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You Cannot Be Serious!

Today's performance testifying before Congress by Tim Geithner was flat-out the worst job I've ever seen done by any major public official. Geithner single-handedly destroyed about a half trillion of wealth as he showed up like the kid whose dog ate his homework with absolutely nothing of substance. I have never seen a more complete repudiation of anyone by the markets.

I'm just a stockbroker in Buffalo, but even I knew you don't get up in front of these people without a plan. Geithner brought some concepts.

This is a crisis of our own making. We have a banking system based on rules. Those rules are intended to prevent our ever arriving at a place like this. They didn't work. We have a rule that says that a bank's capital must exceed its liabilities or it must be closed. We also have a rule that a bank's capital assets must be marked, or valued, at a market price in order to calculate that capital.

Right now, market prices are pretty low, even on many assets that should eventually pay off. These artificially low prices are depressing capital ratios, which in turn force asset sales, further depressing market values. See how that works? Suspend the rules! They didn't work in the first place. Doesn't cost a cent. Problem solved. The government can make it clear that they will supervise, and stand behind the problem banks until they work their way through. They can issue certificates of forbearance which need to be repaid by the banks. With capital, and time, the too-big-to-fail banks can work their way through the losses and come out on the other end profitable.

Instead we get this preposterous public/private partnership nonsense. Who's going to go there? A few hedge funds? Does this clown have any idea of the magnitude of the problem?

Perhaps we could have seen this coming. As chairman of the New York Fed over the last eight years, Geithner is arguably the public official most clearly culpable for failing to prevent the financial catastrophe in the first place. He was part and parcel of the ad hoc, inconsistent, non-transparent TARP set up by the previous administration. And he's a tax cheat.

In a spectacular manifestation of the Peter Principle gone wild, this putz has risen to the second-most important financial post in the universe on the basis of what? An inability to complete a tax return?

If this is the best we've got, America is in deep, deep trouble.

This administration is utterly out of its depth.

If Everybody's Special, Then No One's Special

There's a bumper segment that CNBC keeps running that shows a little clip of Obama saying something to the effect of, "One thing we've learned in this crisis is that we can't have Wall St. prospering without Main St. In this country, we rise as one." Nice sentiment. Rather chilling implications. Does "The One" really think that government can orchestrate that kind of outcome? If Wall St. can't be allowed to prosper rather excessively, there will be no Wall Street, and all those high-powered investment bankers will reinvent themselves as lobbyists on K Street.

There's a fundamental difference between Wall Street and Main Street. Wall Streeters take big risks and work 70-hour weeks to get rich. Main Streeters generally have more modest ambitions. Besides, from where I sit, it looks like Wall Street just got taken to the cleaners by the schlubs on Main St. Wall Streeters bet the ranch on the premise that Joe Homeowner would not stop paying his mortgage unless he lost his job. Indeed, never before in the annals of financial history did he. The Street got lulled into the dreamy-eyed notion that home ownership would make responsible citizens out of deadbeats, and if it didn't, then perpetually rising home prices would bail them out. So they wrote ever more piles of crappy mortgages until finally the housing market collapsed under the sheer weight of it.

Looks like Wall Street got the worst of that one. And in the process, may have extincted itself. Oh, well, maybe there is something better to do with one's life than levering up mortgage paper 40 to 1 and charging 2 and twenty.

The enduring question remains, "Why?" Why did the market mechanism break down? Normally, borrowers show a little fear of not being able to repay, and lenders show more than a little fear of not being repaid. Borrowers and lenders alike acted as if they would never have to live with the consequences of their actions.

All I can say is that there was a general sense that the rules were suspended. It was a free-for-all, perhaps driven by some sense that tomorrow may never come, so why not live for today. Tomorrow has come. It may not have, but it did.

So there's going to be some changes. Not that he's asking me, but if he did, I'd direct the exalted One's attention towards the late, lamented Glass Steagall as a starting point.

On Bailouts and Borrowing

I think conservatives are making a big mistake by identifying themselves as the "anti-bailout" people. What's wrong with bailouts? Would these people really have preferred a world where their ATM cards didn't work?

The general impression I get is that the primary impulse of the "A-B'ers" (anti-bailout) is that they want to see people suffer for their sins. Never mind that the people who'd be doing most of the suffering were probably not the sinners. And maybe there weren't so many sinners in the first place. Maybe we just operate in an inherently unstable environment and decisions that may seem defensible at one point can look pretty ridiculous in hindsight.

Maybe we should just admit that we have a system that most of the time works to help create prosperity, but occasionally comes unhinged. When that happens, the best thing to do is to make sure that we piece the thing back together as quickly as possible, then figure out how not to make the same mistakes again.

In the spirit of not making the same mistakes all over again, allow your humble correspondent to make some humble suggestions:

1) Abolish the ratings agencies. Let a market for Credit Default swaps take their place. The ratings agencies either were bought off or utterly failed to evaluate the risk involved in the securities they rated. The problem is that the agencies have no stake in the opinions they promulgate. A CDS is a transaction entered into by two motivated counterparties. Market forces work! A transparent CDS market would be a much more accurate, timely evaluator of the credit-worthiness of businesses than Moody's or S&P.

2) Don't eliminate securitization, just fix it. A simple suggestion: Require securitizers to purchase 10% of every issue they sell and put it on their own books at the price they sell it to everyone else.

My basic premise is that markets are inherently self-correcting, provided all participants are operating on a level playing field. I'd much rather trust buyers and sellers of CDS's who have their own money in the game than a ratings agency paid by the companies they're rating. Likewise, you remove all incentive to deceptively package securities if you're going to have to eat your own cooking.

