Happy BiRRthday

Hey nerds! In case you weren't paying attention, it's J.R.R.Tolkien's biRRthday today.

In honor of the occasion, a week ago I took my wife and (older) kid to see the fiRRst movie in what will be +The Hobbit trilogy (of movies. I know all you nerdlywise people know The Hobbit was just a single book... and more of a kids' story at that, but whetevs).

Anyway, I know there have been a lot of ubernerd reviews of the movie saying it sucks, it's too long, blah blah blah. But those nattering nabobs are just getting their nerdy panties in a bunch because the director added a lot to the story that wasn't in the original book. But take my word for it, it's a good flick. We paid $5 a person to see the matinee and we sneaked in our own drinks/snacks. That brought our total outlay to about $15 for 2.5 hours of entertainment. A great value in today's economy.

And speaking of the economy (and +J.R.R. Tolkien's birrthday), I wanted to pass along the discussion about The Macroeconomics of Middle Earth that I found on the fun Worthwhile Canadian Initiative blog.

The full economic impact of Smaug can only be understood by recognizing that the dragon's arrival resulted in a severe monetary shock. On the left is shown Smaug's hoard. On the right, for purposes of comparison, are the gold reserves of the Bank of England. It is clear from a simple inspection of these two figures that the amount of gold coinage Smaug withdrew from circulation represents a significant volume of currency. This would, inevitably, lead to deflation and depressed economic activity.

There are also a lot of great comments. I assume they're all well-considered and rational, although I can't say I read every word. I did read enough to come to the conclusion that we should probably hire a company of these Worthwhile Canadians (and possibly a Hobbit burglar from somewhere), send them to The Lonely Mountain of Washington, D.C., and have them slay the evil dragon of political expediency that has imprisoned our national economic recovery.

Of course, I guess there's such a thing as taking a metaphor too far.

tagged: Smaug, economy, Tolkien, The Hobbit, gold, Worthwhile Canadian Initiative

YouTube Tuesday: It all began with a god named Thor

Today's edition of YouTube Tuesday celebrates the good news that will send hipsters hopping all to way to Merriam in a couple of years.

Sure, every major city in the world already has an IKEA store, but how many metros are there that have an IKEA AND a Nebraska Furniture Mart? It's all part of my plan to make KC the furniture capital of the world!

The lyrics are even better...

tagged: Kansas City, Merriam, IKEA, Jonathan Coulton, YouTube Tuesday, video, music

New dirt on The Mission Dirt Pile

From what I could tell, the little tidbit of news didn't get much play earlier this week. At least if it did, I didn't see it in the usual local newscasts, websites and Twitters I follow.

Just a short few paragraphs from the Kansas City Business Journal that popped up in my RSS feed reader indicating that there might finally be some movement in the development of what has become known as The Mission Dirt Pile.

When the Mission Dirt Pile was first created, I was living a couple of blocks north in Roeland Park, a cute little inner-ring suburb peopled by families just starting out, elderly couples (and singles) who are dying out and your random urban chicken enthusiast.

We really liked living in the RP. Characters like the crazy pot-smoking retired lady a few doors down just added to the texture of the neighborhood. So we were pretty happy with the then Mission Center Mall property was slated to be demolished.

It was quite something to see the old mall go through the stages of deconstruction on my way home from work each day.

The proposal was to replace the mall with a "lifestyle" center that would include a high-rise boutique hotel, condos and street level retail. Somewhere along the way large aquarium was thrown in for good measure.

Keep in mind this was back in 2006, a more innocent time in America. A healthier General Motors was reporting losses of only $8.6 billion, AIG gave a sincere apology to government regulators for its deceptive business practices, and the Blue-ray Disc format was introduced to American consumers.

More importantly, the country was in the midst of a real estate boom the most thought would never end. So when developers presented the renderings of The Gateway lifestyle center, most of us were pretty excited about it. It was reported at the time that some people even put down deposits on some of the condo units before ground had even been broken.

Of course, we all know what happened to the real estate market, not to mention the rest of the economy. All that was left of The Gateway development was a giant mountain of dirt and broken dreams.

Well, fast forward to last Monday when we learned that the development group has new partners and may be close to resuming work on the project, possibly breaking ground as soon as next summer.

According to the article in the Kansas City Business Journal, the developer, The Cameron Group LLC, received an extension on a critical deadline that allows them to retain $63 million in sales tax revenue bonds for the project.

[Cameron Group's] Tom Valenti said his new partners, which include RED’s Tim Schaffer and Caymus’ Dave Harrison, add credibility to the project.

“Having RED and Caymus being involved sends a message to the community here that this is real and it is going to happen,” Valenti said.

Valenti said the Gateway project will be built in two phases, beginning with the aquarium and apartments.

It all sounds very promising. Certainly a nice retail/business district will bring in more revenue than a big pile of dirt. Definitely it will look much nicer, though the opossum's and foxes that now live there might have some objections.

Of course it remains to be seen whether we are near enough to the end of the current recession for this to actually happen.

I guess we'll know by the end of the summer.

tagged: Roeland Park, Mission, Mission Center Mall, The Gateway, Mission Dirt Pile, development, The Cameron Group

The Groupon Paradox

I was having a quick lunch with a few of my closest friends a few weeks ago when the conversation wound around to the topic of Groupon.

