Another Bush Legacy

Just before the Bush administration headed out the door, it deliberately switched the investment strategy of the Federal Pension Guarantee Corp. from safe bonds and money market funds to.... You guessed it, "emerging foreign markets, real estate, and private equity funds."

The Pension Benefit Guaranty Corporation may be little-known to most Americans, but it serves as a lifeline for the 1.3 million people who receive retirement checks from it, and the 44 million others whose plans are backed by the agency.

The agency was set up in 1974 out of concern that workers who had pensions at financially troubled or bankrupt companies would lose their retirement funds. The agency operates by assessing premiums on the private pension plans that they insure. It insures up to $54,000 annually for individuals who retire at 65.
* * *
Most of the nation's private pension plans suffered major losses in 2008 and, all together, are underfunded by as much as $500 billion, according to Bodie and other analysts. A wave of bankruptcies could mean that the agency would be left to cover more pensions than it could afford.

As David Kurtz observes, "Bush was able to do for the PBGC what he tried and failed to do for Social Security." Which is to say, of course, ruin it. Duncan Black thinks it was a failed attempt at "plunge protection."

Is there anything that failed businessman, born with a spoon in his mouth and cotton in the head, did right?

Pensacola Beach Business

What's good for beach businesses:

• A slumping national economy and a weak dollar
• Drug wars in Mexico and the Cuban embargo
• Rainy, cold weather that drives tourists away from the shore
• Store closings in nearby Gulf Breeze
• Short vacation allowances by schools and employers
• Unique product inventories unavailable elsewhere
  
• El Niño
  

What's bad for beach businesses:

• A strong dollar and cheap air fare to Europe
• Peace in Granada and the imminent lifting of travel restrictions to Cuba
• Hot, sunny weather that keeps people at the shore
• Generous vacation allowances by employers and summer school dismissals
• The Internet
  
• La Niña

The North Dakota Bonus

Carl Icahn, the billionaire corporate financier -- and sometime corporate take-over specialist -- has an op-ed in today's New York Times that points out "shareholder control" of public corporations is largely a myth. ["We're Not the Boss of A.I.G."]

"Under American corporate law," he writes, "share ownership does not count for much." That's why, he argues, lousy executives get showered with out-of-whack corporate salaries, perks, and bonuses like these and these and these, to take three of the latest examples.

The fact is, prevailing state laws almost everywhere -- except for North Dakota, it seems -- practically guarantee that corporations will be run like a banana republic, no matter who holds the shares:

The legal landscape is filled with devices designed by state legislators and courts to prevent shareholders from influencing how companies are run and so allow management free rein. Legal mechanisms known as poison pills, permitted under the laws of most states, effectively prohibit shareholders from accumulating a large position in a company or working with other large shareholders to influence the company.

Furthermore, public corporations may legally adopt a staggered board, whereby board members are grouped into classes, with each one representing about a third of the total number of directors, so that only one class comes up for election in a year.

This means that seriously shaking up a board would require at least two very expensive proxy contests over two years. And current state laws permit incumbent board members access to the corporate treasury, allowing them to spend millions of dollars, to hire lawyers and public relations firms, run ads and mail materials to prevent shareholders from adding their designees to the board of directors.

Long-standing special federal tax breaks and a willfully toothless SEC also tilt the field decidedly in favor of greedy execs and their hand-picked pals on the board.

To be sure, Icahn has a large personal interest in taking out some corporate executives. Nevertheless, we like his proposals to "re-enfranchise" shareholders by permitting "proxy access" and "say on pay."

At bottom, they are only small-d democratic reforms. By themselves, they don't eliminate executive avarice or erase the incestuous relationships that predictably grow up between board members and executives; no more so than democracy itself ensures our political leaders will be bright and honest.

But, as Eric Johnson pointed out recently, often it is enough to have "the risk of being fired by shareholders" on the minds of CEOs and board members. What's more, if corporate executives and their board member buddies keep compensation within reasonable limits, their real bonus could be they don't have to move to North Dakota.

Sunday Sermons

Matt Taibbi rocked in the pulpit these past ten days. Twice.

March 19 ["The Big Takeover"]:

No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream.

Read the rest. It's worth it.

And March 27 ["AIG Exec Whines About Public Anger, And Now We're Supposed to Pity Him? Yeah, Right"]:

Like a lot of people, I read Wednesday's New York Times editorial by former AIG Financial Products employee Jake DeSantis, whose resignation letter basically asks us all to reconsider our anger toward the poor overworked employees of his unit.

DeSantis has a few major points. They include: 1) I had nothing to do with my boss Joe Cassano's toxic credit default swaps portfolio, and only a handful of people in our unit did; 2) I didn't even know anything about them; 3) I could have left AIG for a better job several times last year; 4) but I didn't, staying out of a sense of duty to my poor, beleaguered firm, only to find out in the end that; 5) I would be betrayed by AIG senior management, who promised we would be rewarded for staying, but then went back on their word when they folded in highly cowardly fashion in the face of an angry and stupid populist mob.

I have a few responses to those points. They are 1) Bullshit; 2) bullshit; 3) bullshit, plus of course; 4) bullshit. Lastly, there is 5) Boo-Fucking-Hoo. You dog.

It gets even better ... and funnier. Read on.

Breaking the Oligarchy

"If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."

The chief economist for the International Monetary Fund, Simon Johnson, has an article in the May issue of Atlantic Magazine ["The Quiet Coup"] that is a must-read. It's written in language everyone can understand... it draws important and disturbing historic parallels... and it will make you sick, whether you are an "oligarch" or not.

The four-part article is here. A single page suitable for reading and printing is here.

