The bank will use leveraged loans and commercial mortgage-backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages, people familiar with the matter said. The new policy applies only to managing directors and directors, the two most senior ranks at the Zurich-based company, according to a memo sent to employees today.Second, why are we allowing financial firms to maintain and distribute massive bonus pools? Any company that needs to turn to public financing in order to survive has no business handing out bonuses to anyone, no matter how well workers may have performed against their individual goals for the fiscal year. The justification for these bonuses - that they are vital for the retention of good employees - is utterly ludicrous in the face of company performance, the current job market, and the fact that these once-mighty financial titans are teetering on the brink of collapse.
“While the solution we have come up with may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009,” Chief Executive Officer Brady Dougan and Paul Callelo, CEO of the investment bank, said in the memo.
The securities will be placed into a so-called Partner Asset Facility, and affected employees at the bank, Switzerland’s second biggest, will be given stakes in the facility as part of their pay. Bonuses will take the first hit should the securities decline further in value.
“It’s monstrously clever,” said Dirk Hoffman-Becking, an analyst at Sanford C. Bernstein Ltd. in London who has a “market perform” rating on Credit Suisse stock. “From a shareholders’ perspective it’s great because you’ve got rid of some of the assets and regulators will be pleased because you’ve organized a risk transfer.”
For employees, “there’s some upside in there and if the alternative is nothing, it’s a lot better than nothing,” Hoffman-Becking said.
Identify and map ALL the subprime loans back to their originators. De-link them from the derivative pools and nullify all the credit default swaps (which are worthless pieces of paper anyway). TELL the banks that they WILL renegotiate these loans - whether they are in default or not. The terms will be a 30-year fixed rate at the original "teaser" rate the buyer got when they signed the loan documents. The banks will write down any and all fees, late charges, foreclosure costs, etc. The principal of the loan would remain as it was after the most recent payment. If there are extenuating circumstances, the loan term may be extended to 35 or 40 years.Now that we are $350 billion in the hole for TARP, it appears that Congress will be asking Secretary Paulson some tough questions when he returns to Capitol Hill for more money. These should be among them.
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Anyway, liquidity at the bottom is what will fix this problem, not pouring money into the black hole of derivatives and designer crapshoot paper Ponzi schemes. Once the credit market is fixed, presto - no more bailouts for the auto companies will be needed. No more trillion dollars disappearing money from the treasury. And - my solution doesn't take one dime from the taxpayers. How about that!
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting* and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America - and much of the rest of the world - of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.A commenter on a previous post opined that this sort of exercise in root cause analysis can be traced simply to human greed, and amounts to little more than finger-pointing. I concur with the first portion of that statement, but take issue with the second, as does Dr. Stiglitz. In fact, he states that the purpose of his piece is to "get the history right" so as to not only avoid repeating the same mistakes in the future, but to ensure that the policies and people who have driven us to the brink are removed from the levers of power. That will only be the case if we refuse to let free market fundamentalists mythologize what has taken place.
Let's be clear: even the crudest anti-religious propaganda isn't illegal, and may not constitutionally be outlawed. But it's nevertheless wrong. It has no place in civilized society.As the Human Rights Campaign noted, the idea that the LDS is the offended party is pretty difficult to substantiate:
When did the LDS Church become the victim? It’s hard to believe, but that is exactly what it is trying to convince the public of. It is continuing to spend an excess of dollars in an attempt to mislead the public and transform its image. But the truth is that this is the same church that conducted a national broadcast to every temple, calling on members to organize and write checks to the Prop 8 campaign. The same church that donated more than half of the $40 million behind Prop 8, even though California Mormons represent just 2 percent of the state's population. Yes, it’s the same church.The hypocrisy required to champion a constitutional effort to deny consenting adults the right to marry, but then claim injury when there are repercussions, is pretty tough to stomach. I'm not religious myself, but I seem to recall a biblical admonition about reaping what one sows, and Friday's Washington Blade reported that the California Fair Political Practices Commission (FPPC) is investigating whether the Mormon church violated state law by failing to report all contributions supporting Proposition 8.
