Ethel the Blog

It’s off to the Austin Green Show & Home Products Show for the weekend.

Later: Well, that was fun. Lots of good ideas and things interspersed with questionable stuff. I’m not sure how chiropractice and kits for motorizing bicycles fit the green scheme, especially the latter given the aural and much stronger olfactory memories of being gassed, er, passed by one of those recently. On the plus side, Austin’s starting up a light rail system, and has a very good building/energy code structure that rewards those who should be rewarded instead of the usual entrenched interests.

From the comments section at Tim Lambert’s Deltoid:

In the Sex Pistols, Johnny Rotten’s character, faced with obvious bollocks, never minded them.

Perhaps we should do the same.

In a post entitled On the pitfalls of stylistic uniformity, Acephalous writes of a “brilliant-one-trick-pony syndrome” where a writer “employs the same breathtaking style in every single thing he or she writes”, with Gene Wolfe offered as an example. Interesting stuff, but what really caught my interest was the following bits about the late John Updike:

Some writers develop a laziness born of talent: once they’ve mastered their idiom, they elaborate on their strengths instead of confronting their weaknesses. Here’s Adam Roberts, responding to a very similar stylist today:

That’s where his genius was—his extraordinary, fluent, particularised style; the way he evoked the specificity of detail. But one of the things that follows from this is that his larger artistic project stands or falls on whether we consider the details adequate to the business of representing experience. Updike’s whole corpus is a way of answering this question with: they are; indeed, there’s really nothing more than the details. His stuff is overwritten, but in the way the Ode: to Autumn is overwritten. Of course you may feel that a writer needs something more than the details; that s/he needs a panoramic ability, or at least a larger vision. But I’m not so sure. Which is to say; I wonder if, when we look back on the second half of the twentieth century, we won’t find ourselves saying: that was the age in which people became queerly obsessed with details and minutiae, and the larger patterns faded from public consciousness. If so, then Updike captured the spirit of the age better than almost anyone.

I think Adam’s correct: Updike’s precision limited the kinds of narratives he could tell to the kind of narratives he told. If an author aims to catalog the lives of a particular class of people without sounding like An American Tragedy-era Dreiser, aping Updike is the way to go.

Before this becomes a general tussle about whether form governs content or content dictates form, I’ll say that self-conscious stylists like Updike don’t make for good generalizations. The argument here should be whether Updike, consciously or otherwise, selected his subjects because they complemented his style; or whether his style dictated who he could write about.

The almost unbearable flatness of his female characters leads me to believe the latter. His precision depends upon an intimacy a person can only have with him- or herself. Had he been more self-conscious about the phrasing of the words he put in other people’s mouths, his narrators wouldn’t have spoken so similarly. Had he been more self-conscious about the tenor of the thoughts he stuffed in other people’s heads, his narrators wouldn’t have been dogged by the same fears to the same ends. Put differently: Updike worked to refine the voice he knew he had, and why not?

It was a magnificent tool for telling the stories it led him to believe he wanted to tell.

I enjoyed reading Updike as much as anyone who enjoyed reading Updike. It’s just that I enjoyed his massive tomes of collected essays more than his novels. While I read two of his novels, I read and reread each of the four essay collections because - like Anthony Burgess’s “99 Novels” that me to read Updike in the first place - Updike’s apparently limitless appetite for and collection of world literature, as reflected in his collections, led me to a lot of previously unknown places that I really liked visiting. And, as the excerpt mentions, they were dense with the sort of detail that I can’t resist. There’s also this obsessive thing I have with essay collections, begun at a young age thanks to Isaac Asimov’s science essay collections. Much thanks to John, Anthony and Isaac.

Joe Bageant writes wonderfully about LSD, buddhism and good times.

