Cartoons

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Fake, Fake, Fake

Not a surprise.

A Reprimand For Il Duce

Business Insider as quoted at PowerLine:

The President has just harshly castigated hedge fund managers for being unwilling to take his administration's bid for their Chrysler bonds. He called them "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout."

The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President .... Furthermore, one by one the managers and banks are said to be caving to the President's wishes out of justifiable fear. ...

Here's a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It's not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders' contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.

The above is how it works in America, or how it's supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler's creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.

Let's be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients' money to share in the "sacrifice", they are stealing. ...

The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. ... Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power. ...

Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because they are unpopular, not because they behaved any differently from any other ethical manager of other people's money. The President's comments here are backwards and libelous.

There is more in the full article, which concludes:

I am ready for my “personalized” tax rate now.

Trekkies Bash New Star Trek Movie for Being ‘Fun, Watchable’

The Onion.

Chrysler Roundup

At Neoneocon.

But The Training Bras Are So Comfortable!

Why should the press take them off?

The Anchoress nails 'em.

Excellent Market Ticker

A must-read.

Denninger points out that the looming problem with Option-ARMs is not interest rate resets, it's the fact that once the outstanding balance hits 110% of the loan value (remember, an option ARM allows folks to make payments that are substantially smaller than what would be required by amortization, adding the shortfall to the principal), the loans convert to fully amortized. All the folks that could just squeak by paying only the interest (or less) then are massacred by a huge hike in the monthly bill.

Says Denninger:

But if you think those numbers are a horror show, the real ugliness isn't found there. It is in fact found in all the foreclosed-but-unsold and not-yet-foreclosed "but will be" housing stock. Through the nation I am getting reports, some hard and some anecdotal, that lenders are sending out NODs (default notices) and then sitting on the process intentionally.

Why would they be doing that?

Simple: Most lenders who have these notes either in a security or as "whole loans" they were unable to pawn off on someone when the securitization market collapsed are holding them at "par" - the total amount outstanding.

If they sell they are forced to realize the loss; so long as they have a "reasonable belief" it will perform or be bought out (e.g. a government-sponsored and funded refinance) they can carry it this way if it is held to maturity. This of course makes their books look much better than they really are when you've got $500,000 in cash out against collateral that the market values at $150,000!

Then there is the Option ARM inventory and, most troublesome, the HELOC's (mostly seconds used for purchase and cash-out transactions) behind them.

There have been opinions floated that the "ARM" decimation is mostly a nothing, since short-term rates are so low and will remain that way for a reasonable amount of time.

This is true but misleading - with Option ARMs the nuclear destruction does not come from a reset of the interest rate but rather the recast when the loan ages or reaches (typically) 110% of the original principal value.

At that point what was either an interest-only (or even not a full interest) payment is forced to a fully-amortizing payment on the balance of the original time. For many of these loans this is set to happen at either three or five years post-issue, which means we're just starting to see the loans written in 2006 turn into many-headed hydra about now.

The importance of this event is that the increase in payment is absolutely insane - it is not at all unusual for payments to double, and there are few if any of these loans where the jump will not be at least 50%.

The IMF says there's roughly double the embedded loss in the system compared to what has been recognized and written down. I think they're conservative - my original estimate for housing market losses was somewhere around $2.5-3 trillion for residential alone.

So far the tally is up in the high hundreds of billions, meaning that there are a lot more cockroaches still to be found in the banking system - and they're doing their best to hide from the light.

Can that succeed? Not a prayer in Hell.

Those Option ARMs and any seconds behind them are doomed. There is no possible way to refinance them as most are over $100,000 underwater. The seconds written on top to get around conforming limits or avoid PMI are in fact worth nothing as the first has priority in a foreclosure action and there's not enough there to even satisfy the first!

Heartwarming

Great photo:



Lifted from here.

Cracked Foundations

Good Charles Hugh Smith piece.

It begins:

Homeownership and Wealth Accumulation/Destruction (May 5, 2009)

The nature of "homeownership is the foundation of middle class wealth" has changed from accumulating wealth by paying off a mortgage to speculating in housing by taking on more debt.

