More Random Thoughts

My New Flag

Those of you who know me know that I am 1) a flag geek; and 2) a big fan of the Gadsden flag.  The Gadsden flag, of course, is the Revolutionary War flag that is bright yellow with a coiled rattlesnake above the words "Don't Tread On Me" which has been completely usurped by the Tea Party movement.  I used to actually have a huge Gadsden flag on my office wall, but since the Tea Party stole it and it now stands for whackjob right wing conspiracy theories, I had to abandon its use.

Since then, I have looked for a new flag, and last week actually found one that suits my purposes perfectly.  I give you the Veterans Exempt flag!

It combines all the greatness of the Gadsden flag, the Jolly Roger, the other Revolutionary war flags and the Freakin' Oakland Raiders!  Thirteen black stars on a silver field, a coiled rattlesnake beneath the words "Don't Tread on Me" and a skull and crossbones above the phrase "Thy Will Be Done."  Damn!  This would make any Bankster shake in his Gucci loafers.

This is a flag that was used by retired soldiers who fought in reserve in the Battle of Plattsburg during the War of 1812.  It was a late (and rare) U.S. victory in this battle against Britain.  I need a full size version of it because it is the coolest freaking flag ever made!!!!!!

More Class Warfare

Why is it that Class Warfare is a term that is only used in order to criticise arguments in favor of implementing policies which would benefit working class people?  For those of you who haven't noticed, class warfare has been waged against the middle class for the last 30 years to the point where there really isn't any middle class left anymore.  The result of this economic warfare has been that income disparity has widened to record proportions while median incomes have actually dropped during that period.

The latest meme being used by the real class warriors on the right is to point out that 50% of Americans don't pay taxes.  This is an old trick used by the rich to drive wedges between different groups of people who would otherwise find a common purpose (that being that they are continually being screwed by those in power again and again and again) in order to keep them from rising up to overthrow the rich.  It's also a complete and utter lie.

Although it is true that 50% of the poorest Americans do not pay any Federal income tax, they pay a hell of a lot higher percentage of their income in all sorts of other taxes.  These include sales taxes, payroll taxes, property taxes, excise taxes, etc.  These are taxes that everyone pays, but the poor are hurt disproportionately by these taxes because they constitute a much higher percentage of their net income that those who do pay taxes.

Class warfare is real and has been going on for decades.  Now those against whom the war has been waged are fighting back because their very survival depends on it.

My Annual Diatribe Against DST

DST.  It sounds like some kind of carcinogenic chemical that industries are pumping into the food supply that ends up killing babies.  If only.

DST is Daylight Savings Time.  DST was first implemented during World War II in order to help Americans conserve energy for the war campaign.  The theory is that if you switch the clock forward an hour during the warmer months, people will use less energy lighting their homes because it will be light out later eliminating the need to use electric lightbulbs.  Good idea -- when everyone went to bed at dusk! 

Since then, DST has become a permanent fixture in most of the U.S. with the exception of a few holdouts (Arizona and until recently parts of Indiana).  Fine.  It works during the summer.  We get to mow our lawns after work.  Great. 

But over the years the government has lengthened the time that DST remains in effect for way, way too freaking long.  The result is that I feel like absolute crap during the last two weeks of October and now the first week of November.  For crying out loud can we freaking go back to standard time already?!?!?!?!!!  I feel like I'm sleepwalking all the freaking time.  It no longer is serving a purpose and my internal clock is needing a break already!

#OWS and the Need to Keep Up The Fight

There were reports this week that Occupy Wall Street is starting to see fissures as conflict breaks out amongst the leaders as to goals and strategies.  This isn't surprising as I have seen this happen all too often, especially in left leaning organizations.  There seems to come a point where intransigence amongst members in their philosophical views starts to splinter the larger group.  This is what appears to be happening with #OWS.

Hopefully calmer heads will prevail and the members can set their egos aside.  This movement is simply too important to allow this to happen.

One of the things that has been pointed out about the movement is how their biggest obstacle to long-term sustainability may be simply getting beyond the cultural differences between many middle class non-activists and the perceived hippy or intellectually superior attitude of the left.  One of the best ways I can see this happening is to employ military Veterans to help bridge the gap between the protesters and the Tea Party types.  Some of the best media clips to come out of #OWS have come from Vets such as the Iraqi Marine Vet who said Sean Hannity could go F*** himself.  Nobody's going to question the patriotism of someone who just risked his life overseas so that he could shore up the profits of JP Morgan.

Syracuse 49 West Virginia 23

Just had to say it again.  GO ORANGE!!!!!!!!!

Herman Cain Again

It's starting to get too easy to attack Herman Cain.  When faced with criticism over his 9-9-9 plan and how it would disproportionately harm the poorest individuals, Cain introduced a new caveat to the plan.  He would implement Entrepreneurial Zones in inner-city urban areas where the 9% sales tax and business tax would be suspended.  This would come with caveats, though.  Included in these caveats would be the elimination of the minimum wage in these areas and the implementation of school voucher programs.  I'm thinking that next he's going to come up with a catchy slogan for his plan like, oh, I don't know, "Work Makes You Free" or something like that.  Again, how can anyone support this asshole?

