NY Times Example of a Toxic Asset

by CalculatedRisk on 2/01/2009 10:32:00 PM

To date, the banks have stuck their heads in the sand and demanded that they be paid the price of good apples for bad apples.”Lynn E. Turner, a former SEC chief accountant.

Vikas Bajaj and Stephen Labaton provide us with an example of the different values for a toxic assets in the NY Times: Risks Are Vast in Revaluing Tainted Assets.

The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.

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Peacenik and everyone else have been talking a lot about "toxic assets". These are the things that are wiping out the globe's finances. This New York Times article is a good primer about what a toxic asset really is. Now Peacenik understands. Do you own any toxic assets? Do you have a bank account? Do you belong to a pension plan? Do you own any mutual funds? Do you breath? Every one is exposed to these toxic assets. When their true value is finally recognized, watch out. But our dear leaders continue to assure Peacenik all will be well. Maybe they know something Peacenik doesn't. Do you believe them?

Black Swan author's rules for living

Nicholas Taleb, gadfly author of The Black Swan, gives his 10 rules for surviving an unpredictable world with dignity."

1 Scepticism is effortful and costly. It is better to be sceptical about matters of large consequences, and be imperfect, foolish and human in the small and the aesthetic.

2 Go to parties. You can’t even start to know what you may find on the envelope of serendipity. If you suffer from agoraphobia, send colleagues.

3 It’s not a good idea to take a forecast from someone wearing a tie. If possible, tease people who take themselves and their knowledge too seriously.

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Peacenik is starting to get freaked out by Punditman's doomsday posts fluffed up with bits of feel good optimism. If Punditman keeps this up, Peacenik is going to jump out of his basement apartment window. Peacenik can't take much more. However Peacenik came across some simple rules for surviving. Surviving everyday life. Surviving going to work every day. And surviving Punditman turning into a doomer. Nassim Taleb is the author of the Black Swan. A Black Swan is a major event that comes as a complete suprise. Sort of like the global financial meltdown. September 11 was a Black Swan event. Tonight Peacenik will follow rule 2, inspite of mild agoraphobia. Peacenik will face Punditman. Face to Face. And Peacenik will survive.

The Second Stage: Another Real Estate Crisis is About to Hit

By PAUL CRAIG ROBERTS

For a picture of the US real estate crisis, imagine New Orleans wrecked by Hurricane Katrina, and before the waters even begin to recede, a second Katrina hits.

The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate--shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.

The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP.

Like the federal government, consumers spent more than they earned and borrowed to cover the difference. Obviously, this could not go on forever, and consumer debt has reached its limit.

Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans.

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punditman says...

Punditman hates to be a bearer of bad news, (lest he start to sound like the ever morose Peacenik). Punditman likes to think he is fundamentally an optimist and tries to see the good side of people and society and the innate capacity for creative action. However, he is also one who hates to have the wool pulled over his eyes, and there's a lot of wool pulling by elites in media and government at the moment. Unfortunately, there is also a glut of willful ignorance on the part of the populace, which does not bode well for anyone's short -and long-term futures.

Unlike Europe, where people are hitting the streets in a wave of discontent, North Americans remain cocooned in their insulated, shopping mall worlds, following their sports teams, driving around on cheap gas, playing video games, wasting bandwidth on chain emails and getting hammered on the weekends. I suppose it's better than staring down debt loads or shrinking retirement portfolios, or, increasingly, lost employment.

Thankfully, Paul Craig Roberts is here to sort through all the nonsense economics taking place behind the CNN curtain and to issue yet another wake up call. He also offers an alternative to the bailing out by taxpayers of financial criminals, gamblers and incompetents. This offers punditman a glimmer of hope—which makes punditman an optimist.

