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December 2008

Privatization of profit, socialization of loss

Thanksgiving Week 2008 saw the continued acceleration of the privatization of profit, socialization of loss, and stripping of some big national assets (money and domestic credibility; international credibility was destroyed a long time ago) with the support (or studied indifference) of George W. Bush and Richard Cheney. There is a lack of confidence in the markets for equity and debt due to participants being unable to trust balance sheets, counterparties, or the word of Treasury Secretary Henry Paulson.

There is every reason to believe that public pressure (e-mails, faxes, telephone calls, letters, and postcards) to members of Congress will push them away from privatization of profit for Henry Paulson’s pals.

As background:

An illuminating article on how the nation lined the pockets of Wall Street at the suggestion (and arguable breach of fiduciary duty owed to Citigroup) of current Citigroup Director (and ex-Treasury Secretary) Robert Rubin, is available at Citigroup Pays for a Rush to Risk, Bank Saw No Red Flags Even as It Made Bolder Bets, by Eric Dash and Julie Creswell, The New York Times.

A discussion of the $7.8T ($26,000 for every American) committed so far ($1.7T "loans," $3.0 "investments," and $3.1 guarantees) is available at U.S. Plans $800 Billion in Lending to Ease Crisis, by Edmund L. Andrews, The New York Times. For context, the total federal budget of the United States of America for the fiscal year ending September 30, 2009, is about $3.1T. This means bait and switch artist Henry Paulson (aka Secretary of the Treasury), obtained approval under false pretenses using means and instrumentalities of interstate wire communications to spend up to $350B for the purpose of buying distressed real estate assets without further Congressional approval. He has managed to spend or commit the U.S. to spend almost 23 times that amount and the equivalent of almost 3 years of total federal spending on his way out of town.

A discussion of some of what should happen now is available at Time for a Bank Holiday, by William Greider, The Nation.

The acute problem arose from subprime lending for residential real estate. The massive balance of trade and balance of payments deficits America has been posting for years is a manifestation of another contributing factor. That is the deliberate evisceration of the American economy (and in particular the manufacturing sector) by those fast-talking arrogant free traders. They could not be bothered to arrange a level playing field (e.g., similar labor and environmental requirements) as they sent manufacturing offshore to the benefit of nominally American-based multinationals and their shareholders and to the detriment of American workers and the national security.

Communicate with your representatives in Congress and especially with the chair of the Senate Banking Committee (Sen. Chris Dodd (D. - Conn.) and the House Financial Services Committee (Rep. Barney Frank (D.-Mass.) and tell them you are opposed to the continued privatization of profit and socialization of loss in monumental amounts and will hold them responsible. When emergency legislation was crammed through the Congress (which again rolled over without asking the proper questions or enough questions as it has many times in the last eight years), the safeguard was that there was supposed to be transparency about all activities and expenditures. There has been almost no transparency. The Bloomberg financial reporting service has filed a federal lawsuit seeking the information that should have been provided. Messrs. Dodd and Frank have done almost nothing to enforce the law requiring transparency. By their inaction and acquiescence (as opposed to their words which are cheap), they risk giving the impression of appearing to be collaborating in the bait and switch orchestrated by Sec. Paulson.

There is very good reason to believe that public pressure (e-mails, faxes, telephone calls, letters, and postcards) to members of Congress will push them away from privatization of profit for Henry Paulson’s pals.

Only when the government and the public understand the full scope of the problem can a reasonable response be developed. Right now, Sec. Paulson is merely throwing money at the problem because he is scared (bearing in mind this is a family publication) out of his mind. He has no idea whether the roughly $8T of guarantees, expenditures, and commitments will suffice to unfreeze the credit markets and get the economy moving.

To that end, as noted by William Greider, the essential first step is to determine the actual financial state of each bank and other financial institution. In short, there must be a detailed listing of all assets (on balance sheet and off sheet) and liabilities of each institution. Sec. Paulson should have demanded this information when he was first approached for a handout by his pals on Wall Street. It is reliably reported that he did not ask for this information. His excuse? It will require time and money to obtain the data and put it into useful form; if Treasury does not have it, the Congress should allocate the millions needed to assemble the data starting right now. If we can spend or obligate about $8T in a spasm of uninformed activity, we can spend the $10 or $20 or $50 million which might be needed to get the accountants and others to gather and analyze the information.

The market has determined Sec. Paulson appears not to be sure of the magnitude of the problem or the underlying facts. He gave $25B of public money to Citigroup in early October and at the same time forced eight (8) other banks many of whom did not need the money to also take $25B apiece. The excuse was that he did not want the market to realize how weak Citigroup was. The collapse in Citigroup’s stock in November indicated it did not take long for major market participants to realize the weakness and seek to profit from it through short sales of Citigroup’s stock. In short, in just this one instance, Henry Paulson wasted $200B of the people’s money.

