Dean Baker Sounds Disgusted

The bank stress tests are rigged:

Okay, unemployment will almost certainly reach 8.0 percent and possibly 8.1 percent in February. It might cross 8.5 percent in March. The worst case scenario is that it hits 8.9 percent by the rest of the year?

Remember, this is the same crew that told us that there was no housing bubble. When it became clear that there were serious problems, they assured us that they would be contained in the subprime market. After Bears Stearn collapsed they told us that they didn't see another Bear Stearns out there.

These stress tests indicate that our economic policy makers are still in a serious state of denial. Why isn't the media ridiculing them and telling the public that the folks making economic policy still don't understand the economy.

This is a disaster in the making. Policies going forward, whether or not to perform major intervention (temporary nationalization) in particular, hinge on an honest accounting of just how insolvent some of these "too big to fail" institutions really are. Using less than drastic forecasts as the metric guarantees too small a response.

The Crisis of Credit Visualized

Easily one of the coolest - and most understandable - explanations of how the house of cards was created, and how it came tumbling down on top of us all.


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Let's Get Swedish On Their Ass!

Matthew Richardson and Nouriel Roubini make the case that nationalization is the only useful option left to us to rehabilitate the banking sector:

Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:

First, and this is by far the toughest step, determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren't in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.

Second, immediately nationalize insolvent institutions. The equity-holders will be wiped out, and long-term debt-holders will have claims only after the depositors and other short-term creditors are paid off.

Third, once an institution is taken over, separate its assets into good and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.

The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.

Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.

The eventual outcome would be a healthy financial system with many new banks capitalized by good assets. Insolvent, too-big-to-fail banks would be broken up into smaller pieces less likely to threaten the whole financial system. Regulatory reforms also would be instituted to reduce the chances of costly future crises.

The longer the delay, the higher the actual costs. Not to mention the entire collapse thing. Standing on some ridiculous notion of ideological purity at this late date is exactly equivalent to insanity.

Market Case For Nationalization

Hilzoy makes a market based case for the nationalization of banks that would otherwise vanish into insolvency without government intervention (entire post well worth the read):

In the case of the large banks, I assume that we do not want them to go bankrupt not because it would hurt their shareholders, but because their bankruptcy would have broader systemic effects that we find unacceptable. That's fine. But in figuring out what to do about that fact, we need to try to preserve the incentives that bankruptcy normally provides.

To my mind, this means that we should proceed as follows. First, figure out exactly what it is that makes letting these firms declare insolvency such a bad idea: what effects we are trying to avoid. Second, try to craft a policy that avoids this particular bad consequence, while leaving the other disincentives to go bankrupt (or to invest in firms that are at risk of bankruptcy) in place. Third, if we can't do that, try hard to create incentives that mimic the operation of the normal market incentives that our actions are preventing. (E.g., if we prevent banks from declaring insolvency, we need to provide some other disincentive to becoming insolvent, in order to avoid moral hazard.)

This is the main reason why I tend to favor nationalizing those banks that are insolvent, clearing up their balance sheets, recapitalizing them as needed, and sending them back into the private markets as soon as is prudent. I am not, in general, in favor of the government controlling individual banks. But in this case, if we don't want to let the large banks declare bankruptcy, we need to provide some serious disincentives to their managers, investors, and bondholders. (I exempt depositors since I think that they should be insured, given the systemic value of avoiding bank runs.)

Nationalization would accomplish that. It would wipe out the shareholders and holders of unsecured debt, which is what the market would have done if left to its own devices. It would allow us to replace the senior management at the banks, which would give them every incentive to avoid needing to be nationalized. We would need to own the banks in order to do what needs to be done, and to do it as quickly as possible. This would mimic the market by treating the government as an owner in those cases in which it is, in fact, putting up the money: anyone else who provided this sort of capital would get ownership, and making an exception for the government would make government money more attractive than private capital. This would, I think, be a bad thing.

Nationalization would, in short, accomplish what my market principles tell me we should do: specify exactly what the bad consequence is that we want to avoid, and craft a policy solution that avoids this particular bad thing while either leaving other market signals intact or (where this is impossible) mimicking them. It would also allow us to return to what I take to be the right state of affairs (in which banks are private, and privately funded, and the government regulates them) as quickly as possible. (If you don't like excessive government involvement in banking, it's not clear why you'd prefer a long, drawn-out period of heavy government involvement over a shorter period of outright nationalization.)

This isn't rocket science. Models exist which can provide a blueprint for how to proceed. The only limiting factors in all of this are political and ideological. Our current crop of politician's fear the word "nationalization" almost as much as they fear openly contested elections.

Tech Shit You Gotta Have

Very funny. Very bad language, too.


Sony Releases New Stupid Piece Of Shit That Doesn't Fucking Work

Rallying The Troops

President Obama speaks to Democratic lawmakers about the stimulus bill. Apparently leaving the teleprompter behind, he finally stops mincing words and gets to it. Refreshing, to say the least, but in the wake of the Senate Republicans voting 36 of 41 to scrap all stimulus in favor of more massive, Bush style tax cuts, methinks Obama ought to be giving this speech to the obstructionists.

