An unfortunate case(43)

Below is the actual series converted to an index that begins at 100, at the start of 2006:

You can see that we have not gone anywhere for the past couple of months. This is why some have started to say 'it cannot get any worse.'

To wit,at least it is not going lower.

An unfortunate case(42)

Above is an eight week rate of change of a popular leading economic indicator. The pictured time series begins at the first of 2006. It recently crept up into positive territory from deep lows in November 2008. It appears to be turning down again as the new administration wrestles with policy choices over a shrinking GDP and a collapsing banking system.

The recent rate of change of -13.31 % on November 21 is the lowest in the 40+ year history of the time series.

Should things turn lower again, it could get much uglier politically. The shape of the picture is key.

An unfortunate case(41)

The idea of a "bad bank" is already in trouble.

Obama's 'Bad-Bank' Plan Is Running Into Problems
Friday January 30, 2009, 2:20 pm EST

The Obama administration may still announce a plan next week to prop up ailing banks, but significant questions remain about key measures of the plan, as well as where the funding will come from, a source says.

Meanwhile, another source is telling CNBC that the plan for a so-called bad bank has hit a snag and may not happen at all. Working out details of bad-bank proposal is proving very difficult, this source said See video below.

Though there's a general consensus that the federal government and the financial services industry have agreed on the need for a so-called bad bank, any announcement next week is more likely to include a group of options and general principals rather than a plan long and deep on details.

"They'll be a lot more questions unanswered than answered and they've got to get it right," says an industry source.

That assessment reflects the result of discussions this week between industry leaders and the Obama administration, whose point person on the bad bank concept at this point appears to be spearheaded by Lawrence Summers, director of the National Economic Council.

The concept of a government-run entity that would buy the troubled assets of private sector firms to help clean up their balance sheets has gained considerable momentum since Federal Reserve Chairman Ben Bernanke mentioned it prominently in a major speech two weeks ago. But like an earlier auction-based plan conceived by Treasury Secretary Henry Paulson last September, it's viability has been undermined by questions about how the assets would be valued.

Though all agree that remains a critical hurtle, it is not the only complicating factor. There's a growing opinion that a one-size-fits all approach is not appropriate and that other measures will need to be included.

Especially if the government takes some bad assets that now make mine OK:

Chairman & CEO Jamie Dimon has told CNBC more than once in recent days that the bad bank concept is "one tool in the tool kit"," adding it is a "great vehicle" for some banks.

"Some banks don't need it at all," Dimon said, adding that Chase "probably wouldn't sell assets to the entity. "I don't think we need to."

Bear Stearns must be now clean as a whistle.

http://en.wikipedia.org/wiki/Bear_Stearns

And so on it goes:

Some are pushing for more use of the combination of guarantees and insurance used by the Fed and the FDIC to "ring fence" bad assets within the institution, without technically removing them from the balance sheet.

There's also a potential bone of contention about what kind of compensation the federal government should get for its assistance.

Thus far, it's been preferred stock and warrants without voting rights. Now there's growing advocacy of a common-stock approach. The issue is more complicated than it appears because it involves the government's return (or loss) on investment as well as the issue of moral hazard issue, which could figure into how much support the plan has in Congress.

"The debate over common versus preferred is silly but it appears to be real in that it's affecting the markets," says former FDIC chairman William Isaac.

"We ought to be buying preferred stock," says Rep. Brad Sherman (D.- Calif), a ranking member of the House Financial Services Committee, who voted against the TARP plan twice. "When you buy preferred stocks with warrants attached you're getting something of value. With toxic assets you don't know."

Sherman is among those who prefer the bank recapitalization plan. "The Paulson approach minimized long-term cost to taxpayers," he said. "The shareholder and the bank don't want to give up a piece of the bank they want to give up a piece of toxicity."

"My preference is preferred stock, with warrants," says Robert Glauber of Harvard University, who oversaw the treasury's handling of the S&L bailout, which included a bad bank concept. "So taxpayers will correctly get the upside. You want the government in and out quickly."

Supporters of the common stock approach say it puts the government in the same situation as other shareholders.

In addition, it indirectly increases the company's book value as well as the chance that some sort of dividend will be maintained.

"The conclusion that investors seemed to have come to is that banks have gotten the money without enough oversight and supervision and have been able to go through it without enhancing their financial condition and people are afraid that the banks will have to be nationalized at some point and essentially wipe out all the shareholder equity," says money manager Jim Awed, managing director of Zephyr Management. "The only way to change that is to bring in another set of governance."

"It is critical we prevent dividends from flowing to today's shareholders until the federal government has been repaid, " says Sherman. "If we get the same kind of stock then that may serve as an excuse to keep dividends getting paid on the common stick. "I don't want a piece of the dividend."

"The debate over common versus preferred is silly but it appears to be real in that it's affecting the markets," says former FDIC chairman William Isaac, who also supports the recapitalization model.

The government has made it clear these banks aren't going to fail," explains Isaac, who adds some government concerns are also unfounded because "we are way past the point we need to worry about moral hazard."

On top of the mechanics of the rescue plan, there is also the issue of funding.
Experts say an asset purchase program of would require hundreds of billions, if not trillions of dollars.

"The overwhelming problem in this is size and scale," says Glauber. "They need enough money to by the really toxic assets, Glauber, who has been calling for a central government entity to manage the government's efforts for some time, is among those who estimate there are between $1.5 trillion and $2 trillion of qualifying assets.

Thus far, there has been little, if any, public debate about where the money would come from. The remaining $350 in funding from the original TARP is clearly a likely source.

"Lets use TARP round two to stick with the financial system," Rep Paul Ryan (R.-Wisc.), the ranking Republican member of the House Budget Committee told CNBC earlier this week.
"Congress is not going to stop anything," says Sherman. "When we voted for the TARP bill, it was guaranteed the executive branch dominated, regardless of the party, meaning would be spending the money the way they wanted to."

House Speaker Nancy Pelosi (D-Calif.) has supported the bad bank concept publicly, as has Majority Leader Steny Hoyer (D-Md.).

However, many in Congress, including House Financial Services Chairman Barney Frank (D. Mass) have made it clear they would like to see a good chunk of the TARP funding go to homeowner relief, new lending and foreclosure prevention.

The Obama administration's letter to Congress saying it is prepared to commit $50-$100 billion of the economic stimulus plan might satisfy that requirement.
So, if and when the Osama administration taps the TARP for the bad bank concept, the president would be better off it a show of support.

Even still, it's generally agreed that more funding will be needed and that will require going to Congress. There's early talk of a TARP 3. And Congress will have to be on board.

"Congress will play a far bigger role in the third $350 billion, " says Sherman. "I would think everyone who was against releasing the second $350 million would be against the third $350 million unless it had an awful lot of provisions that haven't seen the light of day yet."

http://finance.yahoo.com/news/Obamas-BadBank-Plan-Is-cnbc-14210759.html

An unfortunate case(40)

Labor begins its clawback:

Jan. 30 (Bloomberg) -- President Barack Obama today will issue executive orders to reinforce the rights of organized labor, and he’ll establish a task force led by Vice President Joe Biden to raise middle-class living standards.

Obama will overturn rules of former President George W. Bush to reestablish rights to form a labor union or engage in collective bargaining, said Jill Cashen, a spokeswoman for the United Food and Commercial Workers Union.

“It tells workers at federal contractors that the right to organize will be protected and that lawbreaking on the part of their employer will not be tolerated,” Cashen said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGDN.JEFdYNw&refer=home


Mother Earth as well:

Jan. 30 (Bloomberg) -- Three decades ago, engineer Peter Fraenkel created an underwater turbine to use river power to pump water in Sudan, where he worked for a charity. Civil war and a lack of funding stymied his plans. Now, his modified design generates electricity from tides off Northern Ireland.

“In the 1970s, the big snag was the market for that technology consisted of people with no money,” said Fraenkel, the 67-year-old co-founder of closely held Marine Current Turbines. “Now it’s clear governments are gagging for new renewable energy technology.”

