Tales from Bailout Nation Pt. XX

Crony capitalism: an allegedly capitalist economy in which success in business depends on close relationships between businesspeople and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth.



It has been suspected all along but it is now a matter of public record that AIG, under the direction of the U.S. government, used their TARP money to bail-out other financial institutions:

The Federal Reserve Bank of New York said Tuesday that it had no choice but to instruct American International Group last November to reimburse the full amount of what it owed to big banks on derivatives contracts, a move that ended months of effort by the insurance giant to negotiate lower payments.

Fed officials offered the explanation in a rare response to a media report after Bloomberg News said that the New York Fed, led at the time by then-President Timothy F. Geithner, directed AIG to make the payments after it received a massive government bailout. The officials said AIG lost its leverage in demanding a better deal once the company had been saved from bankruptcy.

Lawmakers and financial analysts critical of the payouts say it amounted to a back-door bailout for big banks. AIG, the recipient of a $180 billion federal rescue package, ended up paying $14 billion to Goldman Sachs over months and $8.5 billion to Deutsche Bank, among others. Before the New York Fed intervened, AIG had been trying to persuade the firms to take discounts.

The precise cost to taxpayers of these decisions is difficult to determine. Bloomberg, quoting an industry source, reported Tuesday that AIG was aiming to pay just 40 percent of the $32.5 billion it owed to the banks. Using those figures, the report concluded that the government needlessly overpaid $13 billion.

Capt. Ed is correct in calling this a money-laundering service with as little transparency as possible.

Recall the pitchfork-wielding mobs Congress was attempting to muster and the outrage they were eliciting over the AIG bonuses.

And recall it is the two-time tax cheat, Tim Geithner's very Treasury Department that is going after the “sheltered” money of U.S. taxpayers in overseas and Swiss bank accounts in an attempt to make them "pay their fair share".

Please keep that term “crony capitalism” and all the lessons we’ve learned together from Tales from Bailout Nation in your back pocket the next time you here someone rail on about the failures of capitalism.

Tales from Bailout Nation Pt. IXX

Above almost anything else, capitalism relies on the rule of law. When the laws are broken, bent or ignored by the very people commissioned to regulate free enterprise activity, you have the potential for the crony capitalism that existed between the housing industry and Congress and for which was largely responsible for the giant meltdown that resulted.

B-Daddy is wondering why a hugely important judgement that was handed down yesterday and which seeks, in part, to restore accountability and the rule of law has not received more media coverage. The details here.

Tales from Bailout Nation Pt. IX

Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times.

(italics, ours)

“S”-word, “F”-word, “C”-word…. whatever – we said we weren’t going there but, man, its tough.

But the judgment would be made in the context of the wider economic interest. He said the government had three basic tests. It needed first to “make sure the system is stable”. Second, to not create “incentives for more deleveraging which would deepen the recession”. Third, to make sure the system had enough capital to “provide credit to support the recovery”.

Again, we don’t recall any 3-step plan included in the TARP program - our bad. We thought it was originally to buy up the toxic assets the banks were holding and then, well…. then it became an effort to recapitalize the banks because they weren’t lending to one another. And now the two-time tax cheat gets to decide who can and cannot give their money back and, in effect, pick the winners and losers in this great big financial wheel of fortune.

We don’t want to go conspiracy theory on anybody here, but even supposing Geithner and his gang were the absolutely most honorable and smartest people on the planet owning unparalelled foresight and even the ability to see around corners, we’d still be highly skeptical of this whole plan. But they’re not. They’re human - susceptible to mistakes and shortcomings…. and worse, susceptible to influence, graft and corruption – a road we’e already travelled down with Congress and which was largely responsible for getting us into the very mess we’re in right now.

Then again, maybe we’re just over-thinking this and it’s all really as simple as this.

Quickies: the "junk" edition

A round up of news items, columns and blog posts that caught our attention this past week.













Once again, the Taiwanese, of all people, provide a summation of the American cultural zeitgeist:







Charles Krauthammer on the new TSA screening procedures? Not a big fan:

Don't touch my junk is the anthem of the modern man, the Tea Party patriot, the late-life libertarian, the midterm election voter. Don't touch my junk, Obamacare - get out of my doctor's examining room, I'm wearing a paper-thin gown slit down the back. Don't touch my junk, Google - Street View is cool, but get off my street. Don't touch my junk, you airport security goon - my package belongs to no one but me, and do you really think I'm a Nigerian nut job preparing for my 72-virgin orgy by blowing my johnson to kingdom come?

And David Harsanyi on the General Motors IPO? Yeah, not a big fan either.

Oh, good, the Obama administration has another imaginary victory for taxpayers to celebrate.

As you've probably heard, there's quite a bit of hubbub surrounding the news that the administration's car company is going public.

President Barack Obama tells us that General Motors' IPO is proof that one of the toughest tales of recession "took another step to becoming a success story." Not "survival," but success. Taxpayers are going to make a profit, even!

