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March 27, 2010

-Money…? In a voice that rustled.

Opening line from “JR” by William Gaddis

About ten years ago I worked as teller in the corporate headquarters of what was once the nation’s largest savings and loan institution and later became one of the largest washouts in US history. During the course of my employment, I struck up a friendship with a broker for another financial firm which no longer exists. He worked a few dozen stories higher up in the same building (which was very indicative of his place in the financial district’s pecking order as compared to mine) and one day he invited me up to his office to show me how he operated. We started talking about butterfly options and other investment strategies he used to make money for his well heeled clientele. I asked how many other brokers utilized these strategies we discussed, which are not really all that complicated, relatively low risk, and can be a good way to make a little extra cash. I was a little taken aback by the answer.

He said, “Most of the other brokers don’t even understand what the hell I’m talking about.”

Two years into one of the biggest economic busts ever inflicted on the world, and after reading a few books and thousands of articles about the demise of Bear, Lehman, Merrill and hundreds of other small banks, naked shorts, dark pools, and high frequency trading, CDO and CDS, TARP,TALF,PPIP and all other exotic species of bailout CRAP designed to prop up our specious specie, it’s hard to escape the conclusion that my friend was essentially right – the majority of those within the financial industry had no clue what was going on and if they did, they did nothing to stop it.

In an economic system where money is backed by nothing except the faith that it actually has value and the vast majority of that money comes into existence as debt, the financial oligarchs did understand one thing – more debt must be constantly created to keep the whole pyramid from collapsing. A very simple explanation of what happened is that at some point individuals had taken on as much personal debt as they could bear and something needed to be done to keep the river of debt flowing. Massive deregulation, artificially low interest rates and a hefty dose of good old fashioned fraud as the authorities turned a blind eye allowed the public to take on some further debt but also enabled the financial industry to produce ever greater amounts of it to trade among themselves. Now you may be able to borrow today with the expectation that next week‘s labor will put you back ahead or at least even, but in a system where debt compounds exponentially due to interest, you can’t mortgage your future indefinitely without it becoming apparent at some point that the increasingly valueless money in your wallet is based solely on ever increasing debt whose repayment is increasingly questionable. When that realization hits the whole system stops increasing in a hurry and collapses. If you ever wondered why Dubya told everybody to keep shopping back in 2001 after the NYC attacks, there you go.

We have extensively documented the whats, whos, and hows of this meltdown here over the past year or so but if you want to understand the why, the psychology behind it all, you can’t do much better than William Gaddis’ novel “J R” originally published in 1975. “J R” is a darkly comic novel which tells the story of 11 year-old J R Vansant who after a class trip to the city takes an interest in the financial markets. Using his reluctant elementary school music teacher Mr. Bast as a front man, through a series of interconnected schemes he manages to parlay a small initial investment in surplus military forks into the too-big-to-fail financial empire called the J R Family of Companies. He does it because he’s greedy, because there are always plenty of suckers available, and ultimately, after rationalizing to himself that everything he does is somehow OK, simply because he can.

– No but holy shit Bast I mean that’s what you do! Like I mean these here Indians is it my fault they think corn is this here god they don’t even have electricity? is it my fault if I didn’t get these here leases off them and leave them stay there somebody else is going to screw them out of the whole thing? Is it my fault if I do something first which if I don’t do it somebody else is going to do it anyway? I mean how come everybody’s always getting mad at me! Like we get Milliken to help fix up these laws to start selling this marijuana to help out these here Ritz stockholders so Beamish gets pissed off and goes and quits just because I did it first like these ads in these here textbooks and all, I mean he gets pissed off at that just because I do it first so then he gets pissed off where I do just like everybody like where we’re franchising out this here health plan, I mean these nursing homes and funerals and all they have to buy everything off us where we get to charge them what we want and squeeze them out anytime we want is it my fault that’s what franchising is! I mean Beamish even gets pissed off where we paint this Triangle water tower like this here giant roll of toilet paper then he respectfully submits why don’t we recycle this here whole encyclopedia I mean is it my fault if we’ve got this like a third of a million dollars sunk in it when some wiseass finds out these writers they’ve just been making up entries only nobody knows which ones? I mean then where one of them even says what do you expect for this half cent a word what am I suppose to do, recycle it and throw all these here printers and binders and salesmen out of work so they all get pissed off like at Eagle? I mean like we close the mills so they’re all pissed off about this here vacation time they been saving up like it’s my fault they didn’t take their dumb vacations so they’re going to strike and sue us and all so this here Billy Shorter, I mean just to shut up his union we go and give his stupid kid this Wonder beer distributorship which he screws it up so bad we have to buy it back off him for like fifty thousand dollars I mean what do you expect me to do! Hey…? My ankle I can’t hardly, hey? Bast…?

