Monday, March 30, 2009
I'm sorry I haven't updated my blog in 5 days. I've been putting more time and attention in my other blog (an even bigger waste of time). As it is, my readership has dropped off dramatically, and I realize I'm contributing to it by not been visiting other blogs.
Anyway, here is my update, starting with the weather ...
We had some decent rains between Thursday and early Sunday (1.10" at DCA, 1.27" at BWI and 1.57" at IAD), although we're still well below for the year and drought conditions threaten for spring into summer.
DCA is at 5.00" for the year, or -4.23" year to date, while BWI is at 5.06" or -5.13" year to date, and IAD is at 5.40" or -3.75" year to date.
Here was a variably cloudy sky as seen from the corner of M St., NW, and New Hampshire Ave., NW, here in D.C., March 29, 2009 shortly after a cold front blasted through the area.
The front itself brought showers and thunderstorms that missed D.C. proper while parts of northern Maryland, Pennsylvania and New Jersey got nailed, including with hail. Temps. here plunged from 75F to around 55F in 2 to 3 hours.
Rainy Friday night intersection of 16th St., NW, and U St., NW, Washington, D.C., March 27, 2009
Of course, most Washingtonians (esp. urban gay men who have no concept of climate or weather beyond the bars, buying stuff way beyond what is necessary, and bitchiness) remain clueless on why rain is important. This is true of most urban and suburban people.
The April flowers -- which in D.C. are really March flowers -- have begun to blossom in earnest. The famed Yoshino "Japanese" cherry tree blossoms that are the signature tree of D.C. in springtime (pictured here at peak ringing the Tidal Basin from an internet image) will be peaking this week.
I am planning one of my signature *nighttime* walk down to the Tidal Basin with Gary and a Cobalt bartender friend of mine Wednesday night.
My weekend was, eh, so so, although I got to see a friend of mine named Chris who is in town visiting from Miami for work and we met up Saturday night at Cobalt.
From the 1800 block of 16th St., NW, looking southward toward R St., NW, and a green traffic light, Washington, D.C., March 26, 2009
I'm feeling VERY unattractive and I desperately need to start going to the gym on campus. I have NEVER been so fat as I am now. My weight has gone up substantially in the past six months, probably 20 pounds, and I'm on the cusp of being noticeably fat.
Part of the problem is I'm nearly 40 and physiological changes are occurring in my body in terms of slower metabolism and just getting older and flabbier. I have to undertake some drastic action -- diet and going to the gym. I've also been deeply depressed of late, even by my standards of regular depression, and remaining at home all work week during the day.
Yours Truly, Regulus, peering into the bathroom door mirror at Phil and Stephanie's place Saturday night (see below).
I also have to start giving more serious consideration and effort to looking for an actual full time job. While I theoretically have another 5 to 7 months of money cushion, I really don't want to go to down to my last dollar. I've already mentioned that I may simply move away from D.C. by early autumn if/when my dad actually moves to Key West, Fla., but I don't want to revisit that issue now.
On an unrelated note, I guess the stock market will be sky- rocketing more this week as the whole world falls down in awe at the Geithner toxic asset purchase plan designed to restart the multi-trillion dollar Ponzi scheme that is present day American finance and economics -- the aim being to dupe the public to start buying into new bubbles as soon as possible. HAPPY DAYS ARE HERE AGAIN!
Here is an interesting article in the May 2009 Atlantic Monthly by Simon Johnson, a former IMF chief economist on how the U.S. economy and Federal Gov't have been "captured" by the financial industry and what that means.
Above is a YouTube clip of a Jimmy Kimmel skit featuring Sesame Street's Ernie and Cookie Monster explaining the Bernie Madoff scandal. It's rather warped but funny.
A few more images from this weekend taken at Phil's sprawling, nearly 12-hour long, multiple game poker party at his house on Saturday. I don't play poker but just went over for the social event.
Here Stephanie and Chris chat while Oliver looks on hoping they drop some pizza.
Chris attempts a Vulcan mind-meld with Oliver, who for his part is more interested in that remaining fragment of a piece of pizza.
I think that's all for now. My next planned update is later this week.
Thursday, March 26, 2009
Here is a picture of Kristof taken at Eric and Fanny's wedding on June 23, 2007 at Cafe La Ruche in Georgetown here in D.C.
Your age is a secret safe with me ... but I can tell my (few) readers that (to quote the Are You Being Served? episode) that it's "well under the speed limit ... and not on the open road but in a built up area ..." Well, maybe on the outer edge of that built up area!
You aren't missing anything here in D.C., or the U.S. of A. Just more trillion dollar bail outs and more power for the corporate oligarchical over-class. I'll refrain from a political diatribe in this part of the entry.