First LSD trip, 1965: Tumbling, tumbling, tumbling inward with eyes closed, I could hear the spider plant hanging in the basket overhead singing in its green subatomic plant language, a hymn to the sunlight charging my bedroom atmosphere. On the back of my eyelids spun a great wheel of existence, turning both ways simultaneously generating an unearthly mournful chant that seemed to be composed of every human voice on earth. It rose in some unknown universal tongue singing, “Wheel of life, wheel of death, Bangladesh, Bangladesh. Wheel of life, wheel of death, Bangaladesh, Bangaladesh.” Millions of starving faces, young men, girls, old men, babies, crones, materialized in uncountable swarms, each face transfigured by some unnamable mutual understanding that I could not share. Then they atomized, leaving the room filled with the scent of wood smoke, shit and citrus blossoms (an odor I would instantly recognize decades later in poverty stricken Central American villages.)

No words can describe an LSD trip, but let me say that at the end of this one, I sat down and cried. For happiness. My deepest hope and suspicion, the one to which I dared not cling, had been confirmed. Life could indeed be significant, piercing and meaningful.

…

Michael O’Hare rants deliciously about overrated and overpaid parasites so I don’t have to.

More plaintively, lately, than forcefully, this and that stumbling bank or corporation has claimed that capping bonuses (or taxing the rich) will make it impossible for them to retain the exquisitely rare, irreplaceable, talent at the top on which they depend.

Indeed. I guess all those stars will double up in the executive floors of the few companies still on their feet (there are no companies making big bucks), right. Or they will zip back in their time machines and do 2000-2006 over again. I know, they will go off to John Galt’s cave to wait it out until we realize we want them back on their terms.

But what about the talent part? On the whole, this indispensable leadership and insight has made a smoking ruin of every company they were allowed to play with! Let’s take Bob Lutz, the vice-Chairman of General Motors. In the Jan. 31 Economist, we find him saying GM held on to SAAB for nineteen unprofitable years out of twenty, for a $5 billion loss, selling car after car at a loss of $5K each because … wait for it … “it loved the marque and the cars.”

I had to read it again: they flushed five billion dollars of their shareholders’ money down the toilet for the personal amusement of the executives, and went on doing it for two decades. More amazing still, Lutz is dumb enough, or arrogant enough, or both to tell exactly that story to a reporter. Most amazing, he seems to still be vice-Chairman!

I despise term limits in politics and I believe it’s almost never the case that an organization can fire itself out of trouble, much less into success. But the cacophony of stories like this is unrelenting. The stupid deals, the waste and self-dealing and plain theft, the million-dollar office furnishing, and most of all the spectacular failures to create or even maintain value is coupled with stupefying cluelessness every time one of these executives, in finance and in manufacturing, gets near a reporter or a camera or a microphone and tries to explain himself. And let’s not make the mistake of thinking Lutz is a special case or a rogue operator: big companies have boards of directors, and executives hang out with other executives, and they can see what each other are doing. Burning up five billion dollars for executive fun, not at once but deliberately and repeatedly, was OK with a whole golf course full of these titans of industry, not just Lutz.

You know what? They.Suck.At.What.They.Do! There isn’t a precious resource of competence to preserve here, there’s a culture of inept, lazy, sybaritic entitlement funded by an enormous enterprise of stealing from workers and stockholders. Let ‘em walk. In fact, give them maps to the nearest bus stop.

Ken Macdonald writes about a particularly nasty type of political posturing that also permeates what passes for politics in the US of Corporate America. One of the signifiers that I can ignore everything else a given politician says is the first time I hear them pinch off the “tuff on crime” meme. By the way, once again I’ve stolen a marvelous turn of phrase from the article to use as the title.

In Britain we had an additional burden: legislators who preferred criminal justice to be an auction of fake toughness, so long as the toughness was not too tough to design. So no one likes terrorists? Let’s bring in lots of terror laws, the tougher the better. Let’s lock up nasty people longer, and for longer before they are charged. Let’s stop medieval clerics winding up the tabloids. Let’s stop off-colour comedians outraging homophobic preachers. Let’s pretend that outlawing offensiveness makes the world less offensive.

This frequently made useful headlines. But it didn’t make our country or any other country a better or safer place to live. It didn’t respect our way of life. It brought us the War on Terror and it didn’t make it any easier for us to progress into the future with comfort and security.

