Taibbi Explains It All

Rolling Stone's Matt Taibbi lays it all out: AIG, Geithner, Bush, Greed, the Gramm-Leach-Bliley Act, and the largest power grab in the history of the world, headed by AIG's financial products division head, Joseph Cassano. (mind the language, he pulls no punches.)

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.

And as long as the housing market went up, Cassano made AIG billions. When it collapsed, AIG suddenly owed these counterparty banks more than half a trillion dollars. Even better, these counterparty banks were allowed to treat that bet as a 100% asset. So, now they had assets to cover their own bets and could use the liquid cash they had to buy and sell more of these CDOs and CDSs.

Then subprimes went under. The resulting meltdown has put us in the situation we're in now.

Do read the whole thing. Taibbi explains the whole scheme, from CDOs to credit default swaps to the obsessive greed that made everyone from the newbie temp to the federal government look the other way. The last 10 years of our economy was a massive lie, folks.

Now we have to face the truth.

The truth is America is insolvent.

Worse Than Timmy

Yglesias reminds us that the difference between guys like me and the wackos on the right is that while both of us want to see Timmy gone, there are very, very stupid choices being floated by conservatives right now for Timmy's replacement.

If you have some money automatically deducted from your paycheck and put into a 401(k), the value of your investments will go up during booms, but down during busts and recessions. Nobody would, I think, consider you to be a genius investor. But on Wall Street, if you make a lot of money during booms and then lose all your money and require a government bailout during a bust, that’s considered “no one could have predicted” territory and it’s very important to pay you millions of dollars lest your unique talents be lost. In this universe, someone like Jamie Dimon of JP Morgan who ran a company that not only managed to make a lot of money during the boom, but actually lost less money than other companies, is considered to be an enormous genius.

Thus, from inside this alternative universe you get things like a David Reilly columm for Bloomberg in which he suggests firing Timothy Geithner and replacing him with Dimon. Of course, by Wall Street logic that’s technically impossible since nobody takes jobs unless they pay millions of dollars. But what’s really striking here is how stunningly out of touch it is with the public mood. I think that if you put a bank CEO in charge of the Treasury, that might end with the building getting burned down.

Yes, that Jamie Dimon, the same one who said this about the American people:

"I don't think just because someone's underwater they say I don't have to stay there. But they're supposed to pay the mortgage, and we should teach the American people, you're supposed to meet your obligations, not run from them. Because you have a mortgage doesn't mean you should run away as it goes down.

The same Jamie Dimon who said this about Wall Street:

“When I hear the constant vilification of corporate America, I personally don’t understand it. I would ask a lot of our folks in government to stop doing it because I think it’s hurting our country.”

Yeah. That guy. This arrogant douchebag who wrecked JP Morgan Chase and blamed you for it. This is the guy that Bloomberg's David Reilly thinks would somehow be a better choice than Timmy.

You gotta be f'ckin kiddin' me.

March Sadness

So a Chicago TV station is laying into Obama's NCAA tourney picks.

After the first day of the NCAA basketball tournament, President Obama's bracket appears to be a bust.

The president, a self-described basketball junkie, managed to only pick 11 of 16 games correctly--or 69 percent.

CBS 2 imported Obama's picks, which were originally made for ESPN, into its Bracket Challenge game. Currently, the president ranks in the 27th percentile among all players.

Several contestants managed to pick every game correctly. CBS 2 traffic reporter Susan Carlson, who admits to watching very little basketball, picked 15 of 16 games correctly.

Perhaps Duke coach Mike Krzyzewski was right when he said the president should be focusing on the economy, rather than picking NCAA brackets. Obama has picked Duke rival North Carolina to win the title this year.

But hey, the Coach K thing was debunked yesterday and let's face it, if he had gotten all 16 right, how many people would now be saying ZOMG OBAMA SEKRIT PLAN TO INFLUENCE TOURNEY!

As Joshua the computer said in WarGames, "The only way to win is not to play."

Five O' Clock Shadow

Yesterday I warned that commercial real estate giant General Growth Propeties was on the brink of bankruptcy. Over at Calculated Risk, we learn that GGP indeed has a deadline...

...of 5 PM today.

In addition to watching for bank failures this afternoon, the 2nd largest mall owner in the U.S. - General Growth Properties - is facing a significant deadline:

From the WSJ: General Growth Shakes Up Executive Ranks

[General Growth's] most critical deadline is 5 p.m. Friday, when it hopes the majority of its bondholders will have agreed to refrain from demanding payment this year on $2.25 billion in bonds. If that effort fails, General Growth says it might need to seek Chapter 11 bankruptcy protection.

Watch GGP on this one closely. Odds are pretty good a mall in your area and the jobs it provides are at stake. Should the company go bankrupt, who knows if they will be able to continue operations at all. Most likely they will...but almost certainly underperforming malls are going to have to close as a result, and this company owns scores of malls that employ tens of thousands of people in total.

Dude, Ditch The Dollar

Here's another gentle reminder that the fate of the US economy really doesn't rest in the hands of America anymore.

