First, we get today's report that last year, the New York Fed, with now Treasury Secretary Geithner in charge, basically gave away the store in the AIG meltdown.  No surprise here.  Wall Street took tremendous risks in essentially an unregulated betting parlor; the bookie (AIG) drowned in too many bad bets; and the Feds stepped in and paid off all the poor gamblers who were too blinded by greed to accurately assess the risks they were taking.  But who knew? After all, assessing risk is just what they are paid handsomely to do.  So Goldman Sachs, Morgan Stanley, Merrill and Chase all walked away from the table counting their money. Great doing business with you, Tim. Give us a call when the Tea Baggers' pitchforks get too close for comfort.

And as further evidence of our leaders' cluelessness, we learn today that the 15 million poor souls who received a pathetic $400 tax break from the "Making Work Pay" credit in the Stimulus Bill are now facing tax liability!  They may see their refunds reduced, or they may get assessed underwithholding penalties or they may have to write a check to Sam.  Insert joke here about getting dunned by a Treasury Secretary who couldn't figure out how to pay his taxes.  Oops, I forgot! 

 

The problem is that it's not funny - the $400, or $800 for married filers, actually made a difference in their lives, and come April 15, 2010 they have to give it back?  Does this make sense?  Who exactly did we vote for?

 

I know, I know, they received a "windfall" because of some quirks in our withholding system. Big Deal.  How can you try to balance the budget (however weakly) on the backs of these people when TARP funds are subsidizing multi million dollar bonuses at banks that were basically out of business till Sam stepped in.  I have a goofy idea: let's propose a 60% surtax for a year or three on annual compensation over a million bucks at TARP fund recipient banks.  Put the GOP in the hot spot for once and see if they vote for it.  Because we are certain that the GOP knows how to put us on the hot spot if we do nothing.  I see a win win.

 

Another quick suggestion for Mr. Geithner and his pals at Treasury: Issue a press release tomorrow that regardless what your tax situation is, you will not pay a dime more in taxes (nor lose refunds, nor face penalties) if you benefitted from that credit. Period. End of story. This, combined with the AIG bailout, is the kind of story that will destroy this administration. Put out this fire NOW.

My sister lives in an affluent but conservative suburb in Wisconsin. A neighbor of hers had forwarded a typical wingnut email attacking Obama on health care and she forwarded it to me and asked how I would respond.  This is the email circulated by the wingers:

YESTERDAY ON "ABC-TV" (BETTER KNOWN AS THE ALL BARRACK CHANNEL) DURING THE "NETWORK SPECIAL ON HEALTH CARE"....  OBAMA WAS ASKED:

 "MR. PRESIDENT WILL YOU AND YOUR FAMILY GIVE UP YOUR CURRENT HEALTH CARE PROGRAM AND JOIN THE NEW 'UNIVERSAL HEALTH CARE PROGRAM' THAT THE REST OF US WILL BE ON ????"..... (BET YOU ALREADY KNOW THE ANSWER)...
                THERE WAS A STONEY SILENCE AS OBAMA IGNORED THE QUESTION AND CHOSE NOT TO ANSWER IT !!!...
                 
                IN ADDITION, A NUMBER OF SENATORS WERE ASKED T HE SAME QUESTION AND THERE RESPONSE WAS..."WE WILL THINK ABOUT IT."
                 
                AND THEY DID. IT WAS ANNOUNCED TODAY ON THE NEWS THAT THE "KENNEDY HEALTH CARE BILL" WAS WRITTEN INTO THE NEW HEALTH CARE REFORM INITIATIVE ENSURING THAT CONGRESS WILL BE 100% EXEMPT !
                 
                SO, THIS GREAT NEW HEALTH CARE PLAN THAT IS GOOD FOR YOU AND I... IS NOT GOOD ENOUGH FOR OBAMA, HIS FAMILY OR CONGRESS...?? 

