San Diego Housing Bubble News and Analysis

Washington Post - New Accounting Rules

The board that sets U.S. accounting rules voted yesterday to let financial firms report higher values for some troubled assets, a controversial step likely to increase some banks' reported earnings but also heighten suspicions that the companies are concealing problems.

The move by the Financial Accounting Standards Board was made with unusual speed under intense pressure from Congress and the financial industry, which have argued that the old rules exacerbated the financial crisis by forcing banks to overstate expected losses.

But the decision to ease what are known as mark-to-market requirements has raised concerns among some financial experts who warn that it will become harder for banks and investors to agree on what the troubled assets are actually worth and thus discourage their sale. The ability of financial firms to sell assets to investors is considered essential for an economic revival because this could restore the major source of funding for bank lending to consumers and businesses.

The board also has faced a storm of criticism from accounting and investor groups who view yesterday's move as evidence that it lacks the necessary independence and strength to uphold its judgments in the face of pressure. The nonprofit board, whose decisions are enforced by the Securities and Exchange Commission, proposed the changes four days after it was told to do so by angry members of Congress.

"I was very disappointed in the process in that the independent agency buckled to the strong-armed tactics of Congress," said Arthur Levitt, a former SEC chairman. "This is a step toward the kind of opaqueness that created the economic problems that we're enduring today."

A spokesman for FASB, based in Connecticut, said the board was responding appropriately to an extraordinary economic crisis.

"Our decisions rarely please everyone, but we believe that we have helped market participants this week with this action," said the spokesman, Neal McGarity.

The new rules, which will be published next week, broaden an existing exception to the basic accounting principle that an asset is worth the price that a buyer is willing to pay. This valuation system is called marking to market, and the result is described as a fair value. Companies must disclose the fair value assets that they're willing to sell in quarterly reports.

When a market does not exist -- when there are no buyers for a particular kind of asset -- companies can assign values based on other considerations, such as the amount originally paid for the asset, and any income it produces, such as a borrower's payments on a mortgage. The change made yesterday allows companies to assert the same exception by arguing that the market is broken -- that prices offered by investors for some securities do not reflect the real value of those assets.

The change is important because banks are required to set aside money when an asset declines in value, since the drop reflects a projected loss. It is expected that banks will use this exception to argue that the market prices for some assets are too low, and that they should be allowed to set aside less money.

In part, the impact of the change depends on whether the banks' valuations are correct, according to financial analysts. If losses are smaller than the market has projected, banks will have more money in the short term, which could allow them to increase lending and attract investors, while maintaining adequate reserves against losses.

However, if investors believe banks are overpricing assets, "the capital markets will remain closed to major banks and other financial intermediaries for an extended period of time," the CFA Institute, an investor advisory organization, said in an analysis. The group, which opposed the change, said "investors will not be willing to commit capital to firms that hide the economic value of their assets and liabilities."

The volume of assets affected by the change will not become clear until companies report first-quarter earnings. Robert Willens, an accounting expert, estimates the change could boost earnings at some banks by as much as 20 percent. However, Citigroup and Bank of America said they expected the change would not impact their financial results.

The board couldn't clarify yesterday whether banks will need to tell investors how much assets would have been worth under the old rules. The proposal must still be hammered into detailed instructions.

The financial industry and Congress have been lobbying FASB for the changes -- with several lawmakers threatening to usurp the board's powers if it didn't act. FASB Chairman Robert Herz faced outraged lawmakers at a March 12 hearing where he pledged quick action.

The board has faced political pressure before. During the savings and loan failures of the 1980s, bank executives came knocking on the SEC and FASB's doors, asking for changes to fair-value accounting. The SEC chairman at the time, Richard Breeden, refused to budge, said former SEC chief accountant, Lynn Turner.

SEC Chairman Mary L. Schapiro "needed to come out and tell Congress to keep their nose out of it," Turner said.