Random Thoughts

1. Banks v. Government
I have heard the argument a lot lately that we should be blaming the government not the banks for the economic mess because the government allowed the bailouts and the banks would not have been saved except for the bailouts.  While this is factually true, the argument fails for one reason in particular: it absolves the banks of any responsibility for their practices prior to, during and after the bailouts.  I agree that the government is ultimately responsible for allowing the banks to act recklessly and to save them when their reckless acts kill the economy.  However, we have to realize that the banks are running the government.  These things don't just happen.  Wall Street has hijacked our political process.  Our government is literally bought.  Our Presidents for the past 30 years, Democrat and Republican, have done the bidding of financial institutions.  Our Congress sells their constituents down the river as they bathe in the rivers of campaign cash that flow from Wall Street.  Our Supreme Court has wrapped bribery in the cloak of the Constitution to benefit their well heeled friends.  Yes, it is the government's fault, but we mustn't ignore the source of the corruption and that is the banks.

2. The Charlatan U.S.

The latest on the "People's Candidate" Herman Cain.  It seems old Herman has gotten himself into quite a pickle.  Not only are the affects of his 9-9-9 plan coming under greater and greater criticism from all sides, but it appears that he is enriching himself by running for President.  It came out this week that his campaign has spent campaign contributions to purchase 100,000 copies of Cain's book.  How many of you out there who may have contributed to Cain's campaign figured that your hard earned cash would be going to line Herman's pockets.  I guess he sees the Presidency as another entrepreneurial opportunity.  Of course, it would stand to reason that a former Chairman of the Kansas City Federal Reserve Board would know well how to fleece the American taxpayer for his own benefit.

3. The Mess Known As the Big East

No word yet about whether Missouri will bolt the Big XII for the SEC.  However, if they do it will be the last nail in the coffin of the Big East football conference.  The Big XII has made no secret of the fact that if this happens they will be taking two Big East teams (Louisville and either West Virginia or Cincinnati) along with BYU to get back to twelve teams.  This will bring the Big East down to 5 permanent football schools and nix the expansion plans to add 6 teams from C-USA and the Mountain West.  It will also pretty much torpedo any extension of the automatic qualifier for the conference in the BCS beyond 2013 and may in fact end it prior to then.  If the Big East had any pride left at all (which they don't) they would fire their commissioner and vote to end the football conference after this year allowing the remaining hostages to negotiate their own conference alignment and salvage any hope of having a future for football at their respective institutions.

4. More Big East Stupidity

The person who has been put in charge of the Big East's expansion efforts is the Athletic Director at Notre Dame.  Notre Dame, with its independent status in football and their own television contract, has it in their best interest for the Big East to be as weak as possible in football so that they don't compete with Notre Dame.  Who the hell is running this mess?

5. Syracuse 49 West Virginia 23

There's nothing else really to add to this, it just makes me smile.

6. Obama's Empty Promises

I will have more to say about this in an upcoming full length post.  However, expect the Obama campaign through its bought and sold institutional liberal lackeys MoveOn.org and others to try to make a big deal of the fact that he is supposedly removing all troops from Iraq by the end of the year.  Besides the fact that it is 36 months later than he said when he was campaigning and 18 months later than the delayed deadline that he imposed on himself after taking office, this does not mean that Obama has re-found his populist liberal persona that got him elected.  The recent "uncovered plot" involving a ridiculous plan of an Iranian used car dealer to assassinate the Saudi and Israeli Ambassadors to the U.S. indicates that this is just a preliminary to Obama using U.S. forces against Iran.  First off, I don't believe the facts of this story for a minute (if you're going to institute a believable "false flag" terrorist plot, you have to go through with the actual attack, otherwise it just sounds stupid).  Secondly, the vehemence with which the entire Obama foreign policy team went after this story seems to be setting the stage for a move on Iran.

7.  Don't Knock the Use of Drones

There's been a lot of criticism on the left (and some on the right) about the use of U.S. drones to attack those accused by the U.S. of being terrorists.  This criticism has been especially ramped up after the killing of U.S. citizens in Yemen who allegedly acted against the U.S. through terrorist organizations to organize and sponsor attacks against U.S. citizens and interests.  To my friends on the left, open your minds to the implications of this action.  We all know that folks like Jamie Dimon, Lloyd Blankfein, Ben Bernanke and Timothy Geithner have been acting as financial terrorists against U.S. citizens and U.S. interests.  I'm just sayin'...

A Brief Note About Bank of America's Recent Actions



I posted a couple of articles on Facebook regarding a transfer of derivatives from Merrill Lynch to Bank of America, N.A. the commercial arm of the Bank of America bank holding company.  I will give a shot to explaining what happened and what it means both for Bank of America and the economy as a whole.