You DID, however, miss the Britney Spears concert last night here in D.C. ALL the right people were there.
The following pictures were taken on Monday, March 23, 2009 and Tuesday, March 24, 2009 on two walks that I took about parts of D.C.
The first was down to the Washington Monument and Lincoln Memorial and back to the Dupont Circle area via downtown D.C. (round trip about 5 miles).
Above is a picture of the brilliant setting Sun (love the "purple disk" effect) seen from the National World War II Memorial fountains between the Washington Monument and Lincoln Memorial.
The second walk was another roughly 5 miles walk back from the Navy Yard area via the U.S. Capitol grounds. I took that walk for reasons I explain below.
Approaching the Washington Monument from 15th St., NW, and Constitution Ave., NW, March 23, 2009
As a follow-up to my previous entry, let me just say that it doesn't matter that the stock market has skyrocketed nearly 20 percent in value the past 2 weeks. Indeed, all that points out is the Geithner Plan is just another Multi-Trillion Dollar Big Lie and give away to help the criminal financial oligarchical over-class of billionaire corporate CEOs, foreign banks, credit default swap traders, hedge fund managers in Dubai and New York, and other gangsters and their media-whore enablers and apologists (can you say "Washington Whore Post Editorial Board"?) at no risk to them.
The top half of the Washington Monument, as seen from the north side of the grassy rise when it rises, March 23, 2009
The purpose, as I see it, is to get the casino & whorehouse Ponzi Scheme rolling again to finish the final enslavement of the working poor and middle class ... which for its part will just sit there either doped up on childlike religious fundamentalism or burbling in its corn fed-and-beef-hormone-super-sized idiocy watching (Eric Cantor style) "Brit Brit" at her next concert or the upcoming American Idol finale.
The west side upper two-thirds of the Washington Monument lit by the low-angled early evening Sun, March 23, 2009
Lastly on this topic of the bail out, read Paul Krugman's analysis of it and a series of analyses (pro and con).
Touching the Washington Monument, March 23, 2009
One (well, two) of the 50 American flags circling the the Washington Monument cast(s) an early evening shadow on the marble at the base of the 555 foot high obelisk while a security guard stands nearby; she was taking someone's picture. I guess it must get boring just walking around the windy base of Monument for hours.
My shadow as I walked away from the Washington Monument, March 23, 2009
I would like to note there that while I took these walks this week, I have actually spent a tremendous amount of time at home. Indeed, I cannot believe how reclusive I have become in the past several months now that I'm working only intermittently on a contractual project basis from home and don't really need to go to College Park to campus that much. I'm a total night owl and really just like to escape during the day by sleeping.
I haven't actually been to campus in 3 weeks owing to a cancelled Thursday class and being sick on a Friday (3 weeks ago); the NRC conference (RIC 2009) I attended (2 weeks ago), and spring break (last week). Needless to say, my would-be gym routine has failed miserably so far.
I will go to campus tomorrow and Friday, finally.
The fountains of the National World War II Memorial. This fountain used to be known as the Rainbow Pool until it was incorporated into the WWII Memorial, which while nice, has a distinctly fascistic architectural design.
Another picture of the National World War II Memorial with the Atlantic Arch shown here. This fountain, the erstwhile Rainbow Pool, is still the spot from which the July 4th fireworks are launched.
It is true that so far I have not been really trying that hard to find a full time job, esp. since any attempt to get a good one would be an exercise in futility ending in failure anyway and instead (like the last three) it would be some stupid, agonizing one that I just cannot do anymore.
I have a cushion of money to last about 6 months. I'm hoping to get a job via the professional development program at a Federal agency. By all that's holy in the Universe, I should get it. However, me being me, I won't.
If I do move away from D.C. toward the end of 2009, it would be to Florida with my dad to Key West. He plans to be there by the end of summer. Then my 17-year Washington, D.C. area life and sojourn will have ended in TOTAL and COMPLETE failure, and that will be that.
I would like to point out that while I have been "lazy" in not trying to find full tim work the past few months, please know that I have done some good work for the company for which I am now a project-based consultant.
Consider that I put together a 54 page report (for which I am being woefully underpaid) on that NRC conference, complete with figures and technical discussions -- and nuclear engineering and regulatory oversight are not things I ever studied in school.
One of the main fountains of the Nat'l World War II Memorial sends a geyser of water about 20 feet skyward, blocking the Sun from this angle, March 23, 2009.
That report followed a 34 page paper on nuclear industry safety culture and another shorter one that nonetheless included interviews with mid-to-high level NRC staff that I was ONLY able to do as I attended the RIC. People like that don't answer email or phone queries from people like me representing some for-profit, tiny, unknown consulting company.
Bottom line, I believe I have provided that company with real value rather than the usual medium quality stuff it turns out.
