Iraq War, 6 Years and Counting

I remember vividly this night six years ago, which I spent huddled around CNN with the rest of Salon's News/Politics crew, watching the deadly firefly light of missiles falling for the first time in the Iraqi darkness.

I don't think any of us thought the Iraq War would last this long, though Mother Jones coverage proved awfully prescient. 

Six years later, if you feel a sense of jaded anger coming over you when you consider Iraq's current state, look instead at the burial photos of fallen soldiers, and the faces of the walking wounded, and let this archive of our Iraq War coverage remind you of what we know now and should have known then.

The Hypocritical Oath

More than 200 representatives and senators in the 111th Congress have signed Americans for Tax Reform's Taxpayer Protection Pledge, a vow to oppose all tax increases. That put them in a sticky place when they voted Thursday on H.R. 1596, better known as the bill that levies a 90 percent tax on bonuses given out by bailed-out banks.

The bill passed the House overwhelmingly—328 to 93—so doesn't that mean a bunch of lawmakers violated their oaths to Grover Norquist's anti-tax group? Nope, not according to two press releases ATR sent out a few hours before the vote.

The first release notes ATR is "STRONGLY OPPOSED to...the Rangel-Pelosi bill to tax AIG bonuses in order to deflect blame from Secretary Geithner’s failed mismanagement of Treasury funds." But how could pledge-signers vote against the bill when popular ire toward AIG and other banks with taxpayer-subsidized bonuses is so high? Because, according to ATR's second press release, the bill is "illegal, unconstitutional" and "is not a tax bill so much as it is a politically-driven police action by the Congress. The Pledge is intended as a serious commitment by serious defenders of taxpayers."

In Washington, that's what we call spinning for the sake of political cover.

From CNN: If you're out of work like Steve Lippe, who was laid off from his job as a salesman in January, you know you already have problems. But looking at the fine print that came with his new unemployment debit card, he became livid.

"A $1.50 [fee] here, a $1.50 there," he said. "Forty cents for a balance inquiry. Fifty cents to have your card denied. Thirty-five cents to have your account accessed by telephone."

...The National Consumer Law Center says fees range from 40 cents to a high of $3 per transaction."

And where are these fees going? Banks like JP Morgan Chase which has contracts with seven states and is negotiating with two others. But hey, you're unemployed. If you don't want to pay the fees, just wait ten days for a check.

BTW, in many states, child support payment debit cards nickel and dime you to death this way, too, lest we forget which segments of society must always benefit off the backs of the unfortunate. In both instances, you can opt for direct deposit, but it's hard to know about the fees until your card arrives. Which I'm sure is accidental.

Bonus Babies

Hilzoy comments on the terms of the bonus contract written last year for AIG's Financial Products division:

The introduction to the contract says that one of its aims is to "recognize the uncertainty that the unrealized market-valuation losses in AIG-FP's super-senior credit derivative and originally-rated AAA cash CDO portfolios have created for AIG-FP's employees and consultants." That certainly suggests that AIG-FP was aware that there might be significant losses, as does the fact that they got their compensation locked down in a way that made it independent of their profits or losses.

Of course they got their comp locked down when they saw the storm ahead of them.  This is what executives always do.  Back during the dotcom bubble, corporations handed out trainloads of cheap stock options even though the practice was heavily criticized.  Why?  Because the stock market was going up and it was a nearly guaranteed way to make lots of money.  After the bust, they suddenly took the criticisms to heart and largely stopped the practice.  Why?  Because the stock market was going down and it wasn't easy money anymore.

Likewise, in the financial industry, pay has long been heavily linked to performance.  Why?  Because the industry was going gangbusters and it guaranteed everyone a big payday.  Now, though, banks are all talking about increasing base pay and cutting back on bonuses.  Why?  If you think it's because they've finally taken public criticisms about short-term incentives to heart, I have a bridge right here in my backyard with your name on it.

What happened at AIGFP is standard practice throughout corporate America.  America's corporate titans like to talk endlessly about performance-based pay and how capitalism rewards risk, but in real life compensation packages are almost always constructed to avoid as much risk as possible.  If you work in a growing industry, your bonus depends on raw growth rates.  If you work in a declining industry, your bonus is linked to relative growth rates.  If the market is up, your bonus is paid in stock.  If it's not, suddenly deferred comp and increased pension contributions are the order of the day.  Heads you win, tails you win.

The AIG traders who got this sweetheart deal are nothing special.  Management probably didn't even think twice about it.  Of course you switch from performance bonuses to retention bonuses when the market looks stormy.  What else would you do?

I don't, frankly, care all that much about the AIG bonuses being slashed.  The only reason AIG isn't in Chapter 11 is technical (they're too big to fail!), so morally I don't see any reason not to treat them as if they were in Chapter 11 like any other failed company.  That means employees stand in line for their bonuses along with all the other creditors.  On the other hand, this whole thing really is small potatoes in the grand scheme of things, and Tim Geithner and the United States Congress have better things to worry about.

But the culture that brought this on?  That deserves to be dismantled brick by brick.  I may not care much about AIG, but if it's the spark that finally gets Americans to take the executive comensation racket seriously, then hallelujah.  If it's not, then it's just a carnival sideshow.

Could Climate Change Bring Down Insurers?