Now, admittedly, success is a malleable concept. If by success we mean that General Motors still owes the government $43 billion — not including that piddling $15 billion it borrowed to fund its financial arm — with many analysts uncertain that it can ever flourish, we're home free.

Success will mean temporarily setting aside the fact that the Treasury actually lost billions on the IPO as it "bought" GM stock at inflated prices. To break even on the freshly printed money taxpayers are "getting back" will probably mean GM needs to double in value over the next year to make us whole.

$9 billion to be exact.

So, Team O strong-arms secured creditors and bond holders, shoving them behind the unions at the bankruptcy buffet, they lie about how they are paying off the TARP loan, lose billions on the IPO and their "star" attraction is an expensive, yet heavily-subsidized lemon that no one wants. Yep, highly successful all around.



Iowahawk pens some new lyrics to a classic standard:




And you know who else hates the new TSA rules? TSA screeners, naturally.

"It is not comfortable to come to work knowing full well that my hands will be feeling another man’s private parts, their butt, their inner thigh. Even worse is having to try and feel inside the flab rolls of obese passengers and we seem to get a lot of obese passengers!"

Not doing much for morale.

"Molester, pervert, disgusting, an embarrassment, creep. These are all words I have heard today at work describing me, said in my presence as I patted passengers down. These comments are painful and demoralizing, one day is bad enough, but I have to come back tomorrow, the next day and the day after that to keep hearing these comments. If something doesn’t change in the next two weeks I don’t know how much longer I can withstand this taunting. I go home and I cry. I am serving my country, I should not have to go home and cry after a day of honorably serving my country."

We've said it before but without exception, TSA screeners have been the epitome of professionalism and efficiency in our travels around the country since 9-11. Homeland Security leadership would do well to rethink the current screening policies as they are accomplishing nothing but pissing off the public and providing a disincentive to any effective screening that is performed.





Is Chris Christie a "true conservative"? Shane Atwell does yeoman's work in breaking down an otherwise assertion made by Conservative New Jersey, here.

Thin slicing: Him cheezing off the right people should count for something, right?





And finally, B-Daddy on the Republicans' unity with respect to earmarks:

Now this is in fact a small, but symbolic victory. I have always felt that earmarks were "the gateway drug" to Congressional wasteful spending. This is only a rule that governs Senate Republicans, but it gives them a moral advantage over the Democrats in the Senate. Further, it shows that the Republican establishment can be made to listen. Until Monday, McConnell had been opposed to ending earmarks, but he realized that in these times, it was important to listen to the voters.

Amen.

Tales from Bailout Nation Pt. XXIX

Do you remember when they told us that if we voted for McCain it would mean at least 4 more years of Jesus Land in the White House? Well they were right.

At least $140 million of the $787 billion stimulus package was directed to "religiously inspired" groups, Politico reports, making the Obama initiative "the largest-scale embodiment of what was, not long ago, a conservative priority: directing tax dollars to 'faith-based initiatives.' " While the stimulus was initially attacked for being "anti-religious," a Politico investigation finds that a significant amount of money went to groups associated with religious organizations, including charities and the secular arms of churches. (Politico didn't include universities and hospitals with religious affiliations in the study). The money, which came from agencies like the Departments of Agriculture, Education, and Energy, went to programs for school lunches, energy-efficiency, and education, among other things. To make sure faith-based organizations got the money, federal agencies also launched an "aggressive" outreach campaign to educate groups about how to apply for the funds and to ensure that state officials gave it to them. While Obama has been alternately praised and criticized for taking "what President Bush did and [expanding] it," White House officials maintain that funding faith-based groups isn't part of a political strategy. "Part of our job is to ensure that there's a level playing field—we don't encourage anyone to favor faith-based groups over other organizations, but we do want to ensure that there's no discrimination against faith-based organizations," said administration official Joshua DuBois.

To head off the inevitable yet fair question: Yes, we were opposed to Bush's faith-based initiative program as well.

Charities, whether faith-based or not, would appear to operate more efficiently and be better structured to pursue their ends free of government entanglement.

Unfortunately, we were unable to link to the Politico story and while the SLATE piece does not suggest anything untoward, what is to keep the government from attaching conditions to their hand outs in the future?

Tales from Bailout Nation

So, what was it we were saying about crony capitalism and economic fascism?

Check out the chart below that breaks down those corporations that will be subject to the so-called bank tax and those that won't.



Two undeniable trends emerge: 1) the corporations that have actually paid back their TARP funding (some with interest) will be subjected to the tax and 2) government sponsored entities, Fannie and Freddie, and corporations in which the government is a vested party, Chrysler and General Motors, are exempted.

A third trend which may or may not be obvious from the chart is that the administration has chosen to publicly demonize those corporations that will be taxed in a manner to justify that tax to the exclusion of the non-taxed gang of four.

Bailout Nation is all about picking winners and losers and it is necessary for the losers to be flogged publicly for the benefit of a blood-thirsty electorate bent on seeking revenge for the country’s economic woes.

The sort of manipulative exploitation practiced by Hitler and Mussolini isn’t all that different from what we are seeing today from people like Hugo Chavez and right here in the good ol’ US of A.

