Tag Archives: aig

All Gaga for Obama

In celebration of Obama’s first 100 days, and also given the popularity of Lady Gaga, I decided to try a bit of songwriting for the President.  The following should be sung along to Lady Gaga’s Poker Face (play the song in a new window – with lyrics | instrumental):

Barack (0:24):

I gotta clean up what they did back in ’08
Corrupted and got busted with a messed up SEC (Oh Dubya)
So now the country’s sufferin’ and the times are hard
With Ponzi schemes and broken dreams and guys without a job

Oh, oh, oh, oh, ohhhh, ohh-oh-e-ohh-oh-oh
I’ll get it right, or we’ll pay the price
Oh, oh, oh, oh, ohhhh, ohh-oh-e-ohh-oh-oh,
I’ll go at it hard, show them who’s in charge

obamaeconomy

With Larry
And Timmy
These are the
Obama days
(Gotta stop the Dow from dropping)
Plus Citi
Bernanke
The Fed completes the
Obama days
(Government is going shopping)

Chorus (1:12):

Oh-oh-oh-oh-oh-Obama days, Oh-oh-oh-oh-oh-Obama days
Oh-oh-oh-oh-oh-Obama days, Oh-oh-oh-oh-oh-Obama days

Barack (1:21):

I’m gonna roll with Joe a hard pair we will be
Republicans can teabag all they want with Dick Cheney
Afghanistan will see me coming on the front,
And baby when it’s war if it’s not rough it isn’t fun,

Oh, oh, oh, oh, ohhhh, ohh-oh-e-ohh-oh-oh
I’ll get Iraq, show them what I’ve got
Oh, oh, oh, oh, ohhhh, ohh-oh-e-ohh-oh-oh,
I’ll get a bomb, show them that it’s hot

karzaizardari1With Karzai
So close by
These are the
Obama days
(Karzai is grumpy, likes nobody)
Talking peace
Zardari
These are the
Obama days
(Waterboarding’s not his hobby)

Chorus (2:09):

Oh-oh-oh-oh-oh-Obama days, Oh-oh-oh-oh-oh-Obama days
Oh-oh-oh-oh-oh-Obama days, Oh-oh-oh-oh-oh-Obama days

Barack (2:24):

gm-ceoI’ve got my hand in GM’s pocket
Squeezing hard to keep ’em knockin’
‘Cause I’m trying
To go on and end this downspin we’ve been rockin’
With my bailouts and my guarantees
I’m fixing these securities
I promise this, I promise this
I’ll bring back life to AIG

aigsoccerWith swine flu
Coming through
These are the
Obama days
(Bacon’s not for everybody)
Arlen who
S’my new boo
These are the
Obama days
(Specter’s got a new buddy)

Chorus (2:59):

gagaobamaCan’t beat my
Can’t beat my
No one can beat my
Obama craze
(He’s got me like nobody)
Can’t beat my
Can’t beat my
No one can beat my
Obama craze
(Eight more years of peace and harmony)

— Repeat x2 —

Oh-oh-oh-oh-oh-Obama days, Oh-oh-oh-oh-oh-Obama days
Oh-oh-oh-oh-oh-Obama days, Oh-oh-oh-oh-oh-Obama days

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Semi-Serious Ideas for the Betterment of Society

1. LICENSE TO BREED: You need a license to drive, to carry a gun, and to practice medicine, so why don’t you need a license to have a child? octomomDrivers’ licenses encourage safety on the road, gun permits allow us to keep track of our WMD, and medical licenses keep witch doctors away from the unsuspecting public. Along with safe streets, (arguably) less violence, and healthy people, shouldn’t we also strive for having better educated parents? Thus, let’s make people apply for licenses to breed before they start popping out devil bobbarkerdogchildren. Instead of swerving around cones in driver’s ed, applicants will learn to change diapers in parent’s ed. Of course, we can’t control the fact that some unlicensed deviants will still churn out babies under our nose. But to counter that, we could offer substantial tax relief only to licensed parents. With such a plan in place, perhaps this will discourage the Octo Mom from adding to her litter.

2. GET YOUR IRRESPONSIBLE FRIENDS SPADED AND NEUTERED: This would be Plan B, just in case the child license law fails to pass the Senate.

