Weigh Your Civic Consciousnesses Daily

I'm beginning a weight loss project.

Its not Jenny Craig, or Weight Watchers, or one of the hundreds of other weight loss brands out there. It's the "I Have Common Sense" program. "Eat less. Exercise more. Repeat."

As the mechanics of the process ran through my head last night - the recent review of my eating and exercise habits, the formulation of a plan to reduce caloric intake and increase physical activity, and then the actual follow through of the plan day after day - I thought about the present state of our political scene and our economic woes, and whether or not the American body politic is really ready to make the daily changes in our information gathering habits and our civic activities that are necessary to make significant changes in the area of political engagement, or whether we are just wasting a whole lot of hot air.

Congress is playing with itself right now, the way parents of unruly children do when they look at the chaos around their house, because both Congress and lazy parents know that to get and maintain order means that you are going to have to make a commitment to doing unpopular and unpleasant things until the unruly children or the underregulated industry realizes you mean business, and then be vigilant against the first, second, third, maybe even the one hundredth attempt to try to you, if need be, until the unruly children or underregulated industry believes that there will be consequences for inappropriate behavior without fail, each and every time it occurs.

All government agencies are not created equal. From the investors who have been taken advantage of by people like Bernard Madoff to the Congressmen who sat in hearings wondering how all of this chicanery by AIG and friends (Goldman Sachs and JP Morgan, this means you too) in the financial markets had been allowed to take place, they all railed against the SEC for not doing its job properly. The IRS is feared by both businesses and individuals. The SEC is not feared – it is tolerated. The difference? The IRS agents can seize your property and bank accounts without a whole lot of red tape. The SEC can issue a judgment, which doesn't really mean anything. Or bar you from the industry, which as you can see with Mike Milken or Ivan Boesky, is sort of a "under your name only" detention program they have easily skirted after getting out of jail. The SEC might as well be mall cops. The IRS, on the other hand, has all the subtlety of a SWAT team breaking down the door to your house. When was the last time you were worried about a mall cop?

Internet security companies realized long ago that the people they were up against – black hat hackers – were a sophisticated, highly motivated type of criminal element. So guess who has ex-hackers on their payroll? The SEC is in the business of hiring Boy Scouts to catch the financial equivalent of computer hackers – brilliant people who understand how to use the architecture of a system against itself. So hire a few of these guys to work for us. Or if there is no way to pay the kind of money to these people as civil servants it might require to get them onboard, put out Requests For Proposals for consultants that can contract with the agency to provide the kind of intricate analysis needed to keep the SEC at the heels of all the rule benders (do I have to type Goldman Sachs and Jp Morgan here again?) and out and out frauds.

The media, who claims it is working on behalf of the public, is a part of this too, playing with Congress and the White House as if it is one of those perennial "bridesmaid, never a bride" types who uses her dowry to attract one suitor after another in order to amuse herself before sending them packing. And we the public are lazy enough, or brain dead enough, to watch each new suitor’s arrival as if it some new kind of drama or intrigue between them might entertain us more than the last one did. How can you change the media’s focus? Since the thing we call the "news media" is really two entities - the news gathering and disseminating half, with its lifeless legs and foreshortened arms lashed to the back of the advertising delivery half, which holds up the people you see on TV or read in the paper – you can worry their sponsors the way the American Cancer Society worries smokers, day in and day out. Some of them are already falling. Hopefully the others will get back to their original mission.

There really is nothing that Kim Kardashian, Chris Brown, Alex Rodrieguez, Madonna, The Final Four, BMW, Mercedes, Louis Vuitton, Burberry, Tag Heuer, Bruno Magli, Jimmy Choo, American Idol or 24 can help to provide you with any additional insight or motivation about regarding the things we say are most central to our lives. How big Kardashian's butt is this week or how much the latest top of the line Mercedes costs is what we end up knowing when we focus this kind of time and energy on these things. Does that mean these things are all bad? I may have a taste of chocolate now and again, but it is a far cry from my old approach, which was to supplement my nightly quart of chocolate ice cream with raids on my emergency chocolate stash, or have a bit with my morning coffee. A little entertainment news can go along way. the good thing is, the same people are always in the news, so if you miss something this week, you'll probably see it again next week.

There are things we as citizens can do to reshape our cultural and political landscape, the same way there are things, like curtailing my immense love of chocolate, that I can do to reshape my body. We've done them before, without one hundred percent support of the people, the same way I'm going to lose this weight without having to give it one hundred percent of my attention. But they were painful times, and often produced imperfect results, whether it was the American Revolution, or the Civil War, or Prohibition, or the civil rights movement, or the Vietnam War protests.

Maybe we all need to be a little bit hungry all the time, not for food, but for entertainment and fluff, in a way that makes us savor smaller portions even as we gaze at the emerging musculature of our new found civic duty in the mirror.

Maybe, just maybe, what we are experiencing these days has made enough of us uncomfortable with what we are seeing and hearing to commit to changing our habits and our activities in a way that make us active players in our political and social scene.

I will be weighing my civic consciousnesses daily - my body, once a week.

SEC Fails To Regulate "Me, Me, Me" Brokerages

I was talking to S. Wednesday night during a commercial break, while we were waiting for Screaming Sean Hannity, who was oddly subdued, to resume interviewing Sarah Palin. I'd just come in from smoking a cigar and reading the New York Times - well, I'd smoked the cigar, but I hadn't gotten very far in the paper, not after I'd read in more detail what had happened at AIG.