One last thing: Bush should consider pardoning - and should at least be vociferously praising - everyone who served in good faith in the war on terror, but whose deeds may now be susceptible to demagogic or politically inspired prosecution by some seeking to score political points. The lawyers can work out if such general or specific preemptive pardons are possible; it may be that the best Bush can or should do is to warn publicly against any such harassment or prosecution. But the idea is this: The CIA agents who waterboarded Khalid Sheikh Mohammed, and the NSA officials who listened in on phone calls from Pakistan, should not have to worry about legal bills or public defamation. In fact, Bush might want to give some of these public servants the Medal of Freedom at the same time he bestows the honor on Generals Petraeus and Odierno. They deserve it.In a bit of timely coincidence, however, Matthew Shephard, the man who led the team of interrogators that found Abu Musab al-Zarqawi - without resorting to torture - puts all of this in stark perspective in an article in yesterday's Washington Post. The entire article is well worth reading, but I found the following passages striking:
I'm not some ivory-tower type; I served for 14 years in the U.S. Air Force, began my career as a Special Operations pilot flying helicopters, saw combat in Bosnia and Kosovo, became an Air Force counterintelligence agent, then volunteered to go to Iraq to work as a senior interrogator. What I saw in Iraq still rattles me - both because it betrays our traditions and because it just doesn't work.If you are new to Sensen No Sen - or remain unconvinced by my previous posts on this topic - consider this thought experiment from Barry Eisler at The Heart of the Matter. I think the answers to Barry's questions are readily apparent, if we're honest with ourselves:
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Amid the chaos, four other Air Force criminal investigators and I joined an elite team of interrogators attempting to locate Zarqawi. What I soon discovered about our methods astonished me. The Army was still conducting interrogations according to the Guantanamo Bay model: Interrogators were nominally using the methods outlined in the U.S. Army Field Manual, the interrogators' bible, but they were pushing in every way possible to bend the rules - and often break them. I don't have to belabor the point; dozens of newspaper articles and books have been written about the misconduct that resulted. These interrogations were based on fear and control; they often resulted in torture and abuse.
I refused to participate in such practices, and a month later, I extended that prohibition to the team of interrogators I was assigned to lead. I taught the members of my unit a new methodology - one based on building rapport with suspects, showing cultural understanding and using good old-fashioned brainpower to tease out information. I personally conducted more than 300 interrogations, and I supervised more than 1,000. The methods my team used are not classified (they're listed in the unclassified Field Manual), but the way we used them was, I like to think, unique. We got to know our enemies, we learned to negotiate with them, and we adapted criminal investigative techniques to our work (something that the Field Manual permits, under the concept of "ruses and trickery"). It worked. Our efforts started a chain of successes that ultimately led to Zarqawi.
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I know the counter-argument well - that we need the rough stuff for the truly hard cases, such as battle-hardened core leaders of al-Qaeda, not just run-of-the-mill Iraqi insurgents. But that's not always true: We turned several hard cases, including some foreign fighters, by using our new techniques. A few of them never abandoned the jihadist cause but still gave up critical information. One actually told me, "I thought you would torture me, and when you didn't, I decided that everything I was told about Americans was wrong. That's why I decided to cooperate."
Torture and abuse are against my moral fabric. The cliche still bears repeating: Such outrages are inconsistent with American principles. And then there's the pragmatic side: Torture and abuse cost American lives.
