March 25th, 2008
Anyone who has followed the Iraq war in the press, on the web and in the film documentaries already out there, will find little new to chew on in Frontline’s new Bush’s War.
Most troubling: The show opens with 9/11 — and never looks back. Thus presents the war entirely as a reaction to the attacks. Not a word of events and trends prior thereto.
Yet war with Iraq (as Colin Powell and Paul O’Neill have each told us) was on the agenda at Bush-Cheney’s first NSC meeting in January 2001.
The account of the war’s origins, then, is grossly false by omission.
The one bit of news (to my ears) re origins came in a clip of Richard Armitage, who says that Ahmed Chelabi (the Likud lobby’s disinformative nominee to run Iraq post Mission Accomplished) had explicitly promised his Beltway sponsors that his new Baghdad would recognize Israel.
Yet of the PNAC gang only Wolfowitz seems to bear some responsibility in the film — while Perle and baby Kristol, rather scandalously, are present as commentators, rather than examined as agents of the war.
Thus the prime motive of many of the two dozen Beltway activists who made the war happen — “to secure the realm” of Israel, as Perle & co. put it in the first Clean Break memo — escapes Frontline unnoticed.
Instead: hours of detail, often focused on personality, re disputes among the administration’s celebrities. As if the war were the crapulous fallout of a power-elite swing party gone wrong. Smartest Guys in the Room …
… go in with eyes wide shut…?
It seems a quarter of the air time in Part One (covering the lead-up) is devoted to Secretary of State Powell’s humiliations in battle with the Dark Side, the latter which gets represented chiefly by Rumsfeld and Cheney.
As a result of this eccentric montage, an innocent viewer might come away thinking that the war had no cause beyond Rummy’s hubris and Cheney’s colitis, and was Powell’s fault — that it sprung from Grand Old animus for Saddam acted out as a terrible comedy of errors, rather than from a strategy first publicized in 1992 and a plan first devised in 1996 by American lobbyists working at a Jerusalem think tank.
In short: This wooly 4.5 hour mammoth delivers almost nothing new, and seems in important part a whitewash.
(The distracting concentration on Powell may have followed simply from the fact that his people — Undersecretary Armitage and Chief of Staff Larry Wilkerson — were among the few players willing to talk to the camera — a classic pitfall for film documentary. Wolfowitz was smart enough to refuse to participate.)
Credits indicate that the film’s ideas were entirely the work of two men, Michael Kirk and Jim Gilmore, who between them fill the roles of reporter, writer, producer and director. Perhaps more people should have been involved.
Frontline made its name in the 80s as the tube’s best vehicle of investigative journalism. Funny thing is that to sketch the origins of the war today, little investigation would be needed, the outline of things having long been public, if absent from television.
It seems more and more, then, that PBS, like NPR, somewhere along the line fell asleep, and fell victim to the pod people at the Manufacturers of Consent Associa-
-tion. (Thinking here, too, of Jim Lehrer’s manly neutering of the old MacNeil-Lehrer Report, which on occasion in the 70s and 80s had some bite.)
One supposes money had something to do with it.
My own Little Jimmy Grimaldi thoughts about why the war happened are encapsulated here.
A big question that still puzzles: How and why did Dubya hire the PNAC gang — long-standing enemies of his father beneath the GOP big top — to advise his 2000 campaign, and then to run his foreign policy? The story on its surface seems slick with bathos and Shakespearean blood … Cheney seems to have been the go-between …
But we have no word on this from Kirk and Gilmore, who never draw near the question.
Maybe Mel Brooks is the man to show in moving images the sickening story of how this war was made and sold.
“This is it! This play won’t last a day!”
Springtime for Saddam …
Was it really Bush’s war?
March 23rd, 2008
Cheney met with the Saudi king the other day. Today is going thru the motions of selling Palestinian statehood in Israel.
Getting ducks in line for Israeli air strikes on Iran in April?
Defense Minister Ehud Barak met with U.S. Vice President Dick Cheney in Tel Aviv on Sunday and told the American official that Iran’s nuclear plans were threatening the stability of the entire region, as well as the world.
“The Iranian Threat” continues to be headline news in Jerusalem, despite the opinion of US intel that Iran’s nuke program has been inactive since 2003.
March 22nd, 2008
The election is far away. Impossible to confidently assess lines of force in November. But instincts continue to shout recollections of Donkey self destruction.
Polls now show McCain ahead of Barack among independents by double digits. A strong swing from a month ago — the Reverend Wright effect.
1. I’ve never quite bought Barack’s “fierce urgency of now” argument.
To begin, the need in 2004 to depose Bush-Cheney and to restore a semblance of legitimacy to the electoral process was incomparably more urgent than the need now to keep McCain out of the White House.
(The damage has been done; we broke it and own it. And McCain is the Leftiest GOPher since … Nelson Rockefeller? Nah, he Leftier than that. Let’s see … He’s Leftier than any GOP candidate in my lifetime, which commenced late Eisenhower.)
More broadly: the American crisis began in the 80s, when its globalizing owner-operators began to separate themselves economically from the working class. The social and constitutional corruption we’ve suffered since followed that divorce as a near matter of course.
It’s not, then, that the dike has sprung a leak and we need an agile volunteer to lend a finger. Rather, the levees have burst — indeed, have been blown. The plutocratic trends are entrenched and turning them around will be like (the chestnut, but so apt) turning a tanker.
Our urgent need now, then is not merely to win this November but to end the GOP dominance of the White House that has obtained since LBJ fell on the sword of Vietnam.
