Some links

Robert Reich

Barry Ritholtz

Angry Bear

The Oil Drum

Mortgage Lender Implodometer

These guys are decidedly not all cut from the same ideological cloth. The "implodometer" folks seem to be pretty much Libertarian in most of their analysis, for example, while Reich's economic analyses tend to the left. However, they all have offered some value in my autodidactic efforts to figure out what's up with what's going down.

Case No. 08-13555: Lehman and the Norwegians

When Lehman Brothers filed for bankruptcy last week (case No. 08-13555), all of its equity value and most of the value of its bonds evaporated. So folks who had invested in those securities got a hefty dose of education on risk.

The Wall Street Journal reports:

Among the biggest [losers] was Norway's government pension fund, which invests the country's surplus oil revenue. As of the end of 2007, the most recent data available, the fund owned more than $800 million worth of Lehman bonds and stock.

But wait! there's more!

The web of interconnections among our financial institutions means that the demise of Lehman put insurers of corporate bonds in a sticky little bind: The WSJ article says one estimate had it that bond insurers had to find an extra $140 billion in collateral to meet contractual obligations after Lehman became an ex-corporation and its paper was only good for the recycle bin. (Or maybe an eBay curio auction) Our new national insurance company, AIG, happened to hold obligations to guarantee $400 billion in bonds, so the squeeze was on.

Guess what? We own it now. Only cost us $85 billion.

Well, a busy little AIG office in London helped us with the purchase. Yesterday, the NY Times reported that an AIG London branch called AIG Financial Products delivered tremendous profits to its parent company (and amazing sums to its managers, too). They delivered this money because of credit default swaps they entered into with institutions owning mortgage backed securities, and all was just peachy until it wasn't. The eventual collapse set in motion a chain of events that required AIG to come up with billions in collateral. Billions it didn't have and couldn't borrow because the collapse of Lehman (along with a lot of other things that stink in the American financial market) made potential lenders jittery about buying AIG debt obligations.

Together with the cascade set off by Lehman's collapse -- a cascade that injured the retirement accounts of Oslo office workers -- the crisis in AIG's London subsidiary made every US taxpayer into a stakeholder in the world's largest insurance firm.

The interweaving of the threads of this disaster are simply astonishing. The fallout hurts us all. We have to stop it.

Bailout? Maybe later

So the House voted down the bailout. Now what?

Well, how about a decline of almost 9% in the value of the S&P 500 in a single day? The aggregate value of 500 of the biggest corporations in the US economy declined 8.79% on the news of the failure of the House of Representatives to act. That's a record, by the way. To get an idea of what that means, consider that the index represents approximately 75% of the value of the total US stock market.

Wonkette advises everyone buy canned goods.

I'm about to start working on a fall garden.

Channeling Barthes

Todd Gitlin has discovered his inner French semiotician.


Frolicking in the playground of cultural myths, Gitlin concludes:

The warrior turned lawman confronts the community organizer turned law professor. The sheriff (who married the heiress) wrestles with the outsider who rode into town and made a place for himself. No wonder this race is thrilling and tense. America is struggling to fasten a name on its soul.

I anticipate some really infuriating campaign ads coming out of this analysis.

An allegory

Reminds me of Paulson's bailout proposal. Or maybe Palin's veep candidacy and what it's doing for the McCain campaign. How about mortgage backed securities and the workings of Wall Street?

Like Homer Simpson said, it works on so many levels.

The fix is in

Time traveler and noted economic policy screwup John McCain has already won a contest that won't happen for several hours. Given his obvious super powers, he should be president. Or land a leading role on Heroes. Let's give him both jobs. That way he could destroy the real world and destroy the TV world, too.

Hi John, 'bye WaMu

Once I did buy WaMu, but I sold. Thanks be.

Federal regulators seized Washington Mutual tonight. WaMu was the largest savings and loan in the country. Now its shares are worthless. The Feds arranged for JPMorgan Chase to buy most of the carcass tonight. They will take control of all the dead thrift's branches tomorrow. The gubment will hold onto some of the bones and maybe a little bag of stew meat.

One report has it that JPMorgan Chase shelled out $1.9 billion for their portion.

WaMu has been among the walking dead for months, but still it's odd regulators moved on a Thursday night. They almost always do stuff like this on Fridays, so there's a day or more for the jitters to settle before financial markets open. Tomorrow's trading on the NYSE might get pretty hairy.

Which leads me to speculate...

Hank Paulson has been working late hours for the past seven days with the likes of Chris Dodd and Barney Frank. He's been giving in as seemed necessary and prudent, even to the point of interfering with executive pay in the "private" sector. This morning they looked to be done; at least in the broad outlines they had a plan.

