The Lehman Emails Make Your Household Tax Process Look Top-Notch @1:40 PM
Here's a look at how Lehman Brothers worked out the process of repurchasing assets and counting them as sales. “'So it’s legally doable but doesn’t look good when we actually do it? Does the rest of the street do it?' one Lehman employee asks another in emails included in the report. The answers, respectively, are yes and no, followed by a smiley face." CONFIDENCE-INSPIRING. 3
Tina Brown on Building a Subculture of Impoverished Writers @11:30 AM
Here's Tina Brown, from January, 2009: "For a while last year, the downsized people I know went around pretending they enjoyed the 'freedom' and 'variety' of doing 'a whole lot of interesting things.' Twelve months later, nobody bothers with that cover story anymore. Everyone knows what it actually feels like, this penny-ante slog of working three times as hard for the same amount of money (if you’re lucky) or a lot less (if you’re not). Minus benefits, of course…. The managers of all these disintegrating companies tend to be mesmerized by the notion that everyone can now be hired cheap—that everyone is slave labor." And then there's Tina Brown late last week, on Charlie Rose—in which Tina has cast herself in a different role in this fractured, problematic transactional relationship. READ MORE 43
Rich People Things: Flowers of Evil @11:30 AM
It’s a funny thing, fidelity. Last week’s enormous bankruptcy-report filing on shady financial practices at the late Lehman Brothers investment house depicts an internal braintrust desperate to conceal reckless debt transactions and deceptive accounting practices from public view. The court-appointed examiner in the firm’s bankruptcy proceedings, Anton Valukas, found that senior Lehman officials tried to alert their bosses of blatant efforts to reclassify debt as “sales” under a recondite accounting trick known in house as “Repo 105”—so named because it permitted the company to assess buy-back transactions of assets sold for cash at a value representing 105% or more of the cash the company actually pulled in. And presto, Valukas observes: “Unbeknownst to the investing public, rating agencies, Government regulators, and Lehman's Board of Directors, Lehman reverse engineered the firm's net leverage ratio for public consumption.” READ MORE 12
Rich Man Hard To Work With: The Jeffrey Gundlach Story @1:35 PM
Fortune lays out the wild story, which has been hot out in Los Angeles recently, of bond fund manager Jeffrey Gundlach, who made a huge fortune but was something of a annoying person! This happens frequently. He was fired back in November, from TCW, the LA-based, Société Générale-owned money management company, where he oversaw the majority of the firm's money: $70 billion. He was so disliked that 45 of the 60 people who worked for him followed him to a new firm. Lawsuits followed, imaginably! The best part is that when he quit, he walked down 17 flights of stairs, followed by his bosses. That's Los Angeles drama: actual use of stairs. But times are still tough for Gundlach. While setting up his new firm? "He showed up at meetings in January with a black eye and cuts on his face, which he says came from tripping and colliding with his desk at home. On Feb. 1, his wife of more than 20 years, Nancy, filed for divorce." Oh dear. 3
"Even the supporters of our existing financial structure — men like former Treasury Secretary Henry M. Paulson Jr… the White House economic adviser, Lawrence H. Summers… and JPMorgan Chase’s chief executive, Jamie Dimon — concede that big crises occur every five years or so. What hit us in 2008-9 was not a “once per century” event. Rather it was the latest, and scariest, in a series of regular global crises going back at least to the 1970s."