2. Nor do I buy Barack’s song of unity. (But sense he may not either, in at least one important respect.)
Behind Reagan’s sparkly smile, the owner-operators of the United States resumed the class war that had subsided under FDR and Henry Ford:
– using immigration and globalization to “rationalize” US wages with the cost of Asian labor
– using “pension reform” to shed corporate responsibility for a “coddled” working class
– using debt generated by tax cuts off the top to beggar federal social support programs, and
– cutting federal funding of universities, having been taught by the movements of the 60s and 70s that an educated working class is a pain in the butt.
Reaganomics, in short, were about freeing the wealthy from taxes and regulation, while undermining the reforms of the 30s and the G.I. Bill which together by the mid 50s or so had produced a politically competent working class.
The owner-operators told us in the 80s they’d had enough competency. Then did their best to paralyze Bill Clinton when, unexpectedly, and thanks to Ross Perot, he slipped into office with 43% of the vote. Then installed Bush-Cheney. The Latin American model inspires them.
This reactionary assault on American society is largely a done deal. To what degree it can be undone is a question. But surely the owner-ops are not going to recant and rededicate themselves to Fordism after a S’mores-and-Kumbaya sitdown with Barack.
Thus, we need not unity, but a sustained Democratic response that effectively engages in the new class war, to restore a healthy socioeconomic balance. Last time the Depression provided the opportunity; perhaps the current crisis has a silver lining.
John Edwards was singing this song, but he was unable to compete for media time with the Hillary and Barack show. Identity politics again trumping the facts of life.
However: occasional glimmers in Barack’s eyes (when he utters the word Cheney, e.g.) lead me to think that he would indeed fight the Edwards fight, that his talk of unity is mostly just that: effective and cautious abstract speechmaking.
Maybe I’m wrong. It would be an interesting question to pose in debate:
Who, Senator, precisely do you hope to unify?
3. November Risk
Hillary risk is the ghost of Vince Foster.
Obama risk is (i) Rev Wright and similar as trigger of white mainstream voting booth conversions and (ii) international affairs.
Re the latter: Iran-Iraq-Turkey. Pakghanistan. Kosovo. Israel attacks Iran. If new fires are burning in November, it would hurt Barack much more than it would Hillary.
4. What’s a superdelegate to do?
Bill Richardson today gave his answer: roll the dice, in hope that the magnitude of damage done by Bush-Cheney will redound to support the relatively revolutionary vote. I think there’s something to this.
But then what …?
Whoever takes office in 2009 will catch the blast of the Bush-Cheney bomb. It will be hard for that person to repeat in 2012. Again I think Hillary shapes up better in this scenario.
Eight years of Hillary followed by eight of Obama would put an end to the nostalgic Reagan reaction and leave us finally facing the future, where clearly thru the mist it’s not Morning in America.
But a four-year Donkey tour that ends with electoral failure in 2012 would only strengthen the plutocratic trend, as the fresh air and clean hands of Carter’s four years (preceded by two Nixon victories) were followed by the Reaganite assault on the New Deal.
There were no clues in Bill Richardson’s (oddly timed) endorsement speech as to what he thinks about the nuts and bolts of November: he spoke of character, not Nixon/Reagan Democrats and the electoral college. He was close to the Clintons, of course. It would be more interesting — and even perhaps beneficial to settling this Donkey dust up — if he talked turkey about mechanics.
Meanwhile Barack himself seems mired in the tar pit. His comment about his mother (“a typical white person”) is echoing negatively all over the tube, while the GOPher OR people comb clippings and videotape for off-color remarks from his wife.
6. What a mess. The precedents have been clear, well discussed in the press:
– The 1980 convention: Ted Kennedy unwilling to compromise with Jimmy Carter. When that mismanaged show closed down Reagan found himself transformed from a curious old fogey (They say the darndest things!) to frontrunner.
– 1968. Chaos:
A big unpopular war. Eugene McCarthy runs against it — and thus against incumbent fellow Donkey LBJ.
And he does so well as to encourage Bobby Kennedy (who had thought to run in ’72 after a second Johnson term) to enter the fray.
Weeks later Martin Luther King is murdered and grey LBJ quits the race — sick with cancer, sick of the asian war and the domestic terror, and sickened by the Party’s electrified reaction to Bobby’s candidacy.
RFK’s murder then abruptly leaves the Party in pieces without a viable candidate. McCarthy’s people love him for good reason but he’s clear to get creamed by the center in November.
So Humphrey, Johnson’s Vice, gets the nod at Chicago while the kids and police are rioting in the streets.
Roughly one may draw comparisons: McCarthy and Barack. Humphrey and Hillary. But both of today’s candidates are stronger than those left standing in ’68.
I continue to worry the Nixon/Reagan Democrats would not vote Obama in the fall; thus that McCain would beat him.
I continue to worry the GOP would slam Hillary with Vince Foster; she’s answered those questions many times before, but never beneath klieg lights.
The only thing clear is that McCain is no longer an underdog.
If I were a Donnkey superdelegate, I would go with Hillary because I think she shapes up better against McCain and in the nuclear winter of 2009-10.
Obama, then, could not lose, whether or not he accepted a Hillary VP offer, and even if she lost to McCain. The Clinton saga would run its course and die a natural death, most likely after fighting the battle of Midway/Stalingrad (2009-10), leaving the party and country in better shape for Obama’s Enlightenment.
March 20th, 2008
Just came across old words posted here after the 2006 elections:
IÃ¢â¬â¢m glad Eliot Spitzer won as New York governor. Finally dispensing with the lap puppet Pataki.