Walking toward the Lincoln Memorial along the north side of the Reflecting Pool, March 23, 2009
Approaching the Lincoln Memorial along the north side edge of the Reflecting Pool, March 23, 2009. The water was about as clean as I ever had seen it. Usually, it is a slimy witch's brew of algae, litter, and goose shit. The soil is severely compacted along here. The bulk of the original elms have been replaced over the years.
As an aside, I tried to determine what fraction of the original century-old English elms planted along the Reflecting Pool between 17th St., NW, and the Lincoln Memorial remain, esp. given the ravages of Dutch elm disease (DED) that wiped out tens of millions of English and American elms around the country between its arrival in the U.S. circa 1928 and the early 1970s. However, I was not really able to do so. My guess is maybe a third of them are originals.
Here is a picture I found off the internet(s) -- ha ha -- that shows the view from the northeast side on the day it was dedicated on May 30, 1922. The elms would have been 10 to 15 years old at that point.
However, many were replaced over the decades.
The original elms were from the Dickens nursery in Chester, England (as per the insistence of Frederick Law Olmsted, one of the key members of the McMillan Commission whose 1902 plan was the basis for the National Mall as it exists today) already probably 5 to 10 years or old or so when they were planted in 1915 and 1916. Sources: here (pp. 21 - 22) and here (pp. 88 - 89).
Among the columns of the Lincoln Memorial with gaggles of Middle America tourists, March 23, 2009
Yours truly among the back side columns of the Lincoln Memorial, March 23, 2009. So few tourists (maybe one in 50) ever actually walk around to the back side of it. I am very glad this reopened -- it was "closed" (fenced off) during the 2001 - 2003 height of Bush's police state reign of post-9/11 terror-mongering. Now if only the West Steps of the U.S. Capitol would reopen.
Looking out from the Lincoln Memorial (south edge) toward the Reflecting Pool, Washington Monument, and U.S. Capitol, March 23, 2009
President Abraham Lincoln in his namesake memorial, March 23, 2009
I actually got this picture of Pres. Lincoln inside the Lincoln Memorial without any tourists in the way, March 23, 2009
Speaking of health, here is a larger banner for an upcoming World Health Day on April 7, 2009 placed on the Pan American Health Organization building -- which I've always thought is a remarkably strange looking structure that bears more than a passing resemblance to a car engine's air filter -- near the State Department, March 23, 2009.
It shows a bedraggled little girl in torn clothing, presumably in the aftermath of some natural or human disaster, looking upward, presumably at the arrival of rescue/help. I don't know why it moved me to teary eyed-ness.
The next part of this entry features pictures I took on my walk back from Navy Yard Metro from my rental property management company (i.e. my apartment building landlord). Why I went there is explained below.
Navy Yard is a strange and strangely different part of the city that is, an erstwhile blown out ghetto area I knew chiefly because of the gay male dancer bars that were where the Nationals baseball stadium is located. Navy Yard has radically changed from what it was from as late as 1999, though it's still not exactly a paradise.
This picture was taken while I was walking along New Jersey Ave., SE, underneath I-395 into Capitol Hill from Navy Yard. In my early days in D.C. (when I was living in College Park) and would go to some of those aforementioned gay dancer bars, and on a few occasions, I WALKED back via this street at night. How screwed up was that.
There is a train line under below New Jersey Ave., SE, and a vestige of a farm with two horses stabled there. I recall once there was a white horse I saw one night. That horse was not there yesterday but a brown one.
An interesting looking large structure at the weird intersection of North Carolina Ave., SE, and 1st St., SE, as seen from New Jersey Ave., SE, Washington, D.C., March 24, 2009
I went to the property manager -- where tenants are not allowed but I was able to get someone come downstairs to pick up the letter -- in order to hand deliver a check for $3800. This represents 4 months of rent I am paying in advance (through the end of July).
I would have mailed the check -- and, indeed, I had it in a stamped envelope -- BUT I did not want to put in the postal mail. It was a big check (for me) and I actually had a single month's rent check get lost in the mail last September -- AND after I mailed it FROM the Bethesda, Md., post office itself.
I also need to move some money around, including into a new account, and cash some of it out into actual currency that I store in a safe place or safe box.
The Library of Congress (old and new wings), Washington, D.C., March 24, 2009
The reason for all of this is to reduce the money I have right now to avoid the disaster that would result if any potential collection agency puts a lien on my checking account for the approximately $5,400 in unpaid credit card bills (half of that was just interest) that I ran up in 2007 that is now about $9,000 in assorted late fees and other money grabs. Coincidentally, this is just about the size of my money cushion.
Whatever your view on my own responsibility in this, the bottom line is that America's system is a brutal and yet farcical caricature of itself, a trillion dollar crime wave continuously in action.
