Barry, Barry, Barry...

The NYT's David Barstow dumps all over Barry McCaffrey.

One Man’s Military-Industrial-Media Complex

In the spring of 2007 a tiny military contractor with a slender track record went shopping for a precious Beltway commodity.

The company, Defense Solutions, sought the services of a retired general with national stature, someone who could open doors at the highest levels of government and help it win a huge prize: the right to supply Iraq with thousands of armored vehicles.

Access like this does not come cheap, but it was an opportunity potentially worth billions in sales, and Defense Solutions soon found its man. The company signed Barry R. McCaffrey, a retired four-star Army general and military analyst for NBC News, to a consulting contract starting June 15, 2007.

Four days later the general swung into action. He sent a personal note and 15-page briefing packet to David H. Petraeus, the commanding general in Iraq, strongly recommending Defense Solutions and its offer to supply Iraq with 5,000 armored vehicles from Eastern Europe. “No other proposal is quicker, less costly, or more certain to succeed,” he said.

Thus, within days of hiring General McCaffrey, the Defense Solutions sales pitch was in the hands of the American commander with the greatest influence over Iraq’s expanding military.

“That’s what I pay him for,” Timothy D. Ringgold, chief executive of Defense Solutions, said in an interview.

General McCaffrey did not mention his new contract with Defense Solutions in his letter to General Petraeus. Nor did he disclose it when he went on CNBC that same week and praised the commander Defense Solutions was now counting on for help — “He’s got the heart of a lion” — or when he told Congress the next month that it should immediately supply Iraq with large numbers of armored vehicles and other equipment.

Of course, it gets worse. Read on.

(H/t Attackerman)

Flash of recognition

These days, I don't listen to the radio much. For music, that is. I listen to plenty of news and radio shows - but the idea of rolling the dice on some music station in the hopes that some software algorithm and I will hit it off just seems like a waste of time.

Which means precious little new music makes it into my head these days. My sister in law forwards the occasional new band or song - but she's about my only regular vector for new culture.

Three years ago, I was listening to NPR and their house music critic was discussing some bands they felt were ones to watch. I remember pulling into my driveway - in my usual distracted state - and they critic was cycling through crap, crap, and - well, more crap.

I remember it was just me in the car and about the time I normally reach for the keys to switch things off - I heard this song.

And it rocked. Soaring lyrics. Rich, symphonic backgrounds.

One of those moments you just sit there and wait until the music is done with you.

They only played a verse or two - and the best I could remember was the the band had some slavic name. Totally struck out on the web search, couldn't spell the name right I'm sure. Rrrgh!

It had a name with something like 'votch' in the name. I tried a few variants, no luck. Frustrating as all hell. The internet, and iTunes - and I can't identify or acquire the music I wanted.

Couldn't let it go, though. My memory is pretty good, so when it fails, it gets really obstinate. Ironclad recollection of details that won't help me in a search engine. Maddening.

It's been rattling around my head for years - I ended up using 'votch' as part of the name of a clan of bad guys in my gaming campaign - couldn't do anything else useful with it.  Like a sliver in the mind. Rrrrgh!

Until last night. I'm watching TV at stupid o' clock in the morning and there's a commercial for (of all things) a video game.

And they're playing the song.

Hold your grandmother’s bible to your breast
Gonna put it to the test
You wanted it to be blessed
And in your heart
You know it to be true
You know what you gotta do
They all depend on you

And you already know
Yes you already know
How this will end

Sung by a man channeling Morrissey who's fronting some classically-trained gypsies.

At last.

Too small to fail vs. too big to be trusted

CJR's The Audit highlights an interesting fact of our current banking mess, courtesy of Washington Monthly:

According to FDIC data, the failure rate among big banks (those with assets of $1 billion or more) is seven times greater than among small banks. Moreover, banks with less than $1 billion in assets—what are typically called community banks—are outperforming larger banks on most key measures, such as return on assets, charge-offs for bad loans, and net profit margin.

One reason community banks are doing so well right now is simply that they never became too clever for their own good. When other lenders, including underregulated giants like Ameriquest and Countrywide, started peddling ugly subprime mortgages, community banks stayed away. Banking regulations prevented them from taking on the kind of debt ratios assumed by their competitors, and ties to their customers and community ensured that predatory loans were out of the question.

