This actually strikes me as s fairly reasonable way to offset all that bailout money.  And there shouldn't be a shortage of bidders - Mexico, China, Drug cartels, Right-wing militias...TX does have all that wide open space, perfect for people, military maneuvers or guerilla operations.

Unfortunately,  bidding starts at $100,000 or I would have made an offer myself.

I wondered aloud what real estate investments might currently be in PBGC's portfolio.  While the details will have to wait - PGBC hasn't been forthcoming - I did pick up this interesting tidbit on the changes Mr. Millard brought to the agency:

The PBGC also entered into strategic partnerships with three leading financial service firms, Blackrock, Goldman Sachs and J.P. Morgan, who will manage very signficant real estate and private equity allocations...

How significant?  $2.5 billion in significance - $900 million each to Blackrock and J.P. Morgan, $700 million to Goldman.  It's little wonder that Gary D. Cohn, President and Co-Chief Operating Officer, The Goldman Sachs Group, Inc. raved about the arrangement:.  "(w)e are delighted with this significant commitment to our alternative investment strategies."

Did Goldman and friends in turn channel some of those funds to Broadway Partners?  We'll have to wait to find out.

In the meantime, we might be wondering what the real deficit of this agency is.  Mr. Millard has pointed to steady deficit reduction as one signal accomplishment of his agency under Bush.  The reported deficit shrank to $11.2 billion in fiscal 2008, down from $14.1 billion in 2007 and a whopping $23 billion in 2005.

Most of this reduction, however, owes nothing to Millard or to his predecessor's fiscal prowess.  In fact, here's what Millard had to say in a candid interview about the deficit reduction:

Millard: It's very important to understand there are two principal factors as to why our liabilities are going down.  No. 1, as interest rates rise, the valuations of those liabilities go down. (my emphasis) No. 2, the Pension Protection Act changed the math.  They basically said we're going to count the liabilities of [airlines] Delta and Northwest differently from the way we're going to count everybody else's liabilities. If you count them differently, you take them out of your deficit.  It doesn't mean that the threat is no longer posed to us in the long term. (my emphasis) 

So in truth, one reason for the decline in the reserve deficit no longer applies - with interest rates still falling, not rising, liability valuations are increasing - and the second is basically voodoo economics courtesy of sweetheart legislation.

In fairness to Mr. Millard, the deficit was reduced by $3 billion in fiscal 2008 because 13 auto parts suppliers reorganized and didn't leave PBGS holding the bag.

But with tricky math to obscure the real extent of the deficit, shrinking interest rates adding to liability valuations, companies choosing to underfund their pension plans in a period when more of them are likely to go into bankruptcy, and Goldman Sachs and friends poised to "manage" the pension backstop into new and riskier ventures on which they directly profit, I wouldn't count on a lot of good news in the next set of figures.

My skepticism and, to some extent, my resentment began when I read a piece in the Wall Street Journal back in the 1990's.  The article detailed a novice trader's purchase of a new Ferrarri with his bonus money - this in a article, I believe, about how compensation levels on Wall Street were actually down from the 1980's.  It went on to casually mention that the trader had managed to produce returns year-to-date of 12%.

Yes, I know any trader capable of producing returns like that the last few years might actually be worth an Italian sports car or two.  But what bothered me was, in that particular year, the S & P 500 was up 12%.  On its own.  In other words, what the trader had achieved was nothing to brag about.  I wondered how someone able to achieve results you or I or a class of fifth-graders could have obtained by purchasing an index fund on January 1st managed to earn a six-figure bonus from his employer.

Maybe I don't have the whole story, I told myself finally.  Maybe the guy was having a bad year, for him.  Maybe his supervisors saw great potential.  Maybe this kind of thing - outsized rewards for paltry results -  was some kind of anomaly.

But some core area of my neurocortex had been irritated. Year after year, I suddenly couldn't help noticing how many redundant financial products there were on the market, and how persistence and performance seemed almost randomly associated.

