Matt Taibbi, Eliot Spitzer Discuss Eric Holder’s Failure

Matt Taibbi, Rolling Stone

POSTED: August 22, 11:40 AM ET

A good prosecutor should look down the barrel of a bunch of millionaire lawyers at Davis Polk or White and Case and feel turned on by the challenge of combat. Making a deal with any devil should burn him at the core, keep him awake at night.

But that’s exactly who Eric Holder and Lanny Breuer haven’t been, exactly who Bob Khuzami at the SEC hasn’t been. Instead of being fighters, they’ve been dealmakers and plea-bargainers. They’ve dealt out every major financial scandal, from Abacus to the Muni-bid-rigging cases (they prosecuted a few low-level guys at GE but let the big players at the big banks skate) to the Citigroup fraud settlement that was so bad a judge threw it back at the govenment’s face. In that latter case, amazingly, the govenment is now fighting not for its constituents, but for its right to give out crappy deals to repeat-offender banks without judicial review.

I think it’s the tempo and not the lyrics.  This one is just as morbid and dark, but was and is a great hit with the techno crowd (not that there are many of them).

Fly on the Windscreen

Career Risk Panic: Only 11% Of Hedge Funds Are Outperforming The S&P In 2012

Tyler Durden, Zero Hedge

08/20/2012 19:10

The S&P500 may be soaring to new 2012 highs, and has its all time highs within short squeeze distance, yet paradoxically this is arguably the worst possible news to the cadre of US hedge fund managers used to beating the market year after year, thus justifying their (increasingly more unsustainable) 2 and 20 fees. The reason: according to just a released report quantifying hedge fund performance so far in 2012, with an average return of 4.6% as of August 3 compared to a 12% return for the S&P, a pathetic 11% of all hedge funds are beating S&P year to date. This is the worst yearly aggregate S&P 500 underperformance by the hedge fund industry in history, and also explains why the smooth sailing in the S&P500 belies the fact that nearly every single hedge fund manager (and at least 89% of all) is currently panicking like never before knowing very well there are only 4 more months left to beat the S&P or face terminal redemption requests. And with $1.2 trillion in gross equity positions, the day of redemption reckoning at the end of the year (and just after September 30 for that matter as well) could be the most painful yet.

More Evidence Wall Street is Overpaid

Matt Taibbi, Rolling Stone

August 21, 9:11 AM ET

(O)ne of the most frequently-overlooked problems of the financialization age is that a lot of our brilliant financial engineers are actually pretty damned average, when it comes to playing the market.

There’s a great little piece at Zero Hedge about how hedge funds are having a terrible year (for the second straight year), with only 11% of all funds outperforming the Standard and Poor’s 500, the basic stock index.

…

Translating that into English, all those super-rich people who turned to hedge funds with their millions in the hopes that bunches of Whiz-Kids from Wharton and Harvard and Yale would find unseen and wildly creative investment ideas to fatten their fortunes — all those rich clients are actually finding out now that those same Whiz Kids are buying Apple just like the rest of us. Hey, it has to be a good stock, right? Everyone has an iPhone now.

…

As is apparently also the case with Mitt Romney’s PE business, which analysts have found often don’t do much better than average if at all, the data shows more and more that we’d all be better off, and there’d be a lot less mischief, if the world’s biggest and more powerful investment specialists just dumped money into humdrum baskets of stocks instead of racking their enormous brains to come up with exotic new trades.

Someday we’ll get back to the time when the really smart guys from the best schools went to work for companies that built actual products, engineered more efficient cars, cured diseases, etc. Because it seems like our best minds kind of suck at investing.

Uncle Sam Needs YOU for a Bailout: 6 Reasons Another Big Banking Crisis Is Coming Our Way

By Alexander Arapoglou and Jerri-Lynn Scofield, Alternet

August 17, 2012

(R)egulators decided that sophisticated investors, including the wealthy, pension funds and charities, had enough financial savvy to be allowed to invest in shadow banks that were either lightly regulated, or not at all. Such alternative investment vehicles, including hedge funds and private equity funds, were exempt from investment restrictions.

In the last two decades, there’s been an explosive growth in shadow banks. The size of this unregulated system has increased fivefold and today is larger than the regulated financial system.

The rationale? Sophisticated investors, it’s claimed, can look after themselves, and therefore the largely unregulated funds that cater to them don’t pose any risks to the rest of us. But that’s not proven to be the case.

…

(A) decade before this bailout, U.S. financial regulators were involved in a rescue of a shadow bank, which helped set the stage for TARP.  In 1998, the Long-Term Capital Management (LTCM) hedge fund got into trouble by placing heavily-leveraged derivatives bets during the Asian financial crisis. Hedge funds are allowed to operate with scant regulatory supervision on the rationale that they cater only to sophisticated investors who could bear the risk.

