Monday, April 19, 2010

Falling out of the sky

Drum: Quote of the Day: Subprime Lending

From 13 Bankers, by Simon Johnson and James Kwak:

Before the market for private mortgage-backed securities took off in the 1990s, subprime lending was constrained by the fact that subprime lenders wanted to be paid back.

Indeed. There is something remarkable about living in a world in which this sentence can not only be written, but actually makes sense.

mistermix: Ash

The IATA is pissed about the airport closings in Europe, and they’re saying stuff like this:

Europeans are still using a system based on a theoretical model which does not work… instead of using a system and taking decisions on facts and on risk assessment.

Though flights are stopped, in part due to predictions from a computer model of ash spread, airlines are sending up test flights that aren’t being damaged.

If flights resume, expect a long-running wingnut global warming meme about the reliability of computer models and why, once again, we should never trust scientists.

  • from the comments:

    John Cole

    Any idiot that flies a gas turbine engine into volcanic ash gets exactly what he fucking deserves. I spent some time in a certain desert region on an turbine-powered M1A1 and know quite well what will happen to those stupid bastards. I spent 95% of my maintenance time banging out vpacks.

    That ash will rip those engines to shreds and planes will literally fall out of the sky.

    El Cid

    In a true free market, consumers should be allowed to choose those airlines with routes through volcanic ash clouds, as long as their life insurance policies are canceled and they are barred from suing the airlines upon their deaths, and minors would not be allowed.

John Cole: Wall Street Cosplay

Good article in the Times about how everything went to the top at Goldman that had these paragraphs:

One camp of traders was insisting that the American housing market was safe. Another thought it was poised for collapse.

Among those who saw disaster looming were an effusive young Frenchman, Fabrice P. Tourre, and his quiet colleague, Jonathan M. Egol, the mastermind behind a series of mortgage deals known as the Abacus investments.

Their elite mortgage unit is now at the center of allegations that Goldman and Mr. Tourre, 31, defrauded investors with one of those complex deals.

Correct me if I am wrong, but wasn’t the mortgage unit that Joseph Cassano ran at AIG Financial Products also considered “elite?” At any rate, Goldman’s “elite” mortgage unit with the “Fabulous Fab” was smart enough to see what was going to happen! They were like investment commandos! They had the BALLS to make the wild trades that others are too much of a pussy to make! They throw their double-foam latte in the faces of their aides when it isn’t perfect, and they’re not afraid to return a martini four times until it is just right.

But what is so elite about seeing the mortgage collapse coming in 2006? Kevin Drum, now at Mother Jones., was blogging at Calpundit before he went to the Washington Monthly, and he was talking about the housing bubble as far back as 2004 and maybe even earlier. He had so many posts about it from 2006-2007 at WaMo that he was apologizing to his readers for talking about it so much.

But back to what set me off- the notion that there are “elite” units within Goldman and in finance. It just reminds me so much of the behind the scenes stories of the guys at Enron, as detailed in the The Smartest Guys in the Room, how Skilling would lead these exotic trips that everyone had to attend- motocross trips, skiing, skydiving, extreme hiking, and they were forced to go so they could all compare penis sizes. These were adventurers! They are the elites of the elite! They were manly men (watch the whole thing, but start at around 3:02 for the relevant portion):

We see the same sort of nonsense in the Republican party with all the keyboard commandos like Peter Wehner telling us that we have to remain firm, and we have to FIGHT! We see it in the ridiculous military looking patches for the “Red State Strike Force” and other silly things like that. And, of course, Glenn Greenwald wrote an entire book about this nonsense.

Sure, greed played a role in all this, but it really is becoming abundantly clear that our nation is being run into the ground by a bunch of “elites” who are having their revenge on the rest of us because they couldn’t get laid and were given too many wedgies in High School. And we’re literally paying for their revenge.

I used to think American Psycho was a work of fiction.

Yglesias: All-Important Discovery

I’m glad to see I’m not the only one who was initially puzzled by the scale of the decline in Goldman Sachs’ stock, since the SEC legal complaint didn’t seem to me, on its face, to portend doom for what’s a very profitable firm. But Yves Smith and Tom Adams point out that all you really need to seriously injure a firm in a situation like this is a case strong enough to withstand summary judgment which forces more information into the public record:

And as other have noted, the odds are high that even if Goldman wins (or more likely, settles), it comes out the loser. When Procter & Gamble and other large companies sued Bankers Trust over losses they sustained on derivatives trades gone bad, many observers argued they didn’t have much of a case. Procter in particular had a sophisticated treasury operation; how could experienced market players claim they had been duped? The litigation appeared to be an effort to stem losses on bad bets.

But when P&G obtained access to taped conversations of BT staff discussing their and others’ trades, public opinion shifted dramatically. The bank’s posture was openly predatory (the most infamous quote was “Funny business, you know? Lure people into that calm and then just totally fuck ‘em.”). BT never recovered from the scandal, but it took a second run-in with the authorities (failing to turn abandoned client assets over to the state) that led to the bank’s sale to Deutsche Bank.

