Bailout Babies

BAILOUT BABIES....Hilzoy speaks for everyone who lacks a chauffeur when she wonders why banks that are getting federal bailouts "awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year":

The very people who are getting these bonuses and chauffeurs and private jets and financial planners have just sent the entire global economy into a nosedive. They have caused massive amounts of money to disappear. They are getting bailed out for their mistakes by the rest of us — the people who, if we're lucky, get to fly coach, and if we're not, drive across the country or take a bus.

If they had any shame at all, they would stop. More than that: if they had any sense at all of how angry a lot of us are getting, sheer prudence would do the trick. This is our money. We are giving it to them to get all of us out of a problem that they caused. They should bear that in mind, not treat us as if we were one great big cookie jar.

This is not the first time, of course. When LTCM imploded in 1998, Alan Greenspan arranged a bailout and saved the world. Yippee! But his bailout didn't wipe out the fund's backers. They took a big haircut, but they didn't lose everything. For endangering the entire world economy and bringing Wall Street to the brink of disaster (or so we're told), their reward was to take home a pretty nice piece of change when everything was said and done.

(And all the warnings about how we should prevent the kinds of practices that led to the LCTM debacle in the first place? You can guess what happened to those.)

Of course, there's another problem here: not every big U.S. bank is in trouble, but Henry Paulson forced them all to accept bailout funds anyway. Not only was that probably a bad idea in general, but it makes it hard to figure out who's really playing games with the taxpayer's dough. If Wells Fargo is doing OK, and didn't want any bailout money to begin with, there's no special reason to object to their salary and bonus structure. But AIG and Citicorp? Different story. It's yet another reason that bailouts should have been restricted to only the banks that really need it.

The Financing Problem

THE FINANCING PROBLEM....One of the things that will keep the U.S. housing market in the doldrum for years, even after prices bottom out, is that so many homeowners are upside down on their mortgages: they owe more on their homes than they're worth. Well, guess what? The auto industry has the same problem. Stephanie Mencimer, author of the terrific book Blocking the Courthouse Door, reports over at our main site:

According to industry analyst Art Spinella, president of CNW Research, fully 85 percent of Americans with a car loan have negative equity. Other studies show that these loan holders, on average, owe $4,400 more than their cars are worth.

....Unbeknownst to most car buyers, dealers [] routinely—and legally—bump up the interest rate offered by the bank or finance company in exchange for kickbacks from the lenders, which are often the manufacturers themselves. And in many cases, dealers encourage customers to trade in a car that isn't worth the amount of their current loan by offering to roll the old loan into the new one, thus inflating the principal and making the loan more lucrative for the lender. That's how people can end up owing $40,000 on a Ford Focus. This only works because auto lenders now stretch out the terms to six or seven years to make the payments affordable, a practice that virtually ensures that many cars won't last as long as the loan.

But nobody could have predicted etc. etc., right? Uh huh:

In 2004, major auto analysts noted that the lengthening loan terms and the increasing number of potential car buyers who were upside down on loans would lead to no good end for the auto industry, and GM in particular. Deutsche Bank analyst Rod Lache was prescient when he told Automotive News that the negative equity problem would only get worse if the automakers didn't address it. Observing that the average amount of money owed by someone trading in a car with negative equity had jumped from $2,900 to $4,000 in just a five-month period, he wrote, "The impact on US demand, price and mix from this phenomenon could be devastating, particularly if the impact is compounded by rising rates."

Read the whole thing here. This is yet another problem that has to be addressed if the auto industry is going to be successfully bailed out. After all, it doesn't do any good to give them a bunch of bridge loans unless they can figure out a way to get their customers back, and that's easier said than done. Caveat emptor.

Iran Sends Warship to Fight Somali Pirates

Last month, after pirates hijacked an Iranian ship off the coast of Somalia, I speculated on the prospect that Tehran might choose to join the Western-led naval flotilla now patrolling the Gulf of Aden. By signing on to effort, low-level cooperation between US and Iranian ships would be virtually unavoidable, several experts told me, potentially opening the door to a wider detente between the two nations. Well, this morning the BBC reports that the decision has been made:

Iran has sent a warship to the Gulf of Aden to protect its merchant shipping from attacks by Somali pirates, Iranian state media has reported...
Iranian officials said their ships would be prepared to use force against the pirates if necessary.
"After travelling more than 4,000 maritime miles an Iranian warship entered the Gulf of Aden to protect Iranian ships against pirates," said the radio report, but gave no further details.
An unnamed official said the gulf was an international area and that Iran's armed forces would "carry out any decision made by their superiors".

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The current issue of The Economist includes a profile of Viktor Bout, the so-called "Merchant of Death," who until his capture earlier this year in a DEA sting operation in Thailand, was the dean of the world's black market in illicit weapons. The piece is a history of sorts, detailing Bout's sordid dealings with Third World dictators in search of the all-mighty dollar. It also describes the sting that brought him down last March—and graciously cites Mother Jones as having published an earlier detailed account of the operation.

Bout's story is the stuff of legend and perfect fodder for filmmakers. Nicholas Cage played a fictionalized version of the Russian arms dealer in the 2005 film, Lord of War. (Bout reportedly was not a fan of Cage's performance). According to the Guardian, Angelina Jolie is also set to play a UN arms investigator obsessed with busting Bout's network in a film due out in a year or two.