I was furious reading this.  By way of context for my response, our mother had died a year ago and we had gone through a couple of difficult years emotionally, but Medicare had been the one bright spot.  She had had serious heart problems for her last 8 years and during the lat 2 had had 2 major surgeries.  Out out of pocket (separate from the supplemental coverage we had paid for over the years) was a couple thousand dollars at most.  My response:

This really speaks to the ignorance and misinformation that the lunatic fringe is spreading. The health care reform proposals are really pretty simple. They require (mandate) coverage for everyone primarily through employer based coverage. So all companies larger than the very smallest are required to provide insurance for their employees 

They also require insurance companies to oFfer insurance regardless of pre-existing conditions. That means they can't deny you coverage if you've been diagnosed with some disease. They must offer you coverage.

For the insurance companies this is great because they have a huge new pool of premium payers. Most people who don't have insurance are young relatively healthy people whose premium dollars would be a windfall to the insurers. For that the ins co's would be happy to offer ins to the difficult cases because they would charge say, 5,000 per month for the coverage. How would that be paid for?  By the gov't which is planning on spending 100 B a year on subsidies for insureds and businesses who face difficulties paying the freight.

How will the gov't pay the 100 Bn dollars?  By raising taxes on those making over 250k/yr to the rates they were under Clinton. IE rolling back the Bush tax cuts on the wealthy. Which put in these huge deficits to begin with.

But then there's the issue of cost controls. Because do you think the ins co's would keep premiums low even if they had a gazillion more dollars in premiums from the previously uninsured and from US subsidies?  Yeah right.  The way to keep them honest would be to compete with a gov't sponsored plan (the public option). That plan would offer price competition to the ins co's and keep med costs contained.

Isn't that scary and "socialistic". Not really because we already have it. It's called Medicare. Medicare spends 4 per cent of it money processing claims while ins co"s spend 30 per cent paying a million people to figure out how to deny your claim. Those are the real death panels. Watch 60 Minutes. Denying treatment to cancer patients and transplants and stalling so people die before they're approved for something.

Medicare pays virtually all claims but at lower rates. How does that work out?  Well we just went thru it with Mom. She had a bunch of major surgeries, spent months in hospitals, had the best docs in Wis and we paid what- $1,000?  Ask a 50 yearold unemployed person where will he get insurance and he's lost. Offer him Medicare and he'll weep with joy. And Medicare coverage for him would be at a cheaper premium than private ins because of the reduced overhead.
That's why we see the real stupidity of the right wing lunatics when they show up at these forums and holler to keep gov't hands off my Medicare. The gov't gives you Medicare, idiot.

As for Obama and the Congressmen, they basically have the gov't plan, Medicare for everyone. Its the best insurance out there because it's a single payer. Private and gov't doctors paid by the gov't. Socialism according to the birthers. But really the best system out there. I would never give it up and neither should they. By the way the VA is the same and it works phenomonally well except when idiots that Bush had hired screw it up.  But make no mistake the president and congress do not have private insurance.

Without the public option, the ins reform is just a giveaway to the ins co's. If there is a gov't entity competing with the ins co's they will keep prices competitive and be forced to innovate. Just like Fedex and UPS do when they compete with the Post Office.

Just remember what mom's health was and what it cost when someone says the Obama plan will ration care or kill old folks. They are utterly full of shit and we know it. And remember the day before Mom died when that kind doctor sat down with us for over an hour and explained our options for Mom's last days. Did he encourage us to pull the plug?

Well he wasn't entitled to be paid for that because that "end of life counselling" that the fanatics like Sarah Palin call death panels, is not a reimbursable item today. With Obamacare it would be. Feel free to share this. Don't let the liars and wingnuts win. They should just crawl back into their caves.

Last night I caught the marvelous clips of Rep. Weiner on Morning Joe and Afternoon Tweety.  Where has this guy been?  Can he give lessons to the President and his crew of milquetosty (sp?) advisors and spokespeople?

 

He makes a very cogent, precise and bullet-proof argument for the single payer.  He asks two simple questions that flummox the other side:  What exactly do health insurance companies do to provide value in the health care system?  and Imagine you are a 55 year old person who has just lost your job; would you take the opportunity if offered to join Medicare?  Second answer first:  you betcha.

 

The answer to the first question is more complex but even more damning.  Insurance companies collect vast pools of money to pay for their subscribers health care needs and then spend a tremendous amount of time, money and effort to figure out how not to pay for their subscribers health care needs.  60 Minutes ran a segment about a month ago about how insurance companies have scores of employees scouring the language of their policies and health insurance applications to find minor discrepancies and fine print to disqualify their insureds from coverage.  I don't think I was the only person who saw that bit.

