get this straight…

Outland by Berkeley Breathed

Outland by Berkeley Breathed

Goldman-Sachs (G-S) and AIG go to the government last fall for money.  Hank Paulsen, our former Treasury secretary is a former CEO of G-S.  AIG hires a new CEO because the old one was under fire.  The new one, Edward Liddy, takes up the thankless task for token compensation- and $3M dollars for sitting on the board of…

wait for it

…Goldman-Sachs.

Yes, this is the same G-S that produced the faniciful earnings statement that ingeniously did away with the month of December 2008.  Yep, didn’t exist.  You know that painfully awkward holiday dinner you spent with the fam?  Never happened.

This is the same G-S who miraculously “raised” $10B dollars so that it can now give back the TARP money that it got from the government.  And the reason they want to give it back is because they don’t want no stinkin’ government telling them how much money they can give their stellar executives in bonuses.  It’s not the American Way.  It’s unnatural.

But this very same G-S, whose bank board member, Edward Liddy now sits as head of AIG, was funneled mucho dinero from the last bailout from AIG to cover its losses while other investors were forced to take losses.  No conflict of interest there:

He has said that he considers his work at A.I.G. to be a public service, performed on behalf of the taxpayers, who ended up with nearly 80 percent of the insurance company. His goal is to dismantle the company and sell its operating units, using the proceeds to pay back the rescue loans. On Thursday, A.I.G. said it had sold its car insurance unit, 21st Century Insurance, to the Zurich Financial Services Group for $1.9 billion.

Along the way, Mr. Liddy has clearly disclosed that A.I.G. was serving as a conduit, with much of the rescue money passing through and ending up in the hands of A.I.G.’s trading partners.

Goldman has said in the past that it had collateral and hedges to reduce the risk of its exposure to A.I.G.

Still, his stake could represent a potential conflict and is likely to reignite questions about Goldman’s involvement in A.I.G., and about why taxpayer money was used to shield A.I.G.’s trading partners from losses, when asset values plunged everywhere and most investors suffered greatly.

Had A.I.G. simply declared bankruptcy, the financial institutions doing business with it would have ended up in court, as they did in the case of Lehman Brothers, fighting to get pennies on the dollar for their claims.

Instead, Goldman Sachs received $13 billion of the Federal Reserve’s rescue money to close out various contracts it had outstanding with A.I.G. It was one of the biggest beneficiaries of the government rescue.

Yes, Edward Liddy is performing a public service no less valuable than the social worker who handles hundreds of foster care cases or the firefighter or the friendly and helpful IRS phone support that helps you finish your tax return on time.  Surely, SURELY, Mr. Liddy deserves some respect for the sacrifices he is making on our behalf.

Simon Johnson is very concerned about the possible conflict of interest and the criminality of this setup.  He has some very Watergate-esque questions for these dedicated public servants:

According to the NYT report, Mr Liddy has an apparent conflict of interest.  Please answer these question as simply and directly as possible, because otherwise they will be repeated indefinitely.  When did Mr Liddy disclose this and to whom at the Federal Reserve Bank of New York (or to which other responsible government officials)?  What did Hank Paulson, then Secretary of the Treasury and former CEO of Goldman Sachs, know and when did he know it?

Tut=tut, Mr. Johnson.  You are behaving like these men are criminals.  Is that any way to speak to people who are doing us a favor in these troubled times?  Antitrust indeed!  These are our betters.  You’re British.  You understand noblesse oblige and upstairs/downstairs stuff better than we do.  Why can’t you just accept the natural order and show us Americans how it’s done?

Meanwhile, Paul Krugman is being a fricking crepe-hanger again and stamping all over everyone’s greenshoots.  It’s spring, Paul, fergawdssakes.  Go outside and smell the periwinkle.

I’m No Economist, but I Think We Need Prosecutions!

The face of greed

The face of greed

I’m hooked on the economics blogs these days. Blame Dakinikat for starting me on a (probably hopeless) quest to understand the economic meltdown. I have been mathphobic since the eighth grade when I was horribly traumatized by algebra. And geometry! Don’t even get me started. When I was an undergrad, I was forced to take two math classes–basic math and statistics. Fortunately, those of us in the psych department were assigned a good humored, patient professor who cracked jokes about our having post-traumatic stress from high school math and had developed simple ways to explain mathematical concepts. Thanks to that kind and supportive professor, I was also able to survive two mind-numbing semesters of graduate statistics without too much anxiety.

Despite my lifelong troubled relationship with numbers, I am determined to understand what is happening to our economic and political systems to the best of my ability. These days, when I first get up, I open up The Confluence (my home page), quickly see what’s happening and then I check all my favorite econ blogs to find out the latest news and views.

