Bill's Big Diamond Blog

Bet Against the American Dream, Goldman Style

The way that Goldman Sachs got itself in front of the SEC, charged with fraud, is eerily similar to another deal that Pro Publica and NPR journalists detailed recently in their story on Magnetar, a CDO deal done to exploit the height of the housing bubble at the behest of a hedge fund that designed the CDO expressly to fail. Like arsonists buying insurance on a house they wanted to burn, the hedge fund bought Credit Default Swaps worth far more than their investment— looking not to make money on the mortgage security, but on the insurance when it went under. The story has played on a fascinating episode of NPR's This American Life and now is the subject of a Bloggingheads.tv dialogue. Read, watch and listen to understand how Wall Street gamed the bubble as you bought homes they knew would decline in value.

Hey, the story even has a song...sing along, let's, "Bet Against the American Dream."

Bet Against The American Dream from Planet Money on Vimeo.

Deal on Derivatives?

This could be a big development. According to ABC News, Senator Dodd has accepted as a part of financial reform Senator Blanche Lincoln's proposed ban on banks owning derivatives operations; this is a provision that would force the big banks to spin off the businesses that led them into the 2008 meltdown.

Passage of such a proposal will be a major fight, but one that could well be worth it in terms of ensuring the safety of the marketplace— and limiting the damage that can be done by derivatives.

Basically, the megabanks would have to observe derivatives deals from across the street and would have no incentive to lure their clients into buying them, creating another watchdog on things like synthetic CDOs and some of the other wonderful financial products that now clog the garbage pails on Wall Street. Doing so would cost the banks a big slice of business, so expect a very angry response from the moguls.

The Selling of Democracy

American democracy has long been corrupted by the influence of corporate cash, lots and lots of it for all parties. It's led to an orgy of giveaways and an almost total lack of oversight, a belief in markets and their wisdom, and ultimately has resulted in the disastrous meltdown of 2008-9. We're enduring unemployment and foreclosures at Depression levels, lost retirements and lost hopes as a consequence. And yet, it seems, what we've endured so far is not the limit—not by a long shot.

Now, the Supreme Court, by the same one-vote majority that brought us Bush v. Gore, has struck down any limit on corporate spending to affect elections. Corporations are now people, in the important respect that they enjoy freedom of speech. The only electoral and speech difference between me and a corporation now is the corporation's ability to print their messages everywhere you look, to hire public relations consultants to massage them into your daily life and entertainment as you contemplate your votes, and to ensure that their messages get in front of you in every possible way, while my speech is confined to this blog— or a sandwich board if I prefer to wear one.

The only difference the five ruling members of the Supreme Court see between you and a corporation is that you have to go off to work every day, probably for a corporation, then pick up your kids, feed them, make sure they do their homework, pay the bills, put the children to bed, make their lunches for the next day, then get some sleep, while the corporation hires a team of lobbyists to spend their days and nights influencing the government to do their bidding. Whatever the superficial differences you may notice, the corporation is, in fact, a person, just like you, when it comes time to vote.

The only logical surprise is that the Supreme Court didn't actually give corporations the ballot. Since they define corporations as persons, why wouldn't they; why shouldn't the Court allow companies to vote, to spawn little corporations who grow up to vote when they're eighteen, and have ballots in their corporate-stamped hands on election day. But then, the majority of the Court apparently wasn't interested in logic or evenhandedness, they were interested in a result, just as they were in Bush v. Gore. The result is that there is no limit on the influence of corporate money in our political process. The Congress, brought to you by....(pick your corporate brand).

But the influence of corporate money won't be limited to the Congress, where it will be difficult to distinguish future Congresses from the one we have now, in which corporate cash calls more of the tune than the voter. No, now the influence of corporate money will be clear on the state, county, and local level too. Your City Council, brought to you by Your Local Bank. Your Zoning Board, brought to you by The Company That Wants a Variance. Your School Board, brought to you by The Company that Wants a Private For-Profit Education System.

Welcome to the brave new world of the right wing's very own Supreme Court. The first thing we'll be seeing as a result of Citizens United v. Federal Election Commission is a flood of money to defeat banking reform— and President Obama himself if he has the courage to stand behind it. Expect a congressional midterm election campaign like no other this year— brought to you by Wall Street.

NY Times Backs Investigation of Trading Practice

In a NY Times Christmas Eve article, Gretchen Morgenson and Louise Story revealed huge and aggressive bets that Goldman Sachs and other trading firms were making against their own clients in the CDO market during the period leading up to the financial meltdown of 2008. In addition, the reporters pointed to Goldman's continued issuance of CDO's which were designed so poorly that many of them failed within months, creating greater profits for the firm's enormous contrary bets on the same products' demise.

