Irrational Numbers

September 25, 2008 at 7:42 am | Posted in Bush Administration, Congress, Economy | 1 Comment


The Curmudgeon watched the president’s speech last night, hoping in vain for some substance. We didn’t catch him in any lies, but the speech was as superficial as Mr. Bush always is.

Without actually telling us how we got into this mess, he pointed out that credit is tight, saying that troubled financial institutions don’t have money to lend because their assets have declined in value. He agreed that the situation is hard on everybody, because us little people can’t get the credit we need to send our kids to school, or to buy that new, gas guzzling SUV we want. He claimed, in sad and almost hushed tones, that the economy is in such trouble that if the Congress doesn’t act quickly (read “immediately”) to adopt the plan advanced by Treasury Secretary Paulson and Fed Chairman Bernanke, the whole economy will go down the tubes.

The president didn’t tell us that it was the untrammeled greed of the financial community, unrestrained by the regulations the Republicans have spent the last decade busily dismantling, that produced the mortgage and housing crisis. He didn’t tell us that it was the greed and foolishness of managers (who should have known better) that led them to acquire risky financial instruments without any idea of their value or of the risks involved.

Using tactics reminiscent of the run-up to the war in Iraq, the President used fear—in this case, fear of financial ruin rather than of terrorist activity—to get his way. Secretary Paulson and Chairman Bernanke used the same tactics when they spoke to the Senate and the House of Representatives.

The plan the administration is advancing is awesome in scope and unbelievable in its arrogance. The idea is that the Congress will appropriate $85 Billion to bail out AIG, $100 Billion each to bail out Fannie May and Freddy Mac, and $700 Billion to bail out the rest of the financial community. Do the math, folks: that’s a total of $985 Billion—nearly a trillion dollars, and a little less than twice what we’ve authorized for the Iraq war—so far.

The money would be spent, under the direction of the Secretary of the Treasury, to buy the bad securities of a number of financial firms. These firms would then, presumably, have money to spend making more bad loans and otherwise go about their business unburdened with the debt they should never have acquired in the first place. When (if) the economy recovers, Treasury would presumably sell these instruments at a profit and make us all rich. Um…make some of us rich. Um…rich-er.

The plan specifically excludes any oversight, either by the Congress or by the courts. “Trust me,” says Secretary Paulson. Yeah. Sure. Trust the guy who, with Mr. Bernanke, was in a unique position to warn us that this was happening (it didn’t happen over a weekend). He did not warn us, and now he wants us to trust him with nearly a trillion bucks.

The plan contains no sanctions against the CEOs and other executives whose cupidity and stupidity stands to cost the taxpayers large quantities of money. They may well keep their jobs and their bloated compensation packages. At worst, they’ll float down to the real world in their golden parachutes as a reward for running their firms into the ground.

The plan contains no help for the thousands who were conned into mortgages they cannot now afford, no relief for the people and businesses who suffered financial (as well as emotional) losses because their credit dried up when they needed it, no guarantee that the assets Treasury buys will ever be worth anything.

The plan is insane.

But before you run into the bedroom and hide under the bed, rejoice: there is hope! Instead of lying down and letting the administration walk all over it, the Congress is stepping up to the plate and demanding answers. House and Senate leadership—from both parties—has been asking tough questions and negotiating changes. Instead of giving in to the fear spread by the administration, the Congress is digging in its collective heels, asserting control, and working out a real plan. Senators McCain and Obama are going to Washington for a summit, to contribute their ideas and facilitate a solution.

You can help. Even if you know nothing about economics, whether you’re a Democrat or a Republican, you can urge your elected representatives not to act from fear. Urge them to step back, think, and solve this problem, in conjunction with their colleagues across the aisle, at a measured pace.

If we don’t do that it will be a disaster; if we do, we will get through this.


The AIG Bailout: Bad. Necessary.

September 18, 2008 at 9:14 am | Posted in Bush Administration, Economy, Politics | 5 Comments

American International Group (AIG) is a massive company. Primarily an insurance company, it has businesses, to quote the New York Times, that “run the gamut from aircraft leasing to life insurance for Indians to retirement plans for elementary schoolteachers.”   It does business with individuals and companies in 130 countries around the globe. It is so big that if it failed the repercussions would be body blows to economies around the world. Monday, it was on the ragged edge of failure.

