Bailout expertise by mattsteinglass
September 23, 2008, 12:00 am
Filed under: President

It’s been four days already since the 700 billion bailout was proposed, and somehow nobody has yet remarked that while Barack Obama has no relevant experience in this situation, John McCain probably knows as much about bailouts as anybody else in America.

Memorial to John McCains bailout over Truc Bach Lake, Hanoi

Memorial to John McCain's bailout over Truc Bach Lake, Hanoi

A fearsome prospect by mattsteinglass
September 22, 2008, 8:59 pm
Filed under: Economics

Peter Cohan points out one much-overlooked consequence of the demise of the investment banking industry:

And this raises big questions about what will happen to all the MBAs who formerly streamed to Wall Street after graduation. If the global financial markets can survive this crisis, it would not surprise me to see investment banking revive in its current form through start-ups capitalized by institutional investors. Some of these MBAs could go into hedge funds or private equity — but a regulatory crack down on those market players could also be in the offing. This could mean that MBAs actually have to manage businesses instead of shuffling financial papers.

It’s entirely possible that the rise of investment banking is a consequence of a Marxian crisis of overproduction. That is, once global industry gets productive enough, there simply isn’t anything for a lot of macho, quantitatively oriented graduates of institutions of higher learning to do. The evolution of investment banking and hedge funds has provided a way to send these people off into little corners for 16 hours a day, where they play with their keyboards and pretend to be doing something very important. This has always suited me fine, because it keeps them out of my way.

The problem now is that they’re all going to have to start running companies that actually do something, which means they’re going to have come up with some kind of idiotic products and try to sell them to me. And I really don’t need the hassle.

Underpants Gnome Step 2 — revealed! by mattsteinglass
September 22, 2008, 1:44 pm
Filed under: Economics

Based on what’s been going on in the US over the past 4 or 5 days, I think we can now reverse-engineer the actual heretofore mysterious Underpants Gnome Business Plan Step 2. The plan, you will recall, as revealed on South Park, went like this:

1. Collect underpants.

2. ?

3. Profit!

We can now fill in the question mark.

1. Collect underpants.

2. Sign so many insanely complicated contracts for underpants, underpants-backed securities, collateralized underpants obligations, structured underpants investment vehicles, and underpants credit default swaps with every major and minor financial institution on planet Earth that nobody has any idea what the hell is going on anymore and the US Treasury must funnel you 700 billion dollars immediately to prevent the world from imploding.

3. Profit!

John McCain’s Swiss banker… by mattsteinglass
September 22, 2008, 9:01 am
Filed under: President

…is his top secret financial adviser, Phil Gramm, who is also vice chairman of the investment banking arm of gargantuan Swiss bank UBS.

UBS is among the European banks with the greatest exposure to the collapse in American mortgage-backed securities. Over the weekend, UBS successfully lobbied to have its cratering US mortgage-backed securities included in the US treasury’s buyout plan. That is, US taxpayers are going to pony up $700 billion to, among other things, buy bad debt from a Swiss bank. And one of McCain’s top two financial advisers is the vice chairman of that bank.

If the Democrats made TV ads the way Republicans do…think about how that would run. The GOP wants to take 700 billion dollars of taxpayer money. No questions asked. And give it to the banks. And not just American banks. Swiss banks, too. Like this one. UBS. Where John McCain’s friend Phil Gramm, the guy he wants to make Treasury Secretary, just happens to be vice chairman.

I’ve always thought the phrase “old boy network” was a hollow stereotype out of 1930s movies, but if there were an instantiation of what that means in the modern world, this is it.

Some call us fiscally prudent, Henry Paulson calls us suckers by mattsteinglass
September 21, 2008, 6:16 pm
Filed under: Economics

You know, I used to think I would never be able to afford to live in New York. How could my wife and I afford to buy a $1,000,000 Brooklyn house on our modest incomes? What I failed to understand was that if my loans ever went bad, the Federal Government would buy me out at an inflated price in order to keep real estate values across the country artificially propped up so all those rich people’s banks wouldn’t go under! Silly me, why didn’t I take out a no-income no-asset ARM last year and buy that Park Slope brownstone?

Here comes your FDR by mattsteinglass
September 19, 2008, 3:17 pm
Filed under: President, United States

We wondered what it would take to get a new Democratic president coming into power with a large legislative majority at a moment of crisis that would legitimate sweeping legislative actions that could change the face of American government.

Presto change-o! And now we wait and see what he does with it.

Wall Street is run by Communists by mattsteinglass
September 19, 2008, 3:04 pm
Filed under: Economics

We are through the looking glass, people.