Spitzer is a powerful moral force, already hated by Wall Street muscleheads for his piecework prosecution (as state attorney general) of their routinely corrupt business practices. I imagine he will begin to get the Cuomo treatment. WeÃ¢â¬â¢ll see how he holds up.
(Ã¢â¬ÂCuomo treatment?Ã¢â¬Â Mario Cuomo, by means that remain mysterious but likely to my mind, was blackmailed out of politics as his time to run for president approached Ã¢â¬â told that if he made a run something awful would be revealed/done. He quietly conceded and left public life.)
March 20th, 2008
Remarkable week in the Donkey race.
Hillary (also) gave a major speech — on foreign policy. No smiles. All business. Doing her best to appear presidential, and doing it well.
The Chicago minister is indeed a big liability. But Barack’s address of the issue was fresh, bracing, courageous and loveable.
Nevertheless I doubt the party leadership will put him out there to be pounded by Rev Wright videos all fall long.
Thus, seems the show now is all about precisely how the superdelegates will arrange to have Hillary atop the ticket and Barack as VP.
And then the question will remain as to how badly the GOPhers will hurt Hillary with Vince Foster. ??
Curious to see how Barack would react to pressure from above. Surely the party would rather have him concede graciously after Pennsylvania, rather than force a public vote in which the superdelegates went heavily against him.
Maybe I’m wrong. Just reporting impressions at the end of a tumultuous four-day week …
March 18th, 2008
What the Fed has done in the last week — throwing open its window to investment banks & brokers, and giving JPM $30 billion in non-recourse loans to cover potential losses on Bear Stearns mortgage bonds — finds precedent only in the 30s.
It turns all the Reagan era wisdoms on their heads.
1. If the Fed had made the move on Thursday, instead of Sunday, Bear Stearns would be whole. And if the move hadn’t been made on Sunday, Lehman Brothers yesterday might well have gone under.
Now, the remaining four big Wall Street greed mills (plus a list of about 15 others) are golden — able any day to draw credit from the Fed.
And what do you know, after announcing quarterly results and putting on showmanlike conference calls this morning, Goldman and Lehman each went to the Fed after the close this afternoon and filled up.
One feels grateful that the global system didn’t melt yesterday (not because I like the system, but because I think it’s the working class that would be crushed by the melt, not the rich, who may be eaten).
But the idea of giving almost bottomless credit to so-called investment bankers to play with at 30 to 1 leverage … It seems a recipe for disaster, long-term.
Thus, the Fed did the right thing over the weekend. But one hopes that:
– JPM’s sweetheart deal, taking Bear for cab fare, falls apart, or gets modified to more fairly reflect reality for the Bear shareholders, 30% of whom are employees, from secretaries to the erstwhile big brains.
– the window closes on these hustlers as soon as the crisis has passed. Six months or a year, maybe.
2. It now remains to further thump the Free Marketeers by buying something like $50 or $100 billion in wounded mortgage bonds.
Everyone is now talking about this — from Barney Frank in Congress to the managing director of the biggest bond investor (PIMCO) in the country, who advised same in a Financial Times op-ed piece this morning — while a billionaire from Texas took out a full page ad in the NY Times begging Boom Boom Bernanke not to “fill the Federal Reserve with Garbage.”
One would think the Treasury or Fannie Mae and Freddie Mac (issuers of about half the mortgage bonds outstanding) are the entitties to do the buying. But they seem paralyzed — ideologically and economically — by their baby Bush reaganism.
Thus, it’s beginning to smell as if the Fed — again — is going to be the one to act. To go out and buy wounded mortgage bonds. Blowing the Free Marketeer’s mind. Think of him as a frog in cool water coming to a boil:
– A week ago the Fed shocked people by saying it would give banks etc golden (knock on wood) Treasury bonds in exchange for wounded s-f bonds (including mortgage bonds) for 28 days.
– Then, on Sunday, as the Bear Stearns steal was inked, the Fed agreed to make the same swap — any “investment grade” security — for 60 days.
And presumably these loans could be rolled over.
Seems to blur the distinction between a loan and a purchase.
Somebody governmental buying a ton of mortgage bonds like this — perhaps at 94 cents on the dollar (?) — will put the financing end of the housing debacle on solid ground. Which will help prices begin to stabilize.
March 18th, 2008
Despite Andras’s comforting overview last week, it seems things may indeed be going the way of the gun in Kosovo.
I’m no longer in touch with things over there, but it’s hard to imagine the Serb nationalists would allow the area they consider their homeland go without kicking up some dust.
The organs of Western power seem to be dancing the familiar step:
– UN peacekeepers get chased out of town (this time, Mitrovica) by Serb nationalist irregulars.
– Then NATO dispatches people (U.S troops, it turns out) with heavier equipment, who declare martial law and divide the town in half, as if society were geographical:
Mitrovica Bridge becomes Wall between Two Worlds as Serbs Prepare for Long Fight
The main bridge linking the Albanian and Serb communities in Kosovo’s most volatile city was deserted yesterday as an international group cautioned that the area was in danger of becoming a long-term Ã¢â¬Åfrozen conflictÃ¢â¬Â.
Loops of razor wire were stretched across the road on the northern, Serb side of the Ibar river dividing Mitrovica. They also surrounded the courthouse at the centre of Monday’s clashes in which a Ukrainian UN policeman died from suspected grenade wounds.