Here's a taste what may seem eerily familiar, although in fact it describes third-world and "emerging-market" countries whose economies have collapsed:

[I]nevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreign-currency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or— here’s a classic Kremlin bailout technique— the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

It's not all bad. Simon -- who was, after all, in the business of rescuing failed economies -- does have some suggestions for us. But it will be expensive, it will take a long time, and it requires the political will to "break the oligarchy."

That starts with recognizing that any institution "too big to fail" is too big, period. It's time to start enforcing Antitrust laws, again.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.

This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

Another step must be to develop rational limits on the pay of oligarchs through regulatory, tax, and corporate policy reform, along with "more transparency and competition."

It is not a little startling to read that the same disease is eating at the root of our economy that has ruined so many others in the third-world. But Simon Johnson makes sense. Will Congress and the Obama administration listen?

Wherever Omni Forever Is...

Omni Bank, Atlanta

Disappointing for Tourists, Good for Trees

The truth is, we need the rain. All of Florida has been in a drought. It's much worse in southern counties, but over the past six months even here rainfall was 30-50% below normal.

Are Troubled Banks Chasing Their Losses?

Are Bank of America and Citigroup chasing their gambling losses in the mortgage derivative market by buying more risky derivatives with taxpayer-financed Troubled Asset Relief Program (TARP) funds?

That's what Jane Hamsher and finance expert Yves Smith have concluded. The banks are, in effect, acting like bleary-eyed, punch-drunk gambling addicts, chasing their losses while hoping their luck turns around.

Is this what Tim Geithner intended with his "public-private partnership" idea?

Based in part on yesterday's New York Post story ["Double Dippers"] and in part on Wall Street trader observations, Smith writes:

It certainly looks as if Citigroup and Bank of America are using TARP funds, not to lend, which was one of the primary goals of the program, but to scoop up secondary market dreck assets to game the public private investment partnership.

Citigroup, as mum as the glum gambler it is, has no comment. Bank of America's response?

"Our purchases in [mortgage-backed securities] increase liquidity in the mortgage market allowing people to buy a home," said BofA spokesman Scott Silvestri.

Both troubled banks are "speculating with taxpayer money," Smith concludes. "Welcome to yet more looting."

Turtle Mining

Who knew?

Freshwater turtle populations have plunged in Asia, where the meat is a delicacy, leading to increased trapping in U.S. ponds and streams, said Fred Janzen, an Iowa State University professor who studies ecology.

In Iowa, harvests have increased from 29,000 pounds in 1987 to 235,000 pounds in 2007. And during that period the number of licensed harvesters more than quadrupled to 175 people.

Turtles? In Iowa?

Yep. Lots of 'em. It's not only food-use that threatens chelonians. It's also over-building and the destruction of wetlands.

But if Iowa turtles are threatened by over-development and Asian appetites, can you imagine how endangered turtles must be in Florida?

Actually, you don't have to imagine it:

In Chinese communities, turtles are in demand for their meat, which is not just eaten for sustenance, but is thought to enhance "longevity and prowess." The turtles are also used to make tonics for cancer, arthritis and heart disease. Freshwater turtles are in high demand for both food and medicine, and according to Matt Aresco, a Florida biologist, the demand is "insatiable." Common turtles, such as Florida softshells, have not been protected historically.

Until last Fall, the Sierra Club explains, Florida has had no limits on fishing for freshwater turtles. In September, the FWC adopted an emergency "temporary bag limit for licensed harvesters of 20 freshwater turtles a day an incredible 7,300 turtles a year, for each harvester."

Now, Save-the-Turtles Foundation reports, there is pending a new staff proposal that comes before the Florida Fish and Wildlife Commission on April 15:

The commercial harvest of freshwater turtles is a significant and growing conservation threat in Florida and has received considerable attention by turtle scientists, conservationists, and the general public over the past year. In addition, the discovery of several large piles of freshwater turtle shells documents that localized harvest of significant numbers for personal use continues in the Florida panhandle and peninsula.

According to the FWC --

The draft rule would ban the commercial take or sale of wild freshwater turtles. The draft rule also would prohibit taking turtles from the wild that are listed on Florida's imperiled species list, as well as species that look similar to the imperiled species, which include common snapping turtles and cooters. In addition, the collection of eggs would be prohibited. Individuals would be allowed to take one freshwater turtle per day per person from the wild for noncommercial use. The transport of more than one turtle per day would be prohibited.

Concerned citizens are invited to submit comments on the proposal directly to the Florida Fish and Wildlife Conservation Commission by emailing turtles@MyFWC.com. Or, telephone, write or email Save the Turtles.

Adlai Obama

Peter Baker and Adam Nagourney stick this into their "analysis" of President Obama's press conference last night:

Throughout his time in public life, Mr. Obama has confronted questions about whether he was too detached, too analytical, too intellectual. In the campaign, he was as likely to be compared to Adlai E. Stevenson as he was to John F. Kennedy.

They seem to mean it as a criticism. Anyone with a brain who's old enough to remember Adlai Stevenson would consider it a high compliment.

County Sheriff Breaks Law

Someone needs to call the grammar police. Escambia County Sheriff David Morgan is so mad at county administrator Bob Laughlin that he broke a law of grammar.

This is unacceptable to the grammar-abiding citizens of Escambia County. It's something of which they will not tolerate.

"Helicopter Tim's" Bank Rescue Plan

What follows is the usual moderately long post. But after re-reading it, we realize it probably could have been reduced to a single sentence: Treasury Secretary Tim Geither's plan looks very much like it is designed to rescue Wall Street, not Main Street.

--------------------

Today, U.S. Treasury Secretary Tim Geithner announced the details of his plan to rescue bad banks who took absurd risks in the ever-escalating struggle for higher and higher executive bonuses. It is, as Paul Krugman predicted, essentially the same plan hatched by Bush's Treasury Secretary, Hank Paulson, although Paulson later rejected it because he concluded it would not work.

