Corporations Killing Off Employees

  I ran across this article and I thought that you may be interested in seeing how corporate America is fucking its workers.

Corporate America’s Counter-Stimulus Strategy

Firms decide to shut profitable plants while spurning buyers.

By Roger Bybee

This article is from the March/April 2009 issue of Dollars & Sense: Real World Economics available at http://www.dollarsandsense.org/archives/2009/0509bybee.html

“Is it too late? I hope not,” said an exasperated Anthony Fortunato, president of the 260-worker United Steelworkers (USW) Local 2604 at an ArcelorMittal steel mill in Lackawanna, New York, as he and his members watched the mill being systematically taken apart.

An eager buyer has been pressing the company for at least two months to sell the mill and thus keep the profitable operation open and the jobs alive. Fortunato is hoping the buyer will remain interested despite ArcelorMittal’s aggressive drive to gut the mill. ArcelorMittal is rushing to dismantle complex, custom-built ovens and other equipment that will take months to replace.

Day by day, the dismantling continues relentlessly, with each step reducing the value of the mill. “Our members are getting sick watching this happen,” said Fortunato.

Arcelor’s plans to close the Lackawanna mill are occurring against a backdrop of a widely supported effort by President Barack Obama to stimulate the nation’s flat-lining economy with the $787 billion “American Recovery and Reinvestment Act.” But even as Obama is moving to counter the nation’s economic free-fall, major corporations are moving in the opposite direction when it comes to maintaining employment and consumer demand. A recent survey showed 71% of CEOs expecting more layoffs in the coming six months.

Not only are they accelerating the pace of outsourcing to low-wage nations like China, but there have been several recent instances of corporations closing profitable plants in the United States and then refusing to sell them to other companies interested in keeping the plants open and retaining the current workforce.

“These jobs aren’t coming back”

The Lackawanna mill isn’t ArcelorMittal’s only closure. ArcelorMittal is also shutting down its Hennepin, Ill. steel mill, even though other firms have expressed strong interest in buying that mill, reports USW Local 7367 president David York.

At a moment when unemployment around Hennepin—about 100 miles west of Chicago—has hit 10%, ArcelorMittal is preparing to discard the 285 USW members who have performed the hard work of steel production.

The plant has been consistently profitable, earning $48.4 million even in a recessionary year like 2008. Yet ArcelorMittal is intent on shipping one product line to low-wage Brazil and another to France. Moreover, ArcelorMittal has rebuffed a proposal by another major steel company to buy the Hennepin mill and keep it running.

The Hennepin workers have little prospect of finding jobs paying anywhere close to the $70,000 their old jobs averaged, including overtime and productivity bonuses, says Local 7367 President David York. Few family-supporting jobs are available nearby.

And ArcelorMittal’s strategy is not unique. Last fall, the Cerberus private equity group, through its NewPage subsidiary, shut down a highly profitable, technologically advanced paper mill in Kimberly, Wis. Cerberus is headed up by John Snow, former Treasury secretary under George W. Bush; Dan Quayle, former vice president under George HW Bush; and Richard Feinberg, who personally raked in $330 million in compensation from Cerberus in 2007. USW Local 2-9 President Andy Nirschl speculates that Cerberus (the name is derived from the mythological dogs who guard the gates of Hades) essentially wanted to raise paper prices by reducing capacity, regardless of the human cost to 600 workers and their families.

“This wasn’t like the usual scenario we’ve seen again and again,” says Nirschl, “where a corporation move jobs to Mexico or China to increase their profits by paying less than a dollar an hour. This was a case of a corporation taking a productive, profitable plant and closing it, refusing to sell it to anyone.” The paper mill turned a profit of $66 million in 2007, says Nirschl. Four firms showed interest in buying the plant, but Cerberus and NewPage remained uninterested, frankly admitting that it had no plan at all to market the plant to another buyer.

From Manufacturing to Finance

While America’s productive base suffers from under-investment or is lost to off-shoring to Mexico, China, and other low-wage countries, U.S. corporations have engaged in speculation, using supposedly more profitable paper assets such as mortgage-backed derivatives. “The only thing that has kept the economy going since Reagan is one sort of artificial bubble or another, because Corporate America has been destroying real production,” declares UE Western Regional President Carl Rosen.

One stunning symptom of America’s declining productive capacity: the contrast between the nature of the imports and exports clogging the mammoth West Coast port of Long Beach. On the import side, warehouses and parking lots around the port are filled with imported cars and electronic products from mainly China and Korea—an enormous backlog due to the current crisis in the world economy. On the export side, the profound shift in the U.S. economy from production to finance is reflected in the leading U.S. export from Long Beach: recycled paper and cardboard.

At the same time that capital has flowed away from U.S. factories to low-wage sites abroad, it has also been increasingly channeled into the financial sector. This has occurred within major manufacturing corporations like General Motors and General Electric, which had been extracting a growing share of profits from their financing arms as investments have increasingly shifted away from production to finance.

Reflecting this shift, the U.S. financial sector produced $313 billion in profits in 2003, compared with just $119 billion for American manufacturing, as economist William K. Tabb has pointed out. Where the financial sector accounted for less than 2% of total domestic corporate profits in the mid-1950’s, in 2007 it provided close to 40% of all domestic corporate profits.

Tabb aptly describes the seemingly “magical” process behind the expansion of the financial sector:

Money could be made solely out of money, without the intervention of actual production. The new secret was presumed to be leverage and risk management, which allowed the purchase of assets that promised higher returns even if they carried a higher risk.

This was both a an economic and political development, as the financial sector gained leverage over the rest of the economy, in effect gaining the power to dictate priorities to debtors, vulnerable corporations, and governments. As its power grew, it could demand greater deregulation, allowing it to grow still further and endangering the stability of the larger financial system.

Meanwhile, many major firms are adopting what can best be described as a “counter-stimulus” economic program, precisely following what Nirschl called “the usual scenario.” The New York Times reported on a massive wave of job offshoring and wholesale divesting of product lines.

“These jobs aren’t coming back,” John E. Silvia, chief economist at Wachovia in Charlotte, N.C. told the Times. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, and fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

“The decimation of employment in legacy American brands such as General Motors is a trend that’s likely to continue,” said Robert E. Hall, an economist at Stanford University’s Hoover Institution.

Productive Base Goes out the Window

Mark Meinster, a representative of the United Electrical Workers (UE) international, said that this latest round of job destruction is simply an intensification of trends visible in recent decades, but made all the more galling because of the wanton closing of profitable plants at a time when good jobs are increasingly scarce. “We see this every day,” said Meinster. For the past 20 years, you have everything from out-and-out trickery to private equity firms transferring debt from a money-losing operation to a profitable plant, and then shutting down the plant and stripping its assets. “Meanwhile, our productive capacity completely goes out the window.”

Meinster helped to coordinate the December sit-down strike at Chicago’s Republic Windows and Doors (see “The Real Audacity of Hope,” Dollars & Sense, Jan/Feb 2009). Workers there faced both an employer secretly moving equipment to a new non-union plant in Iowa and the Bank of America—which received $20 billion in grants and $118 billion in loan guarantees from the bank bailout—cutting off the firm’s line of credit, which, in turn, deprived workers of vacation and severance pay.

With the plant already closed, the workers decided to take over the plant, thereby taking control of Republic’s valuable inventory and holding it hostage. The result: Bank of America re-opened the financial spigot, the workers were paid, an environmentally oriented firm bought the plant and will be rehiring the workers, and the sit-down achieved worldwide fame.

The Republic sit-down also inspired non-union workers, faced with a plant closing at the Colibri Group jewelry factory in East Providence, RI to stage a sit-in. The action resulted in 15 arrests while intensifying pressure on the firm’s owner, the Founders’ Group private-equity firm.

UE Western Regional President Carl Rosen, who played a leading role in backing the sit-down strike, noted that the action—both illegal and highly unusual in the United States—ignited enormous support, including from President Obama. “We made our message everybody’s message,” explained Rosen. “This economy is failing because workers cannot buy back what they are making. Corporations are being bailed out and workers are being sold out.”

Corporations claim “We’re willing to sell”

As a Luxembourg-based firm owned by an Indian-born billionaire living in London, ArcelorMittal is clearly following the “take the money and run” model of Anglo-American capitalism. This system is far harsher than the Western European model in which employers’ incentives have been more influenced by social-democratic traditions and the ongoing strength of the labor movement.

In Lackawanna, ArcelorMittal’s foot-dragging on a potential sale could soon mean the loss of 260 jobs. “Until yesterday [March 26], the company was not admitting that they even had heard of any interested buyers,” said USW Local 2604 president Fortunato. But the forceful intervention of Sen. Chuck Schumer (D-NY) finally produced a meeting between ArcelorMittal’s U.S. CEO James Ripley and one interested buyer.

“At this point, we don’t know the results of the negotiations,” Fortunato told Dollars & Sense, the frustration and anxiety evident in his voice. The outcome of the negotiations may depend on whether ArcelorMittal’s decision to aggressively dismantle the steel operation has made purchasing the existing, hollowed-out plant and re-starting production far more difficult and costly than simply beginning production from scratch.