Credit card companies are like the ebola virus -- so deadly to their host that they basically kill themselves, too, in the aggregate. I borrowed that money to pay my rent and for groceries back in 2007 when I was even more destitute than I am now.
Approaching the U.S. Capitol Building from the southeast side, March 24 2009.
Yes, all that frickin' construction of the damn subterranean visitor center there is FINALLY finished. Alas, a significant number of 100 to 200+ year old trees were removed for the purpose of that facility.
Looking across the weird fountain "above" the U.S. Capitol Visitor Center / east grounds of the U.S. Capitol toward the U.S. Supreme Court with an appropriately placed port-o-john, March 24, 2009. I wonder if Tony "Three Fingers" Scalia has used it.
Anyway, more immediately, I made what will be a 6 - 12 month temporary arrangement to pay the largest of the bills ($4700), but this is just to fend off any immediate judgments or such big trouble.
The trouble is, I cannot declare chapter 7 bankruptcy until spring 2010 because I need to wait 8 years from the last time I did it (spring 2002). The 2005 revised and punitive bankruptcy law won't apply to me because my $29,000 income even for 2008, a year I worked full time, was well below the median income for the District of Columbia.
The U.S. Capitol dome, March 24, 2009. I once lost a chance to take a "dome tour" back in 1998 on a very bad day (when I also lost the chance at a weather assistant job at D.C.'s shitty Fox 5 affiliate working for Sue Palka). In the post-9/11 era, there isn't the slightest chance in the frickin' Universe I'll EVER be able to take a dome tour.
Such a sense of failure pervades my 40 year old self, although part of it is that I was making my way through life without any guidance. I never had any older siblings (I'm an only child) or even adult "mentors" to provide me any guidance. I suppose if I had been a pretty female or someone with a better personality or some other special characteristics, that would have helped.
Trouble is, I was rather emotionally damaged by the time I was a teenager and so the journey (so far) has been made much worse by my terribly self - defeating and very nearly self-destructive sense of self.
The U.S. Capitol as seen from the northwest side as I headed toward downtown and thence home, though I stopped for lunch at the Whole Foods on P St., NW, since I (sometimes) like its hot bar.
All that aside, when you live in this country at its cultural, conceptual, and professional margins, and are acutely aware of what it is like to have no influence/power, or ability to control things, and when all things you have done (such as all my schooling) have instead produces the opposite outcome of what you had hoped ... and all in the context of a shrieking, deranged economic and financial system and American culture, you get a sense of how warped the American Experience and how Big the Lie of it promise both in fact can be.
I think that's all for now.
The good news is that RAIN is FINALLY in the forecast. We have suddenly entered into our driest first three months of a calendar year on record at Dulles AND BWI, and 4th driest on record at DCA. Above is the forecast panel from earlier tonight from Sterling LWX NWS.
My next update will probably be in the late Saturday to Monday time frame.
Wednesday, March 25, 2009
The above picture was taken by me yesterday as I walked home from the Navy Yard Metro area back to Dupont Circle via the U.S. Capitol grounds. It was a sunny, coolish day. We are really in a prolonged late winter / early spring dry spell but hopefully we should get some decent rainfall over the next several days.
I went to the Navy Yard part of D.C., where I don't usually go, in order to go to my property management company to pre-pay my rent for four months in advance, the wherefore and why for which I will explain in my next entry.
Monday, March 23, 2009
The Seahorse of the Large Magellanic Cloud created by a star cluster (NGC 2074)
I am reposting in its entirety a damning article by Matt Taibbi that appears in the April 2009 edition of"Rolling Stone" magazine that explains in its full grotesque detail the multi-trillion dollar Ponzi Scheme and power grab perpetrated on America by the AIG and AIG-like investment bank, insurance, and hedge fund corporate criminals and their supposed Federal overseers.
The article also explains the collateralized - debt obligation (CDO) and credit default swap (CDS) financial instruments that AIG cooked up and how they work and why the "bailout" the Federal Government is ultimatey a fool's errand, at least as far as the taxpaying American and the national economy are concerned.
Indeed, a global depression in some sense is what these con-artist criminals at the top want. Marx's idea about Capitalism devouring itself rings so true.
I strongly recommend reading this Taibbi article. It is posted as a courtesy in its entirety* with a few added paragraph breaks to accompany the pictures I posted to break up the test.
*Undoubtedly, this violates some copyright rule somewhere, but I'm too small for anyone to notice.
I really hope this article begins to make a difference, and I also REALLY hope that President Obama finally wakes up on this one.
Caution: The article contains some profanity and vulgar sexual references, but it makes sense in the context of the mega-billion dollar crime wave-in-action it describes.