Once upon a time people spent decades paying off their home mortgages. That reduction in debt to zero left them equity. Those who paid rent for 30 years may have had lower costs of living (no maintenance costs or property taxes) but unless they saved religiously then they did not end up with the equivalent wealth of a typical homeowner who paid off the mortgage.

Throughout the 1950s and 60s, homes prices and mortgage rates were remarkably stable. The idea that one's house could double in value in a few years was as nonsensical as the price falling in half. Houses cost about two or three times' average income, and over time they drifted higher (adjusted for the era's low inflation) at about 1% a year.

As a result, speculation was nonexistent. Some enterprising handyperson might buy a rundown house for say $22,000, invest some money and sweat equity, and then be delighted to sell it for $25,000 some time later.

The key to housing being the foundation of middle class wealth was not the rise in value--it was the reduction of debt to zero. Removing equity from one's home was unheard of--there were no HELOCs (home equity lines of credit) and second mortgages were modest; people took a second mortgage out to pay for major home improvements or a new roof, not for vacations, new cars, college, etc.

Needless to say, the entire concept of "homes as the foundation of middle class wealth" has been radically modifed--and perhaps refuted. What was once rare--aging homeowners nearing retirement still holding large mortgages and modest equity--is now commonplace.

The inconceivable has happened to homeowners in locales such as Detroit: paying off the mortgage did not build wealth, as the value of the home diminished to near-zero.

In left and right coast locales, the inconceivable also happened: simple bungalows tripled in value in less than a decade, creating leveraged wealth far beyond any historical precedent.

Under the influence of sharply rising inflation and the massive Baby Boom generation entering its prime homebuying years, housing shot up in the late 70s. This rapid rise in value was repeated in the late 80s as well, further priming the expectation that housing had changed from a rising-at-1%-per-year asset of slowly accumulated equity to a speculative vehicle in which a 20% down payment could be leveraged into 100% or even 200% gains in a few years.

This changing character of "housing as wealth accumulation" thus set the psychological stage for the Great Housing Bubble of the 2000s, in which even the 20% down payment vanished and leverage approached infinity as "no down payment, no document verification" loans flourished.

The "rational" response to low interest rates, easy credit and wildly climbing housing prices was to increase one's debt to the maximum and throw it all into real estate speculation. Thus we saw low-income households buying one or two McMansions to flip for quick profits, speculators putting a few thousand down on homes which had yet to be built and then selling the right to the house for stunning profits, and so on: a full speculative mania.

This change in the nature of wealth accumulation from home ownership was profound. With interest rates low and real estate skyrocketing in value, paying down one's mortgage was considered backward and foolish; the rewarding strategy was to extract all of the new equity and use it for fun or further speculation in real estate (or collectibles, cars, stocks, etc.)

But once housing prices began falling to earth, the perverse consequences of leveraged debt became evident...

Well Said

MKH quoted at Instapundit:

MARY KATHARINE HAM: Our Genius President: ‘Happy Cuatro de Cinco!’ “I like to note these little incidents when they happen, not because I think it makes Obama an idiot because he occasionally stumbles over his words, but because his somewhat overblown reputation as the most cerebral, eloquent, utterly erudite president of all time could really use a pricking every now and then. Also, because if Bush had made such a blunder, it would have been the basis of a four-part MSNBC investigative series on the malapropism’s deleterious effects on the Republican Party’s attempts to woo Hispanic voters, Mexican-American relations, and our ‘place in the world.’”

21 Accents

Kind of fun:



H/T RegularThoughts.

The Nature Of Torture

Something just occurred to me. Would I agree to be waterboarded if the result was that the left lost all political power in this country?

Hell, yeah.

Would I agree to actually be tortured?

Nope.