—MIT's Simon Johnson takes a stab at explaining why huge financial institutions are self-serving and a menace to those of us who aren't them. @11:10 AM 6
Even Actors Find Out that the New Currency is Attention @9:30 AM
I am making less money upfront than ever and so is America's Sweetheart™ and potential This Weekend's Oscar© Winner Sandy Bullock, who only got $5 million up front for her dye job in The Barf Slide. Now more than ever, actors are working on an attention-based bonus system, in which the success of a film is what brings the big pay, and the huge names take "less" up front. (Setting aside the hilarious pay scale itself, in some ways this is not a great idea, as actors have the least to do with the finished product being watchable or miserable? And yet still.) In the future, though, I think we'll see that most industries will have switched to this system. Book publishing, obviously, is backwards and has known but not acted on the fact that past performance is no guarantee of future performance; and someday all writers will work on a scale that pays them just based on eyeballs. Also strippers and pole dancers all over the world have been working on such a straightforward system for centuries! They even improve upon this model, in which, while the customers stare at you, they also feed you money. Movie theaters could work like this too quite easily! It just makes sense, America. 5
AIG's Investors Unhappy With–Ha, AIG Has "Investors"! @9:50 AM
Idiot AIG, who—do I really need to do a descriptor here? I mean, you already know that they insured everything and everyone and then unsurprisingly got hosed on every deal—"lost $8.87 billion in the fourth quarter." According to the AP, "Investors weren't happy with AIG's news, and bid its stock down nearly 13 percent in"—I'm sorry, their what now? Someone still buys AIG stock besides AIG? 4
A Notable Surge in the Commercial Default Rate @2:25 PM
Remember how we talked about commercial debt and default? AKA the "coming crisis? Well here is the slow beginning:
The default rate for loans on office, retail, hotel and industrial properties surged to 3.8 percent from 1.6 percent a year earlier, the New York-based real estate research firm said yesterday in a report. The default rate for loans on apartment buildings climbed to 4.4 percent from 1.8 percent.
WaPo News and Mag Divisions Report Massive Losses; Revenue Plummets @10:36 AM
You may have noticed some very glowing stories this morning about the Washington Post Company! The AP says: "Washington Post Co. quadruples 4Q profit"! That is true! Now, this is a company with many different arms. Two of the wings, the cable TV stations and the Kaplan education services, provide fully 75% of the company's income. But what about the newspapers and magazines, you ask, from which the company takes its name? Well they are in the toilet, actually, and had a very bad year. READ MORE 13
Just How Badly Does Money Want To Be Free? @10:05 AM
Hey, remember how we saw that Wired piece on Money Wanting To Be Free coming down the pike and we were like, uh, oh boy? Hey, it is here now! And it asks: "What if people could transfer money over Twitter for next to nothing, simply by typing a username and a dollar amount?" Well, what if I could shit gold coins, and pay people simply by pulling down my pants? That is totally possible as well, if I swallowed a bunch of gold coins and then had the ability to excrete at will. Let's make this happen, people! Okay, but seriously, it's fair to agree with Wired that we are maybe, maybe, sorta on the brink of undermining the massive, unfriendly and filthy rich credit systems of the world—and that would/will be wonderful, when it starts to work. READ MORE 5
At Tax Time, Gays Turn To Accountants, Not Terrorism @12:30 PM
Come tax time, many of the gays find themselves in a tricky and possibly leaky lil' tax boat. Instead of flying planes into IRS buildings, however, which is simply inappropriate, most of them, you know, find ways to mitigate the consequences of a GOVERNMENT-RUN PROGRAM OF INEQUITY. Says one expert: "Heterosexual married couples 'can arrange their affairs any way they want without a tax burden, and generally that doesn’t happen for gay and lesbians.'" Where is the anthraxing and the outrage? Maybe gay people just don't ever have airplane pilots' licenses? 3
Understanding the Commercial Real Estate Crisis @1:05 PM
Earlier, we mentioned today's Congressional Oversight Panel's report on what they call "a commercial real estate crisis on the horizon." The horizon, it turns out, is rather near! So, let's back this up. Commercial real estate loans usually have a rather short term of between three and ten years, and there is often a large final payment at the end of that term—a payment which is almost always covered by an additional loan. The panel is explaining, rather obviously, both that loan default rates are already high and that additional lending is difficult to secure, and so a rather high rate of default on these much larger payments should certainly be expected. Over the next four years, $1.4 trillion in loans will hit the end of their terms. Half of those loans are for property that is underwater. What's more, a number of these loans come from banks that may be stretched a bit thin. Those are the basics, but let us look at some of the panel's easy to understand graphs about the situation! READ MORE 17
We Hate It When Our Friends Think We're Not Successful And We Feel Empty Inside @10:45 AM
"The average bonus on Wall Street was less than $14,000 in 1985. That number didn’t get much higher until it doubled in 1991 to $31,000, which became $100,000 by the turn of the century. In 2008, even when the average bonus fell by more than a third, it fell to $112,000."