To be sure, the government must do what it can, for many reasons, to avoid another Great Depression. In this regard, it is a problem to keep the economy and lending system operating and at the same time raise more capital for private banks. It is difficult to find people to run major financial institutions on short notice. However, Sec. Paulson had no difficulty finding new management for Fannie Mae and Freddie Mac on short notice. If the people are going to put up this amount of money ($7.8T and rising) they should get, at a minimum, control of the institutions which would eventually be re-privatized. They should also get immediate reinstatement of the Glass-Steagall Act (generally banning banks from both taking deposits and issuing securities) and robust regulatory controls. In addition, we need a total ban on the types of derivatives which led to this disaster (e.g., CDOs and CDSs) for any part of any institution in any way using any part of the U.S. financial system, and a full stop to the merger mania in the financial sector. As William Greider noted, one part of the solution is to have small to medium size community-based banks (as opposed to distant imperious mega-banks) lending to and serving the real economy.

Note that while Sec. Paulson gave Citigroup another $20B (and received 8% preferred stock in return) on about November 23, at the close of trading on November 21, the government could have purchased the entire company for about $23B. The bottom line is that Sec. Paulson gave away $45B of the people’s money to Citigroup and felt compelled to give away another $200B to hide Citigroup’s actual dire position. He has received in return promises to repay the money (or dividends in the case of the preferred stock) from financial institutions. Sec. Paulson hoped these institutions would start making worthwhile loans to real businesses but did not require enforceable promises to do so in return for this $245B slice of public money.

What could Dodd and Frank do if they actually wanted to do something useful rather than ineffectually moan on television about how concerned they are? What can a member of the public ask them to do?

Messrs. Dodd and Frank could:

1. Write Sec. Paulson and tell him to send the Congress by the close of business on Tuesday, Dec. 2, 2008, three things:
a. a complete list of all funds expended, all guarantees issued, all commitments made and (where a specific institution was involved) the name of the institution.
b. a list of all over-the-counter derivatives (Collateralized Debt Obligations and Credit Default Swaps and any others which have been conjured into effect) held by any institution with a headquarters in the United States (given that it appears Sec. Paulson has not bothered to gather this information, he probably will not be able to produce it).
c. the same information as in part b. but for international institutions trading in the U.S. (If Sec. Paulson states in writing under penalty of perjury that he can produce the international data, he gets another week for the international data)

2. If Sec. Paulson fails to produce any item, serve a subpoena on him for the documents and his testimony to occur Dec. 4, 2008). Then serve one on the relevant institutions: every bank, brokerage, hedge fund, private equity fund, investment bank, and other institution the chairs think might have useful information. The subpoenas should require production of a list of certain information concerning the derivatives to which they are a party within one week (by Dec. 10, 2008).

For each OTC derivative (feel free to add your own suggestions), state:
1. The amount of the obligation
2. The term of the obligation (start date and end date)
3. The yardstick for the value of the derivative (e.g. creditworthiness of certain fully identified debt issued by AIG)
4. The amount paid for (or received for) the derivative
5. The maximum amount which the institution are obligated to pay (or which the institution can receive) under the terms of the derivative
6. The counterparty(ies)
7. The terms of any obligation to post additional collateral (or to receive additional collateral).
8. Whether the institution owns the underlying instrument (e.g., if the institution has a contract insuring $10M of certain identified AIG debt, does the institution own that amount of certain identified AIG debt)?

We seem to be stuck with it at least until January 20. How much additional damage Treasury Secretary Henry Paulson will do in that time remains to be seen. You may wish to try to limit that damage by urging the various Members of Congress to be involved actively rather than supinely accepting whatever unknowing uninquiring asset stripping seems to suit Henry Paulson’s fancy.


by Craig Reynolds

A turkey-shortened post this week:

Spam: Judge Awards $873M Fine for Spamming Facebook and Spam increasing again after shutdown of hosting company.

Google: I must occasionally sound like a Googleplex fanboy, so for counterpoint, several negative notes: Google cutting contractor workforce, Some question Google's 'rookie mistakes' with SearchWiki and Google admits that its iPhone voice search breaks Apple's rules.

Bio: biologists excited about video shot from an oil company's remotely operated submarine: Alien-like Squid With "Elbows" Filmed at Drilling Site, Top 10 Amazing Biology Videos and look at this fantastic picture of the bottom of a lilypad.

Technobits: wireless power from MIT The power to overcome a bad economy? --- Sources of Saturn Moon's Supersonic Water Jets Revealed --- 7 Beautiful Data Visualizations (With Videos) --- Tech of Yesteryear: Where Old Computers Find Their Final Resting Place.

