Credit Crisis

I wrote some time ago about the two largest bond insurer’s difficulties in maintaining their AAA rating. I cannot find the post. But today comes news via Bloomberg about the continuing difficulties of one of those companies, AMBAC.

This bit of new info plus my post earlier today kind of makes Bernanke’s remarks yesterday that banks should write down a portion of these sub-prime loans to keep people in their houses kind of weak and lame.

For info: Companies such as AMBAC insure or guarantee bonds such as municipal public works, school construction and that type of multi-million dollar project. If AMBAC loses their AAA rating, the cost of public works projects will increase for municipalities and other governmental entities.

Alt-A Loans – A New Term

As if the sub-prime mortgage mess isn’t putting enough of a drag on the economy, we now find out about Alt-A loans here.

Alt-A loans are defined as

Alt-A loans are made to borrowers with generally strong credit but are loans that lack adequate verification, for instance, of income or assets. The lax paperwork paved the way for aggressive lending to the less creditworthy and emboldened borrowers to exaggerate their financial prowess.

In 2006, $612 billion of Alt-A mortgages were underwritten, according to National Mortgage News, a trade publication, while in 2007, there were an estimated $400 billion.

Pools of these loans are bundled into securities called mortgage bonds and sold to investors. It is these bonds that have lost value in the past month amid heightened concerns around Alt-A loans.

[snip]

“Generally speaking, I do not believe Alt-A credit is any better than subprime,” said Alan Fournier, the managing member of Pennant Capital Management LLC in Chatham, N.J. “The performance of this market doesn’t surprise me, given what’s happening to home prices and credit availability today.”

Where the concern enters the picture is here

The Alt-A market began sliding a year ago as a surprising number of borrowers began to default, but it fell even more dramatically in the fourth quarter of last year. The default rate on these loans has doubled every month for the past 12 months. And as bad as all that sounds, it’s only expected to get worse.

“It’s grim, and it’s going to get grimmer,” said Michael Youngblood, a managing director at FBR Investment Management Inc. in Arlington, Va.

When we add the cumulative effects of the sub-prime mess and the Alt-A debacle that is beginning to unfold, one must wonder how many banks and other mortgage makers are going to fail in the coming months. Countrywide is only the tip of the iceberg.

Everything, Including the Kitchen Sink

Steve Benen has a very astute post about what happened when Clinton decided to throw everything, including the kitchen sink, at Obama:

Hillary Clinton clearly won some impressive victories in Texas, Ohio, and Rhode Island yesterday, but how did she pull it off?

I’ve been thinking the last few days about this piece that ran in the New York Times last Tuesday.

After struggling for months to dent Senator Barack Obama’s candidacy, the campaign of Senator Hillary Rodham Clinton is now unleashing what one Clinton aide called a “kitchen sink” fusillade against Mr. Obama, pursuing five lines of attack since Saturday in hopes of stopping his political momentum.

The effort underscores not only Mrs. Clinton’s recognition that the next round of primaries — in Ohio and Texas on March 4 — are must-win contests for her. It also reflects her advisers’ belief that they can persuade many undecided voters to embrace her at the last minute by finally drawing sharply worded, attention-grabbing contrasts with Mr. Obama.

I was a little skeptical about this strategy. First, Dems at least claim to be turned off by negative campaigning — especially within the party — and Clinton ran the risk of a backlash by launching relentless attacks. Second, I thought the kitchen-sink strategy might be too unfocused. Sometimes, it’s best to focus on a couple key points and hammer away. When one goes on the offensive with 10 areas of attack, the message becomes garbled — the criticism starts to resemble one giant mass of negativity, and people lose track of what it is they’re supposed to be upset about.

But my skepticism proved to be unfounded. The Clinton campaign threw everything they could think of at Obama, and as it turns out, some of it stuck.