—On bankers, expectations, income, sensations of loss and the meaningless of doing anything. 11
Rich People Things: Alan Greenspan's Window Is Always Open @11:40 AM
Well, this is awkward. Alan Greenspan, hailed for most of his nearly two-decade run as chairman of the Federal Reserve as a market savant of the first order, is now assailed from all sides for the Fed’s apparent role in overinflating the country’s garish housing bubble. The charge is a fraught one, reports Fortune magazine’s Geoff Colvin, since should it stick, it will fundamentally reshape perceptions of Greenspan’s legacy at the central bank. Already the sweep of the emerging indictment is such, Colvin writes, that “four years after leaving the Fed as the Greatest Central Banker Ever, the longest-serving chairman, the Maestro, Alan Greenspan is the designated goat." READ MORE 6
The Strange Case of Yale and the "Federal Takeover" of Student Loans @11:24 AM
Caesar Storlazzi has been the chief financial aid officer at Yale since 2005. Back in November, he made the decision to work with the government's direct student lending program, in anticipation of the disembowelment of Sallie Mae and the other mega-lenders. And now, he tells the Times, he's regretting it. "'It really felt like the administration was just shoving this down our throats,' he said. 'It feels a bit like a federal takeover.' With competition among lenders, he said, 'We get better prices and services.'" What a strange and amazing thing for a senior official at Yale to say! READ MORE 12
Words Like "Chaos," "Plunging," "Everyone's Freaking Out" and "Freefall" Appear on Finance Sites @12:45 PM
The 2009 GDP? It's the Worst Since 1946–And 7.6 Million Jobs Disappeared in Two Years @10:20 AM
We're going to talk about math and finance here, so take a deep breath. I'll go slow for you! The big headline today is that, from 2009's third quarter to the fourth quarter, the gross domestic product increased at an annualized rate of 5.7%. This sounds really big! So many big headlines about it. But may we put it in perspective? One of the short versions is that people had more cash, and spent more, in the final three months of the year, that they did in the previous three months. So when the Times trumpets that the "U.S. Economy Grew at Fastest Pace in 6 Years Last Quarter," what they mean is that, in six whole years, this is the largest quarter over quarter contrast. Is this shocking? Actually it is because the previous quarter was kind of garbage. Let us instead compare to years previous. The government says: "GDP decreased 2.4 percent in 2009 (that is, from the 2008 annual level to the 2009 annual level), in contrast to an increase of 0.4 percent in 2008." So, you know, another way to headline this announcement would be something like: "U.S. Economy Ended 2009 Only 2.4% Worse Than 2008." Here's how Bloomberg expressed that idea: "For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946." READ MORE 27
"Bankers Should Make More Money Than Average People" @12:00 PM
Because it's winter or something, I've been spending (too much of) my time these days going back to first principles. Like: why are there sidewalks? Why do we like bread so much? Why did some buildings in New York get torn down and why not others? What is the deal with cats getting domesticated? So this pullback on assumptions, by James Kwak, about how humans get paid, in a discussion about Goldman Sachs bonuses, is striking: "Investment bankers are overpaid. Now, before all the bankers get all indignant on me, let me say that bankers should make more money than average people, at least according to the normal rules of our society; for one thing, they are, on average, better educated than most people. (As I’ve written before, I don’t think there’s any moral reason why people should make more money simply because they are better educated, or have unique skills, or are more intelligent, or work harder; but that’s the way the world works, and most people are OK with that in principle.)" READ MORE 19
"Some people will say [AQR Capital Management founder Clifford Asness] is over the top in comparing Mr. Obama's proposal of a 0.15% tax on liabilities of firms with assets of $50 billion or more to a pogrom, in which Jews were thrown from rooftops, raped, and had their homes looted. And they may be correct." [Via] @11:10 AM 5
Crazy Oregon Very Slightly Taxes Wealthy Citizens and Corporations to Fund Schools and Public Services @10:00 AM
