There is a continuing discussion between myself and John going on, in the comments of the Old Man's post "Physics [is less than] Theology". It's mostly a rant between know-nothings about the meaning of life, and all that. But if you're into that kind of thing, click here. If you're a real masochist, you might even subject yourself to participating in the conversation.
On the other hand, if you are a sadist you might be interested in this:
Waterboarding produced false leads; Abu Zubaida didn't know much
And concerned about this:
CIA use of contract workers, black sites for interrogations banned
Thank you Obama for reclaiming our principles and our sanity.
Apr 11, 2009
Apr 5, 2009
INRE: " burning capitalism;who lit the fire?"
I'll try to respond a little more briefly than the treatise presented by Freyguy on "Capitalism Burning". He's only in his first year of the Phd program, and I doubt the physics department will accept "Capitalism" as thesis material, but it's certainly long enough and the viewpoint original enough to be counted as a thesis.
The grad student brings out one of his favorite whipping boys, Fox News, and accuses them of blaming Fannie and Freddie for the whole financial meltdown. Regardless of what Fox Newa says or doesn't say, I can state what I ascertain based on facts, and why I believe the significant contribution to the global financial meltdown of the Fannie and Freddie collapse is so important and instructive.
First, it is important to understand how big a role the overheated U.S. housing market and the irresponsible lending to it, played in the financial meltdown. Bools will be written about this, but I'll be as brief as possible, and let the readers do some of their own research. When the government seized Fannie and Freddie they had over $5 trillion of mortgages...more than half of the bloated biggest mortgage market in the world. At that time, the current Treasury Secretary Paulson said " Fannie Mae and Freddie Mac are so large and so interwoven in our financial system, that a failure of either of them would cause great turmoil in our financial markets here at home and around the world." (Sunday broadcast news) "They (Fannie and Fredie) guarantee or own roughly half of all the $12 trillion U.S. mortgage market and this figure has been steadily increasing as other lenders either failed or reduced their exposue to a falling market." "Almost all U.S. mortgage lenders, from huge financial institutions like Citigroup to small local banks, rely on Fannie Mae and Freddie Mac." BBC 7 Sept., 2008.
Further, large amounts of this massive mortgage debt portfolio was rolled up into packages named "Collateralized Debt Obligations (CDOs) and sold as securities by banks. These also collapsed with the housing market collapse. "The banking industry will be forced to take hundreds of billions of dollars of further writedowns on mortgage backed securities after Merrill Lynch sold $30.6 billion of CDOs for only 22% of face value." " Sean Egan of Egan Jones called this sale a watershed moment, with implications that would trigger huge additional writedowns on CDOs worldwide. This sends a loud and clear signal that the issue with CDOs is not liquidity in the market, but problems with the value of the underlying assets (mortgages)." (Times of London July 30, 2008). "A large proportion of synthetic CDOs reference Fannie Mae and Freddie Mac." (Forbes Sept. 2008).
Wow!...Trillions of dollars of mortgages held by two insolvent GSEs (Government Sponsored Enterprises)...Hundreds of Billions of dollars of mortgage related writedowns and additional hundreds of billions of dollars writeoffs on CDOs, of which a "large proportion reference Fannie Mae and Freddie Mac". Sounds like a pretty big part of the problem to me (and Congress seems to be fine with paying their executives $210 million in bonuses for this colossal failure).
I wish to make three points in response to Freyguy's post. (None of them have to do with the now standard liberal response to any criticism of current policy: "Oh yeah, but Bush started it, and the war in Iraq, and besides Europe didn't like Bush".)
1) The government is an incredibly poor manager of business, banking and the economy (no matter which party is in power) and should endeavor to do as little as possible in these areas. The government is poor in these areas for only two major reasons: the lack of skill (i.e. trainig and experience) and motivation(i.e. political vs. financial). However, I agree with the government having an important rol;e in regulating business, banking and the economy, as well as having the key role in monetary policy. The examples of this are too numerous to list, but Social security, Medicare, the aforementioned Fannie Mae, the postal service are good for starters (all bankrupt). And Fannie Mae is an excellent example of both business incompetence and political motivation superceding financial prudence. It is well documented and a matter of public record that Fannie Mae was directed by the government to increase the issuance of mortgages to people who were unlikely to be able to pay them, in the interests of increasing home ownership for constituent groups. (I'm not blaming the people who took these mortgages or saying it was a good or bad thing...simply that it was a financially imprudent and risky thing that was politically motivated).