The involvement of members of the U.S. Congress at Lackawanna—as at Hennepin and Kimberly—has forced the corporations to claim that they were willing to sell the plants and retain jobs. But once the meetings were concluded, corporate interest in selling and saving the jobs of local workers rapidly melted away. For example, a Cerberus/NewPage official was asked recently whether the company had any plans in place to market the Kimberly plant. The response: “No.”

Cooperation: A One-Way Street

Particularly frustrating for Local 2604 is the fact that the union made such extensive efforts to assist the corporation. It lobbied successfully for a two-thirds reduction in their electricity costs, lined up training grants, and supported reductions in sales and property-tax rates for the corporation. “We as a union have done a lot to help the company. They’ve tried to tell us we’re not competitive as a plant. If that’s the case, why not sell us?”

Rather than being grateful for the union’s efforts to lower its costs, ArcelorMittal instead changed its internal accounting procedures so that the Lackawanna plant actually booked a loss, by charging that plant more for shipping and supplies from other ArcelorMittal plants around the United States. In that way, ArcelorMittal aimed to evade New York’s higher corporate taxes, Fortunato suspects. Until ArcelorMittal made that shift in accounting, the plant had been consistently showing a profit of about $6 million a month.

With annual wages typically running in the $40,000-to-$50,000 range, his members will have a hard time finding comparable-paying work. Fortunato believes the real unemployment rate in Lackawanna, near the similarly hard-hit industrial city of Buffalo, is about 25% to 30%. “Our guys will have to work two or three jobs to make what they earn here,” he said.

The process of watching the Lackawanna mill being slowly dismantled, with custom-made parts being wrecked by being disassembled or simply scrapped, is difficult for the workers who invested their lives in the plant, says Fortunato “Our guys are getting sick at what they’re scrapping.”

The steelworkers in Illinois also complain of the corporation’s indifference to commitments by the public to subsidize ArcelorMittal. ArcelorMittal’s decision to locate its U.S. headquarters in Chicago unleashed a flow of incentives, including $2 million in assistance for furnishing corporate offices.

At the Hennepin plant, the union’s current contract commits ArcelorMittal to keeping the plant open through the agreement and maintaining its viability through adequate investment. The union has taken the case to arbitration.

Corporate Royalty Ignores Workers’ Years of Loyalty

Corporations are often accused of having an imperious, Marie Antoinette-style attitude toward their workers, unaware and uncaring about their daily struggles to provide for their families.

Marie Antoinette, wife of Louis XVI, was informed that the poor of Paris were too poor to afford bread. Her supposedly infamous response: “Let them eat cake.” She was later beheaded in 1793 during the French Revolution.

But in the case of ArcelorMittal, the world’s largest steel firm that is preparing to shut down steel mills in Hennepin, Ill. and Lackawanna, N.Y., the comparison to Marie Antoinette may not be much of an exaggeration. The workers and local communities have been bewildered by the corporation’s commitment to closing the profitable mills despite offers from other firms that wanted to keep them open.

Meanwhile, corporate CEO Lakshmi Mittal lives in near-royal grandeur in London in a $125 million home right next to the posh Kensington Palace. Mittal’s home was constructed by combining the former Russian and Egyptian embassies. The swimming pool is inlaid with jewels, and the estate includes a 20-car garage. Lakshmi Mittal has a personal fortune estimated at $25 billion.

For the wedding of his daughter Vanisha, who is also a member of the corporation’s board of directors, Mittal shelled out $55 million. If you’re wondering how even the super-rich could manage to spend such a sum on a wedding, it might help to know that the five-day celebration was capped by a party—at Versailles.

That’s right—Versailles, the magnificent and legendary palace that King Louis XVI gave to his 19-year-old bride, Marie Antoinette, as a wedding present. Plus ça change...

What Compensation? What Retraining?

As major corporations continue to undermine the impact of Obama’s stimulus efforts by slashing jobs, the conventional wisdom among leading economists and elected officials in both parties is that worker retraining is the best public-policy response. As the New York Times put it recently, “For decades, the government has reacted to downturns by handing out temporary unemployment insurance checks, relying upon the resumption of economic growth to restore the jobs lost. This time, the government needs to place a greater emphasis on retraining workers for other careers.”

But this approach, while conveniently allowing elected officials to sidestep an uncomfortable confrontation with corporations’ unilateral control over the fate of workers and communities, has little empirical support as a successful strategy for “adapting” to deindustrialization and the offshoring of jobs. As the supply of family-supporting jobs is reduced, workers are essentially losing at a game of musical chairs in which good jobs are disappearing and not being replaced. When displaced workers successfully complete retraining programs, they are generally unable to find jobs comparable in pay and benefits to the ones they lost.

“Out of a hundred laid-off workers,” says New York Times economics writer Louis Uchitelle in his book The Disposable American: Layoffs and Their Consequences, “27 are making their old salary again, or more, and 73 are making less, or not working at all.” But even if retraining were an effective strategy, the very politicians who tout it as a solution have been unwilling to fund training in a serious way. Funding for training has plummeted from $20 billion in 1979 to just $6 billion last year (in constant dollars), according to one expert cited by the Times. These cutbacks in funding would seem to indicate that leading politicians, especially in the Bush era, were never quite sincere in their willingness to match their proclaimed faith in the power of retraining with an equivalent level of funding.

Further, the traditional unemployment-compensation safety net has been shredded over the past four decades, reaching a much smaller percentage of workers than in past, less severe recessions. During the 1975 recession, unemployment compensation reached 75% of the jobless and thus was a significant factor in restoring consumer demand. But thanks to radical cuts in unemployment compensation eligibility rammed through by the Reagan administration, only 45% of the unemployed received any benefits during the much more severe recession of 1982-83. The National Association of Manufacturers was delighted with the cutbacks in eligibility, crowing that under the old rules, “there was no incentive to go back to work under that program.”

By 2003, the number of unemployed workers eligible for benefits had fallen further from the 1982 level of 45% down to just 41%, according to the Ohio-based group Public Policy Matters. While Obama’s American Recovery and Reinvestment Act may begin to reverse some of cutbacks in eligibility, it remains to be seen how widely these changes will positively affect the fates of the jobless.

Needless Job Losses

The toll of unemployment extends far beyond a drop in family income, access to health care, and a loss of self-esteem for the displaced work. Peter Dreier, a political scientist at Occidental College, recently released a study showing that each 1% increase in the national U.S. unemployment rate produces an additional 47,000 deaths, with 26,000 of the fatalities cardiac-related, 1,200 due to suicides, and 831 due to homicides.

Given these grim realities about passively accepting the consequences of deindustrialization, coupled with growing resentment about the greed and malfeasance of Wall Street, the egregious damage to workers and communities imposed by firms like Cerberus and ArcelorMittal may raise corporate investment decisions to a high-profile political issue. Corporations are closing profitable, productive plants in the midst of a severe economic crisis, and then capriciously refusing to seriously consider selling the plants to keep them open.

This would be unthinkable in a number of Western European democracies like Germany and Sweden that have long required that corporations provide a compelling rationale for shutdowns to regional government labor-market bodies. Most other Western European nations offer workers and communities some degree of protection from the effects of shutdowns, although not as extensively as in Germany or Sweden, nor with the same degree of worker and community participation in decisions about the company’s plans.

In the United States, the increasingly destructive impact of arbitrary corporate decisions to close plants amidst a severe economic crisis of unknown depth may finally unleash public demands to place corporations’ conduct under democratic constraints previously unimaginable for America’s private economy.

Roger Bybee is the former editor of the union weekly Racine Labor and is now a consultant and freelance writer whose work has appeared in Z Magazine, The Progressive, Extra!, The Progressive Populist, In These Times, commondreams.org, and other national publications and websites. Visit his webpage at www.zmag.org/zspace/rogerdbybee.