Schapiro wasn't available to comment yesterday. Her spokesman, John Nester, said: "Our principal focus was that the FASB address an issue raised several months ago, that they promptly seek public comment and that they provide guidance to issuers. We respect their independent judgment and will monitor the application of the new guidance."

KPBS- Fair or Foul? spoke with Washington Post’s Binyamin Appelbaum.

Your bolded points are Blinding Glimpses of the Obvious, jp. Not wrong. Just obvious.

Yes, I know. Just wanted to highlight it so if someone didn't want to read the whole thing, at least they'll get the gist.

I really enjoyed this show, so I'm sharing it w/the Piggs. Charlie Rose - update on the economy. They talk about every issue.

The danger of these institutions, and why they should be taken under by the govt is not that they "couldn't" become profitable. The danger is the institutional greed and stupidity that created this mess isn't going to be dissipated unless the companies that engage in this kind of behavior go out of business.

It isn't the job of govt to coddle the banks, well apparently it is the job because that's whats happening.

I may be solvent someday, but if I stop making my mortgage payments today, they take my house away. The difference with the banks (citi bofa wells etc) is they are politically well connected.

Our elected leadership doesn't even bother to lay out the case of WHY allowing these banks to either go bankrupt, or be taken under poses a systemic risk. They just tell us that this is necessary and pour TRILLIONS down the rat hole. There is no free lunch davelj. Whats left of the middle class is getting royally buttfucked to bail out people who made some of the worst choices imaginable.

These institutions have become poisonous in many respects. They have committed huge amounts of fraud. They have distorted markets, played a huge role in blowing a massive bubble and probably are not able to stand on their own. Citi for certain, several other large money center banks most likely.
Josh

The question I have is once the banks sell their assets to private companies (backed by taxpayers) will they start to sort through their box of goodies? At that point, they have little to lose, since the taxpayers are taking the hit.

Does that mean if they have assets that include properties being defaulted, that they'll finally foreclose on those who have been squatting for free for a year?

I mean, the interview made it sound that the banks don't want it on the books, so if they don't foreclose, the asset won't be a loss. So they sell their assets to the privated tax-payer backed group.

Now the new holder has to decide what to do. Are they going to foreclose? Are they going to reduce principle? Are they re-working all the loans? Basically, they can do just about anything they feel like, b/c the buck stops w/the taxpayer

Have any of the big banks stopped making payments to creditors or depositors? Even without the TARP funds they would still be current on such payments, although dramatically undercapitalized. My point is that your analogy is a poor one. (Although, yes, they are politically well-connected.)

I could argue that the bankruptcy of these Big Uglies would pose a systemic risk but I won't. Because I don't really care that much. My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks...

...which gets to your issue of there being no free lunch. I agree completely. Your preference is to shut the Big Uglies down and liquidate them ASAP. This would, of course, cause a HUGE loss to the FDIC insurance fund which is, of course, backed by the Treasury (that is, We the People). Ultimately the taxpayers and bank customers (via higher rates and fees) would eat these massive losses making the depositors whole (although the taxpayers would get paid back... some day). And the PE (and like) firms would make a fortune buying assets from the FDIC. If that sounds attractive to you, then by all means you're on the right track. As you point out, there's no free lunch.

Personally, I'd rather have these banks shrink and earn their way out of their self-imposed holes. That way, in essence, the bank's investors - debt and equity holders - would pay the price. And taxpayers would be spared to the greatest degree possible. I WANT to zombify these Big Uglies and keep them focused on digging out of their holes. You want to liquidate ASAP, thereby screwing bank customers and taxpayers (including that middle class you talk about), and enriching the folks buying assets from the FDIC.

Don't get me wrong, most of the few-hundred smaller banks that are in trouble can't earn their way out of it. And they are not systemically important. They should be shut down ASAP. And eventually the Big Uglies should face new regulations regarding capital and concentrations, but... as a taxpayer I'd like to impose these new restrictions a few years down the road. Either way, the common equity holders (and potentially the preferred holders as well) are basically screwed.

