Despite the meltdown too many still think money = brains

Turn a profit and you must be a genius, despite two successive bubbles that is still the essential view of too many.

Yesterday Goldman Sachs reported record earnings mostly because they are profiting from a government system they (or their former-for-now employees) helped create.

In the wake of Countrywide, Madoff, Bear Stearns, Enron, AIG, etc., etc., it would be nice to think a we had acquired even a slight sense of skepticism. But even many of our supposedly cynical reporters rushed to gush over Goldman winning a rigged game.

Here’s NPR’s Yuki Noguchi on All Things Considered: “Dick Bove is senior vice president of research at Rochdale Securities. He says Goldman suffered during the crisis. It shed 16 percent of its workforce in the last year. But what revived Goldman, Bove said, is the diversity of its business and its superior internal systems. So while some aspects of its business falter, the rest goes gangbusters.”

“Superior internal systems”? Is that a euphemism for no competition left standing? Nor is she alone in using effusive praise in the place of actual facts. Reuters quotes Michael Holland as saying:

What they have continued to do during the worst financial crisis in 25 years shows that they are the smartest guys in the room and, therefore, it doesn’t necessarily translate to the other people who are in the room.

“The smartest guys in the room.” Mr. Holland uses the old Enron catchphrase without a trace of irony. Here is a view from Australia:

The fact Goldman Sachs made as much money in the second quarter as it did for all of 2008 is undeniably good news. It shows markets are open for business, and given that many of its peers are dead or recovering the investment bank demonstrates the benefits of well judged risks.

The markets are open for business? Doesn’t the second half of that sentence beg a few questions of the first half?

No surprise that our elected officials are only too happy to jump on board the bandwagon. Richard Shelby, the top Republican on the Senate Banking Committee: "I’m not surprised. Goldman Sachs has a history of being well run and sometimes ahead of the others."

All this happy talk leads to a rise in the markets which is used as further evidence of the brilliance of Goldman, et al. It was only two and half years ago when Countrywide was considered one of the most esteemed companies in the US.

Anyone remember that?

Anyone?

Bueller?

Thankfully not everyone is falling for it. Over at the Washington Post, Binyamin Appelbaum even put some skepticism in the lead: “… as the decimation of its Wall Street rivals allowed the investment bank to romp across the financial landscape, buying low and selling high.” While Goldman has repaid its $10 billion government loan, Applebaum (and a few others) had the temerity to point out that the company “has not disclosed to what extent it continues to rely on other federal rescue programs, such as borrowing from the Federal Reserve.”

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Easy way to tell truth from spin on fixing the banks

Originally ran at BlownMortgage

There’s way more chaff than wheat in the air when it comes to understanding what’s wrong with the bank. Because of this it can be easy to get caught up in jargon and sound-bites and lose track of what the issues really are.

Two National Public Radio entities are doing a superb job at managing the noise-to-signal ratio. One is the show This American Life and the other is the blog/podcast Planet Money (the Planet’s pieces are also heard on regular NPR news shows). The two shows frequently team up and their latest look at the the big picture – entitled Bad Bank — is particularly worth listening to.

In the episode, Adam Davidson and Alex Blumberg explain in an easy-to-understand-without-being-stupid way exactly what went wrong. They also make a strong case for some very simple solutions. Not fun. Not easy. Just simple. These solutions are simple enough that it is also easy to see exactly why no one in power is yet willing to initiate them.

Alex Blumberg: If you want to understand this crisis right now, this banking crisis, you need to understand this one thing. And it’s one thing, Adam, that the mainstream media is afraid to touch.
Adam Davidson: They’re afraid because they think it’s really boring.
Alex Blumberg: Right because, what this central thing is, this thing that we need to discuss right is a bank balance sheet.
Adam Davidson: But please, do not despair, because we think we’ve come up with a way to explain this to you, and we actually think it will be pretty enjoyable. So, to begin, let’s imagine the simplest bank in the world. I would like to call it Adam’s Bank.

The pair then go on to explain the basics of mortgages and how banks work and make a profit in an amusing and interesting way. They do this by using an imaginary mortgage on an imaginary dollhouse and with the help of various experts like Columbia Business School professor David Beim.

Alex Blumberg: David Beim is saying, you don’t want to mark it to market. Mark to market, that’s another phrase you might have heard. And it applies to exactly the situation Adam is in right now. He’s got a dollhouse on his books for 100, but if he had to sell it now, he could only get 50 – that’s the market price, what he could get right now. Marking it to market means Adam would have to enter the market price – 50 dollars – or 20 dollars – or whatever it really is – into his books.
BEIM: And the bankers have all been saying ‘please don’t make me do that,’ because if you do, I’ll be declaring bankruptcy. If I show all those, the reduction from 100 all the way down to 20, you’ve just wiped out my entire capital and more, I’m going to have to go to the government and say, close me down, I’m broke. And bankers find that hard to do. and furthermore, regulators don’t want it to happen to all the banks at once. Certainly not all the big ones.
Alex Blumberg: Now obviously, in the real world, the assets that the banks have on their books are more complicated than dollhouses. But, if the banks had to sell them now, in today’s market, they’d almost certainly take a huge loss. A loss big enough to wipe out their capital and shut them down.

