Tuesday, May 26, 2009

Two fuses linked all the nastiest bits of the 2008 Economic Collapse

Seven years before, in 2001, with the genuine concern and hypocritical posturing that followed the Enron collapse, a law was passed in Congress known as Sarbanes-Oxley that required that securities (bonds, stocks, other fiduciary instruments) be valued at current market prices on a corporation's balance sheet. The valuations had to be current; the standard of what is current was made the current day's price. This was to prevent the vastly overstated valuations that had supported Enron, prior to its collapse.

That was the first fuse.

The PBGC - Pension Benefit Guarantee Corporation - is a quasi-government agency, set up to prevent other past scandals. At some point, PBGC required that the securities held by pension plans must be insured by private insurance before PBGC would guarantee the pension plan. The meant that all sorts of bonds had to be insured with companies like AIG. Premiums were paid on even municipal and state bonds, which have extremely low default history as they are guaranteed by tax revenues.

Sounds great - protect pension benefits with insurance . . .by law. This was the second fuse.

The Economic Collapse of 2008 was not every one's fault, but almost. There is plenty of blame to spread around . . .but this is how it happened.

Insurers like AIG faced their own collapse, due to their guarantee of mortgage-backed securities that were rated by the rating agencies from wonderland. When those insurers defaulted, their insurance on an entire range of securities vanished overnight.

By law, the trustees of pension funds across America were required to eliminate that entire range of securities immediately because the securities were uninsured. All kinds of bonds and other securities were dumped on the market for sale at the same time. There were nowhere near enough buyers because all of the guaranteed pension plans were selling simultaneously and were forbidden to hold or buy.

Banks and other financial institutions saw the market prices of their capital reserves (held in securities) fall to near-zero - overnight. Prior to Sarbanes-Oxley, the banks would have held their securities and waited for the market to recover but in 2008 they were required to value their reserves at that day's market prices.

In a single day, pension plans liquidated huge volumes of securities because the law required them to do it and the banks were required to value their capital at the near-zero prices that resulted. Immediately other laws governing bank capitalization - passed to protect depositors - mandated closure and government take-over of the banks. All of this happened together, within 24 hours.

The Economic Collapse of 2008 was a government-mandated financial panic - mandated by the laws and regulations mentioned above.

The Economic Collapse of 2008 had many contributing factors but these two fuses set it off.

These fuses were laid by Congress, with noble intentions, 20/20 hindsight and appalling ignorance. Risk is inherent in life. Risk cannot be eliminated by law; risk can only be hidden and/or displaced.


Friday, May 15, 2009

Arlen Specter and more on Edward Kennedy

I had intended to write a blog on Arlen Specter and then old Arlen proved truth is stranger than fiction.

Arlen worked in Washington once upon a time. He was a Democrat. He was a staff lawyer for the Warren Commission and devised the famous "one bullet theory" of the Kennedy assassination to force the evidence to fit the conclusion that Lee Harvey Oswald acted alone. Whatever the truth was, Arlen was working in the service of baloney.

Arlen was tough-on-crime District Attorney in Philadelphia once upon a time and then was celebrity defense attorney for an peace "activist" turned girl-friend-killer, the Unicorn Killer, Ira Einhorn. Ira jumped bail that had been posted by Seagram's heiress, Barbara Bronfman, and was only brought to justice in 2008.

Then he ran for the Senate. That's another story. The man's karma could scarcely be blacker. He was the big noise in the Clarence Thomas/Anita Hill hearings.

The above was originally intended to show that I can write unpleasant things about Republicans . . .and then the scum jumps the aisle.
~ ~ ~
Now back to the sainted old lion of the Senate. Please don't look at his wife too closely. She works for a great many lobbyists (some would say crooks, gangsters and terrorists) whose seek the old lion's influence and support. Robert Bauer's book on the CIA, See No Evil, documented this. There were recent requests for her to make her tax returns and client list public and these requests were ignored. He's sick. One brother died flying in WWII. Two brothers were assassinated. His father was a gangster. His own life has been in the service of himself. Many lives are messy. Edward Kennedy's life is more messy than most.

Arlen Specter and Edward Kennedy are soul mates.

