Nothing was done after 1998 LTCM crisis - we know what happened next, the crisis of 2008.
If nothing is done again except printing money to paper things over, the next crisis will be even more devastating.
Financial reform is a necessity.
http://www.nytimes.com/2010/03/28/magazine/28Reform-t.html?ref=us
Sunday, March 28, 2010
Sunday, March 7, 2010
Vinod Kholsa Strikes Again
This time in Clean Tech.
http://www.khoslaventures.com/resources.html
Op-Ed Columnist
Dreaming the Possible Dream
By THOMAS L. FRIEDMAN
Published: March 6, 2010
The thing I love most about America is that there’s always somebody who doesn’t get the word — somebody who doesn’t understand that in a Great Recession you’re supposed to hunker down, downsize and just hold on for dear life. I have a couple of friends who fit that bill, who think a recession is a dandy time to try to discover better and cheaper ways to do things. They both happen to be Indian-Americans — one a son of the Himalayas, who came to America on a scholarship and went to work for NASA to try to find a way to Mars; the other a son of New Delhi, who came here and found the Sun, Sun Microsystems. Both are serial innovators. Both are now shepherding clean-tech start-ups that have the potential to be disruptive game changers. They don’t know from hunkering down. They just didn’t get the word.
As a result, one has produced a fuel cell that can turn natural gas or natural grass into electricity; the other has a technology that might make coal the cleanest, cheapest energy source by turning its carbon-dioxide emissions into bricks to build your next house. Though our country may be flagging, it’s because of innovators like these that you should never — ever — write us off.
Let me introduce Vinod Khosla and K.R. Sridhar. Khosla, the co-founder of Sun, set out several years ago to fund energy start-ups. His favorite baby right now is a company called Calera, which was begun with the Stanford Professor Brent Constantz, who was studying how corals use CO2 to produce their calcium carbonate bones.
If you combine CO2 with seawater, or any kind of briny water, you produce CaCO3, calcium carbonate. That is not only the stuff of corals. It is also the same white, pasty goop that appears on your shower head from hard (calcium-rich) water. At its demonstration plant near Santa Cruz, Calif., Calera has developed a process that takes CO2 emissions from a coal- or gas-fired power plant and sprays seawater into it and naturally converts most of the CO2 into calcium carbonate, which is then spray-dried into cement or shaped into little pellets that can be used as concrete aggregates for building walls or highways — instead of letting the CO2 emissions go into the atmosphere and produce climate change.
If this can scale, it would eliminate the need for expensive carbon-sequestration facilities planned to be built alongside coal-fired power plants — and it might actually make the heretofore specious notion of “clean coal” a possibility.
In announcing in December an alliance to build more Calera plants, Ian Copeland, president of Bechtel Renewables and New Technology — a tough-minded engineering company — said: “The fundamental chemistry and physics of the Calera process are based on sound scientific principles and its core technology and equipment can be integrated with base power plants very effectively.”
A source says the huge Peabody coal company will announce an investment in Calera next week. “If this works,” said Khosla, “coal-fired power would become more than 100 percent clean. Not only would it not emit any CO2, but by producing clean water and cement as a byproduct it would also be taking all of the CO2 that goes into making those products out of the atmosphere.”
John Doerr, the legendary venture capitalist who financed Sun, once said of Khosla: “The best way to get Vinod to do something is to tell him it is impossible.”
Sridhar’s company, Bloom Energy, was featured last week on CBS’s “60 Minutes.” Several months ago, though, Sridhar took me into the parking lot behind Google’s Silicon Valley headquarters and showed me the inside of one of his Bloom Boxes, the size of a small shipping container. Inside were stacks of solid oxide fuel cells, stored in cylinders, and all kinds of whiz-bang parts that I did not understand.
What I did understand, though, was that Google was already getting part of its clean-energy from these fuel cells — and Wal-Mart, eBay, FedEx and Coca-Cola just announced that they are doing the same. Sridhar, Bloom’s co-founder and C.E.O., said his fuel cells, which can run on natural gas or biogas, can generate electricity at 8 to 10 cents a kilowatt hour, with today’s subsidies. “We know we can bring the price down further,” he said, “so Bloom power will be affordable in every energy-poor country” — Sridhar’s real dream.
Attention: These technologies still have to prove that they are reliable, durable and scalable — and if you Google both, you will find studies saying they are and studies that are skeptical. All I know is this: If we put a simple price on carbon, these new technologies would have a chance to blossom and thousands more would come out of innovators’ garages. America still has the best innovation culture in the world. But we need better policies to nurture it, better infrastructure to enable it and more open doors to bring others here to try it.
Our politics has gotten so impossible lately, too many Americans have stopped dreaming. Not these two. They just never got the word. As Sridhar says: “We came to America for the American dream — to do good and to make good.”
http://www.khoslaventures.com/resources.html
Op-Ed Columnist
Dreaming the Possible Dream
By THOMAS L. FRIEDMAN
Published: March 6, 2010
The thing I love most about America is that there’s always somebody who doesn’t get the word — somebody who doesn’t understand that in a Great Recession you’re supposed to hunker down, downsize and just hold on for dear life. I have a couple of friends who fit that bill, who think a recession is a dandy time to try to discover better and cheaper ways to do things. They both happen to be Indian-Americans — one a son of the Himalayas, who came to America on a scholarship and went to work for NASA to try to find a way to Mars; the other a son of New Delhi, who came here and found the Sun, Sun Microsystems. Both are serial innovators. Both are now shepherding clean-tech start-ups that have the potential to be disruptive game changers. They don’t know from hunkering down. They just didn’t get the word.
As a result, one has produced a fuel cell that can turn natural gas or natural grass into electricity; the other has a technology that might make coal the cleanest, cheapest energy source by turning its carbon-dioxide emissions into bricks to build your next house. Though our country may be flagging, it’s because of innovators like these that you should never — ever — write us off.
Let me introduce Vinod Khosla and K.R. Sridhar. Khosla, the co-founder of Sun, set out several years ago to fund energy start-ups. His favorite baby right now is a company called Calera, which was begun with the Stanford Professor Brent Constantz, who was studying how corals use CO2 to produce their calcium carbonate bones.
If you combine CO2 with seawater, or any kind of briny water, you produce CaCO3, calcium carbonate. That is not only the stuff of corals. It is also the same white, pasty goop that appears on your shower head from hard (calcium-rich) water. At its demonstration plant near Santa Cruz, Calif., Calera has developed a process that takes CO2 emissions from a coal- or gas-fired power plant and sprays seawater into it and naturally converts most of the CO2 into calcium carbonate, which is then spray-dried into cement or shaped into little pellets that can be used as concrete aggregates for building walls or highways — instead of letting the CO2 emissions go into the atmosphere and produce climate change.
If this can scale, it would eliminate the need for expensive carbon-sequestration facilities planned to be built alongside coal-fired power plants — and it might actually make the heretofore specious notion of “clean coal” a possibility.
In announcing in December an alliance to build more Calera plants, Ian Copeland, president of Bechtel Renewables and New Technology — a tough-minded engineering company — said: “The fundamental chemistry and physics of the Calera process are based on sound scientific principles and its core technology and equipment can be integrated with base power plants very effectively.”
A source says the huge Peabody coal company will announce an investment in Calera next week. “If this works,” said Khosla, “coal-fired power would become more than 100 percent clean. Not only would it not emit any CO2, but by producing clean water and cement as a byproduct it would also be taking all of the CO2 that goes into making those products out of the atmosphere.”
John Doerr, the legendary venture capitalist who financed Sun, once said of Khosla: “The best way to get Vinod to do something is to tell him it is impossible.”
Sridhar’s company, Bloom Energy, was featured last week on CBS’s “60 Minutes.” Several months ago, though, Sridhar took me into the parking lot behind Google’s Silicon Valley headquarters and showed me the inside of one of his Bloom Boxes, the size of a small shipping container. Inside were stacks of solid oxide fuel cells, stored in cylinders, and all kinds of whiz-bang parts that I did not understand.
What I did understand, though, was that Google was already getting part of its clean-energy from these fuel cells — and Wal-Mart, eBay, FedEx and Coca-Cola just announced that they are doing the same. Sridhar, Bloom’s co-founder and C.E.O., said his fuel cells, which can run on natural gas or biogas, can generate electricity at 8 to 10 cents a kilowatt hour, with today’s subsidies. “We know we can bring the price down further,” he said, “so Bloom power will be affordable in every energy-poor country” — Sridhar’s real dream.
Attention: These technologies still have to prove that they are reliable, durable and scalable — and if you Google both, you will find studies saying they are and studies that are skeptical. All I know is this: If we put a simple price on carbon, these new technologies would have a chance to blossom and thousands more would come out of innovators’ garages. America still has the best innovation culture in the world. But we need better policies to nurture it, better infrastructure to enable it and more open doors to bring others here to try it.
Our politics has gotten so impossible lately, too many Americans have stopped dreaming. Not these two. They just never got the word. As Sridhar says: “We came to America for the American dream — to do good and to make good.”
Tuesday, March 2, 2010
It is good to be a survivor
Financial Crisis? What financial crisis?