I learned in Iraq that the No. 1 reason foreign fighters flocked there to fight were the abuses carried out at Abu Ghraib and Guantanamo. Our policy of torture was directly and swiftly recruiting fighters for al-Qaeda in Iraq. The large majority of suicide bombings in Iraq are still carried out by these foreigners. They are also involved in most of the attacks on U.S. and coalition forces in Iraq. It's no exaggeration to say that at least half of our losses and casualties in that country have come at the hands of foreigners who joined the fray because of our program of detainee abuse. The number of U.S. soldiers who have died because of our torture policy will never be definitively known, but it is fair to say that it is close to the number of lives lost on Sept. 11, 2001. How anyone can say that torture keeps Americans safe is beyond me - unless you don't count American soldiers as Americans.
... If instead of American soldiers and Arab detainees, the photos and videos from Abu Ghraib were of American POWs and, say, Iranian guards, what would be the American reaction? Note the linguistic choices in the previous sentence, which would be automatic: Arabs are denied the dignity of being designated Prisoners of War. They're not even prisoners. They're merely "detainees" (I'm half-surprised we haven't started calling them "guests"). The Americans holding them are "soldiers"; were the shoe on the other foot, the enemy captors would doubtless receive the less exalted term, "guards." Would there be any debate about whether the practices revealed in the photos were "outrages upon human dignity," as prohibited by the Geneva Conventions and U.S. law? Would we describe the practices as "abuse?" Or would they obviously, and rightly, be called "torture?" If Americans were taken against their will and spirited away by Iranian government forces, would we call the practice "rendering," or would we recognize it as "kidnapping?" Would we call the places to which Americans were secreted and where they were held without acknowledgment to their families or even to the Red Cross "detention centers?" Or would we call such a system a gulag?President-elect Obama has promised to (re-)outlaw the practice of torture. Ending a practice that is effective only in endangering American lives, diminishing standing of the United States in the eyes of the world, and aiding our enemies can't come soon enough.
More than 2,500 randomly selected Americans took ISI’s basic 33-question test on civic literacy and more than 1,700 people failed, with the average score 49 percent, or an “F.” Elected officials scored even lower than the general public with an average score of 44 percent and only 0.8 percent (or 21) of all surveyed earned an “A.”If you'd like to see how you'd do on the ISI Civic Literacy test, it can be found here. In my opinion, it is fair, grounded in fact, and unbiased.
Only a crisis, real or perceived, produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.It was this foundational concept that was behind the exploitation of post-catastrophe disorientation, and which was used to ram through radical free-market policies that would never have been enacted democratically. Chile, Argentina, Bolivia, Brazil and Indonesia in the fifties and sixties; Poland and China in the eighties; Russia and South Africa in the nineties; the United States in the wake of 9/11; the Iraq War; the aftermaths of Hurricane Katrina in New Orleans and the tsunami that devastated Sri Lanka, Indonesia and Thailand in 2004 - all of these bear the mark of the Chicago School ideologues.
All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.Proposition 8 is illogical, because - as detailed in the famous "Open Letter to Doctor Laura" - the religious justification for banning same-sex marriage and persecuting homosexuals cherry picks one portion of the Old Testament and ignores many others. Marriage is also not nearly the immutable institution organizations like the FRC would have the public believe, and the Bible very clearly countenances polygamy as a fact of life. Further, claims that Proposition 8 is rooted in protecting the "sanctity of marriage," are obviously false; on the basis of volume alone, the divorce rate among heterosexuals is a far greater threat to matrimony than homosexual marriage is, or ever will be, and no one is working to ban divorce.
If you oppose gay marriage, try to imagine that as strongly as you feel, that's just how strongly backers of Jim Crow felt in the 1950's and 1960's. Segregationists, who are now recognized as the racists they were, felt just as strongly about blacks marrying whites as you feel about two men or two women marrying each other. They had their arguments, as you have yours. And yet, looking back, we know they were wrong. When people look back at supporters of Prop 8, they'll recognize that Prop 8 supporters were wrong, too.Fortunately, the fight against Proposition 8 is not over. Already, seven same-sex couples - legally married in the Golden State prior to Prop 8's passage - have filed suit to overturn the measure. Further, the California Supreme Court has been petitioned to overturn Proposition 8 on the grounds that the ballot initiative process was improperly used in an effort to gut the state constitution's core commitment to equality. And perhaps best of all, businesses and individuals who financially backed Proposition 8 are being held accountable through protests and boycotts.