3. LOJACK YOUR CHILDREN: With modern technology, there has to be an easier way to keep track of your children. lojack2Imagine going to Wal-Mart and buying a Stolen Child Recovery System for $695 (about the same retail price of a LoJack for your car). With this system, you would get a tiny, non-invasive tracking device that you can stick on your child’s body. To them, it would seem like a bumpy freckle. To you, it would be peace of mind. With all the kooks and the baby-crazed unlicensed parents out there, you’d know that your children are safe. You’d also know if your daughter was sneaking over to Bobby’s house instead of going to the library, like she said. So, for the sake of protecting the privacy of the wild youth, perhaps we’d have to limit the LoJack tracking device to kids under the age of 10.

taxes4. VICE TAXES: Vice taxes are not new, as the success of cigarette and alcohol taxes have led the Pigou crew to lobby for pollution and gasoline taxes as well. But if taxes really do impact behavior as much as economists like to believe, then why not tax vice in general? Anytime someone commits a crime, they’ll still have to go to jail or pay a fine, but we can also increase their effective tax rate for a specified period of time. (Just call me Dr. Seuss.) Get caught with a high-end prostitute? Pay a lump sum $500 fine, and then watch your tax rate jump from 35% to 38% for a year. Simple assault? Do your time in jail, then get released to +5% in your tax bracket over two years. Hey, if taxes really are the cure-all, then such a policy could have enough positive deterrent effects to justify its failings in rehabilitation.

5. GET RID OF HIGHWAY PATROL: One of the most costly and inefficient functions of law enforcement is highway patrol. highwaypatrolHere’s an alternative solution: all registered vehicles must now get a small barcode stamped on each side of the car. Law enforcement will place discreet barcode scanners along the road, which will act sort of like the scanner at the grocery store checkout. When you’re speeding along the highway at 120, the scanner flags your car as “speeding”, and your registration information is automatically transferred to the police. Given that there might be several thousand people caught speeding a day, there will be some limits on how punishment is applied — perhaps out of every 1,000 vehicles caught speeding, 100 will be randomly chosen and ticketed. Or, perhaps every vehicle registrant will be notified that they were speeding, and everyone will get one black mark on their record… Ten black marks, and your license will be suspended. The possibilities are endless. And with the money we save on highway patrol, we can allocate more funds to worthy government ventures, like teaching our children… or bailing out AIG.

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Bailouts By The Numbers

Got Money?  / You Know It / Take it out your pocket and show it then throw it / This a way / That a way/ This a way / That a way…

citigroup$700 billion: TARP (also known as “stocking stuffer” on Wall Street)

$787 billion: Obama’s new stimulus package

$18-$50+ billion (and rising): Auto industry

$75 billion: Mortgage bailout for 4 million homeowners… ($18,750 per homeowner)

aig$80 billion+ (and more than $150 billion more in guaranteeing its loans): Citigroup

$150 billion+ (and rising): AIG

$400 billion: Fannie and Freddie

Total of just these bailouts: $2.2 trillion

In Comparison:

oprah-rich1$14.3 trillion: GDP of United States ($4.8 trillion: GDP of #2 Japan, $4.2 trillion: GDP of #3 China)

$65 billion: Market cap of Enron in its heyday

megamillions$58 billion: Net worth of Bill Gates

$1.5 billion: Net worth of Oprah

$750 million: The record amount that Obama raised during his run to the White House

 

Madoff’s $50 Billion Disappearing Act

madoff115: Countries with less than $50 billion in GDP (including the Dominican Republic, Kenya, and North Korea)

235: Times you’d have to win the Mega Millions $212 million jackpot

820: Number of Empire State Buildings you could buy, according to a recent appraisal ($61 million)

bentley1,786: Years you could (over)pay A-Rod ($28 million/year)

146,630: Number of new Bentleys you could buy 

Hitting the Fan

$300 billion: Market cap of GE in 2008

$71 billion: Market cap of GE today (around $7 a share)

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Auto Industry Bailout: For or Against?

