Saturday, October 24, 2009

Chickens Coming Home


Now that our gigantic embassy in Baghdad has been in operation for 18 months, the problems written about two years ago are coming to light once more - failure to build according to specifications, shoddy fire protection systems, substandard wiring, cracking roads and walks, poor connection to water supplies. It's only another $132,000,000 to fix it.

Thursday, October 22, 2009

One too many calories

Paul Mason eats about 20,000 calories a day. You read that right - 20,000 each day. He costs the British health system $165,000 a year.

Wednesday, October 21, 2009

Correcting the Credit Rating Agency Problem

Kevin Hall continues his reports on the credit rating agencies with an analysis of the Accountability and Transparency in Rating Agencies Act, which is being proposed for approval by the House Financial Services Committee. This analysis is not as deep as Hall's previous work. He cites three deficiencies with the p

WASHINGTON - OCTOBER 22:  (L-R) Former executi...Image by Getty Images via Daylife

roposed legislation:
  • there is no independent due diligence with regard to a proposed offering
  • the position of compliance officer needs to be strengthened considerably
  • the SEC should work with the compliance officer.
My question is - does the legislation ensure that the agencies do their job or does it enable them to continue their pursuit of money?

Bring Back Glass-Steagall

That's what Volcker is saying. Separate commercial banks from investment banks. In Volcker's view combining the two creates risks and " if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails. Volcker, who is 82, acknowledges that some think him old-fashioned and in denial of the new world where both commercial and investment banks can function well as a single entity. His response - “That argument brought us to where we are today.”

Tuesday, October 20, 2009

Listen up, Geithner

Mervyn King of the Bank of England says that the 'too big' banks should be broken up for "The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the 'too important to fail' question. The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion."

Obama needs a Plan B

That's what Stephen Walt thinks because the current foreign policy is just not working. And, of course, Walt has the beginnings of such a plan. And it's not a bad start!

So what's Plan B? I'm still wrestling with that issue myself, but here's a quick sketch of some of the fundamental ideas. Plan B begins by recognizing that the United States remains the most secure great power in modern history and that most of damage we have suffered recently has come from scaring ourselves into foolish foreign adventures. It means rejecting the belief -- common to both neoconservatives and liberal internationalists -- that virtually every global problem requires an American solution and "American leadership." It acknowledges that social engineering in complex traditional societies is something we don't know how to do and probably can't learn, but it takes comfort from the fact that it is also a task that we don't have to do. It accepts that there are a few bad guys out there that do need to be confronted, captured, and sometimes killed, but understands that the more force we use and the heavier our footprint is, the more resistance we will ultimately face. And yes, Plan B understands that sometimes bad things will happen to Americans, and there is nothing we can do to completely eliminate all foreign dangers. Get used to it.

Plan B means playing "hard to get" more often, so that other states don't take us for granted and so that they bear a greater share of common burdens. It means exploiting balances of power and playing divide-and-conquer, instead of trying to impose a preponderance of U.S. power on every corner of the globe. It prizes the individual freedoms that are the core of American democracy -- freedoms that are threatened by a steady diet of foreign wars -- and it recognizes that other societies will have to find their own way toward more pluralist and participatory forms of government, and at their own pace. It seeks to maintain armed forces that are second to none but eschews squandering lives or money on peripheral wars that are neither vital nor winnable. It rejects "special relationships" with any other state, if by that one means relationships where we support other states even when they do foolish things that are not in our interest (or theirs).

And Plan B proceeds from the belief that other states will be more likely to follow America's lead if they look at us and like what they see. America used to dazzle the world by offering up a vision of opportunity, equality, energy and competence that was unimaginable elsewhere. The danger now is that America is increasingly seen as a land of crumbling infrastructure, mountainous debt, uninsured millions, fraying public institutions, and xenophobic media buffoons. Over the longer term, getting our house in order back home will to a lot more to shore up our global position than conducting endless foot patrols through the Afghan countryside.

Fly me to the moon


Okay, so $3,700,000 won't get you to the moon, but it got a lot of CEOs wherever they wanted to go.

The chart to the left is from the Washington Post analysis of perquisites given to the CEOs of the twenty-nine largest public financial companies that we bailed out. The bailed-out increased their perquisites by 4% in 2008; other Fortune 100 companies decreased their perquisites by 7%.

Two particularly egregious examples, as shown here, are GMAC, which gave their CEO $2,500,000 to help pay his taxes, and Comerica, which paid the boss' country club $200,000 for initiation fees and dues.

Sunday, October 18, 2009

Greed

Earlier this month I wrote briefly about Moody's appearance before the House Financial Subcommittee on Capital Markets. It looked at that time that Moody's was basically not being prudent. Kevin Hall of McClatchy has looked into the situation more closely and attributes Moody's shortcomings to that old standby, greed.

Hall asserts that Moody's "purg[ed]analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression." All for the sake of increasing revenues and, ultimately, profits; revenues went from $800,700,000 in 2001 to $2.037 billion in 2006.

Systematically Timed

That's what Eliezer Fich, finance professor at Drexel, says of the practice of some companies to issue stock options to the top people just prior to the announcement of a merger. The professor and his colleagues studied mergers and acquisitions made between 1999 and 2006 and found 110 cases where, the professor claims, management was given unscheduled stock options while discussions were taking place but the public had no knowledge of such discussions. The study concluded that these companies got less of a premium from the acquirer, while the CEO averaged $5,700,000 in extra compensation via these options.

Granted it's an academic study that has yet to be published. But one should remember the furor about backdating options that was started by another WSJ article. Plus, the Journal has given some form of imprimatur by saying that it has reviewed a number of company filings and agrees with the professors.