MCT last year installed the world’s biggest grid-connected tidal power station in Strangford Lough, an Irish Sea inlet southeast of Belfast. The SeaGen project’s two turbines, which cost 2.5 million pounds ($3.6 million), can produce as much as 1.2 megawatts of electricity, enough to power 1,140 homes.

As to engineering:

Designing equipment to survive in salty, corrosive water and installing it in fast-moving currents boosts startup costs, said MCT Managing Director Martin Wright, who founded the Bristol, England-based company with Fraenkel in 2002. MCT raised 30 million pounds for SeaGen and pilot projects, he said, declining to break out the expenses.

Gearboxes and generators have to be watertight. The machinery must withstand flows up to 9.3 knots (10.7 mph) in Strangford Lough, which exert three times the force of projects that harness wind at similar speeds, Fraenkel said.

“The forces you’re trying to tap into are your enemy when it comes to engineering the structure,” said Angela Robotham, MCT’s 54-year-old engineering chief.

Current costs:

While tides are a free source of energy, generating power from them is three times more expensive than using natural gas or coal over the life of a project, according to the Carbon Trust, a U.K. government-funded research unit.

Including capital expenses, fuel and maintenance, U.K. tidal current power costs 15 pence per kilowatt hour, compared with 5 pence for coal and gas and 7 pence for wind, the trust says.

http://www.bloomberg.com/apps/news?pid=20601109&refer=exclusive&sid=aL30TTk2.yVI

Capital Idea. Rationale at the link continues.

As to Free Market people, here these guys have gone somewhat underground:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a7rJVe6G62rA&refer=exclusive

More of their ilk are being shoved further from the current picture:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a57_jl0nnJTg&refer=exclusive

An unfortunate case(39)

These people see the problem very differently:

http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=337

The thing that might work is that you take every bad bank out of its positions at cost. Then you don't have the regulatory problems of taking warrants, that is alluded to in the discussion. No regulator is going to be forced to shut down a bank and lose the government's position as a result. This is because the bank will now be good.

You can put whatever conditions you want on the deal.

And now you can take warrants. You will immediately make the banks solvent and have a position in the recovery of the bank, which you will insure.

You can get board seats. You can get rid of management and you can put people in jail.

The positions that you have taken at cost-those you work yourself out of over time in your asset management company. You don't have to mark them to market because you are the government and hold them to maturity. You do not have a trading account as a bank or dealer, that requires mark to market accounting.

As the banks and economy recover, these positions will tend to offset the losses in the asset management company.

Hattip to Wikrent on the Agonist for the interview. And to Numerian for his always fine posts.

http://agonist.org/numerian/20090128/robert_rubin_i_m_not_the_problem_here_it_s_the_accountants

An unfortunate case(38)

The power talkers are back to the old problem of pricing the impaired assets, in creating this bad bank model for them. They are all over CNBC. And they are here:

http://finance.yahoo.com/tech-ticker/article/164831/NYU%E2%80%99s-Roubini-%22Nowhere-to-Hide%22-from-Global-Slowdown?tickers=%5Egspc,%5Edji,bac,c,jpm,wfc,xlf

http://www.bloomberg.com/apps/news?pid=20601087&sid=adR1PkaybTQc&refer=worldwide

But they won’t be able to price the assets fairly without bankrupting the system. So they will go round and round on this.

Eventually they will have to create a false impression that the problem is solved.

It would have been much easier to have shuffled all the bad assets, in a particular segment of a bank’s portfolio, into an asset management company, at cost. Pay treasuries for them, while they are expensive.

Then there are no losses. The Treasury and the Fed do not have to mark these assets to market(they don’t have to price them). They can hold them in the new company until maturity or until they decide to sell them. The banks are free to lend again since their capital ratios are in order and questionable assets are off their books.

Are we not a pack of liars, anyway? So why not do what the Chinese do with their asset management companies?

If you don’t like this result, you can always prosecute some folks or civilly pursue them for losses later.

On another note:

From another Bloomberg piece:

“That’s why it’s hard to weep for some of Madoff’s victims, says James Walsh, author of You Can’t Cheat an Honest Man (Silver Lake, 1998), a study of Ponzi-scheme perpetrators and victims.

“We’ve become a nation of investors, but nobody wants to do the work of applying Benjamin Graham’s analysis tools,” Walsh says, referring to the father of value investing. “They want a genius to give them a shortcut. That’s what made it a target-rich environment for Madoff.”

It’s the same mind-set that’s behind economic bubbles, which are “naturally occurring Ponzi schemes,” says Robert Shiller, a professor of economics at Yale University and author of Irrational Exuberance (Princeton University Press, 2000). Successive waves of investors generate gains for the last wave until the bubble bursts.

The article deals in part with front running, which some Madoff investors were willing to tolerate:

Wolfer says he heard of traders trying to replicate the split-strike conversion strategy Madoff told investors he used -- buying shares of large U.S. companies and entering into options contracts to limit the risk -- and getting far lower returns. He also says he heard Littaye and other middlemen talk about how Madoff may have used the knowledge he gained from his market- making firm, New York-based Bernard L. Madoff Investment Securities LLC, to get in and out of stocks ahead of market swings.

That’s front-running, a term usually applied to brokers’ trading for their own account -- and profit -- ahead of clients.

It’s also applicable to Madoff’s purported practice, says Peter Henning, a law professor at Wayne State University in Detroit and a former federal prosecutor.

“Front-running isn’t who’s getting the benefit; it’s who’s paying the price,” says Henning, noting that Madoff’s market- making customers expected the firm to obtain the best price available when buying or selling stocks. Instead, their interests were apparently subordinated to those of Madoff’s investment clients.

While front-running is illegal, it didn’t horrify Madoff’s champions.

“They were convinced that the risk was only that the Securities and Exchange Commission would do something about breaches of the Chinese wall in the Madoff organization,” Wolfer says. In the worst case, he says, “what could be expected was that at a certain point the SEC could say stop.”

Wolfer, who says he doesn’t speak for his former employer, now manages a fund of funds at Geneva-based Banque SCS Alliance, which invested in another Madoff feeder fund, Fairfield Sentry Ltd. He says he handled the risk that Madoff might be front- running by sharing this suspicion with clients who put money into the fund.

“With every year passing, the worries were a little bit less,” Wolfer says.

Other money managers made similar winks and nods about Madoff’s advantage, according to people who were pitched the funds. One Swiss bank, Geneva-based Union Bancaire Privee, which had $700 million invested with Madoff, told clients in a Dec. 17, 2008, letter that “in essence, the perceived edge was Madoff’s ability to gather and process market-order-flow information to time the implementation of the split-strike option strategy.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=au4Y7Cudw2Xo&refer=exclusive

If we could come face to face with the fact that we’re a pack of liars, we could avoid a lot of these problems in the future.

These Madoff investors were willing to buy something that did not make sense, figuring that someone else would take the loss from front-running.

So were the people who made and marketed the toxic assets and those who bought them, figuring they were somehow hedged and that any loss would come out of someone else’s pocket.

On the Chinese asset management companies and similar issues see the post of 11/15/08:

https://www.blogger.com/comment.g?blogID=23078504&postID=6422587886075954232

An unfortunate case(37)

Looking through Standard and Poors for clues I found this note by Mr. Silverblatt who was quoted in the prior post:

With 25.36% of the market value and 93 issues reported, actuals compute to a negative $-1.16 for operating (est $+3.02); -$3.18 for As Reported

Reported quarterly sales are down -10.74%; 44% higher Y/Y (avg +5.96%), 56% lower (avg -21.53%)

Expect charges to continue for Q4, as companies clean house for a better 2009

Provisions for layoffs should increase, with the actual cash flow charge taking effect in 2009

Operating set for the 6th quarter of negative growth, a new record (5 in Q4,'00-Q4, and Q4, 90-Q4,'91)

As Reported also set for 6th, but did so during Q1,'51-Q2,'52

Financials set for their 5th consecutive quarter of negative EPS, also a record; 5 Qs -$97B vs. prior 5Qs $+263B, $-360B turnaround

Q4 Financial decline is worse than it appears: Q4,'08 is estimated at $-4.89 and Q4,'07 was $-4.05

Operating EPS coming in 8% lower than top-down estimate, Staples coming in slightly better than expected, continued large Financial loss

Howard Silverblatt, S&P Senior Index Analyst

The note was as of the close 1/22/09.