That isn't just little guy schadenfreude, either. That's just one byproduct of a useful symbiosis: a lender who protects the money they lend - also protects the consumers they lend to.

Small banks aren't inherently more virtuous than large banks - they just don't have the means to sidestep their financial obligations like the big boys. Damn good thing, too.

CJR is pointing out that the failing banks that were too big to fail are merging. So whenever and however we get out of this mess,  we run the risk of having fewer banks that are even bigger that their too big to fail predecessors.

Chittum's closer is dead on:

There’s a serious conversation that needs to take place about the consolidation in our economy—especially in finance. If something is too big to fail, it should be disassembled to the point where its collapse would no longer endanger the rest of us.

A-men.

Told you so

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.
-Pres. Thomas Jefferson, 1802

(H/t to Planet Money Blog)

Is this really happening?

With the total collapse of capitalism nigh, I'd like to take this moment to just say:

The new version of Cosmic Encounter looks SOoOooooo good.

I know what you're thinking:  

They're really releasing a new version of Eon's classic game of alien politics?

Yes! Or at least, it sure looks like it.

FF's website is listing components and showing visuals like they're really going to do this.

 

 

I mean - I've been burned before... (Avalon Hill, you are SO on my bad list) but the bits look good.

Stacking spaceships (smart). I'm betting the massive board in the picture won't be in the real set, but it looks like they've recognized that there's not much point in crowding things up.

Come December (Assuming I'm not living under an overpass, eating government-surplus horsemeat) I'm gonna score me a copy of this.

Whoo-hoo!

Naming rights

Hot on the heels of "We flew to Washington in private jets to beg for money" are Citigroup and AIG's latest examples of contempt for their situation: Naming rights contracts (H/t to 13th floor).

Citgroup is paying the NY Mets $400 million dollars over two decades to name their stadium.

And:

Citi isn't alone: Imploding insurance giant AIG is paying the British soccer team Manchester United $125 million for the privilege of having its logo appear on Man U's uniforms. That, despite the fact the firm is standing largely thanks to a $150 billion lifeline from the U.S. Treasury. 

Here's the best punchline on this I've seen so far:

"A friend of mine joked they should put 'US Treasury' on the front of their uniforms," said Steve Ellis of Taxpayers for Common Sense, a Washington, D.C.-based nonpartisan watchdog group which is outraged by the expenditures.

It depends on what you mean by sellling short

CJR has just a torrent of good bits out there today.

• OMG, the guys you see in the news everyday? idiots. 
• If you're having trouble solving the crisis of the uninsured crisis - blame the victims!

but the WSJ piece on Morgan Stanley is such a great illustration of the toxic effects of the Credit Default Swap. CJR just hits the high points, but even in those you see the tendrils of the CDS bursting through.

They're talking about short selling - hell, everybody is.
We keep hearing corp execs whine about short-sellers. They've managed to get regulation in place to prevent some of it

Not that it will help.

Short selling is this:

• Company X is selling its stock at $3, and I belive it's going to tank.
• I go to someone holding stock in Company X and say "Can I borrow 100 of your stock shares for 24 hours?"
• An investor loans me the stock. (I owe an investor 100 shares of Company X)
• Then I sell those 100 shares for $2.50 bucks each. (I have $250 bucks and still owe an investor 100 shares)
• It's a bargain! People snap them up.
• Then - my premonition comes true - and Company X's stock price falls to $2.
• I snap up 100 shares at $2 a pop. (I have 100 shares with $50 left over)
• I give the investor back their 100 shares and keep the $50.

Money for nothing.

Well, almost. If the price didn't drop - I still owe the investor back their shares. Having sold at $2, I have to buy 100 shares at $3 a pop. I lose $100.
If the stock goes up in value - I'm really screwed.

The new regs stopped something called naked short selling - which is shorting a stock without having closed the deal to borrow shares first. This shorthands the up-front transaction.

• I sell 100 shares of company X for $2.50 - and having agreed to the transaction, I'm asked to provide the shares.
• I don't - but I say "I'll get you those shares as soon as I can."
• At some later time, I get those shares and get them to the buyer.
• If I can't- the buyer can walk and no money changes hands.

Assuming everyone's behaving themselves - this is a fast way to get a trade done.
When people aren't behaving themesleves - it can be a way to screw with the market.

