You may have seen this gossipy story about Rep. Paul Ryan at Talking Points Memo on Friday. I’ve been meaning to post something about it but just haven’t found the time. Now TPM has a very interesting update. Here’s the background:
Rep. Paul Ryan (R-WI), a leading advocate of shrinking entitlement spending and the architect of the plan to privatize Medicare, spent Wednesday evening sipping $350 wine with two like-minded conservative economists at the swanky Capitol Hill eatery Bistro Bis.
Susan Feinberg, an associate business professor at Rutgers, was at Bistro Bis celebrating her birthday with her husband that night. When she saw the label on the bottle of Jayer-Gilles 2004 Echezeaux Grand Cru Ryan’s table had ordered, she quickly looked it up on the wine list and saw that it sold for an eye-popping $350, the most expensive wine in the house along with one other with the same pricetag.
Feinberg, an economist by training, was even more appalled when the table ordered a second bottle. She quickly did the math and figured out that the $700 in wine the trio consumed over the course of 90 minutes amounted to more than the entire weekly income of a couple making minimum wage.
Feinberg took some photos with her cell phone, approached the table and asked whether the two men with Ryan were lobbyists. One of the men responded by saying, “F&ck her.” Ryan claimed the two men were economists but refused to provide their names. Ryan then paid for one of the bottles of wine, but when asked about the appropriateness of spending so much when he was going all Dickensian on old people, Ryan avoided answering.
Today, TPM learned the identity of the two men who wined and dined Ryan on Friday night.
TPM has confirmed that the two other men with Ryan were Cliff Asness and John Cochrane. Both men have doctorate degrees in economics and are well-known in the conservative media world as die-hard proponents of the free market’s ability to right itself without government bailouts when the crisis hit in late 2008.
Asness, who ordered the wine and who, according to Feinberg was the one who said “Fuck her,” is better known as a high-profile hedge fund manager. Asness founded and runs AQR Capital, which manages an estimated $26 billion in a variety of traditional products and hedge funds, and his life story has been the subject of numerous books and articles about the rise and fall of Wall Street. He’s also grabbed headlines for being one of the most voluble opponents of President Obama’s economic policies.
Cochrane, the other, more tempered dinner companion, is the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago, an apparent tip of the hat to the contributions Asness’ AQR Capital Management has made to the Booth School of Business there.
Before launching AQR Capital in 1997, Asness worked for Goldman Sachs, the most profitable securities firm in Wall Street history, as the director of quantitative research for its Asset Management Division.
Via TPM, in 2009, Asness wrote an open letter to Barack Obama in which he (Asness) complained bitterly about some mildly critical remarks the President had made about hedge fund managers who refused to help out by buying Chrysler bonds. From New York Magazine:
Clifford Asness, the filthy-stinking-rich quant behind AQR Capital Management, [is] publicly engaging with a formidable opponent: The president of the United States. Asness, who supported Obama during the election, was appalled by Obama’s treatment of his colleagues during the Chrysler situation, and although he was not personally involved, he felt he had to make a stand.
Here is a portion of the letter:
Here’s a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders’ contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.
The above is how it works in America, or how it’s supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.
Well, Duh! But if “filthy, stinking rich” guys like Asness were patriotic, we probably wouldn’t have had a financial meltdown in the first place, now would we?
The other guy with Ryan on Friday, Professor John Cochrane of the University of Chicago, is a freshwater economist and follower of Eugene Fama AKA “the father of modern finance,” and Robert R. McCormick Distinguished Service Professor of Finance a the University of Chicago. Cochrane is also married to Fama’s daughter Elizabeth.
In early 2009, Cochane and Nobel Prize-winning economist Paul Krugman engaged in a legendary on-line debate that also involved Brad De Long and Eugene Fama. The whole thing was too wonky for me, but I gather it had something to do with Fama and Cochrane critiquing the use of fiscal stimulus and Krugman saying that the two freshwater economists wanted to return to the “Dark Ages of macroeconomics.” Here’s Krugman’s introductory paragraph:
Brad DeLong is upset about the stuff coming out of Chicago these days — and understandably so. First Eugene Fama, now John Cochrane, have made the claim that debt-financed government spending necessarily crowds out an equal amount of private spending, even if the economy is depressed — and they claim this not as an empirical result, not as the prediction of some model, but as the ineluctable implication of an accounting identity.
Maybe Daknikat can explain what the “cage match” was all about.
I think Paul Ryan is going to need to be a little more careful in the future if he is going to continue promoting the end of Medicare as we know it.
Yond’ Cassius has a lean and hungry look;
He thinks too much: such men are dangerous.
— Julius Caesar
There will be plenty of both academic and journalistic research done trying to figure out what went woefully wrong with finance markets in the first decade of this century. I’ve just co-authored a paper that will be out shortly in a peer reviewed journal on how the bubble in the mortgage market probably passed into the market for Real Estate Investment Trust funds (REITS) that were once considered one of the safest and least volatile investments on the planet. They used to have good patterns of fairly consistent returns too. However, that was then and this is now. Now is a different reality and the three scoundrels in the picture above are part of the reason. These three are part and parcel of how the vampire squid came to rule the world of finance. You’re looking at a young Ex-Treasury secretary Hank Paulson, Steve Friedman, and Jon–was Governor of New Jersey–Corzine. Take a good long look at that trio of dangerous, lean and hungry men.
