Monday, August 3, 2009

Last Call

The Kroog is a funny guy as he points out that Malkinvania is no wackier in the economic theory department than the NY Times "other" economics blogger, Casey Mulligan.

Bonus Kroogenfreude for spotting Mulligan's call on the commercial real estate crisis.
For months now, experts have been predicting that commercial real estate will be “the other shoe to drop.” But in fact, non-residential building fell far behind housing construction during the housing boom. This shortage of commercial buildings relative to housing suggests that a commercial real estate crisis will not occur, or that at worst it will occur with much less severity than did the housing crash.
Yeah, it's not occurring alright.
I continue to watch the economy in 2009 but, barring a significant further decline in business activity, I do not expect to see a nationwide surplus of commercial real estate and therefore do not expect to see commercial real estate suffer the kind of crisis that followed from the housing surplus.
I choose to respond through Jim The Realtor.

Yeah, how's that CRE call coming there, Case?
Despite a pick up in sales, commercial real estate prices posted a record drop in the second quarter, according to an index developed by the Massachusetts Institute of Technology Center for Real Estate.

With an 18.1 percent drop, the index, which tracks commercial property sold by major institutional investors, is now down 22 percent year-to-date, 32 percent from a year ago and down 39 percent from its mid-2007 peak, according to the report released on Monday.

Not a "crisis" equal to the 35-40% drop in the residential real estate market though (which is still falling.) Nope.

The Busiest People In Washington

Via Steven D at the Frog Pond, if you want to know who the most overworked people in Washington D.C. are, I'll give you a hint. They are responsible for protecting the man code named "Renegade" from the many odd death threats he gets.

More than 30 threats daily, that is.
Since Mr Obama took office, the rate of threats against the president has increased 400 per cent from the 3,000 a year or so under President George W. Bush, according to Ronald Kessler, author of In the President's Secret Service.

Some threats to Mr Obama, whose Secret Service codename is Renegade, have been publicised, including an alleged plot by white supremacists in Tennessee late last year to rob a gun store, shoot 88 black people, decapitate another 14 and then assassinate the first black president in American history.

Most however, are kept under wraps because the Secret Service fears that revealing details of them would only increase the number of copycat attempts. Although most threats are not credible, each one has to be investigated meticulously.

Let that sink in. President Obama gets four times the death threats that George W. Bush did. Yes, you expect a certain number of crazies to make threats against the President. But an increase of 400%? The economy is largely the same as it was 12 months ago. Obama is still more popular than Dubya was during his last entire term. We're still in Iraq and Afghanistan, just like we were under Bush.

Gosh, what could be the motivational crux of this quadrupling of Presidential death threats?

In all seriousness, let's stop kidding around. I've been talking about this since well before the election that there are those in the United States that simply cannot handle the idea of an African-American President. A year ago I said the following:

A Successful Black Man is only so because he has recieved advantages that he did not deserve. Make no mistake: the GOP is using the oldest of gentlemanly Southern code word racism here to portray Barack Obama as the ultimate Carpetbagger, the culmination of every perceived slight of reverse racism, the unfortunate endpoint of the Affirmative Action generation: A Black Man in the White House. He must be torn down. He must be stopped. He must be destroyed at any cost, because if an African-American man can become President, then there is nothing holding back the Hordes from the gates.

Barack Obama is nothing less than the implied end of White America. This is how the GOP will frame him, if you will excuse the pun. He is the anti-hope, the anti-America, the antichrist, the anti-everything. Decades of right wing radio vitriol and the wingnuts they have given rise to has culminated in a clarion call to arms against this man to those whose ears have been attuned to listen, couched in the language of secret hatred.

They will not let him become President. They will stop at nothing to make sure he is not. And over the next 90 days we'll see the depth to which Americans will sink to stop Barack Obama.

It will not be pretty. And it scares me how bad I think it will get.
They tried like hell to stop him then. They were not successful. Clearly it has only fueled the hatred even more.

The racist attacks, the Birther stupidity, the implied violence and the has erupted to the surface now. It is not an amusing and sad little group of "dead-enders who are harmless." It is massive increase in the number of threats against the President, and I agree 100% with Steven D that the blame for the increase belongs to the Pretty Hate Machine:
But seriously, isn't it about time we lay the blame for this where it belongs: at the feet of people like Rush Limbaugh, Glenn Beck and the entire cavalcade of right wing pundits, talk show hosts and related hatemongers? Yes, an African American President was bound to come in for some level increased threats considering the racial animosity many feel toward any black man, much less a successful politician who overcame great odds to win the Presidency. But the rate and number of these threats is also a direct result of the hateful, racist and eliminationist rhetoric on conservative radio shows, TV shows and blogs.
Note that word there. "Eliminationist." It definitely sums up the way these crackpots feel towards Obama. They want to get rid of him. They want to believe he is not legitimate, so that getting rid of him is an act of patriotism. So they go on the air and he's not the legitimate President, that he hates white people, that he's a fascist, socialist dictator. They are dealing out reasons why we the people should rise up against him and not think anything untoward about it. The hate is now mainstream. It is growing because it is being allowed to grow, it is being fed by these merchants of violence and hatred.