This morning via The Market Ticker, I found this ABC News story on Joseph Cassano. (By the way, Cassano donated $2,500 to Obama’s primary campaign and $2,300 to his presidential campaigns. Isn’t $2,300 the maximum?) But back to ABC News:

The FBI and federal prosecutors are reportedly closing in on the AIG executive whose suspect investments cost the insurance giant hundreds of billions of dollars. The government is investigating whether or not 54-year old Brooklyn-native Joseph Cassano committed criminal fraud in virtually bankrupting the company. Continue reading

Things that make you go hmmm, episode 3

Stop me if you’ve heard this one already.  James Kwak at Baseline Scenario found this nugget buried in Monica Langley’s silly piece at the WSJ that Cinie dispatched yesterday:

Some bankers say they turned the conversations into complaints about the antibonus crusade consuming Capitol Hill. Some have begun “slow-walking” the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.

James follows up with:

Ummm . . . if they could get capital from hedge funds and private-equity funds, wouldn’t they have done so already? And they are now resisting the stress tests? Simon is usually more negative about banks’ recent behavior than I am, but I’m catching up.

Veddy interesting.  So, the thing that bankers fear most in the world is ceding control to more responsible authorities.  Sounds like my 13 year old.  Let me see if I can wrap my head around this:  Banks come to government with hat in hands looking for handout.  The could have gone to private investors but didn’t.  Why?  Personal experience suggests that investors are calling in their capital and getting out of adventurous situations in areas like biotech.  One can only assume the investors are hurting for cash themselves or are saving it for some other purpose.  But, nevermind.  The bankers go first to the government for cash.  If the bank is in really bad shape, it would have to go to the dragon lady with the scary parts, Sheila Bair, at FDIC.  But then she would want to take it over, look into its underwear drawer and split it up.  So, they go to Timmy Geithner instead because they know that Geithner and Summers act like Sheila doesn’t have a brain in her head.

But then the public has to get involved.  It gets its knickers in a twist about some ‘bonuses’ and Congress begins to act like *maybe* they should mediate the situation to make sure their constituents don’t take them out in the next election.  And Geithner goes before Congress and asks for Treasury to have more control over non-bank entities.  It’s getting uncomfortable for the bankers.  If he gets what he wants, Geithner might be able to break up the banks in some backdoor way.  Now, suddenly, they don’t want no stupid government money after all.  I still don’t trust Geithner, Summers and Barry to do what is in the taxpayer’s best interest but you’ve got to wonder what it is that the bankers have to hide that they would turn down such a sweet deal to keep the government out of their stuff.  Fraud?  Embezzlement?  Gross irregularities and an Enron like complex of specter holding companies?  Well, yeah, they’re probably guilty of something.  Trillions of dollars don’t go missing overnight without leaving some kind of trace.

Let’s follow the money.   I love to watch the bankers squirm.

In other news:

Jake DeSantis quits AIG and sends his resignation letter to the NYTimes.  I *almost* feel sorry for Mr. DeSantis.  He says the financial services unit he was in was not responsible for the Credit Default Swaps.  He claims that he wasn’t born with a silver spoon in his mouth and that he agreed to take the job with AIG for an annual salary of $1, assuming the bonuses would cover his 12-14 hour days of work.

But then I thought, he couldn’t have been totally ignorant of what was going on with the CDS’s and how investors were leveraging themselves and the rest of the market into oblivion.  After all, he had every expectation that he would profit from it in some way.  Isn’t there a Good Samaritan law in NY or some kind of misprision thingy? (Lawyers, jump in at any time before I hurt myself)

In any case, it’s only a bonus to Mr. DeSantis, who says he can afford to weather the storm.  And I feel a lot less guilty after reading this part of his letter:

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

Ahhh, spoken like a true Republican deregulator.  Government is always the enemy even when it’s paying your salary.  Pffft! There goes my sympathy for Mr. DeSantis.  It was OK to receive taxpayer funds for the bonus as long as the taxpayer wasn’t angry about it.  But now that they’re catching on, Mr. DeSantis prefers to give the money to his own charitable causes, like the Mashie Niblick Save the Ruff Fund,  than back to the taxpayers from whence it came.

Mr. DeSantis, the government *is* the taxpayers.  You are in this uncomfortable position because the taxpayers are finally waking up to this fact and putting their foot down about the unconscionable behavior of finance institutions that lost our hard earned trilions of dollars in savings.  The taxpayers, including yours truly, are faithfully paying our taxes to the government so that it can administer unemployment benefits and medicaid and CHIPS money to the people suffering from the global downturn.  I would appreciate it if you spared us the indignant outrage and give the money back to the taxpayers who paid for it so it can be put to better use.

Really, Mr. DeSantis, you have no idea what hard is until you become one of the little people and you ain’t there yet.  As my Navy dad used to say, “Tell it to the chaplin”.


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Who’s Zoomin’ Who?

OBAMA/On a day when Chairman of the Federal Reserve, Ben Bernanke and Treasury Secretary, Turbo Tax Timmy Geithner, tax cheat (TTTG,tc) appear before Congress seeking unprecedented power to further loot manipulate regulate the financial industry, including non-banking entities like AIG, the company whose bonuses they’ve been called on the carpet to address, perusal of the day’s news stories, blog posts, and opinion pieces reveals more questions than answers.  Is this the bizarre Obministration Hokey Pokey Bamboozle One Step Forward, Two Steps Back Cha-Cha-Cha it appears to be, or are the Obanomic efforts of the government so far truly on behalf of the people?

