Hi Mom, the N Word, Obama, Foreclosures n Stuff

Friday 29 October 2010
Gorecki's 3rd with Zinnmann and Upshaw; fits my mood (have you heard from David recently?)

1937 hours

Hi Mom:

Sorry: Have not written a daily missive in two or three days. Was so angry and depressed I could hardly speak after Obama's appearance on Jon Stewart's The Daily Show. He is just so out of touch, arrogant. But there have been 3.2 million foreclosures since he took office, with another 4 million expected through 2012, given current trends and actual figures (which are rising). He has done nothing -- nothing -- to stop them, despite excellent solutions recommended by two Nobel Prize winners in economics. And despite the fact that the banking sector cannot recover and will not lend until toxic debt stops entering the financial system and is dealt with, a process that will take years. He also claimed that the healthcare reform he fought and signed was "The most significant piece of legislation in American history." What self-centered, inflated, egregious nonsense! Without a public option to control costs, it was a give-away to the insurance companies and pharmaceutical firms.
And the treasonous, traitorous Republicans -- I mustn't even think of them or I'll go insane. Yet the spineless Democrats have given away the House and probably the Senate. Cretins

Only my Zhi Hui cuts through the blackness of this Gaelic funk. But she has been here only one day and one night this week due to work, work dinners and of course spending time with her Lulu. She is my medicine, a draught of joy, delight, laughter. Left to myself, I fall into an abyssal stew of anger, loathing, depression. She knows this, calls me four to five times daily, at least. I must brace up for her. Music helps greatly. As do these amazing flowers -- !! -- I bought her that go on blooming after two weeks, tho many have faded and died. Who was it wrote "Beauty is too strong for one man to bear all alone?" I think it was the authoress of Cry, the Beloved Country; I forget her name.

Anyways . . .

Very busy; busiest time of year for teachers of 12th-year IBO courses.

Love you night night,
Ned

* You will flay me alive for the following

Tuesday 26 October 2010
2226 hours

People:

Barack Obama is simply and solely a house niggah for vested interests. Just follow the money, the lack of action or the opposite.

A Constitutional lawyer, he failed to prosecute the violators of that document in the previous regime. He continues that regime's policies regarding extraordinary rendition, incarceration without proof or trial, mountaintop removal, Guantanamo , etc. House nigger for the Bush regime.

He and his minions have showered $4.7 trillion on Wall Street, only some $800 billion on Main Street in failed programs that have done nothing to end foreclosures, the original cause of the crises in the credit and related financial markets. (Yes, trillion; if you don't understand then you are not paying attention.) Both The Economist and The Financial Times are very clear about this. Further, the FBI warned in 2004 of "massive fraud" in the mortage markets. Today we read of yet further fraud on a massive scale by banks and their related expeditors in those same mortage markets. None of the major players on Wall Street or anywhere else have gone to jail. None have been restructured (too big to fail is to big to exist) or had their incentives adjusted. House nigger for Wall Steet.

Obama's recent, $50 billion plan for infrastructure is a pittance compared to the need, mere political grandstanding prior to mid-term elections. His healthcare programme, lacking the public option, is a give-away to insurance companies. Where else do all those subsidies for the poor go? House nigger for insurance companies.

With official unemployment hovering near 10% for over a year, he and his spineless, cowardly minions have yet to suggest a jobs plan because they are afraid the traitorous, treasonous Republicans -- who are bald-faced liars on each and every issue having to do with Obama's agenda; if he has one other than trying to stay in office, now an extremely doubtful prospect -- might say "Boo!" N sack, no fight, thus no win or hopes of winning. So, ironically, he's even a house nigger for the Republicans, too.

Nobel Peace Prize? He is Commander-in-Chief presiding over two shooting wars, plus drone attacks he ordered increased, plus various and sundry black ops per above. He added troops to Afghanistan . He declared the combat mission in Iraq is over, a statement as risible as Bush's "Mission Accomplished." No truly major cuts in the U.S. military budget have been announced, much less implemented. Note that some 42% to 46% of every tax dollar you pay goes to current or past military commitments. Why on earth does the U.S. need eleven -- eleven -- carrier groups, or weapons systems designed and built for past wars? Hence Obama is simply and solely a house nigger for the military-industrial complex Ike warned us about 50 years ago. He -- thus, we -- are in the belly of that beast.

