Saturday, March 28, 2009

Nocera: bailout potential WIN 

Because potentially not actually a bailout. If this is true, the plan is more complicated than people in the 'sphere are saying. Nocera is not a pushover either:


The P.P.I.P. (inside the beltway, they have already started calling it P-pip) is, in fact, two separate programs. One deals with the kind of mortgage-backed securities that we’ve all come to think of as toxic assets. The other deals with loans that have not been securitized — for things like commercial real estate, or residential mortgages or small businesses — that banks hold on their books. The former program will be run by Treasury and the Federal Reserve; the latter will be managed primarily by the F.D.I.C.

...the whole loan program is in some ways more important than the mortgage-backed securities program. The reason is that, unlike securitized loans, these assets do not have to be marked to market; indeed, as long as the borrowers are current on their loan payments, they don’t have to be marked down at all. And yet it is obvious that many such loans are in deep trouble — and the banks haven’t faced up to that yet.

All over the country, businesses like real estate development companies are using loans they took out in good times to finish projects that are going to be problematic, to say the least. Chances are high that those loans are unlikely to ever be paid back in full. I heard one story this week about a borrower who actually approached the bank and laid out his dilemma. The bank’s response? It granted an extension of the loan for months — with no fees. That is akin to what the Japanese banks did during their decade of insolvency: they rolled over loans to borrowers who they knew could never pay the money back, in order to avoid taking losses that would wipe out the banks’ capital.

There are plenty of investors who would be happy to take bundles of, say, commercial real estate loans off the hands of the banks and work them out — but only if they can get them for a price that makes sense. Good money can be made both for the investors and for the government, which, lest we forget, will get 50 percent of the upside. But the banks are going to be extremely reluctant to give up those loans, because by doing so, they would have to acknowledge the losses on their books.

That is why it is so important that the F.D.I.C. is managing this program.
However much banks may not want to sell into the program (and for all the government’s insistence that the program is voluntary) it will be nearly impossible for a bank to resist the entreaties of its primary regulator. All indications are that Ms. Bair and her crew are going to use the program as a tool to force the banks to come clean on the health of their loans.

Once this process gets under way, does it mean that banks are likely to need additional capital? You bet it does. There are going to be new holes in balance sheets, and they’ll need to be plugged. But in the best of all possible worlds (a guy can dream, can’t he?), private capital will come in because investors will finally see that those bad assets no longer constitute a bottomless pit. Even if that assumption turns out to be overly optimistic, it will be far more politically palatable for the government to recapitalize the banks — or close them down, or even take them over, if need be — knowing that we finally can value the bad assets. You really can’t nationalize a bank without being able to make an ironclad case, to the public, that it is hopelessly insolvent. The P.P.I.P. will help make such a case.

The whole thing is here.

Friday, March 27, 2009

Pop art 

You all must watch the most recent episodes of The Office.

Watch out for "spoilerz" below...

The best take on the current transition from Bush to Obama can be found on The Office...

After seeming mired for a long time in mediocre plotlines following the union of Jim and Pam, The Office has suddenly taken an ambitious leap that is a bid to register alongside the most important television works of recent memory. Its entry point is a different show-- The Wire.

In this season two different Wire character actors-- those who played Beadie and Stringer Bell-- have appeared as characters on The Office. This is a fact that goes beyond simple trivia, for The Office's characters are constantly immersed in pop culture, and have referenced many of the most popular television shows and movies of recent memory. But with the Wire, they have taken a new step-- the actual transposition of actors from the other show to this one, which makes the link, and commentary on the American condition, clear.

The Wire is a 5-season HBO show that detailed the decay of American society and politics during the Bush era by focusing on drugs and police in Baltimore. As all great art does, the show predicted the current crisis, basing numerous plotlines around the idea of lies and absences. Wars were fought between drug lords over false pretenses. News stories and crimes were manufactured for personal gain and extra dollars. In the end, The Wire commented brilliantly on the Iraq War and anticipated the massive balloon of hot air that was the larger American economy that so seemed to contradict the decay in Baltimore. As it turned out, we have been Baltimore all along.

Which brings us to The Office, an adaptation of the British series in which an utterly awful and incompetent boss reigns over a paper-supply company regional office of miserable and morose workers who have to put up with him. In the British series, this boss was ultimately so terrible that he was fired. The American series provides an interesting departure from that story.

