Tuesday, December 30, 2008

The Year is Ending with a Bust

It might be useful to review why this year's biggest story, and probably the biggest economic story since 1929--the collapse of international financial markets--came to be. Many analysts have singled out the deflation of the US housing bubble created by deregulation and cheap credit policy as the precipitating cause. That is certainly part of the problem, but many international banks and even countries (Iceland) went bust without large exposures to the US real estate market. This is so because banks and financial institutions traded complex derivative securities over the counter as a means of financing operations, and utilized extreme leverage (as much as 30 times capital) to generate profit. Executives utilizing the radical methodologies were rewarded with outsize compensation packages (see below). Even after their institutions went bust, some fat cats are still collecting their bonuses at taxpayers' expense.

The fuse was lit in 2006 when the US housing bubble burst. The financial time bomb exploded in August, 2007 when the financial alchemists realized that the piles of mortgage backed securities were actually worth far less than their mathematical models indicated. Worthless mortgage backed securities are only the beginning of the problem. Credit default swaps normally used to insure against bond defaults were used by speculators to gamble. This derivative market represents $60 trillion in face value, and it is also imploding. Fear induced rigor mortis has set in the credit markets as a result of the sobering realization. Banks do not want to lend to another because no one knows what the securities were really worth, nor are they sure their loans would be repaid. Many banks are left with securities on their books worth less than 50% of their booked value. But because of the extreme leverage employed these banks are exposed to losses of up to 15 times their stated capital value. Bottom line: bankruptcy. Unless that is, you cajole your cronies in Washington to print more fiat currency in exchange for the unmarketable securities you are hiding in your vault. That in a nutshell is what the government bailout program is doing. The dollar's value will be sacrificed to save the 'Street of Broken Dreams'. Ordinary citizens will suffer a declining greenback, less buying power, and future inflation. Japan made the same mistake in the 1990s by not allowing banks to fail, and thus allowing the market to clear itself of worthless assets in due course. But market fundamentalists are only true believers when their fortunes are not at stake. Variety's headline of 1929 is as good today as it was then. Hard times (for most) are here again[1].
[AP photo: Wall Street poster child, ex- Merill Lynch CEO John Thain. Another Merill Lynch exec, Peter Krauss, got a $25 million golden parachute after just three months with the firm when it was bought at a distressed sale by Bank of America. He recently purchased a palatial apartment on Park Avenue for $37 million.]
[1] Consumers are tapped out as a result of the easy credit binge. Household debt has reached $14 trillion up from about $8 trillion in 2000. Real median income has decreased by 1%, and the number of families living in poverty has increased by 19% One estimate is that there will be more than 5,000 foreclosures per day--more than at any time since the Great Depression.

Tuesday, December 23, 2008


Persona Non Grata will resume after the Christmas holiday.

Sunday, December 21, 2008

Madoff's List

From Alexander Cockburn at Counterpunch:
Among those apparently taking serious and even financially fatal hits [from Bernie Madoff's Ponzi scheme]: Yeshiva University in New York, Senator Frank Lautenberg, New York Mets owner Fred Wilpon, real estate and media mogul Mortimer Zuckerman (“significantly hurt”), GMAC Financial Services chairman J. Ezra Merkin (who ran a hedge fund, Ascot Partners, which reinvested many charities’ funds with Madoff), the Elie Wiesel Foundation for Humanity, Steven Spielberg’s Wunderkinder Foundation, Jeff Katzenberg, the Boston-based Robert I. Lappin Charitable Foundation (which has closed its doors), Eliot Spitzer’s family, the Chais Family Foundation, the Carl and Ruth Shapiro Foundation, Hadassah (the Women’s Zionist Organization of America), the United Jewish Endowment Fund of the Jewish Federation of Greater Washington , the Los Angeles’ Jewish Community Foundation’s $238 million Common Investment Pool, the American Jewish Congress, the Technion-Israel Institute of Technology...

In less polite society it might be called "street tax"[1]:
....Madoff poured money into the Democratic Senatorial Campaign war chest ($100,000 between 2005 and 2008)and made large contributions to important Democrats on the Finance Committees, like Rep Henry Waxman (D-CA) and Senator Charles Schumer (D-NY) . Waxman and Schumer have hastily announced they’re donating Madoff's money to charity.