"Will no one rid me of this troublesome Obama?" they ask.

The people who have dedicated their lives to stopping him have to deal with four times the threats they did just a year ago. That number will only increase as these peddlers of hatred continue to attack the President. The article goes on to say that the Secret Service is undermanned, and having to make do.

Let THAT sink in for a while, too. No doubt the same hate merchants will soon be on the airwaves attacking this article for putting the President's life at risk by revealing the increased pressure on the Secret Service, all the while refusing to take any responsibility for fomenting the angry mob against him.

And there's the real crime.

Pray that nothing happens to the President or his family, or to any of the agents sworn to take a bullet for them. The Pretty Hate Machine already has enough blood on its hands over the last six months alone. I fear truly that somebody will take Obama Derangement to its "logical endpoint."

And it will happen again and again. Will it really take a state funeral and a national day of mourning to stop the hate, folks? Would that even slow this horrific machine down?

The Wingers created, fed, and unleashed this beast. It has been loosed. Even blood may not slake its thirst.

The Thirty Percent Solution

Yesterday I ran across the breakdown math that suggested that as little as 30% of Southern Republicans believe Obama is a U.S. citizen.
So what proportion of Southern whites doubt that Obama is an American citizen? While Ali did not release the racial breakdowns for the the South, and cautioned that the margin of error in the smaller sample of 720 people would be larger than the national margin of error (2 percent), the proportion of white Southern voters with doubts about their president’s citizenship may be higher than 70 percent. More than 30 percent of the people polled in the South were non-white, and very few of them told pollsters that they had questions about Obama’s citizenship. In order for white voters to drive the South’s “don’t know” number to 30 percent and it’s “born outside the United States” number to 23 percent, as many as three-quarters of Southern whites told pollsters that they didn’t know where Obama was born.
I thought to myself yesterday that was astonishingly high if true, but sure, I could believe that number.

Turns out Taegan Goddard is reporting that the 30% number is actually pretty damn accurate, at least in the state of Virginia.
Here's an advance look at a new Public Policy Polling survey in Virginia completed over the weekend: An astonishing 41% of the state's Republicans think President Obama was not born in the United States while just 32% think he was and 27% are still not sure.
So yeah, if Virginia is indicitive (and all indications are that is it is), you have anywhere from two-thirds to three quarters of Republicans in the South having at least some doubts about our President even being a U.S. citizen.

That's staggering. 41% of Virginia Republicans flat out think our President is an illegal alien, despite the evidence. That's actually more disturbing than the breakdown esitmates, where a plurality of Virginia Republicans believe he's not legitimately our President rather than a plurality being unsure.

The GOP has lost control of this beast, folks. It's gotten loose, and they're no longer able to tamp it down. It's now the defining issue for their core constituency. And it will continue to lumber across the landscape, destroying all in its path.

How much damage will this idiotic foolishness do before it is put down?

How To Field Test Your Fake ATM

If you're a hacker outfit and you really, really think your fake ATM has the juice to fool the pros and you're willing to field test it in a live fire situation, you have to admit that rolling it out in Vegas during the Defcon and Black Hat cyber security conferences is one hell of a crucible.
Last week, fraudsters apparently set up a fake ATM kiosk in the Riviera Hotel Casino. However, it was quickly spotted by sharp-eyed hackers who noted it looked a little different from the usual ATM.

This machine was reportedly designed to log the card data and PIN numbers of anyone using it; that information could be used to make counterfeit cards.

Defcon organizers called in law enforcement, which removed the machine.

Separately, the U.S. Secret Service and the Las Vegas Police Department are reported to be investigating complaints about ATM machines that debited users' accounts without giving them any money.

Attendee Chris Paget alerted law enforcement after unsuccessfully trying to withdraw money from an ATM machine in the Rio All-Suite Hotel and Casino and finding that his account had been debited.

"There were two incidents," attendee Dave Marcus, directory of security research at security vendor McAfee, told TechNewsWorld.

The Las Vegas Police Department did not respond to requests for comment by press time.

Yes, the scammers failed miserably. But hey, if they had actually made a fake ATM able to fool the Defcon and Black Hat attendees, then I'd be worried. Methinks somebody was testing it as a matter of personal pride.

How Is This Hardball?

Somebody want to explain to me how the Democrats' last resort in reconciliation, a process that would almost certainly result in a dramatically weaker bill with a guaranteed five-year sunset clause, when everyone pretty much is agreeing that this is the least desirable path, qualifies as the Dems playing "hardball"?
Sen. Chuck Schumer (D-N.Y.) sounds like he's getting ready to play hardball this fall on health care, even if it means forgoing a Finance Committee deal and bypassing a filibuster by using "reconciliation" to push the bill through.
Wouldn't hardball really be President Obama telling the Senate Democrats to back him up or reap the whirlwind, and for him to tell the GOP to get your ideas in now or hold your peace? Wouldn't hardball be the White House saying "Elections have consequences, we have sixty votes and we're going to use them"? Wouldn't hardball be President Obama going on TV live from the Oval Office and explaining the plan in detail that he will have Congress pass?