Their exploits are outlined in the latest who-did-this-to-us book “Money and Power: How Goldman Sachs Came to Rule the World” By William Cohan. I don’t have the book yet but the reviews and articles that its release is spawning are everywhere. The firm started out as man named Goldman who was a simple dealer in commercial paper at the onset of the switch from mercantilism with its emphasis on natural resources and people to capitalism with its emphasis on money. For years, the company was a partnership (the start of IPO move started around 1996 and happened in 1999) and its reputation was that of a firm committed to teamwork and a laser-like focus on serving clientele despite a past riddled with scandals. How this situation went from that corporate identity to a group of hot shot sales egos selling toxic mortgages and derivatives to customers is the focus of the book. Oh, and the most important part is that they did all that selling while having offsetting bets to what they were pushing to customers during the financial crisis that paid of hugely. The Economist’s review of the book explains why Cohan’s book stands out in the recent flurry of Goldman Sachs psychodrama financial novels. Cohan has some fresh material which seems even more revealing given Carl Levin’s latest pronouncement. Basically, Levin argues that Goldman Sachs bet against the stuff they sold clients (Credit Default Obligations) and then lied to congress about it.
Much of the blame for the 2008 market collapse belongs to banks that earned billions of dollars in profits creating and selling financial products that imploded along with the housing market, according to the report. The Levin-Coburn panel levied its harshest criticism at investment banks, in particular accusing Goldman Sachs and Deutsche Bank AG (DB) of peddling collateralized debt obligations backed by risky loans that the banks’ own traders believed were likely to lose value.
In a statement, New York-based Goldman Sachs denied that it had misled anyone about its activities. “The testimony we gave was truthful and accurate and this is confirmed by the subcommittee’s own report,” Goldman Sachs spokesman Lucas van Praag said.
“The report references testimony from Goldman Sachs witnesses who repeatedly and consistently acknowledged that we were intermittently net short during 2007. We did not have a massive net short position because our short positions were largely offset by our long positions, and our financial results clearly demonstrate this point,” van Praag said.
It remains to be seen if the Obama DOJ will pursue any legal action against the firm. The Economist article has a more succinct explanation albeit it with a bit of finance jargon thrown in. Are the actions of the shadow banking behemoth illegal or just maleficent? Given the horrible state of regulatory framework and the abysmal performance of the SEC under Christopher Cox, it appears to be walking both sides of that line that’s frequently called the Chinese Wall. We could also say that the District has not had an active interest in translucent, standardized, and information symmetric-financial markets for decades. Eliot Spitzer–who knows about Wall Street wrongdoing–thinks Holder should prosecute GS or quit. The Economist states that:
Goldman has pushed this envelope further than other investment banks, believing it had the skill to manage the resulting conflicts. It insists that the Chinese walls separating its traders and bankers are always impermeable.
But outsiders are less inclined to trust it these days. Using client information to increase its trading edge—if that is what Goldman does—may not be against the law, but it is hardly honourable. As the author puts it, the scandal may not be what’s illegal but what’s legal.
Controversy also swirls around Goldman’s “marks”, or the prices at which it valued its mortgage holdings during the crisis. These were much lower than those of its rivals, drawing accusations that it was trying to force them to mark their portfolios down to the same level so that it could pick up assets on the cheap in the ensuing wave of firesales.
Goldman’s aggressive stance certainly caused massive pain, speeding the demise of Bear Stearns and AIG. But as mortgage delinquencies ballooned, Goldman’s marks were shown to be more accurate than those of the other big houses. Its longstanding “mark-to-market” discipline meant it was better placed to face the truth. There is no evidence of a conspiracy to post unreasonably low valuations. There was, in fact, a vigorous debate within Goldman about the right level, just as there was over the firm’s overall risk levels. Angry at being reined in by its powerful risk managers, traders dubbed them the “VAR police”, a reference to the value-at-risk models they used to measure how much was on the line.
My late night relaxing in the tub reading of all this started with the book’s adaptation in Vanity Fair. There’s an interview with author William Cohan on its website. I suppose I should mention that Cohan worked at GS. His excerpt in the May issue characterize GS of the 1990s as the stage for an Alpha War. I have to say from what I’ve read to date, John Corzine is the one that comes off the worst for exposure. I pity poor New Jersey. Corzine’s trading positions in fixed income sound like something out of Bonfire of the Vanities and The Black Swan simultaneously. Corzine appears to be the type who won’t stop doubling down, even when he’s losing big time. Cohan’s VF article focuses on the period of around 1994 when Friedman was trying to deal with the loss of Robert Rubin who had headed of to the Clinton Administration to be Secretary of the Treasury. One of the big things that I realized when reading all of this was how many Secretaries of the Treasury over a huge number of years have connections to GS. It makes you believe in secret banking cabals.
Popular at the firm for his genial manner, Corzine also had his critics. “He is charming,” says one partner. “He’s got a really nice style. He comes in an attractive package, so although he has got a huge ego and huge ambition—which far exceeds his ability in both those things—he comes across in a laid-back, low-key, disarming style.”
The partner explains the origin of Corzine’s Goldman nickname: “Fuzzy.” It derived not only from his beard, but also because he was “a fuzzy thinker. He wasn’t crisp and wasn’t black and white. He fuzzed things when he communicated.”
The VF article is a veritable soap opera of tension and struggles between Corzine and Paulson. The one pervasive criticism that I’ve seen of the book as of right now is that the drama still didn’t stop or explain how GS manages to make so much money. Perhaps the Levin Report and its supporting documents have more information that would interest a financial economist. The narrative in this book is from former employees, clients, and just about any one else that would dish the conflicts to Cohan. Many of these remain “unnamed sources”. Goldman’s sketchy history was also fascinating to me.