The point, Steve goes on to say, is not that Clinton’s wins yesterday were not legitimate (bolds mine):

… Rather, Clinton’s kitchen-sink strategy is a clear explanation of what worked and changed the campaign dynamic over the last week. It’s not even a mystery — one can look at the Ohio polls before the attacks began and after. And in Texas, before and after. Obama had narrowed the gap, and Clinton had seen her double-digit leads disappear. Then she launched the no-holds-barred attacks, and for the first time in the entire campaign, Obama’s numbers slipped. It’s hard to call this a coincidence.

This isn’t a value judgment. If you’re an Obama fan, the argument is, “Clinton couldn’t make an affirmative case for her nomination, so she had to tear Obama down. She’ll do anything to win, even if it hurts the party and helps Republicans.” If you’re a Clinton, the argument is, “We played rough, and it worked. This proves that Clinton is a fighter. Besides, if Obama can’t withstand relentless attacks now, he won’t be able to withstand relentless attacks later.”
[…]
Going forward, there are two angles to keep an eye on. The first is whether Obama, who has been very reluctant to attack Clinton aggressively, sees the results as evidence that negative campaigning works. If trying to focus criticism on the other party is going to lead to primary defeats, Obama may not have a choice but to go after Clinton the way she’s gone after him.

The second is whether Clinton’s kitchen-sink style ends up undermining the party over the long haul.
[…]
My hunch is that yesterday’s results will take the campaign in an increasingly ugly direction. Voters sent a message — people respond well to negative attacks. The consequences for the party will likely be discouraging.

So buckle your seat belts, everyone. It’s going to be a bumpy ride.

Carl Sagan & Cosmos

I am re-reading Cosmos by Carl Sagan. His writing style made complicated science concepts easily understood by the average person. He, along with E. O. Wilson and Stephan Jay Gould are my favorite science authors.

Cosmos was published in 1980. That is 28 years ago. if only we could read an updated, 2008 version.

Mr. Sagan talks about the habitability of planets. Venus is too hot. Mars is too cold. Earth is just right. But he speaks to the conditions that cause a planet to get warm when he says

There is an additional factor that can alter the landscape and the climate of the earth: intelligent life, able to make major environmental changes.

[snip]

The principal energy sources of our present industrialized civilization are the so-called fossil fuels. We burn wood and oil, coal and natural gas and, in the process, release waste gases, principally CO2, into the air. Consequently, the carbon dioxide content of the Earth’s atmosphere is increasing dramatically. The possibility of a runaway greenhouse effect suggests that we have to be careful: Even a one- or two-degree rise in the global temperature can have catastrophic consequences. In the burning of coal and oil and gasoline, we are also putting sulphuric acid into the atmosphere. Like Venus, our stratosphere has a substantial mist of tiny sulphuric acid droplets. Our major cities are polluted with noxious molecules. We do not understand the long-term effect of our course of action.

If scientists thirty years ago understood the problem and the potential for future catastrophe, then the only reason the neo-cons deny it today is political. Short term financial gain for their corporate masters. Hmm-m-m-m, I can visualize a scene where the neo-cons are wearing collars with a leash going back to Big Oil and to Big Pharma.

The Morning After

Clinton is feeling generous this morning:

Sen. Hillary Rodham Clinton hinted at the possibility of a Democratic “dream ticket” with Sen. Barack Obama.

Speaking on “The Early Show” on CBS, Clinton said “that may be where this is headed, but of course we have to decide who is on the top of the ticket.”

Dream on, Hillary:

Despite her primary wins yesterday, Hillary Clinton faces insurmountable odds against having enough convention delegates to win the nomination unless she resorts to destructive backroom arm twisting and dirty dealing to try to get over the top.

While Clinton is right to declare that it’s not over until it’s over, she did recapture some of her base in yesterday’s contests and her showing in Ohio was impressive, it is indeed over. The sooner that she can fashion a graceful exit the better that she, the Democratic Party and those of us already asking hard questions about a Barack Obama-John McCain showdown will be.

That means no more negative ads or funny photos of her opponent wearing native garb. No more moving the goalposts. No more whining about the news media being unfair. No more making excuses for a sclerotic campaign management that thought grassroots organizing was for sissies and seemed to be the last to realize that this was not the year to run like an incumbent.