Turns out we won't have to wait that long to hear from Bout himself. Today in Bangkok, the arms dealer took the stand for the first time to fight against his planned extradition to the United States to face terrorism charges. Clad in the same orange prison outfit that has been his uniform for most of the year, Bout pleaded innocence. Never mind that he was caught with his hand in the cookie jar: sitting down with what he thought to be members of the Colombian FARC to discuss supplying them with guns, ammunition, and helicopters equipped with rockets. After all, the guy has a number of conflicting alibis: his wife says he was in Bangkok to take a cooking class; his bodyguard says he was there on vacation and to visit a medical center; Sergei Ivanov, a member of the Russian parliament, says he was there gathering "information on the aviation and construction business." It's all the same to Bout, who claims that whatever he was doing in Bangkok, it most certainly wasn't to sell weapons. As he told the court:

I never met or talked to anyone from FARC... I didn't do anything wrong in Thailand. I have never been to Colombia or the United States...I did not commit any terrorist acts... The US is trying to use this to cover up its internal problems and prevent good relations between Thailand and Russia.

Commercial Real Estate

COMMERCIAL REAL ESTATE....The residential real estate market imploded two years ago, and the commercial real estate market has never been very far behind. Now big property developers are looking at their own armageddon and have started heading to Washington to get a piece of the bailout action:

They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years — with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

....To head off some of the impending pain, the industry is asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt.

...."The credit crisis has got so bad that refinancing of even good loans may be drying up," says Richard Parkus, head of commercial-mortgage-backed securities research at Deutsche Bank.

If the government is bailing out commercial banks, investment banks, credit card companies, car financers, and the entire auto industry, can they really say no to the commercial real estate market? Probably not. But who's next in line after that?

Have You Gotten Your Invitation Yet?

HAVE YOU GOTTEN YOUR INVITATION YET?....According to the New York Times, the printing company that won the bid to produce a million inaugural invitations for Barack Obama is located in the unlikely sounding town of Dumbo. But no. It's not Dumbo. It's DUMBO, which trusty Mr. Google informs me is a Brooklyn acronym for "Down Under the Manhattan Bridge Overpass." Jeebus. Do New Yorkers have acronyms for everything? If we did this here in Irvine, my neighborhood would be called something like JAFEC — "Just Above the Freeway East of Culver" — which, come to think of it, might be an improvement. Probably wouldn't pass muster with the local association, though.

Elsewhere in the Times piece we learn why this particular company was chosen:

According to Mr. Donnelly, Precise Continental was selected over rival printers because it is a union company, it uses recycled paper and it is certified by the Forest Stewardship Council, which promotes responsible forest management.

Of course! But I wonder what the equivalent kind of thing would be for a Republican inauguration? A print shop whose health plan doesn't cover Plan B and encourages its employees to come to work packing? Or just a straight-up reward for whatever printing mogul bundled the largest number of maxed-out contributions to the campaign?

There's even a tangential personal connection in the story in this sentence: "The first order arrived by truck on Monday, from Neenah Paper, a Wisconsin company." An old high school friend of mine works for Neenah Paper, so I'm glad to hear they got the order. I haven't actually heard from this friend since, um, high school, but still — good work, guys.

O Frabjous Day!

O FRABJOUS DAY!....Here in the northern hemisphere, today is the winter solstice. This means that tomorrow the days start getting longer again! Hooray!

Blago Update

BLAGO UPDATE....George Stephanopoulos reports that Barack Obama's internal review shows that Rahm Emanuel had only one direct phone call with Rod Blagojevich:

The contact, described as a "pro-forma" courtesy call, came as Emanuel was named Chief of Staff for Obama. Most of the discussion concerned Emanuel's Congressional seat (which had previously been held by Blagojevich), with only a "passing reference" to the Senate vacancy, according to these sources. No deal for the Senate vacancy was discussed.

....The sources add that the report will show Emanuel also had four phone calls with Blagojevich Chief of Staff John Harris....Sources [] confirm that Emanuel made the case for picking Obama confidante Valerie Jarrett during at least one of the conversations. In the course of that conversation, Harris asked if in return for picking Jarrett, "all we get is appreciation, right?" "Right," Emanuel responded.

Apparently Obama is ready to release his review just as soon as prosecutor Patrick Fitzgerald lets him. Sad news for the press, which will then have to manufacture some other pseudo-scandal to fill up its air space.

Twitter

TWITTER....Today the New York Times christens "The Buzzwords of 2008," and one of them is:

This is designed to memorialize all forms of the word Twitter, whatever they may be. So as long as we're on the subject, can someone help me out with the whole twitter phenomenon? I'm pretty used to things that I'm not personally interested in but that I still get (like, say, texting), but twitter is something that I don't even really get. So if you're a twitterer, tell me in comments what you use it for, why you like it, how it makes your life more worth living, etc. I'm just curious.

Shoes Make the Man

SHOES MAKE THE MAN....Bloomberg is on the case with news you can use. The original shoes tossed at George Bush in Iraq last Sunday may have been destroyed, but there are plenty more where those came from:

The brown, thick-soled "Model 271" may soon be renamed "The Bush Shoe" or "Bye-Bye Bush," Ramazan Baydan, who owns the Istanbul-based producer Baydan Ayakkabicilik San. & Tic., said in a telephone interview today.

....Baydan has received orders for 300,000 pairs of the shoes since the attack, more than four times the number his company sold each year since the model was introduced in 1999. The company plans to employ 100 more staff to meet demand, he said.

....Baydan has received a request for 4,000 pairs from a company called Davidson, based in Maryland. He declined to provide further details.

Maybe Barack Obama needs a pair or two?