A Response To David Sirota

David Sirota has asked why a double standard exists between coddled bank CEOs and those that head up the nation's auto makers.  I believe a clear explanation exists...and one not based on conspiracy theories.

First, the government can't pull confidence out of the financial sector abruptly or risk a run on the banks. The reason all banks were given TARP money was to mask who was in real trouble (though that has become more transparent recently and now that information is not as critical because of the government backstop). If that hand is tipped, you have a run on one of the large money-center banks and the FDIC exposure itself from someone like Citi would be close to $700 billion. If two or more fail...well...

If a stark vote of no confidence is given, then you have a fairly massive unwinding. Yes, you have the some unwinding with auto makers but it typically doesn't go KABOOM...see next... 

Second, in the financial sector there is no Chapter 11 or 13 restructuring type of bankruptcy. By law, there is dissolution and liquidation by FDIC or the facilitation of a merger (read shotgun wedding) - in other words, just Chapter 7.  See Lehman for an example. We're out of merger options because of how they have weakened even once strong banks (see BofA and Wells by way of Merrill and Wachovia) and because of the uncertainty on what's on different bank's balance sheets.  So, GM and Chrysler can restructure and come back as something new and shiny. A bank just goes bye-bye. That's an important distinction. 

I believe the actions taken show some savvy.  Several bank CEOs have been asked to step down as part of the bailout process. These included the heads of Fannie, Freddie, and AIG.  The Citi CEO is also new though he hasn't shown to have garnered much confidence from investors. In addition, other CEOs were removed in the quick process of resolution as in the cases of WaMu and Wachovia.

That being said, don't think the banks have escaped anything. After the stress tests and PPIP assets sale attempts this sprint and summer a few will be nationalized if the conservatorship legislation goes through. At that point the government will appoint new boards and those boards will start firing people. But you have to do that as part of the discovery process. The PPIP and stress tests (really the PPIP) will start to reveal who is in real trouble.

Unlike the car companies, the banks don't have a short-term cash flow issue that makes their bankruptcy now as imminent (as it may have been several months ago).  They have a long-term solvency issue which when backstopped by the government can be unwound and managed more carefully. The banks would have such an issue almost overnight if there was a confidence issue.  You don't get 30 or 60 days to do anything if you are a bank with a massive confidence issue. Remember, banks are fractional reserve systems which lend out most of the money depositors put into them.  That $5000 checking account you had at WaMu is part of some crappy house that can't sell in Modesto.   A confidence issue for a bank is called a run.  Right now, depositors are not so worried - thankfully.  Only equity and debt holders are.  The car companies just chew through cash which is harder to deal with since you have to constantly throw money at the problem - not that that is horrible. It's just something you can't sit on as long.

But again, the bank will get their due.  First, not all the banks need the bailout money. The PPIP will force some hands to be revealed. Those that mark down their balance sheets now will likely do better under PPIP. Those that don't will reveal the true level of toxicity on their balance sheets.  Those banks will be dealt with based on how Geithner's legislation gets through...and you have an objective measure by which to determine who is and who is not truly solvent since right now that banks are saying their assets can't be properly evaluated (mark to market et al).

Finally, to assume the banks have gone unscathed would not be accurate.  Aside from the CEO changes mentioned above, even Hank Paulson attempted to make sure the bailouts and government involvement with the banks would be painful enough to serve as a disincentive for banks not keeping their houses in order.  I think people forget that Paulson bid DOWN the price for Bear Sterns.  He actually forced Jamie Dimon of JP Morgan to push his offer lower so that it would be more painful in order to send a message (and later got sued as a result).  He also let Fuld at Lehman fall on his face.  Paulson also essentially forced Wells Fargo to take TARP money to help conceal strong banks from weak ones.  This action forced a dividend cut on the part of Wells Fargo as part of the terms.    So, to assume the banks have all just been pandered to would not be considering the full context of what's been happening over the past 18 months. 

