The Oligarch in the Room

It is a primordial behavior of oligarchs everywhere and at all times to continue looting and plundering up until the very last bloody minute.  Without the existence of a sufficient countervailing force they have no incentive to do otherwise.  Take the money and prepare to run if necessary, or better yet hole up behind gated walls and privately secured enclaves.  This is the oligarch’s modus operandi, pursued even more energetically when the havoc he has sown envelopes all the lesser groups around him.

Goldman Sachs recently revealed earning record “profits” last quarter.  Record as in never before recorded by that institution.  Naturally, they also announced record “bonuses” would be dispensed in accordance with their return to “profitability”.  I am enclosing words such as “profits” in quotes because while they usually have no importance beyond mundane business accounting, in light of our current predicament and Goldman’s recent history they should now be considered political statements.  I will leave most of the important details to others (see links below), but allow me to briefly recount some of that recent history.

Lehman Brothers, one of the only true GS competitors, is allowed to go under.  In the minds of many this marks the start of the Great Crisis, although in reality this was simply a particularly sharp point on the continuum of disruptions that had already been going on for quite some time.

Goldman Sachs (heretofore referred to as GS) was peering into the abyss of insolvency (bankruptcy) until handed a taxpayer-financed injection of $10B via the infamous TARP bailout.  Recall, dear Reader, that Hank Paulson, previous US Secretary of the Treasury and former CEO of GS was the sole decider behind this decision.

GS would have been bankrupt, or certainly close to it, if not for Mr. Paulson directing an additional payment of $13B in taxpayer-financed money to the GS coffers in another series of opaque sole decider moments.  Interestingly enough, these payments were made through the government’s strangest special investment vehicle, also known as AIG.

GS raised $28B by issuing FDIC-backed debt.  Forget all the technical details, the truth is that this basically amounts to a huge pile of free money, financed by the tax payer of course.

I could go on, this list is by no means exhaustive, but I think you get the point.  The result of all this material support provided on the backs of the long-suffering, and undeniably ill-informed, public is that GS feverishly accelerates the trading and underwriting machine.  The result of which is the most recent announcement that they will be taking the money (which they refer to as “bonuses” and “salaries”) and (presumably) preparing to abscond.  Oh, and for good measure they will be using part of the leftovers to wage a bloody fight against any meaningful financial reform.

If you harbor any doubts that there exists, here and now, a small class of citizens who deem themselves separate, superior, and entitled to massive transfers of wealth from everyone else to them in perpetuity, you would be wise to re-consider your position.

Additional Reading:

Matt Taibbi (required for serious readers)
Peter Daou
Arianna Huffington
NYT
WSJ
Paul Krugman
Andy Kessler

The Prosecution will Soon Rest Its Case

The evidence is overwhelming that the stratospheric rise in financial industry profits over the past few years was essentially a massive pump-and-dump scheme perpetrated on a jealous and cowering public.  Robert Peston’s article for the BBC is only the latest in a near continuous stream of irrefutable argument.  His analysis deals exclusively with the UK financial industry, but these days there is little difference between their money changers and ours, except for the accents.

The truly terrifying part is that there are many high officials of government and industry that still believe this casino capitalism represents the economic pinnacle of our immediate past and foreseeable future.  For those who rely on the casino for their wealth such faith is understandable, but for the rest of us it can only be self-destructive delusion.

The Foreclosure Front of this War

This is a re-post (complete with lack of proper capitalization) that I just made to the ANWF discussion list.

i feel like many of us have been flailing about on the question of how much weight ANWF should throw behind foreclosure mitigation vs. our mission and while reading naked capitalism (http://www.nakedcapitalism.com/) it just clicked in my mind that these are inextricably related. as this http://www.nytimes.com/2009/07/11/business/11nocera.html?pagewanted=1&_r=1&ref=business nyt article reports geithner and the administration are going to call the bankers into the principle’s office for another scolding over their lack of get-to-it-ness on the government’s foreclosure mitigation program.  it appears this is mainly a pr stunt after a previous nyt piece (http://www.nytimes.com/2009/06/29/business/29loanmod.html) exposed the bankers absolute stonewalling on this issue and undoubtedly embarrassed treasury.  the government’s current program has the force of a strongly worded memo from your 5th grade teacher, and it would be charitable to label these efforts as weak.

here is a key section from the first nyt article (emphasis mine):

Many institutions also are reluctant to do large-scale mortgage modifications because they will hurt the balance sheets. After all, if a loan is modified, the bank has to take a write-down on the portion of the loan it is swallowing. If lots of loans are modified, that means a lot of write-downs.

At this moment in the financial crisis, banks are trumpeting their new-found profitability and racing to return bailout money to the Treasury. They’ve been able to do so in part by pretending that their loan portfolios, across the board, are healthier than they actually are. The government’s willingness to ease the rules surrounding mark-to-market accounting have helped this effort. (This is not true of every bank, I should note: JPMorgan Chase, the healthiest of the big banks, has also been the most aggressive about modifying mortgages.)

Sure, foreclosure ultimately costs the bank more money than a modification would. But foreclosures these days take a long time — as much as 18 months in some states. And all that time the banks can keep the loans on their books at inflated values. Daniel Alpert, the managing partner of Westwood Capital, calls this practice “extend and pretend.”

so the meta analysis is this.  the reason the banks are resisting foreclosure mitigation with all their might is that to do so would puncture the government supported illusion that they are not either technically insolvent or close to it.  as the article points out, this was the same purpose of the change in mark-to-market accounting shenanigans.  all to produce the illusion of financial health for these rapacious institutions.  the issue here is that this is simply a back-handed way to give another subsidy from the public to the banks, except in this case it’s not even filtered through acronym challenged, opaque, financial black-ops programs like TARP, but directly on the backs of citizens being forced from their homes.  Remember this is a zero sum game, either the bank takes the haircut on these bullshit loans or the homeowner does by getting kicked out on their ass.

i think this analysis gives the proper frame through which we ANWF warriors understand and prioritize this issue.  it is core.  perhaps we should add as a principle plank of our platform either the re-reinstatement of the law allowing bankruptcy judges to order loan modifications, or a federal law mandating principal reductions for primary residences that are in the foreclosure process or on the verge of heading there.

Down for the Cause

Current Book: The Scientist as Rebel by Freeman Dyson.

Okay, I’ve been meaning to write this post for weeks now, and I guess 3am on a Sunday morning is as good as time as ever.  I have been working with a grass roots organization that I will hope will be the vanguard fighters in fundamental reform of the US financial sector.  The organization is A New Way Forward and you, dear reader (of whom I have precious few) should check it out.  I am a member of the ANWF-Bay Area “steering committee” and we also have a Facebook group page.