In other words, wouldn't hardball really be the Democrats passing a robust public option health care bill in the house and through the Senate with all Democrats on board, and any GOP folks who see the inevitable and will join to be on the right side of history?

How is saying "Well, we'll resort to our last and weakest option" turn out to be "hardball?"

If you're a Villager, I guess it is.

I like my version of hardball better.

Your Daily Dose Of Doctor Doom

Roubini today:
The United States, Europe and Japan still face the possibility of a double-dip recession and at the very least will experience below-potential economic growth for the next couple of years, economist Nouriel Roubini told CNBC Monday.

By contrast, China and India have the best chance of leading the recovery, Roubini said.

The double-dip is still possible because of very large budget deficits that are being monetized by monetary-policy authorities, Roubini, co-founder and chairman of RGE Monitor, said, speaking at the Diggers and Dealers mining conference in Kalgoorlie, Australia.

If central banks continue to monetize the deficits, "long-term bond yields may go higher, and they may crowd out the economic recovery leading to a double dip," he said.

For the U.S., Roubini reiterated his position that the recovery would only start at the end of this year, with 1 percent growth in 2010 and 2011, as opposed to 3 percent potential.

With weakness in the labor market and housing market and consumers and production still not recovered, "I'm very cautious about the United States," he said.

Sounds about right to me, a recovery so weak that it feels like a recession, and it'll drag on for years. That is, if we don't hit a secondary recession. And the way things are going, I wouldn't be surprised if that happens. The stock markets are way oversold right now. I just don't see where the bull run is coming from other than bank profits we know are nothing more than a back door bailout.

Everything Old Is New Again

Remember that plan leaked Friday for anti-health care reform protesters to attack Democrats at town halls and disrupt them as much as possible? Turns out they're well on their way already.
This past weekend, Rep. Lloyd Doggett (D-TX) was the latest victim of the right’s strategy, where protesters followed him and chanted “just say no” to health care. Watch it:

Texas has the highest uninsured rate in the nation and stands to be among the most to gain from Obama’s health care plan. “[N]early 6 million Texans, including the one in six U.S. uninsured children who live there, could get health insurance for the first time if the plan is enacted.”
A crowd went after Arlen Specter and HHS Secretary Kathleen Sebelius today in Philly and after Carl Levin too.

If all this sounds familiar, as Digby points out, it damn well should.
This is predictable. After all, they are following the 1994 playbook and they did the same thing then. This is from the PBS timeline of the Clinton health care debate:

July 22, 1994 - Trying to win back the kind of political support that brought them to the White House, the administration plans a bus trek across America to generate their own grassroots message to Congress for reform. A kickoff rally in Portland, Oregon, is marred by anti-Clinton protesters. When the first buses reach the highway they find a broken-down bus wreathed in red tape symbolizing government bureaucracy and hitched to a tow truck labeled, "This is Clinton Health Care."

The anti-bus trek protests are the crowning success of the No Name Coalition and especially of the conservative political interest group Citizens for a Sound Economy (CSE). By the time the ill-fated bus caravan takes to the highways, CSE operatives, working closely -- and secretly -- with Newt Gingrich's Capitol Hill office and with Republican senators, have mapped out plans to derail the Reform Riders wherever they go.

July 23, 1994 - Following several days of anti-Hillary rhetoric on local talk shows, Hillary Clinton -- at a bus rally in Seattle -- is confronted by hundreds of angry men shouting that the Clintons are going to destroy their way of life, ban guns, extend abortion rights, protect gays, and socialize medicine. When she finishes speaking and tries to leave the rally, her limousine is surrounded by protesters. Each of the four caravan routes becomes an expedition into enemy territory -- with better-armed, better-prepared, better-mobilized anti-Clinton protesters at each stop along the way. Local reform groups and caravan organizers are forced to cancel scheduled stops because of implicit threats of violence.

I'm sure the Democrats all remember this and are prepared for it this time. Right?

If you haven't read the entire PBS timeline on how health care reform was derailed in 1994 recently, do yourself a favor and read it. The legislative side has an eerily familiar feel to it, especially the part where the Democrats in the Senate preen egomaniacally while selling out reform to the insurance industry and the Republicans.

August is going to be a long month, folks. This is only beginning. These astroturf assholes are running around, targeting Democrats in an effort to scare the crap out of them. These are not spontaneous outburtst of the populace. This is applied GOP Pretty Hate Machine tactics to a T. These are well-organized, dangerous mobs with the intent to affect public policy of the government through the implied threat of violence. There's a word I'm looking for that describes that behavior, at least according to the post 9/11 US legal dictionary.