Condoleezza Rice, the US Secretary of State, led calls for restraint …
One cannot help but recall the bridge in Sarajevo connecting the center of town with the neighborhood of Grbavica, which the Serb nationalists garrisoned throughout the siege of 1992-95. The war there began when a peace demonstrator, a young woman, was killed on the bridge, in cold blood, by a Serb nationalist sniper.
March 17th, 2008
JPMorgan Chase (big bank) is buying Bear Stearns for roughly $2 a share (!!) or $260 million — with Fed financing support up to $30 billion (!!!!!!)
Bear closed around $30 on Friday. Its high last year before the fall was $160.
It seems mad. The world on its head.
Then again, thatÃ¢â¬â¢s the world weÃ¢â¬â¢ve lived in since November 2000.
ItÃ¢â¬â¢s hard to believe that BearÃ¢â¬â¢s assets — which include its new state-of-the-art skyscraper on Madison Avenue, market value by various reports between $600 – $900 million — are worth no more than $2 a share.
If itÃ¢â¬â¢s true Ã¢â¬Â¦ then what are Lehman Brothers, Goldman Sachs, Morgan Stanley and Merrill Lynch worth?
I guess weÃ¢â¬â¢ll find out tomorrow. Asia, at the moment, is crashing. Tokyo down over 3% Ã¢â¬Â¦
Also, in conjunction with the buy-under, the Fed cut its Discount Rate a quarter percent and announced yet another new and extraordinary credit facility Ã¢â¬â the third in eight days Ã¢â¬â for banks and brokers.
Buckle your seatbelts. ItÃ¢â¬â¢s going to be a mad, mad, mad, mad week.
March 16th, 2008
Treasury Secretary and former Goldman Sachs chairman Henry Paulson went on TV (Fox) this (Sunday) morning to say nothing of substance in the wake of the failure and Fed bailout of Bear Stearns on Friday.
And like Bush on Friday, speaking as markets melted on the Bear news, Paulson rejected the various ideas in Congress for aggressive extra-market action to staunch the flowing blood.
And Paulson’s only comment on the housing business — the heart of the matter — was that “the markets have to correct.”
Words to remember.
Paulson never fails to inspire despair when he speaks. He is something of a Dubya in this respect. Both men seem to lack the imagination and ideas their jobs require.
The coming week in the markets looms. Four of the five major brokers report their latest results. The Fed meets Tuesday on interest rates. The biggest IPO (Visa, the credit card system) in many years tries to float on Tuesday. And triple witching expiration (all futures and options contracts) occurs on Thursday. The markets are then closed for Black Friday.
The week, then, is jam packed with explosive material. The potential for the panic that sank Bear Stearns spreading to the other big brokers is real, and the fear of such was already palpable on Friday, when Lehman (the second biggest player in mortgage bonds) sank 15% while Bear fell 47%.
The only bit of substance in Paulson’s appearance came when he hinted obliquely that a bona fide buy-under of Bear (which would take its liabilities off the Fed’s balance sheet) is in the works. JPMorgan Chase was Bear’s prime creditor and as such served as broker between Bear and the Fed in the bailout on Friday. It and HSBC, a brit bank, are the names that circulated Friday as Bear’s best suitors.
But the world is running out of megabanks. If the other major brokers suffer anything like the crisis of confidence that crushed Bear, who will buy them? Citigroup is already on the ropes — a candidate for failure or fire sale. UBS (of Switzerland) and Deutsche Bank like Citigroup have been deeply gouged by the collapse and or freezing of markets in structured finance bonds. Bank of America has already bought the largest mortgagor, crippled Countrywide, and is suffering for the move …
Paulson was asked directly three times today if the Fed would (indeed, could) buy the obligations of the other four brokers if they too went belly up. He (of course) refused each time to answer the question.
Thus, if the panic spreads to the other four this week, it’s very hard to imagine an orderly reaction. Rather, it seems we’ll see an unprecedented and almost immeasurable panicked unwind of trillions in securities that will completely freeze the global system.
At that point the Free Market game ends, once again. Anyone too young or too shallow to know of the world before Reagan will have his mind blown. Historyless, they haven’t a clue. And reading the commentary the creepy impression intrudes that the world of finance, and the financial press, are universally populated with such people.
The five big brokers — Merrill Lynch, Morgan Stanley, Goldman Sachs, Lehman Brothers and Bear Stearns — are the counterparties in trillions of dollars worth of derivatve securities, most of which are swap agreements in which one party pays the other a small regular fee in exchange for the right to receive compensation in the future upon the occurrence of specified trigger events. In essence these swaps are like insurance policies.
After the Fed bailout was announced Friday morning, Bear had its basic credit rating downgraded by S&P in the afternoon. This downgrade triggers termination provisions in a zillion swap agreements in which Bear is counterparty. What happens now?
Three or four years ago, while working as a principal drafter of CDOs for a Wall Street law firm, I chatted with my boss about this very scenario: specifically, what would happen if Lehman Brothers — also counterparty to a zillion swap agreements — failed to hold up its end. There was no imaginable answer then, and none now, aside from “the game ends.”
(The Lehman entity that does most of its swap agreements is Lehman Brothers Special Financing, Inc. In my experience, whenever LBSF entered a swap agreement (which are, inter alia, often embedded in CDOs to help control interest rate and similar environmental risks), its obligations thereunder were guaranteed by the holding company atop the Lehman empire, Lehman Brothers Holdings Inc.)
So what happens if what happened to Bear on Friday happens to Lehman (the second largest player, again, in mortgage bonds) this week as confidence corrodes and rating agencies downgrade?
