April 15, 2009

Just Shoot Me

John Ensign is a Senator. He is one of the United States' most important, most powerful politicians. We are in a deep economic crisis. And this is what he says, publicly on Twitter, about his view of how best to conduct fiscal policy:

The tax code is too complex. That's why I'm for throwing out the whole tax code.

Sure, it's too complex.  But this isn't a policy position.  It's not even a bumper sticker slogan. It's just nonsense.

And then he includes a link, and, what does it say?

Well, no, he doesn't want to throw out the "tax code."  No, he doesn't want to simplify it. He wants to subsidize, through the tax code, some stuff, and penalize some stuff.  He wants to further complicate the tax code with special treatment for some activities.

These people are completely incoherent. And they sit in the Senate, setting tax policy.

Oh, and he appreciated my retweet and comment.

@aweaton6388 @5M1L3 @jhilborn @jhilborn @ClaytonCalhoon @BattleBornPAC Thanks for the re-tweets and comments.

My comment? "Laughing, pointing."  (Transposition typo on "laughing" corrected here.)

April 2, 2009

The F Word

Josh Marshall links to a fairly detailed description of how AIGFP managed what can only be called a fraudulent scheme to cook its own books and those of its counterparties.  

While some reinsurers are large, well-capitalized entities that generally avoid these pitfalls, AIG was already a troubled company when it began to write more and more of these risk-shifting transactions more than a decade ago. It is easy to promise the moon when people think that they can deliver, but because AIG and their clients saw how easy it was to fool regulators and investors, the practice grew and most regulators did absolutely nothing to curtail the practice.

It was easy for AIG to become addicted to the use of side letters. The firm, which had already encountered serious financial problems in 2000-2001, reportedly saw the side letters as a way to mint free money and thereby help the insurer to look stronger than it really was. AIG not only helped banks and other companies distort and obfuscate their financial condition, but AIG was supplementing its income by writing more and more of these reinsurance deals and mitigating their perceived exposure via side letters.

A key figure in AIG’s reinsurance schemes, according to several observers, was Joseph Cassano, head of AIG-FP. Whereas the traditional use of side letters was in reinsurance transactions between insurers, in the case of both CELL and PNC neither was an insurer! And in both cases, AIG used sham deals to make two non-insurers, including a regulated bank holding company, look better by manipulating their financial statements. Falsifying the financial statements of a bank or bank holding company is a felony.

Moreover, the folks at AIG knew the jig was up. The AIGFP division showed a large loss in the third quarter of 2007.  Hence, in December of 2007, they decided that they had only one more shot at milking the scam before everything fell apart.    All you have to do to see this is read the "retention bonus" "contract." (pdf)
(a) Covered Persons Who Are Not Members of the Senior Management Team.
Subject to Sections 3.01(c) and 3.01(d), for the 2008 Compensation Year and the 2009 Compensation Year, each Covered Person (other than members of the Senior Management Team) shall be awarded a Guaranteed Retention Award for each of those Compensation Years equal to one hundred percent (100%) of such Covered Person’s 2007 Total Economic Award.

(b) Covered Persons Who Are Members of the Senior Management Team.
Subject to Sections 3.01(c) and 3.01(d), for the 2008 Compensation Year and the 2009 Compensation Year, each Covered Person who is a member of the Senior Management Team shall be awarded a Guaranteed Retention Award for each of those Compensation Years equal to seventy-five percent (75%) of such Covered Person’s 2007 Total Economic Award.

In other words, the bonus pool under previous, "profitable" years was not going to be replicated in 2008 or 2009. So the firm agreed, with itself, to pay big bonuses anyway to the people who were responsible for these enormous losses, the destruction of the company and its counterparties.

In the first article, the side letters make it clear that neither party expected AIG to ever pay off these CDS instruments--that they were intended to fraudulently overstate the assets on the counterparty's balance sheet.

It is getting increasingly difficult to understand why the operative federal agency in these affairs is the Treasury and not the DOJ.


Blogging in spurts.

We'll start with this. More to follow. 

A number of people were irked by President Obama smirking and chuckling over the potheads on line.  It was irksome; there was no atempt to defend a policy position that is clearly wrong. There was just some throwaway ridicule and a knowing statement to the audience that implicitly said "You know this is NOT happening."  And the audience chuckled along.

While I agree with that irked reaction, as far as it goes, it misses a point  In responding to a very popular question in this way, Obama was conceding the policy point without engaging it.  He was saying, and the audience was agreeing with him,  that smoking marijuana isn't a big deal. It's funny, kinda like Vinny in the Bronx in his underwear making fun of Brian Williams, but it 's not really important.  Obama would not have cracked this little joke about grand theft auto, or rape or tax evasion, or pretty much any crime that people do time for.  But a lot of people are doing time for this funny little indulgence.  Not a large fraction of the lawbreaking dope smokers, but a large fraction, internationally speaking, of the general population is in jail because they did something that the elites in that room have also done, and find kinda, well, cute, in their position in the stratosphere.

After all, Obama himself has indulged in the wacky weed. I expect that most of his audience has done so as well. As have I. And, I suspect, you,  reading this.  

Opposing legalization is indefensible.  Nobody even tries anymore to defend the position.   It's not just that they find it funny that people point this out. It's that they know it, and don't even try to defend their opposition.