The first commercial was for Pacific Life, the insurance company with the trademark scene they show of the whale diving into the ocean, its massive tail flipping over as it disappeared beneath the surface. I was instantly hot, not at Palin, but at the snow job I was smelling from the press about the AIG situation.

"You know, I'm no economist, no insurance company analyst, but when was the last time you heard of a major insurance company going under?"

S. had been on conference calls all day. She didn't answer at first, patting the dog beside her, with a look on her face that said "negro, I am through thinking for the day". When I opened my mouth to continue, I guess she figured I wasn't going to shut up about it unless she gave some kind of response. "Can't think of any."

"EXACTLY!", I said. "'Cause insurance companies have to have a certain amount of reserves to cover the losses their policyholders could have."

"But they do more than just insurance. They're all over the world doing all kinds of stuff."

"So what? Those are subsidiaries. Separate books."

"But don't they invest the reserves?"

"Yeah, but they can't put them into just anything. Insurance companies are some of the most boring investors out there. Even Warren Buffet doesn't screw around with that shit."

I may not have had a degree in economics, but I'd taken the Series 7 test enough times to know that the insurance industry's obligation to its clients required it to keep enough capital in reserve to cover claims - what the ratio was I had no idea, but I knew that for a company that size it should have been substantial.

Karl Rove's fat face popped up on the screen after the interview, looking like the cat who ate the canary that was George Bush's presidency. He proceeded to carry water for McCain, smirking as he lambasted Obama for taking contributions from Fannie Mae and Freddie Mac, the two institutions that were now high on each candidates reform list. When he sat his fat ass up there and blamed the ENTIRE financial crisis on the alleged shortcomings of the underwriting process, I had to get up and walk away.

You couldn't even get Desktop Underwriter, the proprietary underwriting system we use to determine whether or not a loan could even qualify to be sold to Fannie or Freddie, to take a sub-prime borrower. Alt-A products were as exotic as they got outside of FHA, and nobody was even doing any volume in FHA until last year, when there was no where else to take credit challenged (broke with low credit score) borrowers.

Blaming the government sponsored entities (GSE's) for the mortgage crisis was like blaming the U.S. Mint for your gambling losses in Vegas because they printed up the money. Subprime lenders went under because the default rate on the paper they were holding was ten times higher than the GSE's.

I fumed over this all that night and into yesterday, until I saw THIS headline at one of the sites I frequent:

Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers

By the time I'd gotten through the second paragraph:

"The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults."

I started to get my equilibrium back. I knew damn well you couldn't have a collapse of this magnitude just because a few more loans than usual were late (default in mortgage biz lingo isn't the same as an actual foreclosure - it can also mean the loan is in technical default because the mortgagor is way behind). Over 95% of all mortgages purchased by the GSE's were still being paid on time.

I read a little further. A smile crept across my face:

"The so-called net capital rule was created in 1975 to allow the SEC to oversee broker-dealers, or companies that trade securities for customers as well as their own accounts. The net capital rule requires that broker dealers limit their debt-to-net capital ratio to 12-to-1, although they must issue an early warning if they begin approaching this limit, and are forced to stop trading if they exceed it, so broker dealers often keep their debt-to-net capital ratios much lower."

A couple more paragraphs down, I hollered "I knew there was some kind of bullshit going on!"

"Using computerized models, the SEC, under its new Consolidated Supervised Entities program, allowed broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount."

Only five companies were eligible for this program when it was rolled out in 2004. Guess who these five firms were?

Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley.

The first thing that came to my mind when I read this was a quote I'd created as a part of a series of quotes that were sprinkled throughout a fictional story I'd published a couple of years back called The Black Folks Guide To Survival:

"White folks, and white men in particular, have always found ways to alter, bend, or just totally ignore the rules they've made up when something doesn't suit them."

Real life wasn't imitating art here - I'd simply expressed as directly as possible facts that we all already knew to be in existence. And here was the SEC chairman, proving my assertion once again.

While you were on the internet at work, scrolling past ads extolling the wisdom, foresight and prudence of the companies managing your retirement money, your SEC chairman was waving his magic money wand over the capital accounts of these companies, effectively doubling or tripling their buying power without the addition of one red cent of actual money to their coffers.

He turned the cash they had into supercurrency.

If you've been in the financial services game long enough, even on the retail side, like I have, you had to learn the "Four C's" of a lending transaction - character, capacity, credit, and collateral. Ignoring any one of these items means you can't properly qualify the risk in front of you. In this case, the argument was and will continue to be that the track record and the reputation these companies possessed was the deciding factor in making a decision like this. THIS was the same criteria we used to make stated income loans.

Which made reading this morning's latest SEC announcement on The New York Times website temporarily banning short selling of financial stocks all the more ironic. The quotes from the chairman got me so jacked up I didn't even need any coffee this morning:

"The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets"

Market manipulation is now the enemy, after you manipulated the make-sense rules that were already in place? Are these motherfuckers smoking crack?

The phrase "alter, bend, or just totally ignore the rules they've made up" will be reverberating through my head for the next few days as I watch these politicians and industry regulators who know better continue to point fingers at Fannie Mae, Freddie Mac, and the subprime mortgage lenders who have closed down.


What do they think we are, idiots?


Yep.