Then McCain blunders into town with his "principles" and fires up a passel of House Republican ideologues to beat their plan to a bloody pulp before his very eyes. Paulson had already explained why insurance schemes and removing the tax on capital gains was not going to work. It's like wishing upon a star when the train's derailed. But that's basically what the ideologues are demanding now with McCain's tacit blessing. Remember that McCain has had not contact with Paulson or anybody working on the fix during any of this process.

So Paulson goes all Terminator in a last attempt to convince the extremists that their platitudes are less than irrelevant. He calls in his regulator badasses and gives them marching orders: Take out WaMu. Do it now. Watch the blood on Wall Street.

Sure would have been better to have had a debate.

What went wrong with American finance

Via a link at Barry Ritholtz's Big Picture blog, there's a clear article about why things are so screwed up here.

Ritholtz likes this part:

There has been a “domino-like” character to the financial crisis that is now readily apparent to all:

• the bubble in home prices, fueled by the ready availability of credit, resulted in an underestimate of the risks of residential real estate;
• the peaking of residential home prices in 2006, combined with lax lending standards were followed by a very high rate of delinquencies on subprime mortgages in 2007 and a rising rate of delinquencies on prime mortgages;
• losses thereafter on the complex “Collateralized Debt Obligations” (CDOs) that were backed by these mortgages;
• increased liabilities by the many financial institutions (banks, investment banks, insurance companies, and hedge funds) that issued “credit default swaps” contracts (CDS) that insured the CDOs;
• losses suffered by financial institutions that held CDOs and/or that issued CDS’s;
• cutbacks in credit extended by highly leveraged lenders that suffered these losses.

These events, individually and in combination, have led to the bear stock market, whose downward slide accelerated Monday September 15 through mid day Thursday the 18, after Lehman Brothers filed for bankruptcy and the Federal Reserve loaned AIG $85 billion to keep it afloat—although the market quickly recovered at the end of the week after the Administration’s massive mortgage securities rescue initiative was announced.

What's interesting to me this evening is something Bill Clinton said the other night on Letterman (of all places). When the tech bubble burst back in 2000-2001, the Fed pumped liquidity into the economy to shore things up. Cheap money came pouring into the economy. But the only reasonable place to spend the money was the housing market because the US economy had no viable initiatives in alternative technologies. Think solar, wind, biomass and geothermal energy, for example. Or maybe radical new designs to promote auto efficiency or office building efficiency. The surviving tech equities were perceived as bad bets, guilty by association with Web Van, etc. The US auto industry looked pathetic -- innovation having become a synonym for selling out management. Consumer staples were their usual boring selves -- okay, but not a path to big bucks returns.

So the excess liquidity went into real estate. According to this analysis, Greenspan's Fed set the stage for our current crisis by making it possible for the housing bubble to take off. Innovation not in designing energy technology, but in designing more wacky credit default swaps fueled a lot of the rise in the value of the market for a few years. The really smart money went into Byzantine webs of real estate financial dealings, inflating both home values and the values of derivatives based on them until... Well, you know.

Accompanying the burst of financial innovation that propped up the bubble was a dearth of oversight that aided and abetted its rise. The guys at the Brookings Institution, whose work is quoted above, point out that both industry rating agencies (private enterprise people who rate secuities for a fee) and the SEC and other governmental financial regulators were not equipped to deal with what the new financial market was doing.

In retrospect, the crash was made to order.

McCain has pig lips

What a load of vacuous posturing. He's calling for the cancellation of Friday's debate. He's "suspending" his campaign. He's pretending to be worried for all us plebes.

And to think I wrote a little while ago about somebody really struggling with the conumdrum of being and representing.

Seems looking like something is enough for McCain.

Kara Walker in Fort Worth

Kara Walker's lecture at the Modern Art Museum of Fort Worth last night was sold out. Think about that a moment. I'm talking about Cow Town, Texas.

We were a little late getting there and it wasn't clear we'd get in. Tickets were distributed beginning at 5:00. We rolled in at 5:20 to a line of what seemed like hundreds of people. When we got to within a dozen folks of the ticket desk, word came down that all the seats in the auditorium AND in the overflow area in the museum's cafe were taken. I'd called from home, though, and my press credentials did their job.

Walker was an uncomfortable speaker. Talking doesn't come easily for her. It's as though she doesn't trust language to carry her intended meanings. Or rather the one-step-removed meanings of our language can't convey the direct, unmediated content she wants us to experience. She spoke of her traveling show (Minneapolis, Paris, New York, an now Fort Worth) as a "wandering soul," and remarked that viewing this latest installment surprised her: "I'm not the person I think I am."

