It looks like Dick Cheney favored bombing Iran because of the country's nuclear program. Why am I not surprised? The more Cheney opens his mouth -- about torture, about national security, about foreign policy the Dick Cheney way -- the queasier I get. Was this guy really just a heartbeat away from the White House? God help us all.
He's really hardening his reputation as the Great Lord of Darkness. He's even got the perpetual scowl and snaggly, discolored teeth to pull it off.
Just for fun, I thought I'd compare vice presidents: the amiable Joe Biden to the more-than-slightly terrifying Dick Cheney. Who is considered more evil? Well, according to Google, Cheney has what appears to be an insurmountable lead, unless Biden goes nuts and decides to rape and slaughter an entire convent of nuns.
Here are the standings:
"Dick Cheney is evil" (Google search):
846,000 results
"Joe Biden is evil" (Google search):
3 results
Monday, August 31, 2009
The Financial Mess: Obama's Big Mistake
On my morning perusal of thoughts and observations in blogland, I was struck by one emerging theme: Obama, approaching the one-year anniversary of Lehman's bankruptcy and fresh off reappointing Ben Bernanke for a second term as Fed chairman, now "owns" this financial crisis/mess. I can't imagine that's the kind of pleasant notion that sends him merrily into dreamland at night.
But he has only himself to blame. Back in February or March, he should have taken a page from the playbook of Wall Street, whose executives have consistently shown themselves to be much cannier than the deep-pocket government chumps they've been able to exploit for bailouts and cheap money.
Early in his presidency, Obama missed a great opportunity, one that no self-respecting Wall Street CEO would have passed up, that's for sure.
Clearly he had inherited a real mess from George Bush. Knowing that, coming into office he should have taken the presidential equivalent of the "big bath." That's when you basically write off everything in sight, take your big losses on the chin, blame everything on your predecessor, announce that everything is different now, then position yourself for future growth that you then take credit for.
Now the presidential version of the "big bath" might have a slightly different flavor and be a little classier. But what the "big bath" approach would have implied for Obama: (1) you make a clean break from the past that allows you room to be bold and chart a more daring path forward and (2) you get all the losses you can out in the open, early on, and acknowledge that's the crap you found on your doorstep when you arrived at the White House.
Instead Obama's Treasury Secretary pick, Tim Geithner, began acting like a mini-me version of Hank Paulson. The Obama crew muddled along with a very Bush-like approach to the crisis, kowtowing to the financial industry. Obama effectively sealed the deal with his reappointment of Bernanke (I'm not passing judgment on whether it was a good choice or not -- I'm actually conflicted on that point -- only noting that selecting Bernanke tied him even more closely to the Bush team).
So, President Obama, it's true. You lost a big opportunity, and now you own this financial mess.
But he has only himself to blame. Back in February or March, he should have taken a page from the playbook of Wall Street, whose executives have consistently shown themselves to be much cannier than the deep-pocket government chumps they've been able to exploit for bailouts and cheap money.
Early in his presidency, Obama missed a great opportunity, one that no self-respecting Wall Street CEO would have passed up, that's for sure.
Clearly he had inherited a real mess from George Bush. Knowing that, coming into office he should have taken the presidential equivalent of the "big bath." That's when you basically write off everything in sight, take your big losses on the chin, blame everything on your predecessor, announce that everything is different now, then position yourself for future growth that you then take credit for.
Now the presidential version of the "big bath" might have a slightly different flavor and be a little classier. But what the "big bath" approach would have implied for Obama: (1) you make a clean break from the past that allows you room to be bold and chart a more daring path forward and (2) you get all the losses you can out in the open, early on, and acknowledge that's the crap you found on your doorstep when you arrived at the White House.
Instead Obama's Treasury Secretary pick, Tim Geithner, began acting like a mini-me version of Hank Paulson. The Obama crew muddled along with a very Bush-like approach to the crisis, kowtowing to the financial industry. Obama effectively sealed the deal with his reappointment of Bernanke (I'm not passing judgment on whether it was a good choice or not -- I'm actually conflicted on that point -- only noting that selecting Bernanke tied him even more closely to the Bush team).
So, President Obama, it's true. You lost a big opportunity, and now you own this financial mess.
Friday, August 28, 2009
Today's Must Reads
1. Squandered Honeymoon: How Botched Bailouts Hamper Healthcare Reform.
Rob Johnson, over on Huffington Post, does a nice job of taking the long view and connecting the dots between the financial industry bailouts and public anger over health care reform. His analysis supports a belief I hold: that the Obama crew really, really blew it on the financial crisis with the perceived, as Paul Krugman calls it, "kid-gloves treatment of the financial industry." That has embittered and discouraged the citizenry and may be the real fuel behind the outrage over health care reform. Had there been town hall meetings about the bank bailouts, you would have seen some really scary, apoplectic fury.
2. Racketeering 101: Bailed Out Banks Threaten Systemic Collapse If Fed Discloses Information
This entry at Zero Hedge looks at the banks that have borrowed billions of dollars from the Fed, using dicey overinflated collateral as security. They are protesting that their identities should not be made public because the whole financial system could collapse. Geez. Cue the histrionic movie soundtrack. Bring in the Weeping Supplicants Choir.
What the banks are really saying: "Christ, this would be really embarrassing, and we'd rather not have the whole world know and would rather not have to deal with a bunch of unpleasant publicity. Would we really collapse, since there are so many of us on the dole, and the rigor mortis in the credit markets has, after 11 months of crisis, pretty well passed? Nah. We're not gonna collapse. But you know, it would be a pain in the ass, people pointing and snickering at us, asking tough questions, so if we can just do this in secret, you know, we'd like that a whole lot better, and getting through this financial crisis is all about doing what we want, now isn't it?"