The link is

http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS

The spreadsheet at this link is taken down when there is another as of a later date. I've tracked these for years. This one I'll save because of the note, which is unusual.

An unfortunate case(36)

Ever since days prior to the tech bubble, I believe that we have had an assault on fixed income and dividend investors. The idea was to monetize cash flows with capital gains. Nobody big wanted to have income. Each wanted to capitalize future earnings.

The man who wanted a stable income had to keep watching what he owned because it was sold out from under him. Then he had to find something else to pay the light bills, something that would generate the same money he had been making.

The idea of the big players was to set something up and market it as a cash flow machine to somebody else, with a premium attached to it.

If the investor tired of the process above, he could move into CDs, but the Fed assured that, with lower and lower short term rates, he could not buy but pork and beans.

Now that has failed. We are down mui ‘centages. What we’re down is a montage of black and latino wisdom.

Only elite Harvard, white guys could have made this mess. (Mui blanco)

NEW YORK (AP) -- Dividends are being cut at the fastest pace in at least 50 years, and many of the reductions are coming from U.S. companies investors have been relying on to provide income during the recession.

Already this year, seven companies in the Standard & Poor's 500 index have decreased their dividends, removing some $12 billion from shareholders' pockets in the coming months. On Monday, Pfizer became the latest blue-chip company to do so.

These cuts serve up another hit to shareholders who have already been battered by the steep declines in the stock market. That is especially true of retirees, who tend to be attracted to so-called "widows and orphans" stocks that provide them with a steady cash flow.

If the trend continues, this will be the worst year for dividend cuts since 1958, when annual payments fell by 8.4 percent, according to new research from S&P.

"It is easy to say this is going to be the worst in 50 years, but the bigger question is whether it is going to be much worse than that," said Howard Silverblatt, senior index analyst at S&P.

http://biz.yahoo.com/ap/090127/dividend_cuts.html

I hope President Obama is not an elite white guy in Kenyan garb.

An unfortunate case (35)

We see from the AP the following headline:

College financial aid system facing stiff test

CHICAGO (AP) -- Finding financial aid for college this year promises to be tougher than any final exam. The quest for money that begins for students and parents every January has taken on new urgency in 2009 amid fears that loans and grants will be scarcer than in the past due to the recession.

"The financing system for college is in real crisis," said Barmak Nassirian, associate executive director of the American Association of College Registrars and Admissions Officers. "Every one of the participants in the system is experiencing hardship -- higher education institutions, states, aid donors and families all are cash-strapped."

Federal student loans remain readily available -- with some funding even increased recently by Congress. But the prospect that grants and scholarships may be cut at many schools, combined with the shrinking availability of private loans, has fueled widespread angst at a time when more people than ever are seeking help. Applications for federal aid for the current academic year already are running 10 percent above last year's record pace, according to the Department of Education.

Savings held in Section 529 plans -- the state-sponsored investment funds for college that are popular for their tax breaks -- have been depleted by the worst bear market in decades and home equity values have plummeted. That has sapped two sources most tapped by parents to fund their children's higher education. Colleges' endowments have been similarly walloped.
Private student loans are especially hard hit. Last year, 60 private lenders provided $19 billion to students. Now, 39 of those have stopped lending to students and the remaining firms have made it harder to borrow, according to Finaid.org, a Web site that tracks the industry.
"The stress level is high," said Rod Bugarin, financial aid adviser for the New York-based college consulting firm IvyWise.

Numerous revenue-short states are likely to consider cutting aid in one way or another, and public colleges and universities are expected to raise tuition -- in some cases by double digit percentages -- as they set rates for next year.

Scholarships from civic groups and local companies across the country also are likely to decline, Bugarin said, although it's too early to know the extent.

What it all means is that families and college counselors are having to hold difficult conversations about reduced savings and the need to take on more debt and lower sights to focus on more affordable schools.

"There are no sure answers because we're in new territory," said Bruce Hammond, a Washington, D.C.-based college admissions consultant and co-author of "The Fiske Guide to Getting into the Right College." "But students with high need and lesser credentials are going to have to brace themselves for less aid."

http://biz.yahoo.com/ap/090124/college_financial_aid.html

We need to go back to Straight’s Pencil Shrink (3/14/07) and review the fundamentals. They were bad then and they are bad now. The job picture that is emerging makes it even harder to pay the inflated costs of education.

The local college now requires 130 hours for a B.A. It was a 120 in my day and you learned something. And it was cheap.

Today all of that is a subject for debate.

An unfortunate case(34)

Following yesterday's theme, I have to conclude that sorting this out below( just that it has to be done) shows the plight we're in. Maybe Thain should have been Secretary.

NEW YORK (AP) -- John Thain should have known the rules. After all, when he became CEO of the New York Stock Exchange in 2004, he replaced Richard Grasso -- a man who embodied the excesses of the times and was forced out for taking a massive annual pay package of $187.5 million. Thain at the time accepted a much smaller $4 million.

http://biz.yahoo.com/ap/090123/wall_street_entitlement.html

An unfortunate case(33)

From today's Bloomberg:

"Concern governments will nationalize financial institutions amid losses and writedowns that have surpassed $1 trillion since the start of 2007 is spurring lenders to hoard cash. Royal Bank of Scotland Group Plc, the biggest bank controlled by the U.K. government, said Jan. 19 it may post an annual loss of as much as 28 billion pounds ($39 billion), a record for a U.K. company."

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aTxbFZoO1d1c

We're headed that way here. Next the government will institutionalize its control of credit. So to get a loan will be like dealing with an SBA that is political. All because we did not regulate Wall Street felons, we will turn the financial system over to the regulators and congressional committees who failed us.

(We're turning the IRS over to a tax dodger, aren't we?)

I believe this process will begin its way forward as loans are made to contractors in the coming infrastructure buildout. We'll be able to watch how this unfolds, if there is the transparency Mr. Obama promised in the prior post.

It will be transparently political, so firms who want sunlight will be able to see it. But they will still have to connect dots and then do something with the connected dots.

The Geithner example makes it pretty clear that what is in front of us is not at issue. It shows that we are not very good with transparency in the present crisis. Transparency does not seem to matter now.

So I see no reason for an improvement in the short term along these lines.

http://www.suntimes.com/news/otherviews/1383614,CST-EDT-simon18.article

An unfortunate case(32)

Hat Tip to Dash:

Obama issues orders and memoranda on ethics, transparency

By Ben Bain, Mary Mosquera
Jan 21, 2009
President Barack Obama today issued executive orders and memorandums designed to improve government ethics and make the government more open.

Obama signed an executive order designed to change presidential record-keeping along with another order that sets new ethics restrictions for political appointees and lobbyists.

“I will also hold myself as President to a new standard of openness,” Obama said during a meeting with senior administration staff. “Let me say it as simply as I can: Transparency and the rule of law will be the touchstones of this presidency.”

The order on presidential records “ends the practice of having others besides the president assert executive privilege for records after an administration ends," the White House officials said in a statement. Now, only the president will have that power, limiting its potential for abuse." The also order requires the attorney general and the White House counsel to review claims of executive privilege related to covered records.

Obama also ordered all of his political appointees to sign a pledge restricting their interactions with lobbyists and their ability to rotate employment between goverment and industry.
According to a press statement, Obama instructed officials to draft an open government directive within 120 days that will be used to implement specific principles of the memo. He also instructed the attorney general to issue new guidelines related to the Freedom of Information Act.

Obama also said he will freeze the pay of his White House senior staff members at current levels, signing a memorandum to keep his senior staff from receiving pay raises to the extent allowed by law, according to the statement.

“The president and his staff recognize that in these austere times, everyone must do more with less, and the White House is no exception,” the statement said, adding that the action would let the White House stretch its budget to get more done.

The freeze applies to staff members making $100,000 and above, according to a senior aide quoted by a published pool report.

http://fcw.com/articles/2009/01/21/obama-to-work.aspx

An unfortunate case(31)

Geithner apologizes for not paying taxes

Martin Crutsinger, AP Economics Writer
Wednesday January 21, 2009, 11:15 am EST

WASHINGTON (AP) -- Treasury Secretary-designate Tim Geithner (GYT'-nur) says he was careless in failing to pay $34,000 in Social Security and Medicare taxes earlier this decade and has apologized to Congress.

