Psychopolitik 2.0

In an American Voices bit on The Onion, in response to Bush lifting the executive ban on offshore oil drilling:

“Is there a ban on printing more money? If so he should lift that too and fix the economy while he’s at it.” -Don O’Connor, painter

Rather than laugh about how obviously stupid that remark would be if someone actually said that, it reminded me of a quote Cunning Realist had up awhile back:

If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more.

-Adam Fergusson, When Money Dies

Blargh…

A couple snapshots from the active meltdown.  All emphasis mine:

-Another bank failed…

U.S. banking regulators swooped in to seize mortgage lender IndyMac Bancorp Inc on Friday after withdrawals by panicked depositors led to the third-largest banking failure in U.S. history.

California-based IndyMac, which specialized in a type of mortgage that often required minimal documents from borrowers, became the fifth U.S. bank to fail this year as a housing bust and credit crunch strain financial institutions.

The fifth?  I know about Bear Stears, but what were the other three?  Much as I’ve been keeping up with this, I don’t recall a mention of those. Hmmm…

IndyMac will reopen fully on Monday as IndyMac Federal Bank under Federal Deposit Insurance Corp supervision, but tensions ran high as customers at a branch at its Los Angeles-area headquarters read a notice in the window saying it was closed.

At another branch down the road, a man who said he had more than $200,000 in an account — twice what is normally FDIC guaranteed — argued with a security guard who was closing up.

The FDIC, which will seek a buyer for IndyMac, estimated the cost of the bank’s failure to its $53 billion insurance fund at between $4 billion and $8 billion.

So some other bank is going to get a ridiculously sweet deal eventually in absorbing them, and the public is going to eat the costs.  In the meantime, the government owns it.  Also, if the man with the account mentioned in the story is any indication, future banking will require the average person to know the terms and regulations by heart before they can believe that their money will be there, because Gawd Forbid you end up saving more than they can be trusted with.  Ponder this for a moment.

-Fannie?  Freddie?  Fucked:

A private equity executive who formerly headed up regional bank North Fork Bancorp Inc said on Friday that some form of nationalization of Fannie Mae and Freddie Mac was “inevitable.”

“The combination of the real problems that these companies have with the perceived problems that they have is deadly,” John Kanas, now a private equity partner at WL Ross & Co, said in a telephone interview.

He described the mortgage entities as “critical,” saying the backing they provide is not just for the mortgage market, but also supports the smooth running of the wider financial markets.

Nationalization, however, is not going to be problem-free, he said. Assuming the government fully backs the companies, that would imply the equity behind them is wiped out, he said.

“That alone is going to cause great dislocation,” he added.

The average person right now is probably thinking “What does he mean ‘nationalize’?  Aren’t they national already?”.  Well, they’re quasi-national in that they’re old-fashioned corporations explicitly chartered via a political act.  They’re nominally controlled as “private” businesses despite the backing of the State.  The result of such an amalgamation — socialized cost and private benefit — could be seen a mile away by us cranks, what with our habits of quoting dead economists & pointing out that capitalism is in fact not synonymous with a free-market.  But you know things are going tits-up when big financial players are willing to acknowledge a contradiction they themselves operate on, and you can find descriptions of privatized gain & socialized loss, in the context of arguing Fannie & Freddie should both be allowed to fall, in the pages of Business Week!

The root of all this mess, ranging from mortgages to credit to even our foreign policy, is that a long time ago the rulers of this country decided that whoever had the most money should make the rules.  Naturally, they tried to build in shields to the consequences of their own actions.  Realizing this is key to any meaningful shift, no matter how painful it may be in the short-term.

To put it less charitably: in the messageboard that is my life, the next person to say the problem is “the market is too free” is going on Ignore.

Things you don’t expect to see:

• Richard Simmons tongue-kissing a woman
• Nuns smoking weed in public
• A Harold Meyerson column that doesn’t deserve ridicule

Waitaminute…what?

According to a report by Keith Bradsher in the New York Times last month, such multinational companies as Canon (the printer and copier maker) and Hanesbrands (the North Carolina-based underwear empire) are expanding or building factories in Hanoi, where they churn out products for Wal-Mart and other American retailers. Foreign direct investment in Vietnam increased 136 percent between 2006 and 2007, while it increased just 14 percent in China.

The reason for the move south is straightforward: Vietnamese factory workers make about a quarter of what their Chinese counterparts earn.

But why Vietnam and not, say, Thailand, where labor is similarly cheap?

Vietnam’s edge, it seems, is political. “Communism means more stability,” Laurence Shu, the chief financial officer of Shanghai-based Texhong, one of the world’s leading manufacturers of cotton fabrics, told Bradsher. This view, Bradsher reports, is common among Asian executives and some American executives, too, though they have the presence of mind never to say so on the record. After all, Vietnam, like China, outlaws independent unions. Absent free speech and free elections, no radical shifts in the government’s economic policies are likely to be sprung upon unsuspecting American businesses. (emphasis mine)

He goes on from this observation to rhetorically ask why the hell the Vietnam war even happened if businesses were going to decide communism was A-OK anyway.  I’d take this as yet another example of how not only is being pro-market not the same thing as being “pro-business”, but big business is actively ANTI-market.  The possibility of someone other than them having bargaining power anytime soon is anathema, and any haggling must go downward, not back and forth.

