Friday, November 14, 2008


So I thought it was pretty funny that the National Auto Dealer's Association acronym is the Spanish word for nothing. I suspect that the members of NADA aren't all that amused. I understand it is pressure from that very troubled group putting a lot of pressure on their congressmen to send help before the auto industry self-destructs. My opinion on the role of the automaker CEOs' instrumentality in their troubles has already been expressed. Briefly, they wore blinders as the rest of the world pared down on pollution, built up on durability, and made wise choices in vehicles for our world. Consumers voted with their pocketbooks, and American automakers' consumer base diminished, yet those CEO's continued over the cliff of big, bigger and biggest dinosaur products.

The auto industry is the latest cliffdweller in our downward economic spiral. That industry, like the other suffering industries, relies on consumers to exist. Where the consumers went is into the hole of our financial disaster. I found out that a family member has watched his retirement funds dwindle until they only just cover monthly mortgage payments. Living expenses are requiring that he and his wife work for a living, post retirement. At least they can find a way, but for many who are watching their retirement or other funds disappear it is not so easy.

The atmosphere of frustration and desperation that economic catastrophe has produced is not an easy one into which to announce, as Treasury Secretary Paulson did yesterday, that our taxpayer dollars are actually not going to be used as had previously been announced. Buying up those toxic loan packages just wasn't working out, he insisted, mostly because congress wasn't doling them out quickly enough.

Do you buy that? I don't and I think that Paulson was bluffing to begin with. Those toxic bundles are not yet finding a real value, and his announcing that $700 BN was going to be spent to buy them smells to me like incentive to financial industry giants to quickly start buying them up ahead of the U.S. To my eyes, he was hoping to inspire confidence enough that the bundles were saleable that it would create a market for them. It didn't work. Like housing values, toxic mortgage packages are still falling in value. No one wants to own them.

The formerly AAA rated packages are out there waiting for the financial community to conclude that they can't go any lower. They were at one point being snapped up everywhere, until it became apparent that our laws had been ignored, and those AAA ratings were a farce. Yesterday, our Cretin in Chief announced that our financial system is sound, no matter how bad it looks. Don't hold your breath waiting for him to announce that his trampling on the Rule of Law was the source of our problems, and that the world is not ever going to trust anything he does or says, not ever. When President Obama is in charge, there will be a return of this country to a position of trust, after he revives our constitution and its protections.

What I hadn't thought about showed up in this post that I saw at Eschaton this morning.

So we've been hearing it's the fault of greedy home buyers who ran out and purchased homes they couldn't afford. Or, conversely, maybe it was the fault of predatory lenders who made bad loans. Round and round the blame seemed to go. So I was completely baffled by Henry Paulson's announcement yesterday that it wouldn't help to buy up the toxic mortgages as promised in the bailout.

At least, it baffled me until I read this article. And that's when it occurred to me--he can't buy up the toxic mortgages to stave off the meltdown because a vast majority of these loans don't exist.

Here's the money quote from this long but startling article by Michael Lewis in

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. "They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford," Eisman says. "They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?"

Of course, printing their own money works until they have to produce it. As the diarist at Kos goes on to say, these people should be tarred and feathered. We should begin with Alan Greenspan, though, because he saw the troubles brewing and did nothing. He was convinced that the effects would be dispersed, and the whole picture was too large for it all to be affected. He was charged with executing the laws, and he did not do it. Like the criminal in the White House, Greenspan considered the laws to be negligible tools, and that the market governed better than those laws. Libertarians all, our executive branch denizens believed their own rhetoric, and ignored the laws meant to protect this whole world from what their crimes brought on.

NADA will be working to shore up one corner of a crumbling economic universe. Actually, they have better credentials than our financial industry does for doing a good job of saving their part of the economy.

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Blogger shrimplate said...

Republicans would have us continue to run up debt until there isn't enough money in the entire world to cover it. And they'd call it "market expansion."

11:04 AM  
Blogger Woody (Tokin Librul/Rogue Scholar/ Helluvafella!) said...

good piece of work, there, ruta mia!

i don't pretend to understand the legerdemain required to craft value from unpaid bets, it's plausible enough if your fundamental understanding of the 'world economy' is formed by the metaphor of the casino. and that the essential metaphor governing our normal, day-to-day existence is the lottery: if you got the ticket, you get the money. and that the people running the game are basically vicious, tin-horn thugs playing carelessly with the house's money...
good esssay
i appreciate the easier capta

5:54 PM  

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