It's called "terrorism."

At what point will one of these ambushes actually turn violent, is what I want to know. I bet if happens sooner rather than later. These people are playing with lit sticks of dynamite with very short fuses. Imagine the Clinton's Reform Riders effort ambushed, only multiply it by a hundred.

Somebody's going to cross a line eventually.

Of course, that's exactly what they want to happen. Then it's the Democrats' fault, you see. Then it becomes the Obamafascists beating down the Brave Resistance trying to fight the evils of socialized medicine. Then it becomes us versus them. All the debate over health care becomes a rallying cry for the "revolution", the effort for reform becomes lost in the sturm und drang.

You think the hatred is getting bad now?


[UPDATE 5:58 PM] And of course, the Village and the Wingers are making sure these organized astroturf outbursts are being passed off as somehow indicative of "just how hostile America is towards Obamacare."

Of course it is. Just like Americans oerwhelmingly don't believe Obama's an American citizen.

[UPDATE 8:33 PM] Via D-Day, add Patrick Murphy (D-PA) to the list of the ambushed.

Reconciling The Path To Health Care Reform

BooMan has a must read on why it appears that the reality of the Democrats' health care reform legislation will be through the harsh realities of budget reconciliation.
But, on the Finance Committee, only Olympia Snowe of Maine shows any trace of receptiveness to voting for the health care bill. And, I don't think she's likely to vote for a public option. Given these facts, it's very likely that even if Baucus can convince Snowe to vote for the Finance version of the bill, she will probably vote against the bill on the Senate floor and on the conference report vote of the bill once it has been reconciled with the House version.

Chasing after Snowe's vote is a fool's game. I don't think we will have 60 votes for a public option, so the Senate will have to pass the bill in the budget reconciliation process after October 15th. In that process, the bill will only require 50 votes to pass. That's a hurdle that we can clear, but it comes at a cost. Any provisions of legislation passed during budget reconciliation are subject to a point of order (the Byrd Rule) if "they do not produce a change in outlays or revenues, or they produce changes in outlays or revenue which are merely incidental to the non-budgetary components of the provision."

In other words, under the reconciliation proces, during the debate over the Health Care bill the Republicans can move to strike all sorts of peripheral elements of the bill if they cannot be shown to have some non-incidental impact on the budget. Depending on interpretation, this could apply to wellness programs (which are hard to score budgetarily), or any number of other important provisions.

The result could be a very pared down version of the bill. It might have less pork in it, but it could also lose vital (but theoretical) cost-savings provisions that will come back to haunt us later. Another feature of the reconciliation process is that legislation passed under the process faces an automatic five-year sunset (like Bush's tax cuts) and therefore can be killed off later if the makeup of Congress flips sides.

On the other hand, the Democrats could pass a bill under regular order that has the support of all 60 Democrats. The difficulty with that is in getting the most centrist members to support a bill that is acceptable to mainstream Democrats in the House and Senate. And, those centrists don't like to vote for anything that doesn't have at least a vote worth of bipartisan support. Voting with the Democrats on a party-line vote as well-publicized at the Health Care bill leaves them feeling alone and exposed.

Beyond that, a few of these folks are basically ideological-Republicans. They oppose the bill for many of the same reasons the Republicans do. They're corporate whores who deplore government action in the private sector. So, get ready for reconciliation. Baucus had his chance.

In other words, BooMan is saying that no matter what kind of arm twisting Obama does over August, there's just no way he can get 60 votes for the public option. The logical conclusion given that is to focus on what parts of Obama's health care agenda can be kept in a reconciliation situation, how to pay for it in the short term, and how to get it all past the Byrd Rule.

Is this surrender on the part of BooMan? I believe he's just being realistic. Let's face it: No Republican will vote themselves into a permanent minority by signaling yes on a robust public option, and even one Democrat saying no won't get this through the filibuster. Several Senate Dems have expressed reservations: Evan Bayh, Blanche Lincoln, Kent Conrad, Joe Liberman, the list goes on. It annoys me that Kent Conrad is blathering on about how reconciliation is just too horrible to use either.

In fact, there may be enough of the "corporate whores" that BooMan rightfully bemoans to even get the 50 votes needed for reconciliation, not to mention that if too much is dropped from the final bill, there will be progressives on the left who will want nothing to do with the legislation.

So what to do? Is there time enough for Obama to make a difference? Even if he put in all on the line and said that a public option was mandatory, would it be enough to motivate the Democrats in the Senate to go along?

Enough people are convinced that fixing health care for everyone will mean a decrease in quality and increase in price for their own existing plans. Unless and until that changes, health care reform probably won't even make it through reconciliation intact. The status quo has too much invested in being the status quo, and the lawmakers they have bought and paid for are wanting those fat lobbying gigs for their families and friends as well as their selves.