After all, this is a firm that periodically eviscerates those who trust it most. In the 1920s, Goldman ran a Ponzi-like scheme involving investment trusts. In the 1970s, it peddled soon-to-be-worthless commercial paper for the soon-to-be-bust Penn Central Railroad. And, in 2007, the firm that prided itself on being “long-term greedy” sold gullible clients on the merits of mortgage-backed securities while simultaneously shorting some of those same debt obligations. The firm has succeeded, in part, by ignoring these nastier aspects of its past. In fact, Goldman never misses an opportunity to celebrate the holier-than-thou principles laid down by former senior partner John Whitehead. Rule No. 1: Our client’s interests always come first.
Money and Power suggests the bank does possess a few special powers, starting with its remarkable ability to convince some of the world’s smartest young people that touting stocks, sniffing out arbitrage opportunities, and shaking down corporate clients amount to a noble calling. One illuminating anecdote in Money and Power concerns Robert Rubin, the former Goldman head who would go on to become Treasury Secretary under Bill Clinton. During his third year at the firm, back in 1969, Rubin’s career path may have hit a rough patch. Sandy Lewis, who at the time ran the arbitrage department for a rival bank, tells Cohan that Rubin approached him regarding a job opportunity. Lewis explains that Rubin had grown disgusted with the Goldman way. “It’s a dishonest mess,” Lewis recalls Rubin saying to him, “that’s making honest people dishonest.”
I skipped into this interesting bit of hearsay quoted by the NYT. As you know, GS has friends in high high places so I find this a bit ominous. This is where the book lends credence to the recent Levin pronouncement.
About Goldman Sachs’s present-day business practices, one “private equity investor” says this: “They view information gathered from their client businesses as free for them to trade on … it’s as simple as that. If they are in a client situation, working on a deal, and they’re learning everything there is to know about that business, they take all that information, pass it up through their organization, and use that information to trade against the client, against other clients, et cetera, et cetera.” The speaker stops short of labeling this as insider trading, but only barely, saying, “I don’t understand how that’s legal.”
Mr. Cohan raises the same question as he writes that the firm’s onetime dedication to its clients has evolved into something more ruthlessly self-serving. “Its primary source of profit has shifted from banking to trading,” he writes, “and the firm is intentionally quite vague about how, and precisely where, those trades are made or, equally relevant, from whom the profits are coming.”
Indeed, the GS Big Short” may have been more responsible for the meltdown than any one thought previously and hearing about these behind-the-scene alpha male wars doesn’t enhance the firm’s supposed client-centric claim or its testimony that fell back on its mantel as the role of market-maker. I watched the hearing completely and was appalled at how little Levin’s panel knew of the world it was supposed to regulate. There were few intelligent questions and even fewer cogent responses.
But the key players in enacting the strategy were Dan Sparks, head of the mortgage division, and his most senior traders, Josh Birnbaum and Michael Swenson.
All three were key witnesses called by Levin’s committee a year ago. The trio were quizzed alongside the now notorious trader Fabrice Tourre, who is still defending himself in the American courts against a separate claim by the Securities and Exchange Commission that he duped investors into buying mortgage assets that he expected to collapse in value.
That trade was in fact a sideshow to the wider strategy set in motion by that momentous meeting in December 2006. From that point onwards Goldmans began to cut its exposure to American mortgages and set up a series of short positions to gamble on a housing market crash.
At the same time it began publicly marking down the value of those mortgage securities it held, forcing other banks to do the same. But unlike Goldmans, the others had not taken out short positions and when the crisis came they could not offset the huge losses these markdowns involved.
Within eight months of the December meeting, the storm had broken. Credit was drying up in financial markets, rumours of banks in crisis swept through the world’s financial capitals and by September the squeeze on banks led, in Britain, to the emergency loans to Northern Rock and eventually its collapse into State ownership.
Cohan, who interviewed Birnbaum and many others for his book, claims that in 2007 Goldmans’ mortgage desk made a profit of $4 billion from its shorting, helping the bank turn a total profit for the year of $13.5 billion – $9 billion of which ended up as bonuses for staff. Birnbaum, Cohan claims, had wanted to be even more aggressive but the risk department at Goldmans was frightened of going too far in case the gambles went wrong.
In the end, this saga may well play itself out in the world of researchers outside of the beltway who get access to the Levin committee’s documents. We can always hope that Holder will investigate his boss’s biggest campaign contributor during a campaign cycle in the way that children hope that Santa Claus is real. The White House could make Carl Levin into an old man who tilts at Windmills. What is worrisome is how interconnected the alpha males on Wall Street are with the ones that strut around Pennsylvania Avenue. It’s hard to miss the co-dependency of campaign-fund addict with drug dealer who needs special favors when you read so many sources with similar themes. It makes a mere mortal like me want to put my money some place out of their reach. I don’t think I’d want a stake in anything near New Jersey either. My greatest fear, however, is that we know so much about how all this happens and yet we do nothing. The evidence is out there. There’s no real change afoot. Who will the ghost of Caesar haunt?
Evening all, Minx here and I thought I would post some links to get you through the night.
Right now I am enjoying the movie The Glass Key with Alan Ladd, Veronica Lake, and Brian Donlevy. I have never seen this movie, but The Blue Dahlia is one of my favorites. I just love Alan Ladd and Veronica Lake together. Anyway, this past Sunday TCM had a tribute to Elizabeth Taylor…and of course they showed Cat on a Hot Tin Roof. While watching it I realized that Dustin Hoffman had to have used the actress who played Big Mamma, Judith Anderson, as inspiration for his role in Tootsie. Can you see it? Dorothy Michaels is Big Mamma Pollitt…same southern accent, same hairdo, same emotional outburst.
