Friday, September 19, 2008

29807

Real Sports is one of the best produced and consistently interesting shows. It's simply journalism at its best. I say this in regard to a recent episode that dealt with the child labor being exploited in India in the manufacturing of soccer balls. It was of course, appalling.

What was so disturbing though was the complicity and utter throw your hands up by all parties involved, including Walmart and Mitre, the ball manufacturer that is soccer's Nike. But the representative from the US Trade Commission, our oversight, also said that it's just too hard to track. But HBO, with a camera crew, tracked the kids working like dogs down and made this point.

Like I've said before, we can talk about racial, gender and any other kind of equality til we're blue in the face, but kids are never included. This is one of the ugliest faces of global capital of which outsourcing is a partner in. These poor little Asian kids are like wounded birds, yet the empiric march of global capital continues unabated.

And what is "29807"? It's the sequence of the assigned UPC Code designating the United States as a destination for these Mitre balls. Real Sports found the balls at Walmart, despite the mega-corporation's explicitly stated "by-law" that it will not sell products that are made by child labor.

Sunday, September 07, 2008

Burning Down the House

Without a doubt, this world is crazy beyond anything I could have ever imagined as a young man.

In a newsbreak, CBS just announced that the Fed has "taken over" Freddie Mac and Fannie Mae. This will, by the announcer's clarion call, amount to "tens of billions of dollars" that will be paid by me and my fellow Americans.

As far as the government action, this isn't anything new. As David Cay Johnston has pointed out, the scams by corporations working in tandem with bought off government thugs runs deep. The pattern of government run taxpayer bailout really came to a head with the S&L bailout, but then most tend to overlook Lee Iacocca's theft when heading up Chrysler. Here's a Wiki excerpt:

Realizing that the company would go out of business if it did not receive a significant amount of money to turn the company around, Iacocca approached the United States Congress in 1979 and asked for a loan guarantee. While it is sometimes said that Congress lent Chrysler the money, it, in fact, only guaranteed the loans. Most thought this was an unprecedented move, but Iacocca pointed to the government bail-outs of the airline and railroad industries, arguing that more jobs were at stake in Chrysler's possible demise. In the end, though the decision was controversial, Iacocca received the loan guarantee from the government.

I'll say it clearly; this is gambling with the house's money, or, as gambler's say, a freeroll. Pretty remarkable "businessman" eh?

Although Iacocca is credited with Chrysler's resuscitation, not too long ago they ran it into the ground again. Now, it's off the public market, having been swept up in private equity. So, in effect, my money - hardworking Americans' money - went into propping up a huge corporation so that the oligarchs could profit - that is, gamble with our money - and then when they screwed up could bail out, conscience free and with their profits having been extracted and invested into private interests.

Folks, with this new Fannie Mae/Freddie Mac debacle, and as if we weren't before, we are now up shitcreek so far that the future is even more bleak and uncertain than ever before. We've surpassed the stage of gambling, where a hustler who knows the basics can at least know what he's getting into.

Along with all of the other shit that's happened in the past eight years, this isn't gambling, it's something else. It's not even mortgaging because when you get down to it mortgages are gambling as well.

If any of you out there think I'm just being hyperbolic, think again: between Fannie Mae and Freddie Mac, they control over FIVE TRILLION in loans.

We are truly in unprecedented times, folks.

And perhaps the worst part? Aside from the fact that we're now laying the hugest pile of crap at the feet of future generations, if I had to bet, no one's going to lift a finger to stop the ongoing slaughter that's only going to be much more brutal now.

For those who want to at least understand how we're getting screwed, NYT's Gretchen Morgenson has been one of the most high-profile journalists consistently sounding this alarm. Her latest article is sobering, but deserves archiving here if nothing else to prove that I'm not the only one who sees the pain ahead. Back in the day the saying was, "Right On," now all I can muster is "read on."