Rob Johnson, over on Huffington Post, does a nice job of taking the long view and connecting the dots between the financial industry bailouts and public anger over health care reform. His analysis supports a belief I hold: that the Obama crew really, really blew it on the financial crisis with the perceived, as Paul Krugman calls it, "kid-gloves treatment of the financial industry." That has embittered and discouraged the citizenry and may be the real fuel behind the outrage over health care reform. Had there been town hall meetings about the bank bailouts, you would have seen some really scary, apoplectic fury.
2. Racketeering 101: Bailed Out Banks Threaten Systemic Collapse If Fed Discloses Information
This entry at Zero Hedge looks at the banks that have borrowed billions of dollars from the Fed, using dicey overinflated collateral as security. They are protesting that their identities should not be made public because the whole financial system could collapse. Geez. Cue the histrionic movie soundtrack. Bring in the Weeping Supplicants Choir.
What the banks are really saying: "Christ, this would be really embarrassing, and we'd rather not have the whole world know and would rather not have to deal with a bunch of unpleasant publicity. Would we really collapse, since there are so many of us on the dole, and the rigor mortis in the credit markets has, after 11 months of crisis, pretty well passed? Nah. We're not gonna collapse. But you know, it would be a pain in the ass, people pointing and snickering at us, asking tough questions, so if we can just do this in secret, you know, we'd like that a whole lot better, and getting through this financial crisis is all about doing what we want, now isn't it?"
Thursday, August 27, 2009
The Financial Crisis, One Year Later: 4 Questions
Almost a year ago -- Sept. 15, 2008 -- Lehman Brothers filed for bankruptcy. While it's hard to peg a "start date" to a financial crisis (and personally, I think the "Lehman effect" has been overblown and has spurred bad policy decisions because of the "no more Lehmans" vein of thinking, which is the intellectual heir of "Bailout Nation" -- think about it), the day of Lehman's collapse would qualify as well as any other. The Lehman implosion revealed some truly ugly stuff: (1) there was a lot of dangerous interconnectedness in the financial system that made it prone to "seizing up" (2) there were a lot of rotten-egg-bad assets out there, and who was holding them, and the larger impact they might have, was anyone's guess (3) the banking partner you were doing business with yesterday could be revealed to be deeply and massively insolvent today (remember the Lehman bankruptcy settlement, and how shockingly little the investment bank turned out to be worth? Its debt fetched less than 9 cents on the dollar!)
So anyway, the financial crisis -- actually arguably not a "crisis" anymore; there has to be a temporal statute of limitations on the word, after all -- is approaching its one-year anniversary, by my reckoning. Think about that. 12 months. A full year. Early on, there was scrambling, and Bush team members huddling to figure out what to do if there was widespread looting and a civil breakdown, and Paulson trying to seize unprecedented powers to buy up toxic assets ... then we got a new U.S. president ... the crisis hit a mature period ... and here we are.
We're no longer in the flashing-red-lights, slap-the-panic-button phase of the financial mess. We're in a more rational place. So let's imagine the U.S. financial system bigshots -- the Geithners, Bernankes and such -- were sitting down for a Congressional hearing today, their minions scurrying about in the background, ferrying notes forward and back. And let's say I were a Congressman.
Here are four questions I would ask.
1. Rarely has the United States seen a crisis of this magnitude without some sort of criminal and actionable wrongdoing, somewhere in the heart of the system. While I realize that many problems during this crisis simply arose from bad decisions that led to huge losses, it seems probable that there were instances of wrongdoing. It may have been accounting shenanigans, or knowing misrepresentations of financial soundness, or something else entirely. Further, it seems that prosecuting a few wrongdoers might help deter such activity in the future.
And so my question: Who, among high-level executives, is currently being investigated or prosecuted related to this financial crisis? What about in AIG's Financial Products group? If no one, why is that? What investigations are ongoing? If you can't reveal specifics, at least which government bodies are conducting investigations? When did they start? What are they looking at, broadly?
2. Last year, early in this crisis, Hank Paulson was convinced that we had to rid banks of toxic assets to repair the U.S. financial system. Tim Geithner apparently believed the same because early this year he outlined a plan for public-private investing partnerships to buy up these assets. After all, Japan's "Lost Decade" in the 90's was partly attributed to its failure to clean up the toxic assets in its banking system quickly enough. Now the Geithner plan has been quietly allowed to all but die, and little is now being said about the bad assets that banks currently hold.
Does this suggest these toxic assets are no longer a problem? If they are not, what has changed so dramatically? If you say the banks have become more profitable, please help us understand that profitability: how much is due to massive, and temporary, government support of the financial markets, and how much can the banks themselves take credit for? Is there a possibility that a number of the largest U.S. banks are insolvent, figuring in these toxic assets? If this is the case, what is our strategy right now? Is it one of "regulatory forbearance," to allow them to work themselves out of the financial hole they are in? If so, does that have consequences for the rest of the economy that you are not openly admitting, such as that the banks will make up for expected losses on bad assets by hitting consumers with extra fees?
3. Hardly anyone would dispute that "too big to fail" has become a term of all-too-common derision during this financial mess. Part of the problem during the financial meltdown, the political left and right can agree, was that institutions that made bad bets and that should have failed couldn't fail without threatening to bring down the rest of the financial system. Ben Bernanke realized that saving AIG was a necessary evil, for example, and expressed an almost visceral disgust at having to do so.
Since we all agree that "too big to fail" is bad, what concrete measures are now being taken to break up large financial companies? I am aware that there have been vague statements made that something needs to be done, but this is one year later, and it's time for the rubber to hit the road, especially since large financial companies will fight, tooth and nail, any regulations to downsize them. So how do you now define "too big to fail," in terms of assets or any other measurement? How are you currently preventing companies from becoming too big to fail? Which companies are too big to fail right now that need to be dissolved, and when will that occur? Again, I'm sorry, but I don't want to hear rhetoric about how you're concerned about this -- it's been one year, after all -- I want concrete answers.
4. One other matter almost all observers happen to agree upon: the financial system needs much greater transparency. We need to be able to regulate the banking system well, including the "shadow banking" system. We need to know what's going on with a forty-something trillion-dollar credit default swap market that has the potential to suck liquidity out of the credit markets just when this liquidity is most needed. We need to get a better sense of which financial companies are solid and who's in trouble.