Talking Points Memo‘s Josh Marshall wonders if we are living in an “alternate universe” after reading today’s Wall Street Journal article claiming that the Obministration has had a recent change of heart towards Wall Street, itself.  I’m not sure what exactly it is about the Journal’s conclusions that has Marshall’s knickers in a twist, but one of the passages that jumped out at me lead me to believe that the article’s writer is completely full of hooey.  Rather than eschew a close working Wall Street relationship as Monica Langley claims, it seems to me that Barack Obama was bought, paid for and hand-delivered to the White House courtesy of the banksters he now serves.  Though Ms. Langley spends a lot of ink chronicling the many instances where Obacolytes paid lip service to being critical of the “dirty bankers” that financed his campaign and advised his every move during his presidential run, she ignores the obvious fact that he’s been dirty banker pocket lint all along.  Here’s the part that leapt off my page: Continue reading

Late Night Open Thread: CNBC’s Mark Haines vs. Rep. Brad Sherman (D-CA)

Pro-Wall Street CNBC host Mark Haines accuses Congress of “witch-huntery.” Sherman gives as good as he gets. The arrogance of the CNBC interviewers is stunning. Sherman is a member of the House Banking Committee.

“You know, this is witch huntery, I’ll be perfectly honest with you,” Haines said. “You and people who share your opinions seem to feel that you know, let’s hold salaries on Wall Street to $100,000. Do you have any idea what Wall Street would look like if they did that?”

“All the business would go overseas,” Haines said. “That’s the bottom line.”

Sherman voted against the orginal TARP last October, and famously said in Congresss that in private meetings “a few members were even told that there would be martial law in America if we voted no.” This is his full speech. He’s talking about things that the administrations is supposedly just finding out about. The martial law comment is at the end, around 9:15.

This one is from Fox News today.

This is an open thread. Economics talk is not required. Feel free to post your favorite music video links and sip a glass of something if you are so inclined.

Thursday: A Series of Unfortunate Events

There has been plenty of finger pointing in the past couple of days.  Tim Geithner is getting his under-the -bus moment this morning on the front page of the NYTimes.  What did Tim know about the AIG bonuses and when did he know it?  The WH is starting to float the “complete confidence” meme, which is sort of the equivalent of “Have you thought about resigning?  No, no, take your time.  We’ve got about a week as these things go.  Has anyone seen Sheila Bair?”

In the whole scheme of things, the $165 million is drop in the bucket, as those who like those drops are quick to point out.  But people who have studied scandals know that at some point, they have a life of their own.  This scandal has legs and it’s getting the royal treatment in the media.  Unlike the more esoteric scandals of the Bush administration where the offense had something to do with some obscure violation of historical significance, this scandal is one that the common man can relate to: Those finance guys are getting money for royally f^&*ing things up and while we’re forced to give up compensation benefits.  Our hard earned money that could have been used to fund major healthcare reform and badly needed infrastructure projects, is getting sucked up by the same obscenely rich people that got to do whatever they wanted under the Bush administration.   We voted for a Democrat who turned out to be *what* exactly?

(It was all sadly predictable but we won’t go there for our new readers who may have voted for the messiah.)

Planet Money was busy yesterday trying to put the anger in perspective.  There are three possible culprits for the accelerating meltdown: Washington, Wall Street and the macroeconomic moment complicated by the “Greenspan Put”.  I’m not sure I totally understand this last concept.  Maybe Dakinikat can unpack it but from what I gather, Alan Greenspan brought the Fed interest rate down to something like 1% so the Giant Pool of Money that investors had back in the late 90’s and 00’s couldn’t make money off of US Trearsury bonds.  The money had to go somewhere so it got rolled into risky instruments.  At some point in there, Alan Greenspan hinted (obscurely to us but loud and clear to people in the know) that the US would guarantee these risks.  And Voile!  Here we are, guaranteeing like there’s no tomorrow.  It’s rather puzzling coming from a Randian fan like Greenspan to have the government step in and bail investors out but finance has a logic of its own.  There’s probably internal self-consistency to Greenspan’s philosophy that our small minds simply cannot grasp.

Well, that is why we are the little people and are not given the power to do anything.  We might use it recklessly.  For instance, did you know that even though we taxpayers own something like 80% of AIG, guardians have been appointed on our behalf to actually administer the company? Yep, there are three trustees who are supposed to look over AIG lest we get our grubby, unsophisticated mitts on it and take away all of the bonuses.  And we aren’t allowed to say what happens to the rest of the money that went to Goldman Sachs and other banks either.  We might put a stop to it, doncha know.  It would be unseemly.  Wasn’t it nice for the Bushies and the Obama adminstration to appoint these Mr. Poe’s of Mulctuary Money Management for us?

Don’t worry your pretty little heads.

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