2) The Grad student, liberals and some conservatives, really misunderstand government regulation of business and banking. It is done largely by...Congress...the legislative branch (remember?...the branch that makes laws)..not the president, or the executive branch. Guess who oversaw and held hearings to review regulations regarding Fannie and Freddie as long ago as 2003? That's right...the Congress. The heads of the relevant committtes were (as they are today) Senator Dodd and Barney Frank. Yes, Republicans were for deregulation of banks years ago, but the Congress had to pass the legislation on those changes. People...if you're angry...be angry at the lifetime job, family business, ruling elite in your CONGRESS!
3)I agree with the Grad student that there are serious problems created by the "coziness" of the financial industry and the government. But I struggle to understand how direct control of the financial institutions by the government somehow makes that relationship less "cozy" (seems to me it just went from "cozy" to "intimate".By the way...anybody want to guess who the top two alltime high presidential candidate recipients of wall street dollars were? (Hint: they're both in the present administration). My solutions? (A)Businesses and banks who fail, should...fail. (B)Government and Financial industry "coziness" would be significantly helped with term limits. (C)All campaign donations must be made anonymously.
The grad student brings out one of his favorite whipping boys, Fox News, and accuses them of blaming Fannie and Freddie for the whole financial meltdown. Regardless of what Fox Newa says or doesn't say, I can state what I ascertain based on facts, and why I believe the significant contribution to the global financial meltdown of the Fannie and Freddie collapse is so important and instructive.
First, it is important to understand how big a role the overheated U.S. housing market and the irresponsible lending to it, played in the financial meltdown. Bools will be written about this, but I'll be as brief as possible, and let the readers do some of their own research. When the government seized Fannie and Freddie they had over $5 trillion of mortgages...more than half of the bloated biggest mortgage market in the world. At that time, the current Treasury Secretary Paulson said " Fannie Mae and Freddie Mac are so large and so interwoven in our financial system, that a failure of either of them would cause great turmoil in our financial markets here at home and around the world." (Sunday broadcast news) "They (Fannie and Fredie) guarantee or own roughly half of all the $12 trillion U.S. mortgage market and this figure has been steadily increasing as other lenders either failed or reduced their exposue to a falling market." "Almost all U.S. mortgage lenders, from huge financial institutions like Citigroup to small local banks, rely on Fannie Mae and Freddie Mac." BBC 7 Sept., 2008.
Further, large amounts of this massive mortgage debt portfolio was rolled up into packages named "Collateralized Debt Obligations (CDOs) and sold as securities by banks. These also collapsed with the housing market collapse. "The banking industry will be forced to take hundreds of billions of dollars of further writedowns on mortgage backed securities after Merrill Lynch sold $30.6 billion of CDOs for only 22% of face value." " Sean Egan of Egan Jones called this sale a watershed moment, with implications that would trigger huge additional writedowns on CDOs worldwide. This sends a loud and clear signal that the issue with CDOs is not liquidity in the market, but problems with the value of the underlying assets (mortgages)." (Times of London July 30, 2008). "A large proportion of synthetic CDOs reference Fannie Mae and Freddie Mac." (Forbes Sept. 2008).
Wow!...Trillions of dollars of mortgages held by two insolvent GSEs (Government Sponsored Enterprises)...Hundreds of Billions of dollars of mortgage related writedowns and additional hundreds of billions of dollars writeoffs on CDOs, of which a "large proportion reference Fannie Mae and Freddie Mac". Sounds like a pretty big part of the problem to me (and Congress seems to be fine with paying their executives $210 million in bonuses for this colossal failure).
I wish to make three points in response to Freyguy's post. (None of them have to do with the now standard liberal response to any criticism of current policy: "Oh yeah, but Bush started it, and the war in Iraq, and besides Europe didn't like Bush".)
