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Archive for December 26th, 2009
Defense Bill Raids Personnel Funds to Pay For Weapons
December 26th, 2009 | 
Author: Defense Bill Raids Personnel Funds to Pay For Weapons
Matt Taibbi
Taibblog
The measure also trims personnel and maintenance accounts from previous versions of the measure to pump up weapons procurement for Afghanistan and Iraq by almost $2 billion.
via The Associated Press: Wrap-up bill clears Senate hurdle.
Every year about this time a tiny trickle of little-noticed news stories weeds its way into the papers, usually in the back sections. It’s the same narrative every year: Congress lumps all the unpassed appropriations bills together, slaps them full of pork, and quietly passes them (often in the dead of night) while everyone is already thinking about Christmas.
The defense bill is always the worst and most morally reprehensible, and this year is no exception. It should be noted that defense pork is one of America’s great bipartisan traditions. The scheme is the same every year, regardless of who is in the majority: Congress quietly shoves in earmarks for unnecessary and ridiculously expensive weapons programs, and pays for them by gutting the existing budgets for actual soldiers.
What most people don’t understand about earmarks is that they are not achieved by simply adding to the top number for the whole federal budget. Earmarks have to come out of the approved number for that particular appropriations bill. So if you want a highway earmark, the money has to come out of some other highway program.
In the defense bill, it usually works like this: Congress sticks in a few extra airplanes or ships as a handout to this or that member, usually in exchange for his vote somewhere else on some other issue. To pay for those earmarks, the favored targets for cutting are usually two parts of the defense bill: Personnel (i.e. military pay) and Operations and Maintenance (which includes such things as body armor, equipment, food, training, and fuel). Those of you who wondered over the years how it could be that soldiers in Iraq could somehow be left without body armor, well, here’s your explanation. They usually took the armor off those kids in order to pay off some congressman with an extra helicopter or two.
My old friend Winslow Wheeler, a former Senate aide who is now a well-known watchdog on defense spending, points out that this year is no different. There are over 1,700 earmarks in the defense bill that just passed, worth $4.2 billion, but those are
… just the earmarks they will admit to. Not counted in that tally are the 10 C-17s for $2.5 billion, nine F-18s for a half a billion dollars (in the war funding part of the bill), plus the added $465 million for the GE engine…
And where did the money to pay for all that come from? This is another annual trick. Usually if you add up all the earmarks, the total amount spent will roughly mirror the amount of the cuts in personnel and O&M. Wheeler found the following:
$1.9 billion in gross reductions to the Military Personnel (pay) account based on the arbitrary justification that there was need for an “undistributed adjustment,” or in some cases “reimbursables.” $2.1 billion in net reductions from the O&M account in the base bill; $1.4 billion of that reduction was based on phony justifications (indirectly based on some flimsy GAO analysis never made public), such as “historic underexecution.” (If you want to review my analysis of this flimsy GAO analysis , see it at http://www.cdi.org/friendlyversion/printversion.cfm?documentID=4535.) The House and Senate Appropriations Committees also raided the direct war fighting O&M account in Title IX of the bill by $1.5 billion. Total O&M raids, thus, amount to $3.6 billion.
So, $3.6 billion in O&M cuts added to $1.9 billion in personnel cuts = $5.5 billion.
And $4.2 billion in earmarks added to $3 billion for the F-18s and the C-17s, plus $465 million for the Joint Strike engines (which the administration claims it doesn’t want) = $7.66 billion.
It’s always amazed me that this stuff isn’t more of an issue with the right. We’re talking about robbing soldiers to pay defense executives. They pull this scam like clockwork every year and nobody ever says a word — weird stuff.
Bill Still and Nathan Martin audio – Thoughts behind Freedom’s Vision…
The first audio link is the portion of the Two Beers with Steve interview with Bill Still:
Bill Still on Two Beers with Steve (.mp3)
This link is a question and answers format explaining the basic concepts of Freedom’s Vision with both Bill and Nathan.
Nathan and Bill – Freedom’s Vision beginning questions… (.mp4)
Again, questions and comments are welcome. At some point in the near future we would like to have a call in question and answer session.
Middlerunning: December 26 (Stories You Probably Aren't Supposed to Read)
- Son of Nigerian banker apparently tries to blow up Delta’s EHAM -> KDTW. (419 BLAM?) [reuters]
- Supposed Delta bomber apparently has al Qaeda ties. (Explains why he was going to Detroit) [reuters]
- …and has been known by U.S. officials as a terrorist associate for two years. (Explains why he was going to Detroit) [AP]
- As they hit 5%, and when they think no one is listening, Freddie whispers that 30-year rates could climb to 6% in 2010. (Rahm: “No big thing. Just sayin’ is all.”) [reuters]
- Vice President of Finance for Koss apparently embezzled $20 million. (Multi-million dollar clothes and jewelery shopping spree may explain WI retail numbers) [reuters]
- Obama tells Americans to count their blessings. (Actually, we saw that movie already, back when it was called Jimmy Carter) [marketwatch]
- Whole Foods Chairman/CEO to become Whole Foods CEO. (Impartiality partially restored?) [ap/nyt]
- Berkshire employee count 8.6% lighter since last year. (Read: “Buffett downgrades United States”) [bloomberg]
Posted in Bloomberg, Buffett, Corruption, Delta, Detroit, Dollar, Economy, Financial System, Reuters, United States | 
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Responding to Goldman Sachs
Responding to Goldman Sachs
President, Tavakoli Structured Finance, Inc.