At his confirmation hearing, Geithner called the transgressions "careless mistakes" and unavoidable ones.

He told the Senate Finance Committee the failure to pay was "unintentional." But he also said, "I should have been more careful."

Earlier, committee Chairman Max Baucus said he thought that Geithner had made "disappointing mistakes" but also said he needed to be confirmed so he could get to work on solving the country's financial crisis.

http://finance.yahoo.com/news/Geithner-apologizes-for-not-apf-14115335.html

“we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.”

For the day:

In his inaugural address President Obama says:

“In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted — for those who prefer leisure over work, or seek only the pleasures of riches and fame.”

In contrast he says:

“Rather, it has been the risk-takers, the doers, the makers of things — some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.“

Then he goes on to unite these under one purpose:

“For us, they packed up their few worldly possessions and traveled across oceans in search of a new life.

“For us, they toiled in sweatshops and settled the West; endured the lash of the whip and plowed the hard earth.

“For us, they fought and died, in places like Concord and Gettysburg; Normandy and Khe Sahn.

“Time and again these men and women struggled and sacrificed and worked till their hands were raw so that we might live a better life. They saw America as bigger than the sum of our individual ambitions; greater than all the differences of birth or wealth or faction.”

Thus, he imputes a common purpose to these ancestors who, he says, did these things for us. The teleology here is paramount. It organizes the vision of his speech in which America has no “k” in it. Rather, it has good. The speech puts a common purpose into our acts from the beginning in our grounding documents. This from our first multicultural President:

“Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms. At these moments, America has carried on not simply because of the skill or vision of those in high office, but because We the People have remained faithful to the ideals of our forbearers, and true to our founding documents.”

So what does he think needs to be remade?

“we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.”

It sounds as though, at a minimum, the politics that has divided us needs to be remade:

“On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics.”

Perhaps there is more, but the original ideal is still there:

“The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness.”

Ok.

Let’s see what he and we do with our unfortunate case. And let us do not forget this man from Chicago and the People.

http://glenavalon.com/peopleyes.html

An unfortunate case(30)

RBS is probably a blueprint for failing banks here.

Jan. 20 (Bloomberg) -- Royal Bank of Scotland Group Plc, facing the biggest loss in British history, promised to make 6 billion pounds ($8.7 billion) available to U.K. borrowers as the lender took another step toward full government control.

In exchange for government guarantees on losses from toxic debt, the bank will have to sign a binding agreement with the Treasury on how much it will lend and on what terms. Auditors will move in to check the bank is following the government directive.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNn4rx.rDyOU

An unfortunate case (29)

I don’t care to get into the debate in which Hansen is involved. I am not competent to do so.

http://www.guardian.co.uk/environment/2009/jan/18/obama-climate-change

If I assume what he is saying is true and we act on it in the time he appoints, then there will be a new green standard and what Dash says in his prior post is likely to be right.

If we take the lead under the new president and develop the green technology we will be as he says “in an excellent position (and a dangerous position) to be forced to make a killing selling stuff that helps development proceed everywhere but in a much .. well, gotta say it, ... "greener" way than in the past.”

If we do not act on Hansen’s view, then we will have to devise new standards of development for property close to oceans.

The first makes for a new kind of growth. But it involves the U.S. having a great deal more power over global choices than it has. Then it presumes that we stipulate the standard upon which we will make the cutting edge technology. A vencap’s dream.

The alternative is to head for the hills and hope there is a breeze. One gets to move to Rex Tugwell’s No God Hollow.(From Amity Shlaes, The Forgotten Man , p. 53.)

An unfortunate case (28)

I listened to John Mauldin this morning.

http://finance.yahoo.com/tech-ticker/article/159564/John-Mauldin

He says somewhere in the video that the government will keep spending until we begin to turn the corner. It will do this so that we do not slip into a Japanese style deflation that happened in the 90’s.

See the story on the stimulus package below:

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/15/AR2009011502054.html?hpid=topnews

Not long ago Paul Krugman on CNBC praised the New Deal spending as improving the economic picture during the Great Depression. He went on to say that we slipped back into negative growth when Roosevelt backed off the spending programs in 1937. Then he went on to acknowledge that the war was what had brought us out of the depression, yet went on to ask in essence: ‘what was it other than another government spending program?’

http://www.in.com/active18/watchnow/watchvideo_mc.php?autono=377949

This appears to have been the early part of the clip; the rest I have not found.

Krugman overlooks the fact that it was Lend Lease that was an external stimulus to our economy that made the difference. In the early phases of the war, the Brits, among others, needed raw materials and goods and we supplied them.

http://en.wikipedia.org/wiki/Lend_lease

Without the external stimulus we would have remained doing each others laundry. In 1939 the GDP was $92 billion. Lend lease amounted to $50 billion over the course of the war. Do some simple math to see where the growth came from.

With the current thinking, not much good is on the horizon. We are going to get growth by self-stimulation. We’ll go into further debt to do it without any notion from whence, in a declining global economy, external demand will come for what we have produced for ourselves.

Extraordinary.

An unfortunate case(27)

In a Ponzi scheme the first investors get paid by the second group and second by the third and so on it goes. There usually are profits for the early investors to entice them to reinvest and tell others to invest.

Many have said that the banking system was involved in a kind of Ponzi finance scheme. Some said it early on, like Doug Noland of the Prudent Bear.

http://www.prudentbear.com/

Certainly there were strong early returns from the mortgage-backed securities that enticed new investors and caused old investors to return. There were hedge funds that were levered in the securities. These had investors that were enticed by what they took to be relatively steady returns without variance. The banks that dealt in the securities and securitized them in the first place also showed relatively steady returns without variance. The REITs that held the securities did the same. Etc.

Then everything fell apart, because whole sectors of the mortgage backed markets were based on phony assumptions and assertions. Paydowns for seasoned mortgages were understandable. But for the new issues that were structured entirely differently, no one had a clue.

In addition, all manner of derivatives were written, based on these phony securities. As I remember, Mr.Greenspan and others often referred to everyone having been hedged here.

The capital, which enabled the transactions at as much as thirty-to-one leverage, disappeared quickly. So early investors who got paid and got out were on solid ground. But, other than accepting something like Noland’s position, there was no apparent reason to do so, so most stayed in.

Noland argued for years that the system was going to collapse. It did not for quite a while. The timing of the collapse of a fraud is not easy to forecast. I believe this is because frauds are not economic phenomena.

It is difficult enough to forecast changes in the business cycle. There you are dealing with real numbers. There is real business with real transactions motivated by real demand. If it makes sense to use the equilibrium idea in economics here, it does not with fraud.

Frauds collapse when they are discovered. Madoff collapsed when he could not pay redemptions. The banking system collapsed when there was a problem of price discovery. People began to fail to trust the price of securities in certain markets. The prices were not reflective of a real market. You could not get the money back from the people who sold you the securities in the first place.

When fraud becomes systemic, economics makes no sense.

Now the people who made money in the banking scheme should have to pay those who lost money in the scheme. That is a common thread in Ponzi litigation. Here the government has stepped into the role of a Madoff; it is preserving an absence of capital in the banking system, just as Madoff preserved an absence of capital in his managed accounts.

The legal system is going to do something to straighten out the Madoff case. It will do so as well as it can.

However, so far, with the taxpayer on the hook for the tab, there is a just a preserving of the absence of capital underlying the transactions that brought down the U.S. banking house. The public knows it is a scam, yet can do nothing about it. It is being told to legitimize the current management of the crisis(i.e., the fraud) in the name of the economic system.

On we go:

WASHINGTON (AP) -- The federal government is considering a fresh multibillion-dollar aid package for Bank of America Corp. to help it absorb losses at Merrill Lynch.

A person with knowledge of the discussions said Thursday the new aid package could be modeled along the lines of the financial lifeline that was thrown to Citigroup Inc. in November. The person spoke on condition of anonymity because of the sensitive nature of the discussions.