For example:

• I loudly announce to the world I'm shorting 2,000 shares of Company X!
• Investors get the impression something is wrong at Company X and begin selling.
• I get buyers for the shares I offer, but since I'm doing a naked short - I tell the buyers to wait until I get them.
• They wait, the shares keep dropping and I fail to deliver the shares.
• The buyers walk - no money changes hands - but my naked short just helped Company X's stock lose value.

This is evil - and rightly regulated.

Stopping the naked short forces short sellers to risk their money - which will engage their natural aversion to losing money. Yes, they can still take positions that screw people. But since they can get screwed by going short on healthy companies, the market will eat the fools and the smart investors will make money on companies that are overvalued.

Then there's the Credit Default Swap. This is the nuclear weapon of short selling.

A high value bond transaction is insured up to its full value by someone who does not hold the bond.

I pay a small premium for a CDS on a billon dollar bond that I think will fail. It's not my bond and (absent my buying a CDS) it failing would normally not affect me.

Since I did pay for a CDS (say $10 million annually) if it fails, I get a billion dollars.

That's just sick.

Let's say that premium is paid out in installments over the year (by quarter, let's say) and I buy the CDS on the billion dollar loser right before it tanks.

I've paid $2.5 millon dollars in CDS premium - and now somebody owes me $1 billion US.

Really sick.

Yes, if the loser bond manages to stay afloat, I keep paying CDS premium (and wasting money) - but I can stop paying - cancel the CDS - at any time.

My risk is nowhere near the $1 billion I stand to get paid if the bond fails and I can (and probably would) start shorting the bond issuer's stock to help make that company fail.

Meaning - if I feel Company X not looking so good, the normal course of action would be to get out of their stock with caution.
Now, with the CDS - I buy CDS's against bonds they've issued - then LOUDLY shout to the heavens that I have to short Company X because I understand their forthcoming balance sheet is going to suck.

I don't just bail out anymore - I take out insurance and try to damage as much as I can on the way out.

That's unbelievably sick.

And that kind of betting is why this mess we're in is so massive.

The skinny on Citi

NYT's Floyd Norris writes a great summary of what's going on (and not going on) with Citigroup - and the larger mess as well.

Here's a great bit on the Fed backing Citi's assets:

...not all the details ha[ve] been worked out. The assets in question — described by the government as “loans and securities backed by residential real estate and commercial real estate, and their associated hedges” — must be valued at current market value before the guarantee kicks in, but the government and the bank have yet to agree on those values.

That phrase “associated hedges” captures the fact that Citigroup, like many others, had sought to insure itself against losses with a variety of transactions, including the purchase of insurance, only to learn that the losses were overwhelming those who had promised to pay.

Worth a read.

All bets (should be) off

I love this.

People like Steve Eisman will hate this - but I love it.

Chris Whalen (writing on The Big Picture) is pointing out that the total tonnage of Credit Default Positions out there is horrifyingly huge. Then he makes the logical deduction on what can be done about it.

Start with the $50 trillion of so in extant CDS.

Assume that as default rates for all types of collateral rise over next 24-36 months, 40% of the $50 trillion in CDS goes into the money.  That is $20 trillion gross notional of CDS which must be funded.

Now assume a 25% recovery rate against that portion of all CDS that goes into the money.

That leaves you with a $15 trillion net amount that must be paid by providers of protection in CDS.  And remember, a 40% in the money assumption is VERY conservative.  Could easily be 60-70%.

Q: Does anybody really believe that the global central banks and the politicians that stand behind them are going to provide the liquidity to fund $15 trillion in CDS payouts?  Remember, less than 10% of these positions are actually hedging exposure.  The rest are speculative.

My answer is that we pay the hedge positions at face value, but the specs get pennies on the dollar of the face of CDS.  And the specs should take the pennies gratefully and run before the crowd of angry citizens with the torches anbd pitchforks catch up to them.

Exactly.

If you're using a CDS to legitimately hedge against money you have personally committed - your CDS keeps its value. You risked principle, and paid to protect it - your principle is protected. Or at the very least, you're last in the "who gets screwed" line.

If you just bet that bond X will default and paid a pittance in CDS premium - you do NOT get the full value of somebody else's principle in a buy out.