In light of all this, what concrete steps have been taken to improve transparency in the financial system? Again, I'm not interested in rhetoric -- what have you actually done, or at least what bills are pending in Congress, or what concrete proposals are awaiting review? Also, if transparency is a good thing, why won't the Federal Reserve reveal to Bloomberg News (and other media of course) the collateral it has been accepting, and from which banks, as part of its backstop programs? While an argument could be made initially, during the extreme volatility of the early crisis, that this information shouldn't be revealed, what is the argument that you would make now, one year later? And if you can continue to conceal this information a year later, at what time do you think it would be appropriate to reveal it? Ever? And if you don't think it should ever be revealed, who is the person ultimately responsible for making good on this collateral, if it turns out to be bad and the Fed loses money? If it is the taxpayer, then how can you justify your secrecy in a political system purportedly dedicated to democracy and openness?
So anyway, the financial crisis -- actually arguably not a "crisis" anymore; there has to be a temporal statute of limitations on the word, after all -- is approaching its one-year anniversary, by my reckoning. Think about that. 12 months. A full year. Early on, there was scrambling, and Bush team members huddling to figure out what to do if there was widespread looting and a civil breakdown, and Paulson trying to seize unprecedented powers to buy up toxic assets ... then we got a new U.S. president ... the crisis hit a mature period ... and here we are.
We're no longer in the flashing-red-lights, slap-the-panic-button phase of the financial mess. We're in a more rational place. So let's imagine the U.S. financial system bigshots -- the Geithners, Bernankes and such -- were sitting down for a Congressional hearing today, their minions scurrying about in the background, ferrying notes forward and back. And let's say I were a Congressman.
Here are four questions I would ask.
1. Rarely has the United States seen a crisis of this magnitude without some sort of criminal and actionable wrongdoing, somewhere in the heart of the system. While I realize that many problems during this crisis simply arose from bad decisions that led to huge losses, it seems probable that there were instances of wrongdoing. It may have been accounting shenanigans, or knowing misrepresentations of financial soundness, or something else entirely. Further, it seems that prosecuting a few wrongdoers might help deter such activity in the future.
And so my question: Who, among high-level executives, is currently being investigated or prosecuted related to this financial crisis? What about in AIG's Financial Products group? If no one, why is that? What investigations are ongoing? If you can't reveal specifics, at least which government bodies are conducting investigations? When did they start? What are they looking at, broadly?
2. Last year, early in this crisis, Hank Paulson was convinced that we had to rid banks of toxic assets to repair the U.S. financial system. Tim Geithner apparently believed the same because early this year he outlined a plan for public-private investing partnerships to buy up these assets. After all, Japan's "Lost Decade" in the 90's was partly attributed to its failure to clean up the toxic assets in its banking system quickly enough. Now the Geithner plan has been quietly allowed to all but die, and little is now being said about the bad assets that banks currently hold.
Does this suggest these toxic assets are no longer a problem? If they are not, what has changed so dramatically? If you say the banks have become more profitable, please help us understand that profitability: how much is due to massive, and temporary, government support of the financial markets, and how much can the banks themselves take credit for? Is there a possibility that a number of the largest U.S. banks are insolvent, figuring in these toxic assets? If this is the case, what is our strategy right now? Is it one of "regulatory forbearance," to allow them to work themselves out of the financial hole they are in? If so, does that have consequences for the rest of the economy that you are not openly admitting, such as that the banks will make up for expected losses on bad assets by hitting consumers with extra fees?
3. Hardly anyone would dispute that "too big to fail" has become a term of all-too-common derision during this financial mess. Part of the problem during the financial meltdown, the political left and right can agree, was that institutions that made bad bets and that should have failed couldn't fail without threatening to bring down the rest of the financial system. Ben Bernanke realized that saving AIG was a necessary evil, for example, and expressed an almost visceral disgust at having to do so.
Since we all agree that "too big to fail" is bad, what concrete measures are now being taken to break up large financial companies? I am aware that there have been vague statements made that something needs to be done, but this is one year later, and it's time for the rubber to hit the road, especially since large financial companies will fight, tooth and nail, any regulations to downsize them. So how do you now define "too big to fail," in terms of assets or any other measurement? How are you currently preventing companies from becoming too big to fail? Which companies are too big to fail right now that need to be dissolved, and when will that occur? Again, I'm sorry, but I don't want to hear rhetoric about how you're concerned about this -- it's been one year, after all -- I want concrete answers.
4. One other matter almost all observers happen to agree upon: the financial system needs much greater transparency. We need to be able to regulate the banking system well, including the "shadow banking" system. We need to know what's going on with a forty-something trillion-dollar credit default swap market that has the potential to suck liquidity out of the credit markets just when this liquidity is most needed. We need to get a better sense of which financial companies are solid and who's in trouble.
In light of all this, what concrete steps have been taken to improve transparency in the financial system? Again, I'm not interested in rhetoric -- what have you actually done, or at least what bills are pending in Congress, or what concrete proposals are awaiting review? Also, if transparency is a good thing, why won't the Federal Reserve reveal to Bloomberg News (and other media of course) the collateral it has been accepting, and from which banks, as part of its backstop programs? While an argument could be made initially, during the extreme volatility of the early crisis, that this information shouldn't be revealed, what is the argument that you would make now, one year later? And if you can continue to conceal this information a year later, at what time do you think it would be appropriate to reveal it? Ever? And if you don't think it should ever be revealed, who is the person ultimately responsible for making good on this collateral, if it turns out to be bad and the Fed loses money? If it is the taxpayer, then how can you justify your secrecy in a political system purportedly dedicated to democracy and openness?
Sunday, August 23, 2009
All You Need to Know About Health Care Lies
This commentary in the Washington Post about five health care myths, by T.R. Reid, is really, really good.