These practices, along with the 'triggers' that amplified the losses in the credit default swaps market (see AIG's bankruptcy) seem to have had, at the very least, the potential to create serious contagion in the credit markets. In an editorial today, the NY Times calls for an investigation into these practices and for greater regulation of the derivatives market to prevent future abuses.

In a post here on Christmas Eve, we called for investigations based on these revelations as well. It's in all our best interests to highlight these abuses and deal with the practices they reveal before the next bubble bursts.

How Traders Might Just Have Caused the Collapse— For Profit

Today's NY Times piece, Banks Bundled Bad Debt, Bet Against It, and Won, by Gretchen Morgenson and Louise Story, is a must-read for anyone interested in understanding how the credit collapse of 2008 came about. It's a challenging story, detailing some of the staggering bets that Goldman Sachs and other derivatives marketers made against products they themselves were creating, even well into the housing market collapse.

If Congress and regulators are truly serious about better protecting the credit markets, some detailed questions should be answered about whether hair 'triggers' constructed in these instruments logarithmically increased the chances of a catastrophic housing securities market collapse. What's more troubling is the evidence that some of the CDOs were marketed by the same firms that were betting heavily against the housing market. The story raises the possibility that some CDOs were hyped just so that the firms' own bets against them would payoff more richly— even as their clients were enticed to buy more and more bad housing securities products.

It's a shame that this article appears on a day that most of its readers are busier with "The Night Before Christmas" than with the Grey Lady's front page.

Heathcare Astroturf Uncovered on CNN- Watch

Rick Scott, the former chairman of Columbia Hospital Corporation, a for-profit chain of hospitals, is the founder of an organization called “Conservatives for Patients’ Rights.”  CPR (cute, huh?) is now funding protests like the ones we see at health care reform town hall meetings across the country—  at which Congresspeople are being shouted down, scuffles started, and people routinely intimidated by mobs of frightened birther/wingnuts.

 His campaign is coordinated by CRC Public Relations, the same PR firm that masterminded the 2004 Swift Boat campaign against presidential candidate John Kerry.  What’s more interesting, Scott’s own personal history in the healthcare industry shows how the current system can be gamed by those who would bilk the public.  Scott was forced out of the Columbia Hospital Corporation in 1997 by its board after being identified with massive overbilling and kickbacks for which the company ended up paying the $1.7 billion in fines.

 Here’s an encounter Scott perhaps didn’t expect with CNN’s Rick Sanchez yesterday.  Unfortunately for Scott, Sanchez had actually done his homework and uncovered the unpleasant facts behind Scott’s accumulated millions in the healthcare business.  Watch:

Walter Cronkite

The death of Walter Cronkite at 92 leaves Americans contemplating the changes in our media since his heyday as our preeminent television news anchor.  It is hard to imagine that we once looked to a network news broadcast as a digest of the nation’s daily experience, that one voice was ever regarded as, “the way it is.”  We have so many ways to get our news now, but none are so central to the American experience as the CBS Evening News was in Cronkite’s day.

 The first distinct remembrances I have of Cronkite are from the 1968 Democratic Convention in Chicago, where he commented on Mayor Richard Daley’s security tactics against reporters by calling them “thugs” on the air and where he threatened to “pack up our cameras and go home.”  I also remember his coverage of the Apollo landing on the Moon, which was informatively detailed and yet still inspirational.  And finally, when the Watergate scandal began to wane because the facts seemed too arcane for most Americans to follow, Cronkite demanded, and got, a 22-minute, two-segment report on the nightly news to illustrate the money trail that led from Cuban burglars invading the Democratic National Committee headquarters directly to the White House and the Presidency of Richard Nixon.

 One of the ways to understand the profound difference that good television journalism made in Cronkite’s era is to reflect on his coverage of the war in Vietnam.  Cronkite was initially a proponent of the American escalation there, and his coverage of the war reflected his orthodoxy for a while.  But as his reporters began to bring back stories that contradicted the military and White House perspective on the conflict, Cronkite decided to go see Vietnam for himself.  After the 1968 Tet Offensive, Cronkite journeyed to the war zone and saw the protracted civil war for what it was, a stalemate that couldn’t be won by intervening American forces.

 As a respected combat journalist, not only did Cronkite’s on-air assessment strike a chord with a broad swath of the American public, but his reportage was apparently pivotal to President Lyndon Johnson, who decided shortly thereafter not to seek re-election in 1968.  Johnson told his press secretary, Bill Moyers, that if he had lost Cronkite, he had lost Middle America.  Negotiations with the North Vietnamese began shortly thereafter.

 It’s hard to imagine Americans, high and low, responding to a media figure today the way the country listened to Cronkite during the 1960’s.  The firewall between news and entertainment had not yet fallen at the networks— and there was a sense of pride among the CBS news staff that they were carrying a public trust— to present the events of the day to the nation fairly.  Cronkite was the voice of that organization and it was trusted to put journalistic standards largely above selling soap.