DaveLJ, for some of us, fairness is one of the most important goals of any resolution of this mess. I would prefer a very fair $15 trillion solution to an unfair $10 trillion solution. I'd prefer a solution that costs $5 trillion dollars more and administers lots more pain to the people who bought assets or goodies liberally on borrowed money or who assisted professionally in reckless lending, and delivers much less pain to the people who were restrained and refused to try to ride leverage to riches.

Otherwise, what's the point in exercising self-restraint and good sense in the future? It just makes you a loser, an easy mark.

Dave

I for one appreciate your summaries on these issues due to the fact that I do not have the depth of knowledge that you do in these areas, and do not pretend to be a paper champion like so many who read a few things then start challenging you. That is generally embarassing to the challengers.

I have openly written in my blog that I do not believe we have seen the low in stocks based on my ongoing analysis of the COT report and what the big money has been doing. I also wrote in there for anybody who read it, that the rally in stocks would start March 13th or within a few days of that, I wrote this at the end of Feb and again at the very beginning of March.

I do not like being in agreement with so many amateurs who think we are going way lower, but my analysis is what it is, 5500 appears to be a fair value for the Dow and a good place to start buying for long term hold purposes. Commercials are selling this rally which has historically led to selloffs and rallies failing.

You are right about the reversion from extended moves. My research has told me over the years that often when you get an extended move in one direction, you actually should initially go with it because it is an underlying sign of strength. When the reversion takes place, it rarely overshoots in the opposite direction. Comments like that are made by people with no real experience with real money at stakes in these swings. It is merely a possibility not a probability. That is not to say it cannot happen, but it is not a high probability. Often the retracements are sharp and short, again markets will defy the masses. Even in the commodities markets with the massive reversals we had, they have not overcorrected by anywhere near the same degree they rose. What everyone waits for rarely happens. I do sense the masses buying the media hype about this rally, that is not good. My sentiment indicators are over 70 now which is bearish and are rising almost daily.

Cramer may have had his moments in the past but he has not been very good recently when I have come across his comments. He is just way too emotional to trade well.

Also, I hear all this crap about markets rising on increasing volume being bullish etc. If you study this in detail you will find there is no such correlation at all. I have no idea how so many smart peoople have been suckered into that notion.

I do not like being in agreement with so many amateurs who think we are going way lower,g.

HAHA.. The big picture is quite clear. It's not hard to see that growth and legitimacy have gone the way of the dodo and the world is mired in tens of trillions of debt that is not going to be paid back. We bumped into our oil limits a ways back and another oil spike is approaching quickly that will put the last one to shame. The angry debt-laden unemployed continue to mount to levels we have not seen since the majority of the population lived on family farms, with no end in sight. And the guys running the show are pathological liars the don't know the meaning of the word accountability.

Accounting tricks and pixel money are not going to save this train wreck.

Yeah, it's real hard to figure out.

Smoke, mirrors and sleight of hand only work so long.

LMFAO! How the hell can you know that the big banks would still be current without all this government support? And it's not just TARP, it's TALF, AIG-FP, FDIC-guaranteed bank debt and all the other benefits that the government has forced taxpayers to provide. If the big banks can so easily make their payments, why did the FDIC need to step in and guarantee $1.4 trillion in bank debt?

http://www.msnbc.msn.com/id/27848325//

Yes, it's best to leave these things to the 'experts' as that has worked out so well over the last nine years. I have to laugh at Dave when he tries to add weight to one of his arguments by saying something like 'and all my banker buddies agree as well'.

Back in 2005, all of the banking establishment agreed that making 110% loans to illegal immigrants based on stated income of $300K per year was a good idea. That worked out real well.

Because supporting deposit and creditor payments in banking isn't generally about solvency, it's about liquidity. So long as depositors and creditors believe that they'll get paid - that is, once a run on the bank is taken off the table - even a struggling bank - technically insolvent - can meet its obligations. For a long, long time. And often until it's no longer insolvent. (Back to the analogy of the insolvent surgeon out of medical school.) But I realize that this is an inconvenient fact vis-a-vis your world view.

