Solar is GOOD! NO, Solar is BAD!

Senator Feinstein nixes solar project in the Mojave - which had been fast-tracked by Bush. Really - I can't make this up!

Of course, DiFi has practically patented hypocrisy:

When asked earlier why she carried that .38 Smith & Wesson concealed in her purse while promoting gun control for the rest of us, Feinstein answered, “I know the urge to arm yourself because that’s what I did. I was trained in firearms. I’d walk to the hospital when my husband was sick. I carried a concealed weapon. I made the determination that if somebody was going to try to take me out, I was going to take them with me.”

Only a couple of months earlier, however, Feinstein has gone on 60 Minutes to announce, “If I could have gotten 51 votes in the Senate of the United States for an out-right ban…I would have done it.”

Newest Best ClimateGate One-liner

Courtesy of the mighty IowaHawk:

It's not really rocket science. Well okay, I suppose it's really not science at all.

Missing the Point

Today's EPA ruling - that so-called "greenhouse gases" are to be regulated by the EPA as hazardous atmospheric products - is *not* because of Copenhagen. Nor is it "in spite of" ClimateGate.

This potentially disastrous piece of mischief is because of ClimateGate.

'Cap and Trade' has been stalled in the Senate; with ClimateGate, it's chances of passage had probably dropped to nil. This went double for anything BHO brought back from Copenhagen - a treaty requiring 66 votes for Senate ratification was even more DOA than a bill requiring 60 votes for cloture.

With ClimateGate - with the wheels coming off the "scientific" facade of "Man-made Global Warming" - the administration knew that unilateral executive action was its last chance to impose its crippling, garbage-science policies upon the U. S.

Now is the time for real oversight - and a meaningful threat to use the power of the purse, to filibuster any appropriation bill that includes funds used to enforce this insanity.

And now is also the time to realize that jobs and the economy don't matter to BHO - only raw power, used in the nastiest way and for the nastiest purpose: self-perpetuation.
.

Ouote of the Day

"Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience."

- C. S. Lewis

Those who have debated me, such as Carl at NofP, will know that I am suspicious of all concentrations of power - with some extra focus on big business, especially big money, which many Conservatives and especially Neo-Cons seem to rather blithely ignore. The copious recent evidence of the consequences of un-reined greed and malfeasance of Wall Street somehow leaves these groups unfazed and/or in denial.

But after watching the radical Liberals in action in Congress and the Executive branches the last 11 months, I'm beginning to see where C. S. Lewis is coming from. These people are just plain crazy.
.

Irony Of The Day

They (who) seek to establish systems of government based on the regimentation of all human beings by a handful of individual rulers... call this a new order. It is not new and it is not order. - Frankin D. Roosevelt, 15 March 1941

Wonder if Obama/Pelosi/Reid have heard that one?

Best ClimateGate One-liner...

so far.

Phil Jones – ‘I did not have statistical relations with that data’

AGW Follies

A bunch of "scientists" tried to fake Global Warming and all I got was this lousy T-shirt.

Quote of the Day

"America is at that awkward stage. It's too late to work within the system, but too early to shoot the bastards."
- Claire Wolf, "101 Things to Do 'Til the Revolution"

Make that 102: "Million Gun Owner March"

So, folks, what you doing 4/19/2010?

Nobels For All

Here's mine:

Available here.

Be sure to try the "Republican" option for maximum "humor".
.

Who Knew? Birds Can Dance!

They've got moves, they've got rhythm.

See here for article and 2 videos. The first, larger video is overlong, but see especially 0:50 thru 1:00, where they digitally increased the beat of the BackStreet Boys song, and the cockatoo kept up, even simplifying it's dance steps as needed.

Also, here, where snowball gets it on to "Edge of 17".

I'm jealous. Damn birds dance better than I do! (I'm a white, male, 54 year old heterosexual. Everybody (and now, everything) dances better than I do.)
.

Warped Genius

(click for larger image)

From xkcd.

Better Words Than I Had

I have been thinking for some time that Obama is the worst of all worlds: the Obama/Geithner "reaction" to the on-going corruption-fest that is our financial system is at least as inept and evil as was the Bush/Paulson approach, Obama has negated few if any of the civil rights concerns raised by the AUMF/MCA - but in addition we have the left-wing wackitude of a Nanny State as played by Kathy Bates.

But Tam says it much better:

The current freak show staffing the Executive Branch manages to combine the worst aspects of the ideological do-gooder ineptness of the Carter years with the well-oiled thuggishness of Clinton machine politics and the imperious self-righteousness of Dubya fresh out of a prayer meeting.

.

I'm A Birther And Proud Of It

Where is the real, long form, vault copy birth certificate?

If it were in Hawaii, as Obama and all his mouthpieces in the MFKAMS* insist, would not any sane person have exerted the minimal effort needed to have a copy released?

Is there any way to draw any conclusion from Obama's own behavior, other than: the thing DOES NOT EXIST?

---

* Media Formerly Known As Main Stream
.
.

