This is my new mantra for all things Republican. It's so thoroughly embedded in their thoughts and actions that they are completely unaware they are doing it, much less have any shame.

I suspect for many people AIG will be the last straw. It is not a bank, it is not even an investment bank, and the Fed knows less about it than about even Fannie and Freddie. Taking on all the equity of AIG as collateral at the Fed is a lot like John McCain selecting a running mate he only met once. It is said that AIG has "tentacles" spread all around the world, but how does anyone know that? All the Fed knows is that JP Morgan Chase and Citibank and BOA will lose potloads of money if they have to write off all the "credit default insurance" they bought from AIG. So what? If these write-offs are so enormous as to collapse one or more of these banks, why not take over the banks directly rather than try to prop up the middleman?

Now you have the federal government, meaning the taxpayers, stepping in as counterparty on all these derivative deals to the banks that are left standing. That is the practical effect of this takeover, which is all about derivatives like collateralized debt obligations, mortgage-backed securities, and collateralized debt swaps. That is the only thing that distinguishes Bear Stearns and AIG from Lehman and Merrill, who were allowed to sink or swim.

And was it coincidence that once again Bill Gross was on TV yesterday insisting that the federal government lend $85 billion to AIG or there would be hell to pay? We all know who he is pimping for, but why should the government bail him out time and again?

Is there any room left on the Fed balance sheet for Wachovia, Washington Mutual, or Citibank? These are at least real banks deserving some consideration. Then there is always General Electric waiting in the wings, GMAC, Ford Motor Credit, and the automobile manufacturers themselves. Aren't they deserving?

The hypocrisy that the US has free capital markets has been made bare to everyone. Politically, the Republicans love hypocrisy and the Americans, or a lot of them, lap it up when it appeals to their tribalism or provincialism or anti-intellectualism. But the market consists of millions of investors who can't be so generous with their money as to invest in obvious frauds, and the entire stock market is beginning to look shambolic as our regulators lurch about haphazardly and hypocritically saving so many people from their misjudgments and greed.

And who will bail out the Fed and the Treasury when everyone realizes what a cesspool of derivatives the taxpayer now owns?

I claim that there should be a Downtick Rule matching the late lamented Uptick Rule: the stock has to drop a bit before anyone can buy it. This suppresses those mad buying frenzies which can only end badly, but churn up commissions. I'm a stinkin Commie.

Another bit of wonderfulness: A money market fund has frozen redemptions. Does this count as a bank holiday?

Courtesy of Schwab

“The Playboy reader invites a female acquaintance in for a quiet discussion of Picasso, Nietzsche, jazz, sex.” - Hugh Hefner, the first issue of Playboy

From the front-page NY Times article:
"Robert B. Willumstad, who became A.I.G.’s chief executive in June, will be succeeded by Edward M. Liddy, the former chairman of the Allstate Corporation. Under the terms of his employment contract with A.I.G., Mr. Willumstad could receive an exit package worth as much as $8.7 million if his removal is determined to be “without cause,” according to an analysis by James F. Reda and Associates."

I don't think it's envy; it just seems that no one is ever held responsible...and all receive these multi-million-dollar packages, if only for a few months' time in a position.

About doing nothing: A wise man I once worked for used to say, "Most dire emergencies solve themselves in about 3 days."

But the one you describe makes a bunch of assumptions about the sophistication of the players that are unreasonable. The classic model of market efficiency really only makes sense when things are reasonably predictable, and when the agents in the market all have relatively good evaluation abilities.

When people are buying things with the intent to sell them to the market in the future (which, as far as I am aware, is mostly what investment banks do) the intrinsic value of stuff is all too easily left by the wayside. In fact, the notion of a derivative seems like a device designed to eliminate this intrinsic value consideration.

As long as we all realize that free markets have the brains of a yeast. Free markets will literally eat themselves to death in a feeding frenzy if you throw them to much food. Free markets will cover farmland with sprawl. If they could consume air they would do it until all life on earth is extinguished. Otherwise, I think free markets are fine.

