Right Wing Nut House

You won’t want to miss tonight’s Rick Moran Show, one of the most popular conservative talk shows on Blog Talk Radio.

Tonight, I welcome AT’s Rich Baehr and Dan Riehl to discuss the uproar over Jim Bunning’s maneuver to block a $10 billion spending bill. We’ll also look at the status of health care and the presidents plan released today.

The show will air from 7:00 - 8:00 PM Central time. You can access the live stream here. A podcast will be available for streaming or download shortly after the end of the broadcast.

Click on the stream below and join in on what one wag called a “Wayne’s World for adults.”

Also, if you’d like to call in and put your two cents in, you can dial (718) 664-9764.

Ten billion dollars. Ten lousy billion dollars held up by Jim Bunning and Washington explodes in tears, hand wringing, and vituperative finger pointing at the retiring senator, the author of all this pain. (Evidently, Bunning did a little finger pointing of his own, but it was the middle digit and was directed at an ABC News producer - not necessarily a bad target but I question the timing.)

Welcome to the future. This is how it will be when even minimal, nonsensical, irrelevant, and paltry cuts in federal spending are attempted. It can be argued - and I am happy to do so - that Bunning chose the wrong time, the wrong place, and the wrong bill to fight for fiscal sanity.

But ten lousy, fricking, billion dollars engendering an explosion of hate and angst directed toward Bunning? What in God’s name is wrong with this country?

By the reaction, you would think that Bunning was trying to throw poor people out into the street, force grandma and grandpa to eat Meow Mix, strip soldiers naked and send them into battle, while singlehandedly increasing his carbon footprint to the point that the ocean drowns Los Angeles in a wave of melting arctic ice due to global warming.

The reality is, that what Bunning is asking is impossible; that the Congress find $10 billion dollars to cut at the same time they want to spend $10 billion on all these worthy, and necessary programs.

That’s $10 billion out of a budget of $3.6 trillion that the Congress can’t find. Are you getting the sense that Washington has turned into some bad Dadaist dream - a surreal nightmare with rabbits in top hats, chameleons sitting on park benches that change colors in rapid succession, while toothless hags wander among the ruins cackling uncontrollably? (That’s MY surreal nightmare, thank you. Butt out.)

Harry Reid farts and the EPA spends $10 billion on air purification. Nancy Pelosi sneezes and NIH gets a $10 billion grant to study allergic reactions by west coast society matrons. Max Blumenthal picks his nose and Democrats spend $10 billion to memorialize it.

Washington spends $10 billion - and ten times ten billion - without breaking a sweat. The spend $10 billion on their lunch breaks.

“But it’s an emergency!” scream the Democrats and liberals. Fine. If you don’t think a trillion dollar deficit is an “emergency” get the hell out town. When are we going to have the same zeal to cut spending as we do in increasing it? Are you trying to tell me that a couple of committee chairmen from the House and Senate couldn’t sit down for an hour and come up with $10 billion to cut? Are we that far gone where three trillion plus in federal spending has generated such powerful lobbies that Congress fears for its political life if they vote to cut less than 0.003% of the budget? What is going to happen when we are forced to cut hundreds of billions of dollars in order to deal with the deficit crisis?

Emergency? Absolutely. Let’s treat it like one. If you’re so all fired eager to spend $10 billion then by God, you should be equally glad to cut the same amount. We’ve reached the point in Washington where cutting a measly $10 billion in order to pay for necessary expenditures causes a reaction more in keeping with a threat to the stability of the republic rather than a simple exercise in minimal - minimal fiscal discipline.

Robert Samuelson presciently describes the mindset in Washington:

There is a make-believe quality to modern American politics: People — and this applies across the political spectrum — say things that are stupid, misleading or unattainable and think (or pretend) that these very same things are desirable, candid and realistic. A disconnect between the language of politics and the nation’s actual problems is growing. The politics of the budget offer a splendid example.

On the right, we have conservatives clamoring for tax cuts when, as a practical matter, today’s massive budget deficits preclude permanent new tax cuts. With present policies and a decent economic recovery, the federal government could easily spend $12 trillion more than it collects in taxes from 2009 to 2020, reckons the Congressional Budget Office. So before reducing taxes, the tax-cut advocates need to identify hundreds of billions of annual spending reductions — or accept huge and hazardous annual deficits. Naturally, a comprehensive list of spending cuts is nowhere in sight.