Blatantly Illegal

Evidence that Obama's Chrysler maneuverings will not survive Court scrutiny. But maybe all it takes to payback the UAW is a "well, we tried".

excerpt:

If the Obama administration expected the senior creditors of Chrysler to fold their tents under political pressure, they may have gotten a rude shock today. Thomas Lauria, who accused the White House of threatening the creditors withn humiliation at the hands of the White House press corps, has filed a motion to halt the administration’s machinations on behalf of the UAW in the Chrysler bankruptcy. Lauria and his allies claim that the Obama administration has violated the Constitution in their bid to devalue the senior creditors’ holdings on behalf of junior creditors, and have some precedent to support the allegation.

The heart of the argument starts on page 8...

[lengthy excerpt from the motion]

One might think that a Constitutional scholar like Barack Obama would have already known that, but either this precedent escaped him or he doesn’t care about it at all. Brandeis acted to uphold contract law, especially in the face of a government interest in paying off politically-connected unsecured creditors ahead of the senior creditors. There is no other reason for Brandeis to make that decision, as only government could insert itself into the contractual relationship during a bankruptcy proceeding — just as Obama has done with Chrysler.

Lauria’s argument seems very compelling here, especially given Brandeis’ rather clear assertion that bankruptcy proceedings have to fall within the 5th Amendment — and that government can’t implement a taking to satisfy its own arbitrary aims by ignoring the relationship of the creditors to the default. We’ll see whether the court rebukes Obama.

Quips one commenter:

The Constitution is above Obama’s pay grade.

Just Following Instructions

Link

H/T Peeve Farm.

Clarence Thomas Does Not Pass RINO's Racial Purity Test

Specter!

On "Meet the Press," David Gregory questioned Arlen Specter about who President Obama should pick to replace David Souter on the Supreme Court:

SEN. SPECTER: He should be looking for someone with a strong academic and professional background. It would be my hope that he would choose someone with diversity. Women are underrepresented on the court. We don't have an Hispanic. African-Americans are underrepresented. I would hope that he would look beyond the circuit courts of appeals which now populate the Supreme Court and pick someone with greater world experience and diversity.

African-Americans are underrepresented on the Supreme Court? There is 1 African-American on the Supreme Court, which has 9 Justices. 1 is 11.1111 percent of 9. 2 is 22.2222 percent of 9. African-Americans make up 13.4% of the U.S. population. Is Arlen Specter ignorant of these facts, or does he mean to say that Clarence Thomas doesn't count as a black person?

Also be sure to check out the discussion in the comments to the linked post. Some lefty chimes in that he doesn't think Thomas counts as black and gets schooled for it.

And one of the commenters makes this observation:

Maybe Sen Specter meant Justice Thomas counts as 3/5ths of anyone else.

Another says:

The views of Blacks (13% of the population) are only under-represented on the court if they are on the LOSING end of an 8-1 or 9-0 decision. If they are on the losing end of 7-2, 6-3, or 5-4 decisions, or on the winning side of any decision, they are over-represented.

The views of whites (60% of the population,) on the other hand, are under-represented if they are on the LOSING end of ANY decision.

Therefore, to be fair, all supreme court cases should be decided by a nationwide poll of white people.

Il Duce Only Asks For Simple Cooperation

Irwin Stelzer:

I'm saying that when the president does it that means it's not illegal," shouts Frank Langella's Richard Nixon at Michael Sheen's David Frost in "Frost/ Nixon."

He was wrong, and so was President Obama when he said last week that he'd override the contractual and legal rights of Chrysler's senior lenders and carve up the company between the government and the United Auto Workers.

Typically, lenders who make money available to a company in return for a first claim on the company's assets get about 80 cents back for every dollar they lend should it hit the rocks. Others to whom the company owes money, but who have no claim on the assets -- workers, suppliers, junior lenders -- get much less.

Yet Obama forced the senior lenders to take something like 30 cents for every dollar they'd lent Chrysler. Many lenders -- the big banks who'd taken federal bailout money -- rolled over. But some hedge-fund managers pointed out that they have a legal, fiduciary responsibility to do the best they can for their investors (which include pension funds) and decided to take their chances with a bankruptcy judge.

Never mind that this is their long-established legal right. Obama is furious with these "speculators," and hinted that he knows where they live and will get even when the new financial-industry regulations are drafted.