Well, my "banker buddies" weren't making these ridiculous loans, Breeze. As I've attempted to point out here many times - and as even the bears such as Roubini, et al. acknowledge - the vast majority of the banks in this country - by charter as opposed to by asset concentration - did not engage in the crazy lending you're referring to, which is why they're not going to fail. You make it sound as though I was sipping champagne on a yacht in the Caribbean with Mozilo, Lewis, Greenberg, and Prince back in 2005. I don't know these folks. Never did business with them. I'm down at the community bank level. I wrote a piece on the housing bubble for a well-known financial website back in 2003, so I share much of your outrage at the situation. Again, I know it's inconvenient for your argument, but all bankers and bank investors are not in the same boat. As much as you want it to be the case.

PR, what you're saying is that you'd rather cut off your nose to spite your face. Which is fine, but obviously I don't share that view.

I'd like to see fairness and pain as well. After all, I loves me some schadenfreude. But how much pain is enough? Greenberg, Lewis, and most of these other former financial titans have probably seen their net worths dive by 80%-90% in this crisis. Granted, that's down from very large numbers to begin with. But you're not going to get EVERYTHING from them. It's not going to happen. Most of these folks' lifestyles will not be dramatically affected even if their companies go BK. You may not be happy to hear that, but it's reality.

And the small speculators? They're mostly dead or dying at this point. Done. And the folks that just bought too much house and are underwater? Even if they end up getting some "help" in the form of loan mods, that just brings them back from the brink. My point is that I don't believe moral hazard is much of an issue at this point. Most of the folks that did the really dumb things are either wiped out or have seen a good 80%+ of their net worths wiped out. The pain has been deep and wide. Folks are scared. Which is a good thing. A necessary thing. Where we differ is that you apparently believe that we need to have Great Depression II - with all that entails - in order to properly punish the evil doers. I don't. I'm not one to cut off my nose to spite my face.

That is generally embarassing to the challengers.

Ah Chris thanks for parachuting in from on high and sharing with us your proverbial wisdom. I truly feel for you buddy. It must be downright scary to be forced to write such gems as

I do not like being in agreement with so many amateurs who think we are going way lower.

I can only imagine the sturm und drung you must suffer to so successfully ascend from the lofty hights to wallow with us commoners.

As to daveljs comments, I don't happen to agree with his line of thinking but he is technically correct in that no matter which path we choose its going to be expensive. The problem is we can pretty accurately know what it will cost to make depositors whole, but the stealth bailouts with no transparency have no practical upper limit. Leaving out the moral and fairness issues, we still as taxpayers don't have any idea how big the CDS books of these banks are, or how many banks the Fed is going to bailout. We do know that regulations don't seem to apply to the largest banks and that there is a blank check written on all Americans accounts to bail them out.

So since I haven't seen anything from our political leadership that shows they actually understand the problems, and are willing to confront them (Like defang the CDS monster). I'll just go on assuming that the money is being poured down the rat hole to bailout politically well connected institutions, without a real plan to de-zombiefy them.

Josh

Regarding...

[1] Thanks. You're in the minority. Hahaha...

[2] That was an excellent call. I'm not a trader, but I can appreciate when folks get something right in a realm that I don't understand. I recall you made several good calls a couple of years back before stepping away from the table for a bit. While I don't pretend to understand what you do, I appreciate the color. It's interesting.