You get practically nothing, or nothing - and shut the hell up about it.

The world simply does not have the money to pay out on betting vehicles like CDS - somebody has to get screwed - and my vote is for people who were buying fire insurance on burning houses they didn't own.

They get screwed first.

Oh, and the guys who let them buy that insurance? - you're up next.

In the loop

I realize there is a glut of jokes about how irrelevant Pres. Bush seems these days, but I'll just share these two headlines:

• Sun Nov 23, 2008 4:56pm EST
  White House says unaware of any Citigroup rescue talks
  ABOARD AIR FORCE ONE (Reuters) - White House spokeswoman Dana Perino said on Sunday she knew of no talks going on between banking giant Citigroup and the federal government for financial aid.
  
  
• Mon Nov 24, 2008 8:06am EST
  U.S. rescues Citi with $20 billion capital
  NEW YORK (Reuters) - The U.S. government has bailed out Citigroup Inc, agreeing to shoulder most of the potential losses on $306 billion of high risk assets and inject $20 billion of new capital, in its biggest rescue of a bank yet.
  

Ready on day one

No, not Obama - his stimulus package.

ABC is reporting that Congress will try to have it ready for signing on January 20, 2009.

Looks like Stein's not the only one freaking out.

(H/t TPM)

I'm with Josh Marshall on this one:

This is really going to be a titanic struggle. It would be fascinating, even fun to watch it unfold if it weren't that all our futures depended on the result.

Stein vs. Cavuto

(H/t to digby, of course)

Here's a rather surprising exchange between two avowed conservatives (well, okay an avowed conservative and Neil Cavuto, who merely plays one on tv) over what kind of bailout needs to be done.



Stein (who, yes I realize can be comically wrong in print) is advocating for a full blown, massive stimulus package - and is willing to shout down Cavuto to do it.

Stein: We need to bail out the auto companies, we need to have a massive stimulus package. This economy is about to fall off a cliff.

[snip]

Cavuto: Going the other way and spending like crazy will somehow get us over the guilt that stems from [not intervening in] the [great] depression?

Stein: It's not guilt. It's keeping people alive, Neil.

Watching Stein's and listening to the urgency in his voice makes me think he's spent the last few days staring into the abyss. He's freaking out.

Good news, Detroit

Bloomberg's saying the Fed is weighing options to save Citigroup

Citigroup Inc. and U.S. regulators are in talks to limit the bank’s potential losses on more than $100 billion of toxic assets after the stock’s plunge last week sparked concerns about the company’s fate, four people familiar with the matter said..

[snip]

The holdings that may be guaranteed are a portion of the $400 billion pile of mortgages, bonds, auto loans and corporate loans that Chief Executive Officer Vikram Pandit pledged in May to shed within three years, the two people said. While the amount to be covered under the plan is under discussion, the talks are focused on about $100 billion to $200 billion of the assets, they said.

“If anybody’s too big to fail from the financial system’s point of view, it’s Citi,” said Brian Barish, president of Cambiar Investments LLC in Denver, which manages about $6 billion and doesn’t own Citigroup stock. “The government doesn’t need to be in this to make money. If they lose a few bucks on this, but save the system, it’ll be worth it.”

I'd bet the fix was always in for the big three getting their cash. But if the Fed is going to save Citi to the tune of over a hundred billion in loans/guarantees/what have you - they'd be hard pressed to justify not throwing a measly 25 billion to some automakers.

I mean, at this point - $25 billion dollars is chump change.

Democracy index

I'd read an article by Heather Gerkin awhile back that finally sank in - particularly this part that she added on the Election Law Blog:

I have recently proposed that we create a Democracy Index, ranking states and localities based on how well they run elections. Without good data on how the election system is performing, voters learn that there's a problem only when an election is so close that the outcome is in doubt and reporters devote the time necessary to investigate what actually happened. That's a bit like measuring annual rainfall by counting how often lightning strikes. The Index would help us assess the problems that occur routinely, before they cause what Rick Hasen has called an "electoral meltdown." Moreover, it would allow voters to reward strong performance. Right now, voters lack the information they need to differentiate between a bullet dodged and a well-run system ...

Makes an awful lot of sense to me.

Rather like a public-facing rating system for restaraunt cleanliness. We assume the place we go to is decent - but we have no information to base that on.