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Dick Cheney's Absolution Tour Affirm His "Dr. Evil" Rep

John King's interview with Dick Cheney was no Frost-Nixon like experience, and a Frost-Nixon like interaction is what was needed given all of the legitimate controversies swirling around the past administration. The session need not be a witch hunt. Folks on the right from congressional leaders to the core of the conservative movement have disavowed the Bush administration. At the recent conservative CPAC conclave in D.C., Bush was regarded as a four letter word. Simply accounting for loss of faith from the right in the past administration may have been topic enough to explore. Instead, this "interview" was simply an opportunity for Cheney to present his policy prescriptions as competing alternatives to everything the Obama administration is doing. Seven weeks after the inauguration, the right now has very little moral standing to complain about Jimmy Carter's statements during a Republican administration.

But, not only did Cheney get to simply state what he pleased; he did so with shocking impunity despite what the underlying data would actually suggest. Cheney asserted that the Obama administration was using the financial crisis to drive a social agenda. The press has done an admirable job in debating this issue - specifically, is the president taking on too much at one time. But, it's incredibly ironic for Cheney to assert that THIS president is using a crisis to press forward with a political agenda. But again, the press bows to Cheney. King did not press forward with the obvious...Those who criticized Bush policy on Iraq during the run up to the war were labeled unpatriotic. In fact, those who questioned the wisdom of the policy or questioned the basis for going to war like Joseph Wilson (and his wife Valerie Plame) were taken out politically using dubious (and via Scooter Libby's indictment, criminal) mechanisms.

Next, Cheney asserted that Fannie and Freddie (upon his reading of the data) were the primary cause of the current financial crisis. This assertion is part of the narrative that it was “government that caused the housing bubble” through a push for minority lending that started with Carter and the Community Reinvestment Act of 1977 and took up steam under Clinton's aggressive enforcement of the act. The narrative was convenient, but untrue. Facts reveal that Fannie and Freddie (the GSEs) came to the subprime lending game late after loan originators had already exploited the prime mortgages for collateralized debt repackaging. CNBC's fairly comprehensive dissection of the events leading up to the meltdown (House of Cards) does a decent job of plowing through this. Fannie and Freddie as pseudo-private institutions wanted to get in on the action. The GOP pushed to stop Fannie and Freddie from aggressively going after the ultra-subprime market primarily because now they would competing with private loan originators versus some sense of duty to keep the GSEs out of trouble. And remember, Home Ownership was the banner under which the Bush administration turned a blind eye toward all the subprime origination. On this topic, the two parties had aligned interests. The GOP aligned with the loan originators who were collecting substantial fees and the Democrats aligned with lower-income borrowers. In addition, the Community Reinvestment Act applies to large regulated commercial banks. Banks that have received the "Outstanding" rating for CRA activity had stayed out of subprime trouble until acquisition of less careful entities (see Wells Fargo). Cheney's "reading" of the facts is gravely flawed by any objective account. But, King as we can know routinely expect from the press failed to press on any of these obvious contradictions.

Cheney had legitimate foreign policy insight to put forward, but these were put forward with a know-it-all arrogance that diminished their substance. But that’s what was so shocking. For a man with an abysmal track record of prognostication (remember: 1. we would be greeted as liberators, 2. the Iraq was would pay for itself, etc.), Cheney came off impressively smug or even arrogant. ? During his interview he was extremely comfortable in mischaracterizing events. Either he completely self-deluded or he knows the spin he’s trying to create. I’d bet on the latter.

Bottome line: 1. The press gave Cheney a huge pass as they seem to make a habit of doing. 2. Cheney asserted political claims as insight that are not legitimized by the facts.