"You have no respect for excessive authority or obsolete traditions. You're dangerous and depraved, and you ought to be taken outside and shot!" - Joseph Heller

These actions are now almost as absurd as the thought of a global wipe-out was at this time 12 months ago.

Are there any Agonistas that know how to find what the expenditures of the Fed have been year-to-date. At one point early in 2008, the Fed had on hand reserves totally $912 Billion. Some of the expenditures such as w/ Fannie and Freddie are guarantees, and have not yet tapped into the $100 billion available through the legislation for advances. However, between the usual Window borrowing since the Bear debacle in March and each of the "rescues" since, I think the totals are somewhere around $600 billion. Like the FDIC funds, the constant tally is starting to burn through that $912 figure. What then? Ask Treasury to start the printing presses? Is the $912 B separate from the reserves of the 12 District Fed Reserve Banks? Is anyone "out there" keeping track? I am beginning to think the so-called AAA rating of U.S. Bonds, Bills, and Notes is getting pecked-at by a big, fat woodpecker and if that bird takes one too many whacks, what then for that lofty AAA rating? Save us, oh lord.

Has this to say:

"We were promised a “New Economy” of high-tech tradable services to take the place of the offshored manufacturing economy. Wondering what had become of the “New Economy,” Duke University’s Offshoring Research Network searched for it and located it offshore. Yes, the activities of the “New Economy” are also outsourced offshore."

"Call centers, IT operations, back-office operations, and manufacturing have long been moved offshore. Now high-value-added proprietary activities such as research and development, engineering, product development, and analytical services are being sent offshore. All that’s left is finance, and it is crumbling before our eyes."

..is goring the American gut, whilst the Bear is biting the ass...

Thanks to Gramm and 8 years of Bush (Gramm for the legislation in '99 that deregulated the financial markets that set up the present mess) we're left with the above gory alle-gory (feeling punny tonight).

This mess will take generations to get out from under. Can't help but wonder if Bush/Cheney were hoping for an all-out war like WWII to kick-start the US economy into the fever-pitch seen way back then, when the Real World and its Liberal Agenda got in their way.

Now, they'll probably head to France, or somewhere else that doesn't have an extradition agreement with the US, so as to avoid the inevitable court headaches likely to follow their misbegotten tenure in Office.

-5.75,-4.05
"God gives men a brain and a penis, and only enough blood to run one at a time." -- Robin Williams

Fukuyama saw "the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government"

But now I see housing, finance and insurance funded big time by government.

'twas only a few weeks ago that Francis wrote "But while bullies can still throw their weight around, democracy and capitalism still have no real competitors."

In Australia we now have a new liberal leader of the opposition who is more left than the labour Prime Minister.

I agree with SP, there is a time to let it all burn, and lie fallow.

May real democracy rise from the ashes!

Sterling was correct, the rich will not be hurt in this all to real freak show of Republican flim flam men gone wild. The only thing I can see to do now, is supply Ink and Paper to the U.S. Printing office.

"There are two types of folk music:
quiet folk music and loud folk music.
I play both."

Dave Alvin

After decades of privatizing and outsourcing the government, the banking and insurance industries are now being nationalized.

Is this really a bad thing? Should we spend hundreds of billions of public funds to nurse them back to health, so we can return them to the private sector, or might they be better off as public utilities? Our courts, highways, much of our education, military, police, etc. certainly work better as public institutions. There are not many royalists left.
What if the banking system was incorporated at all levels of government, with towns and counties having small banks, cities and states medium sized ones and various national and international institutions. The argument is that government is inefficient and unresponsive, but if all these communities were competing to provide high living standards and favorable business opportunities, using income from a community bank to fund infrastructure, rather then having private banks siphon it off for the few, or taking it out of the community, might prove to be very effective in providing a healthy society and a healthy economy.
Keep in mind the alternative is as I mentioned above, use public funds to put them back together, so the people whose interest is their own gain can run them again. If it's public risk, it should be public reward.

