A Moment of Insight

OK, it just goes to show that anyone can be brilliant some of the time. Bush's first Treasury Secretary Paul O'Neill turned out not be as delusional as the other economic players during Bush II's first term, but he was no shining light. And yet he does offer the world's best one sentence explanation of the spread of the subprime problems into a general financial crisis.

If you have 10 bottles of water, and one bottle had poison in it, and you didn’t know which one, you probably wouldn’t drink out of any of the 10 bottles; that’s basically what we’ve got there.

Glad we straightened that out.

My Favorite Judges

One bit of good news in a bad week for the American middle- and working-classes was the freeing of Iftikhar Mohammed Chaudhry, the Chief Justice who had been deposed and put under house arrest by Pakistan's military dictator aka President Pervez Musharraf. Pakistan's new Prime Minister was behind the move, and it will be interesting to see how this plays out.

Why mention this now, when the American middle-class is trying to get through the financial crisis? Because we won't get through the crisis unless we learn to fight like these guys. Middle-classes of the world - all you economic majorities everywhere - wake the hell up.















Why can't our lawyers be more like these guys?

This Week in American Decline

Everyone was picking through symptoms of the financial crisis this week. The fire sale of bad boy investment bank Bear Stearns got five times more expensive than it was on Friday. The Financial Times reported that the $2 share deal came unglued not just because of Bear Stearns shareholder outrage but because JP Morgan, the buyer, didn't sew up the deal legally. This is not very comforting, given that they are the rescuer here.

Other financial themes persist:

• The economic confidence of middle-class and working folks has been crushed. Floyd Norris has the week's best view of the underlying issues. In terms of overall confidence levels, the last time we were this low was the oil crisis of 1973! He points out it's not just falling housing prices and market volatility that is the problem, but rather the

  evidence that America is no longer a leader, or perhaps even competent, in one area in which we believed it excelled.
  
  That area is finance. Only months ago, American financial institutions were pre-eminent in the world economy. We were the country that invented all the new financial products and that made lots of money from them. It was our investment banks that were called upon to advise companies and governments in other countries, and then to arrange the financing they needed.
  
  Now that reputation lies in tatters. Our big banks have been forced to turn to places like China and Abu Dhabi for capital as losses have mounted. But no similar angel turned up for Bear Stearns, and the Federal Reserve Board had to step in to avert disaster.
  
  The Fed, which only months ago seemed omniscient, now seems to be making it up as it goes along.

• Blind-date investing. Big asset pools remain mystery dinners. What the hell is inside the Bear Stearns asset pool, for example, which in theory among the most scrutinized? Who knows whether it's "really" all worth $2 a share, $10? 5 cents a share? Senators don't know either.
  
• crumbling middle-class dreams. The NYT again discovered the equity crisis and the truly amazing amount of credit on which the trappings of prosperity have come to depend.
  
• Obama sought to occupy working-folks ground with his speech on the financial crisis. Paul Krugman pointed out his proposals are all weaker than Hillary's.
• Help the Top First (and then Stop). The economist Dean Baker pointed out that the Fed guaranteeing nearly all of Bear Stearns's assets bails out the big institutions that hold instruments backed by BS assets. In the same vein, Republican candidate McCain made it clear that he will follow anti-government dogma on the genius of markets and not intervene. Treasury Secretary Paulson also rejected the New Deal quid pro quo: you get government money and support, you get government ground-rules.
• Hail Mary in High-Tech. Motorola hasn't found a product replacement for its smash hit Razr phone. Sales decline. Stock prices fall. Gorilla investor Carl Ichan gets upset. Motorola appeases Ichan by deciding to "split itself into two separate publicly traded companies, spinning off its unprofitable mobile phone unit to investors." Which is stupider - selling your main business, cell phones, instead of fixing it, or thinking that if you brand it a loser investors will buy it? I don't know. I do know the "real economy" folks don't know any more than last year's hedge fund geniuses. I also know that Carl Ichan should retire.
  