Traders erupted into cheers on the floor of the New York Stock Exchange as the Dow Jones Industrial Average jumped 617 points from its low of the day after Senator Charles Schumer proposed a new agency to pump capital into financial companies. The Standard & Poor’s 500 Index climbed 4.3 percent as 68 companies in the gauge rose more than 10 percent.

From crisis springs revelation by mattsteinglass
September 19, 2008, 1:45 pm
Filed under: Economics, Environment, Family, Human Rights and Torture, United States, War

As it turns out, I am a conservative. Here’s my fellow conservative Daniel Larison:

As the temporary ability to pay increases, restraint recedes and a culture of feeding and exciting appetites grows.  As virtue is the moderation or even denial of appetites, moral integrity in society as a whole weakens as this culture gains ground.  When limits to our consumption seem to fall away, the desire for acquisition and domination becomes stronger and it begins to be expressed in our relations with the rest of the world.  We begin to define our interests to satisfy unbounded desire, and so the scope of what we believe is rightfully ours expands until it encircles most, if not all, of the globe, and we are then violently offended when our claims are challenged.  Coupled with this desire is the fantasy that technology will gradually overcome or address every limitation, so that every barrier to growth will fall sooner or later.  The expectation of progress makes us impatient when our excesses lead to collapses, and when those collapses happen responsibility is deferred again and pinned on useful scapegoats whose punishment will allow us to return to our previous unrestrained habits.

I don’t think I can find a single thing to disagree with in that. If only there were actually a political party that represented this point of view.

Construction bonds, and everything else by mattsteinglass
September 18, 2008, 4:47 pm
Filed under: President

One of the weird little things about the McCain-Palin rhetoric around the financial crisis is that Palin keeps talking about “construction bonds”. From her interview with Sean Hannity:

And we’ve got to get a more coordinated and a much more stringent oversight regime…government can play a very, very appropriate role in the oversight as people are trusting these companies with their life savings, with their investments, with their insurance policies, and construction bonds, and everything else.

A construction bond is a bond you take out when you start a construction project to insure against the possibility that the builder doesn’t complete the project. It’s the kind of financial instrument that would come to mind as important if you’re the kind of person who does a lot of contracting for big construction projects, like a government official or an officer at an oil company. But in talking about average people’s investments, it’s a pretty weird thing to mention, because unless you’re currently involved in building your dream house you’re not likely to have any construction bonds. It is however one of the first things that might come to mind as a financial instrument to somebody in a state like Alaska who’s been very involved in contracting and requesting funds for a lot of infrastructure projects. (Bridges, say. Especially ones that never get built.)

Meanwhile, this is also amusing:

And it’s a matter, too, of some of these CEOs and top management people, and shareholders too not holding that management accountable, being addicted to, we call it, OPM, O-P-M, “other people’s money.”

I don’t think the habit of creating “OP(n)” acronyms predates the 1991 hip-hop hit “OPP”; I think this is one of those cases in which an expression in common use in buttoned-up conservative evangelical parlance is actually a watered-down version of a filthy vernacular expression which conservatives wouldn’t use or probably even recognize, but which lends their used of the watered-down version an inescapable comic flavor for anyone in the broader culture. When I hear Sarah Palin explain the meaning of “OPM”, I can’t help but picture her explaining the meaning of “OPP”. On another level, it’s really amusing to hear the governor of a state that rakes in more federal pork than any other, and gets the rest of its budget from taxing oil companies and handing out the proceeds, sternly lecturing CEO’s about the evils of addiction to other people’s money.

Add: I stand corrected: apparently the slang term “OPM” was going around when Treach wrote the song. Going around in what circles, remains the question. The movie “Other People’s Money” was out that year, so maybe that was it?

Thank god for hedges by mattsteinglass
September 18, 2008, 8:25 am
Filed under: Economics

I am curious about Megan McArdle’s continuing belief that complex derivatives make the financial system less risky, rather than more risky:

What standards should we use for evaluating derivatives? Derivatives don’t just create risk; they can also lower it, by allowing firms to hedge.  When Robert Shiller tells me that overall they’re a good thing for the financial system, I’m inclined to listen.

I guess what I’m wondering is, if we hadn’t had all these complex new derivatives, would we have seen four independent investment banks go under this week rather than two? Would the Dow have fallen 800 points yesterday instead of 400? How many massive and unprecedented crises would we have seen in the past 8 years without the revolution in complex derivatives? Because it doesn’t seem to me like people on Wall Street are feeling much safer these days than they did 15 years ago.


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