[3] I hear you on this one. And perhaps "the public" is buying this rally. But I know the professionals are generically skeptical. Almost all of the professionals I know think this is a suckers' rally and think we're headed lower. While most Piggs - well, except for perhaps Rich - clearly think we're headed below the recent lows, I don't really know what the typical retail investor is thinking. What I do know is that the contrary indicators were absolutely screaming at S&P 676: "Depression" on the cover of Newsweek, the dressing down of Cramer, Soros/Taleb/et al. saying this could be worse than the Great Depression. And then you have Fleckenstein shutting down his short hedge fund after 13 years and short-seller Doug Kass getting unabashedly bullish for the first time in over a decade. I know this is all anecdotal... but dems is a lot of anecdotes. But, frankly, if we merely go to S&P 600-ish (that's Down 5500-ish) eventually before starting a new bull market, that would please me. Because it could obviously be worse than that - an outlier, but still a possibility.

[4] Look, I think Cramer's a clown as well. All I'm saying is that every dog has his day. And most market dogs have their day after they've been wrong for so long that no one cares about their opinion any longer. I think that's where Cramer is at this point. But I could be totally wrong.

One thing I've noticed during this rally - as opposed to the prior failed rallies of the last two years - is that investors have stepped up to buy some of the little, illiquid stuff. The stuff you can't trade, that you have to commit to and own. It's been over two years since I've seen that kind of activity. But... in the latter part of this rally, that has backed off a bit, which is why I'm skeptical of the entire rally. That is, the latter stages of this rally have mostly involved only the liquid stocks, the stuff you can trade, which makes me somewhat skeptical. If the small stuff you have to live with is moving up, it feels more real. It shows commitment. If just the big cap trading stuff is moving up... well, it just looks like a trade. One that will eventually sell off to some extent. But these are just observations. I ain't no trader.

Josh, these two statements are completely incompatible. On the one hand you say that we know what it will cost to make depositors whole and yet on the other hand you say that we don't have any idea how big the CDS books of the banks are. If we don't know the value of the CDS books, how can we know what it will cost to make depositors whole? That makes absolutely zero sense.

My point is, hey, let's STOP putting more money into these pigs, treat them like government entities for a few years, and let the earnings of the good parts of the bank fill the holes at the bad parts. The equity holders are hosed regardless. But why have a fire sale of assets when it's the taxpayers and bank customers who will be subsidizing the profits of Wall Street and PE firms? That seems like adding insult to injury. But, hey, some folks are masochists.

Whoah, whoah, whoah! I've seen some circular arguments in my day but this one takes the cake. The only reason the big banks can meet their obligations is because the short-term debt that has to be rolled over occasionally has been guaranteed by the government. Otherwise, creditors would not re-extend that credit and the big banks would be the very definition of insolvent -- they couldn't meet their obligations.

This is exactly what happened to Bear Stearns. I guess you would argue that Bear Stearns wasn't insolvent, they just ran out of liquidity.

Breeze, for christ's sake. Bear Stearns WASN'T A BANK! It had no deposits. It was entirely funded with debt. It was an INVESTMENT BANK. You do understand the difference between a commercial bank and an investment bank, don't you? Yes, even the big commercial banks have short-term debt that needs to be rolled over, but it's TINY in relation to their total funding base. It's largely the investment banks that have the short-term debt issues. Yeah, Bear was insolvent. But, actually, even Bear probably could have eventually earned its way out of its problems... but it would have been too far down the road for it to matter. Bear probably needed to be shot. As well as Lehman, as unpopular as that is to say at this point.

Dave: "Never teach a pig to sing. It wastes your time and it annoys the pig".

Don't get into an argument with Breezie. For one thing, he doesn't have the first clue how to construct a factually based, coherent argument. He reads articles by Michael Shedlock, or Fleck or Krugman and then runs back here and regurgitates what he's read and pretty much without understanding any of it.

Then, when called on the facts (or lack thereof), he resorts to thin strawman arguments or ad hominem. You're going to find yourself going down the rabbit hole with this mental bantamweight. Trust me, it ain't worth it. His inability to understand that Bear Stearns was an investment bank underscores my point. You're trying to discuss finance and banking with someone that probably doesn't know how to balance a checkbook.

For those of you who like to rely on experts, Bill Black is an expert from the S&L scandal and he disagrees with the policy of bank zombification:

http://www.pbs.org/moyers/journal/040320...