1) The government is an incredibly poor manager of business, banking and the economy (no matter which party is in power) and should endeavor to do as little as possible in these areas. The government is poor in these areas for only two major reasons: the lack of skill (i.e. trainig and experience) and motivation(i.e. political vs. financial). However, I agree with the government having an important rol;e in regulating business, banking and the economy, as well as having the key role in monetary policy. The examples of this are too numerous to list, but Social security, Medicare, the aforementioned Fannie Mae, the postal service are good for starters (all bankrupt). And Fannie Mae is an excellent example of both business incompetence and political motivation superceding financial prudence. It is well documented and a matter of public record that Fannie Mae was directed by the government to increase the issuance of mortgages to people who were unlikely to be able to pay them, in the interests of increasing home ownership for constituent groups. (I'm not blaming the people who took these mortgages or saying it was a good or bad thing...simply that it was a financially imprudent and risky thing that was politically motivated).
2) The Grad student, liberals and some conservatives, really misunderstand government regulation of business and banking. It is done largely by...Congress...the legislative branch (remember?...the branch that makes laws)..not the president, or the executive branch. Guess who oversaw and held hearings to review regulations regarding Fannie and Freddie as long ago as 2003? That's right...the Congress. The heads of the relevant committtes were (as they are today) Senator Dodd and Barney Frank. Yes, Republicans were for deregulation of banks years ago, but the Congress had to pass the legislation on those changes. People...if you're angry...be angry at the lifetime job, family business, ruling elite in your CONGRESS!
3)I agree with the Grad student that there are serious problems created by the "coziness" of the financial industry and the government. But I struggle to understand how direct control of the financial institutions by the government somehow makes that relationship less "cozy" (seems to me it just went from "cozy" to "intimate".By the way...anybody want to guess who the top two alltime high presidential candidate recipients of wall street dollars were? (Hint: they're both in the present administration). My solutions? (A)Businesses and banks who fail, should...fail. (B)Government and Financial industry "coziness" would be significantly helped with term limits. (C)All campaign donations must be made anonymously.
Apr 2, 2009
How to put out the fire
By the way the Atlantic Monthly article "The Quiet Coup" is enormously enlightening (according to Business Week). The author is Simon Johnson, professor at MIT's Sloan School of Management and former chief economist at the IMF. Briefly, he argues that the U.S. financial crisis is similar to the crises experienced by emerging markets. In every case, the problem is "private-public partnership", i.e. crony capitalism. According to Johnson, there is a solution...read about it here.
Our economy may be burning, but who lit the fire?
Turn on Fox News, listen to Rush Limbaugh, and you might occasionally get the impression that two companies--Freddie and Fannie--caused the worldwide financial meltdown. It had nothing to do with Citigroup, Wachovia, Washington Mutual, Chase, Merrill Lynch, Morgan Stanley, armies of hedge fund managers and their Ponzi schemes, etc.--it all comes down to Freddie and Fannie, and the interference in private capital by government. It was this defilement which so angered the God of Free Markets and brought about a recession and global financial crisis. The suggestion that poor, lazy masses of people--especially minorities--had some hand in it is not far off.
I know that's not the Old Man's argument. But it is a common conception that has to be got out of the way.
The Old Man does argue in his latest post that the media is dropping the ball. However, it seems to me that much of the media has been very informative--especially the business news.
According to what I have learned from Business Week, the WSJ, the Business Review, and the Financial Times, issues like Freddie, Fannie, and the housing bubble contributed to but did not cause the current worldwide financial meltdown. In fact the current financial bailouts are just the most recent manifestation of a recurring trend over the past few decades that privatizes profits and socializes risk. (Remember S&L?) There are lively debates amongst the experts which I cannot pretend to resolve; however, a strong majority of bankers at the IMF, bank CEOs, regulators, chiefs at the World Bank and Nobel-prize winning economists are saying that there are fundamental problems with our finance and banking system. These problems have to do with business ethics, turning a blind eye to Ponzi schemes like Madoff's, the "too big to fail" problem (which can combine with Ponzi schemes in catastrophic ways), lack of regulation and oversight and systemic risk. The problem is not a bloated, socialist government, it's a government that appoints self-interested bankers and consultants to top positions, and gets elected based on who has a bigger pile of campaign money. In fact one former IMF banker argues that a financial oligarchy has seized the U.S. economy and says most bank CEOs (but not the top five) agree with him.
