Further Tales of Corporate Irresponsibility

News today that corporate welfare queen American Insurance Group has just paid out tens of millions of dollars in bonuses to its executives.

The self-destructive insurance conglomerate has received more than $170 billion dollars over several rounds of corporate bailouts since September of 2007. Last quarter, it posted an astonishing $61.7 billion loss -- the largest in corporate history.

And yet, the very executives who surely bear some responsibility for that loss and AIG's current financial state are being rewarded with more money than many taxpayers -- who are now footing the bill -- may make in a lifetime.

AIG claims the bonus payments are contractually obligated, which makes me marvel at what must be some pretty remarkable contract terms dictating generous bonuses even in the face of catastrophic losses.

One wonders what kind of gravy these executives would be taking home if the company was actually making money.

AIG Chairman Edward Liddy -- that's his smugly satisfied face on the left -- defended the bonus payments in a snipply worded letter to Treasury Secretary Timothy Geithner. "We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers - if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

To which I say, if this mess is what your "best and brightest" is capable of, I'm willing to fire them all and let the night-time security staff take a crack at this thing.

Be Careful What You Wish For

Ever since last Tuesday's historic election, news reporters and commentators have been enthusiastically -- one might even say eagerly -- comparing Barack Obama to Abraham Lincoln and John F. Kennedy.

And every time they do, I cringe. Because what they all seem to forget is that both of those presidencies ended tragically.

I know that "those who forget history are doomed to repeat it." But I also fear that those who constantly reference it may be subject to the same fate.

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UPDATE: A few hours after making this post, this article hit the wires.

I suppose if John McCain had been elected president, I might be feeling some of the same sick emotions. And if this year's Democratic candidate had been white, I suppose the actions and words it reports wouldn't anger and chill me as much as they do. But still.

Dear President-Elect Obama: Please be safe. Our country desperately needs you, more than it knows.

An Open Letter to America's Distressed Homeowners

To struggling homeowners who are in danger of foreclosure and hoping for some assistance from either their lender or the government, I have some advice.

Fuck you.

Yes, I know the government is bailing out AIG and the investment banks and the mortgage lenders who caused this whole mess to begin with. I’m also aware that now the automakers – who cranked out gas-guzzlers by the millions while their CEOs and executives never imagined that oil might some day rise above $30 a barrel, yet literally made out like bandits – are also lining up to the public trough with their hands out and shit-eating grins on all their faces.

So given all that, why shouldn’t you, Mr. and Mrs. Homeowner-in-Trouble, receive some of the free money that’s suddenly being tossed out like candy from a parade?

Simple. Because this is all your fault.

If I’m not mistaken, the reason you can’t afford your house payments is because you bought a house you can’t afford. Am I right?

Now I know, that nice man or woman at the mortgage brokerage swore you were getting a great deal, and that adjustable rate mortgage you agreed to probably wouldn’t go up when its initial term expired, and even if it did it wouldn’t be that much, and even if it was that much you could always refinance and everything would be fine. Am I right?

So you went ahead and bought more house than you could afford with a mortgage that was going to do who-knows-what in a few years time. And why not? Everyone else was doing it, too, and you sure as hell couldn’t afford to look like you weren’t keeping up with the Joneses and the Smiths and the Hempstead-Heaths next door. Am I right?

And along the way you took out a home equity line of credit, because at the time your home’s value was increasing and you couldn’t afford to just let that cash value sit there and do nothing. As a matter of fact, for a while it looked like that big house of yours was going to make money for you the way pigeons produce poop. So you bought some furniture you couldn’t afford, and an expensive car, and some kick-ass vacations and probably a lot of restaurant meals that impressed the Joneses and the Smiths and the Hempstead-Heaths when you bragged about them Monday morning at work. Am I right?

But guess what? All those old clichés your parents used to repeat – things like “There’s no such thing as a free lunch” and “If everyone jumped off a bridge would you want to, too?” and “Chickens always come home to roost” – turned out to be old clichés for a reason. Because they’re true.

But you jumped off that bridge anyway, because some slick salesperson said there was a free lunch down there, and now those chickens have come home to roost.

And don’t say you were suckered into this. Guess what? Everyone in this whole world – from the bum in the gutter to the CEO atop his ivory tower – is trying to sell you something. And ninety-nine times out of a hundred it’s going to benefit them more than you. That’s their job. Yours is keeping your eyes and ears open, and doing your homework so you’re smart enough to tell the difference.

You failed to do that.

It’s not my fault. It’s not the government’s fault. It’s your fault.

Which is why you don’t deserve a bailout.

What you do deserve is to learn a hard lesson, one that’ll be passed on to your children so they don’t grow up to be as stupid and gullible as you some day.

So fuck you.

Am I right?

High and Low

On the eve of what will probably be the biggest and most important moment of his life, Barack Obama loses the woman who arguably had the biggest and most important influence on him.

The tragedy and irony of Barack Obama's grandmother dying just one day before he will likely be elected President of the United States is inescapable. Things like this make it easy to imagine that there's something bigger than mere coincidence at work here.

Something great is given. Something great is taken away.