Shares of both Bank of America and Citigroup plummeted more than 20 percent in early trading.
http://finance.yahoo.com/news/US-mulls-fresh-aid-package-apf-14070209.html

An unfortunate case(26)

The Madoff investors have no money. Some have no money in a different way from others. For there is clawback. Some will owe others money, while Madoff, though he owes everyone in the scheme, likely will pay no one anything, except his lawyers. As to that first class of investors who owes the second, that will be determined after years of wrangling and gnashing of teeth.

No one knows now who has obligations and how they will be paid. There are statutes of limitations involved. There is different state law. Etc. We have to wait to find out.

Maybe someone will have to cough up his oxygen machine after he ages not too gracefully under the coming stress of his personal finances.

Whether Madoff started as a corrupt scheme is of no matter. He ended up as one. Same for the banks.

A great number of U.S. Banks have no money. Some have no money in a different way from others. Some banks owe others money, but no one knows who is good for what debt.

In a way, the core of the banking system-its capital-has vanished, like the capital invested in Madoff. There are, strictly speaking, no clawback provisions here, because we have no way of treating the banking system as a Ponzi scheme. Unless we say ‘government’ is somehow a proxy for ‘Madoff.’

The government is taking taxpayer money to plug the hole(s) in the banking system. It is simply an intermediary between our tattered wallets and the banks. As the government steps in, we, as citizens, step in for the banks. We, who thought we had nothing invested in any scheme, are about to see what a clawback with a capital ‘C’ is.

It turns out that in return for a penny of guaranteed deposit insurance, we are in for a pound, as present and future governments plan to live off our largess.

We may want to conjure up ‘proxy for Madoff’ here as a kind of intellectual comforter as we review events. This, while we are considering change with a capital ‘C’.

Corruption breeds deep ironies.

==========

Yesterday’s article in the NYT has Mr. Bernanke saying that we cannot deal without this intellectual comfort in our system:

‘Mr. Bernanke, tacitly acknowledging the unpopularity of the bailout program, said the public was “understandably concerned” about pouring hundreds of billions of taxpayer dollars into financial companies — especially when other industries were getting the cold shoulder.

‘But, he insisted, there was no escape. “This disparate treatment, unappealing as it is, appears unavoidable,” Mr. Bernanke said. “Our economic system is critically dependent on the free flow of credit.”’

'Free flow of credit' does not mean 'free flow of fraudulent credit.' These big guns, Mr. Bernanke and his mentor Mr. Greenspan, think fraud is an aberration, in no need of its own modeling or study, all the while they tailor moral hazard into the system.

Banks Are in Need of Even More Bailout Money
By EDMUND L. ANDREWS and ERIC DASH
Published: January 13, 2009

WASHINGTON — Even before word came on Tuesday that Citigroup might split into pieces to shore up its finances, an unpleasant message was moving through Congress and President-elect Barack Obama’s transition team: the banks need more taxpayer money.

In all likelihood, a lot more money.

Mr. Obama seems to know it; a week before his swearing-in, he is lobbying Congress to release the other half of the financial industry bailout fund. Democratic leaders in Congress seem to know it, too; they are urging their rank and file to act quickly to release the rescue money. And Ben S. Bernanke, the chairman of the Federal Reserve, certainly knows it.

On Tuesday, Mr. Bernanke publicly made the case that one of the most unpopular and most scorned programs in Washington — the $700 billion bailout program — needs to pour hundreds of billions more into the very banks and financial institutions that already received federal money and caused much of the credit crisis in the first place.

The most glaring example that the banking system needs even more help is Citigroup. Though it already has received $45 billion from the Treasury, it is in such dire straits that it is breaking itself into parts.

Like many banks, Citi is finding that its finances keep deteriorating as the economy continues to weaken.

Even some of the bailout program’s harshest critics acknowledge that things most likely would be even worse without it, and that the bailout had accomplished its most important goal, which was to prevent a complete collapse of the financial system.

Since last September, no major banks have failed and the credit markets have thawed somewhat.

But analysts said the problems are still acute, if less apparent on the surface. Banks have received $200 billion in fresh capital from the Treasury since last fall and have borrowed hundreds of billions of dollars more from the Fed. But in the meantime, the economy fell into a severe downturn last fall that is likely to continue until at least this summer.

Industry analysts estimate rising unemployment and business failures will lead to another $500 billion to $750 billion of losses in coming months. That could bring total losses from the credit crisis to $1.5 trillion to $1.8 trillion, twice as high as earlier estimates.

Citigroup is not alone. JPMorgan Chase, Bank of America, Wells Fargo and most other big banks all expect enormous losses as millions of consumers default on their mortgages, credit cards and automobile loans. Other losses are expected on loans made to commercial real estate developers, small businesses and for highly leveraged corporate buyout deals.

Mr. Bernanke bluntly warned on Tuesday that the government would probably have to infuse more money into financial institutions in the months ahead.

“More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets,” Mr. Bernanke said in a speech to the London School of Economics.

Mr. Bernanke, tacitly acknowledging the unpopularity of the bailout program, said the public was “understandably concerned” about pouring hundreds of billions of taxpayer dollars into financial companies — especially when other industries were getting the cold shoulder.

But, he insisted, there was no escape. “This disparate treatment, unappealing as it is, appears unavoidable,” Mr. Bernanke said. “Our economic system is critically dependent on the free flow of credit.”

Mr. Obama and his economic team have assured Congress that they would use a sizable chunk of the new money from the Troubled Asset Relief Program to help distressed homeowners refinance mortgages and escape foreclosure. That would be a big shift from the Bush administration, which refused to use TARP for reducing foreclosures.

Lawrence H. Summers, Mr. Obama’s choice to head the White House National Economic Council, assured Democratic lawmakers in writing on Monday that the administration would use some of the money to help reduce foreclosures.

But Mr. Bernanke appears to be warning Mr. Obama and Congressional Democrats that most of the remaining $350 billion — and possibly more — has to go to shoring up banks if they are to resume lending at normal levels.

During the first three quarters of 2008, banks were able to raise enough capital to offset more than their hundreds of billions in losses by tapping the giant government bailout fund as well as some early private investors.

But that was only a stopgap.

“The capital raises finally caught up with the losses,” said Michael Zeltkevic, a partner at Oliver Wyman, a consulting firm specializing in the finance industry. “It doesn’t make the situation better, but at least we caught up.”

The new tidal wave of losses stems from the worsening economy and rising unemployment, and analysts say it will take several quarters before it peaks.

Regulators require banks to keep a healthy cushion of capital. But this time around, the banks are struggling to plug their deepening holes. Private investors are scarce. For all but a small group of healthy banks, bankers and analysts say, the government may be the only investor left.


“Most banks are going to be in a defensive posture,” said Christopher Whalen, a managing partner with Institutional Risk Analytics. “You are probably not going to see the industry expand its overall balance sheet until 2010 or 2011.”

Mr. Obama’s economic team is planning a broad overhaul of the program to impose more accountability and more restrictions on executives at companies that receive government money.

Policy makers are also looking at reviving the original idea of TARP — have Treasury buy up unsalable mortgage-backed securities from financial entities.

Henry M. Paulson Jr., the Treasury secretary, had dropped the idea, concluding it would be more efficient to inject capital directly into banks by buying preferred shares.

Mr. Bernanke revived the idea, along with several other approaches, in his speech in London. So did Donald L. Kohn, vice chairman of the Federal Reserve, in a hearing on Tuesday before the House Financial Services Committee. He suggested the Treasury could buy the unwanted securities directly, or set up special banks to buy them.

Some analysts, even those who agree that the government needs to prop up the banking system with more taxpayer money, were skeptical about TARP.

Adam S. Posen, deputy director of the Peterson Institute for International Economics, said that the Bush administration had been right to inject capital into banks but wrong in not pushing banks hard enough to fix their problems or accounting.

“The problem isn’t that we’ve wasted money,” Mr. Posen said. “The problem is that we’ve put too few conditions on the banks.”

http://www.nytimes.com/2009/01/14/business/economy/14fed.html?hp

An unfortunate case(25)

Many years ago I was in what was arguably a relatively small Ponzi scheme. It was a company, a high tech one, at that. The principals were raising money for a patent that they had. I saw a video of the patented device working. I visited a law firm in Palo Alto that had done the patent work. That at least convinced me that there was a patent.

