Epic Comparison Fail

When you compare a "bloated, non-competitive industry" like the Big 3 wanting a bailout to Blago selling his Senate seat on the same day something like the Madoff story breaks, you look like an asshole.

Just saying.

EPIC FAIL.

The Greatest Fraud In History

Even if the financial crisis wasn't upon us, the fact of the matter is the news that hedge fund guru Bernie Madoff has been arrested for a $50 billion investment scam would still be the biggest news of 2008.

Beleaguered investors face a "complete loss" from a scheme at the center of a major U.S. fraud case, which is likely to highlight their tendency not to question the legitimacy of big gains and ultimately lead to tighter regulation if the alleged fraud is proved.

A number of prominent funds of hedge funds are believed to have invested money in portfolios established by Bernard Madoff, a securities trader and investment adviser who was arrested yesterday before appearing at a Manhattan court charged with securities fraud.

U.S. authorities claimed Mr. Madoff told employees at Madoff Investment Securities earlier this month that the investment advisory activities of his business had been "a giant Ponzi scheme."

Christopher Miller, chief executive of London hedge fund ratings agency Allenbridge Hedgeinfo, said: "Some very big investor names are involved in this. The scheme could only work if enough investors were subscribing for him to pay money out. Some of the world's biggest hedge funds have been hit by this. There will be a monumental impact for the hedge fund industry, it could be larger then Enron.

"Some investors in Madoff's funds face 100% write-downs on the money they invested, they will suddenly be nursing full write-downs in December. When people realize the magnitude of this it will be fizzing around the stratosphere."

One asset manager based in Switzerland, home to many high-net-worth individuals who invest in funds of hedge funds, said: "Everyone's talking about this in Geneva. Several wealthy investors could be facing big losses."

Funds of hedge funds are already facing losses of 19.1% from their investments this year, according to the non-investible performance index from data providers Hedge Fund Research. This combined with investor withdrawals have left them with 14% fewer assets than they started with this year, and $140 billion, or 17%, less than their peak level in the second half of this year.

People didn't question Madoff because he was making money. The entire scandal is a microcosm of the entire financial crisis. As long as the money came in, nobody cared if it was legit or not. Nobody. It was only because the markets bombed and the resulting credit crunch dried up new investment in Madoff's funds that he was caught at all.

Mr. Miller said: "This is about the credulousness of investors to give the benefit of the doubt to good performance. What has caused all this to come to the surface is really net redemptions from the industry, because Ponzi schemes need net inflows to work. Some investors have the tendency to turn a blind eye to other possibilities when they get good news. But the impact of what has happened will be absolutely huge."

Mr. Miller said tighter regulation of the $1.6 trillion industry could result if the alleged fraud is proven.

Commentators have said losses from the fraud Mr. Madoff is alleged to have conducted could run to $50 billion. This scale of loss would make it the largest in corporate history.

Stop and think about how this was allowed to happen: pure, unadulterated greed. Once again the little guy has to foot the bill for the billions lost. Imagine if a terrorist caused $50 billion in damage to the US. No lives lost as a direct result, but the damage would have crippled the economy and wrecked countless lives. Bin Laden himself could not have done a better job.

How do you punish a man for causing this much damage? How do you truly punish a crime this large? There's no way Madoff would have been able to perpetrate this without the existing financial system itself, and it's just as corrupt as Madoff apparently is, if not more so. Any system that allows one person to do this much damage is a fundamentally broken system, unrecoverable at its core.

It must be thrown out, jettisoned wholesale into the sun. How many other Madoffs are out there yet to be caught? The entire global financial system is built on lies. The entire system is now coming undone.

What will replace it, and who and what will survive to do so?

Zandar's Thought Of The Day

Cutting UAW workers' wages from $28 to $25 is vital to getting $14 billion to the auto industry, but too bad.

Meanwhile over in the financial sector, we have one dude making $50 billion pyramid schemes.

Yeah, life's fair.

The Merry Go Round Broke Down

As mentioned in StupidiNews for today, the auto bailout is officially dead, the final sticking point being GOP demands that the UAW cut union wages to the level of non-union workers.

Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit’s beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with U.S. plants of Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

The breakdown left the fate of the auto industry — and the 3 million jobs it touches — in limbo at a time of growing economic turmoil. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.

Democratic leaders called on Bush to immediately tap the $700 billion Wall Street bailout fund for emergency aid to the auto industry.