Our legislators faltered because they seemed to ignore the fact that what makes good politics doesn’t always make good policy. And they didn’t want to tackle the more complex issues that really affect safety in people’s lives. It was easier to throw increasingly illiberal sound bites at a shadowy and fearsome enemy.

In Britain, no one has any confidence that fraud in the banks will be prosecuted as crime. But it is absolutely critical to public confidence that it should be. If there was fraud in RBS or in any of the other failed banking institutions, if there was fraudulent misselling or corruption or any other criminal activity, it needs to be uncovered and dealt with. The alternative is the worst possible lesson for our national life.

Do people believe this will happen? No, they don’t - and that is a damning and corrosive conclusion, encouraging deep cynicism towards our national institutions. For all the fashionable talk of rebalancing criminal justice in favour of victims, for all the talk of community engagement and targeting offenders, this is the acid test.

Forget the paranoiac paraphernalia of national databases, identity cards and all the other liberty-sapping addictions of the Home Office. Forget the rhetoric and do something useful. If the Government really wants to protect people beyond armoured-vest posturing, here is the opportunity.

Dean Baker deconstructs a NYTimes article about the Citi bailout that’s mostly indistinguishable from an official Citi press release.

The NYT piece on bailout III for Citigroup looks like it was written by Citi’s lobbyists. The piece never once points out that the government has handed tens of billions to Citigroup for almost nothing. Let me say that about six more times: the NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing. The NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing. The NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing.I suppose tens of billions for Citi doesn’t deserve as much attention as $50 million for the National Endowment for the Arts or $25 million for the Smithsonian.

The article even includes a bizarre statement to discourage those who oppose welfare for the super-rich: “Nationalizing Citigroup outright would be a huge challenge, given the company’s size and international sweep. In countries like Mexico, for instance, a state-controlled bank might run afoul of local ownership regulations.”

This could almost be a line in a comedy routine — Mexico is going to keep the United States from putting a bankrupt bank in receivership. It’s too bad that the NYT didn’t identify anyone who made such a statement, we all could ridicule this person until they faded from public life.

It’s time that the media stopped covering up for Wall Street. The issue is not “nationalization,” the issue is a bankruptcy type receivership for insolvent banks. It is absurd to pretend that this is prevented by trade agreements or anything other than the power of the shareholders and executives who run these banks.

The comments section is interesting, beginning with someone playing devil’s advocate by suggesting that since corporations pay taxes, they’ve more than pulled their weight and thus deserve all the entitlements they’re getting.

Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing but it also never mentions that Corporations pay an income tax even though a corporation is not a person and passes all its benefits through to people (stock holder management and employees) who also pay taxes. One should see the corporate tax (which can be very regressive when poor people own stock through a retirement plan or mutual funds) exists as insurance because the corporate person (an imaginary person) protects stock holders. (Because it protects stock holders it indirectly protects management by allowing stock holders to hold management less accountable.) Without the corporate person’s legal status the current problems probably would have been avoided because stock holders would have made better agreements with management E.G. making management personally liable for making imprudent loans. (BTW the argument for the existence of the corporate person is that humans are too risk averse by nature and so the corporate person produces more net growth although less even growth and so we humans benefit from the corporation.)

And so in response to Dean’s complaints Corporation Stock holders (not only Citi stock holders) and corporate managers would likely respond something like: We have been paying Corporate taxes for so long that surely that present value of those past taxes greatly exceeds the amount of the bailout and so you have nothing to complain about. We pull our weight.

A couple of folks deconstruct this:

Corporations pay taxes - sometimes - and they receive more than their share of services for those taxes in terms of governmental oversight and rule of law that protects business. Corporate tax is never regressive in that a vanishing minority of low income individuals own any stock whatsoever.

and

1. Corporations (Joint Stock Companies) started as privileges from the King (and then the State after unfortunate events of 1776) to encourage investors in risky activities (like settling colonies in the wilderness) by protecting their personal wealth from the corporations creditors. So right from the start, one would think this enormous and valuable privilege dwarfs any modest tax they are asked to pay.

