Anyone have photos of Goldman or Sachs? Bear or Stearns?
April 26

After Iceland's bankers drank the Friedmanite Kool-Aid and led the economy into collapse, Icelandic men are surprisingly relieved after seeing the bankers' faces: http://www.nytimes.com/imagepages/2009/04/26/world/26icelandB.ca0.ready.html

The biggest lie of the financial collapse
April 5

The biggest lie of the collapse of the financial industry is we can't understand it. It's supposedly so complex, only the Wall Street high rollers can figure it out, and they can't be bothered with the anger of the wee folk in the hinterlands, by which I mean those of us more than a couple blocks from Merrill Lynch HQ. Can we understand this stuff? Can I get a "Yes We Can!", because we can understand this stuff. It's not intuitive certainly, and a bit of homework is required, but please don't think for a second you have to take some CNBC pundit's word for anything.

So fellow wee folk, I hardly propose to explain everything about the banking crisis in a blog post, but I do propose to explain a couple terms you've have probably heard but not heard explained, just to prove that you can understand what's going on.

A collateralized debt obligation (CDO) is basically of bunch of debts bundled together. Instead of buying one mortgage, paying off the lender in exchange for the right to collect the balance, some companies bought a bunch of mortgages, stuck them together, and sold them as a CDO. Supposedly this reduced risk because whereas buying one mortgage meant losing the whole investment if the borrower couldn't pay and the house couldn't be sold, buying a CDO meant losing only a little of the investment if one mortgage went bad. Buyers could even buy pieces of CDOs, so they owned a fraction of many different debts. Great idea, provided almost all those mortgages were low risk, which is what buyers of CDOs assumed. However, the demand for CDOs meant lenders lent to riskier and riskier borrowers in order to generate the mortgages they resold, so the CDOs were full bad debts.

A credit default swap (CDS) is an insurance policy on a debt. Let's say you grant a mortgage but you have doubts the borrower will pay it off, or you buy corporate bonds but you have doubts the corporation will pay them off. You buy a CDS, and pay the insurer a premium, which obligates the insurer to pay back the debt if the debtor defaults. So when the corporation goes into bankruptcy and doesn't pay its bondholders, the bondholders go to the insurance company and ask for their money. This is great for the insurance company if almost all the debtors are good for it, and great for the CDS buyer if the debtor defaults. Of course, if lots of debtors default, as happened, and the insurer assumed it wouldn't have to pay off on many policies and didn't keep any cash on hand, as happened, there is a crisis.

One more concept if I may, but again you'll see you can understand this. You may have heard the term "naked" like in "naked CDS". It means basically making a bet without putting up any money. A naked CDS was purchased by someone who did not own that which they insured, so they would not lose their investment if a debt went bad, but they did hope to get paid off by the insurer. It would be as if we could buy fire insurance on someone else's house, perhaps thinking it was a firetrap that was likely to burn, so if it burns we get paid the value of the house, but if it doesn't, we lose our premiums. So we go to an insurance company to buy a policy on someone else's house, and they think it won't ever burn, and sell us the policy. Thinking this is easy money, they sell insurance on that house to ten people, even though, if it burns, they can pay off only one or two, which means they're insolvent, and all their policy holders suddenly have no insurance on their houses. You can see why this isn't be legal. It is legal with CDSs however.

So CDOs have gone bad in huge numbers, AIG can't pay off more than a tiny fraction of the CDSs they sold on those CDOs, so CDS buyers can't get paid when their CDOs go bad, so their risk is suddenly much higher, and the greater risk makes their CDOs worth much less. Those counting the former value of their CDOs among their assets find they may not have enough assets to stay in business.

And yes, there's more to it than that. Much more; this was just the start. I never said it was easy, just comprehensible. So now comes the homework.

The best explanation of how the subprime mortgage market grew and blew up was broadcast on This American Life, The Giant Pool of Money. In fact, this American Life has been the single best source for understanding how the mortgage industry devolved into such a crisis. They followed that first program with Another Frightening Show About the Economy and Bad Bank. They have transcripts for those just not into audio, and MPR carries the program at 3 PM Saturday and 8 PM Sunday.

To understand just what AIG did to bring so much anger upon itself, read Matt Taibi's article at Rolling Stone, The Big Takeover. You'll get angry at what the people at the top of Wall Street were pulling and are pulling, but more important, you'll understand it. Then reward yourself with a treat: you knew something was wrong about AIG exec Jake DeSantis complaining of his bad treatment over his bonus, but it was hard to put your finger on it. Taibbi put his whole fist on it.

Feel free to send more useful explanations for laymen.

George Will wins Dead Polar Bear Award
February 17

Conservative columnist George Will wins a Dead Polar Bear Award for his latest excursion into global warming denial. He entered into an extensive version of that common conservative talking point claiming that predictions of global warming must be wrong because there were news reports in the 1970's of global cooling maybe leading to another ice age. What's wrong with that logic? The problem is a fallacy common to anti-environmentalists. They ignore that all warnings of environmental problems assume a trend continues and nothing is done to mitigate the problem.

In this specific instance, warning of global cooling came from particulate pollution: basically soot. Particulates block sunlight, and by the early 70's enough particulates were in the atmosphere to start lowering the global temperature. Particulate pollution was increasing in the 1960's and early 70's. If that trend had continued, even with the increasing emissions of greenhouse gases, the effect was bound to be lower temperatures, possibly even a new ice age. So what went wrong with the prediction? Pollution controls. The spewing of particulate pollution from smokestacks and tailpipes was reduced as scientists warned they needed to be.

But Will didn't tell his readers that. Deniers never tell anyone that. It could be they don't know, since science isn't exactly their strong point. Maybe some are lying. I don't know. I do know, thanks to TPMMuckraker, that Will completely misstated a finding by University of Illinois' Arctic Climate Research Center. He said they said sea ice area was the same as 1979. They put out a statement saying they had said the opposite, it's definitely shrunk.