The parties on the other end of the swap agreements, at bottom, are mostly structured-finance bond investors. “At bottom” means: once one works thru the shell-company issuers of the bonds. These issuers are technically the prime party to the swap agreements, and as such they stand up for the investors of the bonds they issue.
(But also note that these issuers are indeed shell companies created and controlled by the “counterparty” — whether it be Bear, Lehman, Goldman, Morgan Stanley or Merrill. So in fact both the prime party and the counterparty are the same: the Wall Street broker. And thus the potential for conflicts of interest, when something like Bear fails, are there. But let’s assume that the shell issuers act as they should: to defend the interests of the investors in their bonds.)
When a rating agency downgrade of the counterparty (which happened Friday to Bear) occurs, it triggers termination provisions in the swap agreement, under which the prime party (the issuer) has the right to terminate the swap.
When talking about a swap embedded in a CDO, the termination of the swap in turn triggers termination provisions of CDO itself. This makes sense: the protection afforded to the CDO by the swap no longer exists, so the deal closes down to protect the CDO investor.
But when the spector of a major broker failing shadows the Street …
A zillion swaps terminating simultaenously … Triggering same of a half zillion CDOs — which may otherwise be healthy, paying their investors regular interest and preserving principal for return at wind up …?
If a CDO abruptly closes down, the broker has to sell the assets underlying the CDO to recover principal for the CDO investor. These assets, as the name “Collateralized Debt Obligations” implies, are all kinds of debt instruments: corporate bonds, mortgage and credit card and auto loan bonds (common types of “asset-backed securities”), packaged LBO loans …
One CDO abruptly closing down would produce an unpleasant blip in the credit markets. A dozen closing down the same week would mean a bad weekend in Southhampton and Greenwich. But what happens when, say, ten percent of the CDOs that contain swap agreements where Bear Stearns is the counterparty suddenly are compelled to sell their assets in an already devastated and dry market?
The spectre haunting Wall Street, then, this Sunday, is that of huge fire sales sweeping the global credit markets.
Especially if it becomes clear early in the week that a bona fide buy out of Bear by a big bank is not shortly forthcoming. As many suspect. For to buy Bear one would have to understand its vast portfolio of derivative securities, and it’s going to take longer than a weekend to come to that understanding.
Yet Paulson today said nothing and clearly indicated that Bush-Cheney will continue to do almost nothing.
Thus it’s not much of a stretch to worry that the coming week may be one of the great debacles in the history of the markets. The 1987 crash was roughly 22% of the Dow. A comparable crash today would be over 2,500 points.
Then again — the potential for a remarkable upswing is also out there, — simply because things have been so bad since August, and particularly since January.
– If Monday morning presents the world with a definitive Bear buy-under plan …
– If the four major brokers reporting results this week manage to show numbers that persuade people that the fate of Bear does not await all, perhaps even that the trashing of Bear was irrational …
– If the Visa IPO avoids the fate of the space shuttle Challenger …
– If the Fed on Tuesday with its words and acts manages to persuade people that SOMEBODY in Washington is not a shallow boneheaded Free Market ideologue …
– If despite Paulson’s non-performance today on the tube, the Fed or Treasury announced a program to buy Fannie Mae and Freddie Mac mortgage bonds (Joltin’ Jersey Jim Cramer says a $50 billion purchase would stabilize this sector of the credit markets, the dark heart of the matter) …
The latter move would be pound wise. But Paulson nixed it today.
Something broader and even more effective would be to revise the accounting regulations (passed in 1993) that require institutions to mark these complex structured finance bonds to market value, despite the fact that for many classes of such no secondary market exists (or was ever intended to exist, in the case of the CDOs I worked on).
Or: institute price controls on the wounded bond classes that will allow institutions to carry them on their books and stop announcing huge paper losses, allowing the bonds to live out their lives and return most of the interest and principal they were intended to return — well above what the current (non-existent) Market Values imply.
(Price Controls of course would blow the mind of the Reagan-born Free Marketeers that dominate the industry; we haven’t seen them since Nixon.)
There is no doubt that the Western (increasingly a global) finance system is facing its worse crisis since the one triggered by the crash of 1929. So far the reaction of Washington today echoes the blase Laissez Faire reaction of Hoover and Wall Street in 1929. A huge and protracted decline in credit caused the Great Depression. Doctrines of the day dictated austerity for the people. So far we are tracking the same path.
At some point somebody will realize there is no market cure for what ails the markets. But how long, Adonai, how long?
March 15th, 2008
The War Comes Home at the Winter Soldier gathering of veterans in D.C.
The horror …
Broadcast & archived by the Pacifica radio network, March 14 to 16.
Otherwise ignored by the American media.
March 14th, 2008
ATLANTA (AP) — A severe storm ripped two holes in the side of the Georgia Dome during the Southeastern Conference basketball tournament, halting the Alabama-Mississippi State game and sending fans fleeing for the exits.
The teams were sent to the locker room while those who remained at their seats looked anxiously toward the roof. The game was stopped with Mississippi State leading 64-61 with 2:11 left in overtime.
March 14th, 2008
Must reading — the book I mean.
March 14th, 2008
Today was a day people involved in the markets will long remember.
Bear Stearns went belly up. The fifth largest broker on Wall Street. Its stock closed the day down 47%.
The immediate culprit seems to have been a sharp downturn yesterday in Alt-A mortgage bonds. (Alt-As include the non-documented type mortgages used by the self employed.) Bear is big in this market, and its collapse after a week of rumors about Bear’s condition led its lenders and clients to pull plugs Thursday.