If you want to see a summary, Geithner has issued a White Paper to explain the "Public-Private Investment Program." What Geithner calls the "Legacy Loan Program" -- and the rest of know as "Bank Bailout Time" -- essentially lets Wall Street put up a very small percentage of the loot while the government remains on the hook for virtually all losses.

In other words, Geithner plans to practically fly over Wall Street and drop billions of dollars from helicopters. And, he promises lots and lots more if that isn't enough to cover Wall Street's losses.

The "primary areas of focus for the government’s troubled legacy asset programs" are, the White Paper says, "the residential and commercial mortgage...portfolios." Secretary Geithner essentially is proposing to drop money from helicopters into the laps of hedge funds to solve it.

That may marginally improve some bank balance sheets, and it certainly is a great bet for the gamblers on Wall Street. But it offers nothing to the man on Main Street or small businesses.

If Geithner and Larry Summers feel compelled to paper over the problem with money from the heavens, why not drop it, instead, over Main Street so real people can pay down their mortgages or put food on the table?

Yes, that would probably support some undeserving poor folk who knowingly took out loans they couldn't afford, although by all accounts they are an infinitesimal part of the problem. But isn't even that preferable to supporting all those Wall Street gamblers who can't pay off their own gambling credit default swap debts, particularly when however rich they get largely will never trickle down to the rest of America?

Update
3-23 pm

Don't take our word for it. Take the word of the stock specialist at Bank America, formerly of Merrill Lynch (R.I.P.):

Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said.

Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added.

Rube Goldberg Alert

A "Hawk Alert" is a warning message, as Calculated Risk explained almost two years ago --

that the credit repositories print on a report when some combination of facts or transactions trigger one of its potential fraud algorithms. It does not prove fraud, but it is designed to make your average human underwriter sit up straight and start poring over documents at a much greater level of detail and skepticism than might be usual.

We need something like a "Hawk alert" to make President Obama to sit up and take notice, if the growing criticisms of Tim Geithner's $1 trillion bank rescue plan are accurate. But since "hawk alert" has already been taken, let's call it a "Rube Goldberg Machine Alert."

Corporate finance advisor Yves Smith offers a brutally frank description of Geithner's plan: "a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for crappy paper."

In other words, the Geithner plan leaked to the press looks just like an elaborate Rube Goldberg machine -- something with too "many components... and a lot of moving parts" that are vulnerable to failure.

Nobel Prize winning economics professor Paul Krugman explains:

[Geithner's] plan proposes to create funds in which private investors [hedge funds and the like] put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad ... assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities.

For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

What's more, James Galbraith, economist son of the late, great economist John Kenneth Galbraith, says it just won't work:

[S]ome of the biggest banks are bust, almost for certain. Having abandoned prudent risk management in a climate of regulatory negligence and complicity under Bush, these banks participated gleefully in a poisonous game of abusive mortgage originations followed by rounds of pass-the-bad-penny-to-the-greater-fool. But they could not pass them all. And when in August 2007 the music stopped, banks discovered that the markets for their toxic-mortgage-backed securities had collapsed, and found themselves insolvent. Only a dogged political refusal to admit this has since kept the banks from being taken into receivership by the Federal Deposit Insurance Corporation—something the FDIC has the power to do, and has done as recently as last year with IndyMac in California.

Geithner’s banking plan would prolong the state of denial. It involves government guarantees of the bad assets, keeping current management in place and attempting to attract new private capital. (Conversion of preferred shares to equity, which may happen with Citigroup, conveys no powers that the government, as regulator, does not already have.) The idea is that one can fix the banks from the top down, by reestablishing markets for their bad securities. If the idea seems familiar, it is: Henry Paulson also pressed for this, to the point of winning congressional approval. But then he abandoned the idea. Why? He learned it could not work.

Now, we should acknowledge that economics professor Brad Delong thinks the whole thing might turn out okay -- as long as the Treasury Dept. makes $5 for every $1 dollar invested. And DeLong is a smart guy, too.

For the sake of the nation, we hope he's right. But we have one special reason to doubt it that almost no one else has mentioned.

One of the many problems with the Frankenstein monsters Wall Street created -- known as residential mortgage-backed derivatives (RMBD) -- recently was explained by law and economics professor William K. Black: the basic loan file paperwork and data on tens of thousands of mortgages which were sliced-and-diced-and repackaged into RMBDs no longer exist:

[T]he big banks often do not have the vital nonprime loan files now. That means that neither they nor the Treasury know their asset quality. It also means that Geithner's "stress tests" can't "test" assets when they don't have the essential information to "stress." No files means the vital data are unavailable, which means no meaningful stress tests are possible of the nonprime assets that are causing the greatest losses.

No files? Enormous piles of debt "secured" by something that doesn't exist any more? Yes, we realize this sounds too weird for words.

But we've seen that reality unfold right before our very own eyes. The facts of the case were simple:

• Fact: A mortgage debtor stopped making payments three years ago, then split town, abandoning the residential property.
  
• Lawsuit: The mortgage-back securities claimant with the RMBD finally got around to filing suit against the dead-beat debtor.
  
• Other creditors: Other creditors stepped up -- this is where someone we know came into the picture -- and claimed that they should have priority. In effect, they demanded 'first dibs' on the property. "Show us your loan contract," the competing creditors said.
• Reply: The RMBD claimant then admitted, 'We don't know where the mortgage file is -- or if it still exists. We have no mortgage contract or promissory note we can show you.'
  