Politically, the crisis has continued and not transformed the two-party politics we've seen all decade. Republicans favor the upper brackets, really the top 0.1% and top 1% over even the top 10%. McCain's speech was proof that the best Republican minds see no mounting opposition to this.

Everyone else has to rely on the Democrats. There's an uptick in popular fear and hence popular suspicion of the Republican monopoly-market policies that got us here. But no one calls it that, and the Dems still have 1) too-little-too-late plans and 2) no overall philosophy of "social markets" or something similar that would be truly counter-cyclical and get the economy moving again. So for the moment, both the economy and the political debate are going nowhere.

Meanwhile, "Old Europe" and its apparently backwards social infrastructures (aka welfare states) is doing relatively well, even with the strongest currency in a couple of generations.

The Shadow Banking System

Let me first say what I've had to say before. There is only only one general daily newspaper in the United States that covers business properly, and that is the New York Times. The Wall Street Journal does fine, since it's a business newspaper. The Financial Times does well, but it's also not even from the United States. If you go to your quality regional daily like the Los Angeles Times looking for what you need to know you will not find it. You will learn nothing. If you get your financial news on TV, you are in the financial equivalent of the sixth grade, and I would like to sell you some collateralized debt obligations newly backed by the Fed.

Even the NYT will tell you that the barn door is open only after your money horse is gone. But at least it will help you understand how the door got open. This means that YOU, dear reader, are in serious long term financial trouble. No agency in American society cares about your financial stability, and yet you, who do care, are thanks to our pitiful media likely to stay middle-class stupid.

Luckily knowledge springs eternal. The NYT has a good long account of the financial "monster." They have picked up the term "the shadow banking system." Two of many useful moments:

It is a stealth market that relies on trades conducted by phone between Wall Street dealer desks, away from open securities exchanges. How much changes hands or who holds what is ultimately unknown to analysts, investors and regulators.

Credit rating agencies, which banks paid to grade some of the new products, slapped high ratings on many of them, despite having only a loose familiarity with the quality of the assets behind these instruments.

Even the people running Wall Street firms didn’t really understand what they were buying and selling, says Byron Wien, a 40-year veteran of the stock market who is now the chief investment strategist of Pequot Capital, a hedge fund.

This is the key: the epistemology is shot, the math is shit. They can't run numbers that come out right. How do you restabilize then?

Another useful moment, on how we got here:

A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.

Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December.

Mr. Gramm, now the vice chairman of UBS, the Swiss investment banking giant, was unavailable for comment. (UBS has recently seen its fortunes hammered by ill-considered derivative investments.)

Gramm was an arch-conservative ally of Newt Gingrich and his merry pranksters, haters of government bordering on the sociopathic. Sometimes gov got in the way of raking in the real money like this. Fun for them, while it lasted.

Gretchen Morgenson has a good piece on the credit insurance markets. In addition to the content, it's a good reminder that we still don't know much about how much gaming is still going on. There is no transparency here, really, just endless buyer beware. How do you get trust back out of this?

Same for Ben Stein, the NYT's best Main Street Manhattan Republican. His piece should be called "Time to Panic." He goes on for a bit about how the real economy hasn't been torpedoed by the financial one - yet. But then he says stuff like this:

The task of the hedge funds is to find a weak spot in the market, and to put so much pressure on it that they can move it down, scare other players into selling (with the endless help of guileless journalists), wreak havoc with the markets’ indexes and then create that much more selling. Once the process starts rolling, it’s shooting fish in a barrel.

Just think of what the short sellers did to Bear Stearns. It’s true that Bear Stearns’s fabled risk management was not up to par in its portfolio. But it’s also true that without the hedge fund heavies of great wealth and great gossip beating them to the ground, Bear would surely have “shlepped it through,” as we say. . . .

This is important for two reasons. One, if market manipulators terrify the banks, lending will slow, and the economy will really falter. It won’t be rumor. It will happen.

Second, as the hedge funds change the stock market into a chamber of horrors, the retirement hopes of tens of millions of Americans will be dashed, and the stock market as a place for sensible Americans to place their money for long-term growth will be destroyed.

