by Gilles d'Aymery
"The two most common elements in the universe are Hydrogen and stupidity."
—Harlan Ellison (1934 - )
(Swans - October 20, 2008) WHAT A RATATOUILLE, I thought two weeks ago on October 6 as I watched the House Oversight and Government Reform Committee under the chairmanship of Representative Henry Waxman (D-CA) grill Dick Fuld, the CEO of the now-defunct Lehman Brothers, and the two former two CEOs of AIG -- and I do not mean the wonderful dish made of aubergines (eggplants), courgettes (zucchinis), peppers, tomatoes, and other veggies cooked in olive oil, but rather the other kind, the lousy stew that is badly prepared and poorly cooked. Waxman was in boxing mode and he used Fuld as his punching bag, hitting hard and repetitively on the huge compensation Fuld received during his tenure. They quibbled over the exact amount. Was it $350 or $500 million? Waxman asserted it was $500 mil, Fuld replied that it was closer to $350 mil (it was actually $450 mil.) Was it fair? asked Waxman repetitively. Would Fuld agree that he should give back some or most of this money? Fuld, of course, demurred and avoided answering the questions directly. He kept repeating that he too was a "victim," having essentially lost the value of the 10 million shares (or is it 8.5 million? -- in casinosphere, numbers matter little) he still holds and that are now worthless. Poor Fuld, I felt. A super-wealthy man turned poor. He'll have to sell a few assets to avoid joining the soup kitchens that are sprouting up over the country. Indeed, what a ratatouille!
A REPUBLICAN COLLEAGUE of Mr. Waxman, possibly aware of the irony hidden behind the hypocritical circus, told Fuld (I paraphrase), "look, you are the villain here, today. So, just play the role..." -- a remark that elicited a slight smile on the part of Mr. Fuld -- and I dare say the only one during the entire punching-ball session. He did play the villain, while lawyers and forthcoming civil, perhaps criminal, suits oblige, making sure that he did not dig a bigger hole than the one in which he is already drowning. He had nothing to do with his compensation packages, he said. They were all decided by a compensation committee, aka, the scratch-my-back-and-I'll-do-yours musical chair, and approved by the members of the board, aka, another scratch-my-back-and-I'll-do-yours musical chair. What he did not say is:
1) During his tenure, Lehman Brothers' stockholders got an over 22 percent return on their investments.
2) All the other Wall Street chieftains got similar bounties. So why go after him? Why not go after Hank Paulson, our Secretary of the Treasury, who made hundreds of millions of dollars as the head of Goldman Sachs, all the while successfully advocating and lobbying for having the SEC loosen up debt ratios and abandon all regulations for investment banks?
3) Why did this committee not look into Wall Street compensation packages and the unsound operating procedures, which turned out to be a castle of cards, of the Street?
4) And while we are at it, why don't you look into the decision by Paulson and Bernanke to let Lehman Brothers sink?
BEING A MAN used to hedging his bets -- how poorly it ultimately turned out -- Mr. Fuld did not utter any of those words. He coldly equivocated and played his villain role in a Hamlet-type fashion. (Ha, one wishes Shakespeare or Aristotle would be alive today. They'd have plenty of material for the theatre of the absurd.)
THE CIRCUS WENT ON the following day with the testimonies of the former two CEOs of AIG -- Martin Sullivan, who was chief executive for three years, and Robert Willumstad, whose tenure lasted just about four months. Our lawmakers were apoplectic by the excesses of compensation packages, the fact that AIG's head trader in London, Joseph Cassano, had received a huge golden parachute when he left the firm in March having caused over $25 billion in writedowns (which have since increased dramatically). Worse, AIG then hired Cassano back as a consultant for a paltry $1 million a month -- yes, $1 million a month! -- to ensure that he would not join another company and compete with AIG. In the Commedia dell'Arte Cassano would play the character of greedy Pantalone!
THE COMEDY had its "wining and dining" spectacle when Representative Elijah Cummings (D-MD) blew a huge steam of indignation as Waxman exposed a weeklong conference in a California resort for AIG executives with a $440,000 tab, including $23,000 for spa services. "They were getting their manicures, their facials, pedicures, massages while the American people were footing the bill," the Congressman declaimed. "Have you heard of anything more outrageous?" he asked. Actually yes, the Belgium-Deutch financial consortium Fortis threw a luncheon for some 50 brokers at the Hôtel de Paris, the most expensive palace in Monaco at a cost per head of 3,000 Euros ($3,900) for a total of 150,000 Euros ($195,000) as it was being bailed out of insolvency. Trivia: The Hôtel de Paris hosts the largest wine cellar in the word, with over 250,000 bottles, most of them priced in the stratosphere. For a modest 480 Euros ($620) you savor 50 grams (1.7637 ounces) of Iranian caviar. The Dexia Group also threw one of those obscene parties as it was being bailed out by the governments of Belgium, France, and Luxemburg. As they say in the French-speaking world, le ridicule ne tue pas!