Image of the Day

From Sharp As A Marble.
.
Jimmy Carter and Maureen Dowd: STFU.
.

CREEPY

How creepy is it that Barack Obama wants to talk to our kids?

Choose one:

1. Any friend of Bill Ayers is OK by me.
   
2. Creepy as in strangers offering candy.
3. Creepy as in Hitler/Stalin/Mao indoctrination.
4. Too creepy for words in any known language.
   

I'm leaning towards 4.
.
Of course, maybe the poor guy is just looking for an audience that hasn't yet figured out that he is completely full of shit. Boo Hoo.
.

Why I Gave Up and Went with an XP Desktop at Home

From http://xkcd.com/619/.
.

In Memoriam

(Screen Capture from Something on Youtube)

Bad Move by Paul Krugman

Play this:





Or see here if the embedding doesn't work.

I guess anybody can get a Nobel prize these days - at least in Economics. Must be why they call it the dismal science.
.

Mortgage Disaster, pt 2: Failed Refutation

Carl at NOFP tries to "refute" my Mortgage Disaster post and fails - mostly because the facts speak for themsleves.

Says Carl:

If you look at page 23, T2 says that the largest sector, by value, at risk is prime mortgages. Commercial real estate is second. Neither of those are the type of transactions of which you complain.

The debate centered on responsibility for the mortgage crisis: GSEs vs. Wall Street. GSEs didn't do much Commerical Real Estate (CRE). Wall Street and insurance comapnies did and they are hurting plenty.

That "the largest sector, by value, at risk is prime mortgages" says nothing, since I'm discussing the current crisis, and past/current delinquencies.

Further, I fault your interpretation of T2 given that the T2 charts on borrowing power (page 9) seem to prove my point--that much of the crisis was demand driven.

This makes sense only if Carl means the demand, by Wall Street, for reallly bad mortgages.

Once upon a time, before Wall Street got involved (see the graphs for timing), there was a word that originators had for people who wanted to borrow 9x their income, or have mortgages payments equal to 95% of their monthly take home. That word was "NO". People can have all the "demand" they want - if the lenders had said "no" it would not have mattered. The originators/lenders did not say no, because Wall Street paid them to say yes, as noted here:

The big money for unscrupulous brokers, however, lies in steering borrowers into higher cost loans. A prime, fixed-rate loan at par may earn a broker a fee of one percent or less, but a hybrid adjustable rate mortgage (ARM) can pay four percent or more.

The Center for Responsible Lending (CRL) has said that inflated YSPs are included in 85 to 90 percent of all subprime mortgage loans.

Borrowers of hybrid ARMs, nicknamed "exploding" or "toxic" ARMs, often get stuck with prepayment penalties that penalize a borrower for paying off a loan early

Carl further says: That's why T2's page 29 chart shows that 25 percent of prime mortgages also are underwater.

This is more distraction than argument.

In the first case, for prime loans being underwater is just a function of having bought high in the bubble. A prime loan on an underwater house need not turn delinquent, since it's payments are fixed at a low rate relative to the borrower's income, and the borrower having put 20% down makes "strategic default" less likely. It requires a very significant decrease in house-hold salary to cause a default in this case.

In the second place, Carl conveniently ignores 3/4 of the chart on page 29, reproduced below:

As noted before, due to fixed reasonable payments, prime borrowers must experience significant decrease in income to be forced into delinquency.

On the other hand, virtually every underwater Option ARM will inevitably be forced into delinquency when the loan recasts - a process that involves taking the loan from negative amortization to fully amortizing in a shorter term. Low interest rates engineered by Bernanke wil not save these people.

For a quick example of an Option ARM recast, see here:

Lower interest rates do exactly nothing for these people because the original "option" period typically had rates as low as 2% on simple interest, and thus payments could be under $1,000/month on a $600,000 loan during the "option" period...

When the loan recasts five years after origination (assuming that comes first) even if you can get a 4% interest rate based on current low "adjustable" rates you are now financing $750,000 and must amortize the 4% over the remaining 25 years....

Your payment goes from under $1,000 a month to $3,945.62, a near-quadrupling, overnight.

This logic applies to all those who got Option ARM loans and paid the minimum "option". Estimates are that 80% of Option ARM borrowers did so.

And since, as previoulsy noted, the Option ARMs happened in the "bubbliest" areas, California and Florida, these will be large amount loans, most above the conforming limits of the time ($417,000), and therefore most funded by Wall Street.

Subprime and Alt-A borrowers have been given some reprieve by Bernanke's fixing of low interest rates. That cannot last forever.

Carl continues: And you haven't justified your concern for the leverage standards of investment banks. How did that cause the crisis?

Yield Spread Premium explains it. It is the causal link between the sudden explosion of I-Bank money and the suden explosion of lousy underwriting.

(In the background, non-blogger obloodyhell maintains his psychotic notion that the I-Banks did all of this only because the GSEs showed them how, and that therefore the GSEs - and Democrats in Congresses that passed no laws relating to the GSEs - are responsible. Suuuure!)