Like many people, I'm still awed by Barack Obama's historic election to the presidency, and having spent the past couple of years venting my spleen over the terrible conduct of the Bush Administration (and how good will it feel to stop writing the words "Bush" and "administration" next to one another?), it's likely that I will take a small breather, posting shorter posts here at Sensen No Sen for a week or two. Nonetheless, here are a few things I thought worth sharing.
Third, the modern Republican Party has made its bones by convincing people to vote against their own interests. It is in the economic interest of the vast majority of Americans to vote for Senator Obama:
Fourth, think about where the country was before the ascension of George W. Bush. The Onion was tragically prescient when it satirically reported in 2000 that President-elect Bush had declared, "Our Long National Nightmare Of Peace And Prosperity Is Finally Over". Even the guys from Budweiser's carefree "Wassup" campaign have noticed that the past 8 years haven't gone very well for anybody who isn't at the top of the income heap: I have detailed in previous posts why I am voting for Barack Obama (here, here and here). While he is certainly not perfect, I believe that he is a far superior candidate to John McCain on the issues, and because of where we currently sit within the broad arc of national history. As we reach the finish line of this election - an end to the beginning, if you will - I have also come to believe increasingly that Senator Obama has the potential to be a truly transformative president; one who has a chance to actually attain some of the lofty and difficult aims he has laid out for himself and for the country.
I'm not alone. As corny as it sounds, hope is a powerful force that, well-managed, can bring about wholesale improvements in the lives of everyday people, and transform individuals:
I've learned that this election is about the heart of America. It's about the young people who are losing hope and the old people who have been forgotten. It's about those who have worked all their lives and never fully realized the promise of America, but see that promise for their grandchildren in Barack Obama. The poor see a chance, when they often have few. I saw hope in the eyes and faces in those doorways.
My wife and I went out last weekend to knock on more doors. But this time, not because it was her idea. I don't know what it's going to do for the Obama campaign, but it's doing a lot for me.
It may be that we never reach the goals expressed in Mr. Obama's platform, but it is certain that we will fail if we embrace the status quo of John McCain either directly, or worse, through the apathy of non-participation.
Please vote tomorrow. We're all in this together, and we need your help.
“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”Chairman Greenspan's final salvo was reserved for Republicans, who have attempted to provide political cover for the collapse of modern conservative ideology as it applies to Wall Street by attempting to lay the financial crisis at the feet of Fannie Mae and Freddie Mac, focusing on Democratic resistance to reform of those two quasi-public companies:
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”While all of this is edifying, what is most striking about Alan Greenspan's mea culpa is the willful blindness that apparently underpinned his thoughts on deregulation. In a speech at Georgetown University earlier in the month, Mr. Greenspan made it clear even then that he placed no value on market regulation:
“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,” he said.
“In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.”He reiterated these same sentiments throughout his tenure as Fed chief, and, in direct response to a 1994 congressional study that identified "significant gaps and weaknesses" in the regulation of the derivatives market, noted:
Risks in financial markets, including derivatives markets, are being regulated by private parties... There is nothing involved in federal regulation per se which makes it superior to market regulation.Flatly, only a naif with no knowledge of human nature or history - or a corrupt shill - would look at Wall Street, and think to himself, "Yes. These guys are all about collective responsibility." The crucial - but obvious - thing that Mr. Greenspan missed (or refused to see) was that, for those most concerned with amassing as much wealth as possible in as short a period as possible, it is only the appearance of responsibility that has economic value.
“The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,” he said... But he called that possibility “extremely remote,” adding that “risk is part of life.”He was amazingly prescient in his analysis of the inherent risks, but just as amazingly tin-eared on the odds of catastrophe.