Unfortunately for the president, the ball is now in Judge Arthur Gonzalez's court, literally. This former New York City school teacher, shaved-head, in-the-office at 6 A.M. jurist sits on Manhattan's federal bankruptcy court, and already has the nasty and complicated Enron and WorldCom bankruptcies under his belt.

I'm no lawyer, and so have no idea how Judge Gonzalez will decide to distribute what remains of Chrysler. He might auction off parts of the company; he might decide that the claims of the senior creditors take precedence over the unions and the government; he might decide that the president's solution is in the best interests of all the creditors.

But one thing is certain: Even as Obama wants a quick decision, Judge Gonzalez, known as a careful jurist, will decide on a schedule long enough to give everyone a fair hearing but not so long as to threaten a further devaluation of Chrysler.

Obama is pressuring the some 20 "speculators" who are holding out to accept the crumbs that he's offering. But there is more here at stake than the money immediately involved. As George Schultze, managing member of Schultze Asset Management, a hedge fund, told The Wall Street Journal, "This is about contract and bankruptcy law, and upholding agreements -- which is important in the grand scheme of things."

It certainly is...

For Them, Quality Is Not Just A Slogan. It's Their Motto!

Charles Hugh Smith:

3. The durability of Big Three-manufactured cars was simply not competitive. The Big Three chose to tout the J.D. Powers reports on the number of defects found per new vehicle as the proper metric for their improved quality; as a low-income marginalized consumer my metric was more demanding: can this car run for 12+ years with almost no maintenance or repair bills?

Unfortunately, I do not personally know of any Big Three-manufactured vehicle which lasted past five or six years without incurring major maintenance or repair bills--often in the thousands of dollars. The Big Three trucks have a pretty good record of lasting 10+ years with low costs of ownership, but the rest of the fleets have poor records of long-term durability and ownership costs.

This lack of durability of the Big Three vehicles receives almost no visibility. The fact that a car made by American workers with largely American-made parts in Tennesee lasts a decade or more with virtually no repairs or maintenance required while the 10-year old Big Three vehicle is either junked or a problem-riddled "beater" is the 800-pound gorilla in the room few have cared to discuss.

My Dad surrendered his devotion to Ford's Lincoln Continental only after the company broke his decades-long loyalty by refusing to repair a transmission which failed a few months after the warranty expired. How can a transmission in the company's luxury car fail? How could the company not see the wisdom of repairing their topline vehicle for a customer who bought and owned their cars for decades?

In my view, this incident sums up why the Big Three are collapsing: poor quality, poor customer service, and a high cost of ownership. It's simply too expensive to buy and own a Big Three car unless you sell it at a hugely depreciated price within the warranty period-- at which point you've already lost thousands of dollars.

So the last car my Dad bought (new) was a Chrysler 300, that company's topline vehicle. Now six years later it is riddled with electrical problems which have cost thousands of dollars to fix. This is also not unusual.

Meanwhile, the car I bought used that was made by American workers with mostly American parts (a 1998 Honda Civic) is in its 11th year of service with virtually no repairs except a faulty sensor we replaced in a few minutes with a tool borrowed from a Kragen Auto Supply.

My experience of European-made cars is also poor when measured in durability and the cost of ownership over 12 years (10,000 miles a year for 12 years, as any modern vehicle should be able to last 120,000 miles without costly repairs.) My Dad's one foray into the Mercedes line ended like all other Mercedes I know of personally: with a $4,000 repair bill around year 8-10.

If you walk around any large parking lot in California and tally up the brands of the vehicles, you would find the vast majority are Japanese brands made in the U.S. American trucks are in evidence but there are very few Big Three sedans or even minivans. The reason is not disloyalty, it's simple economics: the depreciation of value and long-term ownership costs of Big Three and European brand vehicles are so much higher than the Japanese-brand vehicles that few can afford the Big Three or European brands.

The transmission in my brother's topline Alfa Romeo just failed after four years, requiring $6,000 in repair bills. Atypical? Let's put it this way: how many times have you personally known a transmission in a U.S.-made Toyota or Honda to fail, ever? I drove my 1985 Honda Accord to the wrecking yard after 20 years of service because it no longer passed California's strict smog tests. Someone could have pulled the tranny and probably gotten another 20 years out of it. That trannies in Lincolns and Alfas fail after a few years is incomprehensible. And don't even ask about electrical systems.