So what's a progressive to do? If BooMan's right, we're wasting our time trying to go through normal channels. We're going to have to start having the much more productive discussion of how to keep health care reform together when there's a very good chance that the GOP will be able to argue for the plan's sunset after five years, as getting the changes to make health care reform robust and substantial will incur a substantial cost.

In other words, we're down to "the good is the enemy of the perfect" time. I'm not convinced we're that far gone yet.

But I do agree with BooMan that it's time to start having the discussion now, and that being prepared to move down this road is prudent over the recess.

[UPDATE 2:53 PM] Steve Benen makes a good point however. Convincing Americans that their own individual plan is "fine" is one thing. But convincing Americans that the health care system as a whole needs no reform whatsoever right now is a different matter.

As a factual matter, when you ask the American people what's the most important issue to them, health care reform actually ranks very high. Last week, an NYT/CBS poll asked an open-ended question of respondents, asking what's the "most important problem facing the country today." While the economy and job creation were on top, health care was next on the list -- with a higher score than the deficit, education, immigration, Iraq, terrorism, and the environment combined.

But as a political matter, Republicans have been on the offensive for weeks, and feel like they're in a position to kill reform before the fall. The more they argue that the system is fine the way it is, and that reform isn't especially necessary, the easier it will be for Democrats to regain the rhetorical advantage.

That's something the Democrats need to exploit. The GOP is getting intellectually lazy (real shocker, there) and assumes it can now talk people into the status quo, now that they belive the battle is all but won for them. That's going to end up killing them.

A Stimulating Conversation

One interesting note coming out of those second quarter economic numbers: the "failed" stimulus package from February appears to be working. In fact, if it wasn't for the stimulus, state and local budgets would be far worse off than they are right now.
A huge influx of federal stimulus money to state and local governments more than offset a sharp drop in tax collections, helping to put the brakes on the nation's economic decline, new government data show.

The stimulus funds helped reverse six months of spending declines, pushing state and local government expenditures up 4.8% in the second quarter, reports the Bureau of Economic Analysis.

"The money has caused a very sharp change in the path of the economy, which had been in steep decline," said Chad Stone, chief economist at the liberal Center on Budget and Policy Priorities in Washington, D.C.

Federal cash is now the No. 1 revenue source for state and local governments, surpassing sales and property taxes, the government data show.

The flood of federal money lifted total revenues by 7.5%, overcoming an 8% drop in tax collections.

Now of course the whole point of this is that the situation is temporary...federal money cannot be the #1 source of revenue for any state or local government for long. But it's good news that seems to indicate that the stimulus was not only necessary but useful as well.

State and local governments are adding new workers and raising pay:

Employment. State and local governments added 12,000 workers, a 0.1% increase, in the quarter, reports the Bureau of Labor Statistics. The private sector cut 1.3 million jobs, a 1.2% reduction, during this time. Federal employment was flat.

Compensation. Pay and benefits rose at a 4% annual rate in the second quarter for state and local workers, BLS reports.

For private workers, compensation was up at a 0.8% annual rate, the lowest since the government started keeping track in 1980.

The jump in government spending — federal, state and local — was the key reason that the nation's gross domestic product declined just 1% in the quarter, a sharp improvement from a 6.4% first-quarter drop.

In other words, the main reason the GDP was only -1% was due to the stimulus kicking in. It will continue to kick in hopefully and provide even more benefit to Americans. Lord knows we need it.

It'll be needed too, considering all the layoffs in state and local governments as the new fiscal year takes effect. Third quarter numbers will probably show a drop in state and local government employment...but the drop would be much steeper without the stimulus package.

Still, this stimulus has to translate into more private sector jobs too, not just government ones. We still have a long ways to go.

Blind Squirrel Still Unable To Locate Nuts

I'm convinced that Ross Douthat's job at the NY Times is to make us actually want Bill Kristol back. Today, ol' Ramblin Ross takes on the economics of America's state budgets and manages to trap himself in his own web of "logic" rather neatly.
The urban scholar Joel Kotkin has called this recession a blue-state “meltdown.” That overstates the case: The Deep South has been hit hard by unemployment, and some liberal regions are weathering the storm reasonably well. And clearly part of the blame for the current crisis rests with decisions made in George W. Bush’s Washington.
Which is actually correct. And then in the very next paragraphs, the conclusion that Ross draws?
But in state capital after state capital, the downturn has highlighted the weaknesses of liberal governance — the zeal for unsustainable social spending, the preference for regulation over job creation, the heavy reliance for tax revenue on the volatile incomes of the upper upper class.

And, inevitably, the tendency toward political corruption. The Republicans have their mistresses, but the Democrats are dealing with a more serious array of scandals: the Blagojevich-Burris embarrassment in Illinois, Senator Christopher Dodd’s dubious mortgage dealings in Connecticut, the expansive graft case in New Jersey, and a slew of corruption investigations featuring Democratic congressmen.
So, there is no such thing as a "blue state meltdown" (an oversimplification) but of course liberalism has wrecked the states and Democrats have destroyed economies through corruption (which apparently is fine to say).

