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A Word to Pres. Obama...

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It's ALIVE!!...

Vacations are weird.

Vacations to foreign countries are weird.

Vacations to hot foreign countries with two little aliens are really, really weird.

Things I completely missed because I was in Hot Chinese City with my two little pumpkins (sans childcare), in no particular order:

• Iran elections
• Governor Sanford's affair
• some stuff in Pakistan
• some stuff in Kyrgyzstan
• KKR's yes, we're going public, no, we're not going public weirdness
• some stuff about financial regulatory reform

Then we get home, and now I know more about Michael Jackson than I really ever cared to.  Not that I don't have my nostalgic MJ moments (I do.  He was my very first memory of pop awareness.), but srsly?

The trip to Hot Chinese City?  Phenomenal.  My sister, who was supposed to visit us from Nearby Chinese City kinda totally flaked, but only in so far as she decided to come back to the US half a week before we left, so we did at least get to see her before we left for Hot Chinese City. 

What did we do in Hot Chinese City?  Srsly?  We ate.  We literally had ginormous meals with friends and family for every single meal over the 10 days that we were in HCC.  We ate at old favorites, new introductions, local cuisine, not-so-local cuisine, street-side-stand cuisine.  It was a smorgasborg of food.  Because it was so hot, of a variety that the girls have never experienced in their short lives, we basically didn't un-jet-lag, and lived according to our meal clock.  The girls would sleep from midnight to 5 am, we'd wake up to go to the park, go to breakfast, do one quick morning sightsee, then lunch, then retreat out of the sun for a long afternoon siesta, wake for dinner, and then do some night sightseeing.

I could not have been happier with Loo and Kali's reaction to the city.  They had a blast of a time, and continue to talk about their trip with bright shiny eyes.  Their only complaints: the heat and the bugs.  Oh, poor Loo, with her incredible sensitivity to bug bites.  By the second half of the trip, her legs were absolutely swelling with bug bites which had blistered.  We kept lathering on the anti-itch, anti-inflammatory, antibiotic-filled medicine, but it was a slow healing process that hed her whimpering for many days.  And Kali had a "slight" gastrointestinal problem, no doubt influenced by the fact that we were eating far too much, far too often and foods that were far too rich for her 2.5 year old body.  On the other hand, now that we've returned to the US, we've had several people comment that Kali seems to have gotten thinner (or taller, or both, will have to check). 

Things are (sort of) back to normal now.  The girls are still slighly jet-lagged, which means they are up between 4-5 in the morning.  And they take enormous early afternoon naps.  I'm back at work, but this is a ridiculous week as half the attorneys are out on vacation.  J is back at his research.

Being back in Hot Chinese City was very jarring for me.  When we left, I was sure that I had closed that chapter of my life.  I'd lived in 3 Asian countries over 8 years, worked for local companies and large multi-nationals.  I had more frequent flier miles then I knew what to do with (I ended up donating them to LegalAid, rather than watching them expire).  But being back, after 8 years away, I was absolutely washed in nostalgia.  Life can be surprisingly "simple" there.  And fun.

J and I are seriously considering moving back.  Not in the near future, but pending how successful he is in his academic career.  We will know in 4 years if his current school intends to keep him on, and if it doesn't, Asia seems as good a next move as any.

It doesn't really mesh well with the direction I've taken as a lawyer, but... oh, well. 

Right now, I can't really worry about any of that, since I'm fairly consumed with my ongoing epic battle (?) w/r to getting Loo into kindergarten.

Automobile Bankruptcies... It's the Banks, Stupid...