2. Another observation is that the management of these institutions, after looting the largely passive shareholders for years, apparently expected the same freedom to loot with the taxpayer money they have been given and are finding it very unpleasant that it is not working out that way. The whining is amazing despite the huge regulatory capture. The blame shifting is also obvious - its not our fault that we are going down the toliet, but the Government’s! (The story also reveals how reporters are “captured” by their sources since one would think he would have asked these CITI senior managers the obvious question that if they had not been so incompetent they would not have been in this position in the first place).

William Black - the senior regulator during the S&L rip-off in the 80s - explains how Geithner et al. are breaking the law. I suspect that Geithner gets discernably turgid when watching “Frost/Nixon” at the part where the latter says that if the president does it, it’s not against the law. I found this via Naked Capitalism, wherein Yves came up with the marvelous phrase I’ve used for the title.

Whatever happened to the law (Title 12, Sec. 1831o) mandating that banking regulators take “prompt corrective action” to resolve any troubled bank? The law mandates that the administration place troubled banks, well before they become insolvent, in receivership, appoint competent managers, and restrain senior executive compensation (i.e., no bonuses and no raises may be paid to them). The law does not provide that the taxpayers are to bail out troubled banks. Treasury Secretary Paulson and other senior Bush financial regulators flouted the law. (The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) are both bureaus within Treasury.) The Bush administration wanted to cover up the depth of the financial crisis that its policies had caused.

Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth. He was supposed to regulate many of the largest bank holding companies in the United States. Far too many of these institutions are now deeply insolvent because the banks they own are deeply insolvent. The law mandated that Geithner and his colleagues place troubled banks in receivership long before they became insolvent. Why are the banking regulators, particularly Treasury Secretary Geithner, continuing to disobey the law?

We can understand now why the administration and so many committee chairs are virulently opposed to the single most essential step we need to take to diminish future crises — a modern Pecora investigation. Pecora was the prosecutor hired by the Senate banking committee to investigate the misconduct that helped cause the Great Depression. You must vigilantly study past failures to learn causation and to enact remedies. If we were dealing with a crisis of airplane crashes and someone opposed studying the causes of the failures we would (correctly) label him a lunatic. Congress largely stopped conducting meaningful oversight hearings of financial regulation during the Bush administration. The results were horrific. It appears that only intense public pressure will suffice to overcome congressional and administration resistance to a Pecora investigation. I hope readers will add their voices to this call.

Paulson and Geithner’s refusal to comply with the law has already cost the taxpayers scores of billions of dollars in unnecessary costs. Geithner indicated Friday, February 20 that he would continue to flout the law. If he is allowed to do so it will add hundreds of billions of dollars to the eventual cost to taxpayers. The amount of taxpayer money wasted due to Paulson and Geithner’s violations of the prompt corrective action law will exceed the total present value cost of resolving the S&L debacle, $150 billion ($1993). The waste will take the form of the U.S. taxpayers subsidizing the officers, shareholders and subordinated debt holders of failed banks — who are disproportionately wealthy, frequently profited from the accounting fraud that caused the banks to fail, and are often foreign. The prompt corrective action law was passed in large part to prevent such a subsidy.

The S&L debacle led to a new financial regulatory system premised on “prompt corrective action” (PCA). Future posts will explain more fully why this system failed, but it is remarkable that the system, the phrase, and the law have disappeared from the coverage of the banking crises. PCA’s premise was that regulatory discretion led to cover-ups of failed banks and excessive losses to the taxpayers. The PCA solution was to require higher capital requirements and to mandate that the regulators take over troubled banks before they deteriorated to the point that the failure would impose a cost on the Federal Deposit Insurance Corporation (FDIC). PCA also recognized that failing bankers had perverse incentives to “live large” and cause larger losses to the FDIC and taxpayers. PCA’s answer was to mandate that the regulators stop these abuses by, for example, strictly limiting executive compensation and forbidding payments on subordinated debt.

PCA’s purpose is “to resolve… problems… at the least possible long-term cost to the [FDIC].” That means the least possible cost to taxpayers. Secretary Geithner’s priority is protecting private shareholders:

We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system….