The Fed jumped in before the opening bell Friday to take on Bear’s liabilities for 28 days, using JPMorgan Chase (JPM) as intermediary. During that time, everyone hopes, Bear will be bought at fire-sale prices by a major bank.
Recall that on Tuesday the Fed had pleasantly surprised people by announcing a new $200 billion credit program that brokers like Bear could use to unload wounded mortgage bonds in exchange for solid (knock on wood) Treasury bonds. But this new Fed window has not yet opened, so Bear was unable to find succor there today; hence the need to use JPM (which as a “bank” already has direct access to Fed credit) as an intermediary.
Looking back on the week it seems likely that Fed fears about Bear and likely others prompted the surprising offer to trade a ton of mortgage bonds for Treasuries. The Murdoch (formerly Dow Jones) Industrials had been up over 400 Tuesday on the news. Then gave the gains away across the next days, to finish about flat on the week.
Bear has been the posterchild of the credit crisis ever since it had two “hedge” funds (hardly hedged, it turned out) fail in July. The firm was the leader in mortgage bonds and has now fallen on that sword.
(In August and September, investor Joe Lewis made a big move to buy Bear stock, which had fallen from $160 to about $100. After today’s action, when Bear closed around $30, Mr Lewis had lost somewhere between $700 and $800 million on his investment.)
JPM and HSBC have been floated as the likely candidates to buy Bear — as soon as this coming Monday. But some say that the FDIC doesn’t have the powder to insure Bear, and thus that a bank cannot be a buyer, and that Bear’s portfolio of structured finance bonds is so complex that a quick kill seems unlikely.
Memories of 1987 were in the air today. The crash then — about 22% in a day, on a Tuesday — was preceded by a black Friday. Today (a Friday) the Murdochs fell, after wild swings back and forth, only 200 points. A mere 1.7%.
Next week the markets are only open four days. They will be hair raising.
The big question will be about “contagion,” as people like to put it. Will Bear’s fall lead to the dumping of a ton of wounded mortgage bonds and other assets on already frigid markets? Will the lack of confidence that killed Bear spread? Lehman Brothers — the second biggest mortgage bond player — seems the next to be tested, and was down about 15% today.
Monday will probably see Asia and Europe selling off in reaction to today’s USA action.
After the close on Monday, Bear Stearns will report on its last quarter (having moved the report up from Thursday in an effort to control damage).
Tuesday the Fed has its regularly scheduled Open Market Committee meeting, where it is expected to further cut the bank lending rates it controls, somewhere between 50 cents and a dollar — with everybody already saying it won’t do any good: the cuts so far have been killing the dollar but have done nothing to lower mortgage rates or make more money for home lending available.
Also on Tuesday, Goldman Sachs and Lehman Brothers report their quaarters, and Visa, the largest credit card system, has its much ballyhooed IPO. It will test the already poor markets — and if it fails to hold its opening bid will contribute to the doom and gloom.
Wednesday Morgan Stanley reports its quarter. Thus the week will see four of the top five brokers (all but Merrill Lynch) reporting, in the wake of Bear’s failure. The potential for panic (or its opposite) seems great.
Then, Thursday: triple witching expiration for futures and option contracts, usually a source of much “volatility”, as people like to say.
Then Black Friday. When Jesus died and the markets are blessedly at rest.
Fire on the mountain
Lightning in the air
There’s gold in them hills
And it’s waiting for me there
As the markets were melting this morning on the Bear news, Bush came out to give a speech on the economy, congratulated his people at Treasury in language reminiscent of his praise post Katrina of FEMA’s Brownie, and then spent most of his time stomping on various fix ideas floating about the Congress and selling a free trade treaty with Columbia, his new war buddy.
Last August it was clear how wide and deep this disaster could reach. No one in Washington — at the Fed, Treasury (ie White House) or Congress — acted, standing firm with bonehead Laissez Faire.
The toothpaste is now out of the tube. Bear Stearns fell not to insolvency but lack of confidence, and the latter cannot be controlled with the kind of logic that evaluates balance sheets.
One thing Washington can do Monday is directly support the wounded housing market, which remains the heart of the matter. The easiest way is to buy Fannie Mae and Freddie Mac mortgage bonds, which comprise something like half the mortgage bonds outstanding.
Now that the Fed has in essence bought Bear Stearns for a month, hoping for somebody else to do it permanently, the Laissez Faire ideological roadblock to buying Fannie and Freddie bonds would seem to have fallen into the same pit as Bear.
A better but, alas, bolder alternative would be to institute a fiat price control program that would allow an institution to carry wounded bonds on its books, where they could live out their lives in peace, probably producing more interest and returning more principal than the current (non existent) market value implies.
Or: A different and perhaps simpler means to same end: revise in part the accounting regulations passed in the 1993 that require institutions to mark these wounded instruments to (non existent) market.
If indeed the Bear contagion spreads, something very like the above may be the only solution; outstanding derivative bonds are numbered by the hundreds of trillions of dollars, and the Wall Street brokers — now vulnerable as never before — are the prime counterparties thereto. If creditors pull the plug on Lehman and/or others next week as they did this week on Bear … everybody, more or less, is insolvent.
March 14th, 2008
March 13th, 2008
In case you missed this in the stream of media sewage:
Langone, Spitzer and the CNBC Remark
HereÃ¢â¬â¢s a dispatch from WSJ colleague Aaron Lucchetti
Former New York Stock Exchange director Ken Langone has a way of being in the middle of a big story.