The Big Takeover
The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution
Link to online article here.
Posted Mar 19, 2009 12:49 PM
It's over — we're officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.
The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).
So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity.
And the worst part about it is that we're still in denial — we still think this is some kind of un -fortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."
Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.
Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.
People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.
The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.
The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.
I. PATIENT ZERO
The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.
That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd
with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino. "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."
The mess Cassano created had its roots in an investment boom fueled in part by a relatively new type of financial instrument called a collateralized-debt obligation. A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.
The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other crap, and you can be reasonably sure that somebody is going to pay up. Say $100 is supposed to come into the box every month. Even in an apocalypse, when $90 in payments might default, you'll still get $10. What the inventors of the CDO did is divide up the box into groups of investors and put that $10 into its own level, or "tranche." They then convinced ratings agencies like Moody's and S&P to give that top tranche the highest AAA rating — meaning it has close to zero credit risk.
Suddenly, thanks to this financial seal of approval, banks had a way to turn their shittiest mortgages and other financial waste into investment-grade paper and sell them to institutional investors like pensions and insurance companies, which were forced by regulators to keep their portfolios as safe as possible. Because CDOs offered higher rates of return than truly safe products like Treasury bills, it was a win-win: Banks made a fortune selling CDOs, and big investors made much more holding them.
The problem was, none of this was based on reality. "The banks knew they were selling crap," says a London-based trader from one of the bailed-out companies. To get AAA ratings, the CDOs relied not on their actual underlying assets but on crazy mathematical formulas that the banks cooked up to make the investments look safer than they really were. "They had some back room somewhere where a bunch of Indian guys who'd been doing nothing but math for God knows how many years (ha ha) would come up with some kind of model saying that this or that combination of debtors would only default once every 10,000 years," says one young trader who sold CDOs for a major investment bank. "It was nuts."
Now that even the crappiest mortgages could be sold to conservative investors, the CDOs spurred a massive explosion of irresponsible and predatory lending. In fact, there was such a crush to underwrite CDOs that it became hard to find enough subprime mortgages — read: enough unemployed meth dealers willing to buy million-dollar homes for no money down — to fill them all. As banks and investors of all kinds took on more and more in CDOs and similar instruments, they needed some way to hedge their massive bets — some kind of insurance policy, in case the housing bubble burst and all that debt went south at the same time. This was particularly true for investment banks, many of which got stuck holding or "warehousing" CDOs when they wrote more than they could sell. And that's were Joe Cassano came in.
Madoff Ponzi Scheme looks like child's play compared to AIG's: $50 billion versus $55 trillion.
Known for his boldness and arrogance, Cassano took over as chief of AIGFP in 2001. He was the favorite of Maurice "Hank" Greenberg, the head of AIG, who admired the younger man's hard-driving ways, even if neither he nor his successors fully understood exactly what it was that Cassano did. According to a source familiar with AIG's internal operations, Cassano basically told senior management, "You know insurance, I know investments, so you do what you do, and I'll do what I do — leave me alone." Given a free hand within the company, Cassano set out from his offices in London to sell a lucrative form of "insurance" to all those investors holding lots of CDOs. His tool of choice was another new financial instrument known as a credit-default swap, or CDS.
The CDS was popularized by J.P. Morgan, in particular by a group of young, creative bankers who would later become known as the "Morgan Mafia," as many of them would go on to assume influential positions in the finance world. In 1994, in between booze and games of tennis at a resort in Boca Raton, Florida, the Morgan gang plotted a way to help boost the bank's returns. One of their goals was to find a way to lend more money, while working around regulations that required them to keep a set amount of cash in reserve to back those loans. What they came up with was an early version of the credit-default swap.
In its simplest form, a CDS is just a bet on an outcome. Say Bank A writes a million - dollar mortgage to the Pope for a town house in the West Village. Bank A wants to hedge its mortgage risk in case the Pope can't make his monthly payments, so it buys CDS protection from Bank B, wherein it agrees to pay Bank B a premium of $1,000 a month for five years. In return, Bank B agrees to pay Bank A the full million-dollar value of the Pope's mortgage if he defaults. In theory, Bank A is covered if the Pope goes on a meth binge and loses his job.
"Don't bring me into this! I favor poverty, over - population, and disease EQUALLY for ALL!"
When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books. Therefore, they argued, they should be allowed to lend more, without keeping more cash in reserve. A whole host of regulators — from the Federal Reserve to the Office of the Comptroller of the Currency — accepted the argument, and Morgan was allowed to put more money on the street.