Be sure to check out what TCM has scheduled for this coming Saturday, April 16th at 8pm EST…Ball of Fire . This is another great movie, with Gary Cooper, Barbara Stanwyck and Dana Andrews. Written by Billy Wilder, the dialogue is fabulous and witty.
Okay, enough of that…here are some interesting and newsworthy links for you tonight.
As Dakinikat posted earlier today, before the MSM picked up the story…(Kudos Kat!) Kucinich asks Scott Walker Some Good Questions « Sky Dancing
Walker admits that stripping workers of collective bargaining has nothing to do with saving money but has everything to do with “giving people the right to choose”. Congressman Dennis Kucinich asks a series of questions that puts Walker on the spot. Notice that there’s an irregular move by the committee chair to block evidence placed into the hearing records also. Stripping people’s rights appears to be the Republican way these days.
Not only did Dennis Kucinich get Scott Walker to admit what we all already knew…it seems that Anthony Weiner got a GOP rep to admit that Ryan’s plan makes Medicare a voucher plan.
On The Last Word, Anthony Weiner maneuvered Rep Jack Kingston (R-GA) into admitting that the Ryan plan ends Medicare and converts it to a voucher plan.
What’s so funny about this is how hard Boehner has been working to deny it, because of course, vouchers equal privatization. So Boehner’s out there laying it down saying no, it’s not privatization, it’s transformation. We all know it’s bull but then who cares, because he’s doubling down on Ryan’s plan after the President’s speech anyway in order to appease the Tea Party and his insurance company keepers happy.
Isn’t it great to see these GOP politicians admit the truth? Speaking of GOP politicians, and a lack of truth or fact…Jon Kyl’s ‘factual statement’ flap comes full circle – Jennifer Epstein – POLITICO.com
“Not intended to be a factual statement,” the comment made by a spokesperson for Sen. Jon Kyl (R-Ariz.) and transformed by comedian Stephen Colbert into a pop culture meme has come nearly full circle, as Democrats have begun to use the phrase on the Senate floor.
The first quip came Wednesday from Sen. Kirsten Gillibrand (D-N.Y.) in a floor speech defending Planned Parenthood, the program that Kyl attacked last week, claiming that 90 percent of the group’s activities were abortion-related. The actual number is closer to 3 percent. A Kyl staffer defended the comment by explaining it “was not intended to be a factual statement.”
“For my friends and colleagues, this is a factual statement,” Gillibrand said. “Current law already prevents federal money from paying for abortions. This has been the law of the land for over 30 years. Shutting down the government for a political argument is not only outrageous, it is irresponsible. The price for keeping the government open is this assault on women’s rights.”
Read the rest of the article at the link to see who else got some jabs in.
Here are a few other links you may find interesting:
The House on Thursday passed compromise legislation to finance the federal government through the end of the fiscal year in September. The vote brought one budget clash to a close even as the Democrats and Republicans prepared for another.
The vote was 260 to 167, with 59 Republicans breaking ranks with their party leadership to vote against the deal, which calls for $38 billion in spending cuts this year. The Republican defections, a result of opposition from conservatives who said the bill did not do enough to rein in spending, forced the House speaker, John A. Boehner of Ohio, to turn to Democrats to pass the bill and keep the government from shutting down.
As readers may know, the Senate Permanent Subcommittee on Investigations just issued another report, Wall Street and the Financial Crisis. This is a far more focused and damning document than the Financial Crisis Inquiry Commission report, which was produced at considerably more expense and was undermined by dissent among its commissioners (which in fairness appears to have been by design).
The Wall Street Journal dropped a bit of a bombshell yesterday when it intimated that the reason the Obama Administration hasn’t been able to choose a director of the Consumer Financial Protection Bureau is that their preferred candidates don’t want the job over Elizabeth Warren:
And for the last link, this is sooooo cool!
Scientists at the National Oceanic and Atmospheric Administration Vents Program at Pacific Marine Environmental Laboratory and Oregon State University didn’t feel the massive earthquake that struck off Japan on March 11. But they did hear it.
An underwater microphone located near the Aleutian Islands of Alaska, 900 miles from the quake epicenter, captured the sound of the disaster on tape, and a portion of the recording has now been put up on YouTube.
The recording has been sped up 16 times. First comes the roar of the earthquake sounds “propagating through the earth’s crust,” then you hear a second roar of the sounds “propagating through the ocean.”
Think of this as an open thread, what are you doing tonight?
Good Morning!! Let’s see what’s going on out there in the world.
A federal grand jury has indicted Tucson shooter Jerad Loughner.
Jared Loughner was indicted by a federal grand jury Wednesday in Tucson on a three-count indictment for attempting to kill U.S. Rep. Gabrielle Giffords and two of her aides, Pamela Simon and Ron Barber. The announcement came from U.S. attorney Dennis K. Burke’s office.
Burke said, “This case also involves potential death-penalty charges, and Department rules require us to pursue a deliberate and thorough process. [Wednesday]‘s charges are just the beginning of our legal action. We are working diligently to ensure that our investigation is thorough and that justice is done for the victims and their families.”
According to the indictment, Loughner, 22, attempted to assassinate Gabrielle Giffords, a member of Congress, and attempted to murder two federal employees, Ron Barber and Pamela Simon.
A conviction for attempted assassination of member of Congress carries a maximum penalty of life in prison, a $250,000 fine or both, according to Burke’s office.
That happened really quickly, didn’t it?