You know, just like in heavily Democratic, liberal states like Alabama.

The possibility that conservative state governments spending money swiping revenue and using it on tax breaks, tax cuts and tax loopholes for the wealthy and then not having enough revenue for existing social programs hasn't occured to Ross, no doubt. The answer is to just cut the programs and block any tax increases to pay for them. It's government by posession: if you give the money away to the people that don't need it, just cut the programs for the people who do need them. Corporate welfare over voter welfare, that's the conservative way.

Only, that's failed badly too.

Buyer Of Last Resort

Yet another back-door bank bailout program dumping billions in the laps of the megabanks, this time it's the Fed buying securities and the banks are getting the best price they can for selling them to the Fed, not the taxpayer getting the best price for buying them from the banks.
Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.

The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.

However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.

“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”

A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”

So how did this happen? It is design, or incompetence? There are serious arguments here for both: the program wasn't thought through all the way, nobody seemed to realize that all of the Wall Street banks would collude on the Fed for the best prices they could get, of course the Fed was going to get ripped off when they announced ahead of time they were going to be buying ahead of time (causing the price to go up), nobody could have predicted, etc.

Of course, given the billions in cash and trillions in loan guarantees (latest price tag, $26 trillion) you'd probably have to go with "they did it on purpose". It's a near-perfect way to funnel cash to all the banks without Congressional oversight or angry voters noticing.

So, if you're looking for a way to understand how these banks that eight months ago needed hundreds of billions to stay alive and are now making record profits and giving out record bonuses, well there you are. It's miraculous how that works.

Yves Smith at nakedcap has more, it turns out that "paying back the TARP money" was just as much of a scam.

There is not a Wall Street derivatives trader on the planet that would have done the US Government deal on an arms-length basis. Nothing remotely close. Goldman's equity could have done a digital, dis-continuous move towards zero if it couldn't finance its balance sheet overnight. Remember Bear Stearns? Lehman Brothers? These things happened. Goldman, though clearly a stronger institution, was facing a crisis of confidence that pervaded the market. Lenders weren't discriminating back in November 2008. If you didn't have term credit, you certainly weren't getting any new lines or getting any rolls, either. So what is the cost of an option to insure a $1 trillion balance sheet and hundreds of billions in off-balance sheet liabilities teetering on the brink? Let's just say that it is a tad north of $1.1 billion in premium. And the $10 billion TARP figure? It's a joke. Take into account the AIG payments, the FDIC guarantees and the value of the markets knowing that the US Government won't let you go down under any circumstances. $1.1 billion in option premium? How about 20x that, perhaps more. But no, this is not the way it went down....
Of course we were played for fools. We were played for fools from the beginning. We've spent our entire economy saving the banks and pretending we're all fine.

We're not.

[UPDATE 11:49 AM] Think about the Fed's security buying scheme while the NY Times is complaining we haven't given out enough bailout cash to the "good banks" in an article ripe with Randian silliness. You're not being fair to the banks that didn't take TARP money! Why should they be punished? It's noooooot faaaaaaaair!

They're just getting money off of schemes like this instead, you see.

Zandar's Thought Of The Day

Which is more fake, the latest fake Obama Kenyan birth certificate, or the fake Sarah Palin divorce rumors?

The answer, of course, is who the f'ck cares. We've got bigger problems to deal with, thank you.

Moving. On.

Only The Centrists Can Save Us

Over at the Daily Beast, John Avlon argues that Obama should be listening to the Blue Dogs and the Sensible Senate Centrists, not attacking them. This makes much more sense when you realize John Avlon is Rudy Guiliani's former speechwriter (how hard can that job be, a noun, a verb and 9/11, repeat) and is the Centrist's Centrist. It's a useful article if only to demonstrate how pernicious and dishonest the middle-of-the-road argument is on health care.
Attacked as villains by liberals and accused of slowing down the legislation’s passage, they are the unsung heroes of health-care reform. They are not trying to kill Obama’s initiative; they are trying to save it.

Barack Obama’s 2008 victory was not a liberal ideological mandate but a vote against the Bush era’s polarizing play-to-the-base politics. Congressional centrists are trying to help the president follow through on his rhetoric about a new era of bipartisan consultation and cooperation. They are doing the heavy lifting of trying to forge the broadest possible coalition of support, while liberal leaders encourage a narrow play-to-the-base party-line vote. In the process, congressional centrists are pragmatically looking out for President Obama’s interests in the larger electorate.

No one should know this better than Obama’s chief of staff, Rahm Emanuel, who recruited many of these centrist Blue Dogs as congressional candidates in 2006. Their selection led directly to the Democrats’ recapture of Congress after the conservatives’ ideological over-reach.

The pendulum swing of politics has a funny way of self-perpetuating. Emanuel remembers the way that Bill Clinton’s unified-Democratric control of Congress evaporated after perceptions of a left-wing lurch amid the last Democratic attempt at health-care reform. The Blue Dogs are the emissaries of this received wisdom; they are Barack Obama’s best friends on Capitol Hill right now.

