Dog days of Summers

Ryan Lizza has a pretty good piece in last week's New Yorker (I was away) about Larry Summers.

It's worth reading and has a few nice details -- but there was one criticism I would make:

Lizza missed one of the biggest controversies of Summers' Harvard presidency -- when Summers denounced the movement to divest from Israel as "antisemitic in effect if not intent."

He became a pariah among the left wing of the Harvard faculty, who (I thought) were gunning for him forever after. No, his squabble with Cornel West didn't help. Nor did his comments about women in the sciences (which, although impolitic, seem like pretty weak tea in the light of day). But when the vote of no confidence came up, the organizers couldn't resist throwing in the phrase "in effect if not intent" in their official complaint against him -- just to be cute and stick it to Summers one last time.

But for many supporters of Israel (including your humble schlub) Summers was a hero. He said something which I wish more mainstream figures said clearly: There is an obvious double-standard when it comes to Israel, and it has something to do with antisemitism. And this was at a time when criticism of Israel -- especially on college campuses -- was at a completely hysterical pitch.

It might have ruined Summers at Harvard -- but I always respected him immensely for it.

The present insanity plugs nicely along....

I probably don't have to link to this, because it's already the most popular emailed article on the Times' web site right now, but, my god!

According to the Times, our good friends at Skadden, Arps (one of the chichi New York law firms, where several of this schlub's college pals currently work) are offering associates a third of their salary to take the year off. This translates to $80,000 in at least one case.

Apparently, they don't want to fire them. And they don't want to put the on at full salary. So it sort of makes sense -- in a completely insane way. (Sort of the way paying tax-dollars in multimillion dollar bonuses makes a kind of twisted sense.)

The funniest thing of all in this article is the fact that the partners were surprised when a lot of the associates thought this was a great deal and volunteered for it.

Krug bait

I sort of understand now how easy it is to hate Paul Krugman.

For the last eight years, Krugman was my hero. During the Bush administration he was the most partisan, vicious and intelligent voice in the media attacking Bush -- and he would back himself up with all of the factoids and data points that mere mortals like myself could never hope to come up with.

My Republican friends couldn't stand him. It was great!

But I have to say: He hasn't been a team player for the Obama Administration.

Of course, that's sort of an intellectually indefensible position. Obama is fair game for criticism. And why shouldn't Krug point this out? (It's in a long Jewish tradition, actually, of the "Two Jews, 12 opinions" category.) But Paul really needs to lighten up and give this guy a chance. I grant you that Paul Krugman is an extremely smart man who knows way more about economics than I do. But Larry Summers is also a smart dude. As is Tim Geithner. As is Christina Romer. I'm not sure that Krugman is right and all these people are wrong.

Newsweek offers its take this week, with a cover story about Krug as a thorn in Obama's side. (My favorite line in the article was this line: "Last Thursday morning, he was gleeful because he was able to thump a blogger who insisted, wrongly, that Keynes did not use much math in his work." Hopefully, Krug has some sort of crazy super-mega search function on his computer and he'll link to this post, debunking me. That would be so awesome.)

There are a couple of things wrong with this story, however.

For one thing, I wish it had focused a bit more on how Krugman behaved during the Democratic primary, when he was clearly in Hillary Clinton's corner and was regularly taking shots at Obama's healthcare plan. At some point, Krugman must have made a decision (consciously or not) that HRC is the better candidate (or has the better healthcare plan) and anyone who disagreed was a fool. (I also suspect that Krugman might have been influenced by Clinton groupie, Sean Wilentz, who was quoted in the article as his pal.)

There were, in fact, things about HRC's healthcare plan that I do think were superior to Obama's and worth saying. But one thing that I always kept in mind about HRC was that this was her second shot at healthcare. Her first shot missed.

And that's one of the important things to realize about our Republic; we often fail to do the exactly right thing. But sometimes a half a loaf is worth having anyway. Krugman hasn't seemed to have learned this simple truth. (Rahm Emanuel said as much in the New Yorker article about Rahm a few weeks ago.)

Obama's healthcare plan (whatever it turns out to be) doesn't have to get every single American coverage for it to be a success. If it puts 10 million people on the rolls who weren't there before, it'll be a moderate success. (It'll certainly be a success for those 10 million people.) If it puts 20 million on, it's a great success. If it puts all 46 million uninsured Americans in some kind of healthcare program it will be a complete success. But it's pretty unrealistic to expect complete 100 percent success every time.

And while I loved Krugman for his non-ending barrage of machine gun fire against the Republicans during the Bush years, I think that Obama's decision to take the high road and attempt to reach some sort of bipartisanship consesus wasn't naive. In fact, it was politically very shrewd. (It happened to also be the right thing to do.)