What Cassano did was to transform the credit swaps that Morgan popularized into the world's largest bet on the housing boom. In theory, at least, there's nothing wrong with buying a CDS to insure your investments. Investors paid a premium to AIGFP, and in return the company promised to pick up the tab if the mortgage-backed CDOs went bust. But as Cassano went on a selling spree, the deals he made differed from traditional insurance in several significant ways. First, the party selling CDS protection didn't have to post any money upfront. When a $100 corporate bond is sold, for example, someone has to show 100 actual dollars. But when you sell a $100 CDS guarantee, you don't have to show a dime. So Cassano could sell investment banks billions in guarantees without having any single asset to back it up.
Secondly, Cassano was selling so-called "naked" CDS deals. In a "naked" CDS, neither party actually holds the underlying loan. In other words, Bank B not only sells CDS protection to Bank A for its mortgage on the Pope — it turns around and sells protection to Bank C for the very same mortgage. This could go on ad nauseam: You could have Banks D through Z also betting on Bank A's mortgage. Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down, or take out a term life policy on the guy with AIDS down the street. It was no different from gambling, the Wall Street version of a bunch of frat brothers betting on Jay Feely to make a field goal. Cassano was taking book for every bank that bet short on the housing market, but he didn't have the cash to pay off if the kick went wide.
In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.
Initially, at least, the revenues were enormous: AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Everyone made their money — and then it all went to shit.
II. THE REGULATORS
Cassano's outrageous gamble wouldn't have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D. For years, Washington had kept a watchful eye on the nation's banks. Ever since the Great Depression, commercial banks — those that kept money on deposit for individuals and businesses — had not been allowed to double as investment banks, which raise money by issuing and selling securities. The Glass-Steagall Act, passed during the Depression, also prevented banks of any kind from getting into the insurance business.
But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists.
They quickly got what they paid for. In 1999, Gramm co- sponsored a bill that repealed key aspects of the Glass - Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?
The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields. "By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.
The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word. "You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout. When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And that's what AIG did. "They just bet massively long on the housing market," says the source. "Billions and billions."
In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Super -vision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.
Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.
That same year, as the subprime crisis was exploding, the Govern ment Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees."
Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!
"There's this notion that the regulators couldn't do anything to stop AIG," says a government official who was present during the bailout. "That's bullshit. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, 'You don't exist anymore,' and that's basically that. They don't even really need due process. The OTS could have said, 'We're going to pull your charter; we're going to pull your license; we're going to sue you.' And getting sued by your primary regulator is the kiss of death."
When AIG finally blew up, the OTS regulator ostensibly in charge of overseeing the insurance giant — a guy named C.K. Lee — basically admitted that he had blown it. His mistake, Lee said, was that he believed all those credit swaps in Cassano's portfolio were "fairly benign products." Why? Because the company told him so. "The judgment the company was making was that there was no big credit risk," he explained. (Lee now works as Midwest region director of the OTS; the agency declined to make him available for an interview.)
In early March, after the latest bailout of AIG, Treasury Secretary Timothy Geithner took what seemed to be a thinly veiled shot at the OTS, calling AIG a "huge, complex global insurance company attached to a very complicated investment bank/hedge fund that was allowed to build up without any adult supervision." But even without that "adult supervision," AIG might have been OK had it not been for a complete lack of internal controls.
For six months before its meltdown, according to insiders, the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the 18th-largest company in the world had no one checking to make sure its balance sheet was safe and no one keeping track of how much cash and assets the firm had on hand. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company — like, for instance, how much exposure the firm had to the residential-mortgage market.
III. THE CRASH
Ironically, when reality finally caught up to Cassano, it wasn't because the housing market crapped but because of AIG itself. Before 2005, the company's debt was rated triple-A, meaning he didn't need to post much cash to sell CDS protection: The solid creditworthiness of AIG's name was guarantee enough. But the company's crummy accounting practices eventually caused its credit rating to be downgraded, triggering clauses in the CDS contracts that forced Cassano to post substantially more collateral to back his deals.
By the fall of 2007, it was evident that AIGFP's portfolio had turned poisonous, but like every good Wall Street huckster, Cassano schemed to keep his insane, Earth-swallowing gamble hidden from public view. That August, balls bulging,
he announced to investors on a conference call that "it is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions." As he spoke, his CDS portfolio was racking up $352 million in losses. When the growing credit crunch prompted senior AIG executives to re-examine its liabilities, a company accountant named Joseph St. Denis became "gravely concerned" about the CDS deals and their potential for mass destruction. Cassano responded by personally forcing the poor sap out of the firm, telling him he was "deliberately excluded" from the financial review for fear that he might "pollute the process."