• Court: The judge let it be known that the RMBD claimant would have to prove it holds a top-priority mortgage and promissory note or, otherwise, all the other creditors would win.
• Result: Mortgage-backed securities claimant decided to pay off all the other creditors of the long-gone debtor, so that they would drop out the lawsuit.

How much of your own money would you risk to buy an aircraft hangar full of RMBDs, especially when you can't know how many of them will end up costing you -- as in the above real-life example -- far more money than they're worth.

Exactly. And that is one sure reason we know of to indicate that Treasury Secretary Tim Geithner's plan to "partner up" with private investors probably won't work to the taxpayer's advantage. As Paul Krugman says late today, "The whole point about toxic waste is that nobody knows what it's worth."

Sure, the hedge funds will "partner up," all right. But only if it means "heads the taxpayers lose, tails the hedge funds win. "

Forclosure Mediations Ordered

Pensacola's Kim Skievaski, chief judge of the three Northwest Florida circuit court systems covering Escambia, Santa Rosa, and Okaloosa counties, signed an administrative order last Tuesday, March 17, that diverts all newly filed foreclosure cases to mediation before proceeding in court. The Pensacola News Journal caught up with the news this morning.

The complete judicial order can be read or downloaded here [pdf warning].

As Kris Wernowsky summarizes it for the PNJ, "The order will affect mortgages of owner-occupied homes and those made through institutional, investment or commercial lenders. It does not extend to investment, vacation or commercial properties."

We commented over a year ago about the visibly escalating foreclosure filings in Escambia and Santa Rosa counties. So, it's no surprise that Chief Judge Skievaski's order recites that it is partly based on the fact that "residential mortgage foreclosure case filings have increased substantially in the First Judicial Circuit, and state and county budget constraints have limited the ability of the courts... to manage these cases in a timely manner... ."

What is a surprise -- and a very encouraging one, at that -- are the additional reasons Skievaki's order recites. Among them:

• "high residential mortgage forclosure rates are damaging the economies of the counties in the First Judicial Circuit; and
• "* * * high residential mortgage foreclosure rates place an increased strain on the citizens and families... who have lost jobs or who are otherwise suffering from the current downturn in the naiton's economy... ."

The order even quotes from a report of the Joint Economic Committee of Congress estimating

"that the total average cost of a foreclosure to the homeowner ($7,000), lender ($50,000), local government ($19,000), and neihboring home values ($75,000) is $151,000. By contrast... preventing the foreclosure would cost $3,300 per home, on average... ."

Those are not the kind of reasons you'd normally see recited in support of a system-wide administrative court order affecting thousands of cases. They are reality-based reasons which appeal to common sense and social justice.

Social justice! Hurrah for Judge Skievaski.

To be sure, mediation is basically a two-way street that can only encourage, not require, the parties to come to agreement. But one of the more nettlesome aspects of the derivatives nightmare created by Wall Street is that homeowners often can't make contact with their mortage holder to try to negotiate -- because no one knows who they are. Not even the lawyers representing the trust or other fictional entity that holds the derivatives package consisting of thousands and thousands of bits and pieces of mortgage contracts.

In some cases we've seen, all the homeowner has to do is ask the foreclosing party to show something proving they hold the right to foreclose. When the foreclosing party can't do it, the case is over.

Wall Street threw the nation down Alice's rabbit hole, and in the process turned the courts into pathetic midgets. Judge Skievaski has just eaten the cake that will restore them to life size.

minor edit 3/22am

Bank Twins Buried Together

Tales We Doubt Were Told

Colorado Spring Gazette, Feb 24, 2009:

"Federal regulators have imposed additional restrictions on how Colorado National Bank can attract deposits, but have told its parent company that the troubled bank has enough reserves to escape seizure despite mounting losses * * * according to a filing with the Securities and Exchange Commission late Monday. The filing was made by Team Financial Inc., the Paola, Kan.-based owner of Colorado National and Team Bank in the Kansas City, Mo., area.

Your Check is in the Mail

Atlanta TV News:

"The FDIC said it will mail checks to depositors of First City Bank for their insured funds on Monday.
* * *
A notice on the bank's Web site says that since no bank could be found to assume the assets of FirstCity, the bank has been completely closed, along with all bank accounts there. No further access is being granted to the bank's Web site for anyone."

March Malevolence

Fill out your "Brackets of Evil" before the office pool closes.

Quote of the Era

Yes, we have a long, long way to go before we finally climb out of the economic mess created by Wall Street greed. But even so, David Kurtz' bon mot has a very good chance of winning Quote of the Era:

"You know it's bad when.... Insurance companies say they have no choice but to honor contracts, and banks are pleading that their assets will be worth more if you just give them a little time."

Who Enabled A.I.G's. Bonus Bonanza?

Jane Hamsher wrote an important post yesterday in which she tries to track down exactly who engineered a change in the 2009 TARP ("bailout") legislation to protect A.I.G.'s ability to pay $165 million in bonuses.

Relying for the most part on Wall Street Journal news reports from mid-February as the final language of the TARP bill was being hammered out, she concludes it must have been Larry Summers, chairman of the White House Council of Economic Advisors and U.S. Treasury Secretary Tim Geithner:

So Treasury says Chris Dodd did this? In a word. . . no.
* * *
[The Dodd bill] that passed the Senate actually made the compensation limits retroactive, according to the Wall Street Journal:

"The most stringent pay restriction bars any company receiving funds from paying top earners bonuses equal to more than one-third of their total annual compensation. That could severely crimp pay packages at big banks, where top officials commonly get relatively modest salaries but often huge bonuses.

"As word spread Friday about the new and retroactive limit -- inserted by Democratic Sen. Christopher Dodd of Connecticut -- so did consternation on Wall Street and in the Obama administration, which opposed it.