 

I know I'm preaching to the choir, but why is it that our President, his advisors and our party can't figure out a way to convey concepts like these in a forceful articulate manner like Rep. Weiner does? 

 

I just read Joe Klein's column about the Republians being the Party of Nihilists.  I guess the MSM is starting to wake up - maybe.  After all, what prompted his piece was the fact that his parents are old and frail and "end of life counseling"  is something to be valued rather than mocked.  I went through this when my mother died last year.  First we had about ten years of Medicare dealings.  She had several surgeries all by the best doctors available; a fair amount of hospitalization and nursing home care; and in the end my sister and I had 2 hours of discussions with a kind and compasionate physician about what her last few days would hold in store.  It would have been nice if he could have been paid for that time.  Just like any one else who has had such experiences with Medicare, we were wholly satisfied with the care service and expense.

 

Why can't the administration figure out a way to disseminate truths like this?  Why are we fending off absurd lies and an Orwellian campaign of misinformation?  Why aren't we advocating single payer and then accepting the public option as a compromise?  What happened to the smartest guys in the room?

So, what's the right name for the boycott campaign against this insufferable chain that we now know is run by a tone deaf moron?  I came up with Hole Foods, but I'm not terribly invested in it.  Of course the real effort should be to place unbearable pressure on our peers to avoid setting foot in this place for the foreseeable future, if ever.  
I would love to see the first clip on CNN showing empty aisles in the local Hole Foods store this weekend.  I would also love to see this spawn a counter campaign by the wingnuts, deathers, and tea baggers to support this place.  Imagine the yuppie holdouts waiting in line with the mouth breathers.  A concerted campaign here might even distract the MSM from the nauseating coverage of the town halls.  Let's see the  press start writing and broadcasting stories about the left boycotting the store and the right standing up for merits of buying arugula from a genuine union buster.  

I just finished reading Matt Taibbi's piece in Rolling Stone about the bailout.  I'm sort of new to this so here's the link the old fashioned way: 

URL: http://www.rollingstone.com/politics/story/26793903/the_big_takeover

It will depress you and open your eyes and give you a handy guide that pretty much explains everything, incuding why the plan Geithner announced today is wrong.  The plan simply doubles down on the assumptions and behavior that got us here in the first place.

This is truly excellent journalism.  Read and you'l be the smartest person in the room.

To follow up on Josh's post from last night, the reason that these CDS's got out of control is that they were just bets.  They were not true hedges in the sense that you have bought the security and are buying insurance against it losing value.  These transactions, as I understand them were, like Josh says:  "A lot of this was smart hedge fund managers who could see the housing meltdown coming three or four years ago and placed bets against it."  The real exposure was that you were betting on the full value of the security without owning it.  If you owned it and you lost, you could sell the security (even at a loss) and cover your bad bet.  If you don't own the security, you have to cover the full value of the security from your own pocket - from your capital.  .

The problem is that AIG took the bets and did not have the cash to cover them when they lost the bet. AIG's uncovered bets far exceeded its capital base.  On the street, if the bookie can't pay, that's a knee-cappable offense.  In the white collar world, this was the failure of the regulatory system.  The insurance industry is highly regulated with stringent capital requirements and loss reserve requirements.  That's why the bulk of AIG is extremely healthy. 

This CDS universe was the wild west, however.  Josh's point of making the counter parties take a haircut on what they're owed is an entirely valid proposition.  After all, these are parties who whine about the 'regulatory yolk', but lack of regulation exposes you to doing business with parties who may not be who you think they are.  Did Goldman perform due diligence (for itself or its clients) to see what would happen if all of AIG's bets turned bad.  Could AIG cover them?  Obviously it could not.  If the market was regulated the government would have required them to only take bets they could cover.  Why shouldn't the counterparties bear some of the risk of doing business in this jungle.  Instead they are realizing the full reward and their risk is being artificially eliminated. Talk about moral hazard.

This is not going to make me popular.  It will probably have a great many "unrecommends," but here goes.