Where things went wrong in the current crisis was when people put too much trust in parties who had no stake in the outcome of their work.

Perhaps the most egregious abuse of this whole crisis was the debasement of Fannie Mae and Freddie Mac. All Americans should be outraged at the fraud that was perpetrated on investors by these companies. The basic business of these companies is a good one--providing capital to the mortgagae market by applying an implied government guarantee for investors. The reason it worked is that Fannie and Freddie operated under sound underwriting priciples.

Over time, and at the urging of Congress, they got involved in lower and lower quality lending, which in turn helped to fuel the explosion in subprime lending on Wall Street. Foreign investors believed they were buying government guaranteed bonds, then F&F funneled that money into all manner of wild subprime speculation.

Now our government is about to engage in the biggest borrowing in history from the same foreigners that F&F and Wall Street defrauded. Stay tuned....

Does this have to be dire? I don't think so. I mean, it could be dire. You could say that it's already dire. But, does it have to get much worse? I don't think so. Lots of wealth has been destroyed. People have been ruined. Lots of jobs have been lost. But the banking system has been saved. Soon the basic machinery of borrowing and lending will begin functioning again. Have you seen the prices at the pump? Have you priced a car or house or big screen tv? For the 90% + of the workforce that remains employed, this recesson will be a windfall.

Just watched "Recount". It's one of those quasi-historical docu-dramas that probably do a lot more to shape opinion than most people are comfortable admitting. That's why the Clintons pulled out all the stops to censor "Path to 9/11". Just what did Sandy Berger have stuffed in his underwear anyway? But I digress.

Media bias is one of those subjects that continually beguile. I find it fascinating that so many left-wing bloggers seem to believe that the media is biased against them. Ha!

"Recount" is a pretty textbook example of a campaign finance violation that will never be prosecuted. The producers make a pretense of keeping it evenhanded, but all the sympathetic characters are Democrats. You get Kevin Spacey as Ron Klain, Denis Leary on Gore's team, Ed Begley as Dennis Boies, and a bunch of no-name character actors playing the bad guys, er, the Republicans.

Hell, just showing it now ought to count as a campaign contribution for the Dems.

Gawd, what an eight years it's been! Anyway, poor Katherine Harris comes in for some rough treatment. The movie certainly does a better job with the facts than, say, "Farenheit 9/11"; but that's a pretty low bar to get over.

The movie portrays Democrats as lovable, principled, humorous and compassionate. Republicans are craven, do-anything-to-win machines. Who did win, by the way. The overall message was basically, if only all the votes got counted, Gore would have won. The movie fails to mention that several major newspapers, including the NY Times, recounted the votes in all the ways the Gore camp hoped to have them counted before the US Supreme Court shut down their illegal vote-stealing scheme.

Gore lost under every scenario. You could look it up.

What I'm getting to is that this topic goes to sort of the crux of what this blog is about--what people believe, and how those beliefs are shaped. A lot of Dems have gone around for the last eight years believing that election was stolen from them. That becomes part of their being and shapes their entire world view, and it's not even true.

So, you get this legion of Bush haters all jammed up and on it goes. Although, I will never forget how many of my loyal Democrat friends came up to me in confidence after 9/11 and said "I'm glad Bush won."

Here's another place Bush won.

The Rant Continues...

Enjoy this moment, Dems. It's a free-fire zone on George W. Bush, a magical time when all the world's ills can be blamed on a lame duck President of the other party, even as your own party controls an even less popular Congress. Question: How much is oil up since the Dems took Congress? Answer: About 90%. No matter, you can blame it on Bush.

But the sweetest rage must be saved for recriminations about Iraq. It's an occasion for fine, Olbermanesque speechifyin' all brimming with righteous indignation. With the benefit of hindsight, everyone knows now that they would have been able to calibrate exactly how much force would be required to secure the country. In case you hadn't noticed, the country has been secured. We're not getting hit by terrorists anymore. What's the complaint, exactly? That maybe the country could have been secured by doing less? The President should have gambled that Saddam would have stayed out of it, that he'd gotten rid of every last WMD, that he'd sworn off his support for terrorists, that he wouldn't have dropped a couple of his oil-for-food billions to take a shot at us? Well, when Obama gets elected, we'll see how well that kind of thinking keeps us safe.

Actually, if you knuckleheads had half a brain you'd be rooting your asses off for W to take care of Ahmadinejad before your boy gets in there. Dinner-jacket will take Obama's lunch money and then kick his ass. Then he'll lob a nuke into Israel and dare Barry to do something about it. How you like me now, Obama? You want to talk?

History may well judge George Bush harshly, but if it does, it won't be because he did too much. It'll be because he didn't do enough. At a time when the West held a decisive edge in military power, bin Laden offered us the pretext to take decisive action against all our enemies--Al Qaeda, the Taliban, Saddam, Syria, Iran and North Korea. Bush made a start at it, but the job is not done, despite the great victories in Afghanistan and Iraq. And yes, they're victories, but partial victories don't count. History is replete with examples of great powers who underestimated the resolve of their enemies.

If Obama gets in, there is simply no way he'll have the resolve, or the political capital, to hold the line against Iranian nukes--and just like that the West's strategic advantage will be gone. From that point onward, our choice will be gradual capitulation or the most horrible war imaginable.

Americans alive today for the most part have only known peace and great prosperity. The world can change very suddenly.

In a a way, Bush is a victim of his own success. He succeeded so completely at shutting down terror, he opened the door to criticism that he'd done too much.

Better than not enough.

Whoa...