Matt Taibbi Responds to Jake DeSantis' Resignation Letter

AIG Financial Products mamanger, Jake DeSantis wrote a public resignation letter to AIG Chairman Edward Liddy, over the "retention bonus" flap. I blogged about the original letter here. Matt Taibbi doesn't buy it:

For a guy like this, his worth as a human being is wrapped up in buying a bag of beans for $10 and selling it for $11. He states this like it's a law of nature: he was a good equities-and-commodities trader, therefore he should make a lot of money.

Only a person with a habitually overinflated sense of self-worth could think he deserves a $700,000 retention bonus, even if it has to be paid by taxpayers, when in reality no one "deserves" that much money. It may be that some people do get paid that much, but most people who make that much money have enough sense to realize their cushy lifestyles are an accident of fate, of birth, of class, not something that is "supported" by some unwritten natural law of compensation.

Hey Jake, it's not like you were curing cancer. You were a f*cking commodities trader. Thanks to a completely insane, horribly skewed set of societal values that puts a premium on greed and severely undervalues selflessness, communal spirit and intellectualism -- values that make millionaires out of people like you and leave teachers and nurses, the people who raise your kids and clean your parents' bedpans, comparatively penniless -- you made a lot of money.

Good for you. Consider yourself lucky. But your company went belly-up and broke, almost certainly thanks in part to you, and now you don't get your bonus.

So be a man and deal with it. The rest of us do, when we get bad breaks, and we've had a lot more of them than you. And stop whining. Jesus Christ.

Geithner Plan is Fatally Flawed Pt. 4

Great dissection by an Carolyn Betts, an RTC veteran:

If non-performing assets are to be sold to private investors, those private investors will only pay the best possible price if they have access to reliable data upon which to base their bids. I talked to a senior partner in a DC-based law firm who knows everything there is to know about what goes on in Washington having to do with mortgages. He said he is unaware of any significant efforts to hire government contractors to undertake the type of loan due diligence, review, data collection and valuation that would have to be done to conduct sales of the “TARP” assets that have been talked about since the fall of last year and earlier.

I talked to a national legal temp firm and asked whether there was any work available in toxic asset review. The recruiter said that her firm had expected to see a lot of that type of work coming down the pike, but there is nothing of that type out there so far. By all accounts, government regulators like FDIC and SEC are short of funds, and FDIC is hiring a lot of bank examiners. If you go on USAJobs and look for job openings with FDIC and the Commodity Futures Trading Commission, there are few or no openings for experts in valuing or otherwise dealing with non-performing loans.

We have been talking about the bursting of the housing bubble for over a year now, and there seems to be no one taking any initiative in categorizing, stress-testing, quantifying, defining, analyzing, valuing or otherwise collecting information to define the problem. And if any of this is going on secretly and behind closed doors in Washington, then shame on them. Real estate is all local. And if we don’t know what the problem is, any proposed solution will fail.

The plan is a sham. The only people with any incentive to buy distressed assets of unknown value are the banks themselves, especially when for 6% down they can get billions of Dollars of bad loans off their books, at taxpayer's expense.

It Sounds So Purdy, in the Queen's English, As He's Telling You to go F*ck Yourself!

Daniel Hannan, conservative MP, lets Gordon Brown have it, in public:



Of course, I would not agree with Mr. Hannan that the private sector is always productive, as the last few months have clearly shown, or that you can't spend you way our of a recession. You clearly can, but it's dangerous when you have to add to an already massive debt in order to do so. You risk debasing your currency, which has already happened in the case of the Pound. That's the same state the US is in - it's hard to believe that the UK is even worse off than us. Anyway, the clip's gone viral on YouTube., and you can read Mr. Hannan's blog here.

Look At My Slow-Mo Pecs

Under The Bridge - Literal Video Version

Under The Bridge: Literal Video Version - watch more funny videos

The Other Side of the Coin

Interesting letter sent to the New York Times by a disappointed AIGFP manager:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

More Change You Can Stick in Your Crack Pipe and Smoke it! Pt. 2

From Counterpunch, a devastating critique of Obama's business as usual:

I was ready to add Michelle Obama’s Spring Equinox planting of a Kitchen Garden at the White House to the positive change list – an idea I fully support. But, then Alexander Cockburn immediately pointed out the idiocy of advocating fresh, home-grown vegetables while appointing a Monsanto whore as Secretary of Agriculture.