The following February, when AIG posted $11.5 billion in annual losses, it announced the resignation of Cassano as head of AIGFP, saying an auditor had found a "material weakness" in the CDS portfolio. But amazingly, the company not only allowed Cassano to keep $34 million in bonuses, it kept him on as a consultant for $1 million a month. In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his fuck-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)
What sank AIG in the end was another credit downgrade. Cassano had written so many CDS deals that when the company was facing another downgrade to its credit rating last September, from AA to A, it needed to post billions in collateral — not only more cash than it had on its balance sheet but more cash than it could raise even if it sold off every single one of its liquid assets. Even so, management dithered for days, not believing the company was in serious trouble. AIG was a dried-up prune, sapped of any real value, and its top executives didn't even know it.
On the weekend of September 13th, AIG's senior leaders were summoned to the offices of the New York Federal Reserve. Regulators from Dinallo's insurance office were there, as was Geithner, then chief of the New York Fed. Treasury Secretary Hank Paulson, who spent most of the weekend preoccupied with the collapse of Lehman Brothers, came in and out. Also present, for reasons that would emerge later, was Lloyd Blankfein, CEO of Goldman Sachs. The only relevant government office that wasn't represented was the regulator that should have been there all along: the OTS.
"We sat down with Paulson, Geithner and Dinallo," says a person present at the negotiations. "I didn't see the OTS even once."
On September 14th, according to another person present, Treasury officials presented Blankfein and other bankers in attendance with an absurd proposal: "They basically asked them to spend a day and check to see if they could raise the money privately." The laughably short time span to complete the mammoth task made the answer a foregone conclusion. At the end of the day, the bankers came back and told the government officials, gee, we checked, but we can't raise that much. And the bailout was on.
A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others — a move the company insisted was necessary to "retain key employees." When Congress balked, AIG canceled the $90 million in payments.
Then, in January 2009, the company did it again. After all those years letting Cassano run wild, and after already getting caught paying out insane bonuses while on the public till, AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece, to the very people who spent the past decade or so punching a hole in the fabric of the universe!
"We, uh, needed to keep these highly expert people in their seats," AIG spokeswoman Christina Pretto says to me in early February.
"But didn't these 'highly expert people' basically destroy your company?" I ask.
Pretto protests, says this isn't fair. The employees at AIGFP have already taken pay cuts, she says. Not retaining them would dilute the value of the company even further, make it harder to wrap up the unit's operations in an orderly fashion.
The bonuses are a nice comic touch high -lighting one of the more outrageous tangents of the bailout age, namely the fact that, even with the planet in flames, some members of the Wall Street class can't even get used to the tragedy of having to fly coach. "These people need their trips to Baja, their spa treatments, their hand jobs," says an official involved in the AIG bailout, a serious look on his face, apparently not even half-kidding. "They don't function well without them."
IV. THE POWER GRAB
In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.
Daschle's name on this doesn't surprise me one bit. He was the uber-whore of compromised Senate Democrats and he hasn't changed one bit.
The act helped create the too-big-to-fail financial behemoths like Citigroup, AIG and Bank of America — and in turn helped those companies slowly crush their smaller competitors, leaving the major Wall Street firms with even more money and power to lobby for further deregulatory measures. "We're moving to an oligopolistic situation," Kenneth Guenther, a top executive with the Independent Community Bankers of America, lamented after the Gramm measure was passed.
The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.
Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.
Once the capital requirements were gone, those top five banks went hog-wild, jumping ass-first into the then-raging housing bubble. One of those was Bear Stearns, which used its freedom to drown itself in bad mortgage loans. In the short period between the 2004 change and Bear's collapse, the firm's debt-to-equity ratio soared from 12-1 to an insane 33-1. Another culprit was Goldman Sachs, which also had the good fortune, around then, to see its CEO, a bald-headed Frankensteinian goon named Hank Paulson (who received an estimated $200 million tax deferral by joining the government), ascend to Treasury secretary.
Freed from all capital restraints, sitting pretty with its man running the Treasury, Goldman jumped into the housing craze just like everyone else on Wall Street. Although it famously scored an $11 billion coup in 2007 when one of its trading units smartly shorted the housing market, the move didn't tell the whole story. In truth, Goldman still had a huge exposure come that fateful summer of 2008 — to none other than Joe Cassano.
Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG.
When asked why Blankfein was there, one of the government officials who was in the meeting shrugs. "One might say that it's because Goldman had so much exposure to AIGFP's portfolio," he says. "You'll never prove that, but one might suppose."
Market analyst Eric Salzman is more blunt. "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.
Eventually, Paulson went a step further, elevating another ex-Goldmanite named Edward Liddy to run AIG — a company whose bailout money would be coming, in part, from the newly created TARP program, administered by another Goldman banker named Neel Kashkari.
V. REPO MEN
There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them.
But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That's the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers' credit card.
The people who have spent their lives cloistered in this Wall Street community aren't much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don't know what the hell LIBOR is or how a REIT works or how to use the word "zero coupon bond" in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.