Technorati Tags: Dollars & Sense,Corporations,Workers Rights,American Jobs,TARP,USW,ArcelorMittal Steel Mill,President,Barack Obama,Cerberus,John Snow,counter-stimulus

Government/Economy In Collapse

…And that is exactly what is happening people! Our United States government, with the exception of the chosen few who have been mining the store, is slowly and surely going down straight into the toilet. Guess what? There is nothing that you or I can do about it. Mainstream America is smack dab in the middle of a royal screwing that we are not going to like.
President Obama isn’t going to help any one of us during this so-called economic crisis. That’s not his duty. Obama’s duty is to do the bidding of those Wall Street bankers here in the United States and also to help out the other bankers from around the world who actually are running things on the various continents. Those big, invisible bankers are running not only our government, but they are also running many other governments.
Proof? How about those massive bailouts that former President Bush started handing out to AIG, Bank of America, and others, which or new President Obama has also continued to do?
Think about something else for a second or two also. Economic expansion is the goal of the new administration? Yet they are doing the same thing that Bush and his cronies have been doing for years. The Obama administration is handing trillions of our tax dollars over to the banks and the brokerages with no oversight of any kind thus far. You and I get plenty of lip service about Congressional oversight but we see nothing at this point.
So. Is giving all of our money to the bankers stimulating the economy? I would say NO. It may be stimulating the bankers and their shareholders economy quite a bit, but it is not doing jack crap for the economy in which you and I are living. When was the last time that you got a bonus for being incompetent? We don’t get a bonus, we get a pink slip.
This bull of handing out our tax dollars to the biggest corporations in the country because some are considered to big to fail is just a different variation of those old Reagan “ trickle down “ economic policies. The cash will not trickle down but it will tidal wave across to most of those who have more than they will ever need. What do you and I get? A few crumbs if we are lucky and those very wealthy folks feel a tinge of guilt. Don’t count on it happening.
If any one of those idiots in Washington where really looking out for our interest and the best interest of this country then they would be issuing most of our tax dollars back to you and myself in the form of some very hefty government checks so that we could spend the money on whatever strikes our fancy, thus helping our economy.. You want an economic stimulus Washington, D.C.? Give the cash to mainstream America and watch how quickly we bring America from out of the abyss! Giving the cash to the wealthy is not going to stimulate out economy, as we have already been seeing.     (Continued)

Technorati Tags: Government,Economy,Wall Street,Bailout,Politics,Banking,TARP,President,Barack Obama

$10.9 Trillion Economic Rescue Bill?

  That is the figure that  the people over at Reuters have come with thus far.

April 7 (Reuters) - The U.S. government has launched an
unprecedented array of actions to salvage the economy and
stabilize the financial sector that could put up to $10.903
trillion of taxpayers' money at risk.
However, much less has been disbursed and a considerable
amount of those funds could be recouped.
Following is a rundown of the total amount of known public
funds that could be at risk -- either spent, loaned, allocated
or pledged, based on the programs' upper limits. Some programs
have no specified limit; in these instances, the total reflects
amounts actually pledged, loaned or disbursed.
The total does not include a potential $750 billion in new
aid to banks that was in President Barack Obama's budget plan
on Feb. 26 but not formally requested.
FEDERAL DEPOSIT INSURANCE CORP GUARANTEES
* Up to about $1.9 trillion in Federal Deposit Insurance
Corp guarantees for banks, including $1.4 trillion in senior
unsecured debt issued by banks and $500 billion in
transaction deposit accounts typically used by businesses to
pay employees and vendors.
FED SUPPORT FOR MORTGAGE, CONSUMER CREDIT MARKETS
* Up to $1.6 trillion in Fed support for mortgage and
consumer credit markets, including purchases of up to $600
billion in debt and mortgage-backed securities issued by
government-sponsored enterprises. The Fed is now launching,
with U.S. Treasury backing, a $200 billion loan facility to
support consumer credit, such as auto, credit card and student
loans, that is expected to grow to $1 trillion.
FED COMMERCIAL PAPER FUNDING FACILITY (CPFF)
* Up to about $1.8 trillion in Fed purchases of top-rated
U.S. dollar commercial paper under a facility launched in
October. The Fed said it does not intend to buy anywhere near
this amount, which represents what eligible issuers could sell
at up to $1 billion per issuer. As of April 2, the Fed's
holdings in this facility were $249.73 billion.
FED DISCOUNT WINDOW LENDING COMMITMENTS
* Unlimited commitments to lend through discount window to
banks and broker dealers. Credit extended under these
facilities totaled $133.08 billion on April 2.
FED MONEY MARKET INVESTOR FUNDING FACILITY
* Up to $600 billion in Fed purchases of U.S. dollar
commercial paper and certificates of deposit under a Money
Market Investor Funding Facility. As of April 2, the Fed held
nothing in this facility.
FED TERM AUCTION FACILITY LOANS
* Up to $600 billion in Fed Term Auction Facility loans are
offered through twice-monthly $150 billion auctions. On April
2, $467.28 billion in TAF credit was outstanding.
FED TERM SECURITIES LENDING FACILITY (TSLF)
* Up to $200 billion in loans to primary dealers for up to
28 days against all investment-grade debt securities as
collateral. The Fed plans to auction this amount through seven
auctions in April.
FED CURRENCY SWAP LINES
* Unlimited temporary Fed currency swap lines with the
European Central Bank and central banks in England, Japan and
Switzerland. The Fed also maintains swap lines with 10 other
central banks. On April 2, the Fed held $308.79 billion in
foreign currency under these agreements.
OBAMA FISCAL STIMULUS PROGRAM
* Obama signed into law on Feb. 17 a $787 billion fiscal
stimulus plan, including $287 billion in temporary tax breaks
and $500 billion in spending on infrastructure, research
facilities, energy projects and aid to states, the unemployed
and the poor.
TREASURY TROUBLED ASSET RELIEF PROGRAM (TARP)
* $700 billion for the U.S. Treasury to shore up the
financial system: Nearly $200 billion in bank preferred stock
investments, $29.8 billion in aid to automakers, their
suppliers and their finance companies, and $110 billion in
additional rescues for American International Group (AIG.N),
Citigroup (C.N) and Bank of America (BAC.N). For details, click
on [ID:nN05338459].
AIG LOAN SUPPORT (NON-TARP)
* In addition to $70 billion in capital investments under
TARP, AIG has been granted a $60 billion government credit line
and up to $52 billion in loans for assets shifted to the Fed's
balance sheet.
TREASURY-LED PUBLIC-PRIVATE INVESTMENT FUND
* The Treasury intends to launch a public-private
investment fund that would buy $500 billion to $1 trillion in
distressed assets from banks, establishing benchmark prices.
Details are still being developed, but officials have said the
government would provide loans to private investment funds to
buy the assets.
FANNIE MAE/FREDDIE MAC SUPPORT
* Up to $400 billion to backstop Fannie Mae (FNM.N) (FNM.P)
and Freddie Mac (FRE.N) (FRE.P). The Treasury will inject up to
$200 billion into each institution as needed to maintain a
positive net worth. Freddie's capital draw is expected to grow
to as much as $49 billion in coming weeks, while Fannie has
said it will draw $15.2 billion.
* Expansion of loan portfolios to allow Fannie and Freddie
to increase MBS purchases by up to $244 billion since the
government took control of them in September 2008.
* The Treasury has directly purchased at least $106.89
billion in Fannie/Freddie mortgage-backed securities since
September to aid the housing market. It has pledged to continue
these purchases.
HOUSING SUPPORT
* $300 billion for the Federal Housing Administration to
refinance failing mortgages into new, reduced-principal loans
with a federal guarantee, passed in July 2008.
* $25 billion modification costs for loans held directly by
Fannie Mae and Freddie Mac as part of a foreclosure prevention
plan that also uses $50 billion in TARP funds.
* $6 billion in grants and "stabilization funds" to local
communities to help them buy and repair homes abandoned due to
mortgage foreclosures.
* $1.5 billion in relocation aid for renters displaced by
foreclosures.
MONEY MARKET FUND GUARANTEES
* Up to $50 billion from the Great Depression-era Exchange
Stabilization Fund to guarantee principal in money market
mutual funds to boost confidence in them. The Treasury collects
premium payments from participating funds.
BEAR STEARNS SALE SUPPORT
* $29 billion in Fed financing for JPMorgan Chase's (JPM.N)
government-brokered buyout of Bear Stearns & Co in March. The
Fed agreed to take $30 billion in questionable Bear assets as
collateral, making JPMorgan liable for the first $1 billion in
losses, while agreeing to shoulder any further losses.
(Compiled by David Lawder; Editing by James Dalgleish)

Technorati Tags: Bailout,TARP,Economy,Government,Wall Street,News

Teabaggers: Fuck Off

  While making the round I have discovered that a sect of conservatives are planning on having “ tea parties “ on April 15th to whine about the prospect of actually having to pay more taxes if you are rich. Oh, the nerve!

  I also found this piece over at Kos which I now share with you.

Dear Conservative Teabaggers

by Hunter  Wed Apr 08, 2009

Nobody is trying to stop you from holding your "tea parties." Please stop saying you're oppressed when you're clearly not oppressed. You want to have a tea party? Go ahead! Get to it! Take to the streets, pleasantly aromatic baggies in hand!

We've had a president who decided that he could revoke the citizenship of Americans based on his own say-so -- and no conservatives were worried about their loss of rights. We've had a government assert that it could spy on any communications, without warrant or cause -- and no conservatives took to the streets, alarmed at the threat to their Constitutional protections. We found out we went to war over a weapons program that didn't exist -- oops. We found out that we subjected innocent, though brown, people to imprisonment without recourse, and others to torture so cruel that it rendered them mentally incompetent. We buried the nation in a mountain of debt -- well, them's the breaks. We forked over billions of dollars in giveaways to oil companies that were already making larger profits than any other companies in the history of the world -- hell, gotta keep John Galt in caviar. None of it raised a peep from any of you, you were all fine with it. The government could do no wrong -- except not going far enough.