And so on. I lauded Obama when he ran; I voted for him; was hopeful when he won. What a disappointment. I loathe the man. He is just a House Nigger for vested interests. Full stop.

That said, the return of Republican rule, or majorities in either chamber of Congress, promises even worse. As a group, a party, they are obstructionists, traitors, liars, fabricators guilty of treason. (Read the oath of office for Senators and members of the House. They are traitors.) Plus they are the cretins who started the U.S. on the path to the current crises. Make them pay; make ‘em bleed from their ears. Vote them out of office or just prevent them from gaining power. Just hold your nose against the stench of the Obama regime.

Yours in Jesu Krist,
Ned

3 November 2009

Mesdames and Sirs:

The Constitution shredded by the previous regime. No one is behind bars but for that pitiful scapegoat, Scooter Libby. Other felons roam free.

The greatest failure of credit and financial markets since God’s own Great Depression. No one has been remanded into custody. Few have lost their jobs but for the cretins at Lehman Brothers and Bear Stearns. They deserved it. So do many others.

He certainly can speechify. He's a proven organizer (witness his campaign). But he cannot lead because he doesn't have the killer instincts required to bang heads or go to the mattress for his beliefs. Witness his health care program, the public option. In short, a wimp, a vapid compromiser.

Also, he is a slave to vested Wall Street interests: His minions have showered trillions on Wall Street but only billions on foreclosures, the origin and heart of the crises in credit and financial markets. As the Economist and the Financial Times have noted repeatedly, the crises in credit and financial markets will not end so long as toxic debt -- now threatening commercial real estate -- continues to enter the system. Not to mention that many of the cretinous lemmings who helped get us into this mess are still in charge: Summers, Geithner (proven tax scofflaw, failed regulator), Gensler, et. al. In short, the lunatics are still running the asylum. Obama is their cheerleader-in-chief. Not to mention mountain-top removal, extraordinary rendition, etc. Pitiful.

Thus, Obama will be a one-term president.

Regards,
Ned Boudreau
word count: 262

Postal address:
3065 East Lake Road
Skaneateles, NY 13152
Phone:
86.21.13524425173 (Shanghai)

Meltdown
Perhaps Shakespeare said it best: How quickly nature falls into revolt//When gold becomes her object! Henry IV, Part 2, 4.5.65-67. So let us talk of business ethics, negative externalities and the need for government regulation.

Recent headlines tell the story. From the Associated Press on 14 August 2007: “Mattel issues new massive Chinese toy recall” – the second in only months. Shanghai Daily, 26 January 2008 edition, “Ex-Sinopec Chairman Linked to Corruption.” Then, Star Tribune, 28 February 2008, reported that “Blood Thinner Recall Widens” as concerns over an ingredient made in China mount. And all of us here in Shanghai at the time recall “Shanghai Party Boss Held for Corruption” in The New York Times of 25 September 2006.

These are instructive but they pale in comparison to other failures. So why pick on China? For the most puissant lesson in business ethics we must look, of course, to the United States, where supposedly laissez faire capitalism in its purest, most global form is practiced. (“Supposedly”, because subsidies and tariffs amounting to monopoly, a form of market failure, are enshrined as governmental policy.)

Again, headlines tell the story; in this case, of the meltdown in financial markets. ‘Very Scary Things’ in The New York Times, 10 August 2007 edition, warned that, “liquidity had dried up.” The credit crisis was on in earnest. An International Business Times headline on 24 August reported that, “Bank of China’s sub-prime exposure rattles Asia.” That exposure, with Singoporean banks and the BOC’s Hong Kong subsidiary rolled in, amounted to $13 billion. BOC wrote off an initial $320 million. On Friday, 2 November, the Financial Times ran a report entitled “Contagion fears send bank stocks tumbling” and named names of senior-most executives axed at HSBC and other institutions. The same edition of the FT ran “Prepare for the sequel to summer’s credit drama,” wherein “. . . strikingly high levels of fear and mistrust” were reported along with “CDO traders warn of blood on the streets” and “Monolines left reeling by domino effect.” An article dated 22 November in The Economist led off with “Business and the credit crunch: At the gates of hell.”