September 7, 2008
Mortgage Giant Overstated the Size of Its Capital Base

By GRETCHEN MORGENSON and CHARLES DUHIGG
The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced as early as this weekend, came together hurriedly after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.

The proposal to place both mortgage giants, which own or back $5.3 trillion in mortgages, into a government-run conservatorship also grew out of deep concern among foreign investors that the companies’ debt might not be repaid. Falling home prices, which are expected to lead to more defaults among the mortgages held or guaranteed by Fannie and Freddie, contributed to the urgency, regulators said.

The details of the deal have not fully emerged, but it appears that investors who own the companies’ common stock will be virtually wiped out; preferred shareholders, who have priority over other shareholders, may also wind up with little. Holders of debt, including many foreign central banks, are expected to receive government backing. Top executives at both companies will be pushed out, according to those briefed on the plan.

While it is not yet possible to calculate the cost of the government’s intervention, it could rise into tens of billions of dollars and will probably be among the most expensive rescues ever financed by taxpayers. The takeover comes on the heels of a rescue of the investment bank Bear Stearns, which was sold to JPMorgan in a deal backed by taxpayer dollars. Already, the housing crisis has cost investors hundreds of billions of dollars.

Both presidential nominees expressed support for the government’s plans to take over the companies. The chief economic adviser to Senator John McCain, Republican of Arizona, who has long been critical of the mortgage giants, said on Saturday that Mr. McCain considered it an unfortunate but necessary step.

Senator Barack Obama, Democrat of Illinois, said as he campaigned in Indiana on Saturday that not acting could place the housing market in further distress. “These entities are so big and they are so tied into the housing market that it is probably true that we have to take steps to make sure they don’t just collapse,” Mr. Obama told an audience in Terre Haute, Ind. But he added that the government needed to take steps to guard against Fannie Mae and Freddie Mac ultimately profiting from the government assistance.

The big question now is whether the federal government’s move to take over Fannie and Freddie will restore investor confidence in the nation’s credit markets, help stabilize the stock market and keep loans flowing to creditworthy borrowers.

Fannie and Freddie, by buying mortgages, provide banks and other financial institutions with fresh money to make new loans, a vital lubricant for the housing and credit markets.

As a result of the government’s intervention, the cost of borrowing for Fannie Mae and Freddie Mac should decline, because the government will be standing behind their debts. Equally important, because the government is backing the companies, their buying and selling of loans will continue.

But the plan to bail out the firms will probably do little to stop home prices from falling further. And foreclosures are almost certain to rise.

Just a week ago, Treasury officials were still considering a wide variety of options for Fannie Mae and Freddie Mac, ranging from doing nothing to taking over the companies completely, according to people with knowledge of those discussions.

The Treasury secretary, Henry M. Paulson Jr., who won authority from Congress last month to use taxpayer funds to bolster the companies, always maintained that he hoped never to use that power. But, as the companies’ stocks continued to languish, some within the Treasury Department began urging Mr. Paulson to intervene quickly.

Then, last week, advisers from Morgan Stanley hired by the Treasury Department to scrutinize the companies came to a troubling conclusion: Freddie Mac’s capital position was worse than initially imagined, according to people briefed on those findings. The company had made decisions that, while not necessarily in violation of accounting rules, had the effect of overstating the firm’s capital resources and financial stability.

Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.

Representatives of both companies did not return calls or declined to comment.

On Friday, executives from Fannie Mae and Freddie Mac were ordered to appear in the offices of their regulator, James B. Lockhart, in separate meetings, and were told that the Treasury Department was exercising its authority to place the companies in conservatorship, which would allow for uninterrupted operation of the firms but would put them under the control of Mr. Lockhart.

The details of those plans continued to be worked out on Saturday, when the Federal Reserve chairman, Ben S. Bernanke, Mr. Paulson, Mr. Lockhart and key company executives met in Washington.

