Mar 13 2009

Dead Banks Walking

Kal @ 20:31

Once again I turn to the straight talking folks at The Institutional Risk Analyst, Stress Test Zombies: Not Too Big Too Fail? Tough Tootsies Little Banks!

Apparently, banks that fail the Supervisory Capital Assessment Program stress test will not be broken up as required by law, but instead given more capital at taxpayer expense.

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If you include the subsidy required for the GSEs and AIG, the US Treasury could face a collective funding requirement of $4 trillion through the cycle. Do Ben Bernanke and Tim Geithner really believe that they can sell such a program to the Congress? To put it in perspective, the $250 billion in the Obama Budget for additional TARP funds will not quite cover Citigroup (NYSE:C).

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The way you end the need for public subsidy is by resolving these firms via a restructuring and forcing the bond and equity holders of the bank's public parent company to absorb the cost of marking assets to market. If we establish a hard rule regarding solvency and break up rather than recapitalize zombie firms, then we have started to apply a real solution.

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Fact is, the Sell Side dealers have leveraged the real economy via OTC derivatives to such a degree that bailing out toxic waste sites like AIG, several large Euroland banks and the world of structured finance could cost trillions of dollars. That is the true cost of the crisis. The only issue is whether we recognize it directly, via a public resolution, or hide the costs via public subsidies and future inflation.

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Category: Accounting | Conventional Economics | Economics | Politics

Mar 9 2009

Born Again America - I am my country’s keeper

Kal @ 12:48

BORN AGAIN AMERICAN
By Keith Carradine       

Just a workin’ man without a job
It got shipped off to China via Washington, D.C.
And I know I’m nothin’ special, there are plenty more like me
Just the same
I thought I knew the rules of the game

I stood up for this country that I love
I came back from the desert to a wife and kids to feed
I’m not sayin’ Uncle Sam should give me what I need
My offer stands
I’ll pull my weight you give me half a chance

I went up to a congressman and said to him “you know
Our government is letting people down”
He said he’d need a lot of help to buck the status-quo
I said there was a bunch of us around

I’m a Born Again American, conceived in Liberty
My Bible and the Bill of Rights, my creed’s equality
I’m a Born Again American, my country ‘tis of me
And everyone who shares the dream from sea to shining sea

My brother’s welding chassis at the plant
He’s earning what our granddad did in 1948
While CEOs count bonuses behind the castle gates
How can they see
When all they care about’s the do re mi

It’s getting where there’s nowhere left to turn
Not since the crash of twenty-nine have things been so unfair
So many of our citizens are living in despair
The time has come
To reaffirm that hope’s not just for some

The promise of America’s surrendering to greed
The rule is just look out for number one
But brace yourself ‘cause some of us have sown a different seed
A harvest of the spirit has begun

I’m a Born Again American conceived in liberty
My Bible and The Bill Of Rights
My creed’s equality
A Born Again American, my country ‘tis of me
And everyone who shares the dream from sea to shining sea

It’s clear my country’s soul is on the line
She’s hungering for something that she lost along the way
The principle the framers called upon us to obey
That in this land
The people’s will must have the upper hand

I felt the calling once before and took a sacred vow
And faithful to that vow I have remained
I hear the calling once again, my country needs me now
And to her cause I have been re-ordained

I’m a Born Again American conceived in liberty
My Bible and the Bill Of Rights, all people living free
A Born Again American, my country ‘tis of me
And everyone who shares the dream
From sea to shining sea
And everyone who shares the dream
From sea to shining sea
A M E R I C A

These are the words that you will hear if you go to the Born Again America web site. I like the song and also the call to action.

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Category: Morals | Politics

Mar 8 2009

Derivatives Revisited

Kal @ 19:50

A couple of days ago I posted a piece, Follow the Money  about the overhang of derivatives and said: "By many accounts there are outstanding over 60 trillion dollars in outstanding Credit Default Swaps and other derivatives." I missed the real number by so much it is embarrassing. Today I saw a N.Y. Times article that gives a much clearer picture.

In recent years, a bewildering variety of derivatives have been developed. Two types that have played a central role in the recent turmoil are mortgage-backed securities, whose value depends on the value of the mortgages, which depends on how many of them are being paid off, and credit default swaps, which are in essence a form of insurance policy, and whose value swings with the fiscal health of the transaction or asset it is written to cover.

The derivatives market today is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

The contracts allowed financial services firms and corporations to take more complex risks that they might have otherwise avoided — for example, issuing questionable mortgages or excessive corporate debt. The fact that they can be traded in one sense limited risk but also increased the number of parties exposed when problems emerged.

Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system.

[emphasis mine]

Fortunately, these will not all have to be paid by the taxpayers, both here and abroad. But it seems pretty obvious that it is time for some serious regulation.

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Category: Economics | Politics

Mar 8 2009

Where Taxpayer Dollars Go To Die

Kal @ 19:23

A.I.G., Where Taxpayers’ Dollars Go to Die By GRETCHEN MORGENSON Published: March 7, 2009  - A nice discussion of  why A.I.G. has been so expensive and some thoughts on just how dangerous derivatives (CDS, Credit Default Swaps) are, both to the issuer and to us as the guarantors of last resort.

“DERIVATIVES are dangerous.”