We have a law that says when banks are at or near insolvency private shareholders should be eliminated unless we can arrange a transaction that has no cost to the FDIC. Receiverships produce “private institutions.” The FDIC manages the failed institution only long enough to get it in shape to be sold at the least cost to the taxpayers. Receiverships end unnecessary bailouts of private shareholders, reducing the cost to the FDIC, as the law requires. Receiverships place banks back in the hands of new shareholders. Geithner has so twisted the framing of this issue that he is warning that a cheaper, more effective means of resolving failed banks used under President Reagan is some alien form of socialism that President Obama must slay before it destroys capitalism. Geithner is channeling Rove when he conflates receiverships with “nationalization.”

Secretaries Paulson and Geithner subverted the PCA law by allowing failed banks to engage in massive accounting fraud (which also means they are engaged in securities fraud). Treasury is telling the world that resolving the failed banks will require roughly $2 trillion dollars. That has to mean that the failed banks are insolvent by roughly $2 trillion. The failed banks, however, are reporting that they are not simply solvent, but “well capitalized.” The regulators flout PCA by permitting this massive accounting and securities fraud. (Note that by countenancing this fraud they make it extremely difficult to ever prosecute these elite white-collar frauds.)

Billmon does what I would do if I were a lot smarter, a lot less lazy and a lot less prone to grab a beer when things get complicated. He explains how the financial geniuses created the huge pile of now worthless financial instruments that are dragging down the world economy, a mess that has come to be called the Big Shitpile.

But to understand why Big Shitpile is just that – with hardly any ponies hidden at the bottom for eager prospectors to dig up – it worth taking a look at how the stinking heap was created in the first place. As it turns out, I’ve been spending much of my professional time lately studying what happened in the credit markets during the bubble years, so I think I have a slightly better grasp than I did at the time, when I only thought it would lead to a nasty financial crisis, as opposed to Great Depression II.

The broad story is well known, even to the cable TV pinheads: Housing Bubble + Subprime Mortgage Lending + Derivatives = Armageddon. (The numerical illiterates at Fox News would probably add ACORN to that equation.) But even now I’m not sure if many people fully understand just how insanely reckless the carnival was, to the point where future historians will speak of “structured finance” in much the same the way we talk about the bubonic plague.

The carriers (fleas and rats) of this particular epidemic were the bright young Wall Street things who invented the concept of securitized lending – essentially, the repackaging of mortgages, corporate loans, credit card receivables and any other obligations that could quasi-credibly be described as “assets” into allegedly liquid securities that could then be sold to suckers, um, investors the world over.

The deadly bacillus wasn’t securitization per se – Fannie Mae and Freddie Mac, as well as many private lenders, managed to package and sell mortgage-backed securities for many years without destroying either the world or themselves.

The fatal innovation, in my opinion (and it’s just that) was the rise of so-called collateralized obligations, in which the payment streams from supposedly uniform pools of assets (say, for example, 30-year fixed prime mortgages issued in the first six months of 2006 to California borrowers) could be sliced and diced into different securities (known as tranches) each with different payment characteristics.

This began as a tool for managing (or speculating on) changes in interest rates, which are a particular problem for mortgage lenders, since homeowners usually have the right to repay (i.e. refinance) their loan when rates fall, forcing lenders to put the money back out on the street at the new, lower rates. This means mortgage-backed securities can go down in value when rates fall as well as when they rise. By shielding some tranches from prepayments (in other words, by directing them to other tranches) the favored tranches are made less volatile and thus can be sold at a higher price and a lower yield.

But from there is was off to the races, as the wizards of Wall Street bred a whole herd of financially engineered racehorses – securities that were entitled to only the interest income from the underlying pool of mortgages, or only the principal payments, or that saw yields rise when interest rates fell, and vice versa, or that didn’t receive any principal or interest until other designated tranches had been fully paid off, and so on.