I'm sure that by now, most of you are aware that Groupon isn't some kind of 1970s lingo for a swingin' good time. The social buying service has been around since 2008, and it's become a popular method of local advertising and deal hunting for today's cash-strapped consumer.

But for you nifty neophytes, the basic premise is that a business will agree to give a deeply discounted price on a service or product in exchange for a guarantee that a certain volume of that product or service will be purchased.

For example, today's deal was a 50% discount on carpet cleaning from a local service company, but only if at least 50 people bought the deal. As of this writing, they had sold 257 of the deals.

So you can see that for the savvy shopper, you can save a lot of money on some useful and neat stuff.

Except, there's a bit of a flaw in this plan, at least for me.

The first (and only... so far) time I bought a Groupon deal was when a new bakery in my neighborhood advertised a special. Natasha's Mulberry & Mott (which is fantastic, by the way) was selling $10 worth of pastries, coffee, ice cream or whatever for only $5. You could buy three of the Groupon's for a total outlay of $15 for thirty bucks worth of fancy pants breakfast.

Which is what I did. And apparently a lot of other people thought this was a great deal as well since they sold 1,451 of this particular Groupon. A little quick math puts the total take for Natasha's at a cool $7,255 American in just a few hours.

It was a few weeks before I made it down to the bakery to cash in on my deal. I printed out the receipt and stopped by on my way to work one morning. When I opened the door, there were about half a dozen people queued up in front of me.

And here's the thing: They all — every last one of them — were holding the same kind of Groupon receipt that I had. When I first noticed this, I kind of smiled ironically to myself. "Heh, we're all cheap bastards aren't we?"

But as I waited in line and watched everyone peruse the bill of fare, make their choices trying to get as close a possible to the $10 spending limit and then watch the harried woman at the check-out counter perform acts of mathematical heroism to get any additional money owed by the patrons, I just became more and more uncomfortable with my own cheapness.

After all, I don't need $10 worth of pastries. I don't even need $5 worth. Truth be told, my doctor would prefer I eat a bowl of oatmeal or an apple for breakfast.

And dire as the financial times are, I don't really need to save $5 on the pastries that I shouldn't really be eating in the first place. Don't get me wrong, we're not rolling in caviar and champagne. But we're gainfully employed and sticking to our financial plan, so if I wanted to drop a Hamilton on some expensive coffee and croissants it's not going to break the bank.

When it comes down to it, the only reason I bought the Groupon in the first place was because I could get for $15 something that I perceived to be worth $30. It was like getting free money.

But as I had time to stand there and stew in my guilt, I realized that another way to look at it was that I only bought the Groupon to screw the owners out of $15 worth of food (food that I don't particularly need).

When it was my turn at the counter, I ordered the items I'd been considering while waiting. Then I deliberately ordered a little bit more so that I ended up paying more than the five-dollar bottom line on my Groupon coupon, just to prove that it's not all about getting free stuff for me.

I've still go two more to cash in, and I'm sure I'll do it before they expire in January.

But the guilt will probably kill me.

tagged: Groupon, bargains, shopping, Natasha's, pastry, cheap, guilt

TARPography

The comment from Lodo came, not apropos of the post it was on but certainly an apt continuation of a conversation we've been having here for some time.

The comment was thus:

All that TARP money everyone was harping about has been paid back with interest.

We've been tossing ideas back and forth about the TARP and various government bailouts. My point is that the financial bailouts in toto are a bad idea because of the monetary cost and the long term cost of cultivating a culture reliant upon bailouts instead of sound business judgment.

Lodo's point is that, as a practical matter, the bailouts and stimulus plans are necessary to stabilize the economy. And whatever the risks happen to be, they're better than the certainty of a second Great Depression (I hope I've characterized the point fairly).

So, it's only fair for Lodo to point out that all of the TARP money has been repaid in full, with interest. I assume he's referring to a White House report that was released last month.

Now, I have no reason to think the White House would tell us something that isn't 100 percent true. What motivation, after all, could they have for not being completely forthcoming about a program as popular as TARP has been — especially in this climate where pretty much everyone is strongly in favor of doing all we can as a country to make sure that the poor banking executives make it through this trying time of tumultuous tribulation with their multi-million dollar bonuses intact?

I mean, what could they possibly gain especially since their party is poised to make such great gains during this election season?

But, out of habit I guess, I just had to do some double checking on this claim "fully repaid with interest." So I jumped over to one of the only journalistic enterprises I know of that still has any integrity left. The amazingly awesome website ProPublica.

ProPublica maintains a Bailout Scorecard website, where they track how much taxpayer money has gone to whom and how much has been returned. And incredibly, the numbers they have on their site show that not only has the TARP program NOT been repaid in full with interest, there is still almost $170 Billion in loans/investments outstanding.

I just found this almost impossible to believe. I was shocked, SHOCKED, to learn that there may have been a bit of fibbing going on from the White House.

I just assumed that perhaps the database at ProPublica may not have been quite up to date. So I fired off a quick email to one of the contact email addresses listed on the site…

Hey Paul,

Let me first say how much respect I have for the ProPublica organization. It has become one of the only news sources I really trust. Thank you for your efforts.