It's a half-hour interview, but there's so much good stuff in there it's well worth listening to. His comments on zombification start at about the 20-minute mark.

You also have this article from a fomer chief economist of the International Monetary Fund:

http://www.theatlantic.com/doc/200905/im...

It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it.

Regarding the "privatization" of bad assets, it would not supprise me if the big banks used complex organizations to "privately" purchase (tax-payer insured) bad assets from themselves! If they could pull this off, there might be a huge profit.

On first glance, this seems totally unreasonable, but given the level of "&^$*^" and abuse we have seen (and the government give a blind eye to) it would not be out of the realm of possibility.

Alan,

Oh wise one, please enlighten me: how much debt does Citigroup have that is coming due in two years or less?

Here's the 10-K:

http://idea.sec.gov/Archives/edgar/data/...

Let's see if you are good for something other than making ridiculous grad-school insults.

Breeze: "Grad" school insults? As opposed to "grade" school insults? This coming from the guy who refers to others as "welfare queens"? Practice what you preach, Ace.

Citigroup? Another strawman. How does this question remotely tie into anything I've said before. You have a major problem with facts and I've proved that time and again by exposing your unwillingness to engage in a fact based argument. Your posts are discursive and fail to follow any sort of central tenet. You do have a propensity to read an article from Shedlock and then turn around and vomit it up on this site and you do so without fully understanding what you're reading or, more importantly, what it means. Not an insult, but an observation.

You don't have a basic grasp of banking, finance or accounting, but fulminate at length with rambling posts that don't make any sense. It's very much akin to your love/hate relationship with Obama. You start out holding forth on Obama's greatness and now have devolved into what appears to be a complete repudiation of the President and his Administration's policies.

Which is it?

And as to being good for something other than insulting you: Well, as much as I enjoy beating up on those with the IQ of a small and somewhat witless child, I'd be more than happy to debate you on a subject where you actually bring FACTS or DATA.

I'll bite, how are my two statements mutually exclusive? Deposits are insured by the FDIC and taxpayers. The CDS book upon which the bank has either sold or bought insurance to have "money good" assets is not. If Citi were to go through bankruptcy, yes there would be a sale of assets, fire sale I don't know about, since I doubt any Citi bk could be quick. So if citi has X billion in deposits those are going to get paid back to investors. If however they have XXX billion in outstanding CDS liability (bought or sold) why are we on the hook for that? If so what you are saying is that the taxpayer is on the hook for all that leverage as opposed to the stock and then bond holders.

Josh

Where's my nose? I've lost my nose!

More seriously, what I am saying is that fairness is a goal just as valid as cost minimization. For some of us, it is less important than cost minimization; for some, more important. Your characterization of my priorities clearly places you in the first category. Obviously, I am in the second category. I accept the variety of views, but I don't accept that fairness should be swept aside entirely.

I am not prepared to achieve fairness at any cost, but I think the public debate should acknowledge it as an important goal for many of us, and give it serious weight and priority. At the moment, fairness is receiving only a perfunctory acknowledgment, as something that must be deferred. I am suggesting that is a mistake, because it means that, in this first and most significant phase of the unwind, when vast amounts of wealth are being reallocated, the most irresponsible people will benefit the most from the entire bubble and its aftermath. You mentioned, davelj, that many of the well-paid professionals who actively aided and abetted, and profited from, the bubble will see no really large personal pain now. I am saying that part of what we should be doing, as part of a focus on fairness, is to change that.

I am a financial technician in the heart of the financial services industry, and near to some of the companies and issues that we read about every day on the front page of the WSJ. The lesson I personally am learning from the bubble and the unwind, and the way the unwind is being managed, is that reckless behavior, executed carefully to maximize my personal upside and to socialize as much downside as possible, will pay off handsomely.