Maybe Will didn't lie. Probably not, since I don't sense he's dishonest. He must have believed a lie however, and didn't bother checking it. That's still good enough for a Dead Polar Bear Award.

Happy Darwin Lincoln Days
February 12

Today is the 200th anniversary of the birth of Charles Darwin and Abraham Lincoln. Their simultaneous births were a coincidence of course, one of those oddities of history like John Adams and Thomas Jefferson dying on the same day. A less obvious coincidence that both men had in mind the ending of slavery. Lincoln's story is probably the better known, running as a moderate abolitionist, and finding the partial abolition of slavery helped to win the war. Darwin too, it turns out, was also an abolitionist. His researches were partly in response to the social Darwinists of his time. They weren't called "social Darwinists" yet of course, but the attitudes were exactly the same, social superiority dressed up with pseudoscience that rationalized privilege and oppression. Darwin hoped to show that whites and blacks were the same species, taking away any rational claim that blacks were inherently inferior and fit only as slaves. Social Darwinism must have pained him. Far from being the natural application of his theories, it was a self-serving twisting with no real scientific basis, and scientists who tried to apply natural selection to human society never showed the great care to detail Darwin showed.

What might seem most surprising about Darwin was that he wasn't the one who came up with the idea of evolution. It had been around for decades, and even Darwin's grandfather had suggested it. By the time Darwin published On the Origin of Species, many scientists had already accepted evolution was happening, or at least come as close to accepting it when they couldn't prove it. Mostly, they lacked a mechanism that could cause one species to change into another. That's what Darwin provided. Natural selection offered an explanation of the changes observed could have occurred, and suggested evolution was still in progress.

What Darwin gave us was more than just filling in some data, more even than providing biology the solid theoretical basis Newton gave physics or Galileo gave astronomy. Darwin showed that life could be explained with resort to the supernatural. He showed that the natural explanations relied on by science, abolishing superstition form one phenomena after another, could be applied to the very core questions of what we are and how we got here. No need for revelation, divination, or prophesy. This must be what religion can never forgive Darwin for, why is name is darker than even Galileo and Copernicus, more than geologists who figured out the age of the Earth and astronomers who worked out the age of the universe.

Of course, though Darwin showed that natural explanations suffice to explain life itself, he didn't explain everything. We still can't explain everything. We might not ever explain everything.

So Happy Darwin Day to all of who accept that you don't have and never will have all the answer.

Unspinning the stimulus
February 4

It's a shame Republican spin and half-truths are decreasing public support for the stimulus bill. They call for tax cuts for big business, but don't bother mentioning that money-losing businesses -- the great quantity of which is one of the problems we're trying to address -- don't have profits to tax, so a cut won't help them. Profitable businesses already can't sell what they can make, so tax cuts won't cause them to expand facilities or hire more workers.

Republicans also pick a few small items in a $800 billion bill that don't make immediate sense and pretend they're examples of what the whole bill is like. They cite the $44 million for the Dept. of Agriculture building, but don't mention that some unemployed people will have to do that work and get a paycheck for doing it, nor that delayed maintenance will just cost more later. They call the $200 million work on the Capitol Mall "resodding", but don't mention that this "resodding" would have included fixing the crumbling foundations of our national monuments. A lot of people would have gotten paychecks for doing that work, with the added benefit of not having to watch memorials slide off into the Potomac.

The best way to stimulate the economy long term is to give people a paycheck to do some work. Plenty of work needs to be done regardless. The best way to answer the nonsense that this is government "make work" is to point out that the work will be used for a long time. If the Capitol Mall and Agriculture building are a little theoretical, find something built by New Deal programs that are still standing. Locally, Minneapolis parks had extensive work by the WPA. Until extensive work a few years ago, I used to see "W.P.A" in the sidewalks of Minnehaha Park. The retaining walls along along the creek are about to be rebuilt --- in other words, these walls lasted 70 years. Some "make work".

And one warning, to those who thought the Republican Party was moribund: if they're coming this close to winning the first debate of the year when they're so clearly wrong, their ability to mislead short term for tactical purposes appears undiminished.

More scared of their sergeants and officers
February 1

The story of Rep. Phil Gingrey apologizing for daring to criticize Rush Limbaugh seems to fit something many of us in the left have thought we were seeing from congressional Republicans. They refuse to compromise with Democrats, but never dare defy the talk radio right. I worked at long time at Historic Fort Snelling here in the Twin Cities where we portrayed the early 19th century army, and I've done other historical reenacting from the eras when soldiers were trained to fight in straight lines in open battles. Republicans remind me of those soldiers, and not because they rarely see a war they don't support, or like to use warlike language to describe politics(opponents are "the enemy" and activists are "warriors"). Oddly enough, soldiers in the era of line infantry tactics didn't want to stand there and get shot at, and officers tended to look at enlisted men as the lowest part of society who understood nothign but force anyway. They therefore made discipline very harsh. They literally wanted soldiers to be more afraid of their sergeants and officers than of the enemy. That way, if soldiers were tempted to break and run, they would remember that though the enemy might kill them, their own superiors definitely would kill them, maybe on the spot, maybe by painful execution later.

Republican congressmen aren't going to be shot even by their own side, but I think we see now why they consistently refuse any sorts of compromise. It isn't pure stubbornness, or a stupid failure to see how they've been hurt electorally, or even an utter fearlessness about defending principled but hopeless positions. They're more scared of their base and the big names in talk radio than they are of Democrats. Democrats can outvote them in Congress, but not in the Republican primary.

Maybe we need to start a "Free the Republicans" campaign.