The AIG Gravy Train – It Just Keeps Getting Worse

when the insurers need insuring to insure the economy doesn't go totally belly up, that's what i call insurance

Joe Nocera of the New York Times wrote a great post today which adds more grist to the mill on the price discovery issue relating to AIG’s credit default swaps (CDSs). Not only does the government end up propping up the most destructive derivative behavior around, but it does so while allowing AIG to maintain the confidentiality of their shady transactions.

And guess who that protects? You’re spot on. It shields AIG’s counterparties, banks, investors, and lenders who were looking for a way to ‘insure’ themselves on the quiet while they pigged out at the trough just before the fall. Nocera makes the point that this doesn’t sit well with the President’s call for transparency and he’s right. But it’s yet another example of the contradictions that Obama seems to be displaying. High principle on the one hand and almost Bush-like duplicity with the status-quo on the other. It’s becoming increasingly clear that Tim Geithner is lurching from crisis to crisis just like his predecessor. But the situation is far worse now. Paulson was a stooge and everyone knew it, a placeholder and agent for the Street. Geithner is supposed to know better. But he doesn’t seem to be able to escape the shackles of hide-bound “group-think”. Wasn’t the President supposed to put a stop to this kind of thinking?

AIG. Another $30B? Enough.

Frank Rich’s piece in today’s NYT suggests that a populist backlash against corporate malfeasance and greed could do serious damage to Obama’s agenda, and give the GOP a bridgehead from which to fight back. On the very same day, AIG is apparently to receive another $30bn of taxpayer largesse. This might be the straw that breaks the camel’s back, and for a myriad of reasons both economic and moral.

Firstly, either the government should have let AIG die and backed their Credit Default Swaps, or else let the CDW’s lapse and allow legitimate price discovery for the CDOs on that basis. The CDWs prop up fictitious value at our expense which is exactly what we shouldn’t be doing. Secondly, last week Congress removed billions for education spending. This week it gives that money to AIG? We’re about to try and overhaul the healthcare system. The $150 billion that we’ve committed without accountability to a dead company could have been a useful downpayment on the single biggest drain on the US economy. Is Tim Geithner trying to be Hank Paulson, because his leadership at Treasury shares the same “making it up as he goes along” characteristics.

Obama is getting all squirly on us. First he signs up a centrist cabinet and give progressives like Robert Reich and Howard Dean the cold shoulder. Then he dumps bipartisanship in favor of a progressive budget. And now he gives yet another handout to the street by protecting their crazy CDOs. Who is he? The answer is we still don’t know.

Stimulus Package. The Politics Of Panic.

here's a plan. panic first. solve problems never.

Who came up with the cockamamie idea of the ‘economic stimulus’? The Bushies. During the post Bear-Stearns policy meltdown, when Paulson and his merry band of idiots put together policy on the fly, all we heard was how we needed to stimulate the economy. Well, we did an awful lot of stimulating but we’re in deeper trouble now than we were then.

And yet, Obama, continuing his annoying tendency to shape policy through a Republican prism, is continuing with this absurd “got to rush through the package now before its too late” rubbish. Many of the changes in the package are going to take months or years to be seen but that doesn’t stop him from giving the poor, downtrodden American people hope (remember that word) that this is a quick fix. It isn’t, and by branding it as one, Obama is only setting up problems for himself.

700 Billion is the New $7 billion

a brand new bridge. this one's in france

Things are turned way around when Liberals are agreeing with quirky, flat-tax Steve Forbes, but when called Hank Paulson the “worst Treasury Secretary in living memory” there are few diehard progressives that would disagree.

But old Hank has at least done us one big, big favor. By steamrolling through the TARP at a cost of $700 billion and then doing precisely squat with it, he turned $700 billion into the new $7 billion. Suddenly, with the exception of the bailout for the once mighty now hopeless auto industry, fears of excessive spending seems petty next to the cost of TARP, the Citigroup, AIG, and Fannie and Freddie bailouts. We’re awash in borrowed money, and nobody seems to care. Another day, another dollar, or a hundred billion of them. Whatev.

So when Obama announced his massive public works program (let’s call it the New New Deal or NND) and didn’t even bother to mention a pricetag, the only Cassandra was the ever-predictable American Enterprise Institute. With the economy losing half a million jobs a month, the American people are ready for it. So don’t expect the whining from Club for Growth knuckle-draggers in Congress to be anything more than mumbled griping at worst.

The Fix Is In – Part Two

it's always xmas on wall street

Today, a distinguished board of economists said the country had been in a recession since December ’07, a statement that normally the markets would have discounted, because, yeah, like we knew that. But no, the market’s took a massive swoon, again, giving back all the hard earned gains of the past week’s rally.

Call it rank cynicism, but it just can’t be helped. It’s just too tempting a thought not to consider all this just a tad convenient. Last week the long guys had a party to celebrate a completely predictable new Secretary of the Treasury. This week the toilet beckons because we were told what we already know, and the short guys make a bomb. Coincidence? Perhaps. But if there was collusion between the traders, who after all work either a drink after work or a few desks apart, one could hardly be surprised. After all they’re just trying to make a buck or two with someone else’s money. Right?

I Can’t Take My Eyes Off The Dow…

you're getting sleepy...

The Dow Jones Industrials are widely regarded as a pretty poor indicator of where the overall equity markets stand, let alone the real economy. As one hedge fund manager suggested, “equity markets are a zit next to the bond markets.” And let’s not even mention the vast trillions in the derivative markets which have damaged the global economy so profoundly.

And yet at the end of every radio newscast, on every Yahoo home page, on the ticker on every cable network, thereis the DJI, it’s not so shiny brand dancing around at the whim of some very silly people playing monopoly with other people’s money. It’s going up, it’s going down, it’s barely moved. Blah, blah, blah.

The truth is we’re worshipping a zit.

Obama versus his Cabinet

eahhh. i've seen better.

So what exactly is Obama thinking with his cabinet picks?

Everyone from Joe Lieberman to Pat Buchanan is delighted with Obama’s top job choices. Joe says they’re “perfect”, which suggests Obama is doing something very, very wrong. Pundits are torn. Is Obama a closet centrist who sold us a bill of goods with all that ‘change’ stuff? Or is he a progressive who’s going to browbeat all his experienced Clintonians into doing his bidding.

My guess is the answer is neither. Obama said today that the ‘change’ is going to come from his desk and filter downwards, but that’s easier said than done. If Obama truly is a progressive (and he really needs to be to define this historical economic moment), a more likely outcome is that the cabinet could quickly descend into ideological squabbling as the President talks up real change, and the cabinet talk up real caution. Obama is known as a consensus builder. If the cabinet is moderate, the consensus will be moderate, and real ‘change’, well that will have to wait.

It would certainly help the President’s ‘change scenario’ that at least one of his major cabinet picks was someone, well, new. But there isn’t really one guy in the top team that offers a totally new perspective on anything at all. So far moderation and predictability has been the order of the day, except in the case of HRC for State, which strikes me more as either fear or plain stupidity.

Time will tell, of course. But there’s one word that definitely wouldn’t be used to describe the new cabinet.

And that’s transformative.

The Cannibalism Of Capitalism

feed me

There’s something diabolical about a creature that consumes itself. It seems so profoundly irrational, so utterly insane. We file stuff like that in some ‘unspeakable’ part of our minds.

Except that we live it every single day.

Capitalism is a great system in many ways, but it has a tendency to destroy itself if left unchecked. We’re seeing that all too clearly right now. There are two areas where capitalism is profoundly cannibalistic.