I doubt that it will suffice to penetrate the alarmingly thick carapace of ignorance that insulates many of the screamers in this debate over reform. When people can stand up and bluster, with a straight face, "Keep the government out of my Medicare," you know that we're facing a serious knowledge deficit here. Nietzsche once derided democracy as "this mania for counting noses," and sometimes I wonder if he wasn't on to something. On the whole, we are not a very well-informed citizenry.
But back to health care. Here, concrete evidence we pay too much for too little:
Another big difference between our health insurance and systems abroad is the profit motive. (Which, incidentally, is probably the reason for a lot of pushback on the Obama reforms -- health care in this country is a lucrative industry that wants to protect its revenue stream.) Apparently foreigners have figured out something that we haven't: health care is different from widget manufacturing, and shouldn't be thrown onto the altar of pure capitalism.
I doubt that it will suffice to penetrate the alarmingly thick carapace of ignorance that insulates many of the screamers in this debate over reform. When people can stand up and bluster, with a straight face, "Keep the government out of my Medicare," you know that we're facing a serious knowledge deficit here. Nietzsche once derided democracy as "this mania for counting noses," and sometimes I wonder if he wasn't on to something. On the whole, we are not a very well-informed citizenry.
But back to health care. Here, concrete evidence we pay too much for too little:
On average, the Japanese go to the doctor 15 times a year, three times the U.S. rate. They have twice as many MRI scans and X-rays. Quality is high; life expectancy and recovery rates for major diseases are better than in the United States. And yet Japan spends about $3,400 per person annually on health care; the United States spends more than $7,000.I know, the Japanese eat a lot of fish and aren't as porky as the average Nascar-loving, babyback-rib-munching American. Still, elsewhere Reid notes that administrative costs are huge in our system -- something like 20 cents out of every health care dollar spent. He contrasts that to 1.5 cents in Taiwan -- and when that tiny figure crept up to 2 cents, there were furious debates among the Taiwanese about wastefulness.
Another big difference between our health insurance and systems abroad is the profit motive. (Which, incidentally, is probably the reason for a lot of pushback on the Obama reforms -- health care in this country is a lucrative industry that wants to protect its revenue stream.) Apparently foreigners have figured out something that we haven't: health care is different from widget manufacturing, and shouldn't be thrown onto the altar of pure capitalism.
The key difference is that foreign health insurance plans exist only to pay people's medical bills, not to make a profit. The United States is the only developed country that lets insurance companies profit from basic health coverage.Then the payoff conclusion that you won't see on Fox News anytime soon. Every year 700,000 Americans -- nearly a million, the size of a small U.S. city -- are shoved into bankruptcy because of medical bills. And what about other countries?
In France, the number of medical bankruptcies is zero. Britain: zero. Japan: zero. Germany: zero.
Tuesday, August 18, 2009
Today's Gotta Reads, Aug. 18, 2009 Edition
I thought I was lucky to score a trifecta on "must reads" this morning and then -- boom -- nailed a quad-fecta. Or whatever.
Let's start with health care.
1. This CBS news story tells us that America's senior citizens are losing confidence in the future of health care. Remember these are the same older Americans whose resistance is reportedly stiffening to the inchoate plans on the table to revamp health care. In recent polling, most over-50s opposed "Obamacare;" most under-50s supported it.
Let's just go straight to the irony meter on this one, folks: the biggest group of over 50s are actually over 65s, and guess what you get when you cross that magic age threshhold? Yup, Medicare. Government-run health care. That's right: they got their government-run health care, they like it, but they'd rather the rest of us not get any.
Or is that fair? A critic might rebut that older Americans are just fearful of change, fearful that their Medicare benefits will get cut in the overhaul, fearful that they'll wind up on ice floe #66 that sets sail with 24,000 other grandmas to the middle of nowhere. Okay, these are concerns that should be addressed but the bottom-line remains: they got their government-run health care. They like it. And they don't want anyone to touch it.
2. Obama's Teflon Melting as Outrage over Health Care Heats Up.
Marshall Auerback has a thoughtful, overarching and sobering piece here that is only superficially about health care. More profoundly, it's about the ugly zeitgeist of the country right now, and how Obama squandered good will with his coddling of the banker class, and how that may be helping fuel the town hall anger over health care. Auerback even raises the specter of people, en masse, refusing to pay their taxes in protest.
I think that he has a very good point that I have been making myself lately. People feel more disenfranchised and powerless than ever. There's a growing sense that the system has been bought -- lock, stock and barrel -- by moneyed interests and pity the poor fool out in Akron or Daytona Beach who can't make his mortgage payments. Tsk, tsk, he's not too big to fail, so he'll get ignored. He's too small to succeed ...
3. Odd WSJ Story on Vermont.
Tim Duy is absolutely brilliant here in deconstructing a WSJ story about Vermont, and the state's apparently burdensome policies toward realizing home ownership -- mortgage brokers partly on the hook when their clients fail, banks required to warn would-be borrowers who are about to pay higher-than-normal interest rates. The net result of this onerous Vermont regulation: one of the lowest foreclosure rates in the U.S.
Which leaves Tim scratching his pate and wondering, like the rest of us: And this is bad, uh, because ... ???? (Related note: on a list of "problem banks" I saw recently over on the Calculated Risk blog, only about five or six states had zero problem banks. Among them: Vermont.)
4. And finally: Janet Tavakoli goes all cash (doesn't trust the brown shoots spray-painted green).
I think she's right and I'm personally quite worried that the other shoe has yet to fall in this super-recession, despite all the happy talk of late. She points out that unemployment remains high, one-quarter to one-third of U.S. mortgages are underwater (more is owed on them than they're worth), credit card problems are rising, and a whole new wave of banks are in trouble, making their way to the fore.
I hate to seem bearish, but I think next year will prove her prescient. The stock market has made a head feint higher, but I don't think it's "real." What is truly troubling, I would add, is that the Fed has already massively intervened to support the economy. So we've got a listing edifice even with the massive crutches arranged around it. What scares me is that, if we suffer some big-enough shock, the Fed may be out of bullets to fight back.