Tales from Bailout Nation Pt. XIV

... is starting to stretch our knowledge of Roman numerology.

Q: You've been quite critical of the Treasury. What troubles you most about what you're getting and what you're not getting?

A: There's no discussion of the overall policy. Instead, there are specific programs that are announced, and from that, it's necessary to reason backwards to figure out what the goal must have been. It's like a "Jeopardy!" game. If this is the answer, what was the question? It's frustrating because without a clearly articulated goal and identified metrics to determine whether the goal is being accomplished, it's almost impossible to tell if a program is successful.

Q: Do you have a clear sense of what the overall TARP plan at this point is supposed to do? Are you capable of summarizing what it's supposed to be doing?

A: No. And neither is Treasury. Treasury has given us multiple contradictory explanations for what it's trying to accomplish. There's a major problem and a minor problem. The minor problem is documentation. I've spent four weeks now looking for someone who can give me the details of the stress test so that we can do an independent evaluation of whether the stress test is any good.
We get: "someone will call [you] right back." Only the call doesn't come.
The major problem is that Treasury has not articulated its goals. And without that, we can't have a robust debate about whether they're headed in the right direction; instead, we're stuck with this more technical argument about the implementation of the [Term Asset-Backed Securities Loan Facility] or the details of the Capital Acquisition Program. And that misses the central question of, should we be subsidizing failing banks or liquidating them? When we acquire capital, should we exercise more control over the institutions that take the money or less control? Those are the central policy issues that the American public has a right to participate in.

This from some right-wing crank or Tea Party type whose got its panties in a wad over the vague nature of the TARP program? Nope. The “A” in question is from one Elizabeth Warren who was appointed chair of the newly created Congressional Oversight Panel which is charged with keeping tabs on the $700 billion worth of TARP funds.

More here.

Tales from Bailout Nation Pt. XXIV.5

When we blogged a few days ago about Fannie and Freddie regulator, Armando Falcon's, testimony before Congress with respect to the attacks unleashed upon him by those GSEs when he had the temerity to suggest that those two GSEs might be on some questionable financial footing because of loose lending practices and Enron-like accounting practices, we left out a minor detail, though, it's one that should not surprise you if you've been a regular reader: Fannie and Freddie are still going to require a wee more bit o' cash.

A pair of former regulators who oversaw Fannie Mae and Freddie Mac told a panel Friday that the two government sponsored enterprises - which taxpayers have already bailed out to the tune of $125 billion - will likely need even more aid.

Their testimony came on the third and final day of this week's Financial Crisis Inquiry Commission hearings on securitization and subprime lending. The panel tasked with determining the factors that contributed to the financial crisis.

Armando Falcon and James Lockhart, former directors of the Office of Federal Housing Enterprise Oversight, said the price tag for taxpayers would almost certainly climb, as Fannie Mae and Freddie Mac to draw on their credit lines.

And how much more tax-payer cash are Fannie and Freddie going to require? Does it matter? Let's hit the way-back button to this past Christmas Eve, yes, Christmas Eve when Treasury boss and two-time tax cheat, Timothy Geithner, effectively removed the cap on how much more money could be poured into Fannie and Freddie.

The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.

It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.

Fannie and Freddie are still holding these toxic assets and not only is there not any incentive for them to shed them so we can begin a true recovery in the housing market there is not any incentive for them to continue bad lending practices.

Why we are even bothering holding these hearings is a mystery to us.

Tales from Bailout Nation Pt. VII

Like ripples extending from the splash-down of a rock in the water, the (un)intended consequences of Bailout Nation keep growing and growing with more and more dubious outcomes.

Financial experts say the perception that the government will backstop certain losses will actually encourage some firms to take on even greater risks and grow perilously large. While some financial instruments will come under tighter control, others will remain only loosely regulated, creating what some experts say are new loopholes. Still others say the regulation could drive money into questionable investments, shadowy new markets and lightly regulated corners of the globe.

In congressional testimony last month, Treasury Secretary Timothy F. Geithner laid out the principles of the administration's proposals. He called in part for designating a federal agency that would be responsible for identifying financial companies whose failure could endanger the wider economy and for giving the government greater authority to wind down troubled financial firms. He also proposed new regulations for hedge funds, venture capital funds and private-equity funds, as well as for complex financial instruments known as derivatives.

In reality, how is this any different to what got us here in the first place? Instead of Congress manipulating the housing market to achieve artificial goals and political ends, this function is now merely entrusted to the Treasury Department under the direction of the two-time tax cheat.

It won't be the market that dictates the winners and losers but rather a political appointee.

The very crony capitalism we saw destroy the market is being repeated on a much grander scale.

Yep, we’re in good hands.

Tales from Bailout Nation (cont.)

.

... or how green energy loans are like steak sauce.




The ranks of Department of Energy green loan failures continue to mount.