The turning point in Clinton’s campaign was in the run-up to the South Carolina primary on January 19 when her husband and other race-baiting surrogates unleashed a backlash that reverberated far beyond that state, vividly contrasting the campaigns of a dirty-dealing Washington insider and a fresh-faced outsider.

Clinton cannot afford to stay above the fray now that she has taken away some of Obama’s momentum and we can expect the insider and her helpmate husband to arm twist and dirty deal — which of course is such a big part of what the Bush administration has been all about — in the coming weeks as she tries to stay alive through to the big Pennsylvania primary on April 22. Maybe if things get really ugly the Supreme Court (cough, cough) can decide the nomination.

As it it was, yesterday’s four primaries (and the wacko add-on caucus in Texas) were somewhat anticlimactic because Clinton needed to win big everywhere and did not.

Ben Smith notes the lesson contained in Clinton’s win:

… Attacking Barack Obama directly works. Five days before the primary, she attacked his fitness to serve as Commander in Chief in a television advertisement depicting a late-night crisis at the Whtie House. In the same short period she attacked his credibility on promises to rein in free trade. And she beat him almost two-to-one among voters who decided in the last three days of the race, a group Obama has dominated in past votes.

Obama’s team has noted it, too:

Obama has seen that Clinton scorns his campaign’s insistence that she simply can’t win, and that to win, he’ll need to shove her off the stage.

“We have not hesitated to draw distinctions between the candidates and we’ll continue to do that,” said Obama’s chief strategist, David Axelrod. “If Sen. Clinton wants to take the debate to various places, we’ll join that debate. We’ll do it on our terms and in our own way but if she wants to make issues like ethics and disclosure and law firms and real estate deals and all that stuff issues, as I’ve said before I don’t know why they’d want to go there, but I guess that’s where they’ll take the race.”

Josh Marshall agrees:

A lot’s getting said tonight. And a lot of it is baseless speculation. But the one thing that rings true to me is this: The Clinton campaign got rough and nasty over the last week-plus. And they got results. That may disgust you or it may inspire you with confidence in Hillary’s abilities as a fighter. But wherever you come down on that question is secondary to the fact that that’s how campaign’s work. Opponents get nasty. And what we’ve seen over the last week is nothing compared to what Barack Obama would face this fall if he hangs on and wins the nomination.

So I think the big question is, can he fight back? Can he take this back to Hillary Clinton, demonstrate his ability to take punches and punch back? By this I don’t mean that he’s got to go ballistic on her or go after Bill’s business deals or whatever else her vulnerabilities might be. Candidates fight in different ways and if they’re good candidates in ways that play to their strengths and cohere with their broader message. But he’s got to show he can take this back to Hillary and not get bloodied and battered when an opponent decides to lower the boom. That will obviously determine in a direct sense how he fares in the coming primaries and caucuses. And Obama’s people are dead right when they say, he doesn’t even have to do that well from here on out to end this with a substantial pledged delegate margin.

Which is exactly why, argues Hilzoy, Obama doesn’t need to go there, and should not go there:

I’m glad Obama hasn’t gone there. I expect that if Clinton continues in the race, he might go a bit further towards the negative than he has so far. I think that there are some issues of this kind that it would be quite legitimate for him to bring up. For instance, Obama has not yet made much of Clinton’s refusal to release her tax returns. Personally, I would much rather see every candidate’s tax returns before rather than after the nomination has been decided, and I think this is completely legitimate. Likewise, I would like to see a complete list of the donors to the Clinton library. Topics like these are, I think, fair game. But there are a lot of things that are not. I’m glad Obama hasn’t gone there, and I hope he doesn’t go there in future.
[…]
I hope no one goes there. We don’t need to: Obama is very likely to win whatever Clinton does; besides, it would be needlessly divisive. I am not writing this to say: “Nice reputation you’ve got there, Senator Clinton. Shame if something happened to it …” I do not want this to happen, and I very much hope it doesn’t.

Thought of the Day

Nailing jelly to a tree – this is easier than getting Bush or Cheney to admit they made a mistake – ever.