This is so bang-your-head-against-the-wall Stupid with a capital S that it doesn’t deserve pithyness or particular wit in response:

The price of retail gasoline could fall by half, to around $2 a gallon, within 30 days of passage of a law to limit speculation in energy-futures markets, four energy analysts told Congress on Monday.

Testifying to the House Energy and Commerce Committee, Michael Masters of Masters Capital Management said that the price of oil would quickly drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135.  Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy Consultants agreed with Masters’ assessment at a hearing on proposed legislation to limit speculation in futures markets.

Krapels said that it wouldn’t even take 30 days to drive prices lower, as fund managers quickly liquidated their positions in futures markets. “Record oil prices are inflated by speculation and not justified by market fundamentals,” according to Gheit. “Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel.” (emphasis mine)

Gerri Willis, a bit ago during CNN’s “Issue #1″ — a thrown together show about the economy that’s been preempting “Your World Today” ever since the economy got Too Shitty To Ignore — immediately after a story about how 5 million people who normally don’t file tax returns haven’t claimed their “economic stimulus” checks, said the following:

“It’s free money!  I don’t get it, free money, who would they not get it?”

No Gerri, it’s not free money.  It’s a refund on tax dollars the government took previously.  It was given out under the naive assumption that giving everyone back a few hundred bucks will prompt everyone dealing with higher prices on essentials –  thanks to dollar manipulation & our economy being way more oil-centric than it should be at the WORST possible time  — to go buy a PS3.  In short, it is money they shouldn’t have had in the first place.  Free money does not come from money that used to be yours, free money would be a random stranger handing you money for no reason.

By her logic, if you get carjacked, and the culprit leaves you with the 20 dollars in your own pocket so you can catch a cab, you should be thankful, rather than being pissed off and considering getting a gun.  If she’s the best CNN can do when it comes to covering these issues, I’d hate to see who they rejected for her spot…

Here’s an angle on the subprime mortgage/housing meltdown that I didn’t expect the MSM to let out of the bag:

In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more “affordable” loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.

The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

Today, 3 million to 4 million families are expected to lose their homes to foreclosure because they cannot afford their high-interest subprime loans. Lower-income and minority home buyers — those who were supposed to benefit from HUD’s actions — are falling into default at a rate at least three times that of other borrowers. (emphasis mine)

So a government agency & two symbiotically-connected corporations, ostensibly aiming to help people into homes, ended up helping them out of them too. Nice…

Fannie and Freddie finance about 40 percent of all U.S. mortgages, with $5.3 trillion in outstanding debt. Owned by private shareholders but chartered by Congress, they are exempt from state and local taxes and receive an estimated $6.5 billion-a-year federal subsidy because they can borrow money more cheaply than other investors. In return, they are expected to serve “public purposes,” including helping to make home buying more affordable.

Housing.  Yet another market that is Way More Centralized Than You Think.  Even with the subsidies they’re in a crater so big it should’ve caused the earth itself to turn inside out & fly into the nearest black hole.

Getting the government in on treating debt as an investment tool: whose bright idea was this?

In 1995, President Bill Clinton’s HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders.

Banks typically back prime loans with customers’ deposits. But subprime lenders often rely on money from Wall Street investors , who buy packages of loans as investments called mortgage-backed securities.

In 2000, as HUD revisited its affordable-housing goals, the housing market had shifted. With escalating home prices, subprime loans were more popular. […]

In 2001, HUD researchers warned of high foreclosure rates among subprime loans.

“Given the very high concentration of these loans in low-income and African American neighborhoods, the growth in subprime lending and resulting very high levels of foreclosure is a real cause for concern,” an agency report said.

But by 2004, when HUD next revised the goals, Freddie and Fannie’s purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising.

That year, President Bush’s HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and “must do more.”

For Wall Street, high profits could be made from securities backed by subprime loans. Fannie and Freddie targeted the least-risky loans. Still, their purchases provided more cash for a larger subprime market.

Politicians from both “major” parties agreeing on a policy where they’re both wrong?  Crap policy especially screwing already skeptical poor people and blacks?  Gee, who could’ve guessed?

Perusing articles for a bit, came across a WaPo doozy projecting 70’s style “stagflation” on the horizon — and preemptively blaming expectations of wage increases by organized labor (???) for it, as if people are supposed to happily accept the same money when it gets less of such frivolous items as food, gas, and lighting not made of wax.

As bad as that is, it’s at least understandable: the type of people the mainstream media consider to be Serious hold a worldview that doesn’t match up with reality because reality doesn’t pay their bills. They’re going to portray it that way, they have no choice due to their positions. Us plebes, however…

Sadly, people have the capacity to do really fucking stupid things when they’re justifiably frustrated.  And no, I’m not talking about the Superman costume, though that did them no favors.  Bitching at gas stations about the price is about as helpful as addressing a gunshot wound by guzzling Robitussin.