Curiously enough, and coincidentally at the same time they were ignoring repeated warnings about Bernie’s Madoff’s scam, the SEC cracked down on real-life small fry investor Jonathan Lebed who had turned maturing savings bonds worth $8,000 into several hundred thousand by the age of 15 by purchasing penny stocks and then touting them on financial message boards. Michael Lewis wrote this hilarious article about the case back in 2001 right after Lebed settled with the SEC for part of his winnings. The following is part of a statement Lebed sent to his lawyer during the course of the case against him. Out of the mouths of babes…

“I was going over some old press releases about different companies. The best performing stock in 1999 on the Nasdaq was Qualcomm (QCOM). QCOM was up around 2000% for the year. On December 29th of last year, even after QCOM’s run from 25 to 500, Paine Webber analyst Walter Piecky came out and issued a buy rating on QCOM with a target price of 1,000. QCOM finished the day up 156 to 662. There was nothing fundamentally that would make QCOM worth 1,000. There is no way that a company with sales under $4 billion, should be worth hundreds of billions. . . . QCOM has now fallen from 800 to under 300. It is no longer the hot play with all of the attention. Many people were able to successfully time QCOM and make a lot of money. The ones who had bad timing on QCOM, lost a lot of money.

“People who trade stocks, trade based on what they feel will move and they can trade for profit. Nobody makes investment decisions based on reading financial filings. Whether a company is making millions or losing millions, it has no impact on the price of the stock. Whether it is analysts, brokers, advisors, Internet traders, or the companies, everybody is manipulating the market. If it wasn’t for everybody manipulating the market, there wouldn’t be a stock market at all. . . .”

In response to the latest bust, the financial oligarchy has trotted out its best smoke and mirrors act. The incense may smell like rejuvenation and the mirrors make you look fifteen pounds lighter but look behind the curtain and you’ll find that while claiming “reform” the oligarchs continue to manipulate the market in a desperate attempt to re-inflate the next debt bubble. So when the next collapse is even bigger than the one we’re currently in the midst of and somebody asks you what happened, if your response is that a bunch of petulant 11 year-olds built an economy based on unused tableware and it didn’t work out so hot, you wouldn’t be all that far off.

27 Comments leave one →
  1. cometman permalink*
    March 27, 2010 5:00 pm

    While I was poking around that William Gaddis website I ran across this article by Gaddis which was originally published in the NYT in 1987. Gaddis portrays J R giving a testimony at a Congressional budget hearing. Sounds very familiar 20+ years later. An excerpt:

    J R: Right. We can proceed on to the Defense Department where this here ripple effect really gets going. See at this here point in time there’s like 30,000 companies in military production where the military signs 52,000 contracts every day. I mean you take these old historical times like at Rome and all where these armies and navies went out and conquered everybody to make them pay all these taxes to support everybody at home, right? Where they could just hang around in these here togas and talk about philosophy and all? So now it’s exackly backwards. Now everybody at home has to work to support the military. I mean this biggest military budget in history where we’re not even having a war yet, so the Pentagon wants like $1.8 trillion over this next five years I mean where will they get it? See so that’s these priorities where you cut out all this big Government spending at home so this tax money can go where they need it. Like you take this $336 million for medical care and housing for all these here veterans left over from the last war, only we’re talking about the next one, so for the same money you get to buy 220 Phoenix air-to-air missiles, right? See mainly like a third of these here reforms we’re proposing are in these low-income programs which aren’t hardly cost effective taxwise, like cutting these inflation adjustments for Social Security where all these here old people are piling up on us? Like where just in 1985 we spent this $100.9 billion on Medicare and Medicaid, we can save like $90 billion this next five years to pay for some big-ticket items like this $28 billion B-1 bomber program and these 100 MX. . . .