What happened:

At the request of counterparties (institutions that purchased derivative products such as collateralized debt obligations (CDO) and credit default swaps (CDS)), Bank of America transferred at least $53Trillion and as much as $73 Trillion worth of derivative investments from its Merrill Lynch arm (which is an investment bank that is not insured by FDIC) to Bank of America, NA (its federally insured commercial bank).  This was done with the blessing of the Federal Reserve Bank and outside of any other regulatory approval or governmental oversight.  The FDIC has reportedly objected to the transfer of these assets but the transfer has gone through nonetheless.

What this means:

My first reaction was to question the amount of the notional value of these assets.  $73 Trillion is a hell of a lot of money.  However, reading several reports including the initial Bloomberg report, these amounts are correct.

What this transfer does is it takes a whole lot of risk and places it in the hands of taxpayers.  The counterparties of these derivatives most likely were having doubts about the soundness of these securities and the solvency of Bank of America in general.  Remember, BofA's credit rating was just downgraded recently by Moody's. 

If these derivatives went bust, or BofA became insolvent (or admitted they were insolvent since they pretty much are insolvent) the counterparties would be looking at the possibility of losing their entire investment or at the very least accepting a significant haircut on the securities (accepting a significant decrease in the amount that they were due like forty cents on the dollar or some such thing).

However, the commercial bank has as much as $1 Trillion of insured deposits under its hold.  These are backed up by the FDIC.  If BofA goes under, these counterparties come first in line and the government, i.e. the taxpayers, is left paying the money.

Also, the securities that were transferred to Bank of America, N.A. are almost certainly the worst of the derivatives since there would be no other reason to look for taxpayer backup on these.  The fact that these securities are more likely to go bad, means that the risk to depositors of Bank of America has just skyrocketed.  If these derivatives go bad now, the risk is on the commercial bank, which means that rather than Merrill Lynch going under, Bank of America, N.A. goes under.

Here's the best analogy I can come up with.  I buy a bunch of Picassos from Sotheby's on credit.  Sotheby's wants their bill paid and is afraid I won't be able to pay the bill.  Therefore, I take out a trillion dollar insurance policy on my house, then transfer all of the Picassos to my house, set my house on fire, collect the insurance, pay off Sotheby's and pocket the difference.  The only difference is that if I did that, I would almost certainly go to prison for insurance fraud.  Bank of America gets the seal of approval of the Federal Reserve Bank and no doubt the Treasury.

The other upshot of this is that despite their announced $6Billion quarterly profit (due mostly to accounting and bookkeeping tricks), the chance of BofA going belly up in the near future is pretty good.  Furthermore, the fact that any insurance in this case is going to go to counterparties, the shareholders of BofA are going to get hosed. 

Last, and most importantly, the fact that the Fed and Treasury are pulling these shenanigans in this case is a clear indication that they are readying themselves for yet another huge bailout of the banking industry or a continuation of the previous bailout once the banks start failing again. This is a continuation of the standard policy of Ben Bernanke and the Federal Reserve, along with the Treasury Department of both George W. Bush and Barack Obama of Privatizing profit/benefit and Socializing losses/risk.  Almost the entire risk of Bank of America's still toxic derivative portfolio has in one move by the Fed been placed on the backs of taxpayers.

Sharpening your pitchfork yet?  I sure as hell am.

My Demands

Before I start this latest post, I wanted to quickly follow-up on my last post about Herman Cain and his insane 9-9-9 plan.  I must admit that I really didn't know a whole lot about Herman Cain's past other than what is reported repeatedly in the media that he was the CEO of Godfather's Pizza.  However, I have since learned that he was also the chairman of the Kansas City Federal Reserve Bank.  After the economic collapse of 2008 and the subsequent malaise in which our economy has remained, putting a Central Banker in charge of the government is about the same as putting a serial arsonist as Fire Chief.  Again, this newly discovered fact further begs the question, why are so many middle class, lower class and Tea Party types supporting this person who is obviously going to do everything he can to screw you ten ways to Sunday?

As the #OccupyWallStreet protests gain more and more momentum and attention, there has been a lot of attention focused on their lack of any demands and their lack of an organized platform.  Although I think this criticism is somewhat misguided (for most of us who have followed the train wreck in which the economy finds itself resulting directly from the actions of major Wall Street banks and the government which they run) I decided to set forth what my demands for the big banks and the government to address the actions of the financial system and prevent another economic collapse.  So, here goes.

1.  Break Up TBTF.  One of the reasons that was given in 2008 for bailing out the largest of the banking titans was that these entities had become Too Big To Fail.  That is, that if they were allowed to collapse as a result of their own reckless investments and their own fraudulent actions (as would be the result in a free market capitalist system) that the resulting damage to the economy would be so severe that the economy itself would collapse.  Of course, the result of the bailout was to further enlarge these banks as they swallowed up even more of their competitors.