One of the things that was so unbearable about the Bush years was the fact that the administration went out of its way (during times of serious crisis) to alienate the opposition and leave them out of the fold. Since Obama took office, the GOP has made the decision to slap away Obama's hand (as is their perogative) but by making the offer, the GOP are the ones who look petty and obstructionist. If the economy gets back on track by 2010 (as everyone, save Rush Limbaugh, hopes) watch the Republicans get crushed yet again in the election.

The only thing that I think could stop this, quite frankly, is Democratic infighting, which already seems to be happening. (See Jonathan Chait's piece in the New Republic this week.)

Krugman, it seems, wishes that Obama were more like a Democratic version of George W. Bush. Frankly, I don't think Bush did the GOP any favors.

But the thought has occurred to me: I wonder if Paul Krugman is going to be the conservative's columnist of choice in the New York Times in the coming years.

"You mocked the economy!"

This week's South Park was one of the most interesting takes I've seen thus far about our economic crisis.

For one thing, it was shockingly unassailable in terms of the economics involved.

It explains the way banks split up and played around with debt in a way that's extremely accurate.

But the more interesting thing is the fact that it pretty much points its finger at American consumerism as the primary culprit in this crisis. Which is -- I think -- essentially true. Obviously, there were many culprits. Not the least of which were bankers who took on way too much debt that they either assumed a) was far more sound than it was (which means they were stupid) or b) assumed was toxic, but figured they'd sell while the market was still good (which means they're stinkers).

But a greater cause of the crisis, I think, was a general attitude that money would be free flowing forever; that we could spend without consequence. That we'd all be rich just by living in our houses.

Yes, the primary culprits might be on Wall Street -- and a wild-eyed faith in the wisdom of markets and the evils of regulation -- but, when you look in the mirror unblinkingly, the American people allowed this to happen.

And in this sense, this week's South Park was a terrific indictment of that.

Moreover, it's a terrific indictment of how unknowable the crisis is. You might as well throw darts at a board (or cut off a chicken's head and take where its caracas lands as a sign of something) to come up with the worth of any real assets. The real world value of everything from houses to cars to blenders is a giant black hole right now.

The solution the show seems to proffer, however, seems pretty much in line with that of the Obama Administration: We need some sort of fiscal stimulus, and we'll worry about debt later. (Which is the Econ 101 solution.) And what's inhibiting growth is pervasive paranoia. (For good reason, perhaps.)

Of course, Trey Parker and Matt Stone (South Park's co-creators) are Libertarians at heart -- so they could never give Barack Obama credit for essentially taking their track. (Hence, there's a sort of cheap shot at the President at the end of the episode.) Moreover, like all great comedians, they're bomb throwers. Given how beloved Obama is, there is no way they could give the guy credit for anything.

But the episode is nevertheless pretty great.

Give 'em hell, Charlie!

One of New York's schlubbiest congressmen, Charlie Rangel, does the city proud.

Charlie came up with the idea that the easiest way to get back the bonuses from those greedheads over at A.I.G. was to tax the hell out of them.

Frankly, I don't see a downside to this.

Well, that's not entirely true. There are a couple of downsides.

Most important, this new act of congress seems to skirt Article 1, section 9 of the U.S. constitution -- i.e., the section that says, "No bill of attainder or ex post facto Law shall be passed."

Skirt, I said, not violate. Retroactively upping a tax bracket seems pretty different than imposing some sort of criminal penalty on somebody for an action that was once legal. (Any legal scholars out there want to debate me on that? I'm not a lawyer. Send your comments to maxgrosstheauthor@gmail.com. I will publish a contrary argument.)

While I could see a "strict constructionist" court striking the new rule down, I personally don't see a problem -- moral, ethical or practical. It's not like we're taking their freedom away -- just the bonus money that the tax-payer gave them. I think we're well within our rights.

There are a few other downsides which Andrew Ross Sorkin, one of the Times' business reporters, sketched out a couple of days ago but -- quite frankly -- I don't buy.

Sorkin (whose reporting I usually admire quite a bit) takes the contrarian view that the bonuses must be paid out. There are several reasons:

1) A.I.G. has a contract with its employees -- and a contract must be executed, like it or not. Breaking an "inconvenient" contract is a slippery slope and many companies might hesitate to do business with the government if their employees are going to be retroactively punished.

2) A.I.G. employees will leave.

3) The A.I.G. employees are the only ones who know where all the bombs are buried. They know enough about the workings of A.I.G. to completely destroy the company -- and maybe the entire economy with it. God forbid they should start working against A.I.G.'s interests.