Let's start with health care.
1. This CBS news story tells us that America's senior citizens are losing confidence in the future of health care. Remember these are the same older Americans whose resistance is reportedly stiffening to the inchoate plans on the table to revamp health care. In recent polling, most over-50s opposed "Obamacare;" most under-50s supported it.
Let's just go straight to the irony meter on this one, folks: the biggest group of over 50s are actually over 65s, and guess what you get when you cross that magic age threshhold? Yup, Medicare. Government-run health care. That's right: they got their government-run health care, they like it, but they'd rather the rest of us not get any.
Or is that fair? A critic might rebut that older Americans are just fearful of change, fearful that their Medicare benefits will get cut in the overhaul, fearful that they'll wind up on ice floe #66 that sets sail with 24,000 other grandmas to the middle of nowhere. Okay, these are concerns that should be addressed but the bottom-line remains: they got their government-run health care. They like it. And they don't want anyone to touch it.
2. Obama's Teflon Melting as Outrage over Health Care Heats Up.
Marshall Auerback has a thoughtful, overarching and sobering piece here that is only superficially about health care. More profoundly, it's about the ugly zeitgeist of the country right now, and how Obama squandered good will with his coddling of the banker class, and how that may be helping fuel the town hall anger over health care. Auerback even raises the specter of people, en masse, refusing to pay their taxes in protest.
I think that he has a very good point that I have been making myself lately. People feel more disenfranchised and powerless than ever. There's a growing sense that the system has been bought -- lock, stock and barrel -- by moneyed interests and pity the poor fool out in Akron or Daytona Beach who can't make his mortgage payments. Tsk, tsk, he's not too big to fail, so he'll get ignored. He's too small to succeed ...
3. Odd WSJ Story on Vermont.
Tim Duy is absolutely brilliant here in deconstructing a WSJ story about Vermont, and the state's apparently burdensome policies toward realizing home ownership -- mortgage brokers partly on the hook when their clients fail, banks required to warn would-be borrowers who are about to pay higher-than-normal interest rates. The net result of this onerous Vermont regulation: one of the lowest foreclosure rates in the U.S.
Which leaves Tim scratching his pate and wondering, like the rest of us: And this is bad, uh, because ... ???? (Related note: on a list of "problem banks" I saw recently over on the Calculated Risk blog, only about five or six states had zero problem banks. Among them: Vermont.)
4. And finally: Janet Tavakoli goes all cash (doesn't trust the brown shoots spray-painted green).
I think she's right and I'm personally quite worried that the other shoe has yet to fall in this super-recession, despite all the happy talk of late. She points out that unemployment remains high, one-quarter to one-third of U.S. mortgages are underwater (more is owed on them than they're worth), credit card problems are rising, and a whole new wave of banks are in trouble, making their way to the fore.
I hate to seem bearish, but I think next year will prove her prescient. The stock market has made a head feint higher, but I don't think it's "real." What is truly troubling, I would add, is that the Fed has already massively intervened to support the economy. So we've got a listing edifice even with the massive crutches arranged around it. What scares me is that, if we suffer some big-enough shock, the Fed may be out of bullets to fight back.
Friday, August 14, 2009
And Now a Word From our Sponsor ...
Just a quick note to readers: I have added ads to the blog; I don't think this will affect the reading experience and might enrich me a little at the same time (a very little, I suspect). I also tried playing with the color scheme a little, but for the most part figured: ah, what the hell, there's a reason why everything has been printed black text on white paper since time immemorial. Best not to get too fancy.
Coming up: Sometime in the next week, I'm hoping to do an entry on the efficient markets hypothesis. It's long been a favorite of mine and has come under attack during this latest bubble. However I think that the perceived shortcomings of the theory largely go away, if you approach it the right way.
Coming up: Sometime in the next week, I'm hoping to do an entry on the efficient markets hypothesis. It's long been a favorite of mine and has come under attack during this latest bubble. However I think that the perceived shortcomings of the theory largely go away, if you approach it the right way.
Monday, August 10, 2009
The Big Banks: Destabilizing Our Economy, New Edition
I nearly popped through the skylight when I saw this BusinessWeek article. The big banks are back to peddling fancy crap in a crinkly gold wrapper. It's not that we've seen this train wreck before, it's that we're still living this train wreck.
Here's one worrisome example of "innovation" I plucked out: Citigroup, JPMorgan and Bank of America are refusing to make straightforward loans to giant customers like Hewlett-Packard, UPS and FedEx. Normally they set a borrowing rate that rises and falls with short-term interest rates. Now the rate is also being tied to the credit default swap prices on the borrower's debt.
I smacked myself square in the forehead on that one. Why are we letting these banks throw a virtual noose around their customers' necks?
Here's the rub: credit default swaps are the quasi-insurance policies ("quasi" in this case mainly means they escape regulation) that are taken out against a company's debt, or bonds. As the company's fortunes slip, the price paid to insure its bonds naturally rises. So you may think: well, that's good that the banks are hitching their lending rates to this important indicator. The trouble is, this move has several very bad consequences:
(1) Credit default markets are unfortunately set up rather like a casino right now, with everyone free to speculate on everyone else's debt. You do not insure a single bond that you possess; rather you take side bets on company bonds in such a manner that for every $10 billion of debt the company has, the side bets may reach $150 billion, $300 billion, whatever. All this money sloshing around has an unfortunate and unwanted effect: these markets are susceptible to manipulation and game-playing. Now, thanks to the CDS rider on these new loans, you can look for even more manipulation, as large hedge funds try to muscle an ailing company into its grave to collect on their CDS side bets.
(2) This will help precipitate a company death spiral. Think about it: You're FedEx say. You have a couple of rocky quarters, but your long-term plan looks good. But when you stumble, the price of the credit default swaps against your debt creeps up. Your loan repayments jump higher. That puts in you in even worse straits. Suddenly you're not just stumbling, but reeling, and your loan repayments keep ratcheting upwards. So just when a company needs some relief to work out its problems, instead it's pushed steadily toward bankruptcy.