My question is about the Bailout Tracker portion of your website (http://bailout.propublica.org/main/summary), specifically the information on TARP. When the White House recently announced that all TARP money had been paid back in full with interest, I thought I should really check with you guys before I believed them.

So I looked at your site and saw that, according to you, there is still quite a bit of TARP left outstanding. I just wanted to check to see if the numbers on your site have been updated recently.

Thanks again for the great work you guys are doing.

Within a few hours, Paul wrote back…

Thanks.

The short version is if you really listen to what the White House is saying, they’re not saying all the money has been paid back. They’re basically saying that they expect the money to be paid back eventually. Our database shows things as they currently stand (and yes, it’s up to date). Even if the administration is right and we’ll be paid back, that won’t happen for years.

Separately, you have to be careful when talking about this stuff whether you’re including Fannie and Freddie or just the TARP. We include Fannie and Freddie in our database because, even though it was a different pot of money, it’s still one of the big bailouts that was started in the fall of 2008. And as you can see from our site, that’s involved nearly as much money as the TARP, and it seems like it won’t be long before there’s more outstanding from that bailout than from the TARP.

Also, here’s a recent roundup post we did on the 2 year anniversary of the TARP: http://www.propublica.org/article/the-bailout-yearbook-the-stars-and-the-slackers

Best,
Paul

So, there you have it. Don't take my word for it, I'm just a cave man. Take the word of someone who tracks this stuff for a living and who doesn't have a political interest in trying to make everyone feel like hope and change will get us out of this mess.

tagged: bailout, hope, change, TARP, ProPublica, White House, Goldman Sachs

Hopeably

A couple of days ago I was having The Worst Day Ever.

Overslept. Woke up with a stiff neck. Kid wouldn't eat her breakfast. Blew out my flipflop. Stepped on pop top. Cut my heel had to cruise on back home. You know the kind of day. I'm sure you been there yourself.

Anyway as per usual, later in the day I took part of my lunch hour to do a little headline scanning, a little keeping up on current events. Man was that a bad idea. Not a good day to read a bunch of depressing news.

It started with the realization that within a couple of years, all of our antibiotics will be completely useless.

Turns out that while we've been focusing our pharmaceutical R&D on longer hair, lower cholesterol and erecter penises, bacteria have been naturally selecting themselves to be more bad ass than any drug we have on the shelves.

So sometime within the next decade, medical science will be set back 60 years. Simple procedures like a tonsillectomy will carry life-or-death risk.

Then that bleak little tidbit was followed by a reminder (as if I needed it) that the United States is bankrupt, and most just haven't admitted it yet.

Decades of overspending and over promising "entitlements" in exchange for votes have left the U.S. in a gigantic fiscal hole that will have to be filled somehow. You think Greece had it bad with their "austerity" measures? Well, you can say adiós to your cushy 33% tax bracket my friend.

We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner.

There was still more bleak news. Deflation is here. Unemployment is getting worse. The housing market is a disaster. And perhaps the saddest report of all, that 100 year old Scotch they found in Antarctica? Yeah, nobody will be allowed to drink it. It will be wasted instead of tasted.

I tells ya, it's almost enough to make you want to watch a Lady Gaga video some days.

But then I heard something that really helped. A nice little piece of fortune cookie philosophy that, while simplistic, is amazingly pertinent and powerful. It's a single line from 30th Century philosopher and poet Phillip J. Fry, who once said to a despondent colleague

You can't give up hope just because it's hopeless. You gotta hope even more and cover your ears and go "blah, blah, blah, blah, blah, blah, blah, blah!"

Wise words indeed.

Probably the best thing to do is kick back, watch some reality TV, keep my credit card debt paid off, try to enjoy the tumble down the cultural decline we're all in the midst of and hope it gets better.

tagged:hope, antibiotics, debt, bankruptcy, Ponzi scheme, Futurama, Phillip J. Fry

Getting rich

Let's say, just hypothetically, that you wanted to be rich.

I'm talkin' Bill Gates rich. Rich enough that you don't merely write your own ticket, you write your own ticket to fly on the airplane that you own. You know what I mean? So rich that you don't just have lawyers on your payroll, you have judges on your payroll.

Well if you wanted to get rich (hypothetically), you'd probably focus on creating a product or service that everybody needs and then selling it to them. Things like indicator plastic wrap, or tick repellent pills, or cargo dress slacks.

Necessity is the mother of invention. Right? So You'd develop these ideas for useful items then sell them on QVC or find someone to buy the idea from you. Right? That's what you'd probably do.

But you'd be wrong.

The best way to get rich is to come up with a way to take cheap useless crap, rebrand it and market it to elementary-age kids. It's the American way.

Need and example? Of course you do.

Those of you with elementary-age kids are no doubt familiar with these:

I'm referring of course to the rubber-bandy looking things, not the Moleskin notebook or the earbuds (which I threw in to give you a sense of scale).

These little rubber bands are known among the social circles my 7-year-old runs in as Googly Bands.