Mortgage Disaster: Who Did It, and When

Who Did It

This presentation has been making the rounds. It has some amazing graphics: An Overview Of The Housing/Credit Crisis And Why There Is More Pain To Come

(NOTE: In the following, clicking on any image will casue a larger version to open in a new window.)

As to who did it, this chart is the most concise and specific thing I've seen yet:

The GSEs may have been active during the bubble, but the failed mortgages driving our crisis com mostly from the private sector. The driven by Wall-Street securitization are 51% of all failed mortgages, more than 2.5 times that of FNM and FRE combined.

"The GSEs Hold a Disproportionately Small Percentage of the Nation’s Seriously Delinquent Loans

While the government-sponsored enterprises (GSEs) own 56% of the nation’s single-family mortgages, the mortgages they own represent 20% of all serious delinquencies. In contrast, private label securities own 15% of the nation’s mortgages but 51% of the serious delinquencies."

The source of this given in the T2 presentation is Freddie Mac. This might seem a dubious source, but so far, it is the only breakdown of this type I have found.

At Freddie Mac is a document containing this figure:

The numbers are the same, though we get more information as to the sources used to compile this: "Sources: Federal Reserve Board, FDIC, Freddie Mac, Fannie Mae, Mortgage Bankers Association, First American CoreLogic (LoanPerformance); data as of December 31, 2008. Seriously Delinquent loans are at least 90 days delinquent or in foreclosure. Components may not sum to total because of rounding".

We may wish for another source, but I have yet to find one, after searching, and certainly I have found nothing to contradict this, and a lot of information that would explain or confirm this.

When Did It Happen:

Many have previously noted that the Big 5 Investment Banks received permission in 2004 to raise their leverage from around 12:1 to as high as 40:1. In addition, they were in large part left to be "self-regulating" at the same point. I believe that this was a turning, as shown below.

Wall Street Leverage became (briefly) Main Street leverage.

Again from T2:

"From 2000-2006, the Borrowing Power of a Typical Home Purchaser Nearly Tripled"

Look at the jump in 2004!

And more from T2:

"The Decline in Lending Standards Led to a Surge in Subprime Mortgage Origination"

"Source: Reprinted with permission; Inside Mortgage Finance, published by Inside Mortgage Finance Publications, Inc. Copyright 2009."

About Option ARMs, the most toxic of all loans, which Bernanke can only partially defang with low rates:


Below, note the text box and especialy the green line showing "when nearly all Option ARMs were written":

When these come home to roost, they will even more disproportoinately impact the Wall-Street driven loans - because the GSEs were kept out of the worst of them by the conforming loan limit:

And in case anybody thinks it's a coincidence, see here: Pressure from Wall Street Caused Spike in Predatory Lending:

Because investment banks provide subprime lenders with necessary funding, they wield a great deal of power in determining what sorts of loans are offered to subprime borrowers.

Kurt Eggert, Professor of Law at Chapman University, in testimony to Congress, April 2007: “I think we've had a presentation of the secondary market as mere passive, you know, purchasers of loans and oh, they may select a loan, but it's really the lenders who decide loans. But if you talk to people on the origination side they'll tell you the complete opposite. They'll say, you know, our underwriting criteria are set by the secondary market. They tell us what kinds of loans they want to buy. They tell us what underwriting criteria they want us to use. And that's what we do because we're selling to them.”

INVESTMENT BANKS PAID HIGHER PRICES FOR LOANS WITH PREDATORY CHARACTERISTICS:

Fremont General: “The Company sought to maximize the premiums on whole loan sales and securitizations by closely monitoring the requirements of the various institutional purchasers, investors and rating agencies, and focusing on originating the types of loans that met their criteria and for which higher premiums were more likely to be realized. The Company also sought to maximize access to the secondary mortgage market by maintaining a number of relationships with the various institutions who purchase loans in this market.”

The "premium" noted above was greater payment for more toxic loans was called YSP or YLSP - Yield (Loan) Spread Premium:

A yield spread premium (YSP) is the money paid to a mortgage broker based on an interest rate above the lowest rate the borrower qualifies for (called the par rate). Banks and mortgage brokers make money by setting interest rates above wholesale prices. However, the term "yield spread premium" only refers to mortgage brokers' rebates. Consumers are unaware of the premium a direct lender such as a bank earns when it sets rates to its borrowers above the par rate.

So there we have it. Who, When, and How.
.

Fed to Hire former Enron Lobbyist to "Buttress its Image"

This is just too f'in beautiful.

From Bloomberg:

The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

Linda Robertson ... headed the Washington lobbying office of Enron Corp., the energy trading company that collapsed in 2002 after an accounting scandal. She was also an adviser to all three of the Clinton administration’s Treasury secretaries.

Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street’s demise. While she wasn’t tied to Enron’s fraud, her association with the firm may raise questions, analysts said.

