Publishing 3.1 - Death By Twitter

Blood and horror at SXSW.

AIG Simplified

h/t xkcd

Update: Michel Lewis addresses this very issue.

More Gibberish From Arlen Specter....This Time On AIG Contracts

Once upon a time, when we all lived in the forest, a man we will call Arlen Specter worked as a DA.

Since that time he has traded in this morsel of history, much as Jake Spoon in Lonesome Dove , to establish a wholly undeserved reputation as a legal thinker worthy of some deference. For those who don't recall the inglorious facts, this tendency reached it's apogee when, during the Clinton impeachment trial, Specter voted "Not Proven" as opposed to "not guilty" or "guilty"....an archaic verdict form (sometimes known as; "not guilty, and don't do it again") once prevalent in Scottish law and, to the best of my knowledge, nowhere else. If nothing else, this alone should cement Specter's already well-deserved reputation as tiresome pedant and coward.

Now, normally, I don't trash Specter - I leave that to the long-suffering Republicans. However, this afternoon, I find that he is all over the TV asserting that the AIG retention bonus contracts are not unenforceable . This is not true. This is a lie. Specter knows that it is a lie. Arlen Specter is a liar.

In support of his ludicrous position Specter claims that the contracts are void "as a matter of public policy" and cites to the Restatement Of Contracts to buttress this argument. More specifically, Specter avers that the contracts are void ab initio in the same way a contact for the sale of heroin, for the sale of a human slave, or for the personal service of prostitution would be. Of course, those contracts are void because the subject matter of the hypotyhetical contracts are in and of themselves criminal. Citing "Public Policy" and appealing to the Restatement Of Contracts is lawyerspeak for "I have no statutory or case law in support of my position".

And, in fact, the stimulus and TARP legislation in question specifically allow for these bonus payouts, provided that they accrue to the recipients for services rendered predating the passage of the legislation.

Personally, I am, for the first and hopefully last time in my life, wholly in agreement with Sen. Grassley's recommendation that the AIG crew commit ritual seppuku. But the only thing worse than letting AIG get the money is having our legislature ignore the laws that they themselves are responsible for.

Zero-Sum Revisited

The shrieking of fools like James Glassman and Larry Kudlow temporarily made the whole idea of zero-sum economic games rather unfashionable. Here is a very good article explaining it's continung relevance and why, in reality, it ends up being a little worse than zero-sum. Oh, by the way, this guy actually makes his clients some do-re-mi. Talk about unfashionable.

GOP And Business -The Honeymoon Is Over

Well, I predicted something like this:

he fight over President Barack Obama’s economic recovery plan shined a light on the growing gap between Big Business and the GOP. While House Republicans voted unanimously against the legislation — twice — the vast majority of major business groups lobbied hard for it.

Fala Is Dead And He Ain't Coming Back

Bob Herbert sez:

The U.S. economy cannot work if ordinary men and women cannot find work. Let’s forget for a moment all the ritualized lingo about tax cuts, all the easy but uninformed talk about entitlement reform and all the empty rhetoric about balancing budgets that will never be truly balanced in our lifetimes.

I very much wish Mr. Herbert is right but I fear that he is the one indulging in "ritualized lingo". Entitlements can indeed be reformed and budgets can be balanced....with a vengeance. It is called going broke and, as Robby The Robot said, "it is quite close now".

The recent run of celebrated air disasters have provided very clear illustrations of the difference between a controlled descent (currently known as a miracle)and an uncontrolled descent (currently known as a crash with no survivors). If we don't get very serious -painfully serious - about paying down our debt and, at the very least, radically reforming our medical costs then runaway inflation, a blown dollar, and a generation lost to economic eclipse is guaranteed. These problems are not just Republican talking points.In the event of a total economic collapse the budget will virtually balance itself as all interests meet on the comon ground of want.

I appreciate Herbert's commitment to some form of infrastructure investment....but lets not try to justify it as some sort of stimulative panacea. We just don't have the cash or the line of credit available for a Keynesian stimulus of the magnitude required to make that kind of an impact. Lets not be seduced by some nostalgic WPA fantasy.

Luskin Riots?

Gee, did I say something about a public impulse toward gibbets and guillotines? I go over the top sometimes. don't I? Except that it is a matter of real concern in London. From the Guardian:

Britain's most senior police officer with responsibility for public order raised the spectre of a return of the riots of the 1980s, with people who have lost their jobs, homes or savings becoming "footsoldiers" in a wave of potentially violent mass protests.

Superintendent David Hartshorn, who heads the Metropolitan police's public order branch, told the Guardian that middle-class individuals who would never have considered joining demonstrations may now seek to vent their anger through protests this year.