However, the principals never seemed to be able to bring the device to market. They just kept raising money. The device was never ready. Which made me suspicious.

So I somehow got elected to the Board of Directors. As I recall, shareholders removed one of the principals from the board and from management. Thereafter we were able to force board meetings that were not simply rubber stamps of the scheme. Two of us who were on the board sued the principals, on behalf of the company, and forced them to pay back all the funds that they taken from every investor. Every single dollar and then some interest. It was quite a fight.

The problem was that the principals had started another company which bought up all the shares in the first company. That is how we got our money back. The SEC knew about this because we had gone to them. It never suggested the deal was a Ponzi scheme. The first company was a private company. The second was a public company. The SEC forced the public company to quit trading, and ultimately it became a pink sheet stock. It ceased to be able to raise money. But our shareholders were never asked to disgorge funds. The shareholders in the public company pretty much lost everything.

The inventor walked away with his patent, to defraud again. The last of the other two principals died not long ago, having finally wrecked his own life by running out of people to con. He died penniless, with diabetes, sans a foot to stand on.

Figuratively, he’d never had one. But he’d made a living for quite a spell dancing without any feet. Footless and fancy-filled.

Mama Gaea here plus a labor twist in her corset:

Until last week, Carol M. Browner, President-elect Barack Obama's pick as global warming czar, was listed as one of 14 leaders of a socialist group's Commission for a Sustainable World Society, which calls for "global governance" and says rich countries must shrink their economies to address climate change.

http://www.washingtontimes.com/news/2009/jan/12/obama-climate-czar-has-socialist-ties/

An unfortunate case(24)

Opposed to finding out what happened over a 30 to 40 year period, there is something called a clawback provision that is supposed to facilitate recovery of assets for some of the Madoff investors. As you see, it can separate investors into classes. The first is of those who have to pay money back to the bankruptcy trustee. The second is of those who are to receive money from the trustee.

http://www.law.com/jsp/article.jsp?id=1202427238419

As noted in #8:

“The class of people invested at Madoff, if you want to call them that, will come to some knowledge of itself, largely as a list of names and addresses in an attorney’s office and on court documents. It will come to know itself in the press. However, it has little, if any, community to organize here. It is largely a collection of facts to be reported and tallied in various forums.”

You may not want to be part of this self-knowledge if you believe you fall into the first class. Money, not from Madoff, is yet to come from you.

An unfortunate case(23)

We have no idea, other than generally, what happened in the Madoff case.

Remember that investigators will have 30 + years of records to reconstruct. There will have been wire transfers from now defunct banks. How good are the Fedwire records from 30 years ago? Someone is likely to find out.

Finding out where the money went is not going to be easy, even if the records are clear. It is unlikely that all relevant records are coded ‘madoff’. There will have been multiple accounts whose nature will be unclear.

Below is a short history of the Fedwire system:

Brief History

The Reserve Banks developed Fedwire to improve the safety and efficiency of the interbank settlement process.5 In the early 1900s, settlement of interbank payment obligations often involved the physical delivery of cash or gold to counterparties, which was both risky and costly. To mitigate these risks, in 1918, the Reserve Banks introduced its first dedicated funds transfer network, featuring a Morse code system that connected the twelve Reserve Banks, the Board, and the United States Department of the Treasury. The key feature of this arrangement was the ability to transfer balances held at the Reserve Banks using a secure communications network. The elements of this feature remain the foundation of Fedwire operations.

As communications technology improved throughout the century, the Reserve Banks also improved Fedwire, striving to increase its levels of security and automation. From the 1920s to the 1960s, Fedwire migrated from leased-line public telegraph circuits to telex to computer operations and proprietary telecommunications networks. These operations were organized and executed on a decentralized basis among the twelve Reserve Banks. This organization matched the localized structure of the domestic banking system at the time and allowed each Reserve Bank to serve the specific needs of institutions in its Federal Reserve District.

During the 1980s, however, the consistency of services across Districts became increasingly important as interstate banking emerged in the United States. More bank holding companies owned depository institutions in multiple Districts and sought greater standardization of Reserve Bank services. The Reserve Banks addressed this demand by deploying standard software in each Reserve Bank.

In the 1990s the Reserve Banks consolidated most mainframe computer operations, centralized certain payment applications, and consolidated Fedwire management at specific Reserve Banks. Section 10 of this report provides greater detail about these organizations and the roles they play.

Recently, the Reserve Banks have started to take advantage of the flexibility and efficiency that Internet protocol (IP) and distributed processing technologies offer. The Reserve Banks are using these technologies to enhance the functionality and operational reliability of Fedwire and other Reserve Bank services.Although many aspects of the Reserve Bank's payment services have been centralized, individual Reserve Banks remain responsible for maintaining relationships with institutions and for limited operational processes such as updating account profiles. In addition, each Reserve Bank maintains an account for institutions in their District.

http://www.federalreserve.gov/paymentsystems/coreprinciples/default.htm

An unfortunate case (22)

From a Holman Jenkins(WSJ) article on the Madoff Scandal:

“But here is the most interesting question. Mr. Madoff gained access to billions through the feeder funds, allowing two possibilities: A pile of money exists somewhere, and Mr. Madoff knows where, as do others. His spontaneous confession to his sons, and their prompt move to inform authorities, along with the pretense that Mr. Madoff acted alone, may have been one giant theatrical confection.

“Or -- the other, more likely, possibility -- the many billions raised by feeder funds were paid out as fat profits to investors, such that hundreds of Madoff clients lived very well off the Madoff scam for decades.

“Under the law, you can enter a Ponzi scheme through lack of diligence, but you can't exit through proper diligence. If you leave because you smell a rat, you are complicit. Mr. Madoff may have gone on for 40 years, and one suspects a certain folk knowledge existed among many participants that something was not quite right (which is not the same as deciding not to participate).

“Indeed, a continuum of complicity will likely be found, extending from the truly duped to the not-so-duped. A place to start applying the screws would be Frank Avellino and Michael Bienes, the two accountants hauled before the SEC in 1992 for illegally raising $440 million for Mr. Madoff. In the most eye-popping of its missed opportunities, the agency never ventured to look directly at Mr. Madoff's books after he somehow coughed up cash to pay back Messrs. Avellino and Bienes's clients.”

http://online.wsj.com/article/SB123128761903059219.html

Avellino and Bienes is a very good place to start.
Remember the December 19th article from Bloomberg:

http://bloomberg.com/apps/news?pid=20601087&sid=a.47mLdmtFTE

Thinking about it at the time I wrote:

“A couple of accountants appear to have been running a scheme, selling unregistered securities and taking the proceeds to invest in Madoff. Avellino and Bienes, the accountants, did this for thirty years, beginning in 1962 and closing the scheme in 1992. The article says that A&B reimbursed their clients upon dissolution.

“With what? Madoff accounts would have been all that they had. They kept few records. The receiver relied on Madoff’s records since Price Waterhouse asked Madoff for them to clarify what A&B held. But PW did not question Madoff’s records, and the receiver did not investigate Madoff, as the article says.”

Jenkins thinks the clients got paid off with cash, not Madoff accounts:

“the agency never ventured to look directly at Mr. Madoff's books after he somehow coughed up cash to pay back Messrs. Avellino and Bienes's clients.”

If they got paid off in cash and no one looked at this, these accountants and regulators really do see no evil as the picture from the Jenkins' article indicates. It would have been one thing to swap paper: an account for securities. But cash and no questions?

The capital of a regional bank-Fifth Third Bancorp-at the time was a little over 1 billion dollars.
http://www.secinfo.com/d12m8.bv.htm#1ep

Where could the money have come from? Madoff was an unknown player. He wasn't Morgan Stanley with some 15 billion to foot a payment of that size.

http://www.morganstanley.co.uk/about/ir/annual/1997/wind2.html

Price Waterhouse may have had a bad day in 1992. They had one yesterday, as well. In India.