Neal Vitale Reviews: Milk

5 stars out of 5

Director Gus Van Sant (My Own Private Idaho, Good Will Hunting) has made a brilliant film chronicling the abbreviated life of gay politician and activist Harvey Milk. Milk works well on virtually every level. An excellent cast is led by Sean Penn (All The King's Men, Mystic River), superb in the title role (one of the rare few in his career in which he smiles!). He is a charming blend of coy flirtatiousness, single-minded commitment to his causes, clever pragmatism, and conflicted insecurity and self-doubt. James Franco (Pineapple Express, the Spider-Man series), Emile Hirsch (Into The Wild, Speed Racer), Josh Brolin (W, No Country For Old Men), and Alison Pill (Pieces Of April, Dan In Real Life) all shine in supporting roles. Milk is a poignant, piercing, and often amusing reliving of an era that seems more distant than its thirty-odd years (the clothes, the music, the haircuts), yet absolutely current in many of its political dynamics. This film, coming on the heels of the both the Obama election and the passing of California's Proposition 8 banning same-sex marriage, could not be any more timely. Van Sant's restraint and subtlety as a director are commendable - though he clearly has a point of view, he never veers to the didactic or maudlin. He lets the unfolding of events tell the story, and shows the human emotions that ensue. Biopic filmmakers take note - Milk sets the standard by which the genre should now be measured.

Neal Vitale Reviews: Un Conte de Noel (A Christmas Tale)

1.5 stars out of 5

This pretentious, interminable, and pointless film has somehow collected festival accolades and rave reviews (Kenneth Turan in the Los Angeles Times described it as "nothing could be more energizing, more captivating, more pure pleasure on screen;" Entertainment Weekly, in giving it an "A" grade, gushed that "the movie is enchanting"). Un Conte de Noel is the story of the extended, multi-generational Vuillard family reuniting at Christmastime and dealing with myriad illnesses, neuroses, conflicts, failures, bad decisions, etc. While it is nice to see how good the 65-year-old Catherine Deneuve looks as the ailing matriarch, and there are a few chuckles, mostly thanks to Mathieu Amalric (Le Scaphandre et le Papillon [The Diving Bell And The Butterfly]) as a dissolute son, there is nothing to recommend either this unpleasant family or their talky, self-indulgent portrait.

Neal Vitale Reviews (on DVD): Die Falscher (The Counterfeiters)

4 stars out of 5

The 2007 Oscar winner for Best Foreign Language Film is a powerful and difficult-to-watch true story of World War II prisoners-of-war escaping death in German concentration camps by participating in the largest-ever counterfeiting schemes. One lesser-known Nazi war strategy was to attack the Allied powers by flooding world markets with fake dollars and pounds, thereby hobbling their economies. Much of the cinematic terrain here is familiar, portrayed in numerous Holocaust -based films, but the counterfeiting theme adds a different and fresh dimension. The moral dilemma of collaboration and survival versus resistance and potential death is central to Die Falscher, and the creative balancing act between the two positions gives the film its energy and impact.

End of Boom, No. 1 on your Birthday, Wireless Power Transmission, Dan Grobstein File

REALLY GOOD, REALLY IMPORTANT: The End of Wall Street's Boom - National Business News - (by the author of Liar's Poker)

What was the No. 1 song on the Billboard charts the day you were born? Find out here.

Hard at work at my alma mater, they've come up with the stuff of science fiction, only in real life: Transmitting power without wires for short distances.


Dan Grobstein File

  • Government Outsourcing: Another Terrible Idea
  • Dan got 31 out of 33: 93.94% (as did Paul) on this civic literacy quiz. quote:

    US elected officials scored abysmally on a test measuring their civic knowledge, with an average grade of just 44 percent, the group that organized the exam said Thursday.

    Ordinary citizens did not fare much better, scoring just 49 percent correct on the 33 exam questions compiled by the Intercollegiate Studies Institute (ISI).
  • The bailout has now cost more than World War II.


If this sounds familiar, it is because, in the great tradition of Herb Caen and Jon Carroll, I am recycling my nine previous Thanksgiving messages. I missed a year--maybe I was too distracted by teaching.

Once again this year we will all be in Orinda, along with my nephew Paul. Who knows what wackiness will ensue this year. Vicki and Marlow both have to work the week of Thanksgiving, but for the second time, I have the whole week off. I pay for it at the end of the school year, which is now the second week of June instead of the first.

I know I have a lot to be thankful for. I have a job that still gets better every year, I have my health, such as it is, and I have my family. I can't imagine why I would bother getting out of bed each morning if not for my wife and my two girls.

Regular readers know I earned my teaching credential and now teach 8th grade US History at a middle school. It is still true that I have not been this excited and challenged since 1974, when I started working as a professional journalist. This is my sixth year. Each year gets easier, and I get better, but it never gets easy.

Still, my most important role is as husband to Vicki and father to Marlow and Rae. Of course, Marlow is now has an apartment in the city and works now, so I only see her once in a while. Rae is also in her own apartment.