To be sure, the fact that that happened once doesn’t mean it’ll happen again. Maybe further discovery will reveal nothing of interest. Maybe. But maybe not. So that all makes sense to me now. It’s also worth noting in this regard that the macho culture of the banking world tends to ill-serve firms that find themselves on the wrong end of the legal microscope. Whatever the “lure people into that calm” guy was trying to express he surely could have conveyed in some more circumspect manner, had there been a general culture of caution and discretion.

John Cole: Living Large

Lifestyles of the rich and infamous

As if to put the icing on the cake, the investment bank Goldman Sachs is set to shell out another $5 billion in bonuses to employees.

What’s more, the bonuses are expected to cover the employees’ work for just the first three months of the year, according to the UK Sunday Times.

According to the report, bankers will receive remuneration of about $170,000 per person for the firm’s 32,500 employees. Some traders are set to receive millions.

Earlier this year, Goldman’s “junior” bankers were told they’d begin receiving salaries that were double their previous takes.

“It’s made me rethink everything,” a Goldman Sachs employee, “sipping champagne,” told the site. “I like the new structure even better. My monthly take home just went way up.”

I’m to the point now that every time I think of Goldman Sachs employees, I think of the dinner scenes at restaurants in the Sopranos or Goodfellas.


It seems one of the big political stories of the morning is the results of a new Pew Research Center study, which found a large majority of Americans mistrustful of the federal government. The report noted, "By almost every conceivable measure, Americans are less positive and more critical of government these days."

For progressives, the results of the study may not be especially surprising, but they're nevertheless discouraging. One of President Obama's thematic challenges upon taking office was convincing the electorate that government activism can and should play a role in strengthening the country. That challenge appears even more daunting now, as more of the public opposes the idea of government action reflexively.

Indeed, there's apparently even a growing paranoia -- 30% of the public perceive their government as a "major threat" to their personal freedom, which is nearly double the number from seven years ago.

Opposition to greater government action does not, however, apply to everything.

There's one big exception, however. A solid majority, 61 percent, do want greater government regulation of the financial industry, something that Obama and the Democratic majorities in Congress are pushing now.

Given the ongoing debate in the Senate, this is at least somewhat heartening. Republicans are no doubt tempted to argue, "Democrats want to sic big government on Wall Street," but it's a tough case to make -- Americans want big government go after Wall Street.

In the larger sense, I also wonder just how much thought is driving public attitudes on this. Americans are frustrated about a brutal recession, and we're coming off an era in which Republican corruption, mismanagement, and incompetence made the government look pretty awful in the eyes of the American mainstream.

As the economy improves, thanks to the efforts of a competent and effective government, I wouldn't be too surprised if this anti-government backlash subsides quite a bit.

  • from the comments:

    If a study's findings are consistently dependent upon the current state of the economy, then what good is that study?

    Posted by: Quinn on April 19, 2010 at 9:30 AM | PERMALINK

    On NPR this morning Kohut made the point that the pattern is quite similar to that of 1993-1994, and at both times much of what has driven the rise in distrust of government is Republican attitudes. This was facilely attributed to Republicans being "the party of small government," which we know is operationally false. I think what we're actually seeing here is a sharp increase in distrust of government from those who only trust government when it's seen as controlled by and for people like themselves. Big government is OK if it helps "us," and not "them"; if "they" control it, though, it stands to reason that they'll use it to help the "wrong" people at "our" expense."

    Posted by: David in Nashville on April 19, 2010 at 9:36 AM | PERMALINK

    "Republicans are no doubt tempted to argue, "Democrats want to sic big government on Wall Street," but it's a tough case to make -- Americans want big government go after Wall Street."

    And they are not arguing that. Here is the evil, disgusting genius of Luntz. They argue that Dems want shackle the public to endless bailouts with this FinReg bill. Really disgusting.

    Posted by: Creature_NYC on April 19, 2010 at 9:39 AM | PERMALINK

    It's rare that I find Larry the Cable Guy's pearls of wisdom useful in a political context, but this post brings to mind his line---"Get 'er done".

    Steve, you're right that people have good cause to distrust the federal government, especially after the Bush administration.

    The distrust exists for good reason and goes back a good 30-40 years; it's been that long since the federal government has accomplished something big and useful for the majority of its citizens. (Think: Social Security, Medicare, the Interstate Highway System, the GI Bill.)

    Assume the Affordable Care Act works to expand coverage and control costs. Assume the Recovery Act, and the smaller initiatives Congress is working on this year, works to end the recession and reduce unemployment. Assume the Democrats pass financial reform and it works to reign in the financial sector. Then we'll likely see trust in government begin to rise.

    P.S. Like so many issues, this comes back to and touches on Senate rules reform. The minority's ability to obstruct and delay increases the public's distrust.

    Posted by: massappeal on April 19, 2010 at 9:40 AM | PERMALINK

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