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You could do worse than spend an hour listening to the hour-long NPR piece "The Giant Pool of Money" on the subprime crisis. Extremely well done, with lots of interesting details.
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So President Bunnypants is doing a live broadcast this evening on the economy that he wrecked. Gosh. On the other hand, glory awaits for a congressman or senator with balls - all they need to do is stand up after Bush's speech and say "Sshh! Grownups are working!"
anthonybaxter: (Default)
Best writeup I've seen so far (albeit with a definite partisan bias).

No, it wasn't the fault of the 1970's era Community Reinvestment Act

It also wasn't just Freddie and Fannie

As mentioned, Phil Gramm deserves a fair whack of the blame. But so do the ratings agencies and the SEC.

Finally, if you're feeling any confidence at all in the Bush administration's ability to deal with the current situation, I'd point again to D-Squared's classic post from 2003:

... it does inspire in me the desire for a competition; can anyone, particularly the rather more Bush-friendly recent arrivals to the board, give me one single example of something with the following three characteristics:

  1. It is a policy initiative of the current Bush administration
  2. It was significant enough in scale that I'd have heard of it (at a pinch, that I should have heard of it)
  3. It wasn't in some important way completely fucked up during the execution.


It's been 5 years since that post, and it's still true.

anthonybaxter: (Default)
Pitchforks and torches moment:

In 2007, Wall Street’s five biggest firms — Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley — paid a record $39 billion in bonuses to themselves.
That’s $10 billion more than the $29 billion loan taxpayers are making to J.P. Morgan to save Bear Stearns.
Those 2007 bonuses were paid even though the shareholders in those firms last year collectively lost about $74 billion in stock declines — their worst year since 2002.


In other news the original idiotic Bush plan of "you give us $700B to give to our friends" looks likely to fail. I'm not convinced the Dodd replacement is a good idea, but it's infinitely better.

It's been hilarious watching the last week or so of McCain's complete EPIC FAIL campaign. From the "huge executive payouts - what about Carly Fiorina's $41M for wrecking HP fail" to the "Fannie and Freddie are evil, that's why my campaign manager was paid $2M to lobby for them, and was still on the books as of last month as a lobbyist", it's been a complete joy for fans of the train wreck.
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I still haven't finished writing the piece I promised last week (busy with work, sorry), but in the meantime, I recommend this brilliant piece of savage satire from Bremner, Bird and Fortune (quicktime format) (and here on youtube). As well as being very funny, it's disturbing accurate and well-researched.
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So I was going to make a cheap shot last night about "No doubt former managing director of Goldman Sachs in Australia, Malcolm Turnbull, will make an effort to bail out his former company" but thought "Nah, cheap shot - he surely wouldn't be so stupid".

I hate it when my cynicism is proven right:

Mr Turnbull wants a bipartisan approach to dealing with the financial crisis, and has suggested a similar plan to that proposed by the US Treasury.

He says local authorities could take on board some of the measures instituted in the US to shore up financial institutions.


I'd be very curious to know if Turnbull still has any financial interests in GS. Of course, last time I looked the Federal Government still hadn't put the MP's Register of Interests online. It's almost like they don't want people to look at it.

update confirmation that it's not online. what a fucking shock.
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Quote of the Day:

"A lot of those people will have to sell their homes, they're going to cut back on the private jets and the vacations. They may even have to take their kids out of private school," said Frank. "It's a total reworking of their lifestyle."

He added that it's going to be no easy task.

"It's going to be very hard psychologically for these people," Frank said. "I talked to one guy who had to give up his private jet recently. And he said of all the trials in his life, giving that up was the hardest thing he's ever done."
anthonybaxter: (Default)
So if you've been following the news at all, you'll have seen reports of the plan to bail out the banks (and, well, everyone else) to the tune of at least US $700B dollars. It's really quite amazing seeing the wide range of people who think this is a terrible, terrible idea. Conservatives, liberals, and libertarians have all looked at this, and it stinks. Here's a few reasons:

1. The proposed legislation is a complete blank cheque for the Treasury to do want they want. It eliminates all potential checks and balances on any actions that the Treasury takes. Does anyone think that giving these clowns $700B worth of play money and no restrictions is a good idea?

2. There is no penalty or constraints on the companies accepting the money. Even something as obvious as putting limits on executive pay at the firms who accept this money is a non-starter, with Paulson going so far as to call that a "poison pill" for the legislation. The proposed plan will allow the idiots at the financial firms to get away with their actions of the last 8 years without penalties. Instead, the US taxpayer will end up eating an enormous shit sandwich. The people in charge of these businesses get to keep up their existing behaviour.

