US Bailout package, why it didn't pass?

It will be modified and passed. The problem is that there just wasn't time to get the right amount of pork in the law for the boys in Washington and the folks back home. My goodness they must have exclaimed "almost a trillion dollars going down and we aint got no bridge to no where in it!" The leadership will get them working. Then it will pass. There will be money to study water cress production in the desert, climate change, canals in Nevada, grants for pre-preschools, new stadiums for lawn bowling, everybody will get in on the action. For heavens sake this is the largest appropriation and monetary transfer in the history of mankind and by golly our congressmen are gonna get their share.

Poor old Martin Sullivan and AIG

AIG is primarily a collection of life and property and causality companies. They are highly regulated. The issues that took over AIG stemmed from providing what are called credit default swaps. These are like an insurance policy that guarantees to pay an agreed amount if a company or financial structure fails to perform as expected. AIG wrote a great deal of these guarantees supporting the housing market. There was tremendous amount money (trillions) that supported and provided the cash for all the US home equity loans and new home loans over the last 10 years that were packaged up and sold to investors. AIG wrote these guarantees or default swaps on a large number of mortgage backed loans so that investors would feel safer in buying them. Everything worked well.

Housing can't be outsourced to India and since a big portion of everything you and I buy now comes from China, it was about the only major commerce being done in the US. Everybody took cash out of their house (refi) or borrowed up to the hilt to buy all those nice things the Chinese wanted to ship over, (Aqua Dots). Financial institutions are like all companies and they wanted to grow so they started doing sub-prime lending when the market got saturated and the prime market didn’t grow as fast. The government saw this as good for the people and kept interest rates low to prime the pump. The Wall Street firms figured out a way to package these sub prime loans as well and AIG put a credit default wrapper around them and off they went to be sold to investor’s world wide. The rating agencies liked the fees so they bought off on some highly structured financial engineering and gave the bonds a AAA or AA rating. AIG was OK as long as there was secondary market for their guarantees. With out a secondary market AIG couldn't value the contracts they held on their books. When the government took over the extremely highly leveraged Fannie Mae and Freddy the world financial markets became very nervous and the flow of money between institutions dried up. This caused the secondary market for credit default swaps to halt. Proper accounting required AIG to write the value to zero. That caused a paper loss. It wasn't cash. When AIG took the write downs on their books the rating agencies down graded AIG which triggered a collateral call on all the guarantees AIG had issued to investors in the mortgage loans so that someone could put a pool in and buy a plasma TV made in China. AIG is a huge company with lots of cash flow from its business but the severity of the collateral calls out stripped their ability to continue to post the required collateral. They were about to file bankruptcy when the government agreed to loan them $85 billion for two years at 11.5% interest. If they had failed many other companies would have failed in a row just like a line of dominoes. As it is about 100,000 employees will probably lose their jobs at AIG and if it had failed it would have been 10 times this number.

So why did AIG take on so much risk? First the financial engineers thought they could out smart dumb lending decisions. The country was hungry for growth and refinancing home equity loans propelled consumer demand. The Fed kept interest rates low and every body was happy. But guess what, the financial engineers were wrong and defaults started percolating in the sub prime assets. The bonds starting having trouble. AIG was writing a great deal of this because they thought they could trade out the risks and the brilliant quants had it all figured out. They get bonuses on trades and they snookered poor old dumb Martin Sullivan. He was a property man and couldn’t tell a good trade from a bad one. He had no clue but he was determined to prove he could run AIG and make money like Greenberg. Traders need to be held on a tight rein and he didn’t get it. He let them do their magic so he could show profits. The problem with these financial market guys is given a free hand they will bet the house every time. The CFO was just a guilty and that is why they relieved him of his position but interestingly they didn’t let him go. I am only guessing but he probably tried to act like he knew what was going on and took the side of the quants against the auditors. I am still guessing but he probably needed to be removed because the auditors couldn’t work with such an inept and weak CFO in a cheap suit.