Let’s look at what happened. Mortgage brokers, urged on by mortgage companies, sold sub-prime mortgages knowing full well that the poor slobs who took the mortgages would probably default. The mortgage companies packaged these mortgages with “normal” mortgages and sold the packages to mortgage servicing companies. The mortgage servicing companies sliced and diced the packages to make up what are called derivative instruments—and sold them to other financial services companies.

It was virtually impossible to determine the risk of any given instrument. Yet AIG insured the value of these derivatives, putting up collateral to insure the owners against losses.

The value fell like a rock when the mortgage bubble burst. That meant that there was a lot less money available to lend, so the credit markets went west. More to the current point, it meant that the owners of these instruments called on AIG to fork over some cash, as called for by the insurance contracts. In over its head, AIG tried to borrow the money it needed, but potential lenders took a good look and said, “No.” Some said, “Hell no!” AIG was caught with its belt off, and just out of reach.  Gravity did its thing, and AIG’s trousers were lowered to half mast, with the imminent prospect of further lowering: in short, AIG tottered toward bankruptcy. We’ve already talked about the results of an AIG bankruptcy.

So the Fed huddled with Treasury, and with the greatest reluctance came up with a plan. The Fed would take over AIG (as it did Fannie Mae and Freddie Mac). It would put in new management, and float an $85 Billion loan to oil the wheels of progress.

The Curmudgeon, like the congressional leadership, a number of important senators and congressmen, several financial leaders from the Clinton administration, and the candidates of both major parties, joins Fed Chairman Bernanke and Treasury Secretary Paulson in the belief that bailing out AIG is a horrible idea. If it works (and there’s no guarantee, as the stock market indicated yesterday) it will be an incentive for every other troubled firm in the country to come whining for a bailout, and there’s no way the government could do that even if it were a good idea. Which it is decidedly not.

We think most people would agree that AIG needs new management and an infusion of cash. $85 Billion isn’t much, put perception is everything in the financial markets, and if even the government wouldn’t lend AIG money….

So the Curmudgeon reluctantly agrees with Treasury and the Fed that the takeover is necessary. The Curmudgeon fervently hopes that AIG’s tenure as an agency of the federal government will be brief, that it will be returned to private investors at the first possible moment. Ditto Fannie Mae and Freddie Mac.

What got us into this mess? At the risk of being called biased, the Curmudgeon believes that it is the result of eight years of a government that methodically destroyed the regulatory mechanisms that kept corporate management’s greed, cupidity, and stupidity from destroying our economy. The Curmudgeon believes that we have to upgrade and update the regulations to protect corporations from destroying themselves, their stockholders, and the general public.

We don’t need a committee to do that. We need strong, intelligent leadership. But that’s another story, for another day.

Wall Street falls off a cliff; McCain retains his happy face

September 15, 2008 at 10:17 pm | Posted in Economy, Politics | 4 Comments

This is not a daily newspaper, nor is it a large and well staffed blog. The Curmudgeon tends to shy away from reporting the story of the minute, because he prefers to consider the information, come to an informed conclusion, and publish stories of a somewhat more lasting nature. But there are some things that won’t wait, so the Curmudgeon penned the following after an incredulous reading of the day’s events.

Well, it has been an interesting day on Wall Street. The Federal Reserve has asked two investment banks to put together a $70 million package to prop up a staggering AIG (one of the world’s largest insurers). Merrill Lynch was saved from bankruptcy when Bank of America agreed to buy the venerable brokerage house, and the hoary Wall Street firm of Lehman Brothers went into bankruptcy. As a result, the stock market fell like a sky diver with a busted chute: the Dow Jones industrial average dropped 504.48 points—the worst loss since the terrorist attacks of 2001.

This follows last week’s government takeover of Freddie Mac and Fanny Mae, and the death of Bear Sterns, another venerable Wall Street name.

And Senator McCain, speaking in Florida, said that the economy’s underlying fundamentals remained strong.

Senator Obama, after closing the jaw that had dropped in astonishment at McCain’s statement, responded. “It’s not that I think John McCain doesn’t care what’s going on in the lives of most Americans,” he said. ” I just think doesn’t know….  Why else would he say that the economy isn’t something he understands as well as he should?  Why else would he say, today, of all days – just a few hours ago – that the fundamentals of the economy are still strong?”
We wonder, as Senator Obama did, what economy McCain is talking about?