Who pushed back against Dodd, and told him to neuter the provision? The WSJ says Geithner and Summers:

"The administration is concerned the rules will prompt a wave of banks to return the government's money and forgo future assistance, undermining the aid program's effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said."

Now, there is no doubt that the final February "TARP" legislation was a decided improvement over anything the Bush administration had a hand in last Fall, particularly when it comes to executive compensation limits. But if the WSJ reports at the time were accurate -- and that has yet to be definitively established -- it's a dead certainty that mud from the A.I.G. fiasco will splatter all over President Obama, anyway, unless he demands and receives the resignations from Smmers and Geithner immediately.

On the other hand, if the Journal had it wrong last month then the White House needs to collar the real culprits -- whoever the congressmen or administrative officials or cabinet officers may be -- and make them Exhibit No. 1 in its "Open Government" initiative.

Hurricane Wall Street

Few communities in America know better than Pensacola Beach how ludicrous A.I.G.'s "sanctity of contract" argument is. Quite a number of beach house owners in years past bought insurance contracts against hurricane damage from one of A.I.G.'s many wholly-owned subsidiaries masquerading under other names.

We know. We were one of those insureds.

University of Pennsylvania law professor Tom Baker explains:

A.I.G.’s defense of its $160 million retention bonuses marks an inflection point in the financial crisis. The insurance giant barely even tried to justify the payments as a good idea. Instead, it raised the contract defense: “We made a deal to pay these bonuses. So now we have to pay them.”

Contracts get repudiated, renegotiated, modified, delayed, worked out, managed — pick the euphemism — all the time. A.I.G. knows this. Its insurance businesses pioneered the use of commercial leverage to get people to accept less than what the contract supposedly required.

Coming from A.I.G., the contract defense was a gilt-edged invitation for the government to push back, to exercise the bare-knuckled power of the deal that A.I.G. surely would exercise if the shoe were on the other foot.

[emphasis added]

In our case, we're happy to report, the A.I.G. subsidiary tried but failed to cheat us our of what we saw as our property insurance contract rights. A lot of other Pensacola Beach home owners weren't so fortunate.

A.I.G. (and, to be sure, other property insurance companies, as well) often use a wide variety of tactics to beat down homeowners after a storm. In many instances, the company simply refuses to pay, hoping that time and desperation eventually will lead customers to accept pennies on the dollar. In other instances, the transactional expense of litigation and costs of hiring expert witnesses discourage home owners from asserting their rights under the insurance contracts. In yet other cases, A.I.G. representatives occasionally drop dark hints about filing "counterclaims" against the homeowner for supposed breach of contract or even fraud. And so on .... and on... and on.

In every instance, the fundamental dynamic at work really is very simple: the property insurance company uses its much greater size, knowledge, and resources to intimidate, overwhelm, or out-last the insured homeowner. After hurricane Ivan, we even overheard one insurance adjuster candidly explain to a home owner, "You have a certain life expectancy. You need to settle this thing before you die, right? Our company can go on denying your claim forever, if we want to."

Abstract principles of "right" and "wrong" or the "sanctity of contract" have nothing to do with it in the real world aftermath of a disaster. It's all about wielding the greater economic power of the corporation and breaking the will or exhausting the resources of the individual homeowner.

To be sure, now the shoe is on the other foot in the aftermath of the economic disaster Wall Street has brought on us. Now it's us, the taxpayers in effect, who want to say, "Hey! That looks like water damage, not wind." Or, "So what if your house was washed off the foundation and the roof blew off? Just push it all back in place and it'll be good as new."

Schadenfreude time? Not really. When it comes to the bailout bonuses, the misfortune is ours, regardless. A.I.G. has already seen to that by ruining the economy and ripping us off for hundreds of billions of dollars.

But we should take consolation in Prof. Baker's central point: Contract law, fundamentally, has very little to do with the higher aspirations of public justice. It is private law, written by the parties to the contract, themselves. Or, as often as not, written, and re-written, and modified, conciliated, or even intentionally breached by one or both parties.

In the real world, if one of the parties can't live with the way another party is carrying out its agreed-upon obligations, then they can sue. Just as with hurricane insurance, it then becomes a battle of wills and resources and perseverance. Too often, the party with the bigger war chest and more fighting experience wins.

Insurance companies like A.I.G. know this. As the largest insurance company in the world, they have a bigger war chest and more weapons of intimidation than almost everyone else.

Except, of course, for the U.S. Government. And that is why A.I.G. should not prevail in its absurd defense of the indefensible multi-million dollar bonus payouts.

It isn't pretty. It never has been. But that's the reality Pensacola Beach homeowners have been living with. Now, in the wake of Hurricane Wall Street, it's A.I.G.'s turn.

A.I.G. Bonus Gibberish

"[Geithner] argues that lawyers at both AIG and the Treasury concluded that it would be difficult or impossible to legally prevent the payments from being made."

-- Business Week, March 17

For over half a day, the New York Times' on-line edition has been carrying an article quoting it's own "best and brightest" contract law experts on the subject of the A.I.G. bonus brouhaha. But did you see this gem, near the bottom of the article? Click to enlarge and read the blue text:

So, what is the translation from Latin to English of "Lorem ipsum dolor sit amet, consectetur adipisicing elit?”

Turns out, it means nothing. It's a printer's "nonsense filler text." A place holder. Gibberish. Like "jabberwocky," as Cecil Adams explains:

In the graphic design business, nonsense filler like this is known, somewhat incongruously, as "greeking," presumably because "it's Greek to me." It was available for many years on adhesive sheets in different sizes and typefaces from a company called Letraset. In pre-desktop-publishing days, a designer would cut the stuff out with an X-acto knife and stick it on the page. When computers came along, Aldus included lorem ipsum in its PageMaker publishing software, and you now see it wherever designers are at work, including all over the Web.