In light of Barack Obama's pretty bullshit spending freeze scheme—you know, the one that affects programs like "air traffic control, farm subsidies, education, nutrition and national parks"—the success of two ballot initiatives in Oregon yesterday are fascinating! The state will raise, by nearly two whopping percentage points, taxes on households that earn more than $250,000 a year (which, in Oregon, is basically the equivalent of three miiilllllion New York City dollars) and will also raise the state's minimum corporate income tax. How radical! No wait, let's take a closer look at that one. Since 1931, all businesses in Oregon have been required to pay a minimum of $10 a year in tax. (TEN DOLLARS.) That minimum tax amount, for corporations making up to half a million a year, will now be $150. It also increases very minimally the filing fees for businesses, and increases, very slightly, tax rates on large and profitable companies. And all of this excludes sole proprietors. How did a crummy state like Oregon come up with such a mind-blowing idea? Maybe other people will try this so that "air traffic controllers" and "nutrition" can continue to exist. 11
Felix Salmon cracks me up:
It’s not like CEOs and billionaires (and billionaire CEOs) need any more flattery and ego-stroking than they get on a daily basis, but Davos gives them more than that: it allows them to flatter and ego-stroke each other, in public. They invariably leave even more puffed-up and sure of themselves than when they arrived, when in hindsight what the world really needed was for these men (it’s still very much a boys’ club) to be shaken out of their complacency and to ask themselves some tough questions about whether in fact they were leading us off a precipice. Now that it’s clear that many of them were leading us off that cliff, there’s still no sign of contrition, although you can be sure that a few fingers will be pointed at various past attendees who aren’t here to defend themselves. Is anybody here seriously examining the idea that Davos was institutionally responsible, at least in part, for the economic and financial catastrophe which befell the world in 2008? I’ll be on the lookout for that over the next few days.
"The economy desperately needs less of our bloated, unproductive and increasingly parasitic banking system…. The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class."
—That's David Stockman. You remember! The former OMB director who watched as the gross federal debt went from $1 trillion to around $2 trillion during the Reagan administration (and came to believe, in the process of creating a debt-growing budget, that "there are no real conservatives in Congress." Yes, the one who, many years later, drove the company of which he was CEO into bankruptcy and was indicted but never prosecuted for fraud. Strange, the course of human lives, no? @11:20 AM 4
U.S. Banks "Very Liquid"–with $1.2 Trillion in Cash @11:51 AM
Today's Goldman Sachs Global Investment Research paper on U.S. banks is five kinds of fascinating—spelling out as it does that banks are currently cash-rich, yet still fairly lending-averse. (Consumer loans were, however, up slightly in December, which is a yearly bump.) While sitting on $1.2 trillion in cash—$1.2 trillion is also the total value of China's exports in 2009, by the way!—GS notes that, in the fourth quarter, "Loans were down slightly after 3Q's 4% decline." How are they filling this big kiddie pool up with cash? A good chunk of it is your card use fees, various "late" and service fees, and, natch, that old standby, credit card interest. In case you speak bank, then you can understand this, and can translate in the comments: "Credit card early delinquencies have turned, and consumer is 40% of provisions for large banks. We think the next product to turn in 2010 will be commercial (C&I) with improving corporate defaults." 11
Rich People Things, with Chris Lehmann: A Steady Diet of Nothing @10:30 AM
Now that American finance capital has laid waste to much of the productive economy, Newsweek weighs in with the question that eventually occurs to all fretful magazine editors in the face of a crisis: What about the children? Or more precisely, what about the generation of striving Americans coming of an age when the lords of finance live in a state of plush federal retainership—and old-economy perks such as pensions, benefits and job security now seem like a sick joke?