The New York Times published a Christmas Eve expose of Goldman Sachs’s so-called “Abacus” synthetic collateralized debt obligations (CDOs). They were created with credit derivatives instead of cash securities. Goldman used credit derivatives to create short bets that gain in value when CDOs lose value. Goldman did this for both protection and profit and marketed the idea to hedge funds.
Goldman responded to the New York Times saying many of these deals were the result of demand from investing clients seeking long exposure. In an earlier Huffington Post article, I wrote about Goldman’s key role in the AIG crisis; it traded or originated $33 billion of AIG’s $80 billion CDOs. AIG was long the majority of six of Goldman’s Abacus deals. These value-destroying CDOs were stuffed with BBB-rated (the lowest “investment grade” rating) portions of other deals. These BBB-rated portions were overrated from the start. Many of them eventually exploded like firecrackers.
Goldman said it suffered losses due to the deterioration of the housing market and disclosed $1.7 billion in residential mortgage exposure write-downs in 2008. These losses would have been substantially higher had it not hedged. Goldman describes its activities as prudent risk management. Many Wall Street firms wound up taking losses. The question is, however, how did they manage to get through a couple of bonus cycles without taking accounting losses while showing “profits?”
The answer is that they sold a lot of “hot air” disguised as valuable securities. Goldman claims this was prudent risk management. In reality, Goldman created products that it knew or should have known were overrated and overpriced.
If Wall Street had not manufactured value-destroying securities and related credit derivatives, the money supply for bad loans would have been choked off years earlier. Instead, Wall Street was chiefly responsible for the “financial innovation” that did massive damage to the U.S. economy.
Earlier, Goldman denied it could have known this was a problem, yet acknowledged I had warned about the grave risks at the time. If Goldman wants to stick to its story that it didn’t know the gun was loaded, then it is not in the public interest to rely on Goldman’s opinion about the greater risk it now poses to the global markets.
Goldman excuses its participation by saying its counterparties were sophisticated and had the resources to do their own research. This is a fair point if Goldman were defending itself in a lawsuit with a sophisticated investor trying to recover damages. It is not a valid point when discussing public funds that were used to bail out AIG, Goldman, and Goldman’s “customers.”
Goldman claims the portfolios were fully disclosed to its customers. Yet at the time of the AIG bailout, Goldman did not disclose the nature of its trades with AIG, and Goldman did not disclose these portfolios to the U.S. public. If it had, the public might have balked at the bailout.
The public is an unwilling majority owner in AIG, and public money was funneled directly to Goldman Sachs as a result of suspect activity. The circumstances of AIG’s crisis were extraordinary and without precedent. I maintain that the public is owed reparations, and it would be fair to make all of AIG’s counterparties buy back the CDOs at full price, and they can keep the discounted value themselves.
Some similar CDOs currently trade for less than a dime on the dollar in the secondary market. Goldman’s trades amounted to more than $20 billion (albeit Goldman traded or originated $33 billion of AIG’s $80 billion of this ilk). If Goldman wants to claim it was “only following orders” for customers, that is between Goldman and the hedge funds or other “customers” involved. Goldman can fight it out with them if it wants its money back.
Goldman’s synthetic deals that are still on AIG’s books can be settled at ten cents on the dollar. This is the value at which other bond insurers have settled similar deals. The excess money already paid to Goldman can used to pay down AIG’s public debt.
Posted in AIG, Bailout, Collateralized Debt Obligations, Credit Default Swaps, Goldman Sachs |
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The Size of Derivatives Bubble = $190K Per Person on Planet or 1.144 Quadrillion
The Invisible One Quadrillion Dollar Equation — Asymmetric Leverage and Systemic Risk
According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland — the central bankers’ bank — the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion. The main categories of the USD 1.144 Quadrillion derivatives market were the following:
1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.
Quadrillion? That is a number only super computing engineers and astronomers used to use, not economists and bankers!
LINK HERE
Congress Increases Debt Limit To 24 Quadrillion Dollars
Congress did not really increase the debt ceiling to $24 quadrillion but it may as well have. If every increase is a foregone conclusion, then it is a waste of time debating approvals.
On Thursday, with little fanfare, Congress Increased The Debt Limit.
Congress’s move to lift the federal government’s borrowing limit by $290 billion — enough to last about two months — sets the stage for a contentious debate early next year on government spending.
The Senate on Thursday approved the increase in a 60-39 vote that was largely along party lines. The House passed the measure last week.
The additional $290 billion in borrowing ability lifts the total public debt the federal government can hold to about $12.4 trillion and will allow the government to keep borrowing through February.
Treasury officials had warned that the current limit of $12.1 trillion was close to being breached. Congressional leaders scrambled to raise the ceiling before they began the holiday recess.
An increase in the debt ceiling is largely symbolic as it represents money already spent by the U.S. government.
Year in and year out, and sometimes multiple times a year, Congress stages a carnival act for public display where the representatives all get together and pretend to be shocked at the size of the deficit and vow to do something about it next year.
Of course next year never comes.
If Republicans in general do not like deficit spending and Democrats in general do not like deficit spending then why does the deficit go up every year? The only conclusion is members of both parties are liars.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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