He said that banks, particularly those that still pay large bonuses despite receiving billions in taxpayer money, had become "viable targets". So too had the headquarters of multinational companies and other financial institutions in the City which are being blamed for the financial crisis.

Luskin, Santelli and the rest of the hoo-hah gang need to wake up to how bad things could get. It may be that we need to worry less about the comparisons to 1929 and more about Jacques Necker and the clueless aristocrats on the eve of The Terror.

Donald Luskin - A Portrait Of Utter Depravity

Just when you thought you had already seen the absolute worst in mendacity, venality and shameless greed that Modern Times have to offer -well, then along comes Donald Luskin to remind us all that the bottomless depths of Man's fallen nature are known only to God.

Brad De Long has long referred to Luskin as "the stupidest man alive", or at least until Luskin's awesome consistency disqualified him from further consideration for the title (only fair to give others a shot), but there is no way in which I could have prepared myself for his bald-faced indignation that the roulette-spinning brokers and Banco-playing bankers who have mortgaged the future of the country should receive anything less than the six million dollar bonuses to which they have become accustomed. Say what you will about the Red Chinese or the Mafia, but at least they have the sound judgment to reward incompetence on this scale with a lead bonus deposited right behind the ear.

In the pomposly titled screed "The Beginning Of The End For Investing" Luskin gibbers

Typically, highly compensated people on Wall Street earn fairly low salaries, but then get large annual bonuses — usually based on performance. Title VII turns that upside down. No more pay for play. It's all about salary now. So if a bank normally pays a superstar trader a nominal salary of $200,000 — and in a home-run year he earns himself a $10 million bonus — the only way to pay him the same total amount is to raise his salary to about $6.6 million. He'd then get that salary even if he did a lousy job in a given year.

And can you imagine the howling from the Congress and the media if we paid huge salaries to these people? There'd really be no choice but to drastically cut back their total compensation.

What superstar traders? The short sellers? Those domestic petroleum speculators sitting on their stock until the price of crude comes roaring back? As hilzoy has pointed out not all that long ago, it certainly wouldn't be the not-so-prescient Mr. Luskin, who continued to blindly march down Main Street beating the boosterism bass drum long after the economy had gone off the proverbial cliff.

Were performance to be rewarded, we would be talking gibbets, guillotines and breaking rocks in the hot sun....not bonuses and bailouts. And I am guessing that this sentiment is shared across the country on a truly bipartisan basis.

P.S. The truly morbid might enjoy (really not the right word) a quick recap of Luskin's delusional and increasingly hysterical prognostications over the months since the collapse of Lehman Bros..

Paul Volcker Takes it Personal

One telling anecdote from a great talk.

One of the saddest days of my life was when my grandson – and he’s a particularly brilliant grandson – went to college. He was good at mathematics. And after he had been at college for a year or two I asked him what he wanted to do when he grew up. He said, “I want to be a financial engineer.” My heart sank. Why was he going to waste his life on this profession?

A year or so ago, my daughter had seen something in the paper, some disparaging remarks I had made about financial engineering. She sent it to my grandson, who normally didn’t communicate with me very much. He sent me an email, “Grandpa, don’t blame it on us! We were just following the orders we were getting from our bosses.” The only thing I could do was send him back an email, “I will not accept the Nuremberg excuse.”

Maybe The GOP Should Run Rick Santelli

This is actually a pretty articulate takedown of the mortgage bailout plan....lots better than most of what one sees coming out of the Republican caucus. The passion doesn't hurt.

The more I see of the bailout stuff the more I fall back to my original position.....let everyone fail. Expand the safety net,if need be. But don't attempt to resuscitate the corpse of the real estate bubble. Recessions and even depressions are a part of capitalism. We wouldn't be suffering from economic pneumonia now if we hadn't been so intent on using cheap credit and easy monetary policy to avoid catching recessionary colds for the past twenty years. Our debt problems will be catastrophic soon, if they aren't already, and will make for much larger structural changes than anything a depression could do.



UPDATE: Unfortunately, K-Lo thinks he has candidate potential too, whcich is pretty irrefutable evidence that this is a really bad idea. Plus, when you listen to Santelli a second time he starts to sound a little more like Howard Beale in Network.

Change You Can Believe In

I always love the apocalyptic visions of James H. Kunstler. Especially when they are as on the money as this one is:

It is hugely ironic that the US automobile industry is collapsing at this very moment, and the ongoing debate about whether to "rescue" it or not is an obvious kabuki theater exercise because this industry is hopeless. It is headed into bankruptcy with one hundred percent certainty. The only thing in question is whether the news of its death will spoil the Christmas of those who draw a paycheck from it, or those whose hopes for an easy retirement are vested in it. But American political-economy being very Santa Claus oriented for recent generations, the gesture will be made. A single leaky little lifeboat will be lowered and the chiefs of the Big Three will be invited to go for a brief little row, and then they will sink, glug, glug, glug, while the rusty old Titanic of the car industry slides diagonally into the deep behind them, against a sickening greenish-orange sunset backdrop of the morbid economy.