In a normal world, the next step would have been to ensure that these newly created behemoth banks which have swallowed up all of the still festering carcasses of their competitors and been thrown trillions of dollars to shore up their bad assets (read debts) would be subject to some kind of reform to prevent this from happening again.  Of course, this isn't a normal world, this is the Bizzaro economy where nothing acts according to reason.  Therefore no demands were made of the banks and with the exception of a few quite frankly half-hearted reforms, no real regulations were put into place which would address the problems which led to the disaster of 2008.

One of the surest ways to prevent this from happening again would be to take these behemoth banking entities and break them up into their parts and separate them into smaller entities.  This would have the dual benefits of encouraging competition between the newly separate companies benefiting the consumer and also preventing the type of system wide meltdown that happened in 2008.  Without this breakup of the TBTF banks, the bailout was nothing more than a hand-out to the banks to line their pockets and promote profits on the backs of the taxpayer.

How would this be done?  That brings me to my next demand.

2.  Bring back Glass-Steagall  During the debate in 1999 over the Gramm-Leach-Bliley Bill which repealed the Glass-Steagall Act, Senator Byron Dorgan said on the Senate floor, "I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010."   There are very few instances where an elected official in our modern times gets an argument quite so right.  The only thing that Senator Dorgan was incorrect about was the time frame.  It only took 9 years instead of 10.

The Glass-Steagall Act was a gem of legislative simplicity passed in 1933 during the height of the New Deal reforms sweeping through Congress and saving the nation from its biggest economic disaster in history.  Glass-Steagall prevented the combination of different financial entities into one giant company.  Specifically it stated that commercial banks, investment banks and insurance companies had to be separate entities.

The reason for this was simple.  Commercial banks which deal with consumer deposits have a different responsibility to their customers than the more free-wheeling risk-taking investment banks.  Same with insurance companies.  Investment banks take on more risk for the hopes of higher returns, but they do so with money from large, wealthy investors who are more able to weather the huge losses that these investments can bring.  Commercial banks and insurance companies necessarily have more of a responsibility to invest more conservatively to protect their customers' assets and in the same way have more of a duty to their small investors to make sure that the investments they are making are sound.

We quickly saw the damage wrought by the repeal of this reasonable and sensible law during the housing bubble.  The combining of commercial and investment banks resulted in the huge growth in collateralized debt obligations, which are complex financial securities made up mostly of mortgages, although they can consist of any debt that has collateral such as car loans, for example.  The huge profits that were generated by these derivative products sold by investment banks meant that the investment arms of the new combined entities pushed the consumer banks to make more and more mortgages and in doing so, overlook the usual underwriting standards used to make sure that the debtor was a good risk.  The mortgages were made simply so they could be broken up into securities and sold as investments.  If these combinations of investment and commercial banks didn't happen, it is less likely that this type of abuse would have occurred.

Similar consequences occurred as a result of the combination of investment banks and insurance companies.  AIG is a perfect example wherein the world's largest insurer recklessly sold trillions of dollars of risky investments known as credit default swaps without any possibility of being able to cover the losses if they went bad.  The profits that were generated by AIG-FP which was an investment bank within the overall AIG insurance company were so great that the insurer ignored the liabilities that it was facing and just celebrated the profits.  As a result the company collapsed and became subject to the largest government bailout of all.

The re-institution of Glass-Steagall would require the break up of these entities into their separate parts.  For instance, Bank of America, long known as a commercial bank, is also Merrill Lynch an investment bank, Countrywide, a thrift and an amalgam of several other financial entities.  All of these if broken up into distinct parts would prevent the type of system-wide failure we saw in 2008, while also increasing the amount of competition within the entire banking system, which in and of itself will make the entire economy stronger and encourage growth, consumer lending and consumer demand.

3.  Consequences.  None of the bad players in the economic collapse have really suffered consequences as a result of their activity.  There have been fines paid by the likes of Goldman-Sachs and JP Morgan Chase for their fraudulent activities in marketing CDOs and other bad investments, but these fines when compared to the profits that the companies extracted due to their bad activities are minuscule.

There needs to be a system wide criminal investigation into what actions led to the economic collapse caused by the banks.  It is only through a criminal investigation and prosecutions that we will be able to prevent similar behavior in the future.

There are many in the banking industry who say that criminal prosecution would have no effect other than satisfying public outrage.  Of course history would be against them on this.  Following the stock market crash of 1929 leading to the Great Depression, the Pecora Commission, an independent Congressional investigation led by Ferdinand Pecora, an Assistant District Attorney for New York County, uncovered tremendous abuses within the financial world which directly led to the Great Depression such as price fixing, fraudulent lending, conflicts of interest and insider trading.  This led to the adoption of stringent financial regulations which kept the United States economy on a strong and even keel throughout the remainder of the 20th Century.