But if returning to the tax policies that existed before Bush is the thing that's got a bee in your bonnet, claiming the end of the republic is at hand -- go for it. If you've suddenly decided that preventing government efforts to stave off a second Great Depression is the thing you're going to hang your collective hats on, or that saving one of the prime manufacturing sectors still left in the country is a bridge too far, by all means protest. Who's stopping you? Who's intimidating you?

On the contrary, the rest of us find your "tea bagging" to be superbly instructive. It's increasing taxes that gets your goat, and absolutely nothing else. The only Constitutional crisis possible is one that might possibly affect your wallet; offenses to other people's freedoms don't rouse a tenth of the same emotion.

And it stands as a dramatic act of solidarity with conservative leaders in government. Bloviate at every opportunity; remain steadfastly in opposition to everything; suggest nothing; claim that it is not even your responsibility to suggest anything. Like House and Senate Republicans, who have declared sitting on their hands to be an act of supreme virtue and who, when pressed, can only come up with a few terse pages of declarations that the only path forward is to give big businesses more tax breaks, and rich Americans more tax breaks, and eliminate even more regulations on financial behavior -- and that will work this time for sure, in spite of those same exact things bringing the country debt and corruption every other time they have been tried, finally leading to this current brink of economic ruin. No, it seems hard to compete with any acts of leadership as impressive as that.

So teabag your little hearts out, my noble friends! Take to the streets, and demand the conservative dream -- absolute inaction on every front! Turn the economic crisis into an opportunity to finally, at long last, give a damn about the actions of your leaders, who we have just now noticed might be of an opposing political party! Yes, take to the streets on behalf of the John Galts of the world: that's what Fox News Corporation has told you to do, and what the stock traders of CNBC demand of you! Take a day off work and wave those little white bags so that an executive responsible for financial crisis will not find their yearly bonus jeopardized by scandalous government intervention, or people making one hundred times your annual income will not be taxed a Stalinesque three percent more (marginal rate) than they presently are! Throw your little pouches of aromatic leaves high into the air, shout your grievances, demand the factories close and the government remain unresponsive, because that's what conservatives everywhere want to see!

By all means.

Technorati Tags: Teabaggers,Conservative,Republicans,Taxes,April 15th,Politics

What’s Your Home Worth?

  With all of the home price declines and the other mortgage bullshit, I thought that it would be interesting to check out the latest Rasmussen Reports to see how you feel about your current home value. Is your home worth less than your mortgage payment? Worth more?

Fifty-four percent (54%) now say their house is valued for more than they owe, according to a new Rasmussen Reports national telephone survey. Thirty percent (30%) say their houses are worth less than the rest of their mortgage payments, and 16% are not sure.

  54% may sound good, but when compared to December, it is a 7% drop.

In early December, 61% of homeowners said their houses were worth more than what they still owed on their mortgages.

  Oh but wait! There’s more!

Among those whose homes are no longer worth as much as the mortgage, expectations remain bleadk--36% expect the value of their home to fall even further over the next year. In fact, even looking out over the next five years, just 44% of those in this difficult situation believe their homes will gain any value at all.

Among those whose home value exceeds their mortgage, there is also a significant level of short-term concern--28% say the value of their home will decline over the coming year.

Overall, homeowners’ views on how long it will take the housing market to recover remain largely unchanged over the last four months. Fifty-five percent (55%) of homeowners say the value of their home is likely to go up over the next five years, but over the next year, just 16% say the value of their house is likely to go up.

Twenty-eight percent (28%) believe the value is more likely to go down in the next 12 months, while only 13% expect a decline in value over five years.

Upper income Americans are far more likely than others to believe that their home is worth more than the mortgage. Among homeowners who earn less than $40,000 a year, just 39% have that confidence.

Technorati Tags: Rasmussen Polls,Housing Market,Economy,Mortgages

President Obama And His Chat With Wall-Streeters…

  had to have been a pretty good one, unless you were one of the Wall Street idiots sitting at the table.

DKos

Smackdown: Big-Wig Bankers Reminded Who's In Charge

by IDrankWhat   Fri Apr 03, 2009

As POTUS and FLOTUS charm the Continent, new details emerge about the not so secret meeting between President Obama and the financial mavens whose incredible avarice plunged this nation's and the world's economy into the deepest pits of despair since the Great Depression.

Quick brown foxes, jump over lazy dogs for juicy details of big-wigs taken to the woodshed.

They may not have come hat-in-hand this time, but they tried to make their case none-the-less.  They soon realized that this was to be all business and no pomp and circumstance.

At each place around the table sat a single glass of water. No ice. For those who finished their glass, no refills were offered. There was no group photograph taken of the CEOs with the president...

Said one attendee: "The only way they could have sent a more Spartan message is if they had served bread along with the water.  The signal from Obama’s body language and demeanor was, I’m the president, and you’re not.

Thus, having only crow to eat and enlightened with the understanding of who actually runs the country, the gathered power-brokers, though cowed,  tried to explain the outrageous salaries, bonuses, perks and what not as a necessary costs of doing business.

These are complicated companies, one CEO said. Offered another: We’re competing for talent on an international market.

The big-dog wasn't buying that.  Seems the Prez. is a bit more in touch with the mood of us proles than them private-jet-ridin, I use summer as a verb, hot-shots who succeeded in driving our financial system to ruin.

The president spoke of public outrage over the high-flying executive lifestyle. “The anger gentlemen, is real,” Obama said. He urged pay reform and said rewards must be proportional, balanced, and tied to the health and success of the company.

President Barack Obama... offered a blunt reminder of the public’s reaction to such explanations.  Be careful how you make those statements, gentlemen. The public isn’t buying that.

Talk a guy with his finger on the pulse.  I guess those who live in glass houses shouldn't heave bricks about.  Especially when they are buying those bricks on our dime. 

I fully share the populist anger over the excess of the honchoes who thought they owned the world and President Obama's measured suggestion that those who get look to the opinions and options of those who lose strikes me as yet another instance of the brilliance our President possesses. 

What he is saying is what we all know:  You are welcome in our system to profit from you endeavors.  We have always rewarded hard work, sacrifice, education...  That is the world we live in.  However, the rules are changing and you have lost the faith and the trust of the public and thus you have to show through affirmative action that your interest are broader than yourselves - you have to give back.  The treasure you horde, comes with an obligation to respect the public upon whose back you made it.

As POTUS told the Wall-Street-Wizards:

My administration is the only thing between you and the pitchforks.

Now that is Righteously Kick-Ass

  Now if only President Obama would do to those Wall Street bankers just as he did with the CEO of GM. Force them out of their positions. Then maybe we all would be just a little bit happier. Maybe not. These sorry fuckers need to be tried and convicted, and then sent to the prison of our choice. That would be at least a little bit of justice for you and I.

Technorati Tags: Wall Street,Bailout,President,Barack Obama,Economy,Finance,Bankers

Endless Right-Wing Self-Pity

Common Dreams                  Original Article

Published on Thursday, April 2, 2009 by Salon.com

Endless Right-Wing Self-Pity

by Glenn Greenwald

The predominant attribute of the right-wing movement is self-victimizing petulance over the unfair treatment to which they are endlessly and mercilessly subjected.  Last week, C-SPAN broadcast a Commentary Magazine event that almost certainly set a record for most tough-guy/warrior nepotism ever stuffed onto a single panel, as it featured William Kristol (son of Irv and Gertrude), John Podhoretz (son of Norm and Midge), and Jonah Goldberg (son of Lucianne).  Jihadis around the world are undoubtedly still trembling at the sight of this brigade of Churchillian toughness.

Exemplifying the deeply self-pitying theme of the entire discussion, Jonah continuously insisted that conservative magazines are so very, very important to the political landscape -- indispensably so -- because conservative voices are frozen out of mainstream media venues by The Liberal Media, so that poor, lonely, stigmatized conservatives can only get right-wing opinion in places like Weekly Standard and National Review.  In between Jonah's petulant laments about how conservative opinion cannot be heard in The Mainstream Media, Bill Kristol talked about his New York Times column and his Washington Post column, John Podhoretz told stories about his tenure editing The New York Post Editorial Page and Charles Krauthammer's years of writing a column for Time and The New Republic, and Jonah referenced his Los Angeles Times column.  None of them ever recognized the gaping disparity between those facts and their woe-is-us whining about conservative voices like theirs being shut out of The Liberal Media.   So important in conservative mythology is self-victimization that they maintain it even as they themselves unwittingly provide the facts which disprove it.

Today, National Review's Andy McCarthy advises readers that -- shock of all shocks -- The New York Times today, for some indiscernible reason, for once actually allowed his opinion to seep into its rigidly leftist pages:

Here's Something You Don't See In the New York Times Everyday [Andy McCarthy]

Namely, my opinion - on the controversy over the Uighur detainees at Gitmo.