    Chairman: I should like to get back to square one, and we might observe in passing that in 17 recent MX missile tests only five were equipped with production model guidance systems, and of those five only three hit within the target zone, and so. . . .

    J R: No but look Mr. Chairman we’re still on square one. Like this B-1 bomber which it’s 40 tons overweight so it shakes all over and couldn’t hardly hit its target even if it gets there which they’re not sure of that too. See how it works is you get all these used generals and admirals with these big pensions where they’re used to these free haircuts and doctors and all, so they join these here big defense contractors to help think up these new projects for how to spend this here $300 million a day with these old buddies which are still stuck at the Pentagon, right? So they figure up like this here Bradley troop vehicle for $1.7 million each and this Sgt. York gun which costs $1.8 billion before they junked it? See so every new project like creates all these new jobs which degenerate like 100 more trying to rescue it, and. . . .

  2. cometman permalink*
    March 27, 2010 7:08 pm

    Some eye candy about the golden ratio in the natural world with an appearance by the nautilus!

    • Stemella permalink*
      March 28, 2010 11:41 am

      Very nice. Thanks for that. If you haven’t yet, check your email. I linked to a way to upload and post documents. Not sure if it will work on wordpress though. Must consult the oracle of wordpress for details. see if this helps

      • cometman permalink*
        March 28, 2010 3:43 pm

        Thanks. I’ll check it out and see if I can get it to work.

  3. cometman permalink*
    March 28, 2010 10:42 am

    Here’s something that won’t be on the 6 o’clock news but should be. As Bradblog reports, eight people involved with Kentucky elections have been convicted of election fraud and face up to 20 years in the big house.

    All eight defendants in Clay County, Kentucky’s election fraud trial have been found guilty today by a federal jury. Six of those eight were high-ranking election officials, including the county clerk, a circuit judge and the school superintendent. The conspirators were charged with having manipulated federal elections in 2002, 2004 and 2006 by buying and selling votes and manipulating electronic voting machines[emphasis added by me-cman].


    Supporters of unverifiable electronic voting, such as election officials and voting machines companies, had long argued that, though manipulation of such systems was possible, nobody had actually ever done so. While that dubious argument was difficult to independently verify one way or another — since the private vendors make public oversight of such systems virtually impossible by blocking citizen inspection and oversight of such systems due to claims of “trade secrecy” — the denialists arguments are no longer valid.

    If a bunch of dumbass good old boys were able to figure out how use these machines to take the vote-rigging they were already doing to a higher level, how many people with more brains in their heads have been able to do the same thing without getting caught?

  4. cometman permalink*
    March 28, 2010 11:24 am

    Here’s a great post from Yves Smith taking Micheal Lewis to task for his new book “The Big Short” – Debunking Michael Lewis’ Subprime Short Hagiography.

    In a nutshell Smith chides Lewis for lionizing the short sellers while failing to mention that at some point they did realize that due to the vagaries of an unregulated derivatives market their own short bets were allowing the banksters to create even more synthetic CDOs thus exacerbating the problem which eventually required the taxpayer to foot the bill.

    Normally I don’t delve too much into the comment sections, but if you’ve got an hour or so to kill this article and all the comments are well worth reading in their entirety. There is a lot of great back and forth there with intelligent and informative comments on both sides of the argument.