It was only through Pecora's tenacity and the willingness to put the titans of Wall Street under oath and in front of an independent investigator who had an eye toward criminal prosecution for their wrongdoing which accomplished this.  It is only through similar action now, by a prosecutor who is independent and removed from Wall Street's excessive campaign spending and wicked lobbying that such a result can occur today.

4.  Regulation of Derivatives.  Thanks to another late 20th Century law, the Commodity Futures Modernization Act, the types of investments known as derivatives which led to the 2008 collapse remain unfettered by regulation.  Many in the financial world would say that this is a good thing, since it supports an unfettered free market free from restriction.  However, in practice the opposite is actually true.

Because credit default swaps, collateralized debt obligations, rate swaps and other complex derivative instruments are not traded publicly, the price and market for such investments is controlled by the parties entering into the deals.  This can lead to abuse and outright fraud on the part of the sellers of such instruments.  For example, Goldman Sachs in a well publicized case for which they paid a multi-billion dollar fine was requested by a customer to put together a CDO made up of the worst of the worst of the mortgages available, for the sole purpose that he could bet against it.  Goldman Sachs subsequently sold this CDO which was designed to fail to its other investors (usually life insurance companies and pensions) as a sound investment even telling them that their own money was invested in the CDO (true, they had a 4 million dollar investment in it, and a 2 billion dollar short against it).  Trading such securities on an open, transparent market would effectively put an end to this type of abuse.

The other thing that providing transparency for derivatives would do is that it would eliminate the accounting hocus-pocus in which these financial companies take part that allows them to use derivatives to hide losses and obligations from investors.  Because derivatives are "over the counter", meaning that they are privately traded, all profits are booked immediately and any obligations or losses that happen subsequently are considered "off book" which means that they don't have to be reported.  This type of profit manipulation resulted in the misstating of profits which led to the downfall of such entities as Freddie Mac, Fannie Mae, Lehman Brothers and Behr Stearns.  Regulation of derivatives would make it harder to hide these types of potentially disastrous obligations from investors, again making for a more transparent and healthy economy.

5.  Regime Change.  During the Arab Spring, the protesters in Tahrir Square, Yemen, Libya and across the region were demanding regime change -- the ouster of the corrupt abusive regimes which had held their citizens under their iron grip, enriching themselves at the expense of their nation and holding onto their power at any cost.  In the United States, we face a similar oligarchy of wealthy interests which control the money supply and for all intents and purposes control the government as well.

We should accept nothing less than a total regime change in the financial power centers of this country.  This means the resignation and potential prosecution and imprisonment for a lot of people who have built and perpetuated this system which allows banks to take part in the most serious abuses of power both political and economic.  We cannot continue with a system that not only condones but rewards this type of bad behavior.

This means the immediate resignations of a lot of powerful people from their current positions.  Included in this are Ben Bernanke the head of the Federal Reserve, Timothy Geithner the Treasury Secretary and former head of the New York Federal Reserve Bank, Jamie Dimon the Chairman and CEO of JP Morgan Chase, Lloyd Blankfein the Chairman and CEO of Goldman Sachs among many others.

Additionally, and more importantly, we need to hold our elected officials accountable.  This means throwing away the labels of Democrat and Republican, Liberal and Conservative.  We must not support any elected official or candidate who has ties to or has supported legislation which favors the continued abuses that are taking place on Wall Street.  We must not allow either Democrat or Republican to co-opt this movement for themselves.  It is not until Barack Obama is as afraid of the outrage of those in Zuccotti Park as Mitt Romeny is that we will see real change occur.  There are plenty of legislators on both sides of our two party system who have proven that they care more about the interests of Wall Street banks than they do the interests of the common person.  Among these on the Democratic side are Senators Chuck Shumer and Kirsten Gillibrand of New York, Senator Kay Hagan from North Carolina and Congressman Barney Frank from Massachusetts.  Shumer and Frank are considered among the most liberal of politicians in Congress, and although I am sure that we agree on many issues, their continued unabashed support for the monied interests of Wall Street and their refusal to implement any real reforms means that they will never receive my support and shouldn't receive yours.  Furthermore, Barack Obama has proved that he is willing to put the interests of his donors on Wall Street above the interests of those who elected him.

The Democratic party for years has presented a populist tone in its campaigns and then embarked on a conservative agenda once elected.  They count on keeping the support of their constituents by alarming warnings of the dire circumstances that will occur if their opponents are elected.  There is no doubt that I don't want to see Mitt Romney, Heman Cain or Rick Perry as President in 2012.  But quite frankly I can't say that having them in office will really be different than having Barack Obama for another four years.  Perhaps it will take a Democratic drubbing in 2012 to make the party realize that they can't continually turn their backs on their supporters year after year after year and promote serious change within the ranks of the party.  And if they don't, then perhaps they need to be replaced by another party.