Larry Fink is a 12Tillion dollar man!
http://www.vanityfair.com/business/features/2010/04/fink-201004
15 Years Ago, the Combined Assets of the 6 Biggest Banks Totaled 17% of GDP... By 2006, 55% ... Now, 63%
http://www.zerohedge.com/article/15-years-ago-combined-assets-6-biggest-banks-totaled-17-gdp-2006-55-now-63
Larry Fink is a 12Tillion dollar man!
http://www.vanityfair.com/business/features/2010/04/fink-201004
15 Years Ago, the Combined Assets of the 6 Biggest Banks Totaled 17% of GDP... By 2006, 55% ... Now, 63%
http://www.zerohedge.com/article/15-years-ago-combined-assets-6-biggest-banks-totaled-17-gdp-2006-55-now-63
Sunday, February 28, 2010
Course of the Empire
Thomas Cole's "Course of the Empire" series
http://www.isu.edu/~wattron/OLCole2c.html
Cole chose something from Byron to help describe this work:
There is the moral of all human tales;
'This but the same reheasal of the past
First Freedom, and then Glory: when that fails
Wealth, vice, corruption
Niall Ferguson just wrote " Complexity and Collapse", using Cole's painting to muse about the fate of American Empire.
http://laudyms.wordpress.com/2010/02/26/niall-ferguson-complexity-and-collapse/
http://www.isu.edu/~wattron/OLCole2c.html
Cole chose something from Byron to help describe this work:
There is the moral of all human tales;
'This but the same reheasal of the past
First Freedom, and then Glory: when that fails
Wealth, vice, corruption
Niall Ferguson just wrote " Complexity and Collapse", using Cole's painting to muse about the fate of American Empire.
http://laudyms.wordpress.com/2010/02/26/niall-ferguson-complexity-and-collapse/
Thursday, February 25, 2010
Steve Job's "Stay Hungry, Stay Foolish"
Overcome youself, reinvent yourself. stay hungry. stay foolish.
http://www.hrmbusiness.com/2009/03/stay-hungry-stay-foolish-steve-jobs.html
http://news-service.stanford.edu/news/2005/june15/jobs-061505.htm
Steve Jobs on Living a Purposeful Life
“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”
Steve Jobs on Resiliency in Joblessness and Loving What You Do
“I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.”
http://www.hrmbusiness.com/2009/03/stay-hungry-stay-foolish-steve-jobs.html
http://news-service.stanford.edu/news/2005/june15/jobs-061505.htm
Steve Jobs on Living a Purposeful Life
“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”
Steve Jobs on Resiliency in Joblessness and Loving What You Do
“I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.”
Wednesday, February 17, 2010
1937, 1974, 2002
Which path is this market going to follow? Is history any guide? Check out the graphs:
Monday, February 15, 2010
New Year Reading List
I. Miat42: 重复一下我对未来预测
http://web.wenxuecity.com/BBSView.php?SubID=tzlc&MsgID=208519
1）我一年前预测的欧元危机已经出现了，和我知道的美国对欧元的计划完全吻合。下一步哪？欧元在1到2年，或3年内彻底瓦解只是个时间问题。本来想出欧元概念就可以看出它必然灭亡的解决，因为欧洲国家经济文化差别太大，互相间无真正信任感，富国如德国法国等无法长期为希腊，西班牙，以及原苏联共和国的贫穷买单。也许短期内德国可能挽救希腊，长期只有一条路，分家。欧洲经过这次危机后，将确立地进入了长期分离的通道，这就是美国20年来梦寐以求的，当然现在不是梦了。
2）当时华盛顿邮报撰文分析为什么布什总统在面临自己的政治生涯和民意跌倒历史最低谷的时候，也就是自己可能被认为是美国有史以来最差总统的最后几个月，对外对内都表现出极其自信安详的不可思议的心理状态，让人们不可理解，在世间人们对他的诋毁声中，他几乎想圣者般的安详。难道他真的走火入魔了？当然不是，现在我们看到了，布什知道的不是我们百姓知道的。他知道金融危机是个有计划地行动，目的就是埋葬欧元和俄国， 然后引诱中国领导人上当性地发放万亿元经济刺激，把中国经济推向极端泡沫的不归路。布什心里有数，未来的人们会理解他对美国帝国地位的贡献，所以自信安详到了出脱的地步。你们理解了吗？
3）表面上看，世界上媒体最流行的语言就是：“美国国力衰退了，中国起来了”，这其实是个错到无法再错的思路。本质确是，美国的国力在表面的“衰退”中，策略性地增强了。为什么？对美国来说，未来真正的威胁不是有没有钱的问题，也不是有没有债务的问题，更不是有没有制造业的问题。真正的关键问题在于2个：A）能源和原材料资源（包括粮食）的全球控制。美国的两次伊拉克战争，阿富汗战争和未来可能以以色列为主的伊朗战争都围绕着能源控制。美国在世界人民在没有真正意识到最大的石油危机很快要到来，而且这意味着国与国生死存亡的危机的时候，先发制人地对这些未来仅存的石油基地布置了军事力量。争取面对能源危机的有利地位。明显地，目前美国基本已完成这个部署，等到伊朗战争完成后，美国和以色列就到达了全球绝对控制能源的垄断地位。中国当然看到了这个方向，过去几年努力地用外汇储备购买别国的油气产业，可惜由于美国为主的阻挠，中国可以买到的产业比较小，对中国这样一个大国不成比例。美国的垄断几乎已经完成，中国可能为时已晚了。B）美元世界储备结算货币的地位。欧元最终不可避免的瓦解，清除了唯一一个可能挑战美元地位的货币，奠定了美元未来50到100年的垄断地位。让世界有回到了30年前的状态，没有一个国家和个人，能够脱离美元。你不选美国，就意味着你的财富不安全。当然现在还没有到那个时候，但2年，3年，5年就到来了。这次欧元危机对美国内部的人来说，可能比二战胜利还意义重大，它奠定了美国未来的帝国地位可能进一步扩张，至少在这个世纪，还是美国的世纪。 你们千万不要被那些噪音所迷惑，什么债务危机，什么出口问题，等等，可能把你搞得人心惶惶。美国领导人和内部计划者根本不担心这些表面问题，他们清楚地知道，美国的命根子只有2条：A）能源的绝对控制（间接关系到粮食的定价和控制） B）美元地位的绝对稳固。
4）去掉了噪音后，我们清楚地看到了美国已经或接近完成了他的命根子问题A和B。中国对美国的“威胁”其实不是关键问题。但到了对付中国的时候了。 美国不是要把中国经济彻底搞垮。绝对不是，而是要进一步融入和控制（经济殖民）中国经济。如何进一步融入中国哪？当然不能在中国人牛气十足的时候，而是要等到中国经济进入脆弱期融入。90年代就是美国和欧洲对中国经济融入和殖民的10年，但没有达到美国的目的，比例还不够。所以现在美国和欧洲利益团体将联合起来对付中国。2010年后的中国将有很大的动荡。房价不一定马上跌下来，但2012年后就可能出事了。目前是预警期。
我的预测：1）这个DECADE（十年）的后半段，中国危机将来临，欧洲瓦解。
2）美国龙头老大地位重新确立。全球资金回流美国。2020年后将进入新的BOOM TIME.
3）不要相信那些无知的“美国债务论”的悲观预测，美国到了美元独大以后，这些都不是问题了。当一个国家自己印自己用的和全世界用的钱的时候，“债务”就是个虚概念。
4) 石油危机可能3，5年就来临。可能对世界某些国家地方相当不利。美国会利用它再次重组利益分配。
5）美国和世界都面临大的通货膨胀。美国的通胀将在可控范围，但中国，俄国，等别的国家就不那么运气了。我以前解释过了，美国的可控通胀就是脱了美元世界货币流通把滥发钱造成的通胀压力让别国稀释掉了
II. 润涛阎: 我的熬鹰经历
http://blog.wenxuecity.com/blogview.php?date=200806&postID=13003
"平原的苍鹰可以活到40岁。到那时它的喙变得又长又弯，翅膀也越加沉重飞翔起来无法自由自在。更要命的是它的爪子老化而无法有效地抓住猎物。而在山区的苍鹰有再生的机会。但要经过一个痛苦更新的过程。它首先要努力地飞到山顶悬崖处，在那里渡过漫长而又痛苦不吃不喝的5个月。先用力将又长又弯的喙击打岩石直到完全脱落，然后等候新的喙长出来；再用长出的新喙将指甲一根一根地拔掉；新指甲长出来后，再将羽毛一片一片地拔掉。待新的羽毛长出后，鹰又可以翱翔于广阔的天空，还可以再活30 年。而平原的苍鹰多数放弃再生的机会而等死了，也有少数远走高飞到高山峻岭去再生的".