The wage concession was basically meaningless for the continued survivability of the Big Three, designed to drive a stake in the heart of the UAW and kill it. Putting an end to the UAW was the real point of the GOP Senate resistance, and it its zeal to bust the last big union, the GOP is apparently deciding to take out the auto industry and a couple million jobs as well.

Nice guys.

So what's next? As the article mentions, the President can tap the TARP fund to save GM and Chrysler, but Bush could have done that at any point in this mess, and he's refused to so far. He may change his mind after all, a legacy-minded Bush doesn't want to be the President that killed the American auto industry. On the other hand, expecting Bush to be a logical actor in any capacity is foolish given the last eight years.

The most likely outcome is a weekend deal that puts GM and Chrysler in bankruptcy soon.

Still, GM also has said it will lack the minimum $11 billion needed to pay bills by the end of this month, raising the prospect of bankruptcy should it fail to win a cash infusion. GM reported having $16.2 billion as of Sept. 30.

An attempt to restructure GM in bankruptcy would end up as liquidation, because sales would plummet as buyers flock to solvent car companies, Wagoner has said.

Chrysler has said it will run out of money early next year. It ended the third quarter with $6.1 billion in cash and needs at least $3 billion on hand to operate, Chief Executive Officer Robert Nardelli told Congress on Nov. 18.

Pressure was mounting on GM and Chrysler this week before the congressional failure as both faced demands from a small number of partsmakers for payments in advance because of the bankruptcy concerns, people familiar with the matter said.

GM is “deeply disappointed that agreement could not be reached tonight in the Senate despite the best bipartisan efforts,” according to a statement. “We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis."

The industry is effectively done at this point, it's either collapse under Bush or nationalization under Obama. GM and Chrysler will not survive bankruptcy, and if both of them go under, Ford will follow.

The ripple effects will be catastrophic. Millions of jobs will be lost as dealerships, parts stores, suppliers and auto mechanics go under. The auto suppliers service several auto brands and manufacturers that share costs. With the Big Three gone, Toyota, Honda, Mazda, Volkswagen and other foreign car companies will have to pick up costs that will be passed to consumers. Those folks will be hurt big time as well.

Obama will have no choice but to fund a massive nationalization project to save the Big Three, and the GOP will blame him for every cent he spends.

Remember that in 2010 if you still have a job in November when you vote.

[UPDATE] Nope, Bush doesn't want to be the goat on this.

The Treasury threw a lifeline to the beleaguered US car industry, saying it is ready to prevent the failure of auto makers until Congress reconvenes next month."

Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,'' Treasury spokeswoman Brookly McLaughlin said.

The announcement came shortly after the White House said it will consider using the $700 billion Wall Street bailout fund to rescue the auto industry after the Senate refused to pass a $14 billion bailout plan late Thursday night.

"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," White House press secretary Dana Perino said.

The Bush administration has repeatedly opposed using the bailout fund, saying it was designed specifically to restore stability to the financial sector. But the White House said Friday it must reconsider after the Senate failed to agree on rescue plan late Thursday.

Considering the Dow is down less than a percent this morning instead of the meltdown predicted this morning, clearly the market is expecting Bush to step in and float the industry until Obama can act.

We'll see.

StupidiNews!

• A last minute compromise to save the Big Three ran out of gas late last night.
• Obama plans to extend the "nuclear umbrella" over Israel.
• The total planned jobs lost to the BoA/Merrill Lynch merger is up to 35,000.
• The US remains tight-lipped about an Afghan mass grave of Taliban fighters.
• The Obama team and NASA are on a collision course over the Ares moon program.

Dear America:

"If the GOP tries the same stuff they completely failed with in 2006 and 2008, I know it'll work for them in 2010 and 2012!"

--Karl Rove

Zandar's Thought Of The Day

$25 billion is not enough for the Big 3.

$36 billion is too much for the Big 3.

Therefore, the answer is $14 billion and one of those demeaning retractable child harness on a leash dealies, which magically is also too much and not enough at the same time, meaning it's going to die in the Senate and a couple million jobs along with it. But that's okay, because the job losses will come from the other 49 states the Senators voting against the plan are from.

Thursday Job Numbers

And they're not good folks. Weekly jobless claims hit a 26-year high with a staggering 573,000 unemployment claims last week.

It was the highest number of jobless claims since Nov. 27, 1982 when initial filings hit 612,000. Economists were expecting jobless claims increase to 525,000, according to a consensus compiled by Briefing.com.

The four-week moving average of jobless claims, which works to eliminate fluctuations in data was 540,500 last week, an increase of 14,250 from the previous week's revised average of 526,250.