[1]Harry Markopolos, who worked for a rival firm, researched Madoff's stock-options strategy and was convinced the outsized results were literally unreal. "Madoff Securities is the world's largest Ponzi Scheme," Mr. Markopolos wrote in a letter to the U.S. Securities and Exchange Commission in 2000. Mr. Markopolos pursued his accusations over the years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal. In a statement late Friday, the SEC said, "staff from the Division of Enforcement in New York completed an investigation in 2007, and did not refer the matter to the Commission for enforcement action." Madoff's niece is also married to a former high level SEC enforcement official. The niece worked as a compliance attorney at Madoff's firm. The official was a member of the exam team that audited Madoff's firm in 1999 and 2004. Madoff Investment Secuirties spent $400,000 lobbying Washington over ten years. $39,000 went directly to Senator Schumer, but Madoff also gave to Rep. Vito Fossella (R-NY). http://www.politico.com/news/stories/1208/16608.html

Friday, December 19, 2008

Le Shorter: MoveOn.com Points the Way

MoveOn.com the on-line activist community voted recently for the top social goals of the organization going forward. About 800,000 people bothered to submit their recommendations. The results are in descending order of popularity:

  • Universal health care
  • Jobs and economic recovery
  • Build a green econmy and stop warming
  • End the war in Iraq

The Lie that Started a War

Rep. Henry Waxman (D-CA) in his parting gesture as chair of the House Government Oversight Committee (he will take over Energy and Commerce) writes his colleagues that the CIA objected on the record to using the Niger yellowcake claim in presidential speeches justifying the disastrous invasion of Iraq. Jami Miscik, Deputy Director of Intelligence, told National Security Advisor Rice by telephone that the CIA was "recommending that it [the enriched uranium purchase claim] be taken out". Another official, John Gibson, Director of Speechwriting for Foreign Policy at the NSC, told Waxman's committee that the CIA "never cleared" the uranium purchase claim. Nevertheless in January 2004, White House Counsel Roberto "Gonzo" Gonzales in response to questions wrote the committee on Rice's behalf that the CIA had "orally cleared" the claim for use by the President. On March 7, 2003, two weeks before the Iraq invasion, Mohamed El Baradei director of the IAEA reported to the UN Security Council that the Niger documents forming the basis for reports that Iraq had purchased enriched uranium from Niger were not authentic. Secretary of State Rice never responded to the committee's repeated request for testimony about the deceptive selling of the war. The rest is history.

Brazil Declares Whale Sanctuary

The government of Brazil has declared its 5,000 mile coastline a cetacean sanctuary. The declaration is a major advancement towards the goal of creating an ocean-wide South Atlantic Sanctuary for whales and dolphins. The Brazilian government is engaged in negotiations at the International Whaling Commission to make whale-watching a legitimate management option. Currently, there is controversy among member nations because a few countries such as Japan, Iceland and Norway refuse to give up commercial whaling operations through loopholes or in defiance of the international moratorium on commercial hunting. South American countries have repeatedly failed to establish the South Atlantic Sanctuary at the IWC because of opposition by nations that want to continue commercial hunting traditions. Brazil joins Chile in creating a cetacean sanctuary in its territorial waters. Chile declared its 3400 mile long territorial waters off limits to lethal use of cetaceans in September.

Thursday, December 18, 2008

Le Shorter: Cedric is Sick

Cedric, the last great hope for the Tasmanian devil {4/2/08} has contracted the deadly facial tumour disease that is slowly but surely eradicating the feisty marsupials from Earth. Reports from Sydney say that plans to breed a race of immune devils and create a vaccine from their antibodies have been put on hold. Two small tumours were removed from Cedric's muzzle on Monday. He is expected to fully recover, but the outlook for the rest of his kind is bleak. It is believed that devils spread infection from suppurating growths when they fight, an activity the fiercely territorial devils engage in often. Extinction in the wild could occur within 10 to 20 years.
[photo credit: The Independent]

Wednesday, December 17, 2008

Saving Wilderness

Update (12/23/08): NRDC reached temporary agreement with the Regime regarding leasing of Utah's redrock country for oil and gas exploitation after filing a suit for an injuction. The government agreed to hold the auction but not award any leases until a federal court can review its action for compliance with applicable environmental rules. The court hearing is scheduled in January.

U.S. Person is back from his African safari, and he hopes to share some wildlife pictures with you after the holidays. (He is asking Santa to bring him a new computer for Christmas!) In the meantime, here is a message from actor/activist Robert Redford about the Charlatan's last minute assault on America's natural treasures:

This morning I appeared at a Congressional press conference to announce that NRDC is filing suit to block the giveaway of 110,000 acres of Utah's Redrock wilderness to oil and gas companies. This disastrous auction is scheduled to take place in just two days -- on December 19th -- as a parting gift from the Bush-Cheney Administration to their friends in the oil and gas industries. Please donate now to help us wage this courtroom battle and win back the unspoiled Redrock wilderness for the American people. At stake are world-renowned vistas near Canyonlands and Arches National Parks, as well as near the Dinosaur National Monument. Even parts of Desolation Canyon, which have been proposed for national park status, will be on the auction block.

Help NRDC win another courtroom battle against the despoilers of America. Contributing to pay for the cost of litigation is a lot more effective than throwing shoes.