http://web.wenxuecity.com/BBSView.php?SubID=tzlc&MsgID=208519
1）我一年前预测的欧元危机已经出现了，和我知道的美国对欧元的计划完全吻合。下一步哪？欧元在1到2年，或3年内彻底瓦解只是个时间问题。本来想出欧元概念就可以看出它必然灭亡的解决，因为欧洲国家经济文化差别太大，互相间无真正信任感，富国如德国法国等无法长期为希腊，西班牙，以及原苏联共和国的贫穷买单。也许短期内德国可能挽救希腊，长期只有一条路，分家。欧洲经过这次危机后，将确立地进入了长期分离的通道，这就是美国20年来梦寐以求的，当然现在不是梦了。
2）当时华盛顿邮报撰文分析为什么布什总统在面临自己的政治生涯和民意跌倒历史最低谷的时候，也就是自己可能被认为是美国有史以来最差总统的最后几个月，对外对内都表现出极其自信安详的不可思议的心理状态，让人们不可理解，在世间人们对他的诋毁声中，他几乎想圣者般的安详。难道他真的走火入魔了？当然不是，现在我们看到了，布什知道的不是我们百姓知道的。他知道金融危机是个有计划地行动，目的就是埋葬欧元和俄国， 然后引诱中国领导人上当性地发放万亿元经济刺激，把中国经济推向极端泡沫的不归路。布什心里有数，未来的人们会理解他对美国帝国地位的贡献，所以自信安详到了出脱的地步。你们理解了吗？
3）表面上看，世界上媒体最流行的语言就是：“美国国力衰退了，中国起来了”，这其实是个错到无法再错的思路。本质确是，美国的国力在表面的“衰退”中，策略性地增强了。为什么？对美国来说，未来真正的威胁不是有没有钱的问题，也不是有没有债务的问题，更不是有没有制造业的问题。真正的关键问题在于2个：A）能源和原材料资源（包括粮食）的全球控制。美国的两次伊拉克战争，阿富汗战争和未来可能以以色列为主的伊朗战争都围绕着能源控制。美国在世界人民在没有真正意识到最大的石油危机很快要到来，而且这意味着国与国生死存亡的危机的时候，先发制人地对这些未来仅存的石油基地布置了军事力量。争取面对能源危机的有利地位。明显地，目前美国基本已完成这个部署，等到伊朗战争完成后，美国和以色列就到达了全球绝对控制能源的垄断地位。中国当然看到了这个方向，过去几年努力地用外汇储备购买别国的油气产业，可惜由于美国为主的阻挠，中国可以买到的产业比较小，对中国这样一个大国不成比例。美国的垄断几乎已经完成，中国可能为时已晚了。B）美元世界储备结算货币的地位。欧元最终不可避免的瓦解，清除了唯一一个可能挑战美元地位的货币，奠定了美元未来50到100年的垄断地位。让世界有回到了30年前的状态，没有一个国家和个人，能够脱离美元。你不选美国，就意味着你的财富不安全。当然现在还没有到那个时候，但2年，3年，5年就到来了。这次欧元危机对美国内部的人来说，可能比二战胜利还意义重大，它奠定了美国未来的帝国地位可能进一步扩张，至少在这个世纪，还是美国的世纪。 你们千万不要被那些噪音所迷惑，什么债务危机，什么出口问题，等等，可能把你搞得人心惶惶。美国领导人和内部计划者根本不担心这些表面问题，他们清楚地知道，美国的命根子只有2条：A）能源的绝对控制（间接关系到粮食的定价和控制） B）美元地位的绝对稳固。
4）去掉了噪音后，我们清楚地看到了美国已经或接近完成了他的命根子问题A和B。中国对美国的“威胁”其实不是关键问题。但到了对付中国的时候了。 美国不是要把中国经济彻底搞垮。绝对不是，而是要进一步融入和控制（经济殖民）中国经济。如何进一步融入中国哪？当然不能在中国人牛气十足的时候，而是要等到中国经济进入脆弱期融入。90年代就是美国和欧洲对中国经济融入和殖民的10年，但没有达到美国的目的，比例还不够。所以现在美国和欧洲利益团体将联合起来对付中国。2010年后的中国将有很大的动荡。房价不一定马上跌下来，但2012年后就可能出事了。目前是预警期。
我的预测：1）这个DECADE（十年）的后半段，中国危机将来临，欧洲瓦解。
2）美国龙头老大地位重新确立。全球资金回流美国。2020年后将进入新的BOOM TIME.
3）不要相信那些无知的“美国债务论”的悲观预测，美国到了美元独大以后，这些都不是问题了。当一个国家自己印自己用的和全世界用的钱的时候，“债务”就是个虚概念。
4) 石油危机可能3，5年就来临。可能对世界某些国家地方相当不利。美国会利用它再次重组利益分配。
5）美国和世界都面临大的通货膨胀。美国的通胀将在可控范围，但中国，俄国，等别的国家就不那么运气了。我以前解释过了，美国的可控通胀就是脱了美元世界货币流通把滥发钱造成的通胀压力让别国稀释掉了
II. 润涛阎: 我的熬鹰经历
http://blog.wenxuecity.com/blogview.php?date=200806&postID=13003
"平原的苍鹰可以活到40岁。到那时它的喙变得又长又弯，翅膀也越加沉重飞翔起来无法自由自在。更要命的是它的爪子老化而无法有效地抓住猎物。而在山区的苍鹰有再生的机会。但要经过一个痛苦更新的过程。它首先要努力地飞到山顶悬崖处，在那里渡过漫长而又痛苦不吃不喝的5个月。先用力将又长又弯的喙击打岩石直到完全脱落，然后等候新的喙长出来；再用长出的新喙将指甲一根一根地拔掉；新指甲长出来后，再将羽毛一片一片地拔掉。待新的羽毛长出后，鹰又可以翱翔于广阔的天空，还可以再活30 年。而平原的苍鹰多数放弃再生的机会而等死了，也有少数远走高飞到高山峻岭去再生的".
Sunday, February 14, 2010
A Crisis every 5 to 7 years
J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected “every five to seven years.”
This is a very candid revelation. The question is why? How long would this pattern last until the whole system come crashing down?
A discussion of this is on The big Picture:
http://www.ritholtz.com/blog/2010/02/how-often-should-we-expect-a-financial-crisis/#comments
This is a very candid revelation. The question is why? How long would this pattern last until the whole system come crashing down?
A discussion of this is on The big Picture:
http://www.ritholtz.com/blog/2010/02/how-often-should-we-expect-a-financial-crisis/#comments
Tuesday, February 9, 2010
How GS played AIG like a fiddle:
ZeroHedge:
"Ever Increasing Parallels Between AIG And Greece... And The CDS Puppetmaster Behind It All"
David Fiderer's below piece, originally published on the Huffington Post, continues probing the topic of Goldman and AIG. For all intents and purposes the debate has been pretty much exhausted and if there was a functioning legal system, Goldman would have been forced long ago to pay back the cash it received from ML-3 (which in itself should have been long unwound now that plans to liquidate AIG have been scrapped) and to have the original arrangement reestablished (including the profitless unwind of AIG CDS the firm made improper billions on, by trading on non-public, pre-March 2009, information), and now that AIG is solvent courtesy of the government, so too its counterparties can continue experiencing some, albeit marginal, risk, instead of enjoying the possession of cold hard cash. Oh, and Tim Geithner would be facing civil and criminal charges.
Yet as we look forward, we ask, who now determines the variation margin on Greek CDS (and Portugal, and Dubai, and Spain, and, pretty soon, Japan and the US), the associated recovery rate, and how much collateral should be posted by sellers of Greek protection? If Greek banks, as the rumors goes, indeed sold Greek protection, and, as the rumor also goes, Goldman was the bulk buyer, either in prop or flow capacity, it is precisely Goldman, just like in the AIG case, that can now dictate what the collateral margin that Greek counterparties, and by extension the very nation of Greece, have to post on billions of dollars of Greek insurance. Let's say Goldman thinks Greece's debt recovery is 75 cents and the CDS should be trading at 700 bps, instead of the "prevailing" consensus of a 90 recovery and 450 spread, then it will very likely get its way when demanding extra capital to cover potential shortfalls, since Goldman itself has been instrumental in covering up Greece's catastrophic financial state and continues to be a critical factor in any future refinancing efforts on behalf of Greece. Obviously this incremental margin, which only Goldman will ever see, even if the CDS was purchased on a flow basis, will never be downstreamed on behalf of its clients, and instead will be used to [buy futuresbuy steepenersprepay 2011 bonusesbuy more treasuries for the BONY $60 billion Treasury rainy day fund].
In essence, through its conflict of interest, its unshakable negotiating position, and its facility to determine collateral requirements and variation margin, Goldman can expand its previous position of strength from dictating merely AIG and Federal Reserve decision making, to one which determines sovereign policy! This is unmitigated lunacy and a recipe for financial collapse at the global level.
This is yet another AIG in the making, with Goldman this time likely threatening to accelerate the collapse not merely of the US financial system, but of the global one, in order to attain virtually infinite negotiating leverage. Of course, the world will not allow a Greece-initiated domino, allowing Goldman to call everyone's bluff once again.
As the amount of gross and net sovereign CDS notional is constantly increasing, as more and more hedge funds join the shorting fray with Goldman as the intermediate (just like in AIG), it behooves any remaining regulators and any sensible Federal Reserve parties to supervise precisely what the terms of Goldman's collateral margins with various sovereign debt sellers are, especially when it pertains to increasingly distressed CDS, where a liquidity squeeze, again as in the AIG case, would have tremendous adverse downstream consequences. If indeed Goldman's counterparties are the banks of respective countries, then the parallels with AIG are nearly complete. And we all know what happened then.
Furthermore, we are now convinced that Goldman will join the government in facilitating the engineered market swoon with a bifurcated goal: while the Treasury will take advantage of a sell off to offload as many UST as it can in the rush for safety (which could backfire now that Gold is increasingly seen as a dollar alternative), Goldman (with or without Warren Buffett - it depends on what the actuarial tables say) will jettison its own stock price in order to go private in an increasingly hostile world.
We will discuss all these issue further in the near future, and in the meantime David Fiderer provides yet another nail in the AIG-Goldman coffin.