I think we all lose perspective sometimes, forget what's really important. We get wrapped up in our jobs and spend too much time working on them, both at home and in the office.

The years I spent full-time with my girls are priceless. The time I spend with them now is priceless as well.

Not everyone can work in a home office--and I don't any more.

But no matter where you work, the next time you have to make the tough call between the meeting and the soccer game, go to the soccer game. You'll never regret it. I am thankful for my family. Be thankful for yours.

Also give thanks for your friends and your good fortune. Spread that good fortune around in any way you can. I have much to be thankful for this holiday season, as I have had every year of my life.

I am thankful that I have two living loving parents and a loving brother. I am thankful for my loving and understanding wife, and for the two most wonderful daughters I could have imagined, both of them turning into vibrant, intelligent young women before my very eyes.

I am thankful for every sunrise and sunset I get to see, every moment I get to be in, every flower I try so desperately to stop and smell. I am thankful that I can move closer every day to living a life in balance. Every morning, I am grateful to be alive. Not a bad way to start the day. For reasons I don't want to detail, I am extremely grateful just to be alive.

I am thankful for 235; up five pounds, but only five pounds, and down 65 from my peak. I am thankful for the fact that I will still be near that weight next year at Thanksgiving.

Every week at St. Stephen's Episcopal Church in Orinda, the priest concludes the service with this homily. The provenance seems uncertain; the Internet lists several attributions. All I know is, it touches me every time I hear it and is sound advice for life:

Remember that life is short and we have too little time to gladden the hearts of those who travel the way with us. So be quick to be kind, make haste to love, and may the blessing of God be with you now and always."

It has been with me. I hope it is with you. In the meantime, I am thankful, finally, for each and every one of you reading this column. I hope you have a great Thanksgiving!


by Craig Reynolds

Vista v. Microsoft: how Microsoft managed to shoot itself in the foot by fudging the minimum system requirements: Vista Capable Fiasco 'Destroyed' Microsoft's Credibility, Insider E-Mails Say and Microsoft Co-Prez Warned Colleagues 'Vista Capable' Was Misleading.

Flash v. iPhone: don't hold your breath: Why Apple Will Never Permit Adobe Flash on the iPhone and Flash Coming Soon to RIM, Nokia, and G1; Apple Remains Unconvinced.

Space: we learned earlier this year that Mars has water as permafrost near the poles. Turns out there is also lots of water further south: Red (Planet) Alert: Massive Subsurface Glaciers Discovered on Mars. Talk about a bad day: exploding grease guns and lost baggage: Spacewalker expresses remorse for lost tool bag.

OLPC: the One Laptop Per Child foundation brought back its purchase and donate program: OLPC Resumes 'Give One, Get One' XO Laptop Sale, Amazon Unveils Give One, Get One Laptop Store and One Laptop Per Child Gets a Marketing Push.

Gender: Maybe the Meltdown’s a Guy Thing and The Forces Driving Women Out of Computer Science.

History: last week I mentioned the 40th anniversary of Alan Kay's DynaBook, not realizing that its also been 40 years since Doug Engelbart's historic demo of interaction with a computer (a remote one at that!): Engelbart and the Dawn of Interactive Computing: SRI's Revolutionary 1968 Demo – A 40th Anniversary Celebration. More along those lines: Top 25 days in computing history,


Aug 26, 2014: replacement link for Top 25 Days In Computing History



and for a nice survey of earlier technology: Slideshow: Victorian Hacking (note slide 15: shades of The Difference Engine).

Technobits: Law Professor Fires Back at Music Industry --- Is There a Privacy Risk in Google Flu Trends? --- How Google's Ear Hears --- PlayStation 3 Processor Speeds Financial-Risk Calculation --- Researcher: Self-driving cars could save U.S. auto industry --- Computing From Weather to Warcraft --- Study reminds us why we're always fixing our parents' PCs --- Gulf War illness is real, report finds --- All Hail the Apple Maggot! --- Regenerating a Mammoth for $10 Million --- MontyPython's Channel.

Neal Vitale Reviews: Slumdog Millionaire

4 stars out of 5

British director Danny Boyle (Trainspotting, 28 Days Later, Sunshine) has made a career of fresh, exciting takes on familiar, well-worn film terrain. Slumdog Millionaire looks - via flashbacks and flash-forwards - at two brothers and a girl, all orphaned young, as their divergent lives intersect on the path to early adulthood. But the setting is anything but pedestrian - latter-day Mumbai - and we are enveloped in the saturated colors, the chaotic swirl, and the dangerous underbelly of mainstream Indian life. Slumdog Millionaire is vibrant and nervy, driven by a soundtrack of Indian pop and dance music, and is full of energy even when the plotline veers toward predictability. It is easily one of the most satisfying and fun films of the year.