I have only read Liddy's letter in defense of the retention bonuses and don't really have knowledge of the details behind the bonuses.  The best source for that information would be the employment contracts themselves, but to my knowledge they are not public.  I am only writing this based on my general knowledge about these kinds of arrangements as a lawyer, more particularly a lawyer specializing in troubled and insolvent companies.  Of course I share the overall outrage about these bonuses, but I'm posting this to give a bit of a contrarian view.  While I am going to sort of defend the AIG lawyers who opined that these were "binding" contractual obligations, I am also going to offer a thought (albeit a weak one) about how to get out of them.

First, retention or "stay" bonuses are not uncommon when you are asking a high level executive to work for a company facing insolvency.  I have a friend who was asked to stay on when his company filed for Chapter 11 bankruptcy and he was guaranteed a $250,000 bonus to stay for six months and help the creditors sort through the mess and figure out how to get the most value for the assets that were being sold off.  He had been an employee of the company and was present when a lot of the poor decisions were being made that led to the company's failure.  Nonetheless, there were no accusations of wrongdoing, just a combination of market forces and not the best decisions leading to failure.  His bonus, though was presented to the bankruptcy court and approved.  Other creditors had a chance to object but no one did because he actually was going to deliver value into this troubled circumstance.  Had this arrangement not been struck he would have either been out of a job or found another one and left the company as soon as he landed it.  The 250K incentivized him and, like I said was disclosed and approved.  If this is the nature of these bonuses, I have no trouble with them.  Because every one is proclaiming shock and disbelief, however, I think these were not disclosed and approved by the creditors, nor by the Fed.

There are retention bonuses of a different sort that, most likely, are the kind we are talking about here.  When a broker is hired in the securities industry he (and in 99% of the cases, it's a "he") is given an upfront bonus and/or is promised a bonus (or series of bonuses) if he stays for a given period of time, one year, 3 years, etc.  Thus, a "retention" bonus.  Typically those bonuses are not tied to performance, but they would be forfeited if the employee is let go for "cause," in other words if he's fired for doing something wrong - excessive absences, fraud, stealing, substance abuse, etc.  You pay this because you've probably poached this person who has a track record at a competing company.  The retention is so he doesn't jump to the next company that waves dollars at him. 

Now this is the tricky part.  I don't think these guys did anything that would amount to cause for termination.  As sick and unfair as this sounds, they did their jobs.  The derivatives they traded reflected insane unfathomable risk (discussed below), but they were not illegal.  These derivatives essentially were side bets on whether a bond issue would default.  Such bets make sense if you actually own (or have a financial interest as a buyer or seller) the bond you are betting on, but the huge problem with the bets AIG's little London group was making was that the betting parties (AIG and its contra parties like Societe Generale, Goldman Sachs, etc) had no interest in these bonds - they were just gamblers at a casino.

One comparison is the stock options market.  There is a concept of writing a covered option versus a naked option.  When you write a covered option, you own the stock and are hedging on your downside by making a side bet on the future of the stock.  You buy 100 shares of company X for $10 a share.  You sell an option (ie make a bet) to someone that gives them the right to pay $13 on June 16, 2009.  The option cost $1 (or $100 for the 100 shares).  Your cost of the stock is now $900.  If the stock is $12 on June 16, you've won the bet.  Your contra party will not exercise the option because he's not going to pay $13 (actually $14 because that person paid $1 already) for a stock that is only worth $12 in the open market.  You've successfully hedged because your stock only cost you $9 and it's worth $12 now. 

What if you lost the bet?  Remember the option you sold was "covered."  You owned the underlying stock.  If it goes to $15, your contra party demands your stock and you sell it to him for $13, the agreed on price.  You haven't made as big a profit as you thought, but you still made $4 a share. 

If you didn't own the stock (selling a "naked" option), this transaction becomes more of a pure bet.  You sold the option, so you made $100.  If the stock doesn't hit $13, you win.  If the stock goes to $15, you have to buy the stock when it gets called, so it costs you net $14 a share.   That's what the AIG guys were doing except multiply each of these transactions by, say, $10,000,000 or a  half a billion or some other ridiculous sum.  Instead of betting on the price they'd reach, they were betting on whether the bond would default or not. And remember that until 2007 or so, no one ever had to pay off on these bets - the bonds would never default.