It became apparent that she is engaged in a struggle to come to grips with her relationship to the discourse of painting and what it means to her "black body." My notes include references to "deeply felt ambivalence," "contradictory impulses," and "unstable identity." Abstract discussions of being and representing might be stimulating pastimes. Walker is out to embody the discussion, to enact it in flesh.

On the way home, I told my companion that my notes from the question and answer period included "the white guy talks too much."

"Well, duh," she replied.

Call it insurance

I missed this from Floyd Norris last Friday:

The government will offer retroactive insurance to money market funds to assure they don’t lose money on the risky assets they bought.

Calling it insurance is a great idea. Think of the suffering that could have been avoided in New Orleans if the government had offered retroactive flood insurance after Katrina hit.

And now that we're up to something like a trillion clams of public money to fix the failed financials, I do have to wonder what that much would have done for the Crescent City.

William Lamson

The current William Lamson show at Marty Walker Gallery is a treat: quick, funny, and deeply odd. Sometimes disturbing, too. Imagine a soda can tied to helium balloons. Somebody shoots the can from off camera and it bleeds out. It loses weight and the balloons levitate it as the last of the fluid inside drips on the floor. A dumb kid's science experiment about mass and buoyancy becomes a poem about death.

Some samples of his video "actions" are here.

Ramblin' Jack Elliott

Some friends and I took in a performance by the legendary Ramblin' Jack Elliott this evening at a place in Winnsboro, TX, called the Crossroads. Elliott has always been a part of the cultural landscape for as long as I've been interested in American music. Almost a historical force.

His two short sets tonight were smart, funny and incredibly learned. He cracked jokes about Bob Dylan ("I could see the faint light in the room shining on his halo"), Thoreau, Richard Farina (called him "Dick"), Henry Miller, and Woody Guthrie. He sang songs by Jelly Roll Martin, Guthrie, Dylan, the Carter Family, and others. The man can play guitar amazingly well, like a bluesman's second voice. Mostly he used it as a performing partner -- doing a series of duets with an old, dramatic friend. And his stage presence was a delight beyond his instrumental abilities. Shifting from a blues number to the Carters' "Engine 143" involved a change in world view. You could see it. Sense it. He wasn't just doing a song Momma Maybelle once sang. He was connected to the song and the people whose lives made the song make sense -- at least as a performance. I was reminded of Greil Marcus' Old Weird America and an almost unspeakable connection to a deeply strange current in the American soul.

Jack Elliott is 77 years old, I believe. And his endurance isn't so great anymore. At the end of his second set the audience (including me) applauded long enough to get an encore. But his pipes were worn out for the cover of Dylan's "Don't Think Twice" that followed. The number started off beautifully. In fact he helped me understand something of its value after all the years since I first heard it as an adolscent. But he faded before it was over, and the wonder diminished to hoping he'd get through it. He did, of course. He's a pro. But I wanted to hear him do the song when he was fresh.

Regardless, our evening was extraordinary. I snapped the picture up top while Elliott autographed CD's and hats and things after his show. It's a camera phone picture, so the quality is pretty bad. The event was so much better.

Hand made vacuum tube video

Fabrication d'une lampe triode
by F2FO

A friend sent this to me last night. With a hot cup of good coffee, it's an excellent way to wake up in the morning. Worked for me, anyhow. But I have a couple of old Eicos and Dynacos lying around here and there.

Yabba-dabba-do!

Republican vice presidential nominee Sarah Palin claims that dinosaurs and humans lived at the same time. To mangle a Lewis Black joke, she thinks "The Flintstones" was a documentary.

(hat tip to Andrew Sullivan)

Fun pastime

I'll be writing my garbanzos off in the coming couple of days. One topic I must cover is William Lamson. His short balloon killer videos are really good stuff.

But if you need something to occupy your time over the weekend, let me suggest you read up on synthetic CDOs-squared, which are basically collateralized debt obligations whose underlying securities are not anything ordinary like mortgages or bonds, but are themselves collateralized debt obligations. Oftentimes the lower level CDOs are created solely so that they can be further bundled into their squared cousins. This does not violate any known Wall Street incest laws.

Once you are able to properly assign a fair market value to synthetic CDOs-squared, Hank Paulson has a really good job just lying around waiting for you. (Hint: they're decidedly not really good stuff.)

Here's a rich one

Rich in so many ways. Cindy Lou McCain speaking at the RNC:

Despite our challenges our hearts are still alive with hope and belief in our individual ability to make things right if only the Federal government would get itself under control and out of our way.