$4 gasoline.  People in other countries have dealt with it for years.  People in the US are now threatening to kill each other to avoid paying it.  Think about that for a moment.

Props.

When it comes to the current churning of the economy affecting the livelihood of various people, about this group I have three words: Took long enough…

CEO compensation at the biggest U.S. corporations dropped sharply last year, reflecting in part the rough business conditions at top-tier banks and other large financial firms, a study has found.

The study, released Thursday by consulting firm Mercer, a unit of Marsh & McLennan Cos Inc, is one of the most comprehensive reports to date analyzing chief executive pay data for companies’ most recently completed fiscal year.

The study looked at pay data in annual proxy filings for 350 companies of varying sizes and industries in the Fortune 1000. […]

The study found that the CEOs of 50 large U.S. companies — companies with median annual revenue of $66.2 billion — took the sharpest cut in total direct compensation in the last fiscal year on a percentage basis, down 15.8 percent from the previous year.

This group of companies includes many big financial firms such as American International Group, Citigroup and Merrill Lynch & Co Inc that have been hurt by woes in the mortgage and credit markets.

“Companies are correlating their payouts more closely to performance,” said Diane Doubleday, global leader of Mercer’s executive compensation group in San Francisco. “I think we will see that play out in 2008 again.”

Median total direct compensation for CEOs in this group was nearly $14 million in the fiscal year covered by the proxy, Mercer said.

It should’ve been tied to performance all along anyway. If they aren’t serving a purpose to the company then honestly WTF are they there for? Only on corporate boards do you get this sense of amazement at the concept of not showering people with money for half-assed effort, meanwhile the people doing the actual work are seen as little more than walking cost.

The response? Panic:

With business leaders facing rising scrutiny from shareholders and lawmakers about their compensation, a new organization wants to tell corporate America’s side of the executive pay story.

Leaders of the Center on Executive Compensation, an industry-backed group based in Washington, say they want to offer a reasoned view about how to create good pay practices. […]

Great, yet another interest group. How much representation do they need?

CEOs themselves play no direct role at the new center, an offshoot of the HR Policy Association, which represents human resources officers at big U.S. companies.

The center has a 16-member advisory board made up of chief HR officials at companies such as American Airlines, International Business Machines and Lockheed Martin Corp.

So the new organization saying “not so fast!” about CEO compensation is made up of people whose job is to keep everything below the board whittled down enough to maintain the boss’ unjustified high life. Operationally, the difference is moot.

Shareholder rights activists say they do not have high hopes that the executive compensation center will advocate for investors.

“This is part of the effort of the business community to protect the status quo from angry shareholders and a concerned Congress,” said Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees (AFSCME), a frequent critic of executive pay plans. “It just shows that the business community is mobilizing, rather than reforming pay,” he said.

Well no screaming eagle shit, Sherlock…

The center was formed at a time when union pension funds and other activist investors have proposed pay reforms, such as measures to give shareholders nonbinding votes on top managers’ pay plans. These measures won majority votes at annual meetings of some companies this year, such as at Motorola Inc, but have failed to pass elsewhere, including at Citigroup.

The executive compensation center opposes the “say-on-pay” investor proposals and a bill pending in Congress calling for a mandatory shareholder vote on executive pay, saying they could end up forcing companies to adopt “cookie-cutter” pay plans aimed at winning shareholder support rather than be in the corporations’ best strategic interests.

“People, what are you doing? I can barely keep my private jet fueled these days! It feels like you’re snatching the lobster from my kids mouths! What are they supposed to have for breakfast, eggs?”

They claim that popular proposals from the shareholders that just happen to thin their obese wallets and limit their potential for self-aggrandizement hurt the interests of the company, and should thus be blocked. Yet the entire reason these things are so popular is the rampant abuse of trust in the corporate world. This is basically the same argument that politicians make when people criticize their power: “you don’t understand! You’ll just weaken us!”. In the long run, even when the ones involved don’t realize it, that’s the point.

Considering the illegitimacy of corporate structure, and the similarity to the design of the modern State, these kind of internal fights can be seen as cracks in the wall. The purpose, then, of radicals is to encourage questioning of the point of the wall itself, and to hand out increasingly more effective chisels and mallets until it all comes down.

Submitted with minimal comment:

Sales of new homes rose in April for the first time in six months although the unexpected increase still left activity near the lowest level in 17 years.

The Commerce Department reported Tuesday that sales of new homes rose 3.3 percent in April to a seasonally adjusted annual rate of 526,000 units.

But the government revised March activity lower to show an even bigger drop of 11 percent to an annual rate of 509,000, which was the weakest pace for sales since April 1991. Economists believe that new home sales will remain weak for some time as the housing industry struggles with falling prices and rising mortgage foreclosures, which are dumping even more homes on an already glutted market.

The Commerce report showed that the median price of a new home sold in April dropped to $246,100 in April, down 4.2 percent from April 2007. (emphasis mine)

Cause & effect?  Nah…