The case AGAINST:

Simple economics: If the Big Three automakers fail, it’s because someone else is doing it faster, better, and cheaper. And that won’t change with a measly $15 bn loan that can barely cover the companies’ monthly billion-dollar losses… As they say, you can’t teach an old dog new tricks. Any bailout will just be delaying the death.

carsTime to restructure: Just as it doesn’t make sense to grow oranges in Minnesota, it may not make sense to mass-produce cars in the US. GM, Ford, and Chrysler all have profitable overseas operations, but they’re getting squeezed here at home with higher costs, tighter regulations, and powerful unions. We’ll have to take the hit sometime, so why waste taxpayer money? It’s time to acknowledge that the economics just cannot support an auto industry in Detroit.

Bailing out a lack of innovation: Finally, Tom Friedman likens an auto industry bailout to funding typewriter companies on the eve of the birth of computers.

The case FOR:

lions_fanLost jobs: If there is no bailout and the Big Three automakers must reduce production, a conservative estimate is that we will lose 453,000 jobs next year; others have said it could be as bad as 2.5 million. What will all these people do next? Watch the Lions go 0-16?

Repaying taxpayers: Letting the car companies fail would lead to less tax revenue from lower incomes and lost jobs–which may end up costing us more than an upfront loan funded by taxpayers. Plus, there’s always the chance that the car companies could take the loan and actually turn things around… meaning we’d get our money back eventually, even if it’s in yen.

Like our economy isn’t crappy enough already… let’s just make it worse. The death of the auto industry would have a ripple effect on the entire economy, just as we saw with letting Lehman fail (bailout of AIG, collapse of WaMu, hello-goodbye of $700 bn). If the Big Three go down, taxpayers may eventually have to jump in and bail out everyone on down in the supply chain, plus insurers, pension guarantors, etc. How long could it take to get out of this? Well, how long have the Lions been in the “re-building” phase? Years and years.

What do you think?

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The Presidential Debate Redux, With Michael Scott

TOM BROKAW: Good evening from Belmont University in Nashville, Tennessee.  I am Tom Brokaw of NBC News.  Welcome to the second presidential debate of this campaign season, sponsored by the Commission on Presidential Debates, AIG, and Dick Fuld’s compensation package.  As you have noticed, this is the first ever debate to feature not only the two presidential candidates, but also a representative of middle America, Michael Scott of the Dunder Mifflin Paper Company.  Welcome, Senator Obama, Senator McCain, and Mr. Scott. (polite applause)

MICHAEL SCOTT: Tom, I would prefer that you address me as Senator Scott.

TOM BROKAW: (long pause)…Uh, okay, let’s get started.  The first question is to Senator Obama.  This from Oliver Clark.  Oliver asks: Through this economic crisis, most of the people that I know have had a difficult time.  How is this bailout package actually going to help these people out?

SENATOR OBAMA: Thanks Tom.  Oliver, first, let me tell you what’s in the rescue package for you. Right now, the credit markets are frozen up and what that means, as a practical matter, is that small businesses and some large businesses just can’t get loans.  If they can’t get a loan, that means that they can’t make payroll. If they can’t make payroll, then they may end up having to shut their doors and lay people off.  And if you imagine just one company trying to deal with that, now imagine a million companies all across the country.  So it could end up having an adverse effect on everybody, and that’s why we had to take action. But we shouldn’t have been there in the first place.

SENATOR McCAIN: I’d like to jump in here.  My friends, Oliver’s question is a good one.  You know, the match that lit this fire was Fannie Mae and Freddie Mac. I’ll bet you, people like Allen and Mr. Scott here probably never even heard of them before this crisis.

MICHAEL SCOTT: (perplexed)Who’s Allen?

SENATOR McCAIN: See?  So, Fannie and Freddie were the match that started this forest fire.  Some of us stood up against it. There were others who took a hike.

TOM BROKAW: Thank you Senator McCain.  Mr. Scott, do you have anything to add?

MICHAEL SCOTT: Tom, again I would prefer it if you addressed me as Senator.  And yes, yes I do have something to add.  You know, I run a paper business out in Scranton, Pennsylvania.  While Fannie and Freddie are out there lighting fires, guess who, or more importantly, what–is getting burned?  That’s right: paper.  And you know what will happen if these forest fires don’t get extinguished?  No more paper. (McCain nodding somberly) Now, I’ve taken a hike before, don’t get me wrong.  There are many beautiful trails outside of Scranton.  But if we keep having these fires, what’s going to happen to these trees that overlook the trails?  Whoa, big fire, (simulates fire with hands) Smokey the Bear can’t save us, ahhh–there goes the paper!  There go the trees!  There go the trails!  Now I’m out of both a job and an enjoyable weekend hobby.