 Another part of the work Cronkite and his colleagues did was to unpack more investigative stories in long-form documentary shows, aired in prime time.  Pieces like “The Selling of the Pentagon,” which detailed some of the scandalous ways that military contractors used political connections and former military officers to get incredibly lucrative contracts out of the Defense Department drew huge audiences of American viewers and caused changes to be made in government policies.  One can’t remember Cronkite without keeping in mind the organization he had behind him at CBS.

 It would be worth thinking long and hard as we remember Cronkite about how we bring stories today to the public that the powers-that-be would still rather relegate to the backwaters of our media.  It won’t be through an organization at the major networks.  That day is over, as is Walter’s.  But it’s a legacy that should and must live on.  As we miss Cronkite, we should also remember that his standards should be his legacy to his country.

(Bill Kavanagh cross-posts at Buck Naked Politics.)

Cole on Iranian Election Fraud

Juan Cole’s post and Salon.com article on the fixed election in Iran are both worthwhile reading. There’s lot’s of good detail there on the probably hastily-organized and clumsy doctoring of the results— and why they are so improbable. He sees the “soft coup” holding and Moussavi probably backing down from sending his supporters into the streets.  The memories of the bloody civil strife of the 1980’s are key for his generation of reformers in shying away from direct conflict.

 Cole also notes his support for the Obama overtures to Iran, regardless of the real outcome.

CNBC and Financial Television: Puppets in the Pre-Meltdown Show

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 2

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

Last night’s Jon Stewart interview with Jim Cramer should be put in a time capsule for future generations to understand the popular culture leading to the meltdown.  It’s not possible to overstate the insanity required to believe that the financial news networks weren’t merely entertaining little puppets in the game the markets had become before it all crashed and burned.  Cramer tries lamely on air to pretend that he’s there at CNBC to expose the game, but it’s clear, even to Cramer, as Stewart rolls tape after tape in which the former hedge fund manager admits to market manipulation that it’s pointless to deny his role in snake oil sales.

 For me, the moment when this crap became too much to bear was when CNBC hugged Maria Bartiromo just that much tighter in the wake of a scandal in 2007.  Bartiromo had been the cause of a business shakeup in which Citigroup executive Todd Thompson was ousted from his position after engaging in a questionable relationship with the financial “Money Honey” and rewarding her with a $5 million Sundance Channel show on Citi’s dime.  While Citi CEO Chuck Prince made his own executive walk the plank for his role, CNBC did just the opposite.   The channel backed Bartiromo, who had been reporting on Thompson and Citi while being offered very special personal perks, including a personal corporate jet flight from China with the executive, who left a gaggle of executives on the ground in Asia to find other flights back to New York. 

 Rather than firing Bartiromo for violating journalistic ethics, the network covered for her, compensating Citi for the flight and downplaying the story, realizing that her association with the CNBC brand was too pivotal to tarnish.  If there ever was a moment to say that the network had crossed the Rubicon and bought the precept that entertainment and profits had completely replaced real journalism, this was it.  Can anyone imagine how acceptable it would be for a political anchor to engage in that kind of relationship with a candidate or public officeholder and then continue reporting on stories that involve that figure?  No matter how far gone mainstream television news is, that still wouldn’t have played as easily there as it did within the corrupt world of financial television news.

 But Cramer and Bartiromo are just the tip of a huge iceberg of entertainment and profit values that lurk beneath the glib surface of financial reporting, particularly financial television reporting.  The hype never stops, making these specialty networks ubiquitous on monitors throughout the offices of financial service companies.  It’s like free advertising for the markets rather than investigative journalism and objective evaluation.  No wonder the companies being reported on feel fine about playing the channels in their workplaces.  

Small wonder these channels never warned of an impending collapse.  They'd sooner have cut off their arms and legs.

 So let’s hear it for Stewart and a little truthtelling about CNBC.  Wouldn’t it be a breath of fresh air to hear some of the same from within the financial television community itself?

(See Memeorandum for more)

Reid Eats Chicago-Style Humble Pie, "Mmmm, So Good."

You gotta love the deep-dish Chicago style reporting that columnist John Kass of the Tribune keeps serving up.  His assessments of the political realities of the Windy City’s hardball political culture skip over the Washington nicey-nice.  When somebody’s gotta eat it, Kass doesn’t skip the condiments. 

 When describing how Harry Reid got to chew on his own words over the Burris appointment, thanks to Rod Blagojevich, Barack Obama, and Burris himself, Kass goes right to the heart of what’s being served up:

 

That's how you used to operate. You're from Nevada, but Obama comes from Chicago.  It's sure got to be difficult to eat a big hunk of humble pie when your lips are stinging, but here's some advice, Senators. 
 
Have another slice. There's plenty more.

(See Memeorandum for comment)