The appointment of former Iowa governor tom Vilsack, the first 2008 presidential primary contender to withdraw (and then go on to support Hilary Clinton) represents no change at all from the pattern of appointing Agriculture Secretaries from a pool of former farm state administrators – every one tied to the Genetically Modified food giants.

[snip]

Vilsack, Geithner, Emmanuel et al., at least got their jobs. Even the inept Janet Napolitano now heads up Fatherland, er Homeland Security. What about the rest of President Obama’s appointments?

Retired four-star Marine General Anthony C. Zinni, former Imperial commander in the Middle East and a fierce critic of the original Iraq Invasion plan, was promised the job as Ambassador to Iraq in late January. He even met with Secretary of State Clinton and she promised the job. VP Joe Biden, a guy who’s “I’m smarter than you” hubris is in the same league with Geithner and Summers, sent his congrats.

The general, who had the audacity to call for the resignation of Secretary of Defense Donald Rumsfeld back in the run-up to the invasion, was ultimately bounced from consideration. The out-spoken general, not one to go down without a fight, wrote in an e-mail “As a sorry offer to placate me, they offered ambassador to Saudi. I told them to stick it where the sun don’t shine.”

Charles Freeman was ousted as candidate to head the National Intelligence Council. The bleating from some of the braver Dems (read: non-office holders or ones from safe Districts) is that Freeman was another victim of the always-odious Israel Lobby. True enough. Yet, a quick examination shows that Freeman must not have been vetted. He was already under investigation by the Office of National Intelligence’s Inspector General due to his unsavory financial ties to China and Iran.

Freeman had been serving on the International Advisory Board of CNOOC, China’s state-owned oil company. During the election, the Obama Campaign made noise about Charlie Black, a senior McCain advisor. The lobbyist Black held CNOOC as one of his clients, which led to condemnations from the Obama Campaign that "many of his (McCain’s) top advisors lobbied for companies (CNOOC) doing business with Iran or otherwise have a vested interest in Iran."

Yet, while Freeman sat on the advisory board just last year, CNOOC was given sanctions by the US Treasury Department due to its involvement with drug trafficking and worker abuse in Burma.

At the same time that Freeman was cut loose, we found out that Obama’s aptly-named “Urban Czar” nominee Adolfo Carrion accepted free home remodeling from architects and contractors while he served as Bronx borough president. Once again, it’s hard to see how he was vetted, given the issue surfaced as far back as November 2006.

Really Bleak!

Not surprising, given the 0% family savings rate until late last year, but it's still jolting to see the statisctics in print. From Dr. Housing Bubble:

MarketWatch has an article looking at the fact that many Americans are one or two paychecks away from financial ruin:

“A MetLife study released last week found that 50% of Americans said they have only a one-month cushion — roughly two paychecks — or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs.

And it’s not just low-income earners who would find themselves financially challenged. Twenty-nine percent of those making $100,000 or more a year said they would have trouble paying the bills after more than a month of unemployment.

Meanwhile, more than four in 10 respondents told pollsters in a recent Pew Research Center study that job-related issues were the nation’s most important economic problem.

“Since October, mentions of other major economic issues have declined, as the public is increasingly focused on the job situation,” according to the Pew study.

Since July, the study noted, there was been a striking spike in the numbers of families making $100,000 or more who said it was difficult to find local jobs — 73% compared with 40% eight months ago.”

Read the above carefully. 1 in 2 Americans are 2 paychecks away from massive financial trouble. 1 in 4 would be on the financial edge after 2 weeks only. These are fully employed people. This is what I talked about in the silent depression that many are facing. If you look at the 8.1 percent headline unemployment number things don’t look so bad. But when you dig deeper into the data, you realize something is amiss. In fact, the study above highlights what many are feeling. Things are much worse than we are being led to believe. Why else would the Fed be printing money to the tune of trillions of dollars? You will also see in the survey that those with relatively good incomes are also worried about the economy. Over 1 in 4 with incomes of $100,000 said they would have trouble paying their bills after one-month of unemployment. How can that be you say? Well think about the bubble homes here in California. Say you bought a $500,000 home in California and make $100,000. You went no money down on some toxic mortgage that is now recasting. What does your balance sheet look like?

