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The Big Yellow Book

Seeing the World from Both Oculars-- a Bananaslug's Journal

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From FORBES ???!!!: AIG's epic fail
Dan Gerstein, a political consultant and senior advisor to Sen. Joseph Lieberman (D- Conn.), in his weekly column for Forbes.com tells it like it is about AIG's larceny and tells the truth about the state of American capitalism. Here's the point: if Forbes (aka "Capitalist Tool" which was the name of Malcolm Forbes' corporate jet) thinks we need to re-think the system we probably need to re-think the system.

From Gerstein's column:

"As we try to put the grand lunacy of AIG's grand larceny in some rational perspective, it might help to think of this latest bonus brouhaha as a reverse stress test--of the Obama administration's leadership, the political-financial complex as a whole and, ultimately, our very conceptions of capitalism. Is this really the economy that our leaders promised and the American people paid for? And are the elites who have been running and corrupting this system actually capable of changing it?

So far we are flunking on all counts. And, fitting for this most surreal of situations, this is the blessing in disgust. We now know what "the bottom" looks like. It looks like a company that perpetrated the biggest business loss in the history of the world handing out half a billion dollars in retention bonuses to the unit that almost singlehandedly destabilized the global economy--and a government that could not see this madness for what it was until millions of average Americans who could not tell a derivative from a Derringer called them out on it."

Read the rest of the column here. I wish I could post the whole thing...it is essential required reading if you want to know what's going on. Don't read it at your peril.

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Of potentially more use . . .

The Federal Reserve System holds an annual get-together, wherein economists present papers on macro-economics appropriate to the Fed's level of interest. At the 2005 meeting, Nouriel Roubini presented a paper that claimed that housing prices had climbed unreasonably high, and it was likely to cause a crash fairly soon. At the time, he was laughed out of the meeting, and looked down upon as a lunatic fringe alarmist.

By mid-2008, he was looked upon as the first economist to sound the alarm loud enough for policymakers to hear it. What a difference being proven right makes.

It turns out he, too, has a column at Forbes. Today's installment is titled The United States Of Ponzi. As you might guess, he discusses why it ain't only, or even primarily AIG.

I don't expect most politicians to embrace this view. After all, it places some of the blame on most Americans, instead of just some greedy investment bankers.

Roubini was right-- but I resent being tarred

...with the same brush. He blames us all, which ingenuously shields the banking and investing community, which understood exactly what they were doing, and went ahead. While I and millions like us, in 2004 were moving and buying houses not because we wanted to but because we had to. In my case, because my job took me from Seattle to Chicago.

So, now, according to Roubini, it is my fault that my neighbor got a NINJA loan, while I didn't. It is my fault that they walked on the house, while I didn't. It is my fault that I've made my house payments on time, while I've watched my life's savings, invested in my house and in my retirement fund dwindle away to nearly nothing.


If Roubini had wanted to really be heard, he could have been.

He's just saying "I told you so."

And his spreading of the blame absolves the financial community. What nonsense! The American public is financially illiterate, and kept that way by schooling and the media, and the financial community itself.

We need to investigate and prosecute the people who did this to us, the investment bankers who invented packaging steaming turds as credit swaps and derivatives, and the predatory mortgage lenders who preyed on lower income people with promises of pie in the sky.

Sure, we should all have known better, but they DID know better and did it anyway.

Re: Roubini was right-- but I resent being tarred

Well, for that matter, Roubini's also blaming me, because I bought my place without even putting up closing costs on my own. And, thanks to my ex-wife "forgetting" to pay the mortgage (one of many revelations that led to divorce), I've known I was upside down on my mortgage since, oh, I think May 2001.

Here's the dirty little secret, though: The mortgages packaged as asset-backed securities? Perfectly legal. The credit swaps? Not only are they legal, but there's a law saying nobody can regulate them. (What're the odds that one will stand, though, eh?) This leaves the low-level guys -- the commission-only mortgage brokers -- as a small army of fall guys. Presuming there's sufficient evidence to prove any of them actually lied (in a way that's fraudulent, instead of the usual sales-talk puffery) to their customers.

Also, if you follow the financial news like I do, he's a breath of fresh air after the folks at Treasury and Federal Reserve -- both under Bush and Obama Administrations. After not making it work back in September, the latest plan is still based on the idea that the mortgage-backed securities the banks have on their balance sheets are really worth more than the market value, and if only they were priced "properly," the entire banking sector problem would go away.

You want one where he blames the financial industry? Try the bottom half of Laissez-Faire Capitalism Has Failed. Despite the catchy headline, he's not dumping on market economies, just what he calls ". . . the laissez-faire, unregulated (or aggressively deregulated), Wild West model of free market capitalism with lack of prudential regulation, supervision of financial markets and proper provision of public goods by governments."

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