The mysterious banking crisis unraveled by your friend Joel

Here's how it happened:

Big Fucking Bank (BFB for short) wants to package up mortgages into fancy packages and then sell them.

In order to do this, they divide the mortgages up into bundles of varying risk (called Collateralized Debt Obligations, or CDOs). The "junior" CDOs pay higher returns because they might not get paid back (if the underlying mortgages go sour). The next most "senior" get less return, but will get paid back before the junior. This proceeds up the line till you get to "super-senior" CDOs. These have low returns, but are guaranteed to be paid back.

There's always a risk that a given mortgage won't be paid back though, so BFB needs to keep a certain amount of money on hand, just in case, to pay off the senior bundles.

Or anyway, that's normally what happens. Instead, BFB bought insurance on the super-senior CDOs from a friendly company called AIG. These are called "credit default swaps," CDS for short. This insurance was expensive (so AIG got rich), but not as expensive as just leaving cash laying around as collateral on the CDOs.

Since this was super-senior debt, AIG's risk-management folks happily sold the insurance. Since the chance of having to pay a claim was incredibly low (theoretically), AIG only kept a little money on hand in case the claims went sour.

BFB's guys knew better though. They knew that AIG was deep into this business, so they had a lot of insurance policies on very similar CDOs. They also knew the nature of these super-senior bundles, which is such that they only way they could go sour (i.e. need the insurance) was if there was a broad, nationwide decline in property value. Unfortunately, exactly the same risk applied to all the super-senior CDOs, so if one failed (triggering a claim AIG would have to pay), they would all fail (triggering billions in claims that AIG had no way of paying). Thus not a single CDS had any chance of being paid in the event of a claim.

Nevertheless, the BFB guys had to take out the policies to "prove" that they had their obligations covered. Here's the real genius though. They knew that a broad drop in housing value would trigger all of these insurance policies at once, which would bankrupt AIG. So rather than buy insurance elsewhere (since no one else would sell such garbage) or find other ways to make money (the CDOs were too profitable), BFB hedged by taking massive "short" positions on AIG itself.

During the course of 2008, sure enough, house prices declined nationally. This had two impacts. First, BFB took a massive paper loss on their CDOs, because no one wanted to buy them anymore and the rules of accounting state that securities have to be "marked to market value." As a result, BFB didn't have to pay any taxes on the money it was still making from other activities. Second, AIG, as predicted, was unable to pay off all the suddenly-due CDS claims. So the government steps in and "bails out" AIG, which turns around and gives the money to BFB.

So the end result is that AIG is dead and BFB has the nice cash cushion they avoided in the beginning, along with the profits from short-selling AIG, which by the way they didn't need to pay taxes on because of the "loss" they took on the CDO. And BFB knew this all along.

Ladies and gentlemen, fuck me silly and call me Shirley, we the people just got taken to the cleaners, used and abused, and dare I say raped by a bunch of smart and slimy finance majors. God Bless America.

Dude gets a new asshole

Holy shit, John Stewart tears Jim Cramer (and CNBC even more) a huge new brown eye. Some of this is like Curb Your Enthusiasm-level uncomfortable. Watch clip 3 especially, it's some serious shit. Money quote "I understand you want to make finance entertaining, but it’s not a fucking game."


Part One:

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Interview Outtake Pt. 1

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Jim Cramer

Part Two:

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Interview Outtake Pt. 2

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Jim Cramer

Part Three:

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Interview Outtake Pt. 3

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Jim Cramer

This irks my butt

In the interest of pluralism and tolerance, it is often said by very well-intentioned people that religion and science can and should coexist peacefully. I suppose that it's not necessary for them to clash - at least, science need have no quibble with religion - but it turns out that in practice there are almost inevitable pitfalls. These come in two forms. From the science side, you have folks like Richard Dawkins who feel a need to proselytize against religion. When I was a 20 year old philosophy major who smoked like 72 blunts a day, I felt a similar need (which even then I suppressed since it was in poor taste). But guys like Dawkins just don't get over it. He's been a vocal atheist for years, penned numerous articles and books on the matter, and now gone so far as to buy bus-side advertisements. Seems pathological to me. In the end though I think guys like this are basically harmless. No one to whom religion is important is going to pay him any attention. Has even one person been "converted" by Dawkins' "science"? Doubtful. Mostly he preaches to the choir.

From the other side, we've got something a bit more insidious. Bear with me as I digress for a moment. Organized religions (especially Christianity) have been put in a bit of a bind over the past couple centuries. Despite the fanciful theories of some apologists (my college history of science professor, for one), it's hard to say with a straight face that the church has not been a consistent antagonist of science. Unfortunately for the Holy Father and his associates, science has marched right on, and our view of the world has become increasingly physicalist over the past 500 years. More significantly, that progress of knowledge has underpinned the enormous progress made in the real world over that same time. To the point that the church has been in a state of pretty steady retreat, alternately opposing and then accepting quite a litany of discoveries: the printing press; heliocentrism; the circulation of blood; and of course evolution. The links are mostly referring to the Catholic Church, since that was the most cohesive and the largest Christian institution until the past 200 year. The Protestant faiths have been to varying degrees more (e.g. Southern Baptists) or less (e.g. Unitarians) conservative in this respect. The example of evolution is perhaps the best example of this growing equivocation.