A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

No matter what we do about AIG's bonuses or Timmy The Invisible Boy's continued employment or Plan N, if the world dumps the dollar as reserve currency, our standard of living will evaporate overnight.

The fact that the UN is even considering honestly making this recommendation should frighten the hell out of you. Should the value of the dollar completely crash causing hyper-inflation, America will never recover. And the easiest way to get to hyper-inflation is for the rest of the world to give up on the greenback.

Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.

The fact is, having the dollar as the world's reserve currency is basically killing all the other economies on Earth. They're tired of it. They're thinking for themselves. They want to get out of dollars because they see Helicopter Ben Ginormous Printing Press churning out trillions, and it's making their dollars (and their economies) worth less and less every single day.

Up until now nobody wanted to be the first out of the dollar store because it would pretty much have been A) a declaration of economic war on the the rest of the world and B) oil producers insist on using dollars for oil.

If however the world decided to say, coordinate a global effort to switch to a new reserve currency at once like, say, through the UN or a G20 meeting, that would be very, very, very bad for all of us.

Like "Weimar Republic where it's cheaper to burn the money in the stove than buy firewood with it" bad, y'dig?

Pay attention to this one. If world financial leaders are seriously considering doing this, the dollar will crumble just on the threat of this happening...facilitating it happening even faster. When the "Full Faith And Credit" of the USA doesn't amount to a hill of beans...you'll be wanting the hill of beans instead.

Zandar's Thought Of The Day

Reuters headline: SEC probes insider trading at subprime lenders.

Several U.S. federal investigations into subprime lenders involve possible insider trading before announcements of negative news about the lender, a Securities and Exchange Commission member said on Friday.

SEC Commissioner Elisse Walter said the agency is looking at whether subprime lenders properly accounted for loan loss reserves, impairment of asset values and whether they overvalued foreclosed property and other assets.

But remember, conservatives will tell you the real causes of subprime lenders going under were not naked greed or fraudulent accounting or anything like that.

It was those damn broke-ass minorities.

And you wonder why nobody takes conservatives seriously anymore.

A Strong Role Model

Michelle Obama visiting a high school and on being a strong, female role model:

The students were very interested in Mrs. Obama's life and lifestyle.

A student asked her who does her makeup. She said, "I do my own makeup," except for special occasions, according to the pool report.

The pool report continued, "She was asked about her clothes. She made a kind of "what, this old thing?" gesture. "This is just a little jacket and pants," she said. Of course, she looked fabulous. She was dressed in a black ensemble - black jacket, with skinny black belt, big black flower up to one side. Black skinny pants. Black patent flats. Hair down."

".......She told the kids, don't worry about what your friends say, or teachers who don't think you can do something. "Work hard, do your best."

She said: "I wanted an A, I wanted to be the person who had the right answers. People said, you talk like a white girl - I don't know what that means."

Having been adopted and having been informed in high school, college, and most of my life of being the whitest brotha in the room, I can relate to this.

This is the kind of conversation Americans need to be hearing in 2009.

Just Hire The Kroog Already, Barry

Teh Kroog on AIG:(emphasis mine)

I’ll leave to others the question of who knew or should have known that the bonus firestorm was coming; but it’s part of a pattern. At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached.

This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers. And that leaves it with no ability to counter crude populism.

Which is why Timmy should be replaced with somebody who understands this basic fact.

It's not liquidity, it's solvency. Period.

If Geithner doesn't get that (and Teh Kroog is basically saying so), despite the myriad political problems that will arise from replacing him, he still must be replaced by somebody who gets that (or he must be made to understand that, one of the two). It really is that simple.

I mean for crap's sakes, even John McCain's economic adviser understands it's Plan N time.

[UPDATE] Americablog's John Aravosis joins the dump Timmy movement.

Epic Perspective Acquisition Fail

Wingnuts are going super hyper insaneo batshit crazy frothing wacko long knives frontal stab attack mode on the President's non-PC comment comparing his bowling average to the Special Olympics (for which he has already apologized for.) Frankly, Zandardad (who has spent 25+ years working with the developmentally disabled) would be the first to tell you he's worked with folks in the Special Olympics who can, in fact, bowl better than President Obama.

He'd also be the first to tell you that the GOP is trying to distract people. AIG bonus issue, horrible distraction from the nation's business. President on Leno, vital issue that thousands of pages of electronic ink must be spilled about.

EPIC FAIL.

Bonus Verbatim Stupid From The Right Which Will Piss Zandardad Off: "In my opinion, we hit Obama on this as if he hates all retard people and we are not acting ANY different than the left. I despise the left and I don’t want to be accused of acting like them."

Sorry pops. Just had to point out that you have to be careful with righteous indignation, ya know.

Circular Firing Squad! Fire! Aim! Ready!