INDEED OUR LAWMAKERS do not fear ridicule. Why did they not look into all those shenanigans in years past? Why? I've said it time and again: They are corrupted to the bone. Here is an explanation from Andrew Lahde, who managed a small hedge fund quite successfully. He wrote in a goodbye letter:
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it.
AN INTERESTING CHARACTER, this Andrew Lahde. In 2007, the fund he managed went up 886 percent as he bet against the subprime market. He joined the infamous John Paulson, whose fund shot up 420 percent for a profit of $18 billion, raking about $3.7 billion for himself (see my Blips#64), and two folks at Goldman Sachs, Michael Swenson and Josh Birnbaum, who netted $4 billion. (Keep in mind that these profits are "capital gains" and hence not subject to the income tax, only the capital gains tax (15 percent), the tax that McPalin wants to lower!) Lahde knew the game and played it well. Yet, a month ago, he simply threw in the towel and closed his hedge fund. Then he wrote a scathing letter about the system in which he operated, opening with:
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund) was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
OUCH, IT HURTS. His letter was published on the Condé Nast Web site, Portfolio.com, on October 17, 2008, and is definitely worth reading in full. An insider calling the charade for what it is, and more -- a rarity in today's world...
SINCE I AM on the subject of hedge funds that bet against the subprime debacle, I'd be remiss not to point out an error of mine. I previously wrote that George Soros, the über-financier, had missed out on the subprime crisis. He did not. According to John Cassidy in "He Foresaw the End of an Era" (The New York Review of Books, Volume 55, Number 16 - October 23, 2008),
In 2007, after the subprime crisis erupted, he returned, at the age of seventy-seven, to directing Quantum's investments, with results suggesting he hadn't lost his touch. Alpha magazine, a glossy publication that covers hedge funds, estimates that he made $2.9 billion in 2007, placing him second on its list of mega-speculators, behind only John Paulson, of Paulson & Co., who raked in an even more astonishing $3.7 billion.
I STAND CORRECTED. (Cassidy's article ought to be read if only to understand the liberal take on the crisis.)
THE "JEWS" DID IT! I've been wondering how long it would take before that wild and vile accusation would come up. It did not take long. A nauseating story spread on the Internet contending that Jews were responsible for the collapse of Lehman Brothers and that the firm had transferred $400 billion to three Israeli banks. It appears the story originated with some Walter Storch (aka, Peter Stahl, Gregory Douglas, and Brian Harring) of tbrnews.org, a notorious conspiracy-laden and anti-Semite Web site. To look "official" the story had a byline reading "Voice of the White House," a byline that Storch, or whatever his real name is, has been using since 2004. To learn more about Storch, read this analysis on dailykos.com.
THEN IT WAS PICKED UP by Jeff Rense, another conspiracist, advocate of UFO and paranormal phenomena, and a great disseminator of anti-Semite trash incriminating Israel, the Jewish Lobby, and the Jews for all the ills in the world (when it's not blacks and Latino immigrants), and got posted on his Web site. Since then it's made the rounds, appearing in one form or another on hundreds of Web sites (and counting). It reminds me of the second part of my 2004 review of The Politics of anti-Semitism. When things go right it's not thanks to the Jews, but when things go wrong it surely has to be caused by them. No wonder people of Jewish background feel a bit paranoid!