Ideologues cheered and cheered. Like it was 1980 and gubment was in the way of reasonable bidness activities. All those pesky regulations.

So Johnny Lou McCain said on Tuesday:

"I do not believe that the American taxpayer should be on the hook for AIG," McCain said Tuesday morning on NBC's "Today" show. "We cannot have the taxpayers bail out AIG or anybody else."

He said that because just about the only information he can muster on economic issues derives from the same ideology that worked to dismantle the regulation of bidness dealings beginning with his Reagan footsoldier days.

But guess what? It's 2008! The footsoldier finds himself on a battleground for which he is woefully unprepared. Nowadays bidness, not gubment, is in the way of bidness because bidness has invented a shitload of new kinds of bidness toxicity, and there ain't no regulations in sight.

Turns out gubment had to get in the way this time around. And $85 billion later, after the Fed bought us all a failed insurance company, Johnny Lou McCain said:

"On the bailout itself, I didn't want to do that," he said on ABC's "Good Morning America." "But there were literally millions of people whose retirement, whose investments, whose insurance were at risk here, and they were going to have their lives destroyed."

According to the senator from Arizona, the presidential candidate for the party of bidness, the bailout of AIG happened because people's investments were at risk. Some kinda compassionate conservative thing, maybe.

Ummm. No.

Mutual funds like those sponsored by AIG Sun Ameria hold a range of securities in assorted sectors of the economy. Those holdings are the property of the funds' shareholders and are not counted as assets of the sponsoring company. The failure of AIG would have made a mess of things, but it would not have resulted in losses for people holding shares of mutual funds sponsored by AIG in retirement accounts or other investment accounts for which AIG was basically a service provider.

What McCain said was wrong.

The hideously huge public cash infusion that happened in the case of AIG was motivated not by compassion for individuals who might be directly injured by the company's failure. It was inspired by fear -- fear of the consequences in America and abroad of a rolling blackout across all financial institutions everywhere. The company is so big and its dealings are distributed so wide and deep in finances around the world that even imagining its collapse was unbearable for Bernanke and Paulson. Too big to fail? Yep. Too farking big to fail, in fact.

And now we are left to wonder at it all. And especially we are left to wonder whether the presidential candidate from the party of bidness has even a tiny clue about the economy beyond Reaganite cliches and muddled musings.

My guess is no.

Bailout

AIG gets its capital. If it agrees to sell itself to the Feds. It gets $85 billion in exchange for 80% of equity.

Good thing we don't live in a socialist country where the government owns the economic engines that drive our fortunes. No sirree. We have free markets here in the USA. Unless a big bad insurance corporation gets itself in a bigger badder bind that promises to kill Santa and all his reindeer with a global tsunami of financial destruction. Can't have that, children.

I gotta figure out who gets the Pig Lips Prize on this one, but it just might be John McCain's turn for his idiotic, feckless, faux populist cant about Wall Street fat cats in this morning's remarks on who's to blame for the credit meltdown.

I await with pleasure the video of big bad John kicking serious Carly Fiorina beeehind on account of her $42 million severance deal with HP.

It's getting bad

AIG, America’s largest insurance company, is down over 21% today. Its losses for the year are impressive: on Sept. 17, 2007, it closed at just under $65 a share. It closed today at $3.75. At one point shares traded at a buck and a quarter a pop.

Because of its exposure to securities (and I use that term only in its most technical sense) based on subprime mortgages, its credit rating has been downgraded: “Standard & Poor's lowered its rating on AIG to A- from AA-, and Moody's Investors Service cut its rating to A2 from Aa3. Fitch Ratings and AM Best also downgraded AIG.”

The downward move in its credit rating will trigger the need to provide an additional $14.5 billion or more in collateral (above already immense collateral obligations) to shore up insurance contracts, including derivatives like credit default swaps. It also may be enough of a slap to their credit worthiness that customers will begin to cancel policies because of fear AIG won’t be able to cover their obligations. The downgrade will also mean that any debt issued by AIG going forward will come at a higher premium and that principle on outstanding debt is going to be worth less than its original face value. If you own bonds issued by AIG, you lost money overnight. Individuals, mutual funds, and financial institutions worldwide own AIG paper. Even if you don’t directly own the company’s bonds, you might be exposed to them. The potential that they might default makes more borrowing more expensive.

This is a downward spiral.

What’s going on?

From the NY Times:

“Most of A.I.G.’s businesses are healthy, but its troubles grew from one unit that dealt in complex debt securities and derivatives and now threatens to drain cash more quickly than the financing package can be assembled.”