We know all too well what happens when insurers like AIG overexpose themselves to Wall Street's impossible gambles. What happens when the insurance industry plays the odds on climate change? We don't really know, since the $16 trillion global industry hasn't fully revealed its exposure to the potential impacts of environmental meltdown. Even without hard numbers, it's easy to see how things could go very badly for them—and their customers—as the weather gets weirder and wilder. (A recent report found that rising sea levels could cause $100 billion in property damage this century in California alone.) Some European insurers have been been worried about this scenario for nearly 20 years; in 1990, the head of Swiss Reinsurance warned that "if the feared climate change is confirmed, it will obviously stretch the insurance industry to is limits." And that was back when we were still at 350 ppm.

American insurers have been more nonchalant about confronting climate change. It looks like that's about to change.

Hooray For Us!

We don't have Academy Awards here in magazine-land, but we do have the National Magazine Awards.  Last Year MoJo won the award for general excellence in our circulation category (that's 100,000-250,000, if you're curious), and this year we've been nominated for three awards, the first time in our history we've gotten that many nominations.  One is for general excellence in print, one is for public service, and the third is for general excellence online, for which I take full credit, of course.

(Except, um, for the legion of other people who write, design, blog, administrate, and illustrate the 99% of it that has nothing to do with me.  But other than that, full marks, baby!)

The full list of nominations is here.  Congrats to everyone nominated, and special congratulations to Clara Jeffery and Monika Bauerlein, our co-editors here for the past three years.

Rough Justice

The LA Times reports on an ad hoc bankruptcy proceeding in Israel:

First came the employees, shortchanged two months' pay and laid off by the supermarket called God's Blessing. They rifled through their shuttered workplace, helping themselves to crates full of groceries.

As word spread through the small town, the store's jilted creditors joined in. They dismantled the light fixtures, ripped out wiring and absconded with the cash registers, even as television cameras rolled.

Within hours the parking lot was jammed with ordinary shoppers. They left car engines running and brought their children to help pick the shelves clean. Finally even the shelves were hauled away, leaving latecomers to scrounge the floor for leftover fruit.

This is not what you'd call an orderly liquidation.  Is it a harbinger of things to come?

Quote of the Day - 3.19.09

From Matt Yglesias, commenting on the fantastic amount of money we spend on the Pentagon:

It seems to me that if you told the man on the street that you had a plan to spend double on defense what China, Russia, North Korea, and Iran spend combined that said man would assume you were proposing to spend a healthy amount of funds on national defense. Such a standard would, however, imply very large cuts.

If you want to project power over thousands of miles, it costs a lot of money.  Most countries don't really want to do this.  We, on the other hand, are pretty seriously addicted to it.

Robbing the Old to Give to the Young (and the Rich)

Advocates for the preservation of so-called old-age entitlements have been warning for some time that Social Security and Medicare may be offered up as a sacrifice to offset the cost of the bailout and stimulus.  This would suit conservatives, who for years have been looking for ways to undermine the popular programs. Leading that charge are the the “granny bashers” hunkered around the Peter G. Peterson Foundation. With an endowment of $1 billion, the Foundation pursues an agenda that consists mainly of bitching and moaning that greedy geezers are taking money away from poor young things with their unconscionable demands for basic health care and income support. With increasing support from the media, the punditry, and some members of Congress, they warn that aging boomers will soon bankrupt the country and destroy the lives of future generations.

It’s particularly absurd that this argument emanates from the likes of Peterson, himself now an octagenarian, who was Nixon’s Secretary of Commerce and and more recently chair of the Council on Foreign Relations. Peterson, who is worth $2.8 billion, was also head of the now-defunct Lehman Brothers, and is probably best known as senior chairman of Blackstone Group, a finance company currently enjoying harsh criticism from the Chinese for having lost that country $80 billion in lousy business. While attacking the programs that support poor elderly people, Peterson seems to have no objection to government bailouts for his old comrades on Wall Street. Bill Greider recently wrote a comprehensive piece in The Nation on the machinations of Peterson and his anti-entitlement cohort. 

Helicopter Ben

Ben Bernanke has long said that even with interest rates near zero, the Fed still has plenty of monetary ammunition left to stimulate the economy.  Today he put his money where his mouth is and announced that the Fed would be buying up a trillion bucks worth of treasury bills and mortgage securities.  This is known as quantitative easing, aka printing money.  The Wall Street Journal rounds up some reaction:

Guy LeBas of Janney Montgomery Scott provides the basics: "Even today’s announcement that the Federal Reserve plans on purchasing everything in America that isn’t nailed down raised relatively few eyebrows on our end....Effectively, the Fed is monetizing the Treasury’s debt, a strategy that appears in the encyclopedia under the heading 'how to trigger inflation.' "

David Greenlaw of Morgan Stanley says the purchase of mortgage securities is designed to drive down interest rates: "In 2008, the average mortgage rate on the outstanding stock of loans was about 6.50%. So, if the Fed brings 30-yr fixed rate mortgages down to 4.50% and all homeowners are able refi, the aggregate permanent cash flow savings would be on the order of $200 billion per year."

Paul Dales of Capital Economics isn't sure that $300 billion of Treasury purchases is enough: "This could just be the opening salvo....Overall, no one knows whether these measures will work. Much depends on whether banks loan out the cash they raise from selling Treasuries and whether households and businesses spend, rather than save, any extra borrowing....At the least, no one can say that the Fed isn’t trying."

So there you have it.  $300 billion in new money, another $200 billion over time from lower mortgage rates, and a clear message that the threat of deflation is being taken seriously.

That's what the adults were up to, anyway.  Back in make believe land, meanwhile, it was AIG bonus time 24/7.  Gotta keep Congress busy with something, I guess.