(3) The "everything goes to sh** in a recession" effect rears its ugly head too. If enough CDS-tied loans are out there, a mild downturn can accelerate into a freefall. As a few large companies beginning staggering about, they will lay off workers, and cut business orders with their partners, who will contract too, and pretty soon these bad feedback loops will leave us another big expensive mess to clean up.
I know why banks would want this bit of "innovation": it better protects them. But it's going to be worse for our economy overall. We don't need more death spiral mechanisms introduced for our large companies and economy; we need fewer. If we had some kind of meaningful financial system oversight, someone in Washington might step forward and tell these generously bailed out banks that we're in a "financial innovation" quiet period, and to just cool it for a while.
Chances of that happening, though, aren't very good.
Here's one worrisome example of "innovation" I plucked out: Citigroup, JPMorgan and Bank of America are refusing to make straightforward loans to giant customers like Hewlett-Packard, UPS and FedEx. Normally they set a borrowing rate that rises and falls with short-term interest rates. Now the rate is also being tied to the credit default swap prices on the borrower's debt.
I smacked myself square in the forehead on that one. Why are we letting these banks throw a virtual noose around their customers' necks?
Here's the rub: credit default swaps are the quasi-insurance policies ("quasi" in this case mainly means they escape regulation) that are taken out against a company's debt, or bonds. As the company's fortunes slip, the price paid to insure its bonds naturally rises. So you may think: well, that's good that the banks are hitching their lending rates to this important indicator. The trouble is, this move has several very bad consequences:
(1) Credit default markets are unfortunately set up rather like a casino right now, with everyone free to speculate on everyone else's debt. You do not insure a single bond that you possess; rather you take side bets on company bonds in such a manner that for every $10 billion of debt the company has, the side bets may reach $150 billion, $300 billion, whatever. All this money sloshing around has an unfortunate and unwanted effect: these markets are susceptible to manipulation and game-playing. Now, thanks to the CDS rider on these new loans, you can look for even more manipulation, as large hedge funds try to muscle an ailing company into its grave to collect on their CDS side bets.
(2) This will help precipitate a company death spiral. Think about it: You're FedEx say. You have a couple of rocky quarters, but your long-term plan looks good. But when you stumble, the price of the credit default swaps against your debt creeps up. Your loan repayments jump higher. That puts in you in even worse straits. Suddenly you're not just stumbling, but reeling, and your loan repayments keep ratcheting upwards. So just when a company needs some relief to work out its problems, instead it's pushed steadily toward bankruptcy.
(3) The "everything goes to sh** in a recession" effect rears its ugly head too. If enough CDS-tied loans are out there, a mild downturn can accelerate into a freefall. As a few large companies beginning staggering about, they will lay off workers, and cut business orders with their partners, who will contract too, and pretty soon these bad feedback loops will leave us another big expensive mess to clean up.
I know why banks would want this bit of "innovation": it better protects them. But it's going to be worse for our economy overall. We don't need more death spiral mechanisms introduced for our large companies and economy; we need fewer. If we had some kind of meaningful financial system oversight, someone in Washington might step forward and tell these generously bailed out banks that we're in a "financial innovation" quiet period, and to just cool it for a while.
Chances of that happening, though, aren't very good.
Thursday, August 6, 2009
Health Care: C'mon America, Grow a Heart
I was watching some smirking conservative rail about health care on YouTube, and as soon as I heard the phrase "government takeover of health care," I knew what was coming. Whenever you hear that phrase, sense has left the room and Polly the Right-Wing Parrot has taken up residence on the TV set.
I don't consider myself a Democrat or Republican any longer -- they both annoy me with all the partisan bickering and grandstanding -- but the right wing shows itself more often to be about as dumb as a sack of rocks. So let's look at health care, in people terms. And let's look at it in the context of the conservative solution. I've even picked out what looks like a white paper of sorts (okay, a bit of a stretch, but it seems to contain the major talking points) from the great mouthpiece of conservative philosophy, the Heritage Foundation. This piece reveals what the conservatives think is most important in designing a health care overhaul.
Let's also introduce two people and see what the conservative plan would do for them. First, Jim: he's a good guy, volunteers at his local church, even votes Republican, but just lost his job. He's 44. He goes out on the open market, finds a health insurance policy -- it's a bit steep, at $700 a month, but he swallows hard and pays up. Then Jim finds out he has lung cancer. He starts undergoing a lot of expensive treatment. His insurer identifies him as a money loser and tries to rescind his policy, going through it with a fine-tooth comb, then finally discovers something: Jim didn't reveal that he once saw a dermatologist for acne. Ah hah, they've got him! The company cancels Jim's policy and saves a few hundred thousand dollars that year. The CFO gets a big bonus. Jim dies in a hospice.
Now for Sally: she's a good person as well, a single Mom bringing up two lovely girls who is forced to take a job with an employer that, like many over the last nine years, has dropped its health insurance benefit. She had breast cancer five years ago and her right breast was removed. She appears to be cancer free now. She goes out and tries to find a policy, outside of work. And gets turned down. Again and again and again. She can't buy insurance anywhere at any price. Even if she could, the amount would be so ridiculously high that she couldn't afford it.
Now, can we all agree, right and left and in between: these people deserve to be covered by health insurance in the richest country in the history of this planet?
Okay then, let's look at the all-important guiding principles for the Heritage plan for health insurance, point by point, and see how they would help poor Jim and Sally:
Okay, wave a magic wand. We've got transparent pricing and financial assistance. The problem is, Sally is uninsurable, or insurable only at astronomical rates -- no one wants to touch her. She's not a good bet at the private industry health care casino. A government tax credit of $1,000 a year, or even $5,000, isn't going to change that. And if she's eligible for "means-based assistance" of say $400 a month, based on her income, that won't help if her health history has priced her way out of the market. Also transparent pricing won't help Jim and Sally either. Take Jim. He's simply a drag on profits, and that's regardless of what kind of open pricing your health care system has. His lung cancer is an inconvenience to the bottom line. So they both lose.