Actually, the latter happened a while ago. You never hear it first in the NYT, but you do eventually hear it.

Krugman throws out the same term "shadow banking system" today. He also quotes Clinton's Treasury Secretary Robert Rubin on the quid pro quo of new regulation: "If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks." Krugman goes on to say there's no obvious will or insight behind such a move among Democrats, which we should note is partly the result of the the tireless and triumphant deregulation efforts of Dims like Rubin, who turned economic policy over to Wall Street.

Today's most amazing financial story is buried in Bloomberg's Currency news: "For the first time in 13 years, people who trade currencies say confidence in the markets to determine exchange rates is dwindling." Friends, THIS is news.

Half-Way Houses of the Less Than Blind

I can't remember a time in my life of watching politics - going back to Nixon and Watergate - when so many people called a campaign speech one of the best in American history (Samantha Power, in a talk in Santa Barbara), or one of the best ever on race (Orlando Patterson) or one of the best in post-war history (Frank Rich). The reference is of course to Barak Obama's race speech in Philadelphia last week, and at the moment Obama is the king of the kingdom of racial healing and the king of the kingdom of political candor.

Of course in the US both of these kingdoms are kingdoms of the blind (see this ignorant, backward lead piece in the New York Times today). To rule them Obama need only have one eye. In the first, he need only admit both racial anger and racial mixed feelings, both of which have been denied in US political life. Thus he referred to his white grandmother both loving her African grandson above all things in the world, while admitting she was often afraid when she saw black men on the street. We must admit the feelings and the racial programming, Obama said. In the second kingdom, US politics is ruled by lying buzzwords that deny the emotional fabric of people's everyday life. See Obama's example of disagreeing with and yet loving his pastor, Jeremiah Wright, or his acknowledgement that he has been called both too black and not black enough, or his descriptions of the white resentment over their economic stuckness that both wrongly scapegoats black folks and yet is real and must be addressed.

The most appealing moment of the speech came toward the end, when he point-blank blasted the dissociative, the denial-based understructure of American political life.

We can pounce on some gaffe by a Hillary supporter as evidence that she's playing the race card, or we can speculate on whether white men will all flock to John McCain in the general election regardless of his policies.

We can do that.

But if we do, I can tell you that in the next election, we'll be talking about some other distraction. And then another one. And then another one. And nothing will change.

That is one option. Or, at this moment, in this election, we can come together and say, "Not this time." This time, we want to talk about the crumbling schools that are stealing the future of black children and white children and Asian children and Hispanic children and Native American children. This time, we want to reject the cynicism that tells us that these kids can't learn; that those kids who don't look like us are somebody else's problem. The children of America are not those kids, they are our kids, and we will not let them fall behind in a 21st century economy. Not this time.

Obama named the corrosive source of American political stupidity - the mass refusal to face real sources of our problems. He did so in multiracial terms. He thus also rejected the politics of racial stigmatization. And he rejected the politics of group repudiation. These have been the twin pillars of right-wing rule for thirty years. Obama the two-eyed man - the one who would actually win both the nomination and the election - is the one that can tap these vast emotional reservoirs where lie mixed feelings and hence the capacity to negotiate with the other sides, including the other sides of oneself. Were this to happen, it would mean the sidelining of the authoritarian tendency in American political life, a tendency that has allowed conservatives to rule with ideas that, by any measure, have consistently and routinely failed.

Obama's political intelligence rests in his ability to offer Americans - especially whites - a political and a racial half-way house. The political half-way house appears in moments like this one: Why associate myself with Reverend Wright in the first place, they may ask? Why not join another church? And I confess that if all that I knew of Reverend Wright were the snippets of those sermons that have run in an endless loop on the television sets and YouTube, or if Trinity United Church of Christ conformed to the caricatures being peddled by some commentators, there is no doubt that I would react in much the same way.

But the truth is, that isn't all that I know of the man.