I hate left-right bickering.  Hate it.  I especially hate the left-right bickering about the automobile bankruptcy/bailout.  Yes, the approach taken w/r the bankruptcies left much to be desired, yes, I question the legality of the various things done by the government to ensure that the bankruptcies proceeded according to their "plan", and yes, there was probably a ton of politics involved (not the least of which, the preservation of the almighty union vote).  But yes, a too rapid shutdown of the American auto industry would probably have had pretty deep and severe consequences, which would have required extraordinary "other" taxpayer funded programs (if nothing else, more budget for the police/military to quell the riots and social instability that would inevitably happen if unemployment climbed into the mid-teens or even twenties), and yes, I too wonder what America would look like once we lose all of our ability to manufacture (though Robert Reich, a pretty darn tootin' liberal guy, has a series of blog posts about why the whole idea of preserving American manufacturing should be pwnd).  But the auto bankruptcies are not about the the unions, or the recession, or American competitiveness, or the small bondholders (more about this later).

Most of all, I hate left-right bickering because I'm increasingly convinced that it is all manufactured for the preservation of those who have absolutely destroyed America.  Watch I.O.U.S.A. if you don't believe that America is up shit's creek w/o a paddle.  Because of all these ridiculous left-right battles (and don't get me started on the cultural ones), we hate each other even more than we hate (1) those whose political might structured a financial system where they could get extraordinary magnified returns on the backs of those of us just trying to save for retirement or trying to put a roof over our families' heads and (2) those in other parts of the world who are just counting down the days until we explode magnificently. 

When will people realize that it won't matter if we have or don't have gender equality, have or don't have the right of choice, have or don't have gay marriage, have or don't have high or low taxes when we no longer have a country?

When it's too late.

Rape the country?  Too late, already done.  Want more proof?  Here's one:

Dimon is the CEO of JP Morgan Chase bank. While GM workers are losing their retirement health benefits, their jobs, their life savings; while shareholders are getting zilch and many creditors getting hosed, a few privileged GM lenders – led by Morgan and Citibank – expect to get back 100% of their loans to GM, a stunning $6 billion.

The way these banks are getting their $6 billion bonanza is stone cold illegal.

I smell a rat.

Stevie the Rat, to be precise. Steven Rattner, Barack Obama's 'Car Czar' - the man who essentially ordered GM into bankruptcy this morning.

When a company goes bankrupt, everyone takes a hit: fair or not, workers lose some contract wages, stockholders get wiped out and creditors get fragments of what's left. That's the law. What workers don't lose are their pensions (including old-age health funds) already taken from their wages and held in their name.

But not this time. Stevie the Rat has a different plan for GM: grab the pension funds to pay off Morgan and Citi.

Here's the scheme: Rattner is demanding the bankruptcy court simply wipe away the money GM owes workers for their retirement health insurance. Cash in the insurance fund would be replaced by GM stock. The percentage may be 17% of GM's stock - or 25%. Whatever, 17% or 25% is worth, well ... just try paying for your dialysis with 50 shares of bankrupt auto stock.

Yet Citibank and Morgan, says Rattner, should get their whole enchilada - $6 billion right now and in cash - from a company that can't pay for auto parts or worker eye exams.

And here's another:

JPMorgan is widely understood to be one of the biggest lenders to the U.S. auto industry, if not the single biggest. But CEO Jamie Dimon, when asked about the issue on the bank's first quarter conference call, said total losses in a worst-case scenario would be relatively small.

...a JPMorgan-led group of banks was largely unsuccessful in selling off a $12 billion loan in 2007 to finance Cerberus Capital Management's purchase of Chrysler in 2007, according to several reports at the time. Other lenders on that deal were Citigroup, Morgan Stanley, Goldman Sachs and Bear Stearns, though JPMorgan assumed Bear's exposure when it bought the faltering firm the following year.

The banks apparently hedged a good deal of this exposure by buying credit default swaps of Ford and GM. A report by bond research firm CreditSights in 2007 noted a sudden rise in credit default swaps on Ford and GM that July, which it attributed to bank hedging activity as efforts to sell the Chrysler debt ran into trouble.

Do you see what just happened?  The too-big-to-fail banks NEVER LOSE.  No matter what happens to every other industry, every other player in the market, every other citizen of this country, only one group of persons? bandits? cylons? are guaranteed to NEVER LOSE.

And we suck because we allow this to happen.

Charts and Graphs Monday...

