Men In Black

There was quite a little hubbub coming out of Langley, Virginia this past week. Seems that a few years ago the boys at CIA headquarters destroyed some videotape that showed a couple of their agents giving the “enemy combatant treatment” to a prisoner in a safe house somewhere in Taiwan. Everybody’s up in arms about why the tapes were destroyed, whether they were under subpoena at the time, and on, and on.

Basically this is an entrée for certain people to try to land a body blow to an agency they feel is immoral and un-American. I’m not sure I necessarily disagree with their sentiments, but I think that just might be the point.

What is the CIA? The CIA is a group of people who, among other things, do really nasty things to people. Doesn’t matter if they are our friends or our enemies; doesn’t matter if what they are doing runs afoul of the laws of this country, other countries, or the moral code of every religion on planet earth; doesn’t matter who gets hurt, whose lives get ruined, or who dies. They do what is, or may be, necessary to ensure that the United States can continue to be the world’s leading super-power.

The agency has a rich and storied history, mostly comprised of a decades-long series of glaring inadequacies and unqualified failures that makes a Three Stooges movie look like a well-orchestrated ballet. In particular the early days of the agency were marked by the deaths of dozens, perhaps hundreds of foreign-born recruits sent behind the Iron Curtain to incite insurrection against the communist regime in the USSR. The plans got more creative, but no more effective, as the years went by, and now we have an eviscerated shell of a government agency marking time until the end of the Bush administration. At that point it will find out what its ultimate fate is.

Taking all of these facts into account, we have to realize that we can’t have it both ways. We have created this agency and charged it with the job of doing nasty things we don’t want to know about. And in pursuit of us not knowing about them, I would be willing to be that the CIA is the single biggest (and most efficient) shredder of documents and destroyer of recorded media. I would assume they have entire departments of people whose sole job it is to make sure that nobody finds out what happens in the rest of the building. That’s why this big stink about two videotapes is so laughable: what about the other eighty thousand items that were destroyed the same day?

Remember the original “Men In Black” movie? When Tommy Lee Jones is explaining to Will Smith why he shouldn’t be blasting his ray gun in front of civilians? “…the only thing that lets people get on with their hopeful little lives is that they don’t know about it.” We need to consider this advice very carefully.

If we think that the services that the CIA performs are vital to our national security and the continued existence of the United States of America, then we need to write them a check every year, send them on their merry way, and not ask another solitary question.

However, if we cannot stomach the thought of Americans and those in their charge doing things that we would consider abhorrent if any persons were ever to do them to us, then we need to strongly consider abolishing the agency altogether. Having a handcuffed intelligence agency is about as effective as having a leaky ocean liner. Eventually, no matter how hard you try to keep it afloat, it’s going down.

Me? I’m of the write-the-check-and-don’t-ask-questions ilk. I’m not so fond of the idea of us not having a clue about what is going on behind closed doors in other parts of the world. But I don’t make such decisions, we as a nation do so collectively. I suggest we figure out what to do with our real-life Men In Black once and for all, and either way, wash our hands of the whole ordeal. We’ll all sleep better.

Sub-Prime Mortgage Mess

I’ve been struggling to come up with a metaphor to explain this sub-prime mortgage crisis to people who don’t have a double-masters in finance and economics. Most of the time I get past the first part and it all deteriorates into descriptions of wholesale securities markets and bond ratings, and next thing you know I’m pulling out my easel. The snoring ensues shortly thereafter.

But I think I’ve got it. An analogy that even a third-grader can understand. We’re going to use third-graders.

*     *     *     *     *

Say Alex forgot his lunch money, and goes to Billy to cover him. But Alex doesn’t want his parents to know he forgot his lunch money, so he and Billy work out a payment plan. Ten cents a day for 25 days, earn Billy a little interest for his trouble. So Billy gives Alex the two bucks, and Alex will start bringing an extra dime with him every day for the next five weeks.

However, Billy is an enterprising lad, and decides he doesn’t want to wait to get his money. But he’s already agreed to this payment plan, and he doesn’t want to be labeled a welcher. What can he do? He comes up with a plan that just might work.