Obama Dismissing Yoo Torture Memo Case?

by Patriot Daily News Clearinghouse Thu Jan 29, 2009 at 08:19:14 PM PST

Politico reported yesterday that Obama’s lawyers are prepping to defend John Yoo next week by moving to dismiss a lawsuit filed by Jose Padilla. Padilla seeks a declaration that Yoo’s legal memos that purported to authorize torture were unconstitutional. Obama presumably does not plan to support torture or the torture memos. Instead, Obama may argue that the case should be dismissed in order to protect governmental prerogatives, like immunity for government officials acting within the scope of their employment or state secrets. While any of these defenses may have legal validity, what about protecting the public’s prerogative to the rule of law? And, does the US want to continue shielding our government officials from torture liability while prosecuting foreign officials to hold them individually accountable?

This is not a case of a government lawyer simply writing a legal memorandum that is based on convoluting the law. As reported by Vanity Fair (video interview), Bush’s torture lawyers --- Bush’s lawyer Gonzales, Yoo and Jay Bybee (now a federal judge) at Justice Dept., William Haynes DOD lawyer for Rummy, David Addington lawyer for Cheney --- advocated torture that violated international law, the Geneva Conventions, Common Article 3, the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment, the Army Field Manual and US laws. In other words, our government lawyers were advising Bush to violate the laws or commit a crime. Moreover, while the Bush meme is that the source of new torture techniques "trickled up from the ground at Guantánamo" to DC, it appears that the "origins lie in actions taken at the very highest levels of the administration—by some of the most senior personal advisers to the president, the vice president, and the secretary of defense." Further, these torture lawyers participated in ensuring that torture was implemented by flying down to Guantánamo to pressure the military to torture after witnessing "interrogations".

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Its bad enough, as Punditman has posted, that Obama is prosecuting Bush's wars. Peacenik wants to cut Obama some slack. Peacenik understands that its tough to stop a war in its tracks. But, if Obama's justice department starts defending Bush's accomplices, it kind of makes Peacenik want to ralph. Its almost the weekend. Peacenik doen't like ralphing. But come on. Give Peacenik a break.

Stop Rearranging Deck Chairs on the Titanic and Nationalize the Damn Banks

By Joshua Holland, AlterNet. Posted January 30, 2009.

It's the best possible course to rescue our economy at this point; all the other options would be disastrous.

The painful but unavoidable reality of the financial crisis is that every dollar spent trying to prop up a failing bank is just good money thrown after bad; a taxpayer rip-off, short and sweet.

But in Washington, many are trying to avoid that fact nonetheless. Economist Paul Krugman wrote that the political establishment has "become devotees of a new kind of voodoo [economics]: the belief that by performing elaborate financial rituals we can keep dead banks walking." Goldman Sachs' economists estimate that those rituals might cost up to $4 trillion to perform.

It's time that the government stops flailing around with piecemeal bailouts and loan guarantees, takes over these institutions -- takes them out of private ownership -- sells off their good assets in an orderly way, trashes the toxic stuff and then resells them to the private sector down the road as leaner institutions that are dedicated to the primary purpose of banking: making loans and holding deposits.

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Peacenik doubts that nationalizing the banks is the perfect solution. There are too many dominoes falling all at once. But the banks are at the root of this crisis. Their management does not deserve a bailout. Their management deserves jail and poverty. But Peacenik thinks nationalizing the banks is part of a possible, painful, muddling thru scenario. It has to be done. The alternatives aren't working. The world is witnessing incredible real time experiments in global monetary policy. The results of these experiments are apparent within days. Shovelling money into the black hole of banking has failed. Will the muddling through scenario work? Its Friday. Peacenik says maybe. Have a good weekend.

White House Dismisses Report of Iran Letter

Attacking Iran Still on the Table, Obama Spokesman Insists

www.antiwar.com

Yesterday it was reported that the Obama Administration was looking at sending a reply letter to the Iranian government which would signal a willingness to improve ties and perhaps hold direct talks between the two. The move would have been the most significant move toward normalizing relations between the United States and Iran in 30 years.