A geothermal energy company with a $98.5 million loan guarantee from the Obama administration for an alternative energy project in Nevada — which received hearty endorsements from Energy Secretary Steven Chu and Senate Majority Leader Harry Reid — faces financial problems, and the company’s auditors have questioned whether it can stay in business.

Much like Solyndra LLC, a California solar-panel manufacturer with a $535 million federal loan guarantee that went bankrupt, Nevada Geothermal Power (NGP) has incurred $98 million in net losses over the past several years, has substantial debts and does not generate enough cash from its current operations after debt-service costs, an internal audit said.

“The company’s ability to continue as a going concern is dependent on its available cash and its ability to continue to raise funds to support corporate operations and the development of other properties,” NGP auditors said in a financial statement for the period ending March 31.

“Consequently, material uncertainties exist which cast significant doubt upon the company’s ability to continue as a going concern,” the statement said.

(italics, ours)


So, we are being told that NGP's ability to continue as a going concern is dependent upon factors other than actually turning a profit. Good to know.

Mr. Reid, a Nevada Democrat who led passage of the $814 billion stimulus bill and worked to include the loan guarantee program to help finance clean-energy projects, predicted in 2010 that NGP would “put Nevadans to work” and declared that Nevada was the “Saudi Arabia of geothermal energy.”

Comparing your state to a country that hands out checks to its citizens because of all that oil they're sitting on begs the question of why NGP would need tax-payer assistance in the first place.



Cue the evil Republicans:

But Rep. Jim Jordan, Ohio Republican and chairman of the House Oversight and Government Reform subcommittee on regulatory affairs, stimulus oversight and government spending, is concerned about NGP’s finances and the timing of the loan guarantee.

“The company was in danger of defaulting on its financial obligation, and the [Department of Energy‘s] assistance served as a de facto bailout,” Mr. Jordan said. “After receiving a taxpayer-backed $98.5 million loan guarantee, the company is still struggling.”

He said the loan guarantee “essentially served to prop up an already-faltering firm.”

We thought the following was of particular interest:

Mr. Jordan said the Energy Department handed out more than 20 loan guarantees to companies with an average credit rating of BB-, or “junk status,” meaning they were vulnerable to default if economic or business conditions changed. NPG was rated BB+, which is considered speculative or junk and a step below investment grade.

Mr. Jordan and Mr. Issa have questioned why taxpayer money was “put at such risk.”

That pretty much sums up why this DOE green loan program is such a disaster. Where you wouldn't waste a wooden nickel of your own scratch on junk-rated investments, the DOE, because it has no real skin in the game - it's not like it's coming out of their hide, is more than willing to pour billions of tax-payer dollars down the drain.


The next time you hear the President drone on about "investing" in the future with respect to clean/green energy, recall the rule our chow hall table captain laid down during our first year at Seminary regarding his ban on steak sauce: "Good steak don't need it and bad steak don't deserve it."


.

MAXED OUT: 8 beers a week

Hey, what can we say - last month's time change has everything a little screwy so we're bumping MAXED OUT back to its original Thursday afty time slot. We're slaves to ratings - sue us!

A good day to you all my hop loving heroes, and what a magical day it is! I’m in a good mood and feel like sharing some delightful tales of the hop vine with you. This week, I’m going to tell you what beer to drink Monday through Sunday, and while some of you are 9-5ers and some of you have random schedules, I probably have the best/worst schedule out of everyone on this forum as I work until midnight most nights, but how I’m going to work this in on a standard 9-5, Monday thru Friday schedule. So, adjust accordingly, you crazy kids. Let’s rock this Casbah!



MONDAY

Let’s face it, Mondays suck. You just got back from Vegas, hung out with the wife and kids all weekend, partied till 3 a.m. or just did chores all weekend, but it never fails. They’re called the Mondays for a reason. For this reason, I recommend a beer that will kick you in your teeth, something with high alcohol content and one that won’t take it easy on your pallet as the day most certainly hasn’t taken it easy on your nerves. How about a Barleywine? Yes, this is a style of beer despite its name. It is a big (typically between 10 & 15% ABV) beer, often sweeter on the spectrum of beers and typically has fruity notes. Don’t get me wrong, there is nothing sweet about this beer when it comes to being a cuddly little hop friend. Typically, amberish in color and can often be cellared for years and tends to age very well. This is a beer for after dinner, after the dishes are done, the kiddies are in bed and you’re laid back in your Lay-Z-Boy, feet up and Letterman is on the boob tube. My personal favorite is Old Numbskull from Alesmith Bewery, an 11%er with caramel notes and a yeasty mouth feel. Most Barleywines pair well with most fruity desserts, so grab yourself a slice of cheesecake and enjoy this beast of a beer.