If you follow the links above, you'll see the business background of my sources. I stress this, so I won't be misunderstood as somehow being anti-business. In fact if you believe in free markets you should definitely be alarmed by financial oligarchies and the control of government by big businesses. I think old-fashioned conservatives like trust-busting Teddy Roosevelt would share this alarm.
There is also a lively debate on what to do now, how to free up credit to avoid total catastrophe. This is not a debate between capitalism vs. socialism. This is a debate businessmen and economists are having amongst themselves on what short-term measures to take in order to save our economy. The Old Man is on one side, arguing that large companies should be allowed to fail, and that stimulus will only increase the national debt. A modest majority seem to be on the other side, arguing that without large public investment and short term government intervention credit will freeze, jobs will be lost and the public debt will be even worse in the long run. Both seem like plausible, consistent positions to me.
What is not plausible or consistent is to argue that the current level of spending and government meddling is unprecedented, that it marks the beginning of authoritarian federal control, or that it is the end of private wealth in this country. The Bush administration rounds people up and holds them without trial for 8 years, spies on our citizens without warrants; yet suddenly our Constitution is in crisis because executives at AIG had some of their federal-bailout bonuses taken away? Please.
Let's talk about "spending". The running costs of our fiasco in Iraq are $12 billion/month (up from 8 in 2003) and $16 billion/month in Afghanistan. (You remember Iraq--that country we were forced to conquer in order to confiscate non-existent WMD and topple the world's sole horrible dictator; and Afghanistan, the one we invaded in order to kill that bearded man who keeps issuing videotapes). Based on conservative estimates by a Nobel-prize winner and former chief economist at the World Bank, the total cost of the Iraq war to the American taxpayer comes to $3 trillion. This is more than all the recent bailouts, stimulus and money-printing combined. Where were fiscal conservatives hiding, month after month, for the past six years? Why weren't they demanding an end to the Bush tax cuts and foreign loans, which deferred the costs of Iraq to the next generation? I won't even go into the social costs. And how about the $500 billion we spend each year on the Defense Department? It is time we asked ourselves why we are the only country on Earth that needs to have BOTH a thermonuclear arsenal capable of destroying the planet, AND conventional forces many times more powerful than the rest of the world's armies combined. Talk about "big government".
Contrast all that spending with the recent $800 billion stimulus package. Here is a handy breakdown on allocations (courtesy Financial Times). The money is being used to upgrade fire departments and health clinics. It's going to big cities for food stamps. It's going to states and schools, unemployment, student loans, tax breaks, construction of highways, needed improvements and construction on federal buildings, the National Science Foundation, and so on. This is not like the utterly wasteful spending on Iraq. This is investment in our country, for once.
Let's talk about the conservative governors. According to the WSJ, South Carolina Gov. Mark Sanford, as well as darlings of the GOP Gov. Sarah Palin (Alaska) and Bobby Jindal (Louisiana), have all made comical shows of protesting some of the federal stimulus money--while accepting most of it. Gov. Sanford accepted more than $2.8 billion in federal stimulus. Now he may refuse to accept an additional $700 million, because there are strings attached. Apparently taxpayers in New York, California, and other states believe the money they give to S. Carolina for education should be used for education. Go figure.
Meanwhile in S. Carolina, where unemployment has reached 11% and pupil spending is 43rd in the nation, conservative residents understand the political game their governor is playing:
I know that's not the Old Man's argument. But it is a common conception that has to be got out of the way.
The Old Man does argue in his latest post that the media is dropping the ball. However, it seems to me that much of the media has been very informative--especially the business news.
According to what I have learned from Business Week, the WSJ, the Business Review, and the Financial Times, issues like Freddie, Fannie, and the housing bubble contributed to but did not cause the current worldwide financial meltdown. In fact the current financial bailouts are just the most recent manifestation of a recurring trend over the past few decades that privatizes profits and socializes risk. (Remember S&L?) There are lively debates amongst the experts which I cannot pretend to resolve; however, a strong majority of bankers at the IMF, bank CEOs, regulators, chiefs at the World Bank and Nobel-prize winning economists are saying that there are fundamental problems with our finance and banking system. These problems have to do with business ethics, turning a blind eye to Ponzi schemes like Madoff's, the "too big to fail" problem (which can combine with Ponzi schemes in catastrophic ways), lack of regulation and oversight and systemic risk. The problem is not a bloated, socialist government, it's a government that appoints self-interested bankers and consultants to top positions, and gets elected based on who has a bigger pile of campaign money. In fact one former IMF banker argues that a financial oligarchy has seized the U.S. economy and says most bank CEOs (but not the top five) agree with him.