A Losing Platform

The GOP platform (in practice) seems to amount to not much more than:

"We promise to be more sober, practical, pious, and adult than the other guys as we ram the ship into the iceberg."

Another Brilliant Whittle Takedown

Here.

One Of The Causes Of The Moral Decline Of Our Society

Is the lack of visible and public signs of total devotion to God. The Anchoress:

In the late 1970’s I heard a teaching sister say that the shedding of religious habits was a good thing, because it emphasized that sisters were “nothing special; that we are all special in God’s eyes.”

I recall thinking “that’s wrong reasoning,” but I didn’t understand why. Now, I do.

This sister gave an example: “when we were in our habits, a fellow with an Italian Ice barrow would always insist on giving us free ices, but why should he? Why shouldn’t we pay like anyone else? Why should we deprive him of his living because we were in a costume?”

Putting aside how unlikely it might be for an Italian Ice seller to go broke because of a few free scoops of sugar-water, what is clear, now, is the sister’s horizontal and earthbound thinking, which had some breadth but neither height nor depth. As with the “horizontally-focused” masses and hymns that over-emphasize the human part of church, Sister was embracing the beam of the cross without considering that the vertical post is necessary if anyone is to be raised up.

The Horizontal beam is us; humanity and the world, necessarily reaching out toward each other. The Vertical post is our reaching up together from the earth to the heavens, to the Eternal. Also necessary. That’s the part Sister had forgotten.

Sister had a delusion; she justified forsaking the habit with themes of solidarity, compassion and humility but in truth her story illustrated egoism and presumption. She bemoaned a possibility of cheating a man from his wages. In fact, she was cheating that man, but not in the way she imagined. She was cheating God, too.

The Ice-barrow man was not giving Sister a free ice because she wore a habit, but because a man who loved (or at least respected) God saw an opportunity to demonstrate that love in a small, simple way. Her habit gave silent witness to the community of faith, a reminder that there are people out there giving up everything for Christ and ultimately for us. Sister might say correctly that she was “nobody special.” but her habit identified her as one mysteriously espoused to the man-God wholly worthy of praise, honor and adoration; not she, not sister, but the Christ represented by what we used to call her “wedding clothes.”

The habit, in fact, was voluntarily undertaken as a means of self-effacement. It was paradoxically meant to make Sister, “nobody special” to the world; to obliterate her individuality and make her one of many, one part of the same body, one part of the collective hive, because religious life is socialism on a small-and-voluntary scale - which is the only way socialism can truly work. Taking off the habit may have helped sisters “celebrate their individuality,” and that is not a terrible thing, in and of itself; we are each fearfully, wonderfully made.

But the “ordinary” clothes also made the ordinary world more ordinary. Suddenly, there were no outward indications that anyone was praying at all, no reminders that we could and should pray, too. Suddenly, there was no one to make a man think of Jesus for a moment, and scoop up some frozen sugar-water.

The Italian Ice was for God, not for Sister. When she took off the habit, the Ice-man stopped noticing and responding to God at random moments in his day, and finding ways to say “thank you,” to Him.

Perhaps clearing an additional dollar a day, the Ice-man was substantially poorer, for it.

So, in the end, even with the best of intentions, Sister “Nobody Special,” in her need to feel fellow-kinship, humility and “unspecialness,” served her own satisfied ego, when it would have been much more humble of her simply to say “thank you” to a free cup of ice, given and accepted in the love of Christ.

Rather like Holy Communion.

She never cheated the man from his living. But she cheated God of a small devotion. She cheated a man of his chance to demonstrate that devotion. She cheated herself of the privilege of reminding the world -by her mere presence- that all creation is extraordinary and beloved. She cheated the rest of us, because we loved being reminded of that.

It meant we were each special, after all.

Habits are not necessary to the life of a religious; that is absolutely true. They may well be necessary for the life of the world.