TUESDAY

Tuesdays are just those blah days that never seem to go anywhere. Nothing really amazing happens at work, you still have three more days to go before the weekend and everyone is jonesing to get home and see what’s on TV. Booooooring! So, let’s spice things up with a nice Belgian Tripel, shall we? We’ve talked about these beers before, and next week I will be talking about my favorite Tripel, but let’s just go with it. I’m going to go with one of my favorites, La Fin du Monde, a French Canadian beer (yes, the French and Canucks actually did something awesome for once) from Unibroue out of Quebec. At 9% ABV, this beer is spicy, sassy, and delicious. While it is technically a Tripel in style, I have always said that this beer is actually my favorite Blonde out there. Pairs well with a pork and chicken, so I say make yourself some kinda garlic chicken delight, perhaps even Thai. Tuesdays are so meh that I’m not even going to end this paragraph with some witty comment. MOVING ON!




WEDNESDAY

HUMP DAY! Who doesn’t love the day of hump(ing)? It’s half way through your work week and I say it’s time to celebrate with happy hour. Oh, who am I kidding? Every day is cause for happy hour in my opinion. But Wednesday especially. Wednesdays should be the day of Witte beers so you can pound em down and not wake up the next day hating your Thursday. Ommegang Witte would be my recommendation since it’s only 5.1% ABV and rather tasty. Wittes tend to have notes of clove and banana, are smooth and easy drinking. Pairs well with spicy fair so get yourself to some kind of Indian restaurant (dots not feathers) and slam a few of these bad boys while hitting up some Curry. If you live in the Bay Area do yourself a favor and look up Kennedy’s Irish Pub and Curry House as they often have a decent selection of Ommegang and some damn tasty Indian food. WITTE BEER WEDNESDAYS! I’m trade-marking that one, kids. Who’s coming with me?



THURSDAY

One more day to go till the weekend, but haven’t you heard? Thursdays are the new Fridays! Get ready to start your weekend right and knock back a couple of Pale Ales. We don’t want to ruin the rest of the weekend by over doing it, so a lighter version of the IPA is the way to go. Green Flash’s 30th Street Pale Ale is a 6% HOPPY Pale Ale brewed in a delightful San Diego native brewery and is readily available in 6 packs and on draft throughout the county. The IBUs are quite crazy for being a Pale Ale, shooting close to the 90s, which is unprecedented for a Pale Ale. Have I mentioned that this is a Pale Ale? Just take the I out of the IPA and you have yourself a Pale. Pairs well with just about anything, so go grab some din-din with the Mrs./Mr. and have a few Pales for your Thursday night brew. Just do it, don’t ask questions.



FRIDAY

HOPPY FRIDAY! It’s IPA day! Of course I’m going to pick my favorite beer style for my favorite day of the week, silly buns. Grab a Ballast Point Sculpin, Firestone Union Jack, Bear Republic Racer 5…. Just order a damn IPA for god sakes. Heck, make it a pitcher, it’s Friday!



SATURDAY

Pace yourself today, kiddos - it’s a long day and you don’t need to go too crazy too early. Pilsners/Lagers are perfect Saturday beers, whether you’re doing yard work, or down at the pub, Pilsners tend to be lighter on the ABV (3.5-6%) and are very sessionable beers. Samuel Adams Noble Pilsner is a Czech style Pilsner, light, dry crisp and refreshing, and at 4.9% ABV is a very sessionable beer, perfect for a warm summers day at a beach side bar and grill. Pilsners go with just about everything, so grab some oysters on the half shell, a couple fish tacos and take out a 6 pack of these bad boys to get your Saturday off on the right foot. Is it Saturday yet?



SUNDAY

The most bitter-sweet day of the week. Work is just around the corner as you hold on to every last minute of God’s Day, so treat yourself with something good. Just have a few, start early, go big (ABV that is) and finish it off with a night cap (A nice Manhattan up always does the trick for me.) For Sundays, I’m going to go with a Double IPA, maybe make a trip out to Alpine Brewery, get yourself a pulled pork sandwich, fill the growler with Exponential Hoppiness and treat yourself and a friend. At 10.75% ABV, this delicious brew is a perfect way to finish off the weekend in style. Exponential pairs well with ANYTHING because you won’t be able to taste your food after this F-16 bombs your mouth with flavor. But hey, it’s Sunday, God would want you to.


Well, that about wraps up this week’s edition of MAXED OUT! Sorry it’s a day late, I was slacking yesterday and didn’t get it to the Chief in time. Next week will be promptly up at 4:30pm on Thursday, so join me as I get back into my top 10 beers of all time. You guys are awesome, thanks for joining me again and as always feel free to leave a comment or suggestion for a topic I should cover on Facebook, at maxamilliondollars@gmail.com, or in the comment section below.

Until next time my beer loving brethren, have a beer for me.

(ed. note: Sunday, particularly Sunday afternoon growing up as a kid was always filled with a sense of existential dread as we faced down the reality of being sent back to the mental gulag of California's public schools the following day. Perhaps if we were allowed to hammer back a few Exponential Hoppiness bombers, it would've eased this anxiety. We're not condoning under-age drinking. We're just sayin'...

Also, re: "sessionable". We believe what Max means by that term is that you can drink a lot of them, as in, "We plowed through a twelve pack of that stuff in one session.")

Tales from Bailout Nation

So what’s it called when lending institutions make loans to people without the necessary collateral or cash flow to pay off the loan? Of course, we all know that this is called a “sub-prime loan”.

