fil-ter

By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.

Within five years of retirement, an estimated 60% of former NBA players are broke.

”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”

The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation’s financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.

Ah, remember the days? Larry Summers … whatever happened to that guy anyway?

”I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010,” said Senator Byron L. Dorgan, Democrat of North Dakota. ”I wasn’t around during the 1930’s or the debate over Glass-Steagall. But I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

Senator Paul Wellstone, Democrat of Minnesota, said that Congress had ”seemed determined to unlearn the lessons from our past mistakes.”

”Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis,” Mr. Wellstone said. ”Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.”

Supporters of the legislation rejected those arguments. They responded that historians and economists have concluded that the Glass-Steagall Act was not the correct response to the banking crisis because it was the failure of the Federal Reserve in carrying out monetary policy, not speculation in the stock market, that caused the collapse of 11,000 banks. If anything, the supporters said, the new law will give financial companies the ability to diversify and therefore reduce their risks. The new law, they said, will also give regulators new tools to supervise shaky institutions.

”The concerns that we will have a meltdown like 1929 are dramatically overblown,” said Senator Bob Kerrey, Democrat of Nebraska.

Dramatically overblown indeed.

It’s over — we’re officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country’s heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

… People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

A bit alarmist, but a decent (albeit biased) overview of AIG’s tale.

Some days, I have no choice but to think about the very real possibility that I, like my parents before me, will have to leave the country I grew up in for greener pastures.

In my ongoing quest to make this the most boring site ever, here’s some more financial news:

Federal Reserve Chairman Bernanke and the rest of the FOMC decided today to embark upon the one strategy central bankers have always considered the dreaded last option — Quantitative Easing. It’s one thing for the Fed to push the “Easy” button and lower rates or temporarily inject reserves into the banking system, but to push the “QE” button (creating currency out of thin air with which to purchase assets) is an action reserved for only the direst of circumstances. If such a device truly existed in the Board room of the Eccles building, it would be a red button under glass with a “Press Only in Case of Emergency” warning stenciled underneath.

…the Fed’s balance sheet will now grow to become 25% of GDP, an eye-popping level that should end all questions of whether or not we are like Japan during the decade just past. And, for those who think the time is ripe for upping their equity allocations, Mr. Rosenberg would like to remind them of what happened to buyers of the Nikkei 225 after Quantitative Easing was tried in Japan. Longs were treated to a 20% rally that lasted six weeks before stocks set new lows just four months later.

(thx paul!)

Edward Liddy, head of AIG:

In all, total 2008 compensation for the top 47 executives is 56 percent lower than their total 2007 compensation.

Driving the company into the ground only gets you a 44% pay cut. Nice.

From the NYT:

Mr. Cuomo did not name the bonus recipients, but the numbers are eye-popping, given A.I.G.’s fragile state. The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses of $1 million to $2 million, Mr. Cuomo said. Eleven of those who received “retention” bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said.

See also: Idlewords on Andrew Ross Sorkin’s twisted logic:

When a small company does what AIG did, it is called ‘fraud’ and people are sent to jail. However, since AIG had signed contracts with most of the biggest financial institutions in the world, it instead received a very large sum of money ($170 billion so far). This also makes sense. When a teenage kid breaks your storefront window, you chase him down and give him a pounding. But when the local mafia breaks your window, you sweep up the glass and make sure to increase the heft of your next monthly envelope.

(thx paul)

It’s worth noting, also, that invariably stories that mention the prospect of foreclosure talk about the hit that this causes to a borrowers’ credit rating. Obviously, there is a hit. However, journalists are mistaken when they imagine that a credit score is a judgment on the character of borrowers. It’s not. It’s a judgment about the likelihood of someone repaying a loan. Bad marks like a foreclosure affect this. But being overextended on credit affects this even more. You might imagine that if you have the magic word “foreclosure” on your record you are automatically a worse risk than someone who doesn’t. That’s just not true. Lenders don’t like to lend money to people who have not paid their debts in the past. But what they like even less is lending money to people who have a mortgage they can’t afford and are likely to stop paying their debts in the future.