    I like reading both Smith and Lewis quite a bit and Smith does have a very valid point. I just think she and Lewis come at the problem from two different perspectives. Smith is still involved in the financial industry and she rightfully doesn’t want to be associated with a bunch of charlatans and would like to see the financial system cleaned up so it serves a useful purpose again rather than simply existing to line the pockets of speculators at the expense of the rest of us. She’s a little harsh on Lewis here IMO because Lewis writes from a different perspective. To my knowledge he hasn’t been directly employed by the industry for over 20 years and with the benefit of hindsight he writes more entertaining stories by trying to get at the individual personalities involved. His portrayals may put some of the characters he describes in a somewhat sympathetic light but I can’t read him without feeling that behind everything he says is a definite acknowledgment of the overall ridiculousness of the entire financial system.

    That being said, without the benefit of hindsight Lewis does fall flat sometimes as evidenced by this article by Lewis from 2007 I found in the comment section – Davos Is for Wimps, Ninnies, Pointless Skeptics.

    But the most striking thing about the growing derivatives markets is the stability that has come with them. More than eight years ago, after Long-Term Capital Management blew up and lost a few billion dollars, the Federal Reserve had to be wheeled in to save capitalism as we know it.

    Last year Amaranth Advisors blew up, lost more than LTCM, and the financial markets hardly batted an eyelash. “The financial markets in 2007,” some member of the global economic elite might have said but didn’t, “are astonishingly robust. They seem to be working out how to absorb and distribute risk more intelligently than any member of the global economic elite could on his own.”

    Once the laughter subsided — and someone took down his name to make sure he didn’t make next year’s guest list — he might go on to point out that in spite of a great deal of political turmoil the markets have remained calm.

    Something tells me he might like to take that statement back. Janet Tavakoli rips in to Lewis for that and for his new book in this pretty humorous article – Michael Lewis: Junior Salesgirlieman.

    Michael told 60 Minutes (March 14) the financial crisis is a story of mass delusion, but he’s only deluding himself. It takes courage to tell the real story. This is actually a story of Wall Street’s massive, wide-spread, multi-year fraud, including accounting fraud.

    She has a very good point too. Maybe I’m being too much of an apologist for Lewis, but can’t the meltdown be attributed to both mass delusion and fraud? Kind of hard to defraud people if the marks aren’t deluded. I may be wrong, but again I think Lewis is well aware that the entire financial system as it’s now constructed is basically one huge mass delusion and unless you have a systemic overhaul the fact that fraud will occur sort of goes without saying. My impression from reading all this is that there are a few people talking past each other while essentially saying the same thing. But I think it also reinforces the point that very few people really understood what was going on at the time it was happening.

    Anyhow, lots of food for though in those links and I’ve added both Yves Smith’s book Econned and Lewis’ The Big Short to my queue of books I need to read.

    • Stemella permalink*
      March 29, 2010 8:52 am

      I haven’t yet read the articles, but I did see Lewis in a couple of interviews, I think one was with Jon Stewart. My impression of his take in the interview was very similar to yours, that his focus or emphasis was on analysing the type of personalities or characters who foresaw the bubble and profited on it by reading the fine print and following up on it. I also appreciate Yves’s point that they are all essentially scum ;) You’ll have to give us a review of Yves’ book when you are finished. I am banning myself from book purchases until I finish a gooddamned book I’ve already got!

  5. artemis54 permalink
    March 28, 2010 12:29 pm

    Four stars!

    Interesting to compare the exotic financial world and its separation from any grounding in a real world economy with the structure of the book J R, where narrative and narrators and their privileged, certain points of view have disappeared entirely – if you add up the non-dialog parts of the book it comes to about five pages – and we’re just yanked along from one conversation to another via phone line, a chance passing in the street, a misoverheard remark at the next table.

    I was bowled over by J R when it came out, and had to immediately reread it a couple times.

    • cometman permalink*
      March 28, 2010 4:40 pm

      I read it just once about 15 years or so ago and loved it. Wrote this post in part to inspire myself to read it again soon. Very glad I made the effort to get through some of his doorstopper novels. It’s a bit of a struggle and I found myself reading a lot of passages multiple times to figure out what the hell was going on but it was worth it. He has a way of making his characters drop small seemingly offhand remarks every few hundred pages and then he’ll tie them together subtly and unexpectedly with something that leaves your jaw hanging open.