They are the latest rage sweeping the grade school set. That's right, the kids are crazy about them. They're more than just cheap jewelry. They come in all different shapes and colors. Animals, toys, modes of transportation, clothing. Some are tie-dyed, rainbow colored and others glow in the dark. The kids, boys and girls alike, collect and trade them the way I used to collect and trade baseball cards.

Only here's the thing, there's absolutely no value to these things. Well, maybe there's some minute value. I mean, I'm not an expert on rubber production (but I play one on the Internet), but according to one of my many inside sources, there's about one twelfth of a cent of material and labor involved in producing one of these things. They are sold 12 to a pack, so a pack cost exactly one penny to produce.

I recently took my kid to a large discount retailer (which I won't name since they don't advertise on this site, but I think you can guess which one it was) because she just had to spend her hard-earned chore money on some of these useless trinkets. We found them on sale for a dollar a pack, which you math wizards can see works out to almost a 100% profit, or something (what do I know about business? Who am I, Donald Trump?).

So yeah, all you have to do to get rich is come up with a product that costs almost nothing to produce, and sell it for a minimum 100% profit. It's just that easy. Pretty soon you're be up to your eyeballs in party jets.

tagged: rich, kids, fad, Googly Bands, rubber, scheme

My Big Fat Greek Bailout

A week and a half ago, financial luminaries in Europe (and in the U.S. Federal Reserve Bank) decided to give bankrupt Greece a larger line of credit to bail them out of their financial crisis.

In simple terms, Greece, like many US families, went into debt by spending more than it produced. In fact, it's debts totaled 125% of its total national production.

That essentially means that if everyone in Greece put all of their annual income to paying off the national debt, they still wouldn't have enough to keep Tony Soprano's goombahs from breaking their kneecaps.

The total bailout for Greece is somewhere around $1 trillion, a jawdropping number for such a small country. But the bailout also came with a few provisos, the "austerity measures" that we've been hearing about and that the Greeks have been rioting about. "Austerity measure" is a nice term for "you've been eating more gyros than you can afford, and now it's time for some budget cuts."

I'm not going to go into an opinion on bailouts. I've done that before. Rather, I'll note that the Greek bailout is interesting because of how common and wide spread the circumstances are that have lead to it.

The Greek government, in order to get reelected, promised everything to the voting public. Government jobs, high salaries, pensions, health care, digital converter boxes... anything to garner votes from Androcles Q. Public. And the governed didn't really worry about how (or whether) all those bribes would be financed.

Anyone who was around two years ago during the "Hope and Change" campaign will recognize this. The "two" parties in the United States were falling all over each other to see who could promise more government bribes to voters.

The same has happened in other European countries. Spain, Portugal, Italy and Ireland are also in dire financial straits. In fact, the Greek bailout was seen as a way to forestall a financial domino effect that would leave those countries' economies in ruin as well. Even the U.K. is struggling, with some estimates placing it's debt at over 103 percent of its GDP.

Scott Mather, head of global portfolio management at Pimco (one of the largest bond buyers (i.e., "loaners of money") in the world) put it this way in a recent interview with NPR,

Most of the developed world is screwed. That makes this crisis particularly different from anything we've seen in our lifetimes.

The countries that aren't screwed are the emerging market countries. They have low levels of debt. The emerging market world is lending money to the rich world so the rich countries are continuing to spend more than they've made.

Mather noted that there is no easy way out of the debt mess. Bailouts like this only delay the day of reckoning. The only way to reduce debt is to either cut spending or default on your bonds.

This is going to happen in Greece and the rest of Europe. It will happen in the UK and in the US as well. People have to develop a better connection with what government spending means for them personally. We've had the better part of a couple of decades where people have lost that connection. [Government money] is viewed as manna from heaven and it's an entitlement, something that is deserved and shouldn't have an impact or repercussions on them.

When the country was discussing the "health care reform" bill a few months ago, one of the so-called arguments was that, as one of the richest nations in the world we can afford to give everybody great health care. After all, if Europe can do it, we can too.

Well, it turns out that Europe can't do it. We probably can't either, not without making serious sacrifices in quality of life. And let's face it, we're due for some drastic quality of life downgrades anyway. We've just had it too good for too long.

I don't know how much longer the strategy of bailout-bubble-burst will last here in the US. Hell, even now it's considered safer to lend money to Iraq than the State of California.

I do suspect that we will have the illusion of an economic recovery over the next two years or so. But you don't have to be Dave Ramsey to know that the party will eventually turn into a pretty serious debt hangover.

When that happens, it won't be just a Greek tragedy.

tagged: Greece, Europe, Greek, bailout, EU, Pimco, Scott Mather

TARPitecture

Don't you hate it when you're trying to have a conversation, trying to reply to a comment, and you realize you've gone passed the character limit?

Happens to me quite often no matter how brief and economical I try to be with the words.

Anyway, there's this awesome cat, Lodo Grdzak, who classes up my joint every once in a while. I always appreciate when he stops by to leave a comment because even though we disagree on a lot of things, he's always thoughtful and writes intelligently. Seriously, this guy has some great perspective, an original voice, great stories and amazing taste in music. Really, if I wasn't already married... Well, I highly suggest you make his blog a regular stop in your RSS reader.

So why do I bring this up? Well I'm glad I asked.