He can't just say that he has a contribution in the Times today.  Everything has to be accompanied by a self-pitying grievance lest the victimization be undermined.  Thus:  it's such a shock when one encounters a strong conservative voice like McCarthy's in The Liberal Media.  The leftist censoring editors at the NYT must have been out sick yesterday, as only that could explain how they let such a brave right-wing voice slip through.  Something like that basically never happens because conservatives are treated so unfairly in the media and are excluded from those venues, and it's specifically shocking and rare that opinions from someone like McCarthy would ever, ever be found in a place like The New York Times:

New York Times, January 29, 2009:  "A Steppingstone for Law's Best and Brightest," by Benjamin Weiser:

"Of all the clubs I've ever been in, it's the best one to be in," said Andrew C. McCarthy, a 1990s terrorism prosecutor who is now a commentator for National Review, but who leapt to the defense of his Southern District colleague Patrick J. Fitzgerald when he was attacked by conservatives for prosecuting I. Lewis Libby Jr.

New York Times,  January 23, 2009,  Room for Debate:  "The Risks of Releasing Detainees":

The Times reports today on the case of a former Guantánamo Bay detainee who has emerged as the deputy leader of Al Qaeda in Yemen. . . . We asked these experts - several of whom were in earlier discussions on the legal challenges of closing Guantánamo and on the effects that torture charges have on its closing - for their response to this case. . . . Andrew McCarthy, legal affairs editor at National Review.

New York Times, January 13, 2009, Room for Debate:  "The Challenges of Closing Guantánamo":

We asked these experts what the hardest challenge the new administration will face, and how that might be resolved. . . . Andrew McCarthy, legal affairs editor at National Review.

New York Times, January 3, 2009:  "Early Test of Obama View on Power Over Detainees," by Adam Liptak:

Still, Andrew C. McCarthy, a former federal prosecutor who has generally supported the Bush administration's approach to fighting terrorism, said Mr. Obama's hands are tied.  He cannot, Mr. McCarthy said, continue to maintain that Mr. Marri's detention is lawful.  "I don't think politically for him that's a viable option," Mr. McCarthy said. "Legally, it's perfectly viable."

New York Times, December 5, 2008:  "5 Charged in 9/11 Attacks Seek to Plead Guilty," by William Glaberson:

"These guys are smart enough to know that they're not ever going to see the light of day again," said Andrew C. McCarthy, a former federal terrorism prosecutor who is chairman of the Center for Law and Counterterrorism in Washington. "I think they're trying to make as big a publicity splash as they can."

New York Times, November 24, 2008:  "Judge Rules That Suspects Cannot Be Detained Because of Ethnicity," by Liz Robbins:

Andrew C. McCarthy, a senior fellow at the Foundation for the Defense of Democracies and a former federal prosecutor, said the ruling "sharpens a question that needs to be addressed: What is the proper consideration of factors like ethnicity in questions of surveillance?

"The police officers want to know what the rules are. It may turn out to be bad to the American people if it tells them to do something that is counter to common sense." Common sense, Mr. McCarthy said, dictated that the police should be able to take race and ethnicity into account in surveillance.

New York Times, November 21, 2008, "Judge Declares Five Detainees Held Illegally," by William Glaberson:

But Andrew C. McCarthy, a former federal terrorism prosecutor, said the decision highlighted the difficulties of courts' reviewing wartime decisions about who qualifies as an enemy combatant. Mr. McCarthy said those were decisions "our system of divided powers consigns to military professionals in the executive branch, not judges."

New York Times, November 14, 2008, "Post-Guantánamo: A New Detention Law?," by William Glaberson:

Some lawyers warn that given the nature of evidence against some Guantánamo detainees, prosecutors may not be able to convict them.  "We have lots of information that is reliable, that tells us someone is a threat and that cannot be proved in court," said Andrew C. McCarthy, a former federal terrorism prosecutor who is now director of the Center for Law and Counterterrorism.

New York Times, August 8, 2008:  "With Fewer Terror Trials, Manhattan Court Quiets Down," by Benjamin Weiser:

Andrew C. McCarthy, a former assistant United States attorney who helped to prosecute the landmarks bomb plot, said the Siddiqui case demonstrated that "we're actually starting to get to a place where we're developing some coherent principles about which cases ought to go into which system."

New York Times, June 6, 2008, "Adviser Says McCain Backs Bush Wiretaps," by Charlie Savage:

Andrew C. McCarthy, a National Review columnist who has defended the administration's legal theories, wrote that Mr. Holtz-Eakin's statement "implicitly shows Senator McCain's thinking has changed as time has gone on and he has educated himself on this issue."

New York Times, September 20, 2007:  "Big Terror Trial Shaped Views of Justice Pick," by Adam Liptak:

"The tools we had to charge terrorism were appallingly bad," said Andrew C. McCarthy, the lead prosecutor. . . .That view, Mr. McCarthy said, has turned out to be naïve, and he has proposed the creation of a new national security court to address the problem. In his Wall Street Journal article last month, Judge Mukasey said Mr. McCarthy's proposal and similar ones "deserve careful scrutiny."

In fairness to McCarthy, his whine that his opinion doesn't appear in The New York Times "every day" is, I suppose, technically true.  There do appear to be some days -- not many -- that the Times publishes its newspaper without including views from Andy McCarthy (though in January alone, one encountered his opinion in its pages on 4 separate days). 

If you subject yourself to the establishment media, there are few things more difficult than avoiding right-wing polemicists (even the supposedly "liberal" cable network, MSNBC, has a 3-hour show hosted by a movement conservative (Joe Scarborough) and only 2 one-hour shows hosted by ostensible "liberals").  The Washington Post Op-Ed page is and has long been a veritable museum showcasing neoconservative tripe.  And that's to say nothing of overtly right-wing outlets like Fox News and The Wall St. Journal Editorial Page. 

But no matter.  Their orgy of self-pitying grievances has no end.  As they tell it, unless you read The Weekly Standard or National Review, it's basically assured that you never encounter right-wing opinion, because the media hates them, silences them, and shuts them out.  Nothing is rarer than Andy McCarthy's opinion being heard in The New York Times.  And the American media -- which even Scott McClellan mocked for being "too deferential" to the Bush administration and which is owned by America's largest corporations and richest elites -- is devoted to proselytizing a leftist agenda.   Like everything else, it's all so, so unfair to our stalwart right-wing warriors.

                             © 2009 Salon.com

Technorati Tags: Glenn Greenwald,Right Wing,Republicans,Barack Obama,Politics,Salon,Liberal Media

"We the People" to "King of the World": "YOU'RE FIRED!"

by Michael Moore   Apr 01, 2009      Original

Friends,

Nothing like it has ever happened. The President of the United States, the elected representative of the people, has just told the head of General Motors -- a company that's spent more years at #1 on the Fortune 500 list than anyone else -- "You're fired!"

I simply can't believe it. This stunning, unprecedented action has left me speechless for the past two days. I keep saying, "Did Obama really fire the chairman of General Motors? The wealthiest and most powerful corporation of the 20th century? Can he do that? Really? Well, damn! What else can he do?!"

This bold move has sent the heads of corporate America spinning and spewing pea soup. Obama has issued this edict: The government of, by, and for the people is in charge here, not big business. John McCain got it. On the floor of the Senate he asked, "What does this signal send to other corporations and financial institutions about whether the federal government will fire them as well?" Senator Bob Corker said it "should send a chill through all Americans who believe in free enterprise." The stock market plunged as the masters of the universe asked themselves, "Am I next?" And they whispered to each other, "What are we going to do about this Obama?"

Not much, fellows. He has the massive will of the American people behind him -- and he has been granted permission by us to do what he sees fit. If you liked this week's all-net 3-pointer, stay tuned.

I write this letter to you in memory of the hundreds of thousands of workers over the past 25+ years who have been tossed into the trash heap by General Motors. Many saw their lives ruined for good. They turned to alcohol or drugs, their marriages fell apart, some took their own lives. Most moved on, moved out, moved over, moved away. They ended up working two jobs for half the pay they were getting at GM. And they cursed the CEO of GM for bringing ruin to their lives.

Not one of them ever thought that one day they would witness the CEO receive the same treatment. Of course Chairman Wagoner will not have to sign up for food stamps or be evicted from his home or tell his kids they'll be going to the community college, not the university. Instead, he will get a $23 million golden parachute. But the slip in his hands is still pink, just like the hundreds of thousands that others received -- except his was issued by us, via the Obama-man. Here's the door, buster. See ya. Don't wanna be ya.

I began my day today in Washington, D.C. I went to the U.S. Senate and got into their Finance Committee's hearing on the Wall Street bailout. The overseers wanted to know how the banks spent the money. And many of these banks won't tell them. They've taken trillions and nobody knows where the money went. It certainly didn't go to create jobs, relieve mortgage holders, or free up loans that people need. It was so shocking to listen to this, I had to leave before it was over. But it gave me an idea for the movie I was shooting.