In two parts:

We Don't Need No Stinkin' Stimulus

Holy crap.

7.6% unemployment.

And U6 is now at 13.6%.

In this environment Republican intransigence becomes a criminal conspiracy, even if it is born of stupid adherence to a failed ideology.

When cops become soldiers

And why it is bad to issue warrants that don't contain a no-knock provision and then have local police SWAT teams serve them as if they did. The extraordinary militarization of police forces has almost universally been a very bad trend.

The Supremes need to have another look at this sort of crap.

Just ask the Mayor of Berwyn Heights, MD.

In the mean time, protect your dogs.

In the kitchen, Georgia spun to face the sound of the splintering door. Men in black burst through the front door and into the living room.

Georgia stood trembling in front of the kitchen stove. Payton, who had been stretched out in a corner of the living room farthest from the front door, his head resting near the threshold to the kitchen "turned toward the front door when I turned," Georgia recalled. "He didn't have time to do anything else." Almost instantly, men in black ran forward and shot Payton in the face, Georgia said. "They kept shooting," she recalled. "I didn't know how many times they shot Payton because there was so much gunfire."

"Down on the ground!" Georgia recalled someone screaming at her. She was too terrified to move.

Chase, always timid even when there was nothing to fear, did what he did best -- he ran. He ran away from the men in black, zipped past Georgia at the stove, Georgia recalled. The screaming, running men followed Chase, shooting as he tried escaping into the dining room, Georgia said. She watched in horror as men in black rushed the dining room from all directions. "I could hear Chase whimpering," Georgia said. Then she heard someone shoot at Chase again, she said.

Men kept yelling at Georgia to get down, but she couldn't budge. "Somebody pushed me on the ground, and they put a gun to my head," she said. Face down on the kitchen floor, Georgia felt someone yank her hands behind her, rip the spoon away and secure her hands. When she lifted her eyes, she could just see Payton's big head resting near the kitchen threshold. He wasn't moving.

Not So Deep Thought

How is that Democrats find themselves in power, but we are having the exact same dishonest debates we've had for the last eight years? Did the recent election actually take place?

The Just Say No Crowd

The modern Republican party, be it in or out of power, has a single strength: playing the role of the obstructionist opposition. For the sake of it. In power, they hold up straw men and push though policies intended to fix problems that don't exist, while annihilating the ability of government to function effectively.

Out of power, it looks like this:

In the midst of an economic crisis, the GOP and its allies have convinced a whole lot of people that the only sensible recovery plan is a bad idea. The minority party has not only persuaded news outlets to give them airtime to spew this obviously-ridiculous nonsense, they've also convinced a lot of media figures that they're right.

I do wonder if they have any clear idea of the potential, even likely consequences of doing nothing about the imminent global economic collapse, already well in progress. If they do, then their actions are criminal. If they don't, then we are in deep deep trouble.

Boys Will Be Girls & Girls Will Be Boys

Pandagon has a post about assumptions made about women every day in restaurants and retail settings when in the company of a man.

Some years ago a friend wanted to buy a new television. I was, at the time, still in the audio/video business and recommended an establishment I once worked for, as my current employer did not sell TVs.

I am male. My friend is female, employed, makes boatloads of money, and is the primary earner in her household (husband takes care of the kids and home).

We three journeyed to the electronics store (a higher end place, where the salespeople actually know what they are selling) where I introduced my friend to the store manager, told him generally what she was looking for, and off we went. Understand that this manager was a younger man, 26 at the time (and a rank asshole to his staff but sophisticated enough to treat his customers with respect, or so I thought), so we are not dealing with some dinosaur likely to pop off about the "little lady" and whatnot. Yet, invariably, he spoke directly to the husband, or even me, though both of us made a point of standing a little further back from him than was she. It was weird. I deflected everything back to her, as did her husband, but he continued making eye contact with either of the men while ignoring her, even though she was the only one asking him questions or responding verbally to him.

When we reached the register, J. took out her wallet and began dating a check. The manager looked right past her to her husband and asked for their phone number. He looked away, and the manager's gaze finally came to rest on his wife. She gave him the number, lips pursed, expression galactically irritated. When the transaction ended, he handed the receipt to her husband, who was several feet away from the counter. The guy had to extend his arm right over her shoulder to do it.

On the ride home she was understandably livid. I was pretty embarrassed, as I had recommended this guy and that shop, and said so. While I received absolution for my unintentional sin, she never returned to that particular establishment. For my part I wrote a letter to the sales manager of the company (someone I knew personally) advising him of the incredibly sexist behavior of the current manager. Nothing happened, as far as I know.

In years since I've seen this sort of thing over and over again. I've even seen female sales staff defer to the male partner when a married couple is buying something, even if there are no overt signs that one or the other person is "taking the lead" in the purchase, so to speak. It's incredibly insulting to women, and all too common.