One economist said the number of initial claims decreased in the previous report because the data from that report represented the week of Thanksgiving. Some of the surge in initial filings in this current report could be a bounce from that week.

However, "the underlying trend in the labor market is that it continues to weaken," said Jay Bryson, global economist with Wachovia Economics, and that is evident in the 4-week moving averages of initial claims.

The number of people continuing to collect unemployment rose to 4,429,000 in the week ended Nov. 29, the most recent week available, which was also a 26-year high. The measure was an increase of 338,000 from the preceding week's revised level of 4,091,000.

The last time continuing claims was at such an elevated level was Dec. 4, 1982, when continuing claims hit 4,509,000.

Folks in my generation and younger simply have not seen anything like this, period. We've been through a couple of hiccups like in 1991 and 2002, but nothing like a sustained, multi-year recession. How scared are Americans? For the first time ever, our household debt decreased.

According to the Federal Reserve's flow of funds report released Thursday, consumer debt fell an annualized $30 billion, or 0.8% in the third quarter to $13.91 trillion.

Americans holding less debt may sound like a positive, but it also means consumers are spending less, as debt has become more expensive and harder to come by.

As the credit crunch intensified in the third quarter - and exploded late in the period with the bankruptcy of Lehman Brothers - Americans were increasingly unable to finance big purchases like homes, cars and big-ticket goods.

"Consumers are going through a major change in their spending and savings habits," said Lyle Gramley, a former Fed Governor. "Throughout the housing bubble, consumers had a savings rate of zero, relying on the rising price of their homes. Now they're saving money for the future instead of spending it."

That's a worrisome sign for the economy, as consumer spending makes up 70% of overall U.S. gross domestic product. And the fourth-quarter numbers are likely to grow, as the peak of the credit crisis came in mid-October.

As I've said time and again this is a consumer-driven recession. Consumers buy less, more and more people lose their jobs as demand dies, and in turn they buy less, Deflationary Spiral 101.

The pain is just beginning.

Predictions, Part 2

Well gosh, Atrios is just a smart guy. The GOP holding up Obama's cabinet? Nobody saw that coming, etc. blah blah blah. I figured it would be Susan Rice as UN Ambassador, but with Blagogate having opened the door to giving Obama a hard time as a national sport, it seems the initial target is the more obvious of the choices, AG nominee Eric Holder.

Sen. Arlen Specter (R-PA), the ranking member of the Senate Judiciary Committee, called for a delay in Holder's confirmation hearings because of troubling questions stemming from Holder's role in the pardon of fugitive financier Marc Rich.

This led the committee's chairman, Sen. Patrick Leahy (D-VT), to fire off an agitated letter accusing his colleague of making unreasonable demands.

Leahy said he was "confounded" at Specter's surprise that the Holder hearings had been scheduled for Jan. 8, two days after the 111th Congress convenes. Specter said Wednesday he didn't think the confirmation hearings could happen until Jan. 26, a week after Obama's inauguration, so Republicans could have ample time to review thousands of pages of documents and the nominee's FBI background check.

"My recollection is that your initial reaction on November 18 was that you were at that time already reviewing his record," Leahy wrote. "Of course, Eric is someone you and I both know well and have known and worked with for years."

Leahy noted that the Holder hearings were scheduled within a comparable time-frame of other Attorney General nominees. While word began to leak that Holder would be the nominee in mid-November, Obama made the official announcement last week, more than a month before the hearing's are scheduled.

Specter's attempt to delay the hearings marks a shift from earlier statements on Holder. Appearing on MSNBC on Nov. 19, Specter voiced concern about the Rich pardons but specifically said he would not obstruct confirmation hearings.

"Would I hold it up? No," He told Andrea Mitchell. "I would be prepared to move ahead very promptly with hearings. Move into the substance of the matter. Ask the important questions. Look for any documents that might be relevant.

"As fast as we can move through, I'm prepared to decide it one way or another," he continued. "I wouldn't hold it up."

It's unclear what changed in the three weeks since that interview aired.

Blagogate, you idiots.

The GOP smells an opening here. Obama's honeymoon is officially over with both the GOP and the press, and that means it's open season on him.

The Village Idiots are now going to do everything they can to sink Obama under the weight of Rod Blagojevich's ego.

StupidiNews!

• The House passed a $14 billion auto bailout, but the Senate appears to be much tougher.
• California's budget shortfall has reached $40 billion as that state's financial crisis rolls on.
• Lawyers acknowledge Democratic Rep. Jesse Jackson Jr. is "Senate Candidate 5" but he says he's innocent of wrongdoing.
• US retail sales took their biggest nosedive in five years as Americans cut back on spending.
• Just how much does the black hole at the center of the galaxy weigh, anyway?