A CURIOUS READER asks why I thought that the financial crisis was "quite possibly manufactured," that it was a "fabricated crisis." Frankly, I can't put my finger on it. It's more of a hunch than anything else. I've been intrigued by the timing and the explanatory framing of the issue. I touched on this in my last Blips, especially the fuzzy explanation and rationale advanced, and ad-hoc steps taken by Bald and Beard -- Paulson and Bernanke -- which have yet to make one iota of sense to me. It's always been a debt problem, not a liquidity squeeze. They changed their tune repeatedly. They have yet to come up with a satisfactory response to their decision to let Lehman Brothers go down the drain through what was a classic massive run on the bank, when they had the power to suspend all trades of its stock, declare a small bank holiday, even if only limited to LB, to calm the markets and buy some time to fully analyze the situation, or again, simply turn LB into a bank holding company (as they did with Goldman Sachs and Morgan Stanley), which would have allowed LB to have access to federal funding. Beardie has advanced that they did not have the legal mechanisms to rescue LB and contrary to the situation with Bear Stearns, there were no interested private parties to come to the table. But there were -- Barclay's being a prime example. Then they turned on a dime and rescued AIG because it was "too big to fail," as AIG is bound to fail if nothing is done to stop the credit-default swap hemorrhage (I'm sure that you've noticed the supplemental $38.5 billion injected into the firm by the New York Fed. So now we are up to over $128 billion poured down this rat hole). Then they became highly alarmist, fueling more fire on the growing panic, helped by the homo ignoramus tenant in the White House who was much too pleased to play his role in spreading bad news and asking for the magic plan -- the $700 plus $150 billion boondoggle -- to be passed now, now, now. It was supposed to bring the genie back into the bottle by buying so-called toxic debts. Within a week or so -- circumstances changing, they assert -- they decided to infuse $250 billion of capital into a handful of banks without even getting voting rights. Meanwhile, our parliamentarians, our Congress people, ces princes du pot aux votes, as Maupassant used to called them in Sur l'eau ("these princes of the voting jar"), are diverting the attention and the anger of the public toward the "bad apples" (remember Enron and Abu Ghraib?), the executive pay that they have refused to regulate for ages and handsomely benefited from -- the largesses that filled their campaigns' pots. And of course, the pundits, clueless as always, rehash the PR from above and the insiders' mantra. (Have you watched CNBC's Maria Bartiromo -- the "Money Honey" -- and her empty, oblivious chitchat? Even my cat Marcel, with his pea-sized brain, could do a better job than Bartiromo in explaining the mess. But that lady has been praying to the altar of Greenspan & Co. for years, gets interviews from the gods of finance, and has a $ sign intensely reflecting from her moronic, dead eyes.)
IT JUST DOESN'T MAKE SENSE, which has brought several theories out in the alternative, non-lobotomized press. Here are a few: 1) LB was allowed to fail because it was an archrival of Goldman Sachs, Baldie's old firm. (It makes no sense to me. Neither Beardie nor NY Fed chairman Timothy Geithner are Goldmanites.) 2) By letting LB fail, they brought Europe into the chaos, which is what the Bushites have been all about for 8 years. That theory expounds that by destructing the international financial order, the U.S. will manage to remain on top. (Ditto, it makes no sense to me. The international financial system is far too much integrated. Were the European system to tank it would destroy the American system and vice versa. These people may be ideologues but they certainly are not kamikazes.) 3) By loading the taxpayers with an ever-growing burden of debts, the future administration will have no leeway to promote social policies and will be forced to cut further and deeper those services that government keeps barely providing. (Indeed, this has been the agenda for 30 years; so there is nothing new there.) 4) They are saving the fortunes of their bodies and of themselves. (Tell this to the LB folks!) 5) They are sheer incompetents. This may be closer to a reasonable estimation. The Bear Stearns bailout did not have the expected results -- to stop runs on the banking system. Neither did the nationalization of Freddie and Fannie. AIG remains on life support. They may have wanted to send a message to the financial world: Not everybody would be saved. LB ended up in the wrong place at the wrong time. It could as well have been Merrill Lynch. But whatever the case their fateful decision has had devastating effects (the law of unintended consequences?).
I AM NOT ENOUGH OF A MACHIAVELLIAN to understand the motivations of these powerful people. All I know, sense, feel, is that everything may or may not contain a seed of reality. But there is something else I sense, beside the possible fabrication of this crisis: It may well be an upside-down story, after all. We all are under the impression -- lavishly pushed by the media and the actors at play -- that the financial crisis was triggered by the housing bubble and if not contained is going to have a direly negative effect on the "real" economy and lead to a deep recession (forget the D-word). But what if it were the other way around? Indeed, what if the financial crisis was triggered by the demise of the "real" economy?
THERE'S SOMETHING FUNNY about referring to the economy as the "real" economy, as though there was an "unreal" economy, a "casino" economy exemplified by the financial markets. The word economy comes from the Greek oïkos (house) and nomos (law). It means the management of one's house, budget, small businesses -- the reasonable actions taken by people to handle their own affairs and those of their community. It characterizes the values of many an American: living within one's means, spending as you go, being industrious, honest, civil, helpful to your neighbors and compatriots. It has to do with prudence, the careful consideration of risk taking, the appreciation of yesterday and tomorrow, of parents, grandparents, children and grandchildren. It has little or nothing to do with algorithms, computer models, and the creation of vaporous wealth through worthless commercial papers, endless speculations, and pies in the sky, the "unreal" casino economy, which is Las Vegas on steroids.