Have you heard there’s more snow coming for the Midwest and Northeast? Oh joy. Right now they are saying 3-5 inches for Boston. That’s not too bad, except for the fact that we already about about 2-1/2 feet piled up everywhere. Oh well… check the story to see what might be coming your way.
According to the Wall Street Journal, poor poor Goldman Sachs is hurting.
Goldman Sachs Group Inc.’s profit slide of 52% in the fourth quarter showed the securities giant’s size and swagger aren’t enough for it to escape the tightening squeeze of a regulatory overhaul and jittery clients and investors.
The New York company suffered its third quarterly profit decline in a row, hurt by lower revenue from its vaunted trading and investment-banking businesses. Fourth-quarter net income fell to $2.39 billion, or $3.79 a share, from $4.95 billion, or $8.20 a share, a year earlier.
Oh those nasty regulations! Is anything like that really happening? I’m confused. Oh wait. It’s not really regulations, it’s just the Wall Streeters’ fears of risk or something.
Like its rivals, Goldman is being hurt by the reluctance of many institutional investors, wealthy individuals, companies and other clients to take risks because they still are reeling from losses during the crisis. Hedge funds are weaning themselves from some of the leverage used to make big bets, and U.S. companies are holding more than $2 trillion in stagnant cash.
As a result, demand for the vast inventory of stocks, bonds and other investments that Goldman buys and sells on behalf of customers, generating commissions and other fees for the firm, fell in the latest quarter. Trading-related revenue shrank 31% to $3.64 billion from $5.25 billion in 2009’s fourth quarter.
Whatever… A bunch of rich people whining. Just what you wanted to hear about with your morning coffee, I’ll bet.
The Governor of Alabama doesn’t consider me among his brothers and sisters. Shock!
Alabama Republican Governor Robert Bentley said in a Martin Luther King Jr. Day message Monday that he does not consider Americans who do not accept Jesus Christ as their savior to be his brothers and sisters.
“There may be some people here today who do not have living within them the Holy Spirit,” Bentley said shortly after taking the oath of office, according to the Birmingham News. ”But if you have been adopted in God’s family like I have, and like you have if you’re a Christian and if you’re saved, and the Holy Spirit lives within you just like the Holy Spirit lives within me, then you know what that makes? It makes you and me brothers. And it makes you and me brother and sister.”
”Now I will have to say that, if we don’t have the same daddy, we’re not brothers and sisters,” he continued. “So anybody here today who has not accepted Jesus Christ as their savior, I’m telling you, you’re not my brother and you’re not my sister, and I want to be your brother.”
Awww… I’m really hurt.
Didja hear the new Republican House voted to repeal the useless Republican style health care non-reform bill?
The vote passed Wednesday 245-to-189 — with unanimous GOP support, plus three Democrats. But the repeal bill is destined to die in the Senate, so Republicans will use their newly acquired power in the House to wage a long-term campaign to weaken the law.
The next steps — hearings, testimony from administration officials, funding cuts — lack the punch of a straight repeal vote, but Republicans said they will keep at it, hoping the end result is the same: stalling implementation of the $900 billion law.
Republicans promise to hold a series of hearings and oversight investigations into the law, attempt to repeal individual provisions and craft an alternative health care plan. Some of the first issues they will tackle are the cost of the law, the mandate on larger employers to provide coverage and the impact of the legislation on the states.
But the GOP is expected to be thwarted at every turn by the Democratic-controlled Senate — and ultimately President Barack Obama, who has said he is willing to “improve” the law but “we can’t go backward.”
At least while they’re fooling around with Obamacare, they’re not repealing Social Security….
Sooooo…. what are you reading this morning? Anything cheerful happening?
Good Morning! It’s been a tough weekend. As usual when dreadful events happen, the cable channels are covering the shooting in Arizona 24/7. Things are still happening in the DC despite the horror of that story. I just don’t know how much more I can read about it. Thinking about senseless hatred and violence is starting to make me feel physically ill.
If you do want to read more about the Arizona tragedy, the Washington Post has special section on it: Special Report: The Tucson shooting rampage. The New York Times also has lots of stories and photos on the front page.
Now I’ll see if I can find any other important stories for you to check out this morning.
On Saturday, I wrote a long piece on Darrell Issa, the man who is going have subpoena power as Chairman of the House Oversight Committee. The man is a thug, and we’d better be paying attention to what he’s doing. I hope when the news about the shooting calms down that people will take a look at that piece. I don’t usually “pimp” my posts, but I feel that this one is important.
Now I see that the Republicans plan to make changes in another important House committee: Republicans banish ‘civil rights’ and ‘civil liberties’ from House subcommittee
Congressman Jerrold Nadler (D-NY) blasted Republicans for planning to change the name of the Subcommittee on the Constitution, Civil Rights, and Civil Liberties to the “Constitution Subcommittee.”
“Once again, the new Republican majority has shown that it isn’t quite as committed to the Constitution as its recent lofty rhetoric would indicate,” Rep. Nadler, who has served as the Chairman of the Subcommittee on the Constitution, Civil Rights, and Civil Liberties since 2007, said.
“It has yet again shown its contempt for key portions of the document – the areas of civil rights and civil liberties – by banishing those words from the title of the Constitution Subcommittee.”
The Subcommittee on the Constitution is one of five subcommittees of the US House Committee on the Judiciary. The subcommittee has jurisdiction over constitutional amendments, constitutional rights, federal civil rights, ethics in government, and related matters.