It was perhaps inevitable that the faiths would give this fight up in the end, and begin to co-opt and appropriate the science they once opposed. The examples of this are numerous, but one I saw recently has me particularly heated. The Catholic Church, you see, opposes all forms of birth control. This is as crazy as it sounds. They apparently know this, and know too that many of the faithful ignore it (but probably feel guilty about it anyway, which is really my core complaint about Christianity). I know a number of Catholics, and most of them are or have at one time or another been on birth control. It's the responsible thing to do if you have sex kids. Well anyway, the church (this is true of our evangelicals too) knows this, but also knows that aversion to abortion is quite a bit stronger. So the plan is this. Fake up some official documents saying that chemical contraceptives actually cause abortions, sprinkle in some references to scientific studies (but don't actually cite anything real), and voila! You have thousands of people avoiding a safe and effective contraceptive (Plan B) based on a lie.

Excuse me? What the fuck, wasn't Jesus pretty clear about lying?

I don't mean this to be an anti-religion diatribe. But it is exactly this sort of thing that gets in the way of the sort of peaceful coexistence of believers and non-believers that Obama spoke of at his inauguration. Do atheists do stupid things? Of course, see above. But do they do evil things (like spreading unequivocal lies that make life worse for people who look to them for guidance) in the name of their beliefs? Not that I know of. The Catholic Church and Southern Baptist Convention still do.

Life improvements

Last week I made a minor purchase, a 7 megapixel digital camera. In high school, I worked at a camera store in Golden Valley. At that time I had a Nikon N60 SLR, which was my most prized possession, but I really aspired to a digital camera. These were not brand new at the time, but they were pretty cutting edge. And by cutting edge, I mean that a 3 megapixel (that's right) Nikon digital SLR cost....wait for it...2 geezles. Yeah. Oh, and they could store like 43 pictures, which was hot.

Well anyway, last week I spent way longer than I needed to at Circuit City. Although I am notoriously terrible at making these sort of consumer-product decisions, this time it was not my fault. As you may know, Circuit City is going out of business (my friend Nick emailed us a link exactly 12 minutes after this article was posted with the subject "Buy shit NOW!!!"). Well in their news release, Circuit City's VIPs blame market conditions and tightening credit terms for their demise, but I have a different explanation. How about that their employees are fucking stupid??? Hm? This camera I was looking at said something about "Smile Capture Technology," which sounded intriguing. So after looking around expectantly for an employee (unsuccessful), I wandered over to the nearest counter, where a 16 year old wearing a red shirt to match his face was busy picking his nose, and asked for help. This kid stared at me blankly for about 7 seconds, nodded vaguely, and walked into the back room. About 17 minutes later, this gangly (but comfortably 20-something) dude comes up and asks how he can help me. Hopeful, I asked him if he could explain this "Smile Capture Technology" to me. My mistake. Grabs the camera, pokes around in the menus for a good minute, and then declared smugly, "Well it's technology that captures smiles." Seriously. No, I'm not kidding. Exact words. I don't know how to portray a long and dumbfounded pause here with any impact. Oh. My. God.

So anyway, this guys was on me like butter on bread for the next 30 minutes while I unnecessarily pondered a more expensive option (an unfortunate side effect of disposable income). I think he was autistic. I did my best to ignore him, and eventually settled with great agony on this fancy little number. The pain was worth it. Cybershot + Picasa = Crazy Delicious. My life is better because of this device. I always want to take pictures, but my SLR is too big to drag around, and denies me immediate gratifications. So now I am more creative (or anyway, I have an outlet for whatever creativity I have), and my bank is only slightly lighter. Upon hearing this tale, the aforementioned Nick made exactly the same purchase. Good choice dude.

I recommend that everyone do the same. You will sleep better and get 99 virgins. True statement.

Ugh, palestine

Take a look at this op-ed. Maybe I'll elaborate on this more later, but the facts are so naked. Israel has done all sorts of terrible, stupid, and immoral things in the occupied territories, but in general they have a pretty practical view of the whole thing as far as I can tell. See the quotes from leaders of both Hamas and Hezbollah for a contrast. How can anyone with a straight face think these people can be dealt with on a rational level? What the fuck is Israel supposed to do with people like this on the other side?

All sorts of left-leaning folks make the case that the radicalism of these two organizations has it's roots in Israeli abuses. I submit that based on the statements in Mr. Goldberg's article, the rhetoric is both deeper and older than anything Israel has ever done. Why don't we ask Nasrallah whether his opinions about Jews and Israel are based on anything that's happened in since 1940? I think he'd say something like "Well all of those are bad, but it's much deeper than that." He has to; to say otherwise implies that a negotiated solution would be possible as long as Israel "made up" for those wrongs. And clearly, neither he nor Hamas wants coexistence, concessions or not.