The Federal Reserve changed its mind when it realized that LTCM’s failure was a threat to the global economy. So the Fed corralled major banks in a room, and told them to fix the problem. They dismembered LTCM and took its underperforming assets onto their books.

The Fed’s role in this rescue sent the wrong message: that the government would be there to fix problems, and that banks and shadow banks alike didn’t have to work too hard to manage risk and to protect themselves from contagion.

…

Banks need to be seized, or at minimum assessed by a neutral observer, and their balance sheets cleaned up. Investors, too, must pay a price for making foolish investment choices. Typically, existing shareholders are wiped out, while bondholders see their promises of guaranteed debt payments converted to more speculative shares of stock.

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(T)he lack of a streamlined regulatory system means banks play regulatory arbitrage. Recently we saw this dynamic unfold-unsuccessfully in this case- as Standard Chartered Bank used its press cronies to pressure Benjamin Lawsky, New York’s Superintendent of Financial Services, to go easy on the bank for laundering money for Iranian clients and cooperate with other regulators – the Fed, Justice and Treasury- that favored a softer stance. Lawsky threatened to cancel the bank’s license to operate in New York-a death sentence for any international bank. When he didn’t back down, the bank agreed to a $340 million settlement. Lawsky’s firm stance improves the prospects for the pending federal probes.

…

And so we come back to where we started-the decision not to go after Goldman Sachs. Normally, the Justice Department doesn’t  comment on its pending investigations. But for Goldman, the rules are different. Justice issued an unusual statement saying the firm wouldn’t be criminally charged, as prosecutors didn’t believe they could meet the burden of proof necessary to win a trial. Earlier last week, Goldman disclosed that the SEC wouldn’t be pursuing criminal charges against the firm, despite having issued Goldman a “Wells notice” of its investigation. Dropping an investigation after issuing such a notice is not altogether unprecedented– but is also rare.

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The current failure to prosecute means that banks will continue to pursue risky policies. Bankers continue to get paid based on results, and there’s so much to gain from a successful risky bet, and so little to lose from a bet gone bad, particularly if the taxpayer is there to pick up the tab.

In America, if you misuse food stamps, and you get caught, there’s a good chance you’ll lose your benefits, and you might even go to jail.  If you rip off the Medicare system, commit tax fraud or perpetrate identity theft, federal prosecutors will throw the book at you. But if you’re part of a multi-billion dollar enterprise that misleads investors and lies to Congress, you’re like the trophy fish that’s caught and released.  You’re off the hook.

(h/t Naked Capitalism)

I see in fight club the strongest and smartest men who’ve ever lived. I see all this potential, and I see squandering. God damn it, an entire generation pumping gas, waiting tables; slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.

Pitch a No Hitter and what do you get for your trouble?  Petaluma who thrashed you much more soundly than the 6 – 4 score would indicate.

So tonight is the likely swan song for Fairfield, Connecticut in its Cinderella losers bracket run.  The game will start at 8 pm on ESPN2 or could be streamed here.

Worried?  You should be.

digby–

I don’t have a clue how to stop this train. Having the zombie eyed granny starver on the ticket hasn’t changed their view that the Grand Bargain to slash 4 trillion in government programs in the middle of an epic slump is still great policy and even better politics.

But don’t worry. They’ll ask millionaires to “pay a little more” so it’s all good. I’m feeling more “confident” already.

Basically we have a choice between the Republican dystopian hellscape or the Democrats’ long slow jobless recovery with even more insecurity for the poor and middle class.

Balanced?  How many billionaires can you fit on the backs of the workers?

dday (note: he used to write with digby)-

The best expression of the austerity that has been implemented at the federal level for the last two years can be found in this chart from Goldman Sachs. It shows pretty clearly that fiscal policy at the federal level turned negative in mid-2010. This doesn’t just mean that fiscal policy, after the stimulus began to run out, was relatively speaking less powerful. It means that federal fiscal policy, not combined with state and local but just confined to the federal level, dragged on growth starting in mid-2010, before the 2010 midterm elections. It really never recovered, save for a couple quarters of near-zero growth from fiscal policy in the middle of 2011.

And there are policies that correspond to this. The White House froze federal employee pay; it was one of the first items touted from their budget in 2010. They cut food stamps twice to pay for other priorities. They cut unemployment benefits in the most recent extension, so that the 99-week benefit has been reduced to 73. They cut $39 billion from the 2012 budget and imposed a spending cap for the next ten years. The Administration will tell you proudly that they have inaugurated the lowest rate of discretionary spending (.pdf) since the Eisenhower era.