The real question...what is Dick Cheney up to? Sphere: Related Content

New Podcast is Out!: A Conversation About the Emergence of the Blogosphere with Joseph Farrah

Skewz Podcast #57: A Conversation About the Emergence of the Blogosphere with Joseph Farrah

Joseph Farrah thought about the concept of "electronic newspapers" all through the 1990s as he saw demographics in the US changes. Mr. Farrah astutely observed that people were rushing at an accelerating rate into the suburbs and that the distribution model that city newspapers relied on was going to crumble under a weighty cost structure.

In 1997 Mr. Farrah and his wife launched WorldNetDaily.com. WorldNetDaily.com is a conservative leaning site that covers news that may not be typically covered by the traditional media. Perspectives taken on WorldNetDaily.com often are not found other places. It was extremely interesting to speak to someone who has seen the evolution of the Internet and the blogosphere from virtually the beginning.

We hope you enjoy the conversation as much as we did. More on Joseph Farrah: http://en.wikipedia.org/wiki/Joseph_Farah

If you liked the show, recommend it to your friends.

You can check out Michael's blog at: http://www.bagnewsnotes.com

Your host: Vipul Vyas

Comments can be sent by email to blog@skewz.com Or you can drop us a voicemail at 646-495-9203 extension 62526. If you don't have time to download the podcast and would like to listen to it over the phone (and if you have an unlimited plan or plenty of minutes to burn) you can dial 712-318-9952 (not a toll-free number) to listen in.

And remember...to get all sides of the story, visit SKEWZ.com Follow us on Twitter.com/SKEWZ to get live updates of show releases

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New Podcast Is Out: A Picture Is Worth A Thousand Words with Michael Shaw

Skewz Podcast #56: A Pictures Is Worth A Thousand Words with Michael Shaw

We recently spoke with Michael Shaw. He's one of the most interesting people we've chatted with. His angle is old yet new. Pictures have been part of telling the story of current events even before camera's were around (remember the famous image of the Boston Massacre...need help, check out http://en.wikipedia.org/wiki/Boston_Massacre).

Pictures have been used to help convey emotion, emotive context, and much more when it comes to the news. Yet, just like sound tracks in movies and TV shows they seem to fade into the background without us always realizing they are there. Michael insightfully reframes our conversations and reminds of the impact these pictures have on our own contextualization of stories. How people are portrayed really sets the stage for how we're going to perceive a news story. Our conversation with Michael was one of the more interesting we've had in quite a while, and we've saved it for a slower news day so that it doesn't get drowned out by the news cycle.

We hope you enjoy the conversation as much as we did.

More on Michael Shaw: http://bagnewsnotes.typepad.com/bagnews/2004/01/_about_me_.html

Winner of the Gilliard Grant of Merit for Excellence in Journalism and News Blogging awarded at NetrootsNation '08; credentialed 2008 DemocraticConvention blog; and producer of the The Huffington Post blog feature "Reading The Pictures," BAGnewsNotes has established a niche in the progressive blogosphere through the expert analysis of news images.

If you liked the show, recommend it to your friends.

You can check out Michael's blog at: http://www.bagnewsnotes.com/

Your host: Vipul Vyas

Comments can be sent by email to blog@skewz.com Or you can drop us a voicemail at 646-495-9203 extension 62526. If you don't have time to download the podcast and would like to listen to it over the phone (and if you have an unlimited plan or plenty of minutes to burn) you can dial 712-318-9952 (not a toll-free number) to listen in. And remember...to get all sides of the story, visit SKEWZ.com

Follow us on Twitter.com/SKEWZ to get live updates of show releases Theme

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Just $5 Billion to Destroy the World Economy

There's plenty of outrage to go around these days: outrage about the taxpayer money going to bailout Wall Street bankers, outrage about how the excesses of a gigantic credit bubble could have gone unchecked, outrage about how government regulators could fail to catch Bernard Madoff and his ilk, etc. Given this surfeit of outrage, it's surprising that more of it isn't directed at the media's utter failure to point to these things in any signficant way.
Last week, a group called Wall Street Watch (a joint effort by the non-profits Consumer Education Foundation and Essential Information) released a scathing report called "Sold Out" that details how enormous political contributions paved the way to removing regulations on the finanicial industry. According to the report, in the 10 years from 1998 to 2008:

Commercial banks spent more than $154 million on campaign contributions, while investing $363 million in officially registered lobbying;

Accounting firms spent $68 million on campaign contributions and $115 million on lobbying;

Insurance companies donated more than $218 million and spent more than $1.1 billion on lobbying;

Securities firms invested more than $504 million in campaign contributions, and an additional $576 million in lobbying. Included in this total: private equity firms contributed $56 million to federal candidates and spent $33 million on lobbying; and hedge funds spent $32 million on campaign contributions (about half in the 2008 election cycle).

In total, about $5 billion of bribe money was spent by the industry to achieve their short sighted objectives. This money brought about the repeal of the Glass-Steagall Act, placed former financial industry personnel in key government regulatory positions, and funded a small army of 3000 lobbyists. We now know that these things, particularly the clearing of regulations and restrictions, are at the heart of the excessive credit bubble that has since destroyed an estimated $50 trillion of wealth worldwide.

The fact that it takes an independent group like Wall Street Watch to bring these facts to light is outrageous. At a minimum, why aren't we now seeing this reported by CNBC, 60 Minutes, The Wall Street Journal, etc.? More importantly, why wasn't this reported in the years leading up to this mess?

Until we get a gigantic bubble of citizen outrage, don't expect anything to change. In the mean time, be thankful for efforts like Wall Street Watch.

From "Sold Out": 12 Key Policy Decisions Led to Cataclysm
In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
Regulatory rules permitted off-balance sheet accounting -- tricks that enabled banks to hide their liabilities.
The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives -- which became the basis for massive speculation.
Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.
Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal "risk-assessment models."
Federal regulators refused to block widespread predatory lending practices earlier in this decade, failing to either issue appropriate regulations or even enforce existing ones.
Federal bank regulators claimed the power to supersede state consumer protection laws that could have diminished predatory lending and other abusive practices.
Federal rules prevent victims of abusive loans from suing firms that bought their loans from the banks that issued the original loan.
Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.
The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.
Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms. Sphere: Related Content

Latest Podcast Is Out!: Talking to Jason Rosenbaum of The Seminal About the Stimulus Package

Latest Show: Talking to Jason Rosenbaum of The Seminal

http://www.skewz.com/podcast/list_podcasts

Skewz Podcast #45: Talking to Jason Rosenbaum of The Seminal

We recently spoke with Jason Rosenbaum of The Seminal (theseminal.com). The Seminal started out as a music site and slowly morphed into a political blog among other things. That transition is an interesting story in and of itself. You can learn a bit more about Jason by reading his bio . In our conversation we discussed the post-mortem on the stimulus bill a couple of weeks back, but now the bill seems to be getting drowned out by all of the negative economic news. The partisan lines now are arguing that the stimulus package may not be big enough or there's not any point in doing it because it will have no impact. Nouriel Roubini who saw the crash coming way back in 2005 is in Jason's corner arguing that more stimulus may be needed. Dr. Doom and Jason are aligned in thinking that the stimulus is critical in bolstering aggregate demand in and environment where consumer and business confidence is essentially shattered. Jason discusses his support of the stimulus package and for the Obama administration in general. In our discussion we looked at how the stimulus package wound its way through the corridors of Congress and some of the shortcomings of the package from a progressive point of view. We also discuss why the GOP showed no support in the house and almost no support in the Senate. Our discussion was an in depth look at how the stimulus package was finally passed and how some of the hurdles were overcome. Jason also points out lessons that the administration can learn for future legislative efforts. It was a fun conversation, and I hope you enjoy it as much as I did. Remember:

If you liked the show, recommend it to your friends.