War crimes

I sent an email to Andrew Sullivan of The Daily Dish yesterday:

-----------------------------------------------------------------------------------

Andrew-



Many thanks for your informative, insightful, and often relentless blog. I found my way here after your article a couple months back in Atlantic and have struggled to keep up since (enjoying every minute). So much more satisfying than the usual MSM (even my “usual,” the NYT).



Writing for the first time to ask about your ongoing discussion of the crisis in Gaza. Specifically the question of “war crimes.” Your more recent post presumes that the scene you describe in the former is in fact a war crime. I don’t pretend to be an expert on this topic, but I wonder if you could elaborate on this. Obviously, children sitting around their dead parents is terrible, but is it really your position that it is now the responsibility of armies to search for and evacuate the wounded-but-not-killed? And that failure to do so constitutes a war crime? It’s entirely possible that this is a settled question that I’m just not aware of, but it strikes me as a massive expansion in the moral responsibilities of our militaries. From my (and I presume your) perspective, maybe this is ok, but is that really the consensus?



I consider myself pretty “centrist” in this whole Israel/Palestine question. My understanding of the far history in the conflict is limited, but I take it that Israel’s capture of territory following the 1967 war, and especially the subsequent expansion and spread of “colonists” within the West Bank and Gaza, are fundamental and basically illegal catalysts for this whole conflict. On the other hand, the Arab world has provoked them mercilessly since then, most particularly with insistence by various players that Israel should not exist at all. More insidiously, given Hamas’ pervasive use of human shields, it strikes me as difficult to fault Israel for any civilian casualties in the conflict. Doing so sets up an impossible dilemma for modern states in general and Israel specifically. Hamas can strike at other states and then melt back within their civilian sympathizers with the expectation that moral concerns and media coverage will force the other state to stay their hand. This arrangement puts a state like Israel, which is admittedly fallible and mistake-prone but generally seeks to behave morally, at the mercy of a “state” actor like Hamas which deliberately seeks to kill civilians and (perhaps worse) uses its own citizens as human shields (I am playing with some ideas from Philip Bobbitt here, if you’re interested). It strikes me that this is parallel to the question of paying off hostage-takers. We don’t generally do so, even if it means civilian deaths, because paying ransoms would reward the perpetrators and thereby cause more deaths by encouraging hostage-taking. Similarly, western states may be erring in putting too much into avoiding collateral civilian casualties. Certainly we should negotiate and make every attempt to draw these actors out of the civilian populations. But this only works if the end game to the negotiation is overwhelming and unflinching force. Right now, groups like Hamas get to have their cake (inflict pain and embarrassment on Israel) and eat it to (Israel responds with enough force to kill civilians, making them look even worse, but not enough to actually wipe out Hamas, for fear of collateral damage). As an alternative and hyperbolic thought experiment, would any Gazan neighborhood be likely to tolerate militants in their midst if they knew that Israel was willing to level the whole thing, people and all, to eliminate the militant cell?

He wrote back:

joel
not evacuating children from war zones is legally a war crime. the
issue is whether there were israeli troops aware of the kids who did
not evacuate them or get them to hospital. some of them were abandoned
for days in those conditions. but we'll see what emerges

Really?

Not much better

I've been thinking a lot lately about myself. Lots of real soul searching, writing, and thinking about my job, love, and life in general. Today I read this article (be warned, pretty disturbing) by Nicholas Kristof (link) about human trafficking. I won't try to speak more eloquently on the subject than Mr. Kristof, he writes regularly and with a pretty committed heart about this subject. I'll say only that of all the causes that we can pay attention to, this one may take the cake. It is pain and suffering on a horrific scale, inflicted not because of weather or earthquakes, political fights or ethnic conflicts, but just plain old evil, greed, and apathy. The Somaly Mam Foundation does good work, and right in the worst parts of this thing.

That's some fucked up shit right there

I'm sitting on a plane behind a drug rep from Pfizer, and watching over her shoulder with a mixture of fascination and horror. She's writing a "Practitioner Report." Here's a sample:

55082 (Stillwater)

Knowles (#24 potential, #88 actual)Continue with the increased attention and 'positive tension.' Celebrex sales still good but could be better. Befriend PAs, Keep up on Nap business.

Adrien (#10 potential, #21 actual) Way up since June, sky's the limit. Like's consistent but not too frequent contact. Continue with weekly call, schedule lunch in Feb. Celebrex down last couple months, keep after that.

How sick is this? She has a database that shows every physician and all the drugs they're prescribing, presented alongside alternatives (such as generics) and graphed over recent months/years. Something just feels so wrong about this to me. I know they're a business and they've gotta make money, but medicine should be about what's best for the patient. Why? Because everyone pays for drugs except the one making the decision (the "practitioner"). Publicly, the drug companies say that they're merely "educating" the physicians, but this little snooping shows the lie in that. Why rank physicians if you just want to make sure they know about the facts? The logic must be that their drugs are so good that the more you know the more you sell. Right.

I have an urge to publicize this. I have her name, and real names of the doctors. Does everyone know that they do this?