As with most financial engineering gizmos, the problem with this mechanism is that it only shifts risk, it can’t eliminate it. Tame, well-behaved tranches can only be created by also producing, and selling, much wilder ones. The more interest-rate risk packed into the latter securities, the more of the former can be profitably sold. So Wall Street became quite skilled at conjuring up tranches that could better be described as unexploded bombs: If the bond market sneezed (i.e. if interest rates rose or fell even a smidgeon or two) the investors who purchased them would basically be vaporized, like the contestants in Monty Python’s “How Not to Be Seen” contest. (If you remember how that sketch ended, you’ll appreciate how apt the analogy is.)

In theory, these high-risk securities were supposed to be marketed to hedge funds and other compulsive gamblers paid to take insane risks with other people’s money. In reality, they were carted off and sold in bulk to boiler room brokerage firms, who then dumped them on clients who didn’t understand that they were taking enormous risks with their own money. This eventually forced a number of them – including, most memorably, Orange County, California – into bankruptcy.

Possibly because of the resemblance to a different kind of dumping – often controlled by a different kind of OC – these high-risk, high-loss tranches were dubbed “toxic waste.” So now you know where the toxic in “toxic assets” originally came from.

The incentives being what they were, it was only a matter of time before Wall Street started applying the same techniques to credit risk – putting the financial system firmly on its collision course with a black hole.

The new idea was that collateralized vehicles could be created that would mimic the capital structure of a real company. That is, on one side of the balance sheet would be the assets (mortgages, junk bonds, corporate loans) held by the vehicle, and on the other side would be the liabilities – securities sold to investors to finance the purchase of the assets. These securities would also be tranched, except this time the tranches might carry differing degrees of exposure to both interest rate risk and default risk. The whole convoluted structure would then be balanced on a teeny tiny sliver of capital, which, if everything went according to plan, would pay fat “equity-like” returns (the Holy Grail of the fixed income world).

And so was born the collateralized debt obligation, or CDO, to be followed by its twin brother, the collateralized loan obligation, or CLO – the main difference between them being that CDOs tended to buy mortgage debt while CLOs specialized in corporate loans, especially those made by banks to finance leveraged buyouts deals.

Now the money tree could begin to bear its full fruit. By shielding some tranches from default risk (again, by concentrating that risk in other tranches) the bright young things persuaded the credit rating agencies (Standard & Poor’s, Moody’s) to give the shielded securities (known as “super” or “super-senior” tranches) top “investment grade” ratings – including, in many cases, the coveted AAA, once reserved for the corporate crème de crème: indestructible names like General Motors, General Electric and JP Morgan. (To contemplate that list is to realize just how silly the whole credit-rating exercise is when applied to a 20- or 30-year bond).

But this was just the beginning. Having created and sold CDOs – and persuaded (well, bribed) the credit agencies into blessing them – Wall Street promptly began creating and selling CDOs that invested in other CDOs (”squared” CDOs) and CDOs that invested in CDOs that invested in other CDOs (”cubed” CDOs). Because even this didn’t deliver a big enough fix for the hard-core risk junkies (i.e. the hedge funds) the banks also created and sold “synthetic” CDOs, which, instead of investing in actual loans, wrote (sold) credit default swaps – insurance-like derivatives that promised to pay off if and when a company defaulted on its debts. This made it possible for synthetic CDOs to accept staggering amounts of credit exposure, and get paid for it, without putting down much, if any, cash – pushing their “notional” leverage ratios towards infinity.

What can you say? It was a hell of party – the bonfire to end all vanities. And yet, as mind-numbingly (if not mind-blowingly) complex as these credit structures were, and despite the even more esoteric mathematical models used to price them, the entire edifice rested on a set of relatively simple assumptions:

1.) Housing prices rarely go down, at least nationally.
2.) Default losses on large mortgage pools are not only low but relatively stable.
3.) People don’t walk away from their homes, even when they’re under water.
4.) Regional housing markets are largely uncorrelated.

(The LBO market and the asset-backed commercial paper market and all the other credit markets inflated to the size of the Hindenberg by the bubble had their own simplifying assumptions – all of which were destroyed by the absurd lending practices made possible by the bubble itself.)