I’ve seen people talking about this in the comments, but can I just say that I’m sick and tired of people tampering with Huckleberry Finn? It’s one of my favorite books. I have read it multiple times, and I happen to think it’s a candidate for the Great American Novel.
Mark Twain wrote the book the way he did to deliver some serious messages, one of which was an argument against racism. He did that by demonstrating in his novel why racism is wrong. There is also a strong message in the book about child neglect and abuse and about alcoholism. It’s a brilliant book, and there is no need to censor it. If it is taught in school, then the context of the language Twain used can be discussed and debated. Huckleberry Finn is not a children’s book. High school students are perfectly capable of understanding the book and its importance.
Here’s a piece at Truthdig that offers 10 Reasons Why the Slurs Should Stay in ‘Huck Finn.’ It’s pretty good.
When I was a senior in high school I read Shakespeare’s plays in my English class. There were two teachers who taught the Shakespeare course. My teacher had us read the plays aloud as written. The other teacher, an elderly woman, had students read the “dirty” parts silently. I’m glad I wasn’t in her class. But at least she didn’t make the students skip over those parts entirely or try to censor the plays.
I say let’s read the greatest works of literature as written.
Here’s a interesting and ironic story at the LA Times: 1800s-era skeletons discovered as crews build L.A. heritage center
Under a half-acre lot of dirt and mud being transformed into a garden and public space for a cultural center celebrating the Mexican American heritage of Los Angeles, construction workers and scientists have found bodies buried in the first cemetery of Los Angeles — bodies believed to have been removed and reinterred elsewhere in the 1800s.
Since late October, the fragile bones of dozens of Los Angeles settlers have been discovered under what will be the outdoor space of La Plaza de Cultura y Artes downtown near Olvera Street. According to archaeologists and the chief executive of La Plaza, they appear to be remains from the Campo Santo, or cemetery, connected to the historic Catholic church Our Lady Queen of Angels, commonly called La Placita. The remains are just south of the church.
Pieces of decaying wood coffins as well as religious artifacts such as rosary beads and medals have also been unearthed.
The cemetery, which officially closed in 1844, was the final resting place of a melting pot of early Los Angeles — Native Americans; Spanish, Mexican, European settlers; and their intermarried offspring. But the repercussions of the discovery outside La Placita have been anything but peaceful.
So digging up the bones of early settlers in order to build a monument to early settlers. Ironic.
Dakinikat sent me this Bloomberg article about Goldman Sachs and their investment in Facebook.
News has leaked out that Goldman, supposedly the smartest Wall Street firm, will buy $450 million of stock in closely held Facebook, with Digital Sky Technologies, which invests in start- ups and is partly owned by Goldman, purchasing another $50 million.
The anonymous folks who put out these numbers said the deal sets a value for Facebook equal to that of Boeing Co. and approaching that of Home Depot Inc.
Goldman clearly is capitalizing on Wall Street’s latest diversion: a semi-public stock market for private companies.
Several firms now offer shares of closely held companies or offer estimates of their value, or both.
It seems that Goldman is hyping Facebook in order to increase the value of its own investment in advance of Facebook going public. Shouldn’t that be illegal?
Dak also sent me this link to the Economist about the war on government unions: It’s a long article and I haven’t been able to read the whole thing yet, but it looks worthwhile. Perhaps Dak will do a longer post on this issue.
Bethany McLean from Vanity Fair has a great reportage about Goldman Sachs. These poor guys, they’re so misunderstood.
The Bank Job
One of the biggest disconnects on Wall Street today is between the way Goldman Sachs sees itself (they’re the smartest) and the way everyone else sees Goldman (they’re the smartest, greediest, and most dangerous). Questioning C.E.O. Lloyd Blankfein, C.O.O. Gary Cohn, and C.F.O. David Viniar, among others, the author explores how their firm navigated the collapse of September 2008, why it has already set aside $16.7 billion for compensation this year, and which lines it’s accused of crossing.
There’s more on the heinous crimes of the week-end, violent rhetoric from Right (spare me the “Both-Sides-Do-It”), and intimidation of political figures.
How the Tucson Massacre Rattled U.S. Judges
For a moment, U.S. District Judge John M. Roll seemed as likely the main target of the Tucson massacre as Congresswoman Gabrielle Giffords. In 2009, Roll had come under threats severe enough that he and his family were placed under 24-hour protection by the U.S. Marshals Service. After he ruled that a high-profile suit brought by a group of Mexican immigrants could proceed, his phone lines were deluged with angry callers — including at least four that threatened violence.
At the time, the U.S. Marshal for Arizona told the Arizona Republic that the threats had been egged on by radio talk-show hosts critical of Roll’s decision. Critics began sharing his personal information on Web sites as the rhetoric became more heated. The round-the-clock protection lasted a month, though Roll ultimately decided not to press charges against the callers.
For some members of the judiciary, the news that Roll was among the six who died during the shooting spree in Tucson was unsettling in ways that went beyond personal grief from those who knew and served with Roll, who had been placed on the bench by President George H. W. Bush in 1991 at the urging of Senator John McCain. Just minutes after learning of the slayings, U.S. District Judge Robert Gettleman of Chicago told TIME in an email that the news of the murder was “very disturbing… Just when we were beginning to feel more secure.”
Or I see. There’s a big difference between men’s tears and women’s tears. As “luck” would have it (or as always in these matters), men’s tears are a turn on for women, but women’s tears are a turnoff for men. Or is it? There’s an interesting study out but not all agree on the interpretation of the results.