White House spokesman Robert Gibbs was quick to dismiss the report. “Neither the president nor the secretary of state has seen such a letter,” according to Gibbs. He also added that many issues needed to be addressed with respect to Iran, including their illusory “illicit nuclear program” and their “threatening of peace in Israel.”

So just one day after the possibility that the Obama Administration might actually make a positive move toward peace with Iran, the White House is again raising the specter of a US military strike against Iran. The Iranian government has expressed repeated willingness to improve ties, and while President Obama has spoken of rapprochement as well his official policy has so far remained that of President Bush: barely restrained hostility.

punditman says....We shall see.

Obama the imperialist

Change? In foreign policy, hardly. The new president is in the classic liberal interventionist mould

The first Democratic president in the modern era to be elected on an anti-war ticket is also, to the relief of neocons and the liberal belligerati, a hawk. Committed to escalation in Afghanistan, his foreign policy selections also indicate bellicosity towards Sudan and Iran. During his first week in office he sanctioned two missile attacks in Pakistan, killing 22 people, including women and children. And his stance on Gaza is remarkably close to that of the outgoing administration. The question now is how Obama will convince his supporters to back that stance. Bush could rely on a core constituency whose commitment to peace and human rights is, at the very least, questionable. Obama has no such luxury. In making his case, he will need the support of those "liberal hawks" who gave Bush such vocal support.

It is tempting to dismiss the "pro-war left" as a congeries of discredited left-wing apostates and Nato liberals. Their artless euphemisms for bloody conquest seem especially redundant in light of over a million Iraqi deaths. Yet their arguments, ranging from a paternalistic defence of "humanitarian intervention" to the championing of "western values", have their origins in a tradition of liberal imperialism whose durability advises against hasty dismissal. In every country whose rulers have opted for empire, there has developed among the intellectual classes a powerful pro-imperial consensus, with liberals and leftwingers its most vociferous defenders.

Liberal imperialists have resisted explicitly racist arguments for domination, instead justifying empire as a humane venture delivering progress. Even so, implicit in such a stance was the belief that other peoples were inferior. Just as John Stuart Mill contended that despotism was a "legitimate mode of government in dealing with the barbarians" provided "the end be their improvement", so the Fabians contended that self-government for "native races" was "as useless to them as a dynamo to a Caribbean". Intellectuals of the Second International such as Eduard Bernstein regarded the colonised as incapable of self-government. For many liberals and socialists of this era, the only disagreement was over whether the natives could attain the disciplined state necessary to run their own affairs. Indigenous resistance, moreover, was interpreted as "native fanaticism", to be overcome with European tuition.

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punditman says...
It is true that Bush was profoundly unpopular, but thanks to the propaganda system, even at the height of US aggression most people didn't pay much attention to all his "collateral damage" in Iraq and Afghanistan. To no surprise, early indications are that they are paying even less attention to the deaths of innocents abroad under the overly popular Obama regime. This will change only if people stop seeing Obama as the peace president.

Punditman thinks you can kiss goodbye to any hope of the Obama administration taking Bush to task for breaking international law by willfully leading the US into war in Iraq under false premises (lies). By continuing such a policy "responsibly," is he not complicit? And this says nothing of his fetish for attacking Afghanistan and Pakistan.

U.S. Moves to Bail Out Credit Union Network

By MARK MAREMONT

In the latest effort to prop up a sector of the finance industry, federal regulators on Wednesday guaranteed $80 billion in uninsured deposits at the powerful institutions that service the nation's credit unions -- a maneuver that shows how the economic crisis continues to ripple across the U.S.

Regulators also injected $1 billion of new capital into the largest of these wholesale credit unions, U.S. Central Federal Credit Union of Lenexa, Kan., after the firm on Wednesday posted an unexpected $1.1 billion loss for 2008. U.S. Central serves essentially as a main clearinghouse for the others in the network.