Let's imagine that consumers are kept fully informed. In fact, they are amazingly informed. They study health plans day and night, private industry helps them comprehend the minutiae of policies with toll-free hotlines, all of America's coffeehouses are full of people chattering about health care all the time ... and if Sally has breast cancer, she still can't afford a policy. And Jim still loses his coverage.
Thought exercise: health insurance becomes incredibly easy to comparison-shop. The transformation blows away even the most skeptical of skeptics. Policies become simple to compare side by side, thanks to metrics that the industry itself agrees upon. Consumers are able to save a nickel here, a dime there. Brilliant! And Sally and Jim? They're still left in the cold.
So what do the conservatives do about Jim and Sally, once you strip away all the fancy-sounding rhetoric and paens to the wonderful free-market mechanism?
They let them die. They let them die because they think that buying health care should be like buying widgets or bicycles or DVD players, never mind the fact that when your widget breaks you don't spend five days in your bedroom crying and thinking you'd give all the money in the world to have that widget back.
They let them die because they don't understand health care is different.
Now I ask you: Is this an America you want to live in? Or is this an America that needs to grow a heart?
I don't consider myself a Democrat or Republican any longer -- they both annoy me with all the partisan bickering and grandstanding -- but the right wing shows itself more often to be about as dumb as a sack of rocks. So let's look at health care, in people terms. And let's look at it in the context of the conservative solution. I've even picked out what looks like a white paper of sorts (okay, a bit of a stretch, but it seems to contain the major talking points) from the great mouthpiece of conservative philosophy, the Heritage Foundation. This piece reveals what the conservatives think is most important in designing a health care overhaul.
Let's also introduce two people and see what the conservative plan would do for them. First, Jim: he's a good guy, volunteers at his local church, even votes Republican, but just lost his job. He's 44. He goes out on the open market, finds a health insurance policy -- it's a bit steep, at $700 a month, but he swallows hard and pays up. Then Jim finds out he has lung cancer. He starts undergoing a lot of expensive treatment. His insurer identifies him as a money loser and tries to rescind his policy, going through it with a fine-tooth comb, then finally discovers something: Jim didn't reveal that he once saw a dermatologist for acne. Ah hah, they've got him! The company cancels Jim's policy and saves a few hundred thousand dollars that year. The CFO gets a big bonus. Jim dies in a hospice.
Now for Sally: she's a good person as well, a single Mom bringing up two lovely girls who is forced to take a job with an employer that, like many over the last nine years, has dropped its health insurance benefit. She had breast cancer five years ago and her right breast was removed. She appears to be cancer free now. She goes out and tries to find a policy, outside of work. And gets turned down. Again and again and again. She can't buy insurance anywhere at any price. Even if she could, the amount would be so ridiculously high that she couldn't afford it.
Now, can we all agree, right and left and in between: these people deserve to be covered by health insurance in the richest country in the history of this planet?
Okay then, let's look at the all-important guiding principles for the Heritage plan for health insurance, point by point, and see how they would help poor Jim and Sally:
1) Make consumers the key decision makers. In a consumer-centered health care system, individuals make the crucial decisions [on] medical treatment and insurance. The government’s role should be limited to providing means-tested financial assistance and ensuring transparent pricing to increase consumer choice.
Okay, wave a magic wand. We've got transparent pricing and financial assistance. The problem is, Sally is uninsurable, or insurable only at astronomical rates -- no one wants to touch her. She's not a good bet at the private industry health care casino. A government tax credit of $1,000 a year, or even $5,000, isn't going to change that. And if she's eligible for "means-based assistance" of say $400 a month, based on her income, that won't help if her health history has priced her way out of the market. Also transparent pricing won't help Jim and Sally either. Take Jim. He's simply a drag on profits, and that's regardless of what kind of open pricing your health care system has. His lung cancer is an inconvenience to the bottom line. So they both lose.
2) Allow individuals to buy and own their coverage. When a parent purchases breakfast cereal for a child, the customer is the parent, not the child. Although it’s probably not a good idea for parents to allow younger children to choose a cereal, it’s clearly a good idea to allow consumer — not their employers or the government — to choose their own health insurance.Let's see, this principle helps ensure that smart choices are made, as consumers will know best what kind of policy they need and what kind of deductible they can afford. They will spend their own money more wisely. Sounds great. How much does it help Jim and Sally though? Zilch. Nada. Keep on movin' ...
3) Empower consumers to choose the right plan for them. The most basic decision consumers must be allowed to make is which health insurance plan to buy. Even the most sophisticated consumer may not have all the relevant information, or sufficient time to gather and analyze it, when deciding among providers and treatments. A consumer-oriented system makes the facts and expertise available to assist consumers.
Let's imagine that consumers are kept fully informed. In fact, they are amazingly informed. They study health plans day and night, private industry helps them comprehend the minutiae of policies with toll-free hotlines, all of America's coffeehouses are full of people chattering about health care all the time ... and if Sally has breast cancer, she still can't afford a policy. And Jim still loses his coverage.
4) Remove barriers that prevent a range of choices. Market competition works when consumers are free to choose among many options and when suppliers are free to innovate in meeting consumer demands and preferences. A precondition to any well-functioning, consumer-centered market is the removal of regulations that unduly restrict either consumer options or supplier innovation.Picture this: barriers are torn down at a blinding speed, insurers can compete cross-state with no restrictions. Innovation explodes, and is encouraged. Every major insurer finds a way to open an office in every corner of America, even remote counties in Wyoming and small villages in New Mexico. Consumers are free to choose from thousands of options. And Sally still can't find affordable insurance and Jim still can't get his insurance back.