Entitlements and Gibson

BoIraq is a product of the entitlement quota system for victims. He is a farce; he is not a victim he had a white mother but he rode in on the coat tails of his nomadic black father. He could have made a choice to be seen as either but selected to be black so he could milk the system for all it's worth. Not trustworthy!

Financial Engineering

Bear Stearns, Washington Mutual, IndyMac, Lehman Brothers, AIG, Merrill Lynch. Arrogance and over confident management based on a work environment of a few chosen elitist managers are common for the preceding companies. About five years ago one of the companies above (that shall remain unnamed) sent one of their top executives to LA to tell the peons that all the stars were aligned for his division to begin making big profits and really matter to the bottom line for the group. He stressed strict allocation of resources and cost control. The entire three hours he was visiting and giving his lecture to the little people, his limousine was running outside on a main street waiting to take him two blocks away to a company sponsored reception with customers. Guess what he flew the private company jet from NYC to get to LA to boot. These so called executives get so enamored with their own vision of greatness they miss the point that financial services is about risk management. Risk management is boring; it is not financial engineering it is making hard decisions about not risking the firm. It's not based on some variation of a tri-nomial tree using the Hull-White model. Its about proportionality and reputation. Both need strong controls derived from an ethical core value to keep arrogance out of the system. The management of the above firms risked the livelihoods of all their constituencies by believing their own greatness and deserve to go down and go down hard.

Sarah's interview

I thought she did very well and will only improve.

Rangel, coloful crook or moron

It is reported that Representative Charles B. Rangel blamed “cultural and language barriers” on his forgetting about $75,000 in income on his tax returns. This minor income problem is apparently the result of an interest free mortgage he obtained from a big New York real estate developer and Rangel political donor. Rangle is allegedly to have said of his investment advisers at the resort "every time I thought I was getting somewhere, they’d start speaking Spanish”. Maybe he could have used a translator. For goodness sakes, this guy is Chairman of the House Ways and Means committee. Daily he oversees some of the most complex matters facing our Nation, taxes, Social Security, and trade agreements to name a few. Rangel is saying it was just incompetence that got him into this mess and he should continue to maintain his role as committee chair. If it is incompetence, he should lose his job; If it is stupidity, he should lose his job; if it is dishonesty, he should lose his job. The embodiment of politics as usual matriarch, Nancy Pesoli (or is it Posoli?) is supporting his retention but she wont be able to keep her finger in the dyke (or is it dike?) for long. Rangle is gone. It's a shame notwithstanding that he is either an idiot or a brigand he is always colorful and fun to watch.

McCain

Well he made the speech. He'd better get a specific road map out because the other side has more plans than Carter has pills. He needs to publish, publish, publish his top priorities and let Sarah keep banging away at the Dem's. He needs a full court information press communicating his economic vision and specific plans. He and Palin can get to work on the hearts and minds but the analysts need to have something to read while he pounds away.

McCain and Palin

Sarah Palin, Hockey Mom and VP candidate excelled with a brilliant speech. She effectively took on Boiraq with zingers and style. She is no push over. Her election against an incumbent Alaska long time politician will serve her well as she moves into the national spotlight. She made a very good impression. The heartland of America will support her candidacy and keep McCain in the running. The democrats are on the defensive and nervous about their own shallow presidential candidate.

Fake social secrity card gets mom with poor children deported

The Associated Press reported a story out of Carrollton, Texas with the question -- "Did a suburban Dallas employer (hospital) go too far when it told police about a job applicant who presented what turned out to be a counterfeit Social Security card?" It should be a requirement to report people that use fraudulent documents to cheat. If your child cheats in school is that OK, what about their friend? If you witness a crime should you just keep quiet? If someone uses a false voters registration card I wonder who they would be voting for?

NB. Is the reporting of such a minor matter related to the reporting of the mean hospital that deported the illegal auto accident victim?