Also helping out is a former IMF economist named Simon Johnson and it is Johnson who lays it all out in language so clear even a politician, CEO or journalist can understand it.

JOHNSON: You know, what would the U.S. tell the IMF to do if this were any country other than the U.S.? If you covered up the name of the country, and just showed me the numbers, just show me the problems, talk to me a little about the politics in a generic way. With the financial system, you have a boom, and then the crash, what would the U.S. tell the IMF to do, I know what we would do, I know what the advice would be, and that would be, take over the banking system. Clean it up, re-privatize it as soon as you can.

Account for the bad debts, throw out the bad management, take the hit and move on. That really is the only way out of this mess. Until that happens – and it doesn’t matter if you call it nationalization or some other euphemism – nothing will change. Keep that in mind when listening to the chattering classes and it becomes quite easy to know when you are being lied to.

U.S. escalates war on concepts: “The enemy is extremism”

In an interview on NPR Gen. David Petraeus showed that logic is not a required course at the Army War college:

Q: A simple question that many in America are now wrestling with: Who is the enemy and what is the U.S. fighting for?

A: The enemy is extremism, we think, and it is extremism that comes in various forms.

I forget, is it the infantry or the artillery who are trained in extreme combat?

Isn’t moderation the best weapon against extremism? But if you do it too well you run the risk of being extremely moderate.

If the enemy is extremism does this mean we’re about to attack the X Games?

Maybe we could attack marketers who use the word extreme when ever they want to appear “hip” and “down” with the kids these days?

I look forward to the Armed Forces blowing up statues of Sen. Barry Goldwater who famously said that extremism in the defense of liberty is no vice.

Isn’t going to war a very extreme act?

One definition of extremism is “any political theory favoring immoderate uncompromising policies.” Invade the vice president’s office immediately.

This reminds me of something George Bush the elder said during the first Iraq contretemps: “We are fighting to prove that might does not make right.”

The war on extremism makes the war on terror look good.

The Iraq Civil War, or Operation Bull Run … Part II

When last we looked in on the George Bush Desert Classic, its sponsors were spinning the idea that despite what you may have seen, read or ducked out of the way of the Iraqi Civil War was still more of a possibilty than a fact. That was some good spin. It’s nearly six months later and my brethren, sistren and cisterns in the press seem to say that Civil War is about a 3:1 favorite.

• USATODAY: As violence mounts, so does evidence of civil war in Iraq
• The Christian Science Monitor: A widening sectarian rift pushes Iraq to the brink of civil war
• NPR: Abizaid Warns That Iraq Could Face Civil War
• MSNBC: PM: Iraq not facing civil war
• Fox News: We Won! We Won!

Still waiting for someone to tell me how we will know when the war has gone civil.

And here’s a headline from the AP that seems to bring obviousness to a whole new level: Analysis: Political unity missing in Iraq

Did you really need an analyst to tell you that?

Wait, Wait … Don’t Tell TOM HANKS?

Having Carl Kassel's voice on your answering machine is a great thing, trust me. I won this cherished item by correctly answering 4 (count 'em FOUR) questions* about the news on NPR's quiz show Wait, Wait … Don't Tell Me. More than once I have received messages about how cool a thing it is from people who have called the wrong number. And once a wrong number even called back to hear it again. Carl Kassel's voice is, in fact, more popular than I am. Several times I have received a phone call from a friend who said, in a disappointed voice, "oh … you're home. I wanted to hear the message. If I call back, do you mind not answering?"

(I won this wonderful prize back in the golden age of American political humor. The great thing about the Monica Lewinsky scandal was that whatever your position you could easily admit that this was just a freaking weird thing to be arguing about. And, oh yeah, it didn't really matter because, as we all realized later, no one died as a result.)

I am not just a WW…DTM winner, I am a devotee. I have listened to it since it first hit the air and try to never miss it. The rest of the Collateral Damages know that on Saturday between noon and 1 (when it airs on WBUR) dad is not to be bothered even if the house is on fire. When the show first hit the air, the only guests they could get were other NPR personalities whom, I can only guess, owed the producers money. In time the producers were able to get people who weren't on their payroll to appear. I remember how slack-jawed with awe host Peter Sagal was when they got their first semi-celeb, actress Martha Plimpton. A fine actress to be sure but not exactly someone who can, as they say, open a movie.

So it was I who was slack-jawed this week when I found out that the guest was none other than … Tom Hanks, who could probably fund NPR on an annual basis with what he leaves on his dresser at night. No surprise that Hanks was very funny, he does do that well. However it was Paula Poundstone who comedically topped everyone else with a one-word answer about beverages served in certain government buildings. Wow, that's all. Just wow.

*And I remain to this day the only person ever to go 4-for-4 on the show. Not that I'm bragging or anything… Odd thing: people who listen to the show frequently ask me how I was able to get on. Well, I did something very tricky and insider (since I used to work for a part of NPR, I know these things) but which I will now share with you: I called the friggin' number. Shhhhh. Let's just keep that between us.