I have no idea whether AIG can survive. The necessary cash infusion numbers are astronomical. Up to $75 billion in some reports. The impact on the rest of the financial world is going to be monstrous. AIG has expensive dealings with banks and financial institutions and governments all over the world. One BBC report has it that AIG insures more than $300 billion in mortgages held by European banks. Banks in Hong Kong, Sydney, Seoul, Toronto and Frankfurt will be hurt if the company fails.

Ideas for short term solutions are above my pay grade, to borrow a phrase. Most likely they will involve borrowing more than phrases.

But going forward through the wreckage of this week one thing is abundantly clear. The financial system is in dire need of a way to regulate the derivatives market. We must have a transparent way to assign real value to the financial instruments which are at the heart of this disaster. Private credit ratings companies and government regulators have utterly failed all of us.

Until today, I wasn’t that worried about the severity of this recession. It was bad, to be sure. But I could imagine a way out of the swamp. Now the alligators have moved in among us and the swamp is becoming malarial.

More pig lips

But who gets the pig-lippy prize?

The NY Times reports tonight that both Merrill Lynch and Lehman Brothers will cease to exist tomorrow:

In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, said it would seek bankruptcy protection and hurtled toward liquidation after it failed to find a buyer.

The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of hundreds of billions of dollars in losses because of bad mortgage finance and real estate investments.

To this assessment I hasten to add the clarification that the "bad mortgage finance and real estate investments" were basically idiotic bets on derivatives that were structured in such a way that small down turns in mortgage valuations were multiplied to toxic levels. And the contracts involved will be around for a long time.

In the coming news cycle we will hear plenty about how the blame for this debacle ought to be spread around to both political parties and their policies devoted to maximizing home ownership. Okay. But it is imperative that all of us be aware first of the distortions to the market made possible by a system of finance that offered incentives to mortgage originators who were not in the least concerned about customers' ability to actually pay for what they bought. And second we must hold in our minds the lax oversight that allowed turd mortgages to be bundled into derivatives that were then sold with no clear understanding as to their real underlying value.

This shitstorm did not happen as a matter of course. It is not the result of forces of nature. Securities traded on the American financial markets are alleged to be scrutinized by agencies charged with assessing their worth. And we were not served well by either our government or the private sector.

It is with grim humility that I acknowledge that my earlier prediction of a government rescue of Lehman was wrong. Holders of their bonds now hold pieces of paper.

A year ago, Lehman was worth better than $67 a share. It closed Friday at $3.65. Monday it'll be almost worthless.

This all has real implications for anyone who is saving for retirement via mutual funds. The loss of wealth involved is staggering, and anyone connected to the markets will be affected. That would be anyone with a pension or a job or a 401(k). Even if you don't own Lehman equity, you likely own something that will decline in value when Lehman is worth nothing.

Wamu and AIG next?

Traveling painting show

I received the image above this afternoon. The vehicle is in Petaluma, CA. The photo was taken yesterday afternoon.

Ike again

Ike whipped the eastern Gulf coast of Texas pretty badly last night and this morning. By the time he'd reached my part of the state, he wasn't in much of a fighting mood. We got some stiff breezes and a lot of rain here, but it wasn't bad enough to keep us from a trip to Dallas for the opening receptions of a few shows tonight. On the way, things got pretty hairy as we passed through a fierce squall line that had formed in one of Ike's rotating bands. Interstate traffic slowed to about 40 mph for 15-20 minutes because of driving rain and gusting winds. But mostly we just experienced a blustery afternoon.

Down in Houston and Galveston and especially coastal regions east of landfall, people weren't so lucky. The power outages alone are nasty.

Gallery sights

Some things worth looking at in the Dallas gallery scene (in no particular order):

1. Richie Budd's funny, insouciant and encrusted sculptures at Road Agent Gallery.

Beneath the slops and pours of nameless plastic guck (in this and other sculptures) are items like a dried mouse cadaver, a popcorn machine, dangerous-looking firecrackers, and a Sony Walkman. One piece, Bon Voyage Somnambulating De Pileon (Jamielee Lee), includes a light show, a fog machine, a soundtrack, and (best of all at an opening) a cooler that dispensed cocktails. I'll likely write about it for somebody in the coming week. What I write is up in the air -- which is to say I'm baffled, but impressed.

2. Allion V. Smith's photos -- "Hall Pass" is the show's title -- at Barry Whistler Gallery.

Shot mostly at Dallas' Booker T. Washington magnet school for the performing and visual arts, Smith's cool images deftly evoke a vivid sense of the flavor and aura of a particular place. Pictures are silent, but this show has a soundtrack that has nothing to do with audio recordings. You can see what the place sounds like. My initial reaction was they should be exhibited as a group in a university classroom building. I know just the place.

