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Conflucians Say: Do you think we *like* being right?


We're in a tight spot.

I mean, sure, there’s a certain amount of smug self-satisfaction.  We said he wasn’t ready.  We said he’d be over his head.  We said he could bring the whole shebang down on our heads because he wouldn’t know how to manipulate the levers of government.  We said he would be weak and vulnerable to the people who bought him and gave him the coalitions he needed to win.  But did anyone listen to us?  NOOOOoooooOOOOo.

Now, we’re in a tight spot.  And it’s affecting us PUMAs just like all of the other poor unfortunate people in America who don’t work on Wall Street.  My ex just got laid off.  I am now the only working parent.  My BFF reports that the company that is taking over his company just laid off a $#@%load of researchers and he is feeling like a sitting duck.  We’ve all hemorrhaged massive amounts of hard earned 401K funds that were supposed to cushion our retirements that were underfunded even when the stock market was at its peak.  And all I want is to have a job long enough to finish the oncology project I’m working on so I’ll have something to be proud of on the day they escort me out the door with my cardboard box of silk plants and desk photos.

Meanwhile, commenter Diego Mamani at Naked Capitalism gives us this example of what is likely to happen under Geithner’s Plan:

Let’s see an example. “Bank” has a mortgage-backed security (MBS) with original par (nominal) value of $100. In 2008 Bank “marked-to-market” and now values the MBS at $95 in its books. But we all know that this MBS is worth a lot less, maybe less than $60, but Bank won’t acknowledge reality.

In 2009 we have the new Treasury plan, whereby “Peter” buys this MBS, for say, $90. That’s because the bank won’t take anything less. If it did, Bank would be shown to be insolvent and would be out of business.

Peter puts only $6 out of pocket. Uncle Sam puts another $6, and the remainder $78 is a nonrecourse loan from Uncle Sam to Peter. (Total, $90).

Then Peter turns around and sells the MBS to his pal “Paul” for $48. Paul pays $48 b/c he thinks the MBS is actually worth $58 as justified by what the homeowners will actually pay in monthly mortgage payments.

Peter’s $6 investment is wiped out. So is the govt’s $6. And the $48 Peter gets from Paul goes to pay back the govt loan of $78. So now, Peter lost $6 but Uncle Sam lost $36 ($84-$48).

Since Peter and Paul are buddies (co-conspirators), the latter can compensate Peter. Say, Paul gives Peter his $6 plus another $2 for his troubles. Paul pays $48 for something worth $58, but because he gave $8 to Peter, his profit is only $2. And the banks get fully $90 for paper that is worth actually $58.

Peter puts in $6, makes $2 profit
Paul puts in $48, makes $2 profit
U.S. puts in $84, makes a $36 LOSS
Bank had paper that was really worth $58 but got $90 for it, makes a $32 profit

What’s really weird about the above scenario is that we know $%@! like this is probably already in the works.  It’s predictable.  It’s human nature.  It’s easy enough to do.  And yet, knowing all of this, there’s probably not a damn thing we can do short of marching on Washington with our pitchforks and torches to stop it.  No amount of suffering now or in the future by the hard working taxpayers of this country seem to be able to deflect Tim Geithner and Barack Obama from screwing us royally in favor of the bankers whose lifestyles must be saved at all costs.

No, we do not feel good about being right.

Late addition: James Kwak and Simon Johnson of Baseline Scenario put a link to an article on “The Quiet Coup”, scheduled to appear in the Atlantic in May.  Read it and weep.

Join us on Conflucians Say at 10PM EST tonight to celebrate your perspicacity.  It’s on PUMA United Radio (PURrrr)


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Open Thread: Dangerous Floods and Adorable Babies


Please send good vibes to my home town, Fargo, North Dakota, and the entire state and region. I’ve been following the story for a few days now. The state has been declared a disaster area and FEMA is already up there to help.

North Dakota is in a race against time as residents try to shore up huge sandbag levees ahead of massive flooding expected to hit this weekend. Forecasters predict the Red River’s waters will crest at 41 feet by early Saturday, exceeding record levels set in 1997.