TOM BROKAW: …Right.  OK, next question.  Senator McCain, in all candor, do you think the economy is going to get worse before it gets better?

SENATOR McCAIN: My friends, we can fix our economy. Americans’ workers are the best in the world. They’re the fundamental aspect of America’s economy.  They’re the most innovative. They’re the best–they’re most–have best–we’re the best exporters. We’re the best importers. They’re most effective. They are the best workers in the world.

TOM BROKAW: (confused) OK… Senator Obama?

SENATOR OBAMA: Part of the problem here is that for many of you, wages and incomes have flat-lined. For many of you, it is getting harder

MICHAEL SCOTT: That’s what she said!

SENATOR OBAMA: (looking pissed) Excuse me?

MICHAEL SCOTT: Sorry, that’s just a thing I do, I–you know, OK, so seriously–the economy.  I mean, I live a pretty good life.  I don’t own 8 cars or anything, but I do own my own condo, I run my own branch of Dunder Mifflin, AND (pointing to stomach) I am a soon-to-be father.

TOM BROKAW: Congratulations, but we really need to get on–

MICHAEL SCOTT: (continuing) Now, do I want to raise my child in a country where America is #2?  Where we’re sitting at home, looking up as Madagascar laps us in the recyclable paper business?  No, no–that is not what I want for my child.

TOM BROKAW: Thank you Mr. Scott.

MICHAEL SCOTT: (wagging finger) Tom???

TOM BROKAW: (reluctantly)…Senator Scott.  Let’s move on.  Next question, Senator Obama: There are some real questions about whether everything can be done at once.  Health care, energy, and entitlement reform–give us your list of priorities.

SENATOR OBAMA: Terrific question, Tom.  We’re going to have to prioritize, just like a family has to prioritize. Now–

SENATOR McCAIN: (interrupting) Hey look, we’re not–we’re not–we’re not rifle shots here.  We are Americans. And I think you can do all three at once.

MICHAEL SCOTT: (whispering) That’s what…

TOM BROKAW: That’s enough.  We’re moving on.  Our last question is from a hippie in New Hampshire.  She asks: As president, how will you know what you don’t know and what will you do when you figure out that which you don’t know?  Senator Obama, I’ll start with you.

SENATOR OBAMA: Tom, one of the things that we know about the presidency is that it’s never the challenges that you expect. Here’s what I do know: I know that if the economy continues to struggle, Mr. Scott over here is going to have a tough time keeping up with the mortgage payments on the condo he’s got.  His firm may soon be facing the real possibility of having to let some people go.

We can’t expect that if we do the same things that we’ve been doing over the last eight years, that somehow we are going to have a different outcome.  We need fundamental change. That’s what’s at stake in this election.

MICHAEL SCOTT: (looking fearful) Will there still be enough money for a Christmas party?

SENATOR McCAIN: My friends, there are challenges around the world that are new and different and there will be different–we will be talking about countries sometime in the future that we hardly know where they are on the map, some Americans. (Michael Scott nods emphatically)

When times are tough, we need a steady hand at the tiller and the great honor of my life was to always put my country first. And–and–you know who is going to raise our taxes and take away Christmas?  That one.  (points at Senator Obama)

MICHAEL SCOTT: (running from stage) Noooooooooooooo!!

TOM BROKAW: And that concludes tonight’s debate from here in Nashville.  We want to thank Belmont University, the Commission, and the traffic light operator for tonight’s debate.  There is one more opportunity for the talking heads to give their stump speeches: next Wednesday, October 15, with host Ryan Seacrest and musical guest Akon.  Good night everyone.

(NOTE: All text in black is what was actually said, taken from the CNN transcript of Tuesday night’s debate.)

 

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Lessons Learned from Buying Lehman at $61

In the past few days, another investment bank has fallen, another huge government bailout has been announced, and WaMu customers are making like it’s 1929 and rushing to take money out of their Whoo Hoo! checking accounts. Year to date, the S&P 500 has fallen by over 20%, unemployment is at a five-year high of 6.1%, and it doesn’t seem like the end is in sight.

