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The Sunday talk shows still lead the news cycle

BOTH MEN participated in the round table on “This Week,” George Stephanopolous’s show on the Sunday morning talk show curcuit. George Will presents the pure conservative position and Robert Reich the liberal. They were discussing what should be done about AIG specifically, and the banks in general that are being bailed out with TARP funds. Mr. Will said that AIG should submit to the discipline of the market by reorganizing under the appropriate chapter of bankruptcy. Mr. Reich said, “you’ll ge no disagreement from me there.” They both seemed surprised to find themselves in agreement.

TO ANYONE WHO WANTS to read one article and come away with a complete understanding of the financial meltdown, allow me to make a recommendation. It’s a piece by Matt Taibbi in the issue of Rolling Stone that just hit the stands yesterday [1075, April 2, 2009].

Using AIG as a case study, he lays out the the entire imbroglio in a story format explaining who the key players are and what terms like credit-debt swap actually mean. Sample excerpt:

… The Patient Zero of the global economic meltdown was one Joseph Cassano, the head of a tiny 400-person unit within the  company called AIG Financial Partners, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists…..Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks for Washington’s deregulation of the Wall Street casino. ‘It’s all about the regulatory environment, says a government source involved with the AIG bailout. ‘These guys look for holes in the system, for ways they can do trades without government interference. What is unregulated, all the action is going to pile into that.’

For some reason this piece does not appear on the Rolling Stone website. It might be a chapter in a forthcoming book and Mr. Taibbi wished to retain online rights. Whatever the case, it’s worth tracking it down. If you email me I’ll fax or snail mail you a xerox. Or support print, and go buy a copy of the magazine.

Peggy Noonans’ column in the Mar. 14, 2009 Wall Street Journal is especially insightful.

The sale of antidepressants and anti-anxiety drugs is widespread. In New York their use became common after 9/11. It continued through and, I hypothesize, may have contributed to, the high-flying wildly imprudent Wall Street of the ‘00s. We look for reasons for the crash and there are many, but I wonder if Xanax, Zoloft and Klonopin, when taken by investment bankers, lessened what might have been normal, prudent anxiety. or helped confuse prudent anxiety with baseless, free-floating fear. Maybe Wall Street was high as a kite and didn’t notice.”

I’ve often wondered if emotional pain isn’t a good warning sign, much as physical pain is, to let our soul know when it is too close to the hot burner. The tagline for Prozac’s print advertising is: “Sadness is normal, depression isn’t.” But perhaps the standard for diagnosing depression has become too low.

Life is full of unintended consequences and this may be a gigantic case. If one follows Ms. Noonan’s theory, antidepressant use in New York increased after 9/11, and antidepressants lead to bad bad decision-making during the Bush years. So, would it be too much of a leap to postulate that the terrorists won? Flying a handful of planes into buildings had the outcome of bringing down American capitalism.

JOHN STEWART IS A GENIUS. On this show he presents mind-churning insights like, if we bail out the banks for having the toxic assets and bail out AIG for insuring the toxic assets, aren’t we buying the same toxic assets twice?   Hmmm…. to that I would add — now we’re providing aid to homeowners, so is the taxpayer covering the assets three times?

Note that on this segment John Stewart calls out financial analyst Jim Cramer for encouraging his viewers to buy Bears Stearns, which went under six days later. The show has launched a fued between Stewart and Cramer which is continuing with much glee.

You’re not your job.  You’re not how much money you have in the bank.  You’re not the car you drive.  You’re not the contents of your wallet.  You’re not your fucking khakis.

You buy furniture.  You tell yourself, this is the last sofa I will ever need in my life.  Buy the sofa, then for a couple years you’re satisfied that no matter what goes wrong, at least you’ve got your sofa issue handled.  Then the right set of dishes.  Then the perfect bed.  The drapes.  The rug.  Then you’re trapped in your lovely nest, and the things you used to own, now they own you.

And I wasn’t the only slave to my nesting instinct.  The people I know who used to sit in the bathroom with pornography, now they sit in the bathroom with their IKEA furniture catalogue.

— Chuck Palahniuk, Fight Club

These guys look scared

A FRIEND OF MINE mentioned that when the market gets to 8,000 he’s going to liquidate his portfolio. That’s what is different about this ‘Great Recession.’ In prior downturns, people understood that they needed to hold onto their distressed stocks in order to ride the wave back up. Otherwise they would sell at a loss. Now there seems to be a generalized feeling that the Dow was irrationally inflated at its peak on Oct. 9, 2007 when it hit 14164, and that it needs to be recalibrated to a new baseline. Where is that? The “Clinton bull” high was 11723 on Jan. 14, 2000. Weren’t those the good old days? Peace, prosperity and a bull market.

So my sad theory is that this recession will last a very long time. As soon as the market starts to get some momentum people like my friend will sell their shares and drive the Dow back down. Then the next burst of confidence will result in a  small spike that will quickly be deflated by another round of sell-offs. People are living with terror and loss on an unprecedented scale, so they don’t want to risk waiting for a return to prosperity. The aggregate of this is that the recovery will be extremely protracted as the dow bumps along the bottom.

My colleague Randy Goldring argued persuasively on his blog that the markets are voting against the stimulus plan and President Obama in general. He cites an editorial in yesterday’s Wall Street Journal saying the same thing: that the Dow has fallen 25 percent since Obama took over, that the markets have lost confidence.

While the Wall Street Journal is railing against Obama in the Op-Ed section, the polling wing of the paper shows a different result.

President Barack Obama enjoys widespread backing from a frightened American public for his ambitious, front-loaded agenda, a new poll indicates. He is more popular than ever, Americans are hopeful about his leadership, and opposition Republicans are getting drubbed in public opinion, the new Wall Street Journal/NBC News poll suggests.

People feel burned by "irrational exuberance" but we need a shot of optimism

LAST WEEK, Bill Clinton was all over the airwaves with his interview encouraging POTUS to be more optimistic. He said that while we don’t need “happy talk” we also need a shot of good-old fashioned can-do. I think Obama struck just the right note in his address. When he stands to speak you get the sense that he actually understands the words, and is implementing the words, he is not just propped up there reading the teleprompter.

My two favorite insights:
• “Quitting high school is not just quitting on yourself, it’s quitting on your country.” Shades of JFK?
• “During the Civil War we built the nationwide railroad system.” I never thought about that. Good things can happen during bad times.

Sadly, the markets have not responded well to the speech. I suspect there won’t be a rally until after the banks are flushed out. I’m following George Stephanopolous on Twitter who just tweeted that there is going to be a deal with Citibank this morning. The big issue is valuation.

In summary, the message I’m getting from Obama is that this is a tough situation, but we have the wherewithall to get through it, and although we collectively seem paralyzed by the depression, good things are still happening.

Our country is bursting with innovators looking for capital

THOMAS FRIEDMAN is a very smart man. Reading his column in today’s New York Times, I wanted to shout “bingo! Somebody got it.”  The basic theme is this: Why continue to subsidize the Big 3 under the “too big to fail” extortion? Or, the way Mr. Friedman puts it, because the automakers  “claim that their funerals would cost more than keeping them on life support.”

His incredibly smart idea: instead of pouring $20 billion more into the black hole of Detroit, instead offer it as it as investment funding for start-ups.

Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.

Or break it down further — instead of 20 companies getting a billion each, 200 companies get $100 million each, or 400 companies get $50 million. (The money is absolutely staggering.)

I say, let the automakers go bankrupt, forcing them to reorganize and rewrite their contracts with unions, vendors and auto dealers across the country. In the meantime, the tax payer bailout money has a better home.