That roll of the eyes is a key part of the psychology of Paulsonism. The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize "toxic" risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.
Some aspects of the bailout were secretive to the point of absurdity. In fact, if you look closely at just a few lines in the Federal Reserve's weekly public disclosures, you can literally see the moment where a big chunk of your money disappeared for good. The H4 report (called "Factors Affecting Reserve Balances") summarizes the activities of the Fed each week. You can find it online, and it's pretty much the only thing the Fed ever tells the world about what it does. For the week ending February 18th, the number under the heading "Repurchase Agreements" on the table is zero. It's a significant number.
Why? In the pre-crisis days, the Fed used to manage the money supply by periodically buying and selling securities on the open market through so-called Repurchase Agreements, or Repos. The Fed would typically dump $25 billion or so in cash onto the market every week, buying up Treasury bills, U.S. securities and even mortgage-backed securities from institutions like Goldman Sachs and J.P. Morgan, who would then "repurchase" them in a short period of time, usually one to seven days. This was the Fed's primary mechanism for controlling interest rates: Buying up securities gives banks more money to lend, which makes interest rates go down. Selling the securities back to the banks reduces the money available for lending, which makes interest rates go up.
If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.
The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.
While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.
No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating. Moreover, no one can really be sure if these new institutions are even temporary at all — or whether they are being set up as permanent, state-aided crutches to Wall Street, designed to systematically suck bad investments off the ledgers of irresponsible lenders.
"They're supposed to be temporary," says Paul-Martin Foss, an aide to Rep. Ron Paul. "But we keep getting notices every six months or so that they're being renewed. They just sort of quietly announce it."
None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.
VI. WINNERS AND LOSERS
Stevens isn't the only person in Congress to be given the finger by the Fed. In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went — only $1.2 trillion had vanished by then — Kohn gave Grayson a classic eye roll, saying he would be "very hesitant" to name names because it might discourage banks from taking the money.
"Has that ever happened?" Grayson asked. "Have people ever said, 'We will not take your $100 billion because people will find out about it?'"
"Well, we said we would not publish the names of the borrowers, so we have no test of that," Kohn answered, visibly annoyed with Grayson's meddling.
Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets — in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" — a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded — Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively — paying real money for God knows what.
"Well, how much of them don't have market values?" asked Grayson. "How much of them are worthless?"
"None are worthless," Kohn snapped.
"Then why don't you mark them to market?" Grayson demanded.
"Well," Kohn sighed, "we are marking the ones to market that have market values."
In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."
When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension."
Count Sanders among those who don't buy the argument that Wall Street firms shouldn't have to face being outed as recipients of public funds, that making this information public might cause investors to panic and dump their holdings in these firms. "I guess if we made that public, they'd go on strike or something," he muses.
And the Fed isn't the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn't — particularly the first $350 billion given out under Bush appointee Hank Paulson.
The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded — and this isn't a joke — by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.
"Do you believe that?" she says incredulously. "That's not what we had in mind."
Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.
This cozy arrangement created yet another opportunity for big banks to devour market share at the expense of smaller regional lenders. While all the bigwigs at Citi and Goldman and Bank of America who had Paulson on speed-dial got bailed out right away — remember that TARP was originally passed because money had to be lent right now, that day, that minute, to stave off emergency — many small banks are still waiting for help. Five months into the TARP program, some not only haven't received any funds, they haven't even gotten a call back about their applications.
"There's definitely a feeling among community bankers that no one up there cares much if they make it or not," says Tanya Wheeless, president of the Arizona Bankers Association.
Which, of course, is exactly the opposite of what should be happening, since small, regional banks are far less guilty of the kinds of predatory lending that sank the economy. "They're not giving out subprime loans or easy credit," says Wheeless. "At the community level, it's much more bread-and-butter banking."
Nonetheless, the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified.
This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors.
Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger megacompanies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.
In essence, Paulson and his cronies turned the federal govern -ment into one gigantic, half - opaque holding company, one whose balance sheet includes the world's most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.
In other words, it's AIG's rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that's been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren't such a nightmare.
VII. YOU DON'T GET IT
The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner — himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm — picked a former Goldman lobbyist named Mark Patterson to be his top aide.
In fact, most of Geithner's early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets — the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.
God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea. "This is exactly what the financial system needs," said Andrew Feldstein, CEO of Blue Mountain Capital and one of the Morgan Mafia. Strangely, there aren't many people who don't run hedge funds who have expressed anything like that kind of enthusiasm for Geithner's ideas.
As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.
The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.
"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"
But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.
Good luck with that, America. And enjoy tax season.
[From Issue 1075 — April 2, 2009]