If I buy a home in the future, I will make sure to do so using government-subsidized loans that require next to no downpayment. As home prices eventually start on their next up cycle, I will buy many homes with little or no money down, signing whatever the mortgage broker says about my living in each of the homes to get the best deal, and when prices eventually become frothy again, I will HELOC the hell out of each one, and walk when prices start to go down again.

And that is just the beginning. Knowing that the whole game is driven by selfish populism, I owe no moral allegiance to the rest of the population. All that scrupulous paying of taxes, regardless of how easily I could avoid some if I tried? Gone.

By demoting fairness to the bottom of the pile, we are allowing a corrosion of trust in our community that may have long-term consequences. I'd rather take my medicine now. My belief is that if we all did that, we'd all be much better off 20 years from now. So I don't see putting fairness high on the priorities as self-denial or self-mutilation in any way. It's in our best long-term interest. The biggest obstacle is that very few people think for the long term.

Patientrenter: Excellent post. I started my corporate career in insurance and surety as an accountant. I moved up through the ranks and, the longer I was there, the more I realized what a complete and total racket the insurance business is. You can dress up it any way you'd like, but, at it's heart it's a shakedown racket.

Similarly, politics in the last thirty years has been a racket all it's own and on both sides of the aisle. Your ideas of fairness are spot on and I'd like to add honesty to fairness. The problem is this: No one in Washington or New York wins if fairness and honesty are the order of the day.

Do you believe that Obama has the requisite political capital to look the American people in the eye and tell them the truth regarding wages, taxes and the very solvency of this country? No chance in hell! Do you think Rubin, Summers, Geithner, Paulson or any that crew have the courage to admit before Congress and the people that America has been gaming the world financial system since the 1970s?

I believe that if the entire system were openly exposed to the harsh light of day, it would collapse like the rotten house of cards that it is and the resultant populist rage would trigger nothing short of a revolution. No, that isn't hyperbole. Look at the backlash surrounding the AIG bonuses and you'll get an inkling of the rage that is simmering just below the surface of this country.

Obama and his crew are going to say ONLY what they CAN say and they are going to do what they HAVE to do. As I've opined before: Sometimes the choices aren't between good and bad, they're between bad and worse.

I don't see anything to disagree with in your post, Allan.

I am perhaps a little less Obama-allergic, not because I see him as a savior, but because he seems slightly better than some of his fellow powerful politicians (E.g. Barney Frank, Chris Dodd, Chuck Schumer. And add a few Republicans with responsibility for financial oversight, if you think they have, or had, any power and were championing looser lending.) But the differences are not that great, for all the distracting sound and fury made over them.

I also see the problem more as the pursuit by a majority of our population of selfish short-term goals, using the tools of democratic politics, than a corruption of our system by a few powerful people. The problem, Allan, is us. Not necessarily you and I, but probably the majority of our neighbors, colleagues, friends and relatives. Certainly a few powerful people played a critical enabling role, for their own personal enrichment. And I would be happy to see them suffer far, far more. But there are way too many ordinary middle-class people who believe that they can consume more than they produce during their lifetime, using asset-price inflation fueled by borrowed money. That's the real bubble that needs to be pricked.

Patientrenter: For the record, I'm not really Obama allergic. I was honestly hoping that he would be an agent for change and would offer the sweeping mandate needed to clean things up. Sadly, the events of the last few months have disabused me of that notion.

I also agree that the average American is the problem, but it's not that simple, either, unfortunately. Marketing the "American Dream" has been a growth industry over the past thirty years and that period of time dovetails perfectly with the growth (explosion, really) of personal, governmental and commercial credit and debt and the necessary massive deregulation programs as well. The politicians, bankers and their teams of lawyers have been selling that "dream", all the while hiding the reality that America doesn't really produce anything anymore, but we consume ever larger portions of the world's energy and money and expect, against all reality, that the bill will never come due.

Well, it did. And now we have to figure this shit out, and quickly. The fairness and honesty we're discussing is necessary to do this, but I don't see it happening and that saddens and scares me, all at the same time.