Map of GM's influence across the globe.
Graph of TARP transactions.

I *heart* graphic representations.

Wow, they must think we're really stupid...

Start here (WSJ, paid subscription only):

Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program.

Allowing banks to have it both ways would give them added incentive to sell assets at low prices, even at a loss, the banks contend... [What is that they say about the Brooklyn Bridge?  But keep reading...]

One risk is that certain hard-to-value assets mightn't be fairly priced if banks are essentially negotiating with themselves.  Inflated prices could result in the government overpaying.  Recipients of taxpayer-funded capital infusions under the Troubled Asset Relief Program also could use those funds to buy their own loans.

"Sensible restrictions should be placed on banks, especially those that have received government capital, from investing their own balance sheets in a backdoor effort to reacquire what could be their own assets with an enormous amount of federally guaranteed leverage," said Daniel Alpert, managing director at Westwood Capital LLC, an investment bank.

What does this mean?  Say you are a bank, with a toxic asset that if you had to sell right this moment, could only fetch $1.  But you have it booked at $50.  You don't want to sell it at $1 because then you would have to take a $49 write down.

Now under the PPIP program, the banks can bid on the asset themselves (in other words, they would buy the toxic asset from themselves) but instead of the $1, they could bid, say $35.  The bank would still have to take a loss, but instead of a $49 loss, it would only be a $15 loss.  And then, let's say the PPIP leverage is 7:1 (I've forgotten what the PPIP leverage really is, but I know it's high).  That means that for every dollar the bank puts into to purchasing the asset, the government comes up with $6 (a combination of matching and guarantee).  So for the $35 asset, the bank pays $5, government pays/backs $30.  

Time passes, and what do you know?  The toxic asset is worth... $1 dollar.  But what has the bank lost?  Besides the original $15 write down, they've lost $5 of their money.  What have you and I (the taxpayer schmucks) lost?  $30. Now take that times a couple of billion.

During a press conference today, FDIC Chairwoman Sheila Bair was asked about the above WSJ article (h/t Naked Capitalism).  Her response:

"No [banks] will not be able to bid on their own assets. I think there has been some confusion about that....There will be no structure where we would allow banks to bid on their own assets. I think there have been separate issues about whether banks can be buyers on other bank assets and I think that's an issue that we continue to look at. There's also a question of whether banks who come to the PPIP to sell assets, while they would not be involved in the bidding process---private investors would set the prices---whether part of the consideration they would take back once the price has been set by the private sector, would be in an equity piece in the PPIP. Those are things we're actively discussing....

I think there are a couple of factors that are still at play here as we try to devlop this structure and look toward the launch of PPIP. One is we're finding on both the buyer and the seller side there continues to be discomfort about Congress's view of this program, whether the rules could potentially change. The Boxer/Ensign amendment I think is a good amendment...it addresses conflict of interest issues and we want that too. Nonetheless I think this has created some uncertainty about certain aspects of the Boxer/Ensign amendment and the Treasury will need to issue regulations I think to clarify those issues before we will have comfort by market participants."

Yeah, color me not terribly confident about Bair's "understanding" of the way PPIP is going to work.

The ship be sinkin'

Don't Cry for Me, Derivatives...

What a load of crock:

The U.S. Treasury’s plan to regulate the over-the-counter derivatives market outlined by Secretary Timothy Geithner on May 13 contains recommendations similar to those made by Goldman Sachs Group Inc., JPMorgan Chase & Co., Credit Suisse Group AG and Barclays Plc three months earlier.

The banks sent the Treasury a plan written in February titled “Outline of Potential OTC Derivatives Legislative Proposal,” saying the Federal Reserve should extend capital and margin requirements to companies and hedge funds that trade in the $592 trillion unregulated market, according to a document obtained by Bloomberg News and confirmed by the Treasury. Energy companies, corporations and hedge funds don’t face such requirements now, while banks do under central bank oversight.

“The banks appear to wish to maintain the intra-dealer market and raise barriers to new entrants to keep the OTC business as compartmentalized as possible and to protect their profitable market conditions,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. “The Street’s lobbyists appear to be asking for a ‘club’ structure in OTC trading.”