Along the river, residents engaged in a frantic battle against the fast-rising water and bitter cold. Water reached 35.6 feet in Fargo by midday Wednesday, according to the National Weather Service. City officials said they’ll add another foot to the dikes — already 42 feet high — in an effort to withstand the river’s crest.

Mayor Dennis Walaker said the city is bracing for the worst. “We’re talking about levels never reached before by any stretch of the imagination,” he said.

A 41-foot crest in Fargo would be two feet higher than the record level of 39.6 in April 1997, when the area was struck by one of the largest and costliest floods in U.S. history.

In some good news, a pair of rare clouded leopard cubs have been born at the Smithsonian Zoo in Washington DC, and they were rescued before their mom had time to harm them. Apparently the dad’s sometimes kill the moms too!


early yesterday, despite murderous tendencies in the captive species, two newborn clouded leopard cubs were found alive, well and squealing at the National Zoo’s Conservation and Research Center in Front Royal, Va.

They were taken immediately from their gorgeous mother before she could do them harm, or do them in, placed in an incubator set at 88 degrees and fed salt water from baby bottles. Born with dappled, reptile-pattern fur, they were the first such births at the zoo in 16 years.

Their births were a coup, and the end of a complex reproduction saga involving an exotic, endangered and beautiful species of animal that experts call the ghost cat.

It was also a genetic home run: The zoo said the cubs’ genes, which come from outside the captive population, make them among the most valuable clouded leopards in North America.

“Genetically, they’re the most valuable animals outside their home range,” said Ken Lang, a zoo expert on the species, because their genes stem directly from the wild. “These are totally new genes.”

More photos at the link above.

Thursday: “I ripped their faces off”

Vegas, baby!

Vegas, baby!

According to Frank Partnoy, former derivatives dealer and now law professor, that’s what he and his buddies used to say after they sold some murky derivative to suckers like Orange County, CA and Proctor and Gamble.  Partnoy gave a fascinating interview with Terry Gross yesterday on Fresh Air and discussed the history of the derivatives market.  One of the prime movers and shakers of the deregulation racket was Wendy Gramm, wife of former Senator Phil Gramm.  Wendy worked for Bush Senior’s administration and after she left government in 1993, she went to work in the private sector.  Guess where she ended up.  Go on, you’ll never guess.  Ok, I’ll tell you.

She went to work for Enron.

You can’t make this stuff up, Folks.

Partnoy’s description of the mid-nineties derivatives market sounds an awful lot like Enron.  Imagine trading floors full of  the smartest guys in the room, gambling and speculating and existing on a pure adrenaline high.  It’s a place where Jack Welch style “rank and yank” performance evaluations hone the workforce down to its leanest and meanest predators.  They ripped people’s faces off because they were rewarded very well for doing it.  Unstoppable id.  Oh, and Partnoy says they were pigs to women too.  It almost makes me wonder if the obnoxious Obamaphiles who invaded DailyKos last year were sent there from some of these institutions.

Wall Street has a gambling addiction.  This is what Simon Johnson of Baseline Scenario has told us about bankers in Japan.  The bankers and brokers are poweless over their addiction but they are refusing to surrender to a higher power to restore sanity.  We know now that Geithner and Obama are enablers because they refuse to make the finance industry feel genuine pain.  And while the economists debate the details of the Geithner plan, the recipients of taxpayer largess are already making arrangements to go on another binge.  Naked Capitalism caught this nugget in the New York Post:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post…

But the banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.

The secondary market represents a key cog in the mortgage market, and serves as a platform where mortgage originators can offload mortgages in bulk that have been converted into bonds.

Yields on such securities can be as high as 22 percent, one trader noted.

BofA said its purchases of secondary-mortgage paper are part of its plans to breathe life back into the moribund securitization market….

While some observers concur that the buying helps revive a frozen market, others argue the banks are gambling away taxpayer funds instead of lending.

What the banks and other institutions like AIG need is an intervention and rehab.  Nationalization would have been a good place to start.  Unfortunately, we’re going to have several more years at the craps table instead.

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