For the past few years, some large number of Icelanders engaged in the same disastrous speculation. With local interest rates at 15.5 percent and the krona rising, they decided the smart thing to do, when they wanted to buy something they couldn’t afford, was to borrow not kronur but yen and Swiss francs. They paid 3 percent interest on the yen and in the bargain made a bundle on the currency trade, as the krona kept rising. “The fishing guys pretty much discovered the trade and made it huge,” says Magnus. “But they made so much money on it that the financial stuff eventually overwhelmed the fish.” They made so much money on it that the trade spread from the fishing guys to their friends.

It must have seemed like a no-brainer: buy these ever more valuable houses and cars with money you are, in effect, paid to borrow. But, in October, after the krona collapsed, the yen and Swiss francs they must repay are many times more expensive. Now many Icelanders—especially young Icelanders—own $500,000 houses with $1.5 million mortgages, and $35,000 Range Rovers with $100,000 in loans against them. To the Range Rover problem there are two immediate solutions. One is to put it on a boat, ship it to Europe, and try to sell it for a currency that still has value. The other is set it on fire and collect the insurance: Boom!

This random fact is pretty absurd:

Alcoa, the biggest aluminum company in the country, encountered [problems] peculiar to Iceland when, in 2004, it set about erecting its giant smelting plant. The first was the so-called “hidden people”—or, to put it more plainly, elves—in whom some large number of Icelanders, steeped long and thoroughly in their rich folkloric culture, sincerely believe. Before Alcoa could build its smelter it had to defer to a government expert to scour the enclosed plant site and certify that no elves were on or under it. It was a delicate corporate situation, an Alcoa spokesman told me, because they had to pay hard cash to declare the site elf-free but, as he put it, “we couldn’t as a company be in a position of acknowledging the existence of hidden people.”

… Back away from the Icelandic economy and you can’t help but notice something really strange about it: the people have cultivated themselves to the point where they are unsuited for the work available to them. All these exquisitely schooled, sophisticated people, each and every one of whom feels special, are presented with two mainly horrible ways to earn a living: trawler fishing and aluminum smelting. There are, of course, a few jobs in Iceland that any refined, educated person might like to do. Certifying the nonexistence of elves, for instance. (“This will take at least six months—it can be very tricky.”) But not nearly so many as the place needs, given its talent for turning cod into Ph.D.’s. At the dawn of the 21st century, Icelanders were still waiting for some task more suited to their filigreed minds to turn up inside their economy so they might do it.

(via hn)

This is why some folks think the dollar is going to remain strong over the coming months: Because the rest of the world is falling apart even faster than we are.

(thx lutz!)

Lost jobs appear to be taking longer and longer to recover with each subsequent recession. In fact, if we look at all recessions since World War II, the three most recent recessions (prior to this one) are associated with the three longest time frames for employment to return to its pre-recession peaks. The 1991 and 2001 recessions in particular were associated with so-called jobless recoveries.

“No one goes into Wall Street to save the world,” Whitney said today in an interview on Bloomberg Television. “Compensation is the motivating factor.” … The failure to pay employees well may drive away “the best and the brightest,” Whitney said.

Well, if the “best and the brightest” got us where we are today, imagine what the mediocre could do.

Regardless, where are these disaffected geniuses going to go in this economy? Back to school? Engineering? Teaching jobs? These all seem like fairly good outcomes.

Some women in the group said the men in their lives had gone from being aloof and unattainable to unattractively needy and clinging. Others complained of being ignored — one, who called herself A.P., wrote on the blog that three weeks had passed without her boyfriend “asking a single question” about her life. Another wrote, fearfully, that her beau had told her to make a list of their favorite New York restaurants before the bad market forced a move to the Midwest.

“Next time you are stressing over some finance guy, remember that he is just a math-club nerd,” one woman wrote after recounting a breakup. “This recession just bought everyone an extra two years of the single life.”

Another, though, seemed chagrined, after her boyfriend told her to “grow up” and stop “complaining about vacations and dinner” since he had to “fire 20 people by the end of the week.”

Don’t miss the blog, which may or may not be a parody. You never know on the Internet.

The mathematics of probability that govern the trade-offs of risk and reward are fundamentally counter-intuitive.

The reason that societies ban pyramid schemes outright, instead of relying on the market to make them unprofitable, is that most people trust their intuition, and their intuition leads them astray. If you were to wait for the market to run its course on a pyramid scheme, the losses could devastate a whole country, as Albanians found out a few years ago.