Later, I stopped by the National Archives to stand in line to see the original copy of our Constitution. I thought about how twenty years ago this month I was just down the street finishing my first film, a personal plea to warn the nation about GM and the deadly economy it ruled. On that March day in 1989 I was broke, having collected the last of my unemployment checks, relying on help from my friends (Bob and Siri would take me out to dinner and always pick up the check, the assistant manager at the movie theater would sneak me in so I could watch an occasional movie, Laurie and Jack bought an old Steenbeck (editing) machine for me, John Richard would slip me an unused plane ticket so I could go home for Christmas, Rod would do anything for me and drive to Flint whenever I needed something for the film). My late mother (she would've turned 88 tomorrow if she were still with us) and my GM autoworker dad told me in the kitchen they wanted to help and handed me a check for an astounding thousand dollars. I didn't know they even had a thousand dollars. I refused it, they insisted I take it -- "No!" -- and then, in that parental voice, told me I was to cash it so I could finish my movie. I did. And I did.

So on that March day in 1989, as I was driving down Pennsylvania Avenue, my 9-year-old car just died. I coasted over to the curb, put my head down on the steering wheel and started to cry. I had no money to take it in to be repaired, and I certainly had nothing to pay the tow truck driver. So I got out, screwed the license plates off so I wouldn't be fined, turned my back and just left it there for good. I looked over at the building next to me. It said "National Archives." What better place to donate my dead car, I thought, as I walked the rest of the way home.

Though it wasn't easy for me, I still never had to suffer what so many of my friends and neighbors went through, thanks to General Motors and an economic system rigged against them. I wonder what they must have all thought when they woke up this Monday morning to read in the Detroit News or the Detroit Free Press the headlines that Obama had fired the CEO of GM. Oh -- wait a minute. They couldn't read that. There was no Free Press or News. Monday was the day that both papers ended home delivery. It was canceled (as it will be for four days every week) because the daily newspapers, like General Motors, like Detroit, are broke.

I await the President's next superhero move.

Yours,
Michael Moore
MMFlint@aol.com
MichaelMoore.com
(Go State!)

P.S. Please know that it has not been lost on any of us from the Rust Belt how our corporate bigwigs were treated (remember, the auto companies wanted a loan, not a handout) compared to how the titans of Wall Street got trillions of free cash, lunch at the White House and a photo op with the Prez. Trust me, we get it. And, if there is a God in heaven, the thieves of Wall Street will soon pay. Also... the sight of our president having to promise that he would back every GM warranty and give consumers a bonus if they trade in their old Grand Am for a hybrid, was alternately sad, hilarious, and just plain weird. This is what it's come to: the Commander in Chief of the Free World is now Mr. Goodwrench. Jeesh.

Technorati Tags: Michael Moore,Wall Street,Big Three,General Motors,Bailout,Barack Obama,Politics,News,Economy

The Most Important Financial Crisis Article You Haven't Read

  From DKos by thereisnospoon

Tue Mar 31, 2009

Warning: This post is complicated, and will make little sense without a little prior reading.  If you are unfamiliar with the detailed causes and effects of the financial crisis, especially regarding instruments called CDOs and CDSs, please read (or reread) the following, then come back:
The Big Takeover (Matt Taibbi)
The Quiet Coup (Simon Johnson)
Sigh...The Biggest Problem Is Not (Toxic) Bank Assets (Jerome Guillet)

Are you back?  Good.  Because what you're about to read will be worth your while, so please bear with me.

The articles above do a great deal to explain what has happened to America's (and the world's) economies and financial systems.  But one key element is missing or taken for granted in their explanations: an element that makes it all make sense in a way that defied my prior understanding, and probably yours as well.  That element was published weeks ago with little fanfare in this month's Wired Magazine, in the article The Secret Formula That Destroyed Wall Street, by Felix Salmon.  Part of the reason that it received little attention was the inherent complexity of the subject (and it's tough enough that I still don't fully understand it); but its incredibly important upshot is one that has been missed or left out by most of the writers on the subject of the economic meltdown: that the value of the CDOs was being determined almost entirely by the value of the CDS bets against them.  If you really understand the relationship between CDOs and CDSs, and the efforts being made to combat the current crisis by the Administration, this revelation is nearly earth-shattering in its implications.

Allow me to explain in the simplest terms I can, smoothing out a lot of details.  A bunch of assholes on Wall St. decided they wanted to make a bunch of money they couldn't make before with responsible lending.  So they took a bunch of risky mortgages and other bad loans, and stuffed them into big black boxes of debt together with good loans.  They essentially sold all of these black boxes, to make a long tranche-filled story short, as good, safe loans with AAA ratings.  These black boxes were called Collateralized Debt Obligations (CDOs).

Problem was, it was really tough to figure out what these things were really worth because they were made up of so many different loans.  A bunch of these wall street assholes were worried about having so many potentially problematic CDOs; a bunch of other assholes saw a way to make lots more money, provided the housing market didn't go bust.  That's where the Credit Default Swaps (CDSs) came in.  CDSs are insurance on CDOs: if you own a bunch of CDOs, you can pay me a premium to insure you; if your CDO (or a particular part or "tranche" of it) defaults, I have to pay the entire value of the CDO (or tranche thereof).

The really fucked up part of the CDS deals was that the insurance provider didn't have to have the capital to pay out even a fraction of the premiums; worse still, you could take out "insurance" on loans neither of you had on "naked" CDS deals--basically, casino betting of a purer variety than standard Wall St. fare.  There were potentially an infinite number of insurance CDSs that could be written just on one single CDO, by just about anybody willing to do so.  Do the permutations, and that's how you get, by some estimates, almost $70 trillion in CDS deals alone on "just" $4.7 trillion of CDOs.  That's more than the entire world's GDP.

Then the housing market went south, a bunch of the CDOs (or the worst "tranches") went kablooie, and all the shitheads holding CDS premiums (AIG, first and foremost) were fucked because they couldn't pay out.  And, of course, the firms like Goldman Sachs who paid CDS firms like AIG want their damn insurance payouts, even if it's at taxpayer expense.  And the banks who hold a bunch of CDOs can't move them, so they can't raise capital, so they don't lend.  And when banks don't lend, a bunch of regular people lose their shirts.  Compared the amount of money and carnage involved here, a couple hundred million dollars in bonuses to the same assholes who got us here may be infuriating, but it's chump change.

So what's the big mystery, you say?  What's the big problem?  Just cancel the CDS contracts, let CDS firms like AIG fail, let the taxpayer cover the downside of the worst subprimes in the "BBB" tranches of the CDOs, and let the CDO trading go on as before!  Sounds simple, and that's exactly what our own Jerome a Paris is calling for.  Well, you can't.  And the Wired article explains why you can't, and why we're more fucked than you can possibly imagine.  You see, the CDOs have No Determinable Value Without CDSs Attached.  The CDSs determined the value of the CDOs.  And no one is touching CDSs with a thousand foot pole right now, and with very good reason.

The key link that tied CDOs to CDSs forever was made by a mathematician named David X. Li, who pioneered a formula called the Gaussian Copula Function to solve the intractable problem of the correlative relationship between the loans in the CDO black box.  This particular formula and its problems are also discussed The Black Swan, a book written prior to the collapse by a hedge fund manager.  The Wired article explains:

The reason that ratings agencies and investors felt so safe with the triple-A tranches was that they believed there was no way hundreds of homeowners would all default on their loans at the same time. One person might lose his job, another might fall ill. But those are individual calamities that don't affect the mortgage pool much as a whole: Everybody else is still making their payments on time.

But not all calamities are individual, and tranching still hadn't solved all the problems of mortgage-pool risk. Some things, like falling house prices, affect a large number of people at once. If home values in your neighborhood decline and you lose some of your equity, there's a good chance your neighbors will lose theirs as well. If, as a result, you default on your mortgage, there's a higher probability they will default, too. That's called correlation (emphasis added)—-the degree to which one variable moves in line with another-—and measuring it is an important part of determining how risky mortgage bonds are.

In other words, you can't consider each loan individually within the box, as all the loans affect one another in some way.  Plus, there's not enough past data to work from.  How can you possibly judge one individual's risk of default on a Bank of America no-doc loan on a first home, when nobody at BofA knew the trustworthiness or even the income of the buyer?  And how the hell were you supposed to figure out the value of an entire box full of these things when they impact each other?   It's a statistician's nightmare.  Without solving it, you can't know what a CDO, or even a tranche of a CDO, is really worth.  That's where Li's Gaussian Copula Function came in:

In 2000, while working at JPMorgan Chase, Li published a paper in The Journal of Fixed Income titled "On Default Correlation: A Copula Function Approach." (In statistics, a copula is used to couple the behavior of two or more variables.) Using some relatively simple math—by Wall Street standards, anyway—Li came up with an ingenious way to model default correlation without even looking at historical default data. Instead, he used market data about the prices of instruments known as credit default swaps.