With a pedigree liike that, how could there be any questions? We know this one is totally corrupt.

The FED joins AIG and Wall Street in total tone-deafness. Either that, or their confidence in Bankster ownership of the U.S. governement is so complete that they've stopped worrying about appearances. But then what was that part about "Buttress its Image"?
.

Favorite New Meme: "Green Chutes"

While various government and stock shillmeisters speak of green shoots, in the commentariat at Calculated Risk:

butter wrote on Sun, 3/15/2009 - 6:39 pm

Bernanke said he sees green shoots, or maybe he meant green chutes

Chutes is right, as they lead rapidly downward.

And Green is right, too - because Obama's cap-and-trade monstrosity would be the last nails in the coffin.

Says Barack Hussein Obama:

"Under my plan of a cap-and-trade system, electricity prices would necessarily skyrocket. Businesses would have to retrofit their operations. That will cost money. They will pass that cost onto consumers."

Hear him him say it and read about it here.

How to destroy the world in one easy step. BushCo wrestles the economy to the ground and Obama puts a bullet in its head.

Hen-House, Meet Fox - You'll Get Along Great! (Updated)

Carl at NOFP posted this some time ago, on the subject "Banking, Opacity and Financial Securities, Part II " in which he plumbs this paper from Goldman Sachs and then asks:

Might Goldman Sachs's four principles be the central element of what I've sought (with no responses to date), "the minimum prohibitions necessary to impose on commercial banks to stop the financial system from [collapsing again]?"

Carl's post has 2 enormous problems:

Minimum Prohibitions Necessary

Carl is certainly not a fool, but here he has set himself on a fool's mission. When lives are at stake, (many have been ruined and some will die because of the current meltdown), you do not look for minimal solutions.

Lets us look at a brief history of minimal solutions in the field of engineering, in no particular order:

The Ford Pinto: costs were minimalized by not spending $11/car to fix problems known from pre-production testing, with the gasoline tank. Did the people subsequently incinerated in Pintos appreciate the cost savings?

The first Tacoma Narrows bridge: although the design was not unique, to save money it was minimalized by making the bridge thinner than others of the same design and length. It did not end well: this video of the bridge's collapse is pretty spectacular, as long as it wasn't your dog in the car on the bridge.

The Titanic: This gem was minimalized twice: first, the partitions between the "watertight" compartments "extended only a few feet above the waterline" allowing water to spill into adjacent compartments once the ship pitched even a little. "But in an rare cost-cutting exercise, the White Star Line decided that only 20 would be carried aboard Titanic , even though that meant that on her maiden voyage, she would only provide lifeboat capacity for 52% of the people aboard."

In the real world, even solutions not known or thought to be minimalistic often come to tears.

To actively seek minimalism is to invite disaster. This is even truer in the world of financial regulation, where you have players actively working to exploit weaknesses in the regulatory regime. The incredible blossoming of CDS since it's non-regulation was enshrined in the Commodity Futures Modernization Act of 2000 is only the most blatant example. (This bill also gave us the swindle known as Enron.)


Considering the Source: Goldman Sachs

Some useful information about Goldman Sachs and it's current and former employees:

In 2004, with Hank Paulson at the helm, Goldman Sachs successfully petitioned the Bush SEC for a massive increase in the amount of leverage allowed the Big 5 Investment banks as well as a "self-regulatory" regime .

Some people would say that this is coincidence:

(Graph from: The Financial Crisis: An Inside View )

Of course, some people would be wrong.

Goldman Sachs themselves went on to issue some notorious highly polished turds known as GSAMP. From the same article:

Goldman said it made money in the third quarter by shorting an index of mortgage-backed securities.

Similarly, Yves notes here:

In 2007, the firm was unapologetic about its decision to short the subprime market (a big, perhaps the big reason for its departure from industry profit declines) even though it was also still trading and selling those products from its institutional desks.

In the old days, when we had a real SEC, that was called fraud.

So, Hank Paulson becomes Treasury Sec'y.

Then AIG blows up, due to writing CDS on all the crappy MBS, most notably Goldman's. Hank, along with Lloyd Blankfien - current CEO of Goldman - puts together a "bailout". Hank appoints Edward Liddy to CEO of the AIG. Edward Liddy's previous job: member of the BOD of Goldman Sachs. What a coincidence.

In an even more amazing coincidence, AIG turns out to be nothing more than a conduit for taxpayer dollars flowing to Investment Banks - and according to the graphic here, Goldman Sachs is the biggest cumulative beneficiary! What an amazing coincidence!

But that wasn't all Hank was up to - he's modern multi-tasking guy!

Again from "The Financial Crisis: An Inside View" we find:

The options that turned into the TARP were written down in an initial form at the Treasury in March of 2008—to buy assets, insure them, inject capital into financial institutions, or to massively expand federally guaranteed mortgage refinance programs in order to improve asset performance from the bottom up.

But whare was all that work when everything exploded in late 2008? Congress was presented with a 3 page "bill" that gave Hank Paulson sole discretion, with no review or recourse, to spend $700 Billion as he saw fit.