Most of the time I like to believe that the universe is a cold, uncaring place, one that swirls and churns with absolutely no knowledge or interest in mere human activities. But when stuff like this happens, it's almost as if something, or someone, has taken notice and decided to announce their presence.

I'm not saying this something or someone cares. Just that from time to time they think it's fun to fuck with us in cosmic ways.

Things Could Be Worse

It's been a rough week for investors, people who work for a living, retirees, Republicans and anyone who either has money or needs it.

But after considering recent events, I realized that even though things are bad, they could could be worse.

Zombies could be roaming our streets and shopping malls, for example.

And this one could be president.

Watch This One

This is Neel Kashkari, the 35-year-old former Goldman Sachs vice president who's been tapped by Treasury Secretary Henry Paulson to head up distribution of the $700 billion from the Wall Street bailout program.

All criticisms aside about Washington cronyism (Paulson once worked at Goldman Sachs as well) or foxes guarding the hen house...

Is it just me, or does dude have some crazy eyes?

Financial Terrorists

Stocks dropped all last week while Congress debated passage of the Wall Street bailout... oh, I'm sorry, economic rescue plan.

But now that $700 billion has been cleared for take-off, stocks continue to drop. As of this writing, the Dow was below 10,000 for the first time in four years.

Why?

According to a story this morning from the Associated Press, "The markets have come to the sobering realization that the Bush administration's $700 billion rescue plan won't work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash."

In other words, it took only one weekend -- coincidentally the weekend after the "rescue" plan was passed -- for the markets to come to the sobering realization that $700 billion either isn't going to be enough, or that it won't hit their balance books fast enough to avoid the catastrophe they said was imminent if they didn't get $700 billion?

And no one -- NOT ONE SINGLE WALL STREET EXECUTIVE OR GOVERNMENT OFFICIAL? -- had the foresight to see this?

With geniuses like this at the helm, it's no wonder our financial system is in shambles.

You know what? Henry Paulson, Ben Bernanke, and every other financial terrorist on Wall Street had better watch out, because it's looking like circumstances are ripe for a good old-fashioned witch burning.

Worth A Look Back

Although saying, "I told you so," can be enjoyable, it's usually not very helpful. Because when you're up to your ass in alligators, reminding everyone that you warned them about the swamp just makes a bad situation worse.

And yet. Considering the current news and my lack of recent posts, there doesn't seem much reason not to give another look to this March 14th essay from my mirror blog entitled "Good Scares."

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The Bear in Bear Stearns

Today, the United States Federal Reserve and JPMorgan Chase & Co. provided Bear Stearns with a 28-day emergency funding package that the Associated Press calls "a surprise, last-ditch effort to save the 86-year-old institution."

Amount and terms of the deal were not disclosed. At the time of this writing Bear Stearns stock has lost approximately 40% of its value.

Though rumors have been rampant that the venerable investment bank was in truly hot water over their losses related to subprime mortgage-backed securities, Bear Stearns CEO, Alan Schwartz, denied them until today when he revealed "our liquidity position in the past 24 hours had significantly deteriorated."

In a memo to staff, Schwartz said the loan would allow Bear Stearns to "get back to business as usual."

Let's hope not, since business as usual for Bear Stearns has often included aggressive operations on the fringes of the mortgage loan business. Instead, let's hope this lifeline allows Bear Stearns time to clean house and change its course before it's too late.

Observations aside about CEOs who either lie or ignore the writing on the wall for an entire week, then blithely refer to returning to the very same "business as usual" that got them into their current mess, this development doesn't bode well for the United States, our economy, Wall Street, the banking industry, the housing industry, or ordinary people like you and me.

Because when the fifth-largest bank in America doesn't have the prescience to know shaky investment vehicles when it sees them -- or even that it's going to run out of cash in five days -- the credit crisis some experts say may be coming to an end soon is probably just getting started.

However, I think we can all take comfort in the knowledge that no matter what happens, Bear Stearns's CEO, its board of directors and executive staff will be well taken care of. Anything less simply wouldn't be the American way.

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3/16/2008 UPDATE: In today's Sunday New York Times business section, Gretchen Morgenson laments the Chase/Fed bailout of Bear Stearns and compares the current mortgage securities and credit crisis to the Drexel Burnham junk bond fiasco of the 1980s.

Among her more interesting -- and incisive -- observations is that

The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.

And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt). It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there.

Bear’s default rates on so-called Alt-A mortgages that it underwrote also indicates that its lending practices were especially lax during the real estate boom. As of February, according to Bloomberg data, 15 percent of these loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4 percent.

Let’s not forget that Bear Stearns lost billions for its clients last summer, when two hedge funds investing heavily in mortgage securities collapsed. And the firm tried to dump toxic mortgage securities it held in its own vaults onto the public last summer in an initial public offering of a financial company called Everquest Financial. Thankfully, that deal never got done.

At the end of an excellent article, Morgenson concludes

But by offering to backstop firms like Bear, who were the very architects of their own -- and the market’s -- current problems, overseers like the Fed undermine a little bit more of that [investor] confidence.

Another worry? How many well-capitalized institutions remain at the ready to take over those firms that may encounter turbulence in the future? Banks just do not have the capital that is needed to rescue troubled firms.

That will leave the taxpayer, alas. As usual.

Scary stuff, indeed.