If your eyes didn't just bulge out of your head and plop on the keyboard, they should have.  This genius decided that the underlying value of the loans really was irrelevant: what was really relevant was what the market decided they were worth, on the basis of the value of the CDS insurance hedges against them.  The infinitely traded, completely unregulated, massively speculative pool of CDS bets against the CDOs that now contained the entire economy's lifeblood.  You can't make this shit up:

When the price of a credit default swap goes up, that indicates that default risk has risen. Li's breakthrough was that instead of waiting to assemble enough historical data about actual defaults, which are rare in the real world, he used historical prices from the CDS market. It's hard to build a historical model to predict Alice's or Britney's behavior, but anybody could see whether the price of credit default swaps on Britney tended to move in the same direction as that on Alice. If it did, then there was a strong correlation between Alice's and Britney's default risks, as priced by the market. Li wrote a model that used price rather than real-world default data as a shortcut (making an implicit assumption that financial markets in general, and CDS markets in particular, can price default risk correctly).

It was a brilliant simplification of an intractable problem. And Li didn't just radically dumb down the difficulty of working out correlations; he decided not to even bother trying to map and calculate all the nearly infinite relationships between the various loans that made up a pool. What happens when the number of pool members increases or when you mix negative correlations with positive ones? Never mind all that, he said. The only thing that matters is the final correlation number—one clean, simple, all-sufficient figure that sums up everything.

Rather than laugh at the simple-minded insanity of this "valuation" scheme, the brilliant Masters of the Universe on Wall St. could barely contain themselves with glee at the "solution" to their CDO valuation problem:

The effect on the securitization market was electric. Armed with Li's formula, Wall Street's quants saw a new world of possibilities. And the first thing they did was start creating a huge number of brand-new triple-A securities. Using Li's copula approach meant that ratings agencies like Moody's—or anybody wanting to model the risk of a tranche—no longer needed to puzzle over the underlying securities. All they needed was that correlation number, and out would come a rating telling them how safe or risky the tranche was.

As a result, just about anything could be bundled and turned into a triple-A bond—corporate bonds, bank loans, mortgage-backed securities, whatever you liked. The consequent pools were often known as collateralized debt obligations, or CDOs. You could tranche that pool and create a triple-A security even if none of the components were themselves triple-A. You could even take lower-rated tranches of other CDOs, put them in a pool, and tranche them—an instrument known as a CDO-squared, which at that point was so far removed from any actual underlying bond or loan or mortgage that no one really had a clue what it included. But it didn't matter. All you needed was Li's copula function.

Having created a system in which profits self-replicated like infinite reflections in funhouse mirrors in such a way that Dutch tulip merchants would laugh with schadenfreude, the rest makes you wonder if straitjackets might not be more appropriate than prison uniforms for this sorry bunch of Jokers:

The CDS and CDO markets grew together, feeding on each other. At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion. The CDO market, which stood at $275 billion in 2000, grew to $4.7 trillion by 2006.

At the heart of it all was Li's formula. When you talk to market participants, they use words like beautiful, simple, and, most commonly, tractable. It could be applied anywhere, for anything, and was quickly adopted not only by banks packaging new bonds but also by traders and hedge funds dreaming up complex trades between those bonds.

"The corporate CDO world relied almost exclusively on this copula-based correlation model," says Darrell Duffie, a Stanford University finance professor who served on Moody's Academic Advisory Research Committee. The Gaussian copula soon became such a universally accepted part of the world's financial vocabulary that brokers started quoting prices for bond tranches based on their correlations. "Correlation trading has spread through the psyche of the financial markets like a highly infectious thought virus," wrote derivatives guru Janet Tavakoli in 2006.

The entirety of the article is an absolute must read, but I would be remiss if I left out the following critical detail: nobody even factored in the possibility that the CDOs would go bust, because the the Gaussian copula formula based itself on the CDS, a derivative so brand spanking new that it had never seen a bear market.  All these geniuses' models didn't even calculate for the possibility of negative growth: the formula for calculating it simply didn't exist.

Li's copula function was used to price hundreds of billions of dollars' worth of CDOs filled with mortgages. And because the copula function used CDS prices to calculate correlation, it was forced to confine itself to looking at the period of time when those credit default swaps had been in existence: less than a decade, a period when house prices soared. Naturally, default correlations were very low in those years. But when the mortgage boom ended abruptly and home values started falling across the country, correlations soared.

Bankers securitizing mortgages knew that their models were highly sensitive to house-price appreciation. If it ever turned negative on a national scale, a lot of bonds that had been rated triple-A, or risk-free, by copula-powered computer models would blow up. But no one was willing to stop the creation of CDOs, and the big investment banks happily kept on building more, drawing their correlation data from a period when real estate only went up.

"Everyone was pinning their hopes on house prices continuing to rise," says Kai Gilkes of the credit research firm CreditSights, who spent 10 years working at ratings agencies. "When they stopped rising, pretty much everyone was caught on the wrong side, because the sensitivity to house prices was huge. And there was just no getting around it. Why didn't rating agencies build in some cushion for this sensitivity to a house-price-depreciation scenario? Because if they had, they would have never rated a single mortgage-backed CDO."

So now what?

I'll tell you what.  As I have explained before, the big Geither vs. Krugman grudge match is overwrought, imbued with more long-term ideological than immediately practical significance.  Both have one concern: get people, somehow, to start buying the CDOs banks have on their books.  Geithner wants to give sweetheart deals to hedge funds to buy the black boxes for cheap, under the premise that the CDOs have real, decent value.  Krugman and other progressive economists are less optimistic, feeling that only the federal government will take the plunge to purchase enough CDOs to make a dent in the banks' balance sheets and provide a real market for CDOs.

But there's a big problem with both plans: nobody has any idea what these things are worth.  No one EVER DID.  And without Li's hopelessly naive Gaussian copula formula, an entirely new method of calculating the value of these "toxic assets" will have to be found.  But like trying to predict the long-term weather of any given local area, correlative influences  and a lack of relevant predictive data make that task essentially impossible--almost as impossible as, say, attempting to predict the stock market or the probability that the Knicks will cover the spread against the Lakers on any given night.

And that's why the credit markets are frozen, and aren't coming unfrozen any time soon.  That's why they're trying to rescue AIG and the CDS market.  Because nobody has any other idea how to calculate the value of what amounts to the entire American economy: the vast majority of every mortagage loan, auto loan, business loan, credit card loan, and all manner of other financial debt transaction made by American consumers.

It's a mess I can't even begin to propose a solution for how to unwind--but we better, as a nation, figure it out fast.  Then perhaps we can figure out how to employ our best mathematicians and statisticians in fields that actually producesomething of value, rather than destroy the world economy in one fell swoop.

That, truly, would be Change We Can Believe In.

Technorati Tags: Wired Magazine,Gaussian Copula Function,CDS,Economic Crisis,CDO,Matt Taibbi,Timothy Geithner,Paul Krugman

Obama’s Stimulus Package: Is Any Good Coming Out Of It?

  I would say that yes, there is some good coming from the plan.

Kos

kktlaw  Tue Mar 31, 2009

Our President has brought to implementation more life-changing programs for millions of Americans than could be listed in this diary. OK, he did not do this alone. But under his leadership, I don't believe there has ever been a President who has changed the scope of America (for the better) in such a short time. Yes, he really can walk and chew gum at the same time, much to the Repugs' chagrin.

I want to share with y'all how these programs are working already. And they are working for people I know, including myself, in life-changing ways.

My friend Paula is a high school Spanish teacher in a large Southern California school district. She has been in this position for seven years and is highly regarded by her students and her administrators. At the end of February, she (and many of her colleagues) were called into a meeting where they learned that, due to state budget cuts, they would no longer have a job next September. The old "pink slip" day.

Paula was devastated. She is a single mom of two little girls. She saved for years and two years ago finally bought a condo overlooking a park for her girls. There are simply no teaching jobs to be had in So.Cal. because of these state-wide cuts. She didn't know where to turn.

Then, last Friday, Paula was called into another meeting, and learned that, because of President Obama's American Recovery and Reinvestment Act, better known as the "stimulus package", Paula and all her colleagues will keep their teaching jobs. The billions of dollars of funds being pumped into California have  already been allotted, and her district learned it would be able to keep all its teachers, and will even be able to hire some desperately needed ESL teachers and special education teachers.

One of my favorite neighbors, Bob, has been unemployed for over a year. He has over thirty years experience in health care administration, human resources, and hospital management. The last hospital group he was with merged with another chain and his job was eliminated. After months of networking, resume sending, and interviewing, he got a part-time "consultant" position at an L.A. health care group. He loved the job, but knew it was temporary, and since it was for only a few hours a week, it wasn't enough to sustain his large family. The owner of this Hispanic-owned non profit organization had applied to receive direct funds from the stimulus package. (The company provides free health care clinics in under-privileged areas as well as home care resources and pharmacy services to low-income populations.)

The owner had told Bob that if these funds were received, Bob would become a valuable full-time employee. Just this past week, the company received confirmation of the ARRA funds. Bob was hired into a position he already knew and already enjoyed!

Many of you know my own situation. I'm a lawyer who had a large income until I became ill with an autoimmune disease. The disease causes dizziness and falls, and lo and behold, I had a doozey of a fall last year, causing eleven major surgeries within one year, eight months in a physical rehab center (nursing home), two near-fatal staph infections, and permanent disability. Through all this, I became unable to make payments on my house that I have owned for fourteen years, never missing a payment until eight months after the accident. Prior to last week, my mortgage holder, Wachovia, had no interest in refinancing, restructuring, nor even negotiating, even though I persisted for months.