But don't tell that to the alleged lawyers at the U.S. Treasury Dept. who are advising Tim Geithner. Or, to Times columnist Andrew Ross Sorkin.

Tell them, instead, that the well-established legal doctrine of "Lorem Ipsit" provides a sure basis for abrogating or modifying those A.I.G. bonus contracts. Apparently, they'll believe anything.

Too Big To Fail Equals Just Plain Too Big

The Bonus Con

Andrew Ross Sorkin of the New York Times mans up this morning to give us -- oh so reluctantly, don'cha' know -- the bad news that "Wall Street types and compensation consultants" are quite sure the sanctity of contracts requires that Americans pay A.I.G. executives as much as "$3 million apiece" in bonuses for their wonderful work in bringing the nation's economy to the brink of ruin.

Sorkin is a wanker. Worse, he's a dangerously lazy journalist. The entire article relies on quotes from two identified sources he might as well had been having drinks with at the Mercantile Bar.

One is "Pearl Meyer, a compensation consultant." The other is "Robert M. Sedgwick, an executive compensation lawyer... who represents a number of employees of banks that have taken government money."

It's painfully obvious that both of these "sources" -- excuse us for laughing -- are conflicted. They're firmly in the toilet for Wall Street bonuses because they make their living off people who want higher and higher bonuses. But you don't see Sorkin mention anything about that, do you?

Step away from the Times. Sorkin is bad for your brain. For a better notion of what should be done with the mobsters in A.I.G.'s "Financial Products Division (AIGFP)" read Josh Marshall:

[P]robably the building should be razed and the ground salted. AIG is a ward of the federal government. Our only financial interest in it is in chopping it up and getting the best prices for the valuable parts of it. I don't think AIGFP is going to have a lot of takers. And as a matter of policy I think we probably want to close it down.

Extreme? Not really. If you want extreme, check out what one Iowa Republican proposes:

Sen. Charles Grassley suggested in an Iowa City radio interview that AIG executives should take a Japanese approach toward accepting responsibility for the collapse of the insurance giant by resigning or killing themselves.

Grassley is the ranking minority member of the Senate Finance and Budget committees. We suppose he didn't really mean what he said. But it's telling that he focuses on the A.I.G. "executives" as the root of the problem.

Those are the same executives who told the Treasury Department that nothing could be done about the bonuses because of the "sanctity of contract." Which is nonsense. As law professor Sandy Levinson pointed out yesterday, perfectly legitimate legal avenues for stopping, or clawing back, the bonus payments are "broad enough to drive a Mack truck through."

No, what we think is really going on is a con game. The bonuses are hush money. Some get more than others, but everyone gets something.

And as long as that's the case, everyone at A.I.G. has an economic incentive not to disclose who thought up, who designed, who implemented, and who managed the company's ruinous strategy of always selling and never buying credit default swaps.

These are the same people A.I.G. now claims are the "best and the brightest" and who need bonuses so they can be retained. Hahahahaha.

Yes, they should be retained. Behind bars.

Dept. of Amplification
3-17 pm

Sorkin late today repeated on NPR the same shameless arguments in favor of million dollar bonuses for AIG thieves. This time, however, he threw away his two "compensation expert" fig leafs and owned up that this was his opinion.

There are two things wrong with this. First, of course, it makes transparent that his entire article was a lie. It wasn't a "some say" type of column. It was purely a Sorkin Knows Best story.

Second, two of his principle arguments now have been exposed as myths, too. As his own newspaper is now pointing out, there are plenty of perfectly sound, legal grounds to avoid paying, or claw back, excessive bonuses for bad performance. And, it turns out, paying undeserved bonuses doesn't do much to keep the loyalty of talented employees. Out of 17 million-dollar bonus babies at A.I.G. , 11 are no longer there. They drew up to $4.6 million as or after they quit!

If there is a bonus kitty at the New York Times -- doubtful, we're sure -- Sorkin's salary would be better spent if it were thrown in that pot.

Pay the Bonuses or They Shoot the Dog

No, actually, what A.I.G. is saying is, 'We'll make France shoot the whole economy if you keep us from our multi-million dollar bonuses."

We say, Geithner should call their damn bluff. How? Jane Hamsher has the answer: Force AIG into bankruptcy, exactly where gamblers who make bad bets and then try to rob someone else belong.

O'Brien on Fire

Someone must be putting something in Mark O'Brien's coffee. And it's pretty good stuff, actually.

First, O'Brien fixes a justifiably yellow eye on Portofino's demands for a carnivalistic water slide on Pensacola Beach. Today, he rips semi-retired federal judge Lacey Collier a new one:

Collier was a poor choice for the job as head of the Community Maritime Park Associates, another instance where Pensacola picks the usual suspects to run the show.
* * *
... Collier palled around with guys like Mike Murphy, the glad-handing, name-dropping car dealer who eventually got nailed for grand theft. And one of Collier's best supporters is Quint Studer, who donated $200,000 to the Lacey Collier Sensory Complex at Escambia Westgate Center — and who wants the maritime park to be home to his baseball team and his business. The sensory complex is for a good cause and this is no knock on Studer, who is generous to all. Still, a resident might justifiably feel queasy to see a federal judge dropping hints about his favorite charity.

The only surprise is that Collier's crankiness didn't burst into full view until Friday, when His Honor had a hissy fit because City Manager Al Coby wants time to review a proposal Collier was all set to endorse.
* * *
Anyone else would have said, "Thanks, Al, I appreciate it" when Coby said his team will review the developer's latest, just-off-the-printer proposal, which weighed in at 106 pages and has yet to be double-checked by city advisers. Not Collier, whose people skills are such that for months he sat with his back to the audience at CMPA meetings.