  6. artemis54 permalink
    March 29, 2010 5:54 am

    Something I ran across a while back: For your readers planning on reading The Recognitions over lunch, an ambitious annotation.

  7. cometman permalink*
    March 29, 2010 8:35 am

    Another kaboom, this time in Moscow. Didn’t take long for “<0" to chime in with the hypocritical handwringing –

    “The American people stand united with the people of Russia in opposition to violent extremism and heinous terrorist attacks that demonstrate such disregard for human life, and we condemn these outrageous acts,” Obama said.

    I guess sending a predator missiles up the asses of people at wedding parties, or middle of the night raids murdering pregnant women, or indiscriminately shootong an “amazing” number of people who are no threat whatsoever is considered humanitarianism these days.

    But elsewhere in the article we find that at least the rouble is OK.

    The Russian rouble fell sharply on the bombings, but later regained ground, with traders arguing the bombs were unlikely to undermine the strength of the currency.

    Well thank heaven for that. Slaughter and maim and murder all you want then just so long as it doesn’t knock down anybody’s currency.

    For fuck sake this whole world is nuts.

    • Stemella permalink*
      March 29, 2010 8:57 am

      There have been some recent kabooms in Athens too, though on a much smaller scale.

      The world is indeed fucking nuts.

      • cometman permalink*
        March 29, 2010 9:27 am

        Unbelievable. The bomb winds up killing an Afghan boy who was sifting through the trash. How much you wanna bet that Afghan family was in Greece because they were fleeing the violence inflicted by the US in their own country and they wind up victims of a bomb likely intended to strike back against the same Western powers they were fleeing.

  8. Stemella permalink*
    March 29, 2010 9:09 am

    Danger danger to all street fighting men and women. If the sound blasting tanks don’t getcha, the red hot chili peppers from India surely will. Weaponized. Weapons of mass protest disruption. It’ll even take out a charging effelump.

    India deploys world’s hottest chilli to fight terrorism: Bhut jolokia, or ‘ghost chilli’, to be used for teargas-like grenades to immobilise suspects, defence officials say

  9. Stemella permalink*
    March 29, 2010 9:26 am

    Chris Hedges again applies sledge to securing pin with precision aim. After all he has seen the same pattern all over the world, knowing well the depravity of humans in a corrupt society.

    Is America ‘Yearning For Fascism?’

    A bankrupt, liberal elite, which proves ineffectual against the rich and the criminal, always gets swept aside, in times of economic collapse, before thugs and demagogues emerge to play to the passions of the crowd. I have seen this drama. I know each act. I know how it ends. I have heard it in other tongues in other lands. I recognize the same stock characters, the buffoons, charlatans and fools, the same confused crowds and the same impotent and despised liberal class that deserves the hatred it engenders.

    What he portends is all too imaginable given the growing hate out here in the fields while the government and ruling class fiddle with their fashions and tie colors for the television.

    • cometman permalink*
      March 29, 2010 10:18 am

      What Cynthia McKinney said in that article bears repeating too.

      “It is time for us to stop talking about right and left,” McKinney told me. “The old political paradigm that serves the interests of the people who put us in this predicament will not be the paradigm that gets us out of this. I am a child of the South. Janet Napolitano tells me I need to be afraid of people who are labeled white supremacists but I was raised around white supremacists. I am not afraid of white supremacists. I am concerned about my own government. The Patriot Act did not come from the white supremacists, it came from the White House and Congress. Citizens United did not come from white supremacists, it came from the Supreme Court. Our problem is a problem of governance. I am willing to reach across traditional barriers that have been skillfully constructed by people who benefit from the way the system is organized.”

      Straight to the heart of the problem – pointing out how the elite always try to divide and conquer for their own benefit. No wonder they always ignore her or ridicule her if she does something which forces them to notice.