Greenberg was the founder of AIG and he had a lot to say about this takeover on Charlie Rose yesterday. Summing it all up, he said that AIG had $1 trillion in assets, that 11% interest rates and falling housing prices created a difficult road ahead for the company but nothing unsurmountable and there was no justification for the takeover. Listen to the show and form your own opinion. He lost control when an investor (Carlyle Group) unseated him. Last December, according to Greenberg, that investor cashed in and got out of the company. That precipitated the current situation. The next question might be what becomes of the insurance for our military forces if there was no takeover?

Why don't I hear newsmen or pundits called this what it is - socialism. When the corporations are too big to fail, I guess they have to be nationalized. Isn't it ironic that our money-party kleptocracy turns to socialism to bail out failed capitalist enterprises. Isn't this precisely privatizing profits and socializing losses?

Now that these businesses are nationalized, we should be able to squeeze a lot of savings out of these new government bureaucracies with their bloated salaries. Just make the employees all public servants on the GSA salaries scales, including the CEOs, who should get no more than the max of $191,300.

Who next is too big or too important to fail? The auto industry? Certainly the defense industries.

tla

elimination of the UP TICK rule

Nobody seems to want Washington Mutual, so it'll probably end up in "conservatorship" like IndyMac. Rumor has it that Wachovia is talking to Morgan Stanley about a possible merger.

Anyone still want to talk about "creating wealth" by shuffling little bits of paper around instead of actually making something?

It is rather simple. The US government cannot afford to let free markets do their job. What is at stake is not the salaries of the CEOs and the companies themselves, but rather the reaction of China, Japan, Russia and the Middle East Sovereign Funds. If they got burnt, they would pull out of the US market, including the purchase of Treasury Bills.

The irony is that with the bailouts, the US government will eventually have to print fiat money and in reaction, Russia, Venezuela and the Middle East will insist on trading oil in euros and only accept that currency in payment for oil.

So all the Bushies have done is buy time - so it is the next administration that suffers the ire of the electorate.

Albert

Date : 18 September 2008 0449 hrs (SST)
URL : AFP

ELKO, Nevada: Democrat Barack Obama launched a scathing attack on his White House rival John McCain on Wednesday for being part of the very "old boy network" that the Republican said had driven the US economy into crisis.

Addressing at least 1,500 supporters at a sunny open-air rally, Obama said the Federal Reserve's rescue of giant insurer American International Group "must ensure that the plan protects the families that count on insurance."

"It should bolster our economy's ability to create good-paying jobs and help working Americans pay their bills and save their money," he said.

"It must not bail out the shareholders or management of AIG who were making big profits when times were good. They shouldn't be bailed out when times are bad."

Obama, arguing the United States was "in the midst of the most serious financial crisis in generations," ridiculed McCain for claiming the economy was "strong" and then vowing to shake up Washington.

"This is someone who's been in Congress for 26 years, who put seven of the most powerful Washington lobbyists in charge of his campaign - and now he tells us that he's the one who will take on the 'old boy network'?" Obama said.

"The old boy network? In the McCain campaign, that's called a staff meeting," he said to hoots of derision from the Nevada crowd.

The Illinois senator noted McCain's idea for a presidential commission to map a way out of the economic troubles sweeping the United States as job losses and home seizures mount and pensions are wiped out.

The proposal for a commission similar to the panel that investigated the September 11 attacks of 2001 was "Washington-speak for 'we'll get back to you later'," Obama said.

"Folks, we don't need a commission to figure out what happened. We know what happened," he said.

"Too many in Washington and on Wall Street weren't minding the store. CEOs got greedy. Lobbyists got their way. Politicians sat on their hands until it was too late.

"We don't need a commission to tell us how we got into this mess, we need a president who will lead us out of this mess - and that's the kind of president I intend to be," he exclaimed to raucous cheers.

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Good luck! There have been major changes in how AIG has stated its books due to the recent scandals but one wonders if all of the trickery has been revealed. For example, AIG continues to claim that it does business in "130 countries and jurisdictions" which is generally reported as "130 countries" when the truth is that the number includes under the definition of "jurisdictions" all 50 states, DC, Puerto Rico, Guam and American Somoa. This is not to say that the company does not have global reach, they just have a corporate culture of prevarication. Which brings one to the question of what potential buyers will find when they lift the skirts of business units during the due diligence process in connection with any potential acquisition. Stay tuned. I hope I am wrong.