This from Bloomberg:

Satyam Accounting Scandal Erodes Confidence in India
By Pooja Thakur

Jan. 8 (Bloomberg) -- The accounting scandal that caused Satyam Computer Services Ltd. to collapse yesterday is shaking investor confidence in Indian stocks, putting an end to the market’s best start since 2000.

“How did they manage to conceal a fraud of such magnitude even from the auditors?” said Greg Kuhnert, a London-based fund manager at Investec Asset Management Ltd., which manages about $10 billion and sold its 0.15 percent stake in Satyam last month. “That to me is a huge concern and is making me very nervous about the situation in India now.”

…PricewaterhouseCoopers LLP, Satyam’s auditor, declined to comment on the scandal, according to an e-mail from the New York-based firm’s public relations adviser Edelman.
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aoDkCr99CLbI

It’s hard to catch fraud. You have to get your hands a bit dirty and not look at your Rolex. Most importantly, you have to have an eye for incongruity. Here you don't derive incongruity from a set of rules. You look at cases and wiggle the analogies or lack thereof between them.

But there is hope still:

Thomas Frank(WSJ)

An Unrepentant New Dealer Runs for Congress

Thomas Geoghegan never bought the 'new economy' hype.

Thanks to the media circus swirling around the governor of Illinois and his schemes to fill President-elect Barack Obama's Senate seat, little attention is being paid to the race to succeed Rahm Emanuel as he moves from the House of Representatives to White House chief of staff.

That's a shame, because voters in Mr. Emanuel's district, largely composed of Chicago's North Side, will have the chance to redeem their state's reputation. They will likely have the chance to elect, out of a crowded race, a true reformer in Thomas Geoghegan.

Mr. Geoghegan is something of an oddity in Chicago. He is a respected lawyer, but he has spent his career in the unlucrative fields of labor law and advocacy for the poor. His connections are probably better with the Jesuits than with City Hall.

He is also a writer, and a brilliant one at that, possessed of an elegant, conversational prose style and an eye for the haunting detail. I should also mention that he is a good friend of mine, and that he has contributed to and worked on a magazine I edit.

I first encountered Mr. Geoghegan in the early 1990s, when he was a frequent guest on a Chicago TV show. And I still remember how shocking it was to hear someone defend organized labor in those days when everyone else was coming to accept the post-industrial order.

The basic point that he would make was that the decline of unions wasn't a reflection of consumer choice, in the way that hot movies and popular toys are said to be. Labor unions were hemorrhaging members because the game was rigged against them; because it was nearly impossible for workers to organize when the penalties incurred by management for firing pro-union employees were so slight.

Maybe that's just what you're supposed to hear when you turn on the TV in a place like Chicago. To me, though, it was new and astonishing, a sort of revelation. Mr. Geoghegan's 1991 book, "Which Side Are You On?" -- the best book on labor to appear in the past 50 years -- continued my education about the blue-collar world. An "anti-world," Mr. Geoghegan called it, a "secret world." And so it was: the silent, suffering antithesis to the great choir then starting its hymn to omniscient markets and the ever-ascending Dow.

Now that conservative orthodoxy has collapsed in a heap of complex derivatives, I can't help but think what a refreshing dose of plain-spoken Midwestern reality Mr. Geoghegan could bring to the nation as a whole.

To begin with, Mr. Geoghegan thinks big while Democrats in Washington tend to think small, proposing a stimulus package here and better oversight there. The government's goal, as he explained it to me a few days ago, should not merely be "to pump up demand again." It should be to enact sweeping, structural change, "to get in a position where we're not bleeding jobs out of the country."

For the view that working people have no business with retirement and health care in the lean, mean, inevitable future, Mr. Geoghegan has a certain contempt. He wants to increase Social Security payments to make up for the destruction of private pension plans and expand Medicare with the goal of arriving, eventually, at single-payer health care. The $700 billion bank bailout, he says, proves that such expenses can be borne. What's more, they're necessary.

"Economic security is not only compatible with being competitive globally," he tells me; "it's crucial to it." Until we shift the burden of pensions and health care from companies to government we will continue to endure "debacles like General Motors" and so many others.

It is also time, he says, to change the relationship between the financial sector and the rest of the economy. After all, as he tells me, "We bought into these banks, we ought to have directors on the boards. We the people, as stockholders, have different interests than some other stockholders because we have some other ideas about how we prosper in the long term."

For example, "rather than go for high-roller returns on financial speculations," a publicly appointed director "might be willing to accept lower returns in manufacturing where we can be globally competitive and create good jobs."

This is supposed to be a time for bold ideas on the left, with the failures of the free-market consensus becoming more glaring and more painful by the day. And Mr. Geoghegan's ideas should be part of the debate.

Indeed, this scholarly labor lawyer may be exactly the man for the moment. He is an unrepentant New Dealer with an old-fashioned sense of civic duty and an admitted fondness for Washington. Unlike so many who have been called to service in this economic crisis, he has no period of embarrassing new economy enthusiasm to apologize for. And despite the stories we tell ourselves about corrupt Chicago, change is possible. Voters need merely to seize the opportunity.

http://online.wsj.com/article/SB123128772727259231.html?mod=googlenews_wsj

Sweet home, Chicago, the streets of Emanuel, and hope from its woodwork.

Workers of the World won't unite quite yet:


By KRIS MAHER
Unions likely won't see action soon on legislation that would make it easier to organize workers, but Democrats are moving to back a pair of less-controversial bills that would facilitate filing discrimination suits against employers.

Labor had hoped the Obama administration would take up the Employee Free Choice Act within its first 100 days. The bill would let unions register members by collecting signatures on cards rather than through elections. But its enactment now appears doubtful.

The bill is opposed by business. Mark McKinnon, a spokesman for the Workforce Fairness Institute, a business-backed group that opposes the measure, said support for it is weakening and the business lobby expects to have enough votes to block it with a filibuster, as it did in 2007.

William Samuel, director of government affairs for the AFL-CIO, disagreed. "We're very close to having a filibuster-proof majority in the Senate," he said.

Congress seems more inclined to pursue less-volatile labor issues, including two this week. The Lilly Ledbetter Fair Pay Act would extend the statute of limitations under civil-rights laws for bringing suits against employers over pay. The Paycheck Fairness Act would strengthen remedies under the Equal Pay Act of 1963 for women.

The business lobby opposes the measures, saying they will lead to frivolous lawsuits and saddle companies with higher legal expenses. Randel Johnson of the U.S. Chamber of Commerce called the bills "low-hanging fruit," when compared with the Employee Free Choice Act. He said Democrats are acting too quickly on the measures and that new members of Congress won't have time to understand them.

http://online.wsj.com/article/SB123129025089959439.html?mod=googlenews_wsj

An unfortunate case(21)

A good deal of what we face today is faced with philosophy. But philosophy is misguided thought. So we are certain to be misguided as different political economies, which are philosophies, get in the way of the business of the nation.

The right wing holds various examples of a political economic theory, generally from Locke, based on natural rights, God-given rights, at that, to life, liberty, and property.

Read ‘pursuit of happiness’ for ‘property’ if you like. Pack in preference functions as well, then microeconomics, with a kind of John Stuart Mill behind it. Some believe they have a mechanics for how the entire political economy works.

Yet, hear from these folks paeans to the Free Market, when pressed on what is best.

The left holds various examples that are denials of the right, some of which are Marxist and deny property entirely.

Hear from these folks paeans to a Proletarian Middle Class.

Others have certain prior principles, e.g., emphasizing the environment as a means to curtail rights of property. Wetlands come to mind. Some emphasize the safety of animals over mining or other development. For example, there are activists in the Bureau of Mines who interfere with the working of claims, who have a theory upon which they do this. As soon as some company files, the Sierra Club knows on the spot.

Hear from these folks paeans to Gaea Terra.

http://www.theoi.com/Protogenos/Gaia.html

Various philosophical positions, i.e., that of the civil society, that of Marx, and any imaginable shade in between will contribute to the mix of think-tanks, policy wonks, and pseudo religions of Market, Labor, and Earth which we will have to endure, simply to hear about the problems we face.

I seriously doubt we will make sense of much while we mortgage the next future.