Underachievers thrive on that kind of a system. My sister used to tell me horror stories of her ride alongs with restaurant inspectors. After she was done, I asked her what happened to the places that were bad, but not bad enough to be shut down.

She laughed. "They keep doing what they're doing. After all, from their perspective - they passed."

I imagine there are any number of localities that are teetering on the edge of failure - waiting for a close election to burst into the news.

It'd be nice if they were in the spotlight before the next election, no?

Blot doesn't seem like the right word, congressman

...I think the word you're looking for is homicide.

(via DoDBuzz)

It must be the worst nightmare of every CIA director — the agency ignores its own rules and regulations and kills innocent Americans, and then the people in charge of the operation lie to Congress and cover up what happened.

The nightmare has apparently come to life and it became public today when Rep. Pete Hoekstra (R-Mich.) announced that a report by the CIA’s own inspector general found that agency officers apparently ignored standing rules and regulations governing when they could shoot at aircraft in the drug war in Latin America. The lapses led to the death of at least 10 innocent civilians, Hoekstra said, including two Americans, Veronica “Roni” Bowers and her daughter, Charity, in April 2001. They were missionaries in Peru heading home when the CIA ordered a Peruvian Air Force jet to shoot down their plane. The shoot down was part of a joint U.S.-Peruvian anti-drug program that began in the mid-1990s. CIA officers worked with Peruvian pilots to spot planes believed to be carrying illegal drugs.

“It is a blot, a dark stain, a sad day for CIA,” Hoekstra told reporters this morning. “The CIA knew about repeated serious issues with this program, but took no corrective actions, which could have prevented this needless tragedy. Making matters worse, the inspector general found continuous efforts to cover the matter up and potentially block criminal investigation.”

Killing your own because you couldn't be bothered to spare them.

Worse than a blot, I think.

Adu-lation

Freddy gets his first goal for the US men's team.

Good on him. Nice to see hard work pay off.

Scoreline - November 19, 2008
USA: 2
Cooper 54'; Adu 69'

Guatamala: 0

Better still was Guatemala being sent home. Awww.... poor widdle no-hope team. Maybe 2014 will work out for you. Who wants a cookie?

Altidore? Stud, again. Donovan? Jozy called, he's in your spot.

Pity Citi

CJR's Ryan Chittum is betting Citigroup is about to have one of those seismic events that makes everyone change their stationary.

Weighing down [Citigroup's] shares has been the Treasury Department's decision last week not to buy troubled assets from banks. Citigroup's balance sheet includes battered securities and loans that many investors hoped could be offloaded to the government.

What's sad is that Citigroup has already gotten billions from the government - so it's not like Paulson changing tactics stiffed them. You wonder how many troubled assets they have - and just how troubled they are.

Whoa

Attorney General Collapses During Speech

Attorney General Michael B. Mukasey collapsed during a speech Thursday night and was taken to the hospital after he failed to regain consciousness. There was no immediate word on his medical status.

Mr. Mukasey, 67, who took over as attorney general one year ago after the resignation of Alberto R. Gonzales, was giving a speech on national security to members of the Federalist Society, a conservative legal affairs group, when he lost consciousness at about 10:20 p.m.

Around midnight, a Justice Department spokesman said in a statement that Mr. Mukasey was “conscious, conversant and alert.”

Late Edit: In the (impossibly unlikely) event that anyone is getting news from this site. Mukasey's doing better now. Nothing to see here folks - Move along.
(Via TPM)

A win for the end user

(Via the NYT)

A number of retailers and manufacturers have a gift for holiday shoppers: product packaging that will not result in lacerations and stab wounds.

The companies, including Amazon.com, Sony, Microsoft and Best Buy, have begun to create alternatives to the infuriating plastic “clamshell” packages and cruelly complex twist ties that make products like electronics and toys almost impossible for mere mortals to open without power tools.

Impregnable packaging has incited such frustration among consumers that an industry term has been coined for it — “wrap rage.” It has sent about 6,000 Americans each year to emergency rooms with injuries caused by trying to pry, stab and cut open their purchases, according to the Consumer Product Safety Commission.

Long overdue.

Justice delayed - but justice nonetheless

Federal Judge orders the release of five Guantanamo prisoners