The Times Story on Goldman's Role In AIG's Downfall Is More Damning When Placed In Context
Placed in a broader context, the front page story The New York Times, is even more damning of Goldman Sachs than readers might realize. Goldman played an active role in the destruction of AIG. During Hank Paulson's tenure as the firm's CEO, Goldman engaged in a series of sham transactions designed to give the false impression that it was buying credit default swaps as an instrument for risk management. In fact, it acquired those swaps in order to double down on bets against collateralized debt obligations, or CDOs, which it knew to be fatally flawed. In the latter part of 2008, Paulson and his proxies maneuvered AIG into a liquidity crisis in order to protect Goldman at the expense of the U.S. taxpayer.
To appreciate how the Times piece fits into a larger picture, you need to understand why these CDOs were so obviously toxic.
The Fatal Flaw Of These CDOs
AIG went bust because it sold credit default swaps for CDOs stuffed with slices of subprime mortgage bonds. Those subprime mortgage bonds all had remarkably similar capitalization structures, divided among different classes, or tranches, of seniority. The top 80% in seniority had a credit rating of AAA. The bottom 10% was rated A and below.
The bottom 10% was especially vulnerable because of something that was an open secret at the time. The subprime mortgage market was riddled with fraud. So the data used by Goldman and others to structure these bond deals was highly suspect.
Who bought the bottom 10% of these subprime bond deals? A lot of those lower-rated tranches were not sold directly to investors. Rather they were stuffed into CDOs. This point is critical. These CDOs were not comprised of mortgage loans, or even slices of mortgage loans. Rather, they held deeply subordinated claims on risky subprime mortgages. Because these tranches were the last ones to get repaid, it was easy to foresee, at the time these CDOs were put together, that investors would lose significant amounts of principal.
People marketing these CDOs claimed that they were safe, because the risks were diversified, and because of excess collateral cover. But that line of reasoning never made any sense. The lower rated tranches were like the passengers in steerage on the Titanic. Once the ship starting sinking, those passengers were the last ones given access to the lifeboats. As soon as the housing market started sinking, those lower-rated tranches would be the last ones given access to any foreclosure proceeds.
AIG thought it was selling credit protection for AAA risk. And in fact, these CDOs, like subprime mortgage bonds, were tranched in a way that made them top heavy with AAA ratings. Consider, for example, for Adirondack 2005-2, a CDO arranged by Goldman, which "sold" almost all of the AAA tranche Societe Generale, which in turn bought credit protection from AIG. Of Adirondack 2's $1.55 billion capitalization, $1.42 billion, or 91%, was rated AAA.
So how could anyone get comfortable with the notion that 90% of a portfolio, heavily weighted with deeply subordinated claims on risky mortgages that were likely to be infected with fraud, represented a AAA-quality credit risk? It's a question for which there is no good answer. If anyone looking at these deals had done proper due diligence and done a common-sense analysis of the structural risks, he would have realized three things: 1. The original credit ratings for lower-rated slices of these subprime bond deals were meaningless;2. The original credit ratings on these CDOs were even more meaningless; and3. The CDOs were destined in fail in a big and obvious way.
Goldman's Malign Intent
Obviously, the people at AIG never figured out what was going on until it was too late. But there's a mountain of circumstantial evidence that the people at Goldman had a keen grasp of the fatal flaws of these CDOs, which they structured. The Times piece is a major addition to that mountain of evidence:
[Former AIG executive Alan] Frost cut many of his deals with two Goldman traders, Jonathan Egol and Ram Sundaram, who had negative views of the housing market. They had made A.I.G. a central part of some of their trading strategies.
Mr. Egol structured a group of deals -- known as Abacus -- so that Goldman could benefit from a housing collapse. Many of them were actually packages of A.I.G. insurance written against mortgage bonds, indicating that Mr. Egol and Goldman believed that A.I.G. would have to make large payments if the housing market ran aground. About $5.5 billion of Mr. Egol's deals still sat on A.I.G.'s books when the insurer was bailed out.
"Al probably did not know it, but he was working with the bears of Goldman," a former Goldman salesman, who requested anonymity so he would not jeopardize his business relationships, said of Mr. Frost. "He was signing A.I.G. up to insure trades made by people with really very negative views" of the housing market.
As further evidence that Goldman used AIG to profit by shorting CDOs, rather than to manage its preexisting risk exposure:
[N]egotiating with Goldman to void the A.I.G. insurance was especially difficult, Federal Reserve Board documents show, because the firm did not own the underlying bonds. As a result, Goldman had little incentive to compromise.
Goldman's seven Abacus deals [Abacus 2004-1, Abacus 2004-2, Abacus 2005-2, Abacus 2005-3, Abacus 2005-CB1, Abacus 2006-NS1, Abacus 2007-18] were unique among all the CDOs in AIG's portfolio. For all the other deals, the collateral manager, the entity that oversaw and managed the CDO after closing, was entirely independent from the bank that originally arranged and structured the transaction. For all the Abacus deals, Goldman acted both as both the arranging bank and the collateral manager. This is no small technicality. In other Abacus deals, Abacus 2006-13 and Abacus 2006-17, Goldman used its "sole discretion" to retire lower rated CDO tranches without regard to seniority. This approach, under documentation drafted by Goldman, upends the entire premise of structured finance.
Most importantly, the government never purchased the Abacus deals when it bought $62.1 billion other CDOs at par, back in November 2008. Why didn't the parties feel a need to take the Abacus deals off of AIG's balance sheet? It's an extremely important question, for which we will not have an adequate answer until we see the actual documentation, specifically: the offering memoranda, the performance reports and swap agreements.
Hiding Behind Societe Generale
The Times story also suggests that Goldman used Societe Generale as a front, to conceal from Frost and others the size of their cumulative bet against these CDOs.
Mr. Sundaram's trades represented another large part of Goldman's business with A.I.G. According to five former Goldman employees, Mr. Sundaram used financing from other banks like Societe Generale and Calyon to purchase less risky mortgage securities from competitors like Merrill Lynch and then insure the assets with A.I.G. -- helping fatten the mortgage pipeline that would prove so harmful to Wall Street, investors and taxpayers. In October 2008, just after A.I.G. collapsed, Goldman made Mr. Sundaram a partner.
Through Societe Generale, Goldman was also able to buy more insurance on mortgage securities from A.I.G., according to a former A.I.G. executive with direct knowledge of the deals. A spokesman for Societe Generale declined to comment.
It is unclear how much Goldman bought through the French bank, but A.I.G. documents show that Goldman was involved in pricing half of Societe Generale's $18.6 billion in trades with A.I.G. and that the insurer's executives believed that Goldman pressed Societe Generale to also demand payments...On Nov. 1, 2007, for example, an e-mail message from Mr. Cassano, the head of A.I.G. Financial Products, to Elias Habayeb, an A.I.G. accounting executive, said that a payment demand from Societe Generale had been "spurred by GS calling them."
As noted earlier in the story:
In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Societe Generale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.
See here for an analysis of the ten-figure purchases and sales between Goldman and SG.
The AAA Pyramid Scheme Embedded Inside AIG
The Times reports that Goldman tailored the terms of the swaps to exploit these defective credit ratings:
The terms, described by several A.I.G. trading partners, stated that A.I.G. would post payments under two or three circumstances: if mortgage bonds were downgraded, if they were deemed to have lost value, or if A.I.G.'s own credit rating was downgraded. If all of those things happened, A.I.G. would have to make even larger payments.
Here's an example of how terminology for a general news readership can lead to confusion. In the context of the story, the Times seems to be referencing the ratings of the CDOs, not the subprime bonds held by the CDOs. The distinction is critical because almost all subprime bonds were downgraded in 2007, whereas most of these CDOs were not downgraded prior to May 2008, when they received minor downgrades.
Most importantly, almost all these CDO tranches were rated AAA during November 2007, when, as the Times reports, Goldman was demanding billions in cash collateral. There is no way to reconcile a 40% diminution of value, which Goldman repeatedly asserted, with a AAA rating. It's like saying 2 + 2 = 11. In effect, Goldman was admitting that the CDOs' ratings were a joke.
It was an especially cruel joke on AIG and on the American taxpayer. If the ratings agencies had severely downgraded the CDOs in 2007 or earlier in 2008, AIG's day of reckoning would have come sooner. Instead, that day coincided with Lehman's bankruptcy. The ratings agencies announced their major downgrades of AIG after the close of business on September 15, 2008. Those downgrades triggered cash collateral calls and on AIG on September 16, 2008, the same day that a money market fund, which wrote down Lehman paper, broke the buck and triggered widespread panic in the money markets.
As noted before, the timing of the CDO downgrades looks suspicious. Eric Kolchinsky, a former managing director at Moody's, has alleged that the ratings agency deliberately and deceitfully delayed the announcements of downgrades of various CDOs. The House Oversight Committee is still investigating the matter.
Why Goldman Pressured AIG to Hand Over Cash
The thrust of the front-page Times article was that Goldman aggressively pressured AIG to hand over cash collateral beginning in 2007, Goldman asserted, because, the CDOs "were deemed to have lost value." But negotiations were always at an impasse, for an obvious reason. There was no way to settle on agreed-upon "market value" for the CDOs. These securities weren't bought or sold, like Treasuries or shares of IBM. Nor was there any market benchmark upon which the CDOs could be valued. The only way to set a price, according to auditors for AIG and the Federal Reserve, was according to internal valuation models.
The Times reports:
[D]ocuments show there were unusual aspects to the deals with Goldman. The bank resisted, for example, letting third parties value the securities as its contracts with A.I.G. required. And Goldman based some payment demands on lower-rated bonds that A.I.G.'s insurance did not even cover. A November 2008 analysis by BlackRock, a leading asset management firm, noted that Goldman's valuations of the securities that A.I.G. insured were "consistently lower than third-party prices."