If you owned the bond - or had sold it, you had a financial stake in the bet.  In other words you had either the cash proceeds from the sale or you had the underlying bond obligations themselves so you could pay up on the transaction.  A bond may default because it wasn't generating cash to pay interest when called for, but remember the bond is a bundle of mortgage obligations - a thousand homewners on the dotted line.  If a hundred or even three hundred default, there's still cash coming in.  You can cover the bet.

But the AIG guys and every one else in this mess was betting on bonds they had no financial interest in.  When they lost the bet they had to go out and pay the other side, say $50,000,000.  Multiply that by 20,000 bond issues and you have today's crisis.

The thing is that the stock options industry is pretty well regulated.  You can't play if you don't have the dough (the capital of  the trading firm).  This goofy derivatives market was/is totally unregulated.  Nobody looked at anyone's capital.  And after all it was AIG - the biggest insurance company in the world.  Of course they had the capital.  Or not.

The point of all this is that these traders (hired away from their old employers by big fat retention bonuses) did their job.  They traded these idiotic investments that no one at the time thought were idiotic, and certainly no Bush-era regulator was going to step in and stop this.  Hell, they refused to stop Madoff.  (which makes the whole Cheney thing from yesterday so galling).  So ultimately the AIG lawyers look at the employment agreements and say that they're locked tight.  The brokers/traders earned their bonuses by showing up for work and, in essence, not being drunk or stoned.

Ok, enough on the "pro" side.  How about the "con." The only thing I can think of is the insolvency of AIG.  A company cannot make extraordinary payments (oustide of the ordinary course of business) if those payments would render it insolvent or if the company is insolvent when it makes the payments.  The problem with this theory is that AIG would have to admit it was insolvent and those retention bonuses would have to be shown to be outside the ordinary course of business.  Arguably these payments are standard operating procedure (galling again, I know).  The reason auto union contracts can be challenged is because they can be thrown out in bankruptcy court.  These bonuses could be tossed too but no one is seriously talking about AIG being in bankruptcty, unlike GM.  Too big to fail.  Hopefully the administration has lawyers much smarter than I am looking at this, but I think it would be tough not to pay the bonuses and not get sued successfully.  Otherwise you have to rely on the good conscience of these traders.  Good luck with that.

The NY Post cartoon was so ghastly and troubling on so many levels that words fail...

So let's hit 'em where it hurts.  I think that all our friends in the Tri-State Area can pick a day that they can live without the New York Post.  So find that day and let everyone in NY know that they can register their outrage by not buying the NY Post.  The "No York Post" day.  A month or a week would be better but one day without any newsstand sales will send a message.  Any suggestions for the day?

I just looked over the CSPAN list ranking presidents.  At first I thought that W. was ranked too high, then I looked at the mopes ranked below him.  All were from the 19th Cenury save one - Warren G. Harding.  Recall that Harding only served 2 years (1921 thru 1923) and in that short time presided over an administration that gave us the worst presidential scandal (in financial terms; Watergate was a constitutional scandal) of the 20th century.

W did much more damage over his 8 years, but like many have noted, it's still too early to fully evaluate him from a historical context.  In other words, there are many years ahead to fully appreciate how badly he screwed things up.  Clinton, of course, is getting the benefit of passing time, and the immediate comparison to his successor, to enhance his reputation, correctly in my view.  Carter's slippage is also fair.  His good work post-presidency doesn't mean that the Carter years were anything less than miserable and that he was any less clueless aas a leader.

But George W. Bush is in a class by himself.  If we consider the modern era to have started sometime after 1900, his failures are breathtaking.  He covers it all.  Financial corruption, abuse of the constitution, ideological tests in wholly inappropriate places, an attempted repeal of the age of reason and a return to the religious dark ages.  This guy had it all.  It just needs some time for it all to sink in.  As it stands, the historians were pretty quick to tag him as the second worst since electricity was invented.  It's a start.