Last, make sure to support those candidates that actually do stand for substantial change in our economic system and actually fight for the middle class against the Wall Street interests.  If you contributed to Barack Obama's campaign in 2008, take that money and give it instead to Elizabeth Warren's Senate campaign in Massachusetts.  You may even want to let the Obama campaign know that you've done this and that they won't get another dime from you because they turned their backs on you as soon as they took office.

Regime change can happen, but only if you are willing to make it happen and it is only through regime change and the implementation of the reforms of which I have written here that we can prevent the economic injustice which has permeated every aspect of our society and it destroying our nation.

Herman Cain and the Politics of Cognitive Dissonance

As the Occupy Wall Street protests pick up steam and spread across the nation, I hold out hope that people will stand for real and radical change in the way that politics and the economy work in this country. 

However, any hope that I have for such a radical but necessary shift in the economic structure of our society is tempered by the rise in Herman Cain whose main support seems to be coming from the working class adherents of the Tea Party movement.  The only explanation I can have for this is the theory of cognitive dissonance.

Cognitive dissonance is the anxiety that is induced in one who simultaneously holds beliefs that are contradictory.  For example, one may wish to live a long life, but at the same time smoke.  We know that these two things cannot exist together since smoking has been proven to significantly shorten one's life.  The way one alleviates the anxiety is to somehow explain the contradiction, either by justifying it (I don't smoke a lot and I know I will quit one day so I won't die from it) or by simply ignoring the contradiction altogether (the scientific evidence linking smoking to emphysema and lung cancer is incorrect).

This type of illogical justification is the only reason I can come up with to explain how middle and lower class voters can be drawn to Herman Cain.  Cain is proposing the single biggest transfer of the tax burden in this country from the wealthy to the poor.  His 9-9-9 plan proposes a 9% federal income tax across the board, a 9% federal corporate tax across the board, and a 9% federal sales tax across the board.  His plan would eliminate most, if not all, deductions and would also eliminate capital gains, payroll and estate taxes.

Let's think about that for a minute.  Under Cain's plan, 23,000 millionaires would pay no tax at all since their income comes entirely from capital gains.  Every person in the highest tax bracket would receive the largest tax break in history (35% to 9%).  Together with this, there would be a tremendous transfer of tax burden to the poorest individuals in the nation.  In addition to the fact that Cain's plan eliminates the earned income tax credit and many other deductions that ordinary Americans rely on (there are arguments to be made in favor of this, but not under this insane plan), the  9% sales tax Cain proposes means that a much larger percentage of working Americans income will go toward paying federal taxes than the wealthiest Americans (since a gallon of milk costs the same for Joe Sixpack or Donald Trump).  Not to mention what would happen to Social Security and Medicare.

Cain is Robin Hood in reverse -- stealing from the poor to give to the rich.  We've had enough of this in the past 30 years, we surely don't need more.  Anybody who makes less than $250,000 a year and is supporting Herman Cain is voting against their own economic best interest.  And trust me, although he is promising that his plan will lift the poor out of their prison of poverty and help them become rich, Herman Cain has no interest in helping you make money. 

My only hope is that the issues being raised by Occupy Wall Street and that have been raised on this blog and by me to anyone who would listen over the past several years, will start to filter through to ordinary Americans.  None of the people running for President from either of the two major parties have your economic interests at heart.  Some are better than others.  None are worse than Herman Cain.

So when you decide you might like Herman Cain and you feel that pang of anxiety in your chest -- don't try to explain it away.  It's just your brain trying to steer you in the right direction.

Full Tilt Justice



The Full Tilt Poker criminal prosecution really couldn't have come at a more opportune time for me since it perfectly illustrates the absolute insanity of the U.S. economic/justice system at this particular moment in time.  The actions of Full Tilt Poker, which were undoubtedly criminal and fraudulent in nature, parallel almost perfectly with the actions of the TBTF banks and other Wall Street financial titans, which also were undoubtedly criminal and fraudulent in nature.

For those of you who haven't been following the story, Federal prosecutors filed indictments against owners and board members of the online poker website Full Tilt Poker for defrauding investors.  As part of the several pronged attack, Full Tilt's online licenses were revoked and for all intents and purposes, their business was shut down.  After the indictments were unsealed and arrests were made of the major players in the Full Tilt business, prosecutors went so far as to accuse Full Tilt of being a "global ponzi scheme" which raided the funds of their customers in order to enrich their owners and board members to the tune of hundreds of millions of dollars.

A quick review of the indictments shows that Full Tilt indeed did lavish themselves with high dollar payouts and were undercapitalized to an alarming extent.  In March of this year, Full Tilt owed $390 Million to its customers in winnings but had on deposit just $60 Million dollars in assets.  In addition to this, Full Tilt had used customer accounts, which were promised to be off limits to the company itself and were held for the benefit of the customers, in order to pay owners and board members salaries and bonuses of approximately $440 Million.

This type of activity is not only bad business, but does appear to amount to criminally fraudulent activity which if proven will land those responsible for this looting of customer funds in federal penitentiaries for years if not decades.

