We’re supposed to be thankful at Thanksgiving and though I was, I didn’t post Thanksgiving wishes. So before we ring out the old year let me start by saying thanks to Nowdy for sticking around for our second year online into our third. She is truly an angel to the people of the Gulf Coast. I’d also like to thank our commenters especially all our regulars and Sup who I’m certain at times just wants to pull his hair out trying to “reason” with us but who remains incredibly kind to us in spite of that. Next up are the lawyers that make sure we keep our I’s dotted and T’s crossed. The dedication of the trial bar to seeing justice done for ordinary people is truly inspiring. I’d also like to express our gratitude to Congressman Gene Taylor and his staff, especially Brian, Ana Maria and Stephen who are our tireless advocates for the coast, both here and in DC. Without Gene holding the insurance industry’s feet to the fire, what happened here after Katrina would certainly have been swept under the carpet.
I’d also like to think the journalists that read us along with the folks at WLOX. I don’t cut poor ol’ Dave Vincent much slack but whenever I’ve been in the mood to kick a member of the media in the kiester Dave has always been most accommodating offering up his hiney with a big target on it. (Sponsored by the Mississippi Coast State Farm agents no less!)
I thank our many readers that literally hail from across the world for coming back again and again reading our posts, even Amy and Robert Bullstroke.
I’d also like to thank Editilla over at the Ladder who always gives us too much credit. Brother, folks like you are the reason we do this. Finally I’d like to thank former Louisiana Insurance Commission Jim Brown for his support and encouragement in this endeavor called Slabbed. Jim gives us his column to publish weekly and does many things behind the scenes such making sure we had an evalutaion copy of the now sold out Edwin Edwards Biography. Jim is strictly first class. Now for some news stories I’ve accumulated over the past few days for your enjoyment.
First up is a pair of stories from the Wall Street Journal (subscription generally required) the first of which involves the drug trade and the Mexican drug cartels. Is it time we just said yes and declared the war on drugs a defeat? I’ll let David Luthnow explain in an article that I found fascinating:
In the 40 years since U.S. President Richard Nixon declared a “war on drugs,” the supply and use of drugs has not changed in any fundamental way. The only difference: a taxpayer bill of more than $1 trillion.
A senior Mexican official who has spent more than two decades helping fight the government’s war on drugs summed up recently what he’s learned from his long career: “This war is not winnable.”
Just last week, Mexican Navy Special Forces swarmed a luxury apartment tower in a central city and gunned down Arturo Beltrán Leyva, a drug trafficker whose organization helped smuggle several billion dollars worth of cocaine and marijuana into the U.S. during the past decade, according to the Drug Enforcement Administration.
Within days of Mr. Beltrán Leyva’s death, Mexican officials were already trying to guess which of his lieutenants would take his place. Almost no one expected the death of Mr. Beltrán Leyva to slow down the business of drug trafficking or the horrific drug-related violence in Mexico that has claimed around 15,000 lives in the past three years………
Growing numbers of Mexican and U.S. officials say—at least privately—that the biggest step in hurting the business operations of Mexican cartels would be simply to legalize their main product: marijuana. Long the world’s most popular illegal drug, marijuana accounts for more than half the revenues of Mexican cartels.
“Economically, there is no argument or solution other than legalization, at least of marijuana,” said the top Mexican official matter-of-factly. The official said such a move would likely shift marijuana production entirely to places like California, where the drug can be grown more efficiently and closer to consumers. “Mexico’s objective should be to make the U.S. self-sufficient in marijuana,” he added with a grin.
He is not alone in his views. Earlier this year, three former Latin American presidents known for their free-market and conservative credentials—Ernesto Zedillo of Mexico, Cesar Gaviria of Colombia and Fernando Henrique Cardoso of Brazil—said governments should seriously consider legalizing marijuana as an effective tool against murderous drug gangs.
If the war on drugs has failed, analysts say it is partly because it has been waged almost entirely as a la w-and-order issue, without understanding of how cartels work as a business.
Next up is a financial retrospective that appeared in the Monday WSJ titled “After the Bailouts, Washington’s the boss“. Now while we would contend the people calling the shots in DC are those that own corrupt pols like Connecticut Senator Chri$ Dodd the piece had some good nuggets buried inside:
Today the U.S. government, directly or indirectly, underwrites nine of every 10 new residential mortgages, nearly twice the percentage before the crisis. Just last week, the Treasury said it would cover an unlimited amount of losses at mortgage giants Fannie Mae and Freddie Mac through 2012.
Those who defend this robust interventionism and those who decry its effects are vying to shape the nation’s take on the events of the past 16 months……..