Serious Energy

Washington DC, the Land Of Ten Thousand Leaks, has offered up Obama's choice for Energy Secretary, and for once there's no doubt it's a home run. The candidate? Nobel prize winner and Lawrence Berkeley Labs director Dr. Steven Chu.

The Lawrence Berkeley Web site says Chu was an early advocate for finding scientific solutions to climate change and has guided the laboratory on a new mission to become the world leader in alternative and renewable energy research, particularly the development of carbon-neutral sources of energy.

That experience will be useful as the next energy secretary, as Obama wants to spend billions of dollars to promote alternative energy sources and create millions of green energy jobs.

A spokesman for the Lawrence Berkeley laboratory offered no comment on the prospect of Chu becoming the next energy secretary. Chu is traveling abroad in Asia and Europe and will be back at work on Monday, he said.

Chu is a scientist and advocate of alternative energy, not a politician. With his pretty much impeccable scientific credentials, we'd have a cabinet official who actually knew what the hell his department was regulating. The NY Times has a pretty good bio on Dr. Chu as well, they inform us that his former jobs bring a lot to the table:

Chairman of the physics department at Stanford, and head of the electronics research laboratory at Bell Labs. Since 2004, he has been director of the Lawrence Berkeley National Laboratory, which has 4,000 employees and a budget of about $650 million. The lab is owned by the Energy Department and operated under contract by the University of California; Dr. Chu was chosen for the job by the university but approved by the Energy Department. He shifted the lab’s work more heavily into research into advanced biofuels, artificial photosynthesis and other solar energy research. He has been a vocal proponent of vigorous steps to control greenhouse gas emissions.

Yeah. This is the type of person we need to help spearhead the US effort for committed, serious climate change across the globe, not another Bush/Cheney oil company/nookular plant yes man like Sam Bodman and Spencer Abraham. Good for Obama. Very good.

Obama And Blago

BooMan rolls out some excellent points on why Blagogate is making Obama look like the Last Great Boy Scout in Chicago politics.

I'm hesitant to defend anybody in the Blagojevich Scandal until more of the facts are known, but BarbinMD has posted exactly what I wanted to say on the matter. It appears that the event that precipitated Blago's downfall was a phone call Barack Obama made to president of the Illinois Senate Emil Jones Jr. in September requesting that Jones Jr. throw his support behind a new ethics bill. The ethics bill quickly passed and is set to go into effect in January. Blagojevich reacted to this by ramping up his corrupt efforts to raise cash before the new law precluded him from doing so. When Fitzgerald got wind of Blago's efforts, he was able to secure a wiretap warrant. The rest is history.

In spite of this, there are a host of articles out there that attempt to tarnish Obama's reputation and good name by tying him to the governor's corruption. But the facts we have right now are exculpatory.

1. It was Obama's successful push for an Ethics Bill that precipitated the governor's downfall.
2. The prosecutor explicitly stated that there is no hint of wrongdoing by the president-elect.
3. Barack Obama denies haven't any direct discussions with the governor.
4. The governor said, on tape, that the Obama Team was "not willing to give me anything except appreciation. Fuck them." He also called Obama a 'motherf*cker'.

Based on the set of facts we have right now, Obama looks admirably unscathed. In fact, it looks like his advocacy of higher ethics standards is what led to Blago's exposure as a rank crook.

In other words, Obama forced Blago's scummy hand and he got sloppy. Fitz in turn got his wiretaps. Blago in turn got busted.

Seems open and shut.

If only it were really that simple.

Year End Sales

On punditry, that is. Foreign Policy magazine takes a look at the ten biggest bonehead predictions of 2008, the losers include Bill Kristol, Jim "Mad Money" Kramer, Don Luskin and of course, Chuckles Krauthammer.

Enjoy.

Zandar's Thought Of The Day

This morning Time Magazine asks bluntly "Can Obama Escape The Taint Of Blagojevich?"

If you're asking that question, not only do you already know the answer to it, but you're perpetuating that answer as well.

StupidiNews!

• Florida officials are investigating a mass grave found at a former boys' reform school.
• With the latest global economic crisis, the world's hungry is approaching one billion people.
• Will the US auto industry be run by a federal "Car Czar" in exchange for bailout bucks?
• Troubled insurance giant AIG is in talks to sell one of its subsidiaries for $10.8 billion.
• Could flexible, paper-thin LCD displays be in your future sooner than you think?