The Palin Pick: The Last Word (We Hope)

September 15, 2008 at 10:13 am | Posted in Politics | Leave a comment

We would very much like to stick to the issues in the presidential campaign, but we feel it necessary to say a few final words about the Palin pick because of what it reveals about Senator McCain.

By picking Governor Palin as his Vice Presidential running mate, Senator McCain changed the course of the campaign. Palin came from nowhere and exploded on the national scene like the fireworks on the Fourth of July. Picking Palin was, one must grant, a brilliant political move. Whether it was enough to get McCain elected president only time will tell, but the Curmudgeon doesn’t think so.

The Curmudgeon worries about Palin as a potential vice president and possible president. You know why, because as soon as the pick was announced, the media pounced. The media (and the Democratic “op researchers”) went to Alaska and found truckloads of problems we won’t even bother to mention. After a couple of weeks of carefully scripted appearances (Palin is a really good orator) and intensive behind-the-scenes tutoring, an interview was allowed.

She did pretty well, actually, at an impossible task. But she was understandably nervous, she didn’t know what the Bush Doctrine is, and she said she understands the Russians because you can see Russian from Alaska. (Across the Bering Strait, on a good day, it looks like a low-lying cloud.)

The fact is that she doesn’t know much of anything about foreign policy, her judgment is mostly unknown, and we don’t know what her positions were before the McCain tutors got hold of her. The same thing is true on national issues, for the most part.

But we’re not here to dump on Palin. The thing that bothers the Curmudgeon most is that it was the Democrats and the media who vetted Palin, not the McCain campaign. Apparently the McCain campaign knew about the ethics investigation Palin was undergoing and about her pregnant daughter, but they interviewed nobody in the Alaska government, talked to none of Palin’s friends and neighbors, failed to search the archives of the Wasillia newspaper, didn’t do an FBI background check as they claimed, and didn’t even get to Alaska until the day before the announcement.

As far as we know, the pre-announcement vetting process consisted of an interview with a lawyer who was once a member of President Reagan’s team, a 70-question questionnaire, and one meeting between McCain and Palin.

It must have been love at first sight. They talked, they found they were soul-mates, and he asked her to be his…vice president.

It seems to the Curmudgeon that the process of choosing a running mate ought to be a careful, thoughtful process. The candidates ought to be thoroughly vetted, and their qualifications—not just for the vice presidency but for the presidency—ought to be carefully evaluated. Their qualifications as campaigners are part of the equation, but most importantly the chosen one must be ready to help the president to govern. Unfortunately, the chosen one must also be ready to leap into the presidency itself, at a time of great emotion, if the president becomes unable to serve.

That careful vetting didn’t happen when McCain chose Palin. That’s nothing against Palin, who was asked, and (as most people would) said yes. But it calls Senator McCain’s judgment into question. He shot from the hip. He made an impulsive choice. He took a tremendous risk. That’s the sort of thing fighter pilots do—they have to, or they won’t survive. But it’s not the sort of thing presidents do. If a president makes a bad decision it could plunge the world into war, plunge the country into economic chaos, or leave millions of refugees behind after a hurricane strikes.

We have the right to expect our president to get as much information as possible, consider the options carefully, and get the best possible advice, before making a major decision. Senator McCain failed to do that.

September 12, 2008 at 9:31 am | Posted in Politics | Leave a comment

Forum on Service (Yawn)

The two candidates appeared almost together at last night’s Forum on Service, held at Senator Obama’s alma mater, Columbia University, and sponsored by Time magazine. Senator McCain was the first one on deck, the result of a pre-show coin toss.

He declared that we need a stronger military, and said that there are other ways to serve. We need, he said, more organizations providing ways for people to serve their country. At some length he said that he favors both motherhood and apple pie.

Senator Obama appeared next, and was asked essentially the same questions McCain had been asked. He declared that we need a stronger military, and said that there are other ways to serve. We need, he said, more organizations providing ways for people to serve their country. At some length he said that he favors both motherhood and apple pie.

The major difference between the two candidates was that Senator Obama seemed more passionate about the need for more volunteer service. But that could be because he’s a better speaker.