ThatÃ¢â¬â¢s especially true if the story involves soon-to-be former New York Governor Eliot Spitzer. Langone (pictured, left) has been criticizing SpitzerÃ¢â¬â¢s prosecutorial style since, as New York attorney general, Spitzer sued the Home Depot co-founder for his role in the compensation package of former Big Board Chairman Dick Grasso.
After reports surfaced Monday that Spitzer had used the services of a prostitute, Mr. Langone told The Wall Street Journal and business channel CNBC that the news confirmed his opinions about the governor.
On CNBC, he added that Spitzer went Ã¢â¬Åto a post office and bought $2800 worth of mail orders to send to the hooker.Ã¢â¬Â He told CNBC heÃ¢â¬â¢d heard that from Ã¢â¬Åsomebody who was standing in back of [Spitzer] in lineÃ¢â¬Â at the post office.
The soundbite set off speculation Ã¢â¬â who was that person? On CNBC, Herb Greenberg, a columnist for MarketWatch and WSJ, wondered if it might be a private investigator. After all, Mr. Langone after all had made his dislike of Spitzer very clear. (See his blog post.)
But people familiar with the situation say Langone didnÃ¢â¬â¢t hire anyone to follow Spitzer. One of these people said Mr. Langone heard the post-office story from Ã¢â¬Åa friendÃ¢â¬Â who relayed it Monday, after the Spitzer revelations had broke.
SpitzerÃ¢â¬â¢s lawyers did not immediately comment.
March 13th, 2008
Ed Note: Andras J. Riedlmayer has been a student of Balkan affairs since his school days. During the Yugoslavian wars of the 90s he became a prime mover in an international effort to reconstitute books and the like destroyed in the war, and in the aftermath traveled extensively in the region researching cultural destruction in support of the war crimes trials at the Hague.
A 1994 print issue of The New Combat featured a piece by AndrÃÂ¡s about the war in Bosnia. So, last week, after posting a few distant thoughts about Kosovo’s move for independence, including worries about a resumed shooting war, I asked Andras to clue me in with some particulars. He writes:
Good riddance to Prime Minister Kostunica, who was never a real reformer and whose self-engineered resignation is no loss for Serbian democracy.
Kostunica’s personal popularity and that of his party has been on the decline. He has been trying hard to whip up popular anger over the Kosovo issue and make it his own, but try as he may, as a demagogue Kostunica is at best a poor imitation of Sloba in his prime. The frenzy over Kosovo, the engineered riots in Belgrade, the attacks on foreign embassies, and the toppling of the government are all part of a calculated political gamble. But it’s a gamble that may not pay off if Kostunica fails to deliver on his one promise — that he alone will “save” Kosovo for Serbia.
The beneficiaries of the current political crisis in Serbia are more likely to be the Radicals, who under Seselj’s successor Tomislav Nikolic have been trying to remake their image into something less scary than the neo-fascist party that they are. If the Radicals end up forming the new government — in coalition with Kostunica’s DSS (and Milosevic’s Socialists, et al.), they’ll only be blamed for
(a) having posed as the only party that can stop Kosovo independence, only to be powerless to prevent or reverse it; and
(b) for the economic and political repercussions for Serbia, likely to include political isolation and economic stagnation.
As recently as last month, many Serbs were looking forward to being able to travel to the EU again, as they haven’t been able to do since the 1980s. With Nikolic & Co. running the government in Belgrade, the offer of visa-free travel in the EU and the prospect of increased EU aid and investment is likely to evaporate. Which may finally provide a much needed reality check, both for the Serbian public and for the EU leadership.
As in the 1990s, it’s high time once again for the EU to be disabused of its illusion that the way to “guarantee stability” in the Balkans is by continually rewarding Belgrade for bad behavior. Only last week, EU enlargement commissioner Olli Rehn was still gamely insisting that Serbia should be allowed to continue its EU accession process without having to meet the precondition of arresting and handing over Mladic first — a concession he believes necessary in order to encourage a “silent majority” of pro-EU citizens in Serbia. But in fact EU concessions on matters of principle, such as the surrender of war criminals, will only serve to embolden the Radicals and their allies, who have already announced that they will cut off all cooperation with The Hague once they are in power.
While the short-term political future in Serbia is not looking good, the 1914 scenario is not something even the Radicals take seriously. Even they recognize that Serbia no longer has the wherewithal to credibly threaten its neighbors, as it did at the time of the collapse of Yugoslavia.
At the outset of the Balkan wars of the 1990s, Yugoslavia had the fourth largest army in Europe with 180,000 active duty soldiers and more than a million trained reservists. In addition, the special forces of Belgrade’s ministry of the interior were trained and equipped to army standards. Milosevic also had at his disposal the infamous paramilitaries, and territorial defense units, and assorted volunteers and weekend cut-throats. The Yugoslav army of the time was well armed and well equipped with thousands of tanks; a great deal of heavy artillery (the better to shell Sarajevo); modern Soviet-made air defense systems; etc.
Since 2004, Serbia’s army has been busy scrapping the bulk of its obsolescent Soviet-model tanks (made in the 1970s and 80s) and disposing of much of the rest of its surplus armaments and facilities. Most of the air force is gone, as is all of the former Yugoslav navy (Serbia is landlocked since Montenegro went its own way in 2006). At present the Serbian Army (VS) is in the process of reorganizing and reinventing itself as a small, all-professional force of 32,000 — as it gets ready to meet standards for eventual NATO membership. But while the scrapping of the old ironmongery has proceeded on schedule, a lack of funds has delayed the acquisition of new hardware and the training of the new, professional force. Meanwhile, Serbia’s Defense Ministry is having trouble paying the pensions of veterans of the wars of the 1990s and of the large number of newly-demobilized troops. There have been noisy demonstrations of Serb veterans demanding their unpaid army pensions.