Obama says it's OK for you to reject the anti-white moments of this anti-racist preacher, one who may remind you of Malcolm X, or at least Radio Raheem in Do the Right Thing, since he, a black member of this black congregation would feel just as you do - IF he didn't know what he knows. So Obama relieves the white repudiation of black radicalism of its guilt and shame, and at the same time says look again. American politics without shame would be a revolution indeed - it would end the Right's power as we have known it.

Unfortunately, Americans in their political life move too easily from relief to innocence. Obama held out this temptation too by orienting his major race speech around a repudiation of the core beliefs of Jeremiah Wright, as in this unpleasant passage.

But the remarks that have caused this recent firestorm weren't simply controversial. They weren't simply a religious leader's efforts to speak out against perceived injustice. Instead, they expressed a profoundly distorted view of this country — a view that sees white racism as endemic, and that elevates what is wrong with America above all that we know is right with America; a view that sees the conflicts in the Middle East as rooted primarily in the actions of stalwart allies like Israel, instead of emanating from the perverse and hateful ideologies of radical Islam.

As such, Reverend Wright's comments were not only wrong but divisive, divisive at a time when we need unity; racially charged at a time when we need to come together to solve a set of monumental problems — two wars, a terrorist threat, a falling economy, a chronic health care crisis and potentially devastating climate change — problems that are neither black or white or Latino or Asian, but rather problems that confront us all.

In this speech Obama criticizes Rev. Wright again and again. It starts to feel like his version of Bill Clinton's Sister Soljah moment in 1992, when he showed how he could talk to and about black radicals as though they were misbehaving ghetto schoolkids. Obama relapsed into the language of racial scapegoating, using the particularly insidious updating that links anti-white "racism" to anti-Israeli "anti-semitism." In both cases, the vast majority of criticism of white racism and of Israeli policies are critics of the specific outlooks and actions of those parties, not of some essence of evil (whites as essentially racist, Israel = Jews = anti-Arab). Here weakened his "candor" with falsehood. We of course all do this - find freedom of thought in one area and bondage to received ideas on the other. But he blanketed with innocence one of the key Obamablindnesses of American domestic policy (that things are terrible for many if not most black folks today, and that white racism persists), and one of the blindnesses of American foreign policy - the obvious absence of fairness and evenhandedness and respect for popular Arab democracy. Both leave him open to manipulation by Hillary Clinton and John McCain alike. As he knows better than any other current politician, it is the lie that will leave him open to defeat.

Bailout Bleakness

The colossus of stupidity straddles the earth. Click on Tom Tomorrow to read pretty much all you need to know about the Iraq-war torpedo that blew one of the big holes in the U.S.S. Economy. There's more nicely-condensed detail in a London Review of Books piece I've borrowed. See also the special burden for California, calculated by Joseph Stiglitz.

Key sentences from elsewhere:

Krugman on how it's 1929:

The financial crisis currently under way is basically an updated version of the wave of bank runs that swept the nation three generations ago. People aren’t pulling cash out of banks to put it in their mattresses — but they’re doing the modern equivalent, pulling their money out of the shadow banking system and putting it into Treasury bills.

Dean Baker on how the bank bailout is like pretending play money is real:

The Fed . . .. announced that it would lend $200 billion to banks and other financial firms, accepting mortgage backed securities as collateral. This is effectively the same as saying that the Fed is going to lend money to banks and accept the counterfeit currency as collateral, treating it just as though it were real money.

Japan's "Mr. Yen" of the 1990s, Eisuke Sakakibara, on how the US today is like Japan on the verge of its financial collapse:

Japan's long stagnation began as non-performing asset problems in the mortgage sector. Japanese financial turmoil in the '90s started in the mortgage sector and spread to commercial banks and security firms. This is pretty much what is happening in the U.S.

Wanna give lots of public money to the richest folks on earth, most of them hostile to public funding of everything else? Hell no. As Sakakibara puts it, people "simply don't like the banks. They are the institution that lends you an umbrella when the weather's fine and won't lend it to you when it's raining."