The Blue Dogs are 40 or so Democrats, largely from swing districts in the South and Midwest, led by Tennessee’s Jim Cooper and Arkansas’ Mike Ross. In the Senate, centrist efforts are being led by a bipartisan group chaired by Finance Committee Chairman Max Baucus and Republican ranking member Chuck Grassley. Together, across the divisions of Congress, these two groups are consistent in their commitment to fiscal responsibility at a time of unprecedented spending.

Do you notice something about this bipartisan argument? Specifically, how it's virtually identical to the Republican one? Let's count the conservative talking points in just that section:

  • Obama and the Democrats do not have a mandate, despite the vote.
  • Obama promised to bring a new era of bipartisanship, he must make all the compromises.
  • Liberals are the only partisans, not conservatives.
  • Centrists are the only wise people in Washington.
  • Clinton tried the same thing and failed, always heed the lesson of Clinton.
  • Fiscal conservatism is the only thing that matters.
Most of all, it's the same argument from 12 months ago: conservatism can never fail, only people who call themselves conservatives can. People didn't vote against Republicans, they voted against false they installed Democrats into office. (yeah, that makes perfect sense.)

In other words, this is the same mealy-mouthed centrist garbage spouted time after time. Democrats should strive to be more like Republicans, the argument goes. Republicans should strive to be more like Republicans too.

As I've said before, John Avlon's view of bipartisanship is "Democrats give Republicans 99% of what they want, then claim victory over the remaining 1%." Republicans on the other hand want that 1% just to prove a point.

Despite the will of the American people, Republicans should always be in charge. But here's the thrust of Avlon's article:
But perhaps the most significant contribution of this centrist coalition to the health-care debate might be the replacement of the controversial “public option” with a nonprofit private cooperative plan, based on American models that have existed at the community level for decades. This simple switch would single-handedly defang conservative fear-mongering about the national socialization of health care. It would likewise achieve many of the practical goals of the public option, without acquiescing to the larger ideological goal advanced by liberals. This should be considered a clear win-win proposition.
Really, this guy deserves an award for that paragraph alone. At the very least, I'm taking him with me should I need to trade in my clunker for cash and see what kind of deal I can get (maybe I can get a RV or a nuclear sub or a new pyramid out of the deal.) Check the proposition here on killing the public option: It makes conservatives happy, and liberals unhappy and to him that's a win-win deal.

This is almost boilerplate Broderism, with an extra helping of disdain for liberals and an almost fanatical devotion to bipartisanship for bipartisanship's sake, not to actually do anything like "fix health care."

Why is it that Sensible Centrism means "help out corporate America as much as possible" anyway? One of the Potomac's great mysteries, I suppose.

Trading Down All Around The Town

Barry Ritholtz takes a look at the housing market, and while there are signs of life at the low end, at the high end it's getting very ugly.
There is, however, little doubt that the upper end of the market has not seen improvement. Sales at the high end of the Real Estate market are soft. That is partially a function of limited availability of credit and buyer concern over employment.

In the typical housing sale, there is often a chain of transactions, from the starter home to the larger family house to the bigger move up, on and on to the larger luxury houses. When any part of the chain is dysfunctional, the problem works its way upstream. The upper end was going to feel these effects eventually, and that day of reckoning seems to be here now. (One assumes the giant mansions purchased for cash are less impacted by this).

The lower end of the market, with tax cuts, local incentives (i.e., California) and lots of distressed inventory driving prices down has seen an uptick in activity. But if we want to split real estate into two halves, I would suggest looking at the following pairs:

• Bubble States / Non-bubble states;

• Distressed/Non-Distressed Properties

• Underwater/Non-Underwater mortgages

I suspect this might provide a better read on the true state of local real estate markets.

I talked about this effect back at the end of May:
A 40-month supply of $750,000 homes on the market? That would be hysterical if it didn't mean these homes are going to continue to lose billions and billions in value. A bottom in the housing market? Please. The depression is raging.
As Barry says, the whole point of larger homes is that people trade up. They're no longer doing that, nor can they when they can't sell their old home and the price on their old home keeps falling, not to mention the price of the new home keeps falling. All that is delaying these trade ups, and breaking the chain that Barry described. As he said, people aren't trading up...they're trading down.

As long as that keeps happening, it's going to continue to depress the market. And it's going to be a damn long time before that part of the market stabilizes if there's a 3 year plus supply of McMansions on the market nationally.

We're not at the bottom yet. We still have a ways to go in housing and will for some time.

Cash For Clunkers Is Working, So Kill It

Republicans (and their Village enablers) are trying to convince you that the one part of the stimulus plan that is working beautifully has to die screaming.
Republicans say the problems with the program are another strike against the Obama administration as it pushes for a speedy overhaul of the health care system that would involve a government-run insurance program. They argue that government involvement in any industry is a recipe for disaster.