Crying, Sex, and John Boehner: Not So Fast
The study is, predictably, getting a lot of media attention (WOMEN’S TEARS SAY, ‘NOT TONIGHT, DEAR’), but experts on tears and crying aren’t so sure the findings mean what the Weizmann scientists say they do. “I like their study very much, and I think their results are fascinating, but I have my doubts about their interpretation,” says Vingerhoets. “I suspect the sexual effect is just a side effect: testosterone, which was reduced when men sniffed the women’s tears, isn’t only about sex: it’s also about aggression. And that fits better with our current thinking about tears.”
Sooooo…. What are you reading this morning?
I was beginning to think that EU was going to be the only hope for sorting through the mess Goldman Sachs has made of the financial markets of the world. I’ve mentioned the Issa documents which show how deeply Goldman Sachs was involved with the failure of AIG. We’ve also seen mounting evidence that Greece was part and parcel of the Goldman Sachs side bet operations also. It’s looking more and more that the side bets weren’t placed as hedging or insurance tools which is technically their function in financial markets. Hedging is a tool for locking in a rate of return when prices could possibly move against you. I used to hedge commercial mortgage originations with GNMA contracts back in the early 1980s. This was because interest rates were moving around so much, that we needed to insure the market wouldn’t move against us while we contracted with the home buyer. Farmers use hedges to lock in a price in the future for their crops when they harvest based on the costs they incur at planting. Businesses that sell things overseas and collect money in foreign currencies later, also using hedging. I won’t go into the details of how these things work or how you value them, because this is a real math exercise, but believe me in certain instances and markets, hedging works like a form of insurance. It’s to help a business manage its risk.
In the case of Goldman Sachs, it looks like they put together deals that they knew were problematic then used the side bets to reap the rewards of the shoddy deals. In other words, the purposefully seemed to invest in things that were going to blow up, sucked markets and the investors into thinking the deals were okay, and then waited to collect the true profits from the side bets. Oh, and they also seemed to have put the same sidebets on their own stock during the entire financial crisis. If this is found to be true, I can’t even imagine how big the consequences are going to be. If you want another take on this go see Naked Capitalism. It appears Yves Smith actually worked there for awhile and she’s talking about the experience.
However, my original thought was that it was going to be the EU that actually went after them. It appears–according to today’s NY Times–that the FED is looking into this too.
Ben S. Bernanke, the Federal Reserve chairman, told Congress Thursday that the Fed was “looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece.”
Mr. Bernanke said the Securities and Exchange Commission was also concerned about how derivatives — financial instruments that are largely unregulated and do not trade on public exchanges — have contributed to Greece’s problems. “Obviously, using these instruments in a way that intentionally destabilizes a company or a country is counterproductive,” he said.
The S.E.C., in a statement, said that it could “neither confirm nor deny the existence of an investigation,” but added that it was cooperating with United States and international regulators in examining “potential abuses and destabilizing effects related to the use of credit-default swaps and other opaque financial products and practices.”
It is about time some one look into these activities. Not to be left out of the loop, Congress appears to have gotten a bit more educated on the situation, despite its heavy reliance on the FIRE lobby for campaign contributions.
Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the Senate Banking Committee, also took aim at credit-default swaps, which allow banks and hedge funds to wager on whether a company or country might default.
Critics say the swaps have contributed to Greece’s problems and increased the odds of a financial collapse.
“We have a situation in which major financial institutions are amplifying a public crisis for private gain,” he said.
The Fed inquiry was begun about three weeks ago, according to an official involved in the investigation who was not authorized to comment publicly. Fed examiners are focusing on whether Goldman and other banks complied with guidance the Fed issued in 2007 outlining how to manage the risk of complex financial vehicles. The investigation is still in its early stages, he added, as officials sift through records detailing how the derivatives were created, what compliance procedures were followed and what internal analysis was performed. The Fed is also looking at whether Wall Street made additional financial arrangements for Greece that have not been disclosed.
The Greek situation is bad. The country may default and because it’s part of the monetary union, it’s bringing the Euro down and the interest premiums up. If Greek sovereign debt (debt guaranteed by the government) goes into default, the costliness to Greece and the contagion that creates for the rest of the EU cannot be understated. Given that, even Goldman Sachs with all its White House connections will not be able to escape the number of Captain Ahab’s that will go after the Great White Vampire Squid. I can imagine there will be a lot of folks that will be glad to supply the harpoons.
I should’ve stuck to my research agenda, but no, I just had to go look at business headlines. There’s a debate on at The Economist over “Who benefits from financial innovation?” Nobel Prize winning Economist Joseph Stiglitz is arguing that financial innovation hasn’t been boosting economic growth but his position (which is mine) is currently in the minority.
The right kind of innovation obviously would help the financial sector fulfil its core functions; and if the financial sector fulfilled those functions better, and at lower cost, almost surely it would contribute to growth and societal well-being. But, for the most part, that is not the kind of innovation we have had.
In terms of that big question up there, the answer is found today on Bloomberg.com. If you answered “what is the vampire squid”,you’re absolutely right. The more relevant question appears to be what did that cost us? For that, I can only answer a lot and there’s more to come. Here’s the headline: Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs.
Well, there’s your financial innovation for you.
So, the fun thing about the story is that the unlikely hero is Darrold Issa (Republican) member of the House Committee on Oversight and Government Reform who “placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.” Oddly enough,it appears that Issa may have not really known exactly what he had just disclosed. It didn’t really attract any attention at the time. Luckily, some one who knew something eventually looked at it. This was essentially a list of the deals that made AIG insolvent. These were also the deals that the government basically bought when it rescued AIG.
The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.
The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.