The Obama Mess really is Bush's Fault

The 2008 election results were the consequence of Bush's terrible mis-management of the 2006 Congressional elections.

If Bush had replaced Rumsfeld the day before the 2006 election, instead of the day after the election, how many voters would have given support to the Republican administration? Across the USA, how many votes went Democratic simply because voters were sick of Rumsfeld?

Ditto for Ashcroft, who was appointed Attorney General as consolation prize because he lost his bid for the Senate in 2000 to a man who had died in an airplane crash during the campaign.

Nationally, how many votes swung Democratic just because Bush and Cheney were so damn smug about themselves?

The Senate swung to Democratic control in 2006 when Richard Allen lost Virginia by 1,500 votes. Could 750 voters have changed their minds if, when confronted with a meaningless media frenzy over the use of a meaningless word, "macaca," that, in North Africa, is a disparagement . . .and Allen's mother admitted that her family had been Jewish in Tunisia generations back and had hidden it by becoming Catholic (without telling her son) . . .and dumbass Allen said, "Gee, I didn't know" where he could have said, "Gee, how about that! Isn't that great and a lesson to us all!"

Rick Santorum lost Pennsylvania for himself and the Republicans by 15,000 votes. That's after ignoring the advice of professionals to campaign on what he had done for Pennsylvania. He preferred to talk about terrorism. And the majority of Pennsylvanians thought that the Democratic candidate was the ex-governor, when the candidate was the ex-governor's son with the same name.

The result was a muddle, 2006-2008, so that voters couldn't distinguish what was Bush's fault and what was Pelosi's and Reid's fault . . .and the Dem's were happy to blame it all on Bush.

This mess is Bush's muddle, in the sense that he set the stage for it in 2006.

Tuesday, May 12, 2009

GM bond holders win by losing?

The Truth About Cars website has an item today on how outstanding credit default swaps off-set $34 billion in debt with a net profit of $2.4 billion. The item states that the CDS losses are insured or off-set by guarantees given by the federal government to the banks who hold them.

My point is that, once government intereferes in financial transactions, those transactions lose their ability to reflect reality. Mistakes are always possible but government interference makes realistic behavior impossible (except by mistake or coincidence).

The link is here: http://www.thetruthaboutcars.com/credit-default-swaps-sink-gm/ .

Saturday, May 2, 2009

The American Gulag . . .Dykes, Drunks and Dick-less Dwarves

One day, in your mail, you find a letter from your local U.S. Attorney. It informs you that you are “a person of interest” in an on-going federal investigation.

What happens next? You find an attorney and pay a retainer of at least $50,000. Federal law forbids your employer (if this involves the employer) from paying your legal fees. You are on your own. Will you have to sell your house?

Quite likely you will lose your job – even if the investigation does not involve your employer – if you hold most kinds of licenses or are bonded. If you apply for work at the FBI, they will ask you, “Have you ever been convicted of a felony?” Good for them. Virtually every other job application you will see in your lifetime will ask you, “Have you ever been arrested? Have you ever been the subject of a federal investigation?”

Also, quite likely, you will never be charged with a crime – i.e., you will never be called before a Grand Jury to explain yourself and defend against indictment. You will never be tried – i.e., given an opportunity to defend yourself or to require the prosecutors to prove your guilt beyond a reasonable doubt.

The U.S. Attorney’s office will never give you a letter releasing you as a “person of interest” – not ever . . .unless you cooperate by incriminating someone else. You have a life to live – perhaps a family to support. Imagine you’re an orthopedic surgeon with a 12-year professional education, a practice that employs 20 people, $3 million in debts and a family; would you? Do you act as an informant? Imagine you’re a single-mother, working as an administrative assistant, who desperately needs the medical insurance from your job; do you make up a story to incriminate your boss? Would you really do that?

This is not the world of Dostoyevsky or Solzhenitsyn. This is America in the 21st Century. You are in The American Gulag with an unknown, uncounted number of other citizens. Estimates of your Gulag companions range in excess of 300,000.

Who are the Dykes, Drunks and Dick-less Dwarves? Those are the federal prosecutors who send you letters and hold your files, thus described by a prisoner of The American Gulag.

For one modest window into the Gulag, look here: