Economic Meltdown

SEC Scrambles For Relevance Via Goldman

Henry Blodget (yes, that Henry of the you’re-so-fired-for-a-tech-bubble-scam) is now a cited blogger on business matters. He speculates that the SEC surprise, unannounced suit against Goldman was timed and framed to obscure a scathing internal SEC review of its failure to act or investigate documented ponzi schemes going back to 1997. Speculative. But such craven, self-serving actions are a commonplace in D.C.

Reuters doesn’t go that far but also declares the SEC is using Goldman. They note clumsy efforts to scramble after the meltdown and pursue firms have been swatted down by courts and judges. Some judicial dismissals of SEC’s after-the-act ham fisted enforcement are scathing.

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Pundits intone that SEC’s Goldman suit will bolster significantly Dodd’s the toothless and greatly watered down ‘financial reform’ bill. Republicans didn’t get the memo and have better focus group research. There’s always a tension in cynical D.C. between doing something or doing just enough to keep an issue alive for the next campaign. In our current meme environment, it’s even more stark. Actual achievement in any legislation is irrelevant to the perception in hyper-real twit-like consumptions. Thus, the astoundingly weak Dodd bill is already being amped up like a HiWatt stack as radical, massive ‘reform.’

Of all the people forced to chow down on that thin gruel, how bitter it must taste to the Left [sic], Progressives and Others Who Know Better. Again.

Chatting With One Of Leon’s – A Vignette

We’ve analyzed here together the Agency’s [sic] diminished ethos, culture and identity across a decades long, tortiously slow march to ever deeper mediocrity. We spoke today with one of the New Breed, very cutters upper, forward leaning. (Yes, the only Ivy he’s seen is in his back yard). Nice, a good barbecue guest, supremely confident of ‘victory’. Still very much un self aware – who says without irony ‘Where I go blood follows?’

The usual issues are glaring – no foreign language skills except fragments ala airport signs leading to the head. There’s a clear ‘I belong to a club’ vibe, but unfortunately it’s Sams Club. The mindset confirms same old, same old – ‘victory’ is *obvious* – have we not taken down Al Qaeda’s No.3 at least 35 times? And their top military so-and-so 67 times? As Tim the Sorcerer said to the Monty Python entourage staring at a rabbit ‘Looook at the boooooones!’

One has to concede one thing. Leon is much better at PR than Hayden, Goss, or Mr. Slam Dunk.

Does Anyone Really Care? Admit It.

This week, aside from the horror and hope in Haiti and Conan O’Brien’s defenstration, a little soon to be forgotten group called the Financial Crisis Inquiry Commission held ‘hearings’. Eliot Spitzer et al. assure us that a lackluster dog and pony show with Wall Street CEOs smiling like Cheshire Cats is a good thing.

FCIC should use this first public hearing for two quiet purposes. The primary goal should be to develop information. The subsidiary goal is to put the CEOs on record as to what went catastrophically wrong, which will allow the FCIC to judge their candor as the facts are developed. The FCIC, and the nation, need the utmost candor. The CEOs must testify under oath, as is the norm now for witnesses testifying before the House Financial Services Committee. Precisely because it is the norm it does not impute any wrongdoing to any witness.

Spitzer helpfully provided 10 questions. Krugman was unimpressed.

Well, if you were hoping for a Perry Mason moment — a scene in which the witness blurts out: “Yes! I admit it! I did it! And I’m glad!” — the hearing was disappointing. What you got, instead, was witnesses blurting out: “Yes! I admit it! I’m clueless!”

O.K., not in so many words. But the bankers’ testimony showed a stunning failure, even now, to grasp the nature and extent of the current crisis. And that’s important: It tells us that as Congress and the administration try to reform the financial system, they should ignore advice coming from the supposed wise men of Wall Street, who have no wisdom to offer.

Quelle suprise. Do Spitzer and company really expect Wall Street CEOs to be forthcoming beyond a gee whiz, who knew? Everything Krugman rants about — millions of families damaged or destroyed, mass unemployment, lives devastated. And no one really cares. As long as they have a job. They have health insurance. The Dow is back above 10,000. They’re still in their McMansions driving their Land Rover two blocks to the Food Lion or Safeway. And their unemployed friends are let go and become invisible unless they have the bad form to ask for help.

That’s why Barney Frank’s limp financial reform bill is toothless. He’s got no mojo and everyone knows it. The public is still angry. Polls tell us so. But they’re focused on practical things. Sliding to the ranks of the permanent 10% unemployed is something that can be avoided like the H1N1 virus. Naturally the usual forms will be obeyed. The financial lobbysists (many whom the Stiftung dealt with and back in the day crushed once in a gloriously satisfying victory on House suspension) will scream and holler. We predict they will roll back Frank’s lame bill even further in the Senate. But in truth considering the scale of carnage since 2008 Frank doesn’t even slap their wrists. All this talk about Geithner’s head on a stick re AIG is so, er, bush league. How cheaply the masses are appeased.

Who here takes Obama’s stamping of his feet over a ‘tax’ as an actionable threat? Doesn’t he need to find out what Max Baucus and Oympia Snowe think? Given what he’s done to date from Afghanistan to State Secrets to torture to health insurance, do we really want Obama getting involved at all?

Running Into A Brick Wall, Audaciously (Revised)

Many have predicted that Obama’s fiscal recklessness squandered finite, borrowed time and money. Sprinkled across hollow facades. Under this appraisal, Obama deficits, woefully inadequate stimulus, etc. -collectively they shot one of — if not the last — chits of the U.S. financial ‘supremacy’ meme living off inertia. Regardless, the financial world is all too clear about American pointless profligacy. Exploding debt service is a looming fact. *And* finally China, Japan, Germany and the rest of our creditors are saying no more. You (Obama/U.S.) are cut off. The Chinese have been surprisingly blunt lately. Their traditional indirect warnings disappeared in a cloud of Rahm’s vulgarities and the Summers et al. black hole of multi decade incompetence. All that accumulated debt and almost no actual investment in generating wealth creating, hard currency exports.

Doomsayers hit an agitated creative peak last Fall. We still have pollyannas. Green jobs will save entire states like Michgan. We are told that we will see new job growth. In the real world, green tech is already beyond our grasp. Americans at best will assemble products designed and created overseas. That pay might be a dollar or so above minimum wage. Politically it will be marketed as a triumph of American ingenuity. How small the American dream has become. We’ve yet to see a serious non-ideological depiction – from anywhere- of a sustainable U.S. economic policy beyond short term, tactical ‘fixes’.

The ‘Things aren’t so bad’ crowd have one systemic reality in their favor. Financial decision-makers in Frankfurt, Riyadh, Beijing, Tokyo, etc. are conservative and loathe to rock the boat. Even now. Better many think to discipline an irresponsible and clueless U.S. one knows than for Beijing and Tokyo etc. have the onus for building a new architecture while not shooting their own dollar holdings in the process. The problem, however, is that the U.S. economy is moribund, the dollar finished as a reserve currency. (We just don’t see it, yet). So the ‘pretend we can cajole’ game has a lingering but ultimately short life span.

In private councils the question before the world’s central bankers is “How to let the U.S. sink without blowing our own dollar holdings?” One can appreciate the predicament. It’s like the Chinese finger traps with two fingers. They tighten more if one seeks extrication.

The Transition Will Be Shorter Than Expected

Our creditors debate how but their public stance is unmistakeable. Any silver linings in American domestic politics? Fiscal realities a death knell for Neocon enthusiasms re Iran? Perhaps, but some creditors might leverage American debt addiction. Riyadh, for example, worried about the Persians (and keeping Mayo going and American call girls at the ready). In any event, America is no longer steering her own destiny.

This transition period we argue will be shorter than many hope for. We haven’t seen a convincing case for an integrated economic strategy. Pessimists/realists/Pollyannas — for all their self-adorned iconoclasm — largely envision tomorrow as today, only more so around the edges. (If you’ve seen a rigorous plan, please pass along). For example, imagine the IMF dictating austerity measures to the U.S. like it did as our agent of indirect imperial rule in so many cases. Fantastical? What about the obverse? The U.S. uses this transition period to fashion a coordinated economic plan that integrates trade, fiscal, financial, labor polices to promote American domestic development. Which is more far fetched?

Here’s another thought experiment. The Stiftung Library has mint original manufactured currency imposed on Japan by SCAP (Supreme Command Allied Powers (our Shogun, Douglas MacArthur)). The cases are not closely analogous. Military obliteration, Robert Strange McNamara and Curtis LeMay planning the mass murder for wooden Tokyo in low level incendiary bombing raids. The devastation – like Bomber Harris’ war crime against Dresden – was orders of magnitude beyond the 2 atomic weapons. Still, while SCAP’s tenure evolved in a complicated dynamic of Japanese realities, SCAP’s initial ignorance and American domestic politics, we did get the Japanese to print that money.

The Japanese proved cannier in the end. They all but outfoxed and co-opted the initially serenely unaware Americans. Korea in 1950 changed everything anyway. We offer this not as analogy but to shake people out of tomorrow being like today but a little more so rut. From this prostration the Japanese invented the merchantilist model of economic development copied around the world. What will it take for Americans to stop shooting ‘Free Trade’ smack into their veins? We continue to defeat ourselves pissing away trillions on Bedazzlers, Snuggies and McMansions, chasing empty, transitory consumption. The real beneficiaries are the financial engineering Class and the merchantilists.

What would a comprehensive American economic re-development plan look like? That examines the American economy holistically, from an input-output matrix point of view. That can learn the best parts of the Asian spectacular success and create something for our circumstances. Can our political system even debate it? Implement it? The draconian possibilities above may never come to pass. Why not try and think now during this transition period to minimize future surprise? The unexpected shapes history, of course, every day.

It is so fantastical to ask ‘What if?’ At a minimum, surely we can begin designing logos and suitable color graphics for our signature before the solvent at transition’s end. Perhaps in Palin’s peppy motif?

Red Herring


Blue Horseshoe Loves Liberal Fascism

Obama can’t get no relief from those mainstream leftist fascists like Frank Rich. The one-time theater critic and rugby scrum pal of Imus et al. has stumbled accidentally on a scandalizing truth: Obama is all air.

Is it a fair critique? Certainly his pirouette today on Wall Street bolster’s Rich’s case. The speech offered no new policy approaches. As an admonition it can hardly intimidate an industry and state of mind whose bonus levels already equal 2007. After all, they can watch the health care debate as well as anyone. They know it’s unlikely that any financial reform legislation will make it through Congress this year. And second, they know a flincher when they see it. “Blue Horseshoe loves Annacot Steel” is quaint beyond the telling of it.

Goldman And Palin In The Zeitgeist

Hard to argue that Goldman has preternatural luck. Oh, Matt Taibbi and that lot point to personal favors amounting to hundreds of billions due to some ‘old boys network.’

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

Like you wouldn’t help a friend out in a jam?

But Peter Daou is definitely wrong when he blames Palin-mania as distraction for Goldman’s most recent larceny. Daou is pretty bright – when blogs were first rolling out in 2003/04 he twigged onto how the Movement uses institutions, fronts and meme distributors better than almost any Democrat/Progressive. (Compare his insight with a hilarious meeting we had with Reid’s senior staffers (off the record) at about the same time trying to explain the same to them. The looks of incomprehension are still worth a chuckle). Daou got it.

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A Glimmer Of Hope

President Obama’s speech today brought smiles to the Bunker. How nice to remember them again.

Admittedly, he gives er, good speech. And his policies to date are more cautious and Warlord-lite than we secretly hoped for despite our skepticisms during the primary and his appellation of ‘Boy King’. So as a summary of his first nearly 100 days it was not earth shattering by any means.

On style, elocution and intellectual presence, he as usual fires on all cylinders. Not only does he explain yet again the Ur Narrative of our economic collapse in accessible terms, but his own internal comprehension of the concepts deployed is palpable.

What we care about most were some of his ad libs. In one subordinate clause describing a post-recovery America (with a ‘c’ and an ‘a’, mercifully) he noted Americans would have to consume less and work harder at earning export currency. A fleeting meme quickly moved away from. Who knows if it was inserted by committee as an intended ad lib and meaningless in terms of actual presidential commitment. Nonetheless, finally, we are seeing someone in American leadership at least *edge* toward speaking an uncomfortable truth: our standard of living necessarily will be lower and debt service obligations onerous.

One Dream

His description of a post-recovery America restructured away from frivolous financial service ‘industry’ parasitism also welcome here — both from an outcome-determinative point of view (ours), but also for its McCain-speaking-in-Michigan “You know these jobs aren’t coming back” faux pas truthiness truthfulness.