Bad business news unrelentingly followed bad business news. Huge losses at Citigroup, USB, Merrill Lynch, among many others; the collapse of two hedge funds managed by Bear Sterns; bankruptcies; further writedowns; more knock-on effects. Credit and liquidity – the oil and petrol of capital markets -- suddenly were more than scarce. Perhaps the most puissant banner headline arrived on the cover of the 19-25 January 2008 issue of The Economist: “Invasion of the sovereign-wealth funds.” That edition reported on the $69 billion re-capitalization of ostensibly elite American banks by state-owned Arab and Asian entities: “They have deftly played the role of saviour just when Western banks have been exposed as the Achilles heel of the global financial system.” Irony is complete; cannot be surpassed: American capitalism, the wonder of the economic world, brought to its knees and bailed out by emerging market nations it once mentored.

This rescue did not, however, end the credit crisis. It has spread from subprime home loans to banks to corporate bonds, auto loans, municipal bonds and their monoline bond insurers, and thence on to credit cards, student loans and, most recently, auction-rate securities. (Full disclosure: Until just a few days ago, this writer had no idea what these strange things are; the usual business media made them clear.) More: the 15 February Financial Times ran “Regulator in crisis talks to save bond insurers.” This story reported that insurance regulators in New York would hold talks with sovereign wealth funds and Warren Buffet aimed at shoring up credit ratings on municipal bonds worth $220 billion guaranteed by a desperate American bond insurer. On 18 February, the FT ran this: “Insight: Domestic US problems with global consequences.”

Yet perhaps the most grimly hilarious headline comes from The Wall Street Journal, 30 January 2008 edition: “FBI Launches Subprime Probe.” Morgan Stanley and Goldman Sachs are implicated. This follows an article dated 22 December 2007 in The Economist entitled Mortgage-industry lawsuits: The finger of suspicion, which detailed a projected spike in attorneys’ fees when firms, investors, state prosecutors and regulators sharpen their legal knives as they seek redress and, one would imagine, revenge.

We should not be surprised. Traditional economic theory goes on and on about ‘market failure’ in attempts to explain away ‘negative externalities’. Ben Bernanke and Frank Rich, in their Principles of Microeconomics, define them thusly: “external cost (or negative externality) a cost of an activity that falls on people other than those who pursue the activity.” In this case, predatory subprime lending and the failure of rating agencies to do the requisite research resulted in external costs totaling well into the hundreds of billions of dollar, with another $250 to $400 billion of bad debt still lurking in the financial system – a truly astounding negative externality. Or did the agencies know the loans were very high risk, but gave an AAA rating anyways, as some reports suggest? In any case, the loans and related debt were carved up, repackaged and sold off in many forms of supposedly secure financial instruments to firms throughout the globe. Market failure, indeed; the ratings agencies have much to answer for, though they are unaccountable. And just think of the essential tenets of economics these failures render void.

But we need look no further than Adam Smith for answers to this debacle. In his Theory of the Moral Sentiments (TMS), published in 1759, some 17 years before Wealth of Nations, Smith identified the “invisible hand” that rules markets as the hand of his Christian god. See, to cite only one example, VII.ii.I.18. He was a thrifty Scots parson and speculative philosopher, not an economist. Further, he insisted that, in life – including commerce, business, trade – ethical behavior is required: “When the happiness or misery of others depends in any respect upon our conduct, we dare not, as self-love might suggest to us, prefer the interest of one to that of many . . . One individual must never prefer himself so much even to any other individual, as to hurt or injure that other, in order to benefit himself, though the benefit to the one should be much greater than the hurt or injury to the other.” (TMS, III.3.5-6.) As we all know, Smith is entirely contradicted by empirical realities in business and finance: Enron and all the others come to mind, as well as the Common Agricultural Policy of the EU and agricultural subsidies in the U.S. The former are examples of market failures among private firms; the latter, market failure enshrined in government policy, and therefore in international markets.