Should we give lots of money to the financial system to keep it going? Sakakibara says yes - tons of money, right away, early and often. On the power of generosity, I agree. But we should do this only on the condition that the money aims at general assistance and social development - help for rent and later purchase for regular people losing their houses, money for the general rebuilding of a public infrastructure hollowed out by years of right-wing attacks on government from the financial folks who want a lot of help when they need it. They should be helped: only if they agree that help in general is a good thing. They should be helped only if they agree to shut the hell up, for many years, about what an incompetent burden government is, especially compared to brilliant them.

Floyd Norris tells you as much as you want to know about Bear Stearns's stock price and about the Fed's selective bailouts: Thornburg Mortgage of Santa Fe, NM, is apparently not important enough to rescue. Norris's key sentences about Thornburg's new junk it's trying to sell almost for free: hornburg’s longtime strategy was to borrow at low rates to finance mortgage securities paying higher rates. Now it will pay 12 percent to help support securities paying a much lower rate of interest.

That is the catch of leverage. If Thornburg could borrow at a low rate, it might well survive long enough for it to find out if the mortgage securities are worth more than their current market price. But if it must pay high rates, it may not last long enough to be proved right. If a company’s credit is weak, it must pay more. But paying more makes it weaker still, and justifies an even higher interest rate.

That is a story that may be repeated many times this year as highly leveraged companies deal with the combination of recession and unfriendly credit markets.

In this spectacle of fear and loathing, where do public or developmental values come in? In rejecting the effects of fear and punishment created by the Fed's half measures, and picturing the benefits of the full ones.

In the world of partial steps of the kind Eisuke Sakakibara says we should avoid, we are still forced to end Friday with this happy thought: by the time you read about adverse economic conditions in the newspaper, your money's already gone.

Gee Sorry

This morning there's a good blow-by-blow of the demise of Bear Stearns, and also some better numbers about the extreme haircuts administered to Bear Stearns principals and executives when the firm was forced to sell itself to JP Morgan for the laughable price of $2 a share.

For example, take Bear Stearns chairman James E. Cayne. "A billionaire just over a year ago when Bear’s stock soared past $160, his 5.8 million shares are now worth about $28 million at Monday’s closing price of $4.81."

"Bear executives were not big stock sellers, and their shrunken net worth has spread a viral resentment throughout the firm as employees of all ranks contemplate their reduced circumstances and search for scapegoats." "Shrunken" is a euphemism here for "crumbled into dust." As in, the birds were singing and people were calling out prices in the Baghdad bird market, and then the bomb went off. 79 were killed.

Bear Stearns was a shark that even the other sharks found too sharkish. So dry your tears. But where are the corporate lench mobs, heading for the smiling ninnies in this picture?


Fake a little concern, W - it would look "presidential."

Naturally the only man not smiling in this picture is the chairman of the Federal Reserve.

The Blood Runs Everywhere

Happy 5th anniversary of the invasion of Iraq - not. I feel the same way I did last Memorial Day. only worse. Inertia is its own momentum. Repeated anger is a form of doom. We do nothing and nothing changes.

The best wrap-up of where we are now comes from outside the US of course, from Patrick Cockburn, who explains why the carnage has dropped and why it's not overall good news.

I was in Paris in December 1998 when Bill Clinton launched Operation Desert Fox, bombing Iraq for several days between December 16 and 19. On December 19, Clinton was impeached - for perjury and obstruction of justice in the investigation of his sexual relation with Monica Lewinsky. Some thought the bombing was a diversion from the impeachment charges. I read an editorial in a French newspaper about Clinton's bombing that began, "It was the most lethal blowjob in world history."

Today is the last day of Eliot Spitzer's governorship. He got cleaned out in about 48 hours. I think the stories only scratch the surface - that he was paying for hookers since college, and went after prostitution rings that he used. Just guessing. But here's the real point: he didn't kill anybody. And he didn't take thousands of people out on his way down. The obvious contrast appeared in French coverage but not here: Spitzer the money-laundering john is gone. The Iraq invader who deliberately commits war crimes is still around. Maureen Dowd is mad - but what's the use?

