Monthly Archives: February 2009

Shoring Up the Worthless

Corporate America, Economic Affairs, Previous Blog: Sense and Nonsense

So, if you're not already despondent enough about the 6.2% decline in GDP in the 4th quarter of 2008, or the bear market that has dropped the Dow to its lowest point since May 1, 1997 (effectively wiping out all your gains in 12 years: bye-bye, retirement!), we have these choice tidbits from today's news to drive you further into the doldrums:

  • Joe Nocera, the excellent business columnist for the New York Times, writes that the hundreds of billions of federal dollars spent already to prop up American International Group is not working and that AIG is going to cost taxpayers another $100 billion before the company finally stabilizes.  And why would we do this?  Nocera writes:
A quarter of a trillion dollars, if it comes to that, is an astounding
amount of money to hand over to one company to prevent it from going
bust. Yet the government feels it has no choice: because of A.I.G.’s
dubious business practices during the housing bubble it pretty much has
the world’s financial system by the throat.

I don’t doubt this bit of conventional wisdom; after the calamity that followed the fall of Lehman Brothers,
which was far less enmeshed in the global financial system than A.I.G.,
who would dare allow the world’s biggest insurer to fail? Who would
want to take that risk? But that doesn’t mean we should feel resigned
about what is happening at A.I.G. In fact, we should be furious. More
than even Citi or Merrill, A.I.G. is ground zero for the practices that
led the financial system to ruin.

“They were the worst of them all,” said Frank Partnoy, a law professor at the University of San Diego and a derivatives
expert. Mr. Vickrey of Gradient Analytics said, “It was extreme hubris,
fueled by greed.” Other firms used many of the same shady techniques as
A.I.G., but none did them on such a broad scale and with such utter
recklessness. And yet — and this is the part that should make your
blood boil — the company is being kept alive precisely because it
behaved so badly.

Yeah, I've gotta say: it makes my blood boil. If this were China, we'd put these AIG executives in jail, or put them to death for their recklessness and malfeasance.  Maybe those Chinese are onto something! But I digress.  We're not here to indulge our fantasies but to deepen our depression.  So, onto the next blood-boiling topic of the day: Citigroup, the world's most incompetent bank.

  • Also writing in the Times, Eric Dash and Louise Story explore whether the latest government plan to rescue the fabulously grotesque behemoth — the third such attempt since October — is likely to work. Dash and Story write:

At best, this third rescue may buy time to devise a solution that
allays investors’ fears. At worst, it could allow the problems to
fester and eventually cost the government — and, by extension,
taxpayers — even more money.

That worst-case scenario is what the folks over at the Wall Street Journal's editorial board envision.  I am loathe to cite a WSJ editorial with approval — in fact, I am surprised to find myself doing so — but in this case, they nail it when they write:

The taxpayer never sleeps when it comes to Citigroup, which
yesterday got its third rescue in recent months from Uncle Sam. The
amount and terms of the taxpayer commitment keep changing, while the
management stays in place. The only institution that has a comparable
track record on those two scores is Congress.

We don't mean to laugh, but we have to in order not to cry. No
company on Earth has failed more often than Citigroup without being put
out of its misery. Taxpayers have already put more than $50 billion in
capital into the bank, while guaranteeing $301 billion of its bad
assets, and the bank still can't stop its slide.

In a better world, Citi would have long ago been put into
bankruptcy. The FDIC could have taken over and disposed of the bank's
assets, while protecting insured deposits as it always does. The
profitable parts of Citigroup could then have been sold off to people
who could better manage them.

But in this vale of taxpayer tears, Citi is "too big to fail" and
thus must be propped up lest it (allegedly) spread contagion through
the financial system. While that may have been true last fall amid the
worst of the financial panic, we don't think the contagion would be the
same now that the federal government has guaranteed anything in the
financial system that moves.

It sickens me to think that American taxpayers have to pay hundreds of billions of dollars to bailout the very institutions whose incompetence, greed, and perfidy brought us to this economic apocalypse.  Here's a compromise: we'll bail them out if we get to exact some good-old Chinese revenge.

Sad Day in Denver

Media/Journalism, Previous Blog: Sense and Nonsense

Rocky-mountain-presses-blog

Yesterday was a sad day in Denver.  The Rocky Mountain News, one of the city's two main dailies, closed down after nearly 150 years of continuous publication.   Quite a record!

I grew up in Denver and learned to love newspapers by spending time each day blissfully reading the Rocky Mountain News in the morning and the Denver Post in the evening. Those papers were how I learned about the world.

Today's New York Times carries a nice article about "The Rocky" and its demise.

Scummy Congressional Earmarks

American Politics, Congress, Previous Blog: Sense and Nonsense

In his column in this morning's Boston Globe, Derrick Jackson addresses the scummy practice of congressional earmarks — the funding for special projects in their districts that individual members of Congress tuck hidden into  spending bills.  Jackson applauds President Obama for wanting to stop this "sloppy snorting in the pig trough."   I'm with Jackson.  He writes:

The problem is, we live at a time when individual politicians cannot
operate as if they are the center of the universe. All that does is
create a black hole in the budget for Obama. You do not need an
economics degree to see, for instance, how tens of millions of dollars
of unconnected train station projects scattered around the nation might
derail a focused program to concentrate high-speed rail where it is
most needed. A college or Girl Scouts initiative might not have the
same effect as a federal effort to support after-school programs. Is a
$22 million addition to the Kennedy library more important than
propping up our struggling public libraries?

Jackson nails it with his comment about individual politicians operating "as if they are the center of the universe."  That's what members of Congress do.  That's what they think of themselves.  They're surrounded all the time by fawning sycophants, and everything they do is geared toward securing their own reelection.  Sensible policy, be damned.  The broad public interest?  Forget that!