If you didn’t see the forum…don’t bother.

McCain at the Convention

September 5, 2008 at 2:16 pm | Posted in Politics | Leave a comment

The Curmudgeon, who enjoys football and favors the Giants over almost everybody, watched while they beat the Redskins last night. Unfortunately we missed the first quarter, which is when most of the action happened, but we did catch the end of the game and were impressed at the NFL’s coordination with the Republican National Committee. It was no more than a minute between the end of the game and the start of the video introducing Senator McCain.

Like most of the game, the video was pedestrian.

The speech was a bit better. Although the senator is hardly a world class orator, it did have some content. For example, Senator McCain complemented President Bush on his leadership after 9/11, and pledged not to let his (McCain’s) supporters down.

Refreshingly, he declared his respect and admiration for Senator Obama, and in fact refrained (for the most part) from throwing rocks at the opposition. That was a nice change in a campaign that has so far been distinguished by the size and quantity of the boulders the Republicans have been heaving at Senator Obama. We hope that the trend will continue—on both sides—but the Curmudgeon is cynic enough to doubt it.

Predictably, Senator McCain spent a lot of time (in several parts of his speech) talking about his captivity and torture by the North Vietnamese. Although he was modest in his words, the picture that emerged was gripping, and convincing if anybody needs convincing. Senator McCain is a true American hero who went through hell—and somehow survived. The Curmudgeon remembers the Viet Nam war, and remembers when then Lt. Cdr. McCain returned, pale, emaciated, and ill. We admired him then, although we were against the war, and we still admire his courage and his determination to survive.

We do not agree, however, that Senator McCain’s ordeal qualifies him to be President of the United States and commander-in-chief of the armed forces. He is qualified—but he is qualified by his other experience more so than by his military experience. The Curmudgeon suggests that both candidates are qualified to lead this country. This campaign ought to be about issues.

We must admit that the senator covered most of the issues. But he did it with slogans, not with substance. He even dragged out the discredited “Drill, drill, drill!” slogan, either because it sounds good even if drilling accomplishes little, or because he still hasn’t read the report. There was, in addition, a lot of “I’m gonna do…” (Fill in the blanks.) Again, no substance.

Some will say that’s inevitable in a convention speech, but Barack Obama put a few nuts and bolts in his speech—and electrified the convention. Senator McCain got cheers in all the right places, but…well, in many cases they seemed…pro-forma. Perhaps the delegates had read the McCain web site, because there aren’t too many nuts and bolts there either.

Well. The Curmudgeon is proud to be able to say that he remained awake and alert throughout the third and fourth quarters of the Giants-Redskins game and the McCain introductory video and the entire McCain speech. Aren’t you impressed?

An Evening with the GOP

September 4, 2008 at 7:33 am | Posted in Politics | Leave a comment

We watched some of the RNC last night. Listened to Meg Whitman and Carly Fiorentino. Took a nap and woke up in time to hear Rudy Giuliani, then Veep candidate Sarah Palin.

The two women who spoke earlier were pretty flat, we thought. Meg Whitman, who probably used to have dimples, and who is McCain’s National Campaign Co-Chair, didn’t say much of anything except that McCain is wonderful and Obama is not. Fiorentino, who was fired from Hewlett Packard for using a private detective to spy on people, and who is a senior advisor to McCain, didn’t say much either, only it took longer. At least it seemed to take longer. Well, they were convention speeches.

Rudi, trying to act like a vice presidential nominee, flailed and thundered, pumped up the audience, and said nothing noteworthy. But he’s a good speaker. Very good. (Former trial lawyer.)

Palin did just what she was supposed to do: introduced herself and did the traditional Veep nominee attack dog act. She’s a good speaker. She was preaching to the choir of course, and of course they loved her.

The thing that bothers the Curmudgeon about all four speakers is that they seem to have a rather tenuous grasp on reality, and worse, they seem to think their audience has an equally tenuous grasp. Of course they were all convention speeches, but there was little reality in their attacks on Obama. They never attacked Obama’s policies of course, except for telling a few lies about them, but asserted that the McCain non-plans would actually do something.

I thought their theft of the Obama thrust that we need to change Washington was amusing. Lessee…the Republicans want to change Washington…by electing more Republicans. Huh?

Well, they were convention speeches.

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