John Taylor, a former Bush Treasury official who is now a Stanford University economist, says the government’s role will be far greater than Mr. Summers suggests. “While we may be past the emergency, we’re still in a mode that will create similar interventions for quite a while, even for minor emergencies,” he says. “We have a bailout mentality in this country.”
One concern: Even if the government withdraws, business will expect bailouts in the next crisis, and that will inspire another round of cavalier risk-taking. “If we don’t re-regulate the banking system properly, we’ll either get very slow growth from overregulation, or another financial crisis in just 10 to 15 years,” says Kenneth Rogoff, a Harvard University economist and co-author of a new book on financial crises since the Middle Ages…………….
Most big banks appear back on their feet. Of the $245 billion invested in bank shares by the Troubled Asset Relief Program, more than $175 billion has been repaid. Since the Treasury tested the financial strength of 19 large financial firms in May, they have raised $136 billion in equity capital and borrowed $64 billion without U.S. guarantees.
But the strengthening of the big banks may be distorting the market. Although smaller banks have long had a higher cost of funds than big ones, the gap has widened. The gap averaged 0.03 percentage point for the first seven years of the decade, but it jumped to a 0.66-point disadvantage for smaller banks in the four quarters ended Sept. 30, estimates Dean Baker of the Center for Economic and Policy Research, a liberal think tank. That suggests investors think the government would bail out big banks, but not small ones, if crisis erupted anew, he says.
Not all of the rescues look successful. The U.S. had to redo its initial bailouts of giant insurer American International Group Inc. and of GMAC Financial Services, which was once a car-finance and mortgage firm and is now a bank holding company. Both remain unable to raise private capital.
The intervention comes with long-lasting costs, among them huge budget deficits that could eventually push up inflation and interest rates.
The International Monetary Fund estimates U.S. government debt will swell to the equivalent of 108% of annual economic output in 2014, from 62% in 2007, absent politically difficult steps such as raising taxes or cutting benefit programs. As federal debt climbs, an ever-greater fraction of the budget goes just to pay interest, much of it to overseas creditors. The bill will worsen if interest rates rise from their current low levels.
Interest on the debt cost $182 billion in the fiscal year ended Sept. 30. Robert Pozen, chairman of MBS Investment Management, worries that within a decade, the interest bill could rival the defense budget, which was $637 billion last year.
Next up is that poem I promised courtesy of Martin Dickson at the Financial Times that is highly entertaining:
But now we live in debased times,
Sans punishment to fit our crimes
Our moral compass has got lost,
Or on the rubbish heap been tossed.
As in this cautionary tale of bankers,
Who came to look like social cankers.
You will all know the basic story,
In all its venal details, gory.
Of how a bunch of peerless clowns
Despite degrees – from Yale to Brown –
Behaved like schoolboys in the lab,
When teacher’s gone to smoke a fag.
Exuberant beyond all reason
(For this or any other season)
Fired up by dreams of starter castles,
Sardinian yachts and vineyard parcels,
They built themselves a strange device –
A ticking bomb, to be precise.
The trouble was they did not know,
It was a bomb ’twas ticking so.
They thought it merely marked the beat
That called them to stay on their feet
And dance away – to really bop –
To music that would never stop.
At last the bomb it ticked no more.
Instead it gave a mighty roar
Like some avenging finance demon,
And destroyed RBS and Lehman.
That made the bankers wail and yelp,
And rush to teacher for some help.
Faced with the imminent demise
Of all world banks of any size,
And thus of global finance too,
The state bailed out this sorry crew.
But were they grateful? Not a jot,
This arrogant and greedy lot.
“It wasn’t us,” was their refrain.
The regulators are to blame.
They failed to prick our growing bubble.
They are the cause of all this trouble!
And China too, and central bankers,
Who failed to give us decent anchors.
“And while we’re at it, let’s include
Those nasty hedge funds, brash and crude,
We may have lent them stock to play,
But not to short poor banks at bay.
We’re sad events turned out this way
But not to blame; nothing to pay.”
Their minds so tainted by success,
They could not see their gross excess
Had played a very major role
In this colossal world own-goal.
Amnesia can be a sickness,
But this denoted arrant thickness.
Their attitudes were so repulsive
The public backlash grew convulsive,
And dimly seeing that their wages
Just might be threatened by these rages,
Self-interest prompted some to say
“We’re sorry” – in a muted way.
(I know I probably lifted too much but damn that poem is good so I’ll take my chances with Martin)
And finally a musical post repeat that sums up the action on the last day of the year here at Slabbed:
To the Slabbed nation be it consumer, insurer or crook in a Gucci suit Happy New Year with wishes for a prosperous 2010.