While Freddie Mac’s accounting woes make it easier for regulators to force the company into conservatorship, there was more resistance from Fannie Mae, according to people familiar with the discussions. However, given Fannie Mae’s declining financial condition, and the fact that even a slightly pessimistic statement from Mr. Paulson about the company’s finances would be likely to send its stock price into a tailspin, the company has few options but to concede to the government’s demands.

Both companies have the option of challenging the conservatorship and asking for a judicial review. Such a move, however, would probably be disastrous for their stock prices.

Accusations of improper accounting are not new for either company. Earlier this decade, both companies paid large fines and ousted their top executives after accounting scandals.

Freddie Mac’s current chief executive and chairman, Richard F. Syron, joined the company in 2003 after the former managers revealed they had manipulated earnings by almost $5 billion. The following year Fannie Mae’s chief executive, Daniel H. Mudd, was promoted to the top spot after that company was accused of accounting errors totaling $6.3 billion. People familiar with Treasury’s plan say that both men, as well as other top executives, will be forced to leave the companies.

The accounting issues that brought so much urgency to the bailout appear to center on Freddie Mac’s capital cushion, the assets that regulators require it to keep on hand to cover losses.

The methods used to bolster that cushion have caused serious concerns among the companies’ regulator, outside auditors from Morgan Stanley brought in by the Treasury Department and some investors. For example, while Freddie Mac’s portfolio contains many securities backed by so-called subprime and alt-A loans, which are one step up from the riskier mortgages, the company has not written down those loans’ values to reflect current market prices.

Executives have argued that because they intend to hold the loans to maturity, they need not write down their value. But other banks and financial institutions have written down the value of those securities, even if they continue holding them, under “mark-to-market” accounting rules. Freddie Mac holds roughly double the securities that Fannie Mae does.

Freddie Mac and Fannie Mae have also inflated their financial positions by relying on deferred-tax assets — credits that the companies have built up over the years that can be used to offset future profits. Fannie maintains that its worth is increased by $36 billion through such credits, and Freddie argues that it has a $28 billion benefit.

But such credits have no value until the companies generate a profit — something they have failed to do over the last four quarters, and something that is increasingly unlikely within the next year. Moreover, even when the companies’ profits soared, such credits were often unusable because the companies also had large numbers of affordable housing tax credits, which themselves offset profits.

One analyst estimates the companies, in the future, would have to collect roughly double the profits of the past five years for the credits to become usable. Most financial institutions are not allowed to count such credits as assets in the manner used by Fannie and Freddie.

Regulators and auditors may question the companies’ use of deferred-tax credits because they cannot be sold to anyone else and they would disappear in a receivership. And, if those credits were not counted as assets, both companies would probably fall below the capital threshold they are required to hold.

Finally, regulators are said to be scrutinizing whether the companies were trying to manage their earnings by maneuvering the timing of reserves set aside to offset losses from defaulted loans. Each quarter, both companies have gradually increased their loss reserves — Fannie’s reserves today stand at $8.9 billion, and Freddie’s at $5.8 billion. However, regulators and auditors felt strongly that both companies should have identified larger potential losses immediately, and set aside much more from the beginning.

Other companies, like private mortgage insurers, have identified much larger losses and have set aside much larger amounts of capital. Fannie and Freddie, however, have delayed the recognition of such losses, dribbling out bad news with each quarterly announcement, suggesting a strategy to manage the recognition of losses.

Finally, regulators are concerned that the companies have mischaracterized their financial health by relaxing their policies on when to recognize a loss on a defaulted loan, according to people familiar with the review. For years, both companies have effectively done that when a loan is 90 days past due. But, in recent months, both companies said they would extend that to two years.

As a result, tens of thousands of loans that previously would have been marked down have maintained their value. The companies have injected their own capital into pools of securities, arguing that new business policies are helping greater numbers of borrowers.

Under conservative accounting methods, such a change in policy should not have any impact on the companies’ books. However, people briefed on the accounting inquiry said that Freddie Mac may have been using their new policy to delay recognition of losses.