So what has GMAC, the “financing affiliate” of General Motors (which received money from the federal government so it could qualify as a bank holding company so it could in turn…. receive more money from the federal government via the TARP program to the tune of $6 billion) done with all that just-referenced jack the feds have thrown at them:

The New York Times reports that GMAC has begun making loans to borrowers with credit scores as low as 621, a significant relaxation of the 700 minimum score the company adopted just three months ago as it struggled to survive. America's median credit score is 723. GMAC's lowered standards will increase the number of people eligible for its loans by an estimated 50 million.

You just can’t make this sort of stuff up in the Bizarro World of Bailout Nation. You read that correctly. The very lending practices that have buried us under the mess in which we currently reside is being repeated… with a vengeance… but this time as underwritten and tacitly encouraged by the federal government.

And this mere single star among a constellation jaw-dropping you-won’t-believe-this bailout stories, illustrates perfectly the increase in malfeasance, incompetence and all-around bad acting when the government becomes more involved in the private sector rather than less involved.

In a more perfect world, an institution that is this reckless with its own money would be allowed to fail. In Bailout Nation, however, not only is reckless behavior forgiven, it is rewarded and then doubled-down with your tax dollars as a certainty that the sinking ship of GMAC won’t be allowed go under.

A vicious cycle with no end in sight.

H/T: George Will

Tales from Bailout Nation Pt. VI

President takes aim at execs' high pay:
New restrictions for those at firms seeking bailouts

Well, that’s a headline that just a year ago we never thought we’d see.

In his newly expanded role as CEO of Wall St., the President will be calling the shots with respect to salaries, perks and bonuses.

In announcing new executive pay limits yesterday, President Barack Obama is trying to hold the financial industry accountable to taxpayers while aiming to change a corporate culture that endorses bonuses and perks that often bear little relationship to corporate performance.

"This is America,” Obama said yesterday. “We don't disparage wealth. We don't begrudge anybody for achieving success. And we believe that success should be rewarded.
“But what gets people upset – and rightfully so – are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.

We’re highly dubious of that first statement by the President and the second contains the hypocrisy that has so infuriated us in the first place regarding the financial bailout: bad behavior is rewarded by the federal government and it’s rewarded in corresponding degrees to that bad behavior.

Even Chris “Onions” Dodd gets into the act:

“There is absolutely no reason why hardworking American taxpayers should be financing, directly or indirectly, excessive compensation for corporate executives whose decisions, in many cases, have crippled their firms and weakened the broader economy,”

This, from a guy who received a sweetheart deal from Countrywide mortgage and who was at the epicenter of the subprime meltdown as chairman of the Senate Banking Committee. Again, how this guy is able to waddle around Capitol Hill dropping incredulous statements such as that, is a testament to the current state of modern medicine and our health care system that is so maligned.



And in other news today, Wells Fargo scrapped their plans to lavish their top performers with a trip to Vegas for a 12-day romp of bacchanalian proportions… and that’s too bad. We say it’s too bad because we put Wells Fargo in a somewhat separate category from the rest of the bailout bandits.

Recall last October when this whole thing first went down and 9 of the largest banking institutions were made an offer they couldn’t refuse. Wells Fargo, at first, declined the bailout money… afterall, they were doing OK and didn’t need any taxpayer money. As we all know now, however, when you are trying to create a climate of fear, you just can’t have an institution like Wells Fargo out there serving as a model of probity and soundness – that would indeed be downright un-American where we don’t disparage incompetence and we don’t begrudge abject failure – so at figurative gunpoint, Wells took their $25 Bil and went on their way.

But now, even though they initially resisted they are just another one of Geithner’s bitches. If they had played this right, they would’ve taken that $25 Bil and set it aside in an escrow account never too be touched. And when their new CEO, CFO and board of directors in Congress came calling with respect to executive compensations and this particular trip to Vegas, they would’ve been able to respond:

“Mr. President and CEO, the $25 billion plus interest is there in that bag by the door. Please take it with our warmest regards and wishes. As you can see, we’re quite busy right now putting the finishing touches on our Vegas trip which will be a romp of bacchanalian proportions and which will reward our hard-working employees who have managed to not goon things up like the employees at our competitors’. So, with all due respect, sir, please see yourself, the two-time tax cheat and “Onions” to the door and don’t let it hit you in the ass on the way out”.

At least that’s what would happen in an America that could be… or once was... or something.

Tales from Bailout Nation Pt. VII

The bankers struggled to make themselves clear to the president of the United States.

Arrayed around a long mahogany table in the White House state dining room last week, the CEOs of the most powerful financial institutions in the world offered several explanations for paying high salaries to their employees — and, by extension, to themselves.

“These are complicated companies,” one CEO said. Offered another: “We’re competing for talent on an international market.”

But President Barack Obama wasn’t in a mood to hear them out. He stopped the conversation and offered a blunt reminder of the public’s reaction to such explanations. “Be careful how you make those statements, gentlemen. The public isn’t buying that.”