The Times reporting suggests that Goldman wanted to control the dispute by using a nominally independent third party, PricewaterhouseCoopers, which had shifted into Goldman's camp:
Adding to the pressure on A.I.G., [David] Viniar, Goldman's chief financial officer, advised the insurer in the fall of 2007 that because the two companies shared the same auditor, PricewaterhouseCoopers, A.I.G. should accept Goldman's valuations, according to a person with knowledge of the discussions. Goldman declined to comment on this exchange.
Pricewaterhouse had supported A.I.G.'s approach to valuing the securities throughout 2007, documents show. But at the end of 2007, the auditor began demanding that A.I.G. provide greater disclosure on the risks in the credit insurance it had written. Pricewaterhouse was expressing concern about the dispute.
The insurer disclosed in year-end regulatory filings that its auditor had found a "material weakness" in financial reporting related to valuations of the insurance, a troubling sign for investors.
Of course, a highly plausible explanation is that Pricewaterhouse, like AIG, had assumed that the CDOs' AAA ratings were credible, until Goldman set them straight. But again, this gets back to the issue of whether Goldman knew these deals were toxic from the start. Goldman opposed proposals that would have enabled it to make its case to others:
When A.I.G. asked Goldman to submit the dispute to a panel of independent firms, Goldman resisted, internal e-mail messages show. In a March 7, 2008, phone call, Mr. Cassano discussed surveying other dealers to gauge prices with Michael Sherwood, Goldman's vice chairman. At that time, Goldman calculated that A.I.G. owed it $4.6 billion, on top of the $2 billion already paid. A.I.G. contended it only owed an additional $1.2 billion.
Mr. Sherwood said he did not want to ask other firms to value the securities because "it would be 'embarrassing' if we brought the market into our disagreement," according to an e-mail message from Mr. Cassano that described the call.
The Goldman spokesman disputed this account, saying instead that Goldman was willing to consult third parties but could not agree with A.I.G. on the methodology.
The dispute would have been more than embarrassing for Goldman. It would have shed light on the fatal flaws of these CDOs, which, at the time, were not known to the broader financial community. These flaws were not known because so few parties took a serious look at the credit risk, which was largely assumed by a handful of companies: AIG Financial Products (under a guarantee by its parent) and the monoline insurance companies. In early 2008, the monolines started settling their contingent CDO obligations for a fraction of par. As noted earlier, they were able to do so because they had the backing of their regulators. AIGFP, which was unregulated, was on its own. Ever prescient, Goldman never bought credit protection from the monolines.
Goldman did not "own" the cash it held. Rather, the cash represented margin that could, in theory, be returned to AIG if the CDOs' value rose again. Of course, in reality, if you hold the cash you have the upper hand in any negotiation. Also, the way structured finance deals work, if early credit losses are worse than expected, the diminution of value is permanent. The other borrowers in the pool, who never pay more than 100% of their principal and interest, won't make up the difference. Finally, as noted before, the cash collateral for derivatives, like credit default swaps, is very different than the cash collateral for a loan or other obligation. Goldman's claims had preferred treatment, another reason why, once it got its hands on the cash, it held the upper hand in any negotiation.
How Hank Paulson Used Proxies to Rig the Eventual Outcome
One thing is as certain as death and taxes. During 2007 and 2008 Edward Liddy was repeatedly briefed, at length, by Pricewaterhouse and by senior management at Goldman, about the firm's CDO exposure with AIG and about the valuation dispute. If the matter was so important that Goldman's CFO and vice chairman took an active role in negotiating the circumstances for simply attempting to resolve the dispute, then Ed Liddy thoroughly understood the matter and the stakes that were involved. This will all come out when Liddy's briefing books, and other related documentation and correspondence, are obtained by the House Oversight Committee, which is investigating this matter.
Liddy was the Chairman of the Audit Committee on Goldman's Board of Directors. Every audit committee of the board of every publicly held financial institution is briefed in depth about risk concentrations at the firm. There is no way that Pricewaterhouse would leave itself exposed by not thoroughly briefing Liddy about these matters. While it may be a part-time obligation, being Chair of the Audit Committee at Goldman is a very important job. And during one all-important week, Liddy did some moonlighting.
A few minutes after he spoke with Goldman's CEO, Lloyd Blankfein, on September 16, 2008, and shortly after he first considered a government bailout of AIG, Hank Paulson unilaterally decided that Liddy should immediately become AIG's new CEO. Unlike Liddy, AIG's CEO at the time, Bob Willumstad, had relatively clean hands in the CDO saga. Willumstad had been part of AIG's management for about three months, and had joined the AIG board in April 2006, when most of Goldman's toxic CDOs had already been insured by AIG.
That same afternoon, Liddy was on a plane to New York, to start at AIG the next day. Liddy was officially made CEO and Chairman of AIG on September 18. And of course, he immediately immersed himself into negotiating the terms of the government bailout facility, which he signed on September 22. Only on the following day, on September 23, 2008, that Liddy chose to make his resignation from Goldman's board effective.
That was also the week when Paulson spoke to Blankfein 24 times by phone. For further clarification at to why it an innocent explanation of all this is beyond any realm of plausibility, see this earlier piece.
"Who the heck is Dan Jester?" asked Times Opinionator columnist William D. Cohen, who answered his own question last week. Jester was the former Goldman deputy CFO who was plucked by Treasury Secretary Paulson in the summer of 2008 to act as his "contractor," i.e. someone for whom usual formalities pertaining to government accountability would not apply. But Tim Geithner made more calls to Jester, during the fall of 2008, than to any other bona fide Treasury employee, with the exception of Hank Paulson. Cohen writes:
One former A.I.G. executive told me that Jester was calling many of the shots at the insurer between mid-September, when the New York Fed decided to go ahead with the bailout, and the end of October 2008, when Jester was replaced at A.I.G. by another Treasury official because, according to The New York Times, of Jester's "stockholdings in Goldman Sachs." "He was Paulson's man," the former A.I.G. executive told me. "He was the Treasury's representative, and he was at every meeting" during that mid-September weekend.
One of the shots being called during that period was the decision for AIG to hand over $18.7 billion in scarce cash to the CDO counterparties in exchange for zero concessions.
At one point, on the following Monday, Sept. 15, as the A.I.G. situation was spiraling out of control, Jester phoned the three major credit-rating agencies and asked them to hold off from downgrading A.I.G. any further, since that additional downgrade would force the insurer to make even more collateral payments on the spot to counterparties, further depleting its dwindling cash. Jester's efforts weren't persuasive. "It was pathetic," the former A.I.G. executive told me.
There are many people who do not know how to speak forcefully and effectively to the rating agencies, but that group would not include a former deputy CFO from Goldman. It would be somewhat analogous to Katie Couric getting flustered when asked to read a teleprompter. There is no way that the agencies could have been aware of AIG's difficulties and not have been equally aware of their own role in contributing to those difficulties. Nor could they have been unaware that a downgrade would trigger AIG's liquidity crisis. On the same day that the markets were absorbing the shock from the Lehman bankruptcy, if the government asks the agencies to wait just a bit longer to see how the evolving situation plays out with regard to delicate negotiations for a private bank deal to provide new liquidity for AIG, the agencies would ordinarily be inclined to pause for a bit.
For those and other reasons, I believe Jester's feeble performance was deliberate, that the endgame was to trigger a liquidity crisis at AIG in order to force a government bailout, which would be a backdoor bailout of Goldman. The House Oversight Committee should review Jester's public and private emails and phone records to get more clarity on this point.
As Paulson wrote in his new book, "Much of my work was done on the phone, but there is no official record of many of the calls. My phone log has many inaccuracies and omissions." Why would the electronic records of his phone calls be inaccurate, or have any omissions? It's the sort of disclaimer Dick Cheney would give.
"Ever Increasing Parallels Between AIG And Greece... And The CDS Puppetmaster Behind It All"
David Fiderer's below piece, originally published on the Huffington Post, continues probing the topic of Goldman and AIG. For all intents and purposes the debate has been pretty much exhausted and if there was a functioning legal system, Goldman would have been forced long ago to pay back the cash it received from ML-3 (which in itself should have been long unwound now that plans to liquidate AIG have been scrapped) and to have the original arrangement reestablished (including the profitless unwind of AIG CDS the firm made improper billions on, by trading on non-public, pre-March 2009, information), and now that AIG is solvent courtesy of the government, so too its counterparties can continue experiencing some, albeit marginal, risk, instead of enjoying the possession of cold hard cash. Oh, and Tim Geithner would be facing civil and criminal charges.
Yet as we look forward, we ask, who now determines the variation margin on Greek CDS (and Portugal, and Dubai, and Spain, and, pretty soon, Japan and the US), the associated recovery rate, and how much collateral should be posted by sellers of Greek protection? If Greek banks, as the rumors goes, indeed sold Greek protection, and, as the rumor also goes, Goldman was the bulk buyer, either in prop or flow capacity, it is precisely Goldman, just like in the AIG case, that can now dictate what the collateral margin that Greek counterparties, and by extension the very nation of Greece, have to post on billions of dollars of Greek insurance. Let's say Goldman thinks Greece's debt recovery is 75 cents and the CDS should be trading at 700 bps, instead of the "prevailing" consensus of a 90 recovery and 450 spread, then it will very likely get its way when demanding extra capital to cover potential shortfalls, since Goldman itself has been instrumental in covering up Greece's catastrophic financial state and continues to be a critical factor in any future refinancing efforts on behalf of Greece. Obviously this incremental margin, which only Goldman will ever see, even if the CDS was purchased on a flow basis, will never be downstreamed on behalf of its clients, and instead will be used to [buy futuresbuy steepenersprepay 2011 bonusesbuy more treasuries for the BONY $60 billion Treasury rainy day fund].