Flipped through the Sunday morning shows today.  A couple of thoughts.  Is Barney Frank the only person who is actually a Democrat any more?  Claire McKaskill was nice but ineffective on Today. The Republicans (Ensign and Pence) were disciplined focused and repeated their (moronic) talking points ad nauseum.  Barney was combative, smart, articulate etc.  A real, genuine Democrat.  Pretty much the only good one I saw today.  Robert Reich was good but outnumbered.  The "balance" on ABC's This Week was Reich vs. Gingrich as the partisans, and as "journalists" Clair Shipman and George Will.  That's pretty fair and balanced - oops wrong network, same result.

This morning on the Today show, Meredith was interviewing Evan Thomas from Newsweek about the behind the scenes issue being previewed now and being released next week.  He commented about how chaotic both the McCain and the Clinton campaigns were.  She tried to correct by saying "You mean Obama" as if she had been asleep for the last two years and had not noticed that the Obama campaign had basically run a flawless campaign - no drama Obama.  He told her no, I meant the Clinton campaign. He emphasized that both the Clinton and McCain campaigns were a "mess."  He went on to note what was obvious to everyone - that the Obama campaign had been a tight ship, well organized and smoothly run.  No chaos.  Someday people will realize that Democrats may no longer be that party of infighting, disorganization and missed opportunities.

Yesterday was really wonderful.  Took the day off and worked the polling places near my home.  Essentially an effort for Dan Seals (IL -10), who unfortunately lost.  Then I took my family to Grant Park.  My Dad took me to see JFK when I was 10 years old and I'll never forget it.  Hopefully my 11 year old son and 13 year old daughter (yes, I'm an older dad) will feel the same way about last night.  For me it was extraordinarily moving. 

 

Among all the stuff that's been written, I had one small thought about what the candidates did yesterday.  McCain went to Colorado and NM, states that Obama carried by 7 and 15 points.  Obama went to Indiana.  He won that state by just under 23,000 votes.  What went on behind the scenes at the campaigns when those 2 decisions were made captures the difference between a haphazard organization and a smooth running machine.

 

Did McCain's people genuinely believe that his trip was anything other than a complete waste of time?  If they did, they were even more clueless than I ever thought.  Maybe a trip to a state that was really in play (eg, Georgia or NC) was too far, but the two state trip probably took the same amount of time and was pretty pointless by Tuesday.  He could have made his final speech in Arizona and saved the travel.

 

It seems to me that Obama's campaign, on the other hand, was so precisely calibrated that they knew that Indiana was so tight, that a quick trip there at the last minute could have an impact.  Did the trip create the razor thin margin of victory?  Probably not.  But the significance is that they knew exactly where and why they had to deploy their most precious asset - the candidate - at this critical moment for maximum impact. 

 

Maybe I'm reading too much into this, but I think the comparison is pretty emblematic of the difference between the two operations.

"Uncle" is perhaps a veiled attack on Barney Frank's being gay.  As in that weird old uncle of yours who never married.  Maybe this is a stretch but nothing is too much for these people.

Wow, things are getting ugly in a really short time.  It's remarkable how easy it is to stoke fears and hatred into scary behavior, especially in these times of financial uncertainty (an understatement).  And the chief cheerleader for all this is, not surprisingly, a cheerleader.  A pretty face to mask truly hideous sentiments.  With the right wing's grasp on this country slowly slipping, they're going to fight hard and dirty not to have to let go. 


For my money, the scariest image from yesterday's news was that bullet-headed police chief  from Florida spitting out Barrack's middle name.  I think his uniform was blue, but it could just as easily have been brown.

What have the Spanish done for us lately?  Their food is spicy.  I've never been able to pronounce paella.  But more importantly, they cut and ran when the chips were down in I-rak.  Then they let some terrorists blow up their trains.  Then they elected a gosh darned Socialist as their prime minister!  


NATO member?  BFD.  John McCain hates 'em -  I hate 'em!  Period end of story.  Kick 'em out of NATO.  Heck, kick 'em out of Latin America too.  And replace them with a true ally like Georgia, or Alabama.


Let's invade Spain. Hating 'em isn't enough. I'm sure they're hiding terrorists. And they'd never elect another socialist again, AND we can take their olive oil for nothing.


Let's bomb Spain.  That'll show 'em.  Why waste troops on Spain?  We can use the troops to protect us from a real threat - like Canada.


Thank god we have Senator McCain to show us the light.