The big difference between 2007 and 2008 is money: bloody losses, and lots of them. The Fed put up $200 billion six days ago and offered to take any worthless crap a desperate bank still owned as collateral, or words to that effect. It guaranteed $30 billion over the weekend so JP Morgan would touch Bear Stearns with a 10-foot bowl and then buy it - for $2 a share. Bear Stearns stock was aroud $160 a year ago. Then it lost half its value by the end of fiscal year 2007, in November. Now it's down to $2. These are the crash numbers of 1929.

Was Bear Stearns the biggest, meaning the worst is over? No. Merrill Lynch's declared losses are so far $24.5 billion, Citigroup's$22.5 billion, UBS $18.1 billion, and so on. Bear Stearns was number 20. Imagine how rotten its assets are - to people who can make a professional guess at what's in them - if in 4 months they went from $80 to $2.

The world looked at the Federal Reserve tugboat with Bear Stearns in tow and jumped into the water. The best global resume was in Le Monde.

Les bourses de Paris et de Londres sont retombées à leur niveau de novembre 2005, l'indice parisien chutant de 3,51% et Londres de 3,86%. La Bourse de Francfort perdait de son côté 4,18%.

La Bourse suisse baissait également de 5,02%, Stockholm de 4,07%, Amsterdam de 3,79%, Milan de 3,39% et Madrid de 2,81%.

Quant à l'indice Eurostoxx 50, qui regroupe 50 des plus importantes valeurs européennes, il reculait de 3,78%.

Au total, depuis le début de l'année, les Bourses de Francfort, Paris, Milan et suisse ont perdu plus de 20%.

Les places asiatiques n'ont pas été épargnées, l'indice Hang Seng de la Bourse de Hong Kong clôturant en chute de 5,18% et la Bourse de Shanghai de 3,6%. Celle de Tokyo, dégringolant de 3,71%, est tombée sous la barre symbolique des 12.000 points pour la première fois depuis plus de deux ans et demi. Quant à la Bourse de Bombay, elle a chuté de 6,03% à la clôture.

You don't need to read French to see which way the wind is blowing.

The only good news is the end of the fantasy that the U.S. can do any stupid thing it wants and just pile up more money. The Fed is already trying to act like an actual government. The rest of an actual public response will eventually follow. Maybe before we're all broke.

And then here are the Financial Times' headlines for tomorrow:

Scramble to calm markets
Bankers and regulators scrambled to shore up confidence in financial markets as the sudden collapse of Bear Stearns heightened fears that the credit crunch would claim more victims -
Few investors escape shockwaves
Pain expected for investors large and small
Shares plunge as market begins repricing
Lehman, UBS and other banks hit
Chaos echoes fears of worst case scenario
Cause was not predicted but many effects have been
Practised hands capture the prize
Latest deal to capitalise on rival’s collapse
Experts speculate on unorthodox measures
Expands role as lender of last resort
Bankers wonder who will be next
Comparisons to crash of 1929
Fears of cross-border European crisis grow
Questions about Europe’s readiness for crisis
Wall Street quakes as the parade passes by
‘It’s like a funeral’ inside Bear Stearns HQ
Bear Stearns: Winners and losers
Cayne, Lewis and staff all caught short

The Anger Comes - When?

Friday offered a frenzy of bad economic news, starting with worse- than -expected negative job growth and moving on to the usual combination more decline in the dollar, another loss for the stock market, and another rise in oil prices. David Leonhardt rubbed it in with a good piece about how the new recession started before most Americans had gotten back zero from the last recession six years ago. The annoying headlines juxtaposed economic decline to boardroom stupidity and greed: "3 Executives Under Fire on Exit Pay" (below) was next to "Tough Times Arrive for Buyout Specialists."

The only good news is that economic coverage is starting to improve.