Perhaps I exaggerate slightly. But the confidence investors (and their supposed watchdogs, the credit rating agencies) placed in the honesty, reliability and solvency of the average American homeowner truly was touching. To the point where you had CDOs that invested entirely in the mezzanine tranches (a very junior, very unsecured form of debt) of other CDOs, which in turn invested entirely in securities backed by pools of second subprime mortgages with loan-to-value ratios greater than 110% – in other words, in loans that were underwater even at the top of the bubble.

And yet many of these CDOs – the ones at the top of the food chain – had tranches rated AAA, on the grounds that diversification (buying many little pieces of shit) and overcollateralization (giving some investors less shit than others) would protect the senior tranches from harm. My mouth still hangs open in awe over this.

The point I’m finally getting around to making is that these collateralized securities – not the underlying mortgages and loans – are what has made Big Shitpile such a great big pile of shit. The 20% decline in national housing prices we’ve already seen hasn’t produced a linear 20% decline in the value of the shitpile. Thanks to the embedded leverage these “legacy” assets contain, a 20% price decline has resulted in 80% or 90% or even 100% losses on many of them. Ditto for the serial implosion of poorly structured, ridiculously optimistic LBOs. Ditto for the tidal wave of commercial real estate loans that can’t be refinanced. Ditto for the recession-induced surge in credit card defaults.

Bottom line: great big chunks of Big Shitpile aren’t “impaired,” or “illiquid,” or “distressed,” they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored and a whole bunch of deceased LBOs can be raised from the tomb.

The comments sections is also well worth a look, with the following bit - wherein the writer expands on Billmon’s “Catch-22″ theme - especially resonant with me.

That’s some catch, that Catch 22.The other relevant scene from the novel is when the old Italian man (108 years old) tells the 21-year old Lt. that the secret to a long and happy life is to surrender, not fight.To bend.

To not get in uniform, not get in line, not march with the masses, not stand in the ranks, not espouse the public goal.

To live instead like a knife cutting through water, leaving no trace of yourself while simply being yourself. The young Lt. may not see the next sunset, while the old man has lived the one day given to him, day by day, for 108 years.

Most people can’t do it. Human beings live in stories, in myths about nationhood, heritage, generational accomplishments, ethnicity, in sports teams if nothing else. Most of us are eager to stand up and be a part of history, to fight for truth, justice, and a sacred cause larger than our life, to make our mark in this world, to make a difference, to be somebody, to do some thing.

When the only thing you can ever possibly have any control over is yourself, inside your own skin.

Ozymandias in the end was just a man. Though he reportedly shook the heavens and the earth, no trace of it remains. What he took to eternity was who he was, not what he did. Not the slightest speck of any mountain he moved, not the smallest coin nor thread of cloth went along with him to wherever he went.

None of those things were taken. None of those things remain.

It’s hard to leave off the story, the country, the cause that appeals to you, and to care nothing about all that.

In the eight years of daily heartbreak of the Bush years now past, I went from grieving for my lost America, to a white hot rage to rescue it, to a determination to change it, to a cold examination of its core deceits.

And there has been a divorce. I’ve no respect or regard remaining for America’s story, for its birth or history, for its government, its leaders, its various wars, or for its aims around the world today. It is not my story or my country even though I live here.

Like the majority of Americans, much has been taken from me in these eight years, and as I watch the fledgling Obama Administration service the robber barons assiduously instead of the people I perceive that even more will be taken.

But I also perceive that these taken things are just things. Job, career, savings, property, pride, prospects, patriotism, optimism, health care, community, anger, shame, love of country. These things that I once thought moved heaven and Earth are gone now.

Like so many Americans, I am standing here in my skin, with no particular loyalty to the nation that robs me, that abuses me, that uses me and then sends along a bill for its services. I won’t be paying that bill, and they cannot collect it without taking my very skin, which I aim to keep.

Like so many Americans, I am ‘paddling to Sweden’ as Orr did in the novel — I am getting up every morning and doing what is sane and effective to escape a mad and maddening situation, to escape with my skin. My bank is a mattress, my income is barter and black market, my taxes are nought. My interest in the blogs, news, and headlines is to dodge what’s coming next, not to fight it, espouse it, worry about it, or live in it.