Lodo dropped by recently and commented on my previous post re: Goldman Sachs. Here it is in it's entirety:

As a bit of a digression, I couldn't help but notice you failed to mention the billions of dollars made by the government in the TARP bailouts. Not only was all TARP money paid back; but at a huge profit to the government. Even Citi's loan (the most volatile of the banks) would yield a $10 billion profit to the government if we cashed-in our Citi stock now. But the government's waiting 'cause we'll make a lot more money than that. Obama's handling of the financial crisis (the worst since the Depression--'caused by Libertarian speculators that didn't want SEC oversight within the financial institutions) has been nothing short of genius. Particularly when you consider he handled it while planning war strategy in Afghanistan, passed health care reform (easy task I know), and had to appoint a Supreme Court judge. GM has paid back close to $2 billion dollars of their loan, and once they start selling stock again, the government's gonna clean up on that deal. All while maintaining 900,000 jobs. When you're wrong, you're wrong. And you should admit that the bailouts worked and retract comments you've made in the past that said they wouldn't.

I started to respond, but again ran out of characters. So I wanted to get this out there as a new post because, wow, there are a lot of claims in all of that.

I'll try to respond to each the best I can. But let me start by saying everyone should go easy on the Obama Koolaid. It's potent stuff.

I won't call the TARP campaign a "success" as such. Yes, companies have been saved. But we have succeeded in saving companies that should not have been saved in the first place. We have continued a precedence that started in the 1970s, where the government puts a ton of money behind a failed busies keeping it alive long after it should have died. These zombie corporations only serve to encourage bad/risky behavior by other business down the line.

If a company has no fear of being buried, it has no reason to act responsibly. John Q. Taxpayer is always there to bail them out as long as you grease the right palms in Washington. Hey, don't take my word for it. People much smarter than me have already pointed this out. I'm just the messenger, man.Secondly, in regards to the success of the bailouts, I think it's important to note that the TARP program was "only" $700 billion. Yes, that is an insane amount of money to waste on zombie corporations. But keep in mind that amount is a fraction of the $12 TRILLION committed in all of the bailout schemes.

The assertion that GM has totally repaid it's TARP loan is somewhat true. The problem is that, of the $50 billion that GM borrowed, it repaid only $6.7 billion in cash. The rest, was "repaid" in equity in the company, which means that the US Government owns 60 percent of post-bankruptcy GM. Since that stock is no longer traded, you can't really peg a value to that 60% holding, but it sure as hell isn't worth $43 billion (last trade was for 75 cents a share).

Furthermore, I'm sorry but saying that TARP has been totally repaid is just incorrect. According to ProPublica, just over $391 billion was disbursed, of which more than $186 billion is still outstanding. If you include Fannie Mae and Freddie Mac in that, there's another $119 billion outstanding, bringing the total to over $300 billion that still needs to be repaid.

Regarding Citi, I'm not sure what Lodo's source was, but again according to ProPublica, Citigroup took $45 billion from the government and has returned about $23 billion, leaving them $22 billion in debt to us taxpayers. It's difficult to accept that we would realize a $10 billion profit "if we would cash in our stock" because the stock would immediately resume its downward spiral if the government decided to sell it.

Lodo also points out that the government-owned companies have seen nice stock gains, or at least stable stocks. This shouldn't be a surprise. Taking the investor's point of view, buying stock in a company owned by the US Government is pretty much a sure thing. Since we have a couple of years before our government is crushed under the fiscal weight of entitlements, bailouts and pork spending, investors can rest assured that companies owned by the government have been and will be bailed out of any mismanagement. At least until society completely breaks down in 2012 and we all get jobs as Road Warriors.

However, you should keep you eye on those stocks if/when Uncle Sam decides to sell.

As for the jobs situation, The Bureau of Labor Statistics recently reported that nearly half of states are still reporting increases in unemployment. Unemployment is still above 9 percent nationally, so it's still too soon to congratulate Obama on his masterful handling of jobs and employment policy.

The war stuff? Well, we're still at war, we'll have troops in the Iraq and Afghanistan for the foreseeable future, and Obama supporters don't seem to care about that now that it's their guy in office.

Anyway, the upshot of all of this it that we're a long way from me admitting I was wrong about the bailouts.

---

EDTI. — In response a question about citing Pro Publica as as source, they are an independent group of journalists and one of the few highly credible information sources on the Internet. Here's what they say in their About page:

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest. Our work focuses exclusively on truly important stories, stories with “moral force.” We do this by producing journalism that shines a light on exploitation of the weak by the strong and on the failures of those with power to vindicate the trust placed in them.

I strongly suggest you begin frequenting their website.

---

tagged: Obama, bailouts, TARP, Doomsday Cycle, economy, General Motors, unemployment

Springtime for Goldman

A bloggy friend recently twitted me that I have a bit of an unhealthy obsession with Goldman Sachs.

And honestly, I don't have much of a defense. I do think Goldman Sachs is one of the groups most responsible for the global financial meltdown of the last two years. They've got their greedy little fingers in pretty much every nefarious deal that has been brought to light.