Congress is worried enough to start looking for people to blame. It compelled some rich CEOs to testify yesterday, and the NYT's coverage had some nice detail of an angry aside or two. Several of the CEOs netted over a hundred million dollars in personal income after resigning over huge losses on sub-par loans wrapped up in various murky investment vehicles. Here's part of yesterday's lineup:

From the left, this is Charles Price, former CEO of Citigroup (retaining $110 million on $20 billion in losses); Richard D. Parsons, head of Time Warner and a Citigroup director involved in the collosal platinum parachute that slowed Price's fall from his lofty perch; Stanley O'Neal, former CEO of Merrill Lynch (retaining $161 million - plus $70 m over the previous four years - on $10.3 billion in losses so far); John Finnegan, a Merrill director; Angelo Mozilo, formerly of Countrywide Financial, who earned $410 million over the previous 8 years while running the institution at the center of the subprime crisis; and Harley W. Snyder, head of Countrywide's compensation committee.

The Committee on Oversight and Investigations is chaired by L.A.'s Henry Waxman . He's mad as hell. He out the obvious fact these guys play by different rules from the rest of us. They not only make in one year what the median family earns in 100 years (not Waxman's numbers) but make it even when they fail. Waxman asked Finnegan, the head of Merrill's compensation committee, why they didn't fire O'Neal "for cause" for losing 10 billion, thus costing O'Neal his $131 million. "Mr. Finnegan said cause involved unethical behavior, not bad judgment. Mr. Waxman retorted: 'to say you don't have the tools, it means that even if someone performas badly there are no consequences.'" Exactly: there is no accountability for performance at the top.

Waxman concluded, "It seems like everyone is hurting except for you." And he said tha this compensation may "represent a complete disconnect with reality."

That's what strikes me the most about all this. Much of the 2000s wealth came from various kinds of speculative investments that depended on other people's believe that the value of your asset would go up indefinitely: your house, your asset-backed security, whatever. Manufacturing accounts for less that 10 percent of US output, and finance for close to 40 percent. Why did the leaders of this financial world, who made up the instruments, think it was real? I can only assume because they were getting super-rich by thinking that.

The other question I keep asking is not why people aren't angry - they are - but why they can't focus it on the right targets.

I ask this because regular folks and their communities need to claw back resources from the great siphoners who have drilled a thousand wells sideways into every one of the country's pools of money. Most workers haven't gotten a raise in real dollars for thirty years. Even families (which include new entrants to the workforce, mostly women) haven't seen improvement since the Clinton administration. Our public systems - health and education and transportation - gets worse all the time, and in terms of low-income healthcare and traffic problems for everybody are literally sucking the life out of people.

But I also ask it because the current finance-driven "market" system has gone as far as it can go - into the fabrication of investment vehicles that rest on the buyer's pure faith rather than any value created. Nothing will improve until the other voices get back into the game, with all their better ideas for how to run things.

Goodbye Paris

It wasn't easy getting back to Santa Barbara from France. The little pieces of the corporate world don't really mesh that well. This is especially true of the pieces that connect to other corporate worlds in other countries. Trying to get Air France to book our bags onto United Airlines for the hop from LAX to Santa Barbara took at least half-an-hour of standing at the counter with this very nice young man who wanted to help. How long would it have taken if he didn't?

The flight was great because so many seats were empty. Coach was always bearable when no one showed up, and you could dump all your crap in the seat next to you. I got a huge amount of research work done because I couldn't check my email to find messages on the UC budget meltdown irritating enough to require a response. It was a nice trip, floating over an increasingly wet-looking polar ice cap - until we landed at LAX.

We had to go from terminal 2 to terminal 7, found a nice supervisor to give us the boarding pass to the United flight that Air France couldn't, got on the little jumper and took off only a half a hour late. It was a beautiful mid-afternoon off the Southern California shore - so much nicer than the city itself which I grew in but do not miss. It was 1 am for me Paris time so I dozed and then woke up to see the Goleta coast below us - trucks crawling on highway 101, the temporarily florescent-green coastal hills, and then El Capitan, and up there Gaviota. Suddenly I realized we'd gone too far north! Everyone was reading or sleeping, and as we drifted along in the sunlight I thought oh, so we've been hijacked. And laughed. And then thought that wouldn't be so bad, doomed to buzz along like this inside of our giant silver bee above the sunny shoreline water and the empty hills.