Whether or not one believes in a Christian or other deity, and so takes ethical guidance from a religious tradition, is not the issue: there are any number of moral philosophers who do not derive ethical imperatives from religion; for instance, John Rawls (1921-2002) was considered the most influential moral philosopher of the last 100 years. The issue is that a certain baseline ethical behavior is necessary if markets, thus economies, are to work most efficiently, thus productively, thus profitably – and profit is the primary objective of all commercial businesses. Yet over the last weeks and months the business press and major media have reported on how businessmen no longer “trust” or have “lost faith” in financial markets. Trust and faith have more to do with morals than with commerce. You may object by saying this loss of faith relates solely to businessmen’s concerns about hundreds of billions in bad debt still lurking in financial markets. But that merely begs the issue of what caused such a massive externality: unethical though entirely legal business activity. Adam Smith would be appalled. We all should be appalled.

Yet we know that pond scum and bottom feeders – cheaters, liars, persons who will abuse their positions or do anything to gain profit -- will always exist among otherwise reasonably ethical business professionals. This fact brings the issue of regulation sharply into focus. As proven repeatedly by the Enrons of the world, there is no use letting the fox guard the chicken coop, much less in giving it the keys. Supply-siders may froth at the mouth, but the fact is that too often “nature falls into revolt//When gold becomes her object.” Thus there is need for strict governmental oversight. Without it, Shakespeare will be proved right again and again. That would be very bad for business as usual.

word count: 1,418

An Open Letter to the Most Responsible Lads

Ben, Hank, Barney, Alan:

Season’s Greetings to you. Just a few comments.

Ben:

Per The Economist, the root causes of the current crises are house prices and mortgage defaults. If it is true that you once said you would “rain money from helicopters” to prevent recession, then the deluge is falling primarily on Wall Street banks and related firms in the money markets. This is akin to rewarding the team of doctors who prescribed a medical regimen for an otherwise healthy patient who consequently died. Neither the crises nor the recession will end until their causes are addressed with a strategy for (1) halting mortgage defaults that continue to generate toxic debt and (2) internalizing the now global negative externality of some $300 billion to $600 billion to $1.2 trillion in toxic debt instruments still in the system. (Estimates vary, as you know.) The problem is not liquidity. As the Financial Times reported at least twice this year, there is more than enough liquidity in global markets. The problem is toxic debt still in the financial system and the continuing creation of such toxic debt as a result of foreclosures, which are predicted to grow through 2009 if nothing is done to stop them. No single financial institution is willing to take the next hit of write-downs worth billions, so they are sitting on their moneys as they wait for others to take the hit. No amount of liquidity will change that, LIBOR and your discount window be damned. Plus, per The Economist, the “whiff of panic” in lowering discount window interest rates adds to uncertainty.

Also, please note that I use your textbooks, co-authored with Frank Rich, in my IBO economics classes. Your definitions of market failure and externalities describe the crises perfectly.

Hank:

Please stop floundering about; you are further panicking the markets. The decision to allow Lehman Brothers to fall was one of the four “worst mistakes” of the year, according to the Financial Times. That decision was not yours alone, of course. But changing your mind – twice – on major objectives of the TARP program evidently was: You announced the changes, and wrote a defense of them in an op-ed piece for the New York Times. Such floundering merely causes further uncertainty, thus panic, thus further freezing up of the credit and related financial markets. So please decide on a strategic solution and stick to it. Two excellent strategies were recommended by elite economists out of Columbia University and the University of Chicago, respectively. Please read and consider them. Address the root cause(s) of the crises.

Also: Note that a lack of transparency and accountability regarding where TARP funds are going is causing a tsunami of disgust and outrage among American taxpayers. Read the usual chat sites. Disregard that at your own risk.

Speaking of ‘risk’: You were an investment banker. Why is it you or Goldman Sachs never did your own risk assessment of CDO’s? Warren Buffet did.

Barney:

Reliable sources report that some -- perhaps many? -- banks will not use TARP funds to extend credit. This was one of the primary objectives of your bailout. Instead, some or many of them plan to use TARP cash to purchase other banks to augment their capital bases, thus their balance sheets.