How is it possible, I asked myself, that all these mutual funds and fund families, the ones that underperform their competitors on not just a yearly, but a five-yearly, and ten-yearly basis, continue to exist?  If this is a real business, part of mainstream capitalism, where's the competititveness?  Where's the Darwinian struggle?  If the auto industry ran like this, there'd be a car lot on every corner.  Selling a different brand of car.

I thought of the sales staff, and traders, and managers of these predatory companies, making a good living off of somnolent or careless or captive investors (and, no doubt, salting away their own compensation in investments that actually managed to outdo the market). And my neurocortex became more and more inflamed.

The answer to my conundrum, of course, lay in the fact that these anemic, vampiric funds were able to pay hefty commissions to "investment advisors" to tout their products to the unwary, thereby insuring the continued existence of their prosperous mediocrity.  Realizing this didn't make me feel any better.

One litany above all stuck in my head like a Saturday morning jingle - the continual self-congratulations of Wall Street professionals on their "development" of "innovative products" for the "market".  Giving the suckers a new way to play three-card monte didn't seem to me something that qualified you for the Entrepreneurial Hall of Fame. 

Then the riot of new products triggered by easy credit, the deregulation of derivatives, and the housing bubble pushed me over the top.  I made a distinction in my mind: there was the part of the banking and credit system that acted as a responsible, even essential go-between, matching up sources of capital with worthy investments, insuring that opportunities providing a promising balance of risk and reward obtained necessary support for the good of the economy as a whole.

Then there was the Frankenstein's monster, that now had access to steroids, amphetamines and fertility drugs. And whose minions were outearning their staid, less flamboyant counterparts by expotential degrees.

I didn't like how this was going to play out.

Like Josh, I don't believe compensation in the private sector should be limited by law, or restrained by the forces of envy or animosity.  If anything, the dark side of the financial services industry leads me to think that the real answer to predatory practices lies in more and better education from early on - in probability, in risk-taking, in frugal money management, in caveat emptor 101.  No one can afford to be a complacent consumer of financial products anymore.

But given the scale of the debacle we've watch unfold the last two years, sensible regulation, too, has its part to play in patching together a social contract frayed by all those products developed, schemes devised, and games played, at a level and to a degree that finally managed to threaten those on the sidelines, and the very game itself. 

I realized, first, how rare it is for the top traders and managers of the financial elite to speak out in public, about anything.  For that reason, its members generally lack a recognizable or sympathetic face.  Those of us outside their sphere tend to see them as a small, incestuous coterie of the well-connected and obscenely privileged, whose economic success seems independent of the consequences that impact the rest of us.

Needless to say, this is not exactly who they are, or at any rate this is not how Mr. deSantis sees himself.  For that reason alone, the editorial was enlightening. Revealingly, Mr. deSantis makes much of his upbringing in a struggling, barely middle class home, and a scholarship to MIT: whatever his current station in life, Mr. deSantis clearly wants us to know that he wasn't born into easy circumstances, and that he has risen by dint of his own talents and efforts.  Some sense of guilt still seems to cling to the onus of being rich.

Whatever the appeal of Mr. deSantis's personal particulars, he does makes critical points in his editorial us taxpayers should keep in mind: that he and his division had nothing to do with credit default swaps; that, as a profitable unit of AIG, the sale of his unit at a  reasonable price will affect how much money AIG is able to pay back; that he and others in his division have continued to work long hours despite the siren calls of other financial services companies.

It's clear that Mr. deSantis and many others at AIG-FP have good reason to be upset at Mr. Liddy for not defending them before Congress. Mr. Liddy's failure to emphasize that most employees responsible for the credit default swaps have already left led directly to the wave of opprobrium unfairly breaking over their heads.  As the clean-up team, not the wrecking crew, the least those remaining at AIG-FP should expect from the man they work for is a spirited defense.

Here Mr. deSantis is at his most sympathetic: being sold down the river by your boss is something many of us can relate to.

But it's easy to see why taking up a sympathy collection for Mr. deSantis and friends among the general public would be a fool's errand.  Whatever his upbringing, Mr. deSantis displays the deafness of the compensation class he now occupies, though as someone who has toiled long hours myself - sometimes for a lot, sometimes for a little - I'm willing to attribute some of his self-centeredness and lack of perspective to sheer mind-numbing overwork. 