Update: This discussion is incomplete without at least mentioning how Goldman Sachs ripped the world off by orchestrating the 2008 bubble in oil speculation.

So, when Carl complains that I've only looked at the source of the magic report, rather than its ideas, I respond:

"
I am not expected to take as reasonable a paper by NAMBLA on the regulation of pedophiles.

I am not expected to take as reasonable a paper by the Nazi party on the regulation of anti-semitism.

For all the same reasons, and to the same degree, I will not take as reasonable a paper by Goldman Sachs on the regulation of 'financial services'.
"



P.S.:
In comments to an earlier post, Carl writes:

"Of the Wall Street investment banks, Goldman Sachs has survived with its reputation enhanced."

This is long after after the information came out about Goldman shorting the same products it was selling. All the blogs I read knew at the time - prior to the Lehman and AIG implosions - that Goldman, along with all the other Ibanks, plus Citi, were a disaster waiting to happen.

Note to Carl: The word "reputation" does not mean what you think it means.
.

Graphic of the Day

From The Religion of Peace site:

3 Days Of "Islamic Peace"

the last 3 days listed from the attacks list at Religion of Peace:

Date	Country	City	Killed	Injured	Description
2009.05.20	Afghanistan	Kabul	2	0	Two Americans are murdered in a Mujahideen bombing.
2009.05.20	Iraq	Baghdad	35	72	Sunni bomber take out thirty-five Shias with a car bomb near a packed restaurant.
2009.05.20	Somalia	Mogadishu	3	0	A 6-year-old child sleeping in his home is among three civilains murdered in an Islamic attack.
2009.05.20	Thailand	Pattani	2	0	Two elderly women are shot off their motorbike, then set on fire by Muslim militants.
2009.05.19	Thailand	Pattani	2	0	Islamists ambush and kill two rangers.
2009.05.19	Iraq	Taji	2	5	Terrorists kill two Iraqis with a roadside bomb.
2009.05.19	Thailand	Yala	1	0	Three Mujahideen murder an elementary school teacher.
2009.05.18	Afghanistan	Kandahar	1	0	A Taliban machine-gun attack leaves one person dead.
2009.05.18	Philippines	Basilan	1	0	The beheaded body of a 61-year-old Christian farmer is found following his abduction by Islamic militants.
2009.05.18	Thailand	Narathiwat	1	0	A 39-year-old civilian is gunned down by Muslim terrorists while on his way to play soccer.
2009.05.18	Pakistan	Mohmand	2	0	Two hostages held by the Tehrik-e-Taliban are executed and left by a roadside.

New Blog in Blog Roll

Adding GoldmanSachs666.com to blog roll.

That blog is run by investment advisor Mike Morgan. See Barry Ritholtz here for more information.
.

Still More Pirates to Kill

Our Navy did a fabluous job today. The right men with the right training and the right gear can do miraculous things, and the rescue of Captain Richard Phillips, along with the execution orf the swine holding him, are all good things.

But the bigger question is: Why are the crews of these boats trying to fight off pirates, who have AK-47s, using waterhoses?

Because some dipshit CEO listens to logic such as this:

Calls for an armed presence on ships, however, may be misguided. The IUMI [International Union of Marine Insurance] said that placing "private security squads on board merchant ships, whether they are armed or unarmed, might be regarded as an effective deterrent by some ship owners, but on the other hand it might only aggravate the situation.

"Such action could also create considerable problems for marine underwriters and P&I clubs and lead to a legal minefield," the IUMI added.

News reports confirm that, fearing "escalation", shippers prefer to allow the piracy to take place and write off the ransoms paid as part of the cost of business.

This is classic CEO reasoning: the bottomline is more important than the safety and lives of human beings. In the 70s they would not spend $11 per car to stop the Pinto from inccinerating it's passengers; today they force their workers to sail unarmed in the pirate-ridden waters off Somalia, or plunder the Treasuries of the world with their toxic securities and bought-and-paid-for government cronies. We must be rid of those who think that their bottom lines are more important than our lives.

Why I'm Not in the Stock Market, Part 2

At 5:06, Cramer:

What's important when you're in the hedge fund mode is not to do anything remotely truthful.

Un-fucking-believable, from beginning to end.

Obama is earning this Depression

From a post by joe shmoe, Commenter at the Calculated Risk blog:

The Fed and Treasury are playing a shell game with the corpse of AIG, so as to avoid naming the counterpartiesties. The bail-out is to save the system or Europe, they claim, and because the counter-parties would be stigmatized they cannot be named.

Here is the way re-frame the issue and get out of the trap: By not naming individual major counterparties, the Fed and Treasury are stigmatizing the system itself as weak, and thus making Europe and the US into the targets to avoid rather than just a few big companies.

Bottom line: We're all stigmatized now.

Frankly, I had hoped, against hope, that Obama would somehow overcome the innate corruption of the system.