3. Jackie Tileston's paintings at Holly Johnson Gallery. Quoting extensively from classical Chinese landscape painting and God knows what else, Tileston's works generate an insane, but somehow convincing, sense of pictorial space.


I guess it's the willful shifts from crisp edges to atmospheric washes, but what I find satisfying and instructive is the fact that she can make a painting so divided against itself still seem complete.

4. Aaron Parazette at Dunn and Brown Contemporary. Hard-edge abstraction meets retro-cool typography in paintings of surfer dude vocabulary words gone all strange.


If I can wrap my brains around a portion of his project, I'll whip out a review-like item on this show as well. They look extraordinary, and busting up reading by means of letter forms is a project after my own heart.

Ritholtz

He has a small piece in Forbes.com on the failure of under-regulation in the financial markets. Over regulation is bad, but no regulation is even worse. Here's a sample:

The current headache begins and ends with ideology, namely that of former Fed Chairman Alan Greenspan--an acolyte of Ayn Rand, a free-market absolutist, a true believer in the evils of regulation. Many of the present headaches point directly back to the decisions made by the Greenspan Fed. Sure, there is plenty of other blame to go around: an unengaged president, a clueless Congress, a hapless FDIC, a compromised OFHEO, and Phil Gramm--but the biggest and most accusatory finger points directly at Easy Al.

And, endearingly, he calls for a pragmatic approach to working out a cure for our financial illnesses.

Ike

The New York Times reports this afternoon that things look bad for Galveston:

“Persons not heeding evacuation orders in single-family one- or two-story homes will face certain death,” the National Weather Service said in a local bulletin. “Many residences of average construction directly on the coast will be destroyed.”

Ike is currently a category 2 hurricane with sustained winds measured at 105 mph as it struck an oil rig in the Gulf. Detailed information is here. While Ike's winds are nowhere near as high as Katrina's or Rita's, the immense size of the storm is causing concern. Hurricane winds cover an area with a diameter of 240 miles, tropical storm winds extend over an area with a diameter of 550 miles. Jeff Masters at Weather Underground reports that the total kinetic energy involved is 30% higher than Katrina's at landfall. Slower winds, but a hell of a lot more wind in terms of total mass of moving air and water. It's the water that will hurt the most.

The storm surge is gonna be a whopper. The forecast surge at Port Arthur, TX will be six feet higher than the city's seawall.

By tomorrow night, Ike is expected to be a tropical storm with winds at or above 40 mph. And it will be just about right where I am sitting.

Pig lips

To mark the degenerating political discourse in this country, I've instituted a new blog feature today: the Pig Lips Prize. (Pickled pig lips image above from the estimable Roadfood.com blog) I'm still working on just what qualifies a person or institution for the prize, but for now it'll be awarded for the demonstrated ability to amaze me with awfulness.

The first Pig Lips Prizes go to two of our finest financial institutions, who continue to find ever more creative ways to ruin things for the rest of us as they destroy themselves before our very eyes. I speak, of course, of Lehman Brothers and Washington Mutual.

In the wake of the government's intrusion into the capital markets in the form of bailouts for failing Fannie Mae and failing Freddie Mac and the government underwritten purchase of failing Bear Sterns by JP Morgan, we have new calls from beleaguered bankers to shore up Lehman, an investment bank which has managed to fall from $55.18 a share to $4.50 a share in twelve months. The New York Times reports:

With each passing day, the pressure is growing for Lehman to secure a financial lifeline. While Lehman has few options, it has some advantages that Bear Stearns did not have before its collapse, mainly the special loan program subsequently created by the federal government for Wall Street banks. The risk for Lehman is that employees and money might quickly drain away if confidence in the bank continues to erode.

While special loans are not the same as the takeover of Fannie and Freddie the Feds came up with earlier, it does expose taxpayer money to risks the regular financial market is apparently unwilling to accept. Lenders' hesitation may be tied to the bank's anticipated loss of $3.9 billion in the third quarter of this year, a bit more than their $2.8 billion loss in the second quarter, but that's just a guess. Okay, $1.1 billion is a bit more than a bit more. Meanwhile their assets keep declining. The LA Times reports that Lehman wrote down its real estate holdings by $7.8 billion, including $5.3 billion in "investments tied to residential mortgages." Can you say derivatives?

And who wants to take a bet that a more direct Fed bailout pops up as a topic of discussion by the weekend?