Then the pilot came on to say that a fog back had rolled in. We couldn't land in Santa Barbara. We had to fly all the way back to Los Angeles, which is what we did. And that meant crossing the whole LA basin, with its dirty pastel circuit-board of streets and one-story houses stretching without end unless here and there interrupted by the large rectangles of industrial buildings. There are plenty of swimming pools but hardly in the whole dry basin a square of grass. We landed back in the coastal fog. We sat on the plane. Two passengers used their cellphones to rent cars or get SB Airbus reservations and they were gone in 60 seconds.

A customer service guy came on, and his charm lasted about the same amount of time. But he did have some good news: the pilot was going to take us back to SB. There was a 95 percent chance that this time we were going to land. On the other hand, he said, if we didn't land he'd fly on to San Francisco and put us on a (6 hour) bus back to SB from there.

I was having my usual dark thoughts about United right then. There was no way they could do anything flexible like land at Santa Maria and put us on a 60 minute bus back to SB. There was no way they could do anything nonpunitive like say let's try a second time and then we'll take you back here for a bus from LA. There was no way they could actually commit themselves and say we'll get in this time, let's go, period. 95 percent sounded like a fake number, and we'd already failed to land when everyone assumed the odds were 100 percent.

So who else got off? Here we are at the counter:

There were two sisters in their 30s whom I'd noticed in the airport bar because of their non-identical matching jeans, boots, tattoos, and walking-around impatience that was equal to ours. One told us she had a friend who worked at the SB airport and the fog had rolled in again. We got up and followed the Blackberry twin. Two Brits sitting next to us got off too; they were doing a documentary for the Discovery channel on brain evolution - obviously had to go a long way to find any evidence for it - had just come from Australia, had discovered United had lost one of their equipment bags, had an 8 am UCSB shoot about the topic, and couldn't still be on the bus from SB having breakfast in Pismo Beach when the time rolled around. Finally, a German woman visiting her uncle came with us too - all the long haul folks, the SB twins having come from some fashion shoot in New York.

I sat in the back of the supershuttle with the twins. We crawled up the westside 405 for an hour or so. Welcome to LA I said to the middle row, British and German, who sooner or later managed to fall asleep. Avery tried every once in a while to get the semi-deaf shuttle driver to agree to stop at the Radisson but he never would. Looks like he's using his disability as an excuse to give us rock-bottom service, I said to the twins. Does he work for United? The one sitting next to me laughed and smacked me. Looking around past Sunset I said it's great to have a whole new audience for the comment I always make after coming back from Europe: in a 100 miles stretch through some of the richest areas in the world, you can't find a single building you'd want to look at. - The Bonaventure, the other twin suggested? - that's downtown, doesn't count! And on we went like that, with stories of war movies, restaurants that opened and closed, and what it was like to grow up in Santa Barbara and have to leave.

It's nice to be back in Santa Barbara, since I don't expect more from it than the mountains and the ocean and my friends. I hope to see them soon. The sun comes in the yellow kitchen in the back of the house, and shines in the breakfast room all day long. I looked around remembering what it was like when we first bought it, and how Mrs. Cavaletto spent most of her time in the breakfast room because of the light. Avery has all our stuff out of the garage and back in the house in two hours or so. I spend the morning getting the old cars going again. Gas price booms has made one of our junkers valuable. Triple A asks me what color is it, I say can't tell any more. Tow truck driver says, now it's a "gas saver," you should hang onto this. On the second day we drove back to LA, to the 24th St theater downtown were Avery gave a talk at our friend David Lloyd's play reading. We were back up here by midnight again. Spring has started - the pear trees have already gone from blossom to leaf. The trick will be to stay happy with the things that really are here.