Marcus Gee, September 17

If you are looking for a worst-case scenario after Wall Street's big meltdown, just look east to the land of the rising sun. After Japan's asset bubble burst in the early 1990s, its economy drifted in the doldrums for more than 10 years, recording average annual growth of just 1 per cent. Will the United States (and by extension Canada) suffer the same fate? Not if it learns the lessons of Japan's “lost decade.”

Japan's collapse was one of the most remarkable of the 20th century. Like China today, Japan was once considered the economic marvel of the world. Its economy grew by 10 per cent in the 1960s, 5 per cent in the 1970s and 4 per cent in the 1980s. Property and stock values rose to stratospheric levels. Then came the reckoning. Beginning on Jan. 2, 1990, asset values began to tumble. Eventually, real estate would fall 70 per cent and stock values 75 per cent.

The government of Japan responded to the economic downturn with the usual battery of Keynesian measures. It cut interest rates to stimulate growth. It increased spending for the same reason, recording budget deficits that added up to 6 per cent of gross domestic product in 1992-93.

But the spending was poorly directed. Rather than cut taxes to encourage consumers to spend more, it wasted hundreds of billion of dollars on public works, building bridges to nowhere and superhighways that no one really needed. In 1997, it committed its worst fiscal blunder when it actually increased the consumption tax (Japan's GST) to 5 per cent from 3 per cent. The intention was to help fix the rising deficits and debt that flowed from so much public spending. The result was to make the Japanese close their wallets at the very time that the economy needed them to start spending again.

Far worse than all this was Japan's failure to grapple with the troubles in its financial and broader corporate sector. There was no big house cleaning à la Wall Street after the Japanese economy tanked in the early 1990s. Hoping to avoid the nightmare of mass unemployment, the government helped essentially bankrupt companies to stagger on with the help of loans from allied banks.

“That meant, however, that prices and profits in many sectors were depressed by the continued presence of ‘zombie' companies being kept alive by the banks,” Bill Emmott, former editor of the Economist, writes in his new book Rivals. “The result, from 1998 onwards, was deflation, a spiral of falling prices and wages that deterred consumption (because things would get cheaper if you waited) and kept the economy weak and vulnerable to further shocks.”

What are the lessons for the United States and the world at large? One is to avoid creating zombies. Washington was wise to let Lehman Brothers expire and Merrill Lynch fall into the arms of Bank of America, rather than use government funds to keep them going.
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_{"While not a Playboy reader, she invites a male acquaintance in for a quiet discussion of Chagall, Nietzsche, jazz, sex." - not a Hugh Hefner quote}

Andrew Clark in New York The Guardian, Thursday September 18 2008

Merrill Lynch's newly recruited chief executive, John Thain, stands to share a $200m (£111.4m) payout with two senior lieutenants for less than a year's work which culminated this week in the bank surrendering its 94-year-old independence.

The Wall Street bank known as the "thundering herd" agreed to a $50bn takeover by Bank of America on Monday after a hasty 48 hours of negotiation. The talks were prompted by fears over banking stability arising from the collapse of Lehman Brothers.

Thain, who was previously the head of the New York Stock Exchange, joined Merrill in December with a mandate to steer the bank out of financial trouble. When he arrived, he was given a $15m signing on bonus. If he leaves in Bank of America's takeover, he stands to get a further $11m in accelerated stock payouts.

Two former Goldman Sachs executives hired by Thain are likely to do even better. Merrill's head of global trading, Thomas Montag, who joined in August, has already received a $39m bonus. Together with stock options accelerated by a buyout, he could end the year with $76m. The bank's head of strategy, Peter Kraus, was given a $95m package including bonuses and stock awards to replace his generous compensation at Goldman when he joined in May, according to figures obtained by Bloomberg News.

It is yet to be determined whether any of the trio will have a role at Bank of America. Even by the standards of Wall Street payouts, the sums are unusually high for such a short period of employment.

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