Earlier this month, Progressive Pensacola offered a similar take on the judge's disdain for public input on a major project the public will be financing: "It is shameful and disgusting to be treated in such a fashion," Collier is quoted as saying of suggestions that the Maritime Park Commission board has to abide by Florida's Sunshine Law.

Whether you favor or oppose the Maritime Park -- and we favor it -- there can be no reasonable argument for shutting down public input on every aspect of this project, from contracts to design, construction costs to leasing policies, environmental impact to amenities, day-to-day management, and more. Whether we're speaking of a volunteer board or flush city government employees ["Your Money, Their Perks"], misjudgments, favoritism, and worse can occur.

In law, that's why appellate courts are given the power to reverse a trial court decisions -- as Judge Collier certainly knows from his own extensive record of reversals. In civic projects, that's why the Sunshine Law gives the public the right to know what's going on and to agitate for a change of course.

Stay Home Today

Beware the Ides of March. These people are out there, somewhere:

Portofino's Plunge

Mark O'Brien mixes a little real reporting with a little commentary, plus a snarky headline: "Rich vs. Rich."

"The Plunge" could be a pick-me-up for some of Portofino's 700-plus condo-owners, who are feeling an economic plunge of their own and need tenants to help them pay the mortgage.

But others fear the water slide will increase traffic in an area already short of parking and dependent on a two-lane road. Not to mention the impact on property values. And, yes, a few seem to think the idea of the general public on their doorstep is just too ewwww to contemplate.

O'Brien: "Let advocates find another way to draw renters. The SRIA already has approved a water slide to be located in the business area, which is a more appropriate site."

The SRIA deferred making a final decision. No surprise there. That's what they do.

The surprise really is that the late Alan Levin's original vision -- destroying a wide swatch of important wetlands in order to build six upscale high rise towers for the rich and infamous -- has been reduced to proposing a cheap plastic aquatic attraction to justify the high rents.

What's next? Little Egypt and the Fat Lady with a Moustache?

Sell Jim Cramer, Buy Jon Stewart

Unlike Madoff, when Cramer pleaded guilty last night on the Daily Show, he also implicated everyone else on CNBC as fellow accomplices.

--------------------------

If stock-hypster Jim Cramer subscribes to the Village Voice he'll be choking on his morning coffee:

There was something unusual about Jim Cramer's appearance last night on "The Daily Show." We've never seen a Jon Stewart guest so obviously expecting to get his ass kicked, and never seen Stewart kick anyone's ass so thoroughly.

In fact, Cramer was so sweaty, nervous and contrite, and Stewart dished so much shit to him -- showing 2006 clips of the CNBC financial shouting head telling people how to manipulate the market and, basically, telling Cramer that he was a co-conspirator -- "disingenuous at best and criminal at worst" -- in a giant fraud that had been played on investors -- that you might think it was something out of The Wrestler, a rigged match in which the supervillain allows himself to be defeated by the crowd favorite.

That take on last night's ballyhooed Cramer vs. Stewart match-up is pretty much universal:

Entertainment Weekly:

Instead of being his usual feisty self, financial advisor Jim Cramer could not apologize fast enough to Stewart for what he repeatedly called his "shenanigans" as host of CNBC's Mad Money.

Crooks and Liars:
Jon Stewart made Jim Cramer look like a wounded puppy tonight as the CNBC host joined The Daily Show after a full week of back-and-forth. * * * Jim basically sat there, starry-eyed like a lost puppy, and was virtually silent throughout the three-segment show featuring him. He basically waved the white flag and said, "You got me."

James Fallows:

I found this -- the Stewart/Cramer slaughter -- incredible. * * * I thought Stewart, without excessive showboating, did the journalistic sensibility proud.

Wonkette:

“Devastating” is just not the right word. It’s hard to remember the last time a teevee interview left us in such a state of stunned silence.

Gawker:

What happened to Jim Cramer? * * *[H]e looked like he was going to wet himself in his Daily Show grudge match tonight. * * * Cramer fled any real direct confrontation in his lengthy interview and instead went contrite — absurdly contrite. His voice went high and cracked, his thoughts fragmented as they left his mouth.

The thing about Cramer's "contrite" appearance is that -- unlike Ponzi schemer Bernie Madoff -- when Cramer pleaded guilty last night on the Daily Show, he also implicated everyone else on CNBC as fellow accomplices. As business reporter Andrew Willis confessed this morning:

Mr. Stewart is issuing a call to arms, against a system that went radically wrong. As someone who works in the business media, the talk show host's critiques are, to put it mildly, food for thought.

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Interview Outtake Pt. 1

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

Dept. of Further Amplification
3-13 am

Stewart's interview was too long to be cablecast in its entirety, but the entire thing has now been posted on the Daily Show site.

Tonight: Greed vs. Guffaws

"To watch CNBC today is to enter an alternative universe, where élites are populists, Wall Street is Main Street and bank executives are the oppressed."
-- Time Magazine, March 12

As all the web world is headlining, tonight cable channel CNBC's stock-pumper, Jim Cramer, will come to face to face with comedian Jon Stewart on Comedy Central's Daily Show. It's the culmination, some say, of a week of "back and forth cheap shots."

"Wow," says Expressions of Life, "finally a head-on collision."

Stewart's brand of comedy mixes adolescent frivolity with political indignation. Like all of the great comedians from Lenny Bruce to the late George Carlin, his humor is fueled by moral outrage.

By contrast, Cramer and the whole CNBC crowd, as one acute observer notes, "knows no moral code":

[W]hile most television coverage is built around a moral framework, business television has no sense of good or evil. That's what makes it starkly abnormal and, these days, vaguely repulsive. First came the vilification of corporate America. It took a long time for the vilification of corporate America's cheerleaders to begin.