Obama Reiterates Desire for Grand Bargain on Taxes and Spending

By: David Dayen, Firedog Lake

Monday August 20, 2012 2:23 pm

(T)he pro-austerity rhetoric emanating from the Obama Administration has been corrosive. And despite signs that, after the unpopular debt limit deal, the President put such rhetoric in his hip pocket, sadly that’s not at all true. Witness him today in his impromptu press conference.

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Welcome back, confidence fairy!

“The $1 trillion in spending cuts we’ve already made,” also typically ignored by those who want to say that Obama out-foxed Boehner in the debt limit deal, refers to the spending cap, which will starve federal investment for the next ten years. But the clear point made here is that $1 trillion is not enough for this President. He still seeks that grand bargain where token revenue increases are exchanged for “tough spending cuts.” This is still part of the agenda even in an election year.

…

(O)ftentimes, budget cuts and grand bargains like this don’t happen because a very vocal minority makes it toxic for them to happen. Then they get told “see, there was never anything to worry about, you didn’t have to shout,” when the shouting helped stop the plan from taking effect. It’s a thankless job, alas, but someone has to do it.

Connecticut v Illinois on ESPN now.  I can’t resist.

Bottom of the first, Connecticut just struck out the side.

And then you have songs that are just too damn fast.

Paint It Black

Today they’re taking the oldest commissioned warship in the U.S. Navy out for a little sail and turn around.

Navy’s oldest commissioned warship to sail again

By JAY LINDSAY, Associated Press

Fri, Aug 17, 2012

The USS Constitution, which was first launched in 1797, will be tugged from its berth in Boston Harbor on Sunday to the main deepwater pathway into the harbor. It will then set out to open seas for a 10-minute cruise.

The short trip marks the day two centuries ago when the Constitution bested the British frigate HMS Guerriere in a fierce battle during the War of 1812. It follows a three-year restoration project and is the first time the Constitution has been to sea on its own since its 200th birthday in 1997.

Now the truth is they turn it around every few years anyway for preservation and maintenance, but it’s usually shoved along by tugs.  This is a big deal for the Sailors who get to participate either as workers (who’ve been preparing for a couple of years with the rigging which is not trivial even for 4 sails) and the ‘honorary’ crew who are mostly senior enlisted personnel (NCOs).

Not to disparage the Constitution‘s victory, but as with most such it was hardly a fair fight.

The English had been fighting continuously at sea against one nation or another (Netherlands, Spain, France) for over 2 hundred years using refinements of the same technology and tactics and got quite highly organized about it.  They divided ships into various types based on firepower mostly.  Fifth raters were never used in a battle line, but instead in patrols and as messengers.  In colonial waters they’d often pursue pirates or act as commerce raiders (there’s a HUGE difference).  The captured French frigate, Guerriere was armed to suit the English practice of running right alongside close up and blasting your hull with heavy carronades (30 x 18pdr guns, 16 x 32pdr carronades, 2 x 12pdr guns, 1 x 18pdr carronade).

The United States Navy was nothing like that.

What we called a frigate was actually a Fourth Rate Ship of the Line.  The Constitution never sailed with less than 50 guns (thirty 24-pounders on the main deck, twenty-four 32-pounders and two bored out 18-pounders on the upper deck on this occasion).  It also had the advantage of a 2 x 6″ bias ply hull over a diagonally stiffened frame that improved the sailing performance.

The Battle against the Guerriere is actually kind of instructive of why you just couldn’t expect a Fifth Rate to stand up actually.

Because of it’s heavier build the English long range guns had limited effect (thus Old Ironsides) while Hull put on more sail (unknown why Dacres did not respond) and soon got in range.  They exchanged fire for about 15 minutes with the Guerriere sustaining tremendous damage, including losing the Mizzen Mast.  Dacres had been maneuvering for a clear shot and tangled with the Constitution’s rigging.  Both Captains sent boarding parties forward to the contact point but were unable to board.

During this time the ships basically continued blowing each other apart until the Guerriere’s Fore Mast fell too and the Constitution disengaged and made ready for another pass.  During this time Hull dispatched a boat to ask if Dacres wanted to strike his colors.

Well, Sir, I don’t know. Our mizzen mast is gone, our fore and main masts are gone – I think on the whole you might say we have struck our flag.

That and the Battle of New Orleans are the notable victories and we forget about Detroit and the Burning of Washington.

The stutter steps in the middle disqualify this one and I think the rush is just a little too intense for some people.

Kashmir