Goldman Sachs employees or former employees are in positions of power in multiple governments (just ask the Greeks how well that works out). They masterfully pulled strings to get bajillions of dollars in government bailouts for themselves and their sweetheart business partners (courtesy of what every Obama apologist I meet tells me is a lower tax burden for myself). The result of that bailout? How about a second quarter of record profits

Goldman Sachs said today its first-quarter earnings almost doubled to $3.3 billion as its trading business again surpassed the rest of the financial industry. … It was Goldman's second most profitable quarter since going public in 1999. In the fourth quarter, Goldman Sachs earned a record $4.79 billion.

So yeah, I don't think I'm alone when I took a little delight in seeing that Goldman Sachs was the target of a civil fraud lawsuit from the SEC (although I do wonder what took the SEC so long. Must have taken longer than they thought to bury the worst evidence connecting Goldman to the Obama administration… but that's a different post.)

There's a lot of financial industry jargon and legalese involved in the complaint by the SEC. NPR's Planet Money does a great job of explaining it, but I'm going to try to make it even simpler.

It basically breaks down like this:

1. A hedge fund scumbag named John Paulson wanted to make a huge bet against the ability of suckas to pay their NINJA mortgages, hoping to make a ton of money when the real estate bubble (that Goldman helped create) burst and people started losing their homes. To do this he needed a kind of bond that would be composed of high risk mortgages that were sure to fail soon.
   
   
2. Goldman stepped in and said their buddies at ACA Management, a kind of wholesale company in the bond business, would be happy to build this bond (or else!) and then Goldman Sachs would sell it for them.
   
   
3. So Paulson and ACA got together, picked out a shit-ton of absolute crap mortgages and built the bond, also called a CDO (collateralized debt obligation). The mortgages in the bond were carefully selected so that Paulson and Goldman Sachs could be sure the CDO would fail.
   
   
4. Paulson then bought a bunch of insurance on the CDO that would pay him off big when the CDO eventually when tits up.
   
   
5. In the meantime, Goldman sold the CDO to institutional investors like banks, pension funds and orphanages. Note, they raked in a lot of cabbage in commissions from these deals.
   
   
6. When the housing market collapsed, the CDO failed just like it was designed to, and Paulson and Goldman Sachs made a fuckwad of money from their insurance bets (their short positions).

This scheme may sound vaguely familiar, especially to you Broadway and/or Mel Brooks fans. It's basically the same thing Max Bialystock was trying to do in The Producers, except Goldman Sachs succeeded in failing.



So, the SEC says Goldman Sachs and Paulson defrauded investors by saying that the CDO was built to succeed when in fact they themselves had engineered it to fail.

Of course, it also looks like they engineered a patsy in this whole scheme as well. They've bought a witness to say that he told ACA that Paulson's hedge fun planned to bet against the CDO, thus putting the responsibility on ACA to disclose how crappy of an investment it would be.

So apparently Goldman will get away with defrauding investors and the public. But that's okay, at least the Obama administration can claim that they tried.

tagged: SEC, lawsuit, Goldman Sachs, CDO, The Producers, Max Bialystock, John Paulson

Tommy can you hear me

If a guy came up to you and started laying down a cogent, rational argument that creating a system in which giant taxpayer funded bailouts were necessary to keep the economy (barely) afloat would result in continued economic doomsday spiral, some of you would call him a crazy, racist, extremist Tea Bagger.

But you would be wrong. He's actually one of the more respected, clear thinking personalities to come out of the fecal tempest that was the economy over the past two years.

And he happens to be from Kansas City.

No, it's not me (but that's a good guess). It's none other than Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, and he's not a Tommy-come-lately to criticizing the system that resulted in the megabailouts we saw last year. He reiterated his criticism in a recent speech to the U.S. Chamber of Commerce.

In a 1999 speech on financial megamergers, I concluded that, "To the extent these institutions become 'too big to fail and ... uninsured depositors and other creditors are protected by implicit government guarantees, the consequences can be quite serious. Indeed, the result may be a less stable and a less efficient financial system."

More than a decade later, the only thing I can change about that statement is the government guarantees are no longer juts implicit. Actions during the financial crisis have made this protection quite explicit.

The speech essentially chides regulators and legislators for paying lip service to reforms without actually doing anything. Democrats have controlled the entire government for over a year now, dangling a shiny new fake health care reform act in front of the public so that we would forget about the causes and effects of the biggest financial meltdown in a generation.

Hoenig has specific recommendations that the D.C. crew can ignore, including allowing failing banks to fail (duh) and requiring maximum leverage and loan-to-value ratios.

These are all reasonable and obvious (in my opinion) reforms. Unfortunately, the chance of them being implemented is about the same as me buying the next Justin Bieber album.

Why? Well I'm glad I asked that. The problem is that despite all of the rhetoric about hope and change, there's no benefit in these reforms to the people who run the government right now.

tagged: economy, TBTF, Justin Bieber, Thomas Hoenig, Goldman Sachs, reform, banking

YouTube Tuesday: Fear the Boom and Bust

So what do you think? Are we spending way beyond our means in an effort to try to generate a healthier economy? Are we suffering from a spending hangover, the cure to which is nationwide deleveraging and building up savings?

Don't know? Not sure?

Well maybe this old-school hip-hop throw down between John Maynard Keynes and F. A. Hayek can help you decide. Two of the great economists of the 20th century lay down the beats in this production from EconStories.tv

Pay close attention for the appearance of Ben Bernanke and Tim Geithner pouring drinks from behind the bar at The Fed.