Senator Jim DeMint, Republican of South Carolina, said the “cash for clunkers” program was an example of the “stupidity coming out of Washington right now.”

“The federal government went bankrupt in one week in the used-car business, and now they want to run our health care system,” Mr. DeMint said in an interview on “Fox News Sunday.” “This is crazy to try to rush this thing through again while they’re trying to rush through health care, and they want to get on to cap-and-trade electricity tax. We’ve got to slow this thing down.”
They went "bankrupt" in one week because the program was overwhelmingly working, you idiot. It didn't have enough money in it. It was a stimulus program that stimulated the hell out of car sales. It was "targeted, timely and temporary." It actually worked. Of course the GOP wants to murder it. It proves that the Obama administration actually did something right for once.

We can't have that. With all the complaints that the stimulus money is not being spent fast enough, the Republican Party is now complaining that we need to slow the stimulus down. Wrap your head around that one.

Now try wrapping your head around Bill Kristol's reasoning why Cash For Clunkers must die:
Speaking on “Fox News Sunday,” William Kristol, the conservative editor of The Weekly Standard, said the rebates were going to middle-class people who would have eventually bought a new car anyhow.

Instead of helping the legions of unemployed, the money is going to a “bunch of upper-middle-class people who have some cars sitting around from 12 years ago,” Mr. Kristol said. “Now they’re just accelerating their purchase to get 4,500 bucks.”
Yep. Americans who used Cash For Clunkers are all "upper-middle class" and are now no longer "real" Americans. Make a note of that. They're just gaming the system, unlike Bill Kristol.

Why do Americans who buy cars trade in old cars to finance new ones hate America so much? Who would do such a thing?

And somehow, I'm thinking that a program to help people buy a big ticket item like a new car isn't exactly designed for the unemployed in the first place. Why would it be?

Or does Bill Kristol think you're that stupid?

Leon Panetta's Reality Problem

I didn't get a chance to discuss CIA Director Leon Panetta's op-ed piece in the WaPo on Sunday, so I'll lead off with it this morning.

The time has come for both Democrats and Republicans to take a deep breath and recognize the reality of what happened after Sept. 11, 2001. The question is not the sincerity or the patriotism of those who were dealing with the aftermath of Sept. 11. The country was frightened, and political leaders were trying to respond as best they could. Judgments were made. Some of them were wrong. But that should not taint those public servants who did their duty pursuant to the legal guidance provided. The last election made clear that the public wanted to move in a new direction.

Intelligence can be a valuable weapon, but it is not one we should use on each other. As the president has said, this is not a time for retribution. Debates over who knew what when -- or what happened seven years ago -- miss a larger, more important point: We are a nation at war in a dangerous world, and good intelligence is vital to us all. That is where our focus should be. The CIA has plenty of tools to fight al-Qaeda and its allies. Unlike the effort I canceled in June, our present tools are effective, we use them aggressively to go after our enemies, and Congress has been briefed on them.

In other words, we're seeing Panetta use the same argument that Bush officials and the Village used before him: 9/11! (So Shut Up Already.)

That would seem to me to be an argument for greater oversight, not less. But not in Panetta's world. He seems to think that electing a new President means we can't look at the last President's possible crimes, crimes aided and abetted by Panetta's CIA. Not only that, he's flat out warning Congress to back the hell off with the open threat "Intelligence can be a valuable weapon, but it is not one we should use on each other."

Instead of reforming the CIA as promised, Panetta has canceled a couple of egregiously illegal programs, and then said that Congress cannot investigate anything else...lest they want to have "intelligence used against" them. Panetta's been captured by his job and is now daring Congressional Democrats AND Republicans to try to keep going down this road.

BooMan has a definitive breakdown of Panetta's piece over at the Frog Pond:

The idea that these public servants limited themselves to ‘doing their duty pursuant to the legal guidance provided’ is a myth. Dozens of people are dead, and none of the ‘enhanced interrogations’ we’ve learned about were conducted within OLC guidelines. None. Even if they were, many of these interrogations still involved war crimes. But that is a distraction. People were murdered and tortured beyond any degree of ‘interpretation.’ They need to go to prison and so do their superiors.
Do read it, I'll add at this point that Panetta would only be able to say all this if he had tacit permission to do so from the President. That means this is the response to the Village warnings on last month's rumors of an Eric Holder DoJ investigation into torture. Obama seems to be saying through Panetta that he plans to drop Holder's investigations, but Congress needs to do the same.

The Village is more than happy to report this little tiff as well. Both sides get to save face here, no investigations go forward on Bush business, and all is well in the Washington swamps.

We'll see. Both the White House and Congress have a lot to lose it seems if too many more revelations come forth. Each side is afraid that they will be left holding the bag, that the DoJ investigation will finger Congress, and that Congress's investigation will finger Obama. It looks like Panetta is offering a truce.

Not like we Americans get a say in it however.


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