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Peacenik's memory is slightly longer than a couple or hours, or days. Peacenik remembers when credit unions were safe. Peacenik remembers when credit unions were immune to the financial meltdown. Peacenik remembers when the financial pundits were saying credit unions were ok. It wasn't that long ago. Peacenik now wonders if there is any segment of the economy that can survive without a bailout. And when politicians and pundits say some part of the economy is ok.....Peacenik thinks they are lying. Does this make Peacenik a bad person?

Coming Chaos? Maybe Not

Posted by Jason Bradford

This essay was written by Michael W. Foley (TOD user greenuprising), a former professor in the social sciences at an eastern U.S. university who I now know as a local farmer. At a recent Farmers' Market, I suggested that we needed a more empirical and scholarly discussion of the potential for social breakdown, especially violence, during energy descent. Thankfully, he agreed to write the following for The Oil Drum.

A sizable subset of what some on this site call “doomers” are convinced that the demise of the petroleum economy will bring social breakdown and a violent struggle of all against all. Some are even preparing for the chaos to come. I'm convinced we have to take end-of-affluence scenarios, including the scarier ones, seriously. But it can help everyone confront these possibilities if we try to think more intricately about how people might respond. In particular, we need to face head-on the question whether social breakdown and violence are inevitable.

The concerns I'm adddressing here are pretty U.S.-centric, though I'm drawing on examples from around the world. Images of marauding bands sacking grocery stores and small farms and of neighbors guarding their hoards with shotguns mainly come out of the American imagination, I suspect. In places like Western Europe and Latin America, with old traditions of militant social organization, acute shortages might bring people out into the streets all right, even entailing looting and such (remember the Latin American “food riots” of the 70's and 80's?), but crystallizing pretty quickly into organized efforts to get governments to respond. But I'll try to suggest some conclusions that might have broader relevance than the U.S.

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Readers know that Peacenik sometimes succumbs to the arguments of "doomers". Some readers think Peacenik himself is a doomer. This article addresses the very issue that Peacenik has contemplated and posted on. Will the future be Mad Max like, or will it be more like the Great Depression with very little violence and some social cohesion? Jason Bradford makes an interesting case. Although his arguement that historical violence was frequently stirred up by politicians playing the ethnic card doesn't give Peacenik much comfort. Consider all the kooks that just ran for President in the U.S. McCain, a major candidate for President stirred up hate and fear of Obama. Will politicians stir up trouble in a bankrupt, depression- like U.S. What about all the kooks in the Canadian parliament. Peacenik fears we are doomed.

The Economic Crisis Isn't All Bad; It's a Chance for Us and Obama to Reimagine How We Live Our Lives

By Benjamin R. Barber, The Nation. Posted January 28, 2009.

Capitalism is on its knees and now we have a chance to create higher ideals beyond career climbing and mindless consumerism.

As America, recession mired, enters the hope-inspired age of Barack Obama, a silent but fateful struggle for the soul of capitalism is being waged. Can the market system finally be made to serve us? Or will we continue to serve it? George W. Bush argued that the crisis is "not a failure of the free-market system, and the answer is not to try to reinvent that system." But while it is going too far to declare that capitalism is dead, George Soros is right when he says that "there is something fundamentally wrong" with the market theory that stands behind the global economy, a "defect" that is "inherent in the system."

The issue is not the death of capitalism but what kind of capitalism -- standing in which relationship to culture, to democracy and to life? President Obama's Rubinite economic team seems designed to reassure rather than innovate, its members set to fix what they broke. But even if they succeed, will they do more than merely restore capitalism to the status quo ante, resurrecting all the defects that led to the current debacle?

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This is a pretty upbeat article, but Peacenik isn't convinced that Capitalism can be rejuvenated in any form. It would be nice to think the world was civilized enough to work through and possibly benefit from the economic crisis. But too many people are going to lose too much that they have come to believe they are entitled to. The present system has been tainted by too much corruption. Too many Ponzi Schemes. Too many lies. But the author is right, something new is coming. The status quo is finished.