The oligarchs atop our nation do not grasp how very many Americans don’t live in America any longer even though we live right here. How very many of us see that the Dream was only ever possible for 10% of us, and that those 10% have got theirs but good, and have no further concern for the rest of us, or for other nations, or for the planet.

They’ve virtually left the country. So have we. Catch 22 — no one lives in America any longer. Some live above it, while most live below it. The Dream is increasingly unoccupied.

The 10% of wealthy Villagers atop America will happily leave the rest of us shivering in our skins, if it keeps them living in their story. In their country. The country they won, that they stole fair and square so they can live happily ever after.

Or until we come for them.

Yet further down is another interesting and resonant bit:

I can’t help thinking about what happens when the money supply expands. Back during the “Free Silver!” days, rural westerners suddenly found themselves with more money than usual. The money was silver and the Eastern Establishment thought the foolishness of everyday folk walking around with excess surplus had gone on long enough. After William Jennings Bryan launched three successive failed populist campaigns, each time beaten back by the ownership classes, the Federal Reserve System settled the dispute once and for all about who would regulate the money supply.The late 19th Century money panics were as complex perhaps as anything now faced. They were also political in their nature and represented to some degree an imbalance of competing interests. However, I find it instructive that the investor class in each instance would rather dynamite the economy than lose their leverage.

Inflation has been a bad word in our current lexicon. As distinct from Hyperinflation, the kind undoing Zimbabwe, Inflation typically involves a push for wage hikes to counter the effects of a higher cost of living. Landlords, financiers, and investors prefer periods of deflation over inflation in correcting market imbalances. I believe our current situation reflects this bias. It is also why we saw such ridiculous bonuses being paid out to the enablers of the wealthy class. Rather than distribute portions of excess profit to the hired help, it was split amongst themselves. This was less a function of market mechanics than it was of ideology.

It is more than derivatives that provided for our collective undoing. As much as the banking structure’s collapse has looked like a lumbering pratfall, there is an element to it which I think was engineered. If all monetary cycles are cylical, then why do large asset holders invariably take fewer lumps than the rest of us do? They never get around to taking their turn in the barrel it seems. And why is it that the Dow can treble and it is not called inflation, but when the rank-in-file start walking around with extra spending money in their pocket, it is?

My fear is that some of the more insidious players of risk were miraculously made whole when the government released the first bailout funds. Now, they will watch the rest of the next Long Depression from the sidelines undisturbed.

While I may favor the imagery of a revolution that shows some form of justice to the ones who have most perpetrated these ugly economic misdeeds, I am cynical enough to think it is very unlikely due to the invariable obedience of Americans to follow the commands of their masters.

Bloomberg informs me that the masses are drinking less:

Take-out sales of alcoholic beverages tumbled 9.3 percent in the fourth quarter, the steepest drop since the U.S. Commerce Department started compiling data half a century ago. They sank four times as much as overall consumer spending, depicted by a green line in the chart.

The plunge, which took place as the U.S. recession surpassed the one-year mark, shattered the previous record of 3.7 percent in the fourth quarter of 1991. That decline capped three quarters of falling sales as the U.S. came out of a recession.

Beer sales fell the most, 14 percent, in last year’s fourth quarter. They accounted for 61 percent of the $111.9 billion in alcohol sold to drink at home. Wine sales retreated 1.6 percent and sales of liquor slid 0.9 percent.

At least I didn’t take part in this, having successfully minimized my alcohol bill about five years ago. Realizing that I wasn’t getting any younger, and that I wasn’t getting any less thirsty on the hot summer days hereabouts, and that my knees weren’t getting any younger more quickly than the rest of me, I streamlined my alcohol purchases to 30-packs of Milwaukee’s Best Light. It’s cheap; it gives me a mild buzz; it doesn’t have the nasty aftertaste of some of the other cheapies; it’s not Riceweiser; I can drink it at mild flow rates for hours and still operate bulldozers; and it’s cheap. I still pick up the occasional micro-brew, though, and am especially fond of hefe weizens lately.