In the American Office, Michael Scott -quits- in outrage when his new supervisor is brought in and is clearly set on putting a stop to his inefficient antics (although earlier in the season we are provided the detail that Michael's is the best of all the regional offices). In a lovely detail, Michael quits at the moment that the CEO of the company has offered to come to his self-indulgent anniversary party with the company, extending an olive branch-- it is right at this moment that Michael realizes how sad this compensation is for his general misery in the position.

In any case, Michael's new supervisor is played by Idris Elba, Stringer Bell from The Wire-- a handsome black man (a rather sexist point is made of his attractiveness to women) who now, as it turns out, is essentially replacing an utterly incompetent white man.

Sound familiar? An obvious allegory is being posited here: Bush to Obama. But the best point begins to be made right at the end of the show.

Now in charge of the office, Charles (Elba's character) begins to take over. "No excuses," he warns the group, assigning Kevin, a plodding, fat, dumb white man, to take over the phones abandoned by Pam, and placing Stanley, the office's lone African American, in charge of efficiency.

The subsequent expressions on Kevin and Stanley's faces are priceless. They are both horrified. Michael's unbearable and ridiculous reign set up a situation in which they never had to try; there was always the excuse of Michael, the guy ahead of them who was screwing things up. Stanley, in particular, had clearly resigned himself to a career in which little was expected of him. Now that something was, he simply had no idea what to do.

This is the great insight of The Office into Obama's move into the White House. An eminently competent and efficient man has taken charge of a system that has atrophied, along with all of the people in it. This man symbolizes hope and change-- two conditions that on some level we had all come to think of as impossible. Now that they are expected of us, of people in the government, of bankers, etc., they probably ARE impossible.

Think also about Jim, always way overqualified for his job, coasting along under Michael, devoting all of his time and energy to practical joking and an endless self-reassurance of his intellectual superiority over his co-workers. When Charles arrives, he immediately picks on Jim, recognizing instantly who he has become-- a cynic who isn't helping the situation, who has also enjoyed the excuse of a fool being in charge for way too long. The Jim character, I think, is a call to us, who Scats has called "the chattering classes."

So, there you have it. Salient commentary about the present with simultaneous entertainment. Thoughts?

a lot about maryland 

A church based in Topeka, Kansas, is scheduled to demonstrate next month outside Walt Whitman High School in Bethesda because the school, which opened in 1962, is named for a man who may have been homosexual.

Westboro Baptist Church has been drawing national attention for staging anti-homosexuality demonstrations at military funerals, on the theory that fallen troops are God's punishment for a country tolerant of homosexuals.

The church Internet site says a picket is scheduled for the afternoon of April 24. A narrative on the event states that the school's name "certainly explains A LOT about Maryland."


priorities FAIL 

"The USS New York will ensure that all New Yorkers and the world will never forget the evil attacks of September 11, and the courage and compassion New Yorkers showed in response to terror," said Governor Pataki.


Steel salvaged from the World Trade Center wreckage has been used in the construction of New York. The shipyard and Navy inspected the steel and found that it was of sufficient material strength so that it could be incorporated into the bow stem of New York.

It is the fifth in a new class of warship - designed for missions that include special operations against terrorists.

Meanwhile, back at Ground Zero, EIGHT YEARS LATER:

Total time of original WTC construction from groundbreaking to ribbon cutting: 7 years

chomsky doesn't like the bailout! shock horror! 

Thursday, March 26, 2009

harvey on toolbag's radio machine show 

Wednesday, March 25, 2009

A.I.G. for President 

Blicero was right in proposing this candidacy in the comment thread below. It never fails -- the object of derision is better than the deriders.

These include the Democrats, like Andrew Cuomo and Richard Blumenthal and others who've lived off the Goldman trough. And it does include Goldman, which took out insurance from A.I.G. that it knew A.I.G. could not cover.

Today in the Times an A.I.G. financial products guy resigned in a published letter to Edward Liddy:

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down...

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses...

The letter is worth reading.

Tuesday, March 24, 2009

Truth seepage 

Atrios points out that a former Merrill Lynch star analyst named Richard Bernstein left his job, or was fired, yesterday.

This is what he said yesterday, according to Bloomberg:

Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said.

Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added.

“The history of bubbles shows quite well that financial sector consolidation is inevitable,” Bernstein, Bank of America’s chief investment strategist, wrote in a research note. “Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation.”