We're well on our way to creating a regulatory regime that virtually guarantees the existence of too-big-to-fail players.  Apparently, in Geithner world, it's easier to prevent systemic failure by regulating TBTFs than by not allowing them to exist in the first place.

Tool.

Let's Talk About Bankruptcy, Baby...

Forgot to get this up earlier this week.  There was an editorial in the NYT proposing changes to the bankruptcy code that would allow for a controlled resolution of financial institutions.

Since the collapse of Bear Stearns just over a year ago, the government has bailed out financial institutions whose failures threatened the broader financial system (with the exception of Lehman Brothers). In explaining this approach, federal regulators have said that they lack the tools to prevent disorderly failures of such institutions. Bailouts have been the only alternative to bankruptcy filings that can have dangerous effects on the rest of the economy.

But why not adopt an approach that would, where necessary, allow the controlled failure of a major financial institution?

To limit the disruption such an event might cause in the broader market, the government could announce that it would support the institution — for example, by guaranteeing its trading obligations — for, say, 60 to 90 days. During this period, the institution’s creditors and counterparties would not be permitted to cancel their contracts and demand immediate repayment, or force the institution to pony up additional collateral...

In return, the institution requesting government assistance would be required to ask its creditors and counterparties to reduce or defer their claims in order to restore the institution to solvency. It would also be required to commence plans for a possible bankruptcy at the end of the support period; make all material information about itself available to prospective buyers; and cooperate with counterparties that wish to enter into arrangements among themselves that would smooth an eventual bankruptcy, if one cannot be avoided.

If at the end of the support period enough creditors and counterparties have agreed to reduce or defer their claims so that the institution can stay afloat, or a third party has agreed to acquire it, then it would resume normal business.

I'm not a bankruptcy expert, in fact, I know only the barest minimum about bankruptcy law.  What I do know is that our current bankruptcy regime seems ridiculously unfit for handling the problems in our financial industry, which is why we keep avoiding the subject. 

Especially egregious is the fact that due to what I suspect must be serious lobbying efforts on behalf of the financial industry, certain derivatives are not actually subject to the "automatic stay" (or freeze) that all other claimants of the bankrupt entity are subject to (this was part of the 2005 bankruptcy "reform", arguably one of the most corrupt piece of legislation ever put into place).  I believe (though again, would love correction if otherwise) that this is why having a large financial institution going directly into bankruptcy is considered generally undesirable.  From Lehman's example, once a financial entity is pushed into bankruptcy, the counterparties to derivatives with the bankrupt entity have a huge incentive to pull out as fast and recklessly as possible, leaving other stakeholders in the financial institution holding nothing.

This has never been the intention of bankruptcy law, which was always meant to allow the orderly unraveling of insolvent institutions, with due attention to certain fairness considerations (the priority issues we've heard so much about w/r Chrysler, and don't get me started on how insane it is that the Obama administration decided to simply ignore these considerations when negotiating the Chrysler bankruptcy).

Srsly, sometimes I wonder if the American government isn't acting like the poor schlub who thinks that if he puts his overdue bills in a drawer, they cease to exist.

Given that we currently have one of the country's foremost expert on bankruptcy knee deep in this crisis (Elizabeth Warren, chair of the Congressional Oversight Panel overseeing TARP), I don't understand why this isn't on the agenda.

Food Matters...

h/t Cage Free Family

I'm a Free-Range Mom Too...

Cyn3matic (a fellow MOMocrat) has an amazing post about her life as a free-range mom, which explains her (continuing) decision to run an ad-free blog.  I'm far too insignificant a blogger to really consider carrying ads (even blogher ones) but it's also not something I could in good conscience do, because it runs against the way I want to live my life.