This has not been the case. He has brought onboard the same scumbag deregulators (Summers) and insiders (Geithner) that got us here, and he is continuing the Bush/Paulson practice of bailing out the Banksters. On this path, we are doomed.

I laughed like hell when morons like Hannity and his ilk started talking about the "Obama crash" right after the election - but I am no longer laughing. Obama is doing nothing about the root problem - over-leveraged, toxic banks tied together by CDS tripwires - and is instead spending us into oblivion.

Someday soon our creditors will start perceiving risk in our Treasuries; the yields they demand to roll our debt will increase - and it will be game over. The cost of servicing our debt will destroy us.

Yes, Deficits DO Matter

From Bloomberg:

Treasuries Fall on Speculation U.S. to Increase Citigroup Stake

Anybody who's ever accumulated debt on credit cards, which then increased their interest rates by large amounts, knows this situation. Lots of debt at high interest rates means that just paying the interest off becomes a significant part of of expences, slowing the day when principal can be paid and draining funds from other activities. (I know - Iused to be stupid about my credit cards until about 5 years ago.)

So, the world looks on as we move in the direction of $15 Trillion in debt, and wonders if we can really pay it off. That increases doubt and the world wants more yield, lowering prices. At some point, this can become a vicious cycle, where the demand for higher yield raises the doubts, increasing the demand for higher yield.


So far, the effect appear small - but the possibilities are clear.

We are staring into the abyss - and it is staring back, hungrily.

Barry Ritholtz Explains Stimulus

Barry Ritholtz has the best explanation I've seen so far:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. No, they are borrowing it from China. Your children are expected to repay the Chinese.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China ?
A. Shut up.

After a long list of things you shouldn't buy, because they come form other countries, he concludes:

You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, beer (domestic only), or tattoos, since those are the only businesses still in the US.

Of course, since the tax cuts are done over the course of the tax year, it will be somewhere between $13 and $18 a week. Don't spend it all in one place!


Strangely enough, even though I earn less that the $250,000 that Obama claimed, (during the campaign), as the top end of the middle-class, I won't be getting any of this. (Yes, in a way that's good news, but still.)

From debate on C-SPAN, I understand the stimpack will triple DOE's budget, so I really should use the American talent for re-invention and "re-invent" myself as an Energy Expert Consultant of some sort.

This Atrocity Brought to You by The War On Drugs

Mayor and wife terrorized, dogs killed over weed PLANTED BY THE SWAT TEAM.

It doesn't get much worse than this. Local thugs, properly "annointed" as cops, committing the worst imaginable abuses of due process and individual rights. Not to stop terrorism. Not to stop musrder, rape, battery or any other violent crime. No, this is done ostensibly to prevent the hideous crime of people burning a weed NOT approved by the powers that be, rather than one that is.

No real problem, except they got the wrong people, after framing them, assulting them, killing their dogs - and not even so much as an apology.

Prior to the assault on the Calvo family last July 29, narcotics investigators had discovered that local drug dealers had been shipping drug-laden packages to the addresses of innocent people and then intercepting the packages before the residents picked them up. In mimicry of that tactic, drug investigators deposited a package on the Calvo family's front step, and then sent in a SWAT team to collect it.

Aside from eveything else, this doesn't even make sense. If the modus operandi of the actual "bad guys" is to send the drugs to people who are not involved and in fact don't receive the drugs, why send drugs to somebody and go after them? Where is there even an excuse for logic here? These "drug investigators" are STUPID.

But they are also unrestrained and unacquainted with the 4th amendment.

Prince George's County Police officials later maintained that the forcible entry – the use of a battering ram to break down the door, followed by the cuffing of Calvo and his mother-in-law, Georgia – was "justified" because Georgia let out a scream when she saw masked, heavily armed men scurrying across the front lawn.

Apparently, being terrified when confronted by state thugs employing terrorist tactics justifies the use of those tactics. In a variation on that rationale, police officials insisted that killing the dogs was the proper course of action because the labs "engaged" the SWAT team by barking at them.

There's no evidence that either dog bit or otherwise harmed or threatened the police; in fact, one of them was shot from behind, which would make it terribly unlikely that the dog had "engaged" the SWAT team. A thorough inspection of the home turned up only one item worth confiscating: The same box of marijuana the narcotics officers had planted on the Calvo family's doorstep. Nobody involved in ordering or executing the raid has been fired, sanctioned, or punished in any way. Georgia continues to show symptoms of post-traumatic stress disorder. The Calvo family lost their dogs, and had to spend countless hours scrubbing the bloodstains from their home.

And it gets better:

"That guy in there is crazy," one of the stormtroopers complained to Johnson as he emerged from the crime scene (that is, the scene of a crime committed under color of state "authority"). "He says he's the Mayor of Berwyn Heights."