The NYT story says the plans are afoot to sell a bunch of the business and to divide Lehman into what the Times is calling a "good" bank and a "bad" bank. That way Lehman can put all its turds in one foul punch bowl and wait out the shit storm of a mortgage debacle in one entity while its less disastrous assets are protected from the septic stench. Pigs like shit.

Over at WaMu, the decline in market value is even worse. On Sept. 11, 2007, WaMu was worth $34.92 a share. Last I looked it's trading at $2.11 today. Yahoo/AP report that "losses in its mortgage portfolio [are] expected to peak at $19 billion." This is because of the company's exposure to subprime loans, but also because a big portion of its loans are in the California market, where the burst real estate bubble is messiest. Also going sour are the thrift's credit card shenanigans. WaMu has lost 94% of its value in 12 months. That takes creativity.

And it gets even better! Again from the NY Times:

As a result, some in the industry have started to wonder whether the government might have to step in. One option, similar to the approach taken with Fannie Mae and Freddie Mac, might be for the government to agree to buy shares issued by Washington Mutual. Some analysts said that would provide the capital to allow the bank to get through the current problems.

Another might be for the government to provide assistance with a sale, similar to the Federal Reserve Bank of New York’s approach in the JPMorgan-Bear Stearns merger. Such a move would help reduce the blow to the acquiring bank’s capital caused by a sale, and allow it to start benefiting from such a deal.

Yeah, that's why I pay taxes. I want to support a predatory lending institution that -- through no fault of its own, mind you -- falls on hard times.

So in honor of John "You owe us an apology for that nasty thing I'm saying you said even though you obviously didn't say it" McCain's frivolous and embarrassing campaign tactics, I hereby present the first two Pig Lips Prize winners!

The lipstick is in the mail. Right next to your dividend check, sucker.

Coming soon: AIG!

Proposed campaign button

A plague of them. Something like the Guy Fawkes masks in V for Vendetta.

Once there was a real Maverick

His name was Fontaine Maury Maverick and he was a U.S. Congressman from Texas from 1935 to 1938. His grandfather signed the Texas Declaration of Independence. He was the leader of a block of New Deal progressives in Congress -- described by some sources as "maverick" congressmen -- but was defeated in the primary when he ran for a third term. Texas was a virtual one-party state at the time and the Democratic primary was pretty much the defacto general election. He was accused of being a communist during the primary campaign by members of the San Antonio Democratic machine. During his time in Congress he voted for an anti-lynching bill. This site also credits him with being instrumental in the defeat of bills that threatened civil liberties, as well as working to strengthen the Tennessee Valley Authority and helping to establish the National Cancer Institute.

In 1939, he was elected Mayor of San Antonio, crushing the political machine that had defeated him in his bid for a third term in the House. This contemporary report of the events indicates that he modeled his politics on New York's Fiorello LaGuardia. "The cardinal sin of liberals is letting their political fences sag. My election shows that progressives must be practical, understand their people, and have a strong political organization," he said. He held little truck for overarching political theories.

Defeated for reelection in 1941, he later held several positions in the FDR Administration during the war. He continued to work for progressive causes after his time in government ended, becoming famous as a lawyer willing to defend civil liberties.

His son, Maury Maverick, Jr. likewise was active in Texas politics, serving in the Texas legislature in the early 1950s, where he was known as a strong defender of civil rights. Later he worked for the ACLU, defending a bookstore owner accused of sedition for the titles he sold (Marx! Engels! Sartre!). The case went all the way to the Supreme Court.

Eventually he became a regular columnist for the San Antonio Express-News. Some of his columns are collected in this book.

Maury Maverick, Jr.'s great grandfather -- the one who signed the Texas Declaration of Independence -- refused to brand his cattle, giving rise to today's common usage: an independently minded person, someone who is his own man.

What does this have to do with John McCain? Almost nothing.

Magnet paintings update

They have arrived in Marfa, TX, Austin, and Houston. I'm guessing they are also in Dallas, but folks there haven't contacted me with the news. If they haven't yet arrived in New York, California, Kansas and elsewhere, they should get there soon.

One person in Houston tells me her magnet blew off the side of her car at highway speeds yesterday. I've had no problem with that happening, but one or more factors may have contributed to her loss: either the magnet was not completely flattened out from its stint rolled up in the mailing tube and so a bit of the leading edge caught the wind and peeled it off; or the magnet was set over a strip of trim on the door and the resulting pocket caught the wind. At 20 inches high, the magnets are too large to fit some car doors, and some people have resorted to putting them on their hoods and other parts of their autos.

A replacement magnet is on the way to Houston. Meanwhile here's a photo from Marfa:


Thanks to Cay for the quick response. I'll post a few more pictures from the "Painting is Never Traveling Show" here as they come in and as seems appropriate. And I'll work on a page for my Web site for all photos. Posting them all on this blog might get pretty boring.