On the left, President Obama and Democrats have spent the past year arguing that, despite the government’s massive deficits and overspending, they can responsibly propose even more spending. Future deficits are to be ignored (present deficits, to be sure, partially reflect the economic slump). The proposal is “responsible” because it’s “paid for” through new taxes and spending cuts. Even if these financing sources were completely believable (they aren’t), the logic is that the government can undertake new spending before dealing with the consequences of old spending. Of course, most households and businesses can’t do this.

Politicians can, because it’s all make-believe. They pretend to deal with budget deficits when they aren’t.

Certainly part of this “make-believe” is denial. Another aspect of fantasyland on the budget is an adherence to the old procrastinator’s maxim, updated to reflect reality in Washington; “Never cut today what someone else will be forced to cut tomorrow.”

Finally, simple politics is at play. It is more popular to spend money than to cut it out of the budget, more popular to cut taxes than to raise them. I mentioned the lobbies that have sprung up to protect their share of the $3.6 trillion budget. Every program, every proposed purchase that is cut affects real people. Let’s not kid ourselves. It’s not just the poor who benefits from federal spending. It’s the rich, the super rich, the middle class, and everybody in between and above and below. The government has burrowed so far into our lives in the last half century that removing it will be literally like operating without anesthetic.

America has been on a binge since the end of World War II and purging what we’ve gorged on will be worse than any emetic on the market. The problem has been that we - and through us, our elected representatives - have refused to make choices regarding what we want our government to do for us. Some need it to do more than others. Some desire it to do more than most. A few want it to do more than can be accepted in a democratic republic and maintain individual liberty.

Because we refuse to make choices - except that we don’t want to pay for whatever Washington does for us - we are staring upwards at a mountain of debt that will bury us sooner rather than later. And into this charged atmosphere comes retiring Jim Bunning like a bull in a china shop trying to bend the Congress to his will. He has made his point. It is time to relent.

As I said, wrong war, wrong time, wrong battlefield. But Bunning’s piquancy should be a cautionary tale. Samuelson again:

The common denominator is a triumph of electioneering over governing. Every campaign is an exercise in make-believe. All the good ideas and good people lie on one side. All the “special interests,” barbarians and dangerous ideas lie on the other. There’s no room for the real world’s messy ambiguities, discomforting contradictions and unpopular choices. But to govern successfully, leaders must confront precisely those ambiguities, contradictions and choices.

The make-believe of campaigns increasingly shapes the process of governing. Whether this reflects cable TV and the Internet — which reward the harsh hostility of extreme partisanship — or the precarious balance between the two parties or something else is hard to say. But the disconnect between policy and the real world is harmful. Proposals tend to be constructed more for their public relations effects than for their capacity to solve actual problems.

The result is a paradox. This electioneering style of governing strives to bolster politicians’ popularity. But it does the opposite. Because partisan rhetoric creates exaggerated expectations of what government can do, people across the ideological spectrum are routinely disillusioned. Because actual problems fester — and people see that — public trust of political leaders erodes.

When our chickens come home to roost, and the unsustainable debt and deficit has had its way with our economy, our budget, and our way of life, two partisans will be seen standing in the rubble tossing bricks at each other, screaming vile epithets back and forth, blaming each other for the collapse. Meanwhile, the rest of us will be sitting in the smoking ruins of a once dynamic, liberty loving country wondering pitifully what the hell happened.

The best article I’ve read to date on how we have become a bailout nation and why was published about 2 weeks ago in Rolling Stone. It was by the estimable Matt Taibbi and is entitled “Wall Street’s Bailout Hustle.”

I dare you to read it and not be grinding your teeth by the end of it.

Recognizing a certain class bias inherent in Taibbi’s explanations of what the Wall Street banks have wrought doesn’t diminish the impact of this horror story in the slightest. The bottom line, as Taibbi explains is that nothing has changed since September 2008. The same practices that got us into trouble then, have been resurrected and, if anything, are being used with even more gusto by the Wall Street Raiders who are now working hand and fist with the government to rob the taxpayers:

That’s why the biggest gift the bankers got in the bailout was not fiscal but psychological. “The most valuable part of the bailout,” says Rep. Sherman, “was the implicit guarantee that they’re Too Big to Fail.” Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. “It’s evidence,” says Rep. Kanjorski, “that they still don’t get it.”

More to the point, the fact that we haven’t done much of anything to change the rules and behavior of Wall Street shows that we still don’t get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

Taibbi - sometimes to the detriment of his narrative - uses various plays by con-artists (a society of criminals unique in their vocabulary and history) and compares them to what J.P. Morgan and other Wall Street outfits did to get the trillions in Fed money that have made them so profitable today.