"That is the Mayor of Berwyn Heights," Johnson told the assailant, a member of the Prince George's County police department (which has overlapping jurisdiction with the town police). Johnson quickly contacted Berwyn Heights Police Chief Patrick Murphy to tell him that a SWAT team had just laid waste to the Mayor's home and killed the family's dogs. Glancing around, he couldn't see any evidence of a search warrant. Inquiries about this omission were greeted with the assurance that the document was "en route."

So for a raid planned well in advance, complete with framing evidence, the thugs in the Prince George's County police department couldn't be bothered to have a search warrant.

Then, rather than continuing on his daily rounds, Officer Johnson stayed put, in order to make sure that Mayor Calvo and his mother-in-law weren't mysteriously hurt or killed.

"Not that I don't trust the police," Johnson later commented to the Washington Post. "But I wanted to personally witness what [was] going to happen to my mayor, so if they [the SWAT team] say this guy went for a gun – and he didn't – it's not going to happen on my watch."

Officer Johnson stayed behind to make sure his mayor wasn't murdered by his fellow police officers. [bobn comment: Actually Johnson worked for Berwyn Heights Police, whereas the SWAT Team was from Prince George's County police department - so these weren't really "fellow police officers" to Johnson.] A few days later, long after the raiders failed to find so much as a molecule of evidence to justify their criminal assault on the Calvo home, Chief Murphy publicly expressed exactly the same sentiments. Addressing a rally on behalf of the victims, Murphy pointed out that the SWAT team declined to notify him about the impending raid, which would have permitted the Chief to help them arrange a peaceful, orderly search of the property.

Take away:

1. Drug laws should be abolished, at least up to crack and meth. If the drugs were not illegal, the profit motive would evaporate and whatever violence that accompanies the drug sales and the drug law enforcement would disppear.
   
   
2. Drug Enforcement people are mostly thugs. They should be made to get real jobs that do not involve guns or sharp objects.

The Fallacy of the Fallacy: Post hoc ergo propter hoc

.
This comes up often in arguments with deregulationists. They say: just because we made these 5 or 6 major changes in the financial system and then went into the worst economic crisis since the Great Depression, it does not prove that those changes caused the crisis. The more erudite throw the latin phrase from the post title out. The more bombastic will sputter along the lines of:

You connect vaguely related associations (this happened, then later on, this happened!! See!! See!! Rivers cause beaver dams!!) ... and thus you think that "proves" *a* causes *b*.

Correlation is not causation.

But the phrase Post hoc ergo propter hoc is used for a specific reason: to combat a sometimes erroneous confusion of correlation and cause. Why? Because the mind typically looks for sequences of changes to a system and subsequent changes in the behaviour of that system to be linked - because that is the normal course of events.

There is a reason the mind does this. I am a geek. I work on networks of routers and switches and servers and PCs. These all have configurations that can be changed. And when something "goes wrong" - when a system that previously worked suddenly stops working - the very first question everyone asks (after checking for hardware failures and rebooting Windows machines) is: "What changes have been recently made to the system?". And guess what? In a remarkable number of cases it is a recent, intentional change - with unintended consequences - that caused the problem. Frequently it is the most recent change.

So, in the real world, recent changes to a previously working system are always the first suspect when that system breaks. And for very good reason.

That's how it naturally works in the real world, not in the fantasy worlds of deregulationists - in which fantasy world, you let slip the dogs of greed, by destroying the leashes or intentionally making shitty collars, and then disclaim responsibility when the economy gets mauled.

So we went 60 years from the end of the first Great Depression with no huge financial crises.

Then in 1999 deregulationists passed and signed Gramm-Leach-Bliley, which eliminated Depression-era barriers that separated parts of the financial system from each other. A driving force in the passing of this law was to legitimize the creation of CitiGroup - which is currently being dismantled due to the financial crisis and has been to the public trough twice for more than $45 Billion.

In 2000 deregulationists passed and signed another Phil Gramm abomination that enshrined the wholly unregulated status of Credit Default Swaps (CDS) - clearly a form of insurance that should have been regulated as such. Currently, we apparently cannot allow any large organization to fail, because CDS has turned the the financial system and big parts of the economy into a huge booby-trap of explosives massively interconnected by tripwires of unknown and unknowable CDS lines.

These moves were supported and aided by deregulationists in the Clinton administration, inluding Clinton himself. Billary have long been bought and paid for.

The Greenspan Fed lowered it's Fed Funds rate to historic lows and kept it there for a long time. Alan Greenspan was an arch deregulationist and did nothing to rein in abusive lending practices and other questionable activities. He has since pronounced himself "shocked, I tell you, shocked" at the crisis and conceded that his faith that financial entities would guard shareholder value was misplaced.

In 2001, GW Bush appointed rabidly deregulationist "regulators" throughout his administration. They did the following:

They pre-empted state attempts to regulate predatory lending, and did no regulation of their own. Predatoruy lending went on to new highs.

In 2004, the Bush SEC allowed the big 5 Investment Banks to "self-regulate".

In 2004, the Bush SEC allowed the big 5 Investment Banks to increase their leverage of loans to real equity from roughly 10:1 or 12:1 to as high as 40:1.