5) Make prices transparent to consumers. Government can play a legitimate role in ensuring a market functions fairly and smoothly by establishing basic rules for clear and up-front prices so consumers may “comparison shop.” Government already requires grocers to include the unit price for products sold by weight or volume, for instance, and also requires lenders to disclose the effective annual percentage rate (APR) of a loan to prospective borrowers. For the health care system, lawmakers and stakeholders will need to agree on appropriate standards for calculating and communicating prices to consumers.
Thought exercise: health insurance becomes incredibly easy to comparison-shop. The transformation blows away even the most skeptical of skeptics. Policies become simple to compare side by side, thanks to metrics that the industry itself agrees upon. Consumers are able to save a nickel here, a dime there. Brilliant! And Sally and Jim? They're still left in the cold.
6) Consumers must have regular opportunities to choose. For a market to be truly consumer-centered, individuals must be able — at least periodically — to reconsider past purchasing decisions and make different choices. A market that restricts consumer choice by unreasonably locking consumers into decisions has the effect of shifting the balance of power in the market back to suppliers.Okay then, envision an insurance industry that undergoes huge changes, allowing consumers to opt in and out of insurance policies at will. You can cancel your policy 13 days into the month, get a prorated refund, then sign on with a new insurer for the remainder of the month, pay a prorated amount, and then change insurers again on the first of the following month! It's incredibly fluid, the free market without friction, no penalties for jumping back and forth. Consumers rule! And guess what? Jim and Sally are still screwed.
So what do the conservatives do about Jim and Sally, once you strip away all the fancy-sounding rhetoric and paens to the wonderful free-market mechanism?
They let them die. They let them die because they think that buying health care should be like buying widgets or bicycles or DVD players, never mind the fact that when your widget breaks you don't spend five days in your bedroom crying and thinking you'd give all the money in the world to have that widget back.
They let them die because they don't understand health care is different.
Now I ask you: Is this an America you want to live in? Or is this an America that needs to grow a heart?
Monday, August 3, 2009
Score Two More For Me!
It's not that I'm trying to be right. Honest. And I know I've screwed up a bunch of analysis here. Like I predicted that there'd be a major housecleaning during the 2008 elections as voters kicked to the curb the legislators who supported Paulson's massive financial industry bailout. I was wrong. Never underestimate the apathy and indifference of the American voter, I learned.
But here I am, Monday morning, spooning down my Honey Nut Cheerios and laughing through my tears. 'Cause my imagery from a few days ago turns out to be true, sadly:
Oh and guess what? It turns out that a reason the major banks won't play with the Geithner plan (aka PPIP) is this (my March 25 entry):
So, for the umpteenth time, it really wasn't a liquidity problem that the banks faced in getting a fair price for their toxic assets. And I bet they knew that. So that means they lied. You got that, America? Lied. L-I-E-D. That's why PPIP failed. They spent the early part of this year just fumblemucking around, waiting for massive fed backstops to kick in and float them to a semblance of good health.
But here I am, Monday morning, spooning down my Honey Nut Cheerios and laughing through my tears. 'Cause my imagery from a few days ago turns out to be true, sadly:
This is the metaphor I keep thinking of for the U.S. government: He's a fat kid. A rich kid. You recognize him on the playground immediately and run over to him. Why? Because he's such a great guy? No, because change is always spilling out of his pockets. Or he's buying something ridiculous and you just can't believe it. "He paid Jim $40 for that dead cricket? He bought ten boogers off Lester for $10? I wonder what he'll give me for this dirty candy bar wrapper?"This, from the Financial Times today:
Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.And the quote that makes taxpayers across the land wince:
A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”So you know what? The U.S. government really is the fat rich kid with too much money. Wall Street knows it can rip off little Richie Rich in perpetuity.
Oh and guess what? It turns out that a reason the major banks won't play with the Geithner plan (aka PPIP) is this (my March 25 entry):
5. You're doing this under the klieg lights, and it may not be pretty.Klieg lights bad for devious banks. And if you thought -- hell, the banks don't care, they'll just be grateful for this bit of well-meaning assistance, and if the problem is just liquidity as they claim, why they'll be ever so profusely thanful for the ample liquidity Geithner's plan provides -- think again. Check out Mortgage Security News' Paul Muolo:
This is the Obama Administration Experiment to Save the U.S. Banking Industry. A lot of red-meat business journalists will pounce on the first published auction results, scrutinizing them to see what they tell us about the state of banks and their books. So far, you have been able to hide behind uncertainty and obfuscation. You say the asset is worth $80. Someone else says $37. Who can tell really, in these troubled times?
As the mortgage and banking industries debate whether the PPIP program will work and whether a similar effort over at the FDIC will ever see the light of day, Wells Fargo & Co. recently (and quietly) sold a $600 million portfolio of mostly nonperforming subprime loans. Or so we're told.The problem is, they didn't get much money. At all. Here's the payload:
... Perhaps one reason the PPIP (Public-Private Investment Program and the Federal Deposit Insurance Corp.'s 'Legacy Loan' sale initiative (involving whole loans, presumably residential and commercial mortgages) hasn't caught fire is 'sunshine,' that is, the concept of disclosure. If bankers and investment bankers use these government programs that means all the messy details of their crappy investments might see the light of day, which could anger shareholders - and maybe even board members who might lean toward being "activists."35 cents on the dollar? Ugh. Sounds pretty putrid. Like the kind of return you don't really want anyone to know about. Like the kind of transaction you want to conduct in the dark.
The nice thing about the private nonperforming loan market is that none of these messy details have to see the light of day, including the price paid. One banker told me that the 35 cents on the dollar that Arch Bay reportedly paid was twice what some hedge fund bidders were offering.
So, for the umpteenth time, it really wasn't a liquidity problem that the banks faced in getting a fair price for their toxic assets. And I bet they knew that. So that means they lied. You got that, America? Lied. L-I-E-D. That's why PPIP failed. They spent the early part of this year just fumblemucking around, waiting for massive fed backstops to kick in and float them to a semblance of good health.
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