In short, today’s Serbian Army (VS) is not the threat that the JNA was two decades ago. Meanwhile the Bosnian Serb Army (VRS), the force that Ratko Mladic commanded in the days of his “triumph” at Srebrenica, has now been successfully merged into the integrated Bosnian army. Unlike Karadzic back then, today Republika Srpska Prime Minister Dodik has no army of his own to command. It seems the worst that he and his colleagues in Belgrade can do these days is to pull out the stops on the rhetoric … and instruct police to look the other way as drunken teenagers attack foreign diplomatic missions.
March 11th, 2008
The Murdoch (formerly Dow Jones) Industrials were up over 400 points today after the Federal Reserve announced a $200 billion credit facility for banks and broker-dealers.
This is in addition to the other $200 billion program (for banks only) it announced on Friday. $400 billion in loans, offered in less than a week …
(A benchmark: the losses attributable to the meltdown so far taken by banks etc are under $200 billion.)
This new facility explicitly beckons AAA-rated mortgage bonds. The Fed will take them (and other wounded AAA s-f bonds) off the banks’ hands for 28 days, and give the banks Treasury bonds instead.
The mortgage bonds are largely illiquid — ie, little and often no market has existed for them since their first massive failures came to light in June when two Bear Stearns funds specializing in mortgage bonds blew up.
So again a kind of pretense underlies the Fed move — a willingness to honor the face value of the wounded mortgage bonds when the market can hardly scrounge up a bidder.
So the effect of the swap is to replace on the banks’ balance sheets mortgage bonds marked at about 75 cents on the dollar (this gross estimate based on spot reports from last week) with Treasuries marked at par. To undo the writedowns of wounded bonds across the past months, in a way.
The Fed’s hope is that the banks, with their balance sheets thus juiced, may start lending again.
The Fed also said that, after the initial 28-day swap, the program may be enlarged and extended if it seems a good idea.
And CNBC (financial news cable channel) followed up with a report this afternoon that the Fed is willing to go so far as to hold 25% of its balance sheet assets in wounded mortgage bonds.
Thatsa lotta wounded bonds. In effect not much different than announcing a fiat price control program …
Most market pundits seem to think the Fed has finally done something serious — getting blood to the muscle that needs it, as Art Cashin (a UBS anaylsyt) likes to say. The bond vigilantes are jubilant.
Nothing will cure what ails the economy and markets at a single stroke. This however seems to be a substantial start.
March 11th, 2008
Bush-Cheney are now moving to put Venezuela on the State Department’s list of terror-sponsoring states.
The notion is that the FARC (the Colombian rebels) are terrorists, and that Venezuela in various ways is supporting them.
Rep. Connie Mack of Florida, one of the most loyal servants of wealth in Congress, is at this very moment reading his letter on the floor of the House encouraging the White House to make the move.
Thus, it does seem more likely that Columbia’s attack last week in Ecuador may be the first move in a war on Venezuela in which the US will be acting through Columbia. And an indication of how crazy and violent the last months of Bush-Cheney may be.
The prospect of Venezuela’s oil flow being disrupted has crude hitting another all time high today, over $109 a barrel.
Here in Florida yesterday I paid $3.29 a gallon for gas.
Fascists tend to live in fame and go down in flames, and to take their nations with them.
March 9th, 2008
Serbia’s nationalist prime minister is calling it quits, having found no resolution of his party’s dispute with their West-friendly president over Kosovo’s recent declaration of independence.
European Union membership for Serbia is on the table. The Serb nationalists are saying it cannot go forward unless the EU states that have recognized Kosovo’s independence rescind that recognition. Fat chance.
Would be more than interesting (shades of 1914) if this triggers something regional, particularly if Moscow decides to assert itself on behalf of Serbia as a way to draw the line on EU and NATO expansion east, which has been ongoing, so provocatively, since Bill Clinton gently blessed the idea in the mid 90s.
(In 1914, on the first day of the 20th century, so to speak, a group of Serb nationalists angry about a proposal in Vienna (the imperial capital) to make Bosnia- Hercegovina an autonomous province, placing it beyond Belgrade’s reach, killed the heir to the throne of the tottering Austro-Hungarian empire.
Austria challenged Serbia, to whose aid big brother Russia came. The bristling German state that Bismarck had lately united then stepped to brother Austria’s side. So Britain and France backed the Slavs to contain the Germans. Weeks later the Western world — Christendom — blew apart. It has never recovered its mind or soul. Thus do civilizations die.)
March 9th, 2008
Watching the Sunday talk shows this morning chew over the Donkeys’ delegate dilemma, it seems clear that the GOP flacks are selling Obama soap.
I take this to mean that they think (like me) that McCain has a better chance against Obama in the fall (despite polls across the past month that give Barack a slight edge here over Hillary).
Nevertheless, the dire economic picture continues to argue that McCain can’t win in any case, and thus that those who believe Obama is best should continue to back him.
Then again … Many thought Bush-Cheney could not win in 2004. My worry as that November approached: Fascists once in power do not lose elections; it takes a big war — a big defeat — to get them out.
This morning it seems that their War on Terror will have to be enlarged for McCain (no fascist, certainly) to stand a chance. And in that world Hillary seems more electable than Obama.