Therefore, please do not – repeat, not -- release one more dime of TARP funds until and unless Ben and Hank put together a credible strategy, and then sign a contract to adhere to that strategy. Their tactical, floundering approach simply adds to uncertainty, thus to the crises. In fact, I recommend you rally your colleagues in both House and Senate to sign into law the conditionalities the TARP program should have included in the first place: transparency and accountability; a cap on executive compensation; elimination of bonuses; and – most urgently – a requirement that TARP funds be used to make loans rather than to acquire smaller banks or other agencies, etc.

Take them all – pols and appointees -- out behind the woodpile for a good ole fashion whoopin’ if they don’t. Play hardball; they deserve it.

For more detail, browse the Financial Times and The Economist.

Alan:

I am sorry to say it, but the two crises were “Made in America” -- by you. Yes, you.

You were warned about the mortgage market and the housing bubble by two of your own Board members. You are responsible for the “easy money” policy that stoked both the Internet bubble and the housing bubble. Further, you refused to use the Fed’s regulatory powers to order audits of dubious assets and highly suspect lending by banks because, you maintained, the Fed does not have such regulatory powers.

I beg to disagree. Just this weekend, I perused at great length the Commercial Bank Examination Manual and related pages on the Fed’s own website. (Did you ever read this document? In case you did not, it is here: http://www.federalreserve.gov/.)

"The apparent froth in housing markets may have spilled over into mortgage markets. The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other, more-exotic forms of adjustable-rate mortgages, are developments that bear close scrutiny." Those are your words, as reported in major media such as The Economist and the New York Times in 2005. Yet “froth” can and does create “bubbles.” Your “froth” and easy money policy resulted in the housing bubble that now has brought the international financial system to its knees. Thanks to you, Iceland is bankrupt.

Yes, yes, I read how you and others like you are experiencing “shocked disbelief.” That was during your testimony before Congress on 23 October of this year. Yet you said the same thing in 2002 and through to this day – after the Savings and Loans meltdown; after Enron, then WorldComm, then all the others – when you insisted, in document after document, speech after speech, that there was no need for further regulation; that businessmen’s reputations would prevent them from offering inferior products. These documents and speeches are all available on the Fed website or other media. Yet even Shakespeare knew better: How quickly nature falls into revolt//When gold becomes her object! (Henry IV, Part 2, 4.5.65-67)

Please note that, over the past few weeks since your last Congressional testimony, I’ve also read your publications of 1963, 1969 and many others, including your autobiography. Hence I must conclude that your failure to appreciate or research risk in the mortgage market was based on a blind faith in markets – all evidence to the contrary be damned and ignored. Yet, as we all know, Neo-Classical economic theory is based on the concept of market failure: In other words, markets do not achieve constrained-Pareto optimality. For example, the Marginal Social Cost of commuting via car is offset by the Marginal Social Benefits of productive work, stable household incomes, contributing to GDP and so on. At that equilibrium point the negative externality – supposedly -- ceases to exist. Yet even though the externality is internalized, the pollution caused is not reduced to zero. Hence pollution by tens of millions of commuters increases despite all best efforts of markets. Similarly, the dual crises: They benefited many people for a few years and seemed to contribute to both GDP and social welfare, yet later imposed dreadful external costs on counter-parties, as well as on third parties (read, all Americans, and millions of others) who were not engaged in the economic activities that caused the crises.

All your dissembling and all your protestations to the contrary, you are to blame. Your blind faith in your ideology blinded you to reality. I do not know how to describe you: a callow virgin who believes – all empiric evidence to the contrary – in the inherent goodness of business men and business women, much to your credit; a mere ideologue, much to your debit side; or an idiot savant who speaks rather well. Sorry: You rather remind me of Jerzy Kosinski’s protagonist, Chance, in Being There. I am sure you’ve read it.

Now please be so kind as to fade into silence. Your reputation is not merely tarnished; it is -- along with Robert Rubin’s -- entirely shattered among those of us who have ‘followed the money’ and done the research. Research was your specialty in your youth, with your clarinet. (Did you ever play through Benny Goodman’s concerto? Or Alex North’s? But I digress.) You really should have done your research. Shame on you.

Lads: I wish you well. Hope you get things right soon.

Cheers, best regards, all success,
Ned Boudreau

word count: 1,425

Ned Boudreau teaches Economics in the IBDP (International Baccalaureate Diploma Programme) at Shanghai Pinghe School in Shanghai, China.

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