All three of these arguments have some limited merit -- but I think they're all ultimately wrong.

1) I think this argument has the most merit; a contact is a contract and you can't pick and choose which ones should be upheld.

But this is why Rangel's solution is such a good idea! We'll keep up the letter of the contract. And we'll follow the letter of the law.

But, quite frankly, even if the new law hadn't been passed I would argue against paying out these bonuses because it seems clear to me that the A.I.G. financial people failed in what they were fundamentally contracted to do.

The A.I.G. contracts naturally made job performance irrelevant (Jesus fucking Christ!) but there's shitty job performance and then there's something else. Basic obligations must be met. If you do the job so badly that you essentially do the opposite of the job, well, you didn't do the job!

As for other companies reluctance to do business with the government because of them failing to keep up contracts, my response would be: "Bullshit. If you're drowning and the government throws you a lifejacket, you will accept it."

Sidenote: Whoever wrote those contracts should be fired immediately.

2) & 3) The A.I.G. people will leave argument is pretty much bullshit. There are maybe half a dozen people at every outfit that can write their own contract anywhere, (even in the worst economy since the Great Depression,) but those people are very, very rare.

(Although I had to laugh when Sorkin called them "the big moneymakers." No, Andrew, nobody at A.I.G. can make that claim any more.)

But also I think A.I.G. is currently political kryptonite. As greedy as the rest of the corporate world is, I don't think anyone wants to risk the potential backlash.

The government just showed its teeth; it's taking 90 percent of the bonus money away from these guys. The law was just rewritten in a way that hurts a huge number of companies. If these corporate outfits have any brains whatsoever, they'll keep their heads down and try to get through this crisis without many more displays of disgusting greed.

Jon Stewart has done the impossible:

He has made me feel sympathy for Jim Cramer.

Not much sympathy, mind you. I think that Cramer is, by and large, a clown and if the country took his investment advice we'd be a banana republic right about now. (I was, frankly, knocked for a loop when I found out that Cramer had graduated with honors from Harvard.) But I have to admit, I thought Stewart was a bit of a bully when he interviewed Cramer on last night's Daily Show.

Let me also throw in a few caveats.

Caveat #1: Stewart's original piece on CNBC was, by and large, pretty fucking genius.

If you haven't seen it, it's worth checking out here.

I got into a huge argument about this the other night with a friend of mine who was sticking up for CNBC (which, I admit, I do not watch much of) and saying that by cherry picking individual things that CNBC has gotten wrong Stewart was being hugely unfair; they have interviewed short sellers as well as bulls over the last few years, and there was plenty of dissenting opinion about the boundlessness of the market that they featured. I'll have to take his word for that -- and he has a point.

But the reason Stewart's original piece was so good was not necessarily by cherry picking "gotcha" moments -- it was a larger indictment. The truth is, financial journalism has failed miserably over the last decade in anticipating this economic collapse. (In its way, it's about as big a failure as the political media's failure to verify the claims the Bush administration was making in its march to war.)

There were sober voices out there who were warning about over-leveraged banks; CDOs; lack of subprime standards; etc. and they could be found in their own quiet corners of the media. But they rarely appeared on Larry Kudlow or Jim Cramer -- or were given as great a megaphone.

Caveat #2: The fact that financial journalists just repeat what they are told by CEOs is not just maddening -- it's puzzling too. (And this, I think, is Stewart's larger point.)

Look, I don't work in TV. I have no idea what the protocol is. But I learned fairly early on in my career as a journalist that you have to assume that about 90 percent of what you're being told is bullshit. Sometimes people are total crooks and frauds (like "Sir" Allen Stanford who's interviewed at the end of the CNBC takedown Stewart did) and it's difficult to pin down somebody who's lying so shamelessly and consistently.

But I think the obsequiousness that leads reporters to huddle up to a CEO is part of the reason that crooks like Stanford and Bernie Madoff (and even not-out-and-out criminals, just morons like Dick Fuld) are allowed to go so far.

All that being said, Jim Cramer is pretty small beer in comparison to the larger problem.

And I didn't think it was quite unfair of Stewart to beat him up the way he did.

Cramer went on the show, and was never really given a chance to defend himself. "Roll clip," Stewart kept snarling -- before Cramer had a chance to make his point. (Interview wasn't even really the word for what this was. Diatribe by Jon Stewart was more like it.)

If you're going to humiliate the guy by showing all the mistakes he's made (over an extremely long amount of time), you have to give the guy a chance to defend himself. Stewart did not. He seemed like he was quaking in anger -- looking to eviscerate.