On a confessional level, I'm a pretty selfish person.  I know this about me.  I freely admit it.  My husband knows this weakness of mine, and he never fails to deploy it when we are engaged in one of our battles (what's that they say about hurting those you love?).  It is this selfishness, this absurd belief that *I* deserve more, am entitled to more, that led me to live a pretty absurd life in my 20s, despite many years of "pretending" to be a liberal, an environmentalist.

The closest analogy to my situation that I can think of?  Pretty much every politician on the planet (and the reason that I don't fundamentally trust politicians).  The incredible scandal that is happening in the UK right now:

At one level, the scandal is a rich tale of politicians exploiting a lax system of expenses to claim a mind-boggling array of benefits. The claims have centered on so-called second-home allowances, which have allowed some members of Parliament to use nearly $40,000 a year in taxpayers’ money to renovate and even sell properties for profit, while others have claimed monthly payments for mortgages that had already been paid off. Still others claimed “necessities” like the clearing of a country house moat, an electrical massage chair and even a Kit Kat bar.

The truth is, politicians make a fine living wage.  But relative to those they see as their peers: the entrepreneurs, the financiers, the lawyers and the doctors, they are relatively poor.  And while many do-gooders (and I place many politicians - yes, even the conservative ones - as a subset of the do-good population) have their hearts in the right place with regards to helping others, they are often less than honest when it comes to "helping" themselves.  The truth is, doing good comes at a price.  It feels desperately unfair, but that price is usually a commitment to never seeing financial rewards for the good that you do.

But we have forgotten what it means to sacrifice.  And back to my story, I'd forgotten what it means to sacrifice.  I was willing to fight for environmental issues but not willing to not have new shoes, new clothes, a great apartment, and a disposable life; even though my disposable life was a huge contributor to the very environmental problem that I was theoretically trying to solve.

These last few years have been emotionally exhausting for me.  I've realized that despite the fact that my family has been fast-tracking on the road to economic wealth, I've been inherently unhappy.  And the more money I made, the more unhappy I was.  But then as I started cutting back on stuff - we moved from a super large house in Bumfuckville to a much smaller house in Law School city, then to a teeny tiny apartment in our current metropolitan location, shedding stuff all the way - the more weight I felt lifting from my shoulders.  The more that I've been able to follow the personal finance world and cut back on expenses, the better I've felt about myself and about my preparedness for the future.  And, surprise surprise, the less stuff I've had, the less impact I was having on the environment.  It's just been a win-win-win for me.

I'm still not perfect - oh, SOOOOO far from it.  For example, Cyn3matic has made certain parenting choices that I really admire.  Specifically, she chose to use diaper-free elimination communication with her son, which takes a kind of dedication and time commitment that my other big life choices (namely, law school and a law career) didn't allow (yes, I was disposable-clog-the-landfill-diapers all the way).  But I made other decisions to live a lesser footprint lifestyle which I could fit into my larger life goals: I also made 90% of Loo and Kali's baby food from scratch; we have purchased exactly one piece of kiddie furniture (a crib) and everything else has been 2nd hand converted adult furniture (including, remember, mattress on the floor?); we use the library religiously; we buy organic when it's available.

It's still hard.  It's hard not to covet the wardrobe, the fancy vacations, the jewelry, the newest electronic toys.  I can still taste the buzz that comes right after I purchase something shiny and new.  But it's getting easier, over time. 

This is really a roundabout way to get where I was going but here it is:

(1) I can't flog things on this blog because I can't ask anyone out there to want things.  I just can't.
(2) It is entirely too attractive to get things for FREE!  I still don't have the will power to resist the lure of getting, owning, having.  So I need to remove myself from the temptation.
(3) Srsly?  I write about economics and personal finance.  Who the hell would want me to shill their product anyways (except, maybe, Suze Orman?  Oh, Suze, yee of wondrous white teeth...  I'd happily shill for you for no charge though, *call me*).

Want to hear more?  Well, this guy (Jack from Voluntary Simplicity), has got it goin' ON.  If I weren't married w/ kids, that's what I'd do.  Rock on, Jack.

Margaritaville...

Srsly, funniest South Park episode EVER!

Watch it, you can thank me later.