Ah Bien.....Et Tu Butte Fucque?

(h/t Sullivan)

It's A Good Question

Mark Kleiman at RBC:

Hank Paulson seems to have decided that the right response to a situation in which cheap credit pushed housing prices way too high compared to either rents or incomes, leading to over-investment in housing and then a fall in housing prices which then put lots of homeowners under water and threatened the solvency of the financial system is ... wait for it ... to offer cheap credit to keep housing prices way too high.

....I usually shy away from conspiracy theories, but just ask yourself: if Paulson were an al-Qaeda sleeper agent tasked with destroying the U.S. economy, is there anything, starting with letting Lehman go down, that he would have done differently?

In my opinion, we have been keeping interest rates to unsustainable, artificially low levels for more than a decade. The fact is that a deep recession followed by a period of slow growth is probably the only medicine that can unwind this disaster. But before we can get well, we have to put the needle down.

"The Gingrich Revolution In Reverse And On Steroids"

In an admirable and ambitious attempt to cement his reputation as a fool and a hack, David Brooks turns up today dreading the free-spending ways of an impending Democratic government. This sudden conversion to deficit-hawk certainly represents a Road To Damascus style epiphany for Mr. Brooks, as prior to this he (and his fellow "national greatness" conservatives) demonstrated a blithe unconcern or even contempt for fiscal discipline.

Many people thought that the last eight years already represented the high-water mark for "the Gingrich revolution in reverse and on steroids". He warns of "big government ahead". Gee, you don't think they'll do anything crazy, like nationalize the banking system, do you?

How Now, Brown Cow?

Toldja So:

When the White House brought out its $700 billion rescue plan two weeks ago, its sheer size was meant to soothe the global financial system, restoring trust and confidence. Three days after the plan was approved, it looks like a pebble tossed into a churning sea.

Black Monday?

Not quite. Not yet. For the week, we are "only" down about ten percent. In the 1987 crash the market lost a little more than twenty-two percent of it's value. However, the Fed boys are surely, and rightfully, concerned by the thought that the Great Crash of '29 was preceeded by a week of almost equally dramatic drops in market value. The Fed's announcement respecting liquidity today is clearly their attempt to rally the Mob, like Richard Whitney's famous walk in 1929. Of course, they probably also remember that Whitney's effort ultimately failed and that he himself eventually became known less as "Wall Street Financier" and more as "model prisoner".

What Would Cassius Do?

Truly gutless testimony today from Richard Fuld, the empty suit responsible for driving Lehman Bros. and a slice of the economy into the proverbial ditch. A few minutes after testifying that he stood ready to accept "full responsibility" for Lehman's utter failure, he refuses, in response to direct questions, to acknowledge that Lehman had either a liquidity problem or was overleveraged. Spare me the b-school rationalization, I beg you sir.

In the glory days of Rome, a disaster on this scale would have required suicide on the part of the malfeasant. Failing this, execution or assasination. In Carthage, they used to crucify their Generals after serious defeats. You want to talk about incentive bonuses? - Carthage had a doozy of a program. Next time you watch one of these wing-tip wearing barnacles bloviating on C-Span, try to visualize one of them screaming his lungs out on a cross-tree....I guarantee a smile.

Speaking Of Surrender....

....John Sullivan has announced that he will support the new version of the Bailout Bill when it comes before the House today.

What has changed? Well, the Bill itself is even worse than it was the first time around. This one is a true Christmas Tree, with presents for many new and different special interests in addition to the banking entities and hedge fund mangers that are the primary beneficiaries.

Since the only remaining reason to vote for a Republican is the fading hope that some of them will not be quite as complicit in expanding the deficit, everyone should be very comfortable voting for Georgiana Oliver in the upcoming election, as she will not be a whit more fiscally irresponsible than Mr. Sullivan as well as being more socially progressive.

Death Of The Music Industry, Part 1,986

Apple threat to close iTunes looms.

Vote Of No Confidence

Had the Republican house members possessed the slightest confidence that McCain's canary of a campaign had a prayer of winning, they would have eaten the bullet and voted this dog through. They don't and they didn't. John McCain is toast.

I didn't like this bill either but, then, I'm a bomb-throwing Demmycrat. This vote represents the permanent loss of the business class for the Republican Party, irrespective of their drool about Capital Gains and over-regulation.