You can check out Jason's blog at: http://www.theseminal.com

Your host: Vipul Vyas

Comments can be sent by email to blog@skewz.com

Or you can drop us a voicemail at 646-495-9203 extension 62526.

If you don't have time to download the podcast and would like to listen to it over the phone (and if you have an unlimited plan or plenty of minutes to burn) you can dial 712-318-9952 (not a toll-free number) to listen in.

And remember...to get all sides of the story, visit SKEWZ.com Follow us on Twitter.com/SKEWZ to get live updates of show releases


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NPR Schools CNBC

NPR Schools CNBC

Jon Stewart took CNBC to task early this week after one of the business news channel's commentators canceled a scheduled appearance. The commentator that bailed on the Daily Show was Rick Santelli who had a virtually meltdown on the air and ignited a "revolution." In this case, the media created and became the story. Santelli's on-air rant or inspirational speech (depending on your perspective) spawned the Tea Party movement where groups opposed to the Obama administration's mortgage rescue plan and bailouts in general could voice their opposition.

But the CNBC commentator's foray away from reporting into editorial commentary is not unique. The business news channel has a decidedly right leaning ideological bent as it caters to an investing class that has a relatively uniform view on what are right-headed and wrong-headed policies when it comes to the role of the government in the economy. But this common perspective has started to become inconsistent and schizophrenic. On certain days you'll hear that the government is too involved in the market that should be left to its own devices to correct problems in ways that only the hallowed market can. On other days, you'll hear demands for government nationalization of banks. Often these comments will come from the same anchors on any given day. What's become too apparent is that very little insight if any is coming from places like CNBC. Just like the virtually bankrupt institutions they have been covering, CNBC seems to be bankrupt of any insight. It's core value proposition of expert, focused news coverage seems hollow especially after you look back at their reporting leading up to and during the financial crisis. Jon Stewart points this out in spades where he schools CNBC in general. This line of mockery continued on the Colbert report, and Jon Stewart summed up these thoughts regarding CNBC well on his Letterman appearance.

Given CNBC's utter failing in understanding what was happening in a space that is its sole focus should give it some pause and even more humility. However, the fact that CNBC has only become bizarrely more arrogant and has relied on even greater editorialization in its coverage suggests that's it is no different from other lower brow news organizations. It's clear that CNBC like its general news brethren relies on a few operational guidelines: 1. Editorial content is cheap, 2. Quick interviews with so-called experts are cheap, and 3. Insight is expensive. Insight takes time, investment in research, and thoughtful review of the facts. Stick with editorializing based on half-knowledge and cycle people through the green room for quick 60 second takes on complex issues. That's the business model. Sure, it's cheap and likely profitable; but does it deliver on the value proposition to CNBC viewers that the network likes to claim. Clearly not!

The ultimate expression of CNBC's failing is by way of contrast. In May of 2008 NPR's This American Life series delved into what was causing the housing crisis which was then starting to take on real steam. Everyone should check out that excellent show which is call The Giant Pool of Money . It made the complex easier to understand by way of telling the stories of the human lives involved with the meltdown. Mind you, this story was still months before the major stock market collapse which was to commence in September 2008. This came from a non-news organization that was typically more focused on covering human interest stories about simple every day struggles. Almost one year later CNBC comes out with its near copy-cat House of Cards "investigative report" that essentially rips off the NPR effort in form and content. Instead of the old saying "a day late and a dollar short," CNBC was almost a year late and nearly one trillion dollars short.

Applying rigor and care to your craft pays off. Half-ass, opinion-based fluff in a space that should be data-driven just doesn't fly. CNBC let its stakeholders down. But instead of being chastened by its near absolute failings, it has become a defensive angry beast. That anger is surely a function more of self-loathing than anything else.

Filed Under: You're Not Getting the Full Story - Media Mediocrity: Our thoughts on where the media just plain dropped the ball and did not adequately or insightful cover a story that has significant relevance on the national interest. Sphere: Related Content