“My administration,” the president added, “is the only thing between you and the pitchforks.”

The leader of said unruly mob would be just the person to make that statement and to offer that guarantee.

Tales from Bailout Nation Pt. XIII

Patronage is the support, encouragement, privilege and often financial aid that an organization or individual bestows to another. In some countries the term is used to describe political patronage, which is the use of state resources to reward individuals for their electoral support.

Since Congress passed President Barack Obama’s $787 billion economic stimulus bill in February, administration officials have traveled to at least 66 events across the country to tout the massive spending program or hand out stimulus cash to grateful local officials.

But a POLITICO examination of the travel reveals a distinctly political trend line: Top officials have hosted events predominantly in states that Obama won in 2008.
What’s more, the examination revealed that Obama officials all but avoided Southern states that Obama lost.

What should not surprise anyone anymore is the notion that porkulus had anything to do with actually creating (or the Administration’s favored fallback term “saving”) jobs. Enough time has elapsed so that the numbers reveal what we’ve been saying all along: this was about political payback and jumpstarting the Great Society II and nothing else.

Tales from Bailout Nation Pt. XXIV... and quote of the day

"we encountered more difficulty and delay. Fannie's lobbyists were on the Hill spreading misinformation about my motives and asserting that the special exam was unnecessary."

That from Armando Falcon, a former regulator at the Office of Federal Housing Enterprise Oversight (OFHEO), the GSE watchdog who was testifying before the Financial Crisis Inquiry Commission regarding Fannie Mae. Falcon further testified that whenever faced with a report with negative connotations about the company, Fannie's supporters would launch an assault on OFHEO -- from a full investigation of the group to demanding Falcon's resignation.

Now, they wouldn't have done such a thing now would they? And why does that name, Armando Falcon, ring a bell? Why, yes. Why, yes, indeed. Falcon was made an absolute whipping boy back in 2004 during congressional testimony when he testified to Fannie Mae's illegal accounting practices.

From the interweb archives, one of our favorite videos of all-time: for your viewing and keeping-the-record-straight pleasure, it's Lacy Clay (D-MO) throwing out racially-charged grenades and Maxine Waters extolling the virtues of zero down loans and the total awesomeness of Franklin Raines.



Exit question: How is it that Franklin Raines is walking around a free man, right now?

Video of the Day

Mongo passed this along to us as a palate cleanser for the 2 weeks of Michael Jackson inanity.

If the embed is not working, please click here.



We were in the car with our college roomie, Jonesy last fall as we were making
our way back to Philly from State College, PA and the Penn St./Illinois
game. Jonesy loves regaling us with tales of all things Philly, Penn St.,
Joe Paterno and Pennsylvania in no particular order though St. Joseph ranks
near the top.

Anyway, as we were making our way through the rolling
farmland of central PA he told us that the Department of Defense tracks the
geographic regions where they have had the most success in recruiting and
the regions in this country from which the most Congressional Medal of Honor
winners have hailed. And wouldn't you know it, central PA was at the top of the list.

Seemed to make sense to keep tabs on such things as apparently there are
some parts of this country where the timber of the men and women residing
there is just a bit different than the rest of the country. After viewing
this video, we’re going to ask Jonesy where Henry County, GA ranks.

Hunker down, y'all.

Tales from Bailout Nation (cont.)

50 years of progressive rule, a $60 billion bailout of of General Motors and Chrysler and the $800 billion 2009 American Recovery Act (aka Porkulus) have brought us to this point:


From Businessweek.com:

With $320 million of federal, state and private aid in hand, top White House officials came to Detroit and vowed to help the bankrupt city fight crime, improve mass transport and eradicate blight.

The money is mostly grants from federal or state programs for which the city is qualified, or for which it needed red tape cut to speed access. Some is expected from private businesses and philanthropy groups. President Barack Obama also has appointed Don Graves deputy assistant secretary of the U.S. Treasury Department, to oversee Detroit’s recovery, said Gene Sperling, director of the National Economic Council.

“We only have one goal, and that is to have all of Detroit working together for one Detroit, with the Obama administration as a key partner,” Sperling said today.


The city, once an auto-manufacturing powerhouse, declared the largest U.S. municipal bankruptcy in history on July 18 after years of decline in which its population fell by more than half, to 700,000 from 1.8 million. The city has more than $18 billion in long-term obligations and is plagued by unreliable buses, broken street lights and long waits for police and ambulances.

(italics, ours)


It would appear that Detroit will be "saved" by some other rationale than "too big to fail".


Make no mistake about it: Detroit being the model progressive city ruled for years by a collective of statists and public employee and private labor unions, this administration will throw their political capital and your tax dollars to whatever extent they can, not necessarily to save Detroit but to salvage a failed ideological model.



Did we say public employee unions? Why, yes we did...