(Of those big 5 Investment Banks, none are in the same form they were in prior to the crash. FRB/Treasury had to guarantee $39 Billion of dodgy securities to get JPM to tyake over Bear Stearns and just today BAC came back for $20 Billion more from TARP and guarantees of $118 billion in loans and other assets to complete the takeover of Merrill Lynch.)

The Bush SEC did nothing while the 3 NRSROs (Fitch, Moody, S&P) took money from the issuers of toxic securities, and then rated those toxic securities AAA. These very same toxic securities, now much downgraded after the fact, are at the center of our financial crisis.

(The Bush SEC further proved it's deregulatory mettle by not discovering the Madoff ponzi scheme until Madoff confessed, in spite of multiple detailed warnings.)

Only the self-delusionary can claim that these were not hugely significant changes in a system that previously worked and is now self-destructing. Clearly the changes led to or aggravated the breakdown.

The deregulationists can spout all the latin they want. Commonsense shows that they were wrong and are wrong.
.

Thomas Jefferson is Always Relevant

Courtesy of Wikiquote:

On Banks, Letter to William C. Rives, 1819:

Certainly no nation ever before abandoned to the avarice and jugglings of private individuals to regulate according to their own interests, the quantum of circulating medium for the nation -- to inflate, by deluges of paper, the nominal prices of property, and then to buy up that property at 1s. in the pound, having first withdrawn the floating medium which might endanger a competition in purchase. Yet this is what has been done, and will be done, unless stayed by the protecting hand of the legislature. The evil has been produced by the error of their sanction of this ruinous machinery of banks; and justice, wisdom, duty, all require that they should interpose and arrest it before the schemes of plunder and spoliation desolate the country.

Letter to John Adams (7 November 1819):

We were laboring under a dropsical fulness of circulating medium. Nearly all of it is now called in by the banks, who have the regulation of the safety-valves of our fortunes, and who condense and explode them at their will. Lands in this State cannot now be sold for a year’s rent; and unless our Legislature have wisdom enough to effect a remedy by a gradual diminution only of the medium, there will be a general revolution of property in this state.

Sounds like Jefferson (and colonial bankers) knew all about property bubbles!


And, one of my all time favorites:

Letter to George Logan (November 12, 1816):

I hope we shall take warning from the example [of England] and crush in it's [sic] birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws our country.

Deregulation Damned Again

The Madoff scandal is yet another manifestation of the deregulationist foolishness which reached it's peak in the Bush administration, but has been ongoing since Reagan.

The SEC is the case study in this, as it's complete failure - in fact, refusal - to regulate is behind some of the most egregious problems we face. This piece summarizes the longer piece here, describing how the Bush appointees undermined the Agency.

SEC chief Cox is seen here lamenting SEC failure to catch Bernie Madoff with multiple warnings.

Cox was previous seen here and here lamenting that "voluntary self regulation" of large investment banks doesn't work. Oh, quelle surprise!

The guy Bush appointed before Cox presided over SEC approval of the insane idea that, instead of being limited to 12:1 leverage, Investment Banks should be allowed up to 40:1 leverage. Goldman Sachs, then led by the theiving Hank Paulson, now Secretary of Treasury and Kleptocracy, headed the charge requesting that rules change.

We also have the CDS mess - once upon a time, it was possible to let a company fail but now, Credit Default Swaps intertwine everything in a gigantic booby-trap. The totally unregulated nature of CDS was enshrined in law written by worthless fuck Phil Gramm and signed by Clinton, a man so bought and paid for by the financil indistry that he lobbied for and signed Gramm-Leach-Bliley as well, giving us the (recently bailed) Citigroup.

So wat do the deregulationist do, now that they are surrounded by the smouldering ruins of the financial world that they caused?

Some of them act like a 2-year old, standing in a puddle of of his own urine, but pointing at the family dog: "The CRA did it." No amount of facts differentiating between CRA and subprime will dissuade them.

Some use the brilliantly circular logic that the SEC, after being systematically gutted, couldn't catch Madoff, therefore regulation doesn't work; or they blame the GSE for lowering loan standards, ignoring suggestions that to google the phrases "yield spread premium" and "conforming loans" would actually provide factual information about what really went on during the run-up of the bubble.

None of them ever sit back and say, "Oh, we got what we wished for and it turned to shit, so maybe we were wrong". Nope, can't have that. Big business must be allowed to carry on as usual - with the occasional $7 Trillion loan/gift from Treasury and FRB, as needed.

QOTD (sort of)

More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.

- Woody Allen, Side Effects, 1980


This came to mind while reading comments at Calculated Risk. It's getting hard to tell the comments from a survivalist's blog - all talk of where to buy gold or silver, how to raise food, etc.

Why I'm Not in the Stock Market

(Click for larger image - as if that would help)

Cognitive Dissonance, writ large. Anybody who can explain this to me (without resorting to the voodoo nonsense of "Technical Analysis") - please do.