Look, I'm sure that CNBC and Jim Cramer have made a few boners over the years. But it was almost as if he was laying the entire financial collapse in Cramer's lap. That's more than a little unfair. Cramer was wrong -- but so was the vast majority of the establishment. When Stewart makes his critique on the establishment, I'm with him -- when he picks on individuals, I'm less with him.

Also, I think Jim Cramer pretty much was taking a bullet for Rick Santelli.

Santelli started the ridiculous "tea party" on the floor of the Chicago stock exchange, saying why should the rest of us pay for bad mortgages, which prompted Stewart's original segment on CNBC. Santelli's rant was immediately hailed by Republicans as some sort of populist rant -- but I thought it was mean spirited and absurd. (His primary complaint was that it promoted "bad behavior"... the same could be said about bailing out AIG or Citi group, but we're not going to let our entire economy go down the toilet, thank you very much.)

Santelli very much deserves to be grilled on his stupidity -- and he originally agreed to go on the Daily Show but weaseled out.

Cramer did not.

I guess Rick Santelli was, indeed, rewarded for "bad behavior."

Four reasons John Thain should have a living snake shoved up his ass

Former Merrill Lynch top dog, John Thain, was fired this week after it was reported that Merrill suffered more than $15 billion in losses in the fourth quarter of 2008. But, quite frankly, I don't think that's nearly punishment enough.

"But, Max," you say, "aren't you being a little harsh? Isn't every business losing money left and right."

True. But Thain's parting actions richly deserve the attorney general mandated investigation that Andrew Cuomo has green lighted. He has behaved far worse than a schmucky banker riding the hog. The man deserves to be taken out and maimed. Here are four reasons:

1) He recently spent more than $1 million redecorating his office -- which included a $68,000 credenza. (A frickin' credenza!)

2) He asked for between $30 and $40 million in personal bonus money last year, even as Merrill was bleeding money. (He was apparently shamed into forgoing a bonus.)

3) Merrill Lynch is already worth $10 billion less than it was when Bank of America bought it in December.

4) As Merrill Lynch was preparing for a January 1st merger with Bank of America, Thain proceeded to rush out billions of dollars worth of bonus compensation to the screw-up bankers who got America into this mess. (It should be noted that Bank of America is receiving billions of dollars in bailout money from Washington to help finance the deal.)

Point 4) is the only really relevant point. Your tax dollars went to giving a new Mercedes to some Merrill Lynch hotshot. These are the moments when one really does feel the Marxist urge to march the capitalist swine into the streets and shoot them right between the eyes.

It was argued to me today (by my father of all people!) that Thain needed to give out those bonuses; that Merrill Lynch needs to retain its talent. That bankers factor in bonuses as part of their compensation and took their jobs in good faith that their salary was only one part of their income.

You'll pardon my French, but give me a fucking break.

Yes, I know a lot of professionals who are unhappy that they didn't get their bonuses this year. But, quite frankly, they're lucky to have a job. Where, exactly, do these Merrill Lynch boys think they'll go if they don't get a bonus this year? Is anyone -- and I mean anyone -- hiring right now? Of course not. These Merrill boys would have done what everyone else has done had they gotten no bonus: Lived with it.

Michael Moore (a man I really do hate) had a line about the bailout a couple of weeks ago that has really grown on me. He said that we should say to all these banks, "After we give you all this money, just know this: We own your ass."

Well said, Mike. We do own their ass. And I think Thain should be thrown in prison for ripping off his employer, the U.S. taxpayer.

Pop!

Your humble schlub has two articles out in the Post today about the housing bubble; one in which I talk about how the bubble has essentially burst and we are in for a great deal of pain (which I think is the more accurate of the two articles) and another about how the bubble has burst, but things aren't as gloomy as reporters like me say they are.

Curbed was kind enough to link to both articles.

But as long as we're talking about real estate and our economic woes, I would also recommend two other articles about the state of the financial world (and why it's so fucked up). For the macro view of things, check out John Cassidy's profile of Ben Bernanke in last week's New Yorker. (It's one of those articles that makes you feel both better and worse about Bernanke than you did before reading it. Mostly worse.)

But for a more micro (and more fascinating) article on just how banks and investors managed to create such poor mortgage securities, I would check out Michael Lewis' truly amazing piece in Portfolio. It's about a guy named Steve Eisman who shorted these securities and made millions doing it. (The guy is a pisser. The best part is when Eisman is seated next to the manager of a CDO -- collateralized debt obligation -- who begins telling him his investments. Half way through the dinner Eisman gets up, finds his host, points to his dining companion and says, "Greg, I want to short his paper... sight unseen.")