If you follow the links above, you'll see the business background of my sources. I stress this, so I won't be misunderstood as somehow being anti-business. In fact if you believe in free markets you should definitely be alarmed by financial oligarchies and the control of government by big businesses. I think old-fashioned conservatives like trust-busting Teddy Roosevelt would share this alarm.
There is also a lively debate on what to do now, how to free up credit to avoid total catastrophe. This is not a debate between capitalism vs. socialism. This is a debate businessmen and economists are having amongst themselves on what short-term measures to take in order to save our economy. The Old Man is on one side, arguing that large companies should be allowed to fail, and that stimulus will only increase the national debt. A modest majority seem to be on the other side, arguing that without large public investment and short term government intervention credit will freeze, jobs will be lost and the public debt will be even worse in the long run. Both seem like plausible, consistent positions to me.
What is not plausible or consistent is to argue that the current level of spending and government meddling is unprecedented, that it marks the beginning of authoritarian federal control, or that it is the end of private wealth in this country. The Bush administration rounds people up and holds them without trial for 8 years, spies on our citizens without warrants; yet suddenly our Constitution is in crisis because executives at AIG had some of their federal-bailout bonuses taken away? Please.
Let's talk about "spending". The running costs of our fiasco in Iraq are $12 billion/month (up from 8 in 2003) and $16 billion/month in Afghanistan. (You remember Iraq--that country we were forced to conquer in order to confiscate non-existent WMD and topple the world's sole horrible dictator; and Afghanistan, the one we invaded in order to kill that bearded man who keeps issuing videotapes). Based on conservative estimates by a Nobel-prize winner and former chief economist at the World Bank, the total cost of the Iraq war to the American taxpayer comes to $3 trillion. This is more than all the recent bailouts, stimulus and money-printing combined. Where were fiscal conservatives hiding, month after month, for the past six years? Why weren't they demanding an end to the Bush tax cuts and foreign loans, which deferred the costs of Iraq to the next generation? I won't even go into the social costs. And how about the $500 billion we spend each year on the Defense Department? It is time we asked ourselves why we are the only country on Earth that needs to have BOTH a thermonuclear arsenal capable of destroying the planet, AND conventional forces many times more powerful than the rest of the world's armies combined. Talk about "big government".
Contrast all that spending with the recent $800 billion stimulus package. Here is a handy breakdown on allocations (courtesy Financial Times). The money is being used to upgrade fire departments and health clinics. It's going to big cities for food stamps. It's going to states and schools, unemployment, student loans, tax breaks, construction of highways, needed improvements and construction on federal buildings, the National Science Foundation, and so on. This is not like the utterly wasteful spending on Iraq. This is investment in our country, for once.
Let's talk about the conservative governors. According to the WSJ, South Carolina Gov. Mark Sanford, as well as darlings of the GOP Gov. Sarah Palin (Alaska) and Bobby Jindal (Louisiana), have all made comical shows of protesting some of the federal stimulus money--while accepting most of it. Gov. Sanford accepted more than $2.8 billion in federal stimulus. Now he may refuse to accept an additional $700 million, because there are strings attached. Apparently taxpayers in New York, California, and other states believe the money they give to S. Carolina for education should be used for education. Go figure.
Meanwhile in S. Carolina, where unemployment has reached 11% and pupil spending is 43rd in the nation, conservative residents understand the political game their governor is playing:
"I'm real disappointed in the governor that he's doing what he's doing for political reasons, apparently," said Lexington County Sheriff James Metts, a Republican who echoed the rising indignation among the governor's core base of conservative voters. "We have programs that are being cut, school teachers being cut, jobs being lost by the thousand across the state."The same sad story is being played out in a few other states with Republican governors, like Texas and Louisiana. Not to worry: the Obama administration recently announced that state governors, not legislatures, can control the money after all, thus averting those governors' possible rejection of stimulus money. Low-income conservatives in southern and midwestern states can thank Obama later.
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