That simple sentence, written by Warren Buffett, begins an enlightening discussion in Berkshire Hathaway’s most recent annual report. Mr. Buffett’s views on derivatives, gleaned from his own unhappy encounters with them, should be required reading for all United States taxpayers.

Why? Because we own almost 80 percent of the American International Group, the giant insurer whose collapse was a direct result of derivatives it sold during the late, great credit boom.

A.I.G. nearly barreled off the cliff last September, when it couldn’t meet its obligations to customers who had bought a version of derivatives called credit default swaps. Such swaps are like insurance policies; bondholders buy them to protect themselves from default on various forms of debt.

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Category: Accounting | Conventional Economics | Economics | Politics

Mar 8 2009

The Great Disruption Is Here

Kal @ 14:27

THOMAS L. FRIEDMAN has an article today that makes a whole lot of sense to me. He calls it The Inflection Is Near? He is talking about what I have called the new - "new world order".

Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.”

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...

We can’t do this anymore.

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Category: Climate Change | Politics | Population | Resource Depletion | Steady-State Economics | Sustainability

Mar 6 2009

Follow The Money

Kal @ 22:28

"Follow the money" was the key to unraveling the Watergate conspiracy. And it seems to be to be good advice for the banking crisis also.

By many accounts there are outstanding over 60 trillion dollars in outstanding Credit Default Swaps and other derivatives. [Update: That number is seriously short. I did a correction post Derivatives Revisited] The US Treasury and Federal Reserve keep pouring money into failing banks and AIG. Where will it stop? Do they intend to pay the full 60 531 trillion dollars?

Yesterday the Federal Reserve Official assured us that the financial system will collapse if the names of the "Counter Parties" to these quasi insurance policies are exposed. I am not so interested in the names as in the classes of counter parties. And I would like to know the total exposure from all of the various insurance companies and banks and anyone else we are bailing out.

It does not seem to much to ask, how much total will we be expected to pay? Big round numbers would do just fine.

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Category: Conventional Economics | Economics | Politics | Recession | Sustainability

Mar 1 2009

Honored To Be Called Liberal

Kal @ 12:33

I did a Google blog search on SolSaves and came up with a hit on "S.O.L. Save Our Labor", on a blog called Ramona's Voices. Not exactly the ego stroke I was looking for. But the blog is pretty interesting. It is written by a woman, a life long liberal, who is even older than I am. She was eight years old when FDR died. So I browsed around her site a bit and found a post I really like. The subject is how Rush and his ilk have turned the word liberal into something insulting. Well, Ramon isn't buying it.

L-B-R-L: Not a Four-Letter Word

I've always been proud to be a Liberal. I've never gone the "Progressive" route, and I never will. I see the word "Progressive" not as the definition of an enlightened liberal, but as a cowardly cop-out.
I don't know where that word started, but I know why it did. The Right Wing has spent years trying to convince anyone who would listen that the Liberals hate America. The Liberals are all that stand in the way of true economic success (Oh, yeah. . .that's right. . .). The Liberals want to hug terrorists, and hug trees, and hug Welfare moms driving Cadillacs. The Liberals want Big Government, a Nanny State, and the abolishment of all signs of Christianity, including slogans on tee shirts saying things like, "Jesus Loves Me, How About You?" (No, I don't love you and I think you look silly, but I'm a Liberal, so. . . .whatever.)
All that hate! All that flak! It's enough to make a wannabee Liberal turn Progressive. Not us True Liberals. We consider the source(s), shake our heads, turn the other cheek, (take that any way you like) and get on with the busy business of being a Liberal in these times.
We have a country to save and there's not much time. We got wimpy for an unconscionable number of years--I admit it--but now we need to work hard to make up for it. I'm not good at numbers, but I know enough to be terrified when I read that over 600,000 people lost their jobs in one month, or that more than 80 million people have health insurance that ranges from inadequate to none, or that home foreclosures doubled last year from those in 2007: From 404,000 in 2007 to 861,000 in 2008.
Those are big, big numbers, signifying abject misery for every single American affected by them. If you've got any Liberal leanings at all, start thinking of those big numbers in terms of real people. Get on the damned bandwagon and do something, for God's sake! Nobody else is going to do it.

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Category: Politics

Mar 1 2009

World Population - How Many Is Too Many

Kal @ 11:13

An old slogan came to my attention recently: "whatever your cause, it's a lost cause without population control". The origins were not clear from the context so I looked it up using Google. There were a whole lot of hits, so perhaps I am the last to hear this.

One hit was in a preview of a book named Population Control that, from the little time I spent with the preview, appears to be a polemic against the idea that there can be too many people. This preview said that "whatever your cause, it's a lost cause without population control" appeared in a series of ads calling attention to the problem.

A more thoughtful piece titled Population: The elephant in the room  that was written by John Feeney appeared in BBC News on 2 February 2009. "Uncontrolled population growth threatens to undermine efforts to save the planet."

Fundamentally, we need to ask what is the greater threat to human welfare: the possibility that humane efforts to address population growth might be abused, or our ongoing failure to act to prevent hundreds of millions, even billions, dying as a result of global ecological collapse?

It's no far fetched possibility. Increasingly, environmental scientists insist we have overshot the Earth's carrying capacity.

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Category: Climate Change | Morals | Politics | Population | Resource Depletion | Sustainability