In essence, through its conflict of interest, its unshakable negotiating position, and its facility to determine collateral requirements and variation margin, Goldman can expand its previous position of strength from dictating merely AIG and Federal Reserve decision making, to one which determines sovereign policy! This is unmitigated lunacy and a recipe for financial collapse at the global level.
This is yet another AIG in the making, with Goldman this time likely threatening to accelerate the collapse not merely of the US financial system, but of the global one, in order to attain virtually infinite negotiating leverage. Of course, the world will not allow a Greece-initiated domino, allowing Goldman to call everyone's bluff once again.
As the amount of gross and net sovereign CDS notional is constantly increasing, as more and more hedge funds join the shorting fray with Goldman as the intermediate (just like in AIG), it behooves any remaining regulators and any sensible Federal Reserve parties to supervise precisely what the terms of Goldman's collateral margins with various sovereign debt sellers are, especially when it pertains to increasingly distressed CDS, where a liquidity squeeze, again as in the AIG case, would have tremendous adverse downstream consequences. If indeed Goldman's counterparties are the banks of respective countries, then the parallels with AIG are nearly complete. And we all know what happened then.
Furthermore, we are now convinced that Goldman will join the government in facilitating the engineered market swoon with a bifurcated goal: while the Treasury will take advantage of a sell off to offload as many UST as it can in the rush for safety (which could backfire now that Gold is increasingly seen as a dollar alternative), Goldman (with or without Warren Buffett - it depends on what the actuarial tables say) will jettison its own stock price in order to go private in an increasingly hostile world.
We will discuss all these issue further in the near future, and in the meantime David Fiderer provides yet another nail in the AIG-Goldman coffin.
The Times Story on Goldman's Role In AIG's Downfall Is More Damning When Placed In Context
Placed in a broader context, the front page story The New York Times, is even more damning of Goldman Sachs than readers might realize. Goldman played an active role in the destruction of AIG. During Hank Paulson's tenure as the firm's CEO, Goldman engaged in a series of sham transactions designed to give the false impression that it was buying credit default swaps as an instrument for risk management. In fact, it acquired those swaps in order to double down on bets against collateralized debt obligations, or CDOs, which it knew to be fatally flawed. In the latter part of 2008, Paulson and his proxies maneuvered AIG into a liquidity crisis in order to protect Goldman at the expense of the U.S. taxpayer.
To appreciate how the Times piece fits into a larger picture, you need to understand why these CDOs were so obviously toxic.
The Fatal Flaw Of These CDOs
AIG went bust because it sold credit default swaps for CDOs stuffed with slices of subprime mortgage bonds. Those subprime mortgage bonds all had remarkably similar capitalization structures, divided among different classes, or tranches, of seniority. The top 80% in seniority had a credit rating of AAA. The bottom 10% was rated A and below.
The bottom 10% was especially vulnerable because of something that was an open secret at the time. The subprime mortgage market was riddled with fraud. So the data used by Goldman and others to structure these bond deals was highly suspect.
Who bought the bottom 10% of these subprime bond deals? A lot of those lower-rated tranches were not sold directly to investors. Rather they were stuffed into CDOs. This point is critical. These CDOs were not comprised of mortgage loans, or even slices of mortgage loans. Rather, they held deeply subordinated claims on risky subprime mortgages. Because these tranches were the last ones to get repaid, it was easy to foresee, at the time these CDOs were put together, that investors would lose significant amounts of principal.
People marketing these CDOs claimed that they were safe, because the risks were diversified, and because of excess collateral cover. But that line of reasoning never made any sense. The lower rated tranches were like the passengers in steerage on the Titanic. Once the ship starting sinking, those passengers were the last ones given access to the lifeboats. As soon as the housing market started sinking, those lower-rated tranches would be the last ones given access to any foreclosure proceeds.
AIG thought it was selling credit protection for AAA risk. And in fact, these CDOs, like subprime mortgage bonds, were tranched in a way that made them top heavy with AAA ratings. Consider, for example, for Adirondack 2005-2, a CDO arranged by Goldman, which "sold" almost all of the AAA tranche Societe Generale, which in turn bought credit protection from AIG. Of Adirondack 2's $1.55 billion capitalization, $1.42 billion, or 91%, was rated AAA.
So how could anyone get comfortable with the notion that 90% of a portfolio, heavily weighted with deeply subordinated claims on risky mortgages that were likely to be infected with fraud, represented a AAA-quality credit risk? It's a question for which there is no good answer. If anyone looking at these deals had done proper due diligence and done a common-sense analysis of the structural risks, he would have realized three things: 1. The original credit ratings for lower-rated slices of these subprime bond deals were meaningless;2. The original credit ratings on these CDOs were even more meaningless; and3. The CDOs were destined in fail in a big and obvious way.
Goldman's Malign Intent
Obviously, the people at AIG never figured out what was going on until it was too late. But there's a mountain of circumstantial evidence that the people at Goldman had a keen grasp of the fatal flaws of these CDOs, which they structured. The Times piece is a major addition to that mountain of evidence:
[Former AIG executive Alan] Frost cut many of his deals with two Goldman traders, Jonathan Egol and Ram Sundaram, who had negative views of the housing market. They had made A.I.G. a central part of some of their trading strategies.
Mr. Egol structured a group of deals -- known as Abacus -- so that Goldman could benefit from a housing collapse. Many of them were actually packages of A.I.G. insurance written against mortgage bonds, indicating that Mr. Egol and Goldman believed that A.I.G. would have to make large payments if the housing market ran aground. About $5.5 billion of Mr. Egol's deals still sat on A.I.G.'s books when the insurer was bailed out.
"Al probably did not know it, but he was working with the bears of Goldman," a former Goldman salesman, who requested anonymity so he would not jeopardize his business relationships, said of Mr. Frost. "He was signing A.I.G. up to insure trades made by people with really very negative views" of the housing market.
As further evidence that Goldman used AIG to profit by shorting CDOs, rather than to manage its preexisting risk exposure:
[N]egotiating with Goldman to void the A.I.G. insurance was especially difficult, Federal Reserve Board documents show, because the firm did not own the underlying bonds. As a result, Goldman had little incentive to compromise.
Goldman's seven Abacus deals [Abacus 2004-1, Abacus 2004-2, Abacus 2005-2, Abacus 2005-3, Abacus 2005-CB1, Abacus 2006-NS1, Abacus 2007-18] were unique among all the CDOs in AIG's portfolio. For all the other deals, the collateral manager, the entity that oversaw and managed the CDO after closing, was entirely independent from the bank that originally arranged and structured the transaction. For all the Abacus deals, Goldman acted both as both the arranging bank and the collateral manager. This is no small technicality. In other Abacus deals, Abacus 2006-13 and Abacus 2006-17, Goldman used its "sole discretion" to retire lower rated CDO tranches without regard to seniority. This approach, under documentation drafted by Goldman, upends the entire premise of structured finance.
Most importantly, the government never purchased the Abacus deals when it bought $62.1 billion other CDOs at par, back in November 2008. Why didn't the parties feel a need to take the Abacus deals off of AIG's balance sheet? It's an extremely important question, for which we will not have an adequate answer until we see the actual documentation, specifically: the offering memoranda, the performance reports and swap agreements.
Hiding Behind Societe Generale
The Times story also suggests that Goldman used Societe Generale as a front, to conceal from Frost and others the size of their cumulative bet against these CDOs.
Mr. Sundaram's trades represented another large part of Goldman's business with A.I.G. According to five former Goldman employees, Mr. Sundaram used financing from other banks like Societe Generale and Calyon to purchase less risky mortgage securities from competitors like Merrill Lynch and then insure the assets with A.I.G. -- helping fatten the mortgage pipeline that would prove so harmful to Wall Street, investors and taxpayers. In October 2008, just after A.I.G. collapsed, Goldman made Mr. Sundaram a partner.
Through Societe Generale, Goldman was also able to buy more insurance on mortgage securities from A.I.G., according to a former A.I.G. executive with direct knowledge of the deals. A spokesman for Societe Generale declined to comment.
It is unclear how much Goldman bought through the French bank, but A.I.G. documents show that Goldman was involved in pricing half of Societe Generale's $18.6 billion in trades with A.I.G. and that the insurer's executives believed that Goldman pressed Societe Generale to also demand payments...On Nov. 1, 2007, for example, an e-mail message from Mr. Cassano, the head of A.I.G. Financial Products, to Elias Habayeb, an A.I.G. accounting executive, said that a payment demand from Societe Generale had been "spurred by GS calling them."
As noted earlier in the story:
In addition, according to two people with knowledge of the positions, a portion of the $11 billion in taxpayer money that went to Societe Generale, a French bank that traded with A.I.G., was subsequently transferred to Goldman under a deal the two banks had struck.
See here for an analysis of the ten-figure purchases and sales between Goldman and SG.