Fannie and Freddie

Went down the hill and we all got screwed. Evidence here. There will be some big bills in the next president's inbox come January. Money quote:

I suspect this will be another hugely expensive and ultimately unsuccessful attempt to bailout our prior irresponsible profligacy. Ultimately, we pay for this through 1) the massive printing of more dollars; 2) some corresponding form of hyper inflation; and 3) the kindness of not strangers but our overseas overlords.

That's right -- we have no money for rebuilding our infrastructure, for any form of National Heath Care, for fixing/saving social security, but a bunch of rogue traders and Alan Greenspan, under the guise of "Deregulation" can leverage up and lose trillions, which you the taxpayer is on the hook for!

Maverick, the Movie

An appropriately retro appreciation of the good old days.

James McMurtry Knows

He knows things the St. Paul gang o' warmongering nostalgia merchants apparently don't. From his "St.-Mary-of-the-Woods" album:

They broke into your car last night,
took the stereo
Now you say you don't know why
you even live there anymore
The garage man didn't see a thing,
so you guess it was an inside job
You made a reservation, a table for three
They said you'd have to wait,
somebody must have bribed the maitre'd
Boss got mad and he blamed it all on you
Food was bad and the deal fell through
(chorus)
Well out here in the middle
you can park it on the street
Step up to the counter;
you nearly always get a seat
Nobody steals. Nobody cheats
Wish you were here my love
Wish you here my love

We got tractor pulls and Red Man chew Corporate relo refugees that need love too
we ain't seen Elvis in a year or two
we got justification for wealth and greed~
Amber waves of grain and bathtub speed
We even got Starbucks
what else you need?

(chorus)
Out here in the middle
Where the center's on the right
And the ghost of William Jennings Bryan preaches every night
To save the lonely souls
in the dashboard lights
Wish you were here my love
Wish you were here my love

(chorus)
Out here in the middle
Where the buffalo roam
We're putting up towers for your cell phones
And we screen all applicants
With a fine tooth comb
Wish you were here my love
Wish you were here my love

All that small town shtick ain't much to pin your dreams on. I live in one. I know what James knows.

More Palin

There's an analogy here someplace.

Trading the odds

Ritholtz reports that Intrade has launched a contract for betting on Palin being dropped for the Republican ticket before the election. In short, Intrade offers contracts for people to buy and sell to each other based on their estimation of the likelihood of some event occuring -- or not -- within a given time frame. The contracts are worth what any given individual believes them to be worth at any given time, given the current information he/she has on the subject.

Currently the Palin contract is trading at 14.0, meaning that traders believe there is a small chance she will get the big boot before November. If you think it's going to happen, you can buy at fourteen, and collect at 100 when the bus bounces over her. Contracts are valued between 0 and 100. Each point is valued at ten cents in the Intrade system. So for each contract you buy at 14 you'll get a profit of $8.60 upon Palin's return to the wacky world of AK politics.

When I started typing this, Palin contracts were trading at 13.9. They are up 0.1 in the last couple of minutes. They are up 11 for the day. One could conclude there is an upward trend to their value.

Incidentally, contracts that pay when Obama wins the election currently trade at 61.6. McCain is at 38.6. At the level of this market at least, the smart money is on Obama to reach 100 on election day.

I love this country.

They're in the mail

The car magnet paintings are in the mail. They should arrive by the end of the week.

Gustav II

He's winding down, praises be. I just got off the phone with my mom in Baton Rouge about an hour ago. Dad was asleep already. They had a horrible day. The power failed about 11 this morning, so no AC, no refrigeration, no lights beyond the gas lamp that makes everything hot. Damage to their roof forced them into the attic to do emergency leak repairs with a shower curtain inside the decking. Not the best way to stop a leak, but with hurricane force winds outside, just about the only way. Dad had to make the trip up there several times today to empty the pots and buckets they had catching the drips from their patch. He's 79 years old. Tough man. CNN reports that the maximum sustained winds in Baton Rouge reached 91 MPH. That's not gusts. Sustained winds at 91 miles an hour with gusts above that force. After the wind calmed to a manageable howl, a neighbor climbed up outside and secured a tarp over the damaged area.

This evening a band of clouds passed over my house. After checking NOAA and Weather Underground, I concluded it was an outer band from Gustav. I'm about 430 miles from Baton Rouge. Big storm. Tomorrow we will get rain from it, they say, but it looks to be tracking farther east than the forecast predicts -- at least to me.

The NOLA Times-Picayune has a good blog here.