  10. cometman permalink*
    March 29, 2010 9:44 am

    Here’s one that set my bullshit detector off –the Treasury plans to sell all its shares of Citigroup in 2010 and may make a several billion dollar profit.

    Surprisingly enough the figures cited in that article actually add up. Citi was given $45 billion and they paid back $20 billion (supposedly – I’d really like to see the check stub rather than having to take the government’s word for it) and the Treasury bought 7.7 billion shares at $3.25 per share for the remaining $25 billion. Of course Citi isn’t trading all that much higher right now and the government can’t unload all the shares at once without driving the price down so it remains to be seen whether they will turn a profit or not. Then there was this tidbit at the end which sounds an awful lot like a backdoor bailout to another too-big-too-fail:

    The Treasury said Monday that Morgan Stanley will handle the sale of the shares.

    I’d imagine the brokerage fees for that would be in the hundreds of millions.

    Did a little poking around the financial sites to see if anyone had mentioned this specifically and didn’t come up with much directly related, but I did find a few things related to Citi. Bit of a link dump since I haven’t had time yet to read them all thoroughly or follow some of the links at the links.

    This can’t be good. Citi has come up with some new convoluted derivative that supposed to insure against future systemic crises – Citi’s Financial Crisis Derivatives Should Be Banished From Earth .

    Simon Johnson has more on Citi here including a link to a WSJ article I couldn’t access. The link to a new speech by Sen. Kaufmann looks worth reading too.

    I’ll have to read this over later and see if anything else gets posted about the stock sale later. I’m sure there’s a boondoggle in there somewhere.

  11. cometman permalink*
    March 29, 2010 9:45 am

    Somali pirates have a business model – who knew?

    • Stemella permalink*
      March 30, 2010 9:23 am

      That “business model” doesn’t sound too different other than being maritime and not landlocked that the m.o. used by those whackos just busted up in Michigan. Come to think of it, it isn’t all that different a business model as that used by loan sharks and banksters reeling in their own victims. Pirates, thugs and thieves are pirates, thugs and thieves no matter what masks they wear.

  12. cometman permalink*
    March 29, 2010 10:35 am

    Ha! Somehow this advertisement does NOT make me want to rush off to London.

    • artemis54 permalink
      March 30, 2010 3:11 am

      It isn’t doing much for my appetite either.

    • Stemella permalink*
      March 30, 2010 9:27 am

      Ewww. haha. The traditional English Breakfast is a cardiac on a plate. Fried egg, fried greasy meat, spam spam spam, and fried bread and spam. Fucking gross.

  13. cometman permalink*
    March 30, 2010 8:11 am

    The LHC sets a new record!

    Physicists at the CERN research center collided sub-atomic particles in the Large Hadron Collider on Tuesday at the highest speeds ever achieved. “It’s a great day to be a particle physicist,” said CERN Director General Rolf Heuer. “A lot of people have waited a long time for this moment, but their patience and dedication is starting to pay dividends.” Already, the instruments in the LHC have recorded thousands of events, and at this writing, the LHC has had more than an hour of stable and colliding beams.


    Beams collided at 7 TeV in the LHC at 13:06 CEST. This marks the first long run at an energy three and a half times higher than previously achieved at a particle accelerator.

    And that’s still not even close to full power. The LHC is designed for collisions of up to 14 TeV.

    Here’s a CERN webcast currently discussing the event.

    Woo hoo!

  14. cometman permalink*
    March 30, 2010 8:15 am

    The problem with politicians explained – MIT neuroscientists find moral judgments can be altered.

    MIT neuroscientists have shown they can influence people’s moral judgments by disrupting a specific brain region — a finding that helps reveal how the brain constructs morality.


    How they did it: The researchers used a non-invasive technique known as transcranial magnetic stimulation (TMS) to selectively interfere with brain activity in the right TPJ. A magnetic field applied to a small area of the skull creates weak electric currents that impede nearby brain cells’ ability to fire normally, but the effect is only temporary.