3. The government will end up grossly overpaying for the assets. The problem isn't that no-one wants to buy these toxic assets, it's the the price the market is willing to pay for them isn't very much. If the banks were to accept fair market rates, they'd lose a fortune and probably have to declare bankruptcy. So the only way this plan works is if the Treasury ends up paying over the fair price. And bear in mind that the current market price is by no means as low as these will go - there's a fair way to go before we hit bottom. So the US taxpayer will end up with vast piles of worthless assets on the books. Say goodbye to the US economy.

4. For a counter-example, the Resolution Trust Corporation (set up to repair damage from the Savings and Loan disaster back in the early 90s) only bought assets from failed institutions. They had to fall over first, then the RTC picked up the pieces. A much fairer approach.

5. The plan does absolutely nothing to fix the underlying problem - that is, massive risky game-playing with other people's money by the large financial institutions. No additional regulation or oversight is proposed.

6. There is zero upside for the US taxpayer from this. If the bailout succeeds, and the banks start making huge piles of money again, there is no advantage to the taxpayer. As bad as the AIG bailout was, at least a result of it was that the government ended up owning 80% of AIG. So if AIG recovers, the government can sell those shares and make their money back.

7. The plan does absolutely nothing for anyone but the financial industry. If you're screwed with a bad mortgage, you're still screwed.

Anyway, it's a terrible, terrible plan. If you're a US voter, on Monday you need to be ringing your congress-creatures and saying "NO! Please stop and think about what you're doing".
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So, goddammit, writing my take on this whole disastrous financial shambles is actually requiring research, fuck it all. Research! For a blog post. Pah, it'll never take on. I mean, hell, you can get a gig writing on the opinion pages of pretty much any Murdoch paper without doing the slightest bit of research.

Annnnyway, it's going to take a few days. I hope to give you some good stuff - I can promise you baffling acronyms, terrifyingly large numbers, and villains. Oh, this tale has villains a-plenty. Regrettably for the children, it features vanishingly few people that could be considered the good guys. Turns out that when a lot of money and politics intersect, bad things happen. I know, I know, who could have guessed?

For those who want to read ahead, I'll point you to someone I consider one of the bigger villains. One William Philip "Phil" Gramm, who managed to pass a number of terrible laws in his time as a Republican Senator but in this case we're talking about the Financial Services Modernization Act of 1999. Amongst other things, this repealed the Depression-era rules keeping commercial banks, investment banks and insurance companies separate.

The result of this was that a bunch of banks suddenly got into the game of high-risk, high-return investments. Preventing this was actually the goal of the original fricking Depression-era act, of course, because it's, well, stupid. The banks that have your savings in them are insured by the US government so that you don't lose everything if the bank crashes. So allowing that bank to put your money on what the bank would call "a high risk, high return investment" (but which might as well be called "horse number 7 in race 4 at Flemington on Saturday") is, well, retarded. If the bank's investment pays off, it's mega-bonuses for all involved. If the pony falls at the first corner, well, screw it, the government bails them out, and they get to keep last year's bonus as compensation.

After leaving the Senate, Gramm went on to work for ... go, on, guess. That's right, a huge bank. Working for them, he lobbied successfully to rollback restrictions on predatory mortgage tactics - you know, where you convince someone to borrow more money than they can afford. But hey, don't feel bad for him - he pulled down a cool $750K for that bit of work. I'm sure that helps him sleep at night.

Of course, you'd rightly expect someone like this to keep his head down in the current world of financial turmoil. Which would be why he's advising the McCain campaign on economic issues, and god help us, as potential future Treasury Secretary in a McCain government. (It was in the former role he made his famous recent proclamation that the economy was fine, Americans were just "a nation of whiners".)

As a twofer on the Gramm front, his wife, Wendy Gramm, is also a bit of an all rounder, riding the happy merry-go-round of intertwined government and corporate jobs. In the 90s, she was on the US government panel that regulated commodities and more esoteric financial toys. While she was there, they exempted something called "energy derivatives" from regulation. This was something that a little company called Enron was mad keen for. (Her husband later helped out there, too, with the infamous "Enron Loophole"). After leaving that government job she moved to a position on the board of - Alright, who just yelled out Enron? Did you peek ahead at the ending? Shame on you. Yes, that's right, she ended up on the Enron board. We all know how that ended up, don't we. A triumph for the argument of reducing government regulation.

Oh, and lest you think oh, look, another Republican scandal (albeit without hookers, secretive gay sex, or secretive underage gay sex - so a bit unusual), I should point out that it was Clinton who signed these bits of legislation. Round of applause for the Big Dog, there.

Finally, as a note for the future - that note above about the Enron Loophole? That's by far not the worst thing in that piece of legislation. But we'll come back to that, later.

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