The AAA Pyramid Scheme Embedded Inside AIG
The Times reports that Goldman tailored the terms of the swaps to exploit these defective credit ratings:
The terms, described by several A.I.G. trading partners, stated that A.I.G. would post payments under two or three circumstances: if mortgage bonds were downgraded, if they were deemed to have lost value, or if A.I.G.'s own credit rating was downgraded. If all of those things happened, A.I.G. would have to make even larger payments.
Here's an example of how terminology for a general news readership can lead to confusion. In the context of the story, the Times seems to be referencing the ratings of the CDOs, not the subprime bonds held by the CDOs. The distinction is critical because almost all subprime bonds were downgraded in 2007, whereas most of these CDOs were not downgraded prior to May 2008, when they received minor downgrades.
Most importantly, almost all these CDO tranches were rated AAA during November 2007, when, as the Times reports, Goldman was demanding billions in cash collateral. There is no way to reconcile a 40% diminution of value, which Goldman repeatedly asserted, with a AAA rating. It's like saying 2 + 2 = 11. In effect, Goldman was admitting that the CDOs' ratings were a joke.
It was an especially cruel joke on AIG and on the American taxpayer. If the ratings agencies had severely downgraded the CDOs in 2007 or earlier in 2008, AIG's day of reckoning would have come sooner. Instead, that day coincided with Lehman's bankruptcy. The ratings agencies announced their major downgrades of AIG after the close of business on September 15, 2008. Those downgrades triggered cash collateral calls and on AIG on September 16, 2008, the same day that a money market fund, which wrote down Lehman paper, broke the buck and triggered widespread panic in the money markets.
As noted before, the timing of the CDO downgrades looks suspicious. Eric Kolchinsky, a former managing director at Moody's, has alleged that the ratings agency deliberately and deceitfully delayed the announcements of downgrades of various CDOs. The House Oversight Committee is still investigating the matter.
Why Goldman Pressured AIG to Hand Over Cash
The thrust of the front-page Times article was that Goldman aggressively pressured AIG to hand over cash collateral beginning in 2007, Goldman asserted, because, the CDOs "were deemed to have lost value." But negotiations were always at an impasse, for an obvious reason. There was no way to settle on agreed-upon "market value" for the CDOs. These securities weren't bought or sold, like Treasuries or shares of IBM. Nor was there any market benchmark upon which the CDOs could be valued. The only way to set a price, according to auditors for AIG and the Federal Reserve, was according to internal valuation models.
The Times reports:
[D]ocuments show there were unusual aspects to the deals with Goldman. The bank resisted, for example, letting third parties value the securities as its contracts with A.I.G. required. And Goldman based some payment demands on lower-rated bonds that A.I.G.'s insurance did not even cover. A November 2008 analysis by BlackRock, a leading asset management firm, noted that Goldman's valuations of the securities that A.I.G. insured were "consistently lower than third-party prices."
The Times reporting suggests that Goldman wanted to control the dispute by using a nominally independent third party, PricewaterhouseCoopers, which had shifted into Goldman's camp:
Adding to the pressure on A.I.G., [David] Viniar, Goldman's chief financial officer, advised the insurer in the fall of 2007 that because the two companies shared the same auditor, PricewaterhouseCoopers, A.I.G. should accept Goldman's valuations, according to a person with knowledge of the discussions. Goldman declined to comment on this exchange.
Pricewaterhouse had supported A.I.G.'s approach to valuing the securities throughout 2007, documents show. But at the end of 2007, the auditor began demanding that A.I.G. provide greater disclosure on the risks in the credit insurance it had written. Pricewaterhouse was expressing concern about the dispute.
The insurer disclosed in year-end regulatory filings that its auditor had found a "material weakness" in financial reporting related to valuations of the insurance, a troubling sign for investors.
Of course, a highly plausible explanation is that Pricewaterhouse, like AIG, had assumed that the CDOs' AAA ratings were credible, until Goldman set them straight. But again, this gets back to the issue of whether Goldman knew these deals were toxic from the start. Goldman opposed proposals that would have enabled it to make its case to others:
When A.I.G. asked Goldman to submit the dispute to a panel of independent firms, Goldman resisted, internal e-mail messages show. In a March 7, 2008, phone call, Mr. Cassano discussed surveying other dealers to gauge prices with Michael Sherwood, Goldman's vice chairman. At that time, Goldman calculated that A.I.G. owed it $4.6 billion, on top of the $2 billion already paid. A.I.G. contended it only owed an additional $1.2 billion.
Mr. Sherwood said he did not want to ask other firms to value the securities because "it would be 'embarrassing' if we brought the market into our disagreement," according to an e-mail message from Mr. Cassano that described the call.
The Goldman spokesman disputed this account, saying instead that Goldman was willing to consult third parties but could not agree with A.I.G. on the methodology.
The dispute would have been more than embarrassing for Goldman. It would have shed light on the fatal flaws of these CDOs, which, at the time, were not known to the broader financial community. These flaws were not known because so few parties took a serious look at the credit risk, which was largely assumed by a handful of companies: AIG Financial Products (under a guarantee by its parent) and the monoline insurance companies. In early 2008, the monolines started settling their contingent CDO obligations for a fraction of par. As noted earlier, they were able to do so because they had the backing of their regulators. AIGFP, which was unregulated, was on its own. Ever prescient, Goldman never bought credit protection from the monolines.
Goldman did not "own" the cash it held. Rather, the cash represented margin that could, in theory, be returned to AIG if the CDOs' value rose again. Of course, in reality, if you hold the cash you have the upper hand in any negotiation. Also, the way structured finance deals work, if early credit losses are worse than expected, the diminution of value is permanent. The other borrowers in the pool, who never pay more than 100% of their principal and interest, won't make up the difference. Finally, as noted before, the cash collateral for derivatives, like credit default swaps, is very different than the cash collateral for a loan or other obligation. Goldman's claims had preferred treatment, another reason why, once it got its hands on the cash, it held the upper hand in any negotiation.
How Hank Paulson Used Proxies to Rig the Eventual Outcome
One thing is as certain as death and taxes. During 2007 and 2008 Edward Liddy was repeatedly briefed, at length, by Pricewaterhouse and by senior management at Goldman, about the firm's CDO exposure with AIG and about the valuation dispute. If the matter was so important that Goldman's CFO and vice chairman took an active role in negotiating the circumstances for simply attempting to resolve the dispute, then Ed Liddy thoroughly understood the matter and the stakes that were involved. This will all come out when Liddy's briefing books, and other related documentation and correspondence, are obtained by the House Oversight Committee, which is investigating this matter.
Liddy was the Chairman of the Audit Committee on Goldman's Board of Directors. Every audit committee of the board of every publicly held financial institution is briefed in depth about risk concentrations at the firm. There is no way that Pricewaterhouse would leave itself exposed by not thoroughly briefing Liddy about these matters. While it may be a part-time obligation, being Chair of the Audit Committee at Goldman is a very important job. And during one all-important week, Liddy did some moonlighting.
A few minutes after he spoke with Goldman's CEO, Lloyd Blankfein, on September 16, 2008, and shortly after he first considered a government bailout of AIG, Hank Paulson unilaterally decided that Liddy should immediately become AIG's new CEO. Unlike Liddy, AIG's CEO at the time, Bob Willumstad, had relatively clean hands in the CDO saga. Willumstad had been part of AIG's management for about three months, and had joined the AIG board in April 2006, when most of Goldman's toxic CDOs had already been insured by AIG.
That same afternoon, Liddy was on a plane to New York, to start at AIG the next day. Liddy was officially made CEO and Chairman of AIG on September 18. And of course, he immediately immersed himself into negotiating the terms of the government bailout facility, which he signed on September 22. Only on the following day, on September 23, 2008, that Liddy chose to make his resignation from Goldman's board effective.
That was also the week when Paulson spoke to Blankfein 24 times by phone. For further clarification at to why it an innocent explanation of all this is beyond any realm of plausibility, see this earlier piece.
"Who the heck is Dan Jester?" asked Times Opinionator columnist William D. Cohen, who answered his own question last week. Jester was the former Goldman deputy CFO who was plucked by Treasury Secretary Paulson in the summer of 2008 to act as his "contractor," i.e. someone for whom usual formalities pertaining to government accountability would not apply. But Tim Geithner made more calls to Jester, during the fall of 2008, than to any other bona fide Treasury employee, with the exception of Hank Paulson. Cohen writes:
One former A.I.G. executive told me that Jester was calling many of the shots at the insurer between mid-September, when the New York Fed decided to go ahead with the bailout, and the end of October 2008, when Jester was replaced at A.I.G. by another Treasury official because, according to The New York Times, of Jester's "stockholdings in Goldman Sachs." "He was Paulson's man," the former A.I.G. executive told me. "He was the Treasury's representative, and he was at every meeting" during that mid-September weekend.
One of the shots being called during that period was the decision for AIG to hand over $18.7 billion in scarce cash to the CDO counterparties in exchange for zero concessions.
At one point, on the following Monday, Sept. 15, as the A.I.G. situation was spiraling out of control, Jester phoned the three major credit-rating agencies and asked them to hold off from downgrading A.I.G. any further, since that additional downgrade would force the insurer to make even more collateral payments on the spot to counterparties, further depleting its dwindling cash. Jester's efforts weren't persuasive. "It was pathetic," the former A.I.G. executive told me.