    In one experiment, volunteers were exposed to TMS for 25 minutes before taking a test in which they read a series of scenarios and made moral judgments of characters’ actions on a scale of 1 (absolutely forbidden) to 7 (absolutely permissible).

    In a second experiment, TMS was applied in 500-milisecond bursts at the moment when the subject was asked to make a moral judgment. For example, subjects were asked to judge how permissible it is for someone to let his girlfriend walk across a bridge he knows to be unsafe, even if she ends up making it across safely. In such cases, a judgment based solely on the outcome would hold the perpetrator morally blameless, even though it appears he intended to do harm.

    In both experiments, the researchers found that when the right TPJ was disrupted, subjects were more likely to judge failed attempts to harm as morally permissible. Therefore, the researchers believe that TMS interfered with subjects’ ability to interpret others’ intentions, forcing them to rely more on outcome information to make their judgments.

    • Stemella permalink*
      March 30, 2010 9:32 am

      Oh, you know that the MIC must be all over this kind of research. Let’s make the ends justify all means!

      Lab rats are we with mutable moralitee.
      Oh the Manatee. For Miss Dee.

  15. cometman permalink*
    March 30, 2010 8:33 am

    Couple of articles on exactly how much “<0" and Congress have been "helping".

    Let the insurance and industry wrote health care "reform" legislation and surprise! surprise! – they’re already working the loopholes to deny coverage to children even though we were told that this simply wouldn’t be possible anymore.

    Most notably and shamelessly, insurance companies are attempting to say that they actually do not have to insure all children with pre-existing medical conditions by this fall.

    Last week, the Associated Press and Congressional Quarterly reported the first weasel words from insurance industry officials that the language in the law allows them to duck away from full coverage of sick children. Insurers say they read the law to mean that, sure, if we offer insurance to a family, we cannot discriminate for children’s pre-existing conditions. But, ah, they say, there is nothing in the law that says we have to offer insurance to the family in the first place until 2014, when insurance companies have to accept all Americans for coverage, regardless of medical conditions. The dispute concerns families who lack employment-based insurance and seek coverage in the non-group market.

    And then there’s “<0" s latest attempt at mortgage relief for people at risk of losing their homes. As Dean Baker explains:

    If the point is to help homeowners then there are two incredibly simple questions that must be asked:

    1. Are homeowners paying less under the plan than they would to rent the same place?

    2. Are homeowners going to end up with equity in their home?

    These are the key questions, because if we can’t answer yes to at least one of them, then we are not helping homeowners. If we can’t answer yes to at least one of these questions, then taxpayer dollars being put into the programme are helping banks, not homeowners.

    Unfortunately, it seems no one in the Obama administration has yet been told about the housing bubble. There is no evidence that they ever considered these questions in designing the latest policy to “help” homeowners.

    The programme will potentially pay banks and loan servicers up to $12bn to write off principle on mortgages. In exchange, the government will guarantee new mortgages through the Federal Housing Authority (FHA). Those familiar with the housing market will note that house prices are still falling and must fall by close to 15% to get back to their long-term trend. If house prices continue to fall, then the vast majority of the homeowners that take part in this programme are likely to never accrue any equity in their home.

    Furthermore, the FHA is likely to incur substantial losses on these loan guarantees, as homeowners will again find themselves underwater and many will be unable to pay off their mortgages when they sell their home. Because the FHA hugely expanded its role in the housing market in the last two years, without paying attention to falling prices, it now is below its minimum capital requirement. It will suffer additional losses and fall further below its capital requirements as a result of this programme. By the way, the losses to the FHA and the taxpayers are money in the pockets of the banks, but no reason to mention that detail.

    • cometman permalink*
      March 30, 2010 10:43 am

      Update. Supposedly the insurance industry is backing down about trying to do an end-around to avoid covering sick kids, likely due to embarrassing publicity about it.

      We’ll see if they actually do. From what I understand the language that allows them to do it is still in the law, so unless they rewrite the section of the law I don’t see how we have anything other than the good faith of the industry to rely on which isn’t worth a pisshole in the snow.

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