Here's Megan McArdle writing for Bloomberg.com:

I’m rarely speechless, but I’m having trouble putting my emotions into words after reading the latest report on the Detroit pension situation. Now, I admit it: I’m kind of naïve. Usually when I see an underfunded pension, I think to myself “poor pensioners -- undone by a combination of stupid tax rules, volatile stock markets and mismanagement by trustees who tried to restore depleted fund assets with an investment approach you might call ‘desperate optimism’." Thus, I was not entirely prepared for the new revelations about the Detroit trustees’ custom of handing out annual holiday “bonuses” to workers, retirees and the City of Detroit. Between 1985 and 2008, they handed out roughly $1 billion this way. Had they been invested, one estimate says those funds would be worth almost $2 billion today -- or more than half the current shortfall in the funds.

These “bonuses” were used to lower the contribution the city was required to make, to give retirees a little something extra around Christmas time, and to fund individual savings accounts that workers are offered along with their pensions. In 2009, when the financial markets were completely frozen and the automakers were shotgunning through the bankruptcy courts, the pension trust paid 7.5 percent interest into those accounts -- which is about 7.5 percent more than they would have gotten at a bank. This while the pension funds were busy losing about a quarter of their value.

(italics, ours)


Color us naive, as well. That money that was used to cover the city of Detroit's contribution shortfalls had to come from somewhere, right?


Well, now it looks as if it's coming from yours and our pocketbook. Fancy that.


Remember, this isn't about saving Detroit rather saving face.

Tales from Bailout Nation: the apocalypse edition

“Our jaws are literally dropping as we’re reading this,...every one of these transactions is outrageous.”

So, what would you say to a TARP-receiving Wall St. exec making $800,000 accepting zero dollars in the way of bonuses? You might look at that salary and think that was mighty big of that guy but that you were greatly appreciative just the same of that symbolic gesture considering all the other shenanigans going on with Wall St. bonuses.

Then what would you think if ol' boy in 2009 purchased a 107-year-old limestone carriage house on the upper east side of New York for $13.5 million? You might say that perhaps this guy had some spare change setting between the seat cushions in order to make this purchase. No biggie.

But then what if we told you that instead of his own money, he possibly used that of his wife who along with her girlfriend received $220 million from the Feds for their start-up investment firm Waterfall TALF Opportunity?



Sunshine laws passed last year have thrown the door open and have shed light onto just how dirty the dirty Fed may be. We apparently have two budgets: one that's on the books and the other that's off the books. One with which you are familiar with income via taxes and expenditures via aircraft carriers and Social Security payments and the other that is giving out hundreds of billions in near-interest-free loans only to be lent back to the Treasury Department at 3%.

This whole setup — in which millionaires and billionaires gambled on mountains of dangerous securities, with taxpayers providing the stake and assuming almost all of the risk — is the reason that it’s insanely premature for Wall Street to claim that the bailouts have actually made money for the government. We simply can’t make that determination until the final bill comes in on all the dicey securities we financed during the bailout feeding frenzy.

Ditto for the housing market. What completely freaks us out is that Fannie and Freddie are still holding mountains of toxic assets that have not been allowed to be wrung out of the system. To say the housing market is making a rebound is folly until we unwind the entire mess.

Read the entire article here. And since it will appear in Rolling Stone, remember, it was all the Republicans' fault.

Tales from Bailout Nation Pt. VII

There's a growing sense among some bankers that Troubled Asset Relief Program known as "TARP" has become toxic. As a result, they want to bail out of the bank bailout program.
"It should be called 'TRAP,' not TARP," said Brian Garrett, chief executive of Bank of the Bay in San Francisco, who is trying to return bailout funding. "Giving it back is harder than getting it."

So much for all the free market vs. socialism theoretical hooey, we now are starting to achieve real empirical evidence for why Bailout Nation is such a horrible idea.

Garrett and other bank executives complain the Treasury's program to stabilize banks during these turbulent times is actually weighing down their potential for growth.

They're especially concerned the limits on executive compensation - imposed in February, four months after Treasury starting sending out checks - could make it difficult to hold on to star talent who may jump to financial institutions that are not receiving any Government assistance.

"Things have changed since TARP was announced. The rules have changed," said Michael McMullan, CEO of the Bank of Florida, who withdrew his application for TARP funds Thursday. "We're going to need to attract and retain key revenue drivers and great bankers."

"The more restrictions that we are placed under from the Government, the less value we can deliver to our shareholders in the long run," said McMullan.

Goldman Sachs (GS, Fortune 500), Bank of New York/Mellon (BK, Fortune 500), Wells Fargo (WFC, Fortune 500), JP Morgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) - all 'mega-banks' that the government forced to take bailout money - say they want to return taxpayer funds "as soon as practical."

But, they're well aware no one will be permitted to return funds before completion of regulatory "stress-tests" of the major banks to determine how they would withstand a severe recession.

(italics, ours)

They can’t give the money back… even if they wanted to. And those bonuses over which everyone was so outraged - that was precisely the mechanism by which entities like AIG were going to retain their employees to help dig out of this mess but which is now evaporating into thin air as these employees don't need the hassle and don't need their neighborhoods cruised by union goon agitators.