He sets up a deal with Charlie, essentially “selling” the arrangement with Alex to him. Charlie pays Billy $2.25, and Alex will pay Charlie instead of Billy. No skin off Alex’s nose, he pays the same amount no matter who the recipient is, and Charlie makes himself a ten percent profit in a month.

But look what Billy comes away with. Overnight he has turned $2.00 into $2.25. But more than that, he has also eliminated any risk exposure he had in the transaction. What if Alex can’t live up to his obligation? Then Charlie is out the money, not Billy.

Wow, Billy thinks, this could really be the start of something. He sets himself up a little enterprise doing the same thing, only he finds out he can make even more money if he makes lots of little loans and them sells them together for one lump sum. Packaging them together like this has benefits outside of the lump sum as well. Some of the kids he loans to are steady payers, others aren’t so good. When he bundles the loans together he can “hide” some of the bad ones in with the good ones.

At a certain point Billy started running out of customers. But he found that if he altered the terms of his loan payment schedule, he could get more. He would let his borrowers pay only five cents a day for the first week, then fifteen cents a day for the rest of the loan to make up the difference (and put a little extra in his pocket to boot). This got him more customers, however he noticed that the repayment stability of these new customers wasn’t the best. No matter, as soon as he sold the loans and got his money, he was in the clear. It was somebody else’s problem.

This is the start of the sub-prime mortgage crisis. Lenders making loans to borrowers, then selling those loans on the secondary market packaged as mortgage-backed securities. Borrowers ran thin, the adjustable-rate (”sub-prime”) loan came into fashion as a means of getting new customers, and after a while the whole house of cards started tumbling down.

*     *     *     *     *

Now comes the easel. Most people think of a bank as that small building on the corner where you deposit your paycheck and take your bottle of change to run through the automatic counter. That is called retail banking, doing business with the public. For most banks, retail banking makes up less than 1% of their business. The rest is wholesale banking, massive transactions with corporations and other institutions on a scale that makes retail banking look like a monopoly game.

Banks do business in the big-B: billions of dollars at a time. What do you do with that kind of money? Or more accurately, what do you do with that kind of money when you have a bank’s risk profile (zero)? You buy top-rated investment-grade securities: government bonds mostly, but also other things as well. A bank is first and foremost a business, one that serves to maximize return for shareholders. So like any other business, they are always on the lookout for new ways to make a buck.

There has been a trend in financial markets since the Reagan administration let the foxes guard the henhouse by eliminating most of the regulations guiding financial markets. That trend has been to take small securities and group them together into one package, selling them as one single entity. This has been the cause of many, many billions of dollars of losses all over the globe, because the structure of these instruments allows unscrupulous dealers to sell hamburger as filet mignon.

This is precisely what has happened with the sub-prime mortgage situation. Large financial institutions — Citigroup, Morgan Stanley, Merrill Lynch, companies that really should have known better — have purchased what are called “mortgage-backed securities”, income streams fed by the payments of regular everyday homeowners. These securities have been labeled as investment-grade, however it is now apparent that billions of dollars in questionable loans were buried inside these instruments. Loans started defaulting, the true value of the securities was called into question (none of the bean-counters knew how to calculate their actual worth), and the instruments became worth no more than the paper they were written on. Subsequently major financial institutions all over the world — investment houses, banks, pension funds, and so on — have written off tens of billions of dollars in losses, and they have no way to know how much carnage is still yet to come.

So now we have millions of families about to lose their homes. We have major financial institutions losing billions of dollars a quarter. But wait, there’s another player in all this: where is the middle-man? Where are the companies that made all the loans to begin with?

Packing up shop and laying off thousands of workers. They’ve made their money, they’re headed to the Caymans to enjoy it. These people have no exposure to the problems caused by this crisis, and with the mortgage industry falling apart there’s no more money to be made. So they’re closing up and taking off with the profits: hundreds of millions of dollars, swindled out of the pockets of homeowners and some pretty big corporations, or more accurately, their shareholders.

How will it end? The government will step in and provide assistance to homeowners, though it won’t be enough; apartments that stood vacant as recently as a year ago are now starting to fill up with former homeowners who have lost their homes; the large financial institutions are already rallying around each other to try to provide a massive fund for purchasing these securities from their current owners; and as usual, the perpetrators will get off Scot free.