And, as long as we're talking bad mortgages, reeling economy, and the like, the profile on Lehman Brothers CEO Dick Fuld in this week's New York magazine isn't bad, either.

Please no.

With the Bush administration on the way out, there has been a lot of talk about which convicted felons will get an official pardon -- with Slate going so far as to rank each and every prominent criminal who has been lobbying the administration and what their chances are.

Junk bond king, Michael Milken, is given an "excellent chance" of getting a pardon. (Which is unusual because the administration has been extremely parsimonious with these pardons.)

It won't matter too much whether Milken gets his pardon in the grand scheme of things -- he has already served time for his criminal activities (racketeering; conspiracy; tax fraud; insider trading, etc.). And despite the fact that he paid more than $200 million in fines, he's still a billionaire. (Probably. Who knows who's still a billionaire in this economic climate.)

And it would seem that fate was somewhat cruel to Milken; shortly after he was released from prison he was diagnosed with prostate cancer. Since then he has raised millions for cancer research and been a reasonably active philanthropist.

All good things -- one would suppose.

But if anyone feels too sympathetic to Milken, I would advise reading James Stewart's (scarily relevant) book, Den of Thieves, which was about the fraud and insider trading of the 1980s.

The book is worth another look these days, given how much of the current fiscal crisis is due to over-leveraging companies -- which was precisely what was happening back in the 80s. Moreover, the whole concept of junk bonds feels eerily similar to that of subprime mortgages. (High interest and high risk. One wonders why we're suddenly surprised when they melt down.)

But Milken seems almost singular in his embodiment of the excesses of the 1980s; few people were as ruthless, as greedy and as underhanded as Michael Milken. He collected and distributed inside information -- in flagrant violation of the law. He manipulated stock prices on companies he wanted to undervalue. He bullied his clients into deals that lost them money (but made Milken millions). His practices encouraged banks to make extremely risky investments, and when they failed, tax payers got stuck with an extremely expensive bailout.

In one year alone, Milken gave himself more than $500 million in bonus compensation -- but that didn't stop him from haranguing his colleagues for a $15,000 finder's fee on a piece of business he thought he brought to his firm.

All in all, a disgustingly greedy man.

One wonders in an age of similar excess and similar downfall if it really sends the right message to give this dude a pardon.

But, then, that should be perfectly in line with the Bush administration.

You can't make friends with salad...

Well, let me amend that:

You can't make friends by charging THAT MUCH for salad.

Today I went to get my normal, run-of-the-mill, twice a week salad lunch when I noticed that my salad server was charging me for four items instead of the usual three.

"We started charging for the croutons," he said.

Wha?

That's when you know the economy is really fucked up. Fifty cents for croutons?! You can get a freakin' bagel for 10 cents more! (At least, that's what it costs in my neighborhood.)

I'm pissed...

The cruelest blow -- or the moment to shine?

The dow fell 449 points today, but the one thing that will really hurt in this time of economic uncertainty:

The High End Girlfriend Index.

For schlubs who made good, this will be the last thing to go -- but go it will. At least according to the Daily News' Michael Daly who explains: "The schlub finds himself with a fabulous girlfriend such as used to brush past him as if he were a wall. He will do almost anything to keep her if his magic millions suddenly evaporate, even selling his watch and cuff links."

I was initially going to say, "Amen, brother."

And I think that a schlub like me would immediately start visiting pawn brokers at first blush... However, I was talking this over with my editor who said: "I would have written the opposite column... do you know how easy it's going to be to bag a model if all these guys go under?"

Schlubs take note: This might be your moment to shine.

Two questions for Phil Gramm:

What is he smoking?

And: Can I have some?

A couple of conservative stalwarts (notably Amity Shlaes and George F. Will) defended Gramm's hopelessly stupid remarks on semantic grounds: We're not in a recession because the economy hasn't shrunk for two quarters in a row...

What a relief!

I guess nobody has to worry then that the Dow had the worst June since the Great Depression. Or that the price of oil is $140 per barrel. (An almost five fold increase in the past five years!) Or that Lehman is about to go the way of Bear Stearns. Or that the nation's two largest mortgage lenders -- which own $5 trillion of debt! -- saw their stocks lose 74 percent of their value since the start of the year. Or that even in New York City (which has weathered the housing bubble relatively well) the foreclosure rate is the worst in 29 years!

No, thank god, it's not a recession.

I was going to award Phil Gramm the schlub of the week award -- but those sentiments are too stupid to be the sayings and sentiments of a schlub. Phil Gramm is demoted to out-and-out schmuck.