Monthly Net Pay: $6,022 (Married with no kids)

PITI: $3,000 to $3,500 depending on interest rate

Let us assume each person makes $50,000 a year. What if one person loses their job? That is it. You are now in the negative with only your PITI! What about your car payment? Food? Health insurance? Utility bills? You get the picture. And now that we know the bigger picture of the California employment situation, you can see why prices will now be falling because of more historical measures like the health of the economy instead of low interest rates.

Let us take a quick glance at the current situation:

February 2009 California employment data:

116,000 jobs lost in month (biggest number in 19 years)

1,950,000 million unemployed (up 824,000 from 1 year ago)

768,762 collecting unemployment insurance (up from 480,504 from 1 year ago)

You tell me how this is good for the housing market? The government through bailouts, fiscal stimulus, monetary programs, and every other imaginable bailout has committed over $9 trillion to the cause. You know how many $50,000 a year jobs we can buy with that for one year? 180,000,000. Even with the $1.2 trillion committed by the Fed with the TALF and buying treasuries to lower the interest rate, we could have literally bought 24,000,000 jobs at $50,000 for one year. We could have put everyone back to work for the price of making mortgages go back down to 4% and giving Wall Street another crony capitalist present. Money well spent right?

Matt Taibbi on the Financial Crisis

For once he's not making fun of Thomas Friedman:

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Geithner Plan is Fatally Flawed Pt. 3

The G Spot:

And, like Paul Krugman, I despair not merely because of the continuing A.I.G. follies, or the ongoing bailout debacle. I despair because, despite everything we now know, and despite the depth of rage that has been expressed from Americans of every conceivable type and ideology, the Obama administration seems determined to go forward with basically the same shitty bank rescue plan that the Bush administration tried, and failed, to foist upon us. It basically amounts to taking piles of money of earned by ordinary working Americans and forking it over by the shovelful to many of the most greedy, out-of-control, and dangerous corporate assholes in our nation.

Obama was this country's one great hope, but now I see all too clearly the potential that this administration could soon be going down in flames. Universal health care, the Employee Free Choice Act, an energy bill, court appointments -- all of that could be fading away in a puff of smoke, all too soon.

And it's all because Timmeh, and Larry, and most important of all, Barack -- have minds that have been warped by corporate propaganda, or souls that have been corrupted by power, or spirits that, for whatever reason, are pathetically timid -- and thus are unable to do the right thing. And not merely the right thing, but the only reasonable thing. Which is, of course, to tell the corporate elites to go fuck themselves, and start nationalizing the banks ASAP.

I pray that I am wrong. But the administration is rapidly heading in a very dangerous direction, and there's not a lot of time to change course. As of now at least, as Atrios says, it certainly looks as if all this is going to end very badly indeed.

Geithner Plan is Fatally Flawed Pt. 2

Animal Spirits' Bleak View:

The markets for toxic assets are frozen because they’re waiting for their bailout. The commercial banks couldn’t afford to mark their toxic assets down or sell them. Now the feds are going to provide for the banks to get somewhat higher than “market value” prices with their non-recourse leverage, but as Rolfe Winkler points out, who else without access to the funny money will be able to afford to pay the same prices? This newly liquid market could calcify quickly. Thus, the feds will have to pump up all the markets for the next several years to help the hedge funds find suckers to sell this stuff to. Lots of luck. The current market prices are probably entirely rational, looking ahead to the tsunami of rate resets and probable defaults over the next twenty-four months.

This is financial fascism, perpetrated by the New York and Washington financial oligarchy centered on Goldman Sachs. If history rhymes, as these folks bankrupt the country and send the vast majority of Americans into heavily taxed wage-slave immiseration, with no sense of control whatsoever over their country’s government, the oligarchs will be looking for a war to send the youth of America off to fight and die in. Look for that in about ten years. But they may get themselves a revolution instead.

We now know that Barack Obama is no Franklin Roosevelt.