While Al Giordano has a point going after Double G, Firedoglake's Jane Hamsher, and OpenLeft's David Sirota for the "Clearly Republicans are going after Chris Dodd with this Treasury told him to do it crap!" stories (disproved conclusively yesterday when Timmy declared "We told Chris Dodd to do it"), Al does offer this odd defense of Geithner:(empahsis mine)

The presumption that it matters that much who is Treasury Secretary – given that the President meets daily with that person and the rest of the economic team as the first order of business every single morning – is pretty silly, too. (I’ve been the first to admit that whereas I thought Hillary Clinton would be a terrible choice for Secretary of State, she’s actually turned out to be very good at it, because like the rest of the cabinet she’s faithfully executing Obama’s openly stated agenda from the campaign even on cases like the Cuba embargo and direct diplomacy with US-shunned nations that she had vociferously opposed just last year).

Any different Treasury Secretary would be following the exact same instructions as the current one. The suggestion that President Obama is somehow hands off on the economic recovery or the kind of weak mind subject to Svengali-like hypnotism by his cabinet members is the real "magical thinking" going on here. More "magical thinking" (they like that term over there in the Poutrage Club, so let's make them eat it) comes in their delusional ignorance of what the consequences would be for the economic recovery and the 2010 midterm Congressional elections if the Republicans in the US Senate were to be given a second shot at derailing a Treasury nominee. They clearly haven't thought it through, or, if they have, then why can't they just admit they secretly hope, like Limbaugh, for failure?

Oh I've thought it through, Al. Volker, Krugman, Roubini, would make better Treasury guys than Timmy, but the reality is this: If it doesn't really matter who Obama has at Treasury because Obama is running the economy right now, then Obama's not doing a very good job on running the economy right now. The stimulus was nowhere near enough, we're still bailing out the same banks using the Paulson playbook, and now we're still kicking around the same "Bad Bank Bonanza" plan that won't work (and I've said that repeatedly).

No offense, but we need somebody a little better than Timmy, somebody who can actually get things done, mainly somebody who can convince Obama that Plan N is vitally necessary and vitally necessary right the hell now. In a sense I don't care who Treasury Secretary is either as long as the economy gets saved.

Because right now we're using the same crap we've been using for the last several years: quantitative easing (a.k.a. Helicopter Ben Throws Money At It). We need a new plan, man. We need a new plan now. Maybe Timmy doesn't have to be replaced for that to happen. And to his credit Obama does seem to be trying to move Plan N into go mode, finally. So yeah Al, keep Geithner under that scenario. You're right about trying to get a new one confirmed.

But we must have a new plan. That plan is Plan N: Nationalize and break-up the banks.

Sister Sarah Sinks Stimulus

Alaska Gov. Sarah Palin becomes the next contestant on "So You Want Obama's Job" by kicking out 30 percent of her state's stimulus (which happens to include $160 million in education money).

Following the lead of the other 2012 GOP presidential contenders, Gov. Sarah Palin (R-AK) announced today that she would reject nearly half the $930 million Alaska was set to receive from the economic stimulus package. Like Gov. Mark Sanford (R-SC), Palin is set to further cripple the state’s education system:

The biggest single chunk of stimulus money that Palin is turning down is $160 million for education. There’s also $17 million in Department of Labor funds (vocational rehabilitation services, unemployment services, etc.), about $9 million for Health and Social Services and about $7 million for Public Safety.

During the press conference announcing her decision, Palin asked, “Will we chart our own course, or will Washington (D.C.) engineer it for us?” She also quoted Thomas Jefferson and complained about “the strings attached” to the stimulus funds. “What we think we need is kind of a time-out, where we back up, we pause, and we really think about what we’re doing here,” Palin said.

What we're doing here, with all due respect Madam Governor, is running for 2012 by taking chunks out of the money meant to help your hard-working Alaskan constituents for no other reason than it looks good to the psycho TAXEN CUTTEN UBER ALLES jagoffs running your party.

How many teachers and public safety workers and HHS case workers are going to get laid off because of your ego? Oh, and guess what, your constituents are pissed off as I mentioned in today's StupidiNews.

The biggest single chunk of money that Palin is turning down is about $170 million for education, including money that would go for programs to help economically disadvantaged and special needs students. Anchorage School Superintendent Carol Comeau said she is "shocked and very disappointed" that Palin would reject the schools money. She said it could be used for job preservation, teacher training, and helping kids who need it.

Palin said she's sure that her decision on the education money will draw the most heat, and that she wouldn't be surprised if the Legislature tries to change it. "It is a matter of discussing with our lawmakers if the expansion there is something we're willing to pick up the tab for when the federal dollars dry up, when they no longer flow into Alaska," Palin said.

Yeah, so Trig's mom is turning down money meant to help other special needs kids like Trig Palin. What a shining example of compassionate motherhood.

"To me it's a bribe," Palin said.

And to thousands of Alaskans, it's a job. But I guess it's better to have them out of work and collecting unemployment from the state than working, spending, and helping the economy. That's fiscal prudence!

StupidiNews!

• President Obama goes on the Tonight Show and may wish he hadn't.
• London police are preparing to lock down the capital for April's G20 summit.
• Alaskans are angry at Sarah Palin's planned rejection of 30 percent of that state's stimulus bill funds.
• The President appeals directly to the people of Iran in a new message.
• Sony's Reader takes on the Amazon Kindle with thousands of Google public domain books.