In essence:

A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

Beyond that, either the big banks haven’t learned a thing, or more likely, know a good thing when they see it:

The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they’re back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they’re rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

That’s why this bonus business isn’t merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men.

Why we have been sanguine in the face of what Taibbi describes as these “old school hustles” is the result of the extraordinarily arcane nature of the cons being visited on the Fed and Congress by the banks.

To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don’t so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids’ playroom, knowing it and actually watching the whole scene from start to finish are two very different things.

Taibbi lists 7 of these con games that the gamblers at J.P. Morgan and other big banks have been running at our expense. Here is a too brief description of a few of them:

* “The Swoop and Squat.” How counterparties - including a French bank - played both sides in the AIG meltdown and forced it into bankruptcy. The big banks had been using AIG to “insure” the toxic mortgage backed securities, for which AIG received a substantial cut, but was unprepared when hundreds of billions in bad paper drowned it.

The “swoop and squat” is the well known insurance scam where your car is boxed in by 2 or 3 other cars and a deliberate “accident” ensues so that the scammers can collect:

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors’ cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.

When AIG was drowning, the banks hurried its collapse along:

So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the “Swoop and Squat” that ultimately crashed the firm.

Of course, Goldman demanded the government reimburse them for the full “value” of the $5.9 billion in collateral they ripped from AIG. If the insurance giant had gone through bankruptcy, Goldman would have received virtually nothing. Just one way that Goldman gamed the government and the Fed in gorging itself to bursting.

* “The Dollar Store.” In grifter parlance, this refers to something like what we saw in the movie “The Sting” where a lot of con artists set up a fake front to fool the mark. Goldman and Morgan Stanley applied for, and received in record time, a charter that redefined the kind of bank they were just 5 days after the AIG bailout:

By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.

Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of “free money” by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

Before reading this next bit from Taibbi on what the banks did with that new charter, I suggest you remove all sharp objects from within reach plus anything that might be used as a missile to hurl through your monitor:

When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008.

[...]

In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.

That’s right. They borrowed interest free money from the government and lent it back to us - with interest. This is one con game used by Taibbi that has a direct application to what occurred in the real world.

* The Rumanian Box. This is an age old scam invented by a guy named Lustig where the con man shows the mark a magical machine where you put a blank piece of paper in one end, turn a crank and out pops a $20 on the other end. Here’s how the banks used this concept and bilked the Fed:

The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he’s been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.

The big banks threatened to freeze lending even more unless the Feds came up with more goodies. The government didn’t disappoint:

The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion “real” dollars.

The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington’s demand for cash was so great post-Clusterfuck ‘08 that even the Chinese couldn’t buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.

The last con game Tabai uses to highlight what Wall Street has been up to is called “The Reload.” This refers to a mark who comes back for seconds.

It’s important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.

Why? Why haven’t we woken up to this outright robbery? Well for one thing, the financial services industry gives generously to both parties, thus allowing them virtual free reign to snooker the taxpayer. But even Obama’s new regulations - being watered down even further as I write this - will be inadequate. And the reason has to do with morals, not regulation:

Con artists have a word for the inability of their victims to accept that they’ve been scammed. They call it the “True Believer Syndrome.” That’s sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn’t so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn’t matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn’t going to work, no matter what we do. Sure, mugging old ladies is against the law, but it’s also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

My concern about Democrats and liberals bashing bankers has always been that they fail to adequately differentiate between the robber barons on Wall Street, and the friendly, smiling face of a loan officer we have dealt with at our neighborhood suburban bank. Those are the guys who suffer because of the indiscriminate class card played by the left. They have as much in common with the crooks at Goldman Sachs as my pet cat Aramas has with a saber tooth lion.

But I think the key here has been misplaced conservative support for these rogues who we see as the ultimate success stories in the free market. The problem, as Taibbi points out and as we should have realized long ago, is that these guys operate on another level of the playing field altogether. They can’t be effectively regulated by the government because they are so powerful both politically and as economic entities that drive the macro economy, that they, in effect, hold most of the cards. They are partners with the government. Or perhaps it would be more accurate to say that the government is partners with them. There is no competition except among the extremely small group of bankers to which they sometimes conspire with to realize their enormous profits.

Maybe tar and feathers isn’t such a bad idea after all.