Hat tip: Planet Money

tagged: economy, economists, Keynes, Hayek, Bernanke, Geithner, video, YouTube, Tuesday

Surely some revelation is at hand

Uncle Nick was kind enough to point out one of the money quotes from the ongoing Financial Crisis Inquiry Commission hearings headed by Phil Angelides (a Democrat from California, which has one of the brokest-ass budgets in the country, so you know this guy has the fiscal street cred).

Here's the quote:

Wall Street is in effect selling cars with faulty brakes, and then taking out insurance on the buyers.

The statement was directed at Lloyd Blankfein, chairman of the board and chief executive officer of Goldman Sachs (and budding Bond Villian). Remember, this is the same Goldman Sachs that was making $100 million a day just a few months after taking a $20 billion bailout payment from you and me.

Just to make sure that sinks in, they were bringing in 100,000,000 dollars A DAY.

Anyway, Blofeld's Blankfein's response to the quote above was basically "I don't see anything wrong with that."

The temerity of these bank executives during the hearings would be comical if it weren't so enraging. C-Span has video of the hearing on their website. If you feel the need for a quick hit of Hulk rage, I highly suggest you watch. Skip through the first 40 minutes or so since that's just the bankers reading their prepared PR statements.

In the meantime, here's an example of why The Onion is the smartest news source. EVAR. Jon Stewart is getting his ass kicked by these guys.



In The Know: Are Politicians Failing Our Lobbyists?
tagged: politics, economy, bailouts, The Onion, Doomsday Cycle, Goldman Sachs, Lloyd Blankfein, Phil Angelides, humor, satire

The Doomsday Cycle

Yesterday I mentioned that "the system" is broken, and I realize that is a gross overstatement of the obvious. But I want to be clear that I'm not just talking about the electoral system.

I'm referring to a socio-political system as a whole that allows -- actually encourages -- an unchecked collusion of industry and government. It is what will cause the eventual catastrophic decline of our Republic (if you can still call it that).

About a year ago, when we were in the heat of bailout fever, I was having a discussion with a friend of mine over lunch. We were trying to figure out whether the long term affects of bailing out companies that make poor management/business decisions was worth the short term gain of saving jobs.

You see in order for our system to work, failure is essential. Companies must be allowed to fail, to be punished for their failures by losing their assets and financial fortunes, in order to serve as an example to other companies of what happens when you employ risky business practices.

But, going back at least to the 1970s, we've seen more and more bailouts, followed by admonitions and vows to "never let this happen again," accompanied by additional layers of regulation.

But then when that regulation fails, additional bailouts are forthcoming, more regulation is added, and the cycle begins again. Businesses take bigger risks because they know the taxpayers will have to bail them out. In the case of the latest crisis, banks could be doubly assured of a bailout since Goldman Sachs has basically purchased the entire executive branch as well as key legislators.

The point, as Logtar stated in our lunch conversation, is that it's dangerous to socialize risk. But you don't need to take his for it.

In an editorial in Financial Times, superintelligent economists Peter Boone and Simon Johnson, gave a name to what is happening in the U.S. financial sector: the Doomsday Cycle.

They draw a parallel of the cycle described above -- risk, failure, bailout, repeat -- to what happened when the USSR finally imploded.

During the final years of communism’s decline, Soviet bureaucrats argued for futile tweaks to laws that would crack down on speculators and close “loopholes” – all in the vain hope they could keep the unproductive system of incentives intact. The US, UK and key European countries are now making the same errors. Rather than recognizing the dangerous systemic failures in our financial system, their leaders are proposing bandages that can – at best – only postpone another, possibly much larger, meltdown.

You should read the entire piece (free registration may be required). The authors make many good points, not the least of which is that the proposed wrist-slap or regulatory "reform" is nowhere near enough to limit bad business practices, let alone stop the Doomsday Cycle.

Rather, we need to make risky business behavior more painful by NOT BAILING BUSINESSES OUT!

tagged: politics, economy, bailouts, USSR, Doomsday Cycle, Goldman Sachs

Look for that silver lining

Hey guys. I don't know if you realized this or not, but we're in the midst of a pretty nasty national economic recession.

We have been for the better part of two years. Now, we could spend a lot of time talking about who did what to whom to cause the economic meltdown in the first place (it was politicians and investment bankers, btw). The truth is, pretty much everyone played some part in what I call Economageddon (but mostly it was politicians and investment bankers).

But who likes to focus on blame and bad news. Not me. Rather, let's consider what we need to do to dig ourselves out of this hole. Now some people -- namely everyone in any governmental position of power -- think the best way to dig ourselves out is to keep digging deeper. They theorize that spending more money that we don't have will miraculously translate into everyone having more money in the end.

Interesting theory.

But there are also a lot of people -- namely millions of ordinary, hard working Americans -- who realize that spending what you don't have is kind of what got is into this mess in the first place.

This is the good news. This is the silver lining. Because even though it’s a bitter pill and it means we'll have to live with spending less and having less "stuff", it is the path back to economic solvency.