So, how did this all happen? What has caused Morgan Stanley to court Wachovia, and WaMu to pimp itself out to the Koreans? We’ve heard the terms “housing bubble” and “subprime crisis” and “credit crunch” ad nauseum over the past few months… but what does it all mean? The following is my attempt to explain the recent travails of the economy, and why I probably never should have bought Lehman at $61:

A couple years ago, you bought a house and took out a $300,000 mortgage on it. The bank that issues this mortgage takes it and pools it along with other customers’ mortgages. Then they sell this product, called a mortgage-backed security, to Lehman Brothers. Lehman likes buying mortgage-backed securities, since it can get a decent return for a perceived low amount of risk, as historically, people rarely default on their mortgages. All the other big investment banks/brokerage houses are doing it too, and so there’s a strong secondary market out there for these securities. This is a seemingly win-win situation for all: a profitable venture for Lehman, and a way for the banks to lend more money and increase home ownership.

Enter subprime.

The banks and mortgage lenders are doing well; they can sell off their pooled mortgages to the traders at Lehman, or to Fannie Mae and Freddie Mac. Much of the risk that the customer will default, then, can be transferred. Thus, the mortgage lenders start getting more lax in their lending terms. More and more subprime mortgages are issued, which involves lending to high-risk borrowers like your deadbeat cousin Charlie. The lending terms are structured so that it looks good at the time of signing (encouraging more Charlies to borrow), but after a certain initial grace period, borrowers are hit with much higher rates.

Meanwhile, the MIT grads at Lehman are concocting new complex derivatives in order to make money. Remember that a mortgage-backed security is already a pool of mortgages. Now, the guys on the Street are trading pools of these pools. And pools of pools of pools. Your $300,000 mortgage is all part of this. Thankfully, you, as a credit-worthy, responsible citizen, have been diligently making payments. But Charlie, who is using his home as a laboratory for crystal meth, is not. Of course, mortgages had already been pooled to mitigate the risk of individual borrowers defaulting. BUT, if a whole bunch of people start using meth instead of paying off their mortgages, then we’re in trouble not just for that one security, but for all of its new derivatives as well.

Then, to make matters worse, the housing bubble bursts.

Prior to 2005, housing prices had been on the rise, with higher sales and consequently, more homes being built. At some point though, supply far exceeded demand, and housing prices began a steady decline. Let’s say the house you bought was worth $300,000 at the time of your purchase. Now, the price of your home is at $200,000, a decline of 33%, right around the rate that housing prices in Southern California have declined. Because the price of his house has fallen too, your cousin Charlie can no longer afford his monthly payments (which have also skyrocketed after his low-rate grace period expired). He, along with thousands of other subprime borrowers, defaults. His meth lab goes into foreclosure. You’re still scraping by, but your monthly payments are going up because the price of your home has dropped so dramatically.

While all this is happening, Lehman and other banks with large portfolios of mortgage-backed securities are taking the losses incurred from all the Charlies defaulting. They also face the suddenly very real risk that you may default too. Already saddled with these losses, the prices of all mortgage-backed securities (and its derivatives) drop across the board. No one wants to buy, and so the value of these assets just continue to plummet. Firms are forced to issue billions of dollars in write-offs. Lehman’s stock price falls and it tries to raise capital–not only because it needs more cash as collateral for its lenders (like your mortgage payments going up when your house price falls), but also to assuage outside perception that it’s going under. But there aren’t too many institutions out there that are in a position to lend money, and not many that want to do it–especially to a firm whose net worth is unknown because of all its mortgage exposure. Banks everywhere enact tougher lending standards to individuals and businesses, making it universally difficult to get cash… thus leading to a “credit crunch”.

So in the end, with a portfolio full of assets that have no market, hedge funds aggressively shorting its stock, and no one willing to lend it money, Lehman files for bankruptcy. Charlie is living on the streets, you’re struggling to pay your mortgage, and more turmoil (involving more derivatives, including AIG’s credit default swaps) is roiling the market… Not a very happy ending.

Obviously this is a simplified version of what happened in the overall economy; in reality, the chronology of what happened is not as linear, and the situation at Lehman was far more complicated than anything I could explain. Many of our venerable publications will do a far better job of sorting through the mess than I have, but hopefully this can serve as a primer. After all, this story is probably not over yet.

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