But last week, Obama's "Mortgage Relief Plan" hit the fan. I had been watching carefully when Wachovia would begin implementing it, and I called the very next day. Their attitude for the past few months has been, kind of, "Stop calling us, you scumbag. We're not going to help you. We just want your house, and you have __ days until we evict you and then we get your house."

BUT, when I went there in person last week, with all my paperwork, the website information, and a copy of the mandate by which Wachovia is abiding, the tone was quite different. It was "How can we be of service to you?" Heh, I love a good Federal mandate, don't you?

I'm still not clear on the details of my new loan. I know it will meet the requirements of the Mortgage Relief Plan, discussed here and here. From my limited research, it appears all big mortgage companies are obeying the mandate by offering the same programs. I plan to write a diary detailing my experience when I get through the escrow period, with a list of other banks offering the same program. For now, by going on the website's FAQ's  you can learn the "meat" of this program.

President Obama's mortgage plan has enabled me to keep my home, where my kids grew up, and which I have owned for more than fourteen years. The ARRA program has saved important teaching jobs and provided talented leadership like Bob's new position in the non-profit health sector. I will be forever grateful to our President for saving my house and giving my dear friends their much-deserved jobs. I just keep thinking how I would already be out in the street if McCain had won. I don't like to go there, but sometimes I can't help it.

I know this is just the beginning. I believe we will be hearing plenty other stories like this in the coming days and weeks. (Yes, DAYS and WEEKS, not months and years.)

Technorati Tags: Barack Obama,American Recovery and Reinvestment Act,stimulus package,Mortgage Relief Plan

The Solution to "Too Big" is Not Bigger

From DailyKos

by Devilstower  Sun Mar 29, 2009

The administration is seeking additional power to seize firms involved in the financial problems. Which is fine -- so long as their plan for dealing with these firms doesn't encourage more mergers and buyouts like JP Morgan / Bear Stearns or Whoever / Wachovia. Because, despite the Bush administration defending these mergers as "necessary to preserve the free market," they're neither necessary nor "free."

In fact, the last round of buyouts came with with speacial breaks instituted by then Treasury Secretary Hank Paulson, who rescinded a 1986 rule and provided an estimated $140 billion in tax breaks to grease the skids for mergers. In some cases, the government did more than make it easier for financial institutions to merge. In some cases it played Shadchan for reluctant partners, in others (as with Wachovia) it drove institutions to marry at the point of a fiscal shotgun. So banks that were too big to fail became bigger financial institutions that (like Citigroup) required billions more to keep afloat.

Let's wind back the clock a bit. Remember Smith-Barney, the brokerage that used the slogan "we make money the old fashioned way -- we earn it?" (you can bet no one on Wall Street is using that motto today) In the 1980s, Smith-Barney was already part of an insurance/brokerage mash-up called Primerica. Then Primerica was bought by Commercial Credit, which merged with Travelers Insurance, which bought the brokerage firm Solomon Brothers, which merged with Citicorp to form Citigroup. Fun fact: this was all pre-1999, when the Glass-Stegall Act was still in full effect, meaning that several of these mergers were probably illegal. But instead of enforcing the existing law, Congress chose to pass Gramm-Leach-Bliley, pasting a retroactive smiley face over these mergers and clearing the way for more in the future.

So instead of several smaller companies, we ended up with one behemoth which has collected $45 billion in bailout bucks, in addition to billions more in tax breaks -- $10 million of which is going to spruce up executive's offices.  But why should we be surprised by that, or by the bonuses handed out in AIG? When we gripe about these companies that have become "too big to fail," what we really mean is that they have become too big to be dictated to. They have been provided with such fiscal leverage, such control of the system, that they are too big for the United States government to control.

This is a problem whose coming was welcomed by many conservatives, who have long lived in a Rand-ian dream world where business size is equated to moral worth -- and feared by everyone else at least as far back as Teddy Roosevelt.

Theodore Roosevelt actually liked big business. He thought that the growth of big business was very healthy, that most of the businesses got there because they were efficient and the businessmen were doing their jobs right. But two things bothered him. ... One was just that idea that they were overshadowing the government, that some of these tycoons, such as J. P. Morgan, could presume that they were sovereign equals of the U.S. government.

For example, when the first big anti-trust suit under Roosevelt was brought, which was against Morgan's railroad combine, Morgan said, "Send your man to see my man and tell him to fix it up." Roosevelt's answer to that was, "That can not be done. Nobody treats as a sovereign equal to -- of the President. No company can presume to be -- no private interest can presume to be equal to the government. The government must be superior to all of these."

Market fundamentalists may cheer at the idea of government being bossed about by business forces, since they've long held disdain for government and awe of the most ruthless business mogols. They'll defend elevating business above government as "freedom" while ignoring the fact that it's enormously undemocratic. If we get anything out of living through the Great Bushwhack, let's hope it's a new understanding that the market fundamentalists are simply anti-American nuts.

From its beginning, the "American compromise" has represented an understanding that business be regulated by government for the betterment of both the market and the people. Teddy didn't mince words when it came to restating this as a central, and often neglected, role of the government.

Of course there are many sincere men who now believe in unrestricted individualism in business, just as there were formerly many sincere men who believed in slavery -- that is, in the unrestricted right of an individual to own another individual. ... The proposal to make the National Government supreme over, and therefore to give it complete control over, the railroads and other instruments of interstate commerce is merely a proposal to carry out to the letter one of the prime purposes, if not the prime purpose, for which the Constitution was founded.

When it comes to "too big to fail," the solution now as the same as it was a century ago: chop them up. That means not waiting until a company has an effective monopoly on the market before applying anti-trust laws. It means applying those laws when a company reaches the size where it deforms the market, bullies its competitors, and when the prospect of its failure is so frightening that we cushion its fall with billions in taxpayer assistance. It means applying those rules to AIG and Citigroup and others like them long before now.

So give the administration the authority to seize the companies at the heart of the financial meltdown. Not to let them "fail gracefully." Not to force them into more corporate marriages. Not to prop them up with more billions in government investment.

Seize them, then slice them, dice them... heck, use them to make julienne fries (whatever those are). The truth is that many of these corporate monsters are much less efficient as giants stitched together by the egos of their officers, than they were as separate entities. Chop 'em up. Then put back reasonable restrictions on the merger of financial institutions so that this doesn't happen again.

Technorati Tags: Economy,Business,Anti Trust

Salmonella Outbreak: Final Web Update

  I guess that the outbreak has subsided so the CDC will no longer be updating the illness count and so on.

  Everything that you may wish to know can be found at the following CDC links:

Timeline of Infections: Multistate Outbreak of Salmonella Infections Associated with Peanut Butter and Peanut Butter-Containing Products --- United States, 2008—2009 (PDF 149KB)

CDC Podcast - Salmonella Typhimurium Outbreak in Peanuts - Update

Information for Pet Owners: Questions and Answers Related to the Salmonella Typhimurium Outbreak and Pets

Information for Veterinarians: Information Regarding Peanut Butter and Peanut-Product Recall and Pets

Additional Advice for Consumers

Salmonella Signs and Symptoms

Multistate Outbreak of Salmonella Infections Associated with Peanut Butter and Peanut Butter-Containing Products --- United States, 2008--2009. Morbidity and Mortality Weekly Report, January 29, 2009 / 58;85-90.

Salmonella Strains Tables for Outbreak Related to Peanut Butter and Peanut-Containing Products

CDC Podcast - What Kids Need to Know About Peanut Butter and Salmonella

CDC Podcast - Salmonella Serotype Typhimurium Outbreak in Peanut Butter and Peanut Butter-Containing Products

CDC's Role During a Multi-State Foodborne Outbreak Investigation

CDC’s Role in Food Safety

CDC E-cards Related to Salmonella Outbreak

 

Technorati Tags: CDC,Salmonella,Peanut Butter,Food Borne Illnesses

Latest Rasmussen Polls…

   …and they are somewhat interesting ones.

  81%  of voters nationwide say it’s important to keep the promised middle-class tax cuts in President Obama's $3.6 trillion budget. That figure includes 55% who say it’s Very Important.

  About those automobile companies who have received government bailout funding?

  51%  of Republicans, 66% of Democrats and 60% of unaffiliated voters believed senior managers should be replaced in the event of a government bailout.

At the same time, just 14% of all voters said the Big Three automakers would run better under government control.

   President Obama’s numbers as of Sunday.

  The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 38% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. That’s his highest total in just over two weeks. Thirty percent (30%) now Strongly Disapprove giving Obama a Presidential Approval Index rating of +8

Overall, 58% of voters say they at least somewhat approve of the President's performance so far. Forty percent (40%) disapprove.

Technorati Tags: Polling,Rasmussen,Financial Bailout,Government,President,Barack Obama