Here’s an even more interesting analysis from a legal standpoint. I know the deal was shady, I just have never known exactly if shady=unethical=illegal. The devil is truly in the details placed into public record by Issa.
The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured — more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.
These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: “They may have been trying to shield Goldman — for Goldman’s sake or out of macro concerns that another investment bank would be at risk.”
Okay, so we know who we’re speaking of when Cox says the New York Fed, right? That would be Treasury Secretary Timmy-really-in-the-well-this-time Geithner. Bloomberg is going as far as to label his actions a cover-up. I frankly think that looks like a mild charge. Interestingly enough, an earlier version of the information was released by AIG but the counterparty names were redacted at the time. Chris Dodd’s committee had requested the information. Without the names–or more truthfully the frequency of ONE name in particular–you can’t really see much of a conspiracy.
What this detailed list shows–because the names are now out there along with the deals–is that the very same folks that underwrote the original toxic securities were the same folks that went to AIG to bet against them. It doesn’t look like they were hedging or placing insurance on their risk which would be natural and understandable transactions. It appears they fully knew the securities were bad and were preparing to make money by placing offsetting bets. This activity could only be determined if you saw the names of the counterparties next to the deals themselves. So, the appropriate document to list the information on would be a Schedule A. AIG released a schedule A for several years during the crisis, but without some of the most relevant details. We know now that this was at the request of the NY Fed (aka Tim–I’ve got GS on speed dial–Geithner).
In late November 2008, the insurer was planning to include Schedule A in a regulatory filing — until a lawyer for the Fed said it wasn’t necessary, according to the e-mails. The document was an attachment to the agreement between AIG and Maiden Lane III, the fund that the Fed established in November 2008 to hold the CDOs after the swap contracts were settled.
AIG paid its counterparties — the banks — the full value of the contracts, after accounting for any collateral that had been posted, and took the devalued CDOs in exchange. As requested by the New York Fed, AIG kept the bank names out of the Dec. 24 filing and edited out a sentence that said they got full payment.
The New York Fed’s January 2010 statement said the sentence was deleted because AIG technically paid slightly less than 100 cents on the dollar.
Before the New York Fed ordered AIG to pay the banks in full, the company was trying to negotiate to pay off the credit- default swaps at a discount or “haircut.”
Read that date. We’re talking November 2008. If you read further into the Bloomberg article you’ll see that the names were withheld also during 2009. Issa put the names out because he wanted to show U.S. taxpayers where their money went. It’s unclear to me if he understood then or maybe even now that by putting out the details of the deals, he’s basically provided information that let’s us know how deeply Goldman Sachs was in on the financial innovations that blew up the economy. Not only that, it appears they knowingly may have been loading some of those innovations with assets they knew would explode and that they were actively placing bets on that outcome at AIG. As of the end of January, 2010 meeting, Geithner and the NY Fed still didn’t want the details released. No fucking wonder!
Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago-based consulting firm, says the New York Fed’s secrecy has helped hide who’s responsible for the worst of the disaster. “The suppression of the details in the list of counterparties was part of the coverup,” she says.
E-mails between Fed and AIG officials that Issa released in January show that the efforts to keep Schedule A under wraps came from the New York Fed. Revelation of the messages contributed to the heated atmosphere at the House hearing.
Tavakoli also says that the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled. Managers who oversee CDOs after they are created have discretion in choosing the mortgage bonds used to replenish them.
“The original CDO deals were bad enough,” Tavakoli says. “For some that allow reinvesting or substitution, any reasonable professional would ask why these assets were being traded into the portfolio. The Schedule A shows that we should be investigating these deals.”
So, check this out.
Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who delivered a report on the AIG bailout in November, says he’s not finished. He has begun a probe of why his office wasn’t provided all of the 250,000 pages of documents, including e-mails and phone logs, that Issa’s committee received from the New York Fed.
Okay, now, follow closely as I connect the dots to this one: U.S. Treasury loan plan may exclude TARP watchdog.
If you were Timothy Geithner, would you want Neil Barofsky poking around any more programs? Wouldn’t you be highly interested in controlling TARP oversight? No wonder Treasury officials and others have been after Barofsky for some time. (Here’s an outline of their actions and attempts to remove independency by Glenn Greenwald at Salon from last summer. )
Geithner basically knew the vampire squid was a huge contributor to the fall of AIG. It looks like he may have actively encouraged covering-up that information. It also looks like GS actively securitized mortgages it knew would fail eventually and made huge counterbets based on that information using AIG as its personal bookie. Then, when AIG couldn’t cover the bets, GS refused to negotiate any deals (they must’ve known something like a bail out was forthcoming). Then knew exactly what was in those securities so they knew their real value. Geithner made AIG pay GS 100% of the value when it appears they were worth around 35%. When AIG tried to report the counterparties, the NY FED told them to withhold the information. (Yet, post Timmy, the NY FED appears to have released everything to Issa’s committee. During Timmy’s time, remember, everything was heavily edited and Barofsky appears not to have gotten the same information.) They also were told not to provide details on the mark downs. Timmy must’ve known that Goldman was betting against the toxic assets they had created. Not only that, it looks like Goldman was actually shorting themselves! AND these guys were Obama’s major contributors. Giethner must’ve been part of the packaged deal.
I got one thing to say now. A lot of folks should be doing a perp walk on this one. This looks like fraud. If this is the kind’ve financial innovation these folks voting on The Economist poll want, then they should just as well turn their life savings over to Bernie Madoff right now. I just wish they’d stop giving the likes of him mine too.
(I hope I’ve explained this adequately, cause this sure is one fucking twisted tale.)