One day the government will realize that their job is to prevent this kind of crisis from taking place. That is accomplished through regulation, something the government has been stripping away in recent decades. That trend needs to be reversed, immediately and with substantial vigor. The kids are out of control on the playground during recess, and the principal needs to start handing out detentions.

Swelling Rock Music

I’m having a difficult day today. I like to think I got my mid-life crisis out of the way in my early twenties, but apparently that was just a delusion brought on by all the whiskey. I’m sinking into a realization that should not, and does not, come as a surprise to me, however it is having a more profound effect on me than it ever has.

It’s Jeff Bridges day on the cable system, apparently. In the last 18 hours I have watched “The Fabulous Baker Boys” and “Stick It,” the second being a little-known and little-watched almost-straight-to-DVD cheese festival about so-called elite gymnasts. I started sinking with the first film, and I am closing in on the bottom with the second.

If there is one film like “Stick It,” there are at least a hundred a year. Rebel upstart with uncontrolled talent meeting the washed-up guru who tames the wild horse and helps them fight their way back to glory. The climactic scene where it’s all on the line, pressure mounting, the sneering arch-enemy looking on, the suspicious crowd with the lone brave supporter, and then the rock music cranks up and the rebel cranks it up to eleven, scoring the goal, completing the pass, nailing the three-pointer, earning the perfect score, striking out the last batter, or achieving whatever achievement that will cause the crowd to explode, the guru to cry and hug people, and even the sneering arch-enemy to realize that the rebel is better than they are. The rebel looks into the crowd to find the lone supporter who never lost faith, and falls in love with them all over again.

You’ve seen that movie, or one like it, several times before. You’ve experienced that swell of emotion as the rebel wins the gold, or gets the girl, or lands the job. You’ve walked out of theatres (or away from your DVD player) feeling like you should go and join that rock band or submit that manuscript for publication or try out for the Olympic winter biathlon team. You’re charged up. You’re on top of the world. You feel like you can do anything.

*     *     *     *     *

In “The Fabulous Baker Boys,” when Jeff Bridges and his real-life brother Beau are having the argument about their relationship and the act and everything, Beau Bridges says something along the lines of the following. “I get to make sure the numbers balance out at the end of the month so that everybody ELSE can go on LIVING THEIR LIVES!!!”

That’s me. To-do lists. Rush-hour traffic. High school band concerts. Parent/teacher conferences. Car insurance. Snow shoveling. Picking up milk, baking soda, and Clearasil on my way home. Scooping the cat box. Scraping the callous off my aching feet. Trying to avoid getting overdrawn at the bank.

No crowds. No swelling rock music. No victory in the face of incalculable odds. I never had that moment. Few of us will ever have that moment. In fact, that moment is really a concoction of Hollywood writers appealing to the little space inside of us that believes we can do those things. Nobody has those moments in real life. But this fact is not reassuring, not comforting, not calming.

I’m thirty-nine years old, the potential for any of those moments to occur (even though they don’t really occur in Euclidian space, but that’s immaterial) is long past. I’m not a rock star, not an athlete, not a genius, not a millionaire, an actor, a pilot, a writer, nor an entrepreneur. There will be no crowds, nor any swelling rock music, at least not outside of my head. And that’s the problem.

Apparently I continue to cling to the illusion that there might be. Someday when overweight, middle-aged fathers of three can join rock bands or become star athletes, in my imagination, there will be crowds and swelling rock music. This sounds funny even as I write this, but it is very literally eating away at my soul. I find myself sinking deeper into the throes of depression, with this issue as the cannonball strapped to my ankle.

You’re supposed to come away from these movies feeling like you can do anything. I feel like I’ve never done anything, and I never will.

*     *     *     *     *

Most of the time I can end these missives with some reasonable assessment of the situation, some way to put it into perspective and move on with my life. Not this time. My financial life is in near-collapse, my job is about to end, my health is deteriorating, and there is no end in sight for any of it. Nothing makes me genuinely happy these days, nothing gives me hope, nothing is reassuring.

On top of it, I have movies with Jeff Bridges in them making me feel like an even bigger failure.