“We have just had to nationalize the two largest financial institutions in the world because of policy makers’ inaction,” said Josh Rosner, an analyst at Graham Fisher, an independent research firm in New York, and a longtime critic of the government-sponsored enterprises. “Since 2003, when these companies’ accounting came under question, policy makers have done nothing. Even though they had every reason to know that the housing market’s problems would not be contained to subprime and would bring down the houses of Fannie and Freddie.”

Reporting was contributed by Stephen Labaton and Edmund L. Andrews in Washington; Jeff Zeleny from Terre Haute, Ind.; and Elisabeth Bumiller from Colorado Springs.

Monday, September 01, 2008

Bread & Roses (2000)

I've been aware of Ken Loach for a while now, his rep, his social conscience. But I remember I saw one of his "social realist" flicks many moons ago - I don't even remember which one it was - but I found myself thinking about pretty girls, good food and poker.

But I took a chance on Bread & Roses, (the title a nod to the women-led textile worker strike of 1912 in Lawrence, Kansas) mostly because of its subject matter; janitorial workers, mostly Latino, slaving away in one of those dreadful LA towers that can be described as soul-draining.

Now, movies about Latino immigrants have been done, most notably Greg Nava's El Norte (1983). But where I felt Nava dipped much too easily and overly much into melodrama,* I come away from "socially conscious films" with the same opinion I do of "socially conscious poetry." I find both teeth grinding.

Bread & Roses has moments of this, but the saving grace is its actors and director, who somehow manage to inject their movie with a thrust worth seeing. Loach is reputed for his work with non-actors, placing them in situations where they are often unaware of the arc and zenith of a scene by not providing the full script, doling it out in dribbles just before the scene to be shot.

Star Pilar Padilla is good, George Lopez, as a pinchi pendejo of a boss, and Adrien Brody as the token white boy activist who attempts to save mudpeeps from the remorseless capitalist machine, (and becomes a target of romance, of course) are all commendable. There are star turns via cameos in a party scene. (Benecio Del Toro, Chris Penn, Tim Roth, Ron Perlman...)

But the real light is Elipidia Carillo, whose beauty and natural acting immediately caught my eye.



From here, Roger Ebert:

The best scene in "Bread and Roses" argues against Sam, Maya and the union. It is a searing speech by Rosa, delivered by Carrillo with such force and shaming truth that it could not have been denied the Oscar--if the academy voters in their well-cleaned buildings ever saw movies like this. Rosa slices through Maya's idealism with hard truths...


I couldn't agree more. She's worth the price of admission.

When I was a college freshman, I marveled at the big dorms and the march of the ants every morning to campus. On my way down one time, the hordes were flowing by a bank of ivy. I spotted a figure in a large-brimmed hat bent over, weeding. I couldn't stop looking at him and he then stood up and looked right at me. He then had the most surprised look on his face, as if he couldn't believe someone who wasn't a peasant, was seeing him. Still walking, albeit slower, I glanced at the passing throng, who were completely oblivious to the invisible man. He was old, thin-wiry-muscled, Asian and had that cocoa brown leather skin one only gets from working in the sun. On those terms, he looked like my grandpa, a farmer.

There's a scene in Bread & Roses where the fellow worker who takes a shine to Maya is showing her how to do something. Some white people step right past them as if they weren't there, and he remarks to Maya that their uniforms have an extraordinary power - the power of invisibility.



* Though El Norte's cinematographer, James Glennon, is underrated; there's a scene lit by candles, reminiscent of Kubrick's Barry Lyndon's famous gambling scene. Kubrick, as legend has it, called up Zeiss and had them make ultra-fast f4 lenses as I recall so that he could shoot the scene lit only by the available candlelight. Years later, I would buy my first really serious SLR, a Contax, based in large part because it used Zeiss lenses. I still have it.