I recently discovered Mike Mandel's blog (great analysis on economic/financial data) and found the chart illustrating household borrowing over the last 20 years.
As you can see, household borrowing has fallen precipitously over the past three years. I mean, that graph looks like the wall of the Grand Canyon. I think the only thing that fell faster in the last two years is Mark Mangino's popularity in Lawrence.

The keen observer will note that household borrowing has fallen so much that it is now negative. That's right, for the first time in the Age of Information, American households are saving money. We're slowly digging ourselves out of the debt hole we've dug over the previous decades.

Of course, this isn't the whole solution. Our government leaders are still spending way more money than we have, which is actually reducing our national net savings despite what individual households are doing.

But my hope is that we're seeing a shift in attitude. That people are accepting the fact that we can't continue to spend what we don't have. And with time and enough ridiculous bailouts (yes, that's California looking for a handout), this attitude will trickle up to the boneheads who hold the power of our national purse.

It's not going to be easy. A cool 70 percent of our economy comes from consumer spending, and with consumers saving more and spending less there will have to be some major adjustments. But that's the pill we have to swallow.

And it won't be quick. Hell, I don't even know if it will happen in time to avert the global social breakdown (currently scheduled for the third quarter of 2013, fyi).

But it's a good start.

tagged: economy, household savings, debt, spending, Mark Mangino

Pleading Galty

I'm going to backtrack a little bit because I have a couple of things I want to say about the whiny babies running Bank of America right now.

Seems they've wet their diapers over the Obama Collective's plan to slash executive salaries.

Many of the firms, which have together received more than $300 billion in taxpayer aid, issued conciliatory statements, but Bank of America said the ruling would put it at a disadvantage in competing with companies not under the pay czar's thumb.

"People want to work here, but they want to be paid fairly," said whined BofA spokesman Scott Silvestri.

Some people (who haven't thought things through very well) have latched on to the quote and hit the panic button, warning of a Galtian response to the pay cuts (via Cup O' Joel):

If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere. Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut. Chaos will be created at these firms as top people leave in droves. Will the administration then order people back to work?

Like I said, I've got a couple of thoughts on this, and I'm going to try to keep it brief.

First, this whiny weasel of a bank executive is vastly overstating the risk of a "Galtian" exodus of talent. (Can you imagine? A bank executive not being 100% honest?) Yes, the reduction is a 90 percent cut over their pay in 2008. But read the fine freaking print: It only applies to "the remainder 2009..."

That's right, these poor, deprived bastards are going to have a whole two months of punishment for the 18-months-and-counting depression they've caused. Then, it's back to buying disposable superyachts on the taxpayer dime.

Secondly, even if every single bank executive affected by this pay plan decided to take his keys to the executive Korean massage parlor and crawl into a Randian hole in southwest Colorado, that's only 175 people. I say good riddance. Don't let the balloon payment hit you on the way out. By all rights, these people should be out of work anyway.

Which brings me to my final point. If you're going to run you industry into the ground (oh, and the rest of the global economy, to boot) and then go crying, hat in hand, to the government and beh-heh-heg for a bailout, and if the popular sentiment is hard enough against you, don't fuckin' be surprised when the Chief Executive (your new boss, btw) grabs some political points by cutting your pay.

Welcome to the world you created.

tagged: executive pay, Kenneth Feinberg, Scott Silvestri, economy, Galt, Rand, politics

Money, it's a gas

Hey let's face it people, our beloved greenback has taken its lumps the last few years.

Bush's supposed "strong dollar" policy didn't pan out so well as other currencies passed the buck in value at various times over the past few years (hell even the Canadian Loonie was beating the US dollar for a while).

And, with bajillions of new dollars pumped into the economy to make sure JPMorganChase would get record profits after screwing the country into economic Armageddon, it's pretty much a sure bet that the buck will get weaker before it gets stronger.

But that doesn't mean we can't have a little fun with it, does it?

The other day I received a $1 bill as change. On the back of the bill was printed this message: "You have found a wild bill. See where I have been. Enter the series & serial # at www.wheresgeorge.com"

Now, before you go and think I'm all naive and everything let me just say that, yes, I recognized this as the government tracking program that it is. Obviously, it's just one more way for Big Brother to keep tabs on my whereabouts and spending.

Still...

I went to the wheresgeorge.com website and punched in the info from the bill. The tracking report I got on this particular bill showed a previous entry from a fella who received it as change from the KCI Airport Super Shuttle. At the time, it was in "good, nearly new" condition. That was 28 days before the bill came to me.

When I received the bill it was still in good condition, but not nearly new. Lots of wrinkles and folds, almost like it had been crammed quickly into a pocket then straightened out and placed into a money clip, then at some point drunkenly stuck into a g-string. You can use your own imagination to predict where it went from there.

Anyway, you can participate in the fun by pulling a bill from your wallet and checking the wheresgeorge.com yourself. C'mon, the government is already tracking you 10 different ways anyhow.

But if you're too paranoid to play this little game with your dollars, here's something else you can do.

I got an email the other day about Won Park, an origami artist who specializes in folding the dollar bills in to intricate shapes of animals and various objets d'argent. Here are the samples that were in the email I received.















And of course, my poetic favorite...

tagged: money, dollar, bill, fun, origami, Won Park, economy