The function of business television is simpleminded and austere. The genre sells the reporting of buying and selling and, to make viewers stay with it, the genre sells the joy of greed.

A lot of pundits and bloggers are predicting the comedian, Stewart, will annihilate Cramer, the buffoon. "Remember Crossfire?" the Spiral asks. "John Stewart killed it."

Indeed, he did. Jon Stewart is dangerous to bloviating hypocrites and shameless hawkers. In less than 15 minutes, his "excoriation of the show's hosts" administered the coup de grâce to that execrable TV political icon:

Criticizing Tucker Carlson and Paul Begala for "hurting America," he argued that political discourse, as constructed on most news shows, was overly simplistic, excessively confrontational, and exceedingly damaging.

So why would Jim Cramer, or CNBC for that matter, put themselves at risk? Because, as Barrie McKenna reports, Stewart's comedy news program "typically draws four times as many viewers as CNBC's top rated shows."

That's right. It's all about ratings. Gotta push that Viagra for your portfolio.

CNBC staff and most of their guests debase themselves on television every day. Why wouldn't they leap at the chance to do it before a much larger audience?

Even if Stewart "wins" the "debate" Cramer and NBC don't lose. As James Moore points out ["And a Comic Shall Lead Them"], the only real losers are the "reporters at the big TV networks and the major publications" who have long ignored the "crap" that people like Jim Cramer are feeding... into our culture... ."

If you've just returned from the planet Tralfamador and need to catch up, you can find the following clip almost everywhere on the web, so why not here, too?

The Daily Show With Jon StewartM - Th 11p / 10c

In Cramer We Trust

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Economic Crisis

Miller Earmarks Money for Morris

Northwest Florida congressman Jeff Miller (R-Irrelevant) actually got a couple of earmarks inserted into the new federal budget bill. No big trick -- every congress person, no matter how stupid or ineffectual they may be, gets at least one or two.

But look who the most favored recipient of Miller's largess is -- his good friend, suspended Okaloosa county sheriff Charlie Morris:

Got that? A paltry $96,000 for beach restoration in all of Okaloosa County, and half a million dollars to the Baron of Bonuses, disgraced and suspended county sheriff Charlie Morris, for "technology."

Maybe that technology will help find Morris' lost passport?

Follow the Morris Money Poll

Some tens of thousands of dollars are missing at the Okaloosa County sheriff's office, the payroll was padded with high-salaried do-nothings, and the sheriff himself was on a Las Vegas junket when arrested. But suspended county sheriff Charlie Morris says he's broke.

This raises, shall we say, a suspicion that all that money washed through the sheriff's "bonus" system might have been misspent. Ya think?

But where did it all go? Pretend you're in Las Vegas, too. Place your bets here:

Where Did Morris' Money Go?
	Toys for Tots
	Bonuses for employees
	Bling-bling for a mistress
	Craps tables
	Political campaign contributions
	Hurricane insurance premium
	Gun shows
	Procede Hair Restorer
	Lots of donuts
	Other
Free polls from Pollhost.com

Saving Jeff Miller's Career

Today's Pensacola News Journal calls on Northwest Florida Congressman Jeff Miller (R-Chumuckla) to stop bleating G.O.P. talking points over "old political chestnuts from a different economic time." It's past time, the editorial says, for Miller to start working "to secure the majority of... federal dollars" from the Obama administration's proposal to digitalize medical records "to be used here," where a pilot program is already afoot.

On the table is stimulus money for the development of electronic medical records. There already is a pilot program in our county among the military, the University of West Florida, some doctors and private business. This is the type of high-tech business we crave, the type of business that will keep our children from moving to Nashville or Atlanta in search of opportunity.

Instead of blindly following outdated GOP orthodoxy, we urge Miller to secure the majority of these federal dollars to be used here. We should be, and can be, the center of electronic medical records development.

Instead of calling environmental initiatives a "disservice to all Americans," Miller ought to work to provide funding for our area for much-needed green technologies. We have the opportunity to go from an environmental nightmare to a shining star, with the accompanying jobs and increase in quality of life.

If we were in the business of handing out political advice to lousy congress persons, we'd go a lot further than the newspaper. Miller was a political eunuch even when his own party dominated Congress. No important committee assignments, no memorable legislative footprints left behind, no pork for the home folks that hadn't already been slaughtered and cured by the military on its own.

Ever since he arrived in Washington, Miller has been nothing more than a lowly mailman, trying to claim credit for the paycheck in our mail box while hiding the bills under the doormat.

If he really thinks bringing home the bacon is the surest way to serve his district (and win reelection), he'd pay attention to President Obama's plea for bipartisanship and jump aboard the train with his vote for the administration's budget, health care, and economic recovery proposals.

Sure, it would risk alienating the minority leaders in the House. But what have they ever done for him? Miller has the rare opportunity, right now, to become a national figure as well as a local hero. All he needs to do is break with outdated Republican "orthodoxy," as the News Journal describes it, and vote for what works.

That would be a career saver. Sad to say, we doubt Jeff Miller is courageous or smart enough to know it.

Suspended Sheriff Broke

Okaloosa County's suspended and disgraced county sheriff, Charlie Morris, told the federal court in Pensacola yesterday that he's broke and needs a public defender.

OK, but what happened to those Tallahassee lawyers who issued that statement in his name?

A plea of poverty coming from an accused thief who was arrested during a Las Vegas junket is predictable, if pathetic. How long, do you suppose, before we hear that Morris has found Jesus?

Spring Break Advice

Bob West, about Pensacola Beach: "If you want to be drunk and stupid, this is not the place for you."