Triple the Workload But Don't Increase the Staff

Is this a recipe for disaster or not? It's not if people were sitting around twiddling their thumbs. In FY2007 the FHA processed 1100 applications from lenders. The number of applications tripled in FY2008, but the same twenty-two people processed the applications as the FHA share of new loans went from 2% in the days of the subprime boom to 20% today.

In FY2007 I don't think the application handlers were twiddling their thumbs

Logo of the Federal Housing Administration.Image via Wikipedia

as they handled one application a week, which, to me, seems reasonable, maybe a little light but reasonable. Requiring the handlers to handle three applications a week would result in delays or errors in processing. It's the latter problem that an audit by the HUD Inspector General revealed.

The FHA did not have sufficient controls in place to ensure that regulations were being met. They did not check with other offices about their experience with the lenders. Nor did they collect all fees that were due. Or make sure that all supporting documents were obtained. Or that lender certifications were appropriate.

"If they're too big to fail, they're too big"

and the speaker goes on, “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

And a few more comments from a talk given last week at the Council of Foreign Relations.

“If you don’t neutralize that (i.e., the too-big-to-fail issue), you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.
“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

Can you guess the speaker? Alan Greenspan! If he's on the bandwagon, why can't Geithner and company move faster and smarter on the issue?

Saturday, October 17, 2009

99 and counting

The San Joaquin Bank became the 99th bank to fail this year. And we still have another 2.5 months left in 2009. As of June the FDIC had 416 banks

Seal of the United States Federal Deposit Insu...Image via Wikipedia

on their watch list. The Great Recession is over? Believe that and I'll sell you a bridge.

If you keep calling me a murderer, I'll kill you.

You really can't imagine anything weirder than what occurs in real life. For instance,
A Pakistani Taliban group is apparently worried about how the media perceives them. The group does not like to be portrayed as terrorists by the media. They sent a letter to the Lahore Press Club warning that if the media “does not stop portraying us as terrorists ... we will blow up offices of journalists and media organisations”.

Monday, October 12, 2009

Two Views of Afghanistan

Major Mehar Omar Khan of the Pakistani Army thinks we are trying to do too much there. Afghanistan has never been governable as a country, so why do we think we can change the situation. We're better off focusing on much smaller areas and making them work well and enlisting the aid of the Pashtuns to make it happen.

Helena Cobban brings up the question of China as it relates to Afghanistan. In her view China has benefited enormously from our dalliances in both Iraq and Afghanistan. She quotes from a recent article by someone fairly high up in the Chinese government. The writer thinks the UN is much better able to handle the situation than the Western coalition is.

Sharing the wealth

In this case the 'wealth' is an education. Babar Ali is a 16-year-old student in an extremely poor area of West Bengal, India. Although Ali comes from a typical, poor family in the village of Murshidabad, he is able to go to school. Many of his contemporaries cannot, as they have to work. Every day after school Ali teaches his friends and others what he has learned in school that day. He has been doing this since he was 9. Today, he has ten teachers at his 'school'. 800 students attend the classes.

Talk about changing the world by helping your fellowman! Ali is a lesson for all of us.

Changing his mind

Abbas has decided to push the UN Human Rights Council to vote on the Goldstone report which castigated both parties to the Gaza war. It sounds like he's reacting to the recent street demonstrations against his earlier decision to try to postpone a vote.

Sunday, October 11, 2009

A Pivotal Moment?

Andrew Bacevich thinks that we are at such a moment. How Obama, the Nobel Peace Price Laureate, comes down on our role in Afghanistan will determine whether change will, in fact, become reality in 21st century America. If Obama buys McChrystal's argument re the need for more troops, he will be agreeing that we are essentially a war machine. We wage a war on terror. We use the military to get our way, no matter the effect of the world. In other words, Bush was right.

Stalling the Investigation into the Gaza War

Last month Richard Goldstone issued his report to the UN Human Rights Council on the war in Gaza. He accused both sides of committing war crimes and urged that the report be sent to the Security Council for action. However, when the Human Rights Council considered the report, the PLO representative urged the Council to wait six months before doing anything. Since Hamas and not Fatah was the main Palestinian culprit named by Goldstone, it's surprising that a postponement was requested by Fatah.

Helena Cobban, who is a pretty astute observer, reports on two rumors circulating in Palestine as to why Abbas and Fatah may want to go slow with any action on the Goldstone report:
  • Israel has offered money to a Palestinian company that is tight with Fatah and wants to start a cell-phone service.
  • There are tapes clearly showing Abbas urging Israel to continue its attack on Gaza.
Some substantiation of the above allegations can be found in the silence of Fatah spokespersons with regard to the attacks as they occurred and the suppression of anti-war demonstrations.

Saturday, October 10, 2009

What if?

Stephen Walt asks us to imagine what we would do about Afghanistan if we were not already there. We'd see a government that was corrupt and had little support from its people, an insurgency gaining strength, a weak economy, etc.; basically the same situation that exists today minus our troops. Given such a situation, "would you be in favor of sending 100,000 or so American soldiers to fight and die there?" This situation is very much like that in a number of places - Sudan, Somalia, Yemen. But do we have 100,000 troops there?

Walt concludes by quoting Robert Kaplan, who, despite being in favor of staying the course, writes "history suggests that over time we can more easily preserve our standing in the world by using naval and airpower from a distance when intervening abroad. Afghanistan should be the very last place where we are a land-based meddler, caught up in internal Islamic conflict, helping the strategic ambitions of the Chinese and others."