The Summers Ouroboros 

"And we'll see some of the vicious cycles of recent months turned into virtuous circles."

--Lawrence Summers, interview with Gwen Ifill, 3/23/09.

Monday, March 23, 2009

Most positive possible account of the plan 

This is a reader post stolen from TPM:

So, Geithner has announced the next phase of the bailout plan -- the FDIC will partner with hedge funds, private equity funds, pension plans and other large institutional investors to buy loan securities off of the banks. Hopefully, they'll do this at prices that will allow the government and its partners to make money over time while not forcing the banks to take excessive writedowns now.

The plan could work but its problematic at best and it focuses on helping the wrong people - institutional investors rather than ordinary citizens.

It's inevitable that if anyone makes money at this, they're going to be politically well connected and we're going to have to discuss some uncomfortable relationships among members of the Obama administration. For example, Larry Summers was a partner at hedge fund giant DE Shaw Group and so we have to ask ourselves whether or not it's appropriate for Shaw funds to participate in this.

The beauty of the Geithner plan is that if the private interests win, the Treasury wins too. But the public only wins in the abstract. At best, if you're covered by a pension fund that participates you get some benefit. But if this is really a great deal for private investors, shouldn't there be some sort of mutual fund set up so that smaller investors can participate directly? Heck, if this is really going to work, maybe the government should agree to use positive returns to pay out a dividend to every citizen?

It's stunning to me that in the wake of AIG I'm now being asked to help well connected hedge funds get a good deal on mortgage backed securities. I'm also concerned that if these mortgage backeds really do represent some reasonable future return that the hedge funds would have bought them already or will eventually buy them without public financing and guarantees against losses.

So perhaps the plan can "work." Some of the mortgage-backed securities will rise, eventually, and perhaps the Treasury and the hedge funds will make some money. There's no reason to be certain this won't happen. It's not necessarily certain that taxpayers will, in the long run, pay for the program.

But: this is not a fair solution. A limited number of government-selected, very rich investors will be given the chance to make no-lose bets. You and I are not being invited to make the low-risk, high-gain purchases of the securities. Maybe this would be OK if it were the only way to deal with the emergency. But there are other, better ways to deal with the emergency.

The best way would be for the government to offer mortgage relief directly to homeowners. This is how it would work: the government offers to pay for a large chunk of the under-water mortgages (in which the house is worth less than the mortgage owed). The mortgage is the same, but the government pays for a large percentage of it. And then the government gives the homeowners long-term, low-interest replacement loans that are locked in. In the end the bailed-out homeowners must pay the government back.

This costs the government, in the end, no money. Most people can be made to repay long-term loans at much lower interest than their mortgages. Also: by guaranteeing mortgages, this plan raises the prices of the mortgage-backed securities and floats the ass-hatters and dick-wads and shit-sledders of Wall Street. Also: this improves the credit of people with bad mortgages and thus makes new lending really possible (because lending doesn't start just because banks have money -- there have to be non-bankrupt people to lend to). Also: this gives lots of regular people without enough spending money a lot of money to spend right now.

So: the above plan (proposed months ago by Martin Feldstein) would float the banksters and strongly stimulate the economy. It would provide real relief to real people, and it would reduce debt, which the Geithner plan would not do. Debt must be reduced if the economy can ever really get moving again. The Geithner plan may conceivably fix the financial system. But it is not fair, it does not relieve present suffering, and -- most importantly -- it does not stimulate the economy.

The stimulus needed now is not in Obama's stimulus package passed in February. The stimulus package's programs mostly take effect over the next two years. But the violent contraction is happening now and the consequences will last a long time. The stimulus needed now, the stimulus that would keep jobs from bleeding away and keep companies in business, is a stimulus to lending. This can only happen if debt is reduced. Geithner's plan will NOT stimulate the credit markets, because flush banks will not lend until there is a more general reduction of debt.

Geithner on NPR 

Denied the interviewer's question about Treasury's having to appeal to "different constituencies," insisting "we have only one constituency," which is the American people, working hard, buying new houses, taking out college loans, taking out car loans.

He made frequent, Hillary-esque use of volkisms like havin' and makin'.

rimshot of the day 

via Kung Fu Monkey:

There are two novels that can change a bookish fourteen-year old's life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.


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