Geithner Plan is Fatally Flawed Pt. 1

Karl Denninger believes the potential for fraud is a design feature, not a flaw:

Let's say that I am a bank ("financial institution") with $100 billion in "toxic assets". I have them on my balance sheet at 80 cents on the dollar. The market has them marked at 30 cents. We do not know what the held-to-maturity performance will be, since that requires knowing the future, although for the moment let's assume that they are cash-flowing at the present time.

What I (the bank) do know, however, is that if I sell them at 30 cents I take a monstrous loss - perhaps enough to force me under Tier Capital limits and thus render me subject to an FDIC enforcement action. I therefore will not sell for 30 cents so long as I have any belief whatsoever that the cash flow - or any government subsidy - will exceed that value.

If I, as a "financial institution" can participate as a bidder in these auctions I can foist off my loss onto the taxpayer. Here is how I can rig the game so as to avoid an otherwise-inevitable loss:

• I become a "bidder" and "bid" on my own assets at 75 cents.
• I am providing 5 or 10% of the money. The rest is covered by Treasury, The Fed and the FDIC via guaranteed bond issuance.
• The loan, ex my contribution, is non-recourse. That is, I can lose 5 or 10% of the total portfolio purchased, but nothing more.

Now the "assets" (a passel of CDOs?) turn out to be worthless. I lose 5% of $75 billion, or $3.75 billion that I put up, plus the other nickel on the original mark, but that's all.

The taxpayer gets hosed for the remaining $71.25 billion dollars.

This can and will be done if the "sellers" of these assets are allowed to bid either directly or indirectly as it provides a means for banks to intentionally dump bad assets at a certain loss that is much smaller than their expected realized loss over time, shifting the rest of the loss to the taxpayer.

This program has the potential to shift literally $500 billion or more in losses onto the taxpayer, not through the operation of "bad luck" but rather through what amounts to a bid rigging operation.

The Smart People Do Not Like The Geithner Plan

Paul Krugman:

The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Ives Smith:

The New York Times seems to have the inside skinny on the emerging private public partnership abortion program. And it appears to be consistent with (low) expectations: a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for crappy paper.

Kinda Like Alien vs. Predator

From Karl Denninger's blog, The Market Ticker:

This promises to get amusing; two headlines:

"Countrywide sues AIG unit over its failure to cover loan losses"

and

"AIG Sues Countrywide for Misrepresenting Mortgages"

You can't make stuff like this up.

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AIG Chupa!

Nice, technical article by "A Credit Trader" about how AIG screwed the pooch:

The broad outlines of the story are the following. As part of an effort to expand its insurance underwriting business, AIG (more precisely, London-based AIG Financial Products) began writing protection on supersenior (senior to AAA) ABS (Asset-Backed Securities) CDOs (Collateralized Debt Obligations). By the time lax underwriting standards led AIG to get out of this business in 2005, it had sold some $560bn of protection.

By 2007 spreads had widened enough that counterparties started to demand that AIG post collateral on the trades, which by mid 2008 totaled over $16bn. Following its first and second quarterly losses of $5.3bn and $7.8bn, AIG, under pressure, adjusted the valuation methodology for its CDO portfolio (word at the time was the company was not mark-to-marking the trades) - leading to a further $8bn writedown. On September 15th - the Monday following the Lehman default, AIG’s rating was cut, effectively guaranteeing a bankruptcy of the company. Concernerned about the effect on world markets, the government stepped in with a bailout.

After some technical analysis of AIG's risk management, he concludes that AIG's insurance was worthless, and asks:

Did the banks realize the value of its protection held against AIG was zero? Of course they did - they aren’t as dumb as the media suggests. The reason they continued to pay the full market CDS offer (rather than a much lower level due to AIG’s massive wrong-wayness) to AIG was because they considered it a cost that allowed them to continue originating CDOs. If they could not offload super-senior risk to someone, their originating desks would be effectively shut down.

So, while the trading desks continued to buy super-senior protection from AIG, the risk management desks, realizing that the protection was effectively worthless, bought protection on AIG itself from the street and clients in large size. In fact, I would imagine the size they needed to buy was too large and they likely ended up buying puts on the AIG stock or just shorting outright. Let’s hope the Fed unwinds of AIG’s trades took into account the huge gains these banks took on the AIG hedges.

Good stuff!