In a world where circumstances beyond their control have ravaged the plans and expectations of many, many gifted and hardworking people in professions and industries around the globe completely unconnected with financial services, it is unlikely Mr. deSantis will find himself an object of special consideration for his efforts, however worthy they may be. He will have to find sympathy and understanding among family and friends, not in a blasted world where great effort for little gain is a commonplace.

I find myself returning again and again to the most jarring tone-deaf note in Mr. deSantis's editorial. Mr. deSantis goes out of his way to mention his willingness to work "for an annual salary of $1" out of "sense of duty" to AIG and the public. Well and good - taking a $1 where formerly you took much more is certainly a technical sacrifice. 

But how many people, reading on, are going to let him retain credit for high honor and nobility when they come upon the actual net amount of the "retention payment" that nicely supplements Mr. deSantis's martyr-like salary of 100 cents - $742,006.40 "after taxes" - and this not, in all likelihood, the only retention payment Mr. deSantis has received.  When Mr. deSantis claims that he can now donate this entire amount to charity without his family suffering "devastating losses", surely most people see less nobility in his $1 salary and sudden concern for others, and more of that earlier shade of guilt.

Mr. deSantis's mixed message only rendered his next statement a laugh-out-loud punch line:  "(s)ome might argue that members of my profession have been overpaid, and I wouldn't disagree".

But when I stopped laughing, and went back to reflecting, it became clear how revealing this last statement truly is.  Mr. deSantis, whose parents worked "multiple jobs" when "steel plants were closing" for tiny fractions of what he now makes, obviously only half-believes his own statements that his current station in life arises simply and cleanly from his great exertions and his frugal habits of "saving".

Through whatever nexus of talent, charm, old school ties, and other fortuitous circumstances, Mr. deSantis has done well, and I don't begrudge him his success.  I believe wholeheartedly that he learned much from his parents, that he works hard, that he saves, and that, more than many other members of his profession, he does in fact care about people outside himself and his immediate circle.

I just wish he had spent more time on the overcompensation of those toiling in financial services, and less on his own glorious sacrifice.

I

What has prompted this second post are the startling claims by senior Obama officials that the AIG bonus scandal is a "distraction" and "not what people are talking about".

Like many other readers, I am a strong Obama supporter who remains completely mystified by the comments from David Axelrod and Rahl Emmanuel.  Their disingenuous, "move on, folks, nothing to see here" remarks would only make sense to me if the framework and details of the AIG bailout had been orchestrated on their watch.

Why on earth aren't Obama officials reminding everyone that the AIG bailout was a Bush administration initiative?  Wouldn't it be more logical for this administration to say "hey, we don't want to do some of this stuff, but our predecessor made these commitments and we can't have the Federal Government going back on its word"?  With so many initiatives being unveiled at a breath-taking pace, why would a scandal that, in its tip-of the-iceberg way, points to the serious need for structural reform in financial markets uniquely qualify as a "distraction"?

These comments reek of business-as-usual.  True, the Democratic Party's Wall Street connections go back to before the Civil War and, thanks to generous campaign contributions, will always be with us to some degree. It's probably not realistic to expect a government fix of the credit markets without involving well-compensated and possibly culpable insiders, especially when the structure of the bailout was set in place by a previous Republican administration.  But isn't it self-defeating for an administration whose claim to fame is its broad-based populism to go out of its way to frame the discussion over AIG's bonuses by lining up with Rush Limbaugh, as if the main goal for key spokespersons on both side of the aisle was to deflate or redirect passion invested in anger at the reckless behavior of major financial institutions?

The long-lasting achievements of the Roosevelt New Deal were structural reforms: social security, minimum wages and maximum hours, the re-structuring of the banking system and so on.  The Obama administration, which clearly prides itself on its multitasking, needs to advance a reform agenda as the natural complement to its attempt to revive the economy.  Otherwise, what looks like recovery will simply be another bubble waiting to burst.

And an administration that was looking like a breath of fresh air will begin to stink like a smoke-filled room.