An unfortunate case(20)

That is the most sense I can make of this without getting bogged down in linguistic circles. The point is that Marx is a revolutionary, who believes he is able to engage the civil society pretty much any way he wants; he believes he has the language with which to do it.

“(11) The philosophers have only interpreted the world in various ways; the point is to change it.” (Ibid., 402)

Having been one of these years ago, I now believe that no philosopher has a leg to stand on, including Marx. As I have said, for at least a couple of years, there is no place to start philosophy. I can always stop you from starting up, just as I stopped the fellow above in #16. Whatever the case that one is talking about, you don’t need philosophy to talk about it. It is intelligible on its own.

So the case of the fellow J.D. who is not working to own( see #s 15 and 16) is what it is. He is not “working to own.” This is a counterexample to Marx’s general thesis. Marx, the philosopher, has to spin the case to make it otherwise. This amounts to giving some conditions for classifying the case to his liking. It is those conditions that amount to the “in virtue of “ or the “in principle” remarks that he makes, but he assumes conditions that I don’t have to assume to state my case.

Intellectuals believe that they have the right to recast things to their liking and argue all through the night about it. They believe that they have the right to reason to an opinion. So they open with remarks like the one written in #16:

“Well, one might say that because J.D., in virtue of his work, has command over who is to get paid, is therefore working in order to own.”

The “might say” remark here is theoretical. It is not like a “might say” remark that says J.D. may owe his Aunt Janie and Johnny for something, and that that is why he is doing what he is doing.. That is something that can be tested. We can find this out. Testimony can reveal it. We can take depositions if need be and get the facts with a court’s authority. However, testimony will not reveal anything about the first “might say” remark. It is one of an indefinite number of theses that nothing will confirm. Yet we talk this way, as intellectuals, all the time. Indeed, we judge ourselves by our portfolio of intellectual stances.

Western thought has hinged upon this approach since philosophy began in ancient Greece and since Aristophanes ridiculed it as a joke in Clouds. We have become a kind of bad joke recently with our financial constructions that represented theoretical value that ultimately no one would pay for.

Our problems should not be philosophical, whatever they are. Yet they always seem to be.

An unfortunate case(19)

Turning to Feuerbach, you find a kind of Hegelian position that is not idealistic, as Hegel’s was. Here is a materialism, much more suited to Marx, but in error, nonetheless. For Feuerbach does not see ‘sensuous human activity’ the way Marx does. Feuerbach sees it as something to state truths about. He is busy with the study of human nature and sees religion growing out of it. He was a minor figure in theology in Marx’s day.

http://en.wikipedia.org/wiki/Ludwig_Feuerbach

His error is not to see sensuous human activity as practical.(Ibid. p 401) For this reason, Marx calls Feuerbach a perceptual materialist. He is a materialist, but, again, he is not a practical one. As such he is a reactionary, with his work assuming certain foundations of society and assuming it, like religion, proceeds out of human nature.

Thus Marx says a bit later in his Theses on Feuerbach

“(9) The highest point attained by perceptual materialism, that is, materialism that does not comprehend sensuousness as practical activity, is the view of separate individuals and civil society.” (Ibid, p. 402)

Remember that it is the doctrine of the Social Contract beginning with Hobbes, moving on through Locke and Rousseau that is very much part of the foundation of our current democracies. This doctrine, in some form or fashion, brings individuals, by virtue of their nature, together into a society, which derives its sovereignty from them. But Marx thinks this is the old way. Here Marx is quite clear in Thesis 6:

“But the essence of man is no abstraction in each single individual. In its actuality it is the ensemble of social relationships.”(Ibid., p. 402)

These arise in practice. There is nothing prior, like natural rights, upon which to found a society. Human nature is an abstraction used to legitimize a society.

So Marx says:

“(10) The standpoint of the old materialism is civil society; the standpoint of the new is human society or socialized humanity.”(Ibid., p. 402)

An unfortunate case(18)

Note here that a kind of moralizing works for me, for I can say that society “makes man as far as possible an abstract being, an automaton, and transforming him into a spiritual and physical monster.” But society can say nothing of me, for I am outside it, as a revolutionary. I give to its moralizing nothing but my terms of alienation, which enable me to ignore it. Never mind the suicide of Rene-Thierry Magon de la Villehuchet.

I do not mean to pick simply on poor Marx. He has some interesting insights; he just inflates them, as all philosophers do, and introduces his own terms in the process, terms that muddy things up a great deal. Many of Marx’s terms come from earlier writers, for example, Hegel and Feuerbach. Marx rather redirects their use toward what he thinks is practical, as the terms apply to what people do, or to what appears in Marx to be its equivalent: human activity.

To get to the bottom of Marx I have to understand ‘activity’ in some inflated sense. By that I mean that I have to take ‘activity’ and divorce it from activities such as scout camp swimming, or hill country quilting. I do this so that I can say something general about it, yet what I say generally is supposed to be concrete as well, in ways that discussing scout camp swimming fails to give the true, concrete point.

I have no idea how to do this other than with words. Staring at what someone is doing and repeating ‘activity’ to sweat and exhaustion is not the right program. So I take the word ‘activity’ and redefine it as practical. I just say it is. I say that Feuerbach and Hegel talked about ‘activity’ theoretically, not practically. But I say it cleverly by calling the human activity I want to speak about ‘sensuous human activity.’

This a significant beginning because Hegel begins his Phenomenology of Mind with ‘sense certainty’, or ‘sensuous certainty’.This is what he calls the concrete content of experience at the beginning of his analysis. (Trans. Baillie, George Allen and Unwin, 1966, p151-153) Marx simply drops in ‘human activity’ for ‘certainty.’ There he begins. Then he simply draws different implications because of what he says human activity is.

Marx’s radical move is to recast Hegel in what Marx would call a non-theoretical way(See the earlier cited Writings of the young Marx, p 400 f). By doing so, Marx makes it such that there is no objective truth as Hegel saw it. There is simply a truth of activity, in which Hegel’s distinctions of subject and object are lost; the notion of certainty, buried throughout Hegel is gone.

Thus Marx says that “the question whether human thinking can reach objective truth-is not a question of theory, but a practical question.” (Ibid., p 401)

To a happier year:

An unfortunate case(17)

Do I need Marx to understand the Madoff case? No. The Madoff case will be as clear as it can be after considerable investigation. Eventually all the parties who have criminal or civil interests will have factual discovery, and it will become clear. The press will get hold of it. There will be lengthy treatises and shortened versions. Some years from now there will be analogies drawn between the Madoff case and future cases. Marxian theory will play no part in this.

However, I need Marx to recast the case into something like this: that it is a case of propertied interests and, as such, is a case of alienated labor, objectified in this postmodern age into account numbers and values. Someone’s labor, or the labor of many, has been traded or purported to have been traded in a certain form in these accounts. As a revolutionary, I don’t need to consider it much further than that.

If I am allowed to begin with the assertion that property has the presupposition originally stated, and I am allowed to draw, in principle, implications that show that labor done in its original form(I get to say what this is also) is changed when it is sold as wage labor, then I can claim that, as the worker works only to own something and trades his wages for money, the money is the objectivication of his labor. It is what courses throughout the markets of the world putting an objective value on the worker and what he works for, i.e., property. That will be his alienation that I create out of my words.

As I want to make change based on that, I need to have premises from which I can argue that property is alienation(never mind that ‘alienation’ is a term of property law) and needs to be done away with in a classless society in which no one has power by virtue of property. In this way I can propose a reorganization different from the old propertied civil society, in which markets wreak all this theoretical havoc on the worker, “making man as far as possible an abstract being, an automaton, and transforming him into a spiritual and physical monster.” (Ibid., 276)

Notice here that, in so speaking, I am allowed to change what is before me, the civil society with its ways and people into something “abstract.” For I have the handle on the “concrete” which is to come in the revolution. How did I get this? By redefining work. By saying that work is something other than it is. The simple, instant case shows that.

In doing this, I can trivialize the Madoff case and that of JD as that which results in a civil society that will be replaced as the worker gains self-consciousness in a class, only to overthrow the civil society to make it classless. I may even like the Madoff case because it may be large enough to destabilize the civil society.