BUT HERE IS THE STINKER: The "real" economy has been on its deathbed for a decade or more (even before Bushie boy got into the Oval Office). It was kept under tight control on life support courtesy of Greenspan & Co. (Bush Sr., Clinton, Rubin, Bush Jr., Paulson, Bernanke, etc.). Lacking real producing endeavors, the economy was pimped up through snake oil of old -- debt, more debt, and all the get-rich stratagems that have littered the story of hubris over the ages, whether in the U.S. or in Europe. Capitalism, remember, is all about rate of profits. The housing bubble burst on or about May 2006, right about the time Goldman Sachs's Baldie got confirmed in his Treasury position. The game was over, whether or not they knew it (I think they did -- or not only are they incompetent they are truly idiots, as Andrew Lahde intimated). The economy was tanking -- and all serious indices (not the CNBC ones) were indicating the trend. By the spring of 2006 all bets were off. There, hence, was the time to move to Plan B. There was no Plan B, however. The charade continued.
THE "REAL" ECONOMY had become unreal. There was no profit generated. Capitalists moved to the next step, creating profit out of a tanking "real" economy by betting on the banks. They succeeded. Forty percent of profits in the U.S. came from vaporware. Meantime, the "real" economy dug deeper into debt to keep the "lifestyle" going. It was built on IOUs to the horizon and beyond. But it was a castle of cards. As profits dwindled, credits exploded. Fortunes were made in the process as the whole was quickly falling into disrepair. Go back and read Zola.
IT'S THE ECONOMY, STUPID, that we have to confront. It's an economy that is dead and does not answer the four pylons of humane subsistence: Food, housing, education, and health (add some free time for thinking, further learning, and simply decompressing from day-to-day stresses). It's an economy that disregards the natural realm and is most willing in an oblivious Palin aspect to keep disregarding reality in the name of idiotic memes and myths that have been proven wrong again and again. It's all about, to repeat history, rehashing the same old paradigm: The rich will gleefully eat on top of the modest and the poor's scalps.
LOOK CAREFULLY: There is no financial crisis except one created by the "real" economy. Once the housing market plateaued in early 2006 and tipped in the spring the great binge was over. Households could no longer refinance or take equity loans. They kept going with plastic for a few months but could no longer afford big items (cars, houses, etc.). A handful of financial sharks saw it coming and began short selling (e.g., John Paulson) subprime mortgages. The over-indebted consumers, their credits maxed out, reduced their purchases as they began to receive angry letters from lenders and saw interest rates going higher. Investors got worried. Add the cost of the wars, the budget and trade deficits, the energy and food inflationary trends to the equation and by the beginning of 2007 the snowball was rolling down hill at an increased speed. So, again, to answer my curious reader, I have yet to fully figure out the mayhem, but I can assure you, the financial crisis is not the cause of the economic turmoil. The economic havoc created the financial crisis, which in turn is deepening our economic predicaments. And there are more shoes waiting to fall in corporate America. As the saying goes, hope for the best, prepare for the worse.
THE RURAL LIFE: A BEVY OF GEESE flew over our little place two days ago, heading south in its usual V formation, keeping a few young or weak ones in a middle straight line. They were calling upon themselves, sending messages of encouragement. Another year has passed by; winter is coming; time to move to better climates. We'll be back next year if god permits. Perhaps Eduardo will be back too -- this wonderful man who's helped me day in and day out over this year has disappeared, apparently back to Michoacán. He did not tell me goodbye, that good fellow. He might have thought I would be angry -- which I would not have, only sorry that he had to leave and thankful for the help. Hopefully, he'll be back without incurring the risk of death in some southern desert or the inhumane treatment that our militias bear on our immigrant brothers and sisters. When shall we, for good sake, open the border and stop building walls?
I HAVE BEEN slightly nostalgic about the old country lately. I suppose this state of mind has to do with talking to my 83-year-old mother who's gone through cancer surgery three weeks ago -- the 14th or 15th surgery in her long life. I've been calling her on an almost daily basis thanks to those little phone cards that allow one to speak for close to 500 minutes for $10 with someone else in a geographically far-away country, yet an emotionally close one. From one phone call to the other, and watching the geese up high in the sky, Jean Ferrat's 1975 refrain resurrected in my sensitive and sensual self (Jan and I had a wonderful love-making night last evening):
Pourtant, que la montagne est belle... Comment peut-on s'imaginer... en voyant un vol d'hirondelles... que l'automne vient d'arriver...
I'll let Jan (or Marie) translate.
. . . . .
C'est la vie...
And so it goes...
La vie, friends, is a cheap commodity, but worth maintaining when one can.the life line won't hurt you much, but it'll make a heck of a difference for Swans.