Now, say instead of an online poker company you are instead the world's largest insurance company AIG.  What would happen if you acted in the same way as Full Tilt Poker?  You would think that if any major American company did anything like the absurdly illegal activity that is alleged against Full Tilt, that the hammer of American justice would come down hard and fast to protect the integrity of the American financial system, right?  Well, you'd be mistaken.

AIG presents a perfect example of why what went wrong leading to the crash of 2008 and the depression in which we still find ourselves was not only outrageous and criminal, but why the subsequent bailout by the Treasury and the Federal Reserve was possibly the worst single decision of the U.S. government in recent memory.

The only difference between the actions of AIG and the actions of Full Tilt appears to be that of scale.

The problems with AIG arose from their division AIG-FP (financial products) which issued insurance-like products known as credit-default swaps (CDS).  Although there are similarities between insurance and CDS, CDS are not insurance, they are financial derivative products which are not regulated like insurance and therefore have the same risks to the issuer of insurance policies, without any of the requirements of sufficient reserves or conservative investing of the premiums that are required of insurance products.  CDS are financial products which are purchased by customers (known as counterparties) who want to hedge their investments in the complex dervative investment products such as collateralized debt obligations (CDO).  A counterparty will purchase a CDS, paying a premium every required period (quarterly, annually, etc) with the promise that they will receive payout if the CDO in which they have invested suddenly fails and loses money. 

Another key difference between CDS and insurance is that CDS can also be purchased by any investor (usually hedge funds or other large investors) which are simply betting that a certain investment is going to fail, whether or not they actually are invested in that product itself.  In essence, it is simply a bet that a certain financial product or investment is going to fail, without the requirement that the purchaser have any stake in the investment against which he is betting.

AIG-FP was issuing CDS to an alarming extent during the 2000s.  Most of these were written on CDO products which were based on subprime mortgage loans.  Since the belief was that the real estate market would continue to rise in value over time for eternity, these were considered incredibly safe investments by AIG.  Their computer models showed that the chance of any of these CDO failing were so small, that the head of the AIG-FP branch actually stated in company e-mails that he could not foresee a situation in which AIG would lose a single dollar as a result of their obligations on CDS, even as the subprime mortgage market began to implode.

Because these financial instruments were unregulated, the profits on the sales of CDS and the fees generated by AIG were booked immediately as profit, which the liabilities created by the products were kept off-book, in essence showing no liability to investors.  Because of this AIG-FP became a profit generating machine for AIG and as long as the money was coming in, no attention was paid to what was happening beneath the surface -- a financial catastrophe of its own making which would bring down the largest insurance company in the world.

At the height of AIG's CDS binge, the company had a portfolio containing over $2.3 Trillion of CDS.  On this portfolio, AIG had $440 Billion in immediate obligations to counterparties.  However, despite this enormous amount of liability, there was little or no money set aside to cover these obligations.

Now, let's take a small step back and look at the comparison between what AIG did and what Full Tilt Poker's actions.  Remember, Full Tilt had obligations to its customers in an amount of $390 Million and had only $60 Million on deposit to cover these obligations.  AIG had obligations to its customers of $440 Billion (more than 1000 times the amount Full Tilt owed) and had essentially nothing on deposit to cover these obligations.

As we all know, the obligations to its counterparties came due and AIG was unable to cover the amounts owed.  So, after seeing what happened to Full Tilt, this would be the time that the Feds would swoop in, we'd see Wall Street execs in $3,000 suits being dragged handcuffed through the perp walk on the evening news, right?

Well, not exactly.  In fact, not at all.

It became known that AIG was unable to meet its obligations just after the Treasury and the Federal Reserve decided to impliment the Toxic Asset Relief Program and the larger bailout of the entire banking system.  AIG was negotiating with its counterparties, the largest of which was Goldman Sachs which had just received billions of dollars of government money to keep it afloat, in order to come to a settlement of the obligations.  This would have resulted in AIG paying out a settlement of 60% of its obligations to its counterparties to settle all of the claims against it. (An aside, in researching this post, I discovered that the CFO for the AIG division who was negotiating this settlement was a very good friend of mine from college -- odd).

While these negotiations were taking place between AIG and its counterparties, the Fed swooped in on September 16, 2008 and injected $85 Billion into AIG to help cover its obligations.  Furthermore, Tim Geithner, who was at the time the head of the NY Federal Reserve Bank took over the negotations from AIG.  The result of Geithner's takeover of the negotiations was that rather than the counterparties receiving a 40% haircut on their bad investment and receiving 60 cents for every dollar they were owed (a rather generous settlement under the circumstances), Geithner decreed that the obligations were to be paid at par value, meaning that the counterparties received 100% of everything that they were owed on their bad investments with AIG.  This resulted in Goldman Sachs alone receiving an additional $19 Billion in government money which was paid directly to it through the bailout of AIG.