For young people launching their tours in the workforce, explains Newsweek reporter Rana Foroohar, it’s hard to summon much in the way of free-spending pluck. READ MORE 19
Here Is What Needs To Happen For Gay Marriage To Pass @10:50 AM
Yesterday's defeat of a gay marriage bill in the New Jersey Senate is just one more disappointment in a string of bitter losses for those who seek equal justice under the law. Sure, other countries don't seem to have a problem making fairness legal, but here at home, at the state level, we have apparently decided that we're not going to play along. Many of the objections you hear center around religion, but the sorry undercurrent behind the unwillingness to grant the same rights to homosexuals that their fellow citizens already enjoy and frequently abuse is actually one concerning politics and economics, i.e., in These Troubled Times legislators are not willing to take a chance on equality while their constituents are more concerned about jobs and wages. Basically, gays are screwed until the economy picks up again and we all feel so prosperous that we don't care whether or not two committed partners who happen to be of the same gender want the same benefits as everyone else. It's unfortunate, but that's the way it is. So let's set some benchmarks! READ MORE 27
"But in a market society, since when are people responsible for the economic effects of their actions? " @2:33 PM
I wanted a little bit more reasoning and example on this "THE WAY WE LIVE NOW" piece from this upcoming New York Times mag, which says that people should abandon their underwater mortgages (true!). He writes: "Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them." Sure! There is of course often the complication that then, you know, people have to find somewhere else to live. 55
An Open Letter to London: This Goldman Sachs Scam Is Old @2:20 PM
Dear London Mayor Boris Johnson and Darren Johnson, AKA, the funsy gay guy who is chair of the London Assembly;
So you two do realize that this is a transparent ruse, yes? That Goldman Sachs "is understood to be considering its options in the wake of the UK's windfall tax on bankers' bonuses, a new 50pc top income tax rate, and increased banking regulations" is hilarious, and it is also a dead giveaway that the Telegraph uses the phrasing "is understood" to introduce this idea. Let's see: here's an incredibly-secretive, super-private financial institution of which it can be "understood" that they're going directly to the papers as the first volley in a bargaining plan. But: hilarious! They're going to pretend that they're willing to leave London? They're going to offshore the London office? To where? Glamorous downtown Sofia? Belfast? Tallinn or Toronto? Think it through, boys. Nobody who works in that office will leave London! What's the point of being rich if you have to live somewhere crappy? It just doesn't work like that. You can near-shore and off-shore the jobs no one wants to Salt Lake City or wherever—but you can't move the income producers to a town where they can't get a cab and a fat steak. If you give Goldman Sachs anything at all to stay put, it means you both are huge morons, just like New York City mayor Mike Bloomberg was when GS pretended it was going to move from downtown Manhattan to more expensive quarters in midtown, and they wouldn't even have done that. Ever.
Our fondest regards,
The Awl 11
Worthless Money Has a Price Now @11:00 AM
Best holiday card of the year: the one from (Chicago-based and Objectivist-believing!) CapitalistPig Asset Management, who sent out defunct Zimbabwean currency. Actually, the firm sells the bills, for a rather unreasonable price, as their value is probably something near zero. They also sell t-shirts. (Would you get your portfolio evaluated by a firm that bothered to sell t-shirts? I personally would not. Your mileage may vary.) Keep in mind that, not long before the currency was suspended, an egg cost $50 billion of these "dollars." 3
Rich People Things, with Chris Lehmann: The Real 'Main Street' Revolt @10:20 AM
Taking about 8,400 words to arrive at a puzzled shrug, Steve Brill conducts patient readers of this week’s New York Times Sunday magazine through the elaborate reckonings of executive pay that have convulsed the seven firms benefiting from the federal Troubled Asset Relief Program. Brill, the former publisher of American Lawyer and able chronicler of the Washington bureaucracy’s response to Sept. 11, homes in on the agons of Kenneth Feinberg, the former 9/11 compensation master now tasked by the Treasury Department with the thankless work of serving as TARP’s “compensation czar.” READ MORE 5
Well, This Happened @3:05 PM
Clusterstock notes: "This is pretty much the perfect metaphor for 2009." Dealbreaker notes: "We Are Doomed." 8