There are many people who do not know how to speak forcefully and effectively to the rating agencies, but that group would not include a former deputy CFO from Goldman. It would be somewhat analogous to Katie Couric getting flustered when asked to read a teleprompter. There is no way that the agencies could have been aware of AIG's difficulties and not have been equally aware of their own role in contributing to those difficulties. Nor could they have been unaware that a downgrade would trigger AIG's liquidity crisis. On the same day that the markets were absorbing the shock from the Lehman bankruptcy, if the government asks the agencies to wait just a bit longer to see how the evolving situation plays out with regard to delicate negotiations for a private bank deal to provide new liquidity for AIG, the agencies would ordinarily be inclined to pause for a bit.
For those and other reasons, I believe Jester's feeble performance was deliberate, that the endgame was to trigger a liquidity crisis at AIG in order to force a government bailout, which would be a backdoor bailout of Goldman. The House Oversight Committee should review Jester's public and private emails and phone records to get more clarity on this point.
As Paulson wrote in his new book, "Much of my work was done on the phone, but there is no official record of many of the calls. My phone log has many inaccuracies and omissions." Why would the electronic records of his phone calls be inaccurate, or have any omissions? It's the sort of disclaimer Dick Cheney would give.
Sunday, January 31, 2010
"Because, son, We were born Americans, but in the wrong place."
American by Choice:We Must All Learn What It Means to be an American
Editorial
The Weekly Standard 2007
by: Peter W. Schramm
This week, I am being honored by the United States Citizenship and Immigration Services as an "Outstanding American by Choice." This strikes me as an interesting name for an award. It is meant, of course, to recognize selected citizens who were not born in America. But the idea of being an American by choice points to an important, and perhaps unintended truth: being American is not simply reducible to the happy accident of birth. Americans, both natural and naturalized, must be trained—they must be made—and much of my time these days is devoted to making Americans out of people who just happened to have been born here.
Over fifty years ago, when I was just shy of my tenth birthday, my family fled Hungary during the failed revolution against the Russian Communists. Our family’s story was like so many of the refugees from communism, complete with relatives arrested, property seized, and a nighttime dash to freedom. The decision to escape was an easy one to make (although not so easy to execute), but the question I had—the one I distinctly recall asking my father—was "where are we going." We could have stayed in Europe—and indeed, the Germans would have welcomed us as Volk deutsche because of our German surname—but this was not my father’s plan. "We are going to America," he said. "Why America?" I prodded. "Because, son. We were born Americans, but in the wrong place."
Born Americans, but in the wrong place? I’ve spent the better part of the last fifty years working to more fully understand these words. Mind you, everyone understood America to be a free and good place where one might prosper unmolested. But in saying that we were "born Americans, but in the wrong place," Dad, in his way, was saying that he understood America to be both a place and an idea at the same time. Fundamentally, it is a place that would embrace us if we could prove that we shared in the idea. We meant to prove it.
Because America is more than just a place, being an American citizen is different than being the citizen of any other country on earth. We Americans do not look to the ties of common blood and history for connection as people the way the citizens of other countries do. Rather, our common bond is a shared principle. This is what Lincoln meant when he referred to the "electric cord" in the Declaration of Independence that links all of us together, as though we were "blood of the blood, and flesh of the flesh, of the men who wrote that Declaration."
Because ours is a bond of principle and not of blood, true American citizens are made and not born. This is why, odd as it may seem, we must all learn—those who are born here, and those who come here by choice—what it means to be an American. Regrettably, we are doing a poor job of passing this knowledge on to future generations. Looking to just one practical indicator, the most recent National Assessment of Educational Progress shows that 73 percent of twelfth-graders scored below the proficient level in civics, as did 78 percent of eighth-graders, and 76 percent of fourth-graders. To put this into perspective, 72 percent of eighth graders could not explain the historical purpose of the Declaration of Independence. This ignorance is tragic not merely because it indicates a deficiency in our educational system, but because with it comes a loss of our national identity. And so, I find it somewhat ironic and yet very fitting that fifty years after coming to this great country, I spend my days at an institution where my job is to teach college students and high school teachers what it means to be an American.
In recent weeks, there has been much talk about immigration, but very little informed discussion about what it means to be an American—about what is necessary to make Americans. Yes, there needs to be a sensible policy for accepting new citizens, and for ensuring that those who come here do so legally. But what happens once they are here? I hear frequent conversations about failures in integration and assimilation, even among recent legal immigrants. This is not new. What is new is that America’s own natural citizens increasingly have forgotten what it means to be American. Some do not know the basics principles of this country, and still others have embraced the ideology of multiculturalism and self-loathing to such a degree that they can no longer recognize, let alone proclaim, that ours is a great nation built on lasting principles. If we no longer understand or believe in that which makes us Americans, then there is nothing substantive to assimilate into. We become many and diverse people who share a common place, rather than E Pluribus Unum.
We cannot forget who we are. We are Americans. This is a great nation. We Americans insist on holding to the connection between freedom and justice, courage and moderation. We think that equality and liberty have ethical and political implications, and, as we have shown time-and-again throughout our history, we are willing to fight and to die to make men free. We need to impart these principles to succeeding generations.
We Americans correctly demand respect for our rights but, in getting that respect, we must continue to demonstrate that we continue to deserve it. We have to exercise our intelligence and develop our civic understanding so that we may preserve our liberty and pass it on, undiminished to the next generation. If government "of the people, by the people and for the people" is to endure, its endurance can only come from the devotion of Americans—born here and away—who have been so made.
Peter W. Schramm is the Executive Director of the John M. Ashbrook Center for Public Affairs.
Editorial
The Weekly Standard 2007
by: Peter W. Schramm
This week, I am being honored by the United States Citizenship and Immigration Services as an "Outstanding American by Choice." This strikes me as an interesting name for an award. It is meant, of course, to recognize selected citizens who were not born in America. But the idea of being an American by choice points to an important, and perhaps unintended truth: being American is not simply reducible to the happy accident of birth. Americans, both natural and naturalized, must be trained—they must be made—and much of my time these days is devoted to making Americans out of people who just happened to have been born here.
Over fifty years ago, when I was just shy of my tenth birthday, my family fled Hungary during the failed revolution against the Russian Communists. Our family’s story was like so many of the refugees from communism, complete with relatives arrested, property seized, and a nighttime dash to freedom. The decision to escape was an easy one to make (although not so easy to execute), but the question I had—the one I distinctly recall asking my father—was "where are we going." We could have stayed in Europe—and indeed, the Germans would have welcomed us as Volk deutsche because of our German surname—but this was not my father’s plan. "We are going to America," he said. "Why America?" I prodded. "Because, son. We were born Americans, but in the wrong place."
Born Americans, but in the wrong place? I’ve spent the better part of the last fifty years working to more fully understand these words. Mind you, everyone understood America to be a free and good place where one might prosper unmolested. But in saying that we were "born Americans, but in the wrong place," Dad, in his way, was saying that he understood America to be both a place and an idea at the same time. Fundamentally, it is a place that would embrace us if we could prove that we shared in the idea. We meant to prove it.
Because America is more than just a place, being an American citizen is different than being the citizen of any other country on earth. We Americans do not look to the ties of common blood and history for connection as people the way the citizens of other countries do. Rather, our common bond is a shared principle. This is what Lincoln meant when he referred to the "electric cord" in the Declaration of Independence that links all of us together, as though we were "blood of the blood, and flesh of the flesh, of the men who wrote that Declaration."
Because ours is a bond of principle and not of blood, true American citizens are made and not born. This is why, odd as it may seem, we must all learn—those who are born here, and those who come here by choice—what it means to be an American. Regrettably, we are doing a poor job of passing this knowledge on to future generations. Looking to just one practical indicator, the most recent National Assessment of Educational Progress shows that 73 percent of twelfth-graders scored below the proficient level in civics, as did 78 percent of eighth-graders, and 76 percent of fourth-graders. To put this into perspective, 72 percent of eighth graders could not explain the historical purpose of the Declaration of Independence. This ignorance is tragic not merely because it indicates a deficiency in our educational system, but because with it comes a loss of our national identity. And so, I find it somewhat ironic and yet very fitting that fifty years after coming to this great country, I spend my days at an institution where my job is to teach college students and high school teachers what it means to be an American.
In recent weeks, there has been much talk about immigration, but very little informed discussion about what it means to be an American—about what is necessary to make Americans. Yes, there needs to be a sensible policy for accepting new citizens, and for ensuring that those who come here do so legally. But what happens once they are here? I hear frequent conversations about failures in integration and assimilation, even among recent legal immigrants. This is not new. What is new is that America’s own natural citizens increasingly have forgotten what it means to be American. Some do not know the basics principles of this country, and still others have embraced the ideology of multiculturalism and self-loathing to such a degree that they can no longer recognize, let alone proclaim, that ours is a great nation built on lasting principles. If we no longer understand or believe in that which makes us Americans, then there is nothing substantive to assimilate into. We become many and diverse people who share a common place, rather than E Pluribus Unum.
We cannot forget who we are. We are Americans. This is a great nation. We Americans insist on holding to the connection between freedom and justice, courage and moderation. We think that equality and liberty have ethical and political implications, and, as we have shown time-and-again throughout our history, we are willing to fight and to die to make men free. We need to impart these principles to succeeding generations.
We Americans correctly demand respect for our rights but, in getting that respect, we must continue to demonstrate that we continue to deserve it. We have to exercise our intelligence and develop our civic understanding so that we may preserve our liberty and pass it on, undiminished to the next generation. If government "of the people, by the people and for the people" is to endure, its endurance can only come from the devotion of Americans—born here and away—who have been so made.
Peter W. Schramm is the Executive Director of the John M. Ashbrook Center for Public Affairs.
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