It’s just a speech. And like the bank plan, DoJ in some respects and Gates’ DoD pronouncements, Obama’s execution often proves far less insightful, more tinkering at Warlord margins and cautious than his inspired rhetoric.

A useful barometer still might be how much Ron Insana from CNBC viscerally disliked it all. A future not centered on Wall Street ephemera without financial bubbles is unacceptable. A future with a chastened, reduced and even marginalized Wall Street is beyond his frame of reference. And as Insana and others noted, Administration words come and go often within a 24 hour news cycle.

But maybe Obama really does understand there is no going back to the bubble-fueled, foreign-subsidized binge consumer America standard of living. With all of the corruption, narcissism and corrosive effects it portends for a viable, stable liberal democracy. Even in his green techno utopia, Disney-esque ‘World of Tomorrow’. We could live with tacking to tactical prevailing political winds if he knows that’s a reality polestar to steer by.

How nice it would be to believe . . .

The Bondholders’ Blues

_____From the ‘Live Jive Stiftung Bunker Sessions”_____

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A Covert Wet Kiss For Wall Street

The Administration’s much ballyhooed ‘financial overhaul plan’ is remarkably timid. And internally self-contradictory.



As noted, for all the posturing, Geithner ran from SEC reform, executive compensation and insurance regulation. Sure, the ‘systemic risk’ approach touches large ‘too big to fail’ entities and requires registration by venture capital firms, private equity and hedge funds — although none of the latter are involved in our crisis. The hedge fund inclusion is a memory spasm from Long Term Capital. VCs and LBO firms are just camouflage to cover the inclusion of hedge funds.

A new regulatory regime is a political necessity, of course, if nothing more. Truth be told, many of the existing regulations and regulators and congressional oversight mandarins failed or were bought off. A new system will rise or fall on the same human failings.

What makes the Stiftung wonder if Geithner isn’t just throwing a deliberate air ball is credit default instruments almost routinely include a change of control clause as boilerplate. The credit default swap market is about $86 trillion. Is Geithner suggesting that federal seizure is a viability with cascading automatic defaults? We’ve yet to study the whole document in depth but so far call us underwhelmed.

Starting out with luke warm oat meal before negotiations is a sign of things to come. No wonder Wall Street is happy.

Oh, Newt, Newt.

GINGRICH: We are seeing the biggest power grab by politicians in American history. The idea that they would propose that the treasury could intervene and take over non-bank, non-financial system assets gives them the potential to basically create the equivalent of a dictatorship. […] Look, it absolutely moves it towards a political dictatorship.

The Oval Office Behind The Curtains

You have been talking to the Doctor !  Explain ! Explain !

The immediate granular reactions to Obama’s budget, such as its ‘honesty’, education, EPA, armed forces personnel expansion, tax cuts, etc. are all important. We agree with the Center Left that the stimulus and budget are unlikely to generate the economic growth underpinning the budget’s out year projections. They are not audacious enough.

Geithner’s tepid approach to the banking crisis is probably a more revealing insight into the Administration’s psyche than the budget. He’s an odd pollyanna. His ‘worst case’ scenario of a 3.3% economic decline this year and flat 2010 followed by growth can only be a political prism divorced from economic reality. 2008 Q4’s over 6% decline merely highlights this.

AIG is on the precipice of tripartite tear down. CitiGroup and Bank of America/Merrill Lynch are insolvent as we speak for all practical purposes. Paul Volker correctly observed recently ‘some banks are too big to fail exist.’ The Administration’s expected increased government position in Citi is best seen as a band aid.

The Obama Administration is not nearly as honest as it needs to be. The banking/financial situation is far more important for future national expenditure possibilities than a budget. Which makes Geithner’s dithering on bank capitalization, ‘to nationalize or not dare use that word’ etc. all the more bizarre.

Our macro take despite the stakes is meh. Assuming American historical luck holds and we navigate a soft landing for banks and Obama’s budget is even 20% close to reality we believe American capacity for subsequent austerity to sustain deficit reduction is zero. American debt service obligations will be crippling by any objective standard. If the depression takes hold speed things up.

Sound American strategic foreign policy planning should begin to anticipate the existing and soon to explode ends means gap and adjust accordingly. Obama’s success or failure will only attenuate the timeline a bit.