The $85 Billion was only the beginning, though.  By the time that the Fed was done bailing out AIG, it had paid out $182.5 Billion to AIG's books either through direct injections of cash, or in exchange for purchasing the toxic assets which led to the implosion of the insurance giant in the first place.  This means that the taxpayer now holds the obligations on all of these bad financial instruments rather than AIG itself.

Now, let's remember also the emphasis that the Federal prosecutors in the Full Tilt case made about the money paid out to its owners and board members over the course of several years -- $444 Million dollars in total.  After the government bailed out AIG and paid its counterparties in full for the obligations that AIG owed them, in March 2009, AIG paid its traders in the very department AIG-FP that caused this entire mess, bonuses in the amount of $165 Million.  So, while Full Tilt may have misused their client money to enrich the owners and board members of the company, AIG took it a step further and after blowing all of their shareholder's money on ridiculously risky deals, they then used money given to them from the Treasury and Federal Reserve to pay bonuses to the very same idiots who caused the shareholders to lose all of their money in the first place!

Now, I would never excuse the type of fraud that seems to have been practiced by the owners of Full Tilt Poker and if it turns out that the allegations contained in the indictments issued by Federal Prosecutors are true, I hope that all of those indicted serve their time in prison.  But, it makes one question the very foundations of our justice system when you have companies like AIG who engage in what would appear to be conduct which is just as fraudulent and just as reckless not only escape any kind of criminal prosecution but actually receive government subsidies to save them from the financial consequences which would have been the natural and deserved result of their activities.

There are those who will say that these two examples are not comparable.  That allowing AIG to fail would have caused immeasurable damage to the entire financial system of not only the United States, but to the world as a whole, whereas Full Tilt was simply a money-making scam foisted by dishonest and unethical grifters looking to enrich themselves at the expense of the marks who spent money gambling on their website.  There may be some truth to that.  However, the grifters at AIG were no less dishonest or unethical or greedy than those at Full Tilt, and the worst part of this entire scenario is that not only did the government's actions following the financial crisis of 2008 not result in any substantial criminal penalties for those involved in the destruction of the American economy, but that nothing was done to prevent this very scenario from happening again -- and happen again it will.  The only question this time is, will we prosecute those responsible and demand change, or will we just drum up another bailout causing the entire economy to go full tilt?

Mom

As most of you know, my Mom died on September 24.  I was honored by my family by being asked to write and deliver the eulogy at her funeral last Thursday.  Below is the text of the eulogy.  It gives you just a little glimpse of how wonderful my mother was.  Thank you all for the cards, prayers, kind words and time you have given to me through this difficult time.

    We gather here today to mourn our loss, but more importantly we come today to celebrate the life of a remarkable woman, one who has touched each of us in a different but equally important way, a woman who I had the privilege throughout my life of calling mom.
    As I thought about what I was going to say today, one word kept coming to mind – strength.  That is what I am going to speak of today, my mom’s strength.    You would never know from looking at her that mom could be as strong as she was, a little girl from Geneva, Ohio, barely over five feet tall.  But for anyone who knew her, it is no surprise that she was known on the playground in her youth as Toughy Tanner, for although small in stature, she had an inner strength that allowed her to stand up not only for herself but for anyone she loved without hesitation.
    It was this strength that helped her survive what was at times a very difficult and troubling childhood.  More importantly it was her strength which made sure that her children were spared such difficulty and that the cycle was broken with her.
    It was this strength that allowed her to raise seven children, five of whom were 13 months or less apart.  At three different times, my mom had three children in diapers at the same time.  For myself, who sometimes finds it challenging to take care of one child in diapers, this seems almost superhuman.
    It was also my mom’s strength that moved her to leave the relative comfort of her life as a homemaker to take a job at Syracuse University so that she could guarantee that her children would have the benefit of a college education.  Her strength sustained her through 18 years at SU, typing so fast that to me it seemed that her hands were a blur, even though she suffered from painful and debilitating arthritis.  She kept working as her health became worse, so that she could see me, her last child through school, and yes, her date of retirement was the very next day after the date on my diploma.
    Later in her life, it was her strength that sustained her through her many ailments. From COPD, to cancer, to heart problems, she faced each ailment head on and fought them courageously.  Whenever her strength would fail her, she could lean on my dad to whom she was married for 55 years and together they would pull each other through.
    But it was in the last few months and weeks that we really saw my mom’s strength as she fought her last battle.  She did not go quietly into that good night.  She held on until she knew it was time for her finally to leave.  And what was truly remarkable was the strength to know when it was time to stop fighting that truly showed what a remarkable woman my mom was.
    There was not a dry eye in the hospital room at St. Joe’s when my brother Mike arrived a few weeks ago as we all came knowing the end was near to say goodbye to my mom.  When she saw him and realized that all seven of us were there, she said “Now everybody’s home.”
    Mom, now you’re home.  We love you and we will surely miss you.  But we have your strength, and that will carry us through these next weeks and months and we will always know whenever times are tough that we can lean on your memory and your strength will carry us through.